<PAGE>
AIG CHILDREN'S WORLD FUND -- 2005
A SERIES OF
AIG ALL AGES FUNDS, INC.
505 CARR ROAD . WILMINGTON, DELAWARE 19809 . (800) 862-3984
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This prospectus describes the AIG Children's World Fund -- 2005 (the
"Fund"). The Fund is a diversified series of AIG All Ages Funds, Inc., an
open-end management investment company. The Fund has two investment
objectives. The first objective is to provide a guaranteed return, on or after
November 15, 2005, of the full amount originally invested (including any sales
charge paid) by each shareholder who has reinvested all dividends and
distributions. The Fund pursues its first objective by investing a portion of
its assets in U.S. Treasury zero coupon securities, combined with further
assurance from a guarantee by AIG Capital Management Corp., the Fund's
investment adviser (the "Manager"). The Manager's obligations under its
guarantee will be backed by its parent, American International Group, Inc.
("AIG").
The Fund's second objective is to achieve total return on capital through
both capital growth (realized and unrealized) and income, by investing the
balance of its assets primarily in a globally diversified portfolio of equity
securities. There can be no assurance that this second objective of total
return on capital will be achieved.
The Fund is primarily intended for shareholders who seek to invest for the
longer term for the benefit of children. Consistent with that goal, the Fund
intends to provide shareholders with ongoing reports and educational
materials, some of which will be specifically written for children.
(Continued on Page 2)
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SHARES IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE FUND IS A NEWLY INCORPORATED OPEN-END MANAGEMENT INVESTMENT COMPANY AND
THEREFORE HAS NO PRIOR HISTORY.
This prospectus sets forth concisely the information a prospective investor
should know about the Fund and the Equity Portfolio before investing. Please
read it carefully before you invest and keep it for future reference.
Additional information about the Fund, including a Statement of Additional
Information, has been filed with the Securities and Exchange Commission. The
Statement of Additional Information is available upon request and without
charge by calling or writing the Fund at the telephone number or the address
set forth above. The Statement of Additional Information is dated the same
date as this Prospectus and is incorporated herein by reference in its
entirety.
The date of this prospectus is September 21, 1995, as supplemented on November
1, 1995, and as further supplemented on March 18, 1996.
<PAGE>
Shares of the Fund will be offered to investors only from November 15, 1995
through June 30, 1996. During this limited period the shares will be offered
at their net asset value plus the applicable sales charge, if any. The Fund
does not expect that its shares will be offered after June 30, 1996.
The Fund seeks to achieve the investment objective of total return on
capital by investing a portion of its investable assets in the First Global
Equity Portfolio (the "Equity Portfolio"), a diversified open-end management
investment company with the same investment objective. Both the Fund and the
Equity Portfolio are managed by AIG Capital Management Corp. and investment
advice is provided by affiliated companies. By investing in the Equity
Portfolio, the Fund differs from those mutual funds that directly acquire and
manage their own portfolio of securities. The Fund and the Equity Portfolio
constitute a two-tier master-feeder structure. The two-tier structure permits
the Equity Portfolio to offer its shares to other investors and thus is
intended to reduce certain expenses that would otherwise be payable entirely
by the Fund. The Fund will directly acquire and manage its portfolio of zero
coupon securities. See "Special Information Concerning the Two-Tier
Structure."
The Fund is an open-end fund, which means that shareholders may elect to
receive dividends and distributions in cash and may redeem some or all of
their shares at any time. However, under the terms of the Manager's guarantee,
shareholders who desire to be certain of receiving the full amount of their
original investment from the Fund on or after November 15, 2005 must reinvest
all dividends and distributions in additional shares and hold all their shares
until November 15, 2005. The Fund is intended for long-term investors and is
not appropriate for investors seeking current income or investors who do not
intend to reinvest dividends and distributions. In addition, the Fund may not
be appropriate for investors who expect to redeem all or a portion of their
shares prior to November 15, 2005 because there can be no assurance of the
amount that will be received upon early redemption. The net asset value of a
share of the Fund can be expected to fluctuate substantially owing to changes
in prevailing interest rates that will affect the current value of the Fund's
holdings of zero coupon securities, as well as changes in the value of the
Fund's other holdings. Although the two-tier structure permits the Equity
Portfolio to offer its shares to other investors and thus is intended to
reduce certain expenses that would otherwise be payable entirely by the Fund,
the Fund itself does not expect to offer its shares after June 30, 1996 and
will not benefit from an inflow of new capital investments. In addition, the
Fund may experience redemptions and capital losses prior to November 15, 2005
and will pay dividends and distributions in cash to shareholders who so elect.
Losses, redemptions and dividends and distributions paid in cash will reduce
the Fund's assets. A substantial reduction of the Fund's assets could make the
investment objective of total return unachievable, although management
believes a reduction of such magnitude is unlikely. As a result, the Fund's
ability to accomplish that investment objective for those shareholders who
reinvest dividends and distributions could depend in part on the investment
decisions of other shareholders. See "Risk Factors -- Zero Coupon Securities."
The Fund is sold through financial intermediaries by individual account
representatives who recommend and sell mutual funds, stocks, bonds and other
securities. Account representatives provide a wide array of services to their
clients. An important service is assisting clients in their financial planning
and in choosing investment products that fit their risk and investment
profiles. There can be no assurance that an account representative's
recommendations will be suitable or that, if purchased, they will result in
the anticipated financial benefits. Their responsibility to their clients is
to offer advice based on their knowledge of the products they are recommending
and understanding their clients' needs, for which they receive a fee or
commission paid by their clients. If you do not fully understand the shares
that are offered by this Prospectus, you may wish to consult your account
representative.
2
<PAGE>
THE FUND'S EXPENSES
The following table lists the costs and expenses that an investor will pay
as a shareholder of the Fund, based upon the sales charge that may be incurred
at the time of purchase and upon the projected annual operating expenses of
the Fund and the Equity Portfolio, as a percentage of average net assets of
the Fund. THE DIRECTORS OF THE FUND BELIEVE THAT THE AGGREGATE PER SHARE
EXPENSES OF THE FUND AND THE EQUITY PORTFOLIO WILL BE LESS THAN OR
APPROXIMATELY EQUAL TO THE EXPENSES THAT THE FUND WOULD INCUR IF THE ASSETS OF
THE FUND THAT ARE INVESTED IN THE EQUITY PORTFOLIO WERE INSTEAD INVESTED
DIRECTLY BY THE FUND IN THE TYPE OF SECURITIES HELD BY THE EQUITY PORTFOLIO.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EX-
PENSES(1)
Maximum sales load imposed
on purchases (as a percent-
age of offering price)........... 4.75%
Maximum sales load imposed
on reinvested dividends
(as a percentage of
offering price).................. None
Deferred sales load
(as a percentage of
original purchase price or
redemption proceeds, as
applicable):
Shares acquired under
Large Purchase Privi-
lege(2)........................ 1.00%
All other shares................ None
Redemption fees (as a per-
centage of amount re-
deemed).......................... None
Exchange fee...................... None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
net assets)
Management fees (assuming
50% of the Fund's assets
are invested directly in
Treasury Securities and 50%
in the Equity Portfolio):
Treasury Securities 0.20% X 50% = 0.10%
Equity Portfolio 1.20% X 50% = 0.60%
----
Estimated total management
fees........................... 0.70%(3)
12b-1 fees (DURING OFFERING
PERIOD ONLY)..................... 0.50%
Other expenses(4)................. 1.30%
----
Total Fund Operating Ex-
penses:
Before Manager's expense
reimbursement.................. 2.50%
====
After Manager's expense
reimbursement during fis-
cal year ended June 30,
1996........................... 2.00%
====
</TABLE>
"Other expenses" in the above table include, among other things, fees for
transfer agent services, custodial fees, directors' and trustees' fees, legal
fees and accounting fees, printing costs, registration fees, costs of
preparing and distributing reports to shareholders as described under
"Periodic and Other Reports and Services" and the fee for shareholder
servicing described under "Shareholder Servicing Agreement," and is based on
estimated amounts for the current fiscal year, assuming that the average
assets of the Fund during such year are $80,000,000. The Manager has agreed to
reimburse the Fund's expenses (or to waive its management fee) to the extent
Total Fund Operating Expenses during the fiscal year ended June 30, 1996
exceed 2.00% of average daily net assets, subject to reimbursement by the Fund
in subsequent years under certain circumstances. See "Investment Advisory
Services -- The Manager." RULE 12B-1 FEES WILL BE PAYABLE ONLY DURING THE
OFFERING PERIOD. ACCORDINGLY, AFTER THE OFFERING PERIOD, TOTAL FUND OPERATING
EXPENSES ARE ESTIMATED TO BE 2.00%.
- --------
(1) Investment dealers and other firms may independently charge additional
fees for shareholder transactions or for advisory services; please see
their materials for details. Reduced sales charges apply to purchases of
$100,000 or more. See "Purchase of Shares."
(2) The redemption within one year of shares purchased at net asset value
under the Large Purchase Privilege (available for purchases in amounts of
$1 million or more) may be subject to a 1% contingent deferred sales
charge. See "Purchase of Shares."
(3) The management fee will be 0.70% if 50% of the Fund's assets are invested
directly in Treasury Securities and 50% in the Equity Portfolio. However,
this allocation will fluctuate with changes in market conditions. See
"Investment Objectives and Management Policies -- Proposed Operations of
the Fund." The Manager estimates that, under normal market conditions, the
portion of the Fund's assets involved in Treasury Securities will not be
less than 40% or more than 65% during the Offering Period. Thus the total
management fee is estimated to vary between 0.55% and 0.80%. However, in
extreme market conditions, the percentage of Treasury Securities could be
less than 40% or more than 65%, with the result that the total management
fee would fall outside the indicated range.
(4) Comprises expenses payable directly by the Fund plus the Fund's pro rata
share of expenses incurred by the Equity Portfolio.
3
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The following example is intended to assist an investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly.
EXAMPLE
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
You would pay the following expenses on a $1,000 investment
assuming
(1) 5% annual return and (2) redemption at the end of each
time period:.................................................. $67 $107
</TABLE>
The example is intended to assist you in comparing expenses of the Fund with
those of other funds over varying investment periods. All funds are required
to present this information based on an assumed return of 5%. This makes the
comparison of various funds simpler. However, the Fund's actual return will
vary and may be greater or less than 5%. Also, if you redeem your shares
before November 15, 2005, your proceeds may be less than the amount you
originally invested. This example should not be considered a representation of
past or future expenses and actual expenses may be greater or less than those
shown.
4
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INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
IN GENERAL
The Fund has two investment objectives. The first is to provide a guaranteed
return at any time on or after November 15, 2005 (the "Maturity Date") of the
full amount originally invested (including any sales charge paid) by each
shareholder who has reinvested all dividends and distributions, which the Fund
pursues through investment of a portion of its assets in U.S. Government zero
coupon securities, with additional assurance provided by the guarantee (the
"Manager's Guarantee") of the Manager, backed by its parent AIG. The second
objective is to achieve total return on capital through both capital gains
(realized and unrealized) and income, by investing the balance of its assets
in a globally diversified portfolio of equity securities. The investment
objectives of the Fund are fundamental and cannot be changed without the
approval of the holders of a majority of the outstanding voting securities of
the Fund, as defined under the Investment Company Act of 1940, as amended (the
"1940 Act").
The Fund's investment strategy with respect to zero coupon securities,
together with the Manager's Guarantee, ensures that shareholders who reinvest
all dividends and distributions will receive the full amount of their original
investment when they redeem their shares on or after the Maturity Date. In
addition, the Manager believes that the Equity Portfolio's investment
strategies should be sufficient to accomplish the Fund's investment objective
of total return, but there can be no assurance that this objective will be
achieved. The Fund is structured as an open-end investment company and
shareholders may redeem their shares at any time and may elect to receive
dividends and distributions in cash. However, pursuant to the terms of the
Manager's Guarantee, shareholders who wish to be certain of receiving the full
amount of their original investment must reinvest all dividends and
distributions in additional shares and hold all their shares until the
Maturity Date. There can be no assurance that shareholders who elect to
receive distributions in cash will receive the full amount of their original
investment on or after the Maturity Date. In addition, while the amount sought
to be returned on or after the Maturity Date to shareholders may equal or
exceed the amount originally invested, the present value of that amount may be
substantially less.
Shareholders also should be aware that a substantial portion of the amount
returned on or after the Maturity Date represents accretion of interest on the
Fund's zero coupon securities. The annual accretion will be taxable to
shareholders as ordinary income each year over the term of the Fund, even for
shareholders who reinvest all dividends and distributions.
When the zero coupon securities in the Fund's portfolio mature on or about
the Maturity Date, the Fund will reinvest the principal amount in short-term,
highly liquid obligations of the U.S. Government. The value of these
securities is not expected to fluctuate significantly, so shareholders who
redeem their shares at any time on or after the Maturity Date should expect to
receive the amount of their initial investment (from the liquidation of the
Fund's Treasury Securities) plus the value (if any) of their proportionate
share of the Fund's interest in the Equity Portfolio. After the Maturity Date,
the Board of Directors may, in its sole discretion and without shareholder
approval, cause the Fund to redeem all of its outstanding shares at their net
asset value and distribute the proceeds to shareholders if the Board
determines that continuing the existence of the Fund is not in the best
5
<PAGE>
interests of the Fund. Pursuant to the terms of the Manager's Guarantee,
shareholders who have reinvested all dividends and distributions will be
certain to receive the full amount of their original investment in the event
of such redemption.
ZERO COUPON SECURITIES
A zero coupon security is a debt obligation that entitles the holder to a
specified sum at maturity but does not provide for any periodic payments of
interest prior thereto. Such a security is therefore issued and traded at a
discount from its amount due at maturity (the "face value"). Zero coupon
securities may be created by separating the interest and principal components
of securities issued or guaranteed by the United States Government or one of
its agencies or instrumentalities or issued by private corporate issuers. The
Fund, however, will invest in zero coupon securities only if they are direct
obligations of the United States Treasury ("Treasury Securities"). The
discount from face value at which zero coupon securities are purchased varies
depending on the time remaining to maturity, prevailing interest rates and the
liquidity of the security. Because the discount from face value is known at
the time of investment, investors holding zero coupon Treasury Securities
until maturity know the total amount of their investment return at the time of
investment. (The investment community generally assumes that the U.S. Treasury
will not default on payments of interest or principal.)
In contrast to zero coupon securities, a portion of the total realized
return from conventional interest-paying obligations comes from the
reinvestment of periodic interest. Because the rate to be earned on these
reinvestments may be higher or lower than the rate quoted on the interest-
paying obligations at the time of the original purchase, the investor's return
on reinvestments is uncertain even if the securities are held to maturity.
This uncertainty is commonly referred to as reinvestment risk. With zero
coupon securities, however, there are no cash distributions to reinvest, so
investors bear no reinvestment risk if they hold the zero coupon securities to
maturity; holders of zero coupon securities, however, forego the possibility
of reinvesting at a higher yield than the rate paid on the originally issued
security. For a discussion of risks associated with the sale of zero coupon
securities prior to maturity, see "Risk Factors -- Zero Coupon Securities."
FIRST GLOBAL EQUITY PORTFOLIO
The Fund seeks to achieve its investment objective of total return on
capital by investing the portion of its assets not invested in zero coupon
Treasury Securities in the Equity Portfolio, which is managed by the same
Manager as the Fund. The investment objective of the Equity Portfolio is to
achieve total return on capital through both capital growth (realized and
unrealized) and income. This objective is identical to the objective of the
Fund with respect to those assets invested in the Equity Portfolio. The Equity
Portfolio seeks to achieve its objective by making global investments in
securities of issuers from around the world. This investment objective is a
fundamental policy and cannot be changed without approval of the owners of
beneficial interests in the Equity Portfolio (which include the Fund and other
investors in the Equity Portfolio). There can be no assurance that the Equity
Portfolio will achieve its investment objective of total return on capital.
Under normal conditions at least 80% of the Equity Portfolio's assets will
be invested in securities of issuers organized in one or more of the following
countries: the United States, the United Kingdom, Canada, Australia,
6
<PAGE>
Japan, France, Germany, Italy, the Netherlands, Spain, Sweden, Switzerland,
Hong Kong, Singapore and Malaysia. The Manager has selected the securities
markets of these 15 countries because they are among the largest in the world.
The Equity Portfolio may, however, invest in securities of issuers
incorporated or organized in any country. Under normal conditions, the assets
of the Equity Portfolio will be invested in securities of issuers organized in
at least three countries; no more than 30% of the Equity Portfolio's assets
may be invested in securities of issuers organized in any one country, except
that for temporary defensive purposes, substantially all of such assets may be
invested in securities of issuers organized in the United States. Securities
may be included in the Equity Portfolio without regard to minimum
capitalization of their issuers. For a discussion of the risks associated with
investment in securities of foreign issuers, see "Risk Factors -- Foreign
Investment."
In allocating investments among geographic regions and individual countries,
the Manager will normally consider such factors as the relative economic
growth potential of the various economies and securities markets; expected
levels of inflation; financial, social and political conditions influencing
the investment opportunities; and the outlook for currency relationships.
The Equity Portfolio may invest in all types of securities (subject to the
limitations discussed below and in the Statement of Additional Information),
many of which will be denominated in currencies other than the U.S. dollar.
The Equity Portfolio will normally invest its assets in equity securities,
including common stock, securities convertible into common stock, depositary
receipts for these securities, and warrants. (A brief description of these
securities is provided in the next paragraph.) The Equity Portfolio will not
ordinarily invest in nonconvertible debt securities. The Equity Portfolio,
may, however, invest up to 25% of its assets in preferred stock. Dividends may
also be considered in selecting securities when the Manager believes that such
income will favorably influence the market value of a security in light of the
Equity Portfolio's objective of total return. Equity securities in which the
Equity Portfolio will invest may be listed on a U.S. or foreign stock exchange
or traded in U.S. or foreign over-the-counter markets, although the Equity
Portfolio may also invest in securities for which there is no active trading
market (subject to the limitations discussed below and in the Statement of
Additional Information).
Common Stock is capital stock of a corporation which denotes ownership and
provides the means to control the corporation, but which is inferior to other
classes of securities with respect to payment of dividends and distribution of
assets upon dissolution of the corporation. Preferred Stock is capital stock
usually entitled by a corporation's charter to priority over common stock in
payment of dividends and in the distribution of assets upon dissolution of the
corporation. A Convertible Security is any security capable of being
converted, at the election of the holder, into another security of the same
issuer (for example, a bond that is convertible into a specified number of
shares of common stock). A Warrant is a security issued by a corporation that
gives the warrant holder the right to purchase capital stock or another
security of the corporation at a stated price.
The Equity Portfolio may invest in securities represented by Depositary
Receipts, including European Depositary Receipts ("EDRs"), American Depositary
Receipts ("ADRs") and Global Depositary Receipts ("GDRs"). ADRs are receipts
generally issued by a domestic bank or trust company that represent the
deposit of a security of a foreign issuer. EDRs are typically issued by
foreign banks or trust companies and traded in Europe. GDRs may be issued by a
domestic or foreign bank or trust company and may be traded in several
7
<PAGE>
markets. For purposes of the Equity Portfolio's investment policies, an
investment in Depositary Receipts will be deemed to be an investment in the
underlying security.
The Fund may make certain negotiated investments with AIG and/or its
affiliates, subject to obtaining any necessary regulatory approvals.
As a matter of fundamental policy, the Equity Portfolio will not engage in
transactions intended to hedge foreign exchange risk. See "Risk Factors --
Foreign Currencies." The Equity Portfolio is also subject to an operating
policy which prohibits it from borrowing any amount more than 5% of its total
assets. This effectively limits the ability of the Equity Portfolio to
"leverage" its assets by borrowing money and investing in additional
securities. Additional information about the Equity Portfolio has been
included in the Equity Portfolio's registration statement filed with the
Securities and Exchange Commission, a copy of which is available upon request
and without charge by calling or writing the Fund at the telephone number and
address set forth on the cover page of this Prospectus.
PROPOSED OPERATIONS OF THE FUND
As noted above, the Fund will invest directly in zero coupon Treasury
Securities and, through its investment in the Equity Portfolio, in a globally
diversified portfolio of equity securities in pursuing its objectives. Shares
of the Fund will be offered to investors only from November 15, 1995 through
June 30, 1996 (the "Offering Period"). During the Offering Period the shares
will be offered at their net asset value plus the applicable sales charge, if
any. The Fund does not expect that its shares will be offered after June 30,
1996. See "Purchase of Shares." The zero coupon Treasury securities that the
Fund acquires with the proceeds of the sale of its shares during the Offering
Period will be selected so as to mature at a specific face value on or about
the Maturity Date. The Manager will continually review and adjust where
necessary the proportion of the Fund's assets that are invested in zero coupon
securities so that the value of the zero coupon securities on the Maturity
Date (i.e., the aggregate face value of the zero coupon securities held by the
Fund) will be at least sufficient to enable investors who reinvest all
dividends and hold their entire investment in the Fund until the Maturity Date
to receive on or after the Maturity Date the full amount of their original
investment, including any sales charge (the "Repayment Objective"). After the
Offering Period, the Fund anticipates adjustments in its portfolio of zero
coupon securities solely to meet requests for redemption and, if required, to
make payments of dividends and distributions. Thus, the minimum face value of
the zero coupon securities per Fund share necessary to provide for the Fund's
Repayment Objective will be continually determined and maintained.
The portion of the Fund's assets that will be allocated to the purchase of
zero coupon securities will fluctuate during the Offering Period. This is
because the market value of the zero coupon securities and the shares of the
Equity Portfolio, and therefore the offering price of the Fund's shares, will
fluctuate with changes in interest rates and other market value fluctuations.
If the offering price of the Fund's shares increases during the Offering
Period, the minimum par value of zero coupon securities per Fund share
necessary to provide for the Fund's Repayment Objective will increase. The
Fund may hold zero coupon securities in an amount in excess of the amount
necessary to provide for the Fund's Repayment Objective in the discretion of
the Fund's investment manager. During the first year of operations, under
normal market conditions, the proportion of the Fund's
8
<PAGE>
portfolio invested in zero coupon securities may be expected to range from 40%
to 65%; but a greater or lesser percentage is possible.
During the Offering Period, as the percentage of zero coupon securities in
the Fund's portfolio increases, the portion of the Fund's assets invested in
the Equity Portfolio will necessarily decrease. This will result in less
potential for total return from the Equity Portfolio. In order to help ensure
shareholders at least a minimum level of initial investment in the global
equity markets, the Fund will cease offering its shares if their continued
offering would cause more than 65% of its assets to be allocated to zero
coupon securities. After the Offering Period is over, it is not anticipated
that any additional assets will be allocated to the purchase of zero coupon
securities. However, since the market values of the zero coupon securities and
the net asset value of interests in the Equity Portfolio are often affected in
different ways by changes in interest rates and other market conditions and
will often fluctuate independently, the percentage of the Fund's net asset
value represented by zero coupon securities will continue to fluctuate after
the end of the Offering Period. Zero coupon securities may be liquidated
before the Maturity Date to meet redemptions and pay cash dividends, provided
that the minimum amount of zero coupon securities necessary to provide for the
Fund's Repayment Objective is maintained.
When the zero coupon securities in the Fund's portfolio mature on or about
the Maturity Date, the Fund will reinvest the principal amount in short-term,
highly liquid Treasury Securities. The value of these securities is not
expected to fluctuate significantly, with the result that the full principal
amount of Treasury Securities held by the Fund on the Maturity Date should
continue to be available to redeeming shareholders after the Maturity Date.
After the Maturity Date, the Board of Directors of AIG All Ages Funds, Inc.
(the "Board") may, in its sole discretion and without shareholder approval,
cause the Fund to redeem all of its outstanding shares at their net asset
value and distribute the proceeds to shareholders if the Board determines that
continuing the existence of the Fund is not in the best interests of the Fund.
In such event, the Fund's Treasury Securities will be liquidated and the
Fund's interest in the Equity Portfolio shall be sold or otherwise reduced to
cash, the liabilities of the Fund will be discharged or otherwise provided
for, the Fund's outstanding shares will be mandatorily redeemed at the net
asset value per share determined on the date of redemption and, within three
business days thereafter, the Fund's net assets will be distributed to
shareholders and the Fund shall be thereafter terminated. Termination of the
Fund may require disposition of the Fund's interest in the Equity Portfolio at
a time when it is otherwise disadvantageous to do so and may involve selling
such interest at a substantial loss. The estimated expenses of liquidation and
termination of the Fund are not expected to affect materially the net asset
value of the Fund, and, because of the Manager's Guarantee, shareholders who
reinvest all dividends and distributions will be certain to receive the full
amount of their original investment in the event of such a liquidation. In the
event of termination of the Fund as noted above, the redemption of shares
effected in connection with such termination would for current federal income
tax purposes constitute a sale upon which gain or loss will be realized
depending upon whether the net asset value of the shares being redeemed is
more or less than the shareholder's adjusted cost basis.
Subject to shareholder approval, other alternatives may be pursued by the
Fund after the Maturity Date. For instance, the Board may consider the
possibility of a tax-free reorganization between the Fund and another
9
<PAGE>
registered open-end management investment company or any other series of AIG
All Ages Funds, Inc. The Board has not made any determinations about the
continued operation of the Fund after the Maturity Date.
The Fund is structured as an open-end investment company and shareholders
may redeem their shares at any time and may elect to receive dividends and
distributions in cash. However, pursuant to the terms of the Manager's
Guarantee, shareholders who wish to be certain of receiving the full amount of
their original investment must reinvest all dividends and distributions in
additional shares and hold all their shares until the Maturity Date.
Shareholders who elect to receive dividends in cash are in effect withdrawing
a portion of the accreted income on the zero coupon securities that are held
to protect their original principal investment at the Maturity Date. These
shareholders will receive the same net asset value per share for any Fund
shares redeemed at the Maturity Date as shareholders who reinvest dividends,
but they will have fewer shares to redeem than shareholders similarly situated
who had reinvested all dividends. Thus there can be no assurance that such
shareholders will receive the full amount of their original investment on or
after the Maturity Date.
Shareholders who redeem some or all of their shares before the Maturity Date
will not be certain to receive the full amount of their original investment
(including any sales charge paid) on or after the Maturity Date. Under the
terms of the Manager's Guarantee, the amount a shareholder is certain to
receive will be reduced in proportion to the number of shares redeemed divided
by the number of shares originally purchased during the Offering Period. Thus,
investors are encouraged to reinvest dividends and to evaluate their need to
receive some or all of their investments prior to the Maturity Date before
making an investment in the Fund.
THE MANAGER'S GUARANTEE
In order to ensure the return of the full amount of a shareholder's original
investment (including any sales charge paid) on or after the Maturity Date,
AIG All Ages Funds, Inc. and the Manager have entered into a Guarantee
Agreement with respect to the Fund, dated September 15, 1995 (the "Manager's
Guarantee"). The Manager's obligations under the Manager's Guarantee are
backed by its parent, AIG, pursuant to a Support Agreement, dated September
15, 1995. AIG is a holding company which through its subsidiaries is primarily
engaged in a broad range of insurance and insurance-related activities in the
United States and abroad. Other significant activities of AIG are financial
services and agency and service fee operations. See "American International
Group, Inc." The Manager is an indirect wholly owned subsidiary of AIG. Under
the Support Agreement, AIG has agreed that, if the Manager is unable to make
full payment of any amount required under the Manager's Guarantee, AIG will
make a capital contribution or a loan to the Manager to the extent of the
Manager's inability to pay. The Support Agreement provides that the full
amount of such capital contribution or loan will be paid directly to the Fund.
The Manager's Guarantee operates such that an investor who has reinvested
all dividends and distributions (an "Eligible Investor") will be able to
demand the return of the full amount of his or her original investment in the
Fund (including any front-end sales charges paid) on or after the Maturity
Date. An Eligible Investor who has redeemed some shares prior to the Maturity
Date is still an Eligible Investor with respect to the shares not redeemed. In
determining the amount to be paid by the Manager to the Fund in the event that
the Manager's Guarantee is triggered, a "Reinvestment Ratio" is employed. The
Reinvestment Ratio is the number of shares that would be owned on a particular
date by the person who acquired one share during the Offering Period and
continuously reinvested all dividends and distributions. Due to reinvestment
of dividends and distributions, that
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person would own more than one share at the Maturity Date. Dividends and
distributions paid by the Fund during the Offering Period will be taken into
account in determining the Reinvestment Ratio such that an Eligible Investor
who purchased shares after the date of such dividend or distribution will
still be ensured of the full benefits of the Manager's Guarantee. Shares
acquired therefrom will not, however, be considered shares acquired during the
Offering Period for purposes of determining the amount of an Eligible
Investor's original investment. The Manager's Guarantee is triggered when an
Eligible Investor tenders shares for redemption and the then current net asset
value per share multiplied times the Reinvestment Ratio is less than the
highest net asset value per share of the Fund attained during the Offering
Period plus the maximum front-end sales charge of 4.75%.
Any payment made by the Manager pursuant to the Manager's Guarantee will be
to the Fund and will cause the net asset value of all outstanding shares to
increase by the same amount. Thus, all shareholders may benefit to some extent
from any payment under the Manager's Guarantee. However, a shareholder who has
not reinvested all dividends and distributions will own fewer shares on or
after the Maturity Date than a shareholder who invested the same amount during
the Offering Period but has reinvested continuously. Moreover, such
shareholder will not be entitled to make a demand for payment under the
Manager's Guarantee. The benefits of the Manager's Guarantee will not be
available with respect to shares redeemed prior to the Maturity Date, nor will
they be available after the Maturity Date if no shareholder of the Fund has
reinvested all of his or her dividends and distributions or no Eligible
Investor has yet tendered shares for redemption. The availability of the
Manager's Guarantee will not be affected by the termination or amendment of
the Fund's Management Agreement with the Manager.
In the event of the liquidation or reorganization of the Fund after the
Maturity Date, all Eligible Investors will be deemed to have tendered their
shares for redemption, and, if the Manager's Guarantee is triggered by such
redemption, then the Manager will make any required payment. Any such payment
will take into account any known liabilities in connection with the
liquidation or reorganization, and, therefore, Eligible Investors will in such
event be assured to receive from the Fund at least their original investment
(including any front-end sales charges paid).
OTHER INVESTMENT POLICIES
Except where specifically noted below, the following investment policies of
the Fund and the Equity Portfolio are not fundamental and the Board, or the
Trustees of the Equity Portfolio, as relevant, may change such policies
without the vote of a majority of outstanding voting securities of the Fund or
the Equity Portfolio, as relevant. A more detailed description of the Fund's
and the Equity Portfolio's investment policies, including a list of those
restrictions of the Fund's and the Equity Portfolio's investment activities
which cannot be changed without such a vote, appears in the Statement of
Additional Information. Under the 1940 Act, a "vote of a majority of the
outstanding securities" of either the Fund or the Equity Portfolio means the
affirmative vote of the lesser of (1) more than 50% of the outstanding shares
of the Fund or beneficial interests in the Equity Portfolio, as relevant, or
(2) 67% or more of the shares of the Fund or beneficial interests in the
Equity Portfolio present at a meeting of holders, if more than 50% of the
outstanding shares of the Fund or the beneficial interests in the Equity
Portfolio are represented at the meeting in person or by proxy.
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Borrowing. The Equity Portfolio and the Fund may from time to time borrow
money from banks for extraordinary or emergency purposes, but may not invest
borrowed funds in additional securities. Such borrowing will not exceed 5% of
the total assets of the Equity Portfolio or the Fund, as applicable, and will
be made at prevailing interest rates. This policy is fundamental and may not
be changed without the vote of a majority of the outstanding voting securities
of the Fund or the Equity Portfolio, as relevant.
Repurchase Agreements. The Equity Portfolio may enter into repurchase
agreements with commercial banks or broker/dealers under which the Equity
Portfolio acquires a U.S. Government security subject to resale at a mutually
agreed upon price and time. The resale price reflects an agreed upon interest
rate effective for the period the Equity Portfolio holds the instrument that
is unrelated to the interest rate on the instrument.
The Equity Portfolio's repurchase agreements will at all times be fully
collateralized by U.S. Government securities, and the Equity Portfolio will
make payment for such securities only upon physical delivery or evidence of
book entry transfer to the account of its custodian. Repurchase agreements
could involve certain risks in the event of bankruptcy or other default of the
seller, including possible delays and expenses in liquidating the underlying
security, decline in the value of the underlying security and loss of
interest.
The Fund may not enter into repurchase agreements in respect of Treasury
Securities allocated to the Repayment Objective. In all other respects, the
Fund is subject to the same restrictions on repurchase agreements as the
Equity Portfolio. The Fund's and the Equity Portfolio's policies concerning
repurchase agreements are fundamental and may not be changed without the vote
of a majority of outstanding voting securities of the Fund or the Equity
Portfolio, as relevant.
Illiquid Securities. The Equity Portfolio may invest up to 15% of its net
assets in illiquid securities, including restricted securities (i.e.,
securities not readily marketable without registration under the Securities
Act of 1933 (the "1933 Act")) and other securities that are not readily
marketable, such as repurchase agreements of more than one week's duration.
The Equity Portfolio may purchase restricted securities that may be offered
and sold only to "qualified institutional buyers" under Rule 144A of the 1933
Act, and the Equity Portfolio's Trustees may determine, when appropriate, that
specific Rule 144A securities are liquid and not subject to the 15% limitation
on illiquid securities. Should the Equity Portfolio's Trustees make this
determination, it will carefully monitor the security (focusing on such
factors, among others, as trading activity and availability of information) to
determine that the Rule 144A security continues to be liquid. It is not
possible to predict with assurance exactly how the market for Rule 144A
securities will further evolve. This investment practice could have the effect
of increasing the level of illiquidity in the Equity Portfolio to the extent
that qualified institutional buyers become for a time uninterested in
purchasing Rule 144A securities.
The Fund may not invest in illiquid securities (except that it may invest in
beneficial interests in the Equity Portfolio).
Short Sales. The Equity Portfolio may sell securities short only "against-
the-box." A short sale "against-the-box" is a short sale in which the Equity
Portfolio owns an equal amount of the securities sold short or securities
convertible into or exchangeable without payment or further consideration for
securities of the same issue as, and equal in amounts to, the securities sold
short.
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The Fund may not make short sales of securities. The Fund's and the Equity
Portfolio's policies on short sales are fundamental.
Temporary Investments. When the Manager believes that the market conditions
warrant a temporary defensive position, the Equity Portfolio may invest up to
100% of its assets in short-term instruments such as commercial paper, bank
certificates of deposit, bankers' acceptances, or repurchase agreements for
such securities and securities of the U.S. Government and its agencies and
instrumentalities, as well as cash and cash equivalents denominated in foreign
currencies. Investments in domestic bank certificates of deposit and bankers'
acceptances will be limited to banks that have total assets in excess of $500
million and are subject to regulatory supervision by the U.S. Government or
state governments. The Equity Portfolio's investments in commercial paper of
U.S. issuers will be limited to (a) obligations rated Prime-1 by Moody's or A-
1 by Standard & Poor's or (b) unrated obligations issued by companies having
an outstanding unsecured debt issue currently rated A or better by Standard &
Poor's. A description of various commercial paper ratings and debt securities
appears in Appendix A to the Statement of Additional Information. The Equity
Portfolio's investments in foreign short-term instruments will be limited to
those that, in the opinion of the Manager, equate generally to the standards
established for U.S. short-term instruments.
RISK FACTORS
Zero Coupon Securities. Zero coupon securities of the type held by the Fund
can be sold prior to their due date in the secondary market at their then
prevailing market value which, depending on prevailing levels of interest
rates, the time remaining to maturity and liquidity (i.e., relative levels of
supply and demand for the particular zero coupon security), may be more or
less than the securities' "accreted value"; that is, their value based solely
on the amount due at maturity and accretion of interest from the date of
purchase. The market prices of zero coupon securities are generally more
volatile than the market prices of securities that pay interest periodically
and, accordingly, are likely to respond to a greater degree to changes in
interest rates than do non-zero coupon securities having similar maturities
and yields. The current net asset value of the Fund attributable to zero
coupon securities and other debt instruments generally will increase as
prevailing interest rates decrease, and they will decrease as such rates
increase. For example, during the Offering Period, an increase in prevailing
interest rates of 1/2 of 1 percent could be expected to cause the market value
of the Fund's zero coupon securities to decrease by more than 4 percent, and a
1/2 of 1 percent decrease in such rates could be expected to cause the market
value of such securities to increase by more than 4 percent. Such fluctuations
may be larger or smaller depending on, among other things, the level of
current rates and the time remaining to maturity. As a result, the net asset
value of shares of the Fund may fluctuate over a greater range than shares of
other mutual funds that invest in Treasury Securities having similar
maturities and yields but that make current distributions of interest.
As an open-end investment company, the Fund is required to redeem its shares
upon the request of any shareholder at the net asset value next determined
after receipt of the request. However, because of the price volatility of zero
coupon securities prior to maturity, if it is assumed that the value of the
Fund's assets invested in the Equity Portfolio remains constant, a shareholder
who redeems shares prior to the Maturity Date may realize an amount that is
greater than or less than the purchase price of those shares, including any
sales charge paid. Even if the market value of the zero coupon securities does
not fluctuate substantially, any increase in their value may be more than
offset by declines in the value of the Equity Portfolio, so that a shareholder
redeeming
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<PAGE>
shares prior to the Maturity Date could receive less than the amount
originally invested. Although the Manager's Guarantee will terminate in
respect of shares redeemed prior to the Maturity Date, and such shares would
no longer be subject to the Repayment Objective, the Manager's Guarantee will
still have effect, and the Repayment Objective will still apply, to the
portion of the amount originally invested but not redeemed, provided dividends
and distributions with respect to those shares are reinvested. Thus, on or
after the Maturity Date, the holder of those remaining shares would receive,
upon redeeming them (together with shares acquired through reinvestment of
dividends and distributions thereon), an amount that equals or exceeds the
purchase price of the shares initially purchased. The Manager's Guarantee
provides further assurance that such amount will be received upon redemption.
Nonetheless, the amount received on the Maturity Date in respect of such
shares, when combined with the amount received in respect of shares redeemed
prior to the Maturity Date, may be more or less than the aggregate purchase
price of all shares purchased in the offering.
Each year the Fund will be required to accrue an increasing amount of income
on its zero coupon securities utilizing a constant interest rate method which
takes into account the compounding of accrued interest. To maintain its tax
status as a regulated investment company and also to avoid imposition of
excise taxes, however, the Fund will be required to distribute dividends equal
to substantially all of its net investment income, including the accrued
income on its zero coupon securities for which it receives no payments in cash
prior to their maturity. Dividends of the Fund's net investment income and
distributions of its short-term capital gains will be taxable to shareholders
as ordinary income for Federal income tax purposes, whether received in cash
or reinvested in additional shares. See "Taxes." However, a shareholder who
elects to receive dividends and distributions in cash, instead of reinvesting
these amounts in additional shares of the Fund, may realize an amount on or
after the Maturity Date that is less than the entire amount originally
invested. ACCORDINGLY, THE FUND MAY NOT BE APPROPRIATE FOR INVESTORS WHO WOULD
REQUIRE CASH DISTRIBUTIONS FROM THE FUND IN ORDER TO MEET THEIR CURRENT TAX
OBLIGATIONS RESULTING FROM THEIR INVESTMENT.
Two-Tier Structure. The two-tier master-feeder structure pursuant to which
the Fund invests in the Equity Portfolio involves certain risks to investors
in the Fund that would not arise in a conventional single-tier fund. See
"Special Information Concerning the Two-Tier Structure."
Liquidity. In order to generate sufficient cash to meet distribution
requirements and other operational needs and to redeem its shares on request,
the Fund may be required to limit reinvestment of capital on the disposition
of its interest in the Equity Portfolio and may be required to liquidate some
or all of its interest in the Equity Portfolio over time. The Fund may be
required to effect these liquidations at a time when it is otherwise
disadvantageous to do so. If the Fund realizes capital losses on dispositions
of interests in the Equity Portfolio that are not offset by capital gains on
the disposition of other interests in the Equity Portfolio, the Fund may be
required to liquidate a disproportionate amount of its zero coupon securities
or borrow money, in an amount not exceeding 5% of the Fund's total assets, to
satisfy the distribution and redemption requirements described above. The
liquidation of zero coupon securities and the expenses associated with
borrowing money in these circumstances could render the Fund unable to meet
its Repayment Objective. Under the terms of the Manager's Guarantee, however,
shareholders who reinvest all dividends and other distributions will be
certain of receiving the full amount of their original investment.
Foreign Investment. Investments in securities of foreign issuers may involve
risks that are not associated with domestic investments, and the Equity
Portfolio's foreign investments may present more risk than a portfolio
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<PAGE>
of domestic securities. Foreign issuers may lack uniform accounting, auditing
and financial reporting standards, practices and requirements, and there is
generally less publicly available information about foreign issuers than there
is about U.S. issuers. Governmental regulation and supervision of foreign
stock exchanges, brokers and listed companies may be less pervasive than is
customary in the United States. Securities of some foreign issuers are less
liquid, and their prices are more volatile, than securities of comparable
domestic issuers. Foreign securities settlements may in some instances be
subject to delays and related administrative uncertainties which could result
in temporary periods when assets of the Equity Portfolio are uninvested and no
return is earned thereon and may involve a risk of loss to the Equity
Portfolio. Foreign securities markets may have substantially less volume than
U.S. markets and far fewer traded issues. Fixed brokerage commissions on
foreign securities exchanges are generally higher than in the United States
and transaction costs with respect to smaller capitalization companies may be
higher than those of larger capitalization companies. Income from foreign
securities may be reduced by tax withheld at source or other foreign taxes. In
some countries, there may also be the possibility of expropriation or
confiscatory taxation (in which the Equity Portfolio could lose its entire
investment in a certain market), limitations on the removal of moneys or other
assets of the Equity Portfolio, political or social instability or revolution,
or diplomatic developments that could affect investments in those countries.
In addition, it may be difficult to obtain and enforce a judgment in a court
outside the U.S.
Some of the risks described in the preceding paragraph may be more severe
for investments in emerging or developing countries. By comparison with the
United States and other developed countries, emerging or developing countries
may have relatively unstable governments. Companies in emerging markets may
generally be smaller, less experienced and more recently organized than many
domestic companies. Prices of securities traded in the securities markets of
emerging or developing countries tend to be volatile. Furthermore, foreign
investors are subject to many restrictions in emerging or developing
countries. These restrictions may require, among other things, governmental
approval prior to making investments or repatriating income or capital, or may
impose limits on the amount or type of securities held by foreigners or on the
companies in which the foreigners may invest.
The economies of individual emerging countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product, rates of inflation, currency depreciation, capital reinvestment,
resource self-sufficiency and balance of payment position and may be based on
a substantially less diversified industrial base. Further, the economies of
developing countries generally are heavily dependent on international trade
and, accordingly, have been, and may continue to be, adversely affected by
trade barriers, exchange controls, managed adjustments in relative currency
values and other protectionist measures imposed or negotiated by the countries
with which they trade. These economies also have been, and may continue to be,
adversely affected by economic conditions in the countries with which they
trade.
Depositary Receipts. The Equity Portfolio may invest in ADRs, EDRs and GDRs.
ADRs may be publicly traded on exchanges or over-the-counter in the United
States and are quoted and settled in dollars at a price that generally
reflects the dollar equivalent of the home country share price. EDRs are
typically issued by foreign banks or trust companies and traded in Europe.
GDRs may be issued by a domestic or foreign bank or trust company and may be
traded in several markets. Depositary Receipts may be issued as sponsored or
unsponsored programs. In sponsored programs, the issuer has made arrangements
to have its securities traded in the form of a Depositary Receipt. In
unsponsored programs, the issuer may not be directly involved in the creation
of the
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<PAGE>
program. Although the regulatory requirements with respect to sponsored and
unsponsored programs are generally similar, the issuers of unsponsored
Depositary Receipts are not obligated to disclose material information in the
United States and, therefore, the import of such information may not be
reflected in the market value of such securities.
Foreign Currencies. As a matter of fundamental policy, neither the Fund nor
the Equity Portfolio will engage in transactions intended to hedge foreign
exchange risk. The Equity Portfolio may, however, enter into forward foreign
currency contracts to provide for its obligations at the time of settlement of
securities transactions. Investments in foreign securities will usually be
denominated in foreign currency, and the Equity Portfolio may temporarily hold
funds in foreign currencies. The value of the Equity Portfolio's investments
denominated in foreign currencies may be affected, favorably or unfavorably,
by the relative strength of the U.S. dollar, changes in foreign currency and
U.S. dollar exchange rates and exchange control regulations. The Equity
Portfolio may incur costs in connection with conversions between various
currencies. The Equity Portfolio's net asset value will be affected by changes
in currency exchange rates. Changes in foreign currency exchange rates may
also affect the value of dividends and interest earned, gains and losses
realized on the sale of securities and net investment income and gains, if
any, to be distributed by the Equity Portfolio to owners of beneficial
interests. The rate of exchange between the U.S. dollar and other currencies
is determined by the forces of supply and demand in the foreign exchange
markets (which in turn are affected by interest rates, trade flow and numerous
other factors, including, in some countries, local government intervention).
PERIODIC AND OTHER REPORTS AND SERVICES
The Fund will provide to shareholders semi-annual and annual reports as
required by the 1940 Act. In connection with those reports, consistent with
the Fund's intention to make sales of Fund shares primarily to investors who
seek to invest for the longer term benefit of children, the Fund expects to
provide supplemental information appropriate in content and form to the
educational and informational needs of parents and children in understanding
money, investments, and financial products and services. The Fund also intends
on an occasional basis to provide special reports to shareholders on these
topics, or to make them aware of services and other materials that are
consistent with them. The Fund's intention to provide these supplemental
materials and special reports differs from the practices of most investment
companies and their sponsors and will involve costs and expenses to the Fund
not ordinarily incurred by investment companies. Such costs may include, in
addition to printing and mailing, the expenses or fees of consultants and for
the development of the specialized materials appropriate to their educational
purpose. The Board has carefully considered the Fund's proposed activities and
believes that they are in the best interests of shareholders. In addition, the
Board will carefully monitor the expenses involved in preparing and
distributing these materials.
SPECIAL INFORMATION CONCERNING THE TWO-TIER STRUCTURE
The Fund is an open-end management investment company which seeks to achieve
its investment objectives by investing a portion of its investable assets in
the Equity Portfolio, a separate registered investment company that is taxable
as a partnership for Federal tax purposes, and investing the remainder of its
assets directly in zero coupon Treasury Securities. Both the Fund and the
Equity Portfolio are managed by AIG Capital Management Corp. By investing in
the Equity Portfolio, the Fund differs from mutual funds that directly acquire
and manage
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<PAGE>
their entire portfolio of securities. The Fund has adopted this two-tier
structure because the Equity Portfolio, by offering interests to other
investors in addition to the Fund, may be able to allocate certain expenses
over a larger asset base than the Fund would be able to if it were to invest
all its assets directly. For this reason the Board believes that the aggregate
per share expenses of the Fund (including its proportionate share of the
expenses of the Equity Portfolio) will be less than or approximately equal to
the expenses that the Fund would incur if the assets of the Fund that are
invested in the Equity Portfolio were instead invested directly by the Fund in
the type of securities held by the Equity Portfolio. See "Investment
Objectives and Management Policies -- First Global Equity Portfolio" and " --
Other Investment Policies."
The investment objectives of the Fund may be changed only with the approval
of the holders of the outstanding shares of the Fund. The investment objective
of the Equity Portfolio may be changed only with the approval of the holders
of the outstanding beneficial interests of the Equity Portfolio. Beneficial
interests in the Equity Portfolio are held by the Fund and may be held by
other investors, including other open-end investment companies. The Fund has
agreed that, if any matter is put to a vote of the holders of the Equity
Portfolio's beneficial interests, the Fund will vote its interest in the
Equity Portfolio in accordance with instructions received from the holders of
the Fund's shares. Shareholders of the Fund will be provided with at least 30
days' written notice of any proposed changes to the investment objectives of
the Fund or the Equity Portfolio.
The members of the Board of Directors of AIG All Ages Funds, Inc. (the
"Company") are the same as the Trustees of the Equity Portfolio. Both the
Board and the Trustees have adopted written procedures reasonably appropriate
to deal with potential conflicts of interest that may arise as a result. For
information about the Board and the Trustees, see the Statement of Additional
Information.
In addition to selling a beneficial interest to the Fund, the Equity
Portfolio may sell beneficial interests to other mutual funds or institutional
investors. Beneficial interests may be offered and sold only in transactions
exempt from the registration requirements of the 1933 Act. The Equity
Portfolio's Declaration of Trust prohibits it from selling beneficial
interests to individuals, S corporations (as defined in the Internal Revenue
Code (S) 1361 et seq.), partnerships and grantor trusts. All investors will
invest in the Equity Portfolio on the same terms and conditions and will bear
a proportionate share of the Equity Portfolio's expenses. However, the other
mutual funds that may in the future invest in the Equity Portfolio may sell
their own shares with sales charges and expenses different from those of the
Fund. Such different pricing structures may result in differences in returns
experienced by investors in other funds that invest in the Equity Portfolio.
Such differences in return are not uncommon and are present in other mutual
fund structures. As of the date of this Prospectus, there are no other mutual
funds that invest in the Equity Portfolio. In the future, information
concerning other funds sold by your broker that invest in the Equity Portfolio
may be obtained from your broker, or by calling the Distributor at (800) 862-
3984.
The Fund is a series of AIG All Ages Funds, Inc. The Company may withdraw
the investment of the Fund from the Equity Portfolio at any time if the Board
determines that it is in the best interest of the Fund to do so and the
shareholders of the Fund approve such action. Upon any such withdrawal, the
Board would consider what action might be taken, including the investment of
all the assets of the Fund in another pooled investment entity with investment
objectives and restrictions consistent with the Fund's objectives and
restrictions or the retaining of a new investment adviser to manage the Fund's
assets in accordance with the investment policies described below.
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Certain changes in the Equity Portfolio's investment objectives, policies or
restrictions, or a failure by the Fund's shareholders to approve a change in
the Equity Portfolio's investment objectives or restrictions, may require
withdrawal of the Fund's interest in the Equity Portfolio. Any such withdrawal
could result in a distribution of the Equity Portfolio's securities to the
Fund in kind (as opposed to a cash distribution). In this case, the securities
received by the Fund may or may not be readily marketable. The distribution in
kind may result in the Fund having a less diversified portfolio of investments
or adversely affect the Fund's liquidity and the Fund could incur brokerage,
tax or other charges in converting the securities to cash. Notwithstanding the
above, there are other means for meeting shareholder redemption requests such
as borrowing.
Smaller funds investing in the Equity Portfolio may be materially affected
by the actions of larger funds investing in the Equity Portfolio. For example,
if a large fund withdraws from the Equity Portfolio, the remaining funds may
subsequently experience higher pro rata operating expenses, thereby producing
lower returns. Additionally, because the Equity Portfolio would become
smaller, it may become less diversified, resulting in potentially increased
portfolio risk (however, these possibilities also exist for traditionally
structured funds which have large or institutional investors who may redeem
their shares). Also, funds with a greater pro rata ownership in the Equity
Portfolio could have effective voting control of the operations of the Equity
Portfolio. Whenever the Fund is requested to vote on matters pertaining to the
Equity Portfolio (other than a vote by the Fund to continue the operation of
the Equity Portfolio upon the withdrawal of another investor in the Equity
Portfolio), the Company will hold a meeting of shareholders of the Fund and
will cast all of its votes proportionately as instructed by the Fund's
shareholders. The Company will vote the shares held by the Fund shareholders
who do not give voting instructions in the same proportion as the shares of
Fund shareholders who do give voting instructions. Shareholders of the Fund
who do not vote will have no effect on the outcome of such matters.
INVESTMENT ADVISORY SERVICES
THE MANAGER
The Manager is an indirect wholly owned subsidiary of American International
Group, Inc. ("AIG"). AIG is a holding company which through its subsidiaries
is primarily engaged in a broad range of insurance and insurance-related
activities in the United States and abroad. At December 31, 1994, AIG and its
subsidiaries supervised investment portfolios which in the aggregate exceeded
$60 billion, of which more than $10 billion represented third party assets
under management. At such date, members of the Manager's Investment Committee
and their teams of investment professionals supervised the management of
assets in excess of $50 billion, of which more than $7 billion represented
third party funds. See " -- The Investment Process" and " -- The Subadvisors"
below.
The Manager also manages the AIG Money Market Fund, a separate money market
investment portfolio of a registered investment company. The principal
business address of the Manager is 70 Pine Street, New York, New York 10270.
The Manager serves as the Fund's and the Equity Portfolio's investment
adviser and is responsible for the management of the assets of the Fund and
the Equity Portfolio and continually reviews and supervises the Equity
Portfolio's investment program, subject to the supervision of, and policies
established by, the Board and the
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Trustees of the Equity Portfolio. The Manager is assisted in the performance
of these services by certain affiliated Subadvisors. See " -- The Subadvisors"
below. The Manager is entitled to a fee, which is calculated daily and paid
monthly, at annual rate of 0.20% of the average daily net assets of the Fund
(other than its interest in the Equity Portfolio) and 1.20% of the average
daily net assets of the Equity Portfolio. The Fund and the Equity Portfolio
will be responsible for all expenses other than those assumed by the Manager
including those for necessary professional and brokerage services, costs of
regulatory compliance, costs associated with maintaining corporate existence,
custody, shareholder relations and insurance costs.
The Manager has agreed that, in the event that the total expenses of the
Fund during its first fiscal year (which will end on June 30, 1996), including
the Fund's proportional share of the expenses of the Equity Portfolio, but
excluding interest, taxes, brokerage commissions and extraordinary expenses,
should exceed 2.00% of the average daily net assets of the Fund, the Manager
will waive its management fee or reimburse the Fund to the extent of any such
excess, subject to reimbursement by the Fund as described below. The total
amount of any excess so waived or reimbursed by the Manager is referred to as
the "Refunded Amount." The Manager has no obligation to waive its fee or
reimburse any expenses of the Fund after June 30, 1996. The Fund and the
Manager have also agreed that, for each of the three fiscal years of the Fund
ending June 30, 1999, if the Fund's total expenses (calculated as described
above) are less than 2.00% of average daily net assets of the Fund during such
year, the Fund will pay to the Manager an expense reimbursement fee, computed
and paid monthly, such that after such reimbursement the aggregate expenses of
the Fund will not exceed 2.00% for such year. The total amount of such expense
reimbursement fees will not exceed the Refunded Amount plus the Manager's
related financing costs.
THE INVESTMENT PROCESS
The Manager has established a committee (the "Investment Committee") that is
responsible for the asset allocation of the Fund and the Equity Portfolio and
carrying out their respective investment policies. The members of the
Investment Committee are officers of the Manager, affiliated investment
advisors (see " -- The Subadvisors" below) or regional affiliates of the
Manager to whom the Manager or Subadvisors have access under service
arrangements. The members of the Investment Committee meet monthly to
determine collectively the allocation of the assets of the Fund between zero
coupon securities and the Equity Portfolio, as well as the allocation of the
assets of the Equity Portfolio on a regional basis. Members of the Investment
Committee, assisted by a team of investment professionals, are primarily
responsible for the Equity Portfolio's country and stock selection within
their respective global region. Currently the members of the Investment
Committee are:
IAN P. BUTTER. Mr. Butter has been a Director of AIGAM International Limited
("AIGAM International") in London since January 1992 and has served in a
trading capacity since 1988.
PATRICK DEMPSEY. Mr. Dempsey is Managing Director, Fixed Income, of AIGAM
International in London. He has been a Director of AIGAM International since
he joined it at its inception in 1988 as a founding Director.
BRIAN MCCARTHY. Mr. McCarthy is Vice President, International Fixed Income
of AIG Global, which he joined in March 1994. Prior to joining AIG Global, he
was Vice President, International Fixed Income Research of Alliance Capital.
19
<PAGE>
WIN J. NEUGER. Mr. Neuger, who acts as Chairman of the Investment Committee,
is Chief Investment Officer of AIG, which he joined in February 1995, and
Chief Investment Officer of the Manager, which he joined in August 1995. Mr.
Neuger has been a Director, Chairman of the Board and President of AIG Global
since March 1995 and has served as a Director of AIGAM International since
April 1995. Prior to joining these companies, Mr. Neuger was with Bankers
Trust, where he was a Senior Vice President and, since October 1991, a
Managing Director in the investment management area.
YUKIHIRO NISHIMIYA. Mr. Nishimiya has been a portfolio manager for AIG
Investment Corporation (Japan) since October 1990.
HARRY P. REKAS. Mr. Rekas is Managing Director, U.S. Equities, of AIG
Global, which he joined in April 1993. Prior to joining AIG Global, he was a
portfolio manager for Citibank in New York.
PETER SOO. Mr. Soo is Regional Director, Fund Management, of AIG Investment
Corporation (Asia), Limited, which he joined in 1989.
PETER WIGNALL. Mr. Wignall is Managing Director and Chief Executive Officer
of AIGAM International in London, which he joined as an Executive Director in
April 1992. Prior to April 1992 he acted as a portfolio manager for Citicorp
Investment Management in London and in Sydney, Australia.
A member of the Investment Committee will be responsible for the day-to-day
implementation of the Investment Committee's strategy. The minimum percentage
of the Fund's assets that must be allocated to zero coupon securities in order
to provide for the Repayment Objective can be mathematically determined on any
given day from the yield on the zero coupon Treasury Securities and the amount
then entitled to the benefit of the Repayment Objective. When shares are
purchased, any adjustment to the portion of the proceeds to be allocated to
zero coupon Treasury Securities required by variations in bond yield between
Investment Committee meetings will be determined under guidelines set down by
the Investment Committee. The balance of the purchase price will be invested
in the Equity Portfolio. After the Offering Period, the Fund anticipates
adjustments in its holding of Treasury Securities solely to meet requests for
redemption and, if required, to make payments of dividends and distributions.
See "Proposed Operations of the Fund."
When shares are redeemed, the Manager will ordinarily redeem the
proportional interest of those shares in the Fund's zero coupon Treasury
Securities and in the Equity Portfolio, determined on the basis of current net
asset value. For defensive reasons, however, the Manager may elect to take a
greater proportion of a redemption from the Equity Portfolio. Should a
shareholder elect to have dividends paid by the Fund in cash rather than
reinvested in additional shares of the Fund, the amount required to be paid
will be taken from the Fund's Treasury Securities and the Equity Portfolio in
the same proportion that the dividend income was generated, provided that the
amount of Treasury Securities to be sold for this purpose will be reduced (and
the interest in the Equity Portfolio to be redeemed correspondingly increased)
to the extent necessary to protect the Repayment Objective for those
shareholders who reinvest all dividends and distributions. Pursuant to the
terms of the Manager's Guarantee, shareholders who wish to be certain of
receiving the full amount of their original investment must reinvest all
dividends and distributions in additional shares and hold all their shares
until the Maturity Date.
20
<PAGE>
Generally, the regional allocations within the Equity Portfolio will be
managed between the regular meetings in accordance with the policy established
at the most recent meeting; however, in exceptional circumstances, such as
subsequent market developments of a material nature, an ad hoc meeting will be
called to review policy.
THE SUBADVISORS
The Manager has entered into subadvisory agreements with AIG Global
Investors, Inc. ("AIG Global"), which is a wholly owned subsidiary of AIG and
registered under the Investment Advisers Act of 1940, as amended. Pursuant to
its subadvisory agreements, AIG Global provides investment advisory services
to the Manager in respect of the management of the Fund's Treasury Securities
and in respect of the management of the assets of the Equity Portfolio and
officers of AIG Global provide representation on the Investment Committee (see
"The Investment Process"). Under the subadvisory agreements with AIG Global,
the Manager pays AIG Global a fee which is calculated daily and paid monthly
at an annual rate of 0.0825% of the average daily net assets of the Fund
(other than the Fund's interest in the Equity Portfolio) and 0.15% of the
average daily net assets of the Equity Portfolio. These fees are all paid from
the management fee paid to the Manager and they do not increase the Fund's or
the Equity Portfolio's expenses. The principal office of AIG Global is 200
Liberty Street, New York, New York 10281.
The Manager has also entered into subadvisory agreements with AIGAM
International Limited ("AIGAM International"), which is a wholly owned
subsidiary of AIG and registered under the Advisers Act. AIGAM International
is also a member of the Investment Management Regulatory Organization Limited,
a United Kingdom self-regulatory organization. Pursuant to its subadvisory
agreements, AIGAM International provides investment advisory services to the
Manager in respect of the management of the Fund's Treasury Securities and in
respect of the management of the assets of the Equity Portfolio in their
respective regions, and certain of its officers provide representation on the
Investment Committee. Under the subadvisory agreements with AIGAM
International, the Manager pays AIGAM International a fee which is calculated
daily and paid monthly at an annual rate of 0.0175% of the average daily net
assets of the Fund (other than the Fund's interest in the Equity Portfolio)
and 0.24% of the average daily net assets of the Equity Portfolio. AIGAM
International's fees are all paid from the management fees paid to the Manager
and they do not increase the Fund's or the Equity Portfolio's expenses. AIGAM
International has advised the Manager that it intends to terminate its
registration under the Advisers Act. Concurrently with such termination, the
Manager's subadvisory agreements with AIGAM International will terminate.
However, it is anticipated that personnel of AIGAM International will continue
to provide investment advisory services to the Manager pursuant to a service
arrangement. The principal office of AIGAM International is Unit 1/11 Harbour
Yard, Chelsea Harbour, London SW10 OXD, England.
AIG Global and AIGAM International are referred to in this prospectus as the
"Subadvisors."
PORTFOLIO TRANSACTIONS. The agreements of the Fund and the Equity Portfolio
with the Manager recognize that in the purchase and sale of portfolio
securities, the Manager and the Subadvisors will seek the most favorable price
and execution and, consistent with that policy, may give consideration to the
research, statistical and other services furnished by brokers or dealers to
the Manager or a Subadvisor. The use of brokers who provide investment and
market research and securities and economic analysis may result in higher
brokerage charges than the use of brokers selected on the basis of the most
favorable brokerage commission rates, and research and
21
<PAGE>
analysis received may be useful to the Manager and the Subadvisors in
connection with their services to other clients as well as the Fund and the
Equity Portfolio. In over-the-counter markets, orders are placed with primary
market-makers unless a more favorable execution price is believed to be
obtainable.
Consistent with the rules of the National Association of Securities Dealers,
Inc., and subject to seeking the most favorable price and execution available
and such other policies as the Board and the Trustees of the Equity Portfolio
may determine, the Manager and the Subadvisors may consider sales of shares of
other mutual funds managed by the Manager as a factor in the selection of
brokers or dealers to execute portfolio transactions for the Fund or the
Equity Portfolio.
PORTFOLIO TURNOVER. A change in securities held by the Fund or the Equity
Portfolio is known as "portfolio turnover," which may result in the payment by
the Fund or the Equity Portfolio of dealer spreads or underwriting commissions
and other transaction costs on the sale of securities as well as on the
reinvestment of the proceeds in other securities. Although it is the policy of
both the Fund and the Equity Portfolio to hold securities for investment,
changes will be made from time to time when the Manager or a Subadvisor
believes such changes will strengthen the investments of the Fund or the
Equity Portfolio. After the Offering Period, the Manager does not expect any
portfolio turnover in the Fund's zero coupon Treasury Securities except for
turnover related to redemptions. The portfolio turnover of the Equity
Portfolio is not expected to exceed 100% per annum.
VALUATION. The net asset value of the shares of the Fund is determined each
day, Monday through Friday, as of the close of regular trading on the New York
Stock Exchange ("NYSE") (usually 4:00 p.m. New York City Time) on each day
that the NYSE is open. During the Offering Period, zero coupon Treasury
Securities will be valued at the average of the last reported bid and ask
prices; thereafter, in order to ensure that an adequate amount of Treasury
Securities is maintained to achieve the Repayment Objective when shares of the
Fund are redeemed, zero coupon Treasury Securities will be valued at the last
reported bid. Securities traded on a foreign exchange or over-the-counter
market are valued at the last sales price on the primary exchange or market in
which they are traded. Securities for which there are no recent sales
transactions are valued based on quotations provided by primary market makers
in such securities. Any securities for which recent market quotations are not
readily available are valued at fair value determined in accordance with
procedures approved by the Board and by the Trustees of the Equity Portfolio.
Short-term holdings maturing in 60 days or less are generally valued at
amortized costs if their original maturity was 60 days or less. Short-term
holdings with more than 60 days remaining to maturity will be valued at
current market value until the 61st day prior to maturity, and will then be
valued on an amortized cost basis based on the value as of such date unless
the Board or the Trustees of the Equity Portfolio determines that this
amortized cost value does not represent fair market value.
AMERICAN INTERNATIONAL GROUP, INC.
American International Group, Inc. ("AIG") is a Delaware corporation which
through its subsidiaries is primarily engaged in a broad range of insurance
and insurance-related activities in the United States and abroad. AIG's
primary activities include both general and life insurance operations. Other
significant activities of AIG are financial services and agency and service
fee operations. AIG's general insurance subsidiaries are multiple line
companies writing substantially all lines of property and casualty insurance;
one or more of these companies is licensed to write substantially all of these
lines in all states of the United States and in more than 100 foreign
22
<PAGE>
countries. AIG's life insurance subsidiaries offer a wide range of traditional
insurance and financial and investment products; one or more of these
subsidiaries is licensed to write life insurance in all states in the United
States and in over 70 foreign countries. At December 31, 1994, AIG and its
consolidated subsidiaries had total assets of $114.3 billion and capital funds
of $16.4 billion; consolidated net income for the year then ended was $2.2
billion. The Statement of Additional Information contains AIG's financial
statements and certain other information about AIG. At December 31, 1994, AIG
and its consolidated subsidiaries had approximately 32,000 employees. The
principal executive offices of AIG are located at 70 Pine Street, New York,
New York 10270 and its telephone number is (212) 770-7000.
DIVIDENDS AND DISTRIBUTIONS
Dividends consisting of substantially all of the Fund's net investment
income, if any, are declared and paid annually. The Fund may also declare an
additional dividend of net investment income and net short term capital gains
in a given year to the extent necessary to avoid the imposition of federal
excise taxes on the Fund. Distributions consisting of substantially all the
realized net capital gains for the Fund are declared and paid on an annual
basis, except that an additional capital gain distribution may be made in a
given year to the extent necessary to avoid the imposition of federal excise
tax on the Fund. Declared dividends and distributions are payable to the
shareholder of record on the record date.
Dividends and capital gain distributions paid by the Fund are automatically
reinvested in additional shares of the Fund unless the shareholder has elected
to have them paid in cash. Dividends and distributions to be paid in cash are
mailed by check or are wire transferred in accordance with the shareholder's
instructions. Pursuant to the terms of the Manager's Guarantee, shareholders
who wish to be certain of receiving the full amount of their original
investment must reinvest all dividends and distributions in additional shares
and hold all their shares until the Maturity Date.
TAXES
The Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"). For each year so
qualified, the Fund will not be subject to federal income taxes on its net
investment income and realized net capital gains, if any, which it distributes
to its shareholders, provided that at least 90% of its net investment income
and net short-term capital gains are distributed to shareholders each year.
Dividends from net investment income and distributions from net short-term
capital gains are taxable as ordinary income to the shareholders, whether
received in cash or reinvested in additional shares.
The zero coupon securities will be treated as bonds that were issued to the
Fund at an original issue discount. Original issue discount is treated as
interest for federal income tax purposes and the amount of original issue
discount generally will be the difference between the bond's purchase price
and its stated redemption price at maturity. The Fund will be required to
include in gross income for each taxable year the daily portions of original
issue discount attributable to the zero coupon securities held by the Fund as
such original issue discount accrues. Dividends derived from such original
issue discount that accrues for such year will be taxable to shareholders as
ordinary income. In general, original issue discount accrues daily under a
constant interest rate
23
<PAGE>
method which takes into account the compounding of accrued interest. In the
case of zero coupon securities, this method will generally result in an
increasing amount of income to the Fund each year.
Distributions from net capital gains, i.e., the excess of net long-term
capital gains over any net short-term capital losses, are taxable as long-term
capital gain, whether received in cash or invested in additional shares,
regardless of how long shares have been held by the shareholders.
Any gain or loss realized upon a sale or redemption of shares of the Fund by
a shareholder who is not a dealer in securities will generally be treated as a
long-term capital gain or loss if the shares have been held for more than one
year and otherwise as a short-term capital gain or loss. However, if shares on
which a long-term capital gain distribution has been received are subsequently
sold or redeemed and such shares have been held for six months or less, any
loss realized will be treated as long-term capital loss to the extent that it
offsets the long-term capital gain distribution. In addition, no loss will be
allowed on the sale or other disposition of shares of the Fund if, within a
period beginning 30 days before the date of such sale or disposition and
ending 30 days after such date, the holder acquires (such as through dividend
reinvestment) securities that are substantially identical to the shares of the
Fund.
The Fund will generally be subject to an excise tax of 4% on the amount of
any income or capital gains, above certain permitted levels, distributed to
shareholders on a basis such that such income or gain is not taxable to
shareholders in the calendar year in which it was earned. Furthermore,
dividends declared in October, November or December payable to shareholders of
record on a specified date in such a month and paid in the following January
will be treated as having been paid by the Fund and received by each
shareholder in December. Under this rule, therefore, shareholders may be taxed
in one year on dividends or distributions actually received in January of the
following year.
Portions of the Fund's investment income may be subject to foreign income
taxes withheld at source. The Fund does not expect to qualify to "pass
through" to its shareholders credit for such foreign taxes paid. If, however,
the Fund does qualify to pass through foreign tax credits, the Fund will elect
to do so.
Investors should carefully consider the tax implications of purchasing
shares of the Fund just prior to the declaration of a dividend or capital gain
distribution, which would be subject to taxation as described above
notwithstanding that it is in effect a return of investment.
UNLESS A SHAREHOLDER INCLUDES A CERTIFIED TAXPAYER IDENTIFICATION NUMBER
(SOCIAL SECURITY NUMBER FOR INDIVIDUALS) ON THE ACCOUNT APPLICATION AND
CERTIFIES THAT THE SHAREHOLDER IS NOT SUBJECT TO BACKUP WITHHOLDING, THE FUND
IS REQUIRED TO WITHHOLD AND REMIT TO THE U.S. TREASURY A PORTION OF
DISTRIBUTIONS AND OTHER REPORTABLE PAYMENTS TO THE SHAREHOLDER. THE RATE OF
BACKUP WITHHOLDING IS 31%. SHAREHOLDERS SHOULD BE AWARE THAT, UNDER
REGULATIONS PROMULGATED BY THE INTERNAL REVENUE SERVICE, THE FUND MAY BE FINED
$50 ANNUALLY FOR EACH ACCOUNT FOR WHICH A CERTIFIED TAXPAYER IDENTIFICATION
NUMBER IS NOT PROVIDED. IN THE EVENT THAT SUCH A FINE IS IMPOSED, THE FUND MAY
CHARGE A SERVICE FEE OF UP TO $50 ANNUALLY THAT MAY BE DEBITED FROM THE
SHAREHOLDER'S ACCOUNT AND OFFSET AGAINST ANY UNDISTRIBUTED DIVIDENDS AND
CAPITAL GAIN DISTRIBUTIONS. THE FUND ALSO RESERVES THE RIGHT TO CLOSE ANY
ACCOUNT WHICH DOES NOT HAVE A CERTIFIED TAXPAYER IDENTIFICATION NUMBER.
Shareholders are urged to consult their tax advisers concerning the effect
of federal, state and local income taxes in their individual circumstances.
24
<PAGE>
THE ADMINISTRATOR
PFPC International Ltd. will serve as the Fund's administrator and
accounting agent. PFPC International Ltd.'s principal business address is 80
Harcourt Street, Dublin, Ireland. Pursuant to the administration and
accounting agreement with the Fund, it will assist the Fund in all aspects of
its administration and operation, including matters relating to the
maintenance of financial records and Fund accounting.
THE TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
PFPC Inc. will serve as the Fund's transfer agent and dividend disbursing
agent. Some services may be provided by sub-transfer agents. PFPC Inc.'s
principal business address is 400 Bellevue Parkway, Wilmington, Delaware
19809.
CUSTODIAN
PNC Bank, National Association ("PNC Bank"), Airport Business Center,
International Court 2, 200 Stevens Drive, Lester, Pennsylvania 19113, will
serve as custodian of the assets of the Fund and the Equity Portfolio. PNC
Bank has entered into a subcustodian agreement with State Street Bank and
Trust Company ("State Street"), 1776 Heritage Drive, Quincy, Massachusetts
02171, in respect of the assets of the Equity Portfolio. State Street is
authorized to establish and has established separate accounts in foreign
currencies and to cause securities of the Equity Portfolio to be held in
separate accounts outside the United States in the custody of non-U.S. banks.
Rules adopted under the 1940 Act permit the Fund and the Equity Portfolio to
maintain their securities and cash in the custody of certain eligible banks
and securities depositories. Pursuant to those rules, the Equity Portfolio's
securities and cash, when invested in securities of foreign countries, are
held by subcustodians who are approved by the Board and by the Trustees of the
Equity Portfolio in accordance with the rules of the Securities and Exchange
Commission. Selection of the subcustodians is made by the Board and the
Trustees following a consideration of a number of factors, including, but not
limited to, the reliability and financial stability of an institution, the
ability of the institution to capably perform custodial services for the
Equity Portfolio, the reputation of the institution in its national market,
and the political and economic stability of the countries in which the
subcustodians will be located. In addition, the 1940 Act requires that foreign
subcustodians, among other things, have stockholders' equity in excess of $200
million, have no lien on the assets of the Fund or the Equity Portfolio, and
maintain adequate and accessible records.
SHAREHOLDER SERVICING AGREEMENT
Under the Shareholder Servicing Agreement, AIG Equity Sales Corp. (the
"Distributor") provides information and administrative services for Fund
shareholders. The Distributor enters into related arrangements with various
financial services firms, such as broker-dealer firms or banks (which may be
affiliated with the Distributor), that provide services and facilities for
their customers or clients who are shareholders of the Fund. Such
administrative services and assistance may include, but are not limited to,
establishing and maintaining shareholder accounts and records, processing
purchase and redemption transactions and answering routine shareholder
inquiries regarding the Fund and its special features. The Distributor bears
all its expenses for
25
<PAGE>
providing services pursuant to the Shareholder Servicing Agreement, including
the payment of any service fees. For services under the Shareholder Servicing
Agreement, the Fund pays the Distributor a fee, payable monthly, at the annual
rate of up to .25 of 1% of average daily net assets of those accounts in the
Fund that it maintains and services. A broker-dealer or bank becomes eligible
for the service fee from the time of purchase based on assets in the accounts
serviced by it, and the fee continues until terminated by the Distributor or
the Fund. The fees payable to financial services firms are calculated monthly
and paid quarterly by the Distributor.
The Distributor also may provide some of the above administrative services
and may retain any portion of the fee under the Shareholder Servicing
Agreement not paid to broker-dealers or banks to compensate itself for
administrative functions performed for the Fund's shareholders. Currently, the
shareholder servicing fee payable to the Distributor is based only upon Fund
assets in accounts for which there is a broker-dealer or bank listed on the
Fund's records and it is intended that the Distributor will pay all the
shareholder servicing fees that it receives from the Fund to broker-dealers or
banks in the form of service fees. The effective shareholder servicing fee
rate to be charged against all assets of the Fund while this procedure is in
effect would depend upon the proportion of the Fund's shares that are in
accounts for which there is a broker-dealer or bank of record.
RULE 12B-1 PLAN
Under a plan of distribution adopted by the Board pursuant to Rule 12b-1
under the 1940 Act (the "Plan"), the Fund may pay AIG Equity Sales Corp. (the
"Distributor") a distribution fee during the Offering Period at the annualized
rate of up to 0.50% of the average daily net assets of the Fund. The Plan will
terminate on the last day of the Offering Period. The Plan is intended to
reimburse the Distributor for expenses it incurs in connection with the
distribution of the shares of the Fund, to the extent such expenses exceed any
amounts the Distributor retains from the sales charges payable by
shareholders. Distribution expenses of the Distributor that are reimbursable
under the Plan include the payment of commissions to broker-dealers and
interest on any unreimbursed amounts carried forward thereunder, the cost of
any additional compensation paid by the Distributor to broker-dealers, the
costs of printing and mailing to prospective investors prospectuses and other
materials relating to the Fund, the costs of developing, printing,
distributing and publishing advertisements and other sales literature, and
allocated costs relating to the Distributor's distribution activities,
including, among other things, employee salaries, bonuses and other overhead
expenses. Rules adopted by the National Association of Securities Dealers,
Inc. effectively limit the total amount of Rule 12b-1 fees and sales charges
that may be charged to a shareholder of the Fund to 6.25% of the amount
invested plus the Distributor's associated financing costs.
PURCHASES OF SHARES
Shares of the Fund may be purchased from investment dealers during the
Offering Period at the public offering price, which is the net asset value
next determined plus a sales charge that is a percentage of the public
offering price and varies as shown below. You may also purchase shares
directly from the Fund's transfer agent, PFPC Inc., by completing the Account
Application attached to this Prospectus and mailing it to AIG Children's World
Fund -- 2005, PO Box 8935, Wilmington, Delaware 19899-9801. The minimum
investment is $2,500, and the minimum subsequent investment is $100. However,
you may choose to make an initial investment of as
26
<PAGE>
little as $1,000 and reach the $2,500 minimum with several additional
investments during the Offering Period. The minimum investment for an
Individual Retirement Account ("IRA") or employee benefit plan account is
$2,000, and the minimum subsequent investment is $50; for these accounts you
may choose to make an initial investment of as little as $250 and reach the
$2,000 minimum with several additional investments during the Offering Period.
To do this you must indicate on the Account Application your intent to invest
at least the $2,500 minimum (or $2,000 for IRAs and employee benefit plans) by
the end of the Offering Period. If you have not invested at least the minimum
amount by the end of the Offering Period, the Fund may redeem your shares
(which may occur at a time when the net asset value is less than when you
invested) or the Fund may impose an annual account keeping fee of $10. This
fee may be changed at any time in management's discretion.
INVESTMENT SALES LOAD SCHEDULE
<TABLE>
<CAPTION>
REGULAR
SALES LOAD AS A DEALER
PERCENTAGE OF DISCOUNT
------------------------ AS A % OF
OFFERING NET AMOUNT OFFERING
AMOUNT OF PURCHASE PRICE INVESTED (NAV)* PRICE
------------------ -------- --------------- ---------
<S> <C> <C> <C>
Less than $100,000................ 4.75% 4.99% 4.25%
$100,000 up to $249,999........... 4.00 4.17 3.60
$250,000 up to $499,999........... 3.00 3.09 2.70
$500,000 up to $999,999........... 2.00 2.04 1.80
$1 million and above.............. 0.00** 0.00** ***
</TABLE>
- --------
*Rounded to the nearest one-hundredth of one percent.
**Redemption of shares may be subject to a contingent deferred sales charge,
as discussed below.
***Commission may be payable by the Distributor as discussed below.
Shares of the Fund will be offered to investors only from November 15, 1995
through June 30, 1996 (the "Offering Period"). During the Offering Period the
shares will be offered at their net asset value plus the applicable sales
charge, if any, as shown in the table above. The Fund does not expect that its
shares will be offered after June 30, 1996. However, the Fund may at its
option extend or shorten the Offering Period. The offering of shares of the
Fund shall be subject to suspension or termination as provided under
"Investment Objectives and Management Policies -- Proposed Operations of the
Fund." In addition, the offering of shares may be suspended from time to time
during the Offering Period in the discretion of the Manager. During any period
in which the public offering of shares is suspended or terminated,
shareholders will still be permitted to reinvest dividends and distributions
in shares of the Fund.
Certificates representing the Fund's shares will not be physically issued.
PFPC Inc., the Fund's transfer agent, maintains a record of each shareholder's
ownership. Shareholders receive confirmations of all transactions in Fund
shares and periodic statements reflecting share balances and dividends.
The Fund receives the entire net asset value of all shares sold. AIG Equity
Sales Corp., the Fund's principal underwriter (the "Distributor"), retains the
sales charge from which it allows discounts from the applicable
27
<PAGE>
public offering price to investment dealers, which discounts are uniform for
all dealers in the United States and its territories. The normal discount
allowed to dealers is set forth in the above table. Upon notice to all dealers
with whom it has sales agreements, the Distributor may reallow up to the full
applicable sales charge, as shown in the above table, during periods and for
transactions specified in such notice and such reallowances may be based upon
attainment of minimum sales levels. During periods when 90% or more of the
sales charge is reallowed, such dealers may be deemed to be underwriters as
that term is defined in the 1933 Act.
Banks and other financial services firms may provide administrative services
related to order placement and payment to facilitate transactions in shares of
the Fund for their clients, and the Distributor may pay them a transaction fee
up to the level of the discount or other concession allowable to dealers as
described above. Banks currently are prohibited under the Glass-Steagall Act
from providing certain underwriting or distribution services. Banks or other
financial services firms may be subject to various state laws regarding the
services described above and may be required to register as dealers pursuant
to state law. If banking firms were prohibited from acting in any capacity or
providing any of the described services, management would consider what
action, if any, would be appropriate. Management does not believe that
termination of a relationship with a bank would result in any material adverse
consequences to the Fund.
In addition to the discounts or commissions described above, the Distributor
or the Manager may, from time to time, pay or allow additional concessions or
promotional incentives, in the form of cash or other compensation, to firms
that sell shares of the Fund. In some instances, such discounts or other
incentives will be offered only to certain firms that sell or are expected to
sell during specified time periods certain minimum amounts of shares of the
Fund or other funds underwritten by the Distributor. Such concessions may be
paid as a lump sum or be periodic and may be up to 0.25% of the value of
shares sold by a dealer, plus additional compensation for continuing due
diligence or other services.
Shares of the Fund may be purchased at net asset value by a participant-
directed qualified retirement plan described in Code Section 401(a) or a
participant-directed non-qualified deferred compensation plan described in
Code Section 457 provided in either case that such plan has not less than 200
eligible employees.
Shares of the Fund may also be purchased at net asset value by any purchaser
provided that the amount invested in the Fund or certain other funds totals at
least $1,000,000, including purchases pursuant to the "Letter of Intent" and
"Cumulative Discount" features described under "Special Features" (the "Large
Purchase Privilege"). The other funds for which the Large Purchase Privilege
is available will vary from time to time because they are generally offered
only for limited periods. As of the date of this Prospectus, the Large
Purchase Privilege is not available for any other funds. In the future, you
may obtain a list of the funds for which the Large Purchase Privilege is
available and request a prospectus by telephoning (800) 862-3984.
A contingent deferred sales charge of 1% may be imposed upon redemption of
shares of the Fund that are purchased under the Large Purchase Privilege if
they are redeemed within one year of purchase. The charge will not be imposed
upon redemption of reinvested dividends or share appreciation. The charge is
applied to the value of the shares redeemed less the above exclusions. The
contingent deferred sales charge will be waived in the event of redemption of
shares of a shareholder (including a registered joint owner) who has died or
who, after purchase of the shares being redeemed, becomes totally disabled (as
evidenced by a determination by the federal Social Security Administration).
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Shares of the Fund purchased under the Large Purchase Privilege may be
exchanged for shares of certain other funds managed by the Manager under the
exchange privilege described under "Special Features -- Exchange Privilege"
without paying any contingent deferred sales charge at the time of exchange.
If the shares received in exchange are redeemed thereafter, a contingent
deferred sales charge may be imposed in accordance with the foregoing
requirements provided that the shares redeemed will retain their original cost
and purchase date for purposes of the contingent deferred sales charge.
The Distributor may in its discretion compensate investment dealers or other
financial services firms in connection with the sale of shares of the Fund to
employer sponsored employee benefit plans at net asset value up to the
following amounts: 1.00% of the net asset value of shares sold on amounts up
to $5 million during the Offering Period, 0.50% on the next $5 million and
0.25% on amounts over $10 million during the Offering Period. The Distributor
may in its discretion compensate investment dealers or other financial service
firms in connection with the sale of shares of the Fund in accordance with the
Large Purchase Privilege up to the following amounts: 1.00% of the net asset
value of shares sold on amounts up to $3 million, .50% on the next $2 million
and .25% on amounts over $5 million. For purposes of determining the
appropriate commission percentage to be applied to a particular sale under the
foregoing schedule, the Distributor will consider the cumulative amount
invested by the purchaser in the Fund and other funds eligible for the Large
Purchase Privilege.
Shares may be sold to officers, trustees, directors, employees (including
retirees) and sales representatives of the Fund, its investment manager, its
subadvisors, its principal underwriter or certain affiliated companies, for
themselves or members of their families, or to any trust, pension, profit-
sharing or other benefit plan for only such persons at net asset value in any
amount. Shares may be sold at net asset value in any amount to registered
representatives and employees of broker-dealers having selling group
agreements with the Distributor and officers, directors and employees of
service agents of the Fund, for themselves or their spouses or dependent
children, or to any trust or pension, profit-sharing or other benefit plan for
only such persons. Shares may be sold at net asset value in any amount to
selected employees (including their spouses and dependent children) of banks
and other financial services firms that provide administrative services
related to order placement and payment to facilitate transactions in shares of
the Fund for their clients pursuant to an agreement with the Distributor or
one of its affiliates. Only those employees of such banks and other firms who
as part of their usual duties provide services related to transactions in Fund
shares may purchase Fund shares at net asset value hereunder. Additionally,
shares may be sold at net asset value in any amount to officers, trustees,
directors and employees of certain other firms that provide services for the
benefit of the Fund and their affiliates, for themselves or members of their
families, or to any trust, pension, profit-sharing or other benefit plan for
only such persons.
Shares of the Fund may be sold at net asset value through certain investment
advisers registered under the Investment Advisers Act of 1940 and other
financial services firms that adhere to certain standards established by the
Distributor, including a requirement that such shares be sold for the benefit
of their clients participating in a "wrap account" or similar program under
which such clients pay a fee to the investment adviser or other firm. Such
shares are sold for investment purposes and on the condition that they will
not be resold except through redemption or repurchase by the Fund. The Fund
may also issue shares at net asset value in connection with the acquisition of
the assets of or merger or consolidation with another investment company, or
to shareholders in connection with the investment or reinvestment of income
and capital gain dividends.
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<PAGE>
The sales charge scale is applicable to purchases made at one time by any
"purchaser," which includes an individual, or an individual, his or her spouse
and children under the age of 21; or a trustee or other fiduciary of a single
trust estate or single fiduciary account, or an organization exempt from
federal income tax under Section 501(c)(3) or (13) of the Code; or a pension,
profit-sharing or other employee benefit plan whether or not qualified under
Section 401 of the Code; or 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 of redeemable
securities of a registered investment company at a discount. In order to
qualify for a lower sales charge, all orders from an organized group will have
to be placed through a single investment dealer or other firm and identified
as originating from a qualifying purchaser.
Investment dealers and other firms provide varying arrangements for their
clients to purchase and redeem Fund shares. Some may establish higher minimum
investment requirements than set forth above. Firms may arrange with their
clients for other investment or administrative services. Such firms may
independently establish and charge additional amounts to their clients for
such services, which charges would reduce the clients' return. Firms also may
hold Fund shares in nominee or street name as agent for and on behalf of their
customers. In such instances, the Fund's transfer agent will have no
information with respect to or control over accounts of specific shareholders.
Such shareholders may obtain access to their accounts and information about
their accounts only from their firm. Certain of these firms may receive
compensation from the Fund through the Distributor for recordkeeping and other
expenses relating to these nominee accounts. See "Shareholder Servicing
Agreement." In addition, certain privileges with respect to the purchase and
redemption of shares or the reinvestment of dividends may not be available
through such firms. Some firms may participate in a program allowing them
access to their clients' accounts for servicing including, without limitation,
transfers of registration and dividend payee changes; and may perform
functions such as generation of confirmation statements and disbursement of
cash dividends. Such firms, including affiliates of the Distributor, may
receive compensation from the Fund through the Distributor for these services.
This prospectus should be read in conjunction with such firms' material
regarding their fees and services.
Orders for the purchase of shares of the Fund will be confirmed at a price
based on the net asset value next determined after receipt by the Distributor
of the order accompanied by payment. However, orders received by dealers or
other firms prior to the determination of net asset value (see "Investment
Advisory Services -- Valuation") and received by the Distributor prior to the
close of its business day will be confirmed at a price based on the net asset
value effective on that day. Dealers and other financial services firms are
obligated to transmit orders promptly. Payment for purchase orders must be
made by check (a check drawn on a foreign bank will not be accepted) or
Federal Reserve Draft or by wiring Federal Funds to the Fund's Transfer Agent.
Checks should be made payable to AIG Children's World Fund -- 2005. See
"Purchase and Redemption of Shares" in the Statement of Additional
Information.
The Fund reserves the right to withdraw all or any part of the offering made
by this prospectus and to reject purchase orders.
Shareholders should direct their inquiries to the Distributor or to the firm
from which they received this prospectus.
30
<PAGE>
REDEMPTION OR REPURCHASE OF SHARES
GENERAL
Any shareholder may require the Fund to redeem his or her shares. However,
shareholders who redeem some or all of their shares before the Maturity Date
will not be certain to receive the full amount of their original investment
(including any sales charge paid) on or after the Maturity Date. Under the
terms of the Manager's Guarantee, the amount a shareholder is certain to
receive will be reduced in proportion to the number of shares redeemed divided
by the number of shares originally purchased during the Offering Period. Thus,
investors are encouraged to reinvest dividends and to evaluate their need to
receive some or all of their investments prior to the Maturity Date before
making an investment in the Fund. As noted previously (see "Investment
Objectives and Management Policies -- In General"), pursuant to the terms of
the Manager's Guarantee, shareholders who wish to be certain of receiving the
full amount of their original investment must reinvest all dividends and
distributions in additional shares and hold all their shares until the
Maturity Date.
When shares are held for the account of a shareholder by the Fund's Transfer
Agent, the shareholder may redeem them by making a written request with
signatures guaranteed to AIG Children's World Fund -- 2005, PO Box 8935,
Wilmington, Delaware 19899-9801. Written redemption instructions, indicating
the name of the Fund and the number of shares to be redeemed, must be received
by the Transfer Agent in proper form and signed exactly as the shares are
registered. All signatures must be guaranteed. The Transfer Agent has adopted
standards and procedures pursuant to which signature-guarantees in proper form
generally will be accepted from domestic banks, brokers, dealers, credit
unions, national securities exchanges, registered securities associations,
clearing agencies and savings associations, as well as from participants in
the New York Stock Exchange Medallion Signature Program, the Stock Exchanges
Medallion Program and the Securities Transfer Agents Medallion Program
("STAMP"). Such guarantees must be signed by an authorized signatory thereof
with "Signature Guaranteed" appearing with the shareholder's signature. If the
signature is guaranteed by a broker or dealer, such broker or dealer must be a
member of a clearing corporation and maintain net capital of at least
$100,000. Signature-guarantees may not be provided by notaries public.
Redemption requests by corporate and fiduciary shareholders must be
accompanied by appropriate documentation establishing the authority of the
person seeking to act on behalf of the account. Investors may obtain from the
Fund or the Transfer Agent forms of resolutions and other documentation which
have been prepared in advance to assist compliance with the Fund's procedures.
The redemption price will be the net asset value next determined following
receipt by the Distributor of a properly executed request with any required
documents. Payment for shares redeemed will be made in cash as promptly as
practicable but in no event later than three business days after receipt of a
properly executed request in proper form for transfer. When the Fund is
requested to redeem shares for which it may not have yet received good
payment, it may delay transmittal of redemption proceeds until it has
determined that collected funds have been received for the purchase of such
shares, which will be up to 15 days from receipt by the Fund of the purchase
amount. The redemption within one year of shares purchased at net asset value
under the Large Purchase Privilege may be subject to a 1% contingent deferred
sales charge (see "Purchase of Shares").
Shareholders can request the following telephone privileges: expedited wire
transfer redemptions and exchange transactions for individual and
institutional accounts and pre-authorized telephone redemption transactions
for certain institutional accounts. Shareholders may choose these privileges
on the account application or by contacting the Distributor or the Transfer
Agent for appropriate instructions. Please note that the telephone
31
<PAGE>
exchange privilege is automatic unless the shareholder refuses it on the
account application. Neither the Fund nor its agents will be liable for any
loss, expense or cost arising out of any telephone request pursuant to these
privileges, including any fraudulent or unauthorized request, and THE
SHAREHOLDER WILL BEAR THE RISK OF LOSS, so long as the Fund or its agent
reasonably believes, based upon reasonable verification procedures, that the
telephonic instructions are genuine. The verification procedures include
recording instructions, requiring certain identifying information before
acting upon instructions and sending written confirmations.
If the proceeds of the redemption are $25,000 or less and the proceeds are
payable to the shareholder of record at the address of record, normally a
telephone request or a written request by all registered account holders
without a signature guarantee is sufficient for redemptions by individual or
joint account holders, and trust, executor and guardian account holders
(excluding custodial accounts for gifts and transfers to minors), provided the
trustee, executor or guardian is named in the account registration. Other
institutional account holders may exercise this special privilege of redeeming
shares by telephone request or written request without signature guarantee
subject to the same conditions as individual account holders and subject to
the limitations on liability described above, provided that this privilege has
been pre-authorized by the institutional account holder by written instruction
to the Shareholder Service Agent with signatures guaranteed. Telephone
requests may be made by calling (800) 862-3984. Shares purchased by check may
not be redeemed under this privilege of redeeming shares by telephone request
until such shares have been owned for at least 15 days. This privilege of
redemption of shares by telephone request or by written request without a
signature guarantee may not be used if the shareholder's account has had an
address change within 30 days of the redemption request. During periods when
it is difficult to contact the Distributor by telephone, it may be difficult
to use the telephone redemption privilege, although investors can still redeem
by mail. The Fund reserves the right to terminate or modify this privilege at
any time.
REPURCHASES (CONFIRMED REDEMPTIONS)
A request for repurchase may be communicated by a shareholder through a
securities dealer or other financial services firm to the Distributor, which
the Fund has authorized to act as its agent. There is no charge by the
Distributor with respect to repurchases; however, dealers or other firms may
charge customary commissions for their services. Dealers and other financial
services firms are obligated to transmit orders promptly. The repurchase price
will be the net asset value next determined after receipt of a request by the
Distributor. However, requests for repurchases received by dealers or other
firms prior to the determination of net asset value (see "Investment Advisory
Services -- Valuation") and received by the Distributor prior to the close of
the Distributor's business day will be confirmed at the net asset value
effective on that day. The offer to repurchase may be suspended at any time.
Requirements as to stock powers, certificates, payments and delay of payments
are the same as for redemptions.
EXPEDITED WIRE TRANSFER REDEMPTIONS
If the account holder has given authorization for expedited wire redemption
to the account holder's brokerage or bank account, shares can be redeemed and
proceeds sent by federal wire transfer to a single previously designated
account. Requests received by the Distributor prior to the determination of
net asset value will result in shares being redeemed that day at the net asset
value effective on that day and normally the proceeds will be sent to the
designated account the following business day. Delivery of the proceeds of a
wire redemption request of $250,000 or more may be delayed by the Fund for up
to seven days if the Distributor
32
<PAGE>
deems it appropriate under then current market conditions. Once authorization
is on file, the Distributor will honor requests by telephone at (800) 862-3984
or in writing, subject to the limitations on liability described under
"General" above. The Fund is not responsible for the efficiency of the federal
wire system or the account holder's financial services firm or bank. The Fund
currently does not charge the account holder for wire transfers. The account
holder is responsible for any charges imposed by the account holder's firm or
bank. There is a $5,000 wire redemption minimum. To change the designated
account to receive wire redemption proceeds, send a written request to the
Distributor with signatures guaranteed as described above or contact the firm
through which shares of the Fund were purchased. Shares purchased by check may
not be redeemed by wire transfer until such shares have been owned for at
least 15 days. During periods when it is difficult to contact the Distributor
by telephone, it may be difficult to use the expedited redemption privilege.
The Fund reserves the right to terminate or modify this privilege at any time.
REINSTATEMENT PRIVILEGE
A shareholder who has redeemed shares of the Fund or certain other funds may
reinstate up to the full amount redeemed at net asset value at the time of the
reinstatement in shares of the Fund (but only prior to the end of the Offering
Period) or, if available, in shares of certain other funds managed by the
Manager. A shareholder of the Fund who redeems shares purchased under the
Large Purchase Privilege (see "Purchase of Shares") and incurs a contingent
deferred sales charge may reinstate up to the full amount redeemed at net
asset value at the time of the reinstatement in shares of the Fund (but only
prior to the end of the Offering Period) or, if available, in shares of
certain other funds managed by the Manager. The amount of any contingent
deferred sales charge also will be reinstated. The funds for which these
privileges are available will vary from time to time because they are
generally offered only for limited periods. As of the date of this Prospectus,
the Reinstatement Privilege is not available for any other funds. In the
future, you may obtain a list of the funds for which these privileges are
available and request a prospectus by telephoning (800) 862-3984. These
reinstated shares will retain their original cost and purchase date for
purposes of the contingent deferred sales charge. Purchases through the
Reinstatement Privilege are subject to the minimum investment requirements
applicable to the shares being purchased and may only be made for funds
available for sale in the shareholder's state of residence as listed under
"Special Features -- Exchange Privilege." The Reinstatement Privilege can be
used only once as to any specific shares and reinstatement must be effected
within six months of the redemption. If a loss is realized on the redemption
of Fund shares, the reinstatement may be subject to the "wash sale" rules if
made within 30 days of the redemption, resulting in the postponement of the
recognition of such loss for federal income tax purposes. The Reinstatement
Privilege may be terminated or modified at any time and is subject to the
limited Offering Period of the Fund.
SPECIAL FEATURES
LETTER OF INTENT
By signing a Letter of Intent form, available from your broker or the
Transfer Agent, you may become eligible for the reduced sales load applicable
to the total number of shares of the Fund and shares of certain other funds
managed by the Manager purchased during the Offering Period pursuant to the
terms and under the conditions set forth in the Letter of Intent. A minimum
initial purchase of $1,000 is required. The Transfer Agent
33
<PAGE>
will hold in escrow 5% of the amount indicated in the Letter of Intent for
payment of a higher sales load if you do not purchase the full amount
indicated in the Letter of Intent. The escrow will be released when the you
fulfill the terms of the Letter of Intent by purchasing the specified amount.
If your purchases qualify for a further sales load reduction, the sales load
will be adjusted to reflect the total purchase at the end of the Offering
Period. If total purchases are less than the amount specified, you will be
requested to remit an amount equal to the difference between the sales load
actually paid and the sales load applicable to the aggregate purchases
actually made. If such remittance is not received within 20 days, the Transfer
Agent, as attorney-in-fact pursuant to the terms of the Letter of Intent, will
redeem an appropriate number of shares held in escrow to realize the
difference. Signing a Letter of Intent does not bind you to purchase the full
amount indicated at the sales load in effect at the time of the signing, but
you must complete the intended purchase to obtain the reduced sales load. At
the time you purchase shares of any of the eligible funds, you must indicate
your intention to do so under a Letter of Intent. The other funds that may be
purchased under a Letter of Intent will vary from time to time because some
funds will be offered only for limited periods, as described in the applicable
prospectus. As of the date of this Prospectus, the Letter of Intent is not
available for any other funds. For a list of the funds for which the Letter of
Intent is available in the future, and to request a prospectus, telephone
(800) 862-3984.
RIGHT OF ACCUMULATION
YOU MAY QUALIFY FOR A REDUCED SALES CHARGE. Pursuant to the Right of
Accumulation, certain investors are permitted to purchase shares of the Fund
at the sales charge applicable to the total of (a) the dollar amount then
being purchased plus (b) the current public offering price of all shares of
the Fund, shares of the other series of AIG All Ages Funds, Inc. and shares of
certain other funds managed by the Manager, then held by that investor. The
following purchases may be aggregated for the purposes of determining the
amount of purchase and the corresponding sales load: (a) individual purchases
on behalf of a single purchaser, the purchaser's spouse and their children
under the age of 21 years including shares purchased in connection with a
retirement account exclusively for the benefit of such individual(s), such as
an IRA, and purchases made by a company controlled by such individual(s); (b)
individual purchases by a trustee or other fiduciary account, including an
employee benefit plan (such as employer-sponsored pension, profit-sharing and
stock bonus plans, including plans under Section 401(k) of the Code, and
medical, life and disability insurance trusts); or (c) individual purchases by
a trustee or other fiduciary purchasing shares concurrently for two or more
employee benefit plans of a single employer or of employers affiliated with
each other. Subsequent purchases made under the conditions set forth above
will be subject to the minimum subsequent investment of $250 and will be
entitled to the Right of Accumulation.
EXCHANGE PRIVILEGE
Subject to the following limitations, shares of the Fund and certain other
funds may be exchanged for each other at their relative net asset values.
Shares purchased by check may not be exchanged until they have been owned for
at least 15 days. In addition, shares acquired by such an exchange may not be
exchanged thereafter until they have been owned for 15 days. The funds for
which this privilege is available will vary from time to time because some
funds will be offered only for limited periods, as described in the applicable
prospectus. As of the date of this Prospectus, the Exchange Privilege is not
available between the Fund and any other funds. For a list of the funds for
which the Exchange Privilege is available in the future, and to request a
prospectus,
34
<PAGE>
telephone (800) 862-3984. Exchanges may be made only for funds that are
available for sale in the shareholder's state of residence. The Manager's
Guarantee relates only to the Fund and will have no effect on shares that are
exchanged for shares of another fund.
The total value of shares being exchanged must at least equal the minimum
investment requirement of the fund into which they are being exchanged.
Exchanges are made based on relative dollar values of the shares involved in
the exchange. There is no service fee for an exchange; however, dealers or
other firms may charge for their services in effecting exchange transactions.
Exchanges will be effected by redemption of shares of the fund held and
purchase of shares of the other fund. For federal income tax purposes, any
such exchange constitutes a sale upon which a gain or loss may be realized,
depending upon whether the value of the shares being exchanged is more or less
than the shareholder's adjusted cost basis. Shareholders interested in
exercising the exchange privilege may obtain prospectuses of the other funds
from dealers, other firms or the Distributor. Exchanges may be accomplished by
a written request to the Distributor, or by telephone if the shareholder has
given authorization. Once the authorization is on file, the Distributor will
honor requests by telephone at (800) 862-3984 or in writing, subject to the
limitations on liability under "Redemption or Repurchase of Shares --
General." During periods when it is difficult to contact the Distributor by
telephone, it may be difficult to use the telephone exchange privilege. The
exchange privilege is not a right and may be suspended, terminated or modified
at any time. Except as otherwise permitted by applicable regulations, 60 days'
prior written notice of any termination or material change will be provided.
AUTOMATIC INVESTMENT PROGRAM
The Automatic Investment Program enables you to authorize checks to be drawn
on your checking account at regular monthly or quarterly intervals during the
Offering Period for fixed amounts of $100 or more to purchase shares of the
Fund. This Program permits you to use the dollar-cost-averaging method to
invest in the Fund. The Automatic Investment Program will terminate on the
last day of the Offering Period. See the terms and conditions on the Account
Application.
RETIREMENT PLANS
An investment in shares of the Fund may be appropriate for certain
Individual Retirement Accounts ("IRAs"), self-employed retirement plans and
corporate plans. In view of the limited Offering Period of the Fund (see
"Purchase of Shares"), the Fund may not be appropriate for periodic
contribution plans. Investors who are considering establishing, or purchasing
shares of the Fund for, any retirement plan should consult with their own tax
advisers before doing so.
The Fund sponsors IRAs which may also be used as Simplified Employee Pension
Plan ("SEP") IRA accounts. Eligible investors may establish an IRA, or a SEP-
IRA with their employer, to invest in the Fund.
PNC Bank, N.A. serves as custodian for the IRAs and SEP-IRAs sponsored by
the Fund. The current fees payable to PNC Bank, N.A. for its services as IRA
custodian are available upon request. Neither PNC Bank, N.A. nor the Fund
administers the SEP-IRAs and therefore no assurance can be given that a
particular SEP-IRA is properly administered.
35
<PAGE>
PERFORMANCE
The Fund may advertise several types of performance information, including
"average annual total return" and "total return." Each of these figures is
based upon historical results and is not necessarily representative of the
future performance of the Fund.
Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in the Fund's
portfolio for the period referenced, assuming the reinvestment of all
dividends. Thus, these figures reflect the change in the value of an
investment in the Fund during a specified period. Average annual total return
will be quoted for at least the one, five and ten year periods ending on a
recent calendar quarter (or if such periods have not yet elapsed, at the end
of a shorter period corresponding to the life of the Fund). Average annual
total return figures represent the average annual percentage change over the
period in question. Total return figures represent the aggregate percentage or
dollar value change over the period in question.
The Fund's performance may be compared to that of the Consumer Price Index
or various unmanaged indexes including the Dow Jones Industrial Average, the
Standard & Poor's 500 Stock Index, the Europe Australia Far East ("EAFE")
Index and other indexes prepared by Morgan Stanley Capital International. The
Fund's performance may also be compared to the performance of other mutual
funds or mutual fund indexes as reported by independent mutual fund reporting
services such as Lipper Analytical Services, Inc. and Micropal, Ltd. Such
performance calculations are generally based upon changes in net asset value
with all dividends reinvested.
The Fund may quote information from publications such as Morningstar, Inc.,
The Wall Street Journal, Money Magazine, Forbes, Barron's, Fortune, The New
York Times, The Washington Post, The International Herald Tribune, USA Today,
Institutional Investor, Registered Representative and other consumer journals
and publications by the U.S. government and its agencies. Also, investors may
want to compare the historical returns of various investments, performance
indexes of those investments or economic indicators, including but not limited
to stocks, bonds, certificates of deposit, money market funds, and U.S.
Treasury obligations. Bank product performance may be based upon, among other
things, the BANK RATE MONITOR National Index(TM) or various certificate of
deposit indexes. Money market fund performance may be based upon, among other
things, the IBC/Donoghue Money Fund Report(R) or Money Fund Insight(R),
reporting services on money market funds. Performance of U.S. Treasury
obligations may be based upon, among other things, various U.S. Treasury bill
indexes. Certain of these alternative investments may offer fixed rates of
return and guaranteed principal and may be insured.
The Fund may depict the historical performance of the securities in which
the Fund and the Equity Portfolio may invest over periods reflecting a variety
of market or economic conditions either alone or in comparison with
alternative investments, performance indexes of those investments or economic
indicators. The Fund may also describe its portfolio holdings (including those
of the Equity Portfolio) and depict its size or relative size compared to
other mutual funds, the number and make-up of its shareholder base and other
descriptive factors concerning the Fund.
The Fund's shares are sold at net asset value plus a maximum sales charge of
4.75% of the offering price. While the maximum sales charge is normally
reflected in the Fund's performance figures, certain total return
36
<PAGE>
calculations may not include such charge and those results would be reduced if
it were included. The Fund's returns and net asset value will fluctuate.
Except in limited cases described in "Purchases of Shares," shares of the Fund
are redeemable by an investor at the then current net asset value, which may
be more or less than original cost. Additional information concerning the
Fund's performance and concerning the historical performance of various types
of investments that may be used to provide for retirement needs appears in the
Statement of Additional Information. Additional information about the Fund's
performance also appears in its Annual Report to Shareholders, which will be
available without charge from the Fund.
ORGANIZATION AND CAPITALIZATION
The Fund is a series of AIG All Ages Funds, Inc., an open-end management
investment company incorporated under the laws of the State of Maryland on
April 4, 1995. The Board of Directors is authorized to issue, create and
classify shares of capital stock in separate series without further action by
shareholders. To date, shares in the AIG Children's World Fund -- 2005
described herein are the only shares authorized. Shares of capital stock have
a par value of $.001. All shares have non-cumulative voting rights for the
election of directors. Each outstanding share is fully paid and non-
assessable, and each is freely transferable. There are no liquidation,
conversion or preemptive rights. The Company will furnish without charge to
each shareholder upon request a full statement of (1) the designations and any
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption of the stock of each class that the Company is authorized to issue;
and (2)(a) the differences in the relative rights and preferences between the
shares of each series of preferred or special class and (b) the authority of
the Board to set the relative rights and preferences of subsequent series. The
Company does not presently intend to hold annual shareholder meetings, but
will do so if requested by the holders of at least ten percent of its
outstanding shares for the purpose of voting upon the removal of a director or
directors and to assist in communications with other shareholders as required
by the 1940 Act.
The Equity Portfolio is an open-end management investment company, organized
under the laws of Delaware on June 23, 1995 as a trust with limited liability.
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AIG CHILDREN'S
WORLD FUND -- 2005
A SERIES OF
AIG ALL AGES FUNDS, INC.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE FUND'S EXPENSES........................................................ 3
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES.............................. 5
RISK FACTORS............................................................... 13
PERIODIC AND OTHER REPORTS AND SERVICES.................................... 16
SPECIAL INFORMATION CONCERNING THE TWO-TIER STRUCTURE...................... 16
INVESTMENT ADVISORY SERVICES............................................... 18
AMERICAN INTERNATIONAL GROUP, INC.......................................... 22
DIVIDENDS AND DISTRIBUTIONS................................................ 23
TAXES...................................................................... 23
THE ADMINISTRATOR.......................................................... 25
THE TRANSFER AGENT AND DIVIDEND DISBURSING AGENT........................... 25
CUSTODIAN.................................................................. 25
SHAREHOLDER SERVICING AGREEMENT............................................ 25
RULE 12b-1 PLAN............................................................ 26
PURCHASES OF SHARES........................................................ 26
REDEMPTION OR REPURCHASE OF SHARES......................................... 31
SPECIAL FEATURES........................................................... 33
PERFORMANCE................................................................ 36
ORGANIZATION AND CAPITALIZATION............................................ 37
</TABLE>
AIG ALL AGES FUNDS, INC.
LINKING GENERATIONS
505 Carr Road, Wilmington, Delaware 19809
Phone: (800) 862-3984
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AIG
CHILDREN'S
WORLD FUND
--2005
PROSPECTUS
SEPTEMBER 21, 1995,
AS SUPPLEMENTED ON NOVEMBER 1, 1995,
AND AS FURTHER SUPPLEMENTED ON MARCH 18, 1996
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