<PAGE> 1
AIM HIGH YIELD FUND II
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AIM High Yield Fund II seeks to achieve a high level of current income.
PROSPECTUS --Registered Trademark--
NOVEMBER 29, 1999
This prospectus contains important
information about Class A, B and C shares
of the fund. Please read it before
investing and keep it for future reference.
As with all other mutual fund securities,
the Securities and Exchange Commission has
not approved or disapproved these
securities or determined whether the
information in this prospectus is adequate
or accurate. Anyone who tells you otherwise
is committing a crime.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE
-- Registered Trademark --
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AIM HIGH YIELD FUND II
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TABLE OF CONTENTS
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<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE
FUND 1
- - - - - - - - - - - - - - - - - - - - - - - - -
FEE TABLE AND EXPENSE EXAMPLE 2
- - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 2
Expense Example 2
FUND MANAGEMENT 3
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisor 3
Advisor Compensation 3
Portfolio Managers 3
OTHER INFORMATION 3
- - - - - - - - - - - - - - - - - - - - - - - - -
Sales Charges 3
Dividends and Distributions 3
FINANCIAL HIGHLIGHTS 4
- - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - -
Choosing a Share Class A-1
Purchasing Shares A-3
Redeeming Shares A-4
Exchanging Shares A-6
Pricing of Shares A-8
Taxes A-8
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com,
Invest with Discipline, La Familia AIM de Fondos and La Familia AIM de Fondos
and Design are registered service marks and AIM Bank Connection, AIM Funds, AIM
Funds and Design, AIM Internet Connect and AIM Investor are a service marks of
A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 3
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AIM HIGH YIELD FUND II
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INVESTMENT OBJECTIVE AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's investment objective is to achieve a high level of current income by
investing primarily in publicly traded non-investment grade debt securities.
The fund seeks to meet this objective by investing at least 80% of the value
of the fund's total assets in non-investment grade debt securities, i.e., "junk
bonds." The fund will invest principally in junk bonds rated B or above by
Moody's Investors Service, Inc. or Standard & Poor's Rating Services, or those
deemed by the portfolio managers to be of comparable quality. The fund will
invest at least 80% of the value of the fund's total assets in debt securities,
including convertible debt securities and/or cash or cash equivalents. The fund
may invest up to 15% of the value of its total assets in equity securities. The
fund also may invest up to 25% of its total assets in foreign securities,
including up to 10% of the fund's total assets in securities of issuers located
in developing markets, i.e., those that are in the initial stages of their
industrial cycles.
Although the portfolio managers focus on debt securities that they believe
have favorable prospects for high current income, they also consider the
possibility of capital growth. The portfolio managers consider whether to sell a
particular security when any of those factors materially changes.
In anticipation of or in response to adverse market conditions, for cash
management purposes, or for defensive purposes, the fund may temporarily hold
all or a portion of its assets in cash, money market instruments, affiliated
money market funds, bonds or other debt securities. As a result, the fund may
not achieve its investment objective.
The fund may engage in active and frequent trading of portfolio securities to
achieve its investment objective. If the fund does trade in this way, it may
incur increased transaction costs, which can lower the actual return on your
investment. Active trading may also increase short-term gains and losses, which
may affect the taxes you have to pay.
PRINCIPAL RISKS OF INVESTING IN THE FUND
- --------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund and that the income you may receive from your investment may vary. The
value of your investment in the fund will go up and down with the prices of the
securities in which the fund invests. Debt securities are particularly
vulnerable to credit risk and interest rate fluctuations. Interest rate
increases can cause the price of a debt security to decrease; junk bonds are
less sensitive to this risk than are higher-quality bonds. The prices of
equity securities change in response to many factors, including the historical
and prospective earnings of the issuer, the value of its assets, general
economic conditions, interest rates, investor perceptions and market liquidity.
Compared to higher-quality debt securities, junk bonds involve greater risk of
default or price changes due to changes in the credit quality of the issuer
because they are generally unsecured and may be subordinated to other creditors'
claims. The value of junk bonds often fluctuates in response to company,
political or economic developments and can decline significantly over short
periods of time or during periods of general or regional economic difficulty.
During those times, the bonds could be difficult to value or to sell at a fair
price. Credit ratings on junk bonds do not necessarily reflect their actual
market risk.
Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, the relative lack of information about issuers,
relatively low market liquidity and the potential lack of strict financial and
accounting controls and standards.
The value of your shares could be adversely affected if the computer systems
used by the fund's investment advisor and the fund's other service providers are
unable to distinguish the year 2000 from the year 1900.
The fund's investment advisor and independent technology consultants, are
working to avoid year 2000-related problems in its systems and to obtain
assurances that the other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the fund invests.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
1
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AIM HIGH YIELD FUND II
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FEE TABLE AND EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) CLASS A CLASS B CLASS C
- -------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 4.75% None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever
is less) None(1) 5.00% 1.00%
- -------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES(2)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets) CLASS A CLASS B CLASS C
- -------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees 0.50% 0.50% 0.50%
Distribution and/or
Service (12b-1) Fees 0.25 1.00 1.00
Other Expenses 0.83 0.83 0.83
Total Annual Fund
Operating Expenses 1.58 2.33 2.33
Fee Waiver(3) 0.58 0.58 0.58
Net Expenses 1.00 1.75 1.75
- -------------------------------------------------------
</TABLE>
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1% contingent
deferred sales charge (CDSC) at the time of redemption.
(2) The fees and expenses set forth in this table are based on actual expenses
for the fiscal period ended July 31, 1999, as adjusted for current fee
waivers.
(3) The investment advisor has contractually agreed to waive a portion of its
fees.
As a result of 12b-1 fees, long-term shareholders in the fund may pay more than
the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's gross operating expenses remain the same. To the extent fees are waived,
the expenses will be lower. Although your actual returns and costs may be higher
or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------
<S> <C> <C> <C> <C>
Class A $628 $ 950 $1,295 $2,264
Class B 736 1,027 1,445 2,479
Class C 336 727 1,245 2,666
- ----------------------------------------------
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------
<S> <C> <C> <C> <C>
Class A $628 $950 $1,295 $2,264
Class B 236 727 1,245 2,479
Class C 236 727 1,245 2,666
- ----------------------------------------------
</TABLE>
2
<PAGE> 5
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AIM HIGH YIELD FUND II
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FUND MANAGEMENT
- --------------------------------------------------------------------------------
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor and
is responsible for its day-to-day management. The advisor is located at 11
Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The advisor supervises all
aspects of the fund's operations and provides investment advisory services to
the fund, including obtaining and evaluating economic, statistical and financial
information to formulate and implement investment programs for the fund.
The advisor has acted as an investment advisor since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 125
investment portfolios, including the fund, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fiscal period ended July 31, 1999, the advisor received compensation
of 0.71% of average daily net assets, consisting of a management fee of 0.50%
and an administrative fee of 0.21%.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual
members of the team who are primarily responsible for the day-to-day management
of the fund's portfolio, all of whom are officers of A I M Capital Management,
Inc., a wholly owned subsidiary of the advisor, are
- - John L. Pessarra, Senior Portfolio Manager, who has been responsible for the
fund since 1998 and has been associated with the advisor and/or its affiliates
since 1990.
- - Kevin E. Rogers, Senior Portfolio Manager, who has been responsible for the
fund since 1998 and has been associated with the advisor and/or its affiliates
since 1991.
OTHER INFORMATION
- --------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM High Yield Fund II are subject to the maximum
4.75% initial sales charge as listed under the heading "CATEGORY II Initial
Sales Charges" in the "Shareholder Information--Choosing a Share Class" section
of this prospectus. Purchases of Class B and Class C shares are subject to the
contingent deferred sales charges listed in that section.
DIVIDENDS AND DISTRIBUTIONS
The fund expects that its distributions will consist primarily of ordinary
income.
DIVIDENDS
The fund generally declares dividends daily and pays dividends, if any, monthly.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains (including
any net gains from foreign currency transactions), if any, annually.
3
<PAGE> 6
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AIM HIGH YIELD FUND II
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FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
This information has been audited by KPMG LLP, whose report, along with the
fund's financial statements, is included in the fund's annual report, which is
available upon request.
<TABLE>
<CAPTION>
CLASS A
---------------------------------
FOR THE PERIOD
SEPTEMBER 30, 1998
THROUGH JULY 31, 1999
- -----------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $ 10.00
Income from investment operations:
Net investment income 0.90
Net gains on securities (both realized and
unrealized) 1.26
Total from investment operations 2.16
Less distributions:
Dividends from net investment income (0.90)
Distributions from net realized gains (0.01)
Total distributions (0.91)
Net asset value, end of period $ 11.25
Total return(a) 22.39%
- -----------------------------------------------------------------------------------
Ratios/supplemental data:
- -----------------------------------------------------------------------------------
Net assets, end of period (000s omitted) $34,992
Ratio of expenses to average net assets(b)
Including waivers and reimbursement 1.00%
Excluding waivers and reimbursement 1.58%
Ratio of net investment income to average net
assets(b)(c) 9.74%
Portfolio turnover rate 223%
- -----------------------------------------------------------------------------------
</TABLE>
(a) Does not deduct sales charges and is not annualized for periods less than
one year.
(b) Ratios are annualized and based on average net assets of $20,791,446.
(c) After fee waivers and/or expense reimbursements. Ratio of net investment
income to average net assets prior to fee waivers and/or expense
reimbursement was 9.14% (annualized).
4
<PAGE> 7
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AIM HIGH YIELD FUND II
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FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B
---------------------------------
FOR THE PERIOD
NOVEMBER 20, 1998
THROUGH JULY 31, 1999
- ----------------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $ 10.59
Income from investment operations:
Net investment income 0.68
Net gains on securities
(both realized and unrealized) 0.65
Total from investment operations 1.33
Less distributions:
Dividends from net investment income (0.68)
Distributions from net realized gains (0.01)
Total distributions (0.69)
Net asset value, end of period $ 11.23
Total return(a) 13.03%
- ----------------------------------------------------------------------------------------
Ratios/supplemental data:
- ----------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) $20,994
Ratio of expenses to average net assets(b)
Including waivers and reimbursement 1.75%
Excluding waivers and reimbursement 2.33%
Ratio of net investment income to average net
assets(b)(c) 8.99%
Portfolio turnover rate 223%
- ----------------------------------------------------------------------------------------
</TABLE>
(a) Does not deduct sales charges and is not annualized for periods less than
one year.
(b) Ratios are annualized and based on average net assets of $7,499,236.
(c) After fee waivers and/or expense reimbursements. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 8.39% (annualized).
<TABLE>
<CAPTION>
CLASS C
---------------------------------
FOR THE PERIOD
NOVEMBER 20, 1998
THROUGH JULY 31, 1999
- ----------------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $ 10.59
Income from investment operations:
Net investment income 0.68
Net gains on securities (both realized and unrealized) 0.64
Total from investment operations 1.32
Less distributions:
Dividends from net investment income (0.68)
Distributions from net realized gains (0.01)
Total distributions (0.69)
Net asset value, end of period $ 11.22
Total return(a) 12.93%
- ----------------------------------------------------------------------------------------
Ratios/supplemental data:
- ----------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) $ 3,139
Ratio of expenses to average net assets(b)
Including waivers and reimbursement 1.75%
Excluding waivers and reimbursement 2.33%
Ratio of net investment income to average net
assets(b)(c) 8.99%
Portfolio turnover rate 233%
- ----------------------------------------------------------------------------------------
</TABLE>
(a) Does not deduct sales charges and is not annualized for periods less than
one year.
(b) Ratios are annualized and based on average net assets of $1,201,066.
(c) After fee waivers and/or expense reimbursements. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 8.39% (annualized).
5
<PAGE> 8
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THE AIM FUNDS
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SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
In addition to the fund, A I M Advisors, Inc. serves as investment advisor to
many other mutual funds (the AIM Funds). The following information is about all
the AIM Funds.
CHOOSING A SHARE CLASS
Many of the AIM Funds have multiple classes of shares, each class representing
an interest in the same portfolio of investments. When choosing a share class,
you should consider the factors below:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
- - Initial sales charge - No initial sales charge - No initial sales charge
- - Reduced or waived initial sales - Contingent deferred sales - Contingent deferred sales
charge for certain purchases charge on redemptions within six charge on redemptions within
years one year
- - Lower distribution and service - 12b-1 fee of 1.00% - 12b-1 fee of 1.00%
(12b-1) fee than Class B or
Class C shares (See "Fee Table
and Expense Example")
- Converts to Class A shares - Does not convert to Class A
after eight years along with a shares
pro rata portion of its
reinvested dividends and
distributions(1)
- - Generally more appropriate for - Purchase orders limited to - Generally more appropriate
long-term investors amounts less than $250,000 for short-term investors
</TABLE>
(1) AIM Money Market Fund: Class B shares convert to AIM Cash Reserve
Shares.
AIM Global Trends Fund: If you held Class B shares on May 29,
1998 and continue to hold them, those shares will convert to
Class A shares of that fund seven years after your date of
purchase. If you exchange those shares for Class B shares of
another AIM Fund, the shares into which you exchanged will
not convert to Class A shares until eight years after your
date of purchase of the original shares.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12b-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund) has adopted 12b-1 plans
that allow the AIM Fund to pay distribution fees to A I M Distributors, Inc.
(the distributor) for the sale and distribution of its shares and fees for
services provided to shareholders, all or a substantial portion of which are
paid to the dealer of record. Because the AIM Fund pays these fees out of its
assets on an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
SALES CHARGES
Generally, you will not pay a sales charge on purchases or redemptions of Class
A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund. You may be charged a contingent deferred sales charge if you redeem
AIM Cash Reserve Shares of AIM Money Market Fund acquired through certain
exchanges. Sales charges on all other AIM Funds and classes of those Funds are
detailed below. As used below, the term "offering price" with respect to all
categories of Class A shares includes the initial sales charge.
INITIAL SALES CHARGES
The AIM Funds are grouped into three categories with respect to initial sales
charges. The "Other Information" section of your prospectus will tell you in
what category your particular AIM Fund is classified.
<TABLE>
<CAPTION>
CATEGORY I INITIAL SALES CHARGES
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
--------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
- ----------------------------------------------------------
</TABLE>
A-1 MCF--10/99
<PAGE> 9
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THE AIM FUNDS
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<TABLE>
<CAPTION>
CATEGORY II INITIAL SALES CHARGES
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
--------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY III INITIAL SALES CHARGES
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
--------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 100,000 1.00% 1.01%
$100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
- ----------------------------------------------------------
</TABLE>
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES
You can purchase $1,000,000 or more of Class A shares at net asset value.
However, if you purchase shares of that amount in Categories I or II, they will
be subject to a contingent deferred sales charge (CDSC) of 1% if you redeem them
prior to 18 months after the date of purchase. The distributor may pay a dealer
concession and/or a service fee for purchases of $1,000,000 or more.
CONTINGENT DEFERRED SALES CHARGES FOR
CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
- ----------------------------------------------------------
<S> <C> <C>
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
- ----------------------------------------------------------
</TABLE>
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial consultant must
provide sufficient information at the time of purchase to verify that your
purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Rights of Accumulation
You may combine your new purchases of Class A shares with Class A shares
currently owned for the purpose of qualifying for the lower initial sales charge
rates that apply to larger purchases. The applicable initial sales charge for
the new purchase is based on the total of your current purchase and the current
value of all Class A shares you own.
Letters of Intent
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of AIM Funds during a 13-month period. The amount you agree
to purchase determines the initial sales charge you pay. If the full face
amount of the LOI is not invested by the end of the 13-month period, your
account will be adjusted to the higher initial sales charge level for the
amount actually invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- - on shares purchased by reinvesting dividends and distributions;
- - when exchanging shares among certain AIM Funds;
- - when using the reinstatement privilege; and
- - when a merger, consolidation, or acquisition of assets of an AIM Fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- - if you redeem Class B shares you held for more than six years;
- - if you redeem Class C shares you held for more than one year;
- - if you redeem shares acquired through reinvestment of dividends and
distributions; and
- - on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
MCF--10/99 A-2
<PAGE> 10
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THE AIM FUNDS
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PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
The minimum investments for AIM Fund accounts (except for investments in AIM Mid
Cap Opportunities Fund and AIM Small Cap Opportunities Fund) are as follows:
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing $ 0 ($25 per AIM Fund investment for $25
plans, 401(k) plans, Simplified Employee Pension salary deferrals from Savings Plans)
(SEP) accounts, Salary Reduction (SARSEP)
accounts, Savings Incentive Match Plans for
Employee IRA (Simple IRA) accounts, 403(b) or
457 plans)
Automatic Investment Plans 50 50
IRA, Education IRA or Roth IRA 250 50
All other accounts 500 50
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below.
PURCHASE OPTIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Through a Financial Consultant Contact your financial consultant. Same
By Mail Mail completed account application Mail your check and the remittance
and purchase payment to the slip from your confirmation
transfer agent, statement to the transfer agent.
A I M Fund Services, Inc.,
P.O. Box 4739,
Houston, TX 77210-4739.
By Wire Mail completed account application Call the transfer agent to receive
to the transfer agent. Call the a reference number. Then, use the
transfer agent at (800) 959-4246 to wire instructions at left.
receive a reference number.
Then, use the following wire
instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number:
00100366807
Beneficiary Account Name:
A I M Fund Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase order.
By AIM Internet Connect(SM) Open your account using one of the Select the AIM Internet Connect option
methods described above. on your completed account application
or complete an AIM Internet
Connect Authorization Form. Mail the
application or form to the transfer
agent. Once your request for this option
has been processed (which may take up
to 10 days), you may place your purchase
order at www.aimfunds.com. The
maximum purchase amount per
transaction is $100,000. You may
not purchase shares in AIM
prototype retirement accounts on
the internet.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
A-3 MCF--10/99
<PAGE> 11
-------------
THE AIM FUNDS
-------------
SPECIAL PLANS
AUTOMATIC INVESTMENT PLAN
You can arrange for periodic investments in any of the AIM Funds by authorizing
the AIM Fund to withdraw the amount of your investment from your bank account on
a day or dates you specify and in an amount of at least $50. You may stop the
Automatic Investment Plan at any time by giving the transfer agent notice ten
days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one AIM Fund account to one or more other AIM Fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the 10th or 25th day of the month, whichever
you specify, in the amount you specify. The minimum amount you can exchange to
another AIM Fund is $50.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM Fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same AIM Fund. You may
invest your dividends and distributions (1) into another AIM Fund in the same
class of shares; or (2) from Class A shares into AIM Cash Reserve Shares of AIM
Money Market Fund, or vice versa.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend must be at
least $5,000; or (b) in the AIM Fund receiving the dividend must be at least
$500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends into
another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your AIM Fund holdings should be rebalanced, on a percentage
basis, between two and ten of your AIM Funds on a quarterly, semiannual or
annual basis. Your portfolio will be rebalanced through the exchange of shares
in one or more of your AIM Funds for shares of the same class of one or more
other AIM Funds in your portfolio. If you wish to participate in the Program,
make changes or cancel the Program, the transfer agent must receive your request
to participate, changes, or cancellation in good order at least five business
days prior to the next rebalancing date, which is normally the 28th day of the
last month of the period you choose. You may realize taxable gains from these
exchanges. We may modify, suspend or terminate the Program at any time on 60
days' prior written notice.
RETIREMENT PLANS
Shares of most of the AIM Funds can be purchased through tax-sheltered
retirement plans made available to corporations, individuals and employees of
non-profit organizations and public schools. A plan document must be adopted
to establish a retirement plan. You may use AIM Funds-sponsored retirement
plans, which include IRAs, Education IRAs, Roth IRAs, 403(b) plans, 401(k)
plans, SIMPLE IRA plans, SEP/SARSEP plans and Money Purchase/Profit Sharing
plans, or another sponsor's retirement plan. The plan custodian of the AIM
Funds-sponsored retirement plan assesses an annual maintenance fee of $10.
Contact your financial consultant for details.
REDEEMING SHARES
REDEMPTION FEES
Generally, we will not charge you any fees to redeem your shares. However, if
you acquired Class A shares of AIM Developing Markets Fund in connection with
the reorganization of AIM Eastern Europe Fund, you will be charged a redemption
fee of 2% of the net asset value of those shares, which will be paid to AIM
Developing Markets Fund, if you redeem your shares within the first year after
the reorganization. Your broker or financial consultant may charge service fees
for handling redemption transactions. Your shares also may be subject to a
contingent deferred sales charge (CDSC).
REDEMPTION OF AIM CASH RESERVE SHARES OF
AIM MONEY MARKET FUND ACQUIRED BY EXCHANGE
If you redeem AIM Cash Reserve Shares acquired by exchange from Class A shares
subject to a CDSC within 18 months of the purchase of the Class A shares, you
will be charged a CDSC.
REDEMPTION OF CLASS B SHARES OR CLASS C
SHARES ACQUIRED BY EXCHANGE FROM AIM CASH
RESERVE SHARES OF AIM MONEY MARKET FUND
We will begin the holding period for purposes of calculating the CDSC on Class B
shares or Class C shares acquired by exchange from AIM Cash Reserve Shares of
AIM Money Market Fund at the time of the exchange into Class B shares or Class C
shares.
REDEMPTION OF CLASS B SHARES ACQUIRED BY
EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
MCF--10/99 A-4
<PAGE> 12
-------------
THE AIM FUNDS
-------------
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
Consultant
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners;
(2) the name of the AIM Fund and your account number; (3) if
the transfer agent does not hold your shares, endorsed share
certificates or share certificates accompanied by an
executed stock power; and (4) signature guarantees, if
necessary (see below). The transfer agent may require that
you provide additional information, such as corporate
resolutions or powers of attorney, if applicable. If you are
redeeming from an IRA account, you must include a statement
of whether or not you are at least 59 1/2 years old and
whether you wish to have federal income tax withheld from
your proceeds. The transfer agent may require certain other
information before you can redeem from an employer-sponsored
retirement plan. Contact your employer for details.
By Telephone Call the transfer agent. You will be allowed to redeem by
telephone if (1) the proceeds are to be mailed to the
address on record (if there has been no change communicated
to us within the last 30 days) or transferred electronically
to a pre-authorized checking account; (2) you do not hold
physical share certificates; (3) you can provide proper
identification information; (4) the proceeds of the
redemption do not exceed $50,000; and (5) you have not
previously declined the telephone redemption privilege.
Certain accounts, including retirement accounts and 403(b)
plans, may not be redeemed by telephone. The transfer agent
must receive your call during the hours the New York Stock
Exchange (NYSE) is open for business in order to effect the
redemption at that day's closing price.
By AIM Internet Connect Place your redemption request at www.aimfunds.com. You will
be allowed to redeem by internet if (1) you do not hold
physical share certificates; (2) you can provide proper
identification information; (3) the proceeds of the
redemption do not exceed $50,000; and (4) you have
established the internet trading option. AIM prototype
retirement accounts may not be redeemed on the internet. The
transfer agent must confirm your transaction during the
hours the NYSE is open for business in order to effect the
redemption at that day's closing price.
</TABLE>
- --------------------------------------------------------------------------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
REDEMPTION BY INTERNET
If you redeem by internet, we will transmit your redemption proceeds
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by internet are genuine and are not
liable for internet instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC WITHDRAWALS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Withdrawal Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM Cash Reserve Shares of AIM Money Market Fund only)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of trading
on the NYSE, we generally will transmit payment on the next business day.
A-5 MCF--10/99
<PAGE> 13
-------------
THE AIM FUNDS
-------------
REDEMPTIONS BY CHECK
(Class A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM
Money Market Fund only)
You may redeem shares of these AIM Funds by writing checks in amounts of $250 or
more if you have completed an authorization form. Redemption by check is not
available for retirement accounts.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
(1) the amount is greater than $50,000;
(2) you request that payment be made to someone other than the name registered
on the account;
(3) you request that payment be sent somewhere other than the bank of record on
the account; or
(4) you request that payment be sent to a new address or an address that changed
in the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of
financial institutions. Call the transfer agent for additional information. Some
institutions have transaction amount maximums for these guarantees. Please check
with the guarantor institution.
REINSTATEMENT PRIVILEGE (Class A shares only)
You may, within 90 days after you sell Class A shares (except Class A shares of
AIM Tax-Exempt Cash Fund), reinvest all or part of your redemption proceeds in
Class A shares of any AIM Fund at net asset value in an identically registered
account. If you sold Class A shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund, you will incur an initial sales charge reflecting
the difference between the initial sales charges on those Funds and the ones in
which you will be investing. In addition, if you paid a contingent deferred
sales charge (CDSC) on any reinstated amount, you will not be subject to a CDSC
if you later redeem that amount. You must notify the transfer agent in writing
at the time you reinstate that you are exercising your reinstatement privilege.
You may exercise this privilege only once per year.
REDEMPTIONS BY THE AIM FUNDS
If your account has been open at least one year, you have not made an additional
purchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions or
exchanges (excluding retirement accounts), the AIM Funds have the right to
redeem the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500 or by utilizing the Automatic Investment Plan.
If an AIM Fund determines that you have provided incorrect information in
opening an account or in the course of conducting subsequent transactions, the
AIM Fund may, at its discretion, redeem the account and distribute the proceeds
to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one AIM Fund for those
of another AIM Fund. Before requesting an exchange, review the prospectus of the
AIM Fund you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
PERMITTED EXCHANGES
Except as otherwise stated below, you may exchange your shares for shares of the
same class of another AIM Fund. You may exchange AIM Cash Reserve Shares of AIM
Money Market Fund for Class A shares of another AIM Fund, or vice versa. You
also may exchange AIM Cash Reserve Shares of AIM Money Market Fund for Class B
shares or Class C shares of another AIM Fund, but only if the AIM Cash Reserve
Shares were purchased directly and not acquired by exchange. You may be required
to pay an initial sales charge when exchanging from a Fund with a lower initial
sales charge than the one into which you are exchanging. If you exchange from
Class A shares not subject to a CDSC into Class A shares subject to those
charges, you will be charged a CDSC when you redeem the exchanged shares. The
CDSC charged on redemption of those shares will be calculated starting on the
date you acquired those shares through exchange.
You also may exchange AIM Cash Reserve Shares of AIM Money Market Fund for
Advisor Class shares, but only if you acquired the AIM Cash Reserve Shares
through an exchange from Advisor Class shares.
YOU WILL NOT PAY A SALES CHARGE WHEN EXCHANGING:
(1) Class A shares with an initial sales charge (except for Class A shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
Class A shares of another AIM Fund or AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund for
(a) one another;
(b) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of
AIM Tax-Exempt Cash Fund; or
(c) Class A shares of another AIM Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of
an exchange from shares with higher sales charges;
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) one another;
(b) Class A shares of an AIM Fund subject to an initial sales charge (except
for Class A shares of AIM Limited
MCF--10/99 A-6
<PAGE> 14
-------------
THE AIM FUNDS
-------------
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund), but only if
you acquired the original shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an
initial sales charge;
(ii) on or after May 1, 1994 by exchange from Class A shares subject to
an initial sales charge (except for Class A shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(c) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, but only if you acquired the original shares by
exchange from Class A shares subject to an initial sales charge; or
(4) Class B shares for other Class B shares, and Class C shares for other Class
C shares.
(5) AIM Cash Reserve Shares of AIM Money Market Fund for Class B shares and
Class C shares.
EXCHANGES NOT PERMITTED
You may not exchange Class A shares subject to contingent deferred sales charges
for Class A shares of AIM Limited Maturity Treasury Fund, AIM Tax-Free
Intermediate Fund or AIM Tax-Exempt Cash Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be available for sale in your
state of residence;
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - Shares must have been held for at least one day prior to the exchange;
- - If you have physical share certificates, you must return them to the transfer
agent prior to the exchange; and
- - You are limited to a maximum of 10 exchanges per calendar year, because
excessive short-term trading or market-timing activity can hurt fund
performance. If you exceed that limit, or if an AIM Fund or the distributor
determines, in its sole discretion, that your short-term trading is excessive
or that you are engaging in market-timing activity, it may reject any
additional exchange orders. An exchange is the movement out of (redemption)
one AIM Fund and into (purchase) another AIM Fund.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the purchase of shares
being acquired in an exchange for up to five business days if it determines that
it would be materially disadvantaged by the immediate transfer of exchange
proceeds. There is no fee for exchanges. The exchange privilege is not an option
or right to purchase shares. Any of the participating AIM Funds or the
distributor may modify or discontinue this privilege at any time.
BY MAIL
If you wish to make an exchange by mail, you must include original signatures of
each registered owner exactly as the shares are registered, the account
registration and account number, the dollar amount or number of shares to be
exchanged and the names of the AIM Funds from which and into which the exchange
is to be made.
BY TELEPHONE
Conditions that apply to exchanges by telephone are the same as redemptions by
telephone, including that the transfer agent must receive exchange requests
during the hours the NYSE is open for business; however, you still will be
allowed to exchange by telephone even if you have changed your address of record
within the preceding 30 days.
BY INTERNET
You will be allowed to exchange by internet if (1) you do not hold physical
share certificates; (2) you can provide proper identification information; and
(3) you have established the internet trading option.
EXCHANGING CLASS B AND CLASS C SHARES
If you make an exchange involving Class B or Class C shares, the amount of time
you held the original shares will be added to the holding period of the Class B
or Class C shares, respectively, into which you exchanged for the purpose of
calculating contingent deferred sales charges (CDSC) if you later redeem the
exchanged shares. If you redeem Class B shares acquired by exchange via a tender
offer by AIM Floating Rate Fund, you will be credited with the time period you
held the shares of AIM Floating Rate Fund for the purpose of computing the early
withdrawal charge applicable to those shares.
EACH AIM FUND AND ITS AGENTS RESERVE THE RIGHT AT ANY TIME TO:
- REJECT OR CANCEL ANY PART OF ANY PURCHASE OR EXCHANGE ORDER;
- MODIFY ANY TERMS OR CONDITIONS OF PURCHASE OF SHARES OF ANY AIM FUND;
- REJECT OR CANCEL ANY REQUEST TO ESTABLISH THE AUTOMATIC INVESTMENT PLAN AND
SYSTEMATIC WITHDRAWAL PLAN OPTIONS ON THE SAME ACCOUNT; OR
- WITHDRAW ALL OR ANY PART OF THE OFFERING MADE BY THIS PROSPECTUS.
A-7 MCF--10/99
<PAGE> 15
-------------
THE AIM FUNDS
-------------
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. AIM Money
Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at
amortized cost. AIM High Income Municipal Fund, AIM Municipal Bond Fund, AIM
Tax-Exempt Bond Fund of Connecticut and AIM Tax-Free Intermediate Fund value
variable rate securities that have an unconditional demand or put feature
exercisable within seven days or less at par, which reflects the market value of
such securities.
The AIM Funds value all other securities and assets at their fair value.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day. In addition, if,
between the time trading ends on a particular security and the close of the
NYSE, events occur that materially affect the value of the security, the AIM
Funds may value the security at its fair value as determined in good faith by or
under the supervision of the Board of Directors or Trustees of the AIM Fund. The
effect of using fair value pricing is that an AIM Fund's net asset value will be
subject to the judgment of the Board of Directors or Trustees or its designee
instead of being determined by the market. Because some of the AIM Funds may
invest in securities that are primarily listed on foreign exchanges, the value
of those funds' shares may change on days when you will not be able to purchase
or redeem shares.
Each AIM Fund determines the net asset value of its shares as of the close of
the NYSE on each day the NYSE is open for business. AIM Money Market Fund also
determines its net asset value as of 12:00 noon Eastern Time on each day the
NYSE is open for business.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours the NYSE is open
for business. The AIM Funds price purchase, exchange and redemption orders at
the net asset value calculated after the transfer agent receives an order in
good form. An AIM Fund may postpone the right of redemption only under unusual
circumstances, as allowed by the Securities and Exchange Commission, such as
when the NYSE restricts or suspends trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different tax rates apply to ordinary income and long-term capital
gain distributions, regardless of how long you have held your shares. Every
year, you will be sent information showing the amount of dividends and
distributions you received from each AIM Fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of AIM
Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
INVESTORS IN TAX-EXEMPT FUNDS SHOULD READ THE INFORMATION UNDER THE HEADING
"OTHER INFORMATION -- SPECIAL TAX INFORMATION REGARDING THE FUND" IN THIS
PROSPECTUS.
The foreign, state and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
MCF--10/99 A-8
<PAGE> 16
----------------------
AIM HIGH YIELD FUND II
----------------------
OBTAINING ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies
of the fund's current SAI or annual or semiannual reports, please contact us
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Fund Services, Inc.
P.0. Box 4739
Houston, TX 77210-4739
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can review and obtain copies of the fund's SAI, reports and other
information at the SEC's Public Reference Room in Washington, DC; on the EDGAR
database on the SEC's Internet website (http://www.sec.gov); or, after paying a
duplication fee, by sending a letter to the SEC's Public Reference Section,
Washington, DC 20549-0102 or by sending an electronic mail request to
[email protected]. Please call the SEC at 1-202-942-8090 for information about
the Public Reference Room.
- -----------------------------------
AIM High Yield Fund II
SEC 1940 Act file number: 811-5686
- -----------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com HYI2-PRO-1 INVEST WITH DISCIPLINE
--Registered Trademark--
<PAGE> 17
AIM LIMITED MATURITY
TREASURY FUND
--------------------------------------------------------------------------
AIM Limited Maturity Treasury Fund seeks liquidity with minimum
fluctuation of principal value, and, consistent with this objective, the
highest total return achievable.
PROSPECTUS --Registered Trademark--
NOVEMBER 29, 1999
This prospectus contains important
information about Class A shares of the
fund. Please read it before investing and
keep it for future reference.
As with all other mutual fund securities,
the Securities and Exchange Commission has
not approved or disapproved these securities
or determined whether the information in
this prospectus is adequate or accurate.
Anyone who tells you otherwise is committing
a crime.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE
-- Registered Trademark --
<PAGE> 18
----------------------------------
AIM LIMITED MATURITY TREASURY FUND
----------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE
FUND 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 2
- - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 2
Performance Table 2
FEE TABLE AND EXPENSE EXAMPLE 3
- - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 3
Expense Example 3
FUND MANAGEMENT 4
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisor 4
Advisor Compensation 4
Portfolio Managers 4
OTHER INFORMATION 4
- - - - - - - - - - - - - - - - - - - - - - - - -
Sales Charges 4
Dividends and Distributions 4
FINANCIAL HIGHLIGHTS 5
- - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - -
Choosing a Share Class A-1
Purchasing Shares A-3
Redeeming Shares A-4
Exchanging Shares A-6
Pricing of Shares A-8
Taxes A-8
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com,
Invest with Discipline, La Familia AIM de Fondos and La Familia AIM de Fondos
and Design are registered service marks and AIM Bank Connection, AIM Funds, AIM
Funds and Design, AIM Internet Connect and AIM Investor are a service mark of
A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 19
----------------------------------
AIM LIMITED MATURITY TREASURY FUND
----------------------------------
INVESTMENT OBJECTIVE AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's investment objective is to seek liquidity with minimum fluctuation of
principal value, and, consistent with this objective, the highest total return
achievable.
The fund attempts to meet this objective by investing in direct obligations of
the U.S. Treasury, including bills, notes and bonds. The fund will only purchase
securities with maturities of three years or less.
The portfolio managers focus on U.S. Treasury obligations they believe have
favorable prospects for total return consistent with the fund's investment
objective. The portfolio managers usually sell a particular security when any of
those factors materially changes.
In anticipation of or in response to adverse market conditions, for cash
management purposes, or for defensive purposes, the fund may temporarily hold
all or a portion of its assets in cash and shares of affiliated money market
funds. As a result, the fund may not achieve its investment objective.
The fund may engage in active and frequent trading of portfolio securities to
achieve its investment objective. If the fund does trade in this way, it may
incur increased transaction costs, which can lower the actual return on your
investment. Active trading may also increase short-term gains and losses, which
may affect the taxes you have to pay.
PRINCIPAL RISKS OF INVESTING IN THE FUND
- --------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund and that the income you may receive from your investment may vary. The
value of your investment in the fund will go up and down with the prices of the
securities in which the fund invests. Interest rate increases can cause the
price of a debt security to decrease; the longer the debt security's duration,
the more sensitive it is to this risk.
The value of your shares could be adversely affected if the computer systems
used by the fund's investment advisor and the fund's other service providers are
unable to distinguish the year 2000 from the year 1900.
The fund's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the fund invests.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
1
<PAGE> 20
----------------------------------
AIM LIMITED MATURITY TREASURY FUND
----------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS*
- --------------------------------------------------------------------------------
The following bar chart shows changes in the performance of the fund's Class A
shares from year to year. The bar chart does not reflect sales loads. If it did,
the annual total returns shown would be lower.
<TABLE>
<S> <C>
1989 ........................................... 9.64%
1990 ........................................... 8.96%
1991 ........................................... 10.48%
1992 ........................................... 5.64%
1993 ........................................... 4.45%
1994 ........................................... 0.85%
1995 ........................................... 9.40%
1996 ........................................... 4.73%
1997 ........................................... 5.97%
1998 ........................................... 6.10%
</TABLE>
* The Class A shares' year-to-date total return as of September 30, 1999 was
2.12%.
During the periods shown in the bar chart, the highest quarterly return was
3.24% (quarter ended December 31, 1991) and the lowest quarterly return was
- --0.20% (quarter ended March 31, 1994).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index. The fund's performance reflects payment of
sales loads.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(for the periods ending SINCE INCEPTION
December 31, 1998) 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A 5.05% 5.17% 6.48% 6.45% 12/15/87
Lehman 1-to 2-Year U.S. Government Bond Index(1) 4.97 5.88 6.45 6.77(2) 7/31/88(2)
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Lehman 1-to 2-Year U.S. Government Bond Index is an unmanaged index
composed of U.S. Agency and Treasury issues with maturities of one to two
years.
(2) The average annual total return given is since the date closest to the
earliest date the index became available.
2
<PAGE> 21
----------------------------------
AIM LIMITED MATURITY TREASURY FUND
----------------------------------
FEE TABLE AND EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) CLASS A
- --------------------------------------------------
<S> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 1.00%
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever is less) None
- --------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets) CLASS A
- --------------------------------------------------
<S> <C> <C>
Management Fees 0.20%
Distribution and/or
Service (12b-1) Fees 0.15
Other Expenses 0.19
Total Annual Fund
Operating Expenses 0.54
- --------------------------------------------------
</TABLE>
EXPENSE EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's operating expenses remain the same. Although your actual returns and
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------
<S> <C> <C> <C> <C>
Class A $155 $271 $399 $770
- ----------------------------------------------
</TABLE>
3
<PAGE> 22
----------------------------------
AIM LIMITED MATURITY TREASURY FUND
----------------------------------
FUND MANAGEMENT
- --------------------------------------------------------------------------------
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor and
is responsible for its day-to-day management. The advisor is located at 11
Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The advisor supervises all
aspects of the fund's operations and provides investment advisory services to
the fund, including obtaining and evaluating economic, statistical and financial
information to formulate and implement investment programs for the fund.
The advisor has acted as an investment advisor since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 125
investment portfolios, including the fund, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended July 31, 1999, the advisor received compensation of
0.22% of average daily net assets, consisting of a management fee of 0.20% and
an administrative fee of 0.02%.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual
members of the team who are primarily responsible for the day-to-day management
of the fund's portfolio, all of whom are officers of A I M Capital Management,
Inc., a wholly owned subsidiary of the advisor, are
- - Laurie A. Brignac, Portfolio Manager, who has been responsible for the fund
since 1999 and has been associated with the advisor and/or its affiliates
since 1992.
- - Scot W. Johnson, Portfolio Manager, who has been responsible for the fund
since 1998 and has been associated with the advisor and/or its affiliates
since 1994.
- - Karen Dunn Kelley, Senior Portfolio Manager, who has been responsible for the
fund since 1992 and has been associated with the advisor and/or its affiliates
since 1989.
OTHER INFORMATION
- --------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Limited Maturity Treasury Fund are subject to
the maximum 1.00% initial sales charge as listed under the heading "CATEGORY III
Initial Sales Charges" in the "Shareholder Information--Choosing a Share Class"
section of this prospectus.
DIVIDENDS AND DISTRIBUTIONS
The fund expects that its distributions will consist primarily of ordinary
income.
DIVIDENDS
The fund generally declares dividends daily and pays dividends, if any, monthly.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains (including
any net gains from foreign currency transactions), if any, annually.
4
<PAGE> 23
----------------------------------
AIM LIMITED MATURITY TREASURY FUND
----------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
This information has been audited by KPMG LLP, whose report, along with the
fund's financial statements, is included in the fund's annual report, which is
available upon request.
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------
YEAR ENDED JULY 31,
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.07 $ 10.07 $ 9.97 $ 10.03 $ 9.96
Income from investment operations:
Net investment income 0.47 0.53 0.54 0.55 0.54
Net gains (losses) on securities (both
realized and unrealized) (0.04) -- 0.10 (0.06) 0.07
Total from investment operations 0.43 0.53 0.64 0.49 0.61
Less distributions:
Dividends from net investment income (0.47) (0.53) (0.54) (0.55) (0.54)
Net asset value, end of period $ 10.03 $ 10.07 $ 10.07 $ 9.97 $ 10.03
Total return(a) 4.32% 5.42% 6.55% 4.98% 6.36%
- ---------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
- ---------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) $390,018 $345,355 $389,812 $359,048 $274,480
Ratio of expenses to average net assets 0.54%(b) 0.54% 0.54% 0.54% 0.51%
Ratio of net investment income to average net
assets 4.61%(b) 5.29% 5.35% 5.45% 5.44%
Portfolio turnover rate 184% 133% 130% 117% 120%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(a) Does not deduct sales charges.
(b) Ratios are based on average net assets of $394,428,791.
5
<PAGE> 24
-------------
THE AIM FUNDS
-------------
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
In addition to the fund, A I M Advisors, Inc. serves as investment advisor to
many other mutual funds (the AIM Funds). The following information is about all
the AIM Funds.
CHOOSING A SHARE CLASS
Many of the AIM Funds have multiple classes of shares, each class representing
an interest in the same portfolio of investments. When choosing a share class,
you should consider the factors below:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
- - Initial sales charge - No initial sales charge - No initial sales charge
- - Reduced or waived initial sales - Contingent deferred sales - Contingent deferred sales
charge for certain purchases charge on redemptions within six charge on redemptions within
years one year
- - Lower distribution and service - 12b-1 fee of 1.00% - 12b-1 fee of 1.00%
(12b-1) fee than Class B or
Class C shares (See "Fee Table
and Expense Example")
- Converts to Class A shares - Does not convert to Class A
after eight years along with a shares
pro rata portion of its
reinvested dividends and
distributions(1)
- - Generally more appropriate for - Purchase orders limited to - Generally more appropriate
long-term investors amounts less than $250,000 for short-term investors
</TABLE>
(1) AIM Money Market Fund: Class B shares convert to AIM Cash Reserve
Shares.
AIM Global Trends Fund: If you held Class B shares on May 29,
1998 and continue to hold them, those shares will convert to
Class A shares of that fund seven years after your date of
purchase. If you exchange those shares for Class B shares of
another AIM Fund, the shares into which you exchanged will
not convert to Class A shares until eight years after your
date of purchase of the original shares.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12b-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund) has adopted 12b-1 plans
that allow the AIM Fund to pay distribution fees to A I M Distributors, Inc.
(the distributor) for the sale and distribution of its shares and fees for
services provided to shareholders, all or a substantial portion of which are
paid to the dealer of record. Because the AIM Fund pays these fees out of its
assets on an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
SALES CHARGES
Generally, you will not pay a sales charge on purchases or redemptions of Class
A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund. You may be charged a contingent deferred sales charge if you redeem
AIM Cash Reserve Shares of AIM Money Market Fund acquired through certain
exchanges. Sales charges on all other AIM Funds and classes of those Funds are
detailed below. As used below, the term "offering price" with respect to all
categories of Class A shares includes the initial sales charge.
INITIAL SALES CHARGES
The AIM Funds are grouped into three categories with respect to initial sales
charges. The "Other Information" section of your prospectus will tell you in
what category your particular AIM Fund is classified.
<TABLE>
<CAPTION>
CATEGORY I INITIAL SALES CHARGES
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
--------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
- ----------------------------------------------------------
</TABLE>
A-1 MCF--10/99
<PAGE> 25
-------------
THE AIM FUNDS
-------------
<TABLE>
<CAPTION>
CATEGORY II INITIAL SALES CHARGES
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
--------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY III INITIAL SALES CHARGES
- ----------------------------------------------------------
INVESTOR'S
SALES CHARGE
--------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ----------------------------------------------------------
<S> <C> <C>
Less than $ 100,000 1.00% 1.01%
$100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
- ----------------------------------------------------------
</TABLE>
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES
You can purchase $1,000,000 or more of Class A shares at net asset value.
However, if you purchase shares of that amount in Categories I or II, they will
be subject to a contingent deferred sales charge (CDSC) of 1% if you redeem them
prior to 18 months after the date of purchase. The distributor may pay a dealer
concession and/or a service fee for purchases of $1,000,000 or more.
CONTINGENT DEFERRED SALES CHARGES FOR
CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
- ----------------------------------------------------------
<S> <C> <C>
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
- ----------------------------------------------------------
</TABLE>
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial consultant must
provide sufficient information at the time of purchase to verify that your
purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Rights of Accumulation
You may combine your new purchases of Class A shares with Class A shares
currently owned for the purpose of qualifying for the lower initial sales charge
rates that apply to larger purchases. The applicable initial sales charge for
the new purchase is based on the total of your current purchase and the current
value of all Class A shares you own.
Letters of Intent
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of AIM Funds during a 13-month period. The amount you agree
to purchase determines the initial sales charge you pay. If the full face
amount of the LOI is not invested by the end of the 13-month period, your
account will be adjusted to the higher initial sales charge level for the
amount actually invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- - on shares purchased by reinvesting dividends and distributions;
- - when exchanging shares among certain AIM Funds;
- - when using the reinstatement privilege; and
- - when a merger, consolidation, or acquisition of assets of an AIM Fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- - if you redeem Class B shares you held for more than six years;
- - if you redeem Class C shares you held for more than one year;
- - if you redeem shares acquired through reinvestment of dividends and
distributions; and
- - on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
MCF--10/99 A-2
<PAGE> 26
-------------
THE AIM FUNDS
-------------
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
The minimum investments for AIM Fund accounts (except for investments in AIM Mid
Cap Opportunities Fund and AIM Small Cap Opportunities Fund) are as follows:
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing $ 0 ($25 per AIM Fund investment for $25
plans, 401(k) plans, Simplified Employee Pension salary deferrals from Savings Plans)
(SEP) accounts, Salary Reduction (SARSEP)
accounts, Savings Incentive Match Plans for
Employee IRA (Simple IRA) accounts, 403(b) or
457 plans)
Automatic Investment Plans 50 50
IRA, Education IRA or Roth IRA 250 50
All other accounts 500 50
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below.
PURCHASE OPTIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Through a Financial Consultant Contact your financial consultant. Same
By Mail Mail completed account application Mail your check and the remittance
and purchase payment to the slip from your confirmation
transfer agent, statement to the transfer agent.
A I M Fund Services, Inc.,
P.O. Box 4739,
Houston, TX 77210-4739.
By Wire Mail completed account application Call the transfer agent to receive
to the transfer agent. Call the a reference number. Then, use the
transfer agent at (800) 959-4246 to wire instructions at left.
receive a reference number.
Then, use the following wire
instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number:
00100366807
Beneficiary Account Name:
A I M Fund Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase order.
By AIM Internet Connect(SM) Open your account using one of the Select the AIM Internet Connect option
methods described above. on your completed account application
or complete an AIM Internet
Connect Authorization Form. Mail the
application or form to the transfer
agent. Once your request for this option
has been processed (which may take up
to 10 days), you may place your purchase
order at www.aimfunds.com. The
maximum purchase amount per
transaction is $100,000. You may
not purchase shares in AIM
prototype retirement accounts on
the internet.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
A-3 MCF--10/99
<PAGE> 27
-------------
THE AIM FUNDS
-------------
SPECIAL PLANS
AUTOMATIC INVESTMENT PLAN
You can arrange for periodic investments in any of the AIM Funds by authorizing
the AIM Fund to withdraw the amount of your investment from your bank account on
a day or dates you specify and in an amount of at least $50. You may stop the
Automatic Investment Plan at any time by giving the transfer agent notice ten
days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one AIM Fund account to one or more other AIM Fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the 10th or 25th day of the month, whichever
you specify, in the amount you specify. The minimum amount you can exchange to
another AIM Fund is $50.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM Fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same AIM Fund. You may
invest your dividends and distributions (1) into another AIM Fund in the same
class of shares; or (2) from Class A shares into AIM Cash Reserve Shares of AIM
Money Market Fund, or vice versa.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend must be at
least $5,000; or (b) in the AIM Fund receiving the dividend must be at least
$500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends into
another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your AIM Fund holdings should be rebalanced, on a percentage
basis, between two and ten of your AIM Funds on a quarterly, semiannual or
annual basis. Your portfolio will be rebalanced through the exchange of shares
in one or more of your AIM Funds for shares of the same class of one or more
other AIM Funds in your portfolio. If you wish to participate in the Program,
make changes or cancel the Program, the transfer agent must receive your request
to participate, changes, or cancellation in good order at least five business
days prior to the next rebalancing date, which is normally the 28th day of the
last month of the period you choose. You may realize taxable gains from these
exchanges. We may modify, suspend or terminate the Program at any time on 60
days' prior written notice.
RETIREMENT PLANS
Shares of most of the AIM Funds can be purchased through tax-sheltered
retirement plans made available to corporations, individuals and employees of
non-profit organizations and public schools. A plan document must be adopted
to establish a retirement plan. You may use AIM Funds-sponsored retirement
plans, which include IRAs, Education IRAs, Roth IRAs, 403(b) plans, 401(k)
plans, SIMPLE IRA plans, SEP/SARSEP plans and Money Purchase/Profit Sharing
plans, or another sponsor's retirement plan. The plan custodian of the AIM
Funds-sponsored retirement plan assesses an annual maintenance fee of $10.
Contact your financial consultant for details.
REDEEMING SHARES
REDEMPTION FEES
Generally, we will not charge you any fees to redeem your shares. However, if
you acquired Class A shares of AIM Developing Markets Fund in connection with
the reorganization of AIM Eastern Europe Fund, you will be charged a redemption
fee of 2% of the net asset value of those shares, which will be paid to AIM
Developing Markets Fund, if you redeem your shares within the first year after
the reorganization. Your broker or financial consultant may charge service fees
for handling redemption transactions. Your shares also may be subject to a
contingent deferred sales charge (CDSC).
REDEMPTION OF AIM CASH RESERVE SHARES OF
AIM MONEY MARKET FUND ACQUIRED BY EXCHANGE
If you redeem AIM Cash Reserve Shares acquired by exchange from Class A shares
subject to a CDSC within 18 months of the purchase of the Class A shares, you
will be charged a CDSC.
REDEMPTION OF CLASS B SHARES OR CLASS C
SHARES ACQUIRED BY EXCHANGE FROM AIM CASH
RESERVE SHARES OF AIM MONEY MARKET FUND
We will begin the holding period for purposes of calculating the CDSC on Class B
shares or Class C shares acquired by exchange from AIM Cash Reserve Shares of
AIM Money Market Fund at the time of the exchange into Class B shares or Class C
shares.
REDEMPTION OF CLASS B SHARES ACQUIRED BY
EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
MCF--10/99 A-4
<PAGE> 28
-------------
THE AIM FUNDS
-------------
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
Consultant
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners;
(2) the name of the AIM Fund and your account number; (3) if
the transfer agent does not hold your shares, endorsed share
certificates or share certificates accompanied by an
executed stock power; and (4) signature guarantees, if
necessary (see below). The transfer agent may require that
you provide additional information, such as corporate
resolutions or powers of attorney, if applicable. If you are
redeeming from an IRA account, you must include a statement
of whether or not you are at least 59 1/2 years old and
whether you wish to have federal income tax withheld from
your proceeds. The transfer agent may require certain other
information before you can redeem from an employer-sponsored
retirement plan. Contact your employer for details.
By Telephone Call the transfer agent. You will be allowed to redeem by
telephone if (1) the proceeds are to be mailed to the
address on record (if there has been no change communicated
to us within the last 30 days) or transferred electronically
to a pre-authorized checking account; (2) you do not hold
physical share certificates; (3) you can provide proper
identification information; (4) the proceeds of the
redemption do not exceed $50,000; and (5) you have not
previously declined the telephone redemption privilege.
Certain accounts, including retirement accounts and 403(b)
plans, may not be redeemed by telephone. The transfer agent
must receive your call during the hours the New York Stock
Exchange (NYSE) is open for business in order to effect the
redemption at that day's closing price.
By AIM Internet Connect Place your redemption request at www.aimfunds.com. You will
be allowed to redeem by internet if (1) you do not hold
physical share certificates; (2) you can provide proper
identification information; (3) the proceeds of the
redemption do not exceed $50,000; and (4) you have
established the internet trading option. AIM prototype
retirement accounts may not be redeemed on the internet. The
transfer agent must confirm your transaction during the
hours the NYSE is open for business in order to effect the
redemption at that day's closing price.
</TABLE>
- --------------------------------------------------------------------------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
REDEMPTION BY INTERNET
If you redeem by internet, we will transmit your redemption proceeds
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by internet are genuine and are not
liable for internet instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC WITHDRAWALS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Withdrawal Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM Cash Reserve Shares of AIM Money Market Fund only)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of trading
on the NYSE, we generally will transmit payment on the next business day.
A-5 MCF--10/99
<PAGE> 29
-------------
THE AIM FUNDS
-------------
REDEMPTIONS BY CHECK
(Class A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM
Money Market Fund only)
You may redeem shares of these AIM Funds by writing checks in amounts of $250 or
more if you have completed an authorization form. Redemption by check is not
available for retirement accounts.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
(1) the amount is greater than $50,000;
(2) you request that payment be made to someone other than the name registered
on the account;
(3) you request that payment be sent somewhere other than the bank of record on
the account; or
(4) you request that payment be sent to a new address or an address that changed
in the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of
financial institutions. Call the transfer agent for additional information. Some
institutions have transaction amount maximums for these guarantees. Please check
with the guarantor institution.
REINSTATEMENT PRIVILEGE (Class A shares only)
You may, within 90 days after you sell Class A shares (except Class A shares of
AIM Tax-Exempt Cash Fund), reinvest all or part of your redemption proceeds in
Class A shares of any AIM Fund at net asset value in an identically registered
account. If you sold Class A shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund, you will incur an initial sales charge reflecting
the difference between the initial sales charges on those Funds and the ones in
which you will be investing. In addition, if you paid a contingent deferred
sales charge (CDSC) on any reinstated amount, you will not be subject to a CDSC
if you later redeem that amount. You must notify the transfer agent in writing
at the time you reinstate that you are exercising your reinstatement privilege.
You may exercise this privilege only once per year.
REDEMPTIONS BY THE AIM FUNDS
If your account has been open at least one year, you have not made an additional
purchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions or
exchanges (excluding retirement accounts), the AIM Funds have the right to
redeem the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500 or by utilizing the Automatic Investment Plan.
If an AIM Fund determines that you have provided incorrect information in
opening an account or in the course of conducting subsequent transactions, the
AIM Fund may, at its discretion, redeem the account and distribute the proceeds
to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one AIM Fund for those
of another AIM Fund. Before requesting an exchange, review the prospectus of the
AIM Fund you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
PERMITTED EXCHANGES
Except as otherwise stated below, you may exchange your shares for shares of the
same class of another AIM Fund. You may exchange AIM Cash Reserve Shares of AIM
Money Market Fund for Class A shares of another AIM Fund, or vice versa. You
also may exchange AIM Cash Reserve Shares of AIM Money Market Fund for Class B
shares or Class C shares of another AIM Fund, but only if the AIM Cash Reserve
Shares were purchased directly and not acquired by exchange. You may be required
to pay an initial sales charge when exchanging from a Fund with a lower initial
sales charge than the one into which you are exchanging. If you exchange from
Class A shares not subject to a CDSC into Class A shares subject to those
charges, you will be charged a CDSC when you redeem the exchanged shares. The
CDSC charged on redemption of those shares will be calculated starting on the
date you acquired those shares through exchange.
You also may exchange AIM Cash Reserve Shares of AIM Money Market Fund for
Advisor Class shares, but only if you acquired the AIM Cash Reserve Shares
through an exchange from Advisor Class shares.
YOU WILL NOT PAY A SALES CHARGE WHEN EXCHANGING:
(1) Class A shares with an initial sales charge (except for Class A shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
Class A shares of another AIM Fund or AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund for
(a) one another;
(b) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of
AIM Tax-Exempt Cash Fund; or
(c) Class A shares of another AIM Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of
an exchange from shares with higher sales charges;
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) one another;
(b) Class A shares of an AIM Fund subject to an initial sales charge (except
for Class A shares of AIM Limited
MCF--10/99 A-6
<PAGE> 30
-------------
THE AIM FUNDS
-------------
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund), but only if
you acquired the original shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an
initial sales charge;
(ii) on or after May 1, 1994 by exchange from Class A shares subject to
an initial sales charge (except for Class A shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(c) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, but only if you acquired the original shares by
exchange from Class A shares subject to an initial sales charge; or
(4) Class B shares for other Class B shares, and Class C shares for other Class
C shares.
(5) AIM Cash Reserve Shares of AIM Money Market Fund for Class B shares and
Class C shares.
EXCHANGES NOT PERMITTED
You may not exchange Class A shares subject to contingent deferred sales charges
for Class A shares of AIM Limited Maturity Treasury Fund, AIM Tax-Free
Intermediate Fund or AIM Tax-Exempt Cash Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be available for sale in your
state of residence;
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - Shares must have been held for at least one day prior to the exchange;
- - If you have physical share certificates, you must return them to the transfer
agent prior to the exchange; and
- - You are limited to a maximum of 10 exchanges per calendar year, because
excessive short-term trading or market-timing activity can hurt fund
performance. If you exceed that limit, or if an AIM Fund or the distributor
determines, in its sole discretion, that your short-term trading is excessive
or that you are engaging in market-timing activity, it may reject any
additional exchange orders. An exchange is the movement out of (redemption)
one AIM Fund and into (purchase) another AIM Fund.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the purchase of shares
being acquired in an exchange for up to five business days if it determines that
it would be materially disadvantaged by the immediate transfer of exchange
proceeds. There is no fee for exchanges. The exchange privilege is not an option
or right to purchase shares. Any of the participating AIM Funds or the
distributor may modify or discontinue this privilege at any time.
BY MAIL
If you wish to make an exchange by mail, you must include original signatures of
each registered owner exactly as the shares are registered, the account
registration and account number, the dollar amount or number of shares to be
exchanged and the names of the AIM Funds from which and into which the exchange
is to be made.
BY TELEPHONE
Conditions that apply to exchanges by telephone are the same as redemptions by
telephone, including that the transfer agent must receive exchange requests
during the hours the NYSE is open for business; however, you still will be
allowed to exchange by telephone even if you have changed your address of record
within the preceding 30 days.
BY INTERNET
You will be allowed to exchange by internet if (1) you do not hold physical
share certificates; (2) you can provide proper identification information; and
(3) you have established the internet trading option.
EXCHANGING CLASS B AND CLASS C SHARES
If you make an exchange involving Class B or Class C shares, the amount of time
you held the original shares will be added to the holding period of the Class B
or Class C shares, respectively, into which you exchanged for the purpose of
calculating contingent deferred sales charges (CDSC) if you later redeem the
exchanged shares. If you redeem Class B shares acquired by exchange via a tender
offer by AIM Floating Rate Fund, you will be credited with the time period you
held the shares of AIM Floating Rate Fund for the purpose of computing the early
withdrawal charge applicable to those shares.
EACH AIM FUND AND ITS AGENTS RESERVE THE RIGHT AT ANY TIME TO:
- REJECT OR CANCEL ANY PART OF ANY PURCHASE OR EXCHANGE ORDER;
- MODIFY ANY TERMS OR CONDITIONS OF PURCHASE OF SHARES OF ANY AIM FUND;
- REJECT OR CANCEL ANY REQUEST TO ESTABLISH THE AUTOMATIC INVESTMENT PLAN AND
SYSTEMATIC WITHDRAWAL PLAN OPTIONS ON THE SAME ACCOUNT; OR
- WITHDRAW ALL OR ANY PART OF THE OFFERING MADE BY THIS PROSPECTUS.
A-7 MCF--10/99
<PAGE> 31
-------------
THE AIM FUNDS
-------------
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. AIM Money
Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at
amortized cost. AIM High Income Municipal Fund, AIM Municipal Bond Fund, AIM
Tax-Exempt Bond Fund of Connecticut and AIM Tax-Free Intermediate Fund value
variable rate securities that have an unconditional demand or put feature
exercisable within seven days or less at par, which reflects the market value of
such securities.
The AIM Funds value all other securities and assets at their fair value.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day. In addition, if,
between the time trading ends on a particular security and the close of the
NYSE, events occur that materially affect the value of the security, the AIM
Funds may value the security at its fair value as determined in good faith by or
under the supervision of the Board of Directors or Trustees of the AIM Fund. The
effect of using fair value pricing is that an AIM Fund's net asset value will be
subject to the judgment of the Board of Directors or Trustees or its designee
instead of being determined by the market. Because some of the AIM Funds may
invest in securities that are primarily listed on foreign exchanges, the value
of those funds' shares may change on days when you will not be able to purchase
or redeem shares.
Each AIM Fund determines the net asset value of its shares as of the close of
the NYSE on each day the NYSE is open for business. AIM Money Market Fund also
determines its net asset value as of 12:00 noon Eastern Time on each day the
NYSE is open for business.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours the NYSE is open
for business. The AIM Funds price purchase, exchange and redemption orders at
the net asset value calculated after the transfer agent receives an order in
good form. An AIM Fund may postpone the right of redemption only under unusual
circumstances, as allowed by the Securities and Exchange Commission, such as
when the NYSE restricts or suspends trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different tax rates apply to ordinary income and long-term capital
gain distributions, regardless of how long you have held your shares. Every
year, you will be sent information showing the amount of dividends and
distributions you received from each AIM Fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of AIM
Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
INVESTORS IN TAX-EXEMPT FUNDS SHOULD READ THE INFORMATION UNDER THE HEADING
"OTHER INFORMATION -- SPECIAL TAX INFORMATION REGARDING THE FUND" IN THIS
PROSPECTUS.
The foreign, state and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
MCF--10/99 A-8
<PAGE> 32
----------------------------------
AIM LIMITED MATURITY TREASURY FUND
----------------------------------
OBTAINING ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies
of the fund's current SAI or annual or semiannual reports, please contact us
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can review and obtain copies of the fund's SAI, reports and other
information at the SEC's Public Reference Room in Washington, DC; on the EDGAR
database on the SEC's Internet website (http://www.sec.gov); or, after paying a
duplication fee, by sending a letter to the SEC's Public Reference Section,
Washington, DC 20549-0102 or by sending an electronic mail request to
[email protected]. Please call the SEC at 1-202-942-8090 for information about
the Public Reference Room.
- -----------------------------------
AIM Limited Maturity Treasury Fund
SEC 1940 Act file number: 811-5686
- -----------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com LTD-PRO-1 INVEST WITH DISCIPLINE
--Registered Trademark--
<PAGE> 33
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 FUND SERVICES, INC., P.O. BOX 4739,
HOUSTON, TEXAS 77210- 4739
OR BY CALLING (800) 347-4246.
-------------------------
STATEMENT OF ADDITIONAL INFORMATION DATED: NOVEMBER 29, 1999
RELATING TO THE PROSPECTUS OF AIM HIGH YIELD FUND II DATED: NOVEMBER 29, 1999
AND THE PROSPECTUS OF CLASS A SHARES OF THE AIM LIMITED MATURITY TREASURY FUND
DATED: NOVEMBER 29, 1999
<PAGE> 34
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
INTRODUCTION..............................................................1
GENERAL INFORMATION ABOUT THE TRUST.......................................1
The Trust and its Shares.............................................1
PERFORMANCE INFORMATION...................................................3
Yield Calculations...................................................3
Total Return Calculations............................................4
Historical Portfolio Results.........................................4
PORTFOLIO TRANSACTIONS....................................................6
General Brokerage Policy.............................................6
Allocation of Portfolio Transactions.................................7
Allocation of IPO Securities Transactions............................7
Section 28(e) Standards..............................................8
Transactions with Regular Brokers....................................8
Brokerage Commissions Paid...........................................9
Portfolio Turnover...................................................9
INVESTMENT OBJECTIVES AND POLICIES........................................9
Limited Maturity.....................................................9
High Yield..........................................................10
High Yield and Limited Maturity.....................................10
Limited Maturity....................................................13
High Yield..........................................................13
INVESTMENT RESTRICTIONS..................................................19
Limited Maturity....................................................20
High Yield..........................................................21
Additional Investment Restrictions of the Funds.....................22
Investing for Control...............................................22
MANAGEMENT...............................................................22
Trustees and Officers...............................................22
Remuneration of Trustees............................................25
AIM Funds Retirement Plan for Eligible Directors/Trustees...........27
Deferred Compensation Agreements....................................27
Investment Advisory and Other Services..............................28
Distribution Plans..................................................30
THE DISTRIBUTION AGREEMENTS..............................................34
SALES CHARGES AND DEALER CONCESSIONS.....................................35
REDUCTIONS IN INITIAL SALES CHARGES......................................38
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS..............................41
HOW TO PURCHASE AND REDEEM SHARES........................................43
Backup Withholding..................................................44
</TABLE>
i
<PAGE> 35
<TABLE>
<S> <C> <C>
NET ASSET VALUE DETERMINATION..............................................46
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS...................................47
Dividends and Distributions...........................................47
Tax Matters...........................................................47
Qualification as a Regulated Investment Company.......................47
Excise Tax on Regulated Investment Companies..........................48
Fund Distributions....................................................49
Sale or Redemption of Fund Shares.....................................50
Reinstatement Privilege...............................................50
Foreign Shareholders..................................................50
Effect of Future Legislation; Local Tax Considerations................51
SHAREHOLDER INFORMATION....................................................51
MISCELLANEOUS INFORMATION..................................................54
Charges for Certain Account Information...............................54
Audit Reports.........................................................54
Legal Matters.........................................................54
Custodian and Transfer Agent..........................................54
Control Persons and Principal Holders of Securities...................54
Other Information.....................................................57
APPENDIX A................................................................A-1
APPENDIX B................................................................B-1
Descriptions of Rating Categories....................................B-1
FINANCIAL STATEMENTS......................................................FS
</TABLE>
ii
<PAGE> 36
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 29,
1999, 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 November 29, 1999, 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 Fund Services, Inc.
("AFS"), P.O. Box 4739, Houston, Texas 77210-4739, or by calling (800) 347-4246.
Investors must receive and should read the Prospectus before they invest in any
Fund.
This Statement of Additional Information is intended to furnish
investors with additional information concerning the Funds. Some of the
information set forth in this Statement of Additional Information is also
included in the Prospectuses. Additionally, the Prospectuses and this Statement
of Additional Information omit certain information contained in the Trust's
Registration Statement filed with the SEC. Copies of the Registration Statement,
including items omitted from the Prospectuses and this Statement of Additional
Information, may be obtained from the SEC by paying the charges prescribed under
its rules and regulations.
GENERAL INFORMATION ABOUT THE TRUST
THE TRUST AND ITS SHARES
The Trust was previously incorporated as a Maryland corporation on
November 4, 1988. Pursuant to an Agreement and Plan of Reorganization, AIM
Limited Maturity Treasury Fund ("Limited Maturity") was reorganized on October
15, 1993 as a portfolio of AIM Investment Securities Funds, a Delaware business
trust. A copy of the Trust's Amended and Restated Agreement and Declaration of
Trust dated November 5, 1998 (the "Trust Agreement") is on file with the SEC.
Under the Trust Agreement, the Board of Trustees is authorized to create new
series of shares without the necessity of a vote of shareholders of the Trust.
On October 15, 1993, Limited Maturity succeeded to the assets and
assumed the liabilities of a series with a corresponding name (the "Predecessor
Fund") of Short-Term Investments Co., a Massachusetts business trust ("STIC"),
pursuant to an Agreement and Plan of Reorganization between the Trust and STIC.
All historical financial information and other information contained in this
Statement of Additional Information for periods prior to October 15, 1993
relating to Limited Maturity (or a class thereof) is that of the Predecessor
Fund (or corresponding class thereof). The AIM High Yield II Fund portfolio
("High Yield") commenced operations on September 30, 1998. Shares of beneficial
interest of the Trust are redeemable at their net asset value at the option of
the shareholder or at the option of the Trust in certain circumstances. For
information concerning the methods of redemption and the rights of share
ownership, investors should consult the Prospectuses under the captions
"Exchanging Shares" and "Redeeming Shares."
The assets received by the Trust for the issuance or sale of shares of
each Fund, and all income, earnings, profits, losses and proceeds therefrom,
subject only to the rights of creditors, will be allocated to that Fund. They
constitute the underlying assets of a Fund, are required to be segregated on the
Trust's books of account, and are to be charged with the expenses with respect
to the Fund and its respective classes. Any general expenses of the Trust not
readily identifiable as belonging to a particular Fund are allocated by or under
the direction of the Board of Trustees, primarily on the basis of relative net
assets, or other relevant factors.
Shareholders of a 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 that Fund. However, on matters affecting one
portfolio or one class of shares, a separate vote of shareholders of that
portfolio or class is required.
1
<PAGE> 37
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.
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. Fractional
shares have proportionately the same rights, including voting rights, as are
provided for a full shares, 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. If the Trust liquidates, the Funds will
first satisfy the outstanding liabilities of each of their classes. The Funds
will then distribute the net assets allocable to each of their classes to the
shareholders of such classes on a pro rata basis.
The Class A shares and Institutional Class of Limited Maturity have
different shareholders and are allocated certain differing class expenses, such
as distribution and/or service fees related to their respective shares. The
difference between the expenses of the Class A shares and Institutional Class of
Limited Maturity may affect performance. To obtain information about the
Institutional Class, please call Fund Management Company ("FMC"), a registered
broker-dealer and a wholly owned subsidiary of AIM, at (800) 659-1005. FMC is
the exclusive distributor of the Institutional Class.
Class A shares, Class B shares and Class C shares of High Yield bear
different class-specific expenses, are subject to differing sales loads,
conversion features and exchange privileges, and have exclusive voting rights on
matters pertaining to that class' distribution plan (although Class A
shareholders and Class B shareholders of High Yield must approve any material
increase in fees payable with respect to the Class A shares of High Yield under
the Class A and C Plan).
The Trust is not required to hold annual or regular meetings of
shareholders. Meetings of shareholders of a class will be held from time to time
to consider matters requiring a vote of such shareholders in accordance with the
requirements of the Investment Company Act of 1940, as amended, (the "1940
Act"), state law or the provisions of the Trust Agreement. It is not expected
that shareholder meetings will be held annually.
The Trust Agreement provides that the trustees of the Trust shall hold
office during the existence of the Trust, except as follows: (a) any trustee may
resign or retire; (b) any trustee may be removed by a vote of at least
two-thirds of the outstanding shares of the Trust, or at any time by written
instrument signed by at least two-thirds of the trustees and specifying when
such removal becomes effective; or (c) any trustee who has died or become
incapacitated and is unable to serve may be removed by a written instrument
signed by a majority of the trustees.
Under Delaware law, the shareholders of a Delaware business trust shall
be entitled to the same limitations of liability extended to shareholders of
private, for-profit corporations, however, there is a remote possibility that
shareholders could, under certain circumstances, be held liable for the
obligations of the Trust to the extent the courts of another state which does
not recognize such limited liability were to apply the laws of such state to a
controversy involving such obligations. However, the Trust Agreement disclaims
shareholder liability for acts or obligations of the Trust and requires that
notice of such disclaimer be given in each
2
<PAGE> 38
agreement, obligation or instrument entered into or executed by the Trust or the
trustees to all parties, and each party thereto must expressly waive all rights
of action directly against shareholders of the Trust. The Trust Agreement
provides for indemnification out of the property of a Fund for all losses and
expenses of any shareholder of such Fund held liable on account of being or
having been a shareholder. Thus, the risk of a shareholder incurring financial
loss is limited to circumstances in which the Fund would be unable to meet its
obligations and wherein the complaining party was not held to be bound by the
disclaimer.
The Trust Agreement further provides that the trustees and officers
will not be liable for any act, omission or obligation of the Trust or any
trustee or officer. However, nothing in the Trust Agreement protects a trustee
or officer against any liability to the Trust or to the shareholders to which a
trustee or officer would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties involved in the
conduct of his or her office with the Trust. The Trust Agreement provides for
indemnification by the Trust of the trustees, the officers and employees or
agents of the Trust, if it is determined that such person acted in good faith
and reasonably believed: (1) in the case of conduct in his or her official
capacity for the Trust, that his or her conduct was in the Trust's best
interests, (2) in all other cases, that his or her conduct was at least not
opposed to the Trust's best interests and (3) in a criminal proceeding, that he
or she had no reason to believe that his or her conduct was unlawful. Such
person may not be indemnified against any liability to the Trust or to the
Trust's shareholders to which he or she would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office. The Trust Agreement also
authorizes the purchase of liability insurance on behalf of trustees and
officers.
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 and can be expected to fluctuate from time to time and is not necessarily
indicative of future results. In general, interest income is reduced with
respect to bonds trading at a premium over their par value by subtracting a
portion of the premium from income on a daily basis, and is increased with
respect to bonds trading at a discount by adding a portion of the discount to
daily income. Capital gains and losses are excluded from the calculation.
Income calculated for the purpose of calculating a Fund's yield differs
from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding assumed in
yield calculations, the yield quoted for a Fund may differ from the rate of
distributions that Fund paid over the same period or the rate of income reported
in that Fund's financial statements. 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.
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, 1999, was
3.88%. The distribution rates for the Class A, Class B and Class C shares of
High Yield for the thirty days ended July 31, 1999 were
3
<PAGE> 39
9.30%, 8.57% and 8.56%, respectively. This distribution rate was calculated by
dividing dividends declared over the thirty days ended July 31, 1999, as
applicable, by the maximum offering price per share at the end of the period and
annualizing the result.
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. 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.
Standardized total return for Class A shares of High Yield 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 of High Yield reflects
the deduction of the maximum applicable contingent deferred sales charge on a
redemption of shares held for the period.
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
From time to time, A I M Advisors, Inc. ("AIM") or its affiliates may
waive all or a portion of their fees and/or assume certain expenses of any Fund.
Voluntary fee waivers or reductions or commitments to assume expenses may be
rescinded at any time without further notice to investors. During periods of
voluntary fee waivers or reductions or commitments to assume expenses, AIM will
retain its ability to be reimbursed for such fee prior to the end of each fiscal
year. Contractual fee waivers or reductions or reimbursement of expenses set
forth in the Fee Table in a Prospectus may not be terminated or amended to the
Funds' detriment during the period stated in the agreement between AIM and the
Fund. Fee waivers or reductions or commitments to reduce expenses will have the
effect of increasing that Fund's yield and total return.
The performance of each Fund will vary from time to time and past
results are not necessarily indicative of future results. A Fund's performance
is a function of its portfolio management in selecting the type and quality of
portfolio securities and is affected by operating expenses of the Fund and
market conditions. A shareholder's investment in a Fund is not insured or
guaranteed. These factors should be carefully considered by the investor before
making an investment in any Fund.
Some or all of the Funds may participate in the Initial Public Offering
("IPO") market, and a significant portion of those Funds' returns may be
attributable to their investment in IPOs, which have a magnified impact
4
<PAGE> 40
due to the Funds' small asset base. There is no guarantee that as the Funds'
assets grow, they will continue to experience substantially similar performance
by investing in IPOs.
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 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 charts show the total returns for Class A shares of
Limited Maturity for the one, five and ten year periods ended July 31, 1999 and
total returns for Class A shares of Limited Maturity and Class A, Class B and
Class C shares of High Yield for the period from inception of each class until
July 31, 1999:
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURNS
----------------------
ONE FIVE TEN SINCE
YEAR YEARS YEARS INCEPTION
---- ----- ----- ---------
<S> <C> <C> <C> <C>
Limited Maturity
Class A* 3.29% 5.31% 5.93% 6.23%
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE RETURN
-----------------
ONE FIVE TEN SINCE
YEAR YEARS YEARS INCEPTION
---- ----- ----- ---------
<S> <C> <C> <C> <C>
Limited Maturity
Class A* 3.29% 29.52% 77.96% 102.02%
High Yield
Class A** N/A N/A N/A 16.56%
Class B*** N/A N/A N/A 8.03%
Class C*** N/A N/A N/A 11.93%
</TABLE>
* December 15, 1987 (date operations commenced)
** September 30, 1998 (date operations commenced)
*** November 20, 1998 (date operations commenced)
The 30-day yield for the Class A shares of Limited Maturity as of July
31, 1999, was 4.95%.
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<PAGE> 41
The 30-day yield for the Class A, Class B and Class C shares of High
Yield as of July 31, 1999, were 9.98%, 9.72% and 9.72%, respectively.
During the one-year period ended July 31, 1999, a hypothetical $1,000
investment in the Class A shares of Limited Maturity at the beginning of such
period would have been worth $1,032.91. During the five-year period ended July
31, 1999, a hypothetical $1,000 investment in the Class A shares of Limited
Maturity at the beginning of such period would have been worth $1,295.22. During
the ten-year period ended July 31, 1999, a hypothetical $1,000 investment in the
Class A shares of Limited Maturity at the beginning of such period would have
been worth $1,779.55. For the period from December 15, 1987 (date operations
commenced) through July 31, 1999, a hypothetical $1,000 investment in the Class
A shares of Limited Maturity would have been worth $2,020.21. Each of these
figures assume the maximum sales charge was paid and all distributions were
reinvested.
During the period from September 30, 1998 (date operations commenced)
through July 31, 1999, a hypothetical $1,000 investment in the Class A shares of
High Yield would have been worth $1,165.58. During the period from November 20,
1998 (date operations of the Class B and Class C shares commenced) through July
31, 1999, a hypothetical $1,000 investment in each of the Class B shares and
Class C shares of High Yield would have been worth $1,080.34 and $1,119.33,
respectively.
PORTFOLIO TRANSACTIONS
GENERAL BROKERAGE POLICY
A I M Advisors, Inc. ("AIM") makes decisions to buy and sell securities
for each Fund, selects broker-dealers, effects the Funds' investment portfolio
transactions, allocates brokerage fees in such transactions, and where
applicable, negotiates commissions and spreads on transactions. Since most
purchases and sales of portfolio securities by the Funds are usually principal
transactions, the Funds incur little or no brokerage commissions. AIM's primary
consideration in effecting a security transaction is to obtain the most
favorable execution of the order, which includes the best price on the security
and a low commission rate. While AIM seeks reasonably competitive commission
rates, the Funds may not pay the lowest commission or spread available. See
"Section 28(e) Standards" below.
In the event a Fund purchases securities traded in the over-the-counter
market, the Fund deals directly with dealers who make markets in the securities
involved, except when better prices are available elsewhere. Portfolio
transactions placed through dealers who are primary market makers are effected
at net prices without commissions, but which include compensation in the form of
a mark up or mark down.
Traditionally, commission rates have not been negotiated on stock
markets outside the United States. Although in recent years many overseas stock
markets have adopted a system of negotiated rates, a number of markets maintain
an established schedule of minimum commission rates.
AIM may determine target levels of commission business with various
brokers on behalf of its clients (including the Funds) over a certain time
period. The target levels will be based upon the following factors, among
others: (1) the execution services provided by the broker; (2) the research
services provided by the broker; and (3) the broker's interest in mutual funds
in general and in the Funds and other mutual funds advised by AIM or A I M
Capital Management, Inc. (collectively, the "AIM Funds") in particular,
including sales of the Funds and of the other AIM Funds. In connection with (3)
above, the Funds' trades may be executed directly by dealers that sell shares of
the AIM Funds or by other broker-dealers with which such dealers have clearing
arrangements. AIM will not use a specific formula in connection with any of
these considerations to determine the target levels.
AIM will seek, whenever possible, to recapture for the benefit of a
Fund any commissions, fees, brokerage or similar payments paid by the Fund on
portfolio transactions. Normally, the only fees which AIM
6
<PAGE> 42
can recapture are the soliciting dealer fees on the tender of a Fund's portfolio
securities in a tender or exchange offer.
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.
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.
ALLOCATION OF IPO SECURITIES TRANSACTIONS
From time to time, certain of the investment companies managed,
administered or distributed by AIM or its affiliates (the "AIM Funds") may
become interested in participating in security distributions that are available
in an IPO, and occasions may arise when purchases of such securities by one AIM
Fund may also be considered for purchase by one or more other AIM Funds. In such
cases, it shall be AIM's practice to specifically combine or otherwise bunch
indications of interest for IPO securities for all AIM Funds participating in
purchase transactions for that security, and to allocate such transactions in
accordance with the following procedures:
AIM will determine the eligibility of each AIM Fund that seeks to
participate in a particular IPO by reviewing a number of factors, including
suitability of the investment with the AIM Fund's investment objective, policies
and strategies, the liquidity of the AIM Fund if such investment is purchased,
and whether the portfolio manager intends to hold the security as a long-term
investment. The allocation of limited supply securities issued in IPOs will be
made to eligible AIM Funds in a manner designed to be fair and equitable for the
eligible AIM Funds, and so that there is equal allocation of IPOs over the
longer term. Where multiple funds are eligible, rotational participation may
occur, based on the extent to which an AIM Fund has participated in previous
IPOs as well as the size of the AIM Fund. Each eligible AIM Fund with an asset
level of less than $500 million will be placed in one or three tiers, depending
upon its asset level. The AIM Funds in the tier containing funds with the
smallest asset levels will participate first, each receiving a 40 basis point
allocation (rounded to the nearest share round lot that approximates 40 basis
points) (the "Allocation"), based on that AIM Fund's net assets. This process
continues until all of the AIM Funds in the three tiers receive their
Allocations, or until the shares are all allocated. Should securities remain
after this process, eligible AIM Funds will receive their Allocations on a
straight pro rata basis. For the tier of AIM Funds not receiving a full
Allocation, the Allocation
7
<PAGE> 43
may be made only to certain AIM Funds so that each may receive close to or
exactly 40 basis points.
Any AIM Funds with substantially identical investment objectives and
policies will participate in syndicates in amounts that are substantially
proportionate to each other. In these cases, the net assets of the largest AIM
Fund will be used to determine in which tier, as described in the paragraph
above, such group of AIM Funds will be placed. The price per share of securities
purchased in such syndicate transactions will be the same for each AIM Fund.
SECTION 28(e) STANDARDS
Section 28(e) of the Securities Exchange Act of 1934 provides that AIM,
under certain circumstances, lawfully may cause an account to pay a higher
commission than the lowest available. Under Section 28(e), AIM must make a good
faith determination that the commissions paid are "reasonable in relation to the
value of the brokerage and research services provided ... viewed in terms of
either that particular transaction or [AIM's] overall responsibilities with
respect to the accounts as to which it exercises investment discretion." The
services provided by the broker also must lawfully and appropriately assist AIM
in the performance of its investment decision-making responsibilities.
Accordingly, in recognition of research services provided to it, a Fund may pay
a broker higher commissions than those available from another broker.
Research services received from broker-dealers supplement AIM's own
research (and the research of its affiliates), and may include the following
types of information: statistical and background information on the U.S. and
foreign economies, industry groups and individual companies; forecasts and
interpretations with respect to the U.S. and foreign economies, securities,
markets, specific industry groups and individual companies; information on
federal, state, local and foreign political developments; portfolio management
strategies; performance information on securities, indexes and investment
accounts; information concerning prices of securities; and information supplied
by specialized services to AIM and to the Trust's trustees with respect to the
performance, investment activities, and fees and expenses of other mutual funds.
Broker-dealers may communicate such information electronically, orally, in
written form or on computer software. Research services may also include the
providing of electronic communication of trade information, 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.
TRANSACTIONS WITH REGULAR BROKERS
As of July 31, 1999, High Yield had no transactions with regular
brokers as that term is defined in Rule 10b-1 under the 1940 Act.
8
<PAGE> 44
BROKERAGE COMMISSIONS PAID
Limited Maturity paid no brokerage commissions to brokers affiliated
with that Fund during the past three fiscal years of the Fund.
For the period ended July 31, 1999, High Yield paid brokerage
commissions of $6,459. For the period ended July 31, 1999, AIM allocated certain
of High Yield's brokerage transactions to certain broker-dealers that provided
AIM with certain research, statistical and other information. Such transactions
amounted to $407,170 and the related brokerage commissions were $928.
PORTFOLIO TURNOVER
Any particular security will be sold, and the proceeds reinvested,
whenever such action is deemed prudent from the viewpoint of a Fund's investment
objective, regardless of the holding period of that security. 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 the portion of the Fund's distributions constituting
taxable capital gains may increase. See "Dividends, Distributions and Tax
Matters." 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.
The turnover rates of Limited Maturity for the fiscal years ended July
31, 1999, 1998 and 1997, were 184%, 133% and 130%, respectively. The turnover
rate of High Yield for the period September 30, 1998 through July 31, 1999 was
223%.
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 Objective and Strategies" 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.
The investment policies may be changed by the Board of Trustees without the
affirmative vote of a majority of the outstanding shares of beneficial interest
of the Fund.
LIMITED MATURITY
The investment objective of Limited Maturity is to seek liquidity with
minimum fluctuation in principal value, and, consistent with this objective, the
highest total return achievable. There can be no assurance that the Fund will
achieve its investment objective. The Fund's investment objective is a
fundamental policy, which may be changed only by the affirmative vote of the
holders of a majority of the outstanding shares of beneficial interest of the
Fund.
The Fund will attempt to achieve its objective by investing in an
actively managed portfolio of U.S. Treasury notes and other direct obligations
of the U.S. Treasury.
The Fund will attempt to enhance its total return through capital
appreciation when market factors, such as economic and market conditions and the
prospects for interest rate changes, indicate that capital appreciation may be
available without significant risk to principal. The Fund will only purchase
securities whose maturities do not exceed three (3) years. The Fund's policy of
investing in securities with remaining maturities of three (3) years or less
will result in high portfolio turnover. Under normal circumstances, the average
portfolio maturity of the Fund will range between one-and-one-half (1 1/2) and
two (2) years. Since brokerage commissions are not normally paid on investments
of the type made by the Fund, the high turnover rate should not adversely affect
the net income of the Fund.
9
<PAGE> 45
HIGH YIELD
High Yield'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, described in the
Statement of Additional Information, without shareholder approval, except in
those instances where shareholder approval is expressly required.
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.
High Yield 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 "High Yield -- Risk Factors
Regarding Non-Investment Grade Debt Securities" and "Appendix B -- Descriptions
of Rating Categories."
The Fund will invest at least 5% of the value of its total assets in
securities that are rated Ba or B by Moody's Investors Service, Inc. ("Moody's")
or BB or B by Standard & Poor's Rating Services ("S&P"), or securities of
comparable quality in the opinion of the fund's portfolio managers 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.
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.
The Fund may invest in foreign securities.
HIGH YIELD AND LIMITED MATURITY
DELAYED DELIVERY AGREEMENTS. Delayed delivery agreements involve
commitments by a 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 a Fund will be as fully invested as
possible in instruments meeting the Fund's investment objective, a 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, a Fund, or its custodian bank will segregate
liquid assets (cash and short-term U. S. Treasury obligations, in
10
<PAGE> 46
the case of Limited Maturity) of a dollar value sufficient at all times to make
payment for the delayed delivery securities. No more than 25% of a 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. Limited Maturity may purchase or sell U.S. Treasury securities on a
"delayed-delivery" basis.
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. A Fund will only make commitments to purchase such securities with
the intention of actually acquiring such securities, but a 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 a Fund's
total assets would become committed to purchases of when-issued securities and
delayed delivery agreements.
If a Fund purchases a when-issued security, it will direct its
custodian bank to collateralize the when-issued commitment by segregating liquid
assets (cash and short-term U.S. Treasury obligations, in the case of Limited
Maturity) 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. Limited Maturity may purchase U.S. Treasury obligations
on a when-issued basis.
Securities purchased on a when-issued basis and the securities held in
a 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 a 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 a 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.
BORROWING. A 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. Limited Maturity may not borrow
for the purpose of increasing income. If there are unusually heavy redemptions
because of changes in interest rates or for any other reason, the Fund may have
to sell a portion of its investment portfolio at a time when it may be
disadvantageous to do so. Selling Fund securities under these circumstances may
result in a lower net asset value per share or decreased dividend income, or
both. The Fund believes that, in the event of abnormally heavy redemption
requests, its borrowing provisions would help to mitigate any such effects and
could make the forced sale of its portfolio securities less likely. A 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. A Fund will not
purchase additional securities when borrowings exceed 5% of its total assets.
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REVERSE REPURCHASE AGREEMENTS. Reverse Repurchase Agreements involve
the sale of securities held by a Fund, with an agreement that the Fund will
repurchase the securities at an agreed upon price and date and interest payment.
A 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 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 or (iii) in the case of High Yield to
cover short-term cash requirements resulting from the timing of trade
settlements. At the time it enters into a reverse repurchase agreement, High
Yield will segregate liquid assets (U.S. Treasury obligations in the case of
Limited Maturity) having a dollar value equal to the repurchase price. Reverse
repurchase agreements are considered borrowings by the Fund under the 1940 Act.
Any investment gains made by the Fund with monies borrowed through reverse
repurchase agreements will cause the net asset value of the Fund's shares to
rise faster than would be the case if the Fund had no such borrowings. On the
other hand, if the investment performance resulting from the investment of
borrowings obtained through reverse repurchase agreements fails to cover the
cost of such borrowings to the Fund, the net asset value of the Fund will
decrease faster than would otherwise be the case.
ILLIQUID SECURITIES. Illiquid securities include securities that 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. High Yield may invest up to 15% of its net assets
in securities that are illiquid. Limited Maturity will limit its investment in
illiquid securities to no more than 15% of its net assets, including repurchase
agreements with remaining maturities in excess of seven (7) days.
INVESTMENT IN OTHER INVESTMENT COMPANIES. A Fund is permitted to invest
in other investment companies to the extent permitted by the 1940 Act, and rules
and regulations thereunder, and, if applicable, exemptive orders granted by the
SEC. The Funds have obtained an exemptive order from the SEC allowing them to
invest in money market funds that have AIM or an affiliate of AIM as an
investment adviser (the "Affiliated Money Market Funds"), provided that
investments in Affiliated Money Market Funds do not exceed 25% of the total
assets of the Fund. With respect to a Fund's purchase of shares of the
Affiliated Money Market Funds, the Fund will indirectly pay the advisory fees
and other operating expenses of the Affiliated Money Market Funds.
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.
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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.
LIMITED MATURITY
U.S. TREASURY SECURITIES. The Fund may invest in U.S. Treasury
obligations, which are direct obligations of the U.S. Treasury and which differ
only in their interest rates, maturities, and times of issuance, including U.S.
Treasury bills, U.S. Treasury notes and U.S. Treasury bonds.
LOANS OF PORTFOLIO SECURITIES. The Fund may from time to time loan
securities from its portfolio to brokers, dealers and financial institutions and
receive collateral in cash or U.S. Treasury obligations which will be maintained
at all times in an amount equal to at least 100% of the current market value of
the loaned securities, provided, however, that such loans are made according to
the guidelines of the SEC and the Trust's Board of Trustees. The Fund will be
entitled to the interest paid upon investment of the cash collateral in its
permitted investments or to the payment of a premium or fee for the loan. The
Fund may at any time call such loans and obtain the securities loaned. However,
if the borrower of the securities should default on its obligation to return the
securities borrowed, the value of the collateral may be insufficient to permit
the Fund to reestablish its position by making a comparable investment due to
changes in market conditions. The Fund may pay reasonable fees to persons
unaffiliated with the Fund in connection with the arranging of such loans. The
Fund will only engage in securities lending transactions with broker-dealers
registered with the SEC, or with federally-supervised banks or savings and loan
associations.
TEMPORARY DEFENSIVE INVESTMENTS. In anticipation of or in response to
adverse market conditions, for cash management purposes, or for defensive
purposes, the Fund may temporarily hold all or a portion of its assets in cash
and money market instruments. The Fund may also invest up to 25% of its total
assets in Affiliated Money Market Funds for these purposes.
HIGH YIELD
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 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. The Fund may
also invest up to 25% of its total assets in Affiliated Money Market Funds for
these purposes.
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
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<PAGE> 49
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 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.
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
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<PAGE> 50
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.
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.
On January 1, 1999, certain members of the European Economic and
Monetary Union ("EMU"), namely Austria, Belgium, Finland, France, Germany,
Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain established a
common European currency known as the "euro" and each member's local currency
became a denomination of the euro. It is anticipated that each participating
country will replace its local currency with the euro on July 1, 2002. Any other
European country that is a member of the European Union and satisfies the
criteria for participation in the EMU may elect to participate in the EMU and
may supplement its existing currency with the euro. The anticipated replacement
of existing currencies with the euro on July 1, 2002 could cause market
disruptions before or after July 1, 2002 and could adversely affect the value of
securities held by a 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 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
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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, environmental liability risks, increases in property taxes and
operating expenses, changes in zoning laws, casualty or condemnation losses,
limitations on rents, changes in neighborhood values, the appear 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.
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.
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
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the Fund's investment in the loaned securities. Lending securities entails a
risk of loss to the Fund if and to the extent that the market value of the
securities loaned were to increase and the lender did not increase the
collateral accordingly.
COVERED CALL OPTIONS. The Fund may write call options, but only on a
covered basis; that is, the Fund will own the underlying security. The exercise
price of a call option may be below, equal to, or above the current market value
of the underlying security at the time the option is written. When a Fund writes
a covered call option, an amount equal to the premium received by the Fund is
recorded as an asset and an equivalent liability. The amount of the liability is
subsequently "marked-to-market" to reflect the current market value of the
option written. The current market value of a written option is the last sale
price, or in the absence of a sale, the last offering price. If a written call
option expires on the stipulated expiration date, or if the Fund enters into a
closing purchase transaction, the Fund realizes a gain (or a loss if the closing
purchase transaction exceeds the premium received when the option was written)
without regard to any unrealized gain or loss on the underlying security, and
the liability related to such option is extinguished. If a written option is
exercised, the Fund realizes a gain or a loss from the sale of the underlying
security and the proceeds of the sale are increased by the premium originally
received.
A call option gives the purchaser of such option the right to buy, and
the writer (the Fund) the obligation to sell, the underlying security at the
stated exercise price during the option period. The purchaser of a call option
owns or has the right to acquire the security which is the subject of the call
option at any time during the option period. During the option period, in return
for the premium paid by the purchaser of the option, the Fund has given up the
opportunity for capital appreciation above the exercise price should the market
price of the underlying security increase, but has retained the risk of loss
should the price of the underlying security decline. During the option period,
the Fund may be required at any time to deliver the underlying security against
payment of the exercise price. This obligation is terminated upon the expiration
of the option period or at such earlier time at which the Fund effects a closing
purchase transaction by purchasing (at a price which may be higher than was
received when the call option was written) a call option identical to the one
originally written.
SHORT SALES. The Fund may from time to time make short sales of
securities which it owns or which it has the right to acquire through the
conversion or exchange of other securities it owns. In a short sale, a fund does
not immediately deliver the securities sold and does not receive the proceeds
from the sale. A fund is said to have a short position in the securities sold
until it delivers the securities sold, at which time it receives the proceeds of
the sale. The Fund will neither make short sales of securities nor maintain a
short position unless, at all times when a short position is open, the Fund owns
an equal amount of such securities or securities convertible into or
exchangeable, without payment of any further consideration, for securities of
the same issue as, and equal in amount to, the securities sold short. This is a
technique known as selling short "against the box." To secure its obligation to
deliver the securities sold short, the Fund will segregate with its custodian,
an equal amount of the securities sold short or securities convertible into or
exchangeable for such securities.
Since the Fund ordinarily will want to continue to receive interest and
dividend payments on securities in its portfolio which are convertible into the
securities sold short, the Fund will normally close out a short 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.
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FUTURES CONTRACTS. In cases of purchases of futures contracts, an
amount of liquid assets, equal to the cost of the futures contracts (less any
related margin deposits), will be segregated to collateralize the position and
ensure that the use of such futures contracts is unleveraged. Unlike when the
Fund purchases or sells a security, no price is paid or received by the Fund
upon the purchase or sale of a futures contract. Initially, the Fund will be
required to deposit with its custodian for the account of the broker a stated
amount, as called for by the particular contract, of liquid assets. This amount
is known as "initial margin." The nature of initial margin in futures
transactions is different from that of margin in securities transactions in that
futures contract margin does not involve the borrowing of funds by the customer
to finance the transactions.
Rather, the initial margin is in the nature of a performance bond or
good faith deposit on the contract which is returned to the Fund upon
termination of the futures contract assuming all contractual obligations have
been satisfied. Subsequent payments, called "variation margin," to and from the
broker will be made on a daily basis as the price of the futures contract
fluctuates, making the long and short positions in the futures contract more or
less valuable. This process is known as "marking-to-market." For example, when
the Fund has purchased a stock index futures contract and the price of the
underlying stock index has risen, that position will have increased in value and
the Fund will receive from the broker a variation margin payment with respect to
that increase in value. Conversely, where the Fund has purchased a stock index
futures contract and the price of the underlying stock index has declined, that
position would be less valuable and the Fund would be required to make a
variation margin payment to the broker. Variation margin payments would be made
in a similar fashion when the Fund has purchased an interest rate futures
contract. At any time prior to expiration of the futures contract, the Fund may
elect to close the position by taking an opposite position which will operate to
terminate the Fund's position in the futures contract. A final determination of
variation margin is then made, additional cash is required to be paid by or
released to the Fund and the Fund realizes a loss or a gain.
A description of the various types of futures contracts which may be
utilized by the Fund is as follows:
Interest Rate Futures Contracts - An interest rate futures contract is
an agreement between two parties to buy and sell a debt security for a set price
on a future date. Currently, there are futures contracts based on long-term U.S.
Treasury bonds, U.S. Treasury notes, U.S. Treasury bills, Eurodollars and the
Bond Buyer Municipal Bond Index.
Stock Index Futures Contracts - A stock index assigns relative values
to the common stocks included in the index and the index fluctuates with changes
in the market values of the common stocks so included. A stock index futures
contract is an agreement pursuant to which two parties agree to take or make
delivery of an amount of cash equal to a specified dollar 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. 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,
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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.
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.
RISKS AS TO FUTURES CONTRACTS AND RELATED OPTIONS. The use of futures
contracts and related options as hedging devices presents several risks. One
risk arises because of the imperfect correlation between movements in the price
of hedging instruments and movements in the price of the stock, debt securities
or foreign currency which are the subject of the hedge. If the price of a
hedging instrument moves less than the price of the stocks, debt securities or
foreign currency which are the subject of the hedge, the hedge will not be fully
effective. If the price of a hedging instrument moves more than the price of the
stock, debt securities or foreign currency, the Fund will experience either a
loss or a gain on the hedging instrument which will not be completely offset by
movements in the price of the stock, debt securities or foreign currency which
are the subject of the hedge. The use of options on futures contracts involves
the additional risk that changes in the value of the underlying futures contract
will not be fully reflected in the value of the option.
Successful use of hedging instruments by the Fund is also subject to
AIM's ability to predict correctly movements in the direction of the stock
market, of interest rates or of foreign exchange rates. Because of possible
price distortions in the futures and options markets, and because of the
imperfect correlation between movements in the prices of hedging instruments and
the investments being hedged, even a correct forecast by AIM of general market
trends may not result in a completely successful hedging transaction.
It is also possible that where the Fund has sold futures contracts to
hedge its portfolio against a decline in the market, the market may advance and
the value of stocks or debt securities held in the Fund's portfolio may decline.
If this occurred, the Fund would lose money on the futures contracts and also
experience a decline in the value of its portfolio securities. Similar risks
exist with respect to foreign currency hedges.
Positions in futures contracts or options may be closed out only on an
exchange on which such contracts are traded. Although the Fund intends to
purchase or sell futures contracts or purchase options only on exchanges or
boards of trade where there appears to be an active market, there is no
assurance that a liquid market on an exchange or board of trade will exist for
any particular contract or at any particular time. If there is not a liquid
market at a particular time, it may not be possible to close a futures position
or purchase an option at such time. In the event of adverse price movements
under those circumstances, the Fund would continue to be required to segregate
additional liquid assets for payment of maintenance margin on its futures
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 percentage limitations set forth in these investment 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.
19
<PAGE> 55
LIMITED MATURITY
As a matter of fundamental policy which may not be changed without the
affirmative vote of the holders of a majority of the outstanding shares of
beneficial interest of all classes of Limited Maturity, such Fund will not:
(1) purchase any security unless the security is a direct
obligation of the U.S. Treasury or is a repurchase agreement with
respect to a direct obligation of the U.S. Treasury;
(2) issue senior securities in the form of indebtedness,
borrow money, except from banks for temporary or emergency purposes,
such as to meet redemption requests (not for the purpose of increasing
income), or borrow through reverse repurchase agreements (which may be
entered into for the purpose of increasing income) if, as a result of
any such borrowings, the amount borrowed would exceed 33 1/3% of the
value of the Fund's assets (including the proceeds of such securities
issued or money borrowed) less its liabilities (not including the
liabilities incurred in connection with such issuance or borrowing);
(3) make loans of money other than (a) through the purchase of
debt securities in accordance with the Fund's investment program, and
(b) by entering into repurchase agreements;
(4) lend any portfolio securities if the value of the
securities loaned by it would exceed an amount equal to one-third of
its total assets;
(5) 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;
(6) 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;
(7) invest in real estate;
(8) 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;
(9) purchase oil, gas or mineral interests;
(10) invest in any obligation not payable as to principal and
interest in United States currency; or
(11) 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
20
<PAGE> 56
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.
HIGH YIELD
As a matter of fundamental policy which may not be changed without the
affirmative vote of the holders of a majority of the outstanding shares of
beneficial interest of all classes of High Yield, such Fund may not:
(1) borrow money or issue senior securities or mortgage,
pledge, or hypothecate its assets, except that the Fund may enter into
financial futures contracts, reverse repurchase agreements, and borrow
from banks to pay for redemptions and for temporary purposes in an
amount not exceeding one-third of the value of its total assets
(including the amount of such borrowings) less its liabilities
(excluding the amount of such borrowings) and may secure such
borrowings by pledging up to one-third of the value of its total
assets. For the purpose of this restriction, collateral arrangements
with respect to margin for a financial futures contract are not deemed
to be a pledge of assets. The Fund will not purchase securities while
borrowings in excess of 5% of its total assets are outstanding;
(2) make short sales of securities or maintain short
positions, unless, at all times when a short position is open, the Fund
owns at least an equal amount of the securities sold short or owns
securities convertible into or exchangeable for at least an equal
amount of such securities sold short, without the payment of further
consideration;
(3) purchase or sell real estate or interests therein, but the
Fund may purchase and sell (a) securities which are secured by real
estate, and (b) the securities of companies which invest or deal in
real estate or interests therein, including real estate investment
trusts;
(4) act as a securities underwriter;
(5) purchase or sell commodities or commodity contracts, other
than financial futures contracts and options thereon;
(6) purchase the securities of any issuer if, as a result, the
Fund would fail to be a diversified company within the meaning of the
1940 Act and the rules and regulations promulgated thereunder, as such
statute, rules and regulations are amended from time to time; provided,
however, that the Fund may purchase securities of other investment
companies to the extent permitted by the 1940 Act and the rules and
regulations promulgated thereunder (as such statute, rules and
regulations are amended from time to time) or to the extent permitted
by exemptive order or other similar relief;
21
<PAGE> 57
(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
The overall management of the business and affairs of the Funds is
vested in the Trust's Board of Trustees. The Board of Trustees approves all
significant agreements between the Trust, on behalf of the Funds, and persons or
companies furnishing services to the Funds, including the investment advisory
agreement and administrative services agreement with AIM, the agreements with
AIM Distributors regarding distribution of each Fund's shares, the agreement
with The Bank of New York as the custodian for Limited Maturity Class A shares
and the agreement with State Street Bank and Trust Company as the custodian for
High Yield and the agreement with A I M Fund Services, Inc. ("AFS") as transfer
agent. The day-to-day operations of each Fund are delegated to the officers of
the Trust and to AIM, subject always to the objective and policies of the
applicable 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 corporation of AIM.
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 77046-1173. 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.
22
<PAGE> 58
<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 (80) Trustee and Chairman Chairman of the Board of Directors, 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 (55) Trustee Director, ACE Limited (insurance company). Formerly,
906 Frome Lane Director, President and Chief Executive Officer, COMSAT
McLean, VA 22102 Corporation; and Chairman, Board of Governors of INTELSAT
(international communications company).
- --------------------------------------------------------------------------------------------------------------------------
OWEN DALY II (75) Trustee Director, Cortland Trust Inc. (investment company).
Six Blythewood Road Formerly, Director, CF & I Steel Corp., Monumental Life
Baltimore, MD 21210 Insurance Company and Monumental General Insurance
Company; and Chairman of the Board of Equitable
Bancorporation.
--------------------------------------------------------------------------------------------------------------------------
EDWARD K. DUNN, JR. (64) Trustee Chairman of the Board of Directors, Mercantile Mortgage
2 Hopkins Plaza, 20th Floor Corp. Formerly, Vice Chairman of the Board of Directors
Baltimore, MD 21201 and President, Mercantile-Safe Deposit & Trust Co.; and
President, Mercantile Bankshares.
- --------------------------------------------------------------------------------------------------------------------------
JACK M. FIELDS (47) Trustee Chief Executive Officer, Texana Global, Inc. (foreign
8810 Will Clayton Parkway trading company) and Twenty First Century Group, Inc.
Jetero Plaza, Suite E (a governmental affairs company). Formerly, Member of
Humble, TX 77338 the U.S. House of Representatives.
- --------------------------------------------------------------------------------------------------------------------------
**CARL FRISCHLING (62) Trustee Partner, Kramer, Levin, Naftalis & Frankel, LLP (law
919 Third Avenue firm). Formerly, Partner, Reid & Priest (law firm).
New York, NY 10022
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------------
* A trustee who is an "interested person" of the Trust and AIM as defined
in the 1940 Act.
** A trustee who is an "interested person" of the Trust as defined in the
1940 Act.
23
<PAGE> 59
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATION DURING AT LEAST THE
NAME, ADDRESS AND AGE WITH REGISTRANT PAST 5 YEARS
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
*ROBERT H. GRAHAM (52) Trustee and President Director, President and Chief Executive Officer, A I M
Management Group Inc.; Director and President, A I M
Advisors, Inc.; Director and Senior Vice President,
A I M Capital Management, Inc., A I M Distributors, Inc.,
A I M Fund Services, Inc., and Fund Management Company;
and Director, AMVESCAP PLC.
- --------------------------------------------------------------------------------------------------------------------------
PREMA MATHAI-DAVIS (49) Trustee Chief Executive Officer, YWCA of the U.S.A.;
350 Fifth Avenue, Suite 301 Commissioner, New York City Department for the Aging;
New York, NY 10118 and Member of the Board of Directors, Metropolitan
Transportation Authority of New York State.
- --------------------------------------------------------------------------------------------------------------------------
LEWIS F. PENNOCK (57) Trustee Attorney in private practice in Houston, Texas.
6363 Woodway, Suite 825
Houston, TX 77057
- --------------------------------------------------------------------------------------------------------------------------
LOUIS S. SKLAR (60) Trustee Executive Vice President, Development and Operations,
Transco Tower, 50th Floor Hines Interests Limited Partnership (real estate
2800 Post Oak Blvd. development).
Houston, TX 77056
- --------------------------------------------------------------------------------------------------------------------------
GARY T. CRUM (52) Senior Vice President Director and President, A I M Capital Management, Inc.;
Director and Executive Vice President, A I M Management
Group Inc.; Director and Senior Vice President, A I M
Advisors, Inc.; and Director, A I M Distributors, Inc.
and AMVESCAP PLC.
- --------------------------------------------------------------------------------------------------------------------------
CAROL F. RELIHAN (45) Senior Vice President Director, Senior Vice President, General Counsel and
and Secretary Secretary, A I M Advisors, Inc.; Senior Vice President,
General Counsel and Secretary, A I M Management Group
Inc.; Director, Vice President and General Counsel,
Fund Management Company; 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.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
* A trustee who is an "interested person" of the Trust and AIM as defined
in the 1940 Act.
24
<PAGE> 60
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATION DURING AT LEAST THE
NAME, ADDRESS AND AGE WITH REGISTRANT PAST 5 YEARS
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DANA R. SUTTON (40) Vice President and Vice President and Fund Controller, A I M Advisors,
Treasurer Inc.; and Assistant Vice President and Assistant
Treasurer, Fund Management Company.
- --------------------------------------------------------------------------------------------------------------------------
MELVILLE B. COX (56) 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 (39) Vice President Senior Vice President, A I M Capital Management, Inc.
and Vice President, A I M Advisors, Inc.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
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
(Chairman), Fields, Frischling, Pennock, Sklar and Dr. Mathai-Davis. 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, Sklar (Chairman) and Dr. Mathai-Davis.
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, Sklar and Dr. Mathai-Davis.
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.
REMUNERATION OF TRUSTEES
Each trustee is reimbursed for expenses incurred in connection with
each meeting of the Board of Trustees or any committee attended. 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.
25
<PAGE> 61
Set forth below is information regarding compensation paid or accrued
for each trustee of the Trust:
<TABLE>
<CAPTION>
RETIREMENT
AGGREGATE BENEFITS TOTAL
COMPENSATION ACCRUED COMPENSATION
FROM THE BY ALL FROM ALL
TRUSTEE FUNDS(1) AIM FUNDS(2) AIM FUNDS(3)
------- ------------- ------------ -------------
<S> <C> <C> <C>
Charles T. Bauer $ 0 $ 0 $ 0
Bruce L. Crockett 1,947 37,485 96,000
Owen Daly II 1,947 122,898 96,000
Edward K. Dunn, Jr. 1,947 0 78,889
Jack M. Fields 1,941 15,826 95,500
Carl Frischling(4) 1,937 97,791 95,500
Robert H. Graham 0 0 0
John F. Kroeger(5) 198 107,896 91,654
Prema Mathai-Davis 1,798 0 32,636
Lewis F. Pennock 1,937 45,766 95,500
Ian W. Robinson(6) 1,266 94,442 94,500
Louis S. Sklar 1,931 90,232 95,500
</TABLE>
- -------------------------
(1) The total amount of compensation deferred by all trustees of the Trust
during the fiscal year ended July 31, 1999, including interest earned
thereon, was $11,681.
(2) During the fiscal year ended July 31, 1999, the total estimated amount
of expenses allocated to the Trust in respect of such retirement
benefits was $2,794. Data reflects compensation for the calendar year
ended December 31, 1998.
(3) Each trustee serves as a director or trustee of a total of 12
registered investment companies advised by AIM as of December 31, 1998.
Data reflect total compensation earned during the calendar year ended
December 31, 1998.
(4) The Trust paid the law firm of Kramer, Levin, Naftalis & Frankel, LLP
Limited Maturity and High Yield, each paid $4,376 and $1,967,
respectively, in legal fees for services provided to the Trust during
the fiscal year ended July 31, 1999. Mr. Frischling, a trustee of the
Trust, is a partner at such firm.
(5) Mr. Kroeger was a trustee until June 11, 1998, when he resigned. On
that date he became a consultant to the Trust. Of the amount listed
above, $-0- was for compensation for services as a trustee and the
remainder as a consultant. Mr. Kroeger passed away on November 26,
1998. Mr. Kroeger's widow will receive his pension as described below
under "AIM Funds Retirement Plan for Eligible Directors/Trustees."
(6) Mr. Robinson was a trustee until March 12, 1999, when he retired.
26
<PAGE> 62
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 or her date of retirement equal to a maximum of
75% of the annual 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) and based on the number of such trustee's
years of service (not in excess of 10 years of service) completed with respect
to any of the Applicable 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 Applicable AIM Fund.
Set forth below is a table that shows the estimated annual benefits
payable to an eligible trustee upon retirement assuming a specific level of
compensation and years of service classifications. The estimated credited years
of service for Messrs. Crockett, Daly, Dunn, Fields, Frischling, Kroeger,
Pennock, Robinson, Sklar and Dr. Mathai-Davis are 12, 12, 1, 2, 22, 20, 18, 11,
10 and 1 years, respectively.
ESTIMATED ANNUAL BENEFITS UPON RETIREMENT
<TABLE>
<CAPTION>
Number of Years of Annual Retirement Compensation Paid By
Service With All Applicable AIM Funds
Applicable AIM
Funds
------------------- -------------------------------------------
<S> <C>
10 $67,500
9 $60,750
8 $54,000
7 $47,250
6 $40,500
5 $33,750
</TABLE>
DEFERRED COMPENSATION AGREEMENTS
Messrs. Daly, Frischling, Kroeger, Robinson and Sklar (for purposes of
this paragraph only, the "deferring trustees") have each executed a Deferred
Compensation Agreement (collectively, the "Agreements"). Pursuant to the
Agreements, the deferring trustees may elect to defer receipt of up to 100% of
their compensation payable by the Funds, and such amounts are placed into a
deferral account. Currently, the deferring trustees may select various AIM Funds
in which all or part of their deferral accounts shall be
27
<PAGE> 63
deemed to be invested. Distributions from the deferring trustees' deferral
accounts will be paid in cash, in generally equal quarterly installments over a
period of five (5) or ten (10) years (depending on the Agreement) beginning on
the date the deferring trustee's retirement benefits commence under the Plan.
The Trust's Board of Trustees, in its sole discretion, may accelerate or extend
the distribution of such deferral accounts after the deferring trustee's
termination of service as a trustee of the Trust. If a deferring trustee dies
prior to the distribution of amounts in his deferral account, the balance of the
deferral account will be distributed to his designated beneficiary in a single
lump sum payment as soon as practicable after such deferring trustee's death.
The Agreements are not funded and, with respect to the payments of amounts held
in the deferral accounts, the deferring trustees have the status of unsecured
creditors of the Funds and of each other AIM Fund from which they are deferring
compensation.
INVESTMENT ADVISORY AND OTHER SERVICES
The Trust, on behalf of the Funds, has entered into a Master Investment
Advisory Agreement (the "Advisory Agreement") and a Master Administrative
Services Agreement (the "Administrative Services Agreement") with AIM.
AIM was organized in 1976, and together with its subsidiaries advises
or manages over 125 investment company portfolios encompassing a broad range of
investment objectives. AIM is a wholly owned subsidiary of AIM Management, 11
Greenway Plaza, Suite 100, Houston, Texas 77046-1173. AIM Management is a
holding company that has been engaged in the financial services business since
1976. AIM Management is an indirect wholly owned subsidiary of AMVESCAP PLC, 11
Devonshire Square, London EC2M 4YK, England. AMVESCAP PLC and its subsidiaries
are an independent investment management group engaged in institutional
investment management and retail fund businesses in the Unites States, Europe
and the Pacific Region. Certain of the directors and officers of AIM are also
executive officers of the Trust 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). Sanctions for violations of the
Code of Ethics may include censure, monetary penalties, suspension or
termination of employment.
The Advisory Agreement provides that each Fund will pay or cause to be
paid all expenses of that Fund not assumed by AIM, including, without
limitation: brokerage commissions; taxes, legal, accounting, auditing or
governmental fees; the cost of preparing share certificates; custodian, transfer
and shareholder service agent costs; expenses of issue, sale, redemption and
repurchase of shares; expenses of registering and qualifying shares for sale;
expenses relating to trustees and shareholder meetings; the cost of preparing
and distributing reports and notices to shareholders; the fees and other
expenses incurred by the Trust on behalf of the Fund in connection with
membership in investment company organizations; the cost of printing copies of
prospectuses and statements of additional information distributed to the Fund's
shareholders; and all other charges and costs of the Fund's operations unless
otherwise explicitly provided.
The Advisory Agreement will continue from year to year only if such
continuance is specifically approved at least annually by the Trust's Board of
Trustees or the vote of a "majority of the outstanding voting securities" of
each Fund (as defined in the 1940 Act) and (ii) the affirmative vote of a
majority of the trustees who are not parties to the Advisory Agreement or
"interested persons" of any such party (the "Non-Interested
28
<PAGE> 64
Trustees") by votes cast in person at a meeting called for such purpose. The
Trust or AIM may terminate the Advisory Agreement with respect to a Fund on
sixty (60) days' written notice without penalty. The Advisory Agreement
terminates automatically in the event of its assignment.
Under the terms of the Advisory Agreement, AIM supervises all aspects
of the Funds' operations and provides investment advisory services to the Funds.
AIM obtains and evaluates economic, statistical and financial information to
formulate and implement investment programs for the Funds. AIM will not be
liable to the Funds or their shareholders except in the case of AIM's willful
misfeasance, bad faith, gross negligence or reckless disregard of duty. 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 Funds 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 Funds reimbursement of their costs or such
reasonable compensation as may be approved by the Board of Trustees. Currently,
AIM is reimbursed for the services of the Trust'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, 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 Funds. AFS' principal address is P.O. Box 4739,
Houston, Texas 77210-4739.
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, 1999, 1998 and 1997, AIM received
advisory fees from Limited Maturity of $850,738, $855,900 and $837,760,
respectively.
For the period September 30, 1998 through July 31, 1999, AIM received
advisory fees from High Yield of $146,069. For the fiscal period September 30,
1998 through July 31, 1999, AIM waived $135,584 of the advisory fees due from
High Yield.
AIM may from time to time waive or reduce its fee. Voluntary fee
waivers or reductions may be rescinded at any time without further notice to
investors. During periods of voluntary fee waivers or reductions, AIM will
retain its ability to be reimbursed for such fee prior to the end of each fiscal
year. Contractual fee waivers or reductions set forth in the Fee Table in a
Prospectus may not be terminated or amended to the Funds' detriment during the
period stated in the agreement between AIM and the Funds. Fee waivers or
reductions set forth in the Advisory Agreement may not be terminated without
shareholders approval.
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
29
<PAGE> 65
be approved by AIM and the Board of Trustees. The Administrative Services
Agreement provides that such agreement will continue in effect from year to year
if such continuance is specifically approved at least annually by (i) the
Trust's Board of Trustees or the vote of a "majority of the outstanding voting
securities" of a Fund (as defined in the 1940 Act) and (ii) the affirmative vote
of a majority of the Non-Interested Trustees, by votes cast in person at a
meeting called for such purpose.
For the fiscal years ended July 31, 1999, 1998 and 1997, Limited
Maturity reimbursed AIM for certain accounting, shareholder servicing and
administrative services in the amounts of $70,069, $59,396 and $66,785,
respectively.
For the period September 30, 1998 through July 31, 1999, High Yield
reimbursed AIM for certain accounting, shareholders servicing and administrative
services in the amount of $64,643.
In addition, the Transfer Agency and Service Agreement, 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 Funds and other accounts.
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 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 Funds. 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 Funds and who provide continuing personal shareholder services to their
customers who own Class A or Class C shares of the Funds. The service fees
payment 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
Funds, in amounts of up to 0.25% of the average daily net assets of each 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
30
<PAGE> 66
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 Funds. 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 Class C Plan on behalf of the Fund. Thus,
under the Class A and C Plan, even if AIM Distributors' actual expenses exceed
the fee payable to AIM Distributors thereunder at any given time, the Funds will
not be obligated to pay more than that fee, but if AIM Distributors' expenses
are less than the fee it receives, AIM Distributors will retain the full amount
of the fee.
THE 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. Any amount paid
as a service fee would constitute an asset-based sales charge. Amounts paid in
accordance with the Class B Plan may be used to finance any activity primarily
intended to result in the sale of Class B shares, including but not limited to
printing of prospectuses and statements of additional information and reports
for other than existing shareholders; overhead; preparation and distribution of
advertising material and sales literature; expenses of organizing and conducting
sales seminars; supplemental payments to dealers and other institutions such as
asset-based sales charges or as payments of service fees under shareholder
service arrangements; and costs of administering the Class B Plan. AIM
Distributors may transfer and sell from time to time its rights to payments
under the Class B Plan in order to finance distribution expenditures in respect
of Class B shares.
BOTH PLANS. Pursuant to an incentive program, AIM Distributors may
enter into agreements ("Shareholder Service Agreements") with investment dealers
selected from time to time by AIM Distributors for the provision of distribution
assistance in connection with the sale of the Funds' shares to such dealers'
customers, and for the provision of continuing personal shareholder services to
customers who may from time to time directly or beneficially own shares of the
Funds. The distribution assistance and continuing personal shareholder services
to be rendered by dealers under the Shareholder Service Agreements may include,
but shall not be limited to, the following: preparing and distributing
advertising material and sales literature; answering routine customer inquiries
concerning the Funds; assisting customers in changing dividend options, account
designations and addresses, and in enrolling in any of several special
investment plans offered in connection with the purchase of the Funds' shares;
assisting in the establishment and maintenance of customer accounts and records
and in the processing of purchase and redemption transactions; investing
dividends and any capital gains distributions automatically in the Funds'
shares; and providing such other information and services as the Funds or the
customer may reasonably request.
Under the Plans, in addition to the Shareholder Service Agreements
authorizing payments to selected dealers, banks may enter into Shareholder
Service Agreements authorizing payments under the Plans to be made to banks
which provide services to their customers who have purchased shares. Services
provided pursuant to Shareholder Service Agreements with banks may include some
or all of the following: answering shareholder inquiries regarding a Fund and
the Trust; performing sub-accounting; establishing and maintaining 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.
The Trust may also enter into Variable Group Annuity Contractholder
Service Agreements ("Variable Contract Agreements") on behalf of a Fund
authorizing payments to selected insurance companies offering variable annuity
contracts to employers as funding vehicles for retirement plans qualified under
Section 401(a)
31
<PAGE> 67
of the Internal Revenue Code. Services provided pursuant to such Variable
Contract Agreements may include some or all of the following: answering
inquiries regarding a Fund and the Trust; performing sub-accounting;
establishing and maintaining Contractholder accounts and records; processing and
bunching purchase and redemption transactions; providing periodic statements of
contract account balances; forwarding such reports and notices to
Contractholders relative to a Fund as deemed necessary; generally, facilitating
communications with Contractholders concerning investments in a Fund on behalf
of plan participants; and performing such other administrative services as
deemed to be necessary or desirable, to the extent permitted by applicable
statute, rule or regulation to provide such services.
Financial intermediaries and any other person entitled to receive
compensation for selling Fund shares may receive different compensation for
selling shares of one particular class over another.
Under a Shareholder Service Agreement, a Fund agrees to pay
periodically fees to selected dealers and other institutions who render the
foregoing services to their customers. The fees payable under a Shareholder
Service Agreement will be calculated at the end of each payment period for each
business day of the Funds during such period at the annual rates of 0.15% of the
average daily net asset value of Limited Maturity's Class A shares, and 0.25% of
the average daily net asset value of High Yield's shares, purchased or acquired
through exchange. Fees calculated in this manner shall be paid only to those
selected dealers or other institutions who are dealers or institutions of record
at the close of business on the last business day of the applicable payment
period for the account in which such Fund's shares are held.
Payments pursuant to the Plans are subject to any applicable
limitations imposed by rules of the National Association of Securities Dealers,
Inc. and NASD Regulation, Inc. (the "NASD"). The Plans conform to rules of the
NASD by limiting payments made to dealers and other financial institutions who
provide continuing personal shareholder services to their customers who purchase
and own shares of the Funds to no more than 0.25% per annum of the average daily
net assets of the Funds attributable to the customers of such dealers or
financial institutions, and by imposing a cap on the total sales charges,
including asset based sales charges, that may be paid by the Funds and their
respective classes.
AIM Distributors may from time to time waive or reduce any portion of
its 12b-1 fee for Class A shares and Class C shares. Voluntary fee waivers or
reductions may be rescinded at any time without further notice to investors.
During periods of voluntary fee waivers or reductions, AIM Distributors will
retain its ability to be reimbursed for such fee prior to the end of each fiscal
year. Contractual fee waivers or reductions set forth in the Fee Table in a
Prospectus may not be terminated or amended to the Funds' detriment during the
period stated in the agreement between AIM Distributors and the Funds.
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, 1999, relating to Limited Maturity,
and for the period September 30, 1998 (date operations commenced) through July
31, 1999, with respect to Class A shares, Limited Maturity and High Yield paid
AIM Distributors under the Class A and C Plan $591,643 and $43,292,
respectively, or an amount equal to 0.15% and 0.25% of the Fund's Class A shares
average daily net assets.
For the period November 20, 1998 (date operations commenced) through
July 31, 1999, with respect to Class B shares, High Yield paid AIM Distributors
under the Class B Plan $52,186, or an amount equal to 1.00% of the Fund's Class
B shares average daily net assets.
For the period November 20, 1998 (date operations commenced) through
July 31, 1999, with respect to Class C shares, High Yield paid AIM Distributors
under the Class A and C Plan $8,358, or an amount equal to 1.00% of the Fund's
Class C shares average daily net assets.
An estimate by category of actual fees paid by the Class A shares of
Limited Maturity during the fiscal year ended July 31, 1999, were allocated as
follows:
32
<PAGE> 68
<TABLE>
<S> <C>
Advertising $ 21,939
Printing and mailing prospectuses, semi-annual reports 2,189
and annual reports (other than to current shareholders)
Seminars 6,182
Compensation to Underwriters to partially offset other 0
marketing expenses
Compensation to Sales Personnel 0
Compensation to Dealers including finder's fees 561,333
</TABLE>
An estimate by category of actual fees paid by Class A shares of High
Yield for the period September 30, 1998 through July 31, 1999, and Class B and
Class C shares for the period November 20, 1998 through July 31, 1999, were
allocated as follows:
<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Advertising 15,039 3,749 670
Printing and mailing prospectuses, semi-
annual reports and annual reports
(other than to current shareholders) 1,642 404 71
Seminars 5,703 1,418 247
Compensation to Underwriters to
partially offset other marketing expenses 0 39,140 6,269
Compensation to Sales Personnel 0 0 0
Compensation to Dealers including
finder's fees 20,908 7,475 1,101
</TABLE>
As required by Rule 12b-1, the Plans and related forms of Shareholder
Service Agreements were approved by the Board of Trustees, including a majority
of the trustees who are not "interested persons" (as defined in the 1940 Act) of
the Trust and who have no direct or indirect financial interest in the operation
of the Plans or in any agreements related to the Plans (the "Independent
Trustees"). In approving the Plans in accordance with the requirements of Rule
12b-1, the trustees considered various factors and determined that there is a
reasonable likelihood that the Plans would benefit each affected class of the
Funds and its respective shareholders.
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 as long as such continuance is specifically approved at least annually
by the Board of Trustees, including a majority of the Independent Trustees.
The Plans may be terminated by the vote of a majority of the
Independent Trustees, or, with respect to a particular class, by the vote of a
majority of the outstanding voting securities of that class.
Any change in the Plans that would increase materially the distribution
expenses paid by the applicable class requires shareholder approval; otherwise,
the Plans may be amended by the Trustees, including a majority of the
Independent Trustees, by votes cast in person at a meeting called for the
purpose of voting upon
33
<PAGE> 69
such amendment. As long as the Plans are in effect, the selection or nomination
of the Independent Trustees is committed to the discretion of the Independent
Trustees. In the event the Class A and C Plan is amended in a manner which the
Board of Trustees determines would materially increase the charges paid by
holders of Class A shares of High Yield under the Class A and C Plan, the Class
B shares of High Yield will no longer convert into Class A shares of High Yield
unless the Class B shares, voting separately, approve such amendment. If the
Class B shareholders do not approve such amendment, the Board of Trustees will
(i) create a new class of shares of High Yield which is identical in all
material respects to the Class A shares as they existed prior to the
implementation of the amendment, and (ii) ensure that the existing Class B
shares of High Yield will be exchanged or converted into such new class of
shares no later than the date the Class B shares were scheduled to convert into
Class A shares.
The principal differences between the Class A and C Plan and the Class
B Plan are: The Class A and C Plan allows payment to AIM Distributors or to
dealers or financial institutions of up to 0.15% and 0.25% of the average daily
net assets of Limited Maturity's or High Yield's respective Class A shares, as
compared to 1.00% of such assets of High Yield's Class B and Class C shares;
(ii) the Class B Plan obligates Class B shares to continue to make payments to
AIM Distributors following termination of the Class B shares Distribution
Agreement with respect to Class B shares sold by or attributable to the
distribution efforts of AIM Distributors, unless there has been a complete
termination of the Class B Plan (as defined in such Plan); and (iii) the Class B
Plan expressly authorizes AIM Distributors to assign, transfer or pledge its
rights to payments pursuant to the Class B Plan.
THE DISTRIBUTION AGREEMENTS
The Trust has entered into a Master Distribution Agreement with AIM
Distributors, a registered broker-dealer and a wholly owned subsidiary of AIM,
relating to the Class A shares of Limited Maturity and the Class A and Class C
shares of High Yield and a separate Master Distribution Agreement with AIM
Distributors relating to the Class B shares of High Yield. Both such Master
Distribution Agreements are hereinafter collectively referred to as the
"Distribution Agreements." The address of AIM Distributors is 11 Greenway Plaza,
Suite 100, Houston, TX 77046-1173. Certain trustees and officers of the Trust
are affiliated with AIM Distributors.
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
34
<PAGE> 70
price of the Class C shares sold plus an advance of the first year service fee
of 0.25% with respect to such shares. AIM Distributors will retain all payments
received by it relating to Class C shares for the first year after they are
purchased. The portion of the payments to AIM Distributors under the Class A and
C Plan attributable to Class C shares which constitutes an asset-based sales
charge (0.75%) is intended in part to permit AIM Distributors to recoup a
portion of on-going sales commissions to dealers plus financing costs, if any.
After the first full year, AIM Distributors will pay quarterly to dealers and
institutions 1.00% of the average net asset value of Class C shares which are
attributable to shareholders for whom the dealers and institutions are
designated as dealers of record.
The Trust (on behalf of any class of the Funds) or AIM Distributors may
terminate the Distribution Agreements on sixty (60) days' written notice without
penalty. The Distribution Agreements will terminate automatically in the event
of their assignment. In the event the Class B shares Distribution Agreement is
terminated, AIM Distributors would continue to receive payments of asset-based
distribution fees in respect of the outstanding Class B shares attributable to
the distribution efforts of AIM Distributors; provided, however, that a complete
termination of the Class B Plan (as defined in such Plan) would terminate all
payments by the Fund of asset based sales charges and service fees to AIM
Distributors. Termination of the Class B Plan or the Distribution Agreement for
Class B shares would not affect the obligation of the Fund's and its Class B
shareholders to pay contingent deferred sales charges.
From time to time, AIM Distributors may transfer and sell its right to
payments under the Distribution Agreements relating to Class B shares in order
to finance distribution expenditures in respect to Class B shares.
For the fiscal years ended July 31, 1999, 1998 and 1997, the total
sales charges paid in connection with the sale of the Class A shares of Limited
Maturity were $292,457, $219,035 and $340,764, respectively, of which AIM
Distributors retained $75,023, $56,989 and $105,675, respectively.
For the period September 30, 1998 (date operations commenced) through
July 31, 1999, the total sales charge paid in connection with the sale of the
Class A shares of High Yield were $339,816 of which AIM Distributors retained
$61,541.
The following chart reflects the contingent deferred sales charges paid
by Class A shareholders of Limited Maturity for the fiscal year ended July 31,
1999 and by Class A shareholders of High Yield for the period September 30, 1998
through July 31, 1999 and by the Class B and Class C shareholders of High Yield
for the period November 20, 1998 through July 31, 1999.
<TABLE>
<CAPTION>
1999
----
<S> <C>
Limited Maturity $ 15
High Yield $111
</TABLE>
SALES CHARGES AND DEALER CONCESSIONS
CATEGORY I. Certain AIM Funds are currently sold with a sales charge
ranging from 5.50% to 2.00% of the offering price on purchases of less than
$1,000,000. These AIM Funds include Class A shares of each of AIM Advisor Flex
Fund, AIM Advisor International Value Fund, AIM Advisor Large Cap Value Fund,
AIM Aggressive Growth Fund, AIM Asian Growth Fund, AIM Basic Value Fund, AIM
Blue Chip Fund, AIM Capital Development Fund, AIM Charter Fund, AIM
Constellation Fund, AIM Dent Demographic Trends Fund, AIM European Development
Fund, AIM Europe Growth Fund, AIM Global Utilities Fund, AIM Global Growth &
Income Fund, AIM International Equity Fund, AIM Japan Growth Fund, AIM Large Cap
Basic Value Fund, AIM Large Cap Growth Fund, AIM Mid Cap Equity Fund, AIM Mid
Cap Opportunities Fund, AIM New Pacific Growth Fund, AIM Select Growth Fund, AIM
Small Cap Growth Fund, AIM Small Cap Opportunities Fund, AIM Value Fund and AIM
Weingarten Fund.
35
<PAGE> 71
<TABLE>
<CAPTION>
Dealer
Investor's Sales Charge Concession
----------------------- -----------
As a
As a As a Percentage
Percentage Percentage of the
of the Public of the Net Public
Amount of Investment in Offering Amount Offering
Single Transaction(1) Price Invested Price
----------------------- ------------- ---------- -----------
<S> <C> <C> <C>
Less than $ 25,000 5.50% 5.82% 4.75%
$ 25,000 but less than $ 50,000 5.25 5.54 4.50
$ 50,000 but less than $ 100,000 4.75 4.99 4.00
$100,000 but less than $ 250,000 3.75 3.90 3.00
$250,000 but less than $ 500,000 3.00 3.09 2.50
$500,000 but less than $1,000,000 2.00 2.04 1.60
</TABLE>
(1) AIM Small Cap Opportunities Fund will not accept any single purchase in
excess of $250,000.
CATEGORY II. Certain AIM Funds are currently sold with a sales charge
ranging from 4.75% to 2.00% of the offering price on purchases of less than
$1,000,000. These AIM Funds are: the Class A shares of each of AIM Advisor Real
Estate Fund, AIM Balanced Fund, AIM Developing Markets Fund, AIM Emerging
Markets Debt Fund, AIM Global Aggressive Growth Fund, AIM Global Consumer
Products and Services Fund, AIM Global Financial Services Fund, AIM Global
Government Income Fund, AIM Global Growth Fund, AIM Global Health Care Fund, AIM
Global Income Fund, AIM Global Infrastructure Fund, AIM Global Resources Fund,
AIM Global Telecommunications and Technology 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
Investor's Sales Charge Concession
----------------------- -------------
As a
As a As a Percentage
Percentage Percentage of the
of the Public of the Net Public
Amount of Investment in Offering Amount Offering
Single Transaction Price Invested Price
------------------------ ------------- ---------- -------------
<S> <C> <C> <C>
Less than $ 50,000 4.75% 4.99% 4.00%
$ 50,000 but less than $ 100,000 4.00 4.17 3.25
$100,000 but less than $ 250,000 3.75 3.90 3.00
$250,000 but less than $ 500,000 2.50 2.56 2.00
$500,000 but less than $1,000,000 2.00 2.04 1.60
</TABLE>
CATEGORY III. Certain AIM Funds are currently sold with a sales charge
ranging from 1.00% to 0.50% of the offering price on purchases of less than
$1,000,000. These AIM Funds are the Class A shares of each of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund.
36
<PAGE> 72
<TABLE>
<CAPTION>
Dealer
Investor's Sales Charge Concession
----------------------- -----------
As a
As a As a Percentage
Percentage Percentage of the
of the Public of the Net Public
Amount of Investment In Offering Amount Offering
Single Transaction Price Invested Price
------------------------ -------------- ----------- -----------
<S> <C> <C> <C>
Less than $ 100,000 1.00% 1.01% 0.75%
$100,000 but less than $ 250,000 0.75 0.76 0.50
$250,000 but less than $ 1,000,000 0.50 0.50 0.40
</TABLE>
There is no sales charge on purchases of $1,000,000 or more of Category
I, II or III funds; however, AIM Distributors may pay a dealer concession and/or
advance a service fee on such transactions as set forth below.
ALL GROUPS OF AIM FUNDS. AIM Distributors may elect to re-allow the
entire initial sales charge to dealers for all sales with respect to which
orders are placed with AIM Distributors during a particular period. Dealers to
whom substantially the entire sales charge is re-allowed may be deemed to be
"underwriters" as that term is defined under the Securities Act of 1933.
In addition to amounts paid to dealers as a dealer concession out of
the initial sales charge paid by investors, AIM Distributors may, from time to
time, at its expense or as an expense for which it may be compensated under a
distribution plan, if applicable, pay a bonus or other consideration or
incentive to dealers who sell a minimum dollar amount of the shares of the AIM
Funds during a specified period of time. At the option of the dealer, such
incentives may take the form of payment for travel expenses, including lodging,
incurred in connection with trips taken by qualifying registered representatives
and their families to places within or outside the United States. The total
amount of such additional bonus payments or other consideration shall not exceed
0.25% of the public offering price of the shares sold. Any such bonus or
incentive programs will not change the price paid by investors for the purchase
of the applicable AIM Fund's shares or the amount that any particular AIM Fund
will receive as proceeds from such sales. Dealers may not use sales of the AIM
Funds' shares to qualify for any incentives to the extent that such incentives
may be prohibited by the laws of any state.
AIM Distributors may make payments to dealers and institutions who are
dealers of record for purchases of $1 million or more of Class A shares (or
shares which normally involve payment of initial sales charges), which are sold
at net asset value and are subject to a contingent deferred sales charge, for
all AIM Funds other than Class A shares of each of AIM Limited Maturity Treasury
Fund and AIM Tax-Free Intermediate Fund as follows: 1% of the first $2 million
of such purchases, plus 0.80% of the next $1 million of such purchases, plus
0.50% of the next $17 million of such purchases, plus 0.25% of amounts in excess
of $20 million of such purchases. AIM Distributors may make payments to dealers
and institutions who are dealers of record for purchases of $1 million or more
of Class A shares (or shares which normally involve payment of initial sales
charges), and which are sold at net asset value and are not subject to a
contingent deferred sales charge, in an amount up to 0.10% of such purchases of
Class A shares of AIM Limited Maturity Treasury Fund, and in an amount up to
0.25% of such purchases of Class A shares of AIM Tax-Free Intermediate Fund.
AIM Distributors may pay sales commissions to dealers and institutions
who sell Class B shares of the AIM Funds at the time of such sales. Payments
with respect to Class B shares will equal 4.00% of the purchase price of the
Class B shares sold by the dealer or institution, and will consist of a sales
commission equal to 3.75% of the purchase price of the Class B shares sold plus
an advance of the first year service fee of 0.25% with respect to such shares.
The portion of the payments to AIM Distributors under the Class B Plan which
constitutes an asset-based sales charge (0.75%) is intended in part to permit
AIM Distributors to recoup a portion of such sales commissions plus financing
costs.
AIM Distributors may pay sales commissions to dealers and institutions
who sell Class C shares of the AIM Funds at the time of such sales. Payments
with respect to Class C shares will equal 1.00% of the
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<PAGE> 73
purchase price of the Class C shares sold by the dealer or institution, and will
consist of a sales commission of 0.75% of the purchase price of the Class C
shares sold plus an advance of the first year service fee of 0.25% with respect
to such shares. AIM Distributors will retain all payments received by it
relating to Class C shares for the first year after they are purchased. The
portion of the payments to AIM Distributors under the Class A and C Plan
attributable to Class C shares which constitutes an asset-based sales charge
(0.75%) is intended in part to permit AIM Distributors to recoup a portion of
on-going sales commissions to dealers plus financing costs, if any. After the
first full year, AIM Distributors will make such payments quarterly to dealers
and institutions based on the average net asset value of Class C shares which
are attributable to shareholders for whom the dealers and institutions are
designated as dealers of record. These commissions are not paid on sales to
investors exempt from the CDSC, including shareholders of record of AIM Advisor
Funds, Inc. 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.
Exchanges of AIM Cash Reserve Shares of AIM Money Market Fund for Class
B shares or Class C shares are considered sales of such Class B shares or Class
C shares for purposes of the sales charges and dealer concessions discussed
above.
AIM Distributors may pay investment dealers or other financial service
firms for share purchases (measured on an annual basis) of Class A Shares of all
AIM Funds except AIM Limited Maturity Treasury Fund, AIM Tax-Free Intermediate
Fund and AIM Tax-Exempt Cash Fund sold at net asset value to an employee benefit
plan as follows: 1% of the first $2 million of such purchases, plus 0.80% of the
next $1 million of such purchases, plus 0.50% of the next $17 million of such
purchases, plus 0.25% of amounts in excess of $20 million of such purchases and
up to 0.10% of the net asset value of any Class A shares of AIM Limited Maturity
Treasury Fund sold at net asset value to an employee benefit plan in accordance
with this paragraph.
REDUCTIONS IN INITIAL SALES CHARGES
Reductions in the initial sales charges shown in the sales charge
tables (quantity discounts) apply to purchases of shares of the AIM Funds that
are otherwise subject to an initial sales charge, provided that such purchases
are made by a "purchaser" as hereinafter defined. Purchases of Class A shares of
AIM Tax-Exempt Cash Fund, AIM Cash Reserve Shares of AIM Money Market Fund and
Class B and Class C shares of the AIM Funds will not be taken into account in
determining whether a purchase qualifies for a reduction in initial sales
charges.
The term "purchaser" means:
o 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);
o a 403(b) plan, the employer/sponsor of which is an
organization described under Section 501(c)(3) of the Internal
Revenue Code of 1986, as amended (the "Code"), if:
a. the employer/sponsor must submit contributions for all
participating employees in a single contribution
transmittal (i.e., the Funds will not accept
contributions submitted with respect to individual
participants);
b. each transmittal must be accompanied by a single check
or wire transfer; and
c. all new participants must be added to the 403(b) plan
by submitting an application on behalf of each new
participant with the contribution transmittal;
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<PAGE> 74
o 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;
o a Simplified Employee Pension (SEP), Salary Reduction and
other Elective Simplified Employee Pension account (SAR-SEP)
or a Savings Incentive Match Plans for Employees IRA (SIMPLE
IRA), where the employer has notified the distributor in
writing that all of its related employee SEP, SAR-SEP or
SIMPLE IRA accounts should be linked; or
o any other organized group of persons, whether incorporated or
not, provided the organization has been in existence for at
least six months and has some purpose other than the purchase
at a discount of redeemable securities of a registered
investment company.
Investors or dealers seeking to qualify orders for a reduced initial
sales charge must identify such orders and, if necessary, support their
qualification for the reduced charge. AIM Distributors reserves the right to
determine whether any purchaser is entitled, by virtue of the foregoing
definition, to the reduced sales charge. No person or entity may distribute
shares of the AIM Funds without payment of the applicable sales charge other
than to persons or entities who qualify for a reduction in the sales charge as
provided herein.
1. LETTERS OF INTENT. A purchaser, as previously defined, may pay
reduced initial sales charges by completing the appropriate section of the
account application and by fulfilling a Letter of Intent ("LOI"). The LOI
privilege is also available to holders of the Connecticut General Guaranteed
Account, established for tax qualified group annuities, for contracts purchased
on or before June 30, 1992. The LOI confirms such purchaser's intention as to
the total investment to be made in shares of the AIM Funds (except for (i) Class
A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund, (ii) Class B and Class C shares of the AIM Funds and (iii) shares
of AIM Floating Rate Fund) within the following 13 consecutive months. By
marking the LOI section on the account application and by signing the account
application, the purchaser indicates that he understands and agrees to the terms
of the LOI and is bound by the provisions described below.
Each purchase of fund shares normally subject to an initial sales
charge made during the 13-month period will be made at the public offering price
applicable to a single transaction of the total dollar amount indicated by the
LOI, as described under "Sales Charges and Dealer Concessions." It is the
purchaser's responsibility at the time of purchase to specify the account
numbers that should be considered in determining the appropriate sales charge.
The offering price may be further reduced as described under "Rights of
Accumulation" if the Transfer Agent is advised of all other accounts at the time
of the investment. Shares acquired through reinvestment of dividends and capital
gains distributions will not be applied to the LOI. At any time during the
13-month period after meeting the original obligation, a purchaser may revise
his intended investment amount upward by submitting a written and signed
request. Such a revision will not change the original expiration date. By
signing an LOI, a purchaser is not making a binding commitment to purchase
additional shares, but if purchases made within the 13-month period do not total
the amount specified, the investor will pay the increased amount of sales charge
as described below. Purchases made within 90 days before signing an LOI will be
applied toward completion of the LOI. The LOI effective date will be the date of
the first purchase within the 90-day period. The Transfer Agent will process
necessary adjustments upon the expiration or completion date of the LOI.
Purchases made more than 90 days before signing an LOI will be applied toward
completion of the LOI based on the value of the shares purchased calculated at
the public offering price on the effective date of the LOI.
To assure compliance with the provisions of the 1940 Act, out of the
initial purchase (or subsequent purchases if necessary) the Transfer Agent will
escrow in the form of shares an appropriate dollar amount (computed to the
nearest full share). All dividends and any capital gain distributions on the
escrowed shares will be credited to the purchaser. All shares purchased,
including those escrowed, will be registered in the purchaser's name. If the
total investment specified under this LOI is completed within the 13-month
period, the escrowed shares will be promptly released. If the intended
investment is not completed, the purchaser will pay
39
<PAGE> 75
the Transfer Agent the difference between the sales charge on the specified
amount and the amount actually purchased. If the purchaser does not pay such
difference within 20 days of the expiration date, he irrevocably constitutes and
appoints the Transfer Agent as his attorney to surrender for redemption any or
all shares, to make up such difference within 60 days of the expiration date.
If at any time before completing the LOI Program, the purchaser wishes
to cancel the agreement, he must give written notice to AIM Distributors. If at
any time before completing the LOI Program the purchaser requests the Transfer
Agent to liquidate or transfer beneficial ownership of his total shares, a
cancellation of the LOI will automatically be effected. If the total amount
purchased is less than the amount specified in the LOI, the Transfer Agent will
redeem an appropriate number of escrowed shares equal to the difference between
the sales charge actually paid and the sales charge that would have been paid if
the total purchases had been made at a single time.
2. RIGHTS OF ACCUMULATION. A "purchaser," as previously defined, may
also qualify for reduced initial sales charges based upon such purchaser's
existing investment in shares of any of the AIM Funds (except for (i) Class A
shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund, (ii) Class B and Class C shares of the AIM Funds and (iii) shares
of AIM Floating Rate Fund) at the time of the proposed purchase. Rights of
Accumulation are also available to holders of the Connecticut General Guaranteed
Account, established for tax-qualified group annuities, for contracts purchased
on or before June 30, 1992. To determine whether or not a reduced initial sales
charge applies to a proposed purchase, AIM Distributors takes into account not
only the money which is invested upon such proposed purchase, but also the value
of all shares of the AIM Funds (except for (i) Class A shares of AIM Tax-Exempt
Cash Fund and AIM Cash Reserve Shares of AIM Money Market Fund, (ii) Class B and
Class C shares of the AIM Funds and (iii) shares of AIM Floating Rate Fund)
owned by such purchaser, calculated at their then current public offering price.
If a purchaser so qualifies for a reduced sales charge, the reduced sales charge
applies to the total amount of money then being invested by such purchaser and
not just to the portion that exceeds the breakpoint above which a reduced sales
charge applies. For example, if a purchaser already owns qualifying shares of
any AIM Fund with a value of $20,000 and wishes to invest an additional $20,000
in a fund, with a maximum initial sales charge of 5.50%, the reduced initial
sales charge of 5.25% will apply to the full $20,000 purchase and not just to
the $15,000 in excess of the $25,000 breakpoint. To qualify for obtaining the
discount applicable to a particular purchase, the purchaser or his dealer must
furnish AFS with a list of the account numbers and the names in which such
accounts of the purchaser are registered at the time the purchase is made.
PURCHASES AT NET ASSET VALUE. Purchases of shares of any of the AIM
Funds at net asset value (without payment of an initial sales charge) may be
made in connection with: (a) the reinvestment of dividends and distributions
from a fund; (b) exchanges of shares of certain funds; (c) use of the
reinstatement privilege; or (d) a merger, consolidation or acquisition of assets
of a fund.
The following purchasers will not pay initial sales charges on
purchases of Class A shares because there is a reduced sales effort involved in
sales to these purchasers:
o AIM Management and its affiliates, or their clients;
o Any current or retired officer, director or employee (and
members of their immediate family) of AIM Management, its
affiliates or The AIM Family of Funds,
-- Registered Tradmark -- and any foundation,
trust or employee benefit plan established exclusively for the
benefit of, or by, such persons;
o Any current or retired officer, director, or employee (and
members of their immediate family), of CIGNA Corporation or
its affiliates, or of First Data Investor Services Group; and
any deferred compensation plan for directors of investment
companies sponsored by CIGNA Investments, Inc. or its
affiliates;
o Sales representatives and employees (and members
of their immediate family) of selling group members or
financial institutions that have arrangements with such
selling group members;
o Purchases through approved fee-based programs;
40
<PAGE> 76
o Employee benefit plans designated as purchasers as defined
above, and non-qualified plans offered in conjunction
therewith, provided the initial investment in the plan(s) is
at least $1 million; the sponsor signs a $1 million LOI; the
employer-sponsored plan(s) has at least 100 eligible
employees; or all plan transactions are executed through a
single omnibus account per Fund and the financial institution
or service organization has entered into the appropriate
agreements with the distributor. Section 403(b) plans
sponsored by public educational institutions are not eligible
for a sales charge exception based on the aggregate investment
made by the plan or the number of eligible employees.
Purchases of AIM Small Cap Opportunities Fund by such plans
are subject to initial sales charges;
o Shareholders of record or discretionary advised clients of any
investment advisor holding shares of AIM Weingarten Fund or
AIM Constellation Fund on September 8, 1986, or of AIM Charter
Fund on November 17, 1986, who have continuously owned shares
having a market value of at least $500 and who purchase
additional shares of the same Fund;
o Shareholders of record of Advisor Class shares of AIM
International Growth Fund or AIM Worldwide Growth Fund on
February 12, 1999 who have continuously owned shares of the
AIM Funds.
o Unitholders of G/SET series unit investment trusts investing
proceeds from such trusts in shares of AIM Weingarten Fund or
AIM Constellation Fund; provided, however, prior to the
termination date of the trusts, a unitholder may invest
proceeds from the redemption or repurchase of his units only
when the investment in shares of AIM Weingarten Fund and AIM
Constellation Fund is effected within 30 days of the
redemption or repurchase;
o A shareholder of a fund that merges or consolidates with an
AIM Fund or that sells its assets to an AIM Fund in exchange
for shares of an AIM Fund;
o Shareholders of the GT Global funds as of April 30, 1987 who
since that date continually have owned shares of one or more
of these funds; and
o Certain former AMA Investment Advisers' shareholders who
became shareholders of the AIM Global Health Care Fund in
October 1989, and who have continuously held shares in the GT
Global funds since that time.
As used above, immediate family includes an individual and his or her
spouse, children, parents and parents of spouse.
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS
Former GT Global funds Class A shares that are subject to a contingent
deferred sales charge and that were purchased before June 1, 1998 are entitled
to the following waivers from the contingent deferred sales charge otherwise due
upon redemption: (1) minimum required distributions made in connection with an
IRA, Keogh Plan or custodial account under Section 403(b) of the Code or other
retirement plan following attainment of age 70 1/2; (2) total or partial
redemptions resulting from a distribution following retirement in the case of a
tax-qualified employer-sponsored retirement plan; (3) when a redemption results
from a tax-free return of an excess contribution pursuant to Section 408(d)(4)
or (5) of the Code or from the death or disability of the employee; (4)
redemptions pursuant to a Fund's right to liquidate a shareholder's account
involuntarily; (5) redemptions pursuant to distributions from a tax-qualified
employer-sponsored retirement plan, which is invested in the former GT Global
funds, which are permitted to be made without penalty pursuant to the Code,
other than tax-free rollovers or transfers of assets, and the proceeds of which
are reinvested in the former GT Global funds; (6) redemptions made in connection
with participant-directed exchanges between options in an employer-sponsored
benefit plan; (7) redemptions made for the purpose of providing cash to fund a
loan to
41
<PAGE> 77
a participant in a tax-qualified retirement plan; (8) redemptions made in
connection with a distribution from any retirement plan or account that is
permitted in accordance with the provisions of Section 72(t)(2) of the Code, and
the regulations promulgated thereunder; (9) redemptions made in connection with
a distribution from any retirement plan or account that involves the return of
an excess deferral amount pursuant to Section 401(k)(8) or Section 402(g)(2) of
the Code; (10) redemptions made in connection with a distribution from a
qualified profit-sharing or stock bonus plan described in Section 401(k) of the
Code to a participant or beneficiary under Section 401(k)(2)(B)(IV) of the Code
upon hardship of the covered employee (determined pursuant to Treasury
Regulation Section 1.401(k)-1(d)(2)); and (11) redemptions made by or for the
benefit of certain states, counties or cities, or any instrumentalities,
departments or authorities thereof where such entities are prohibited or limited
by applicable law from paying a sales charge or commission.
Former GT Global funds Class B shares purchased before June 1, 1998 are
subject to the following waivers from the contingent deferred sales charge
otherwise due upon redemption in addition to the waivers provided for
redemptions of currently issued Class B shares as described in a Prospectus: (1)
total or partial redemptions resulting from a distribution following retirement
in the case of a tax-qualified employer-sponsored retirement; (2) minimum
required distributions made in connection with an IRA, Keogh Plan or custodial
account under Section 403(b) of the Code or other retirement plan following
attainment of age 70 1/2; (3) redemptions pursuant to distributions from a
tax-qualified employer-sponsored retirement plan, which is invested in the
former GT Global funds, which are permitted to be made without penalty pursuant
to the Code, other than tax-free rollovers or transfers of assets, and the
proceeds of which are reinvested in the former GT Global funds; (4) redemptions
made in connection with participant-directed exchanges between options in an
employer-sponsored benefit plan; (5) redemptions made for the purpose of
providing cash to fund a loan to a participant in a tax-qualified retirement
plan; (6) redemptions made in connection with a distribution from any retirement
plan or account that is permitted in accordance with the provisions of Section
72(t)(2) of the Code, and the regulations promulgated thereunder; (7)
redemptions made in connection with a distribution from a qualified
profit-sharing or stock bonus plan described in Section 401(k) of the Code to a
participant or beneficiary under Section 401(k)(2)(B)(IV) of the Code upon
hardship of the covered employee (determined pursuant to Treasury Regulation
Section 1.401(k)-1(d)(2)); and (8) redemptions made by or for the benefit of
certain states, counties or cities, or any instrumentalities, departments or
authorities thereof where such entities are prohibited or limited by applicable
law from paying a sales charge or commission.
CDSCs will not apply to the following:
o Additional purchases of Class C shares of AIM Advisor Flex
Fund, AIM Advisor International Value Fund, AIM Advisor Large
Cap Value Fund and AIM Advisor Real Estate Fund by
shareholders of record on April 30, 1995, of these Funds,
except that shareholders whose broker-dealers maintain a
single omnibus account with AFS on behalf of those
shareholders, perform sub-accounting functions with respect to
those shareholders, and are unable to segregate shareholders
of record prior to April 30, 1995, from shareholders whose
accounts were opened after that date will be subject to a CDSC
on all purchases made after March 1, 1996;
o Redemptions following the death or post-purchase disability of
(1) any registered shareholders on an account or (2) a settlor
of a living trust, of shares held in the account at the time
of death or initial determination of post-purchase disability;
o Certain distributions from individual retirement accounts,
Section 403(b) retirement plans, Section 457 deferred
compensation plans and Section 401 qualified plans, where
redemptions result from (i) required minimum distributions to
plan participants or beneficiaries who are age 70-1/2 or
older, and only with respect to that portion of such
distributions that does not exceed 12% annually of the
participant's or beneficiary's account value in a particular
AIM Fund; (ii) in kind transfers of assets where the
participant or beneficiary notifies the distributor of the
transfer no later than the time the transfer occurs; (iii)
tax-free rollovers or transfers of assets to another plan of
the type described above invested in Class B or Class C shares
of one or more of the AIM Funds; (iv) tax-free returns of
excess contributions or returns of excess deferral amounts;
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<PAGE> 78
and (v) distributions on the death or disability (as defined
in the Internal Revenue Code of 1986, as amended) of the
participant or beneficiary;
o Amounts from a Systematic Withdrawal Plan of up to an annual
amount of 12% of the account value on a per fund basis, at the
time the withdrawal plan is established, provided the investor
reinvests his dividends;
o Liquidation by the Fund when the account value falls below the
minimum required account size of $500;
o Investment account(s) of AIM; and
o Class C shares where the investor's dealer of record notifies
the distributor prior to the time of investment that the
dealer waives the payment otherwise payable to him.
Upon the redemption of shares of funds in sales charge Categories I and
II (see "Sales Charges and Dealer Concessions") purchased in amounts of $1
million or more, no CDSC will be applied in the following situations:
o Shares held more than 18 months;
o Redemptions from employee benefit plans designated as
qualified purchasers, as defined above, where the redemptions
are in connection with employee terminations or withdrawals,
provided the total amount invested in the plan is at least
$1,000,000; the sponsor signs a $1 million LOI; or the
employer-sponsored plan has at least 100 eligible employees;
provided, however, that 403(b) plans sponsored by public
educational institutions shall qualify for the CDSC waiver on
the basis of the value of each plan participant's aggregate
investment in the AIM Funds, and not on the aggregate
investment made by the plan or on the number of eligible
employees;
o Private foundations or endowment funds;
o Redemption of shares by the investor where the investor's
dealer waives the amounts otherwise payable to it by the
distributor and notifies the distributor prior to the time of
investment; and
o Shares acquired by exchange from Class A shares of funds in
sales charges Categories I and II unless the shares acquired
by exchange are redeemed within 18 months of the original
purchase of the Class A shares.
HOW TO PURCHASE AND REDEEM SHARES
A complete description of the manner in which shares of the Funds may
be purchased appears in the Prospectuses under the caption "Purchasing Shares."
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 described in "REDUCTIONS IN INITIAL
SALES CHARGES - Purchases At Net Asset Value."
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<PAGE> 79
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 "Exchanging Shares."
Information concerning redemption of the Funds' shares is set forth in
the Prospectuses under the caption "Redeeming Shares." Shares of AIM Funds may
be redeemed directly through AIM Distributors or through any dealer who has
entered into an agreement with AIM Distributors. In addition to the Funds'
obligations to redeem shares, AIM Distributors may also repurchase shares as an
accommodation to shareholders. To effect a repurchase, those dealers who have
executed Selected Dealer Agreements with AIM Distributors must phone orders to
the order desk of the Funds at (800) 949-4246 and guarantee delivery of all
required documents in good order. A repurchase is effected at the net asset
value per share of the applicable Fund next determined after such order is
received. Such arrangement is subject to timely receipt by AFS of all required
documents in good order. If such documents are not received within a reasonable
time after the order is placed, the order is subject to cancellation. While
there is no charge imposed by the Funds or by AIM Distributors (other than any
applicable contingent deferred sales charge) when shares are redeemed or
repurchased, dealers may charge a fair service fee for handling the transaction.
The right of redemption may be suspended or the date of payment
postponed when (a) trading on the New York Stock Exchange (the "NYSE") is
restricted, as determined by applicable rules and regulations of the SEC, (b)
the NYSE is closed for other than customary weekend and holiday closings, (c)
the SEC has by order permitted such suspension, or (d) an emergency, as
determined by the SEC, exists making disposition of portfolio securities or the
valuation of the net assets of the Funds not reasonably practicable.
The Trust agrees to redeem shares of the Funds, or any other future
portfolios of the Trust, solely in cash up to the lesser of $250,000 or 1% of
the Funds' net assets during any 90-day period for any one shareholder. In
consideration of the best interests of the remaining shareholders, the Trust
reserves the right to pay any redemption price exceeding this amount in whole or
in part by a distribution in kind of securities held by the Funds in lieu of
cash. It is highly unlikely that shares would ever be redeemed in kind. If
shares are redeemed in kind, however, the redeeming shareholder should expect to
incur transaction costs upon the disposition of the securities received in the
distribution.
BACKUP WITHHOLDING
Accounts submitted without a correct, certified taxpayer identification
number or, alternatively, a completed Internal Revenue Service ("IRS") Form W-8
(for non-resident aliens) or Form W-9 (certifying exempt status) accompanying
the registration information will generally be subject to backup withholding.
Each AIM Fund, and other payers, must, according to IRS regulations,
withhold 31% of redemption payments and reportable dividends (whether paid or
accrued) in the case of any shareholder who fails to provide the Fund with a
taxpayer identification number ("TIN") and a certification that he is not
subject to backup withholding.
An investor is subject to backup withholding if:
(1) the investor fails to furnish a correct TIN to the Fund, or
(2) the IRS notifies the Fund that the investor furnished an
incorrect TIN, or
(3) the investor or the Fund 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
non-exempt mutual fund accounts opened after 1983.
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Interest and dividend payments are subject to back-up withholding in
all five situations discussed above. Redemption proceeds and long-term gain
distributions are subject to backup withholding only if (1) (2) or (5) above
applies.
Certain payees and payments are exempt from backup withholding and
information reporting. A complete listing of such exempt entities appears in the
Instructions for the Requester of Form W-9 (which can be obtained from the IRS)
and includes, among others, the following:
o a corporation
o an organization exempt from tax under Section 501(a), an
individual retirement plan (IRA), or a custodial account under
Section 403(b)(7)
o the United States or any of its agencies or instrumentalities
o a state, the District of Columbia, a possession of the United
States, or any of their political subdivisions or
instrumentalities
o a foreign government or any of its political subdivisions,
agencies or instrumentalities
o an international organization or any of its agencies or
instrumentalities
o a foreign central bank of issue
o a dealer in securities or commodities required to register in
the U.S. or a possession of the U.S.
o a futures commission merchant registered with the Commodity
Futures Trading Commission
o a real estate investment trust
o an entity registered at all times during the tax year under
the 1940 Act
o a common trust fund operated by a bank under Section 584(a)
o a financial institution
o 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
o a trust exempt from tax under Section 664 or described in
Section 4947
Investors should contact the IRS if they have any questions concerning
entitlement to an exemption from backup withholding.
NOTE: Section references are to sections of the Code.
IRS PENALTIES -- Investors who do not supply the AIM Funds with a
correct TIN will be subject to a $50 penalty imposed by the IRS unless such
failure is due to reasonable cause and not willful neglect. If an investor
falsifies information on this form or makes any other false statement resulting
in no backup withholding on an account which should be subject to backup
withholding, such investor may be subject to a $500 penalty imposed by the IRS
and to certain criminal penalties including fines and/or imprisonment.
NONRESIDENT ALIENS -- Nonresident alien individuals and foreign
entities are not subject to the backup withholding previously discussed, but
must certify their foreign status by attaching IRS Form W-8 to their
application. Form W-8 remains in effect for three calendar years beginning with
the calendar year in which it
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is received by the Fund. Such shareholders may, however, be subject to federal
income tax withholding at a 30% rate on ordinary income dividends and
distributions and return of capital distributions. Under applicable treaty law,
residents of treaty countries may qualify for a reduced rate of withholding or a
withholding exemption.
NET ASSET VALUE DETERMINATION
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. For
purposes of determining net asset value per share, futures and options contract
closing prices which are available fifteen (15) minutes after the close of
trading on the NYSE will generally be used. The net asset values per share of
the Retail Classes and the Institutional Class will differ because different
expenses are attributable to each class. The income or loss and the expenses
(except those listed below) of a Fund are allocated to each class on the basis
of the net assets of the Fund allocable to each such class, calculated as of the
close of business on the previous business day, as adjusted for the current
day's shareholder activity of each class. Distribution and service fees and
transfer agency fees (to the extent different rates are charged to different
classes) are allocated only to the class to which such expenses relate. 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 closing bid price 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 on the basis
of prices provided by independent pricing services. 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 closing bid price 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
for which market quotations are not reflective of fair value 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, which approximates market value. 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.
Fund securities primarily traded in foreign markets may be traded in
such markets on days which are not business days of the Fund. Because the net
asset value per share of each Fund is determined only on
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business days of the Funds, the net asset value per share of a Fund may be
significantly affected on days when an investor can not exchange or redeem
shares of the Fund.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
DIVIDENDS AND DISTRIBUTIONS
The dividends accrued and paid for each class of each Fund's shares
will consist of: (a) interest accrued and discounts earned (including both
original issue and market discount) for the Fund, allocated based upon each
class's pro rata share of the net assets of the Fund, less (b) Trust expenses
accrued for the applicable dividend period attributable to the Fund, such as
custodian fees, trustee's fees, and accounting and legal expenses, allocated
based upon each class's pro rata share of the net assets of the Fund, less (c)
expenses directly attributable to each class which accrued for the applicable
dividend period, such as shareholder servicing plan expenses, if any, or
transfer agent fees unique to each class.
Dividends are declared to shareholders of record immediately prior to
the determination of the net asset value of each Fund. Accordingly, dividends
begin accruing on the first business day of each Fund following the day on which
a purchase order for shares of each Fund is effective, and accrue through the
day on which a redemption order is effective. Thus, if a purchase order is
effective on a Friday, dividends will begin accruing on the following Monday
(unless such day in not a business day of the Fund).
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
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").
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In general, gain or loss recognized by a Fund on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation purchased by a Fund at a market discount
(generally, at a price less than its principal amount) will be treated as
ordinary income to the extent of the portion of the market discount which
accrued during the period of time a Fund held the debt obligation. In addition,
if a Fund purchases a debt obligation that was originally issued at a discount,
the Fund is generally required to include in gross income each year the portion
of the original issue discount which accrues during such year.
Limited Maturity may enter into notional principal contracts, including
interest rate swaps, caps, floors and collars. Under Treasury regulations, in
general, the net income or deduction from a notional principal contract for a
taxable year is included in or deducted from gross income for that taxable year.
The net income or deduction from a notional principal contract for a taxable
year equals the total of all of the periodic payments (generally, payments that
are payable or receivable at fixed periodic intervals of one year or less during
the entire term of the contract) that are recognized from that contract for the
taxable year and all of the non-periodic payments (including premiums for caps,
floors and collars), even if paid in periodic installments, that are recognized
from that contract for the taxable year. A periodic payment is recognized
ratably over the period to which it relates. In general, a non-periodic payment
must be recognized over the term of the notional principal contract in a manner
that reflects the economic substance of the contract. A non-periodic payment
that relates to an interest rate swap, cap, floor or collar shall be recognized
over the term of the contract by allocating it in accordance with the values of
a series of cash-settled forward or option contracts that reflect the specified
index and notional principal amount upon which the notional principal contract
is based (or, in the case of a swap or of a cap or floor that hedges a debt
instrument, under alternative methods contained in the regulations and, in the
case of other notional principal contracts, under alternative methods that the
IRS may provide in a revenue procedure).
Treasury regulations permit a regulated investment company, in
determining its investment company taxable income and net capital gain (i.e.,
the excess of net long-term capital gain over net short-term capital loss) for
any taxable year, to elect (unless it has made a taxable year election for
excise tax purposes as discussed below) to treat all or part of any net capital
loss, any net long-term capital loss or any net foreign currency loss incurred
after October 31 as if it had been incurred in the succeeding year.
In addition to satisfying the Distribution Requirements and the Income
Requirement, 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
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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 gain for each taxable year. Such
distributions will be taxable to shareholders as ordinary income and treated as
dividends for federal income tax purposes, but they are not expected to qualify
for the 70% dividends received deduction for corporations.
Each Fund may either retain or distribute to shareholders its net
long-term capital gain for each taxable year. Each Fund currently intends to
distribute any such amounts. If net capital gain is distributed and designated
as a capital gain dividend, it will be taxable to shareholders as long-term
capital gain (taxable at a maximum rate of 20% for non-corporate shareholders),
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by the Fund prior to the date on which the shareholder
acquired his shares. Conversely, if a Fund elects to retain its net capital
gain, the Fund will be taxed thereon (except to the extent of any available
capital loss carryovers) at the 35% corporate tax rate. If a Fund elects to
retain net capital gain, it is expected that the Fund also will elect to have
shareholders treated as if each received a distribution of its pro rata share of
such gain, with the result that each shareholder will be required to report its
pro rata share of such gain on its tax return as long-term capital gain, will
receive a refundable tax credit for its pro rata share of tax paid by the Fund
on the gain, and will increase the tax basis for its shares by an amount equal
to the deemed distribution less the tax credit.
Distributions by a Fund that do not constitute ordinary income
dividends or capital gain dividends will be treated as a return of capital to
the extent of (and in reduction of) the shareholder's tax basis in his shares;
any excess will be treated as gain from the sale of his shares, as discussed
below.
Distributions by a Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of a Fund (or any other fund in The AIM Family 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
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income tax consequences of distributions made (or deemed made in certain cases)
during the year in accordance with the guidance that has been provided by the
Internal Revenue Service.
Each Fund is required in certain cases to withhold and remit to the
U.S. Treasury 31% of ordinary income dividends and capital gain dividends, and
the proceeds of redemption of shares, paid to any shareholder (1) who has
provided either an incorrect tax identification number or no number at all, (2)
who is subject to backup withholding by the Internal Revenue Service for failure
to report the receipt of interest or dividend income properly, or (3) who has
failed to certify to the Fund that it is not subject to backup withholding or
that it is a corporation or other "exempt recipient."
SALE OR REDEMPTION OF FUND SHARES
A shareholder will recognize gain or loss on the sale or redemption of
shares of a Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
In general, any gain or loss arising from (or treated as arising from) the sale
or redemption of shares of a Fund will be considered capital gain or loss and
will be long-term capital gain or loss if the shares were held for longer than
one year. Except to the extent otherwise provided in future treasury
regulations, any long-term capital gain recognized by a noncorporate shareholder
will be subject to tax at a maximum rate of 20%. However, any capital loss
arising from the sale or redemption of shares held for six months or less will
be treated as a long-term capital loss to the extent of the amount of capital
gain dividends received on such shares. For this purpose, the special holding
period rules of Code Section 246(c)(3) and (4) generally will apply in
determining the holding period of shares. Long-term capital gains of
non-corporate taxpayers are currently taxed at a maximum rate that in some cases
may be 19.6% lower than the maximum rate applicable to ordinary income. Capital
losses in any year are deductible only to the extent of capital gains plus, in
the case of a noncorporate taxpayer, $3,000 of ordinary income.
If a shareholder (i) incurs a sales load in acquiring shares of a Fund,
(ii) disposes of such shares less than 91 days after they are acquired and (iii)
subsequently acquires shares of the same or another fund at a reduced sales load
pursuant to a right to reinvest at such reduced sales load acquired in
connection with the acquisition of the shares disposed of, then the sales load
on the shares disposed of (to the extent of the reduction in the sales load on
the shares subsequently acquired) shall not be taken into account in determining
gain or loss on the shares disposed of but shall be treated as incurred on the
acquisition of the shares subsequently acquired.
REINSTATEMENT PRIVILEGE
For federal income tax purposes, exercise of your reinstatement
privilege may increase the amount of gain or reduce the amount of loss
recognized in the original redemption transaction, because the initial sales
charge will not be taken into account in determining such gain or loss to the
extent there has been a reduction in the initial sales charge.
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
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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.
SHAREHOLDER INFORMATION
This information supplements the discussion in each Fund's Prospectus
under the title "Shareholder Information."
TIMING OF PURCHASE ORDERS. It is the responsibility of the dealer to
ensure that all orders are transmitted on a timely basis to the Transfer Agent.
Any loss resulting from the dealer's failure to submit an order within the
prescribed time frame will be borne by that dealer. If a check used to purchase
shares does not clear, or if any investment order must be canceled due to
nonpayment, the investor will be responsible for any resulting loss to an AIM
Fund or to AIM Distributors.
SHARES CERTIFICATES. AIM Funds will issue share certificates upon
written request to AFS. Otherwise, shares are held on the shareholder's behalf
and recorded on the Fund books. AIM Funds will not issue certificates for shares
held in prototype retirement plans.
SYSTEMATIC WITHDRAWAL PLAN. Under a Systematic Withdrawal Plan, all
shares are to be held by the Transfer Agent and all dividends and distributions
are reinvested in shares of the applicable AIM Fund by the Transfer Agent. To
provide funds for payments made under the Systematic Withdrawal Plan, the
Transfer Agent redeems sufficient full and fractional shares at their net asset
value in effect at the time of each such redemption.
Payments under a Systematic Withdrawal Plan constitute taxable events.
Since such payments are funded by the redemption of shares, they may result in a
return of capital and in capital gains or losses, rather than in ordinary
income. Because sales charges are imposed on additional purchases of shares
(other than Class B or Class C Shares of the AIM Funds and AIM Cash Reserve
Shares of AIM Money Market Fund), it is disadvantageous to effect such purchases
while a Systematic Withdrawal Plan is in effect.
Each AIM Fund bears its share of the cost of operating the Systematic
Withdrawal Plan.
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TERMS AND CONDITIONS OF EXCHANGES. 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, and the release of
the exchange proceeds is delayed for the foregoing five-day period, such
shareholder will not begin to accrue dividends until the sixth business day
after the exchange.
EXCHANGES BY TELEPHONE. AIM Distributors has made arrangements with
certain dealers and investment advisory firms to accept telephone instructions
to exchange shares between any of the AIM Funds. AIM Distributors reserves the
right to impose conditions on dealers or investment advisors who make telephone
exchanges of shares of the funds, including the condition that any such dealer
or investment advisor enter into an agreement (which contains additional
conditions with respect to exchanges of shares) with AIM Distributors. To
exchange shares by telephone, a shareholder, dealer or investment advisor who
has satisfied the foregoing conditions must call AFS at (800) 959-4246. If a
shareholder is unable to reach AFS by telephone, he may also request exchanges
by telegraph or use overnight courier services to expedite exchanges by mail,
which will be effective on the business day received by the Transfer Agent as
long as such request is received prior to NYSE Close. The Transfer Agent and AIM
Distributors may in certain cases be liable for losses due to unauthorized or
fraudulent transactions if they do not follow reasonable procedures for
verification of telephone transactions. Such reasonable procedures may include
recordings of telephone transactions (maintained for six months), requests for
confirmation of the shareholder's Social Security Number and current address,
and mailings of confirmations promptly after the transaction.
By signing an account application form, an investor appoints the
Transfer Agent as his true and lawful attorney-in-fact to surrender for
redemption any and all unissued shares held by the Transfer Agent in the
designated account(s), or in any other account with any of the AIM Funds,
present or future, which has the identical registration as the designated
account(s), with full power of substitution in the premises. The Transfer Agent
and AIM Distributors are thereby authorized and directed to accept and act upon
any telephone redemptions of shares held in any of the account(s) listed, from
any person who requests the redemption proceeds to be applied to purchase shares
in any one or more of the AIM Funds, provided that such fund is available for
sale and provided that the registration and mailing address of the shares to be
purchased are identical to the registration of the shares being redeemed. An
investor acknowledges by signing the form that he understands and agrees that
the Transfer Agent and AIM Distributors may not be liable for any loss, expense
or cost arising out of any telephone exchange requests effected in accordance
with the authorization set forth in these instructions if they reasonably
believe such request to be genuine, but may in certain cases be liable for
losses due to unauthorized or fraudulent transactions. Procedures for
verification of telephone transactions may include recordings of telephone
transactions (maintained for six months), requests for confirmation of the
shareholder's Social Security Number and current address, and mailings of
confirmations promptly after the transaction. The Transfer Agent reserves the
right to modify or terminate the telephone exchange privilege at any time
without notice. An investor may elect not to have this privilege by marking the
appropriate box on the application. Then any exchanges must be effected in
writing by the investor.
REDEMPTIONS BY TELEPHONE. By signing an account application form, an
investor appoints the Transfer Agent as his true and lawful attorney-in-fact to
surrender for redemption any and all unissued shares held by the Transfer Agent
in the designated account(s), present or future, with full power of substitution
in the premises. The Transfer Agent and AIM Distributors are thereby authorized
and directed to accept and act upon any telephone redemptions of shares held in
any of the account(s) listed, from any person who requests the redemption. An
investor acknowledges by signing the form that he understands and agrees that
the Transfer Agent and AIM Distributors may not be liable for any loss, expense
or cost arising out of any telephone redemption requests effected in accordance
with the authorization set forth in these instructions if they reasonably
believe such request to be genuine, but may in certain cases be liable for
losses due to unauthorized or fraudulent transactions. Procedures for
verification of telephone transactions may include recordings of telephone
transactions (maintained for six months), requests for confirmation of the
shareholder's Social Security Number and current address, and mailings of
confirmations promptly after the transactions.
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The Transfer Agent reserves the right to cease to act as attorney-in-fact
subject to this appointment, and AIM Distributors reserves the right to modify
or terminate the telephone redemption privilege at any time without notice. An
investor may elect not to have this privilege by marking the appropriate box on
the application. Then any redemptions must be effected in writing by the
investor.
SIGNATURE GUARANTEES. In addition to those circumstances listed in the
"Shareholder Information" section of each Fund's prospectus, signature
guarantees are required in the following situations: (1) requests to transfer
the registration of shares to another owner; (2) telephone exchange and
telephone redemption authorization forms; (3) changes in previously designated
wiring or electronic funds transfer instructions; and (4) written redemptions or
exchanges of shares previously reported as lost, whether or not the redemption
amount is under $50,000 or the proceeds are to be sent to the address of record.
AIM Funds may waive or modify any signature guarantee requirements at any time.
Acceptable guarantors include banks, broker-dealers, credit unions,
national securities exchanges, savings associations and any other organization,
provided that such institution or organization qualifies as an "eligible
guarantor institution" as that term is defined in rules adopted by the SEC, and
further provided that such guarantor institution is listed in one of the
reference guides contained in the Transfer Agent's current Signature Guarantee
Standards and Procedures, such as certain domestic banks, credit unions,
securities dealers, or securities exchanges. The Transfer Agent will also accept
signatures with either: (1) a signature guaranteed with a medallion stamp of the
STAMP Program, or (2) a signature guaranteed with a medallion stamp of the NYSE
Medallion Signature Program, provided that in either event, the amount of the
transaction involved does not exceed the surety coverage amount indicated on the
medallion. For information regarding whether a particular institution or
organization qualifies as an "eligible guarantor institution," an investor
should contact the Client Services Department of AFS.
TRANSACTIONS BY INTERNET. An investor may effect transactions in his
account through the Internet by selecting the AIM Internet Connect option on his
completed account application form or completing an AIM Internet Connect
Authorization Form. By signing either form the investor acknowledges and agrees
that the Transfer Agent and AIM Distributors will not be liable for any loss,
expense or cost arising out of any internet transaction effected in accordance
with the instructions set forth in the forms if they reasonably believe such
request to be genuine. Procedures for verification of internet transactions
include requests for confirmation of the shareholder's personal identification
number and mailings of confirmations promptly after the transactions. The
investor also acknowledges that (1) if he no longer wants the AIM Internet
Connect option, he will notify the Transfer Agent in writing, and (2) the AIM
Internet Connect option may be terminated at any time by the AIM Funds.
DIVIDENDS AND DISTRIBUTIONS. In determining the amount of capital
gains, if any, available for distribution, net capital gains are offset against
available net capital losses, if any, carried forward from previous fiscal
periods.
For funds that do not declare a dividend daily, such dividends and
distributions will be reinvested at the net asset value per share determined on
the ex-dividend date. For funds that declare a dividend daily, such dividends
and distributions will be reinvested at the net asset value per share determined
on the payable date.
Dividends on Class B and Class C shares are expected to be lower than
those for Class A shares or AIM Cash Reserve Shares because of higher
distribution fees paid by Class B and Class C shares. Dividends on all shares
may also be affected by other class-specific expenses.
Changes in the form of dividend and distribution payments may be made
by the shareholder at any time by notice to the Transfer Agent and are effective
as to any subsequent payment if such notice is received by the Transfer Agent
prior to the record date of such payment. Any dividend and distribution election
remains in effect until the Transfer Agent receives a revised written election
by the shareholder.
Any dividend or distribution paid by a fund which does not declare
dividends daily has the effect of reducing the net asset value per share on the
ex-dividend date by the amount of the dividend or distribution.
53
<PAGE> 89
Therefore, a dividend or distribution declared shortly after a purchase of
shares by an investor would represent, in substance, a return of capital to the
shareholder with respect to such shares even though it would be subject to
income taxes.
MISCELLANEOUS INFORMATION
CHARGES FOR CERTAIN ACCOUNT INFORMATION
AFS, 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.
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 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 19103-7599.
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.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of October 1, 1999, the trustees and officers of the Trust as a
group owned less than 1% of the outstanding shares of all classes of the Trust,
except that the trustees and officers as a group owned 15.5% of the Class A
shares of High Yield.
LIMITED MATURITY
- ----------------
CLASS A SHARES:
- ---------------
To the best of the Trust's knowledge, the names and addresses of the
holders of 5% or more of the outstanding Class A shares of Limited Maturity, as
of October 1, 1999 and the percent of outstanding shares owned by such
shareholders are as follows:
54
<PAGE> 90
<TABLE>
<CAPTION>
Percentage Percentage Owned
Name and Address Owned of of Record or
of Owner Record* Beneficially
----------------- ---------- ----------------
<S> <C> <C>
Merrill Lynch Pierce Fenner & Smith 16.18% -0-
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
</TABLE>
INSTITUTIONAL CLASS:
- --------------------
To the best of the Trust's knowledge, the names and addresses of the
holders of 5% or more of the outstanding shares of the Institutional Class of
Limited Maturity, as of October 1, 1999 and the percent of outstanding shares
owned by such shareholders are as follows:
<TABLE>
<CAPTION>
Percentage Percentage Owned
Name and Address Owned of of Record or
of Owner Record* Beneficially
- ---------------- ---------- ----------------
<S> <C> <C>
Frost National Bank 59.67% -0-
Muir & Co.
c/o Frost
P. O. Box 2479
San Antonio, TX 78298-2479
Esor & Co. 26.50% -0-
Attn: Trust Operations
P. O. Box 19006
Green Bay, WI 54307-9006
Chase Bank of Texas - 7.88% -0-
OBIE & CO: Acct C-00142C201
Attn: Mutual Fund Unit
MS 160HCB-09
P. O. Box 200547
Houston, TX 77216-0547
</TABLE>
HIGH YIELD
- ----------
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 High Yield, as of
October 1, 1999 and the percent of outstanding shares owned by such shareholders
are as follows:
- -----------------------------
* The Trust has no knowledge as to whether all or any portion of the
shares owned of record are also owned beneficially.
55
<PAGE> 91
<TABLE>
<CAPTION>
Percentage Percentage Owned
Name and Address Owned of of Record or
of Owner Record* Beneficially
----------------- ---------- ----------------
<S> <C> <C>
Jonathan C. Schoolar -0- 17.38%
3722 Tartan Lane
Houston, TX 77025
Gary T. Crum -0- 15.29%
11 Greenway Plaza
Suite 100
Houston, TX 77046
</TABLE>
CLASS B SHARES
To the best of the Trust's knowledge, the names and addresses of the
holders of 5% or more of the outstanding Class B shares of High Yield, as of
October 1, 1999 and the percent of outstanding shares owned by such shareholders
are as follows:
<TABLE>
<CAPTION>
Percentage Percentage Owned
Name and Address Owned of of Record or
of Owner Record* Beneficially
----------------- ---------- ----------------
<S> <C> <C>
Merrill Lynch Pierce Fenner & Smith 7.82% -0-
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East 2nd 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.
56
<PAGE> 92
CLASS C SHARES
To the best of the Trust's knowledge, the names and addresses of the
holders of 5% or more of the outstanding Class C shares of High Yield, as of
October 1, 1999 and the percent of outstanding shares owned by such shareholders
are as follows:
<TABLE>
<CAPTION>
Percentage Percentage Owned
Name and Address Owned of of Record or
of Owner Record* Beneficially
---------------- ----------- -----------------
<S> <C> <C>
Merrill Lynch Pierce Fenner & Smith 11.50% -0-
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
Prudential Securities, Inc. 8.11% -0-
FBO Mr. Howard W. Gordon
Personal Rep
Est Mr. Alvin Perlman
100 SE 2nd Street, Floor 17
Miami, FL 33131-2107
</TABLE>
- --------------------
* The Trust has no knowledge as to whether all or any portion of the
shares owned of record are also owned beneficially.
OTHER INFORMATION
Each Prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement which the Trust has
filed with the SEC under the 1933 Act and reference is hereby made to the
Registration Statement for further information with respect to the Funds and the
securities offered pursuant to the Prospectuses. The Registration Statement is
available for inspection by the public at the SEC in Washington, DC.
57
<PAGE> 93
APPENDIX A
- --------------------------------------------------------------------------------
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-1
<PAGE> 94
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 High Yield 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.
B-1
<PAGE> 95
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.
B-2
<PAGE> 96
FINANCIAL STATEMENTS
FS
<PAGE> 97
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 AIM High Yield Fund II (a series of AIM
Investment Securities Funds) including the schedule of
investments, as of July 31, 1999, and the related
statement of operations, changes in net assets, and
financial highlights for the period September 30, 1998
(date operations commenced) through July 31, 1999. 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 audit 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, 1999, by correspondence
with the custodian and brokers. 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 audit provides 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 AIM High
Yield Fund II as of July 31, 1999, the results of its
operations, changes in its net assets, and financial
highlights for the period September 30, 1998 (date
operations commenced) through July 31, 1999, in
conformity with generally accepted accounting principles.
KPMG LLP
September 3, 1999
Houston, Texas
FS-1
<PAGE> 98
SCHEDULE OF INVESTMENTS
July 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
NON-CONVERTIBLE BONDS &
NOTES-85.88%
AIRLINES-1.71%
Dunlop Standard Aero Holdings, Sr.
Notes, 11.875%, 05/15/09(a) $ 990,000 $ 1,012,275
- --------------------------------------------------------------
AUTO PARTS & EQUIPMENT-2.87%
JL French Automotive Castings,
Inc., Sr. Sub. Notes, 11.50%,
06/01/09(a) 1,670,000 1,695,050
- --------------------------------------------------------------
CHEMICALS-3.48%
Sterling Chemicals, Inc., Sec.
Notes, 12.375%, 07/15/06(a) 2,000,000 2,055,000
- --------------------------------------------------------------
CHEMICALS (SPECIALTY)-2.52%
Key Plastics Holdings, Inc., Series
B Sr. Sub. Notes, 10.25%,
03/15/07 1,540,000 1,488,011
- --------------------------------------------------------------
COMPUTERS (SOFTWARE &
SERVICES)-4.66%
Cybernet Internet Services
International, Inc., Notes,
14.00%, 07/01/09(a) 1,000,000 1,007,500
- --------------------------------------------------------------
Earthwatch Inc., Sr. Disc. Notes,
13.00%, 07/15/07 (Acquired
07/07/99; Cost $1,711,525)(b)(c) 2,500,000 1,749,891
- --------------------------------------------------------------
2,757,391
- --------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS)-1.30%
Panda Funding Corp., Series A-1
Pooled Project Bonds, 11.625%,
08/20/12 750,000 768,750
- --------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-3.42%
Lodgian Financing Corp., Sr. Sub.
Notes, 12.25%, 07/15/09(a) 2,000,000 2,020,000
- --------------------------------------------------------------
FOODS-4.28%
Vlasic Foods International, Inc.,
Sr. Sub. Notes, 10.25%,
07/01/09(a) 1,500,000 1,458,744
- --------------------------------------------------------------
Volume Services America Inc., Sr.
Sub. Notes, 11.25%, 03/01/09(a) 1,000,000 1,070,000
- --------------------------------------------------------------
2,528,744
- --------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL
COMPANIES-2.41%
Venetian Casino Resort LLC, Sec.
Gtd. Mortgage Notes, 12.25%,
11/15/04 1,500,000 1,424,972
- --------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC &
OTHER)-1.77%
King Pharmaceuticals, Inc., Sr.
Unsec. Gtd. Sub. Notes, 10.75%,
02/15/09 1,000,000 1,045,000
- --------------------------------------------------------------
HEALTH CARE (LONG TERM CARE)-1.37%
Harborside Healthcare, Sr. Unsec.
Gtd. Disc. Sub. Notes, 11.00%,
08/01/08(c) 2,000,000 809,527
- --------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES)-1.64%
DJ Orthopedics, LLC, Sr. Sub.
Notes, 12.625%, 06/15/09(a) $ 1,000,000 $ 970,000
- --------------------------------------------------------------
HEALTH CARE (SPECIALIZED
SERVICES)-1.76%
Team Health, Inc., Sr. Sub. Notes,
12.00%, 03/15/09(a) 1,010,000 1,037,775
- --------------------------------------------------------------
HOUSEHOLD FURNISHING &
APPLIANCES-2.95%
Falcon Products, Inc., Sr. Sub.
Notes, 11.375%, 06/15/09(a) 1,750,000 1,745,625
- --------------------------------------------------------------
LEISURE TIME (PRODUCTS)-1.54%
Marvel Enterprises, Inc., Sr.
Notes, 12.00%, 06/15/09(a) 910,000 912,275
- --------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-1.62%
Anthony Crane Rentals LP, Series B
Sr. Unsec. Gtd. Notes, 10.375%,
08/01/08 1,000,000 960,000
- --------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-1.53%
First Wave Marine, Inc., Sr. Unsec.
Gtd. Notes, 11.00%, 02/01/08 1,000,000 904,990
- --------------------------------------------------------------
METALS MINING-3.08%
Centaur Mining & Exploration Ltd.
(Australia), Sr. Gtd. Yankee
Notes, 11.00%, 12/01/07 1,000,000 904,978
- --------------------------------------------------------------
Doe Run Resources Corp. (The),
Series B Sr. Unsec. Gtd. Notes,
11.25%, 03/15/05 1,000,000 914,960
- --------------------------------------------------------------
1,819,938
- --------------------------------------------------------------
NATURAL GAS-2.57%
Western Gas Resources, Inc., Sr.
Sub. Notes, 10.00%, 06/15/09(a) 1,500,000 1,522,500
- --------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES-1.68%
Global Imaging Systems Inc., Sr.
Sub. Notes, 10.75%, 02/15/07(a) 1,000,000 995,000
- --------------------------------------------------------------
OIL & GAS (DRILLING &
EQUIPMENT)-1.73%
Pride International, Inc., Sr.
Unsec. Notes, 10.00%, 06/01/09 1,000,000 1,025,000
- --------------------------------------------------------------
OIL & GAS (EXPLORATION &
PRODUCTION)-2.61%
Comstock Resources, Inc., Sr.
Notes, 11.25%, 05/01/07(a) 1,500,000 1,545,000
- --------------------------------------------------------------
PAPER & FOREST PRODUCTS-1.65%
American Tissue Inc., Sr. Sec.
Notes, 12.50%, 07/15/06(a) 1,000,000 974,992
- --------------------------------------------------------------
PHOTOGRAPHY/IMAGING-1.78%
Polaroid Corp., Sr. Unsec. Notes,
11.50%, 02/15/06 1,000,000 1,055,000
- --------------------------------------------------------------
</TABLE>
FS-2
<PAGE> 99
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
RAILROADS-1.26%
Railworks Corp., Sr. Sub. Notes,
11.50%, 04/15/09(a) $ 750,000 $ 745,313
- --------------------------------------------------------------
RETAIL (SPECIALTY)-2.61%
Vista Eyecare, Inc., Series B Sr.
Unsec. Gtd. Notes, 12.75%,
10/15/05 1,600,000 1,543,989
- --------------------------------------------------------------
SERVICES (COMMERCIAL &
CONSUMER)-1.74%
Avis Rent A Car, Inc., Sr. Sub.
Notes, 11.00%, 05/01/09(a) 1,000,000 1,027,500
- --------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/
WIRELESS)-6.81%
KMC Telecom Holdings, Inc., Sr.
Notes, 13.50%, 05/15/09(a) 1,500,000 1,537,500
- --------------------------------------------------------------
Nextel International, Inc., Sr.
Unsec. Disc. Notes, 12.125%,
04/15/08(c) 1,500,000 798,381
- --------------------------------------------------------------
Powertel, Inc., Sr. Unsec. Disc.
Notes, 12.00%, 05/01/06(c) 2,000,000 1,692,483
- --------------------------------------------------------------
4,028,364
- --------------------------------------------------------------
TELECOMMUNICATIONS (LONG
DISTANCE)-3.63%
Call-Net Enterprises, Inc.
(Canada), Sr. Unsec. Disc. Yankee
Notes, 10.80%, 05/15/09(c) 2,500,000 1,374,907
- --------------------------------------------------------------
Interamericas Communications, Sr.
Notes, 14.00%, 10/27/07 1,000,000 772,461
- --------------------------------------------------------------
2,147,368
- --------------------------------------------------------------
TELEPHONE-8.27%
Alestra S.A. (Mexico), Sr. Notes,
12.625%, 05/15/09(a) 1,500,000 1,413,750
- --------------------------------------------------------------
Logix Communications Enterprises,
Inc., Sr. Unsec. Notes, 12.25%,
06/15/08 1,295,000 1,155,771
- --------------------------------------------------------------
U.S. Xchange LLC, Sr. Unsec. Notes,
15.00%, 07/01/08 1,270,000 1,311,275
- --------------------------------------------------------------
United Pan-Europe Communications,
N.V. (Netherlands), Sr. Notes,
10.875%, 08/01/09(a) 1,000,000 1,007,500
- --------------------------------------------------------------
4,888,296
- --------------------------------------------------------------
TEXTILES (APPAREL)-3.82%
Perry Ellis International Inc., Sr.
Unsec. Gtd. Sub. Notes, 12.25%,
04/01/06(a) 1,250,000 1,275,000
- --------------------------------------------------------------
St. John Knits, Inc., Sr. Sub.
Notes, 12.50%, 07/01/09(a) 1,000,000 982,500
- --------------------------------------------------------------
2,257,500
- --------------------------------------------------------------
WASTE MANAGEMENT-1.81%
Allied Waste North America, Sr. Sub
Notes, 10.00%, 08/01/09(a) 1,070,000 1,067,325
- --------------------------------------------------------------
Total Non-Convertible Bonds &
Notes (Cost $50,555,340) 50,778,470
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS & OTHER EQUITY
INTERESTS-8.12%
COMPUTERS (SOFTWARE &
SERVICES)-0.06%
Cybernet Internet Services
International, Inc.(d) 2,000 $ 33,750
- --------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC &
OTHER)-0.18%
King Pharmaceuticals, Inc.(d) 4,000 108,500
- --------------------------------------------------------------
HOMEBUILDING-0.19%
Schuler Homes, Inc.(d) 15,000 110,625
- --------------------------------------------------------------
OIL & GAS (DRILLING &
EQUIPMENT)-0.20%
Pride International, Inc.(d) 10,000 118,750
- --------------------------------------------------------------
OIL & GAS (EXPLORATION &
PRODUCTION)-0.79%
Chesapeake Energy Corp.(d) 40,000 152,500
- --------------------------------------------------------------
Comstock Resources, Inc.(d) 20,000 90,000
- --------------------------------------------------------------
Forest Oil Corp.(d) 6,000 89,250
- --------------------------------------------------------------
Pogo Producing Co. 7,000 133,437
- --------------------------------------------------------------
465,187
- --------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/
WIRELESS)-3.98%
Clearnet Communications, Inc.(d) 6,500 112,125
- --------------------------------------------------------------
Metrocall, Inc.(d) 35,000 118,125
- --------------------------------------------------------------
Microcell Telecommunications Inc.
(Canada)(d) 12,000 127,500
- --------------------------------------------------------------
Nextel Communications, Inc.-Class
A(d) 4,000 214,250
- --------------------------------------------------------------
Nextel Communications, Inc., Series
E $111.25 PIK Pfd. 1,500 1,522,500
- --------------------------------------------------------------
Powertel, Inc.(d) 7,000 257,250
- --------------------------------------------------------------
2,351,750
- --------------------------------------------------------------
TELECOMMUNICATIONS (LONG
DISTANCE)-2.11%
Call-Net Enterprises, Inc.
(Canada)(d) 15,000 67,500
- --------------------------------------------------------------
Convergent Communications, Inc.(d) 10,000 160,000
- --------------------------------------------------------------
Convergent Communications, Wts.,
expiring 04/01/08(d) 1,200 25,514
- --------------------------------------------------------------
Destia Communications, Inc.(d) 9,000 95,344
- --------------------------------------------------------------
Interamericas Communications(d) 50,000 512,500
- --------------------------------------------------------------
Long Distance International, Wts.,
expiring 04/13/08(d) 670 1,675
- --------------------------------------------------------------
Primus Telecommunications Group,
Inc.(d) 6,000 96,750
- --------------------------------------------------------------
Viatel, Inc.(d) 7,765 287,305
- --------------------------------------------------------------
1,246,588
- --------------------------------------------------------------
TELEPHONE-0.61%
GST Telecommunications, Inc.(d) 8,000 120,000
- --------------------------------------------------------------
ICG Communications, Inc.(d) 5,300 119,913
- --------------------------------------------------------------
</TABLE>
FS-3
<PAGE> 100
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TELEPHONE-(CONTINUED)
Intermedia Communications, Inc.(d) 4,500 $ 124,031
- --------------------------------------------------------------
363,944
- --------------------------------------------------------------
Total Common Stocks & Other
Equity Interests (Cost
$3,665,961) 4,799,094
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
REPURCHASE AGREEMENT-3.09%(e)
SBC Warburg Dillon Read, Inc.,
5.13%, 08/02/99 (Cost
$1,828,705)(f) $ 1,828,705 $ 1,828,705
- --------------------------------------------------------------
TOTAL INVESTMENTS-97.09% 57,406,269
- --------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-2.91% 1,718,636
- --------------------------------------------------------------
NET ASSETS-100.00% $59,124,905
==============================================================
</TABLE>
Investment Abbreviations:
Disc. - Discounted
Gtd. - Guaranteed
Pfd. - Preferred
PIK - Payment in Kind
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
Wts. - Warrants
Notes to Schedule of Investments:
(a) Represents a security sold under Rule 144A, which is exempt from
registration and may be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1993, as amended.
(b) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The valuation of this security has been determined in
accordance with procedures established by the Board of Trustees. The market
value of this security at 07/31/99 was $1,749,891 which represented 2.96% of
the Fund's net assets.
(c) Discounted bond at purchase. The interest rate represents the coupon rate at
which the bond will accrue at a specified future date.
(d) Non-income producing security.
(e) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value is at least 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts, and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(f) Joint repurchase agreement entered into 07/30/99 with a maturing value of
$500,213,750. Collateralized by U.S. Government obligations.
See Notes to Financial Statements.
FS-4
<PAGE> 101
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$56,050,006) $ 57,406,269
- --------------------------------------------------------
Receivables for:
Fund shares sold 879,649
- --------------------------------------------------------
Investment sold 3,034,036
- --------------------------------------------------------
Interest and dividends 1,157,426
- --------------------------------------------------------
Investments for deferred compensation
plan 2,449
- --------------------------------------------------------
Other assets 51,811
- --------------------------------------------------------
Total assets 62,531,640
- --------------------------------------------------------
LIABILITIES:
Payables for:
Investment purchased 2,894,450
- --------------------------------------------------------
Fund shares redeemed 298,558
- --------------------------------------------------------
Deferred compensation 2,449
- --------------------------------------------------------
Dividends 169,289
- --------------------------------------------------------
Accrued distribution fees 26,175
- --------------------------------------------------------
Accrued transfer agent fees 1,255
- --------------------------------------------------------
Accrued custodian fees 1,667
- --------------------------------------------------------
Accrued trustees fees 667
- --------------------------------------------------------
Accrued administrative service fees 8,356
- --------------------------------------------------------
Accrued operating expenses 3,869
- --------------------------------------------------------
Total liabilities 3,406,735
- --------------------------------------------------------
Net assets applicable to shares
outstanding $ 59,124,905
- --------------------------------------------------------
NET ASSETS:
Class A $ 34,991,606
========================================================
Class B $ 20,994,372
========================================================
Class C $ 3,138,927
========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 3,110,524
========================================================
Class B 1,869,356
========================================================
Class C 279,728
========================================================
Class A:
Net asset value and redemption price
per share $ 11.25
========================================================
Offering price per share:
(Net asset value of $11.25/ 95.25%) $ 11.81
========================================================
Class B:
Net asset value and offering price per
share $ 11.23
========================================================
Class C:
Net asset value and offering price per
share $ 11.22
========================================================
</TABLE>
STATEMENT OF OPERATIONS
For the period September 30, 1998 (date operations commenced) through July 31,
1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 2,498,346
- -------------------------------------------------------
Dividends 7,952
- -------------------------------------------------------
Total investment income 2,506,298
- -------------------------------------------------------
EXPENSES:
Advisory fees 146,069
- -------------------------------------------------------
Administrative services fees 64,643
- -------------------------------------------------------
Custodian fees 9,788
- -------------------------------------------------------
Transfer agent fees-Class A 8,955
- -------------------------------------------------------
Transfer agent fees-Class B 3,029
- -------------------------------------------------------
Transfer agent fees-Class C 519
- -------------------------------------------------------
Trustees' fees 6,714
- -------------------------------------------------------
Distribution fees-Class A 43,292
- -------------------------------------------------------
Distribution fees-Class B 52,186
- -------------------------------------------------------
Distribution fees-Class C 8,358
- -------------------------------------------------------
Other 70,584
- -------------------------------------------------------
Total expenses 414,137
- -------------------------------------------------------
Less: Fee waivers (135,584)
- -------------------------------------------------------
Expenses paid indirectly (3,313)
- -------------------------------------------------------
Net expenses 275,240
- -------------------------------------------------------
Net investment income 2,231,058
- -------------------------------------------------------
REALIZED AND UNREALIZED GAIN FROM
INVESTMENT SECURITIES:
Net realized gain from investment
securities 1,689,995
- -------------------------------------------------------
Change in net unrealized appreciation of
investment securities 1,356,263
- -------------------------------------------------------
Net gain from investment securities 3,046,258
- -------------------------------------------------------
Net increase in net assets resulting from
operations $ 5,277,316
=======================================================
</TABLE>
See Notes to Financial Statements.
FS-5
<PAGE> 102
STATEMENT OF CHANGES IN NET ASSETS
For the period September 30, 1998 (date operations commenced) through July 31,
1999
<TABLE>
<S> <C>
OPERATIONS:
Net investment income $ 2,231,058
- ------------------------------------------------------------------------------
Net realized gain from investment securities 1,689,995
- ------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 1,356,263
- ------------------------------------------------------------------------------
Net increase in net assets resulting from operations 5,277,316
- ------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (1,710,595)
- ------------------------------------------------------------------------------
Class B (446,277)
- ------------------------------------------------------------------------------
Class C (70,876)
- ------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A (22,467)
- ------------------------------------------------------------------------------
Class B (421)
- ------------------------------------------------------------------------------
Class C (64)
- ------------------------------------------------------------------------------
Share transactions-net:
Class A 32,499,124
- ------------------------------------------------------------------------------
Class B 20,530,581
- ------------------------------------------------------------------------------
Class C 3,068,584
- ------------------------------------------------------------------------------
Net increase in net assets 59,124,905
- ------------------------------------------------------------------------------
NET ASSETS:
Beginning of period --
- ------------------------------------------------------------------------------
End of period $ 59,124,905
==============================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 56,080,847
- ------------------------------------------------------------------------------
Undistributed investment income 20,746
- ------------------------------------------------------------------------------
Undistributed net realized gain from investment securities 1,667,049
- ------------------------------------------------------------------------------
Unrealized appreciation of investment securities 1,356,263
- ------------------------------------------------------------------------------
$ 59,124,905
==============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
July 31, 1999
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM High Yield Fund II (the "Fund") is a series portfolio of AIM Investment
Securities Funds (the "Trust"). The Trust is a Delaware business trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of two
separate series portfolios. The Fund commenced operations on September 30, 1998.
The Fund currently offers three different classes of shares: Class A shares,
Class B shares and Class C shares. Class A shares are sold with a front-end
sales charge. Class B and Class C shares are sold with a contingent deferred
sales charge. Matters affecting each portfolio or class are voted on exclusively
by the shareholders of such portfolio or class. The assets, liabilities and
operations of each portfolio are accounted for separately. Information presented
in these financial statements pertains only to the Fund. The 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). These bonds may involve special risks in
addition to the risks associated with investment in higher-rated debt
securities. High yield bonds may be more susceptible to real or perceived
adverse economic and competitive industry conditions than are higher-grade
bonds. Also, the secondary market in which high yield bonds are traded may be
less liquid than the market for higher-grade bonds.
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 the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
A. Security Valuations -- Debt securities (including convertible bonds) 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. Equity
securities which are listed or traded on an exchange or the NASDAQ
National
FS-6
<PAGE> 103
Market System are valued at the last sales price on the exchange where
principally traded or, lacking any sales on a particular day, at the
closing bid price on that day. Securities traded in the over-the-counter
market, except (i) securities priced by the pricing service, (ii)
securities for which representative exchange prices are available, and
(iii) securities reported in the NASDAQ National Market System, are valued
at the last bid price obtained from an electronic quotation reporting
system, if such prices are available, or from established market makers.
Securities for which market quotations either 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 at amortized cost which approximates market
value.
B. Securities Transactions, Investment Income and Distributions -- Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of
the securities sold. Interest income is recorded as earned from settlement
date and is recorded on the accrual basis. Dividend income is recorded on
the ex-dividend date. It is the policy of the Fund to declare daily
dividends from net investment income. Such distributions are paid monthly.
Distributions from net realized capital gains, if any, are recorded on ex-
dividend date and are paid annually. On July 31, 1999, undistributed net
investment income was increased by $17,436, undistributed net realized
gains increased by $6 and paid-in-capital decreased by $17,442 in order to
comply with the requirements of the American Institute of Certified Public
Accountants Statement of Position 93-2. Net assets of the fund were
unaffected by the reclassifications discussed above.
C. 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.
D. 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 among 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 an advisory fee to AIM at an annual
rate of 0.625% of the first $500 million of the Fund's average daily net assets,
plus 0.55% of the Fund's average daily net assets in excess of $500 million to
and including $1 billion, plus 0.50% of the Fund's average daily net assets in
excess of $1 billion. During the period September 30, 1998 (date operations
commenced) through July 31, 1999, AIM waived advisory fees in the amount of
$135,584.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. During the period September 30, 1998 (date
operations commenced) through July 31, 1999, AIM was paid $64,643 for such
services.
The Fund, pursuant to a transfer agency 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. During the period September 30, 1998 (date
operations commenced) through July 31, 1999, the Fund paid AFS $7,750 for such
services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted
distribution plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A shares and Class C shares (the "Class A and C Plan"), and the
Fund's Class B shares (the "Class B Plan") (collectively, the "Plans"). The
Fund, pursuant to the Class A and C Plan, pays AIM Distributors compensation at
an annual rate of 0.25% of the average daily net assets of the Class A shares
and 1.00% of the average daily net assets of the Class C shares. The Fund,
pursuant to the Class B Plan, pays AIM Distributors compensation at an annual
rate of 1.00% of the average daily net assets of the Class B shares. Of these
amounts, the Fund may pay a service fee of 0.25% of the average daily net assets
of the Class A, Class B or Class C shares to selected dealers and financial
institutions who furnish continuing personal shareholder services to their
customers who purchase and own the appropriate class of shares of the Fund. Any
amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. The Plans also impose a cap on the total sales
charges, including asset-based sales charges, that may be paid by the respective
classes. During the period September 30, 1998 (date operations commenced)
through July 31, 1999, the Class A, Class B and Class C shares paid AIM
Distributors $43,292, $52,186 and $8,358, respectively, as compensation under
the Plans.
During the period September 30, 1998 (date operations commenced) through July
31, 1999, the Fund paid legal fees of $1,967 for services rendered by Kramer,
Levin, Naftalis & Frankel LLP as counsel to the Board of Trustees. A member of
that firm is a trustee of the Trust.
AIM Distributors received commissions of $61,541 from sales of the Class A
shares of the Fund during the period September 30, 1998 (date operations
commenced) through July 31, 1999. Such commissions are not an expense of the
Fund. They are deducted from, and are not included in, the proceeds from sales
of Class A shares. During the period September 30, 1998 (date operations
commenced) through July 31, 1999, AIM Distributors received $111 in contingent
deferred sales charges imposed on redemptions of Fund shares. Certain officers
and trustees of the Trust are officers and directors of AIM, AIM Distributors
and AFS.
NOTE 3-INDIRECT EXPENSES
The Fund received reductions in transfer agency fees from AFS (an affiliate of
AIM) and reductions in custodian fees of $246 and $3,067, respectively, under an
expense offset arrangement which resulted in a reduction of the Fund's total
expenses of $3,313 during the period September 30, 1998 (date operations
commenced) through July 31, 1999.
NOTE 4-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $1 billion 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. During the period
ended July 31,
FS-7
<PAGE> 104
1999, 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 0.09% on
the unused balance of the committed line. Prior to May 28, 1999, the commitment
fee rate was 0.05%. 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 period September 30, 1998 (date
operations commenced) through July 31, 1999 was $112,136,400 and $59,967,805,
respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of July 31, 1999 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment
securities $2,010,805
- ------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (654,542)
- ------------------------------------------------------------
Net unrealized appreciation of investment
securities $1,356,263
============================================================
Investments had the same cost for tax and financial
statement purposes.
</TABLE>
NOTE 6-TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are 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 period September 30, 1998 (date
operations commenced) through July 31, 1999 were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
--------- -----------
<S> <C> <C>
Sold:
Class A 3,879,343 $40,951,231
- ----------------------------------------------------------------------
Class B* 2,156,519 23,713,819
- ----------------------------------------------------------------------
Class C* 322,660 3,551,731
- ----------------------------------------------------------------------
Issued as a reinvestment of dividends:
Class A 99,704 1,082,276
- ----------------------------------------------------------------------
Class B* 23,551 261,935
- ----------------------------------------------------------------------
Class C* 3,953 43,955
- ----------------------------------------------------------------------
Reacquired:
Class A (868,523) (9,534,383)
- ----------------------------------------------------------------------
Class B* (310,714) (3,445,173)
- ----------------------------------------------------------------------
Class C* (46,885) (527,102)
- ----------------------------------------------------------------------
5,259,608 $56,098,289
======================================================================
</TABLE>
*Class B and Class C shares commenced sales on November 20, 1998 .
FS-8
<PAGE> 105
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A shares
outstanding during the period September 30, 1998 (date operations commenced) to
July 31, 1999, and for a share of Class B and Class C outstanding during the
period November 20, 1998 (date sales commenced) to July 31, 1999.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.00 $ 10.59 $ 10.59
- ------------------------------------------------------------ ------- ------- -------
Income from investment operations:
Net investment income 0.90 0.68 0.68
- ------------------------------------------------------------ ------- ------- -------
Net gains on securities (both realized and unrealized) 1.26 0.65 0.64
- ------------------------------------------------------------ ------- ------- -------
Total from investment operations 2.16 1.33 1.32
- ------------------------------------------------------------ ------- ------- -------
Less distributions:
Dividends from net investment income (0.90) (0.68) (0.68)
- ------------------------------------------------------------ ------- ------- -------
Distributions from net realized gains (0.01) (0.01) (0.01)
- ------------------------------------------------------------ ------- ------- -------
Total distributions (0.91) (0.69) (0.69)
- ------------------------------------------------------------ ------- ------- -------
Net asset value, end of period $ 11.25 $ 11.23 $ 11.22
============================================================ ======= ======= =======
Total return(a) 22.39% 13.03% 12.93%
============================================================ ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $34,992 $20,994 $ 3,139
============================================================ ======= ======= =======
Ratio of expenses to average net assets(b)
Including waivers and reimbursement 1.00% 1.75% 1.75%
============================================================ ======= ======= =======
Excluding waivers and reimbursement 1.58% 2.33% 2.33%
============================================================ ======= ======= =======
Ratio of net investment income to average net assets(b)(c) 9.74% 8.99% 8.99%
============================================================ ======= ======= =======
Portfolio turnover rate 223% 223% 223%
============================================================ ======= ======= =======
</TABLE>
(a) Does not deduct sales charges and is not annualized for periods less than
one year.
(b) Ratios are annualized and based on average net assets of $20,791,446,
$7,499,236 and $1,201,066, for Class A, Class B and Class C shares,
respectively.
(c) After fee waivers and/or expense reimbursements. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 9.14% (annualized), 8.39% (annualized) and 8.39%
(annualized) for Class A, Class B and Class C shares, respectively.
FS-9
<PAGE> 106
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
AIM Investment Securities Funds:
We have audited the accompanying statement of assets and
liabilities of AIM Limited Maturity Treasury Fund (a
series of AIM Investment Securities Funds) including the
schedule of investments, as of July 31, 1999, and the
related statement of operations for the year then ended,
the statements of changes in net assets for each of the
two years in the period then ended, and the financial
highlights for each of the five years in the period then
ended. 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, 1999, by correspondence
with the custodian and brokers. 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 AIM Limited
Maturity Treasury Fund as of July 31, 1999, the results
of its operations for the year then ended, the changes in
its net assets for each of the two years in the period
then ended, and the financial highlights for each of the
five years in the period then ended, in conformity with
generally accepted accounting principles.
KPMG LLP
September 3, 1999
Houston, Texas
FS-10
<PAGE> 107
SCHEDULE OF INVESTMENTS
July 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MARKET
MATURITY (000) VALUE
-------- --------- ------------
<S> <C> <C> <C>
U.S. TREASURY SECURITIES
U.S. TREASURY NOTES-100.19%
5.125% 8/31/00 $ 34,330 $ 34,238,339
- ------------------------------------------------------------------------------------------------------------
4.50% 9/30/00 34,000 33,648,440
- ------------------------------------------------------------------------------------------------------------
4.00% 10/31/00 34,060 33,472,806
- ------------------------------------------------------------------------------------------------------------
4.625% 11/30/00 34,100 33,734,789
- ------------------------------------------------------------------------------------------------------------
4.625% 12/31/00 35,100 34,681,959
- ------------------------------------------------------------------------------------------------------------
4.50% 1/31/01 34,100 33,607,255
- ------------------------------------------------------------------------------------------------------------
5.00% 2/28/01 34,500 34,222,965
- ------------------------------------------------------------------------------------------------------------
4.875% 3/31/01 34,000 33,625,660
- ------------------------------------------------------------------------------------------------------------
5.00% 4/30/01 34,200 33,877,836
- ------------------------------------------------------------------------------------------------------------
5.25% 5/31/01 34,240 34,031,136
- ------------------------------------------------------------------------------------------------------------
5.75% 6/30/01 34,090 34,160,907
- ------------------------------------------------------------------------------------------------------------
5.50% 7/31/01 34,700 34,623,660
============================================================================================================
TOTAL U.S. TREASURY SECURITIES (COST $410,249,128) 407,925,752
============================================================================================================
TOTAL INVESTMENTS-100.19% 407,925,752
============================================================================================================
LIABILITIES LESS OTHER ASSETS-(0.19%) (777,262)
============================================================================================================
NET ASSETS-100.00% $407,148,490
============================================================================================================
</TABLE>
See Notes to Financial Statements.
FS-11
<PAGE> 108
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$410,249,128) $407,925,752
- -------------------------------------------------------
Cash 2,864,297
- -------------------------------------------------------
Receivables for:
Investments sold 34,703,269
- -------------------------------------------------------
Fund shares sold 3,745,894
- -------------------------------------------------------
Interest 4,198,519
- -------------------------------------------------------
Investment in deferred compensation plan 30,068
- -------------------------------------------------------
Other assets 54,032
- -------------------------------------------------------
Total assets 453,521,831
- -------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 34,638,671
- -------------------------------------------------------
Fund shares reacquired 10,858,373
- -------------------------------------------------------
Dividends 495,043
- -------------------------------------------------------
Deferred compensation 30,068
- -------------------------------------------------------
Accrued advisory fees 71,337
- -------------------------------------------------------
Accrued distribution fees 74,125
- -------------------------------------------------------
Accrued transfer agent fees 52,749
- -------------------------------------------------------
Accrued operating expenses 152,975
- -------------------------------------------------------
Total liabilities 46,373,341
- -------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES
OUTSTANDING $407,148,490
=======================================================
</TABLE>
<TABLE>
<S> <C>
NET ASSETS:
Class A $390,017,633
=======================================================
Institutional Class $ 17,130,857
- -------------------------------------------------------
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 38,882,645
=======================================================
Institutional Class 1,707,856
- -------------------------------------------------------
Class A:
Net asset value and redemption price
per share $ 10.03
- -------------------------------------------------------
Offering price per share:
(Net asset value of $10.03 / 99.00%) $ 10.13
- -------------------------------------------------------
Institutional Class:
Net asset value, redemption price and
offering price per share $ 10.03
=======================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended July 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $21,893,952
- -------------------------------------------------------
EXPENSES:
Advisory fees 850,738
- -------------------------------------------------------
Administrative services fees 70,069
- -------------------------------------------------------
Transfer agent fees-Class A 474,047
- -------------------------------------------------------
Transfer agent fees-Institutional Class 3,113
- -------------------------------------------------------
Distribution fees-Class A (See Note 2) 591,643
- -------------------------------------------------------
Other 229,521
- -------------------------------------------------------
Total expenses 2,219,131
- -------------------------------------------------------
Less: Expenses paid indirectly (4,605)
- -------------------------------------------------------
Net expenses 2,214,526
- -------------------------------------------------------
Net investment income 19,679,426
- -------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES:
Net realized gain from investment
securities 1,359,439
- -------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of investment securities (3,023,894)
- -------------------------------------------------------
Net gain (loss) from investment
securities (1,664,455)
- -------------------------------------------------------
Net increase in net assets resulting from
operations $18,014,971
=======================================================
</TABLE>
See Notes to Financial Statements.
FS-12
<PAGE> 109
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended July 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 19,679,426 $ 22,758,619
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities 1,359,439 1,855,056
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (3,023,894) (1,793,413)
- ------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 18,014,971 22,820,262
- ------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A (18,245,067) (20,003,878)
- ------------------------------------------------------------------------------------------
Institutional Class (1,523,201) (2,754,741)
- ------------------------------------------------------------------------------------------
SHARE TRANSACTIONS-NET:
Class A 46,655,684 (44,498,315)
- ------------------------------------------------------------------------------------------
Institutional Class (33,718,444) 1,723,996
- ------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 11,183,943 (42,712,676)
- ------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 395,964,547 438,677,223
- ------------------------------------------------------------------------------------------
End of period $407,148,490 $395,964,547
==========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $413,559,490 $400,652,004
- ------------------------------------------------------------------------------------------
Undistributed net investment income 29,754 88,842
- ------------------------------------------------------------------------------------------
Undistributed realized gain (loss) on sales of investment
securities (4,117,378) (5,476,817)
- ------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities (2,323,376) 700,518
- ------------------------------------------------------------------------------------------
$407,148,490 $395,964,547
==========================================================================================
</TABLE>
See Notes to Financial Statements.
FS-13
<PAGE> 110
NOTES TO FINANCIAL STATEMENTS
July 31, 1999
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Limited Maturity Treasury Fund (the "Fund") is a series portfolio of AIM
Investment Securities Funds (the "Trust"). The Trust is a Delaware business
trust registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of two
separate series portfolios. The investment objective of the Fund is to seek
liquidity with minimum fluctuation in principal value and, consistent with this
investment objective, the highest total return achievable. The Fund currently
offers two different classes of shares: the Class A shares and the Institutional
Class. Matters affecting each portfolio or class are voted on exclusively by the
shareholders of such portfolio or class. The assets, liabilities and operations
of each portfolio are accounted for separately. Information presented in these
financial statements pertains only to the Fund.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of these
financial statements and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the preparation of its financial statements.
A. Security Valuations--Debt obligations that are issued or guaranteed by the
U.S. Treasury are valued on the basis of prices provided by an independent
pricing service. Prices provided by the pricing service may be determined
without exclusive reliance on quoted prices, and may reflect appropriate
factors such as yield, type of issue, coupon rate and maturity date.
Securities for which market prices are not provided by the pricing service
are valued at the mean between the 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. Realized gains and
losses from securities transactions are recorded on the identified cost
basis. On July 31, 1999, undistributed net investment income was increased
by $29,754 and paid-in-capital decreased by $29,754 in order to comply with
the requirements of the American Institute of Certified Public Accountants
Statement of Position 93-2. Net assets of the Fund were unaffected by the
reclassifications discussed above.
C. Dividends and Distributions to Shareholders--It is the policy of the Fund
to declare daily dividends from net investment income. Such distributions
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 $2,924,409, 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 pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. During the year ended July 31, 1999, the Fund
paid AIM $70,069 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. During the year ended July 31, 1999, the Fund
paid AFS $206,185 for such services.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A shares and a master distribution agreement with Fund Management Company
("FMC") to serve as the distributor for the Institutional Class. The Trust has
adopted a Plan pursuant to Rule 12b-1 under the 1940 Act (the "Plan") with
respect to the Class A shares. The Fund pays AIM Distributors compensation at an
annual rate of 0.15% of the average daily net assets attributable to the Class A
shares. The Plan is designed to compensate AIM Distributors for certain
promotional and other sales related costs and provides periodic payments to
selected dealers and financial institutions who furnish continuing personal
shareholder services to their customers who purchase and own Class A shares of
the Fund. Any amounts not paid as a service fee under the Plan would constitute
an asset-based sales charge. The
FS-14
<PAGE> 111
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, 1999, the Fund paid AIM Distributors $591,643 as compensation under the
Plan.
AIM Distributors received commissions of $75,023 during the year ended July
31, 1999 from sales of Class A shares. Such commissions are not an expense of
the Fund. They are deducted from, and are not included in, proceeds from sales
of Class A shares. Certain officers and trustees of the Trust are officers and
directors of AIM, AIM Distributors, FMC and AFS.
During the year ended July 31, 1999, the Fund paid legal fees of $4,376 for
services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3-INDIRECT EXPENSES
The Fund received reductions in transfer agency fees from AFS (an affiliate of
AIM) of $4,605 under an expense offset arrangement which resulted in a reduction
of the Fund's total expenses of $4,605 during the year ended July 31, 1999.
NOTE 4-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $1 billion 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. During the year
ended July 31, 1999, 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 0.09% 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. Prior to May 28, 1999, the commitment fee rate was 0.05%.
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, 1999 was
$804,343,804 and $787,113,635, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of July 31, 1999 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $ 30,522
- ---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (3,546,327)
- ---------------------------------------------------------
Net unrealized appreciation (depreciation)
of investment securities $ (3,515,805)
=========================================================
</TABLE>
Cost of investments for tax purposes is $411,441,557.
NOTE 6-TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are 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, 1999 and 1998 were
as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Sold:
Class A 66,719,952 $ 675,218,081 22,832,451 $ 229,871,705
- --------------------------------------------------------------------------------
Institutional Class 489,034 4,947,727 1,450,340 14,604,304
- --------------------------------------------------------------------------------
Issued as a
reinvestment of
dividends:
Class A 1,524,802 15,430,990 1,671,295 16,825,885
- --------------------------------------------------------------------------------
Institutional Class 1,998 20,239 4,391 44,205
- --------------------------------------------------------------------------------
Reacquired:
Class A (63,662,111) (643,993,387) (28,922,414) (291,195,905)
- --------------------------------------------------------------------------------
Institutional Class (3,809,602) (38,686,410) (1,281,958) (12,924,513)
- --------------------------------------------------------------------------------
1,264,073 $ 12,937,240 (4,245,895) $ (42,774,319)
================================================================================
</TABLE>
FS-15
<PAGE> 112
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A outstanding
during each of the years in the five-year period ended July 31, 1999.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.07 $ 10.07 $ 9.97 $ 10.03 $ 9.96
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.47 0.53 0.54 0.55 0.54
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net gains (losses) on securities (both realized and
unrealized) (0.04) -- 0.10 (0.06) 0.07
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total from investment operations 0.43 0.53 0.64 0.49 0.61
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.47) (0.53) (0.54) (0.55) (0.54)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net asset value, end of period $ 10.03 $ 10.07 $ 10.07 $ 9.97 $ 10.03
============================================================ ======== ======== ======== ======== ========
Total return(a) 4.32% 5.42% 6.55% 4.98% 6.36%
============================================================ ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $390,018 $345,355 $389,812 $359,048 $274,480
============================================================ ======== ======== ======== ======== ========
Ratio of expenses to average net assets 0.54%(b) 0.54% 0.54% 0.54% 0.51%
============================================================ ======== ======== ======== ======== ========
Ratio of net investment income to average net assets 4.61%(b) 5.29% 5.35% 5.45% 5.44%
============================================================ ======== ======== ======== ======== ========
Portfolio turnover rate 184% 133% 130% 117% 120%
============================================================ ======== ======== ======== ======== ========
</TABLE>
(a) Does not deduct sales charges.
(b) Ratios are based on average net assets of $394,428,791.
FS-16
<PAGE> 113
AIM LIMITED MATURITY
TREASURY FUND
--------------------------------------------------------------------------
INSTITUTIONAL CLASS
AIM Limited Maturity Treasury Fund seeks liquidity with minimum
fluctuation of principal value, and, consistent with this objective, the
highest total return achievable.
PROSPECTUS --Registered Trademark--
NOVEMBER 29, 1999
This prospectus contains important
information about the Institutional Class
of the fund. Please read it before
investing and keep it for future reference.
As with all other mutual fund securities,
the Securities and Exchange Commission has
not approved or disapproved these
securities or determined whether the
information in this prospectus is adequate
or accurate. Anyone who tells you
otherwise is committing a crime.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE
-- Registered Trademark --
<PAGE> 114
----------------------------------
AIM LIMITED MATURITY TREASURY FUND
----------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE FUND 1
- - - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 2
- - - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 2
Performance Table 2
FEE TABLE AND EXPENSE EXAMPLE 3
- - - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 3
Expense Example 3
FUND MANAGEMENT 4
- - - - - - - - - - - - - - - - - - - - - - - - - -
The Advisor 4
Advisor Compensation 4
Portfolio Managers 4
OTHER INFORMATION 4
- - - - - - - - - - - - - - - - - - - - - - - - - -
Suitability for Investors 4
Dividends and Distributions 4
FINANCIAL HIGHLIGHTS 5
- - - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - - -
Purchasing Shares A-1
Redeeming Shares A-1
Pricing of Shares A-2
Taxes A-2
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com, La
Familia AIM de Fondos, La Familia AIM de Fondos and Design and Invest with
Discipline are registered service marks and AIM Bank Connection, AIM Funds, AIM
Funds and Design, AIM Internet Connect and AIM Investor are service marks of
A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 115
----------------------------------
AIM LIMITED MATURITY TREASURY FUND
----------------------------------
INVESTMENT OBJECTIVE AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's investment objective is to seek liquidity with minimum fluctuation of
principal value, and, consistent with this objective, the highest total return
achievable.
The fund attempts to meet this objective by investing in direct obligations of
the U.S. Treasury, including bills, notes and bonds. The fund will only purchase
securities with maturities of three years or less.
The portfolio managers focus on U.S. Treasury obligations they believe have
favorable prospects for total return consistent with the fund's investment
objective. The portfolio managers usually sell a particular security when any of
those factors materially changes.
In anticipation of or in response to adverse market conditions, for cash
management purposes, or for defensive purposes, the fund may temporarily hold
all or a portion of its assets in cash and shares of affiliated money market
funds. As a result, the fund may not achieve its investment objective.
The fund may engage in active and frequent trading of portfolio securities to
achieve its investment objective. If the fund does trade in this way, it may
incur increased transaction costs, which can lower the actual return on your
investment. Active trading may also increase short-term gains and losses, which
may affect the taxes you have to pay.
PRINCIPAL RISKS OF INVESTING IN THE FUND
- --------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund and that the income you may receive from your investment may vary. The
value of your investment in the fund will go up and down with the prices of the
securities in which the fund invests. Interest rate increases can cause the
price of a debt security to decrease; the longer the debt security's duration,
the more sensitive it is to this risk.
The value of your shares could be adversely affected if the computer systems
used by the fund's investment advisor and the fund's other service providers are
unable to distinguish the year 2000 from the year 1900.
The fund's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the fund invests.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
1
<PAGE> 116
----------------------------------
AIM LIMITED MATURITY TREASURY FUND
----------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
The following bar chart shows changes in the performance of the Institutional
Class shares from year to year.
<TABLE>
<S> <C>
1989 ........................................... 9.85%
1990 ........................................... 9.19%
1991 ........................................... 10.62%
1992 ........................................... 5.87%
1993 ........................................... 4.68%
1994 ........................................... 1.08%
1995 ........................................... 9.67%
1996 ........................................... 5.01%
1997 ........................................... 6.22%
1998 ........................................... 6.33%
</TABLE>
* The Institutional Class shares' year-to-date total return as of September 30,
1999 was 2.30%.
During the periods shown in the bar chart, the highest quarterly return was
4.03% (quarter ended June 30, 1989) and its lowest quarterly return was - 0.15%
(quarter ended March 31, 1994).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- ----------------------------------------------------------------------------------------------------
(for the periods ended SINCE INCEPTION
December 31, 1998) 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Institutional Class 6.33% 5.62% 6.81% 6.71% 07/13/87
Lehman 1-to 2-Year U.S. Government Bond Index(1) 4.97% 5.88% 6.45% 6.77%(2) 07/31/88(2)
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) The Lehman 1-to 2-Year U.S. Government Bond Index is an unmanaged index
composed of U.S. Agency and Treasury issues with maturities of one to two
years.
(2) The average annual total return given is since the date closest to the
earliest date the index became available.
2
<PAGE> 117
----------------------------------
AIM LIMITED MATURITY TREASURY FUND
----------------------------------
FEE TABLE AND EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) INSTITUTIONAL CLASS
- -------------------------------------------------------
<S> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever is less) None
- -------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets) INSTITUTIONAL CLASS
- -------------------------------------------------------
<S> <C>
Management Fees 0.20%
Distribution and/or
Service (12b-1) Fees None
Other Expenses 0.11
Total Annual Fund
Operating Expenses 0.31
- -------------------------------------------------------
</TABLE>
You should also consider the effect of any account fees charged by the financial
institution managing the account.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in the
Institutional Class of the fund with the cost of investing in other mutual
funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's gross operating expenses remain the same. Although your actual returns
and costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional
Class $32 $100 $174 $393
- ---------------------------------------------------------
</TABLE>
3
<PAGE> 118
----------------------------------
AIM LIMITED MATURITY TREASURY FUND
----------------------------------
FUND MANAGEMENT
- --------------------------------------------------------------------------------
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor and
is responsible for its day-to-day management. The advisor is located at 11
Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The advisor supervises all
aspects of the fund's operations and provides investment advisory services to
the fund, including obtaining and evaluating economic, statistical and financial
information to formulate and implement investment programs for the fund.
The advisor has acted as an investment advisor since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 125
investment portfolios, including the fund, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended July 31, 1999, the advisor received compensation of
0.22% of average daily net assets, consisting of a management fee of 0.20% and
an administrative fee of 0.02%.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual
members of the team who are primarily responsible for the day-to-day management
of the fund's portfolio, all of whom are officers of A I M Capital Management,
Inc., a wholly owned subsidiary of the advisor, are
- - Laurie A. Brignac, Portfolio Manager, who has been responsible for the fund
since 1999 and has been associated with the advisor and/or its affiliates
since 1992.
- - Scott W. Johnson, Portfolio Manager, who has been responsible for the fund
since 1998 and has been associated with the advisor and/or its affiliates
since 1994.
- - Karen Dunn Kelley, Senior Portfolio Manager, who has been responsible for the
fund since 1992 and has been associated with the advisor and/or its affiliates
since 1989.
OTHER INFORMATION
- --------------------------------------------------------------------------------
SUITABILITY FOR INVESTORS
The Institutional Class of the fund is intended for use by institutions,
particularly banks, acting for themselves or in a fiduciary or similar capacity.
The Institutional Class may be particularly appropriate for institutions
investing short-term cash reserves for the benefit of customer accounts.
Prospective investors should determine if an investment in the fund is
consistent with the objectives of its customer account and with applicable state
and federal laws and regulations.
The Institutional Class of the fund is designed to be convenient and
economical vehicle for investing in a portfolio of direct U.S. Treasury
obligations with remaining maturities of three (3) years or less. An investment
in the fund may relieve the institution of many of the investment and
administrative burdens encountered when investing directly in securities. These
include: selection and diversification of portfolio investments; surveying the
market for the best price at which to buy and sell; valuation of portfolio
securities; receipt, delivery and safekeeping of securities; and portfolio
recordkeeping. It is anticipated that most investors will perform their own
subaccounting.
The price per share of the fund's shares will fluctuate inversely with changes
in interest rates. However the price changes in the fund's shares due to changes
in interest rates should be more moderate than the per share fluctuations of a
fund which invests in longer-term obligations. The fund is designed for the
investor who seeks a higher yield and greater stability of income than a money
market fund offers, but with less capital fluctuation than a long-term bond fund
might provide.
DIVIDENDS AND DISTRIBUTIONS
The fund expects that its distributions will consist primarily of ordinary
income.
DIVIDENDS
The fund generally declares dividends daily and pays dividends, if any, monthly.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains (including
any net gains from foreign currency transactions), if any, annually.
4
<PAGE> 119
----------------------------------
AIM LIMITED MATURITY TREASURY FUND
----------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
This information has been audited by KPMG LLP, whose report, along with the
fund's financial statements, is included in the fund's annual report, which is
available upon request.
<TABLE>
<CAPTION>
INSTITUTIONAL CLASS
----------------------------------------------------------------
YEAR ENDED JULY 31,
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.07 $ 10.07 $ 9.97 $ 10.03 $ 9.96
Income from investment operations:
Net investment income 0.49 0.56 0.56 0.58 0.57
Net gains (losses) on securities (both
realized and unrealized) (0.04) -- 0.10 (0.06) 0.07
Total from investment operations 0.45 0.56 0.66 0.52 0.64
Less distributions:
Dividends from net investment income (0.49) (0.56) (0.56) (0.58) (0.57)
Net asset value, end of period $ 10.03 $ 10.07 $ 10.07 $ 9.97 $ 10.03
Total return 4.55% 5.66% 6.79% 5.27% 6.61%
- ------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) $ 17,131 $ 50,609 $ 48,866 $ 143,468 $ 129,530
Ratio of expenses to average net assets 0.31%(a) 0.32% 0.31% 0.27% 0.28%
Ratio of net investment income to average net
assets 4.84%(a) 5.51% 5.56% 5.72% 5.70%
Portfolio turnover rate 184% 133% 130% 117% 120%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Ratios are based on average net assets of $30,940,119.
5
<PAGE> 120
----------------------------------
AIM LIMITED MATURITY TREASURY FUND
----------------------------------
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
PURCHASING SHARES
The minimum initial investment in the Institutional Class is $1,000,000. No
minimum amount is required for subsequent investments in the fund, nor are
minimum balances required.
Shares of the Institutional Class of the fund are sold on a continuing basis
at their net asset value. Although no sales charge is imposed in connection with
the purchase of shares, banks or other financial institutions may charge a
recordkeeping, account maintenance or other fee to their customers, and
beneficial holders of shares of the fund should consult with such institutions
to obtain a schedule of such fees. Institutions may be requested to maintain
separate master accounts in the fund for shares held by the institution (a) for
its own account, for the account of other institutions and for accounts for
which the institution acts as a fiduciary; and (b) for accounts for which the
institutions acts in some other capacity. An institution's master accounts and
subaccounts with the fund may be aggregated for the purpose of the minimum
investment requirement. Prior to the initial purchase of shares, an account
application must be completed and sent to A I M Fund Services, Inc. (transfer
agent) at P.O. Box 4497, Houston, Texas 77210-4497. An account application may
be obtained from the transfer agent.
In order to be accepted for execution, purchase orders must be submitted in
proper form and received during the hours the New York Stock Exchange (NYSE) is
open for business and such orders will be confirmed at the net asset value
determined as of the close of that day (trade date). Subsequent purchases of
shares of the fund may also be made via AIM LINK Remote, a personal computer
application software product.
Payments for shares purchased must be in the form of federal funds or other
funds immediately available to the fund and must be made on the "settlement
date," which shall be the next business day of the fund following the trade
date. Federal Reserve wires should be sent as early as possible on the
settlement date in order to facilitate crediting to the shareholder's account.
Any funds received in respect to an order which is not accepted by the fund and
any funds received for which an order has not been received will be returned to
the sending institution. An order to purchase shares must specify which fund is
being purchased, otherwise any funds received will be returned to the sending
institution.
REDEEMING SHARES
TIMING OF REDEMPTIONS
You can redeem shares during the hours the NYSE is open for business. The fund
may postpone the right of redemption only under unusual circumstances, as
allowed by the Securities and Exchange Commission, such as when the NYSE
restricts or suspends trading.
A shareholder may redeem any or all of its shares at the net asset value next
determined after receipt of the redemption request in proper form by the fund.
Redemption requests with respect to shares for which certificates have not been
issued are normally made by calling the transfer agent.
Shareholders may request a redemption by telephone. The transfer agent and the
distributor 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 account application if they reasonably believe such request to be
genuine, but may in certain cases be liable for losses due to unauthorized or
fraudulent transactions. Procedures for verification of telephone transactions
may include recordings of telephone transactions (maintained for six months),
and mailings of confirmation promptly after the transaction. Redemption of
shares of the fund may also be made via AIM LINK Remote.
TIMING AND METHOD OF PAYMENT
If a redemption request is received during the hours the NYSE is open for
business, the redemption will be effected at the net asset value determined as
of the close of that day (the redemption date).
Payment for redeemed shares is normally made by Federal Reserve wire to the
commercial bank account designated in the shareholder's Account Application, but
may be remitted by check upon request by a shareholder. The proceeds of a
redemption request will be wired on the next business day following the
redemption date.
Payment for shares redeemed by mail and payment for telephone redemptions in
amounts under $1,000 may, at the option of the fund, be made by check mailed
within seven days after receipt of the redemption request in proper form. The
fund may make payment for telephone redemptions in excess of $1,000 by check
when it is considered to be in the fund's best interest to do so.
REDEMPTIONS BY THE FUND
If the fund determines that you have provided incorrect information in opening
an account or in the course of conducting subsequent transactions, the fund may,
at its discretion, redeem the account and distribute the proceeds to you.
The fund is permitted to redeem shares in any account with a net asset value
less than $500.
The fund reserves the right at any time to:
- - reject or cancel any part of any purchase order;
- - modify any terms or conditions of purchase of shares of the fund; or
- - withdraw all or any part of the offering made by this prospectus.
A-1
<PAGE> 121
----------------------------------
AIM LIMITED MATURITY TREASURY FUND
----------------------------------
SHAREHOLDER INFORMATION (continued)
- --------------------------------------------------------------------------------
PRICING OF SHARES
The fund prices its shares based on its net asset value. The fund values
portfolio securities for which market quotations are readily available at market
value. The fund values short-term investments maturing within 60 days at
amortized cost, which approximates market value.
The fund values all other securities and assets at their fair value. In
addition, if, between the time trading ends on a particular security and the
close of the New York Stock Exchange (NYSE), events occur that materially affect
the value of the security, the fund may value the security at its fair value as
determined in good faith by or under the supervision of the Board of Trustees of
the fund. The effect of using fair value pricing is that the fund's net asset
value will be subject to the judgment of the Board of Trustees or its designee
instead of being determined by the market.
The fund determines the net asset value of its shares as of the close of the
NYSE on each day the NYSE is open for business. The fund prices purchase and
redemption orders at the net asset value calculated after the transfer agent
receives an order in good form.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different rates of tax apply to ordinary income and long-term
capital gain distributions. Every year, information showing the amount of
dividends and distributions you received from the fund during the prior year
will be sent to you.
Any long-term or short-term capital gains realized from redemptions of fund
shares will be subject to federal income tax.
The foreign, state and local tax consequences of investment in fund shares may
differ materially from the federal income tax consequences described above. You
should consult your tax advisor before investing.
A-2
<PAGE> 122
----------------------------------
AIM LIMITED MATURITY TREASURY FUND
----------------------------------
OBTAINING ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies
of the fund's current SAI or annual or semiannual reports, please contact us
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Fund Services, Inc.
P.O. Box 0843
Houston, TX 77001-0843
BY TELEPHONE: (800) 659-1005
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can review and obtain copies of the fund's SAI, reports and other
information at the SEC's Public Reference Room in Washington, DC; on the EDGAR
database on the SEC's Internet website (http://www.sec.gov); or by sending a
letter to the SEC's Public Reference Section, Washington, DC 20549-0102 or by
sending an electronic mail request to [email protected]. Please call the SEC
at 1-202-942-8090 for information about the Public Reference Room.
----------------------------------
AIM Limited Maturity Treasury Fund
SEC 1940 Act file number: 811-5686
----------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com INVEST WITH DISCIPLINE
-- Registered Trademark --
<PAGE> 123
STATEMENT OF
ADDITIONAL INFORMATION
AIM INVESTMENT SECURITIES FUNDS
AIM LIMITED MATURITY TREASURY FUND
INSTITUTIONAL CLASS
11 GREENWAY PLAZA
SUITE 100
HOUSTON, TEXAS 77046-1173
(800) 659-1005
---------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND
IT SHOULD BE READ IN CONJUNCTION WITH A PROSPECTUS OF THE
ABOVE-NAMED FUND, A COPY OF WHICH MAY BE OBTAINED FREE
OF CHARGE FROM AUTHORIZED DEALERS OR BY WRITING
A I M FUND SERVICES, INC., P.O. BOX 0843,
HOUSTON, TEXAS 77001-0843
OR BY CALLING (800) 659-1005
---------------
STATEMENT OF ADDITIONAL INFORMATION DATED NOVEMBER 29, 1999
RELATING TO THE PROSPECTUS DATED NOVEMBER 29, 1999
<PAGE> 124
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
INTRODUCTION..................................................................1
GENERAL INFORMATION ABOUT THE FUND............................................1
The Fund and Its Shares..............................................1
MANAGEMENT....................................................................3
Trustees and Officers................................................3
Remuneration of Trustees.............................................6
AIM Funds Retirement Plan for Eligible Directors/Trustees............8
Deferred Compensation Agreements.....................................8
The Investment Advisor...............................................9
Control Persons and Principal Holders of Securities.................11
Limited Maturity Treasury Fund......................................11
AIM High Yield Fund II..............................................12
PURCHASES AND REDEMPTIONS....................................................13
Net Asset Value Determination.......................................13
The Distribution Agreement..........................................14
Suspension of Redemption Rights.....................................14
Redemptions by the Funds............................................15
INVESTMENT PROGRAM AND RESTRICTIONS..........................................15
Investment Program..................................................15
Investment Restrictions.............................................17
PERFORMANCE INFORMATION......................................................18
Yield Calculations..................................................18
Total Return Calculations...........................................19
Historical Portfolio Results........................................19
PORTFOLIO TRANSACTIONS.......................................................20
General Brokerage Policy............................................20
Allocation of Portfolio Transactions................................21
Section 28(e) Standards.............................................21
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS.....................................22
Dividends and Distributions.........................................22
Tax Matters.........................................................23
Qualification as a Regulated Investment Company.....................23
Excise Tax on Regulated Investment Companies........................24
Fund Distributions..................................................25
Sale or Redemption of Fund Shares...................................25
Foreign Shareholders................................................26
Effect of Future Legislation; Local Tax Considerations..............26
MISCELLANEOUS INFORMATION....................................................27
Shareholder Inquiries...............................................27
Audit Reports.......................................................27
Legal Matters.......................................................27
Transfer Agent and Custodian........................................27
Other Information...................................................27
FINANCIAL STATEMENTS.........................................................FS
</TABLE>
i
<PAGE> 125
INTRODUCTION
AIM Investment Securities Funds (the "Trust") is a series mutual fund
currently offering two investment portfolios: the AIM Limited Maturity Treasury
Fund (the "Fund") and AIM High Yield Fund II. Currently, the Fund has two
classes of shares, consisting of the Institutional Class and the Class A shares.
This Statement of Additional Information relates solely to the Institutional
Class of the Fund.
The rules and regulations of the United States Securities and Exchange
Commission (the "SEC") require all mutual funds to furnish prospective investors
certain information concerning the activities of the fund being considered for
investment. This information is included in a Prospectus for the Institutional
Class (the "Prospectus"), dated November 29, 1999. Copies of the Prospectus and
additional copies of this Statement of Additional Information may be obtained
without charge by writing the principal distributor of the Fund's shares, A I M
Fund Services, Inc., P.O. Box 0843, Houston, Texas 77001-0843 or by calling
(800) 659-1005. Investors must receive a Prospectus before they invest.
This Statement of Additional Information is intended to furnish
prospective investors with additional information concerning the Institutional
Class. Some of the information required to be in this Statement of Additional
Information is also included in the current Prospectus; and, in order to avoid
repetition, reference will be made to sections of the Prospectus. Additionally,
the Prospectus and this Statement of Additional Information omit certain
information contained in the registration statement filed with the SEC. Copies
of the registration statement, including items omitted from the Prospectus and
this Statement of Additional Information, may be obtained from the SEC by paying
the charges prescribed under its rules and regulations.
GENERAL INFORMATION ABOUT THE FUND
THE FUND AND ITS SHARES
The Fund is an open-end, series portfolio of the Trust. The Trust is an
open-end, series, management investment company, 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. On
October 15, 1993, the Trust was reorganized as a Delaware business trust and the
Fund, which previously had been a portfolio of another open-end investment
company, was redomesticated as a portfolio of the Trust. A copy of the Trust's
Amended and Restated Agreement and Declaration of Trust, dated November 5, 1998,
(the "Declaration of Trust") is on file with the SEC.
Shares of beneficial interest of the Fund will be redeemable at the net
asset value thereof at the option of the shareholder, or at the option of the
Fund in certain circumstances.
Shareholders of the Trust do not have cumulative voting rights.
Therefore, the holders of more than 50% of the outstanding shares of all series
or classes voting together for election of trustees may elect all of the members
of the Board of Trustees and in such event, the remaining holders cannot elect
any members of the Board of Trustees.
The Declaration of Trust provides for the perpetual existence of the
Trust. The Trust or any portfolio or class thereof, however, may be terminated
at any time, upon the recommendation of the Board of Trustees, by vote of the
holders of a majority of the outstanding shares of the Trust, such portfolio or
such class, respectively; provided, however, that the Board of Trustees may
terminate, without such shareholder approval, the Trust, any portfolio or any
class thereof with respect to which there are fewer than 100 holders of record.
The Declaration of Trust permits the trustees to issue an unlimited
number of full and fractional shares, $0.01 par value, of each class of shares
of beneficial interest of the Trust. The Board of Trustees may establish
additional series or classes of shares from time to time without shareholder
approval.
1
<PAGE> 126
Additional information concerning the rights of share ownership is set forth in
the prospectus applicable to each such class or series of shares of the Trust.
The assets received by the Trust for the issuance or sale of shares of
each class relating to a portfolio and all income, earnings, profits, losses and
proceeds therefrom, subject only to the rights of creditors, will be allocated
to that portfolio, and constitute the underlying assets of that portfolio. The
underlying assets of each portfolio will be segregated and will be charged with
the expenses with respect to that portfolio and with a share of the general
expenses of the Trust. While certain expenses of the Trust will be allocated to
the separate books of account of each portfolio, certain other expenses may be
legally chargeable against the assets of the entire Trust.
Under Delaware law, shareholders of a Delaware business trust shall be
entitled to the same limitations of liability extended to shareholders of
private for-profit corporations, however, there is a remote possibility that
shareholders could, under certain circumstances, be held liable for the
obligations of the Trust to the extent the courts of another state which does
not recognize such limited liability were to apply the laws of such state to a
controversy involving such obligations. However, the Trust Agreement disclaims
shareholder liability for acts or obligations of the Trust and requires that
notice of such disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Trust or the trustees to all parties, and each
party thereto must expressly waive all rights of action directly against
shareholders of the Trust. The Trust Agreement provides for indemnification out
of the property of a Fund for all losses and expenses of any shareholder of such
Fund held liable on account of being or having been a shareholder. Thus, the
risk of a shareholder incurring financial loss due to shareholder liability is
limited to circumstances in which the Fund would be unable to meet its
obligations and wherein the complaining party was held not to be bound by the
disclaimer.
The Declaration of Trust further provides that the trustees and
officers of the Trust will not be personally responsible for any act, omission
or obligation of the Trust or any trustee or officer. However, nothing in the
Declaration of Trust protects a trustee against any liability to the Trust or to
the shareholders to which a trustee or officer would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office with the Trust.
The Declaration of Trust provides for indemnification by the Trust of the
trustees and the officers, employees or agents of the Trust if it is determined
that such person acted in good faith and reasonably believed: (1) in the case of
conduct in his official care or conduct in his official capacity for the Trust,
that his conduct was in the Trust's best interests, (2) in all of the cases,
that his conduct was at least not opposed to the Trust's best interests and (3)
in a criminal proceeding, that he had no reason to believe that his conduct was
unlawful. Such person may not be indemnified against any liability to the Trust
or to the Trust's shareholders to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office. The Declaration of Trust also
authorizes the purchase of liability insurance on behalf of trustees and
officers.
All shares of the Trust have equal rights with respect to voting,
except that (i) the holders of shares of all classes of a particular portfolio,
voting together, will have the exclusive right to vote on matters (such as
advisory fees) pertaining solely to that portfolio, and (ii) the holders of
shares of a particular class will have the exclusive right to vote on matters
pertaining to distribution plans or shareholder service plans, if any such plans
are adopted, relating solely to such class. The holders of each class have
distinctive rights with respect to dividends. In the event of dissolution or
liquidation, holders of each portfolio's shares will receive pro rata, subject
to the rights of creditors, (a) the proceeds of the sale of the assets held in
the respective portfolio to which such shares related, less (b) the liabilities
of the Trust attributable to the respective portfolio or allocated between the
portfolios based on the respective liquidation values of each such portfolio.
The Trust will not normally hold annual shareholders' meetings. At such
time as less than a majority of the trustees have been elected by the
shareholders, the trustees then in office will call a shareholders' meeting for
the election of trustees. In addition, trustees may be removed from office by a
written instrument signed by at least two-thirds of the trustees of the Trust or
by a vote of the holders of two-thirds of the outstanding shares present at a
meeting of which a quorum is present and which has
2
<PAGE> 127
been duly called for that purpose, which meeting shall be held upon written
request of the holders of not less than 10% of the outstanding shares of the
Trust.
As used herein, the term "majority of the outstanding shares" of
beneficial interest of the Trust or a portfolio means, respectively, the lesser
of (i) 67% or more of the shares of beneficial interest of the Trust or the
portfolio present at a meeting, if the holders of more than 50% of the
outstanding shares of beneficial interest of the Trust or the portfolio are
present or represented by proxy, or (ii) more than 50% of the outstanding shares
of beneficial interest of the Trust or the portfolio.
The Institutional Class and the Class A shares have different
shareholders and are allocated certain differing class expenses, such as
distribution and/or service fees related to their respective shares. To obtain
information about the Class A shares, please call A I M Fund Services, Inc., a
registered broker-dealer and wholly owned subsidiary of A I M Advisors, Inc.
("AIM"), at (800) 347-4246. A I M Distributors ("AIM Distributors") is the
exclusive distributor of the Class A shares.
There are no preemptive or conversion rights applicable to any of the
Trust's shares. The Trust's shares, when issued, will be fully paid and
non-assessable. The Board of Trustees may create additional classes or series of
the Trust's shares without shareholder approval.
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 Master Investment
Advisory Agreement and Master Administrative Services Agreement with AIM, the
agreement with Fund Management Company regarding distribution of the Fund's
shares, the agreement with The Bank of New York as the custodian and the
agreement with A I M Fund Services, Inc. ("AFS") as transfer agent. The
day-to-day operations of the Fund is 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 corporation of AIM.
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 77046-1173. All of the trustees of the Trust also serve as
directors or trustees of some or all of the other investment companies managed
or advised by AIM ("AIM Funds"). Certain of the executive officers of the Trust
hold similar offices with some or all of such investment companies.
<TABLE>
<CAPTION>
=====================================================================================================================
POSITIONS HELD WITH PRINCIPAL OCCUPATION DURING AT LEAST THE PAST 5
NAME, ADDRESS AND AGE REGISTRANT YEARS
======================================== ======================= ====================================================
<S> <C> <C>
*CHARLES T. BAUER (80) Trustee and Chairman Chairman of the Board of Directors, 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.
=====================================================================================================================
</TABLE>
- ------------------
* A trustee who is an "interested person" of the Trust and AIM as defined in
the 1940 Act.
3
<PAGE> 128
<TABLE>
<CAPTION>
=====================================================================================================================
POSITIONS HELD WITH PRINCIPAL OCCUPATION DURING AT LEAST THE PAST 5
NAME, ADDRESS AND AGE REGISTRANT YEARS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BRUCE L. CROCKETT (55) Trustee Director, ACE Limited (insurance company).
906 Frome Lane Formerly, Director, President and Chief Executive
McLean, VA 22102 Officer, COMSAT Corporation; and Chairman, Board
of Governors of INTELSAT (international
communications company).
- ---------------------------------------------------------------------------------------------------------------------
OWEN DALY II (75) Trustee Director, Cortland Trust Inc. (investment
Six Blythewood Road company). Formerly, Director, CF & I Steel Corp.,
Baltimore, MD 21210 Monumental Life Insurance Company and Monumental
General Insurance Company; and Chairman of the
Board of Equitable Bancorporation.
- ---------------------------------------------------------------------------------------------------------------------
EDWARD K. DUNN, JR. (64) Trustee Chairman of the Board of Directors, Mercantile
2 Hopkins Plaza, 20th Floor Mortgage Corp. Formerly, Vice Chairman of the
Baltimore, MD 21201 Board of Directors and President, Mercantile-Safe
Deposit & Trust Co.; and President, Mercantile
Bankshares.
- ---------------------------------------------------------------------------------------------------------------------
JACK M. FIELDS (47) Trustee Chief Executive Officer, Texana Global, Inc.
8810 Will Clayton Parkway (foreign trading company) and Twenty First Century
Jetero Plaza, Suite E Group, Inc. (a governmental affairs company).
Humble, TX 77338 Formerly, Member of the U.S. House of
Representatives.
- ---------------------------------------------------------------------------------------------------------------------
**CARL FRISCHLING (62) Trustee Partner, Kramer, Levin, Naftalis & Frankel LLP
919 Third Avenue (law firm). Formerly, Partner, Reid & Priest (law
New York, NY 10022 firm).
- ---------------------------------------------------------------------------------------------------------------------
*ROBERT H. GRAHAM (52) Trustee and Director, President and Chief Executive Officer,
President A I M Management Group Inc.; Director and President,
A I M Advisors, Inc.; Director and Senior Vice
President, A I M Capital Management, Inc., A I M
Distributors, Inc., A I M Fund Services, Inc., and
Fund Management Company; and Director, AMVESCAP PLC.
=====================================================================================================================
</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.
4
<PAGE> 129
<TABLE>
<CAPTION>
=====================================================================================================================
POSITIONS HELD WITH PRINCIPAL OCCUPATION DURING AT LEAST THE PAST 5
NAME, ADDRESS AND AGE REGISTRANT YEARS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PREMA MATHAI-DAVIS (49) Trustee Chief Executive Officer, YWCA of the U.S.A.;
350 Fifth Avenue, Suite 301 Commissioner, New York City Department for the
New York, NY 10118 Aging; and Member of the Board of Directors,
Metropolitan Transportation Authority of New York
State.
- ---------------------------------------------------------------------------------------------------------------------
LEWIS F. PENNOCK (57) Trustee Attorney in private practice in Houston, Texas.
6363 Woodway, Suite 825
Houston, TX 77057
- ---------------------------------------------------------------------------------------------------------------------
LOUIS S. SKLAR (60) Trustee Executive Vice President, Development and
Transco Tower, 50th Floor Operations, Hines Interests Limited Partnership
2800 Post Oak Blvd. (real estate development).
Houston, TX 77056
- ---------------------------------------------------------------------------------------------------------------------
GARY T. CRUM (52) Senior Vice President Director and President, A I M Capital Management,
Inc.; Director and Executive Vice President, A I M
Management Group Inc.; Director and Senior Vice
President, A I M Advisors, Inc.; and Director,
A I M Distributors, Inc. and AMVESCAP PLC.
- ---------------------------------------------------------------------------------------------------------------------
CAROL F. RELIHAN (45) Senior Vice President Director, Senior Vice President, General Counsel
and Secretary and Secretary, A I M Advisors, Inc.; Senior Vice
President, General Counsel and Secretary, A I M
Management Group Inc.; Director, Vice President and
General Counsel, Fund Management Company; 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 (40) Vice President and Vice President and Fund Controller, A I M
Treasurer Advisors, Inc.; and Assistant Vice President and
Assistant Treasurer, Fund Management Company.
- ---------------------------------------------------------------------------------------------------------------------
MELVILLE B. COX (56) 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.
=====================================================================================================================
</TABLE>
5
<PAGE> 130
<TABLE>
<CAPTION>
=====================================================================================================================
POSITIONS HELD WITH PRINCIPAL OCCUPATION DURING AT LEAST THE PAST 5
NAME, ADDRESS AND AGE REGISTRANT YEARS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
KAREN DUNN KELLEY (39) Vice President Senior Vice President, A I M Capital Management,
Inc. and Vice President, A I M Advisors, Inc.
=====================================================================================================================
</TABLE>
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
(Chairman), Fields, Frischling, Pennock, Sklar and Dr. Mathai-Davis. 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, Sklar (Chairman) and Dr. Mathai-Davis.
The Investments Committee is responsible for reviewing portfolio compliance,
brokerage allocation, portfolio investment pricing issues, interim dividend and
distribution issues, or considering such matters as may from time to time be set
forth in a charter adopted by the board and such committee.
The members of the Nominating and Compensation Committee are Messrs.
Crockett (Chairman), Daly, Dunn, Fields, Pennock, Sklar and Dr. Mathai-Davis.
The Nominating and Compensation Committee is responsible for considering and
nominating individuals to stand for election as trustees who are not interested
persons as long as the Trust maintains a distribution plan pursuant to Rule
12b-1 under the 1940 Act, reviewing from time to time the compensation payable
to the disinterested trustees, or considering such matters as may from time to
time be set forth in a charter adopted by the board and such committee.
REMUNERATION OF TRUSTEES
Each trustee is reimbursed for expenses incurred in connection with
each meeting of the Board of Trustees or any committee attended. Each trustee
who is not also an officer of the Trust is compensated for his or her services
according to a fee schedule which recognizes the fact that such trustee also
serves as a trustee or director of other funds advised by AIM or A I M Capital
Management, Inc. (collectively, the "AIM Funds"). Each such trustee receives a
fee, allocated among the AIM Funds for which he or she serves as a director or
trustee, which consists of an annual retainer component and a meeting fee
component.
Set forth below is information regarding compensation paid or accrued
for each trustee of the Trust:
6
<PAGE> 131
<TABLE>
<CAPTION>
=======================================================================================================
RETIREMENT
AGGREGATE BENEFITS TOTAL
COMPENSATION ACCRUED COMPENSATION
FROM THE BY ALL FROM ALL
TRUSTEE FUNDS(1) AIM FUNDS(2) AIM FUNDS(3)
=================================== ===================== ====================== ======================
<S> <C> <C> <C>
Charles T. Bauer $ 0 $ 0 $ 0
----------------------------------- --------------------- ---------------------- ----------------------
Bruce L. Crockett 1,947 37,485 96,000
----------------------------------- --------------------- ---------------------- ----------------------
Owen Daly II 1,947 122,898 96,000
----------------------------------- --------------------- ---------------------- ----------------------
Edward K. Dunn, Jr. 1,947 0 78,889
----------------------------------- --------------------- ---------------------- ----------------------
Jack M. Fields 1,941 15,826 95,500
----------------------------------- --------------------- ---------------------- ----------------------
Carl Frischling(4) 1,937 97,791 95,500
----------------------------------- --------------------- ---------------------- ----------------------
Robert H. Graham 0 0 0
----------------------------------- --------------------- ---------------------- ----------------------
John F. Kroeger(5) 198 107,896 91,654
----------------------------------- --------------------- ---------------------- ----------------------
Prema Mathai-Davis 1,798 0 32,636
----------------------------------- --------------------- ---------------------- ----------------------
Lewis F. Pennock 1,973 45,766 95,500
----------------------------------- --------------------- ---------------------- ----------------------
Ian W. Robinson(6) 1,266 94,442 94,500
----------------------------------- --------------------- ---------------------- ----------------------
Louis S. Sklar 1,931 90,232 95,500
=======================================================================================================
</TABLE>
- ----------
(1) The total amount of compensation deferred by all Trustees of the Trust
during the fiscal year ended July 31, 1999, including interest earned
thereon, was $11,681.
(2) During the fiscal year ended July 31, 1999, the total estimated amount
of expenses allocated to the Trust in respect of such retirement
benefits was $2,794. Data reflects compensation estimated for the
calendar year ended December 31, 1998.
(3) Each Trustee serves as a director or trustee of a total of 12
registered investment companies advised by AIM as of December 31, 1998.
Data reflect total compensation earned during the calendar year ended
December 31, 1998.
(4) The Fund paid the law firm of Kramer, Levin, Naftalis & Frankel, LLP
$4,376 legal fees for services provided to the Fund during the fiscal
year ended July 31, 1999. Mr. Frischling, a trustee of the Trust, is a
partner of such firm.
(5) Mr. Kroeger was a trustee until June 11, 1998, when he resigned. On
that date he became a consultant to the Trust. Of the amount listed
above, $-0- was for compensation for services as a trustee and the
remainder as a consultant. Mr. Kroeger passed away on November 26,
1998. Mr. Kroger's widow will receive his pension as described below
under "AIM Funds Retirement Plan for Eligible Directors/Trustees."
(6) Mr. Robinson was a trustee until March 12, 1999, when he retired.
7
<PAGE> 132
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, AIM Management 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 or her date of retirement equal to a maximum of 75% of the annual 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) and based on the number of such trustee's years of service (not in
excess of 10 years of service) completed with respect to any of the Applicable
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
Applicable AIM Fund.
Set forth below is a table that shows the estimated annual benefits
payable to an eligible trustee upon retirement assuming a specific level of
compensation and years of service classifications. The estimated credited years
of service for Messrs. Crockett, Daly, Dunn, Fields, Frischling, Kroeger,
Pennock, Robinson, Sklar and Dr. Mathai-Davis are 12, 12, 1, 2, 22, 20, 18, 11,
10, and 1 years, respectively.
ESTIMATED ANNUAL BENEFITS UPON RETIREMENT
<TABLE>
<CAPTION>
====================================================================
Number of Years of Annual Retirement Compensation Paid By All
Service With AIM Applicable AIM Funds
Funds
==================== ===============================================
<S> <C>
10 $67,500
-------------------- ------------------------------------------------
9 $60,750
-------------------- ------------------------------------------------
8 $54,000
-------------------- ------------------------------------------------
7 $47,250
-------------------- ------------------------------------------------
6 $40,500
-------------------- ------------------------------------------------
5 $33,750
====================================================================
</TABLE>
DEFERRED COMPENSATION AGREEMENTS
Messrs. Daly, Frischling, Kroeger, Robinson and Sklar (for purposes of
this paragraph only, the "deferring trustees") have each executed a Deferred
Compensation Agreement (collectively, the "Agreements"). Pursuant to the
Agreements, the deferring trustees may elect to defer receipt of up to 100% of
their compensation payable by the Fund, and such amounts are placed into a
deferral account. Currently, the deferring trustees may select various AIM Funds
in which all or part of their deferral accounts shall be deemed to be invested.
Distributions from the deferring trustees' deferral accounts will
8
<PAGE> 133
be paid in cash, in generally equal quarterly installments over a period of five
(5) or ten (10) years (depending on the Agreement) beginning on the date the
deferring trustee's retirement benefits commence under the Plan. The Fund's
Board of Trustees, in its sole discretion, may accelerate or extend the
distribution of such deferral accounts after the deferring director's
termination of service as a trustee of the Fund. If a deferring trustee dies
prior to the distribution of amounts in his deferral account, the balance of the
deferral account will be distributed to his designated beneficiary in a single
lump sum payment as soon as practicable after such deferring trustee's death.
The Agreements are not funded and, with respect to the payments of amounts held
in the deferral accounts, the deferring trustees have the status of unsecured
creditors of the Fund and of each other AIM Fund from which they are deferring
compensation.
THE INVESTMENT ADVISOR
AIM, 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173, serves as
the investment advisor to the Fund pursuant to a Master Investment Advisory
Agreement with the Trust (the "Advisory Agreement"). AIM was organized in 1976,
and together with its subsidiaries, advises or manages over 125 investment
company portfolios encompassing a broad range of investment objectives.
AIM is a wholly owned subsidiary of AIM Management, 11 Greenway Plaza,
Suite 100, Houston, Texas 77046-1173. AIM Management is a holding company that
has been engaged in the financial services business since 1976. AIM Management
is an indirect wholly owned subsidiary of AMVESCAP PLC, 11 Devonshire Square,
London EC2M 4YR, United Kingdom. AMVESCAP PLC and its subsidiaries are an
independent investment management group engaged in institutional investment
management and retail fund businesses in the United States, Europe and the
Pacific Region. Certain of the directors and officers of AIM are also executive
officers of the Trust and their affiliations are shown under "Trustees and
Officers." A I M Capital Management, Inc. ("AIM Capital"), a wholly owned
subsidiary of AIM, is engaged in the business of providing investment advisory
services to investment companies, corporations, institutions and other accounts.
AIM and the Trust have adopted a Code of Ethics which requires
investment personnel and certain other employees (a) to pre-clear all personal
securities transactions subject to the Code of Ethics, (b) to file reports or
duplicate confirmations regarding such transactions, (c) to refrain from
personally engaging in (i) short-term trading of a security, (ii) transactions
involving a security within seven days of an AIM Fund transaction involving the
same security, and (iii) transactions involving securities being considered for
investment by an AIM Fund and, (d) to abide by certain other provisions under
the Code of Ethics. The Code of Ethics also prohibits investment personnel and
all other AIM employees from purchasing securities in an initial public
offering. Personal trading reports are reviewed periodically by AIM, and the
Board of Trustees reviews quarterly and annual reports (including information on
any substantial violations of the Code of Ethics). Sanctions for violations of
the Code of Ethics may include censure, monetary penalties, suspension or
termination of employment.
The Advisory Agreement will continue from year to year only if such
continuance is specifically approved at least annually by (i) the Trust's Board
of Trustees or the vote of a "majority of the outstanding voting securities" of
the Fund (as defined in the 1940 Act) and (ii) the affirmative vote of a
majority of the trustees who are not parties to the Advisory Agreement or
"interested persons" of any such party (the "Non-Interested Trustees") by votes
cast in person at a meeting called for such purpose. The Trust or AIM may
terminate the Advisory Agreement on sixty (60) days' written notice without
penalty. The Advisory Agreement terminates automatically in the event of its
"assignment," as defined in the 1940 Act.
Pursuant to the terms of the Advisory Agreement, AIM manages the
investments of the Fund and obtains and evaluates economic, statistical and
financial information to formulate and implement investment policies for the
Fund. Any investment program undertaken by AIM will at all times be subject to
the policies and control of the Trust's Board of Trustees. AIM shall not be
liable to the Fund or its shareholders for any act or omission by AIM or for any
loss sustained by the Fund or its shareholders except in the case of willful
misfeasance, bad faith, gross negligence or reckless disregard of duty. Pursuant
to the Advisory Agreement, AIM receives a fee as compensation for its services
with respect to the Fund, calculated daily and paid monthly, at an annual rate
equal to 0.20% of the first $500 million of
9
<PAGE> 134
the Fund's aggregate average daily net assets, plus 0.175% of the Fund's
aggregate average daily net assets in excess of $500 million.
The Advisory Agreement provides that, upon the request of the Trust's
Board of Trustees, AIM may perform or arrange for the performance of certain
accounting, shareholder servicing and other administrative services for the Fund
which are not required to be performed by AIM under the Advisory Agreement. The
Board of Trustees has made such a request. As a result, AIM and the Fund have
entered into a Master Administrative Services Agreement (the "Administrative
Services Agreement"), pursuant to which AIM is entitled to receive from the Fund
reimbursement of its costs or such reasonable compensation as may be approved by
the Board of Trustees. Currently, AIM is reimbursed for the services of the
Fund's principal financial officer and his staff, and any expenses related to
such services, as well as the services of staff responding to various
shareholder inquiries.
AIM may from time to time waive or reduce its fee. Voluntary fee
waivers or reductions may be rescinded at any time without further notice to
investors. During periods of voluntary fee waivers or reductions, AIM will
retain its ability to be reimbursed for such fee prior to the end of each fiscal
year. Contractual fee waivers or reductions set forth in the Fee Table in a
Prospectus may not be terminated or amended to the Funds' detriment during the
period stated in the agreement between AIM and the Fund. Fee waivers or
reductions set forth in the Advisory Agreement may not be terminated without
shareholders approval.
In addition to the fees paid to AIM pursuant to the Advisory Agreement
and the Administrative Services Agreement, the Trust, on behalf of the Fund,
also pays or causes to be paid all other expenses attributable to the Fund,
including, without limitation: the charges and expenses of any registrar, any
custodian or depository appointed by the Trust for the safekeeping of cash,
portfolio securities and other property, and any transfer, dividend or
accounting agent or agents; brokers' commissions in connection with portfolio
securities transactions of the Fund; all taxes, including securities issuance
and transfer taxes, and fees payable to federal, state or other governmental
agencies; the cost and expenses of engraving or printing share certificates; all
costs and expenses in connection with registration and maintenance of
registration with the SEC and various states and other jurisdictions (including
filing and legal fees and disbursements of counsel); the costs and expenses of
printing, including typesetting, and distributing proxy statements, reports to
shareholders, prospectuses and statements of additional information of the Fund
and supplements thereto; expenses of shareholders' and trustees' meetings; fees
and travel expenses of trustees and trustee members of any advisory board or
committee; expenses incident to the payment of any dividend, distribution,
withdrawal or redemption, whether in shares or in cash; charges and expenses of
any outside pricing service; fees and expenses of legal counsel, including
counsel to the Non-Interested Trustees of the Trust or AIM, and of independent
accountants; membership dues of industry associations; interest payable on
borrowings; postage; insurance premiums on property or personnel (including
officers and trustees) of the Trust; and extraordinary expenses (including but
not limited to, legal claims and liabilities and litigation costs and any
indemnification related thereto). FMC bears the expenses of printing and
distributing reports to shareholders, prospectuses and statements of additional
information (other than those reports to shareholders, prospectuses and
statements of additional information distributed to existing shareholders of the
Institutional Shares) and any other promotional or sales literature used by FMC
or furnished by FMC to purchasers or dealers in connection with the public
offering of shares of the Institutional Shares.
Expenses of the Trust which are not directly attributable to the
operations of any class of shares or Portfolio of the Trust are prorated among
all classes of the Trust based upon the relative net assets of each class or
Portfolio. Expenses of the Trust which are not directly attributable to a
specific class of shares but are directly attributable to a specific Portfolio
are prorated among all classes of such Portfolio based upon the relative net
assets of each such class. Expenses of the Trust which are directly attributable
to a specified class of shares are charged against the income available for
distribution as dividends to such shares.
10
<PAGE> 135
During the fiscal years ended July 31, 1999, 1998 and 1997, AIM
received advisory fees of $850,738, $855,900 and $837,760, respectively,
pursuant to the Advisory Agreement. During the fiscal years ended July 31, 1999,
1998 and 1997, AIM was reimbursed $70,069, $59,396 and $66,785, respectively,
pursuant to the Administrative Services Agreement.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To the best of the Trust's knowledge, as of October 1, 1999, the
trustees and officers of the Trust owned less than 1% of the outstanding shares
of all classes of the Trust, except that the trustees and officers as a group
owned 15.5% of the Class A shares of High Yield.
LIMITED MATURITY TREASURY FUND
INSTITUTIONAL CLASS:
To the best of the Trust's knowledge, the names and addresses of the
holders of 5% or more of the outstanding shares of the Institutional Class, as
of October 1, 1999, and the percent of outstanding shares owned by such
shareholders are as follows:
<TABLE>
<CAPTION>
Percentage Percentage Owned
Name and Address Owned of of Record or
of Owner Record* Beneficially
----------------------------- ---------- ----------------
<S> <C> <C>
Frost National Bank Tx 59.67% -0-
Muir & Co. c/o Frost
P.O. Box 2479
San Antonio, TX 78298-2479
Esor & Co. 26.50% -0-
Attn: Trust Operations
P.O. Box 19006
Green Bay, WI 54307-9006
Chase Bank of Texas - 7.88% -0-
OBIE & CO: Acct C-00142C201
Attn: Mutual Fund Unit
MS 16-HCB-09
PO Box 200547
Houston, TX 77216-0547
</TABLE>
- ----------------------
* The Trust has no knowledge as to whether all or any portion of the shares
owned of record are also owned beneficially.
11
<PAGE> 136
CLASS A SHARES:
To the best of the Trust's knowledge, the names and addresses of the
holders of 5% or more of the outstanding shares of the Class A shares, as of
October 1, 1999, and the percent of outstanding shares owned by such
shareholders are as follows:
<TABLE>
<CAPTION>
Percentage Percentage Owned
Name and Address Owned of of Record or
of Owner Record* Beneficially
----------------------------------- ---------- ----------------
<S> <C> <C>
Merrill Lynch Pierce Fenner & Smith 16.18% -0-
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
</TABLE>
AIM HIGH YIELD FUND II
CLASS A SHARES:
To the best of the Trust's knowledge, the names and addresses of the
holders of 5% or more of the outstanding Class A shares of AIM High Yield Fund
II, as of October 1, 1999 and the percent of outstanding shares owned by such
shareholders are as follows:
<TABLE>
<CAPTION>
Percentage Percentage Owned
Name and Address Owned of of Record or
of Owner Record* Beneficially
----------------------------------- ---------- ----------------
<S> <C> <C>
Jonathan C. Schoolar -0- 17.38%
3722 Tartan Lane
Houston, TX 77025
Gary T. Crum -0- 15.29%
11 Greenway Plaza
Suite 100
Houston, TX 77046
</TABLE>
- ----------------
* The Trust has no knowledge as to whether all or any portion of the shares
owned of record are also owned beneficially.
12
<PAGE> 137
CLASS B SHARES
To the best of the Trust's knowledge, the names and addresses of the
holders of 5% or more of the outstanding Class B shares of AIM High Yield Fund
II, as of October 1, 1999 and the percent of outstanding shares owned by such
shareholders are as follows:
<TABLE>
<CAPTION>
Percentage Percentage Owned
Name and Address Owned of of Record or
of Owner Record* Beneficially
----------------------------------- ---------- ----------------
<S> <C> <C>
Merrill Lynch Pierce Fenner & Smith 7.82% -0-
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
</TABLE>
CLASS C SHARES
To the best of the Trust's knowledge, the names and addresses of the
holders of 5% or more of the outstanding Class C shares of AIM High Yield Fund
II, as of October 1, 1999 and the percent of outstanding hares owned by such
shareholders are as follows:
<TABLE>
<CAPTION>
Percentage Percentage Owned
Name and Address Owned of of Record or
of Owner Record* Beneficially
----------------------------------- ---------- ----------------
<S> <C> <C>
Merrill Lynch Pierce Fenner & Smith 11.50% -0-
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
Prudential Securities Inc. 8.11% -0-
FBO Mr. Howard W. Gordon
Personal Rep
Est. Mr. Alvin Perlman
100 SE 2nd Street, FL17
Miami, FL 33131-2107
</TABLE>
- ------------------
* The Trust has no knowledge as to whether all or any portion of the shares
owned of record are also owned beneficially.
PURCHASES AND REDEMPTIONS
NET ASSET VALUE DETERMINATION
A complete description of the manner by which shares of the
Institutional Class may be purchased appears in the Prospectus under the caption
"Purchasing Shares."
Shares of the Institutional Class are sold at the net asset value of
such shares. Shareholders may at any time redeem all or a portion of their
shares at net asset value. The investor's price for purchases and redemptions
will be the net asset value next determined following the receipt of an order to
purchase or a request to redeem shares. The net asset value of the Fund varies
depending on the market value of its assets.
13
<PAGE> 138
In accordance with the current rules and regulations of the SEC, the
net asset value per share of the Fund is determined once daily as of the close
of trading of the New York Stock Exchange (the "NYSE") which is generally 4:00
p.m. Eastern Time on each business day of the Fund. In the event the NYSE closes
early (i.e. before 4:00 p.m. Eastern Time) on a particular day, the net asset
value of a Fund share is determined as of the close of the NYSE on such day. Net
asset value per share of the Fund is determined by subtracting the liabilities
(e.g., accrued expenses and dividends payable) of the Fund allocated to the
class from the value of securities, cash and other assets (including interest
accrued but not collected) of the Fund allocated to the class, and dividing the
result by the total number of shares outstanding of such class of the Fund.
Determination of the Fund's net asset value per share is made in accordance with
generally accepted accounting principles.
Securities will be valued on the basis of prices provided by an
independent pricing service. Prices provided by the pricing services may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as yield, type of issue, coupon rate, maturity and
seasoning differential. Securities for which prices are not provided by the
pricing service are valued at the mean between the last bid and asked prices
based upon quotes furnished by market makers for such securities. Securities for
which market quotations are not readily available are valued at fair value as
determined in good faith by or under the supervision of the Trust's officers in
accordance with methods which are specifically authorized by the Board of
Trustees of the Trust. Short-term obligations having sixty (60) days or less to
maturity are valued at amortized cost, which approximates market value. (See
also "Purchasing Shares," "Redeeming Shares" and "Pricing of Shares" in the
Prospectus.)
The Trust agrees to redeem shares of the Fund solely in cash up to the
lesser of $250,000 or 1% of the Fund's net assets during any 90-day period for
any one shareholder. In consideration of the best interests of the remaining
shareholders, the Trust reserves the right to pay any redemption price exceeding
this amount in whole or in part by a distribution in kind of securities held by
the Fund in lieu of cash. It is highly unlikely that shares would ever be
redeemed in kind. If shares are redeemed in kind, however, the redeeming
shareholder should expect to incur transaction costs upon the disposition of the
securities received in the distribution.
THE DISTRIBUTION AGREEMENT
The Trust has entered into a Distribution Agreement with FMC (the
"Distribution Agreement"), pursuant to which FMC has agreed to act as the
exclusive distributor of shares of the Institutional Class. The address of FMC
is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The Distribution
Agreement provides that FMC has the exclusive right to distribute shares of the
Institutional Class either directly or through other broker-dealers. The
Distribution Agreement also provides that FMC will pay promotional expenses,
including the incremental costs of printing prospectuses and statements of
additional information, annual reports and other periodic reports for
distribution to persons who are not shareholders of the Institutional Class and
the costs of preparing and distributing any other supplemental sales literature.
FMC has not undertaken to sell any specified number of shares of the
Institutional Class. FMC does not receive any fees from the Fund pursuant to the
Distribution Agreement.
FMC is a registered broker-dealer and is also a wholly owned subsidiary
of AIM. Certain trustees and officers of the Trust are affiliated with FMC.
The Distribution Agreement will continue from year to year only if such
continuation is specifically approved at least annually by (i) the Trust's Board
of Trustees or the vote of a "majority of the outstanding securities" of the
Fund (as defined in the 1940 Act) and (ii) the affirmative vote of a majority of
the Non-Interested Trustees by votes cast in person at a meeting called for such
purpose. The Fund or FMC may terminate the Distribution Agreement on sixty (60)
days' written notice without penalty. The Distribution Agreement will terminate
in the event of its "assignment," as defined in the 1940 Act.
SUSPENSION OF REDEMPTION RIGHTS
The right of redemption may be suspended or the date of payment upon
redemption may be postponed when (a) trading on the NYSE is restricted, as
determined by applicable rules and regulations
14
<PAGE> 139
of the SEC, (b) the NYSE is closed for other than customary weekend or holiday
closings, (c) the SEC has by order permitted such suspension, or (d) an
emergency, as determined by the SEC, exists making disposition of portfolio
securities or the valuation of the net assets of the Fund not reasonably
practicable.
REDEMPTIONS BY THE FUND
If your account has been open at least one year, you have not made an additinal
puchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions
or exchanges (excluding retirement accounts), the fund has the right to redeem
the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500.
If the fund determines that you have provided incorrect information in
opening an account or in the course of conducting subsequent transactions, the
fund may, at its discretion, redeem the account and distribute the proceeds to
you.
INVESTMENT PROGRAM AND RESTRICTIONS
INVESTMENT PROGRAM
To achieve its objective, the Fund will invest in an actively managed
portfolio of U.S. Treasury notes and other direct obligations of the U.S.
Treasury. The Fund may invest in U.S. Treasury obligations, which are direct
obligations of the U.S. Treasury and which differ only in their interest rates,
maturities, and times of issuance, including U.S. Treasury bills, U.S. Treasury
notes and U.S. Treasury bonds. The Fund will attempt to enhance its total return
through capital appreciation when market factors, such as economic and market
conditions and the prospects for interest rate changes, indicate that capital
appreciation may be available without significant risk to principal. The Fund
will only purchase securities whose maturities do not exceed three (3) years.
Under normal circumstances, the average portfolio maturity of the Fund will
range between one-and-one-half (1 1/2) and two (2) years. Since brokerage
commissions are not normally paid on investments of the type made by the Fund,
the high turnover rate should not adversely affect the net income of the Fund.
Loans of Portfolio Securities. Subject to its investment restrictions
(see "Investment Restrictions") the Fund may from time to time loan securities
from its portfolio to brokers, dealers and financial institutions and receive
collateral in cash or U.S. Treasury obligations which will be maintained at all
times in an amount equal to at least 100% of the current market value of the
loaned securities; provided, however, that such loans are made according to the
guidelines of the SEC and the Trust's Board of Trustees. The Fund will be
entitled to the interest paid upon investment of the cash collateral in its
permitted investments, or to the payment of a premium or fee for the loan. The
Fund may at any time call such loans and obtain the securities loaned. However,
if the borrower of the securities should default on its obligation to return the
securities borrowed, the value of the collateral may be insufficient to permit
the Fund to reestablish its position by making a comparable investment due to
changes in market conditions. The Fund may pay reasonable fees to persons
unaffiliated with the Fund in connection with the arranging of such loans. The
Fund will only engage in securities lending transactions with broker-dealers
registered with the SEC, or with federally supervised banks or savings and loan
associations.
When-Issued or Delayed Delivery Trading. The Fund may purchase U.S.
Treasury obligations on a when-issued basis, and it may purchase or sell such
securities for delayed delivery. These transactions occur when securities are
purchased or sold by the Fund with payment and delivery to take place in the
future in order to secure what is considered an advantageous yield and price to
the Fund at the time of entering into the transaction. The value of the security
on the delivery date may be more or less than its purchase price. The Fund's
custodian bank will segregate cash or short-term U.S. Treasury obligations in an
aggregate amount equal to the amount of its commitments in connection with such
delayed delivery and when-issued purchase transactions. No delayed delivery or
when-issued commitments will be made if, as a result, more than 25% of the
Fund's net assets would be so committed.
Borrowing. Subject to its investment restrictions (see "Investment
Restrictions"), the Fund may borrow money from banks for temporary or emergency
purposes such as to meet redemption requests which might otherwise require the
untimely disposition of securities. The Fund may not borrow for the purpose of
increasing income. If there are unusually heavy redemptions because of changes
in interest rates or for any other reason, the Fund may have to sell a portion
of its investment portfolio at a time when it may be disadvantageous to do so.
Selling Fund securities under these circumstances may result in a lower net
asset value per share or decreased dividend income, or both. The Fund believes
that, in the event of abnormally heavy redemption requests, its borrowing
provisions would help to mitigate any such effects and could make the forced
sale of its portfolio securities less likely.
Reverse Repurchase Agreements. A reverse repurchase agreement involves
the sale of securities held by the fund, with an agreement that the Fund will
repurchase such securities at an agreed-
15
<PAGE> 140
upon price, date and interest payment. It is the current operating policy of the
Fund to enter into reverse repurchase agreements (which are considered to be
borrowings under the Investment Company Act of 1940 (the "1940 Act")) only for
temporary or emergency purposes and not as a means to increase income, even
though the Fund's investment restrictions permit the Fund to engage in reverse
repurchase agreements for income enhancement. The Fund will enter into a reverse
repurchase agreement only when the interest income to be earned from the
investment of the proceeds of the transaction is greater than the interest
expense of the transaction. During the time a reverse repurchase agreement is
outstanding, the Fund will maintain a segregated custodial account containing
U.S. Treasury obligations having a value equal to the repurchase price under
such reverse repurchase agreement. Any investment gains made by the Fund with
monies borrowed through reverse repurchase agreements will cause the net asset
value of the Fund's shares to rise faster than would be the case if the Fund had
no such borrowings. One the other hand, if the investment performance resulting
from the investment of borrowings obtained through reverse repurchase agreements
fails to cover the cost of such borrowings to the Fund, the net asset value of
the Fund will decrease faster than would otherwise be the case.
Illiquid Securities. The Fund will limit its investment in illiquid
securities to no more than 15% of its net assets, including repurchase
agreements with remaining maturities in excess of seven days.
Investment in Other Investment Companies. The Fund is permitted to
invest in other investment companies to the extent permitted by the 1940 Act,
and rules and regulations thereunder, and, if applicable, exemptive orders
granted by the SEC. The Fund has obtained an exemptive order from the SEC
allowing it to invest in money market funds that have AIM or an affiliate of AIM
as an investment adviser (the "Affiliated Money Market Funds"), provided that
investments in Affiliated Money Market Funds do not exceed 25% of the total
assets of the Fund. The Fund and the other investment companies, including the
Affiliated Money Market Funds, will pay advisory fees and other fees and
expenses to their service providers.
Temporary Defensive Investments. In anticipation of or in response to
adverse market conditions, for cash management purposes, or for defensive
purposes, the Fund may temporarily hold all or a portion of its assets in cash
and money market instruments. The Fund may also invest up to 25% of its total
assets in Affiliated Money Market Funds for these purposes.
Repurchase Agreements. The Fund's investment policies permit the Fund
to invest in repurchase agreements with banks and broker-dealers pertaining to
U.S. Treasury obligations. However, in order to maximize the Fund's dividends
which are exempt from state taxation, as a matter of operating policy, the Fund
does not currently invest in repurchase agreements. A repurchase agreement
involves the purchase by the Fund of an investment contract from a financial
institution, such as a bank or broker-dealer, which contract is secured by U.S.
Treasury obligations of the type described above whose value is equal to or
greater than the value of the repurchase agreement, including the agreed-upon
interest. The agreement provides that the seller will repurchase the underlying
securities at an agreed-upon time and price. The total amount received on
repurchase will exceed the price paid by the Fund, reflecting the agreed-upon
rate of interest for the period from the date of the repurchase agreement to the
settlement date. This rate of return is not related to the interest rate on the
underlying securities. The difference between the total amount received upon the
repurchase of the securities and the price paid by the Fund upon their
acquisition is accrued daily as interest. Investments in repurchase agreements
may involve risks not associated with investments in the underlying securities.
If the seller defaulted on its repurchase obligation, the Fund would incur a
loss to the extent that the proceeds from a sale of the underlying securities
were less than the repurchase price under the agreement. The Fund will limit
repurchase agreements to transactions with sellers believed by AIM to present
minimal credit risk. Securities subject to repurchase agreements will be held by
the Fund's custodian or in the custodian's account with the Federal Reserve
Treasury Book-Entry System. Although the securities subject to repurchase
agreements might bear maturities in excess of one year, the Fund will not enter
into a repurchase agreement with an agreed-upon repurchase date in excess of
seven calendar days from the date of acquisition by the Fund, unless the Fund
has the right to require the selling institution to repurchase the underlying
securities within seven days of the date of acquisition.
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The investment program described above may be changed by the Board of
Trustees without the affirmative vote of a majority of the outstanding shares of
beneficial interest of the Fund.
INVESTMENT RESTRICTIONS
As a matter of fundamental policy which may not be changed without a
vote of the holders of a majority of the outstanding shares of beneficial
interest of all classes of the Fund, the Fund will not:
(1) purchase any security unless the security is a direct obligation
of the U.S. Treasury or is a repurchase agreement with respect to
a direct obligation of the U.S. Treasury.
(2) issue senior securities in the form of indebtedness, borrow money,
except from banks for temporary or emergency purposes, such as to
meet redemption requests (not for the purpose of increasing
income), or borrow through reverse repurchase agreements (which
may be entered into for the purpose of increasing income) if, as a
result of any such borrowings, the amount borrowed would exceed
33 1/3% of the value of the Fund's assets (including the proceeds
of such senior securities issued or money borrowed) less its
liabilities (not including the liabilities incurred in connection
with such issuance or borrowing);
(3) make loans of money other than (a) through the purchase of debt
securities in accordance with the Fund's investment program, and
(b) by entering into repurchase agreements;
(4) lend any portfolio securities if the value of the securities
loaned by it would exceed an amount equal to one-third of its
total assets;
(5) 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;
(6) 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;
(7) invest in real estate;
(8) 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;
(9) purchase oil, gas or mineral interests;
(10) invest in any obligation not payable as to principal and interest
in United States currency; or
(11) invest 25% or more of the value of its total assets in securities
of issuers engaged in any one industry (excluding securities which
are a direct obligation of the U.S. Treasury or are repurchase
agreements with respect to a direct obligation of the U.S.
Treasury).
In addition to those policies discussed above, the Fund generally will
not invest in any company for the purpose of exercising control or management,
or purchase securities of an issuer if the officers and trustees of the Trust
and the officers and directors of the Fund's investment advisor collectively own
beneficially over 5% of the outstanding voting securities of such issuer, in
each case excluding holdings of any officer, trustee or director of less than
1/2 of 1% of the outstanding voting securities of such issuer. These
restrictions are not matters of fundamental policy and may be changed at any
time by the trustees without the approval of shareholders.
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The percentage limitations set forth in the restrictions noted above
are calculated by giving effect to the purchase in question and are based upon
values at the time of purchase. The Fund may, however, retain any security
purchased in accordance with such restrictions irrespective of changes in the
values of the Fund's assets occurring subsequent to the time of purchase.
The Trust has obtained an opinion of Dechert Price & Rhoads, special
counsel to the Trust, that shares of the Fund are eligible for investment by a
federal credit union. In order to ensure that shares of the Fund meet the
requirements for eligibility for investment by federal credit unions, the Fund
has adopted the following policies:
(1) The Fund will enter into repurchase agreements only with: (a)
banks insured by the Federal Deposit Insurance Corporation (FDIC);
(b) savings and loan associations insured by the FDIC; or (c)
registered broker-dealers. The Fund will only enter into
repurchase transactions pursuant to a master repurchase agreement
in writing with the Fund's counterparty. Under the terms of a
written agreement with its custodian, the Fund receives on a daily
basis written confirmation of each purchase of a security subject
to a repurchase agreement and a receipt from the Fund's custodian
evidencing each transaction. In addition, securities subject to a
repurchase agreement may be recorded in the Federal Reserve
Book-Entry System on behalf of the Fund by its custodian. The Fund
purchases securities subject to a repurchase agreement only when
the purchase price of the security acquired is equal to or less
than its market price at the time of the purchase.
(2) The Fund will only enter into reverse repurchase agreements and
purchase additional securities with the proceeds when such
proceeds are used to purchase other securities that either mature
on a date simultaneous with or prior to the expiration date of the
reverse repurchase agreement, or are subject to an agreement to
resell such securities within that same time period.
(3) The Fund will only enter into securities lending transactions that
comply with the same counterparty, safekeeping, maturity and
borrowing restrictions that the Fund observes when participating
in repurchase and reverse repurchase transactions.
(4) The Fund will enter into when-issued and delayed delivery
transactions only when the time period between trade date and
settlement date does not exceed 120 days, and only when settlement
is on a cash basis. When the delivery of securities purchased in
such manner is to occur within 30 days of the trade date, the Fund
will purchase the securities only at their market price as of the
trade date.
In order to permit the sale of the Fund's shares in certain states,
the Fund may from time to time make commitments more restrictive than the
restrictions described herein. These restrictions are not matters of
fundamental policy, and should the Fund determine that any such commitment is
no longer in the best interest of the Fund and its shareholders, it will revoke
the commitment by terminating sales of its shares in the states involved.
To permit the sale of shares of the Fund in Texas, the Fund will limit
its investment in securities which are not readily marketable to 15% of its net
assets.
PERFORMANCE INFORMATION
YIELD CALCULATIONS
Yields for the Institutional Shares used in advertising are computed as
follows: (a) divide the interest and dividend income of the Institutional Class
for a given 30-day or one-month period, net of expenses, by the average number
of shares entitled to receive dividends during the period; (b) divide the figure
arrived at in step (a) by the net asset value of the Institutional Class at the
end of the period; and
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<PAGE> 143
(c) annualize the result (assuming compounding of income) in order to arrive at
an annual percentage rate. For purposes of yield quotation, income is calculated
in accordance with standardized methods applicable to all stock and bond mutual
funds. In general, interest income is reduced with respect to bonds trading at a
premium over their par value by subtracting a portion of the premium from income
on a daily basis, and is increased with respect to bonds trading at a discount
by adding a portion of the discount to daily income. Capital gains and losses
are excluded from the calculation.
Income calculated for the purposes of calculating the yield of the
Institutional Class differs from income as determined for other accounting
purposes. Because of the different accounting methods used, and because of the
compounding assumed in yield calculations, the yield quoted for the
Institutional Class may differ from the rate of distributions the Institutional
Class paid over the same period or the rate of income reported in the financial
statements of the Institutional Class.
The Fund may also quote the distribution rate for the Institutional
Class, which expresses the historical amount of income dividends of the
Institutional Class to its shareholders as a percentage of the net asset value
per share of the Institutional Class. The distribution rate for the
Institutional Class for the thirty day period ended July 31, 1999 was 4.07%.
This distribution rate was calculated by dividing dividends declared over the
thirty days ended July 31, 1999 by the net asset value per share of the
Institutional Class at the end of that period and annualizing the result.
TOTAL RETURN CALCULATIONS
Total returns quoted in advertising reflect all aspects of the
Institutional Class' return, including the effect of reinvesting dividends and
capital gain distributions, and any change in the net asset value per share of
the Institutional Class over the period. Average annual returns are calculated
by determining the growth or decline in value of a hypothetical investment in
the Institutional Shares over a stated period, and then calculating the annually
compounded percentage rate that would have produced the same result if the rate
of growth or decline in value had been constant over the period. While average
annual returns are a convenient means of comparing investment alternatives,
investors should realize that the performance of the Institutional Shares is not
constant over time, but changes from year to year, and that average annual
returns do not represent the actual year-to-year performance of the
Institutional Class.
In addition to average annual returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Average annual and cumulative total returns may be quoted
as a percentage or as a dollar amount, and may be calculated for a single
investment, a series of investments, and/or a series of redemptions, over any
time period. Total returns may be broken down into their components of income
and capital (including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to total
return. Total returns, yields, and other performance information may be quoted
numerically or in a table, graph, or similar illustration.
HISTORICAL PORTFOLIO RESULTS
The following chart shows the total returns for the Institutional Class
for the twelve months and the five and ten year periods ended July 31, 1999.
<TABLE>
<CAPTION>
AVERAGE
ANNUAL CUMULATIVE
RETURN RETURN
------- ----------
<S> <C> <C>
Twelve months ended 7/31/99............................ 4.55% 4.55%
Five years ended 7/31/99............................... 5.77% 32.39%
Ten years ended 7/31/99................................ 6.27% 83.65%
</TABLE>
The 30 day yield of the Institutional Class as of July 31, 1999 was
5.06%.
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A hypothetical investment of $1,000 in the Institutional Class made at
the beginning of the twelve-month period ended July 31, 1999 would have been
worth $1,045.49. During the five-year period ended July 31, 1999, a hypothetical
$1,000 investment in the Institutional Class at the beginning of such period
would have been worth $1,323.94. A hypothetical investment of $1,000 made at the
beginning of the ten-year period ended July 31, 1999, would have been worth
$1,836.45, assuming in each case that all distributions were reinvested.
The performance of the Institutional Class may be compared in
advertising to the performance of other mutual funds in general or of particular
types of mutual funds, especially those with similar objectives. Such
performance data may be prepared by Lipper Inc. and other independent services
which monitor the performance of mutual funds. The Institutional Class may also
advertise mutual fund performance rankings which have been assigned to the
Institutional Class by such monitoring services.
From time to time, AIM or its affiliates may waive all or a portion of
their fees and/or assume certain expenses of the Fund. Voluntary fee waivers or
reductions or commitments to assume expenses may be rescinded at any time
without further notice to investors. During periods of voluntary fee waivers or
reductions or commitments to assume expenses, AIM will retain its ability to be
reimbursed for such fee prior to the end of each fiscal year. Contractual fee
waivers or reductions or reimbursement of expenses set forth in the Fee Table in
the Prospectus may not be terminated or amended to the Fund's detriment during
the period stated in the agreement between AIM and the Fund. Fee waivers or
reductions or commitments to reduce expenses will have the effect of increasing
the Fund's yield and total return.
The performance of the Fund will vary from time to time and past
results are not necessarily indicative of future results. The Fund's performance
is a function of its portfolio management in selecting the type and quality of
portfolio securities and is affected by operating expenses of the Fund and
market conditions. A shareholder's investment in the Fund is not insured or
guaranteed. These factors should be carefully considered by the investor before
making an investment in the Fund.
PORTFOLIO TRANSACTIONS
GENERAL BROKERAGE POLICY
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
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<PAGE> 145
Funds' trades may be executed directly by dealers that sell shares of the AIM
Funds or by other broker-dealers with which such dealers have clearing
arrangements. AIM will not use a specific formula in connection with any of
these considerations to determine the target levels.
AIM will seek, whenever possible, to recapture for the benefit of a
Fund any commissions, fees, brokerage or similar payments paid by the Fund on
portfolio transactions. Normally, the only fees which AIM can recapture are the
soliciting dealer fees on the tender of a Fund's portfolio securities in a
tender or exchange offer.
Under the Investment Company Act of 1940, as amended, (the "1940 Act"),
certain persons affiliated with the Trust are prohibited from dealing with the
Funds as principal in any purchase or sale of securities unless an exemptive
order allowing such transactions is obtained from the SEC. The Funds may engage
in certain principal and agency transactions with banks and their affiliates
that own 5% or more of the outstanding 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.
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<PAGE> 146
Research services received from broker-dealers supplement AIM's own
research (and the research of its affiliates), and may include the following
types of information: statistical and background information on the U.S. and
foreign economies, industry groups and individual companies; forecasts and
interpretations with respect to the U.S. and foreign economies, securities,
markets, specific industry groups and individual companies; information on
federal, state, local and foreign political developments; portfolio management
strategies; performance information on securities, indexes and investment
accounts; information concerning prices of securities; and information supplied
by specialized services to AIM and to the Trust's trustees with respect to the
performance, investment activities, and fees and expenses of other mutual funds.
Broker-dealers may communicate such information electronically, orally, in
written form or on computer software. Research services may also include the
providing of electronic communication of trade information, 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.
Changes in the portfolio holdings of the Fund are made without regard
to whether a sale would result in a profit or loss. The portfolio turnover rate
of the Fund for the years ended July 31, 1999, 1998 and 1997, were 184%, 133%
and 130%, respectively. High portfolio turnover involves correspondingly greater
transaction costs which are borne directly by the Fund, and may increase capital
gains which are taxable as ordinary income when distributed to shareholders.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
DIVIDENDS AND DISTRIBUTIONS
The dividends accrued and paid for each class of the Fund's shares will
consist of: (a) interest accrued and discounts earned (including both original
issue and market discount) for the Fund, allocated based upon each class's pro
rata share of the net assets of the Fund, less (b) Trust expenses accrued for
the applicable dividend period attributable to the Fund, such as custodian fees,
trustee's fees, and accounting and legal expenses, allocated based upon each
class's pro rata share of the net assets of the Fund, less (c) expenses directly
attributable to each class which accrued for the applicable dividend period,
such as shareholder servicing plan expenses, if any, or transfer agent fees
unique to each class.
Dividends are declared to shareholders of record immediately prior to
the determination of the net asset value of the Fund. Accordingly, dividends
begin accruing on the first business day of the Fund
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<PAGE> 147
following the day on which a purchase order for shares of the Fund is effective,
and accrue through the day on which a redemption order is effective. Thus, if a
purchase order is effective on a Friday, dividends will begin accruing on the
following Monday (unless such day is not a business day of the Fund).
All dividends declared during a month will be paid by check or wire
transfer. (Wire transfers may only be made in amounts of $1,000 or more.) In
such case, payment will normally be made on the first business day of the
following month. A shareholder may elect to have all dividends and distributions
automatically reinvested in additional full and fractional shares of the Fund at
the net asset value of such shares. Such election, or any revocation thereof,
must be made in writing by the institution to AFS at 11 Greenway Plaza, Suite
100, Houston, Texas 77046-1173 and will become effective with dividends paid
after its receipt by AFS. If a shareholder redeems all the shares in its account
at any time during the month, all dividends declared through the date of
redemption are paid to the shareholder along with the proceeds of the
redemption.
TAX MATTERS
The following is only a summary of certain additional tax
considerations generally affecting the Fund and its shareholders that are not
described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussion here and in the Prospectus is not intended as a substitute for
careful tax planning.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As a
regulated investment company, the Fund is not subject to federal income tax on
the portion of its net investment income (i.e., its taxable interest, dividends
and other taxable ordinary income, net of expenses) and realized capital gain
net income (i.e., the excess of capital gains over capital losses) that it
distributes to shareholders, provided that it distributes at least 90% of its
investment company taxable income (i.e., net investment income and the excess of
net short-term capital gain over net long-term capital loss) for the taxable
year (the "Distribution Requirement"), and satisfies certain other requirements
of the Code that are described below. Distributions by the Fund made during the
taxable year or, under specified circumstances, within 12 months after the close
of the taxable year, will be considered distributions of income and gains of the
taxable year and can therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement, the Fund must
derive at least 90% of its gross income from dividends, interest, certain
payments with respect to securities loans, gains from the sale or other
disposition of stock or securities or foreign currencies (to the extent such
currency gains are ancillary to the Fund's principal business of investing in
stock or securities) and other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its business of
investing in such stock, securities or currencies (the "Income Requirement").
In general, gain or loss recognized by the Fund on the disposition of
an asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation purchased by the Fund at a market discount
(generally, at a price less than its principal amount) will be treated as
ordinary income to the extent of the portion of the market discount which
accrued during the period of time the Fund held the debt obligation. In
addition, if the Fund purchases a debt obligation that was originally issued at
a discount, the Fund is generally required to include in gross income each year
the portion of the original issue discount which accrues during such year.
The Fund may enter into notional principal contracts, including
interest rate swaps, caps, floors and collars. Under Treasury regulations, in
general, the net income or deduction from a notional principal contract for a
taxable year is included in or deducted from gross income for that taxable year.
The net income or deduction from a notional principal contract for a taxable
year equals the total of all of the periodic payments (generally, payments that
are payable or receivable at fixed periodic intervals of one year or less during
the entire term of the contract) that are recognized from that contract for the
taxable year and all of the non-periodic payments (including premiums for caps,
floors and collars), even if paid in
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<PAGE> 148
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, the Fund
must satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of the Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of the Fund's total assets in securities
of such issuer and as to which the Fund does not hold more than 10% of the
outstanding voting securities of such issuer), and no more than 25% of the value
of its total assets may be invested in the securities of any one issuer (other
than U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses.
If for any taxable year the Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
will be subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable as
ordinary dividends to the extent of the Fund's current and accumulated earnings
and profits. Such distributions generally will be eligible for the dividends
received deduction in the case of corporate shareholders.
EXCISE TAX ON REGULATED INVESTMENT COMPANIES
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to distribute in each calendar year an amount equal to 98%
of ordinary taxable income for the calendar year and 98% of capital gain net
income gain or loss for the one-year period ended on October 31 of such calendar
year (or, at the election of a regulated investment company having a taxable
year ending November 30 or December 31, for its taxable year (a "taxable year
election")). The balance of such income must be distributed during the next
calendar year. For the foregoing purposes, a regulated investment company is
treated as having distributed any amount on which it is subject to income tax
for any taxable year ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall
(1) reduce its capital gain net income (but not below its net capital gain) by
the amount of any net ordinary loss for the calendar year and (2) exclude
Section 988 foreign currency gains and losses incurred after October 31 of any
year (or after the end of its taxable year if it has made a taxable year
election) in determining the amount of ordinary taxable income for the current
calendar year (and, instead, include such gains and losses in determining
ordinary taxable income for the succeeding calendar year).
The Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income prior
to the end of each calendar year to avoid liability for the excise tax. However,
investors should note that the Fund may in certain circumstances be required to
liquidate portfolio investments to make sufficient distributions to avoid excise
tax liability.
24
<PAGE> 149
FUND DISTRIBUTIONS
The Fund anticipates distributing substantially all of its investment
company taxable income and short-term capital gain for each taxable year. Such
distributions will be taxable to shareholders as ordinary income and treated as
dividends for federal income tax purposes, but they will not qualify for the 70%
dividends received deduction for corporations.
The Fund may either retain or distribute to shareholders its net
long-term capital gain for each taxable year. The Fund currently intends to
distribute any such amounts. If net capital gain is distributed and designated
as a capital gain dividend, it will be taxable to shareholders as long-term
capital gain (taxable at a maximum rate of 20% for noncorporate shareholders),
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by the Fund prior to the date on which the shareholder
acquired his shares. Conversely, if the Fund elects to retain its net capital
gain, the Fund will be taxed thereon (except to the extent of any available
capital loss carryovers) at the 35% corporate tax rate. If the Fund elects to
retain net capital gain, it is expected that the Fund also will elect to have
shareholders treated as if each received a distribution of its pro rata share of
such gain, with the result that each shareholder will be required to report its
pro rata share of such gain on its tax return as long-term capital gain, will
receive a refundable tax credit for its pro rata share of tax paid by the Fund
on the gain, and will increase the tax basis for its shares by an amount equal
to the deemed distribution less the tax credit.
Distributions by the Fund that do not constitute ordinary income
dividends or capital gain dividends will be treated as a return of capital to
the extent of (and in reduction of) the shareholder's tax basis in his shares;
any excess will be treated as gain from the sale of his shares, as discussed
below.
Distributions by the Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or any other fund in the AIM Funds). Shareholders
receiving a distribution in the form of additional shares will be treated as
receiving a distribution in an amount equal to the fair market value of the
shares received, determined as of the reinvestment date. In addition, if the net
asset value at the time a shareholder purchases shares of the Fund reflects
undistributed net investment income or recognized capital gain net income, or
unrealized appreciation in the value of the assets of the Fund, distributions of
such amounts will be taxable to the shareholder in the manner described above,
although such distributions economically constitute a return of capital to the
shareholder.
Ordinarily, shareholders are required to take distributions by the Fund
into account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made in certain cases)
during the year in accordance with the guidance that has been provided by the
Internal Revenue Service.
The Fund is required in certain cases to withhold and remit to the U.S.
Treasury 31% of ordinary income dividends and capital gain dividends, and the
proceeds of redemption of shares, paid to any shareholder (1) who has provided
either an incorrect tax identification number or no number at all, (2) who is
subject to backup withholding by the Internal Revenue Service for failure to
report the receipt of interest or dividend income properly, or (3) who has
failed to certify to the Fund that it is not subject to backup withholding or
that it is a corporation or other "exempt recipient."
SALE OR REDEMPTION OF FUND SHARES
A shareholder will recognize gain or loss on the sale or redemption of
shares of the Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
In general, any gain or loss arising from (or treated as arising from) the sale
or redemption of shares of the Fund will be considered capital gain or loss and
will be long-term capital gain or loss if the shares were held for longer than
one year. Except to the extent otherwise
25
<PAGE> 150
provided in future Treasury regulations, any long-term capital gain recognized
by a noncorporate shareholder will be subject to tax at a maximum rate of 20%.
However, any capital loss arising from the sale or redemption of shares held for
six months or less will be treated as a long-term capital loss to the extent of
the amount of capital gain dividends received on such shares. For this purpose,
the special holding period rules of Code Section 246(c)(3) and (4) generally
will apply in determining the holding period of shares. Long-term capital gains
of non-corporate taxpayers are currently taxed at a maximum rate that in some
cases may be 19.6% lower than the maximum rate applicable to ordinary income.
Capital losses in any year are deductible only to the extent of capital gains
plus, in the case of a noncorporate taxpayer, $3,000 of ordinary income.
If a shareholder (i) incurs a sales load in acquiring shares of the
Fund, (ii) disposes of such shares less than 91 days after they are acquired and
(iii) subsequently acquires shares of the same or another fund at a reduced
sales load pursuant to a right to reinvest at such reduced sales load acquired
in connection with the acquisition of the shares disposed of, then the sales
load on the shares disposed of (to the extent of the reduction in the sales load
on the shares subsequently acquired) shall not be taken into account in
determining gain or loss on the shares disposed of but shall be treated as
incurred on the acquisition of the shares subsequently acquired.
FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a
nonresident alien individual, foreign trust or estate, foreign corporation, or
foreign partnership ("foreign shareholder"), depends on whether the income from
the Fund is "effectively connected" with a U.S. trade or business carried on by
such shareholder.
If the income from the Fund is not effectively connected with a U.S.
trade or business carried on by a foreign shareholder, ordinary income dividends
and return of capital distributions (other than capital gain dividends) will be
subject to U.S. withholding tax at the rate of 30% (or lower treaty rate) upon
the gross amount of the distribution. Such a foreign shareholder would generally
be exempt from U.S. federal income tax on gains realized on the sale or
redemption of shares of the Fund, capital gain dividends and amounts retained by
the Fund that are designated as undistributed net capital gains.
If the income from the Fund is effectively connected with a U.S. trade
or business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends and any gains realized upon the sale or redemption of
shares of the Fund will be subject to U.S. federal income tax at the rates
applicable to U.S. citizens or domestic corporations.
In the case of foreign non-corporate shareholders, the Fund may be
required to withhold U.S. federal income tax at a rate of 31% on distributions
that are otherwise exempt from withholding tax (or taxable at a reduced treaty
rate) unless such shareholders furnish the Fund with proper notification of
their foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisors with
respect to the particular tax consequences to them of an investment in the Fund,
including the applicability of foreign taxes.
EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS
The foregoing general discussion of U.S. federal income tax
consequences is based on the Code and regulations issued thereunder as in effect
on the date of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
Rules of state and local taxation of ordinary income dividends and
capital gain dividends from regulated investment companies often differ from the
rules for U.S. federal income taxation described
26
<PAGE> 151
above. The tax treatment of foreign investors may also differ from the treatment
for U.S. investors described above. Shareholders are urged to consult their tax
advisors as to the consequences of these and other state and local tax rules
affecting investments in the Fund.
MISCELLANEOUS INFORMATION
SHAREHOLDER INQUIRIES
Shareholder inquiries concerning the status of an account should be
directed to the Fund at P.O. Box 0843, Houston, Texas 77001-0843, or may be made
by calling (800) 659-1005.
AUDIT REPORTS
The Trust furnishes holders of the Institutional Class with semi-annual
reports containing information about the Trust and its operations, including a
schedule of investments held by the Fund and its financial statements. The
annual financial statements are audited by the Fund's independent certified
public accountants. The Board of Trustees has selected KPMG LLP, 700 Louisiana,
Houston, Texas 77002, as the independent auditors to audit the financial
statements and review the tax returns of the Fund.
LEGAL MATTERS
Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market Street,
Philadelphia, Pennsylvania 19103-7599, serves as counsel to the Trust.
TRANSFER AGENT AND CUSTODIAN
The Fund and AFS, a wholly owned subsidiary of AIM and registered
transfer agent, have entered into the Transfer Agency and Service Agreement,
pursuant to which AFS provides transfer agency, dividend distribution and
disbursement, and shareholder services to the Fund. These services do not
include any supervisory function over management or provide any protection
against any possible depreciation of assets. The Bank of New York acts as
custodian for the Fund's portfolio securities and cash. The Bank of New York
attends to the collection of principal and income, pays and collects all monies
for securities bought and sold for the Fund, and performs certain other
ministerial duties. The Bank of New York and AFS receive such compensation from
the Trust for their services as is agreed to from time to time. The address of
The Bank of New York is 90 Washington Street, 11th Floor, New York, New York
10286.
OTHER INFORMATION
The Prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement which the Trust has
filed with the SEC under the 1933 Act and reference is hereby made to the
Registration Statement for further information with respect to the Fund and the
securities offered pursuant to the Prospectus. The Registration Statement is
available for inspection by the public at the SEC in Washington, DC.
27
<PAGE> 152
FINANCIAL STATEMENTS
FS
<PAGE> 153
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
AIM Investment Securities Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Limited Maturity Treasury Fund (a series of AIM Investment Securities Funds)
including the schedule of investments, as of July 31, 1999, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended. 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, 1999, by correspondence with the custodian and brokers. 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 AIM
Limited Maturity Treasury Fund as of July 31, 1999, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with generally accepted
accounting principles.
KPMG LLP
September 3, 1999
Houston, Texas
FS-1
<PAGE> 154
SCHEDULE OF INVESTMENTS
July 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MARKET
MATURITY (000) VALUE
<S> <C> <C> <C>
U.S. TREASURY SECURITIES
U.S. TREASURY NOTES-100.19%
5.125% 8/31/00 $ 34,330 $ 34,238,339
- -------------------------------------------------------------------------------------------
4.50% 9/30/00 34,000 33,648,440
- -------------------------------------------------------------------------------------------
4.00% 10/31/00 34,060 33,472,806
- -------------------------------------------------------------------------------------------
4.625% 11/30/00 34,100 33,734,789
- -------------------------------------------------------------------------------------------
4.625% 12/31/00 35,100 34,681,959
- -------------------------------------------------------------------------------------------
4.50% 1/31/01 34,100 33,607,255
- -------------------------------------------------------------------------------------------
5.00% 2/28/01 34,500 34,222,965
- -------------------------------------------------------------------------------------------
4.875% 3/31/01 34,000 33,625,660
- -------------------------------------------------------------------------------------------
5.00% 4/30/01 34,200 33,877,836
- -------------------------------------------------------------------------------------------
5.25% 5/31/01 34,240 34,031,136
- -------------------------------------------------------------------------------------------
5.75% 6/30/01 34,090 34,160,907
- -------------------------------------------------------------------------------------------
5.50% 7/31/01 34,700 34,623,660
- -------------------------------------------------------------------------------------------
Total U.S. Treasury Securities (Cost $410,249,128) 407,925,752
- -------------------------------------------------------------------------------------------
TOTAL INVESTMENTS-100.19% 407,925,752
- -------------------------------------------------------------------------------------------
LIABILITIES LESS OTHER
ASSETS-(0.19%) (777,262)
- -------------------------------------------------------------------------------------------
NET ASSETS-100.00% $407,148,490
===========================================================================================
</TABLE>
See Notes to Financial Statements.
FS-2
<PAGE> 155
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $410,249,128) $407,925,752
- --------------------------------------------------------------------------
Cash 2,864,297
- --------------------------------------------------------------------------
Receivables for:
Investments sold 34,703,269
- --------------------------------------------------------------------------
Fund shares sold 3,745,894
- --------------------------------------------------------------------------
Interest 4,198,519
- --------------------------------------------------------------------------
Investment in deferred compensation plan 30,068
- --------------------------------------------------------------------------
Other assets 54,032
- --------------------------------------------------------------------------
Total assets 453,521,831
- --------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 34,638,671
- --------------------------------------------------------------------------
Fund shares reacquired 10,858,373
- --------------------------------------------------------------------------
Dividends 495,043
- --------------------------------------------------------------------------
Deferred compensation 30,068
- --------------------------------------------------------------------------
Accrued advisory fees 71,337
- --------------------------------------------------------------------------
Accrued distribution fees 74,125
- --------------------------------------------------------------------------
Accrued transfer agent fees 52,749
- --------------------------------------------------------------------------
Accrued operating expenses 152,975
- --------------------------------------------------------------------------
Total liabilities 46,373,341
- --------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $407,148,490
==========================================================================
</TABLE>
<TABLE>
<S> <C>
NET ASSETS:
Class A $390,017,633
- --------------------------------------------------------------------------
Institutional Class $ 17,130,857
- --------------------------------------------------------------------------
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 38,882,645
- --------------------------------------------------------------------------
Institutional Class 1,707,856
- --------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share $ 10.03
- --------------------------------------------------------------------------
Offering price per share:
(Net asset value of $10.03
divided by 99.00%) $ 10.13
- --------------------------------------------------------------------------
Institutional Class:
Net asset value, redemption price and offering price per
share $ 10.03
- --------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
FS-3
<PAGE> 156
STATEMENT OF OPERATIONS
For the year ended July 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $21,893,952
- -------------------------------------------------------------------------
EXPENSES:
Advisory fees 850,738
- -------------------------------------------------------------------------
Administrative services fees 70,069
- -------------------------------------------------------------------------
Transfer agent fees-Class A 474,047
- -------------------------------------------------------------------------
Transfer agent fees-Institutional Class 3,113
- -------------------------------------------------------------------------
Distribution fees-Class A (See Note 2) 591,643
- -------------------------------------------------------------------------
Other 229,521
- -------------------------------------------------------------------------
Total expenses 2,219,131
- -------------------------------------------------------------------------
Less: Expenses paid indirectly (4,605)
- -------------------------------------------------------------------------
Net expenses 2,214,526
- -------------------------------------------------------------------------
Net investment income 19,679,426
- -------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES:
Net realized gain from investment securities 1,359,439
- -------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (3,023,894)
- -------------------------------------------------------------------------
Net gain (loss) from investment securities (1,664,455)
- -------------------------------------------------------------------------
Net increase in net assets resulting from operations $18,014,971
=========================================================================
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended July 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 19,679,426 $ 22,758,619
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities 1,359,439 1,855,056
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (3,023,894) (1,793,413)
- ------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 18,014,971 22,820,262
- ------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A (18,245,067) (20,003,878)
- ------------------------------------------------------------------------------------------
Institutional Class (1,523,201) (2,754,741)
- ------------------------------------------------------------------------------------------
SHARE TRANSACTIONS-NET:
Class A 46,655,684 (44,498,315)
- ------------------------------------------------------------------------------------------
Institutional Class (33,718,444) 1,723,996
- ------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 11,183,943 (42,712,676)
- ------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 395,964,547 438,677,223
- ------------------------------------------------------------------------------------------
End of period $407,148,490 $395,964,547
==========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $413,559,490 $400,652,004
- ------------------------------------------------------------------------------------------
Undistributed net investment income 29,754 88,842
- ------------------------------------------------------------------------------------------
Undistributed realized gain (loss) on sales of investment
securities (4,117,378) (5,476,817)
- ------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities (2,323,376) 700,518
- ------------------------------------------------------------------------------------------
$407,148,490 $395,964,547
==========================================================================================
</TABLE>
See Notes to Financial Statements.
FS-4
<PAGE> 157
NOTES TO FINANCIAL STATEMENTS
July 31, 1999l
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Limited Maturity Treasury Fund (the "Fund") is a series portfolio of AIM
Investment Securities Funds (the "Trust"). The Trust is a Delaware business
trust registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of two
separate series portfolios. The investment objective of the Fund is to seek
liquidity with minimum fluctuation in principal value and, consistent with this
investment objective, the highest total return achievable. The Fund currently
offers two different classes of shares: the Class A shares and the Institutional
Class. Matters affecting each portfolio or class are voted on exclusively by the
shareholders of such portfolio or class. The assets, liabilities and operations
of each portfolio are accounted for separately. Information presented in these
financial statements pertains only to the Fund.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of these
financial statements and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the preparation of its financial statements.
A. Security Valuations--Debt obligations that are issued or guaranteed by the
U.S. Treasury are valued on the basis of prices provided by an independent
pricing service. Prices provided by the pricing service may be determined
without exclusive reliance on quoted prices, and may reflect appropriate
factors such as yield, type of issue, coupon rate and maturity date.
Securities for which market prices are not provided by the pricing service
are valued at the mean between the 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. Realized gains and
losses from securities transactions are recorded on the identified cost
basis. On July 31, 1999, undistributed net investment income was increased
by $29,754 and paid-in-capital decreased by $29,754 in order to comply with
the requirements of the American Institute of Certified Public Accountants
Statement of Position 93-2. Net assets of the Fund were unaffected by the
reclassifications discussed above.
C. Dividends and Distributions to Shareholders--It is the policy of the Fund
to declare daily dividends from net investment income. Such distributions
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 $2,924,409, 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.
FS-5
<PAGE> 158
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 pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. During the year ended July 31, 1999, the Fund
paid AIM $70,069 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. During the year ended July 31, 1999, the Fund
paid AFS $206,185 for such services.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A shares and a master distribution agreement with Fund Management Company
("FMC") to serve as the distributor for the Institutional Class. The Trust has
adopted a Plan pursuant to Rule 12b-1 under the 1940 Act (the "Plan") with
respect to the Class A shares. The Fund pays AIM Distributors compensation at an
annual rate of 0.15% of the average daily net assets attributable to the Class A
shares. The Plan is designed to compensate AIM Distributors for certain
promotional and other sales related costs and provides periodic payments to
selected dealers and financial institutions who furnish continuing personal
shareholder services to their customers who purchase and own Class A shares of
the Fund. Any amounts not paid as a service fee under the Plan would constitute
an asset-based sales charge. The Plan also imposes a cap on the total amount of
sales charges, including asset-based sales charges, that may be paid by the
Fund. During the year ended July 31, 1999, the Fund paid AIM Distributors
$591,643 as compensation under the Plan.
AIM Distributors received commissions of $75,023 during the year ended July
31, 1999 from sales of Class A shares. Such commissions are not an expense of
the Fund. They are deducted from, and are not included in, proceeds from sales
of Class A shares. Certain officers and trustees of the Trust are officers and
directors of AIM, AIM Distributors, FMC and AFS.
During the year ended July 31, 1999, the Fund paid legal fees of $4,376 for
services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3-INDIRECT EXPENSES
The Fund received reductions in transfer agency fees from AFS (an affiliate of
AIM) of $4,605 under an expense offset arrangement which resulted in a reduction
of the Fund's total expenses of $4,605 during the year ended July 31, 1999.
NOTE 4-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $1 billion 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. During the year
ended July 31, 1999, 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 0.09% 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. Prior to May 28, 1999, the commitment fee rate was 0.05%.
FS-6
<PAGE> 159
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, 1999 was
$804,343,804 and $787,113,635, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of July 31, 1999 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $ 30,522
- --------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (3,546,327)
- --------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities $ (3,515,805)
==========================================================================
</TABLE>
Cost of investments for tax purposes is $411,441,557.
NOTE 6-TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are 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, 1999 and 1998 were
as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Sold:
Class A 66,719,952 $ 675,218,081 22,832,451 $ 229,871,705
- -----------------------------------------------------------------------------------------
Institutional Class 489,034 4,947,727 1,450,340 14,604,304
- -----------------------------------------------------------------------------------------
Issued as a reinvestment of dividends:
Class A 1,524,802 15,430,990 1,671,295 16,825,885
- -----------------------------------------------------------------------------------------
Institutional Class 1,998 20,239 4,391 44,205
- -----------------------------------------------------------------------------------------
Reacquired:
Class A (63,662,111) (643,993,387) (28,922,414) (291,195,905)
- -----------------------------------------------------------------------------------------
Institutional Class (3,809,602) (38,686,410) (1,281,958) (12,924,513)
- -----------------------------------------------------------------------------------------
1,264,073 $ 12,937,240 (4,245,895) $ (42,774,319)
=========================================================================================
</TABLE>
FS-7
<PAGE> 160
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of the Institutional Class
outstanding during each of the years in the five-year period ended July 31,
1999.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.07 $ 10.07 $ 9.97 $ 10.03 $ 9.96
- ------------------------------------------------------ ------- ------- ------- -------- --------
Income from investment operations:
Net investment income 0.49 0.56 0.56 0.58 0.57
- ------------------------------------------------------ ------- ------- ------- -------- --------
Net gains (losses) on securities (both realized and
unrealized) (0.04) -- 0.10 (0.06) 0.07
- ------------------------------------------------------ ------- ------- ------- -------- --------
Total from investment operations 0.45 0.56 0.66 0.52 0.64
- ------------------------------------------------------ ------- ------- ------- -------- --------
Less distributions:
Dividends from net investment income (0.49) (0.56) (0.56) (0.58) (0.57)
- ------------------------------------------------------ ------- ------- ------- -------- --------
Net asset value, end of period $ 10.03 $ 10.07 $ 10.07 $ 9.97 $ 10.03
====================================================== ======= ======= ======= ======== ========
Total return 4.55% 5.66% 6.79% 5.27% 6.61%
====================================================== ======= ======= ======= ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $17,131 $50,609 $48,866 $143,468 $129,530
====================================================== ======= ======= ======= ======== ========
Ratio of expenses to average net assets 0.31%(a) 0.32% 0.31% 0.27% 0.28%
====================================================== ======= ======= ======= ======== ========
Ratio of net investment income to average net assets 4.84%(a) 5.51% 5.56% 5.72% 5.70%
====================================================== ======= ======= ======= ======== ========
Portfolio turnover rate 184% 133% 130% 117% 120%
====================================================== ======= ======= ======= ======== ========
</TABLE>
(a) Ratios are based on average net assets of $30,940,119.
FS-8
