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As filed with the Securities and Exchange Commission on March 22, 2000
Registration No. 333-_____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No. ___ [ ] Post-Effective Amendment No. ___
AIM INVESTMENT FUNDS
(Exact Name of Registrant as Specified in Charter)
11 Greenway Plaza, Suite 100, Houston, TX 77046
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (713) 626-1919
Copies To:
Samuel D. Sirko, Esq. Arthur J. Brown, Esq.
A I M Advisors, Inc. R. Darrell Mounts, Esq.
11 Greenway Plaza, Suite 100 Kirkpatrick & Lockhart LLP
Houston, Texas 77046 1800 Massachusetts Avenue, N.W.,
(Name and Address of Agent for Service) 2nd Floor
Washington, D.C. 20036
Approximate Date of Proposed Public Offering: as soon as practicable after this
Registration Statement becomes effective under the Securities Act of 1933.
It is proposed that this filing will become effective on
April 21, 2000, pursuant to Rule 488.
No filing fee is required because of reliance on Section 24(f) of the
Investment Company Act of 1940, as amended.
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AIM INVESTMENT FUNDS
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following papers and documents:
o Cover Sheet
o Contents of Registration Statement
o Part A - Prospectus/Proxy Statement
o Part B - Statement of Additional Information
o Part C - Other Information
o Signature Page
o Exhibits
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AIM EMERGING MARKETS DEBT FUND
A PORTFOLIO OF AIM INVESTMENT FUNDS
11 GREENWAY PLAZA, SUITE 100
HOUSTON, TEXAS 77046-1173
April 20, 2000
Dear Shareholder:
Enclosed is a combined proxy statement and prospectus seeking your
approval of a proposed combination of AIM Emerging Markets Debt Fund ("Emerging
Markets Debt Fund") with AIM Developing Markets Fund ("Developing Markets Fund")
(each a "Fund"). Each Fund is a series of AIM Investment Funds (the "Trust"), an
open-end management investment company organized as a Delaware business trust.
If the proposal is approved and implemented, each shareholder of Emerging
Markets Debt Fund automatically would become a shareholder of Developing Markets
Fund.
Emerging Markets Debt Fund currently seeks to achieve its objectives by
investing all of its investable assets in the Emerging Markets Debt Portfolio
(the "Portfolio"). The Trust's Board of Trustees believes that combining the two
Funds will benefit Emerging Markets Debt Fund's shareholders by providing them
with a portfolio that has a broader investment mandate than the Portfolio. To
achieve its primary investment objective of long-term growth of capital and
secondary objective of income, to the extent consistent with seeking growth of
capital, Developing Markets Fund may invest more extensively in equity
securities than may the Portfolio. As a result, Developing Markets Fund
possesses greater flexibility than the Portfolio to respond effectively to
opportunities in the equity markets. A I M Advisors, Inc. serves as investment
adviser, and INVESCO Asset Management Limited. serves as investment sub-adviser
to Developing Markets Fund and the Portfolio. The portfolio management team for
Developing Markets Fund is experienced and has a recent performance record that
is superior to that of the portfolio management team for Emerging Markets Debt
Fund. The accompanying document describes the proposed transaction and compares
the investment policies, operating expenses, and performance histories of the
Funds.
Shareholders of Emerging Markets Debt Fund are being asked to approve a
Plan of Reorganization and Termination that will govern the reorganization of
Emerging Markets Debt Fund into Developing Markets Fund. After careful
consideration, the Board of Trustees of the Trust has unanimously approved the
proposal and recommends that you read the enclosed materials carefully and then
vote FOR the proposal.
Your vote is important. Please take a moment now to sign and return
your proxy card in the enclosed postage-paid return envelope. If we do not hear
from you after a reasonable amount of time you may receive a telephone call from
our proxy solicitor, Shareholder Communications Corporation, reminding you to
vote your shares. You may also vote your shares through a web site established
by Shareholder Communications Corporation by following the instructions that
appear on the enclosed proxy insert.
Thank you for your cooperation and continued support.
Sincerely,
Robert H. Graham
Chairman
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AIM EMERGING MARKETS DEBT FUND
A PORTFOLIO OF AIM INVESTMENT FUNDS
11 GREENWAY PLAZA, SUITE 100
HOUSTON, TEXAS 77046-1173
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 31, 2000
------------------------
TO THE SHAREHOLDERS OF AIM EMERGING MARKETS DEBT FUND:
NOTICE IS HEREBY GIVEN that a special meeting of shareholders
("Meeting") of AIM Emerging Markets Debt Fund ("Emerging Markets Debt Fund"), an
investment portfolio of AIM Investment Funds (the "Trust"), will be held at 11
Greenway Plaza, Suite 100, Houston, TX 77046, on May 31, 2000, at 3:00 p.m.,
local time, for the following purposes:
1. To consider a Plan of Reorganization and Termination (the "Plan")
that provides for the combination of Emerging Markets Debt Fund and AIM
Developing Markets Fund ("Developing Markets Fund") (the
"Reorganization"). Pursuant to the Plan, all of the assets of Emerging
Markets Debt Fund will be transferred to Developing Markets Fund,
Developing Markets Fund will assume all of the liabilities of Emerging
Markets Debt Fund, and the Trust will issue to each shareholder a
number of full and fractional shares of the applicable class of
Developing Markets Fund having an aggregate value that, on the
effective date of the Reorganization, is equal to the aggregate net
asset value of the shareholder's shares of beneficial interest in the
corresponding class of Emerging Markets Debt Fund. The value of each
Emerging Markets Debt Fund shareholder's account with Developing
Markets Fund immediately after the Reorganization will be the same as
the value of such shareholder's account with Emerging Markets Debt Fund
immediately prior to the Reorganization. The Reorganization has been
structured as a tax-free transaction. No initial sales charge will be
imposed in connection with the Reorganization; and
2. To transact such other business, not currently contemplated, that
may properly come before the Meeting, or any adjournment thereof, in
the discretion of the proxies or their substitutes.
Shareholders of record as of the close of business on April 3, 2000,
are entitled to notice of, and to vote at, the Meeting or any adjournment
thereof.
SHAREHOLDERS ARE REQUESTED TO EXECUTE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE THE ACCOMPANYING PROXY, WHICH IS BEING SOLICITED BY THE
MANAGEMENT OF THE TRUST. YOU MAY ALSO VOTE YOUR SHARES THROUGH A WEB SITE
ESTABLISHED FOR THAT PURPOSE BY FOLLOWING THE INSTRUCTIONS ON THE ENCLOSED PROXY
INSERT. THIS IS IMPORTANT FOR THE PURPOSE OF ENSURING A QUORUM AT THE SPECIAL
MEETING. PROXIES MAY BE REVOKED AT ANY TIME BEFORE THEY ARE EXERCISED BY THE
SUBSEQUENT EXECUTION AND SUBMISSION OF A REVISED PROXY, BY GIVING WRITTEN NOTICE
OF REVOCATION TO THE TRUST AT ANY TIME BEFORE THE PROXY IS EXERCISED OR BY
VOTING IN PERSON AT THE SPECIAL MEETING.
Samuel D. Sirko
Vice President and Secretary
April 20, 2000
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AIM EMERGING MARKETS DEBT FUND
AIM DEVELOPING MARKETS FUND
PORTFOLIOS OF AIM INVESTMENT FUNDS
11 GREENWAY PLAZA, SUITE 100
HOUSTON, TEXAS 77046-1173
TOLL FREE: (800) 454-03276
COMBINED PROXY STATEMENT AND PROSPECTUS
Dated: April 20, 2000
This document is being furnished in connection with a special meeting
of shareholders of AIM Emerging Markets Debt Fund ("Emerging Markets Debt
Fund"), an investment portfolio of AIM Investment Funds (the "Trust"), a
Delaware business trust, to be held at 11 Greenway Plaza, Suite 100, Houston, TX
77046 on May 31, 2000, at 3:00 p.m., local time (such meetings and any
adjournments thereof are referred to as the "Meeting"). At the Meeting, the
shareholders of Emerging Markets Debt Fund are being asked to consider and
approve a Plan of Reorganization and Termination (the "Plan") that provides for
the combination of Emerging Markets Debt Fund with AIM Developing Markets Fund
("Developing Markets Fund") (each a "Fund"), an investment portfolio of the
Trust (the "Reorganization"). The Plan is attached as Appendix I to this
Combined Proxy Statement and Prospectus ("Proxy Statement/Prospectus"). The
Board of Trustees of the Trust has unanimously approved the Plan as being in the
best interest of Emerging Markets Debt Fund's shareholders.
Pursuant to the Plan, all of the assets of Emerging Markets Debt Fund
(its interest in Emerging Markets Debt Portfolio (the "Portfolio")) will be
transferred to Developing Markets Fund, Developing Markets Fund will assume all
of the liabilities of Emerging Markets Debt Fund, and the Trust will issue a
number of full and fractional shares of the applicable class of Developing
Markets Fund having an aggregate value that, on the effective date of the
Reorganization, is equal to the aggregate net asset value of the shareholder's
shares of beneficial interest in the corresponding class of Emerging Markets
Debt Fund. Immediately thereafter, Developing Markets Fund will redeem in-kind
the interest it received in the Portfolio and hold directly the securities held
in the Portfolio.
The value of each Emerging Markets Debt Fund shareholder's account with
Developing Markets Fund immediately after the Reorganization will be the same as
the value of such shareholder's account with Emerging Markets Debt Fund
immediately prior to the Reorganization. The Reorganization has been structured
as a tax-free transaction. No initial sales charge will be imposed in connection
with the Reorganization.
Developing Markets Fund is a non-diversified series of the Trust, which
is an open-end management investment company comprised of several outstanding
series (including Developing Markets Fund and Emerging Markets Debt Fund).
Developing Markets Fund's primary investment objective is long-term growth of
capital and its secondary investment objective is income, to the extent
consistent with seeking growth of capital. Developing Markets Fund seeks to
achieve its investment objectives by investing primarily in equity securities of
developing market issuers. Developing Markets Fund may also invest up to 50% of
its total assets in various types of developing market debt securities.
This Proxy Statement/Prospectus sets forth the information that a
shareholder of Emerging Markets Debt Fund should know before voting on the Plan.
It should be read and retained for future reference.
The current Prospectus of Class A, Class B, and Class C shares of
Emerging Markets Debt Fund, dated February 28, 2000, and supplemented March 22,
2000, together with the related Statement of Additional Information, dated
February 28, 2000, and the Annual Report to Shareholders for the fiscal year
ended October 31, 1999, are on file with the Securities and Exchange Commission
(the "SEC") and are incorporated by reference into this Proxy
Statement/Prospectus. The current Prospectus of Class A, Class B, and Class C
shares of Developing Markets Fund, dated February 28, 2000, together with the
related Statement of Additional Information, dated February 28, 2000, and the
Annual Report to Shareholders for the fiscal year ended October 31, 1999, are on
file with the SEC and are incorporated by reference into this Proxy
Statement/Prospectus. A copy of the Prospectus of Class A, Class B, and Class C
shares of Developing Markets Fund is attached as Appendix II to this Proxy
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Statement/Prospectus. Such documents are available without charge by writing to
A I M Fund Services, Inc., P.O. Box. 4739, Houston, Texas 77210-4739 or by
calling (800) 347-4246. The SEC maintains a web site at http://www.sec.gov that
contains the prospectuses and statements of additional information described
above, material incorporated by reference, and other information about the
Trust. Additional information about Emerging Markets Debt Fund and Developing
Markets Fund may also be obtained on the web at http://www.aimfunds.com.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
Section Title Page
- ------------- ----
INTRODUCTION.....................................................................................4
REASONS FOR THE REORGANIZATIONS..................................................................5
Board Considerations........................................................................5
SYNOPSIS ........................................................................................6
The Reorganization..........................................................................6
Comparison of Emerging Markets Debt Fund and Developing Markets Fund........................7
Management Discussion and Analysis of Performance..........................................11
RISK FACTORS....................................................................................11
Non-Diversified Classification.............................................................11
Investing in Emerging Markets..............................................................11
Lower Quality Debt.........................................................................12
Sovereign Debt.............................................................................12
Currency Risk..............................................................................12
Options, Futures, and Foreign Currency Transactions........................................13
FINANCIAL HIGHLIGHTS............................................................................13
ADDITIONAL INFORMATION ABOUT THE REORGANIZATION.................................................16
Terms of the Reorganization................................................................16
The Reorganization.........................................................................16
Description of Securities to be Issued.....................................................17
Purchases, Redemptions, and Exchanges of Shares............................................17
Dividends and Other Distributions..........................................................17
Accounting Treatment.......................................................................18
Federal Tax Considerations.................................................................18
ORGANIZATION OF THE FUNDS.......................................................................19
OWNERSHIP OF EMERGING MARKETS DEBT FUND AND DEVELOPING MARKETS FUND SHARES......................19
CAPITALIZATION..................................................................................20
LEGAL MATTERS...................................................................................20
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION...................................21
ADDITIONAL INFORMATION ABOUT EMERGING MARKETS DEBT FUND AND DEVELOPING MARKETS FUND.............21
EXPERTS ........................................................................................21
APPENDIX I..................................................Plan of Reorganization and Termination
APPENDIX II......Prospectus of Class A, Class B, and Class C shares of AIM Developing Markets Fund
APPENDIX III..............................Discussion of Performance of AIM Developing Markets Fund
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the
AIM logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com,
Invest with Discipline, La Familia AIM de Fondos, La Familia AIM de Fondos and
Design and Invierta con Disciplina are registered service marks and AIM Bank
Connection, AIM Funds, AIM Funds and Design, AIM Internet Connect, and AIM
Investor are service marks of A I M Management Group Inc.
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INTRODUCTION
This Proxy Statement/Prospectus is furnished to shareholders of
Emerging Markets Debt Fund, a series of the Trust, in connection with the
solicitation of proxies by the Board for use at the Meeting. All properly
executed and unrevoked proxies received in time for the Meeting will be voted in
accordance with the instructions contained therein. If no instructions are
given, shares represented by proxies will be voted FOR the proposal to approve
the Plan and in accordance with management's recommendation on other matters.
The presence in person or by proxy of one-third of the outstanding shares of
beneficial interest in Emerging Markets Debt Fund at the Meeting will constitute
a quorum ("Quorum"). If a Quorum is not present at the Meeting or a Quorum is
present but sufficient votes to approve the proposal described herein
("Proposal") are not received, the persons named as proxies may propose one or
more adjournments of the Meeting to permit further solicitation of proxies. Any
such adjournment will require the affirmative vote of a majority of the shares
represented at the Meeting in person or by proxy. The persons named as proxies
will vote those proxies that they are entitled to vote FOR the Proposal in favor
of such an adjournment and will vote those proxies required to be voted AGAINST
the Proposal against such adjournment. In addition, if you sign, date, and
return the proxy card, but give no voting instructions, the duly appointed
proxies may, in their discretion, vote upon such other matters as may come
before the Meeting.
Approval of the Plan requires the affirmative vote of a majority of
shares cast by shareholders of each class of shares. Abstentions and broker
non-votes will be counted as shares present at the Meeting for Quorum purposes,
but will not be considered votes cast at the Meeting. Broker non-votes arise
from a proxy returned by a broker holding shares for a customer which indicates
that the broker has not been authorized by the customer to vote on a proposal.
Any person giving a proxy has the power to revoke it at any time prior to its
exercise by executing a superseding proxy or by submitting a written notice of
revocation to the Secretary of the Trust. To be effective, such revocation must
be received by the Secretary of the Trust prior to the Meeting and must indicate
your name and account number. In addition, although mere attendance at the
Meeting will not revoke a proxy, a registered shareholder present at the Meeting
may withdraw his proxy and vote in person. Shareholders may also transact any
other business not currently contemplated that may properly come before the
Meeting in the discretion of the proxies or their substitutes.
Shareholders of record as of the close of business on April 3, 2000
(the "Record Date"), are entitled to vote at the Meeting. On the Record Date,
there were ____ Class A shares, ____ Class B shares, and ____ Class C shares of
Emerging Markets Debt Fund outstanding. Each share is entitled to one vote for
each full share held, and a fractional vote for a fractional share held. [To the
knowledge of the Trust's management, as of the Record Date, there were no
beneficial owners of 5% or more of the outstanding shares of any class of
Emerging Markets Debt Fund, except as indicated below in "Ownership of Emerging
Markets Debt Fund and Developing Markets Fund Shares."]
The Trust has engaged the services of Shareholder Communications
Corporation ("SCC") to assist it in the solicitation of proxies for the Meeting.
The Trust expects to solicit proxies principally by mail, but the Trust or SCC
may also solicit proxies by telephone, facsimile, telegraph, or personal
interview. The Trust officers and employees of AIM who assist in proxy
solicitation will not receive any additional or special compensation for any
such efforts. The cost of shareholder solicitation incurred in connection with
the Reorganization is anticipated to be approximately $__________ and will be
borne by the Emerging Markets Debt Fund and Developing Markets Fund. However,
because both Emerging Markets Debt Fund and Developing Markets Fund are
currently at their expense limits, their expenses relating to the Reorganization
will effectively be borne by the A I M Advisors, Inc. ("AIM") through
reimbursement of expenses and waivers. The Trust will request broker/dealer
firms, custodians, nominees, and fiduciaries to forward proxy material to the
beneficial owners of the shares held of record by such persons. The Trust may
reimburse such brokers/dealer firms, custodians, nominees, and fiduciaries for
their reasonable expenses incurred in connection with such proxy solicitation.
The Trust intends to mail this Proxy Statement/Prospectus and the
accompanying proxy on or about April 20, 2000.
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REASONS FOR THE REORGANIZATIONS
BOARD CONSIDERATIONS
The Board of Trustees of the Trust, including a majority of trustees
who are not "interested persons," as that term is defined in the 1940 Act
("Independent Trustees"), has determined that the Reorganization is in the best
interests of Emerging Markets Debt Fund and its shareholders, that the terms of
the Reorganization are fair and reasonable, and that the interests of Emerging
Markets Debt Fund's shareholders will not be diluted as a result of the
Reorganization.
At a meeting of the Board of Trustees held on March 22, 2000, AIM
proposed that the Board of Trustees approve the Reorganization of Emerging
Markets Debt Fund into Developing Markets Fund. The Board received from AIM
written materials that described the structure and tax consequences of the
Reorganization and contained information concerning Emerging Markets Debt Fund
and Developing Markets Fund, including comparative total return and fee and
expense information, a comparison of the investment objectives and primary
investment strategies of Emerging Markets Debt Fund (and the Portfolio) and
Developing Markets Fund, pro forma expense ratios and biographical information
on the portfolio managers of Developing Markets Fund.
The Board made an extensive inquiry into a number of factors with
respect to the Reorganization, including: (1) the compatibility of the Funds'
investment objectives, policies, and restrictions; (2) the capabilities,
experience, and performance of the portfolio management team for Developing
Markets Fund; (3) the Funds' respective investment performances; (4) the effect
of the Reorganization on the expense ratio of Developing Markets Fund and that
expense ratio relative to each Fund's current expense ratio; (5) the costs to be
incurred by each Fund as a result of the Reorganization; (6) the tax
consequences of the Reorganization; (7) possible alternatives to the
Reorganization, including continuing to operate Emerging Markets Debt Fund on a
stand-alone basis or liquidating Emerging Markets Debt Fund; and (8) the
potential benefits of the Reorganization to other persons, especially AIM and
its affiliates.
In considering the Reorganization, the Board considered the fact that
Developing Markets Fund has a broader investment mandate than Emerging Markets
Debt Fund (and the Portfolio) and can utilize equity securities more
extensively. AIM noted its belief that Developing Markets Fund's ability to
invest more extensively in equity securities gives it greater flexibility than
the Portfolio to effectively respond to opportunities in the markets. Such
flexibility could, over the long term, benefit shareholders. The Board also
considered the fact that, although Developing Markets Fund has a broader
investment mandate, the investment objectives and policies are sufficiently
compatible to enable Developing Markets Fund to maintain its investment policies
without any material changes after the Reorganization. The Board noted that both
funds are exposed to the same foreign country and currency risks although as an
equity fund, Developing Markets Fund may have a higher risk profile. The Board
also considered the impact the Reorganization would have on expenses. The Board
was advised that although Developing Markets Fund's expense ratio is higher than
that of Emerging Markets Debt Fund, the expense ratio of Developing Markets Fund
is expected to decrease as a result of the Reorganization. AIM has agreed to
limit the expenses of Developing Markets Fund to 1.75% for Class A shares, 2.40%
for Class B shares, and 2.40% for Class C shares following the Reorganization,
the same limits on expenses currently applicable to Emerging Markets Debt Fund.
The Board also considered the capabilities, experience, and performance
of the portfolio management team of Developing Markets Fund and the performance
of Emerging Markets Debt Fund in relation to the performance of Developing
Markets Fund. AIM advised the Board that, while past performance is no guarantee
of future results, the portfolio management team of Developing Markets Fund
produced superior recent investment performance than the portfolio management
team of Emerging Markets Debt Fund. As of December 31, 1999, the Morningstar
ratings and Lipper Inc. rankings for Emerging Markets Debt Fund and Developing
Markets Fund were as follows:
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Morningstar Rating (1)
Overall 3-year 5-year
------- ------ ------
Emerging Markets Debt Fund 1 1 1
Developing Markets Fund 2 2 2
Lipper Rank (Percentile) (2)
1-year 3-year 5-year
------ ------ ------
Emerging Markets Debt Fund 72% 94% 83%
Developing Markets Fund 70% 92% 57%
- ----------
(1) Under the Morningstar rating system, the top 10% of funds in a category
receive 5 stars, the next 22.5% receive 4 stars, the middle 35% receive
3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive a
single star.
(2) Under the Lipper ranking system, the lower the percentile rank the
better the performance.
AIM also advised the Board that it could benefit in the future if the
combined Fund's assets grow faster than the assets of the two Funds would have
grown separately in the absence of the Reorganization. In addition, any
reduction in Developing Markets Fund's expense ratio as a result of the
Reorganization could benefit AIM by reducing or eliminating any reimbursements
or waivers of expenses resulting from its obligation to limit the expenses of
Developing Markets Fund to 1.75% for Class A shares, 2.40% for Class B shares,
and 2.40% for Class C shares.
In addition, the Board noted that no initial sales or other charges
would be imposed on any Developing Markets Fund shares issued to Emerging
Markets Debt Fund shareholders in connection with the Reorganization. Finally,
the Board reviewed the principal terms of the Plan. The Board also noted that
Emerging Markets Debt Fund would be provided with an opinion of counsel that the
Reorganization would be tax-free to Emerging Markets Debt Fund and its
shareholders.
On the basis of the information provided to the Board and on their
evaluation of the Reorganization, the Board determined that the proposed
Reorganization will not dilute the interests of shareholders of Emerging Markets
Debt Fund or Developing Markets Fund and is in the best interest of Emerging
Markets Debt Fund and its shareholders. Therefore, the Board recommended the
approval of the Plan by the shareholders of Emerging Markets Debt Fund at a
special meeting.
SYNOPSIS
THE REORGANIZATION
The Plan provides for the acquisition by Developing Markets Fund of
Emerging Markets Debt Fund's assets (its interest in the Portfolio) in exchange
solely for Developing Markets Fund shares and the assumption by Developing
Markets Fund of Emerging Markets Debt Fund's liabilities. Those transactions
will occur as of 8:00 a.m., Eastern time, on June 19, 2000, or on such later
date as the conditions to the closing are satisfied ("Closing Date"). Emerging
Markets Debt Fund will then distribute the Developing Markets Fund shares to its
shareholders, by class, so that each Emerging Markets Debt Fund shareholder will
receive the number of full and fractional shares
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of the corresponding class of Developing Markets Fund in terms of fees and other
characteristics, including nomenclature ("Corresponding Class"), that equals the
value of the shareholder's holdings of Emerging Markets Debt Fund shares as of
the closing date. Following the Reorganization, (1) Developing Markets Fund will
redeem in-kind the interest it received in the Portfolio; and (2) Emerging
Markets Debt Fund will be terminated as soon as practicable.
The Trust will receive an opinion of Kirkpatrick & Lockhart LLP, its
counsel, to the effect that the Reorganization will constitute a tax-free
reorganization within the meaning of section 368(a)(1) of the Internal Revenue
Code of 1986, as amended ("Code"). Accordingly, no gain or loss will be
recognized by either Fund or their shareholders as a result of the
Reorganization. See "Additional Information About the Reorganization - Federal
Tax Considerations" herein.
COMPARISON OF EMERGING MARKETS DEBT FUND AND DEVELOPING MARKETS FUND
Investment Objectives and Policies
Emerging Markets Debt Fund's primary investment objective is high
current income, and its secondary investment objective is growth of capital.
Under normal circumstances, Emerging Markets Debt Fund seeks its objective by
investing all of its investable assets in the Portfolio which, in turn, invests
at least 65% of its total assets in debt securities of issuers located in
developing or emerging market countries; i.e., those that are in the initial
stages of their industrial cycles. The Portfolio may invest in the following
types of debt securities: (1) debt securities issued or guaranteed by the
governments of developing countries, or their agencies or instrumentalities; (2)
securities issued or guaranteed by the central banks of emerging market
countries; (3) securities issued by other banks and companies in such countries;
and (4) securities denominated in or indexed to the currencies of developing
countries. In addition, Emerging Markets Debt Fund may invest up to 35% of its
total assets in equity securities of issuers in developing countries; equity and
debt securities of issuers in developed countries, including the U.S.; and cash
and money market instruments. As of October 31, 1999, the Portfolio's holdings
consisted of 0% equity securities, 97% debt securities, and 3% other
investments.
Developing Markets Fund's primary investment objective is long-term
growth of capital and its secondary investment objective is income, to the
extent consistent with seeking growth of capital. Developing Markets Fund
normally invests substantially all of its assets in issuers in the developing
(or "emerging") markets of Asia, Europe, Latin America and elsewhere. Under
normal circumstances, a majority of Developing Markets Fund's assets is invested
in emerging market equity securities. Developing Markets Fund may invest 100% of
its total assets in debt securities that are below investment grade. Developing
Markets Fund may also invest up to 50% of its assets in developing market debt
securities, which are selected based on their potential to provide a combination
of capital appreciation and current income. Although Developing Markets Fund has
flexibility to invest in debt securities, it primarily invests in equity
securities. As of October 31, 1999, Developing Markets Fund's holdings consisted
of 98% equity securities, 0% debt securities, and 2% other investments.
Investment Advisory Services
AIM serves as investment adviser, and INVESCO Asset Management Limited.
("INVESCO") serves as investment sub-adviser, to Developing Markets Fund and the
Portfolio. After the Reorganization, AIM and INVESCO will continue to serve
Developing Markets Fund in their current capacities. John Cleary, Edwin
Gutierrez, and Jonathan Mann are primarily responsible for the portfolio
management of the Portfolio and William Barron, John Cleary, and Christine
Rowley are primarily responsible for the portfolio management of Developing
Markets Fund.
Performance
Set forth below are average annual total returns for the periods
indicated for Emerging Markets Debt Fund and Developing Markets Fund. The
average annual total return figures take into account sales charges applicable
to purchases of shares of the Funds.
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EMERGING MARKETS DEBT FUND DEVELOPING MARKETS FUND
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
SHARES SHARES SHARES SHARES SHARES SHARES
------- ------- ------- ------- ------- -------
1 Year Ended Oct. 31, 1999 12.78% 12.61% n/a 26.71% 27.14% n/a
3 Years Ended Oct. 31, 1999 (3.36)% (2.98)% n/a (8.86)% n/a n/a
5 Years Ended Oct. 31, 1999 (5.22)% (5.36)% n/a (4.63)% n/a n/a
Expenses
Set forth below is a comparison of annual operating expenses as a
percentage of net assets ("Expense Ratio") for the Class A, Class B, and Class C
shares of Emerging Markets Debt Fund and Developing Markets Fund for the fiscal
year ended October 31, 1999. The pro forma estimated Expense Ratio of Developing
Markets Fund giving effect to the Reorganization is also provided.
EMERGING MARKETS DEBT FUND DEVELOPING MARKETS FUND DEVELOPING MARKETS FUND PRO
FORMA ESTIMATED
------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------ -------- -------- -------- -------- ------- -------- -------- -------
SHAREHOLDER TRANSACTION
EXPENSES
Maximum sales load on 4.75% None None 4.75% None None 4.75% None None
purchase of shares (as a
% of offering price)(1)
Deferred Sales Charge None 5.00% 1.00% None 5.00% 1.00% None 5.00% 1.00%
(as a % of original
purchase price or
redemption proceeds, as
applicable)(1)
ANNUAL OPERATING
EXPENSES (AS A % OF NET
ASSETS)
Management Fees 0.98% 0.98% 0.98% 0.98% 0.98% 0.98% 0.98% 0.98% 0.98%
Rule 12b-1 Distribution 0.35% 1.00% 1.00% 0.36% 1.00% 1.00% 0.40% 1.00% 1.00%
Plan Fees
Other Expenses 0.46% 0.46% 0.46% 1.03% 0.99% 0.99% 0.73% 0.73% 0.73%
Interest Expense 0.13% 0.13% 0.13% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01%
------ -------- -------- -------- -------- ------- -------- -------- -------
Total Other Expenses 0.59% 0.59% 0.59% 1.04% 1.00% 1.00% 0.74% 0.74% 0.74%
Total Annual Fund 1.92% 2.57% 2.57% 2.38% 2.98% 2.98% 2.12% 2.72% 2.72%
------ -------- -------- -------- -------- ------- -------- -------- -------
Operating Expenses
Fee Waiver 0.04% 0.04% 0.04% 0.47% 0.47% 0.47% 0.37% 0.37% 0.37%
Net Expenses (2) 1.88% 2.53% 2.53% 1.91% 2.51% 2.51% 1.75% 2.35% 2.35%
====== ======== ======== ======== ======== ======= ======== ======== =======
- --------------
(1) Sales charge waivers are available for Class A and Class B shares, and
reduced sales charge purchase plans are available for Class A shares. The
maximum 5% contingent deferred sales charges ("CDSC") on Class B shares
apply to redemptions during the first year after purchase; the charge
generally declines by 1% annually thereafter, reaching zero after six
years. The maximum 1% CDSCs on Class C shares apply to redemptions during
the first year after purchase.
(2) Expenses are based on each fund's fiscal year ended October 31, 1999, and
reflect AIM's contractual agreement to limit Emerging Markets Debt Fund's
expenses (exclusive of brokerage commissions, taxes, interest, and
extraordinary expenses) to the annual rate of 1.75%, 2.40%, and 2.40% of
the average daily net assets of the fund's Class A, Class B, and Class C
shares, respectively, and to limit Developing Market Fund's expenses
(exclusive of brokerage commissions, taxes, interest, and extraordinary
expenses) to the annual rate of 2.00%, 2.50%, and 2.50% of the average
daily net assets of the fund's Class A, Class B, and Class C shares,
respectively. Further, AIM has contractually agreed to limit the expenses
of Developing Markets Fund after consummation of the Reorganization
(exclusive of brokerage commissions, taxes, interest, and extraordinary
expenses) to the annual rate of 1.75%, 2.40%, and 2.40% of the average
daily net assets of the fund's Class A, Class B, and Class C shares,
respectively, until June 30, 2001. "Other expenses" include custody,
transfer agent, legal and audit fees and other operating expenses.
Hypothetical Example of Effect of Expenses
An investor would have directly or indirectly paid the following
expenses on a $10,000 investment under the existing and estimated fees and
expenses stated above, assuming a 5% annual return.
8
13
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS (3)
---------- ---------- ---------- ----------
EMERGING MARKETS DEBT FUND
Class A shares (1) ........................ $ 661 $ 1,049 $ 1,462 $ 2,612
Class B shares:
Assuming complete redemption at end
of period (2) ....................... $ 760 $ 1,099 $ 1,565 $ 2,747
Assuming no redemption ................. $ 260 $ 799 $ 1,365 $ 2,747
Class C shares
Assuming complete redemption at end .... $ 360 $ 799 $ 1,365 $ 2,905
of period (2)
Assuming no redemption ................. $ 260 $ 799 $ 1,365 $ 2,905
DEVELOPING MARKETS FUND
Class A shares (1) ........................ $ 705 $ 1,182 $ 1,685 $ 3,062
Class B shares:
Assuming complete redemption at end
of period (2) ...................... $ 801 $ 1,221 $ 1,767 $ 3,159
Assuming no redemption ................. $ 301 $ 921 $ 1,567 $ 3,159
Class C shares
Assuming complete redemption at end .... $ 401 $ 921 $ 1,567 $ 3,299
of period (2)
Assuming no redemption ................. $ 301 $ 921 $ 1,567 $ 3,299
COMBINED FUND
Class A shares (1) ........................ $ 680 $ 1,107 $ 1,560 $ 2,810
Class B shares:
Assuming complete redemption at end
of period (2) ....................... $ 775 $ 1,144 $ 1,640 $ 2,907
Assuming no redemption ................. $ 275 $ 844 $ 1,440 $ 2,907
Class C shares
Assuming complete redemption at end .... $ 375 $ 844 $ 1,440 $ 3,051
of period (2)
Assuming no redemption ................. $ 275 $ 844 $ 1,440 $ 3,051
- --------------
(1) Assumes payment of maximum sales charge by the investor.
(2) Assumes payment of the applicable contingent deferred sales charge.
(3) For Class B shares, this number reflects the conversion to Class A shares
eight years following the end of the calendar month in which the purchase
was made.
THE "HYPOTHETICAL EXAMPLE" IS NOT A REPRESENTATION OF PAST OR FUTURE
EXPENSES. THE FUND'S ACTUAL EXPENSES, AND AN INVESTOR'S DIRECT AND INDIRECT
EXPENSES, MAY BE MORE OR LESS THAN THOSE SHOWN. TO THE EXTENT EXPENSES ARE
WAIVED OR REIMBURSED, THE AMOUNT AN INVESTOR WOULD PAY WILL BE LOWER. THE TABLE
AND THE ASSUMPTION IN THE EXAMPLE OF A 5% ANNUAL RETURN ARE REQUIRED BY
REGULATIONS OF THE SEC APPLICABLE TO ALL MUTUAL FUNDS. THE 5% ANNUAL RETURN IS
NOT A PREDICTION OF AND DOES NOT REPRESENT THE FUND'S PROJECTED OR ACTUAL
PERFORMANCE.
Sales Charges
No sales charges are applicable to shares of Developing Market Fund
received in connection with the Reorganization. The Class A shares of both
Developing Markets Fund and Emerging Markets Debt Fund are sold subject to a
maximum initial sales charge of 4.75%. Class B shares are sold subject to a
maximum CDSC of 5.00% of the lesser of the net asset value ("NAV") at time of
purchase or sale, which declines to zero after six years. Class C shares are
sold subject to a maximum CDSC of 1.00% of the lesser of the NAV at time of
purchase or sale, only during the first year. For purposes of calculating the
CDSC, the holding period for the Class B shares distributed to Class B
shareholders and for the Class C shares distributed to Class C shareholders of
Emerging Markets Debt Fund
9
14
will be treated as having the same period as the shares of Emerging Markets Debt
Fund previously held. New purchases of Class A, Class B, and Class C shares of
Developing Markets Fund by any shareholders will be subject to their terms,
including, for example, for Class A shares, the 4.75% initial sales charge. As
is currently the case for each Fund, no CDSC will be applied to redemptions of
Class B shares that represent reinvested dividends or other distributions, nor
will Class A shares so acquired be subject to any initial sales charge.
Distribution; Purchase, Exchange and Redemption
Shares of Developing Markets Fund and Emerging Markets Debt Fund are
distributed by A I M Distributors, Inc. ("AIM Distributors"). The Class A shares
of Developing Markets Fund and Emerging Markets Debt Fund pay a fee in the
amount of 0.50% and 0.35%, respectively, of average daily net assets to AIM
Distributors for distribution services. The Class B shares and Class C shares of
Developing Markets Fund and Emerging Markets Debt Fund pay AIM Distributors fees
at an annual rate of 1.00% of the average daily net assets attributable to the
Class B shares and Class C shares, respectively, for distribution services. For
more information, see the Shareholder Information section in the Developing
Markets Fund Prospectus attached as Appendix II to this Proxy
Statement/Prospectus.
Purchase and redemption procedures are the same for Developing Markets
Fund and Emerging Markets Debt Fund. Shares of Developing Markets Fund and
Emerging Markets Debt Fund may be exchanged for shares of other funds of The AIM
Family of Funds(R) of the same class, as provided in each Fund's prospectus. No
initial sales charge will be imposed on the shares being acquired, and no CDSC
will be imposed on the shares being disposed of, through an exchange. However, a
CDSC may apply to redemptions of an AIM Fund's Class B shares or Class C shares
acquired through an exchange. Exchanges will be subject to minimum investment
and other requirements of the Fund into which exchanges are made.
Operations of Developing Markets Fund Following the Reorganization
There are differences in the investment objectives and some of the
investment policies of the Funds. It is not expected that Developing Markets
Fund will revise its investment objectives or policies following the
Reorganization to reflect those of Emerging Markets Debt Fund. Rather, AIM and
INVESCO believe that substantially all of the assets held by the Portfolio will
be consistent with Developing Markets Fund's investment policies and thus could
be held by Developing Markets Fund if the Reorganization is approved. If the
Reorganization is approved, the Portfolio will sell any assets that are
inconsistent with Developing Markets Fund's investment policies prior to the
effective time of the Reorganization, and the proceeds thereof will be held in
temporary investments or reinvested in assets that qualify to be held by
Developing Markets Fund. The need, if any, for the Portfolio to dispose of
assets prior to the effective time of the Reorganization may result in selling
securities at a disadvantageous time and could result in the Portfolio's
realizing losses that would not otherwise have been realized.
Portfolio Management
John Cleary, Edwin Gutierrez, and Jonathan Mann are primarily
responsible for the day-to-day management of the Portfolio. Mr. Cleary has been
Portfolio Manager for the Portfolio since 1999 and has been associated with AIM
and/or its affiliates since 1998. From 1997 to 1998, he was Manager of a global
emerging markets fixed income fund for West Merchant Bank Ltd. From 1993 to
1996, he was a portfolio manager for Fischer Francis Trees and Watts Mr. Cleary
completed the investment management program at the London Business School in
1996. Mr. Gutierrez has been Portfolio Manager for the Portfolio since 1999 and
has been associated with AIM and/or its affiliates since 1998. From 1994 to
1998, he was an economist for Chancellor LGT Asset Management. Mr. Mann has been
Portfolio Manager for the Portfolio since 1999 and has been associated with AIM
and/or its affiliates since 1998. From 1994 to 1998, he was an economist for LGT
Asset Management.
William Barron, John Cleary, and Christine Rowley are primarily
responsible for the day-to-day management of the Developing Markets Fund. Mr.
Barron has been Portfolio Manager for Developing Markets Fund since 1999 and has
been associated with AIM and/or its affiliates since 1995. Mr. Cleary has been
Portfolio Manager for Developing Markets Fund since 1999 and has been associated
with AIM and/or its affiliates since 1998.
10
15
From 1997 to 1998, he was Manager of a global emerging markets fixed income fund
for West Merchant Bank Ltd. From 1993 to 1996, he was a portfolio manager for
Fischer Francis Trees and Watts. Ms. Rowley has been Portfolio Manager for
Developing Markets Fund since 1999 and has been associated with AIM and/or its
affiliates since 1991.
MANAGEMENT DISCUSSION AND ANALYSIS OF PERFORMANCE
A discussion of the performance of Developing Markets Fund for the
twelve month period ended October 31, 1999, is set forth in Appendix III to this
Proxy Statement/Prospectus.
RISK FACTORS
NON-DIVERSIFIED CLASSIFICATION
Both Emerging Markets Debt Fund and Developing Markets Fund are
classified as "non-diversified" funds. As a result, investment may be made in a
smaller number of issuers than a "diversified" fund. To the extent that
investment is made in a smaller number of issuers, the NAV of a Fund's shares
may fluctuate more widely and it may be subject to greater investment and credit
risk with respect to its portfolio.
INVESTING IN EMERGING MARKETS
Developing Markets Fund and the Portfolio each invests primarily in
securities of issuers located in emerging markets. Emerging markets generally
are dependent heavily upon international trade and, accordingly, have been and
may continue to be affected adversely 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. Inflation and
rapid fluctuations in inflation rates have had and may continue to have negative
effects on the economies and securities markets of certain countries with
emerging markets.
Disclosure and regulatory standards in most emerging markets are, in
many respects, less stringent than in the United States and other developed
markets. There also may be a lower level of monitoring and regulation of
emerging markets and the activities of investors in those markets, and
enforcement of existing regulations has been extremely limited.
The securities markets of emerging countries are substantially smaller,
less developed, less liquid, and more volatile than the securities markets of
the developed countries. The risk also exists that an emergency situation may
arise in one or more emerging markets as a result of which trading of securities
may cease or may be substantially curtailed and prices for a Fund's portfolio
securities in those markets may not be readily available. Section 22(e) of the
1940 Act permits a registered investment company and series thereof, such as a
Fund, to suspend redemption of its shares for any period during which an
emergency exists, as determined by the SEC. Accordingly, if the Trust believes
that circumstances dictate, it will promptly apply to the SEC for a
determination that such an emergency exists. During the period commencing with
the Trust's identification of such conditions until the date of any SEC action,
the Funds' portfolio securities in the affected markets will be valued at fair
value determined in good faith by or under the direction of the Board.
11
16
LOWER QUALITY DEBT
The Portfolio normally invests a significant amount of its total assets
in debt securities rated below investment grade. The Developing Markets Fund
also may invest in such securities. Such investments involve a high degree of
risk. Debt rated Baa by Moody's Investor Service, Inc. ("Moody's") is considered
by Moody's to have speculative characteristics. Debt rated BB, B, CCC, CC or C
by Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"), and
debt rated Ba, B, Caa, Ca or C by Moody's is regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. Debt rated C
by Moody's or S&P is the lowest-rated debt that is not in default as to
principal or interest, and issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment standing.
The market values of lower quality debt securities tend to reflect
individual developments of the issuer to a greater extent than do higher quality
securities, which react primarily to fluctuations in the general level of
interest rates. In addition, lower quality debt securities tend to be more
sensitive to economic conditions and generally have more volatile prices than
higher quality securities. Issuers of lower quality securities are often highly
leveraged and may not have available to them more traditional methods of
financing. For example, during an economic downturn or a sustained period of
rising interest rates, highly leveraged issuers of lower quality securities may
experience financial stress. During such period, such issuers may not have
sufficient revenues to meet their interest payment obligations. An issuer's
ability to service its debt obligations may also be adversely affected by
specific developments affecting it, such as its inability to meet specific
projected business forecasts or the unavailability of additional financing.
Similarly, certain emerging market governments that issue lower quality debt
securities are among the largest debtors to commercial banks, foreign
governments and supranational organizations such as the World Bank and may not
be able or willing to make principal and/or interest repayments as they come
due. The risk of loss due to default by an issuer is significantly greater for
the holders of lower quality securities because such securities are generally
unsecured and may be subordinated to the claims of other creditors of the
issuer.
Lower quality debt securities frequently have call or buy-back features
that permit an issuer to call or repurchase the security from the holder. In
addition, a Fund may have difficulty disposing of lower quality securities
because they may have a thin trading market.
SOVEREIGN DEBT
Developing Markets Fund and the Portfolio each may invest in sovereign
debt securities of emerging market governments, including Brady Bonds.
Investments in such securities involve special risks. The issuer of the debt or
the governmental authorities that control the repayment of the debt may be
unable or unwilling to repay principal or interest when due in accordance with
the terms of the debt. Periods of economic uncertainty may result in the
volatility of market prices of sovereign debt obligations and in turn a Fund's
NAV, to a greater extent than the volatility inherent in domestic fixed income
securities.
Investors also should be aware that certain sovereign debt instruments
in which a Fund may invest involve great risk. As noted above, sovereign debt
obligations issued by emerging market governments generally are deemed to be the
equivalent in terms of quality to securities rated below investment grade by
Moody's and S&P. Those securities are regarded as predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligations and involve major risk exposure to
adverse conditions. Some of those securities, with respect to which the issuer
currently may not be paying interest or may be in payment default, may be
comparable to securities rated D by S&P or C by Moody's. A Fund may have
difficulty disposing of and valuing certain sovereign debt obligations because
there may be a limited trading market for those securities. Because there is no
liquid secondary market for many of these securities, each Fund anticipates that
they could be sold only to a limited number of dealers or institutional
investors.
CURRENCY RISK
Because Developing Markets Fund and the Portfolio each may invest
substantially in securities denominated in currencies other than the U.S. dollar
and may hold foreign currencies, it will be affected favorably or
12
17
unfavorably by exchange control regulations or changes in the exchange rates
between those currencies and the U.S. dollar. Changes in currency exchange rates
will affect the NAV of a Fund's shares and also may affect the value of
dividends and interest earned by a Fund and gains and losses realized by it.
Many of the currencies of emerging market countries have experienced
steady devaluations relative to the U.S. dollar, and major devaluations have
occurred in certain countries. Any devaluations in the currencies in which
portfolio securities are denominated may have a detrimental impact on a Fund.
OPTIONS, FUTURES, AND FOREIGN CURRENCY TRANSACTIONS
Developing Markets Fund and the Portfolio are each authorized to enter
into options, futures, and forward currency transactions. These transactions
involve certain risks, which include: (1) dependence on AIM's ability to predict
movements in the prices of individual securities, fluctuations in the general
securities markets, and movements in interest rates and currency markets; (2)
imperfect correlation, or even no correlation, between movements in the price of
forward contracts, options, futures contracts, or options thereon and movements
in the price of the currency or security hedged or used for cover; (3) the fact
that skills and techniques needed to trade options, futures contracts, and
options thereon or to use forward currency contracts are different from those
needed to select the securities in which a Fund invests; (4) lack of assurance
that a liquid secondary market will exist for any particular option, futures
contract, or option thereon at any particular time; (5) the possible loss of
principal under certain conditions; and (6) the possible inability of a Fund to
purchase or sell a portfolio security at a time when it would otherwise be
favorable for it to do so, or the possible need for a Fund to sell a security at
a disadvantageous time, due to the need for a Fund to maintain "cover" or to set
aside securities in connection with hedging transactions.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand
Developing Markets Fund's financial performance. Certain information reflects
financial results for a single Developing Markets Fund share.
The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in Developing Markets Fund
(assuming reinvestment of all dividends and distributions).
This information has been audited by PricewaterhouseCoopers LLP, whose
report, along with Developing Markets Fund's financial statements, is included
in Developing Markets Fund's annual report, which is available upon request.
Total return information in this table may be affected by special
market factors, including Developing Markets Fund's investments in initial
public offerings, which may have a magnified impact on Developing Markets Fund
due to its small asset base. There is no guarantee that, as Developing Markets
Fund's assets grow, it will continue to experience substantially similar
performance.
G.T. Global Developing Markets Fund, Inc. ("Predecessor Fund") was a
closed-end investment company whose single class of shares traded on the New
York Stock Exchange. On October 31, 1998, Developing Markets Fund, which had no
previous operating history, acquired the assets and assumed the liabilities of
the Predecessor Fund. The fees and expenses of Developing Markets Fund differ
from those of the Predecessor Fund. Developing Markets Fund's fiscal year ends
October 31, rather than December 31, which was the Predecessor Fund's fiscal
year end.
13
18
Class A
Ten months
Year ended October 31, ended Year ended December 31,
---------------------- October 31, -----------------------
1999(a) 1998(a) 1997(b) 1996 1995
--------- --------- ---------- --------- ---------
Net asset value, beginning of period .................... $ 7.53 $ 12.56 $ 13.84 $ 11.60 $ 12.44
--------- --------- ---------- --------- ---------
Income From Investment operations:
Net investment income ................................ 0.06 0.39(c,d) 0.25 0.53 0.72
Net realized and unrealized gain (loss) on
investments ......................................... 2.36 (5.10) (1.53) 2.19 (0.84)
--------- --------- ---------- --------- ---------
Net increase (decrease) from investment operations... 2.42 (4.71) (1.28) 2.72 (0.12)
--------- --------- ---------- --------- ---------
Redemption fees retained ........................... 0.03 0.28 -- -- --
Distributions to shareholders:
From net investment income ........................... (0.12) (0.60) -- (0.48) (0.72)
From net realized gain on investments ................ -- -- -- -- --
Total distributions ................................ (0.12) (0.60) -- (0.48) (0.72)
--------- --------- ---------- --------- ---------
Net asset value, end of period .......................... $ 9.86 $ 7.53 $ 12.56 $ 13.84 $ 11.60
========= ========= ========== ========= =========
Total return (e) ........................................ 33.11% (37.09)% (9.25)% 23.59% (0.95)%
Ratios and supplemental data:
Net assets, end of period (in 000's) .................... $ 157,198 $ 87,517 $ 457,379 $ 504,012 $ 422,348
Ratio of net investment income to average net assets
With fee waivers ..................................... 0.68%(f) 3.84% 2.03%(g 4.07% 6.33%
Without fee waivers .................................. 0.21%(f) 3.43% 1.95%(g 4.04% 6.30%
Ratio of operating expenses to average net assets
excluding interest expense
With fee waivers ..................................... 1.90%(f) 1.73% 1.75%(g 1.82% 1.77%
Without fee waivers .................................. 2.37%(f) 2.14% 1.83%(g 1.85% 1.80%
Ratio of interest expense to average net assets ......... 0.01% 0.20% N/A N/A N/A
Portfolio turnover rate ................................. 125% 111% 184%(g 138% 75%
- ---------------------------
(a) These selected per share data were calculated based upon average shares
outstanding during the period.
(b) Prior to November 1, 1997, the Fund was known as G.T. Global Developing
Markets Fund, Inc. All capital shares issued and outstanding on October
31, 1997 were reclassified as Class A shares.
(c) Net investment income per share reflects an interest payment received
from the conversion of Vnesheconombank loan agreements of $0.14 per
share.
(d) Before reimbursement, the net investment income per share would have
been reduced by $0.04.
(e) Total return does not include sales charges and is not annualized for
periods less than one year.
(f) Ratios are based on average net assets of $123,758,642.
(g) Annualized.
N/A Not Applicable.
14
19
Class B Class C
---------------------------- ---------------------------
March 1, 1999 (commencement
of operations) to
Year ended October 31, October 31,
---------- ---------- ----------
1999(a) 1998(a) 1999(a)
---------- ---------- ----------
Net asset value, beginning of period ................................... $ 7.49 $ 12.56 $ 7.47
---------- ---------- ----------
Income From Investment operation
Net investment income (loss) ........................................ 0.01 0.31(b,c) --
Net realized and unrealized gain (loss) on investments .............. 2.37 (5.07) 2.32
---------- ---------- ----------
Net increase (decrease) from investment operations ................ 2.38 (4.76) 2.32
---------- ---------- ----------
Redemption fees retained .......................................... -- 0.28 --
Distributions to shareholders:
From net investment income .......................................... (0.08) (0.59) --
From net realized gain on investments ............................... -- -- --
---------- ---------- ----------
Total distributions ............................................... (0.08) (0.59) --
---------- ---------- ----------
Net asset value, end of period ......................................... $ 9.79 $ 7.49 $ 9.79
========== ========== ==========
Total return (d) ....................................................... 32.14% (39.76)% 31.06%
Ratios and supplemental data:
Net assets, end of period (in 000's) ................................... $ 49,723 $ 154 $ 412
Ratio of net investment income (loss) to average net
assets:
With fee waivers .................................................... 0.08%(e) 3.09% 0.08%(f)
Without fee waivers ................................................. (0.39)%(e) 2.68% (0.39)%(f)
Ratio of operating expenses to average net assets excluding interest
expense:
With fee waivers .................................................... 2.50%(e) 2.48% 2.50%(f)
Without fee waivers ................................................. 2.97%(e) 2.89% 2.97%(f)
Ratio of interest expense to average net asset ......................... 0.01% 0.20% 0.01%
Portfolio turnover rate ................................................ 125% 111% 125%
- ----------------
(a) These selected per share data were calculated based upon average shares
outstanding during the period.
(b) Before reimbursement, the net investment income per share would have
been reduced by $0.04.
(c) Net investment income per share reflects an interest payment received
from the conversion of Vnesheconombank loan agreements of $0.14 per
share.
(d) Total return does not include sales charges and is not annualized for
periods less than one year.
(e) Radios are based on average net assets of $35,727,260.
(f) Ratios are annualized and based on average net assets of $208,934.
15
20
ADDITIONAL INFORMATION ABOUT THE REORGANIZATION
TERMS OF THE REORGANIZATION
The terms and conditions under which the Reorganization may be
consummated are set forth in the Plan. Significant provisions of the Plan are
summarized below; however, this summary is qualified in its entirety by
reference to the Plan, a copy of which is attached as Appendix I to this Proxy
Statement/Prospectus.
THE REORGANIZATION
The Plan contemplates (a) Developing Markets Fund's acquiring on the
Closing Date the assets of Emerging Markets Debt Fund in exchange solely for
Developing Markets Fund's shares and its assumption of Emerging Markets Debt
Fund's liabilities and (b) the constructive distribution of those shares to
Emerging Markets Debt Fund shareholders. Emerging Markets Debt Fund's assets
include its interest in the Portfolio as well as all cash, cash equivalents,
receivables, and other property owned by it as of the close of regular trading
on the New York Stock Exchange on the business day next preceding the Closing
Date ("Valuation Time") (collectively, "Assets"). Developing Markets Fund will
assume from Emerging Markets Debt Fund all its debts, liabilities, obligations
and duties of whatever kind or nature as of the Valuation Time (collectively,
"Liabilities"); provided, however, that Emerging Markets Debt Fund will use its
best efforts, to the extent practicable, to discharge all of its known
Liabilities prior to the Valuation Time. Developing Markets Fund also will
deliver its shares to Emerging Markets Debt Fund, which then will be
constructively distributed to Emerging Markets Debt Fund's shareholders.
The value of the Assets to be acquired, and the amount of the
Liabilities to be assumed, by Developing Markets Fund and the NAV of a Class A,
Class B, and Class C share of Developing Markets Fund will be determined as of
the Valuation Time. Where market quotations are readily available, portfolio
securities will be valued based upon such market quotations, provided the
quotations adequately reflect, in AIM's judgment, the fair value of the
security. Where such market quotations are not readily available, securities
will be valued based upon appraisals received from a pricing service using a
computerized matrix system or based upon appraisals derived from information
concerning the security or similar securities received from recognized dealers
in those securities. The amortized cost method of valuation generally will be
used to value debt instruments with 60 days or less remaining to maturity,
unless the Board determines that this method does not represent fair value. All
other securities and assets will be valued at fair value as determined in good
faith by or under the direction of the Board.
On, or as soon as practicable after, the Closing Date, Emerging Markets
Debt Fund will distribute to its shareholders of record the Developing Markets
Fund's shares it receives, by Class, so that each Class A, Class B, and Class C
Emerging Markets Debt Fund shareholder will receive a number of full and
fractional shares of the Class A, Class B, or Class C Developing Markets Fund
shares, respectively ("Corresponding Class"), equal in value to the
shareholder's holdings in Emerging Markets Debt Fund. Such distribution will be
accomplished by opening accounts on the books of Developing Markets Fund in the
names of Emerging Markets Debt Fund's shareholders and by transferring thereto
the shares of each Class previously credited to the account of Emerging Markets
Debt Fund on those books. Fractional shares in each Class of Developing Markets
Fund will be rounded to the third decimal place.
Immediately after the Reorganization, each former shareholder of
Emerging Markets Debt Fund will own shares of the Class of Developing Markets
Fund that will equal the value of that shareholder's shares of the Corresponding
Class of Emerging Markets Debt Fund immediately prior to the Reorganization.
Because shares of each Class of Developing Markets Fund will be issued at NAV in
exchange for the net assets attributable to the Corresponding Class of Emerging
Markets Debt Fund, the aggregate value of shares of each Class of Developing
Markets Fund so issued will equal the aggregate value of shares of the
Corresponding Class of Emerging Markets Debt Fund. The NAV per share of
Developing Markets Fund will be unchanged by the transactions. Thus, the
Reorganization will not result in a dilution of any shareholder interest.
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DESCRIPTION OF SECURITIES TO BE ISSUED
The Trust is registered with the SEC as an open-end management
investment company. Pursuant to the Trust's Declaration of Trust, the Trust may
issue an unlimited number of shares. Each share of a Fund represents an equal
proportionate interest with other shares in that Fund, has a par value of $0.01
per share, has equal earnings, assets, and voting privileges, except as noted in
the prospectus for each Fund, and is entitled to such dividends and other
distributions out of the income earned and gain realized on the assets belonging
to the Fund as may be declared by the Board. The Trustees have established
Developing Markets Fund as one of its series and have authorized the public
offering of three Classes of shares of that Fund, designated Class A, Class B,
and Class C shares. Each share in a Class represents an equal proportionate
interest in Developing Markets Fund's assets with each other share in that
Class. Shares of Developing Markets Fund entitle their holders to one vote per
full share and fractional votes for fractional shares held, except that each
Class has exclusive voting rights on matters pertaining to its plan of
distribution. Shares of a Fund, when issued, are fully paid and nonassessable.
The Classes of Developing Markets Fund differ as follows: (1) each
Class has exclusive voting rights on matters pertaining to its plan of
distribution; (2) Class A shares are subject to an initial sales charge and bear
ongoing distribution fees; (3) Class B shares bear ongoing distribution fees,
are subject to a CDSC upon certain redemptions, and convert to Class A shares
after a certain period; (4) Class C shares bear ongoing distribution fees, are
subject to a CDSC upon certain redemptions, and do not convert to Class A
shares; and (5) each Class may bear differing amounts of certain Class-specific
expenses. Each share of each Class of Developing Markets Fund is entitled to
participate equally in dividends and other distributions and the proceeds of any
liquidation, except that because of different distribution fees and other
Class-specific expenses, the amount of dividends and other distributions paid by
each class will differ.
PURCHASES, REDEMPTIONS, AND EXCHANGES OF SHARES
Shares of each Fund are available through A I M Fund Services, Inc.
("Transfer Agent") or through any dealer authorized by AIM Distributors to sell
shares of the AIM Funds. The minimum initial investment in each Fund is $500;
each additional investment must be $50 or more. These minimums may be waived or
reduced for investments by employees of AIM or its affiliates, certain pension
plans and retirement accounts, and participants in a Fund's automatic investment
plan.
The rights and privileges of the shareholders of each Class of Emerging
Markets Debt Fund Shares will be effectively unchanged by the Reorganization.
Accordingly, the Reorganization will have no effect on the holding period of
Class B and Class C shares of Emerging Markets Debt Fund for purposes of
calculating any applicable CDSC. Similarly, the Reorganization will have no
effect on the policies regarding the ability of investors to qualify for reduced
or waived sales charges, as currently in effect for Emerging Markets Debt Fund.
Shares of each Fund may be exchanged for shares of the Corresponding
Class of other AIM Funds, and shares of each Fund may be acquired through an
exchange of shares of the Corresponding Class of other AIM Funds, as provided in
each Fund's prospectus. No initial sales charge will be imposed on the shares
being acquired, and no CDSC will be imposed on the shares being disposed of,
through an exchange. However, a CDSC may apply to redemptions of AIM Fund's
Class B or Class C shares acquired through an exchange. Exchanges will be
subject to minimum investment and other requirements of the Fund into which
exchanges are made.
DIVIDENDS AND OTHER DISTRIBUTIONS
Emerging Markets Debt Fund generally distributes dividends from its net
investment income, if any, monthly. Developing Markets Fund generally
distributes dividends from its net investment income, if any, annually. Both
Funds generally distribute any net capital gain (the excess of net long-term
capital gain over net short-term capital loss) and net short-term capital gain
realized from the sale of portfolio securities and net gains from foreign
currency transactions annually. Shareholders of each Fund may reinvest dividends
and other distributions in additional Fund shares of the distributing class (or
in shares of the Corresponding Class of other AIM Funds) on the payment date at
those shares' NAV that day or receive the distribution amount in cash. Each Fund
may make
17
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additional distributions if necessary to avoid a 4% excise tax on certain
undistributed ordinary income and capital gains.
On or before the Closing Date, Emerging Markets Debt Fund will declare
as a distribution substantially all of its net investment income, net capital
gain, net short-term capital gain, and net gains from foreign currency
transactions in order to maintain its tax status as a regulated investment
company. Developing Markets Fund also may declare and distribute as a dividend
to its shareholders, on or before the Closing Date, substantially all of any
previously undistributed net investment income. The consummation of the
Reorganization is subject to a number of conditions set forth in the Plan, some
of which may be waived by Emerging Markets Debt Fund. In addition, the Plan may
be amended in any mutually agreeable manner, except that no amendment may be
made subsequent to the Meeting that would have a material adverse effect on the
shareholders' interests.
ACCOUNTING TREATMENT
The Reorganization will be accounted for on a tax-free combined basis.
Accordingly, the book cost basis to Developing Markets Fund of the assets
transferred to it by Emerging Markets Debt Fund will be the same as Emerging
Markets Debt Fund's book cost basis of such assets.
FEDERAL TAX CONSIDERATIONS
The exchange of Emerging Markets Debt Fund's Assets for Developing
Markets Fund shares and Developing Markets Fund's assumption of the liabilities
of Emerging Markets Debt Fund is intended to qualify for federal income tax
purposes as a tax-free reorganization under section 368 of the Internal Revenue
Code of 1986, as amended ("Code"). The Trust will receive an opinion of
Kirkpatrick & Lockhart LLP, its counsel, substantially to the effect that:
(i) The acquisition of the assets of the Emerging Markets Debt Fund by
the Developing Markets Fund in exchange solely for the Developing
Markets Fund Shares and the Developing Markets Fund's assumption of the
Emerging Markets Debt Fund's liabilities, followed by the distribution
of those Shares pro rata to the Emerging Markets Debt Fund Shareholders
constructively in exchange for their Emerging Markets Debt Fund Shares,
as provided in the Agreement, will qualify as a "reorganization" within
the meaning of section 368(a) of the Code, and each of the Emerging
Markets Debt Fund and the Developing Markets Fund will be a "party to a
reorganization" within the meaning of 368(b) of the Code.
(ii) The Emerging Markets Debt Fund will recognize no gain or loss on
the transfer of its assets to the Developing Markets Fund in exchange
solely for Developing Markets Fund Shares and the Developing Markets
Fund's assumption of the Emerging Markets Debt Fund's liabilities or on
the distribution of those Shares to the Emerging Markets Debt Fund
Shareholders.
(iii) The Developing Markets Fund will recognize no gain or loss on its
receipt of the assets of the Emerging Markets Debt Fund in exchange
solely for Developing Markets Fund Shares and its assumption of the
Emerging Markets Debt Fund's liabilities.
(iv) The Developing Markets Fund's basis for the assets of the Emerging
Markets Debt Fund transferred to it will be the same as the Emerging
Markets Debt Fund's basis therefor immediately before the
Reorganization, and the Developing Markets Fund's holding period for
those assets will include the Emerging Markets Debt Fund's holding
period therefor.
(v) An Emerging Markets Debt Fund Shareholder will recognize no gain or
loss on the receipt of Developing Markets Fund Shares in constructive
exchange for all its Emerging Markets Debt Fund Shares pursuant to the
Reorganization.
(vi) An Emerging Markets Debt Fund Shareholder's aggregate basis for
the Developing Markets Fund Shares received thereby in the
Reorganization will be the same as the aggregate basis for its Emerging
Markets Debt Fund Shares to be constructively surrendered in exchange
therefor, and its holding period for
18
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those Developing Markets Fund Shares will include its holding period
for those Emerging Markets Debt Fund Shares, provided the Emerging
Markets Debt Fund Shareholder held the Emerging Markets Debt Fund
Shares as capital assets at the Effective Time.
The opinion may state that no opinion is expressed as to the effect of
the Reorganization on the Funds or any shareholder with respect to any asset as
to which any unrealized gain or loss is required to be recognized for federal
income tax purposes at the end of a taxable year (or on the termination or
transfer thereof) under a mark-to-market system of accounting.
Utilization by Developing Markets Fund after the Reorganization of
pre-Reorganization capital losses realized by Emerging Markets Debt Fund could
be subject to limitation in future years under the Code.
Shareholders of Emerging Markets Debt Fund should consult their tax
advisers regarding the effect, if any, of the Reorganization in light of their
individual circumstances. Because the foregoing discussion only relates to the
federal income tax consequences of the Reorganization, those shareholders also
should consult their tax advisers as to state and local tax consequences, if
any, of the Reorganization.
ORGANIZATION OF THE FUNDS
The Trust is an open-end management investment company organized as a
Delaware business trust. Emerging Markets Debt Fund commenced operations on
October 22, 1992, as a series of G.T. Investment Funds, Inc. (the "Company"),
the Trust's predecessor entity. Developing Markets Fund commenced operations on
November 1, 1997 as a series of the Company, as the successor (in a
reorganization) to G.T. Global Developing Markets, Inc., a closed-end investment
company that commenced operations on January 11, 1994. On September 4, 1998, the
Trust acquired the assets and assumed the liabilities of the Company. The
operations of the Trust, as a Delaware business trust, are governed by its
Agreement and Declaration of Trust, as amended (the "Declaration of Trust") and
Delaware law.
OWNERSHIP OF EMERGING MARKETS DEBT FUND AND DEVELOPING MARKETS FUND SHARES
Listed below is the name, address and percent ownership of each person
who as of April 3, 2000, to the knowledge of the Trust, owned beneficially
five percent or more of any class of the outstanding shares of Emerging Markets
Debt Fund and Developing Markets Fund, respectively:
[Management does not know of any person who beneficially owns 5% or
more of Emerging Markets Debt Fund Shares or Developing Markets Fund.]
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EMERGING MARKETS DEBT FUND
PERCENT BENEFICIAL
NAME AND ADDRESS CLASS OF SHARES NUMBER OF SHARES OWNED OWNERSHIP
- --------------- --------------- ------------------------ ------------------
DEVELOPING MARKETS FUND
PERCENT BENEFICIAL
NAME AND ADDRESS CLASS OF SHARES NUMBER OF SHARES OWNED OWNERSHIP
- --------------- --------------- ------------------------ ------------------
To the best of the knowledge of the Trust, the beneficial ownership of
shares of Emerging Markets Debt Fund or of Developing Markets Fund by officers
or trustees of the Trust as a group constituted less than one percent of the
outstanding shares of each Fund as of _______ _, 2000.
CAPITALIZATION
The following table shows the capitalization of each Fund as of October
31, 1999, and on a pro forma combined basis (unaudited) as of that date, giving
effect to the Reorganization.
EMERGING MARKETS DEBT FUND: DEVELOPING MARKETS FUND: PRO FORMA CLASS A
CLASS A CLASS A COMBINED
Net Assets $ 54,330,409 $ 157,197,964 $ 211,528,373
Shares Outstanding 6,543,402 15,944,507 21,452,645
Net Asset Value Per $ 8.30 $ 9.86 $ 9.86
Share
EMERGING MARKETS DEBT FUND: DEVELOPING MARKETS FUND: PRO FORMA CLASS B
CLASS B CLASS B COMBINED
Net Assets $ 97,393,834 $ 49,723,202 $ 147,117,036
Shares Outstanding 11,728,667 5,079,702 15,023,311
Net Asset Value Per $ 8.30 $ 9.79 $ 9.79
Share
EMERGING MARKETS DEBT FUND: DEVELOPING MARKETS FUND: PRO FORMA CLASS C
CLASS C CLASS C COMBINED
Net Assets $ 208,357 $ 411,826 $ 620,183
Shares Outstanding 25,096 42,079 63,355
Net Asset Value $ 8.30 $ 9.79 $ 9.79
Per Share
LEGAL MATTERS
Certain legal matters concerning the Trust and its participation in the
Reorganization, the issuance of shares of Developing Markets Fund in connection
with the Reorganization, and the tax consequences of the Reorganization
20
25
will be passed upon by Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue,
N.W., Washington, D.C. 20036-1800, counsel to the Trust.
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
This Proxy Statement/Prospectus and the related Statements of
Additional Information do not contain all the information set forth in the
registration statements and the exhibits relating thereto and annual reports
which the Trust has filed with the Securities and Exchange Commission ("SEC")
pursuant to the requirements of the 1933 Act and the 1940 Act, to which
reference is hereby made. The SEC file number for the Trust's registration
statement containing the Prospectus and Statement of Additional Information
relating to Emerging Markets Debt Fund is Registration No. 33-19338. Such
Prospectus and Statement of Additional Information are incorporated herein by
reference. The SEC file number for the Trust's registration statement containing
the Prospectus and Statement of Additional Information relating to Developing
Markets Fund is Registration No. 33-19338. Such Prospectus and Statement of
Additional Information are incorporated herein by reference.
The Trust is subject to the informational requirements of the 1940 Act
and in accordance therewith files reports and other information with the SEC.
Reports, proxy statements, registration statements, and other information filed
by the Trust (including the Registration Statement of the Trust relating to the
Developing Markets Fund on Form N-14 of which this Proxy Statement/Prospectus is
a part and which is hereby incorporated by reference) may be inspected without
charge and copied at the public reference facilities maintained by the SEC at
Room 1014, Judiciary Plaza, 450 Fifth Street, NW, Washington, DC 20549, and at
the following regional offices of the SEC: 7 World Trade Center, New York, NY
10048; and 500 West Madison Street, l4th Floor, Chicago, IL 6066l. Copies of
such material may also be obtained from the Public Reference Section of the SEC
at 450 Fifth Street, N.W., Washington, D.C. 20549 at the prescribed rates. The
SEC maintains an internet web site at http://www.sec.gov that contains
information regarding the Trust and other registrants that file electronically
with the SEC.
ADDITIONAL INFORMATION ABOUT EMERGING MARKETS DEBT FUND AND DEVELOPING
MARKETS FUND
For more information with respect to the Trust and Developing Markets
Debt Fund concerning the following topics, please refer to the Developing
Markets Fund Prospectus attached as Appendix II to this Proxy
Statement/Prospectus, as indicated: (i) see "Investment Objectives and
Strategies" and "Fund Management" for further information regarding the Trust
and Developing Markets Fund; (ii) see discussion in "Investment Objectives and
Strategies, "Fund Management," and "Other Information" for further information
regarding management of Developing Markets Fund; (iii) see "Fund Management" and
"Other Information" for further information regarding the shares of Developing
Markets Fund; (iv) see "Fund Management," "Shareholder Information" for further
information regarding the purchase, redemption, and repurchase of shares of
Developing Markets Fund.
For more information with respect to the Trust and Emerging Markets
Debt Fund concerning the following topics, please refer to the Emerging Markets
Debt Fund Prospectus as indicated: (i) see "Investment Objectives and
Strategies" and "Fund Management" for further information regarding the Trust
and Emerging Markets Debt Fund; (ii) see discussion in "Investment Objectives
and Strategies," "Fund Management," and "Other Information" for further
information regarding management of Emerging Markets Debt Fund; (iii) see "Fund
Management" and "Other Information" for further information regarding the shares
of Emerging Markets Debt Fund; (iv) see "Fund Management," "Other Information"
and "Shareholder Information" for further iknformation regarding the purchase,
redemption, and repurchase of shares of Emerging Markets Debt Fund.
EXPERTS
The audited financial statements of the Funds incorporated by reference
herein and in their respective Statements of Additional Information have been
audited by PricewaterhouseCoopers LLP, independent accountants,
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whose reports thereon are included in the Funds' respective Annual Reports to
Shareholders for the fiscal year ended October 31, 1999. The financial
statements audited by PricewaterhouseCoopers LLP have been incorporated herein
by reference in reliance on its reports given on its authority as experts in
auditing and accounting.
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APPENDIX I
PLAN OF REORGANIZATION
AND TERMINATION
between
AIM EMERGING MARKETS DEBT FUND
and
AIM DEVELOPING MARKETS FUND
each a portfolio of
AIM INVESTMENT FUNDS
March 22, 2000
28
TABLE OF CONTENTS
Page
----
ARTICLE 1 DEFINITIONS................................................................................I-1
Section 1.1 Definitions......................................................................I-1
ARTICLE 2 THE REORGANIZATION..........................................................................I-4
Section 2.1 Transfer of Assets, Issuance of Shares, and Assumption of Liabilities............I-4
Section 2.2 Computation of Net Asset Value...................................................I-4
Section 2.3 Redemption Requests..............................................................I-4
Section 2.4 Delivery of Assets...............................................................I-5
Section 2.5 Dissolution......................................................................I-5
Section 2.6 Distribution of Acquiring Fund's Shares..........................................I-5
Section 2.7 Identification of Assets.........................................................I-5
Section 2.8 Discharge of Liabilities.........................................................I-6
Section 2.9 Transfer Taxes...................................................................I-6
ARTICLE 3 CONDITIONS PRECEDENT TO ACQUIRING FUND'S OBLIGATIONS........................................I-6
Section 3.1 Acquired Fund's Shares; Liabilities; Business Operations.........................I-6
Section 3.2 Court Jurisdiction...............................................................I-6
Section 3.3 Concentration of Assets..........................................................I-6
Section 3.4 Assets...........................................................................I-7
Section 3.5 RIC Status.......................................................................I-7
Section 3.6 Dividend(s)......................................................................I-7
Section 3.7 No Distribution..................................................................I-7
Section 3.8 Liabilities......................................................................I-7
Section 3.9 Shareholder Expenses.............................................................I-7
Section 3.10 Closing Certificate.............................................................I-7
Section 3.11 Voting Requirements.............................................................I-7
Section 3.12 No Compensation to Certain Shareholders.........................................I-7
Section 3.13 Liquidation of Portfolio Interest...............................................I-8
ARTICLE 4 CONDITIONS PRECEDENT TO ACQUIRED FUND'S OBLIGATIONS.........................................I-8
Section 4.1 Registration of Acquiring Fund's Shares..........................................I-8
Section 4.2 Court Jurisdiction...............................................................I-8
Section 4.3 RIC Status.......................................................................I-8
Section 4.4 Ownership of Acquired Fund's Shares..............................................I-8
Section 4.5 Reacquisition of Acquiring Fund's Shares.........................................I-9
Section 4.6 Disposition of Assets............................................................I-9
Section 4.7 Continuation of Acquired Fund's Business.........................................I-9
Section 4.8 Consideration....................................................................I-9
Section 4.9 Closing Certificate..............................................................I-9
Section 4.10 Post-Reorganization Transactions................................................I-9
Section 4.11 Concentration of Assets.........................................................I-9
I-i
29
ARTICLE 5 CONDITIONS PRECEDENT TO BOTH FUNDS' OBLIGATIONS.............................................I-9
Section 5.1 Shareholder Vote................................................................I-10
Section 5.2 Transfer of Assets..............................................................I-10
Section 5.3 Intercompany Indebtedness.......................................................I-10
Section 5.4 Value of Shares.................................................................I-10
Section 5.5 Value of Assets.................................................................I-10
Section 5.6 Tax Opinion.....................................................................I-10
Section 5.7 Expenses........................................................................I-11
Section 5.8 Trust Authority.................................................................I-11
Section 5.9 No Control of Acquiring Fund....................................................I-11
ARTICLE 6 MISCELLANEOUS..............................................................................I-11
Section 6.1 Termination.....................................................................I-11
Section 6.2 Governing Law...................................................................I-12
Section 6.3 Obligations of AIF and Others...................................................I-12
I-ii
30
PLAN OF REORGANIZATION AND TERMINATION
This PLAN OF REORGANIZATION AND TERMINATION, effective as of March 22,
2000 ("Plan"), is adopted by AIM Investment Funds, a Delaware business trust
("AIF"), acting on behalf of AIM Emerging Markets Debt Fund (the "Acquired
Fund") and AIM Developing Markets Fund (the "Acquiring Fund"), each a separate
segregated portfolio of assets ("series") of AIF.
WITNESSETH
WHEREAS, AIF is an investment company registered with the Securities
and Exchange Commission ("SEC") under the Investment Company Act that offers
separate series of its shares representing interests in its investment
portfolios, the Acquired Fund and the Acquiring Fund, for sale to the public;
and
WHEREAS, A I M Advisors, Inc. provides investment advisory services to
both Funds; and
WHEREAS, the Acquired Fund owns securities in which the Acquiring Fund
is permitted to invest; and
WHEREAS, the Acquired Fund desires to provide for its reorganization
through the transfer of all of its assets to the Acquiring Fund in exchange
solely for the assumption by the Acquiring Fund of all of its liabilities and
the issuance by AIF of shares of the Acquiring Fund in the manner set forth in
this Plan; and
WHEREAS, this Plan is intended to be, and is adopted by AIF as, a "plan
of reorganization" within the meaning of Section 1.368-2(g) of the Regulations.
NOW, THEREFORE, AIF hereby adopts this Plan.
ARTICLE 1
DEFINITIONS
Section 1.1 Definitions. For all purposes of this Plan (including the
foregoing recitals), the terms defined in the introductory paragraph shall apply
and the following terms shall have the respective meanings set forth in this
Section 1.1 (such definitions to be equally applicable to both the singular and
plural forms of the terms herein defined):
"Acquired Fund's Class A Shares" means Class A shares of beneficial
interest in the Acquired Fund issued by AIF.
"Acquired Fund's Class B Shares" means Class B shares of beneficial
interest in the Acquired Fund issued by AIF.
31
"Acquired Fund's Class C Shares" means Class C shares of beneficial
interest in the Acquired Fund issued by AIF.
"Acquired Fund's Net Value" means the total value of the Assets less
the amount of the Liabilities.
"Acquired Fund's Shareholders" means the holders of record as of the
Effective Time of all the Acquired Fund's Shares.
"Acquired Fund's Shareholders Meeting" means a meeting of the
shareholders of the Acquired Fund convened in accordance with applicable law and
the Agreement and Declaration of Trust of AIF to consider and vote upon the
approval of this Plan and the transactions contemplated by this Plan.
"Acquired Fund's Shares" means the Acquired Fund's Class A Shares,
Class B Shares, and Class C Shares.
"Acquiring Fund's Class A Shares" means Class A shares of beneficial
interest in the Acquiring Fund issued by AIF.
"Acquiring Fund's Class B Shares" means Class B shares of beneficial
interest in the Acquiring Fund issued by AIF.
"Acquiring Fund's Class C Shares" means Class C shares of beneficial
interest in the Acquiring Fund issued by AIF.
"Acquiring Fund's Shares" means the Acquiring Fund's Class A Shares,
Class B Shares, and Class C Shares issued pursuant to Sections 2.1 and 2.6 of
this Plan.
"AIF Registration Statement" means the registration statement on Form
N-1A of AIF, as amended, Registration No. 811-05426.
"AIF N-14 Registration Statement" means the registration statement on
Form N-14 of AIF as in effect on the Closing Date.
"Assets" means all cash, cash equivalents, securities, receivables
(including interest and dividends receivable), claims and rights of action,
rights to register shares under applicable securities laws, books and records,
deferred and prepaid expenses shown as assets on the Acquired Fund's books, and
other property owned by the Acquired Fund at the Valuation Time.
"Business Day" means a day on which the NYSE is open for trading.
"Closing" means the transfer of the Assets to the Acquiring Fund, the
assumption of all the Liabilities and the issuance of the Acquiring Fund's
Shares as described in Section 2.1 of this Plan.
"Closing Date" means June 19, 2000, or such other date AIF may
determine.
I-2
32
"Code" means the Internal Revenue Code of 1986, as amended.
"Custodian" means State Street Bank and Trust Company acting in its
capacity as custodian for the assets of each Fund.
"Effective Time" means 8:00 a.m. Eastern time on the Closing Date.
"Fund" means the Acquired Fund or the Acquiring Fund.
"Investment Company Act" means the Investment Company Act of 1940, as
amended, and all rules and regulations adopted pursuant thereto.
"Liabilities" means all of the Acquired Fund's liabilities, debts,
obligations, and duties of whatever kind or nature, whether absolute, accrued,
contingent, or otherwise, whether or not arising in the ordinary course of
business, whether or not determinable at the Valuation Time, and whether or not
specifically referred to in this Plan.
"Lien" means any pledge, lien, security interest, charge, claim, or
encumbrance of any kind.
"NYSE" means the New York Stock Exchange.
"Open-End Investment Company" means an open-end management investment
company operating under the Investment Company Act.
"Person" means an individual or a corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization, or other entity.
"Portfolio" means Emerging Markets Debt Portfolio, a Delaware business
trust.
"Regulations" means the regulations under the Code.
"Reorganization" means the acquisition of the Assets by the Acquiring
Fund in exchange solely for the assumption by the Acquiring Fund of all of the
Liabilities and the issuance by AIF of the Acquiring Fund's Shares to the
Acquired Fund, the distribution of such shares to Acquired Fund's Shareholders
as described in this Plan, and the termination of the Acquired Fund as a
designated series of shares of AIF.
"Required Shareholder Vote" shall have the meaning set forth in Section
3.11 of this Plan.
"Securities Act" means the Securities Act of 1933, as amended, and all
rules and regulations adopted pursuant thereto.
"Valuation Time" means the close of the customary trading session of
the NYSE, or such other time as AIF may determine, on the Business Day
immediately preceding the Closing Date, or such other date AIF may determine.
I-3
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ARTICLE 2
THE REORGANIZATION
Section 2.1 Transfer of Assets, Issuance of Shares, and Assumption of
Liabilities. At the Effective Time, the Acquired Fund shall assign, sell,
convey, transfer, and deliver all of its Assets to the Custodian for the account
of the Acquiring Fund. In exchange therefor, the Acquiring Fund shall
(a) issue and deliver to the Acquired Fund the number of full
and fractional (to the third decimal place) (i) Class A Acquiring
Fund's Shares determined by dividing the Acquired Fund's Net Value
attributable to the Class A Acquired Fund's Shares by the net asset
value per Class A Acquiring Fund's Share, (ii) Class B Acquiring Fund's
Shares determined by dividing the Acquired Fund's Net Value
attributable to the Class B Acquired Fund's Shares by the net asset
value per Class B Acquiring Fund's Share, and (iii) Class C Acquiring
Fund's Shares determined by dividing the Acquired Fund's Net Value
attributable to the Class C Acquired Fund's Shares by the net asset
value per Class C Acquiring Fund's Share, and
(b) assume all of the Liabilities.
Such transactions shall all take place at the Closing.
Section 2.2 Computation of Net Asset Value. (a) The net asset value per
share of each class of the Acquiring Fund's Shares and the Acquired Fund's Net
Value shall, in each case, be determined as of the Valuation Time.
(b) The net asset value per share of each class of the Acquiring Fund's
Shares shall be computed in accordance with the policies and procedures of the
Acquiring Fund as described in the AIF Registration Statement.
(c) The Acquired Fund's Net Value shall be computed in accordance with
the policies and procedures of the Acquired Fund as described in the AIF
Registration Statement.
(d) All computations of value pursuant to this Section 2.2 shall be
made by or under the direction of A I M Advisors, Inc.
(e) If, immediately before the Valuation Time, (i) the NYSE is closed
to trading or trading thereon is restricted or (ii) trading or the reporting of
trading on the NYSE or elsewhere is disrupted, so that accurate appraisal of the
Acquired Fund's Net Value and the net asset value per share of the Acquiring
Fund's Shares is impracticable, the Closing Date shall be postponed until the
first Business Day after the day when such trading shall have been fully resumed
and such reporting shall have been restored.
Section 2.3 Redemption Requests. The share transfer books of the
Acquired Fund will be permanently closed as of the Valuation Time, and only
requests for the redemption of the Acquired Fund's Shares received in proper
form prior to the Valuation Time shall be accepted by the Acquired Fund.
Redemption requests thereafter received by the Acquired Fund shall be
I-4
34
deemed to be redemption requests for the applicable class of the Acquiring
Fund's Shares (assuming that the transactions contemplated by this Plan have
been consummated) to be distributed to the Acquired Fund's Shareholders under
this Plan.
Section 2.4 Delivery of Assets. (a) AIF shall instruct the Custodian,
no later than three Business Days preceding the Closing Date, to deliver the
Assets to the Acquiring Fund at the Effective Time, by transferring ownership of
the Assets from the Acquired Fund's account with the Custodian to the Acquiring
Fund's account therewith. The Custodian shall deliver at the Closing a
certificate of an authorized officer thereof stating that such delivery of the
Assets will be effectuated in accordance with such instructions.
(b) If delivery cannot be made in the manner contemplated by Section
2.4(a) of securities held by the Acquired Fund that were purchased thereby but
not yet delivered to it or its broker or brokers by the Effective Time, then
such undelivered securities shall be credited to the Acquiring Fund's account
with the Custodian on such delivery.
Section 2.5 Dissolution. As soon as reasonably practicable after the
Closing Date, but no later than six months thereafter, the Acquired Fund's
status as a designated series of shares of AIF shall be terminated.
Section 2.6 Distribution of Acquiring Fund's Shares. At the Effective
Time, each Acquired Fund's Shareholder (a) holding Acquired Fund's Class A
Shares shall receive that number of full and fractional Acquiring Fund's Class A
Shares having an aggregate net asset value equal to the aggregate net asset
value of the Acquired Fund's Class A Shares held by such Acquired Fund's
Shareholder at the Effective Time, (b) holding Acquired Fund's Class B Shares
shall receive that number of full and fractional Acquiring Fund's Class B Shares
having an aggregate net asset value equal to the aggregate net asset value of
the Acquired Fund's Class B Shares held by such Acquired Fund's Shareholder at
the Effective Time, and (c) holding Acquired Fund's Class C Shares shall receive
that number of full and fractional Acquiring Fund's Class C Shares having an
aggregate net asset value equal to the aggregate net asset value of the Acquired
Fund's Class C Shares held by such Acquired Fund's Shareholder at the Effective
Time. (In each case, fractional shares shall be calculated to the third decimal
place.) All Acquired Fund's Shares shall thereupon be canceled on the books of
AIF. AIF shall provide instructions to the Funds' transfer agent with respect to
the Acquiring Fund's Shares to be issued to each Acquired Fund's Shareholder.
AIF shall record on its books the ownership of each class of Acquiring Fund's
Shares by Acquired Fund's Shareholders and shall forward a confirmation of such
ownership to each of them.
Section 2.7 Identification of Assets. AIF's fund accounting and pricing
agent shall deliver at the Closing a certificate of an authorized officer
thereof verifying that the information (including adjusted basis and holding
period, by lot) concerning the Assets, including all portfolio securities, as
reflected on the Acquiring Fund's books immediately following the Closing does
or will conform to such information on the Acquired Fund's books immediately
before the Closing.
I-5
35
Section 2.8 Discharge of Liabilities. The Acquired Fund shall use its
reasonable best efforts to discharge all of its known Liabilities, so far as may
be possible, prior to the Closing Date
Section 2.9 Transfer Taxes. Any transfer taxes payable upon issuance of
the Acquiring Fund's Shares in a name other than that of the registered holder
on the Acquired Fund's books of the Acquired Fund's Shares constructively
exchanged therefor shall be paid by the person to whom such Acquiring Fund's
Shares are to be issued, as a condition of such transfer.
ARTICLE 3
CONDITIONS PRECEDENT TO ACQUIRING FUND'S OBLIGATIONS
The Acquiring Fund's obligations hereunder shall be subject to
satisfaction of the following conditions at or before the Effective Time.
Section 3.1 Acquired Fund's Shares; Liabilities; Business Operations.
(a) AIF's management is unaware of any plan or intention of Acquired Fund's
Shareholders to redeem, sell, or otherwise dispose of (i) any portion of their
Acquired Fund's Shares before the Reorganization to any person related (within
the meaning of Section 1.368-1(e)(3) of the Regulations) to either Fund or (b)
any portion of the Acquiring Fund Shares to be received by them in the
Reorganization to any person related (within such meaning) to the Acquiring
Fund.
(b) At the time of the Reorganization, the Acquired Fund shall not have
outstanding any warrants, options, convertible securities, or any other type of
right pursuant to which any Person could acquire Acquired Fund's Shares, except
for the right of investors to acquire Acquired Fund's Shares at net asset value
in the ordinary course of its business as a series of an Open-End Investment
Company.
(c) From the date it commenced operations and ending on the Closing
Date, the Acquired Fund will have conducted its "historic business" (within the
meaning of Section 1.368-1(d)(2) of the Regulations) in a substantially
unchanged manner. In anticipation of the Reorganization, the Acquired Fund will
not dispose of Assets that, in the aggregate, will result in less than 50% of
its "historic business assets" (within the meaning of Section 1.368-1(d)(3) of
the Regulations) being transferred to the Acquiring Fund.
Section 3.2 Court Jurisdiction. The Acquired Fund is not under the
jurisdiction of a court in a proceeding under Title 11 of the United States Code
or similar case within the meaning of Section 368(a)(3)(A) of the Code.
Section 3.3 Concentration of Assets. Not more than 25% of the value of
the total Assets (excluding cash, cash equivalents, and U.S. government
securities) is invested in the stock and securities of any one issuer, and not
more than 50% of the value of such Assets is invested in the stock and
securities of five or fewer issuers.
I-6
36
Section 3.4 Assets. The Acquired Fund has, and upon delivery of the
Assets the Acquiring Fund will receive, good and marketable title to all Assets,
free and clear of all Liens.
Section 3.5 RIC Status. The Acquired Fund is a "fund" as defined in
Section 851(g)(2) of the Code; it has elected to be a regulated investment
company under Subchapter M of the Code ("RIC") and has qualified for treatment
as such for each taxable year since inception that has ended prior to the
Closing date; it will continue to satisfy the requirements to maintain such
qualification for the period beginning on the first day of its current taxable
year and ending on the Closing Date; it shall invest the Assets at all times
through the Effective Time in a manner that ensures compliance with the
foregoing; and it has no earnings and profits accumulated in any taxable year in
which the provisions of Subchapter M did not apply to it.
Section 3.6 Dividend(s). On or before the Closing Date, AIF will
declare and pay to the Acquired Fund's shareholders a dividend or dividends
that, together with all previous such dividends, will have the effect of
distributing (a) all of the Acquired Fund's investment company taxable income
(determined without regard to any deductions for dividends paid) for the taxable
year ended October 31, 1999, and for the short taxable year beginning on
November 1, 1999, and ending on the Closing Date and (b) all of the Acquired
Fund's net capital gain recognized in such taxable years (after reduction for
any capital loss carryover).
Section 3.7 No Distribution. The Acquiring Fund's Shares are not being
acquired for the purpose of any distribution thereof, other than in accordance
with the terms of this Plan.
Section 3.8 Liabilities. The Liabilities were incurred by the Acquired
Fund in the ordinary course of business and are associated with the Assets.
Section 3.9 Shareholder Expenses. The Acquired Fund's Shareholders will
pay their own expenses, if any, incurred in connection with the Reorganization.
Section 3.10 Closing Certificate. An officer of AIF, in such person's
capacity as such officer and not as an individual, will prepare and deliver at
the Closing, on behalf of the Acquired Fund, a certificate, dated as of the
Closing Date, to the effect that the Acquired Fund has satisfied all conditions
specified in this Plan.
Section 3.11 Voting Requirements. The vote of a majority of the
Acquired Fund's Shares cast at a meeting at which a quorum is present (the
"Required Shareholder Vote") is the only vote of the holders of any class or
series of shares of beneficial interest in the Acquired Fund necessary to
approve this Plan and the transactions contemplated by this Plan.
Section 3.12 No Compensation to Certain Shareholders. None of the
compensation received by any Acquired Fund's Shareholder who is an employee of
or service provider to the Acquired Fund will be separate consideration for, or
allocable to, any of the Acquired Fund's Shares held by such shareholder; none
of the Acquiring Fund's Shares received by any such shareholder will be separate
consideration for, or allocable to, any employment agreement, investment
advisory agreement, or other service agreement; and the consideration paid to
any such
I-7
37
shareholder will be for services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's-length for similar services.
Section 3.13 Liquidation of Portfolio Interest. At the time of adoption
of this Plan, the Acquired Fund owns virtually the entire beneficial interest in
the Portfolio, which is classified as a partnership, and is not a "publicly
traded partnership" (as defined in Section 7704(b) of the Code), for federal tax
purposes. Shortly before the Reorganization, the Acquiring Fund will liquidate
such interest and will receive from the Portfolio a distribution in kind of the
assets represented thereby.
ARTICLE 4
CONDITIONS PRECEDENT TO ACQUIRED FUND'S OBLIGATIONS
The Acquired Fund's obligations hereunder shall be subject to
satisfaction of the following conditions at or before the Effective Time.
Section 4.1 Registration of Acquiring Fund's Shares. (a) The Acquiring
Fund's Shares to be issued to the Acquired Fund pursuant to Section 2.1 and
distributed to the Acquired Fund's Shareholders pursuant to Section 2.6 shall,
on the Closing Date, be duly registered under the Securities Act by the AIF N-14
Registration Statement.
(b) The Acquiring Fund's Shares to be so issued and distributed are
duly authorized and on the Closing Date will be validly issued and fully paid
and non-assessable and will conform to the description thereof contained in the
AIF N-14 Registration Statement. At the Effective Time, the Acquiring Fund shall
not have outstanding any warrants, options, convertible securities, or any other
type of right pursuant to which any Person could acquire shares of beneficial
interest in the Acquiring Fund, except for the right of investors to acquire
such shares at net asset value in the normal course of its business as a series
of an Open-End Investment Company.
Section 4.2 Court Jurisdiction. The Acquiring Fund is not under the
jurisdiction of a court in a proceeding under Title 11 of the United States Code
or similar case within the meaning of Section 368(a)(3)(A) of the Code.
Section 4.3 RIC Status. The Acquiring Fund is a "fund" as defined in
Section 851(g)(2) of the Code; it has elected to be a RIC and has qualified for
treatment as such for each taxable year since inception that has ended prior to
the Closing Date; it will continue to satisfy the requirements to maintain such
qualification for its current taxable year; and it has no earnings and profits
accumulated in any taxable year in which the provisions of Subchapter M did not
apply to it.
Section 4.4 Ownership of Acquired Fund's Shares. The Acquiring Fund
does not directly or indirectly own, nor at the Effective Time will it directly
or indirectly own, nor has it at any time during the past five years directly or
indirectly owned, any shares of the Acquired Fund.
I-8
38
Section 4.5 Reacquisition of Acquiring Fund's Shares. AIF has no plan
or intention to issue additional Acquiring Fund's Shares following the
Reorganization except for shares issued in the ordinary course of Acquiring
Fund's business as a series of an Open-End Investment Company; nor does AIF have
any plan or intention to redeem or otherwise reacquire any Acquiring Fund's
Shares issued pursuant to the Reorganization, except to the extent the Acquiring
Fund is required by the Investment Company Act to redeem any of its shares
presented for redemption at net asset value in the ordinary course of that
business.
Section 4.6 Disposition of Assets. The Acquiring Fund has no plan or
intention to sell or otherwise dispose of any of the Assets, other than in the
ordinary course of its business and to the extent necessary to maintain its
status as a RIC.
Section 4.7 Continuation of Acquired Fund's Business. Following the
Reorganization, the Acquiring Fund will continue the "historic business" (within
the meaning of Section 1.368-1(d)(2) of the Regulations) of the Acquired Fund
and use a significant portion of the Acquired Fund's "historic business assets"
(within the meaning of Section 1.368-1(d)(3) of the Regulations) in a business.
Section 4.8 Consideration. No consideration other than the Acquiring
Fund's Shares (and the Acquiring Fund's assumption of the Liabilities) will be
issued in exchange for the Assets in connection with the Reorganization.
Section 4.9 Closing Certificate. An officer of AIF, in such person's
capacity as such officer and not as an individual, will prepare and deliver at
the Closing, on behalf of the Acquiring Fund, a certificate, dated as of the
Closing Date, to the effect that the Acquiring Fund has satisfied all conditions
specified in this Plan.
Section 4.10 Post-Reorganization Transactions. There is no plan or
intention for the Acquiring Fund to be dissolved or merged into another business
trust or a corporation or any "fund" thereof (within the meaning of Section
851(g)(2) of the Code) following the Reorganization.
Section 4.11 Concentration of Assets. Immediately after the
Reorganization, (a) not more than 25% of the value of the Acquiring Fund's total
assets (excluding cash, cash items, and U.S. government securities) will be
invested in the stock and securities of any one issuer and (b) not more than 50%
of the value of such assets will be invested in the stock and securities of five
or fewer issuers.
ARTICLE 5
CONDITIONS PRECEDENT TO BOTH FUNDS' OBLIGATIONS
Each Fund's obligations hereunder shall be subject to satisfaction of
the following conditions at or before the Effective Time.
I-9
39
Section 5.1 Shareholder Vote. This Plan, the Reorganization, and
related matters shall have been approved and adopted at the Acquired Fund's
Shareholders Meeting by the shareholders of the Acquired Fund on the record date
therefor by the Required Shareholder Vote.
Section 5.2 Transfer of Assets. Pursuant to the Reorganization, the
Acquired Fund will transfer to the Acquiring Fund, and the Acquiring Fund will
acquire, at least 90% of the fair market value of the net assets, and at least
70% of the fair market value of the gross assets, held by the Acquired Fund
immediately before the Reorganization. For these purposes, any assets used by
the Acquired Fund to pay the expenses it incurs in connection with the Plan and
the Reorganization and to effect all shareholder redemptions and distributions
- -- except (a) redemptions pursuant to the Investment Company Act not made as
part of the Reorganization and (b) distributions made to conform to its policy
of distributing all or substantially all of its income and gains to avoid the
obligation to pay federal income tax and/or the excise tax under Section 4982 of
the Code -- after the date of this Plan will be included as assets held by the
Acquired Fund immediately before the Reorganization.
Section 5.3 Intercompany Indebtedness. There is no intercompany
indebtedness between the Funds that was issued or acquired, or will be settled,
at a discount.
Section 5.4 Value of Shares. The fair market value of the Acquiring
Fund's Shares to be received by each Acquired Fund's Shareholder will be
approximately equal to the fair market value of its Acquired Fund's Shares
constructively surrendered in exchange therefor.
Section 5.5 Value of Assets. The fair market value of the Assets on a
going concern basis will equal or exceed the sum of the Liabilities to be
assumed by the Acquiring Fund plus the Liabilities to which the Assets are
subject.
Section 5.6 Tax Opinion. AIF shall have received an opinion of
Kirkpatrick & Lockhart LLP ("Counsel"), addressed to and in form and substance
satisfactory to AIF, as to the federal income tax consequences mentioned below
("Tax Opinion"). In rendering the Tax Opinion, Counsel may (i) assume
satisfaction of all the conditions set forth in Articles 3 through 5 (other than
in this Section 5.6) and treat them as representations by AIF to Counsel and
(ii) as to any factual matters, rely exclusively and without independent
verification on such representations and any other representations made to
Counsel by responsible officers of AIF. The Tax Opinion shall be substantially
to the effect that, based on the facts and assumptions stated therein, for
federal income tax purposes:
(a) The Acquiring Fund's acquisition of the Assets in exchange
solely for the Acquiring Fund's Shares and the Acquiring Fund's
assumption of the Liabilities, followed by the Acquired Fund's
distribution of those shares pro rata to the Acquired Fund's
Shareholders constructively in exchange for their Acquired Fund's
Shares, will qualify as a reorganization within the meaning of Section
368(a)(1)(C) of the Code, and each Fund will be a "party to a
reorganization" within the meaning of Section 368(b) of the Code;
(b) The Acquired Fund will recognize no gain or loss on the
transfer of the Assets to the Acquiring Fund in exchange solely for
Acquiring Fund's Shares and the Acquiring
I-10
40
Fund's assumption of the Liabilities or on the distribution of those
shares to the Acquired Fund's Shareholders;
(c) The Acquiring Fund will recognize no gain or loss on its
receipt of the Assets in exchange solely for Acquiring Fund's Shares
and its assumption of the Liabilities;
(d) The Acquiring Fund's basis for the Assets will be the same
as the Acquired Fund's basis therefor immediately before the
Reorganization, and the Acquiring Fund's holding period for the Assets
will include the Acquired Fund's holding period therefor;
(e) An Acquired Fund's Shareholder will recognize no gain or
loss on the receipt of Acquiring Fund's Shares in constructive exchange
for all its Acquired Fund's Shares pursuant to the Reorganization; and
(f) An Acquired Fund's Shareholder's aggregate basis for the
Acquiring Fund's Shares received thereby in the Reorganization will be
the same as the aggregate basis for its Acquired Fund's Shares to be
constructively surrendered in exchange therefor, and its holding period
for those Acquiring Fund's Shares will include its holding period for
those Acquired Fund's Shares, provided the Acquired Fund's Shareholder
held the Acquired Fund's Shares as capital assets at the Effective
Time.
Notwithstanding subparagraphs (b) and (d), the Tax Opinion may state that no
opinion is expressed as to the effect of the Reorganization on the Funds or any
Acquired Fund's Shareholder with respect to any asset as to which any unrealized
gain or loss is required to be recognized for federal income tax purposes at the
end of a taxable year (or on the termination or transfer thereof) under a
mark-to-market system of accounting.
Section 5.7 Expenses. Each Fund shall bear the expenses incurred by it
or on its behalf in connection with this Plan and the Reorganization and other
transactions contemplated hereby.
Section 5.8 Trust Authority. AIF is duly organized, validly existing,
and in good standing under the Delaware Business Trust Act (Del. Code Ann. title
12, Section 3801 et seq. (1977)), with all requisite trust power and authority
to adopt this Plan and perform its obligations thereunder.
Section 5.9 No Control of Acquiring Fund. Immediately after the
Reorganization, the Acquired Fund's Shareholders will not own shares
constituting "control" (within the meaning of Section 304(c) of the Code) of the
Acquiring Fund.
ARTICLE 6
MISCELLANEOUS
Section 6.1 Termination. AIF's trustees may terminate this Plan and
abandon the Reorganization at any time prior to the Closing Date if
circumstances develop that, in their judgment, make proceeding with the
Reorganization inadvisable for either Fund.
I-11
41
Section 6.2 Governing Law. This Plan shall be construed and interpreted
according to the laws of the State of Delaware applicable to contracts made and
to be performed wholly within such state; provided that, in the case of any
conflict between such laws and the federal securities laws, the latter shall
govern.
Section 6.3 Obligations of AIF and Others. AIF has adopted this Plan on
behalf of each Fund, and any amounts payable by AIF under or in connection with
this Plan shall be payable solely from the revenues and assets of the respective
Funds. No officer, trustee, or shareholder of AIF shall be personally liable for
the liabilities or obligations of AIF incurred hereunder.
I-12
42
Appendix II
AIM DEVELOPING
MARKETS FUND
- -------------------------------------------------------------------------------
AIM Developing Markets Fund primarily seeks to provide long-term growth of
capital with a secondary objective of income, to the extent consistent
with seeking growth of capital.
PROSPECTUS AIM --Registered Trademark--
FEBRUARY 28, 2000
This prospectus contains important
information about the Class A, B and C
shares of the fund. Please read it
before investing and keep it for
future reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
An investment in the fund:
- is not FDIC insured;
- may lose value; and
- is not guaranteed by a bank.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE
--Registered Trademark--
43
---------------------------
AIM DEVELOPING MARKETS FUND
---------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE FUND 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 3
- - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 3
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisors 5
Advisor Compensation 5
Portfolio Managers 5
OTHER INFORMATION 5
- - - - - - - - - - - - - - - - - - - - - - - - -
Sales Charges 5
Dividends and Distributions 5
FINANCIAL HIGHLIGHTS 6
- - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - -
Choosing a Share Class A-1
Purchasing Shares A-3
Redeeming Shares A-4
Exchanging Shares A-6
Pricing of Shares A-8
Taxes A-8
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com, La
Familia AIM de Fondos, La Familia AIM de Fondos and Design and Invest with
Discipline are registered service marks and AIM Bank Connection, AIM Funds, AIM
Funds and Design, AIM Internet Connect and AIM Investor are service marks of
A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
44
---------------------------
AIM DEVELOPING MARKETS FUND
---------------------------
INVESTMENT OBJECTIVES AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's primary investment objective is long-term growth of capital and its
secondary investment objective is income, to the extent consistent with seeking
growth of capital.
The fund seeks to meet these objectives by investing substantially all of its
assets in issuers in developing countries, i.e., those that are in the initial
stages of their industrial cycles. The fund will invest a majority of its assets
in equity securities, and may also invest in debt securities, of developing
countries. The fund considers issuers in "developing countries" to be those (1)
organized under the laws of a developing country or have a principal office in a
developing country; (2) that derive 50% or more, alone or on a consolidated
basis, of their total revenues from business in developing countries; or (3)
whose securities are trading principally on a stock exchange, or in an over-the-
counter market, in a developing country. The fund will normally invest in
issuers in at least four countries, but it will invest no more than 25% of its
assets in issuers in any one country. The fund also may hold no more than 40% of
its assets in any one foreign currency and securities denominated in or indexed
to such currency. The fund may invest in debt securities when economic and other
factors appear to favor such investments. The fund may also invest up to 100% of
its assets in lower-quality debt securities, i.e., "junk bonds."
The fund may invest up to 50% of its total assets in the following types of
developing market debt securities: (1) debt securities issued or guaranteed by
governments, their agencies, instrumentalities or political subdivisions, or by
government owned, controlled or sponsored entities, including central banks
(sovereign debt), and "Brady Bonds"; (2) interests in issuers organized and
operated for the purpose of restructuring the investment characteristics of
sovereign debt; (3) debt securities issued by banks and other business entities;
and (4) debt securities denominated in or indexed to the currencies of emerging
markets. Brady Bonds are debt restructurings that provide for the exchange of
cash and loans for newly issued bonds. There is no requirement with respect to
the maturity or duration of debt securities in which the fund may invest.
The portfolio managers focus on companies that have experienced above-average,
long-term growth in earnings and have excellent prospects for future growth. In
selecting countries in which the fund will invest, the portfolio managers also
consider such factors as the prospect for relative economic growth among
countries or regions, economic or political conditions, currency exchange
fluctuations, tax considerations and the liquidity of a particular security. The
portfolio managers consider whether to sell a particular security when any of
those factors materially changes.
The fund is non-diversified. With respect to 50% of its assets, it is
permitted to invest more than 5% of its assets in the securities of any one
issuer.
In anticipation of or in response to adverse market conditions, for cash
management purposes or for defensive purposes, the fund may temporarily hold all
or a portion of its assets in cash (U.S. dollars, foreign currencies or
multinational currency units), money market instruments, shares of affiliated
money market funds, or high-quality debt securities. As a result, the fund may
not achieve its investment objectives.
The fund may engage in active and frequent trading of portfolio securities to
achieve its investment objective. If the fund does trade in this way, it may
incur increased transaction costs, which can lower the actual return on your
investment. Active trading may also increase short-term gains and losses, which
may affect the taxes you have to pay.
PRINCIPAL RISKS OF INVESTING IN THE FUND
- --------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund and that the income you may receive from your investment may vary. The
value of your investment in the fund will go up and down with the prices of the
securities in which the fund invests. The prices of equity securities change in
response to many factors including the historical and prospective earnings of
the issuer, the value of its assets, general economic conditions, interest
rates, investor perceptions, and market liquidity. Debt securities are
particularly vulnerable to credit risk and interest rate fluctuations. Interest
rate increases may cause the price of a debt security to decrease. The longer a
bond's duration, the more sensitive it is to this risk. Junk bonds are less
sensitive to this risk than are higher-quality bonds.
The prices of foreign securities may be further affected by other factors,
including:
- - Currency exchange rates--The dollar value of the fund's foreign investments
will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are traded.
- - Political and economic conditions--The value of the fund's foreign investments
may be adversely affected by political and social instability in their home
countries and by changes in economic or taxation policies in those countries.
- - Regulations--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available information
about foreign companies than about U.S. companies.
- - Markets--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and more volatile than U.S. securities.
1
45
---------------------------
AIM DEVELOPING MARKETS FUND
---------------------------
These factors may affect the prices of securities issued by foreign companies
and governments located in developing countries more than those in countries
with mature economies. For example, many developing countries have, in the past,
experienced high rates of inflation or sharply devalued their currencies against
the U.S. dollar, thereby causing the value of investments in companies located
in those countries to decline. Transaction costs are often higher in developing
countries and there may be delays in settlement procedures.
Sovereign debt securities of developing country governments are generally
lower-quality debt securities. Sovereign debt securities are subject to the
additional risk that, under some political, diplomatic, social or economic
circumstances, some developing countries that issue lower-quality debt
securities may be unable or unwilling to make principal or interest payments as
they come due.
Compared to higher-quality debt securities, junk bonds involve greater risk of
default or price changes due to changes in the credit quality of the issuer
because they are generally unsecured and may be subordinated to other creditors'
claims. The value of junk bonds often fluctuates in response to company,
political or economic developments and can decline significantly over short
periods of time or during periods of general or regional economic difficulty.
During those times, the bonds could be difficult to value or to sell at a fair
price. Credit ratings on junk bonds do not necessarily reflect their actual
market risk.
Because it is non-diversified, the fund may invest in fewer issuers than if it
were a diversified fund. The value of the fund's shares may vary more widely,
and the fund may be subject to greater investment and credit risk, than if the
fund invested more broadly.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
2
46
---------------------------
AIM DEVELOPING MARKETS FUND
---------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS
- -------------------------------------------------------------------------------
The following bar chart shows changes in the performance of the fund's Class A
shares from year to year. The bar chart does not reflect sales loads. If it did,
the annual total returns shown would be lower.
[GRAPH]
Annual
Year Ended Total
December 31 Returns
- ----------- -------
1995 .......................................................... -0.95%
1996 .......................................................... 23.59%
1997 .......................................................... -8.49%
1998 .......................................................... -35.32%
1999 .......................................................... 61.50%
During the periods shown in the bar chart, the highest quarterly return was
30.56% (quarter ended December 31, 1999) and the lowest quarterly return was
- -27.81% (quarter ended September 30, 1998).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index. The fund's performance reflects payment of
sales loads.
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------------
(for the periods ended SINCE INCEPTION
December 31, 1999) 1 YEAR 5 YEARS INCEPTION DATE
- --------------------------------------------------------------------------------------
Class A 53.89% 2.20% (0.72)% 1/11/94
Class B 55.57 -- (1.31) 11/3/97
Class C -- -- -- 03/01/99
MSCI Emerging Markets Free Index(1) 66.41 2.00 0.38(2) 12/31/93(2)
- --------------------------------------------------------------------------------------
(1) The Morgan Stanley Capital International Emerging Markets Free Index
measures the performance of securities listed on the exchanges of 26
countries. The index excludes shares that are not readily purchased by
non-local investors.
(2) The average annual total return given is since the date closest to the
inception date of the class with the longest performance history.
3
47
---------------------------
AIM DEVELOPING MARKETS FUND
---------------------------
FEE TABLE AND EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) CLASS A CLASS B CLASS C
- -----------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 4.75% None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever is less) None(1) 5.00% 1.00%
Redemption Fee
(as a percentage of
amount redeemed,
if applicable) None(2) None None
- -----------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are
deducted from fund
assets) CLASS A CLASS B CLASS C
- -----------------------------------------------------------
Management Fees 0.98% 0.98% 0.98%
Distribution and/or
Service (12b-1) Fees 0.36 1.00 1.00
Other Expenses
Other 1.03 0.99 0.99
Interest 0.01 0.01 0.01
Total Other Expenses 1.04 1.00 1.00
Total Annual Fund
Operating Expenses 2.38 2.98 2.98
Expense
Reimbursement(2) 0.47 0.47 0.47
Net Expenses 1.91 2.51 2.51
- -----------------------------------------------------------
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1% contingent
deferred sales charge (CDSC) at the time of redemption.
(2) Shares received as a result of the reorganization of AIM Eastern Europe Fund
into AIM Developing Markets Fund will be subject to a 2% redemption fee if
they are redeemed or exchanged before September 10, 2000.
(3) The investment advisor has contractually agreed to limit Total Annual Fund
Operating Expenses (excluding interest, taxes, brokerage commissions and
extraordinary expenses) on Class A, Class B and Class C shares to 2.00%,
2.50% and 2.50%, respectively.
As a result of 12b-1 fees, long-term shareholders in the fund may pay more than
the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in different
classes of the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's gross operating expenses remain the same. To the extent fees are waived,
the expenses will be lower. Although your actual returns and costs may be higher
or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------
Class A $705 $1,182 $1,685 $3,062
Class B 801 1,221 1,767 3,159
Class C 401 921 1,567 3,299
- ----------------------------------------------
You would pay the following expenses if you did not redeem your shares:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------
Class A $705 $1,182 $1,685 $3,062
Class B 301 921 1,567 3,159
Class C 301 921 1,567 3,299
- ----------------------------------------------
4
48
---------------------------
AIM DEVELOPING MARKETS FUND
---------------------------
FUND MANAGEMENT
- --------------------------------------------------------------------------------
THE ADVISORS
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor.
INVESCO Asset Management Limited (the subadvisor), an affiliate of the advisor,
is the fund's subadvisor and is responsible for its day-to-day management. The
advisor is located at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173.
The subadvisor is located at 11 Devonshire Square, London, EC2M 4YR, England.
The advisors supervise all aspects of the fund's operations and provide
investment advisory services to the fund, including obtaining and evaluating
economic, statistical and financial information to formulate and implement
investment programs for the fund.
The advisor has acted as an investment advisor since its organization in 1976,
and the subadvisor has acted as an investment advisor since 1967. Today, the
advisor, together with its subsidiaries, advises or manages over 120 investment
portfolios, including the fund, encompassing a broad range of investment
objectives.
ADVISOR COMPENSATION
During the fiscal year ended October 31, 1999, the advisor received compensation
of 0.51% of average daily net assets.
PORTFOLIO MANAGERS
The advisors use a team approach to investment management. The individual
members of the team who are primarily responsible for the day-to-day management
of the fund's portfolio are
- - William Barron, Portfolio Manager, who has been responsible for the fund since
1999 and has been associated with the advisor and/or its affiliates since
1995.
- - John Cleary, Portfolio Manager, who has been responsible for the fund since
1999 and has been associated with the advisor and/or its affiliates since
1998. From 1997 to 1998, he was Manager of a global markets fixed income fund
for West Merchant Bank Ltd. From 1993 to 1996, he was a portfolio manager for
Fischer Francis Trees and Watts. Mr. Cleary completed the investment
management program at the London Business School in 1996.
- - Christine Rowley, Portfolio Manager, who has been responsible for the fund
since 1999 and has been associated with the advisor and/or its affiliates
since 1991.
OTHER INFORMATION
- --------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Developing Markets Fund are subject to the
maximum of 4.75% initial sales charge as listed under the heading "CATEGORY II
Initial Sales Charges" in the "Shareholder Information--Choosing a Share Class"
section of this prospectus. Purchases of Class B and Class C shares are subject
to the contingent deferred sales charges listed in that section.
DIVIDENDS AND DISTRIBUTIONS
The fund expects that its distributions will consist primarily of income.
DIVIDENDS
The fund generally declares and pays dividends, if any, annually.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains, if any,
annually.
5
49
---------------------------
AIM DEVELOPING MARKETS FUND
---------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the fund's financial statements, is included in the fund's annual
report, which is available upon request.
CLASS A(a)
-----------------------------------------------------------------------------
YEAR YEAR TEN MONTHS JANUARY 11,
ENDED ENDED ENDED YEAR ENDED TO
OCTOBER 31, OCTOBER 31, OCTOBER 31, DECEMBER 31, DECEMBER 31,
1999(a) 1998(a) 1997(b) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.53 $ 12.56 $ 13.84 $ 11.60 $ 12.44 $ 15.00
Income from investment operations:
Net investment income 0.06 0.39(c)(d) 0.25 0.53 0.72 0.35
Net realized and unrealized gain (loss) on
investments 2.36 (5.10) (1.53) 2.19 (0.84) (2.46)
Net increase (decrease) from investment
operations 2.42 (4.71) (1.28) 2.72 (0.12) (2.11)
Redemption fees retained 0.03 0.28 -- -- -- --
Distributions to shareholders:
From net investment income (0.12) (0.60) -- (0.48) (0.72) (0.35)
From net realized gain on investments -- -- -- -- -- (0.10)
Total distributions (0.12) (0.60) -- (0.48) (0.72) (0.45)
Net asset value, end of period $ 9.86 $ 7.53 $ 12.56 $ 13.84 $ 11.60 $ 12.44
Total return(e) 33.11% (37.09)% (9.25)% 23.59% (0.95)% (14.07)%
- -------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in 000s) $157,198 $87,517 $457,379 $504,012 $422,348 $452,872
Ratio of net investment income to average net
assets:
With fee waivers 0.68%(f) 3.84% 2.03%(g) 4.07% 6.33% 2.75%(g)
Without fee waivers 0.21%(f) 3.43% 1.95%(g) 4.04% 6.30% 2.75%(g)
Ratio of expenses to average net assets
excluding interest expense:
With fee waivers 1.90%(f) 1.73% 1.75%(g) 1.82% 1.77% 2.01%(g)
Without fee waivers 2.37%(f) 2.14% 1.83%(g) 1.85% 1.80% 2.01%(g)
Ratio of interest expense to average net assets 0.01% 0.20% N/A N/A N/A N/A
Portfolio turnover rate 125% 111% 184%(g) 138% 75% 56%(g)
- -------------------------------------------------------------------------------------------------------------------------------
(a) These selected per share data were calculated based upon the average shares
outstanding during the period.
(b) Prior to November 1, 1997 the Fund was known as G.T. Developing Markets
Fund, Inc. All capital shares issued and outstanding on October 31, 1997
were reclassified as Class A shares.
(c) Before reimbursement the net investment income per share would have been
reduced by $0.04.
(d) Net investment income per share reflects an interest payment received from
the conversion of Vnesheconombank loan agreements of $0.14 per share.
(e) Total return does not include sales charges and is not annualized for
periods less than one year.
(f) Ratios are based on average net assets of $123,758,642.
(g) Annualized.
N/A Not applicable.
6
50
---------------------------
AIM DEVELOPING MARKETS FUND
---------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
CLASS B
------------------------------------------------
YEAR ENDED OCTOBER 31, YEAR ENDED OCTOBER 31,
1999(a) 1998(a)
- --------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.49 $ 12.56
Income from investment operations:
Net investment income 0.01 0.31(b)(c)
Net realized and unrealized gain (loss) on investments 2.37 (5.07)
Net increase (decrease) from investment operations 2.38 (4.76)
Redemption fees retained -- 0.28
Distributions to shareholders:
From net investment income (0.08) (0.59)
Net asset value, end of period $ 9.79 $ 7.49
Total return (d) 32.14% (39.76)%
- --------------------------------------------------------------------------------------------------------------
Ratios and supplemental data:
- --------------------------------------------------------------------------------------------------------------
Net assets, end of period (in 000s) $49,723 $ 154
Ratio of net investment income (loss) to average net assets:
With fee waivers 0.08%(e) 3.09%
Without fee waivers (0.39)%(e) 2.68%
Ratio of expenses to average net assets excluding interest
expense:
With fee waivers 2.50%(e) 2.48%
Without fee waivers 2.97%(e) 2.89%
Ratio of interest expense to average net assets 0.01% 0.20%
Portfolio turnover rate 125% 111%
- --------------------------------------------------------------------------------------------------------------
(a)These selected per share data were calculated based upon the average shares
outstanding during the period.
(b)Before reimbursement the net investment income per share would have been
reduced by $0.04.
(c)Net investment income per share reflects an interest payment received from
the conversion of Vnesheconombank loan agreements of $0.14 per share.
(d)Total return does not include sales charges and is not annualized for periods
less than one year.
(e)Ratios are based on average net assets of $35,727,260.
CLASS C
----------------------
MARCH 1, 1999
TO OCTOBER 31, 1999(a)
- ------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.47
Income from investment operations:
Net investment income (loss) --
Net realized and unrealized gain (loss) on investments 2.32
Net increase (decrease) from investment operations 2.32
Redemption fees retained --
Distributions to shareholders:
From net investment income --
Net asset value, end of period $ 9.79
Total return (b) 31.06%
- ------------------------------------------------------------------------------------
Ratios and supplemental data:
- ------------------------------------------------------------------------------------
Net assets, end of period (in 000s) $ 412
Ratio of net investment income (loss) to average net assets:
With fee waivers 0.08%(c)
Without fee waivers (0.39)%(c)
Ratio of expenses to average net assets excluding interest
expense:
With fee waivers 2.50%(c)
Without fee waivers 2.97%(c)
Ratio of interest expense to average net assets 0.01%
Portfolio turnover rate 125%
- ------------------------------------------------------------------------------------
(a)These selected per share data were calculated based upon the average shares
outstanding during the period.
(b)Total return does not include sales charges and is not annualized for periods
less than one year.
(c)Ratios are annualized and based on average net assets of $208,934.
7
51
-------------
THE AIM FUNDS
-------------
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
In addition to the fund, A I M Advisors, Inc. serves as investment advisor to
many other mutual funds (the AIM Funds). The following information is about all
the AIM Funds.
CHOOSING A SHARE CLASS
Many of the AIM Funds have multiple classes of shares, each class representing
an interest in the same portfolio of investments. When choosing a share class,
you should consider the factors below:
CLASS A CLASS B CLASS C
- ---------------------------------------------------------------------------------------------------------
- - Initial sales charge - No initial sales charge - No initial sales charge
- - Reduced or waived initial sales - Contingent deferred sales - Contingent deferred sales
charge for certain purchases charge on redemptions within charge on redemptions within
six years one year
- - Lower distribution and service - 12b-1 fee of 1.00% - 12b-1 fee of 1.00%
(12b-1) fee than Class B or
Class C shares (See "Fee Table
and Expense Example")
- Converts to Class A shares - Does not convert to Class A
after eight years along with a shares
pro rata portion of its
reinvested dividends and
distributions(1)
- - Generally more appropriate for - Purchase orders limited to - Generally more appropriate
long-term investors amounts less than $250,000 for short-term investors
(1) AIM Money Market Fund: Class B shares convert to AIM Cash Reserve
Shares.
AIM Global Trends Fund: If you held Class B shares on May 29,
1998 and continue to hold them, those shares will convert to
Class A shares of that fund seven years after your date of
purchase. If you exchange those shares for Class B shares of
another AIM Fund, the shares into which you exchanged will
not convert to Class A shares until eight years after your
date of purchase of the original shares.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12b-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund) has adopted 12b-1 plans
that allow the AIM Fund to pay distribution fees to A I M Distributors, Inc.
(the distributor) for the sale and distribution of its shares and fees for
services provided to shareholders, all or a substantial portion of which are
paid to the dealer of record. Because the AIM Fund pays these fees out of its
assets on an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
SALES CHARGES
Generally, you will not pay a sales charge on purchases or redemptions of Class
A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund. You may be charged a contingent deferred sales charge if you redeem
AIM Cash Reserve Shares of AIM Money Market Fund acquired through certain
exchanges. Sales charges on all other AIM Funds and classes of those Funds are
detailed below. As used below, the term "offering price" with respect to all
categories of Class A shares includes the initial sales charge.
INITIAL SALES CHARGES
The AIM Funds are grouped into three categories with respect to initial sales
charges. The "Other Information" section of your prospectus will tell you in
what category your particular AIM Fund is classified.
CATEGORY I INITIAL SALES CHARGES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
INVESTOR'S
SALES CHARGE
----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- -------------------------------------------------------------
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
- -------------------------------------------------------------
A-1 MCF--02/00
52
-------------
THE AIM FUNDS
-------------
CATEGORY II INITIAL SALES CHARGES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
INVESTOR'S
SALES CHARGE
----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- -------------------------------------------------------------
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
- -------------------------------------------------------------
CATEGORY III INITIAL SALES CHARGES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
INVESTOR'S
SALES CHARGE
----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- -------------------------------------------------------------
Less than $ 100,000 1.00% 1.01%
$100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
- -------------------------------------------------------------
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES
You can purchase $1,000,000 or more of Class A shares at net asset value.
However, if you purchase shares of that amount in Categories I or II, they will
be subject to a contingent deferred sales charge (CDSC) of 1% if you redeem them
prior to 18 months after the date of purchase. The distributor may pay a dealer
concession and/or a service fee for purchases of $1,000,000 or more.
CONTINGENT DEFERRED SALES CHARGES FOR
CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
- ----------------------------------------------------------
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
- ----------------------------------------------------------
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial consultant must
provide sufficient information at the time of purchase to verify that your
purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Rights of Accumulation
You may combine your new purchases of Class A shares with Class A shares
currently owned for the purpose of qualifying for the lower initial sales charge
rates that apply to larger purchases. The applicable initial sales charge for
the new purchase is based on the total of your current purchase and the current
value of all Class A shares you own.
Letters of Intent
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of AIM Funds during a 13-month period. The amount you agree to
purchase determines the initial sales charge you pay. If the full face amount of
the LOI is not invested by the end of the 13-month period, your account will be
adjusted to the higher initial sales charge level for the amount actually
invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- - on shares purchased by reinvesting dividends and distributions;
- - when exchanging shares among certain AIM Funds;
- - when using the reinstatement privilege; and
- - when a merger, consolidation, or acquisition of assets of an AIM Fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- - if you redeem Class B shares you held for more than six years;
- - if you redeem Class C shares you held for more than one year;
- - if you redeem shares acquired through reinvestment of dividends and
distributions; and
- - on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
MCF--02/00 A-2
53
-------------
THE AIM FUNDS
-------------
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
The minimum investments for AIM Fund accounts (except for investments in AIM Mid
Cap Opportunities Fund and AIM Small Cap Opportunities Fund) are as follows:
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- ----------------------------------------------------------------------------------------------------------------
Savings Plans (money-purchase/profit sharing $ 0 ($25 per AIM Fund investment for $25
plans, 401(k) plans, Simplified Employee Pension salary deferrals from Savings Plans)
(SEP) accounts, Salary Reduction (SARSEP)
accounts, Savings Incentive Match Plans for
Employee IRA (Simple IRA) accounts, 403(b) or
457 plans)
Automatic Investment Plans 50 50
IRA, Education IRA or Roth IRA 250 50
All other accounts 500 50
- ----------------------------------------------------------------------------------------------------------------
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below.
PURCHASE OPTIONS
- ----------------------------------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- ----------------------------------------------------------------------------------------------------------
Through a Financial Consultant Contact your financial consultant. Same
By Mail Mail completed account application Mail your check and the remittance
and purchase payment to the slip from your confirmation
transfer agent, statement to the transfer agent.
A I M Fund Services, Inc.,
P.O. Box 4739,
Houston, TX 77210-4739.
By Wire Mail completed account application Call the transfer agent to receive
to the transfer agent. Call the a reference number. Then, use the
transfer agent at (800) 959-4246 to wire instructions at left.
receive a reference number. Then,
use the following wire
instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number:
00100366807
Beneficiary Account Name: A I M
Fund Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank Connection
methods described above. form to the transfer agent. Once
the transfer agent has received the
form, call the transfer agent to
place your purchase order.
By AIM Internet Connect(SM) Open your account using one of the Select the AIM Internet Connect
methods described above. option on your completed account
application or complete an AIM
Internet Connect Authorization
Form. Mail the application or form
to the transfer agent. Once your
request for this option has been
processed (which may take up to 10
days), you may place your purchase
order at www.aimfunds.com. The
maximum purchase amount per
transaction is $100,000. You may
not purchase shares in AIM
prototype retirement accounts on
the internet.
- ----------------------------------------------------------------------------------------------------------
A-3 MCF--02/00
54
-------------
THE AIM FUNDS
-------------
SPECIAL PLANS
AUTOMATIC INVESTMENT PLAN
You can arrange for periodic investments in any of the AIM Funds by authorizing
the AIM Fund to withdraw the amount of your investment from your bank account on
a day or dates you specify and in an amount of at least $50. You may stop the
Automatic Investment Plan at any time by giving the transfer agent notice ten
days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one AIM Fund account to one or more other AIM Fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the 10th or 25th day of the month, whichever
you specify, in the amount you specify. The minimum amount you can exchange to
another AIM Fund is $50.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM Fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same AIM Fund. You may
invest your dividends and distributions (1) into another AIM Fund in the same
class of shares; or (2) from Class A shares into AIM Cash Reserve Shares of AIM
Money Market Fund, or vice versa.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend must be at
least $5,000; or (b) in the AIM Fund receiving the dividend must be at least
$500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends into
another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your AIM Fund holdings should be rebalanced, on a percentage
basis, between two and ten of your AIM Funds on a quarterly, semiannual or
annual basis. Your portfolio will be rebalanced through the exchange of shares
in one or more of your AIM Funds for shares of the same class of one or more
other AIM Funds in your portfolio. If you wish to participate in the Program,
make changes or cancel the Program, the transfer agent must receive your request
to participate, changes, or cancellation in good order at least five business
days prior to the next rebalancing date, which is normally the 28th day of the
last month of the period you choose. You may realize taxable gains from these
exchanges. We may modify, suspend or terminate the Program at any time on 60
days' prior written notice.
RETIREMENT PLANS
Shares of most of the AIM Funds can be purchased through tax-sheltered
retirement plans made available to corporations, individuals and employees of
non-profit organizations and public schools. A plan document must be adopted to
establish a retirement plan. You may use AIM Funds-sponsored retirement plans,
which include IRAs, Education IRAs, Roth IRAs, 403(b) plans, 401(k) plans,
SIMPLE IRA plans, SEP/SARSEP plans and Money Purchase/Profit Sharing plans, or
another sponsor's retirement plan. The plan custodian of the AIM Funds-sponsored
retirement plan assesses an annual maintenance fee of $10. Contact your
financial consultant for details.
REDEEMING SHARES
REDEMPTION FEES
Generally, we will not charge you any fees to redeem your shares. However, if
you acquired Class A shares of AIM Developing Markets Fund in connection with
the reorganization of AIM Eastern Europe Fund, you will be charged a redemption
fee of 2% of the net asset value of those shares, which will be paid to AIM
Developing Markets Fund, if you redeem your shares within the first year after
the reorganization. Your broker or financial consultant may charge service fees
for handling redemption transactions. Your shares also may be subject to a
contingent deferred sales charge (CDSC).
REDEMPTION OF AIM CASH RESERVE SHARES OF
AIM MONEY MARKET FUND ACQUIRED BY EXCHANGE
If you redeem AIM Cash Reserve Shares acquired by exchange from Class A shares
subject to a CDSC within 18 months of the purchase of the Class A shares, you
will be charged a CDSC.
REDEMPTION OF CLASS B SHARES OR CLASS C
SHARES ACQUIRED BY EXCHANGE FROM AIM CASH
RESERVE SHARES OF AIM MONEY MARKET FUND
We will begin the holding period for purposes of calculating the CDSC on Class B
shares or Class C shares acquired by exchange from AIM Cash Reserve Shares of
AIM Money Market Fund at the time of the exchange into Class B shares or Class C
shares.
REDEMPTION OF CLASS B SHARES ACQUIRED BY
EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
MCF--02/00 A-4
55
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THE AIM FUNDS
-------------
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
Through a Financial Contact your financial consultant.
Consultant
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners;
(2) the name of the AIM Fund and your account number; (3) if
the transfer agent does not hold your shares, endorsed share
certificates or share certificates accompanied by an
executed stock power; and (4) signature guarantees, if
necessary (see below). The transfer agent may require that
you provide additional information, such as corporate
resolutions or powers of attorney, if applicable. If you are
redeeming from an IRA account, you must include a statement
of whether or not you are at least 59 1/2 years old and
whether you wish to have federal income tax withheld from
your proceeds. The transfer agent may require certain other
information before you can redeem from an employer-sponsored
retirement plan. Contact your employer for details.
By Telephone Call the transfer agent. You will be allowed to redeem by
telephone if (1) the proceeds are to be mailed to the
address on record (if there has been no change communicated
to us within the last 30 days) or transferred electronically
to a pre-authorized checking account; (2) you do not hold
physical share certificates; (3) you can provide proper
identification information; (4) the proceeds of the
redemption do not exceed $50,000; and (5) you have not
previously declined the telephone redemption privilege.
Certain accounts, including retirement accounts and 403(b)
plans, may not be redeemed by telephone. The transfer agent
must receive your call during the hours of the customary
trading session of the New York Stock Exchange (NYSE) in
order to effect the redemption at that day's closing price.
By AIM Internet Connect Place your redemption request at www.aimfunds.com. You will
be allowed to redeem by internet if (1) you do not hold
physical share certificates; (2) you can provide proper
identification information; (3) the proceeds of the
redemption do not exceed $50,000; and (4) you have
established the internet trading option. AIM prototype
retirement accounts may not be redeemed on the internet. The
transfer agent must confirm your transaction during the
hours of the customary trading session of the NYSE in order
to effect the redemption at that day's closing price.
- --------------------------------------------------------------------------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
REDEMPTION BY INTERNET
If you redeem by internet, we will transmit your redemption proceeds
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by internet are genuine and are not
liable for internet instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC WITHDRAWALS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Withdrawal Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM Cash Reserve Shares of AIM Money Market Fund only)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of the
customary trading session of the NYSE, we generally will transmit payment on the
next business day.
A-5 MCF--02/00
56
-------------
THE AIM FUNDS
-------------
REDEMPTIONS BY CHECK
(Class A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM
Money Market Fund only)
You may redeem shares of these AIM Funds by writing checks in amounts of $250 or
more if you have completed an authorization form. Redemption by check is not
available for retirement accounts.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
(1) the amount is greater than $50,000;
(2) you request that payment be made to someone other than the name registered
on the account;
(3) you request that payment be sent somewhere other than the bank of record on
the account; or
(4) you request that payment be sent to a new address or an address that changed
in the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of
financial institutions. Call the transfer agent for additional information. Some
institutions have transaction amount maximums for these guarantees. Please check
with the guarantor institution.
REINSTATEMENT PRIVILEGE (Class A shares only)
You may, within 90 days after you sell Class A shares (except Class A shares of
AIM Tax-Exempt Cash Fund), reinvest all or part of your redemption proceeds in
Class A shares of any AIM Fund at net asset value in an identically registered
account. If you sold Class A shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund, you will incur an initial sales charge reflecting
the difference between the initial sales charges on those Funds and the ones in
which you will be investing. In addition, if you paid a contingent deferred
sales charge (CDSC) on any reinstated amount, you will not be subject to a CDSC
if you later redeem that amount. You must notify the transfer agent in writing
at the time you reinstate that you are exercising your reinstatement privilege.
You may exercise this privilege only once per year.
REDEMPTIONS BY THE AIM FUNDS
If your account has been open at least one year, you have not made an additional
purchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions or
exchanges (excluding retirement accounts), the AIM Funds have the right to
redeem the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500 or by utilizing the Automatic Investment Plan.
If an AIM Fund determines that you have not provided a correct Social Security
or other tax ID number on your account application, the AIM Fund may, at its
discretion, redeem the account and distribute the proceeds to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one AIM Fund for those
of another AIM Fund. Before requesting an exchange, review the prospectus of the
AIM Fund you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
PERMITTED EXCHANGES
Except as otherwise stated below, you may exchange your shares for shares of the
same class of another AIM Fund. You may exchange AIM Cash Reserve Shares of AIM
Money Market Fund for Class A shares of another AIM Fund, or vice versa. You
also may exchange AIM Cash Reserve Shares of AIM Money Market Fund for Class B
shares or Class C shares of another AIM Fund, but only if the AIM Cash Reserve
Shares were purchased directly and not acquired by exchange. You may be required
to pay an initial sales charge when exchanging from a Fund with a lower initial
sales charge than the one into which you are exchanging. If you exchange from
Class A shares not subject to a CDSC into Class A shares subject to those
charges, you will be charged a CDSC when you redeem the exchanged shares. The
CDSC charged on redemption of those shares will be calculated starting on the
date you acquired those shares through exchange.
YOU WILL NOT PAY A SALES CHARGE WHEN EXCHANGING:
(1) Class A shares with an initial sales charge (except for Class A shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
Class A shares of another AIM Fund or AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund for
(a) one another;
(b) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of
AIM Tax-Exempt Cash Fund; or
(c) Class A shares of another AIM Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of
an exchange from shares with higher sales charges;
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) one another;
(b) Class A shares of an AIM Fund subject to an initial sales charge (except
for Class A shares of AIM Limited
MCF--02/00 A-6
57
-------------
THE AIM FUNDS
-------------
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund), but only if
you acquired the original shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an
initial sales charge;
(ii) on or after May 1, 1994 by exchange from Class A shares subject to
an initial sales charge (except for Class A shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(c) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, but only if you acquired the original shares by
exchange from Class A shares subject to an initial sales charge; or
(4) Class B shares for other Class B shares, and Class C shares for other Class
C shares.
(5) AIM Cash Reserve Shares of AIM Money Market Fund for Class B shares and
Class C shares.
EXCHANGES NOT PERMITTED
You may not exchange Class A shares subject to contingent deferred sales charges
for Class A shares of AIM Limited Maturity Treasury Fund, AIM Tax-Free
Intermediate Fund or AIM Tax-Exempt Cash Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be available for sale in your
state of residence;
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - Shares must have been held for at least one day prior to the exchange;
- - If you have physical share certificates, you must return them to the transfer
agent prior to the exchange; and
- - You are limited to a maximum of 10 exchanges per calendar year, because
excessive short-term trading or market-timing activity can hurt fund
performance. If you exceed that limit, or if an AIM Fund or the distributor
determines, in its sole discretion, that your short-term trading is excessive
or that you are engaging in market-timing activity, it may reject any
additional exchange orders. An exchange is the movement out of (redemption)
one AIM Fund and into (purchase) another AIM Fund.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the purchase of shares
being acquired in an exchange for up to five business days if it determines that
it would be materially disadvantaged by the immediate transfer of exchange
proceeds. There is no fee for exchanges. The exchange privilege is not an option
or right to purchase shares. Any of the participating AIM Funds or the
distributor may modify or discontinue this privilege at any time.
BY MAIL
If you wish to make an exchange by mail, you must include original signatures of
each registered owner exactly as the shares are registered, the account
registration and account number, the dollar amount or number of shares to be
exchanged and the names of the AIM Funds from which and into which the exchange
is to be made.
BY TELEPHONE
Conditions that apply to exchanges by telephone are the same as redemptions by
telephone, including that the transfer agent must receive exchange requests
during the hours of the customary trading session of the NYSE; however, you
still will be allowed to exchange by telephone even if you have changed your
address of record within the preceding 30 days.
BY INTERNET
You will be allowed to exchange by internet if (1) you do not hold physical
share certificates; (2) you can provide proper identification information; and
(3) you have established the internet trading option.
EXCHANGING CLASS B AND CLASS C SHARES
If you make an exchange involving Class B or Class C shares, the amount of time
you held the original shares will be added to the holding period of the Class B
or Class C shares, respectively, into which you exchanged for the purpose of
calculating contingent deferred sales charges (CDSC) if you later redeem the
exchanged shares. If you redeem Class B shares acquired by exchange via a tender
offer by AIM Floating Rate Fund, you will be credited with the time period you
held the shares of AIM Floating Rate Fund for the purpose of computing the early
withdrawal charge applicable to those shares.
- --------------------------------------------------------------------------------
EACH AIM FUND AND ITS AGENTS RESERVE THE RIGHT AT ANY TIME TO:
- REJECT OR CANCEL ANY PART OF ANY PURCHASE OR EXCHANGE ORDER;
- MODIFY ANY TERMS OR CONDITIONS OF PURCHASE OF SHARES OF ANY AIM FUND;
- REJECT OR CANCEL ANY REQUEST TO ESTABLISH THE AUTOMATIC INVESTMENT PLAN AND
SYSTEMATIC WITHDRAWAL PLAN OPTIONS ON THE SAME ACCOUNT; OR
- WITHDRAW ALL OR ANY PART OF THE OFFERING MADE BY THIS PROSPECTUS.
- --------------------------------------------------------------------------------
A-7 MCF--02/00
58
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THE AIM FUNDS
-------------
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. AIM Money
Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at
amortized cost. AIM High Income Municipal Fund, AIM Municipal Bond Fund, AIM
Tax-Exempt Bond Fund of Connecticut and AIM Tax-Free Intermediate Fund value
variable rate securities that have an unconditional demand or put feature
exercisable within seven days or less at par, which reflects the market value of
such securities.
The AIM Funds value all other securities and assets at their fair value.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day. In addition, if,
between the time trading ends on a particular security and the close of the
customary trading session of the NYSE, events occur that materially affect the
value of the security, the AIM Funds may value the security at its fair value as
determined in good faith by or under the supervision of the Board of Directors
or Trustees of the AIM Fund. The effect of using fair value pricing is that an
AIM Fund's net asset value will be subject to the judgment of the Board of
Directors or Trustees or its designee instead of being determined by the market.
Because some of the AIM Funds may invest in securities that are primarily listed
on foreign exchanges, the value of those funds' assets may change on days when
you will not be able to purchase or redeem fund shares.
Each AIM Fund determines the net asset value of its shares as of the close of
the customary trading session of the NYSE on each day the NYSE is open for
business. AIM Money Market Fund also determines its net asset value as of 12:00
noon Eastern Time on each day the NYSE is open for business.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours of the customary
trading session of the NYSE. The AIM Funds price purchase, exchange and
redemption orders at the net asset value calculated after the transfer agent
receives an order in good form. An AIM Fund may postpone the right of redemption
only under unusual circumstances, as allowed by the Securities and Exchange
Commission, such as when the NYSE restricts or suspends trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different tax rates apply to ordinary income and long-term capital
gain distributions, regardless of how long you have held your shares. Every
year, you will be sent information showing the amount of dividends and
distributions you received from each AIM Fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of AIM
Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
INVESTORS IN TAX-EXEMPT FUNDS SHOULD READ THE INFORMATION UNDER THE HEADING
"OTHER INFORMATION -- SPECIAL TAX INFORMATION REGARDING THE FUND" IN THIS
PROSPECTUS.
The foreign, state and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
MCF--02/00 A- 8
59
---------------------------
AIM DEVELOPING MARKETS FUND
---------------------------
OBTAINING ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of Funds
- --Registered Trademark-- or your account, or wish to obtain free copies of the
fund's current SAI or annual or semiannual reports, please contact us
- ---------------------------------------------------------
BY MAIL: A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
BY TELEPHONE: (800) 347-4246
BY E-MAIL: general@aimfunds.com
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
- ---------------------------------------------------------
You also can review and obtain copies of the fund's SAI, reports and other
information at the SEC's Public Reference Room in Washington, DC; on the EDGAR
database on the SEC's Internet website (http://www.sec.gov); or, after paying a
duplication fee, by sending a letter to the SEC's Public Reference Section,
Washington, DC 20549-0102 or by sending an electronic mail request to
publicinfo@sec.gov. Please call the SEC at 1-202-942-8090 for information about
the Public Reference Room.
- ------------------------------------
AIM Developing Markets Fund
SEC 1940 Act file number: 811-05426
- ------------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com DVM-PRO-1 INVEST WITH DISCIPLINE
--REGISTERED TRADEMARK--
60
APPENDIX III
ANNUAL REPORT / MANAGERS' OVERVIEW
FUND POSTS IMPRESSIVE RETURNS AS EMERGING
MARKETS REBOUND
EMERGING MARKETS RECORDED SOLID GAINS FOR THE FISCAL YEAR. HOW DID AIM
DEVELOPING MARKETS FUND PERFORM?
The strong showing of emerging markets boosted the fund's performance for the
fiscal year ended October 31, 1999. Excluding sales charges, total returns for
Class A and B shares were 33.11% and 32.14%, respectively. Advisor Class shares
posted gains of 33.62%.
Class C shares began sales on March 1, 1999, and had a cumulative total
return of 31.06%, excluding sales charges, through the end of the fiscal year.
The fund had $207.7 million in total net assets at the close of the fiscal
year, up from $87.7 million at the beginning of the 12-month reporting period.
AIM Eastern Europe Fund was merged into AIM Developing Markets Fund on September
10, 1999, and AIM Emerging Markets Fund was merged into AIM Developing Markets
Fund on February 12, 1999.
HOW DID EMERGING MARKETS FARE FOR THE FISCAL YEAR?
Overall, the performance of emerging markets was very strong. Investors shifted
more of their assets into stocks in developing markets as global economic
conditions improved. Markets in Asia led the way as the region recovered
impressively from the severe economic crisis of 1997-1998.
o Asia's rebound was the product of strong economic growth, improving
corporate earnings and rising consumer demand. Restructuring also helped to
fuel Asia's comeback. Countries such as Malaysia, South Korea and Taiwan,
which exerted the most effort to revamp their banking systems and stabilize
their currencies, enjoyed excellent stock-market performance. Asian markets
also benefited from lower inflation and declining interest rates.
o Latin American markets, led by Mexico and Brazil, also posted impressive
gains for the fiscal year. Mexico benefited from falling interest rates, a
stronger peso and a vibrant economy in the United States, its chief trading
partner. After Brazil moved quickly to resolve its currency crisis in
January, its stock markets soared. Investors gravitated to Brazilian stocks
because of their attractive valuations and the earnings-growth potential of
certain Brazilian companies.
o Other emerging markets that performed well included Greece, Israel, South
Africa and Turkey. Rising gold prices have helped boost South African stocks
while Israeli companies that transact much of their business in the United
States benefited from the strong U.S. economy.
WHAT CHANGES HAVE YOU MADE TO THE PORTFOLIO?
Between our last report on April 30, 1999, and the end of the fiscal year, we
shifted the fund's geographic focus from Latin America to Asia. We increased the
fund's exposure to such markets as Malaysia, South Korea and Taiwan while
reducing its exposure to Brazil and Mexico.
As far as sectors are concerned, the fund's focus remained on the stocks of
financial, consumer-service and basic material companies. As of October 31,
financial stocks comprised about 37% of the portfolio compared to 30% six months
earlier. Mid-and large-cap stocks formed the majority of the fund's holdings.
As of October 31, the fund had 134 holdings, 12 more than at the time of our
last report.
WHAT MADE ASIAN MARKETS ATTRACTIVE?
Several Asian nations, including Taiwan, appeared poised to benefit from the
improving global economy. Demand for semiconductors and computer components
remained strong, a positive development for Taiwan. Analysts did not expect the
severe earthquake that hit the country in September to have a dramatic impact on
the country's exports or economic growth. We also liked Malaysia because its
stocks were favorably priced and its currency appeared to be under-valued. We
were more cautious about South Korea, despite the impressive gains of its stock
market. The restructuring of several key conglomerates in South Korea needed to
be completed for the country's economic recovery to remain on track, according
to several analysts.
FUND PERFORMANCE IMPROVES
Total return, excluding sales charges
================================================================================
Class A Shares
- --------------------------------------------------------------------------------
98/99 37.09%
97/98 -33.11%
Class B Shares
98/99 32.14%
97/98 -39.76%
Advisor Class Shares
98/99 33.62%
97/98 -42.63%
*Performance of Class B shares and Advisor Class Shares is from inception,
11/3/97-10/31/98
================================================================================
GROWTH OF NET ASSETS
in millions
10/31/98 $ 87.7
10/31/99 $207.3
See important fund and index disclosures inside front cover.
AIM DEVELOPING MARKETS FUND
2
61
ANNUAL REPORT / MANAGERS' OVERVIEW
PORTFOLIO COMPOSITION
As of 10/31/99, based on total net assets
=========================================================================================================================
TOP 10 INDUSTRIES TOP 10 EQUITY HOLDINGS
- -------------------------------------------------------------------------------------------------------------------------
1. Telefonos de Mexico S.A. de C.V. "L" - ADR (Mexico) 2.31 1. Telephone 10.46%
2. PT Lippo Bank TBK (Indonesia) 2.03 2. Investment Management 8.26
3. Pohang Iron & Steel Co. Ltd. ADR (South Korea) 1.98 3. Banks (Regional) 5.86
4. Hindustan Lever Ltd. (India) 1.88 4. Banks (Major Regional) 5.69
5. Petroleo Brasileiro S.A.-Petrobras-Pfd (Brazil) 1.68 5. Electric Companies 3.96
6. Fomento Economico Mexicano, S.A. de C.V. - ADR (Mexico) 1.67 6. Banks (Money Center) 3.83
7. Telebras-ADR (Brazil) 1.64 7. Iron & Steel 3.18
8. Telekom Malaysia Berhad (Malaysia) 1.57 8. Electronics (Component Distributors) 2.79
9. Matv Rt.-ADR (Hungary) 1.53 9. Automobiles 2.40
10. Mahindra & Mahindra Ltd. (India) 1.50 10. Manufacturing (Diversified) 2.34
=========================================================================================================================
================================================================================
TOP 10 COUNTRIES
- --------------------------------------------------------------------------------
1. Taiwan 14.79%
2. South Korea 12.31
3. Mexico 10.51
4. Brazil 10.14
5. South Africa 8.98
6. Malaysia 6.61
7. India 6.21
8. Israel 3.60
9. Greece 3.32
10. Turkey 3.27
The fund's portfolio is subject to change, and there is no assurance that the
fund will continue to hold any particular security.
================================================================================
WHERE WAS YOUR EMPHASIS IN LATIN AMERICA?
Our focus was on Brazil and Mexico, the two largest markets in the region. In
Brazil, we anticipated a significant increase in corporate earnings as the
nation's economy continued to recover. We expected economic growth in Mexico to
remain healthy. We found other Latin American markets much less attractive
because of conditions bordering on recession and a lack of liquidity.
WHAT MARKETS DID YOU LIKE IN EUROPE, AFRICA AND THE MIDDLE EAST?
We increased the fund's exposure to South Africa, where stock prices were
relatively inexpensive. The country is a large exporter of commodities and it
was expected to benefit from improving economic conditions worldwide. Despite
their stellar performance, Greek stocks appeared to be overvalued, considering
the tepid earnings growth of companies in that country.
WHAT WERE SOME OF THE STOCKS THAT YOU LIKED?
o Telefonos de Mexico (Telmex) is Mexico's top telephone-service provider. It
is extending its business into Arizona, California and Texas, where it sells
phones to U.S. customers to connect them with their families in Mexico.
o PT Lippo Bank has more than 350 branches in 110 cities in Indonesia. It
offers a full range of services to more than 2.1 million individual and
corporate customers.
o Pohang Iron & Steel (POSCO) of South Korea is the world's top steel
producer. The company makes hot and cold rolled steel products.
o Hindustan Lever, India's largest company in terms of market capitalization,
offers home and personal care products, foods and beverages.
o Fomento Economico Mexicano is one of the largest beverage producers in Latin
America. The company also owns a convenience store chain and produces
packaging materials.
o Petroleo Brasileiro (PETROBRAS), Brazil's largest industrial company, is
involved in the exploration, production, refining, purchasing and
transporting of oil and gas products.
o Telekom Malaysia provides telecommunications services to 4.2 million
subscribers.
WHAT IS YOUR OUTLOOK FOR THE NEAR TERM?
As 2000 approaches, we remain cautiously optimistic about emerging markets. If
global economic conditions continue to improve, we believe emerging markets will
become increasingly attractive to investors. Many emerging-markets stocks are
favorably priced in comparison to stocks in more developed markets. Moreover,
the economic fundamentals in many emerging markets are on firmer ground than
they were at the outset of the fiscal year. However, we expect emerging markets
to remain volatile as they tend to be more sensitive to socioeconomic and
political developments than more established markets.
See important fund and index disclosures inside front cover.
AIM DEVELOPING MARKETS FUND
3
62
ANNUAL REPORT / PERFORMANCE HISTORY
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
AIM DEVELOPING MARKETS FUND VS. BENCHMARK INDEX
1/11/94-10/31/99
In thousands
================================================================================
AIM Developing
Markets Fund, MSCI Emerging
Class A Shares Markets Free Index
- --------------------------------------------------------------------------------
1/94 9613 10182
10/94 9194 10631
10/95 7664 8565
10/96 9581 9121
10/97 9092 8347
10/98 5720 5761
10/99 7614 8331
Past performance cannot guarantee comparable future results.
================================================================================
ABOUT THIS CHART
The chart compares your fund's Class A shares to a benchmark index. It is
intended to give you a general idea of how your fund performed compared to the
stock market over the period 1/11/94- 10/31/99. (Please note that index
performance is from 12/31/94-10/31/99). It is important to understand the
difference between your fund and an index. An index measures the performance of
a hypothetical portfolio, in this case the Morgan Stanley Capital International
(MSCI) Emerging Markets Free Index. An index is not managed, incurring no sales
charges, expenses or fees. If you could buy all the securities that make up a
particular index, you would incur expenses that would affect the return on your
investment.
AVERAGE ANNUAL TOTAL RETURNS
As of 10/31/99, including sales charges
================================================================================
CLASS A SHARES
Inception (1/11/94) -4.59%
5 years -4.63
1 year 26.71
CLASS B SHARES
Inception (11/3/97) -12.52%
1 year 27.14
CLASS C SHARES
Inception (3/1/99) 30.06%*
* Cumulative total return that has not been annualized.
ADVISOR CLASS SHARES*
Inception (11/3/97) -9.92%
1 year 33.62*
* Advisor Class Shares were closed to new investors on March 1, 1999.
Source: Lipper, Inc.
================================================================================
Your fund's total return includes sales charges, expenses and management fees.
For fund performance calculations and descriptions of indexes cited on this
page, please refer to the inside front cover. The performance of Class B and C
shares and Advisor Class shares will differ from that of Class A shares due to
differing fees and expenses.
MARKET VOLATILITY CAN SIGNIFICANTLY IMPACT SHORT-TERM PERFORMANCE. RESULTS
OF AN INVESTMENT MADE TODAY MAY DIFFER SUBSTANTIALLY FROM THE HISTORICAL
PERFORMANCE SHOWN.
AIM DEVELOPING MARKETS FUND
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63
AIM DEVELOPING MARKETS FUND
AIM EMERGING MARKETS DEBT FUND
PORTFOLIOS OF AIM INVESTMENT FUNDS
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
Toll Free: (800) 347-4246
STATEMENT OF ADDITIONAL INFORMATION
(May 31, 2000 Special Meeting of Shareholders of AIM Emerging Markets Debt Fund)
This Statement of Additional Information is not a prospectus, but should be
read in conjunction with the Combined Proxy Statement and Prospectus dated April
__, 2000, of AIM Investment Funds (the "Trust") for use in connection with the
Special Meeting of Shareholders of AIM Emerging Markets Debt Fund to be held on
May 31, 2000. Copies of the Combined Proxy Statement and Prospectus may be
obtained at no charge by writing the Trust at the address shown above or by
calling 1-800-347-4246.
Unless otherwise indicated, capitalized terms used herein and not
otherwise defined have the same meanings as are given to them in the Combined
Proxy Statement and Prospectus.
A Statement of Additional Information for the Trust dated February 28,
2000, has been filed with the Securities and Exchange Commission and is
attached hereto as Appendix I which is incorporated herein by this reference.
The date of this Statement of Additional Information is April __, 2000.
TABLE OF CONTENTS
Appendix I -- AIM Investment Funds Statement of Additional Information
Appendix II -- Annual Report for AIM Emerging Markets Debt Fund
Appendix III -- Pro Forma Financial Statements
64
APPENDIX I
STATEMENT OF
ADDITIONAL INFORMATION
CLASS A, CLASS B AND CLASS C SHARES OF
AIM DEVELOPING MARKETS FUND
AIM LATIN AMERICAN GROWTH FUND
(SERIES PORTFOLIOS OF
AIM INVESTMENT FUNDS)
11 GREENWAY PLAZA
SUITE 100
HOUSTON, TEXAS 77046-1173
(713) 626-1919
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND
IT SHOULD BE READ IN CONJUNCTION WITH A PROSPECTUS OF THE
ABOVE-NAMED FUNDS, A COPY OF WHICH MAY BE OBTAINED FREE
OF CHARGE FROM AUTHORIZED DEALERS OR BY WRITING
AIM DISTRIBUTORS, INC.,
P.O. BOX 4739, HOUSTON, TEXAS 77210-4739
OR BY CALLING (800) 347-4246
STATEMENT OF ADDITIONAL INFORMATION DATED FEBRUARY 28, 2000,
RELATING TO THE AIM DEVELOPING MARKETS FUND
PROSPECTUS DATED FEBRUARY 28, 2000,
AND THE AIM LATIN AMERICAN GROWTH FUND PROSPECTUS DATED FEBRUARY 28, 2000
65
TABLE OF CONTENTS
PAGE
INTRODUCTION......................................................................................................1
GENERAL INFORMATION ABOUT THE FUNDS...............................................................................1
The Trust and Its Shares.................................................................................1
INVESTMENT STRATEGIES AND RISKS...................................................................................2
Investment Objectives....................................................................................2
Selection of Investments and Asset Allocation............................................................5
Equity-Linked Derivatives................................................................................6
Investments in Other Investment Companies................................................................6
Privatizations...........................................................................................7
When-Issued and Forward Commitment Securities............................................................7
Depositary Receipts......................................................................................7
Warrants or Rights.......................................................................................8
Lending of Portfolio Securities..........................................................................8
Commercial Bank Obligations..............................................................................9
Repurchase Agreements....................................................................................9
Borrowing and Reverse Repurchase Agreements..............................................................9
Short Sales.............................................................................................10
Temporary Defensive Strategies..........................................................................11
Samurai and Yankee Bonds................................................................................12
Debt Conversions........................................................................................12
Debt Securities.........................................................................................12
Premium Securities......................................................................................13
Indexed Debt Securities.................................................................................13
Structured Investments..................................................................................13
Stripped Income Securities..............................................................................14
Floating and Variable Rate Income Securities............................................................14
Zero Coupon Securities..................................................................................14
Indexed Commercial Paper................................................................................14
Other Indexed Securities................................................................................15
Swaps, Caps, Floors and Collars.........................................................................15
Loan Participations and Assignments.....................................................................15
OPTIONS, FUTURES AND CURRENCY STRATEGIES.........................................................................16
Special Risks of Options, Futures and Currency Strategies...............................................16
Writing Call Options....................................................................................18
Writing Put Options.....................................................................................19
Purchasing Put Options..................................................................................19
Purchasing Call Options.................................................................................20
Index Options...........................................................................................21
Interest Rate, Currency and Stock Index Futures.........................................................22
Options on Futures Contracts............................................................................24
Limitations on Use of Futures, Options on Futures and Certain Options on Currencies.....................25
Forward Contracts.......................................................................................25
Foreign Currency Strategies--Special Considerations.....................................................26
Cover...................................................................................................27
RISK FACTORS.....................................................................................................27
General.................................................................................................27
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Non-Diversified Classification..........................................................................28
Illiquid Securities.....................................................................................28
Debt Securities.........................................................................................29
Loan Participations and Assignments.....................................................................30
Foreign Securities......................................................................................31
INVESTMENT LIMITATIONS...........................................................................................39
Developing Markets Fund.................................................................................39
Latin American Fund.....................................................................................40
EXECUTION OF PORTFOLIO TRANSACTIONS..............................................................................42
Portfolio Trading and Turnover..........................................................................44
MANAGEMENT.......................................................................................................44
Trustees and Executive Officers.........................................................................44
Investment Management and Administration Services.......................................................46
THE DISTRIBUTION PLANS...........................................................................................49
The Class A and C Plan..................................................................................49
The Class B Plan........................................................................................50
Both Plans..............................................................................................50
THE DISTRIBUTOR..................................................................................................54
Expenses of the Funds...................................................................................56
SALES CHARGES AND DEALER CONCESSIONS.............................................................................56
REDUCTIONS IN INITIAL SALES CHARGES..............................................................................59
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS......................................................................62
HOW TO PURCHASE AND REDEEM SHARES................................................................................64
Backup Withholding......................................................................................65
NET ASSET VALUE DETERMINATION....................................................................................66
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS.........................................................................67
Reinvestment of Dividends and Distributions.............................................................67
Tax Matters.............................................................................................67
General.................................................................................................68
Exchange and Reinstatement Privileges and Wash Sales....................................................68
Foreign Taxes...........................................................................................68
Passive Foreign Investment Companies....................................................................69
Non-U.S. Shareholders...................................................................................69
Options, Futures and Foreign Currency Transactions......................................................70
SHAREHOLDER INFORMATION..........................................................................................70
MISCELLANEOUS INFORMATION........................................................................................73
Charges for Certain Account Information.................................................................73
Custodian and Transfer Agent............................................................................73
Independent Accountants.................................................................................73
Legal Matters...........................................................................................74
Shareholder Liability...................................................................................74
ii
67
Control Persons and Principal Holders of Securities.....................................................74
INVESTMENT RESULTS...............................................................................................76
Total Return Quotations.................................................................................76
Performance Information.................................................................................80
APPENDIX.........................................................................................................83
Description of Bond Ratings.............................................................................83
Description of Commercial Paper Ratings.................................................................84
Absence of Rating.......................................................................................84
FINANCIAL STATEMENTS.............................................................................................FS
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INTRODUCTION
This Statement of Additional Information relates to the Class A, Class
B and Class C shares of AIM Developing Markets Fund ("Developing Markets Fund")
and AIM Latin American Growth Fund ("Latin American Fund") (each, a "Fund," and
collectively, the "Funds"). Developing Markets Fund and Latin American Fund each
is a non-diversified series of AIM Investment Funds (the "Trust"), a registered
open-end management investment company organized as a Delaware business trust.
On October 31, 1997, the Developing Markets Fund, which had no prior operating
history, acquired the assets and assumed the liabilities of G.T. Global
Developing Markets Fund, Inc. (the "Predecessor Fund"), a closed-end investment
company.
A I M Advisors, Inc. ("AIM") serves as the investment manager of and
administrator for, and INVESCO Asset Management Limited (the "Sub-advisor")
serves as the investment sub-advisor for the Funds.
The Trust is a series mutual fund. The rules and regulations of the
Securities and Exchange Commission (the "SEC") require all mutual funds to
furnish prospective investors certain information concerning the activities of
the fund being considered for investment. This information for Developing
Markets Fund is included in a separate Prospectus dated February 28, 2000, and
for Latin American Fund is included in a separate Prospectus dated February 28,
2000. Additional copies of the Prospectuses and this Statement of Additional
Information may be obtained without charge by writing the principal distributor
of the Funds' shares, A I M Distributors, Inc. ("AIM Distributors"), P.O. Box
4739, Houston, TX 77210-4739 or by calling (800) 347-4246. Investors must
receive a Prospectus before they invest.
This Statement of Additional Information is intended to furnish
prospective investors with additional information concerning the Funds. Some of
the information required to be in this Statement of Additional Information is
also included in the Prospectus; and, in order to avoid repetition, reference
will be made to sections of the Prospectus. Additionally, the Prospectus and
this Statement of Additional Information omit certain information contained in
the Registration Statement filed with the SEC. Copies of the Registration
Statement, including items omitted from the Prospectus and this Statement of
Additional Information, may be obtained from the SEC by paying the charges
prescribed under its rules and regulations.
GENERAL INFORMATION ABOUT THE FUNDS
THE TRUST AND ITS SHARES
The Trust was organized as a Delaware business trust on May 7, 1998 and
previously operated under the name G.T. Investment Funds, Inc., which was
organized as a Maryland corporation on October 29, 1987 and later renamed AIM
Investment Funds, Inc. On September 8, 1998, the Trust acquired the assets of
and assumed the liabilities of AIM Investment Funds, Inc. The Trust is
registered with the SEC as a diversified open-end series management investment
company. The Trust currently consists of the following portfolios: AIM
Developing Markets Fund, AIM Emerging Markets Debt Fund (formerly AIM Global
High Income Fund), AIM Global Consumer Products and Services Fund, AIM Global
Financial Services Fund, AIM Global Government Income Fund, AIM Global Growth &
Income Fund, AIM Global Healthcare Fund, AIM Global High Income Fund, AIM Global
Infrastructure Fund, AIM Global Resources Fund, AIM Global Telecommunications
and Technology Fund (formerly AIM Global Telecommunications Fund), AIM Latin
American Growth Fund and AIM Strategic Income Fund. Each of these funds has
three separate classes: Class A, Class B and Class C shares. The Board is
authorized to establish additional series of shares, or additional classes of
shares of any fund, at any time. All historical financial and other information
contained in this Statement of Additional Information for periods prior to
September 8, 1998, is that of the series of AIM Investment Funds, Inc.
The term "majority of the Funds' outstanding shares" of the Trust, of a
particular Fund or of a particular class of a Fund means, respectively, the vote
of the lesser of (a) 67% or more of the shares of the Trust, such Fund or such
class present at a meeting of the Trust's shareholders, if the holders of more
than
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50% of the outstanding shares of the Trust, such Fund or such class are present
or represented by proxy, or (b) more than 50% of the outstanding shares of the
Trust, such Fund or such class.
Class A, Class B and Class C shares of Developing Markets Fund and
Latin American Fund have equal rights and privileges. Each share of a particular
class is entitled to one vote, to participate equally in dividends and
distributions declared by the Trust's Board of Trustees with respect to the
class of such Fund and, upon liquidation of the Fund, to participate
proportionately in the net assets of the Fund allocable to such class remaining
after satisfaction of outstanding liabilities of the Fund allocable to such
class. Fund shares are fully paid, non-assessable and fully transferable when
issued and have no preemptive rights and have such conversion and exchange
rights as set forth in the Prospectus and this Statement of Additional
Information. Fractional shares have proportionately the same rights, including
voting rights, as are provided for a full share. Other than the automatic
conversion of Class B shares to Class A shares, there are no conversion rights.
Shareholders of the Funds do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all Funds
voting together for election of trustees may elect all of the members of the
Board of Trustees of the Trust. In such event, the remaining holders cannot
elect any trustees of the Trust.
On any matter submitted to a vote of shareholders, shares of each Fund
will be voted by each Fund's shareholders individually when the matter affects
the specific interest of a Fund only, such as approval of its investment
management arrangements. In addition, shares of a particular class of a Fund may
vote on matters affecting only that class. The shares of each Fund will be voted
in the aggregate on other matters, such as the election of Trustees and
ratification of the selection of the Trust's independent accountants.
Normally there will be no annual meeting of shareholders for any of the
Funds in any year, except as required under the Investment Company Act of 1940,
as amended (the "1940 Act"). A Trustee may be removed at any meeting of the
shareholders of the Trust by a vote of the shareholders owning at least
two-thirds of the outstanding shares. Any Trustee may call a special meeting of
shareholders for any purpose. Furthermore, Trustees shall promptly call a
meeting of shareholders solely for the purpose of removing one or more Trustees
when requested in writing to do so by shareholders holding 10% of the Trust's
outstanding shares.
Pursuant to the Trust's Agreement and Declaration of Trust, the Trust
may issue an unlimited number of shares of each Fund. Each share of a Fund
represents an interest in the Fund only, has a par value of $0.01 per share,
represents an equal proportionate interest in the Fund with other shares of the
Fund and is entitled to such dividends and distributions out of the income
earned and gain realized on the assets belonging to the Fund as may be declared
by the Board of Trustees. Each share of a Fund is equal in earnings, assets and
voting privileges except that each class normally has exclusive voting rights
with respect to its distribution plan and bears the expenses, if any, related to
the distribution of its shares.
INVESTMENT STRATEGIES AND RISKS
The following discussion of investment strategies and risks supplements
the discussion of investment objectives and risks set forth in the Prospectus
under the headings "Investment Objectives and Strategies" and "Principal Risks
of Investing in the Funds."
INVESTMENT OBJECTIVES
The Funds' investment objectives may not be changed without the
approval of a majority of the Funds' outstanding voting securities. If a
percentage restriction on investment or utilization of assets in an investment
policy or restriction is adhered to at the time an investment is made, a later
change in percentage ownership
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70
of a security or kind of securities resulting from changing market values or a
similar type of event will not be considered a violation of the Fund's
investment policies or restrictions.
DEVELOPING MARKETS FUND. The primary investment objective of Developing
Markets Fund is long-term growth of capital. Its secondary investment objective
is income, to the extent consistent with seeking capital appreciation. The Fund
normally invests substantially all of its assets in issuers in the developing
(or "emerging") markets of Asia, Europe, Latin America and elsewhere. A majority
of Developing Markets Fund's assets normally are invested in emerging market
equity securities. The Developing Markets Fund may invest in the following types
of equity securities: common stock, preferred stock, securities convertible into
common stock, American Depositary Receipts ("ADRs"), Global Depositary Receipts
("GDRs"), rights and warrants to acquire such securities and substantially
similar forms of equity with comparable risk characteristics. Developing Markets
Fund may also invest in emerging market debt securities that will be selected
based on their potential to provide a combination of capital appreciation and
current income. There can be no assurance Developing Markets Fund will achieve
its investment objectives.
For purposes of Developing Markets Fund's operations, emerging markets
consist of all countries determined by the Sub-advisor to have developing or
emerging economies and markets. These countries generally include every country
in the world except the United States, Canada, Japan, Australia, New Zealand and
most countries located in Western Europe.
In determining what countries constitute emerging markets with respect
to Developing Markets Fund, the Sub-advisor will consider, among other things,
data, analysis, and classification of countries published or disseminated by the
International Bank for Reconstruction and Development (commonly known as the
World Bank) and the International Finance Corporation ("IFC").
Developing Markets Fund will consider investments in the following
emerging markets:
Algeria Hungary Peru
Argentina India Philippines
Bolivia Indonesia Poland
Botswana Israel Portugal
Brazil Ivory Coast Republic of Slovakia
Bulgaria Jamaica Russia
Chile Jordan Singapore
China Kazakhstan Slovenia
Colombia Kenya South Africa
Costa Rica Lebanon South Korea
Cyprus Malaysia Sri Lanka
Czech Republic Mauritius Swaziland
Dominican Republic Mexico Taiwan
Ecuador Morocco Thailand
Egypt Nicaragua Turkey
El Salvador Nigeria Ukraine
Finland Oman Uruguay
Ghana Pakistan Venezuela
Greece Panama Zambia
Hong Kong Paraguay Zimbabwe
Although Developing Markets Fund considers each of the above-listed
countries eligible for investment, it will not be invested in all such markets
at all times. Moreover, investing in some of those markets currently may not be
desirable or feasible, due to the lack of adequate custody arrangements for the
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71
Fund's assets, overly burdensome repatriation and similar restrictions, the lack
of organized and liquid securities markets, unacceptable political risks or for
other reasons.
As used in the Prospectus and this Statement of Additional Information,
an issuer in an emerging market is an entity (1) for which the principal
securities trading market is an emerging market, as defined above, (2) that
(alone or on a consolidated basis) derives 50% or more of its total revenues
from business in emerging markets, provided that, in the Sub-advisor's view, the
value of such issuer's securities will tend to reflect emerging market
developments to a greater extent than developments elsewhere, or (3) organized
under the laws of, or with a principal office in, an emerging market.
LATIN AMERICAN FUND. The investment objective of Latin American Fund is
growth of capital. Latin American Fund will normally invest at least 65% of its
total assets in securities of a broad range of Latin American issuers. The Fund
may invest in common stock, preferred stock, rights, warrants and securities
convertible into common stock, and other substantially similar forms of equity
securities with comparable risk characteristics, as well as bonds, notes,
debentures or other forms of indebtedness that may be developed in the future.
The receipt of income from debt securities owned by the fund is incidental to
its objective of capital appreciation. Though Latin American Fund can normally
invest up to 35% of its total assets in U.S. securities, Latin American Fund
reserves the right to be primarily invested in U.S. securities for temporary
defensive purposes or pending investment of the proceeds of the offering made
hereby.
Unless otherwise indicated, Latin American Fund defines Latin America
to include the following countries: Argentina, the Bahamas, Barbados, Belize,
Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El
Salvador, French Guiana, Guatemala, Guyana, Haiti, Honduras, Jamaica, Mexico,
the Netherlands Antilles, Nicaragua, Panama, Paraguay, Peru, Suriname, Trinidad
and Tobago, Uruguay and Venezuela. Under current market conditions, Latin
American Fund expects to invest primarily in securities issued by companies and
governments in Mexico, Chile, Brazil and Argentina. Latin American Fund may
invest more than 25% of its total assets in any of these four countries but does
not expect to invest more than 60% of its total assets in any one country.
Latin American Fund defines securities of Latin American issuers to
include: (a) securities of companies organized under the laws of, or having a
principal office located in, a Latin American country; (b) securities of
companies that derive 50% or more of their total revenues from business in Latin
America, provided that, in the Sub-advisor's view, the value of such issuers'
securities reflect Latin American developments to a greater extent than
developments elsewhere; (c) securities issued or guaranteed by the government of
a country in Latin America, its agencies or instrumentalities, or
municipalities, or the central bank of such country; (d) U.S. dollar-denominated
securities or securities denominated in a Latin American currency issued by
companies to finance operations in Latin America; and (e) securities of Latin
American issuers, as defined herein, in the form of depositary shares. For
purposes of the foregoing definition, Latin American Fund's purchases of
securities issued by companies outside of Latin America to finance their Latin
American operations will be limited to securities the performance of which is
materially related to such company's Latin American activities.
Certain sectors of the economies of certain Latin American countries
are closed to equity investments by foreigners. Further, due to the absence of
securities markets and publicly owned corporations and due to restrictions on
direct investment by foreign entities in certain Latin American countries, the
Fund may be able to invest in such countries solely or primarily through
governmentally approved investment vehicles or companies. In addition, the
portion of Latin American Fund's assets invested directly in Chile may be less
than the portion invested in other Latin American countries because, at present,
capital directly invested in Chile normally cannot be repatriated for at least
one year. As a result, Latin American Fund currently intends to limit most of
its Chilean investments to indirect investments through ADRs and established
Chilean investment companies, the shares of which are not subject to
repatriation restrictions.
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72
SELECTION OF INVESTMENTS AND ASSET ALLOCATION
In determining the appropriate distribution of investments among
various countries and geographic regions for the Funds, the Sub-advisor
ordinarily considers the following factors: prospects for relative economic
growth among the different countries in which a Fund may invest; expected levels
of inflation; government policies influencing business conditions; the outlook
for currency relationships; and the range of the individual investment
opportunities available to international investors.
In analyzing companies for investment by each Fund, the Sub-advisor
ordinarily looks for one or more of the following characteristics: an
above-average earnings growth per share; high return on invested capital;
healthy balance sheet; sound financial and accounting policies and overall
financial strength; strong competitive advantages; effective research and
product development and marketing; efficient service; pricing flexibility;
strength of management; and general operating characteristics which will enable
the companies to compete successfully in their respective marketplaces. In
allocating Latin American Fund's assets between debt and equity securities, the
Sub-advisor considers, in addition to the factors listed in the Prospectus,
changes in Latin American governmental policy including regulation governing
industry, trade, financial markets, and foreign and domestic investment, as well
as the substance and likely development of government finances. In certain
countries, governmental restrictions and other limitations on investment may
affect the maximum percentage of equity ownership in any one company by the
Funds. In addition, in some instances only special classes of securities may be
purchased by foreigners and the market prices, liquidity and rights with respect
to those securities may vary from shares owned by nationals.
Although the Funds value their assets daily in terms of U.S. dollars,
the Funds do not intend to convert their holdings of foreign currencies into
U.S. dollars on a daily basis. The Funds will do so from time to time, and
investors should be aware of the costs of currency conversion. Although foreign
exchange dealers do not charge a fee for conversion, they do realize a profit
based on the difference ("spread") between the prices at which they are buying
and selling various currencies. Thus, a dealer may offer to sell a foreign
currency to the Funds at one rate, while offering a lesser rate of exchange
should a Fund desire to sell that currency to the dealer.
There may be times when, in the opinion of the Sub-advisor, prevailing
market, economic or political conditions warrant reducing the proportion of each
Fund's assets invested in equity securities and increasing the proportion held
in cash or short-term obligations denominated in U.S. dollars or other
currencies. A portion of each Fund's assets may be held in U.S. dollars or
short-term interest-bearing dollar-denominated securities to provide for ongoing
expenses and redemptions. Latin American Fund may invest up to 35% of its total
assets in a combination of equity and debt securities of U.S. issuers. In
evaluating investments in securities of U.S. issues, the Sub-Advisor will
consider, among other factors, the issuer's Latin American business activities
and the impact that development in Latin America may have on the issuer's
operations and financial condition.
The Funds may be prohibited under the 1940 Act, from purchasing the
securities of any foreign company that, in its most recent fiscal year, derived
more than 15% of its gross revenues from securities-related activities
("securities-related companies"). In a number of countries, including those in
Latin America, commercial banks act as securities broker/dealers, investment
advisors and underwriters or otherwise engage in securities-related activities,
which may limit the Fund's ability to hold securities issued by such banks. The
Fund has obtained an exemption from the SEC to permit it to invest in certain of
these securities subject to certain restrictions.
For investment purposes, an issuer is typically considered as located
in a particular country if it (a) is incorporated under the laws of or has its
principal office in that country, or (b) it normally derives 50% or more of its
total revenue from business in that country. However, these are not absolute
requirements, and certain companies incorporated in a particular country and
considered by the Sub-advisor to be located in that country may have substantial
offshore operations or subsidiaries and/or export sales exceeding in size the
assets or sales in that country.
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73
In selecting investments for Developing Markets Fund, the Sub-advisor
seeks to identify those countries and industries where economic and political
factors, including currency movements, are likely to produce above-average
growth rates over the long term. The Sub-advisor seeks those emerging markets
that have strongly developing economies and in which the markets are becoming
more sophisticated. The Sub-advisor then invests in those companies in such
countries and industries that it believes are best positioned and managed to
take advantage of these economic and political factors. The Sub-advisor believes
that the issuers of securities in emerging markets often have sales and earnings
growth rates that exceed those in developed countries and that such growth rates
may in turn be reflected in more rapid share price appreciation.
As opportunities to invest in securities in other emerging markets
develop, Developing Markets Fund expects to expand and further broaden the group
of emerging markets in which it invests. In some cases, investments in debt
securities could provide Developing Markets Fund with access to emerging markets
in the early stages of their economic development, when equity securities are
not yet generally available or, in the Sub-advisor's view, do not yet present an
acceptable investment alternative. While Developing Markets Fund generally is
not restricted in the portion of its assets that may be invested in a single
region, under normal conditions its assets will be invested in issuers in at
least four countries, and it will not invest more than 25% of its assets in
issuers in one country. Developing Markets Fund's holdings of any one foreign
currency together with securities denominated in or indexed to such currency
will not exceed 40% of its assets.
In allocating investments among the various Latin American countries
for Latin American Fund, the Sub-advisor looks principally at the stage of
industrialization, potential for productivity gains through economic
deregulation, the impact of financial liberalization and monetary conditions and
the political outlook in each country. In allocating assets between equity and
debt securities, the Sub-advisor will consider, among other factors: the level
and anticipated direction of interest rates; expected rates of economic growth
and corporate profits growth; changes in Latin American government policy
including regulation governing industry, trade, financial markets, and foreign
and domestic investment; substance and likely development of government
finances; and the condition of the balance of payments and changes in the terms
of trade. In evaluating investments in securities of U.S. issuers, the
Sub-advisor will consider, among other factors, the issuer's Latin American
business activities and the impact that development in Latin America may have on
the issuer's operations and financial condition.
EQUITY-LINKED DERIVATIVES
The Funds may invest in equity-linked derivative products designed to
replicate the composition and performance of particular indices. Examples of
such products include S&P Depositary Receipts ("SPDRs"), World Equity Benchmark
Series ("WEBs"), NASDAQ 100 tracking shares ("QQQs"), Dow Jones Industrial
Average Instruments ("DIAMONDS") and Optimised Portfolios as Listed Securities
("OPALS"). Investments in equity-linked derivatives involve the same risks
associated with a direct investment in the types of securities included in the
indices such products are designed to track. There can be no assurance that the
trading price of the equity-linked derivatives will equal the underlying value
of the basket of securities purchased to replicate a particular index or that
such basket will replicate the index. Investments in equity-linked derivatives
may constitute investment in other investment companies. See "Investments in
Other Investment Companies."
INVESTMENTS IN OTHER INVESTMENT COMPANIES
With respect to certain countries, investments by a Fund presently may
be made only by acquiring shares of other investment companies (including
investment vehicles or companies advised by AIM or its affiliates) with local
governmental approval to invest in those countries. At such time as direct
investment in these countries is allowed, the Funds anticipate investing
directly in these markets.
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74
Each Fund may invest in other investment companies to the extent
permitted by the 1940 Act, and the rules and regulations thereunder, and if
applicable, exemptive orders granted by the SEC. The following restrictions
apply to investments in other investment companies other than Affiliated Money
Market Funds (defined below): (i) a Fund may not purchase more than 3% of the
total outstanding voting stock of another investment company; (ii) a Fund may
not invest more than 5% of its total assets in securities issued by another
investment company; and (iii) a Fund may not invest more than 10% of its total
assets in securities issued by other investment companies other than Affiliated
Money Market Funds. With respect to a Fund's purchase of shares of another
investment company, including Affiliated Money Market Funds, the Fund will
indirectly bear its proportionate share of the advisory fees and other operating
expenses of such investment company. The Funds have obtained an exemptive order
from the SEC allowing them to invest in money market funds that have AIM or an
affiliate of AIM as an investment adviser (the "Affiliated Money Market Funds"),
provided that investments in Affiliated Money Market Funds do not exceed 25% of
the total assets of such Fund.
PRIVATIZATIONS
The governments in some Latin American countries and emerging markets
have been engaged in programs of selling part or all of their stakes in
government owned or controlled enterprises ("privatizations"). The Sub-advisor
believes that privatizations may offer opportunities for significant capital
appreciation and intends to invest assets of each Fund in privatizations in
appropriate circumstances. In certain Latin American and emerging markets, the
ability of foreign entities such as the Fund to participate in privatizations
may be limited by local law or the terms on which the Funds may be permitted to
participate may be less advantageous than those afforded local investors. There
can be no assurance that governments in Latin American emerging markets will
continue to sell companies currently owned or controlled by them or that
privatization programs will be successful.
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES
Each Fund may purchase debt securities on a "when-issued" basis and may
purchase or sell such securities on a "forward commitment" basis in order to
hedge against anticipated changes in interest rates and prices. The price, which
is generally expressed in yield terms, is fixed at the time the commitment is
made, but delivery and payment for the securities take place at a later date.
When-issued securities and forward commitments may be sold prior to the
settlement date, but the Funds will purchase or sell when-issued securities and
forward commitments only with the intention of actually receiving or delivering
the securities, as the case may be. No income accrues on securities that have
been purchased pursuant to a forward commitment or on a when-issued basis prior
to delivery to the Fund. If a Fund disposes of the right to acquire a
when-issued security prior to its acquisition or disposes of its right to
deliver or receive against a forward commitment, it may incur a gain or loss. At
the time a Fund enters into a transaction on a when-issued or forward commitment
basis, the Fund will segregate cash or liquid securities equal to the value of
the when-issued or forward commitment securities with its custodian bank and
will mark to market daily such assets. There is a risk that the securities may
not be delivered and that the Fund may incur a loss.
DEPOSITARY RECEIPTS
Each Fund may hold equity securities of foreign issuers in the form of
ADRs, American Depositary Shares ("ADSs"), GDRs and European Depositary Receipts
("EDRs"), or other securities convertible into securities of eligible issuers.
These securities may not necessarily be denominated in the same currency as the
securities for which they may be exchanged. ADRs and ADSs typically are issued
by an American bank or trust company and evidence ownership of underlying
securities issued by a foreign corporation. EDRs, which are sometimes referred
to as Continental Depository Receipts ("CDRs"), are issued in Europe typically
by foreign banks and trust companies and evidence ownership of either foreign or
domestic securities. GDRs are similar to EDRs and are designed for use in
several international financial markets. Generally, ADRs and ADSs in registered
form are designed for use in United States securities markets and EDRs in bearer
form are designed for use in European securities markets. For purposes of each
Fund's investment policies, a
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Fund's investments in ADRs, ADSs, GDRs and EDRs will be deemed to be investments
in the equity securities representing securities of foreign issuers into which
they may be converted.
ADR facilities may be established as either "unsponsored" or
"sponsored." While ADRs issued under these two types of facilities are in some
respects similar, there are distinctions between them relating to the rights and
obligations of ADR holders and the practices of market participants. A
depository may establish an unsponsored facility without participation by (or
even necessarily the acquiescence of) the issuer of the deposited securities,
although typically the depository requests a letter of non-objection from such
issuer prior to the establishment of the facility. Holders of unsponsored ADRs
generally bear all the costs of such facilities. The depository usually charges
fees upon the deposit and withdrawal of the deposited securities, the conversion
of dividends into U.S. dollars, the disposition of non-cash distributions, and
the performance of other services. The depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited securities or to pass-through voting
rights to ADR holders in respect of the deposited securities. Sponsored ADR
facilities are created in generally the same manner as unsponsored facilities,
except that the issuer of the deposited securities enters into a deposit
agreement with the depositary. The deposit agreement sets out the rights and
responsibilities of the issuer, the depository and the ADR holders. With
sponsored facilities, the issuer of the deposited securities generally will bear
some of the costs relating to the facility (such as dividend payment fees of the
depository), although ADR holders continue to bear certain other costs (such as
deposit and withdrawal fees). Under the terms of most sponsored arrangements,
depositories agree to distribute notices of shareholder meetings and voting
instructions, and to provide shareholder communications and other information to
the ADR holders at the request of the issuer of the deposited securities. Each
Fund may invest in both sponsored and unsponsored ADRs.
WARRANTS OR RIGHTS
Warrants or rights may be acquired by each Fund in connection with
other securities or separately and provide a Fund with the right to purchase at
a later date other securities of the issuer. Warrants are securities permitting,
but not obligating, their holder to subscribe for other securities or
commodities. Warrants do not carry with them the right to dividends or voting
rights with respect to the securities that they entitle their holder to
purchase, and they do not represent any rights in the assets of the issuer. As a
result, warrants may be considered more speculative than certain other types of
investments. In addition, the value of a warrant does not necessarily change
with the value of the underlying securities and a warrant ceases to have value
if it is not exercised prior to its expiration date.
LENDING OF PORTFOLIO SECURITIES
For the purpose of realizing additional income, each Fund may make
secured loans of portfolio securities amounting to not more than 30% of its
total assets, measured at the time any such loan is made. Securities loans are
made to broker/dealers or institutional investors pursuant to agreements
requiring that the loans continuously be secured by collateral consisting of
cash, U.S. government securities or certain irrevocable letters of credit (or
such other collateral as permitted by a Fund's investment program and regulatory
agencies and as approved by the Board) at least equal at all times to the value
of the securities lent plus any accrued interest, "marked to market" on a daily
basis. The collateral for such loans, if received in cash, may be held in
investment vehicles with investment objectives and policies similar to those of
money market funds or limited duration income funds (longer maturities than may
be held by money market funds), advised by the Advisor or its affiliates or by
unaffiliated advisers. The Funds may pay a fee to the Advisor of such investment
vehicles for its services. The collateral for such loans, if received in cash,
may be held in investment vehicles with investment objectives and policies
similar to those of money market funds or limited duration income funds (longer
maturities than may be held by money market funds), advised by the Advisor or
its affiliates or by unaffiliated advisers. The Funds may pay a fee to the
Advisor of such investment vehicles for its services. The Funds may pay
reasonable administrative and custodial fees in connection with loans of its
securities. While the securities loan is outstanding with respect to a Fund, the
Fund will continue to receive the equivalent of the interest or dividends paid
by the issuer on the securities, as well as interest
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on the investment of the collateral or a fee from the borrower. The Fund will
have a right to call each loan and obtain the securities within the stated
settlement period. The Fund will not have the right to vote equity securities
while they are lent, but it may call in a loan in anticipation of any important
vote. Loans will be made only to firms deemed by the Sub-advisor to be of good
standing and will not be made unless, in the judgment of the Sub-advisor, the
consideration to be earned from such loans would justify the risk. The risks in
lending portfolio securities, as with other extensions of secured credit,
consist of possible delays in receiving additional collateral or in recovery of
the securities and possible loss of rights in the collateral if the borrower
fails financially.
COMMERCIAL BANK OBLIGATIONS
For the purposes of each Fund's investment policies with respect to
bank obligations, obligations of foreign branches of U.S. banks and of foreign
banks are obligations of the issuing bank and may be general obligations of the
parent bank. Such obligations, however, may be limited by the terms of a
specific obligation and by government regulation. As with investment in non-U.S.
securities in general, investments in the obligations of foreign branches of
U.S. banks and of foreign banks may subject a Fund to investment risks that are
different in some respects from those of investments in obligations of domestic
issuers. Although a Fund typically will acquire obligations issued and supported
by the credit of U.S. or foreign banks having total assets at the time of
purchase in excess of $1 billion, this $1 billion figure is not an investment
policy or restriction of any Fund. For the purposes of calculation with respect
to the $1 billion figure, the assets of a bank will be deemed to include the
assets of its U.S. and non-U.S. branches.
REPURCHASE AGREEMENTS
A repurchase agreement is a transaction in which a Fund purchases a
security from a bank or recognized securities dealer and simultaneously commits
to resell that security to the bank or dealer at an agreed upon price, date, and
market rate of interest unrelated to the coupon rate or maturity of the
purchased security. Although repurchase agreements carry certain risks not
associated with direct investments in securities, including possible decline in
the market value of the underlying securities and delays and costs to a Fund if
the other party to the repurchase agreement becomes bankrupt, the Funds intend
to enter into repurchase agreements only with banks and dealers believed by the
Sub-advisor to present minimum credit risks in accordance with guidelines
established by the Trust's Board of Trustees. The Sub-advisor will review and
monitor the creditworthiness of such institutions under the Board's general
supervision.
The Funds will invest only in repurchase agreements collateralized at
all times in an amount at least equal to the repurchase price plus accrued
interest. To the extent that the proceeds from any sale of such collateral upon
a default in the obligation to repurchase were less than the repurchase price, a
Fund would suffer a loss. If the financial institution which is party to the
repurchase agreement petitions for bankruptcy or otherwise becomes subject to
bankruptcy or other liquidation proceedings, there may be restrictions on a
Fund's ability to sell the collateral and the Fund could suffer a loss. However,
with respect to financial institutions whose bankruptcy or liquidation
proceedings are subject to the U.S. Bankruptcy Code, each Fund intends to comply
with provisions under the U.S. Bankruptcy Code that would allow it immediately
to resell the collateral. There is no limitation on the amount of a Fund's
assets that may be subject to repurchase agreements at any given time. The Funds
will not enter into a repurchase agreement with a maturity of more than seven
days if, as a result, more than 15% (for Developing Markets Fund) or 10% (for
Latin American Fund) of the value of its net assets would be invested in such
repurchase agreements and other illiquid investments.
BORROWING AND REVERSE REPURCHASE AGREEMENTS
Neither Fund's borrowings will exceed 33 1/3% of the Fund's total
assets, i.e., each Fund's total assets at all times will equal at least 300% of
the amount of outstanding borrowings. If market fluctuations in the value of a
Fund's portfolio holdings or other factors cause the ratio of the Fund's total
assets to outstanding borrowings to fall below 300%, within three days
(excluding Sundays and holidays) of such event
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the Fund may be required to sell portfolio securities to restore the 300% asset
coverage, even though from an investment standpoint such sales might be
disadvantageous. Each Fund also may borrow up to 5% of its total assets for
temporary or emergency purposes other than to meet redemptions. Any borrowing by
a Fund may cause greater fluctuation in the value of its shares than would be
the case if the Fund did not borrow.
The Funds' fundamental investment limitations permit them to borrow
money for leveraging purposes. Developing Markets Fund, however, currently is
prohibited, pursuant to a non-fundamental investment policy, from borrowing
money in order to purchase securities. In addition, each Fund currently is
prohibited, pursuant to a non-fundamental investment policy, from purchasing
securities during times when outstanding borrowings represent more than 5% of
its assets. Nevertheless, this policy may be changed in the future by a vote of
a majority of the Trust's Board of Trustees. If a Fund employs leverage in the
future, it would be subject to certain additional risks. Use of leverage creates
an opportunity for greater growth of capital but would exaggerate any increases
or decreases in the Fund's net asset value. When the income and gains on
securities purchased with the proceeds of borrowings exceed the costs of such
borrowings, the Fund's earnings or net asset value will increase faster than
otherwise would be the case; conversely, if such income and gains fail to exceed
such costs, the Fund's earnings or net asset value would decline faster than
would otherwise be the case.
Each Fund may enter into reverse repurchase agreements. A reverse
repurchase agreement is a borrowing transaction in which a Fund transfers
possession of a security to another party, such as a bank or broker/dealer in
return for cash, and agrees to repurchase the security in the future at an
agreed upon price, which includes an interest component. Each Fund will
segregate liquid assets in an amount sufficient to cover its obligations and
reverse repurchase agreements with broker/dealers. No segregation is required
for reverse repurchase agreements with banks.
SHORT SALES
Each Fund may make short sales of securities, although it has no
current intention of doing so. A short sale is a transaction in which the Fund
sells a security in anticipation that the market price of that security will
decline. Each Fund may make short sales (i) as a form of hedging to offset
potential declines in long positions in securities it owns, or anticipates
acquiring, and (ii) in order to maintain portfolio flexibility.
When a Fund makes a short sale of a security it does not own, it must
borrow the security sold short and deliver it to the broker-dealer or other
intermediary through which it made the short sale. The Fund may have to pay a
fee to borrow particular securities and will often be obligated to pay over any
payments received on such borrowed securities.
A Fund's obligation to replace the borrowed security when the borrowing
is called or expires will be secured by collateral deposited with the
intermediary. The Fund will also be required to deposit collateral with its
custodian to the extent, if any, necessary so that the value of both collateral
deposits in the aggregate is at all times equal to at least 100% of the current
market value of the security sold short. Depending on arrangements made with the
intermediary from which it borrowed the security regarding payment of any
amounts received by the Fund on such security, the Fund may not receive any
payments (including interest) on its collateral deposited with such
intermediary.
If the price of the security sold short increases between the time of
the short sale and the time the Fund replaces the borrowed security, the Fund
will incur a loss; conversely, if the price declines, the Fund will realize a
gain. Any gain will be decreased, and any loss increased, by the transaction
costs associated with the transaction. Although the Fund's gain is limited by
the price at which it sold the security short, its potential loss is
theoretically unlimited.
Latin American Fund will not make a short sale if, after giving effect
to such sale, the market value of the securities sold short exceeds 25% of the
value of its total assets or the Fund's aggregate short sales
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of the securities of any one issuer exceed the lesser of 2% of the Fund's net
assets or 2% of the securities of any class of the issuer. Moreover, Latin
American Fund may engage in short sales only with respect to securities listed
on a national securities exchange. Latin American Fund may make short sales
"against the box" without respect to such limitations. In this type of short
sale, at the time of the sale the Fund owns the security it has sold short or
has the immediate and unconditional right to acquire at no additional cost the
identical security.
Developing Markets Fund may only make short sales "against the box."
The Fund might make a short sale "against the box" in order to hedge against
market risks when the Sub-advisor believes that the price of a security may
decline, causing a decline in the value of a security owned by the Fund or a
security convertible into or exchangeable for such security. In such case, any
future losses in the Fund's long position should be reduced by a gain in the
short position. Conversely, any gain in the long position should be reduced by a
loss in the short position. The extent to which such gains or losses in the long
position are reduced will depend upon the amount of the securities sold short
relative to the amount of the securities the Fund owns, either directly or
indirectly, and, in the case where the Fund owns convertible securities, changes
in the investment values or conversion premiums of such securities. There will
be certain additional transaction costs associated with short sales "against the
box," but the Fund will endeavor to offset these costs with income from the
investment of the cash proceeds of short sales.
TEMPORARY DEFENSIVE STRATEGIES
In anticipation of or in response to adverse market conditions, for
cash management purposes, or for defensive purposes, each of the Funds may
temporarily hold all or a portion of its assets in cash (U.S. dollars, foreign
currencies or multinational currency units such as Euros), money market
instruments, or high-quality debt securities. Each of the Funds may also invest
up to 25% of its total assets in Affiliated Money Market Funds for these
purposes. In addition, for temporary defensive purposes, most or all of each
Fund's investments may be made in the United States and denominated in U.S.
dollars. To the extent a Fund employs a temporary defensive strategy, it will
not be invested so as to achieve directly its investment objectives.
In addition, Latin American Fund may be primarily invested in U.S.
securities for temporary defensive purposes or pending investment of the
proceeds of sales of new Fund shares. Latin American Fund may assume a temporary
defensive position when, due to political, market or other factors broadly
affecting Latin American markets, the Sub-advisor determines that opportunities
for capital appreciation in those markets would be significantly limited over an
extended period or that investing in those markets presents undue risk of loss.
The Funds may invest in the following types of money market instruments
(i.e., debt instruments with less than 12 months remaining until maturity)
denominated in U.S. dollars or other currencies (in the case of Latin American
Fund, the currency of any Latin American country): (a) obligations issued or
guaranteed by the U.S. or foreign governments (in the case of Latin American
Fund, the government of any Latin American country), their agencies,
instrumentalities or municipalities; (b) obligations of international
organizations designed or supported by multiple foreign governmental entities to
promote economic reconstruction or development; (c) finance company obligations,
corporate commercial paper and other short-term commercial obligations; (d) bank
obligations (including certificates of deposit, time deposits, demand deposits
and bankers' acceptances); (e) repurchase agreements with respect to the
foregoing; and (f) other substantially similar short-term debt securities with
comparable characteristics.
The Funds may invest in commercial paper rated as low as A-3 by
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P") or P-3
by Moody's Investors Service, Inc. ("Moody's") or, if not rated, determined by
the Manager to be of comparable quality. Obligations rated A-3 and P-3 are
considered by S&P and Moody's, respectively, to have an acceptable capacity for
timely repayment. However, these securities may be more vulnerable to adverse
effects of changes in circumstances than obligations carrying higher
designations.
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SAMURAI AND YANKEE BONDS
Subject to its fundamental investment restrictions, Developing Markets
Fund may invest in yen-denominated bonds sold in Japan by non-Japanese issuers
("Samurai bonds"), and may invest in dollar-denominated bonds sold in the United
States by non-U.S. issuers ("Yankee bonds"). As compared with bonds issued in
their countries of domicile, such bond issues normally carry a higher interest
rate but are less actively traded. It is the policy of Developing Markets Fund
to invest in Samurai or Yankee bond issues only after taking into account
considerations of quality and liquidity, as well as yield.
DEBT CONVERSIONS
Several Latin American countries have adopted debt conversion programs,
pursuant to which investors may use external debt of a country, directly or
indirectly, to make investments in local companies. The terms of the various
programs vary from country to country, although each program includes
significant restrictions on the application of the proceeds received in the
conversion and on the remittance of profits on the investment and of the
invested capital. Latin American Fund intends to acquire Sovereign Debt, as
defined in the Prospectus, to hold and trade in appropriate circumstances as
described in the Prospectus, as well as to participate in Latin American debt
conversion programs. The Sub-advisor will evaluate opportunities to enter into
debt conversion transactions as they arise but does not currently intend to
invest more than 5% of the Fund's assets in such programs.
DEBT SECURITIES
Developing Markets Fund may invest up to 50% of its total assets in the
following types of emerging market debt securities: (1) debt securities issued
or guaranteed by governments, their agencies, instrumentalities or political
subdivisions, or by government owned, controlled or sponsored entities,
including central banks (collectively, "Sovereign Debt"), including Brady Bonds;
(2) interests in issuers organized and operated for the purpose of restructuring
the investment characteristics of Sovereign Debt; (3) debt securities issued by
banks and other business entities; and (4) debt securities denominated in or
indexed to the currencies of emerging markets. Debt securities held by those
Funds may take the form of bonds, notes, bills, debentures, bank debt
obligations, short-term paper, loan participations, assignments and interests
issued by entities organized and operated for the purpose of restructuring the
investment characteristics of any of the foregoing. There is no requirement with
respect to the maturity or duration of debt securities in which either Fund may
invest.
Under normal circumstances, the Latin American Fund may invest up to
50% of its total assets in debt securities. There is no limitation on the
percentage of its assets that may be invested in debt securities that are rated
below investment grade. Investment in below investment grade debt securities
involves a high degree of risk and can be speculative. These debt securities are
the equivalent of high yield, high risk bonds, commonly known as "junk bonds."
Most debt securities in which the fund will invest are not rated; if rated, it
is expected that such ratings would be below investment grade. However, the Fund
will not invest in debt securities that are in default in payment as to
principal or interest.
Developing Markets Fund and Latin American Fund may invest in "Brady
Bonds," which are debt restructurings that provide for the exchange of cash and
loans for newly issued bonds. Brady Bonds have been issued by the countries of
Albania, Argentina, Brazil, Bulgaria, Costa Rica, Dominican Republic, Ecuador,
Ivory Coast, Jordan, Mexico, Nigeria, Panama, Peru, Philippines, Poland,
Uruguay, Venezuela and Vietnam, and are expected to be issued by other emerging
market countries. As of the date of this Prospectus, the Fund is not aware of
the occurrence of any payment defaults on Brady Bonds. Investors should
recognize, however, that Brady Bonds do not have a long payment history. In
addition, Brady Bonds are often rated below investment grade.
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Developing Markets Fund and Latin American Fund may invest in either
collateralized or uncollateralized Brady Bonds. U.S. dollar-denominated
collateralized Brady Bonds, which may be fixed rate par bonds or floating rate
discount bonds, are collateralized in full as to principal by U.S. Treasury zero
coupon bonds having the same maturity as the bonds. Interest payments on such
bonds generally are collateralized by cash or securities in an amount that, in
the case of fixed rate bonds, is equal to at least one year of rolling interest
payments or, in the case of floating rate bonds, initially is equal to at least
one year's rolling interest payments based on the applicable interest rate at
the time of issuance and is adjusted at regular intervals thereafter.
Capital appreciation in debt securities may arise as a result of a
favorable change in relative foreign exchange rates, relative interest rate
levels and/or the creditworthiness of issuers. The receipt of income from debt
securities owned by Latin American Fund is incidental to its objective of growth
of capital.
PREMIUM SECURITIES
Developing Markets Fund may invest in income securities bearing coupon
rates higher than prevailing market rates. Such "premium" securities are
typically purchased at prices greater than the principal amounts payable on
maturity. The Fund will not amortize the premium paid for such securities in
calculating its net investment income. As a result, in such cases the purchase
of such securities provides the Fund a higher level of investment income
distributable to shareholders on a current basis than if the Fund purchased
securities bearing current market rates of interest. If securities purchased by
the Fund at a premium are called or sold prior to maturity, the Fund will
realize a loss to the extent the call or sale price is less than the purchase
price. Additionally, the Fund will realize a loss if it holds such securities to
maturity.
INDEXED DEBT SECURITIES
Developing Markets Fund may invest in debt securities issued by banks
and other business entities not located in developing market countries that are
indexed to certain specific foreign currency exchange rates, interest rates or
other reference rates. The terms of such securities provide that their principal
amount is adjusted upwards or downwards (but ordinarily not below zero) at
maturity to reflect changes in the exchange rate between two currencies (or
other rates) while the obligations are outstanding. While such securities offer
the potential for an attractive rate of return, they also entail the risk of
loss of principal. New forms of such securities continue to be developed. The
Fund may invest in such securities to the extent consistent with its investment
objectives.
STRUCTURED INVESTMENTS
Developing Markets Fund may invest a portion of its assets in interests
in entities organized and operated solely for the purpose of restructuring the
investment characteristics of Sovereign Debt. This type of restructuring
involves the deposit with or purchase by an entity, such as a corporation or
trust, of specified instruments (such as commercial bank loans or Brady Bonds)
and the issuance by that entity of one or more classes of securities
("Structured Investments") backed by, or representing interests in, the
underlying instruments. The cash flow on the underlying instruments may be
apportioned among the newly issued Structured Investments to create securities
with different investment characteristics such as varying maturities, payment
priorities and interest rate provisions, and the extent of the payments made
with respect to Structured Investments is dependent on the extent of the cash
flow on the underlying instruments. Because Structured Investments of the type
in which the Fund anticipates it will invest typically involve no credit
enhancement, their credit risk generally will be equivalent to that of the
underlying instruments.
Developing Markets Fund is permitted to invest in a class of Structured
Investments that is either subordinated or not subordinated to the right of
payment of another class. Subordinated Structured Investments typically have
higher yields and present greater risks than unsubordinated Structured
Investments.
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Certain issuers of Structured Investments may be deemed to be
"investment companies" as defined in the 1940 Act. As a result, Developing
Markets Fund's investment in these Structured Investments may be limited by the
restrictions contained in the 1940 Act described above under "Investment
Strategies and Risks--Investments in Other Investment Companies." Structured
Investments are typically sold in private placement transactions, and there
currently is no active trading market for Structured Investments.
STRIPPED INCOME SECURITIES
Developing Markets Fund may invest a portion of its assets in stripped
income securities, which are obligations representing an interest in all or a
portion of the income or principal components of an underlying or related
security, a pool of securities or other assets. In the most extreme case, one
class will receive all of the interest (the "interest only class" or the "IO
class"), while the other class will receive all of the principal (the
"principal-only class" or the "PO class"). The market values of stripped income
securities tend to be more volatile in response to changes in interest rates
than are conventional income securities.
FLOATING AND VARIABLE RATE INCOME SECURITIES
Developing Markets Fund may invest a portion of its assets in floating
or variable rate income securities. Income securities may provide for floating
or variable rate interest or dividend payments. The floating or variable rate
may be determined by reference to a known lending rate, such as a bank's prime
rate, a certificate of deposit rate or the London Inter Bank Offered Rate
(LIBOR). Alternatively, the rate may be determined through an auction or
remarketing process. The rate also may be indexed to changes in the values of
interest rate or securities indexes, currency exchange rates or other
commodities. The amount by which the rate paid on an income security may
increase or decrease may be subject to periodic or lifetime caps. Floating and
variable rate income securities include securities whose rates vary inversely
with changes in market rates of interest. Such securities may also pay a rate of
interest determined by applying a multiple to the variable rate. The extent of
increases and decreases in the value of securities whose rates vary inversely
with changes in market rates of interest generally will be larger than
comparable changes in the value of an equal principal amount of a fixed rate
security having similar credit quality, redemption provisions and maturity.
ZERO COUPON SECURITIES
Developing Markets Fund may invest in certain zero coupon securities
that are "stripped" U.S. Treasury notes and bonds. Developing Markets Fund also
may invest in zero coupon and other deep discount securities issued by foreign
governments and domestic and foreign corporations, including certain Brady Bonds
and other foreign debt, and in payment-in-kind securities. Zero coupon
securities pay no interest to holders prior to maturity, and payment-in-kind
securities pay "interest" in the form of additional securities. However, a
portion of the original issue discount on zero coupon securities and the
interest on payment-in-kind securities will be included in Developing Markets
Fund's income. Accordingly, for Developing Markets Fund to continue to qualify
for tax treatment as a regulated investment company and to avoid a certain
excise tax (see "Dividends, Distributions and Tax Matters"), it may be required
to distribute an amount that is greater than the total amount of cash it
actually receives. These distributions may be made from Developing Markets
Fund's cash assets or, if necessary, from the proceeds of sales of portfolio
securities. Developing Markets Fund will not be able to purchase additional
income-producing securities with cash used to make such distributions, and its
current income ultimately may be reduced as a result. Zero coupon and
payment-in-kind securities usually trade at a deep discount from their face or
par value and will be subject to greater fluctuations of market value in
response to changing interest rates than debt obligations of comparable
maturities that make current distributions of interest in cash.
INDEXED COMMERCIAL PAPER
Developing Markets Fund may invest without limitation in commercial
paper that is indexed to certain specific foreign currency exchange rates. The
terms of such commercial paper provide that its principal
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amount is adjusted upwards or downwards (but not below zero) at maturity to
reflect changes in the exchange rate between two currencies while the obligation
is outstanding. Developing Markets Fund will purchase such commercial paper with
the currency in which it is denominated and, at maturity, will receive interest
and principal payments thereon in that currency, but the amount of principal
payable by the issuer at maturity will change in proportion to the change (if
any) in the exchange rate between the two specified currencies between the date
the instrument is issued and the date the instrument matures. While such
commercial paper entails the risk of loss of principal, the potential for
realizing gains as a result of changes in foreign currency exchange rates
enables Developing Markets Fund to hedge against a decline in the U.S. dollar
value of investments denominated in foreign currencies while seeking to provide
an attractive money market rate of return. Developing Markets Fund will not
purchase such commercial paper for speculation.
OTHER INDEXED SECURITIES
Developing Markets Fund may invest in certain other indexed securities,
which are securities whose prices are indexed to the prices of other securities,
securities indices, currencies, precious metals or other commodities or other
financial indicators. Indexed securities typically, but not always, are debt
securities or deposits whose value at maturity or coupon rate is determined by
reference to a specific instrument or statistic. The performance of indexed
securities depends to a great extent on the performance of the security,
currency or other instrument to which they are indexed and also may be
influenced by interest rate changes in the United States and abroad. At the same
time, indexed securities are subject to the credit risks associated with the
issuer of the security, and their values may decline substantially if the
issuer's creditworthiness deteriorates. Indexed securities may be more volatile
than the underlying instruments. New forms of indexed securities continue to be
developed. Developing Markets Fund may invest in such securities to the extent
consistent with its investment objectives.
SWAPS, CAPS, FLOORS AND COLLARS
Developing Markets Fund may enter into interest rate, currency and
index swaps and may purchase or sell related caps, floors and collars and other
derivative instruments. The Fund expects to enter into these transactions
primarily to preserve a return or spread on a particular investment or portion
of its portfolio, to protect against currency fluctuations, as a technique for
managing the portfolio's duration (i.e., the price sensitivity to changes in
interest rates) or to protect against any increase in the price of securities
the Fund anticipates purchasing at a later date. The Fund intends to use these
transactions as hedges and will not sell interest rate caps, floors or collars
if it does not own securities or other instruments providing an income stream
roughly equivalent to what the Fund may be obligated to pay.
Interest rate swaps involve the exchange by Developing Markets Fund
with another party of their respective commitments to pay or receive interest
(for example, an exchange of floating rate payments for fixed rate payments)
with respect to a notional amount of principal. A currency swap is an agreement
to exchange cash flows on a notional amount based on changes in the values of
the reference indices.
The purchase of a cap entitles the purchaser to receive payments on a
notional principal amount from the party selling the cap to the extent that a
specified index exceeds a predetermined interest rate. The purchase of an
interest rate floor entitles the purchaser to receive payments on a notional
principal amount from the party selling the floor to the extent that a specified
index falls below a predetermined interest rate or amount. A collar is a
combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.
LOAN PARTICIPATIONS AND ASSIGNMENTS
Developing Markets Fund may invest in fixed and floating rate loans
("Loans") arranged through private negotiations between a foreign entity and one
or more financial institutions ("Lenders"). The majority of Developing Markets
Fund's investments in Loans in emerging markets is expected to be in the form of
participations in Loans ("Participations") and assignments of portions of Loans
from third parties
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("Assignments"). Participations typically will result in Developing Markets Fund
having a contractual relationship only with the Lender, not with the borrower.
Developing Markets Fund will have the right to receive payments of principal,
interest and any fees to which it is entitled only from the Lender selling the
Participation and only upon receipt by the Lender of the payments from the
borrower. In connection with purchasing Participations, Developing Markets Fund
generally will have no right to enforce compliance by the borrower with the
terms of the loan agreement relating to the loan, nor any rights of set-off
against the borrower, and Developing Markets Fund may not directly benefit from
any collateral supporting the Loan in which it has purchased the Participation.
As a result, Developing Markets Fund will assume the credit risk of both the
borrower and the Lender that is selling the Participation.
In the event of the insolvency of the Lender selling a Participation,
Developing Markets Fund may be treated as a general creditor of the Lender and
may not benefit from any set-off between the Lender and the borrower. Developing
Markets Fund will acquire Participations only if the Lender interpositioned
between Developing Markets Fund and the borrower is determined by the
Sub-advisor to be creditworthy. When the Fund purchases Assignments from
Lenders, the Developing Markets Fund will acquire direct rights against the
borrower on the Loan. However, because Assignments are arranged through private
negotiations between potential assignees and assignors, the rights and
obligations acquired by Developing Markets Fund as the purchaser of an
Assignment may differ from, and be more limited than, those held by the
assigning Lender.
OPTIONS, FUTURES AND CURRENCY STRATEGIES
SPECIAL RISKS OF OPTIONS, FUTURES AND CURRENCY STRATEGIES
To attempt to increase return, Developing Markets Fund may write call
options on securities. This strategy will be employed only when, in the opinion
of the Sub-advisor, the size of the premium Developing Markets Fund receives for
writing the option is adequate to compensate it against the risk that
appreciation in the underlying security may not be fully realized if the option
is exercised. Developing Markets Fund also is authorized to write put options to
attempt to enhance return, although it does not currently intend to do so.
Each Fund may use forward currency contracts, futures contracts,
options on securities, options on currencies, options on indices and options on
futures contracts to attempt to hedge against the overall level of investment
and currency risk (i.e. fluctuations in exchange rates) normally associated with
its investments. These instruments are often referred to as "derivatives," which
may be defined as financial instruments whose performance is derived, at least
in part, from the performance of another asset (such as a security, currency or
an index of securities). Each Fund may enter into such instruments up to the
full value of its portfolio assets.
To attempt to hedge against adverse movements in exchange rates between
currencies, each Fund may enter into forward currency contracts for the purchase
or sale of a specified currency at a specified future date. Such contracts may
involve the purchase or sale of a foreign currency against the U.S. dollar or
may involve two foreign currencies. Each Fund may enter into forward currency
contracts either with respect to specific transactions or with respect to its
portfolio positions. Each Fund also may purchase and sell put and call options
on currencies, futures contracts on currencies and options on such futures
contracts to hedge its portfolio against movements in exchange rates.
Only a limited market, if any, currently exists for options and futures
transactions relating to currencies of most emerging markets including Latin
American markets, to securities denominated in such currencies or to securities
of issuers domiciled or principally engaged in business in such emerging
markets. To the extent that such a market does not exist, the Sub-advisor may
not be able to effectively hedge its investment in such markets.
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Each Fund may also purchase and sell put and call options on equity and
debt securities to hedge against the risk of fluctuations in the prices of
securities held by a Fund or that the Sub-advisor intends to include in a Fund's
portfolio. Each Fund may also purchase and sell put and call options on stock
indices to hedge against overall fluctuations in the securities markets or in a
specific market sector.
Further, each Fund may sell stock index futures contracts and may
purchase put options or write call options on such futures contracts to protect
against a general stock market decline or a decline in a specific market sector
that could adversely affect a Fund's portfolio. Each Fund may also purchase
stock index futures contracts and purchase call options or write put options on
such contracts to hedge against a general stock market or market sector advance
and thereby attempt to lessen the cost of future securities acquisitions. A Fund
may use interest rate futures contracts and options thereon to hedge the debt
portion of its portfolios against changes in the general level of interest
rates.
The use of options, futures contracts and forward currency contracts
("Forward Contracts") involves special considerations and risks, as described
below. Risks pertaining to particular instruments are described in the sections
that follow.
(1) Successful use of most of these instruments depends upon
the Sub-advisor's ability to predict movements of the overall
securities and currency markets, which requires different skills than
predicting changes in the prices of individual securities. While the
Sub-advisor is experienced in the use of these instruments, there can
be no assurance that any particular strategy adopted will succeed since
the skills and techniques needed to trade Forward Contracts are
different from those needed to select securities in which a Fund
invests.
(2) There might be imperfect correlation, or even no
correlation, between price movements of an instrument and price
movements of the currency or the investments being hedged. For example,
if the value of an instrument used in a short hedge increased by less
than the decline in value of the hedged investment, the hedge would not
be fully successful. Such a lack of correlation might occur due to
factors unrelated to the value of the investments being hedged, such as
speculative or other pressures on the markets in which the hedging
instrument is traded. The effectiveness of hedges using hedging
instruments on indices will depend on the degree of correlation between
price movements in the index and price movements in the investments
being hedged.
(3) Hedging strategies, if successful, can reduce risk of loss
by wholly or partially offsetting the negative effect of unfavorable
price movements in the investments being hedged. However, hedging
strategies can also reduce opportunity for gain by offsetting the
positive effect of favorable price movements in the hedged investments.
For example, if a Fund entered into a short hedge because the
Sub-advisor projected a decline in the price of a security in the
Fund's portfolio, and the price of that security increased instead, the
gain from that increase might be wholly or partially offset by a
decline in the price of the hedging instrument. Moreover, if the price
of the hedging instrument declined by more than the increase in the
price of the security, the Fund could suffer a loss including the
possible loss of principal under certain conditions. In either such
case, the Fund would have been in a better position had it not hedged
at all.
(4) As described below, a Fund might be required to maintain
assets as "cover," maintain segregated accounts or make margin payments
when it takes positions in instruments involving obligations to third
parties (i.e., instruments other than purchased options). If the Fund
were unable to close out its positions in such instruments, it might be
required to continue to maintain such assets or accounts or make such
payments until the position expired or matured. The requirements might
impair the Fund's ability to sell a portfolio security or make an
investment at a time when it would otherwise be favorable to do so, or
require that the Fund sell a portfolio security at a disadvantageous
time. A Fund's ability to close out a position in an instrument prior
to expiration or maturity depends on the existence of a liquid
secondary market of which there is no assurance of any particular time
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or, in the absence of such a market, the ability and willingness of the
other party to the transaction ("contra party") to enter into a
transaction closing out the position. Therefore, there is no assurance
that any position can be closed out at a time and price that is
favorable to the Funds. In addition, a Fund may be unable to purchase
or sell a portfolio security at a time when it would otherwise be
favorable for it to do so. A Fund may also need to sell a security at a
disadvantageous time, due to the need for the Fund to maintain "cover"
or to set aside securities in connection with hedging transactions.
Although each Fund is authorized to enter into options, futures and
forward currency transactions, it might not enter into any such transactions.
WRITING CALL OPTIONS
Each Fund may write (sell) call options on securities, indices and
currencies. This strategy will be employed only when, in the opinion of the
Sub-advisor, the size of the premium a Fund receives for writing the option is
adequate to compensate it against the risk that appreciation in the underlying
security may not be fully realized if the option is exercised. Call options
generally will be written on securities and currencies that, in the opinion of
the Sub-advisor are not expected to make any major price moves in the near
future but that, over the long term, are deemed to be attractive investments for
a Fund.
A call option gives the holder (buyer) the right to purchase a security
or currency at a specified price (the exercise price) at any time until
(American Style) or on (European Style) a certain date (the expiration date). So
long as the obligation of the writer of a call option continues, he may be
assigned an exercise notice, requiring him to deliver the underlying security or
currency against payment of the exercise price. This obligation terminates upon
the expiration of the call option, or such earlier time at which the writer
effects a closing purchase transaction by purchasing an option identical to that
previously sold.
Portfolio securities or currencies on which call options may be written
will be purchased solely on the basis of investment considerations consistent
with each Fund's investment objective. When writing a call option, a Fund, in
return for the premium, gives up the opportunity for profit from a price
increase in the underlying security or currency above the exercise price, and
retains the risk of loss should the price of the security or currency decline.
Unlike one who owns securities or currencies not subject to an option, a Fund
has no control over when it may be required to sell the underlying securities or
currencies, since most options may be exercised at any time prior to the
option's expiration. If a call option that a Fund has written expires, the Fund
will realize a gain in the amount of the premium; however, such gain may be
offset by a decline in the market value of the underlying security or currency
during the option period. If the call option is exercised, the Fund will realize
a gain or loss from the sale of the underlying security or currency, which will
be increased or offset by the premium received. The Funds do not consider a
security or currency covered by a call option to be "pledged" as that term is
used in the Funds' policies that limit the pledging or mortgaging of their
assets.
Writing call options can serve as a limited short hedge because
declines in the value of the hedged investment would be offset to the extent of
the premium received for writing the option. However, if the security or
currency appreciates to a price higher than the exercise price of the call
option, it can be expected that the option will be exercised and a Fund will be
obligated to sell the security or currency at less than its market value.
The premium that a Fund receives for writing a call option is deemed to
constitute the market value of an option. The premium a Fund will receive from
writing a call option will reflect, among other things, the current market price
of the underlying investment, the relationship of the exercise price to such
market price, the historical price volatility of the underlying investment, and
the length of the option period. In determining whether a particular call option
should be written, the Sub-advisor will consider the reasonableness of the
anticipated premium and the likelihood that a liquid secondary market will exist
for those options.
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Closing transactions will be effected in order to realize a profit on
an outstanding call option, to prevent an underlying security or currency from
being called, or to permit the sale of the underlying security or currency.
Furthermore, effecting a closing transaction will permit a Fund to write another
call option on the underlying security or currency with either a different
exercise price, expiration date or both.
Each Fund will pay transaction costs in connection with the writing of
options and in entering into closing purchase contracts. Transaction costs
relating to options activity normally are higher than those applicable to
purchases and sales of portfolio securities.
The exercise price of the options may be below, equal to or above the
current market values of the underlying securities or currencies at the time the
options are written. From time to time, a Fund may purchase an underlying
security or currency for delivery in accordance with the exercise of an option,
rather than delivering such security or currency from its portfolio. In such
cases, additional costs will be incurred.
A Fund will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more, respectively, than
the premium received from writing the option. Because increases in the market
price of a call option generally will reflect increases in the market price of
the underlying security or currency, any loss resulting from the repurchase of a
call option is likely to be offset in whole or in part by appreciation of the
underlying security or currency owned by the Fund.
WRITING PUT OPTIONS
Each Fund may write put options on securities, indices and currencies.
A put option gives the purchaser of the option the right to sell, and the writer
(seller) the obligation to buy, the underlying security or currency at the
exercise price at any time until (American style) or on (European style) the
expiration date. The operation of put options in other respects, including their
related risks and rewards, is identical substantially to that of call options.
A Fund generally would write put options in circumstances where the
Sub-advisor wishes to purchase the underlying security or currency for the
Fund's portfolio at a price lower than the current market price of the security
or currency. In such event, the Fund would write a put option at an exercise
price that, reduced by the premium received on the option, reflects the lower
price it is willing to pay. Since the Fund would also receive interest on debt
securities or currencies maintained to cover the exercise price of the option,
this technique could be used to enhance current return during periods of market
uncertainty. The risk in such a transaction would be that the market price of
the underlying security or currency would decline below the exercise price less
the premium received.
Writing put options can serve as a limited long hedge because increases
in the value of the hedged investment would be offset to the extent of the
premium received for writing the option. However, if the security or currency
depreciates to a price lower than the exercise price of the put option, it can
be expected that the put option will be exercised and the Fund will be obligated
to sell the security or currency at more than its market value.
PURCHASING PUT OPTIONS
Each Fund may purchase put options on securities, indices and
currencies. As the holder of a put option, a Fund would have the right to sell
the underlying security or currency at the exercise price at any time until
(American style) or on (European style) the expiration date. A Fund may enter
into closing sale transactions with respect to such options, exercise them or
permit them to expire.
A Fund may purchase a put option on an underlying security or currency
("protective put") owned by the Fund to protect against an anticipated decline
in the value of the security or currency. Such protection is provided only
during the life of the put option when the Fund, as the holder of the put
option, is able to sell the underlying security or currency at the put exercise
price regardless of any decline in the underlying
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security's market price or currency's exchange value. The premium paid for the
put option and any transaction costs would reduce any profit otherwise available
for distribution when the security or currency is eventually sold.
A Fund also may purchase put options at a time when the Fund does not
own the underlying security or currency. By purchasing put options on a security
or currency it does not own, the Fund seeks to benefit from a decline in the
market price of the underlying security or currency. If the put option is not
sold when it has remaining value, and if the market price of the underlying
security or currency remains equal to or greater than the exercise price during
the life of the put option, the Fund will lose its entire investment in the put
option. In order for the purchase of a put option to be profitable, the market
price of the underlying security or currency must decline sufficiently below the
exercise price to cover the premium and transaction costs, unless the put option
is sold in a closing sale transaction.
PURCHASING CALL OPTIONS
Each Fund may purchase call options on securities, indices and
currencies. As the holder of a call option, a Fund would have the right to
purchase the underlying security or currency at the exercise price at any time
until (American style) or on (European style) the expiration date. A Fund may
enter into closing sale transactions with respect to such options, exercise them
or permit them to expire.
Call options may be purchased by a Fund for the purpose of acquiring
the underlying security or currency for its portfolio. Utilized in this fashion,
the purchase of call options would enable the Fund to acquire the security or
currency at the exercise price of the call option plus the premium paid. At
times, the net cost of acquiring the security or currency in this manner may be
less than the cost of acquiring the security or currency directly. This
technique also may be useful to a Fund in purchasing a large block of securities
that would be more difficult to acquire by direct market purchases. So long as
it holds such a call option, rather than the underlying security or currency
itself, the Fund is partially protected from any unexpected decline in the
market price of the underlying security or currency and, in such event, could
allow the call option to expire, incurring a loss only to the extent of the
premium paid for the option.
A Fund also may purchase call options on underlying securities or
currencies it owns to avoid realizing losses that would result in a reduction of
its current return. For example, where a Fund has written a call option on an
underlying security or currency having a current market value below the price at
which it purchased the security or currency, an increase in the market price
could result in the exercise of the call option written by the Fund and the
realization of a loss on the underlying security or currency. Accordingly, the
Fund could purchase a call option on the same underlying security or currency,
which could be exercised to fulfill the Fund's delivery obligations under its
written call (if it is exercised). This strategy could allow the Fund to avoid
selling the portfolio security or currency at a time when it has an unrealized
loss; however, the Fund would have to pay a premium to purchase the call option
plus transaction costs.
Aggregate premiums paid for put and call options will not exceed 5% of
a Fund's total assets at the time of purchase.
Each Fund may attempt to accomplish objectives similar to those
involved in its use of Forward Contracts by purchasing put or call options on
currencies. A put option gives a Fund as purchaser the right (but not the
obligation) to sell a specified amount of currency at the exercise price at any
time until (American style) or on (European style) the expiration date. A call
option gives a Fund as purchaser the right (but not the obligation) to purchase
a specified amount of currency at the exercise price at any time until (American
style) or on (European style) the expiration date. A Fund might purchase a
currency put option, for example, to protect itself against a decline in the
dollar value of a currency in which it holds or anticipates holding securities.
If the currency's value should decline against the dollar, the loss in currency
value should be offset, in whole or in part, by an increase in the value of the
put. If the value of the currency instead should rise against the dollar, any
gain to the Fund would be reduced by the premium it had paid for the put
option. A
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currency call option might be purchased, for example, in anticipation of, or to
protect against, a rise in the value against the dollar of a currency in which a
Fund anticipates purchasing securities.
Options may be either listed on an exchange or traded in
over-the-counter ("OTC") markets. Listed options are third-party contracts
(i.e., performance of the obligations of the purchaser and seller is guaranteed
by the exchange or clearing corporation), and have standardized strike prices
and expiration dates. OTC options are two-party contracts with negotiated strike
prices and expiration dates. A Fund will not purchase an OTC option unless it
believes that daily valuations for such options are readily obtainable. OTC
options differ from exchange-traded options in that OTC options are transacted
with dealers directly and not through a clearing corporation (which guarantees
performance). Consequently, there is a risk of non-performance by the dealer.
Since no exchange is involved, OTC options are valued on the basis of an average
of the last bid prices obtained from dealers, unless a quotation from only one
dealer is available, in which case only that dealer's price will be used. In the
case of OTC options, there can be no assurance that a liquid secondary market
will exist for any particular option at any specific time.
The staff of the SEC considers purchased OTC options to be illiquid
securities. A Fund may also sell OTC options and, in connection therewith,
segregate assets or cover its obligations with respect to OTC options written by
the Fund. The assets used as cover for OTC options written by the Fund will be
considered illiquid unless the OTC options are sold to qualified dealers who
agree that the Fund may repurchase any OTC option it writes at a maximum price
to be calculated by a formula set forth in the option agreement. The cover for
an OTC option written subject to this procedure would be considered illiquid
only to the extent that the maximum repurchase price under the formula exceeds
the intrinsic value of the option.
A Fund's ability to establish and close out positions in
exchange-listed options depends on the existence of a liquid market. Each Fund
intends to purchase or write only those exchange-traded options for which there
appears to be a liquid secondary market. However, there can be no assurance that
such a market will exist at any particular time. Closing transactions can be
made for OTC options only by negotiating directly with the contra party or by a
transaction in the secondary market if any such market exists. Although each
Fund will enter into OTC options only with contra parties that are expected to
be capable of entering into closing transactions with the Fund, there is no
assurance that the Funds will in fact be able to close out an OTC option
position at a favorable price prior to expiration. In the event of insolvency of
the contra party, a Fund might be unable to close out an OTC option position at
any time prior to its expiration.
INDEX OPTIONS
Puts and calls on indices are similar to puts and calls on securities
or futures contracts except that all settlements are in cash and gain or loss
depends on changes in the index in question (and thus on price movements in the
securities market or a particular market sector generally) rather than on price
movements in individual securities or futures contracts. When a Fund writes a
call on an index, it receives a premium and agrees that, prior to the expiration
date, the purchaser of the call, upon exercise of the call, will receive from
the Fund an amount of cash if the closing level of the index upon which the call
is based is greater than the exercise price of the call. The amount of cash is
equal to the difference between the closing price of the index and the exercise
price of the call times a specified multiple (the "multiplier"), which
determines the total dollar value for each point of such difference. When a Fund
buys a call on an index, it pays a premium and has the same rights as to such
call as are indicated above. When a Fund buys a put on an index, it pays a
premium and has the right, prior to the expiration date, to require the seller
of the put, upon the Fund's exercise of the put, to deliver to the Fund an
amount of cash if the closing level of the index upon which the put is based is
less than the exercise price of the put, which amount of cash is determined by
the multiplier, as described above for calls. When a Fund writes a put on an
index, it receives a premium and the purchaser has the right, prior to the
expiration date, to require the Fund to deliver to it an amount of cash equal to
the difference between the closing level of the index and the exercise price
times the multiplier, if the closing level is less than the exercise price.
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The risks of investment in index options may be greater than options on
securities. Because index options are settled in cash, when a Fund writes a call
on an index it cannot provide in advance for its potential settlement
obligations by acquiring and holding the underlying securities. A Fund can
offset some of the risk of writing a call index option position by holding a
diversified portfolio of securities similar to those on which the underlying
index is based. However, a Fund cannot, as a practical matter, acquire and hold
a portfolio containing exactly the same securities as underlie the index and, as
a result, bears a risk that the value of the securities held will vary from the
value of the index.
Even if a Fund could assemble a securities portfolio that exactly
reproduced the composition of the underlying index, it still would not be fully
covered from a risk standpoint because of the "timing risk" inherent in writing
index options. When an index option is exercised, the amount of cash that the
holder is entitled to receive is determined by the difference between the
exercise price and the closing index level on the date when the option is
exercised. As with other kinds of options, a Fund, as the call writer, will not
know that it has been assigned until the next business day at the earliest. The
time lag between exercise and notice of assignment poses no risk for the writer
of a covered call on a specific underlying security, such as common stock,
because there the writer's obligation is to deliver the underlying security, not
to pay its value as of a fixed time in the past. So long as the writer already
owns the underlying security, it can satisfy its settlement obligations by
simply delivering it, and the risk that its value may have declined since the
exercise date is borne by the exercising holder. In contrast, even if the writer
of an index call holds securities that exactly match the composition of the
underlying index, it will not be able to satisfy its assignment obligations by
delivering those securities against payment of the exercise price. Instead, it
will be required to pay cash in an amount based on the closing index value on
the exercise date; and by the time it learns that it has been assigned, the
index may have declined, with a corresponding decline in the value of its
securities portfolio. This "timing risk" is an inherent limitation on the
ability of index call writers to cover their risk exposure by holding securities
positions.
If a Fund purchases an index option and exercises it before the closing
index value for that day is available, it runs the risk that the level of the
underlying index may subsequently change. If such a change causes the exercised
option to fall out-of-the-money, the Fund will be required to pay the difference
between the closing index value and the exercise price of the option (times the
applicable multiplier) to the assigned writer.
INTEREST RATE, CURRENCY AND STOCK INDEX FUTURES
Each Fund may enter into interest rate or currency futures contracts,
and may enter into stock index futures contracts (collectively, "Futures" or
"Futures Contracts"), as a hedge against changes in prevailing levels of
interest rates, currency exchange rates or stock prices in order to establish
more definitely the effective return on securities or currencies held or
intended to be acquired by the Fund. A Fund's transactions may include sales of
Futures as an offset against the effect of expected increases in interest rates,
and decreases in currency exchange rates and stock prices, and purchases of
Futures as an offset against the effect of expected declines in interest rates,
and increases in currency exchange rates and stock prices.
A Fund will only enter into Futures Contracts that are traded on
futures exchanges and are standardized as to maturity date and underlying
financial instrument. Futures exchanges and trading thereon in the United States
are regulated under the Commodity Exchange Act by the Commodity Futures Trading
Commission ("CFTC"). Futures are exchanged in London at the London International
Financial Futures Exchange.
Although techniques other than sales and purchases of Futures Contracts
could be used to reduce a Fund's exposure to interest rate, currency exchange
rate and stock market fluctuations, a Fund may be able to hedge its exposure
more effectively and at a lower cost through using Futures Contracts.
A Futures Contract provides for the future sale by one party and
purchase by another party of a specified amount of a specific financial
instrument (security or currency) for a specified price at a designated
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date, time and place. An index Futures Contract provides for the delivery, at a
designated date, time and place, of an amount of cash equal to a specified
dollar amount times the difference between the index value at the close of
trading on the contract and the price at which the Futures Contract is
originally struck; no physical delivery of the securities comprising the index
is made. Brokerage fees are incurred when a Futures Contract is bought or sold,
and margin deposits must be maintained at all times the Futures Contract is
outstanding.
Although Futures Contracts typically require future delivery of and
payment for financial instruments or currencies, Futures Contracts are usually
closed out before the delivery date. Closing out an open Futures Contract sale
or purchase is effected by entering into an offsetting Futures Contract purchase
or sale, respectively, for the same aggregate amount of the identical financial
instrument or currency and the same delivery date. If the offsetting purchase
price is less than the original sale price, a Fund realizes a gain; if it is
more, a Fund realizes a loss. Conversely, if the offsetting sale price is more
than the original purchase price, a Fund realizes a gain; if it is less, the
Fund realizes a loss. The transaction costs must also be included in these
calculations. There can be no assurance, however, that a Fund will be able to
enter into an offsetting transaction with respect to a particular Futures
Contract at a particular time. If a Fund is not able to enter into an offsetting
transaction, the Fund will continue to be required to maintain the margin
deposits on the Futures Contract.
As an example of an offsetting transaction, the contractual obligations
arising from the sale of one Futures Contract of September Deutschemarks on an
exchange may be fulfilled at any time before delivery under the Futures Contract
is required (i.e., on a specified date in September, the "delivery month") by
the purchase of another Futures Contract of September Deutschemarks on the same
exchange. In such instance the difference between the price at which the Futures
Contract was sold and the price paid for the offsetting purchase, after
allowance for transaction costs, represents the profit or loss to the Fund.
Each Fund's Futures transactions will be entered into for hedging
purposes only; that is, Futures Contracts will be sold to protect against a
decline in the price of securities or currencies that the Fund owns, or Futures
Contracts will be purchased to protect the Fund against an increase in the price
of securities or currencies it has committed to purchase or expects to purchase.
"Margin" with respect to Futures Contracts is the amount of funds that
must be deposited by a Fund in order to initiate Futures trading and to maintain
the Fund's open positions in Futures Contracts. A margin deposit made when the
Futures Contract is entered into ("initial margin") is intended to assure a
Fund's performance under the Futures Contract. The margin required for a
particular Futures Contract is set by the exchange on which the Futures Contract
is traded and may be modified significantly from time to time by the exchange
during the term of the Futures Contract.
Subsequent payments, called "variation margin," to and from the futures
commission merchant through which a Fund entered into the Futures Contract will
be made on a daily basis as the price of the underlying security, currency or
index fluctuates making the Futures Contract more or less valuable, a process
known as marking-to-market.
Risks of Using Futures Contracts. The prices of Futures Contracts are
volatile and are influenced by, among other things, actual and anticipated
changes in interest rates and currency exchange rates, and in stock market
movements, which in turn are affected by fiscal and monetary policies and
national and international political and economic events.
There is a risk of imperfect correlation between changes in prices of
Futures Contracts and prices of the securities or currencies in a Fund's
portfolio being hedged. The degree of imperfection of correlation depends upon
circumstances such as: variations in speculative market demand for Futures and
for securities or currencies, including technical influences in Futures trading;
and differences between the financial instruments being hedged and the
instruments underlying the standard Futures Contracts available for trading. A
decision of whether, when, and how to hedge involves skill and judgment, and
even a
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well-conceived hedge may be unsuccessful to some degree because of unexpected
market behavior or interest or currency rate trends.
Because of the low margin deposits required, Futures trading involves
an extremely high degree of leverage. As a result, a relatively small price
movement in a Futures Contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the Futures Contract is deposited as margin, a subsequent 10%
decrease in the value of the Futures Contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the Futures Contract were closed out.
Thus, a purchase or sale of a Futures Contract may result in losses in excess of
the amount invested in the Futures Contract.
Most U.S. Futures exchanges limit the amount of fluctuation permitted
in Futures Contract and options on Futures Contract prices during a single
trading day. The daily limit establishes the maximum amount that the price of a
Futures Contract or option may vary either up or down from the previous day's
settlement price at the end of a trading session. Once the daily limit has been
reached in a particular type of Futures Contract or option, no trades may be
made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses, because the limit may prevent the liquidation of unfavorable
positions. Futures Contract and option prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of positions and subjecting some traders
to substantial losses.
If a Fund were unable to liquidate a Futures or option on Futures
position due to the absence of a liquid secondary market or the imposition of
price limits, it could incur substantial losses. The Fund would continue to be
subject to market risk with respect to the position. In addition, except in the
case of purchased options, the Fund would continue to be required to make daily
variation margin payments and might be required to maintain the position being
hedged by the Future or option or to maintain cash or securities in a segregated
account.
Certain characteristics of the Futures market might increase the risk
that movements in the prices of Futures Contracts or options on Futures might
not correlate perfectly with movements in the prices of the investments being
hedged. For example, all participants in the Futures and options on Futures
markets are subject to daily variation margin calls and might be compelled to
liquidate Futures or options on Futures positions whose prices are moving
unfavorably to avoid being subject to further calls. These liquidations could
increase price volatility of the instruments and distort the normal price
relationship between the Futures or options and the investments being hedged.
Also, because initial margin deposit requirements in the Futures market are less
onerous than margin requirements in the securities markets, there might be
increased participation by speculators in the Futures markets. This
participation also might cause temporary price distortions. In addition,
activities of large traders in both the Futures and securities markets involving
arbitrage, "program trading" and other investment strategies might result in
temporary price distortions.
OPTIONS ON FUTURES CONTRACTS
Options on Futures Contracts are similar to options on securities or
currencies except that options on Futures Contracts give the purchaser the
right, in return for the premium paid, to assume a position in a Futures
Contract (a long position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during the period of
the option. Upon exercise of the option, the delivery of the Futures position by
the writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's Futures margin account,
which represents the amount by which the market price of the Futures Contract,
at exercise, exceeds (in the case of a call) or is less than (in the case of a
put) the exercise price of the option on the Futures Contract. If an option is
exercised on the last trading day prior to the expiration date of the option,
the settlement will be made entirely in cash equal to the difference between the
exercise price of the option and the closing level of the securities, currencies
or index
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upon which the Futures Contract is based on the expiration date. Purchasers of
options who fail to exercise their options prior to the exercise date suffer a
loss of the premium paid.
The purchase of call options on Futures can serve as a long hedge, and
the purchase of put options on Futures can serve as a short hedge. Writing call
options on Futures can serve as a limited short hedge, and writing put options
on Futures can serve as a limited long hedge, using a strategy similar to that
used for writing options on securities, foreign currencies or indices.
If a Fund writes an option on a Futures Contract, it will be required
to deposit initial and variation margin pursuant to requirements similar to
those applicable to Futures Contracts. Premiums received from the writing of an
option on a Futures Contract are included in the initial margin deposit.
A Fund may seek to close out an option position by selling an option
covering the same Futures Contract and having the same exercise price and
expiration date. The ability to establish and close out positions on such
options is subject to the maintenance of a liquid secondary market.
LIMITATIONS ON USE OF FUTURES, OPTIONS ON FUTURES AND CERTAIN OPTIONS ON
CURRENCIES
To the extent that a Fund enters into Futures Contracts, options on
Futures Contracts, and options on foreign currencies traded on a CFTC-regulated
exchange, in each case other than for bona fide hedging purposes (as defined by
the CFTC), the aggregate initial margin and premiums required to establish those
positions (excluding the amount by which options are "in-the-money") will not
exceed 5% of the total assets of the Fund's portfolio, after taking into account
unrealized profits and unrealized losses on any contracts the Fund has entered
into. In general, a call option on a Futures Contract is "in-the-money" if the
value of the underlying Futures Contract exceeds the strike, i.e., exercise,
price of the call; a put option on a Futures Contract is "in-the-money" if the
value of the underlying Futures Contract is exceeded by the strike price of the
put. This guideline may be modified by the Trust's Board of Trustees without a
shareholder vote. This limitation does not limit the percentage of the Fund's
assets at risk to 5%.
FORWARD CONTRACTS
To attempt to hedge against adverse movements in exchange rates between
currencies, each Fund may enter into forward currency contracts for the purchase
or sale of a specified currency at a specified future date. Such contracts may
involve the purchase or sale of a foreign currency against the U.S. dollar or
may involve two foreign currencies. A Fund may enter into forward currency
contracts either with respect to specific transactions or with respect to its
portfolio positions. Each Fund may also purchase and sell put and call options
on equity and debt securities to hedge against the risk of fluctuations in the
prices of securities held by a Fund or that the Sub-advisor intends to include
in a Fund's portfolio. Each Fund may also purchase and sell put and call options
on stock indices to hedge against overall fluctuations in the securities markets
or in a specific market sector.
A Forward Contract is an obligation, usually arranged with a commercial
bank or other currency dealer, to purchase or sell a currency against another
currency at a future date and price as agreed upon by the parties. A Fund either
may accept or make delivery of the currency at the maturity of the Forward
Contract. The Fund may also, if its contra party agrees, prior to maturity,
enter into a closing transaction involving the purchase or sale of an offsetting
contract.
A Fund engages in forward currency transactions in anticipation of, or
to protect itself against, fluctuations in exchange rates. A Fund might sell a
particular foreign currency forward, for example, when it holds bonds
denominated in a foreign currency but anticipates, and seeks to be protected
against, a decline in the currency against the U.S. dollar. Similarly, the Fund
might sell the U.S. dollar forward when it holds bonds denominated in U.S.
dollars but anticipates, and seeks to be protected against, a decline in the
U.S. dollar relative to other currencies. Further, the Fund might purchase a
currency forward to "lock in" the price of securities denominated in that
currency that it anticipates purchasing.
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Forward Contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers. A
Forward Contract generally has no deposit requirement and no commissions are
charged at any stage for trades. Each Fund will enter into such Forward
Contracts with major U.S. or foreign banks and securities or currency dealers in
accordance with the guidelines approved by the Trust's Board of Trustees.
Each Fund may enter into Forward Contracts either with respect to
specific transactions or with respect to the Fund's portfolio positions. The
precise matching of the Forward Contract amounts and the value of specific
securities generally will not be possible because the future value of such
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the Forward Contract
is entered into and the date it matures. Accordingly, it may be necessary for a
Fund to purchase additional foreign currency on the spot (i.e., cash) market
(and bear the expense of such purchase) if the market value of the security is
less than the amount of foreign currency the Fund is obligated to deliver and if
a decision is made to sell the security and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some of the
foreign currency the Fund is obligated to deliver. The projection of short-term
currency market movements is extremely difficult, and the successful execution
of a short-term hedging strategy is highly uncertain. Forward Contracts involve
the risk that anticipated currency movements will not be predicted accurately,
causing a Fund to sustain losses on these contracts and transaction costs.
At or before the maturity of a Forward Contract requiring a Fund to
sell a currency, the Fund either may sell a portfolio security and use the sale
proceeds to make delivery of the currency or retain the security and offset its
contractual obligation to deliver the currency by purchasing a second contract
pursuant to which the Fund will obtain, on the same maturity date, the same
amount of the currency that it is obligated to deliver. Similarly, a Fund may
close out a Forward Contract requiring it to purchase a specified currency by
entering into a second contract, if its contra party agrees, entitling it to
sell the same amount of the same currency on the maturity date of the first
contract. The Fund would realize a gain or loss as a result of entering into
such an offsetting Forward Contract under either circumstance to the extent the
exchange rate or rates between the currencies involved moved between the
execution dates of the first contract and the offsetting contract.
The cost to a Fund of engaging in Forward Contracts varies with factors
such as the currencies involved, the length of the contract period and the
market conditions then prevailing. Because Forward Contracts usually are entered
into on a principal basis, no fees or commissions are involved. The use of
Forward Contracts does not eliminate fluctuations in the prices of the
underlying securities a Fund owns or intends to acquire, but it does establish a
rate of exchange in advance. In addition, while Forward Contract sales limit the
risk of loss due to a decline in the value of the hedged currencies, they also
limit any potential gain that might result should the value of the currencies
increase.
FOREIGN CURRENCY STRATEGIES--SPECIAL CONSIDERATIONS
Each Fund may use options on foreign currencies, Futures on foreign
currencies, options on Futures on foreign currencies and Forward Contracts to
hedge against movements in the values of the foreign currencies in which the
Fund's securities are denominated. Such currency hedges can protect against
price movements in a security that a Fund owns or intends to acquire that are
attributable to changes in the value of the currency in which it is denominated.
Such hedges do not, however, protect against price movements in the securities
that are attributable to other causes.
A Fund might seek to hedge against changes in the value of a particular
currency when no Futures Contract, Forward Contract or option involving that
currency is available or one of such contracts is more expensive than certain
other contracts. In such cases, a Fund may hedge against price movements in that
currency by entering into a contract on another currency or basket of
currencies, the values of which the Sub-advisor believes will have a positive
correlation to the value of the currency being hedged. The risk that
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movements in the price of the contract will not correlate perfectly with
movements in the price of the currency being hedged is magnified when this
strategy is used.
The value of Futures Contracts, options on Futures Contracts, Forward
Contracts, and options on foreign currencies depends on the value of the
underlying currency relative to the U.S. dollar. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of Futures Contracts, Forward
Contracts or options, a Fund could be disadvantaged by dealing in the odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirements that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or Futures markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements might take place in the underlying markets that cannot
be reflected in the markets for the Futures contracts or options until they
reopen.
Settlement of Futures Contracts, Forward Contracts and options
involving foreign currencies might be required to take place within the country
issuing the underlying currency. Thus, a Fund might be required to accept or
make delivery of the underlying foreign currency in accordance with any U.S. or
foreign regulations regarding the maintenance of foreign banking arrangements by
U.S. residents and might be required to pay any fees, taxes and charges
associated with such delivery assessed in the issuing country.
COVER
Transactions using Forward Contracts, Futures Contracts and options
(other than options purchased by a Fund) expose the Fund to an obligation to
another party. No Fund will enter into any such transactions unless it owns
either (1) an offsetting ("covered") position in securities, currencies, or
other options, Forward Contracts or Futures Contracts, or (2) cash, receivables
and short-term debt securities with a value sufficient at all times to cover its
potential obligations not covered as provided in (1) above. The Funds will
comply with SEC guidelines regarding cover for these instruments and, if the
guidelines so require, set aside cash or liquid securities.
Assets used as cover or held in a segregated account cannot be sold
while the position in the corresponding Forward Contract, Futures Contract or
option is open, unless they are replaced with other appropriate assets. If a
large portion of a Fund's assets are used for cover or otherwise set aside, it
could affect portfolio management or the Fund's ability to meet redemption
requests or other current obligations.
RISK FACTORS
GENERAL
There is no assurance that either Fund will achieve its investment
objectives. Investing in a Fund entails a substantial degree of risk, and an
investment in each Fund should be considered speculative. Investors are strongly
advised to consider carefully the special risks involved in investing in
emerging markets, and specifically Latin America, which are in addition to the
usual risks of investing in developed markets around the world.
Each Fund's net asset value will fluctuate, reflecting fluctuations in
the market value of its portfolio positions and its net currency exposure.
Equity securities, particularly common stocks, generally represent the most
junior position in an issuer's capital structure and entitle holders to an
interest in the assets of an
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issuer, if any, remaining after all more senior claims have been satisfied. The
value of equity securities held by a Fund will fluctuate in response to general
market and economic developments, as well as developments affecting the
particular issuers of such securities.
In addition, the value of debt securities held by each Fund generally
will fluctuate with the perceived creditworthiness of the issuers of such
securities and interest rates.
NON-DIVERSIFIED CLASSIFICATION
Developing Markets Fund and Latin American Fund are classified under
the 1940 Act as "non-diversified" funds. As a result, these Funds will be able
to invest in a smaller number of issuers than if they were classified under the
1940 Act as "diversified" funds. To the extent that a Fund invests in a smaller
number of issuers, the net asset value of its shares may fluctuate more widely
and it may be subject to greater investment and credit risk with respect to its
portfolio.
ILLIQUID SECURITIES
Developing Markets Fund may invest up to 15% of its net assets, and
Latin American Fund may invest up to 10% of its net assets, in illiquid
securities. Securities may be considered illiquid if a Fund cannot reasonably
expect within seven days to sell the security for approximately the amount at
which the Fund values such securities. Illiquid securities may be harder to
value than liquid securities. The sale of illiquid securities, if they can be
sold at all, generally will require more time and result in higher brokerage
charges or dealer discounts and other selling expenses than the sale of liquid
securities, such as securities eligible for trading on U.S. securities exchanges
or in the over-the-counter markets. Moreover, restricted securities which may be
illiquid for purposes of this limitation, often sell, if at all, at a price
lower than similar securities that are not subject to restrictions on resale.
Latin American Fund may invest in joint ventures, cooperatives,
partnerships and state enterprises and other similar vehicles which are illiquid
(collectively, "Special Situations"). The Sub-advisor believes that carefully
selected investments in Special Situations could enable Latin American Fund to
achieve capital appreciation substantially exceeding the appreciation Latin
American Fund would realize if it did not make such investments. However, in
order to limit investment risk, Latin American Fund will invest no more than 5%
of its total assets in Special Situations.
Illiquid securities include those that are subject to restrictions
contained in the securities laws of other countries. However, securities that
are freely marketable in the country where they are principally traded, but
would not be freely marketable in the United States, will not be considered
illiquid. Where registration is required, a Fund may be obligated to pay all or
part of the registration expenses and a considerable period may elapse between
the time of the decision to sell and the time the Fund may be permitted to sell
a security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell.
Not all restricted securities are illiquid. In recent years a large
institutional market has developed for certain securities that are not
registered under the Securities Act of 1933, as amended ("1933 Act"), including
private placements, repurchase agreements, commercial paper, foreign securities
and corporate bonds and notes. These instruments are often restricted securities
because the securities are sold in transactions not requiring registration.
Institutional investors generally will not seek to sell these instruments to the
general public, but instead will often depend either on an efficient
institutional market in which such unregistered securities can be readily resold
or on an issuer's ability to honor a demand for repayment. Therefore, the fact
that there are contractual or legal restrictions on resale to the general public
or certain institutions is not dispositive of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted
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securities have developed as a result of Rule 144A, providing both readily
ascertainable values for restricted securities and the ability to liquidate an
investment to satisfy share redemption orders. Such markets include automated
systems for the trading, clearance and settlement of unregistered securities of
domestic and foreign issuers, such as the PORTAL System sponsored by the
National Association of Securities Dealers, Inc. An insufficient number of
qualified institutional buyers interested in purchasing Rule 144A-eligible
restricted securities held by a Fund, however, could affect adversely the
marketability of such portfolio securities and the Fund might be unable to
dispose of such securities promptly or at favorable prices.
With respect to liquidity determinations generally, the Trust's Board
of Trustees has the ultimate responsibility for determining whether specific
securities, including restricted securities pursuant to Rule 144A under the 1933
Act, are liquid or illiquid. The Board has delegated the function of making
day-to-day determinations of liquidity to the Sub-advisor in accordance with
procedures approved by the Board. The Sub-advisor takes into account a number of
factors in reaching liquidity decisions, including (i) the frequency of trading
in the security, (ii) the number of dealers who make quotes for the security,
(iii) the number of dealers who have undertaken to make a market in the
security, (iv) the number of other potential purchasers and (v) the nature of
the security and how trading is effected (e.g., the time needed to sell the
security, how offers are solicited and the mechanics of transfer). The
Sub-advisor monitors the liquidity of securities in each Fund's portfolio and
periodically reports such determinations to the Board. If the liquidity
percentage restriction of a Fund is satisfied at the time of investment, a later
increase in the percentage of illiquid securities held by the Fund resulting
from a change in market value or assets will not constitute a violation of that
restriction. If as a result of a change in market value or assets, the
percentage of illiquid securities held by a Fund increases above the applicable
limit, the Sub-advisor will take appropriate steps to bring the aggregate amount
of illiquid assets back within the prescribed limitations as soon as reasonably
practicable, taking into account the effect of any disposition on the Fund.
DEBT SECURITIES
The value of the debt securities held by a Fund generally will vary
inversely with market interest rates. If interest rates in a market fall, a
Fund's debt securities issued by governments or companies in that market
ordinarily will increase in value. If market interest rates increase, however,
the debt securities owned by a Fund in that market will likely decrease in
value. Latin American Fund may invest up to 50% of its total assets in debt
securities of any rating. Developing Markets Fund may invest up to 50% of its
total assets in debt securities rated below investment grade. All such
investments involve a high degree of risk.
Debt rated Baa by Moody's is considered by Moody's to have speculative
characteristics. Debt rated BB, B, CCC, CC or C by S&P, and debt rated Ba, B,
Caa, Ca or C by Moody's is regarded, on balance, as predominantly speculative
with respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. While such lower quality debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions. Debt rated C
by Moody's or S&P is the lowest rated debt that is not in default as to
principal or interest and such issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing. Lower
quality debt securities are also generally considered to be subject to greater
risk than securities with higher ratings with regard to a deterioration of
general economic conditions. These foreign debt securities are the equivalent of
high yield, high risk bonds, commonly known as "junk bonds."
Ratings of debt securities represent the rating agency's opinion
regarding their quality and are not a guarantee of quality. Rating agencies
attempt to evaluate the safety of principal and interest payments and do not
evaluate the risks of fluctuations in market value. Also, rating agencies may
fail to make timely changes in credit ratings in response to subsequent events,
so that an issuer's current financial condition may be better or worse than a
rating indicates.
The market values of lower quality debt securities tend to reflect
individual developments of the issuer to a greater extent than do higher quality
securities, which react primarily to fluctuations in the general level of
interest rates. In addition, lower quality debt securities tend to be more
sensitive to economic conditions
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and generally have more volatile prices than higher quality securities. Issuers
of lower quality securities are often highly leveraged and may not have
available to them more traditional methods of financing. For example, during an
economic downturn or a sustained period of rising interest rates, highly
leveraged issuers of lower quality securities may experience financial stress.
During such periods, such issuers may not have sufficient revenues to meet their
interest payment obligations. The issuer's ability to service its debt
obligations may also be adversely affected by specific developments affecting
the issuer, such as the issuer's inability to meet specific projected business
forecasts or the unavailability of additional financing. Similarly, certain
emerging market governments that issue lower quality debt securities are among
the largest debtors to commercial banks, foreign governments and supranational
organizations such as the World Bank, and may not be able or willing to make
principal and/or interest repayments as they come due. The risk of loss due to
default by the issuer is significantly greater for the holders of lower quality
securities because such securities are generally unsecured and may be
subordinated to the claims of other creditors of the issuer.
Lower quality debt securities frequently have call or buy-back features
which would permit an issuer to call or repurchase the security from a Fund. In
addition, a Fund may have difficulty disposing of lower quality securities
because they may have a thin trading market. There may be no established retail
secondary market for many of these securities, and the Funds anticipate that
such securities could be sold only to a limited number of dealers or
institutional investors. The lack of a liquid secondary market also may have an
adverse impact on market prices of such instruments and may make it more
difficult for a Fund to obtain accurate market quotations for purposes of
valuing a Fund's portfolio. Each Fund may also acquire lower quality debt
securities during an initial underwriting or which are sold without registration
under applicable securities laws. Such securities involve special considerations
and risks.
In addition to the foregoing, factors that could have an adverse effect
on the market value of lower quality debt securities in which a Fund may invest
include: (i) potential adverse publicity; (ii) heightened sensitivity to general
economic or political conditions; and (iii) the likely adverse impact of a major
economic recession.
Each Fund may invest in debt securities, including Brady Bonds, issued
as part of debt restructurings and such debt is to be considered speculative.
There is a history of defaults with respect to commercial bank loans by public
and private entities issuing Brady Bonds.
Each Fund may also incur additional expenses to the extent it is
required to seek recovery upon a default in the payment of principal or interest
on its portfolio holdings, and a Fund may have limited legal recourse in the
event of a default. Debt securities issued by governments in emerging markets
(including those in Latin American markets) can differ from debt obligations
issued by private entities in that remedies from defaults generally must be
pursued in the courts of the defaulting government, and legal recourse is
therefore somewhat diminished. Political conditions, in terms of a government's
willingness to meet the terms of its debt obligations, also are of considerable
significance. There can be no assurance that the holders of commercial bank debt
may not contest payments to the holders of debt securities issued by governments
in emerging markets in the event of default by the governments under commercial
bank loan agreements.
LOAN PARTICIPATIONS AND ASSIGNMENTS
Developing Markets Fund may have difficulty disposing of Assignments
and Participations. The liquidity of such securities is limited, and the Fund
anticipates that such securities could be sold only to a limited number of
institutional investors. The lack of a liquid secondary market could have an
adverse impact on the value of such securities and on a Fund's ability to
dispose of particular Assignments or Participations when necessary to meet its
liquidity needs or in response to a specific economic event, such as a
deterioration in the creditworthiness of the borrower. The lack of a liquid
secondary market for Assignments and Participations also may make it more
difficult for a Fund to assign a value to those securities for purposes of
valuing its portfolio and calculating its net asset value.
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FOREIGN SECURITIES
Political, Social and Economic Risks. Investing in securities of
non-U.S. companies may entail additional risks due to the potential political,
social and economic instability of certain countries and the risks of
expropriation, nationalization, confiscation or the imposition of restrictions
on foreign investment, convertibility of currencies into U.S. dollars and on
repatriation of capital invested. In the event of such expropriation,
nationalization or other confiscation by any country, a Fund could lose its
entire investment in any such country.
In addition, even though opportunities for investment may exist in
emerging markets, any change in the leadership or policies of the governments of
those countries or in the leadership or policies of any other government which
exercises a significant influence over those countries, may halt the expansion
of or reverse the liberalization of foreign investment policies now occurring
and thereby eliminate any investment opportunities which may currently exist.
Investors should note that upon the accession to power of authoritarian
regimes, the governments of a number of Latin American countries previously
expropriated large quantities of real and personal property similar to the
property which will be represented by the securities purchased by the Funds. The
claims of property owners against those governments were never finally settled.
There can be no assurance that any property represented by securities purchased
by the Funds will not also be expropriated, nationalized, or otherwise
confiscated. If such confiscation were to occur, the Funds could lose their
entire investment in such countries. The Funds' investments would similarly be
adversely affected by exchange control regulation in any of those countries.
Economies in individual emerging markets 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 payments positions. Many emerging
market countries have experienced high rates of inflation for many years.
Inflation and rapid fluctuations in inflation rates have had and may continue to
have negative effects on the economies and securities markets of certain
countries with emerging markets.
Emerging markets generally are dependent heavily upon international
trade and, accordingly, have been and may continue to be affected adversely 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.
Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, rate of savings and capital reinvestment, currency
depreciation, resource self-sufficiency and balance of payments positions.
Investments in foreign government securities involve special risks, including
the risk that the government issuers may be unable or unwilling to repay
principal or interest when due.
Religious and Ethnic Stability. Certain countries in which the Funds
may invest may have groups that advocate radical religious or revolutionary
philosophies or support ethnic independence. Any disturbance on the part of such
individuals could carry the potential for widespread destruction or confiscation
of property owned by individuals and entities foreign to such country and could
cause the loss of a Fund's investment in those countries. Instability may also
result from, among other things, (i) authoritarian governments or military
involvement in political and economic decision-making, including changes in
government through extra-constitutional means, (ii) popular unrest associated
with demands for improved political, economic and social conditions and (iii)
hostile relations with neighboring or other countries. Such political, social
and economic instability could disrupt the principal financial markets in which
the Funds invest and adversely affect the value of the Funds' assets.
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Foreign Investment Restrictions. Certain countries prohibit or impose
substantial restrictions on investments in their capital markets, particularly
their equity markets, by foreign entities such as the Funds. These restrictions
or controls may at times limit or preclude investment in certain securities and
may increase the cost and expenses of the Funds. For example, certain countries
require prior governmental approval before investments by foreign persons may be
made or may limit the amount of investment by foreign persons in a particular
company, or limit the investment by foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals. Moreover, the national policies
of certain countries may restrict investment opportunities in issuers or
industries deemed sensitive to national interests. In addition, some countries
require governmental approval for the repatriation of investment income, capital
or the proceeds of securities sales by foreign investors. If there is a
deterioration in a country's balance of payments or for other reasons, a country
may impose restrictions on foreign capital remittances abroad. The Funds could
be adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation, as well as by the application to it of
other restrictions on investments.
Non-Uniform Corporate Disclosure Standards and Governmental Regulation.
Disclosure and regulatory standards in many respects are less stringent than in
the U.S. and other major markets. There also may be a lower level of monitoring
and regulation of emerging markets and the activities of investors in such
markets, and enforcement of existing regulations has been extremely limited.
Foreign companies are subject to accounting, auditing and financial standards
and requirements that differ in some cases significantly from those applicable
to U.S. companies. In particular, the assets, liabilities and profits appearing
on the financial statements of such a company may not reflect its financial
position or results of operations in the way they would be reflected had such
financial statements been prepared in accordance with U.S. generally accepted
accounting principles. Most of the securities held by the Funds will not be
registered with the SEC or regulators of any foreign country, nor will the
issuers thereof be subject to the SEC's reporting requirements. Thus, there will
be less available information concerning most foreign issuers of securities held
by the Funds than is available concerning U.S. issuers. In instances where the
financial statements of an issuer are not deemed to reflect accurately the
financial situation of the issuer, the Sub-advisor will take appropriate steps
to evaluate the proposed investment, which may include on-site inspection of the
issuer, interviews with its management and consultations with accountants,
bankers and other specialists. There is substantially less publicly available
information about foreign companies than there are reports and ratings published
about U.S. companies and the U.S. government. In addition, where public
information is available, it may be less reliable than such information
regarding U.S. issuers. Issuers of securities on foreign jurisdictions are
generally not subject to the same degree of regulation as are U.S. issuers with
respect to such matters as restrictions on market manipulation, insider trading
rules, shareholder proxy requirements and timely disclosure of information. In
addition, for companies that keep accounting records in local currency,
inflation accounting rules in some Latin American countries require, for both
tax and accounting purposes, that certain assets and liabilities be restated on
the company's balance sheet in order to express items in terms of currency of
constant purchasing power. Inflation accounting may indirectly generate losses
or profits.
Currency Fluctuations. Because the Funds, under normal circumstances,
each will invest a substantial portion of its total assets in the securities of
foreign issuers which are denominated in foreign currencies, the strength or
weakness of the U.S. dollar against such foreign currencies will account for
part of each Fund's investment performance. Changes in currency exchange rates
will influence the value of a Fund's shares, and also may affect the value of
dividends and interest earned by a Fund and gains and losses realized by a Fund.
A decline in the value of any particular currency against the U.S. dollar will
cause a decline in the U.S. dollar value of a Fund's holdings of securities and
cash denominated in such currency and, therefore, will cause an overall decline
in the Fund's net asset value and any net investment income and capital gains
derived from such securities to be distributed in U.S. dollars to shareholders
of that Fund. Moreover, if the value of the foreign currencies in which a Fund
receives its income falls relative to the U.S. dollar between receipt of the
income and the making of Fund distributions, the Fund may be required to
liquidate securities in order to make distributions if the Fund has insufficient
cash in U.S. dollars to meet distribution requirements.
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Currencies generally are evaluated on the basis of fundamental economic
criteria (e.g., relative inflation and interest rate levels and trends, growth
rate forecasts, balance of payments status and economic policies) as well as
technical and political data. The rate of exchange between the U.S. dollar and
other currencies is determined by several factors including the supply and
demand for particular currencies, central bank efforts to support particular
currencies, the movement of interest rates, the pace of business activity in
certain other countries and the United States, the international balance of
payments and other economic and financial conditions, government intervention,
speculation and other factors affecting the world economy. If the currency in
which a security is denominated appreciates against the U.S. dollar, the dollar
value of the security will increase. Conversely, a decline in the exchange rate
of the currency would adversely affect the value of the security expressed in
dollars.
Some countries also may have fixed currencies where values against the
U.S. dollar are not independently determined. In addition, there is a risk that
certain countries may restrict the free conversion of their currencies into
other currencies. Further, certain currencies may not be internationally traded.
Although the Funds value their assets daily in terms of U.S. dollars,
they do not intend to convert their holdings of foreign currencies into U.S.
dollars on a daily basis. The Funds will do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference ("spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to a Fund at one rate, while offering a lesser rate of exchange should a Fund
desire to sell that currency to the dealer.
Many of the currencies of emerging market countries including Latin
American countries, have experienced steady devaluations relative to the U.S.
dollar, and major devaluations have historically occurred in certain countries.
Any devaluations in the currencies in which a Fund's portfolio securities are
denominated may have a detrimental impact on the Fund.
Certain Latin American countries may have managed currencies which are
maintained at artificial levels to the U.S. dollar rather than at levels
determined by the market. This type of system can lead to sudden and large
adjustments in the currency which, in turn, can have a disruptive and negative
effect on foreign investors. For example, in late 1994 the value of the Mexican
peso lost more than one-third of its value relative to the dollar. Certain Latin
American countries also may restrict the free conversion of their currency into
foreign currencies, including the U.S. dollar. There is no significant foreign
exchange market for certain currencies and it would, as a result, be difficult
for the Funds to engage in foreign currency transactions designed to protect the
value of the Funds' interests in securities denominated in such currencies.
Some countries also may have fixed currencies whose values against the
U.S. dollar are not independently determined. In addition, there is a risk that
certain countries may restrict the free conversion of their currencies into
other currencies. Further, certain currencies may not be internationally traded.
On January 1, 1999, certain members of the European Economic and
Monetary Union ("EMU"), namely Austria, Belgium, Finland, France, Germany,
Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain established a
common European currency known as the "euro" and each member's local currency
became a denomination of the euro. It is anticipated that each participating
country will replace its local currency with the euro on July 1, 2002. Any other
European country that is a member of the European Union and satisfies the
criteria for participation in the EMU may elect to participate in the EMU and
may supplement its existing currency with the euro. The anticipated replacement
of existing currencies with the euro on July 1, 2002 could cause market
disruptions before or after July 1, 2002 and could adversely affect the value of
securities held by a Fund.
Adverse Market Characteristics. Securities of many foreign issuers may
be less liquid and their prices more volatile than securities of comparable U.S.
issuers. In addition, foreign securities markets and brokers generally are
subject to less governmental supervision and regulation than in the United
States and
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foreign securities transactions usually are subject to fixed commissions, which
generally are higher than negotiated commissions on U.S. transactions. In
addition, foreign securities transactions may be subject to difficulties
associated with the settlement of such transactions. Delays in settlement could
result in temporary periods when assets of the Funds are uninvested and no
return is earned thereon. The inability of a Fund to make intended security
purchases due to settlement problems could cause the Fund to miss attractive
opportunities. Inability to dispose of a portfolio security due to settlement
problems either could result in losses to a Fund due to subsequent declines in
value of the portfolio security or, if the Fund has entered into a contract to
sell the security, could result in possible liability to the purchaser. The
Sub-advisor will consider such difficulties when determining the allocation of
the Funds' assets, although the Sub-advisor does not believe that such
difficulties will have a material adverse effect on the Funds' portfolio trading
activities.
Each Fund may use foreign custodians, which are generally more
expensive than those in the U.S. and may involve risks in addition to those
related to the use of U.S. custodians. Such risks include uncertainties relating
to (i) determining and monitoring the financial strength, reputation and
standing of the foreign custodian, (ii) maintaining appropriate safeguards to
protect a Fund's investments, (iii) possible difficulties in obtaining and
enforcing judgments against such custodians and (iv) different settlement and
clearance procedures which may be unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions. The
inability of a Fund to make intended securities purchases due to settlement
problems could cause a Fund to miss attractive investment opportunities.
Inability to dispose of a portfolio security caused by settlement problems could
result either in losses to a Fund due to subsequent declines in value of the
portfolio security or, if a Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser.
A high proportion of the shares of many Latin American companies may be
held by a limited number of persons, which may further limit the number of
shares available for investment by the Funds, particularly Latin American Fund.
A limited number of issuers in most, if not all, Latin American securities
markets may represent a disproportionately large percentage of market
capitalization and trading value. The limited liquidity of Latin American
securities markets also may affect a Fund's ability to acquire or dispose of
securities at the price and time it wishes to do so. In addition, certain Latin
American securities markets, including those of Argentina, Brazil, Chile and
Mexico, are susceptible to being influenced by large investors trading
significant blocks of securities or by large dispositions of securities
resulting from the failure to meet margin calls when due.
The high volatility of certain Latin American securities markets is
evidenced by dramatic movements in the Brazilian and Mexican markets in recent
years. This market volatility may result in greater volatility in a Fund's net
asset value than would be the case for companies investing in domestic
securities. If a Fund were to experience unexpected net redemptions, it could be
forced to sell securities in its portfolio without regard to investment merit,
thereby decreasing the asset base over which Fund expenses can be spread and
possibly reducing the Fund's rate of return.
Withholding Taxes. Each Fund's net investment income from securities of
foreign issuers may be subject to withholding taxes by the foreign issuer's
country, thereby reducing that income or delaying the receipt of income where
those taxes may be recaptured. See "Dividends, Distributions and Tax Matters."
Concentration. To the extent a Fund invests a significant portion of
its assets in securities of issuers located in a particular country or region of
the world, it may be subject to greater risks and may experience greater
volatility than a fund that is more broadly diversified geographically.
Special Considerations Affecting Emerging Markets. Investing in equity
securities of companies in emerging markets may entail greater risks than
investing in equity securities in developed countries. These risks include (i)
less social, political and economic stability; (ii) the small current size of
the markets for such securities and the currently low or nonexistent volume of
trading, which result in a lack of liquidity and in greater price volatility;
(iii) certain national policies which may restrict a Fund's investment
opportunities, including restrictions on investment in issuers or industries
deemed sensitive to national interests; (iv) foreign
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taxation; and (v) the absence of developed structures governing private or
foreign investment or allowing for judicial redress for injury to private
property.
Investing in the securities of companies in emerging markets, including
the markets of Latin America and certain Asian markets such as Taiwan, Malaysia
and Indonesia, may entail special risks relating to potential political and
economic instability and the risks of expropriation, nationalization,
confiscation or the imposition of restrictions on foreign investment,
convertibility into U.S. dollars and on repatriation of capital invested. In the
event of such expropriation, nationalization or other confiscation by any
country, a Fund could lose its entire investment in any such country.
Emerging securities markets such as the markets of Latin America are
substantially smaller, less developed, less liquid and more volatile than the
major securities markets. The limited size of emerging securities markets and
limited trading value in issuers compared to the volume of trading in U.S.
securities could cause prices to be erratic for reasons apart from factors that
affect the quality of the securities. For example, limited market size may cause
prices to be unduly influenced by traders who control large positions. Adverse
publicity and investors' perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of portfolio securities,
especially in these markets. In addition, securities traded in certain emerging
markets may be subject to risks due to the inexperience of financial
intermediaries, a lack of modern technology, the lack of a sufficient capital
base to expand business operations, and the possibility of permanent or
temporary termination of trading.
In addition, brokerage commissions, custodial services and other costs
relating to investment in foreign markets generally are more expensive than in
the United States, particularly with respect to emerging markets. Such markets
have different settlement and clearance procedures. In certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
The inability of a Fund to make intended securities purchases due to settlement
problems could cause it to miss attractive investment opportunities. Inability
to dispose of a portfolio security caused by settlement problems could result
either in losses to the Fund due to subsequent declines in value of the
portfolio security or, if the Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser.
The securities markets of emerging countries including Latin American
countries are substantially smaller, less developed, less liquid and more
volatile than the securities markets of the developed countries. The risk also
exists that an emergency situation may arise in one or more emerging markets as
a result of which trading of securities may cease or may be substantially
curtailed and prices for a Fund's portfolio securities in such markets may not
be readily available. Section 22(e) of the 1940 Act permits registered
investment companies, such as the Funds, to suspend redemption of its shares for
any period during which an emergency exists, as determined by the SEC.
Accordingly, when a Fund believes that circumstances dictate, it will promptly
apply to the SEC for a determination that such an emergency exists within the
meaning of Section 22(e) of the 1940 Act. During the period commencing from a
Fund's identification of such conditions until the date of any SEC action, a
Fund's portfolio securities in the affected markets will be valued at fair value
determined in good faith by or under the direction of the Trust's Board of
Trustees.
Settlement mechanisms in emerging securities markets may be less
efficient and reliable than in more developed markets. In such emerging
securities there may be share registration and delivery delays or failures.
Many emerging market countries including countries in Latin America
have experienced substantial, and in some periods extremely high, rates of
inflation for many years. This has, in turn, led to high interest rates, extreme
measures by governments to keep inflation in check and a generally debilitating
effect on economic growth. Inflation and rapid fluctuations in inflation rates
and corresponding currency devaluations have had and may continue to have
negative effects on the economies and securities markets of certain emerging
market countries including countries in Latin America.
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Special Considerations Affecting Russia and Eastern European Countries.
Investing in Russia and Eastern European countries involves a high degree of
risk and special considerations not typically associated with investing in the
U.S. securities markets and should be considered highly speculative. Such risks
include the following: (1) delays in settling portfolio transactions and risk of
loss arising out of the system of share registration and custody; (2) the risk
that it may be impossible or more difficult than in other countries to obtain
and/or enforce a judgement; (3) pervasiveness of corruption and crime in the
economic system; (4) currency exchange rate volatility and the lack of available
currency hedging instruments; (5) higher rates of inflation (including the risk
of social unrest associated with periods of hyper-inflation) and high
unemployment; (6) controls on foreign investment and local practices disfavoring
foreign investors and limitations on repatriation of invested capital, profits
and dividends, and on the ability of Developing Markets Fund to exchange local
currencies for U.S. dollars; (7) political instability and social unrest and
violence; (8) the risk that the governments of Russia and Eastern European
countries may decide not to continue to support the economic reform programs
implemented recently and could follow radically different political and/or
economic policies to the detriment of investors, including non-market-oriented
policies such as the support of certain industries at the expense of other
sectors or investors, or a return to the centrally planned economy that existed
when such countries had a communist form of government; (9) the financial
condition of companies in these countries, including large amounts of
inter-company debt which may create a payments crisis on a national scale; (10)
dependency on exports and the corresponding importance of international trade;
(11) the risk that the tax system in these countries will not be reformed to
prevent inconsistent, retroactive and/or exorbitant taxation; and (12) the
underdeveloped nature of the securities markets.
Special Considerations Affecting Pacific Region Countries. Certain of
the risks associated with international investments are heightened for
investments in Pacific region countries. For example, some of the currencies of
Pacific region countries have experienced steady devaluations relative to the
U.S. dollar, and major adjustments have been made periodically in certain of
such currencies. Certain countries, such as India, face serious exchange
constraints.
Many of the Asia Pacific region countries may be subject to a greater
degree of social, political and economic instability than is the case in the
United States. Such instability may result from, among other things, the
following: (i) authoritarian governments or military involvement in political
and economic decision making, and changes in government through
extra-constitutional means; (ii) popular unrest associated with demands for
improved political, economic and social conditions; (iii) internal insurgencies;
(iv) hostile relations with neighboring countries; and (v) ethnic, religious and
racial disaffection. Such social, political and economic instability could
significantly disrupt the principal financial markets in which Developing
Markets Fund invests and adversely affect the value of such Fund's assets. In
addition, asset expropriations or future confiscatory levels of taxation
possibly may affect the Fund.
The economies of most of the Asia Pacific region countries are heavily
dependent upon international trade and are accordingly affected by protective
trade barriers and the economic conditions of their trading partners,
principally the United States, Japan, China and the European Community. The
enactment by the United States or other principal trading partners of
protectionist trade legislation, reduction of foreign investment in the local
economies and general declines in the international securities markets could
have a significant adverse effect upon the securities markets of the Asia
Pacific region countries. In addition, the economies of some of the Asia Pacific
region countries, Australia and Indonesia, for example, are vulnerable to
weakness in world prices for their commodity exports, including crude oil.
China assumed sovereignty over Hong Kong in July 1997. Although China
has committed by treaty to preserve the economic and social freedoms enjoyed in
Hong Kong for fifty years, the continuation of the current form of the economic
system in Hong Kong will depend on the actions of the government of China. In
addition, such assumption of sovereignty has increased sensitivity in Hong Kong
to political developments and statements by public figures in China. Business
confidence in Hong Kong, therefore, can be significantly affected by such
developments and statements, which in turn can affect markets and business
performance.
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In addition, there is a continuing risk that the Hong Kong dollar will
be devalued and a risk of possible loss of investor confidence in the Hong Kong
markets and dollar. However, factors exist that are likely to mitigate this
risk. First, China has stated its intention to implement a "one country, two
systems" policy, which would preserve monetary sovereignty and leave control in
the hands of the Hong Kong Monetary Authority ("HKMA").
Second, fixed rate parity with the U.S. dollar is seen as critical to
maintaining investors' confidence in the transition to Chinese rule, and,
therefore, it is anticipated that, if international investors lose confidence in
Hong Kong dollar assets, the HKMA would intervene to support the currency,
though such intervention cannot be assured. Third, Hong Kong's and China's
sizable combined foreign exchange reserve may be used to support the value of
the Hong Kong dollar, provided that China does not appropriate such reserves for
other uses, which is not anticipated but cannot be assured. Finally, China would
be likely to experience significant adverse political and economic consequences
if confidence in the Hong Kong dollar and the territory assets were to be
endangered.
Special Considerations Affecting Latin American Countries. Most Latin
American countries have experienced substantial, and in some periods extremely
high, rates of inflation for many years. Inflation and rapid fluctuations in
inflation rates have had and may continue to have very negative effects on the
economies and securities markets of certain Latin American countries. Certain
Latin American countries are also among the largest debtors to commercial banks
and foreign governments. At times certain Latin American countries have declared
moratoria on the payment of principal and/or interest on external debt. The
Funds, particularly Latin American Fund, may invest in debt securities,
including Brady Bonds, issued as part of debt restructurings and such debt is to
be considered speculative. There is a history of defaults with respect to
commercial bank loans by public and private entities issuing Brady Bonds. In
addition, certain Latin American securities markets have experienced high
volatility in recent years.
The securities of Latin American countries are substantially smaller,
less developed, less liquid and more volatile than the major securities markets
in the United States. Latin American countries may also close certain sectors of
their economies to equity investments by foreigners. The limited size of many
Latin American securities markets and limited trading volume in issuers compared
to volume of trading in U.S. securities could cause prices to be erratic for
reasons apart from factors that affect the quality of the securities. For
example, limited market size may cause prices to be unduly influenced by traders
who control large positions. Adverse publicity and investors' perceptions,
whether or not based on fundamental analysis, may decrease the value and
liquidity of portfolio securities, especially in these markets. Further due to
the absence of securities markets and publicly owned corporations and due to
restrictions on direct investment by foreign entities, investments may only be
made in certain Latin American countries solely or primarily through
governmentally approved investment vehicles or companies.
Certain Latin American countries may have managed currencies that are
maintained at artificial levels to the U.S. dollar rather than at levels
determined by the market. This type of system can lead to sudden and large
adjustments in the currency which, in turn, can have a disruptive and negative
effect on foreign investors. For example, in late 1994, the value of the Mexican
peso lost more than one-third of its value relative to the U.S. dollar.
It should be noted that some Latin American countries require
governmental approval for the repatriation of investment income, capital or the
proceeds of securities sales by foreign investors. For instance, at present,
capital invested directly in Chile cannot under most circumstances be
repatriated for at least one year. The Funds, particularly Latin American Fund,
could be adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation, as well as by the application to it of
other restrictions on investments.
Sovereign Debt. Each Fund may invest in sovereign debt securities of
emerging market governments. Investments in such securities involve special
risks. The issuer of the debt or the governmental authorities that control the
repayment of the debt may be unable to unwilling to repay principal or interest
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when due in accordance with the terms of such debt. Periods of economic
uncertainty may result in the volatility of market prices of sovereign debt
obligations and in turn a Fund's net asset value, to a greater extent than the
volatility inherent in domestic fixed income securities. Sovereign Debt
generally offers high yields, reflecting not only perceived credit risk, but
also the need to compete with other local investments in domestic financial
markets. Certain Latin American countries are among the largest debtors to
commercial banks and foreign governments. A sovereign debtor's willingness or
ability to repay principal and interest due in a timely manner may be affected
by, among other factors, its cash flow situation, the extent of its foreign
reserves, the availability of sufficient foreign exchange on the date a payment
is due, the relative size of the debt service burden to the economy as a whole,
the sovereign debtor's policy towards the International Monetary Fund and the
political constraints to which a sovereign debtor may be subject. Sovereign
debtors may default on their Sovereign Debt. Sovereign debtors may also be
dependent on expected disbursements from foreign governments, multilateral
agencies and others abroad to reduce principal and interest arrearages on their
debt. The commitment on the part of these governments, agencies and others to
make such disbursements may be conditioned on a sovereign debtor's
implementation of economic reforms and/or economic performance and the timely
service of such debtor's obligations. Failure to implement such reforms, achieve
such levels of economic performance or repay principal or interest when due, may
result in the cancellation of such third parties' commitments to lend funds to
the sovereign debtor, which may further impair such debtor's ability or
willingness to timely service its debts.
In recent years, some of the emerging market and Latin American
countries in which the Funds expect to invest have encountered difficulties in
servicing their Sovereign Debt. Some of these countries have withheld payments
of interest and/or principal of Sovereign Debt. These difficulties have also led
to agreements to restructure external debt obligations--in particular,
commercial bank loans, typically by rescheduling principal payments, reducing
interest rates and extending new credits to finance interest payments on
existing debt. In the future, holders of Sovereign Debt may be requested to
participate in similar reschedulings of such debt. Certain emerging markets
countries are among the largest debtors to commercial banks and foreign
governments. Currently, Brazil, Mexico and Argentina are the largest debtors
among developing countries. At times, certain emerging markets countries have
declared a moratorium on the payment of principal and interest on external debt;
such a moratorium is currently in effect for certain emerging market countries.
There is no bankruptcy proceeding by which a creditor may collect in whole or in
part sovereign debt on which an emerging market government has defaulted.
The ability of emerging market and Latin American governments to make
timely payments on their Sovereign Debt is likely to be influenced strongly by a
country's balance of trade and its access to trade and other international
credits. A country whose exports are concentrated in a few commodities could be
vulnerable to a decline in the international prices of one or more of such
commodities. Increased protectionism on the part of a country's trading partners
could also adversely affect its exports. Such events could diminish a country's
trade account surplus, if any. To the extent that a country receives payment for
its exports in currencies other than hard currencies, its ability to make hard
currency payments could be affected.
The occurrence of political, social or diplomatic changes in one or
more of the countries issuing Sovereign Debt could adversely affect a Fund's
investments. The countries issuing such instruments are faced with social and
political issues and some of them have experienced high rates of inflation in
recent years and have extensive internal debt. Among other effects, high
inflation and internal debt service requirements may adversely affect the cost
and availability of future domestic sovereign borrowing to finance governmental
programs, and may have other adverse social, political and economic
consequences. Political changes or a deterioration of a country's domestic
economy or balance of trade may affect the willingness of countries to service
their Sovereign Debt. While the Sub-advisor intends to manage each Fund's
portfolio in a manner that will minimize the exposure to such risks, there can
be no assurance that adverse political changes will not cause the Funds to
suffer losses of interest or principal on any of their holdings.
Sovereign debt obligations issued by emerging market governments
generally are deemed to be the equivalent in terms of quality to securities
rated below investment grade by Moody's and S&P. Such
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securities are regarded as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligations and involve major risk exposure to adverse conditions.
Some of such securities, with respect to which the issuer currently may not be
paying interest or may be in payment default, may be comparable to securities
rated D by S&P or C by Moody's. The Funds may have difficulty disposing of and
valuing certain sovereign debt obligations because there may be a limited
trading market for such securities. Because there is no liquid secondary market
for many of these securities, the Funds anticipate that such securities could be
sold only to a limited number of dealers or institutional investors.
Periods of economic uncertainty may result in the volatility of market
prices of Sovereign Debt and in turn, a Fund's net asset value, to a greater
extent than the volatility inherent in domestic securities. The value of
Sovereign Debt will likely vary inversely with changes in prevailing interest
rates, which are subject to considerable variance in the international market.
If a Fund were to experience unexpected net redemptions, it may be forced to
sell Sovereign Debt in its portfolio without regard to investment merit, thereby
decreasing its asset base over which Fund expenses can be spread and possibly
reducing its rate of return.
INVESTMENT LIMITATIONS
DEVELOPING MARKETS FUND
Developing Markets Fund has adopted the following investment
limitations as fundamental policies which may not be changed without approval of
a majority of the Fund's outstanding shares.
Developing Markets Fund may not:
(1) issue senior securities or borrow money, except as
permitted under the 1940 Act and then not in excess of 33 1/3% of
Developing Markets Fund's total assets (including the amount borrowed
but reduced by any liabilities not constituting borrowings) at the time
of the borrowing, except that the Fund may borrow up to an additional
5% of its total assets (not including the amount borrowed) for
temporary or emergency purposes;
(2) purchase any security if, as a result of that purchase,
25% or more of Developing Markets Fund's total assets would be invested
in securities of issuers having their principal business activities in
the same industry, except that this limitation does not apply to
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities;
(3) engage in the business of underwriting securities of other
issuers, except to the extent that Developing Markets Fund might be
considered an underwriter under the federal securities laws in
connection with its disposition of portfolio securities;
(4) purchase or sell real estate, except that investments in
securities of issuers that invest in real estate and investments in
mortgage-backed securities, mortgage participations or other
instruments supported by interests in real estate are not subject to
this limitation, and except that Developing Markets Fund may exercise
rights under agreements relating to such securities, including the
right to enforce security interests and to hold real estate acquired by
reason of such enforcement until that real estate can be liquidated in
an orderly manner;
(5) purchase or sell physical commodities, but Developing
Markets Fund may purchase, sell or enter into financial options and
futures, forward and spot currency contracts, swap transactions and
other financial contracts or derivative instruments; or
(6) make loans, except through loans of portfolio securities
or through repurchase agreements, provided that for purposes of this
limitation, the acquisition of bonds, debentures, other
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debt securities or instruments, or participations or other interests
therein and investments in government obligations, commercial paper,
certificates of deposit, bankers' acceptances or similar instruments
will not be considered the making of a loan.
Notwithstanding any other investment policy, Developing Markets Fund
may invest all of its investable assets (cash, securities and receivables
related to securities) in an open-end management investment company having
substantially the same investment objective, policies and limitations as the
Fund.
For purposes of the concentration policy of Developing Markets Fund
contained in limitation (2) above, the Fund intends to comply with the SEC staff
position that securities issued or guaranteed as to principal and interest by
any one single foreign government, or by all supranational organizations in the
aggregate, are considered to be securities of issuers in the same industry.
In addition, to comply with federal tax requirements for qualification
as a "regulated investment company" ("RIC"), Developing Markets Fund's
investments will be limited so that, at the close of each quarter of its taxable
year, (a) not more than 25% of the value of its total assets is invested in the
securities (other than U.S. government securities or the securities of other
RICs) of any one issuer and (b) at least 50% of the value of its total assets is
represented by cash and cash items, U.S. government securities, securities of
other RICs and other securities, with these other securities limited, in respect
of any one issuer, to an amount that does not exceed 5% of the value of its
total assets and that does not represent more than 10% of the issuer's
outstanding voting securities ("Diversification Requirements"). These
tax-related limitations may be changed by the Trust's Board of Trustees to the
extent necessary to comply with changes to applicable tax requirements.
The following investment policy of Developing Markets Fund is not a
fundamental policy and may be changed by vote of the Trust's Board of Trustees
without shareholder approval: Developing Markets Fund will not purchase
securities on margin, provided that the Fund may obtain short-term credits as
may be necessary for the clearance of purchases and sales of securities, and
further provided that the Fund may make margin deposits in connection with its
use of financial options and futures, forward and spot currency contracts, swap
transactions and other financial contracts or derivative instruments.
Investors should refer to the Developing Markets Fund's Prospectus for
further information with respect to the Developing Markets Fund's investment
objective, which may not be changed without the approval of its shareholders,
and other investment policies, techniques and limitations, which may be changed
without shareholder approval.
LATIN AMERICAN FUND
Latin American Fund has adopted the following investment limitations as
fundamental policies which may not be changed without approval of a majority of
the Fund's outstanding shares.
Latin American Fund may not:
(1) Purchase any security if, as a result of that purchase,
25% or more of Latin American Fund's total assets would be invested in
securities of issuers having their principal business activities in the
same industry, except that this limitation does not apply to securities
issued or guaranteed by the U.S. government, its agencies or
instrumentalities;
(2) Purchase or sell real estate, except that investments in
securities of issuers that invest in real estate and investments in
mortgage-backed securities, mortgage participations or other
instruments supported by interests in real estate are not subject to
this limitation, and except that Latin American Fund may exercise
rights under agreements relating to such securities, including the
right to enforce security interests and to hold real estate acquired by
reason of such enforcement until that real estate can be liquidated in
an orderly manner;
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(3) Engage in the business of underwriting securities of other
issuers, except to the extent that Latin American Fund might be
considered an underwriter under the federal securities laws in
connection with its disposition of portfolio securities;
(4) Make loans, except through loans of portfolio securities
or through repurchase agreements, provided that for purposes of this
limitation, the acquisition of bonds, debentures, other debt securities
or instruments, or participations or other interests therein and
investments in government obligations, commercial paper, certificates
of deposit, bankers' acceptances or similar instruments will not be
considered the making of a loan;
(5) Issue senior securities or borrow money, except as
permitted under the 1940 Act and then not in excess of 33 1/3% of Latin
American Fund's total assets (including the amount borrowed but reduced
by any liabilities not constituting borrowings) at the time of the
borrowing, except that the Fund may borrow up to an additional 5% of
its total assets (not including the amount borrowed) for temporary or
emergency purposes; or
(6) Purchase or sell physical commodities, but Latin American
Fund may purchase, sell or enter into financial options and futures,
forward and spot currency contracts, swap transactions and other
financial contracts or derivative instruments.
Notwithstanding any other investment policy, Latin American Fund may
invest all of its investable assets (cash, securities and receivables related to
securities) in an open-end management investment company having substantially
the same investment objective, policies and limitations as the Fund.
For purposes of Latin American Fund's concentration policy contained in
limitation (1), above, the Fund intends to comply with the SEC staff position
that securities issued or guaranteed as to principal and interest by any single
foreign government are considered to be securities of issuers in the same
industry.
The following operating policies of Latin American Fund are not
fundamental policies and may be changed by vote of the Trust's Board of Trustees
without shareholder approval. Latin American Fund may not:
(1) Invest in securities of an issuer if the investment would
cause Latin American Fund to own more than 10% of any class of
securities of any one issuer, except that the Fund may purchase
securities of Affiliated Money Market Funds to the extent permitted by
exemptive order;
(2) Invest in companies for the purpose of exercising control
or management;
(3) Invest more than 10% of its net assets in illiquid
securities, including securities that are illiquid by virtue of the
absence of a readily available market;
(4) Enter into a futures contract, an option on a futures
contract, or an option on foreign currency traded on a CFTC-regulated
exchange, in each case other than for bona fide hedging purposes (as
defined by the CFTC), if the aggregate initial margin and premiums
required to establish all of those positions (excluding the amount by
which options are "in-the-money") exceeds 5% of the liquidation value
of Latin American Fund's portfolio, after taking into account
unrealized profits and unrealized losses on any contracts the Fund has
entered into;
(5) Make any additional investments while borrowings exceed 5%
of Latin American Fund's total assets;
(6) Purchase securities on margin, provided that Latin
American Fund may obtain short-term credits as may be necessary for the
clearance of purchases and sales of securities, and further provided
that the Fund may make margin deposits in connection with its use of
financial options and
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futures, forward and spot currency contracts, swap transactions and
other financial contracts or derivative instruments; or
(7) Mortgage, pledge, or hypothecate any of its assets,
provided that this shall not apply to the transfer of securities in
connection with any permissible borrowing or to collateral arrangements
in connection with permissible activities.
Latin American Fund has the authority to invest up to 10% of its total
assets in shares of other investment companies pursuant to the 1940 Act. The
Fund may not invest more than 5% of its total assets in any one investment
company or acquire more than 3% of the outstanding voting securities of any one
investment company, except that the Fund may purchase securities of Affiliated
Money Market Funds to the extent permitted by exemptive order.
Investors should refer to the Latin American Fund's Prospectus for
further information with respect to the Latin American Fund's investment
objective, which may not be changed without the approval of its shareholders,
and other investment policies, techniques and limitations, which may be changed
without shareholder approval.
EXECUTION OF PORTFOLIO TRANSACTIONS
Subject to policies established by the Trust's Board of Trustees, the
Sub-advisor is responsible for the execution of each Fund's portfolio
transactions and the selection of broker/dealers who execute such transactions
on behalf of the Funds. In executing portfolio transactions, the Sub-advisor
seeks the best net results for each Fund, taking into account such factors as
the price (including the applicable brokerage commission or dealer spread), size
of the order, difficulty of execution and operational facilities of the firm
involved. Although the Sub-advisor generally seeks reasonably competitive
commission rates and spreads, payment of the lowest commission or spread is not
necessarily consistent with the best net results. While the Funds may engage in
soft dollar arrangements for research services, as described below, the Funds
have no obligation to deal with any broker/dealer or group of broker/dealers in
the execution of portfolio transactions.
Debt securities generally are traded on a "net" basis with a dealer
acting as principal for its own account without a stated commission, although
the price of the security usually includes a profit to the dealer. U.S. and
foreign government securities and money market instruments generally are traded
in the OTC markets. In underwritten offerings, securities usually are purchased
at a fixed price which includes an amount of compensation to the underwriter. On
occasion, securities may be purchased directly from an issuer, in which case no
commissions or discounts are paid. Broker/dealers may receive commissions on
futures, currency and options transactions.
Consistent with the interests of each Fund, the Sub-advisor may select
brokers to execute a Fund's portfolio transactions, on the basis of the research
and brokerage services they provide to the Sub-advisor for its use in managing
the Fund and its other advisory accounts. Such services may include furnishing
analyses, reports and information concerning issuers, industries, securities,
geographic regions, economic factors and trends, portfolio strategy, and
performance of accounts; and effecting securities transactions and performing
functions incidental thereto (such as clearance and settlement). Broker/dealers
may communicate such information electronically, orally, in written form or on
computer software. Research and brokerage services received from such brokers
are in addition to, and not in lieu of, the services required to be performed by
the Sub-advisor under the investment management and administration contracts. A
commission paid to such brokers may be higher than that which another qualified
broker would have charged for effecting the same transaction, provided that the
Sub-advisor determines in good faith that such commission is reasonable in terms
either of that particular transaction or the overall responsibility of the
Sub-advisor to a Fund and its other clients and that the total commissions paid
by the Fund will be reasonable in relation to
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the benefits it received over the long term. Research services may also be
received from dealers who execute Fund transactions in OTC markets.
The Sub-advisor may allocate brokerage transactions to broker/dealers
who have entered into arrangements under which the broker/dealer allocates a
portion of the commissions paid by a Fund toward payment of the Fund's expenses,
such as transfer agent and custodian fees.
Investment decisions for each Fund and for other investment accounts
managed by the Sub-advisor are made independently of each other in light of
differing conditions. However, the same investment decision occasionally may be
made for two or more of such accounts including the Funds. In such cases,
simultaneous transactions may occur.
Purchases or sales are then allocated as to price or amount in a manner
deemed fair and equitable to all accounts involved. While in some cases this
practice could have a detrimental effect upon the price or value of the security
as far as a Fund is concerned, in other cases, the Sub-advisor believes that
coordination and the ability to participate in volume transactions will be
beneficial to that Fund.
Under a policy adopted by the Trust's Board of Trustees, and subject to
the policy of obtaining the best net results, the Sub-advisor may consider a
broker/dealer's sale of the shares of a Fund and the other funds for which AIM
or the Sub-advisor serves as investment manager in selecting brokers and dealers
for the execution of portfolio transactions. This policy does not imply a
commitment to execute portfolio transactions through all broker/dealers that
sell shares of the Funds and such other funds.
Each Fund contemplates purchasing most foreign equity securities in
over-the-counter markets or stock exchanges located in the countries in which
the respective principal offices of the issuers of the various securities are
located, if that is the best available market. The fixed commissions paid in
connection with most such foreign stock transactions generally are higher than
negotiated commissions on U.S. transactions. There generally is less government
supervision and regulation of foreign stock exchanges and brokers than in the
United States. Foreign security settlements may in some instances be subject to
delays and related administrative uncertainties.
Foreign equity securities may be held by each Fund in the form of ADRs,
ADSs, EDRs, GDRs, CDRs or securities convertible into foreign equity securities.
ADRs, ADSs, EDRs, GDRs and CDRs may be listed on stock exchanges, or traded in
the OTC markets in the United States or Europe, as the case may be. ADRs, like
other securities traded in the United States, will be subject to negotiated
commission rates. The foreign and domestic debt securities and money market
instruments in which a Fund may invest generally are traded in the OTC markets.
Each Fund contemplates that, consistent with the policy of obtaining
the best net results, brokerage transactions may be conducted through certain
companies affiliated with AIM or the Sub-advisor. The Trust's Board of Trustees
has adopted procedures in conformity with Rule 17e-1 under the 1940 Act to
ensure that all brokerage commissions paid to such affiliates are reasonable and
fair in the context of the market in which they are operating. Any such
transactions will be effected and related compensation paid only in accordance
with applicable SEC regulations.
The Funds may engage in certain principal and agency transactions with
banks and their affiliates that own 5% or more of the outstanding voting
securities of a Fund, provided the conditions of an exemptive order received by
the Funds from the SEC are met. In addition, a Fund may purchase or sell a
security from or to another AIM Fund provided the Funds follow procedures
adopted by the Boards of Directors/Trustees of the various AIM Funds, including
the Trust. These inter-fund transactions do not generate brokerage commissions
but may result in custodial fees or taxes or other related expenses.
For the fiscal years ended October 31, 1999 and 1998, Developing
Markets Fund paid aggregate brokerage commissions of $732,921 and $1,409,401,
and for the fiscal year ended October 31, 1997, the
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Predecessor Fund paid aggregate brokerage commissions of $2,212,022. For the
fiscal years ended October 31, 1999, 1998 and 1997, Latin American Fund paid
aggregate brokerage commissions of $252,182, $700,006 and $2,719,660,
respectively.
PORTFOLIO TRADING AND TURNOVER
Each Fund engages in portfolio trading when the Sub-advisor has
concluded that the sale of a security owned by the Fund and/or the purchase of
another security of better value can enhance principal and/or increase income. A
security may be sold to avoid any prospective decline in market value, or a
security may be purchased in anticipation of a market rise. Consistent with each
Fund's investment objective, a security also may be sold and a comparable
security purchased coincidentally in order to take advantage of what is believed
to be a disparity in the normal yield and price relationship between the two
securities. Although none of the Funds generally intends to trade for short-term
profits, the securities in a Fund's portfolio will be sold whenever management
believes it is appropriate to do so, without regard to the length of time a
particular security may have been held. Portfolio turnover rate is calculated by
dividing the lesser of sales or purchases of portfolio securities by a Fund's
average month-end portfolio values, excluding short-term investments. The
portfolio turnover rate will not be a limiting factor when the Sub-advisor deems
portfolio changes appropriate. Higher portfolio turnover involves
correspondingly greater brokerage commissions and other transaction costs that a
Fund will bear directly and may result in the realization of net capital gains
that are taxable when distributed to that Fund's shareholders.
The portfolio turnover rates for Developing Markets Fund and Latin
American Fund the last two fiscal years were as follows:
YEAR ENDED YEAR ENDED
OCT. 31, OCT. 31,
1999 1998
---- ----
Developing Markets Fund .......... 125% 111%
Latin American Fund .............. 30% 39%
High portfolio turnover (over 100%) involves correspondingly greater
brokerage commissions and other transaction costs that the Fund will bear
directly and could result in the realization of net capital gains which would be
taxable when distributed to shareholders. See "Dividends, Distributions and Tax
Matters."
MANAGEMENT
The Trust's Board of Trustees has overall responsibility for the
operation of the Funds. The Trust's Board of Trustees has approved all
significant agreements between the Trust on the one side and persons or
companies furnishing services to the Fund on the other, including the investment
management and administration agreement with AIM, the investment sub-advisory
agreement between AIM and the Sub-advisor, the agreements with AIM Distributors
regarding distribution of the Fund's shares, the custody agreement and the
transfer agency agreement. The day-to-day operations of the Fund are delegated
to the officers of the Trust, subject always to the investment objectives and
policies of the Fund and to the general supervision of the Trust's Board of
Trustees. Certain trustees and officers of the Trust are affiliated with AIM and
AIM Management Group Inc. ("AIM Management"), the parent corporation of AIM.
TRUSTEES AND EXECUTIVE OFFICERS
The Trust's Trustees and Executive Officers are listed below. Unless
otherwise indicated, the address of each Executive Officer is 11 Greenway Plaza,
Suite 100, Houston, Texas 77046.
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======================================= ================= ==============================================================
POSITIONS
HELD WITH PRINCIPAL OCCUPATION WITH REGISTRANT
NAME, ADDRESS AND AGE REGISTRANT
- --------------------------------------- ----------------- --------------------------------------------------------------
*ROBERT H. GRAHAM (53) Trustee, Director, President and Chief Executive Officer, A I M
Chairman and Management Group, Inc.; Director and President,
President A I M Advisors, Inc.; Director and Senior Vice President,
A I M Capital Management, Inc., A I M Distributors, Inc.,
A I M Fund Services, Inc. and Fund Management Company; and
Director and Chief Executive Officer, Managed Products,
AMVESCAP PLC.
- --------------------------------------- ----------------- --------------------------------------------------------------
C. DEREK ANDERSON (58) Trustee Senior Managing Partner, Plantagenet Capital Management, LLC
220 Sansome Street (an investment partnership); Chief Executive Officer,
Suite 400 Plantagenet Holdings, Ltd. (an investment banking firm); and
San Francisco, CA 94104 Director, Premium Wear, Inc. (formerly Munsingwear, Inc.) (a
casual apparel company), "R" Homes, Inc., Big Online Inc.,
Champagne Albert Le Brun and various other privately owned
companies.
- --------------------------------------- ----------------- --------------------------------------------------------------
FRANK S. BAYLEY (60) Trustee Partner, law firm of Baker & McKenzie; Director and
Two Embarcadero Center Chairman, C.D. Stimson Company (a private investment
Suite 2400 company) and Stimson Marina, Inc., (a subsidiary of C.D.
San Francisco, CA 94111 Stimson Company); and Trustee, The Badgley Funds.
- --------------------------------------- ----------------- --------------------------------------------------------------
RUTH H. QUIGLEY (65) Trustee Private investor; and President, Quigley Friedlander & Co.,
1055 California Street Inc. (a financial advisory services firm) from 1984 to 1986.
San Francisco, CA 94108
- --------------------------------------- ----------------- --------------------------------------------------------------
SAMUEL D. SIRKO (40) Vice President Vice President, Assistant General Counsel and Assistant
and Secretary Secretary, A I M Advisors, Inc.; and Assistant General
Counsel and Assistant Secretary, A I M Management Group,
Inc., A I M Capital Management, Inc., A I M Distributors,
Inc., A I M Fund Services, Inc. and Fund Management Company.
- --------------------------------------- ----------------- --------------------------------------------------------------
MELVILLE B. COX (56) Vice President Vice President and Chief Compliance Officer, A I M Advisors,
Inc., A I M Capital Management, Inc., A I M Distributors,
Inc., A I M Fund Services, Inc. and Fund Management Company.
======================================= ================= ==============================================================
- --------------
* A trustee who is an "Interested person" of the Trust and A I M Advisors,
Inc. as defined in the 1940 Act.
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======================================= ================= ==============================================================
POSITIONS
HELD WITH PRINCIPAL OCCUPATION WITH REGISTRANT
NAME, ADDRESS AND AGE REGISTRANT
- --------------------------------------- ----------------- --------------------------------------------------------------
GARY T. CRUM (52) Vice President Director and President, A I M Capital Management, Inc.;
Director and Executive Vice President, A I M Management
Group Inc.; Director and Senior Vice President, A I M
Advisors, Inc.; and Director, A I M Distributors, Inc. and
AMVESCAP PLC.
- --------------------------------------- ----------------- --------------------------------------------------------------
CAROL F. RELIHAN (45) Vice President Director, Senior Vice President, General Counsel and
Secretary, A I M Advisors, Inc.; Senior Vice President,
General Counsel and Secretary, A I M Management Group Inc.;
Director, Vice President and General Counsel, Fund
Management Company; Vice President and General Counsel,
A I M Fund Services, Inc.; and Vice President, A I M Capital
Management, Inc. and A I M Distributors, Inc.
- --------------------------------------- ----------------- --------------------------------------------------------------
DANA R. SUTTON (41) Vice President Vice President and Fund Controller, A I M Advisors, Inc.;
and Treasurer and Assistant Vice President and Assistant Treasurer, Fund
Management Company.
======================================= ================= ==============================================================
The Board of Trustees has a Nominating and Audit Committee, comprised
of Miss Quigley (Chairman) and Messrs. Anderson and Bayley, which is responsible
for nominating persons to serve as Trustees, reviewing audits of the Trust and
its funds and recommending firms to serve as independent auditors for the Trust.
All of the Trust's Trustees also serve as directors or trustees of some or all
of the other investment companies managed, administered or advised by AIM. All
of the Trust's executive officers hold similar offices with some or all of the
other investment companies managed, administered or advised by AIM.
Each Trustee who is not a director, officer or employee of AIM and/or
the Sub-advisor or any affiliated company is paid an annual retainer component
plus a per-meeting fee component, and reimbursed travel and other expenses
incurred in connection with attendance at such meetings. Other Trustees and
Officers receive no compensation or expense reimbursement from the Trust. For
the fiscal year ended October 31, 1999, Mr. Anderson, Mr. Bayley, Mr. Arthur C.
Patterson (a trustee until September 27, 1999, when he retired) and Miss
Quigley, who are not trustees, officers or employees of the Sub-advisor or any
affiliated company, received total compensation of $50,353, $51,376, $45,584 and
$51,376, respectively, from the Trust for their services as Trustees. For the
fiscal year ended October 31, 1999, Mr. Anderson, Mr. Bayley, Mr. Patterson and
Miss Quigley, who are not directors, officers or employees of the Sub-advisor or
any other affiliated company, received total compensation of $101,833, $103,833,
$93,583 and $103,083, respectively, from the investment companies managed or
administered by AIM and sub-advised or sub-administered by the Sub-advisor for
which he or she serves as a Director or Trustee. Fees and expenses disbursed to
the Trustees contained no accrued or payable pension or retirement benefits.
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES
AIM, 11 Greenway Plaza, Suite 100, Houston, Texas 77046, was organized
in 1976 and, together with its subsidiaries, manages or advises approximately
120 investment portfolios encompassing a broad range of investment objectives.
INVESCO Asset Management Limited, 11 Devonshire Square, London, EC2M 4YR,
England, has provided investment management and/or administrative services to
pension funds, insurance funds, index funds, unit trusts, offshore funds and a
variety of institutional accounts since 1967.
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AIM, the Sub-advisor and their world-wide asset management affiliates provide
investment management and/or administrative services to institutional, corporate
and individual clients around the world.
AIM is a direct, wholly owned subsidiary of AIM Management, a holding
company that has been engaged in the financial services business since 1976. AIM
is also the sole shareholder of the Funds' principal underwriter, AIM
Distributors.
AIM Management, AIM and the Sub-Advisor are indirect wholly owned
subsidiaries of AMVESCAP PLC, 11 Devonshire Square, London, EC2M 4YR, England.
AMVESCAP PLC and its subsidiaries are an independent management group that has a
significant presence in the institutional and retail segment of the investment
management industry in North America and Europe, and a growing presence in Asia.
Certain of the directors and officers of AIM are also executive officers of the
Trust and their affiliations are shown under "Management" herein.
In addition to the investment resources of their Houston and London
offices, AIM and the Sub-advisor draw upon the expertise, personnel, data and
systems of other offices in Atlanta, Boston, Dallas, Denver, Louisville, Miami,
New York, Portland (Oregon), Frankfurt, Hong Kong, Singapore, Sydney, Tokyo and
Toronto. In managing the Funds and the Portfolio, AIM and the Sub-advisor employ
a team approach, taking advantage of their investment resources around the
world.
AIM and Trust have adopted a Code of Ethics (the "Code of Ethics")
which requires investment personnel and certain other employees (a) to pre-clear
all personal securities transactions subject to the Code of Ethics, (b) to file
reports or duplicate confirmations regarding such transactions, (c) to refrain
from personally engaging in (i) short-term trading of a security (ii)
transactions involving a security within seven days of an AIM Fund transaction
involving the same security, unless the security qualifies for the De minimus
exemption. The De minimus exemption would allow the trade if the issuer of the
security has a market capitalization of $2 billion or more. In addition such a
request can only be granted once every thirty days for no more than 2,000 shares
total, and (iii) transactions involving securities being considered for
investment by an AIM Fund, unless the security qualifies for the De minimus
exemption, as previously explained, for which the personal security trade would
be allowed even if the security is being considered for investment by an AIM
Fund and (d) abide by certain other provisions under the Code of Ethics. The
Code of Ethics also prohibits employees who are registered with the NASD from
purchasing securities in an initial public offering. Personal trading reports
are reviewed periodically by AIM, and the Board of Trustees review quarterly and
annual reports (including information on any substantial violations of the Code
of Ethics). Sanctions for violations of the Code of Ethics may include censure,
monetary penalties, suspension or termination of employment.
AIM serves as each Fund's investment manager and administrator under an
investment management and administration contract ("Management Contract")
between the Trust and AIM. The Sub-advisor serves as the sub-advisor to each
Fund under a sub-advisory contract between AIM and the Sub-advisor
("Sub-Management Contract," and together with the Management Contract, the
"Management Contracts"). As investment managers and administrators, AIM and the
Sub-advisor make all investment decisions for the Funds and administer each
Fund's affairs. AIM and the Sub-advisor also determine the composition of each
Fund's portfolio, places orders to buy, sell or hold particular securities and
supervise all matters relating to each Fund's operation. Among other things, AIM
and the Sub-advisor furnish the services and pay the compensation and travel
expenses of persons who perform the executive, administrative, clerical and
bookkeeping functions of the Trust and the Funds, and provide suitable office
space, necessary small office equipment and utilities.
For these services, each Fund pays AIM investment management and
administration fees, computed daily and paid monthly, based on its average daily
net assets, at the annualized rate of 0.975% on the first $500 million, 0.95% on
the next $500 million, 0.925% on the next $500 million and 0.90% on the amounts
thereafter. AIM pays the Sub-advisor sub-advisory fees computed weekly and paid
monthly, based on each Fund's average daily net assets, at the annualized rate
of 0.39% of the first $500 million, 0.38% on the next
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$500 million, 0.37% on the next $500 million, and 0.36% on the amounts
thereafter. The investment management and administration fees paid by the Funds
are higher than those paid by most mutual funds. The Funds pay all expenses not
assumed by AIM, the Sub-advisor, AIM Distributors or other agents. AIM has
undertaken to limit each Fund's expenses (exclusive of brokerage commissions,
taxes, interest and extraordinary expenses) to the annual rate of 2.00%, 2.50%
and 2.50% of the average daily net assets of each Fund's Class A, Class B and
Class C shares, respectively, until June 30, 2000.
The Management Contracts for each Fund may be renewed for one-year
terms, provided that any such renewal has been specifically approved at least
annually by (i) the Trust's Board of Trustees, or by the vote of a majority of a
Fund's outstanding voting securities (as defined in the 1940 Act) and (ii) a
majority of Trustees who are not parties to the Management Contracts or
"interested persons" of any such party (as defined in the 1940 Act), cast in
person at a meeting called for the specific purpose of voting on such approval.
The Management Contracts provide that with respect to each Fund, the Trust or
each of AIM or the Sub-advisor may terminate the Management Contracts without
penalty upon sixty days' written notice. The Management Contracts terminate
automatically in the event of their assignment (as defined in the 1940 Act).
AIM may from time to time waive or reduce its fee. Voluntary fee
waivers or reductions may be rescinded at any time without further notice to
investors. During periods of voluntary fee waivers or reductions, AIM will
retain its ability to be reimbursed for such fee prior to the end of each fiscal
year. Contractual fee waivers or reductions set forth in the Fee Table in a
Prospectus may not be terminated or amended to the Funds' detriment during the
period stated in the agreement between AIM and the Fund.
In placing securities for a Fund's portfolio transactions, the
Sub-advisor seeks to obtain the best net results. Consistent with its obligation
to obtain the best net results, the Sub-advisor may consider a broker/dealer's
sale of shares of the AIM Funds as a factor in considering through whom
portfolio transactions will be effected. Brokerage transactions may be executed
through affiliates of AIM or the Sub-advisor.
AIM became investment manager and administrator to the Funds effective
June 1, 1998. Prior to that date, Chancellor LGT Asset Management, Inc. served
as investment manager and administrator.
For the fiscal years ended October 31, 1999, 1998 and 1997, each Fund
paid AIM and the prior manager and administrator the following net investment
management and administration fees:
1999 1998 1997
---- ---- ----
Developing Markets Fund* .......... $ 813,308 $1,049,576 $7,383,823
Latin American Fund ............... 379,902 1,738,497 3,538,586
o The Predecessor Fund of Developing Markets Fund paid the investment
management and administration fees for the fiscal year ended October
31, 1997.
For the fiscal year ended October 31, 1999 and 1998, AIM waived
management fees for Developing Markets Fund in the amounts of $747,433 and
$691,157, respectively, and Latin American Fund in the amounts of $572,144 and
$297,829, respectively.
INVESCO Asset Management Limited became sub-advisor to the Funds
effective June 1, 1998. Prior to that date, INVESCO Asset Management Limited's
predecessor served as sub-advisor.
For the fiscal years ended October 31, 1999, 1998 and 1997, AIM and the
prior investment manager and administrator paid, with respect to the Funds, the
following sub-advisory fees:
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1999 1998 1997
---- ---- ----
Developing Markets Fund ...... $ 325,323 $419,830 $2,953,529
Latin American Fund .......... 151,961 695,399 1,415,434
AIM also serves as the Funds' pricing and accounting agent pursuant to
the Master Accounting Services Agreement. For these services, the Funds' pay AIM
such fees as are determined in accordance with methodologies established, from
time to time, by the Trust's Board of Trustees.
For the fiscal years ended October 31, 1999, 1998 and 1997, each Fund
paid the current and former advisers the following accounting services fees:
1999 1998 1997
---- ---- ----
Developing Markets Fund* ..... $ 42,462 $ 53,782 $ 108,484
Latin American Fund .......... 38,349 55,950 90,733
* The Predecessor Fund of Developing Markets Fund paid the accounting
services fees for the fiscal year ended October 31, 1997.
THE DISTRIBUTION PLANS
THE CLASS A AND C PLAN
The Trust has adopted a Master Distribution Plan pursuant to Rule 12b-1
under the 1940 Act relating to the Class A and Class C shares of the Funds (the
"Class A and C Plan"). The Class A and C Plan provides that the Class A shares
of each Fund pays 0.50% per annum of the average daily net assets attributable
to Class A shares as compensation to AIM Distributors for the purpose of
financing any activity which is primarily intended to result in the sale of
Class A shares. Under the Class A and C Plan, Class C shares of each fund pay
compensation to AIM Distributors at an annual rate of 1.00% of the average daily
net assets attributable to Class C shares. The Class A and C Plan is designed to
compensate AIM Distributors, on a quarterly basis, for certain promotional and
other sales-related costs, and to implement a dealer incentive program which
provides for periodic payments to selected dealers who furnish continuing
personal shareholder services to their customers who purchase and own Class A or
Class C shares of a Fund. Payments can also be directed by AIM Distributors to
selected institutions who have entered into service agreements with respect to
Class A and Class C shares of each Fund and who provide continuing personal
services to their customers who own Class A and Class C shares of the Fund. The
service fees payable to selected institutions are calculated at the annual rate
of 0.25% of the average daily net asset value of those Fund shares that are held
in such institution's customers' accounts which were purchased on or after a
prescribed date set forth in the Plan. Activities appropriate for financing
under the Class A and C Plan include, but are not limited to, the following:
printing of prospectuses and statements of additional information and reports
for other than existing shareholders; overhead; preparation and distribution of
advertising material and sales literature; expenses of organizing and conducting
sales seminars; supplemental payments to dealers and other institutions such as
asset-based sales charges or as payments of service fees under shareholder
service arrangements; and costs of administering the Class A and C Plan.
Of the aggregate amount payable under the Class A and C Plan, payments
to dealers and other financial institutions that provide continuing personal
shareholder services to their customers who purchase and own shares of the Fund,
in amounts of up to 0.25% of the average net assets of the Fund attributable to
the customers of such dealers or financial institutions are characterized as a
service fee, and payments to dealers and other financial institutions in excess
of such amount and payments to AIM Distributors would be characterized as an
asset-based sales charge pursuant to the Class A and C Plan. The Class A and C
Plan also imposes a cap on the total amount of sales charges, including
asset-based sales charges, that may be
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paid by the Trust with respect to the Fund. The Class A and C Plan does not
obligate the Fund to reimburse AIM Distributors for the actual expenses AIM
Distributors may incur in fulfilling its obligations under the Class A and C
Plan on behalf of the Fund. Thus, under the Class A and C Plan, even if AIM
Distributors' actual expenses exceed the fee payable to AIM Distributors
thereunder at any given time, the Fund will not be obligated to pay more than
that fee. If AIM Distributors' expenses are less than the fee it receives, AIM
Distributors will retain the full amount of the fee.
THE CLASS B PLAN
The Trust has also adopted a Master Distribution Plan pursuant to Rule
12b-1 under the 1940 Act relating to Class B shares of the Funds (the "Class B
Plan", and collectively with the Class A and C Plan, the "Plans"). Under the
Class B Plan, each Fund pays compensation to AIM Distributors at an annual rate
of 1.00% of the average daily net assets attributable to Class B shares. Of such
amount, each Fund pays a service fee of 0.25% of the average daily net assets
attributable to Class B shares to selected dealers and other institutions which
furnish continuing personal shareholder services to their customers who purchase
and own Class B shares. Any amounts not paid as a service fee would constitute
an asset-based sales charge. Amounts paid in accordance with the Class B Plan
may be used to finance any activity primarily intended to result in the sale of
Class B shares, including but not limited to printing of prospectuses and
statements of additional information and reports for other than existing
shareholders; overhead; preparation and distribution of advertising material and
sales literature; expenses of organizing and conducting sales seminars;
supplemental payments to dealers and other institutions such as asset-based
sales charges or as payments of service fees under shareholder service
arrangements; and costs of administering the Class B Plan.
BOTH PLANS
Pursuant to an incentive program, AIM Distributors may enter into
agreements ("Shareholder Service Agreements") with investment dealers selected
from time to time by AIM Distributors for the provision of distribution
assistance in connection with the sale of the Funds' shares to such dealers'
customers, and for the provision of continuing personal shareholder services to
customers who may from time to time directly or beneficially own shares of the
Funds. The distribution assistance and continuing personal shareholder services
to be rendered by dealers under the Shareholder Service Agreements may include,
but shall not be limited to, the following: distributing sales literature;
answering routine customer inquiries concerning the Funds; assisting customers
in changing dividend options, account designations and addresses, and in
enrolling in any of the several special investment plans offered in connection
with the purchase of the Funds' shares; assisting in the establishment and
maintenance of customer accounts and records and in the processing of purchase
and redemption transactions; investing dividends and any capital gains
distributions automatically in the Funds' shares; and providing such other
information and services as the Funds or the customer may reasonably request.
Under the Plans, in addition to the Shareholder Service Agreements
authorizing payments to selected dealers, banks may enter into Shareholder
Service Agreements authorizing payments under the Plans to be made to banks
which provide services to their customers who have purchased shares. Services
provided pursuant to Shareholder Service Agreements with banks may include some
or all of the following: answering shareholder inquiries regarding the Funds;
performing sub-accounting; establishing and maintaining shareholder accounts and
records; processing customer purchase and redemption transactions; providing
periodic statements showing a shareholder's account balance and the integration
of such statements with those of other transactions and balances in the
shareholder's other accounts serviced by the bank; forwarding applicable
prospectuses, proxy statements, reports and notices to bank clients who hold
Fund shares; and such other administrative services as the Funds reasonably may
request, to the extent permitted by applicable statute, rule or regulation.
Similar agreements may be permitted under the Plans for institutions which
provide recordkeeping for and administrative services to 401(k) plans.
Financial intermediaries and any other person entitled to receive
compensation for selling Fund shares may receive different compensation for
selling shares of one particular class over another.
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Under a Shareholder Service Agreement, each Fund agrees to pay
periodically fees to selected dealers and other institutions who render the
foregoing services to their customers. The fees payable under a Shareholder
Service Agreement generally will be calculated at the end of each payment period
for each business day of the Funds during such period at the annual rate of
0.25% of the average daily net asset value of the Funds' shares purchased or
acquired through exchange. Fees calculated in this manner shall be paid only to
those selected dealers or other institutions who are dealers or institutions of
record at the close of business on the last business day of the applicable
payment period for the account in which each Fund's shares are held.
Payments pursuant to the Plans are subject to any applicable
limitations imposed by rules of the National Association of Securities Dealers,
Inc. ("NASD"). The Plans conform to rules of the NASD by limiting payments made
to dealers and other financial institutions who provide continuing personal
shareholder services to their customers who purchase and own shares of the Funds
to no more than 0.25% per annum of the average daily net assets of the Funds
attributable to the customers of such dealers or financial institutions, and by
imposing a cap on the total sales charges, including asset based sales charges,
that may be paid by the Funds and their respective classes.
AIM Distributors may from time to time waive or reduce any portion of
its 12b-1 fee for Class A and Class C shares. Voluntary fee waivers or
reductions may be rescinded at any time without further notice to investors.
During periods of voluntary fee waivers or reductions, AIM Distributors will
retain its ability to be reimbursed for such fee prior to the end of each fiscal
year. Contractual fee waivers or reductions set forth in the Fee Table in a
Prospectus may not be terminated or amended to the Funds' detriment during the
period stated in the agreement between AIM Distributors and the Fund.
Under the Plans, certain financial institutions which have entered into
service agreements and which sell shares of the Fund on an agency basis, may
receive payments from the Funds pursuant to the respective Plans. AIM
Distributors does not act as principal, but rather as agent for the Funds, in
making dealer incentive and shareholder servicing payments under the Plans.
These payments are an obligation of the Funds and not of AIM Distributors.
Financial intermediaries and any other person entitled to receive compensation
for selling Fund shares may receive different compensation for selling shares of
one class over another.
Prior to June 1, 1998, GT Global Inc. was the distributor of the Funds.
For the fiscal year ended October 31, 1999 for Class A and Class B
shares, and for the period March 1, 1999 (date operations commenced) through
October 31, 1999 for Class C shares, each Fund paid the following amounts under
the Plans:
% OF CLASS
AVERAGE DAILY
NET ASSETS
----------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
------- ------- ------- ------- ------- -------
Developing Markets Fund $ 439,522 $ 357,273 $ 1,425 .50% 1.00% 1.00%
Latin American Fund 273,567 422,771 713 .50% 1.00% 1.00%
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An estimate by category of actual fees paid by each Fund with regard to
the Class A shares during the fiscal year ended October 31, 1999 follows:
DEVELOPING LATIN
MARKETS AMERICAN
FUND FUND
------------ ------------
CLASS A
Advertising ...................................... $ 163,422 $ 38,119
Printing and Mailing prospectuses,
semi-annual reports and annual
reports (other than to current
shareholders) ................................. 16,163 3,186
Seminars ......................................... 44,896 13,768
Compensation to Underwriters to partially
offset other marketing expenses ............... 0 0
Compensation to Dealers including Finder's Fees .. 215,041 218,494
Compensation to Sales Personnel .................. 0 0
Annual Report Total .............................. $ 439,522 $ 273,567
An estimate by category of actual fees paid by each Fund with regard to
the Class B shares during the year ended October 31, 1999 as follows:
DEVELOPING LATIN
MARKETS AMERICAN
FUND FUND
---------- ----------
CLASS B
Advertising ...................................... $ 3,756 $ 3,355
Printing and Mailing prospectuses,
semi-annual reports and annual reports
(other than to current shareholders) .......... 371 332
Seminars ......................................... 1,376 922
Compensation to Underwriters to partially
offset other marketing expenses ............... 267,954 317,078
Compensation to Dealers .......................... 83,816 101,084
Compensation to Sales Personnel .................. 0 0
Annual Report Total .............................. $ 357,273 $ 422,771
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An estimate by category of actual fees paid by each Fund with regard to
the Class C shares for the period March 1, 1999 (date operations commenced)
through October 31, 1999 as follows:
DEVELOPING LATIN
MARKETS AMERICAN
FUND FUND
---------- ----------
CLASS C
Advertising ...................................... $ 272 $ 80
Printing and Mailing prospectuses,
semi-annual reports and annual reports
(other than to current shareholders) .......... 0 0
Seminars ......................................... 0 0
Compensation to Underwriters to partially
offset other marketing expenses ............... 1,069 535
Compensation to Dealers .......................... 84 98
Compensation to Sales Personnel .................. 0 0
Annual Report Total .............................. $ 1,425 $ 713
The Plans require AIM Distributors to provide the Board of Trustees at
least quarterly with a written report of the amounts expended pursuant to the
Plans and the purposes for which such expenditures were made. The Board of
Trustees reviews these reports in connection with their decisions with respect
to the Plans.
As required by Rule 12b-1, the Plans and related forms of Shareholder
Service Agreements were approved by the Board of Trustees, including a majority
of the Trustees who are not "interested persons" (as defined in the 1940 Act) of
the Trust and who have no direct or indirect financial interest in the operation
of the Plans or in any agreements related to the Plans ("Qualified Trustees").
In approving the Plans in accordance with the requirements of Rule 12b-1, the
Trustees considered various factors and determined that there is a reasonable
likelihood that the Plans would benefit each class of each Fund and their
respective shareholders.
The Plans do not obligate the Funds to reimburse AIM Distributors for
the actual expenses AIM Distributors may incur in fulfilling its obligations
under the Plans. Thus, even if AIM Distributors' actual expenses exceed the fee
payable to AIM Distributors thereunder at any given time, the Funds will not be
obligated to pay more than that fee. If AIM Distributors' expenses are less than
the fee it receives, AIM Distributors will retain the full amount of the fee.
Unless terminated earlier in accordance with their terms, the Plans
continue in effect from year to year, as long as such continuance is
specifically approved at least annually by the Board of Trustees, including a
majority of the Qualified Trustees.
The Plans may be terminated by the vote of a majority of the Qualified
Trustees, or, with respect to a particular class, by the vote of a majority of
the outstanding voting securities of that class.
Any change in the Plans that would increase materially the distribution
expenses paid by the applicable class requires shareholder approval; otherwise,
it may be amended by the Trustees, including a majority of the Qualified
Trustees, by votes cast in person at a meeting called for the purpose of voting
upon such amendment. As long as the Plans are in effect, the selection or
nomination of the Qualified Trustees is committed to the discretion of the
Qualified Trustees. In the event the Class A and C Plan is amended in a manner
which the Board of Trustees determines would materially increase the charges
paid under the Class A and C Plan, the Class B shares of the Funds will no
longer convert into Class A shares of the same Funds unless the Class B shares,
voting separately, approve such amendment. If the Class B shareholders do not
approve such amendment, the Board of Trustees will (i) create a new class of
shares of the Funds which is
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identical in all material respects to the Class A shares as they existed prior
to the implementation of the amendment and (ii) ensure that the existing Class B
shares of the Funds will be exchanged or converted into such new class of shares
no later than the date the Class B shares were scheduled to convert into Class A
shares.
The principal differences between the Class A and C Plan and the Class
B Plan are: (i) the Class A and C Plan allows payment to AIM Distributors or to
dealers or financial institutions of up to 0.50% of average daily net assets of
the Class A shares of each Fund, as compared to 1.00% of such assets of each
Fund's Class B shares; (ii) the Class B Plan obligates the Class B shares to
continue to make payments to AIM Distributors following termination of the Class
B shares Distribution Agreement with respect to Class B shares sold by or
attributable to the distribution efforts of AIM Distributors or its predecessor,
GT Global, Inc. unless there has been a complete termination of the Class B Plan
(as defined in such Plan) and (iii) the Class B Plan expressly authorizes AIM
Distributors to assign, transfer or pledge its rights to payments pursuant to
the Class B Plan.
THE DISTRIBUTOR
The Trust has entered into a Master Distribution Agreement with AIM
Distributors relating to the Class A shares and Class C shares of the Funds and
a Master Distribution Agreement with AIM Distributors relating to the Class B
shares of the Funds. Such Master Distribution Agreements are hereinafter
collectively referred to as the "Distribution Agreements."
The Distribution Agreements provide that AIM Distributors will bear the
expenses of printing from the final proof and distributing the Funds'
prospectuses and statements of additional information relating to public
offerings made by AIM Distributors pursuant to the Distribution Agreements
(other than those prospectuses and statements of additional information
distributed to existing shareholders of the Fund), and any promotional or sales
literature used by AIM Distributors or furnished by AIM Distributors to dealers
in connection with the public offering of the Fund's shares, including expenses
of advertising in connection with such public offerings. AIM Distributors has
not undertaken to sell any specified number of shares of any classes of the
Funds.
The Distribution Agreements provide AIM Distributors with the exclusive
right to distribute shares of the Funds directly and through institutions with
whom AIM Distributors has entered into selected dealer agreements. Under the
Distribution Agreement for the Class B shares, AIM Distributors sells Class B
shares of the Funds at net asset value subject to a contingent deferred sales
charge established by AIM Distributors. AIM Distributors is authorized to
advance to institutions through whom Class B shares are sold a sales commission
under schedules established by AIM Distributors. The Distribution Agreement for
the Class B shares provides that AIM Distributors (or its assignee or
transferee) will receive 0.75% (of the total 1.00% payable under the
distribution plan applicable to Class B shares) of each Fund's average daily net
assets attributable to Class B shares attributable to the sales efforts of AIM
Distributors.
AIM Distributors expects to pay sales commissions from its own
resources to dealers and institutions who sell Class B shares of the Funds at
the time of such sales. Payments with respect to Class B shares will equal 4.00%
of the purchase price of the Class B shares sold by the dealer or institution,
and will consist of a sales commission equal to 3.75% of the purchase price of
the Class B shares sold plus an advance of the first year service fee of 0.25%
with respect to such shares. The portion of the payments to AIM Distributors
under the Class B Plan which constitutes an asset-based sales charge (0.75%) is
intended in part to permit AIM Distributors to recoup a portion of such sales
commissions plus financing costs. AIM Distributors anticipates that it will
require a number of years to recoup from Class B Plan payments the sales
commissions paid to dealers and institutions in connection with sales of Class B
shares. In the future, if multiple distributors serve a Fund, each such
distributor (or its assignee or transferee) would receive a share of the
payments under the Class B Plan based on the portion of the Fund's Class B
shares sold by or attributable to the distribution efforts of that distributor.
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The Trust (on behalf of any class of any Fund) or AIM Distributors may
terminate the Distribution Agreements on sixty (60) days' written notice without
penalty. The Distribution Agreements will terminate automatically in the event
of their assignment. In the event the Class B shares Distribution Agreement is
terminated, AIM Distributors would continue to receive payments of asset based
distribution fees in respect of the outstanding Class B shares attributable to
the distribution efforts of AIM Distributors and its predecessor; provided,
however, that a complete termination of the Class B Plan (as defined in such
Plan) would terminate all payments by the Fund of asset based distribution fees
and service fees to AIM Distributors. Termination of the Class B Plan or
Distribution Agreement does not affect the obligation of Class B shareholders to
pay contingent deferred sales charges.
From time to time, AIM Distributors may transfer and sell its right to
payments under the Distribution Agreement relating to Class B shares in order to
finance distribution expenditures in respect of Class B shares.
The following chart reflects the total sales charges paid in connection
with the sale of Class A shares of each Fund and the amount retained by GT
Global, Inc., the Trust's distributor prior to June 1, 1998, for the fiscal year
or period ended October 31, 1998 and 1997.
NOVEMBER 1, 1997
TO MAY 31, 1998 1997
------------------------ ----
SALES AMOUNT SALES AMOUNT
CHARGES RETAINED CHARGES RETAINED
---------- ----------- ----------- ----------
Developing Markets Fund $ 0 $ 0 N/A N/A
Latin American Fund $ 47,006 $ 16,513 $ 168,598 $ 50,871
Developing Markets Fund and Latin American Fund pay AIM Distributors
sales charges on sales of Class A shares of the Funds. AIM Distributors retains
certain amounts of such charges and reallows other amounts of such charges to
broker/dealers who sell shares.
The following chart reflects the total sales charges paid in connection
with the sale of Class A shares of each Fund and the amount retained by AIM
Distributors for the fiscal year or period ended October 31, 1999 and 1998:
JUNE 1, 1998 TO
1999 OCTOBER 31, 1998
---- -----------------------
SALES AMOUNT SALES AMOUNT
CHARGES RETAINED CHARGES RETAINED
---------- ---------- ---------- ----------
Developing Markets Fund $ 69,225 $ 16,209 $ 819 $ 770
Latin American Fund $ 67,706 $ 12,934 $ 10,956 $ 10,703
The following chart reflects the contingent deferred sales charges paid
by Class A, Class B and Class C* shareholders for the fiscal years ended October
31, 1999, 1998 and 1997:
1999 1998 1997
---------- ---------- ----------
Developing Markets Fund $ 6,877 $ 4,252 N/A
Latin American Fund $ 536 $ 791,308 $ 923,769
- ---------------
* Class C shares of each Fund commenced operations on 03/01/99.
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Developing Markets Fund and Latin American Fund pay AIM Distributors a
contingent deferred sales charge with respect to redemptions of Class B shares
and certain Class A shares.
EXPENSES OF THE FUNDS
Each Fund pays all expenses not assumed by AIM, the Sub-advisor, AIM
Distributors and other agents. These expenses include, in addition to the
advisory, distribution, transfer agency, pricing and accounting agency and
brokerage fees discussed above, legal and audit expenses, custodian fees,
trustees' fees, organizational fees, fidelity bond and other insurance premiums,
taxes, extraordinary expenses and the expenses of reports and prospectuses sent
to existing investors. The allocation of general Trust expenses and expenses
shared among the Funds and other funds organized as series of the Trust are
allocated on a basis deemed fair and equitable, which may be based on the
relative net assets of the Funds or the nature of the services performed and
relative applicability to the Funds. Expenditures, including costs incurred in
connection with the purchase or sale of portfolio securities, which are
capitalized in accordance with generally accepted accounting principles
applicable to investment companies, are accounted for as capital items and not
as expenses. The ratio of each Fund's expenses to its relative net assets can be
expected to be higher than the expense ratios of funds investing solely in
domestic securities, since the cost of maintaining the custody of foreign
securities and the rate of investment management fees paid by each Fund
generally are higher than the comparable expenses of such other funds.
SALES CHARGES AND DEALER CONCESSIONS
CATEGORY I. Certain AIM Funds are currently sold with a sales charge
ranging from 5.50% to 2.00% of the offering price on purchases of less than
$1,000,000. These AIM Funds include Class A shares of each of AIM Advisor Flex
Fund, AIM Advisor International Value Fund, AIM Advisor Large Cap Value Fund,
AIM Aggressive Growth Fund, AIM Asian Growth Fund, AIM Basic Value Fund, AIM
Blue Chip Fund, AIM Capital Development Fund, AIM Charter Fund, AIM
Constellation Fund, AIM Dent Demographic Trends Fund, AIM European Development
Fund, AIM Euroland Growth Fund, AIM Global Utilities Fund, AIM Global Growth &
Income Fund, AIM International Equity Fund, AIM Japan Growth Fund, AIM Large Cap
Basic Value Fund, AIM Large Cap Growth Fund, AIM Large Cap Opportunities Fund,
AIM Mid Cap Equity Fund, AIM Mid Cap Growth Fund, AIM Mid Cap Opportunities
Fund, AIM New Pacific Growth Fund, AIM Select Growth Fund, AIM Small Cap Growth
Fund, AIM Small Cap Opportunities Fund, AIM Value Fund and AIM Weingarten Fund.
Dealer
Concession
Investor's Sales Charge ----------
------------------------------- As a
As a As a Percentage
Percentage Percentage of the
of the Public of the Net Public
Amount of Investment in Offering Amount Offering
Single Transaction(1) Price Invested Price
------------------------------- ------------- ----------- -----------
Less than $ 25,000 5.50% 5.82% 4.75%
$ 25,000 but less than $ 50,000 5.25 5.54 4.50
$ 50,000 but less than $ 100,000 4.75 4.99 4.00
$100,000 but less than $ 250,000 3.75 3.90 3.00
$250,000 but less than $ 500,000 3.00 3.09 2.50
$500,000 but less than $1,000,000 2.00 2.04 1.60
- ---------------------
(1) AIM Small Cap Opportunities Fund will not accept any single
purchase in excess of $250,000.
CATEGORY II. Certain AIM Funds are currently sold with a sales charge
ranging from 4.75% to 2.00% of the offering price on purchases of less than
$1,000,000. These AIM Funds are: the Class A shares
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of each of AIM Advisor Real Estate Fund, AIM Balanced Fund, AIM Developing
Markets Fund, AIM Emerging Markets Debt Fund, AIM Global Aggressive Growth Fund,
AIM Global Consumer Products and Services Fund, AIM Global Financial Services
Fund, AIM Global Government Income Fund, AIM Global Growth Fund, AIM Global
Health Care Fund, AIM Global Income Fund, AIM Global Infrastructure Fund, AIM
Global Resources Fund, AIM Global Telecommunications and Technology Fund, AIM
Global Trends Fund, AIM High Income Municipal Fund, AIM High Yield Fund, AIM
High Yield Fund II, AIM Income Fund, AIM Intermediate Government Fund, AIM Latin
American Growth Fund, AIM Municipal Bond Fund, AIM Strategic Income Fund and AIM
Tax-Exempt Bond Fund of Connecticut.
Dealer
Concession
Investor's Sales Charge ----------
--------------------------- As a
As a As a Percentage
Percentage Percentage of the
of the Public of the Net Public
Amount of Investment in Offering Amount Offering
Single Transaction Price Invested Price
----------------------- ------------- ---------- ----------
Less than $ 50,000 4.75% 4.99% 4.00%
$ 50,000 but less than $ 100,000 4.00 4.17 3.25
$100,000 but less than $ 250,000 3.75 3.90 3.00
$250,000 but less than $ 500,000 2.50 2.56 2.00
$500,000 but less than $1,000,000 2.00 2.04 1.60
CATEGORY III. Certain AIM Funds are currently sold with a sales charge
ranging from 1.00% to 0.50% of the offering price on purchases of less than
$1,000,000. These AIM Funds are the Class A shares of each of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund.
Dealer
Concession
Investor's Sales Charge ----------
--------------------------- As a
As a As a Percentage
Percentage Percentage of the
of the Public of the Net Public
Amount of Investment in Offering Amount Offering
Single Transaction Price Invested Price
----------------------- ------------- ---------- ----------
Less than $ 100,000 1.00% 1.01% 0.75%
$100,000 but less than $ 250,000 0.75 0.76 0.50
$250,000 but less than $1,000,000 0.50 0.50 0.40
There is no sales charge on purchases of $1,000,000 or more of Category
I, II or III funds; however, AIM Distributors may pay a dealer concession and/or
advance a service fee on such transactions as set forth below.
ALL GROUPS OF AIM FUNDS. AIM Distributors may elect to re-allow the
entire initial sales charge to dealers for all sales with respect to which
orders are placed with AIM Distributors during a particular period. Dealers to
whom substantially the entire sales charge is re-allowed may be deemed to be
"underwriters" as that term is defined under the Securities Act of 1933.
In addition to amounts paid to dealers as a dealer concession out of
the initial sales charge paid by investors, AIM Distributors may, from time to
time, at its expense or as an expense for which it may be compensated under a
distribution plan, if applicable, pay a bonus or other consideration or
incentive to dealers who sell a minimum dollar amount of the shares of the AIM
Funds during a specified period of time.
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At the option of the dealer, such incentives may take the form of payment for
travel expenses, including lodging, incurred in connection with trips taken by
qualifying registered representatives and their families to places within or
outside the United States. The total amount of such additional bonus payments or
other consideration shall not exceed 0.25% of the public offering price of the
shares sold. Any such bonus or incentive programs will not change the price paid
by investors for the purchase of the applicable AIM Fund's shares or the amount
that any particular AIM Fund will receive as proceeds from such sales. Dealers
may not use sales of the AIM Funds' shares to qualify for any incentives to the
extent that such incentives may be prohibited by the laws of any state.
AIM Distributors may make payments to dealers and institutions who are
dealers of record for purchases of $1 million or more of Class A shares (or
shares which normally involve payment of initial sales charges), which are sold
at net asset value and are subject to a contingent deferred sales charge, for
all AIM Funds other than Class A shares of each of AIM Limited Maturity Treasury
Fund and AIM Tax-Free Intermediate Fund as follows: 1% of the first $2 million
of such purchases, plus 0.80% of the next $1 million of such purchases, plus
0.50% of the next $17 million of such purchases, plus 0.25% of amounts in excess
of $20 million of such purchases. AIM Distributors may make payments to dealers
and institutions who are dealers of record for purchases of $1 million or more
of Class A shares (or shares which normally involve payment of initial sales
charges), and which are sold at net asset value and are not subject to a
contingent deferred sales charge, in an amount up to 0.10% of such purchases of
Class A shares of AIM Limited Maturity Treasury Fund, and in an amount up to
0.25% of such purchases of Class A shares of AIM Tax-Free Intermediate Fund.
AIM Distributors may pay sales commissions to dealers and institutions
who sell Class B shares of the AIM Funds at the time of such sales. Payments
with respect to Class B shares will equal 4.00% of the purchase price of the
Class B shares sold by the dealer or institution, and will consist of a sales
commission equal to 3.75% of the purchase price of the Class B shares sold plus
an advance of the first year service fee of 0.25% with respect to such shares.
The portion of the payments to AIM Distributors under the Class B Plan which
constitutes an asset-based sales charge (0.75%) is intended in part to permit
AIM Distributors to recoup a portion of such sales commissions plus financing
costs.
AIM Distributors may pay sales commissions to dealers and institutions
who sell Class C shares of the AIM Funds at the time of such sales. Payments
with respect to Class C shares will equal 1.00% of the purchase price of the
Class C shares sold by the dealer or institution, and will consist of a sales
commission of 0.75% of the purchase price of the Class C shares sold plus an
advance of the first year service fee of 0.25% with respect to such shares. AIM
Distributors will retain all payments received by it relating to Class C shares
for the first year after they are purchased. The portion of the payments to AIM
Distributors under the Class A and C Plan attributable to Class C shares which
constitutes an asset-based sales charge (0.75%) is intended in part to permit
AIM Distributors to recoup a portion of on-going sales commissions to dealers
plus financing costs, if any. After the first full year, AIM Distributors will
make such payments quarterly to dealers and institutions based on the average
net asset value of Class C shares which are attributable to shareholders for
whom the dealers and institutions are designated as dealers of record. These
commissions are not paid on sales to investors exempt from the CDSC, including
shareholders of record of AIM Advisor Funds, Inc. on April 30, 1995, who
purchase additional shares in any of the Funds on or after May 1, 1995, and in
circumstances where AIM Distributors grants an exemption on particular
transactions.
Exchanges of AIM Cash Reserve Shares of AIM Money Market Fund for Class
B shares or Class C shares are considered sales of such Class B shares or Class
C shares for purposes of the sales charges and dealer concessions discussed
above.
AIM Distributors may pay investment dealers or other financial service
firms for share purchases (measured on an annual basis) of Class A Shares of all
AIM Funds except AIM Limited Maturity Treasury Fund, AIM Tax-Free Intermediate
Fund and AIM Tax-Exempt Cash Fund sold at net asset value to an employee benefit
plan as follows: 1% of the first $2 million of such purchases, plus 0.80% of the
next $1 million of such purchases, plus 0.50% of the next $17 million of such
purchases, plus 0.25% of amounts in
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excess of $20 million of such purchases and up to 0.10% of the net asset value
of any Class A shares of AIM Limited Maturity Treasury Fund sold at net asset
value to an employee benefit plan in accordance with this paragraph.
REDUCTIONS IN INITIAL SALES CHARGES
Reductions in the initial sales charges shown in the sales charge
tables (quantity discounts) apply to purchases of shares of the AIM Funds that
are otherwise subject to an initial sales charge, provided that such purchases
are made by a "purchaser" as hereinafter defined. Purchases of Class A shares of
AIM Tax-Exempt Cash Fund, AIM Cash Reserve Shares of AIM Money Market Fund and
Class B and Class C shares of the AIM Funds will not be taken into account in
determining whether a purchase qualifies for a reduction in initial sales
charges.
The term "purchaser" means:
o an individual and his or her spouse and children, including any
trust established exclusively for the benefit of any such person;
or a pension, profit-sharing, or other benefit plan established
exclusively for the benefit of any such person, such as an IRA,
Roth IRA, a single-participant money-purchase/profit-sharing plan
or an individual participant in a 403(b) Plan (unless such 403(b)
plan qualifies as the purchaser as defined below);
o a 403(b) plan, the employer/sponsor of which is an organization
described under Section 501(c)(3) of the Internal Revenue Code of
1986, as amended (the "Code"), if:
a. the employer/sponsor must submit contributions for all
participating employees in a single contribution transmittal
(i.e., the Funds will not accept contributions submitted with
respect to individual participants);
b. each transmittal must be accompanied by a single check or
wire transfer; and
c. all new participants must be added to the 403(b) plan by
submitting an application on behalf of each new participant
with the contribution transmittal;
o a trustee or fiduciary purchasing for a single trust, estate or
single fiduciary account (including a pension, profit-sharing or
other employee benefit trust created pursuant to a plan qualified
under Section 401 of the Code) and 457 plans, although more than
one beneficiary or participant is involved;
o a Simplified Employee Pension (SEP), Salary Reduction and other
Elective Simplified Employee Pension account (SAR-SEP) or a
Savings Incentive Match Plans for Employees IRA (SIMPLE IRA),
where the employer has notified the distributor in writing that
all of its related employee SEP, SAR-SEP or SIMPLE IRA accounts
should be linked; or
o any other organized group of persons, whether incorporated or
not, provided the organization has been in existence for at least
six months and has some purpose other than the purchase at a
discount of redeemable securities of a registered investment
company.
Investors or dealers seeking to qualify orders for a reduced initial
sales charge must identify such orders and, if necessary, support their
qualification for the reduced charge. AIM Distributors reserves the right to
determine whether any purchaser is entitled, by virtue of the foregoing
definition, to the reduced sales charge. No person or entity may distribute
shares of the AIM Funds without payment of the applicable sales charge other
than to persons or entities who qualify for a reduction in the sales charge as
provided herein.
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1. LETTERS OF INTENT. A purchaser, as previously defined, may pay
reduced initial sales charges by completing the appropriate section of the
account application and by fulfilling a Letter of Intent ("LOI"). The LOI
privilege is also available to holders of the Connecticut General Guaranteed
Account, established for tax qualified group annuities, for contracts purchased
on or before June 30, 1992. The LOI confirms such purchaser's intention as to
the total investment to be made in shares of the AIM Funds (except for (i) Class
A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund, (ii) Class B and Class C shares of the AIM Funds and (iii) shares
of AIM Floating Rate Fund) within the following 13 consecutive months. By
marking the LOI section on the account application and by signing the account
application, the purchaser indicates that he understands and agrees to the terms
of the LOI and is bound by the provisions described below.
Each purchase of fund shares normally subject to an initial sales
charge made during the 13-month period will be made at the public offering price
applicable to a single transaction of the total dollar amount indicated by the
LOI, as described under "Sales Charges and Dealer Concessions." It is the
purchaser's responsibility at the time of purchase to specify the account
numbers that should be considered in determining the appropriate sales charge.
The offering price may be further reduced as described under "Rights of
Accumulation" if the Transfer Agent is advised of all other accounts at the time
of the investment. Shares acquired through reinvestment of dividends and capital
gains distributions will not be applied to the LOI. At any time during the
13-month period after meeting the original obligation, a purchaser may revise
his intended investment amount upward by submitting a written and signed
request. Such a revision will not change the original expiration date. By
signing an LOI, a purchaser is not making a binding commitment to purchase
additional shares, but if purchases made within the 13-month period do not total
the amount specified, the investor will pay the increased amount of sales charge
as described below. Purchases made within 90 days before signing an LOI will be
applied toward completion of the LOI. The LOI effective date will be the date of
the first purchase within the 90-day period. The Transfer Agent will process
necessary adjustments upon the expiration or completion date of the LOI.
Purchases made more than 90 days before signing an LOI will be applied toward
completion of the LOI based on the value of the shares purchased calculated at
the public offering price on the effective date of the LOI.
To assure compliance with the provisions of the 1940 Act, out of the
initial purchase (or subsequent purchases if necessary) the Transfer Agent will
escrow in the form of shares an appropriate dollar amount (computed to the
nearest full share). All dividends and any capital gain distributions on the
escrowed shares will be credited to the purchaser. All shares purchased,
including those escrowed, will be registered in the purchaser's name. If the
total investment specified under this LOI is completed within the 13-month
period, the escrowed shares will be promptly released. If the intended
investment is not completed, the purchaser will pay the Transfer Agent the
difference between the sales charge on the specified amount and the amount
actually purchased. If the purchaser does not pay such difference within 20 days
of the expiration date, he irrevocably constitutes and appoints the Transfer
Agent as his attorney to surrender for redemption any or all shares, to make up
such difference within 60 days of the expiration date.
If at any time before completing the LOI Program, the purchaser wishes
to cancel the agreement, he must give written notice to AIM Distributors. If at
any time before completing the LOI Program the purchaser requests the Transfer
Agent to liquidate or transfer beneficial ownership of his total shares, a
cancellation of the LOI will automatically be effected. If the total amount
purchased is less than the amount specified in the LOI, the Transfer Agent will
redeem an appropriate number of escrowed shares equal to the difference between
the sales charge actually paid and the sales charge that would have been paid if
the total purchases had been made at a single time.
2. RIGHTS OF ACCUMULATION. A "purchaser," as previously defined, may
also qualify for reduced initial sales charges based upon such purchaser's
existing investment in shares of any of the AIM Funds (except for (i) Class A
shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund, (ii) Class B and Class C shares of the AIM Funds and (iii) shares
of AIM Floating Rate Fund) at the time of the proposed purchase. Rights of
Accumulation are also available to holders of the Connecticut General Guaranteed
Account, established for tax-qualified group annuities, for contracts purchased
on or
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before June 30, 1992. To determine whether or not a reduced initial sales charge
applies to a proposed purchase, AIM Distributors takes into account not only the
money which is invested upon such proposed purchase, but also the value of all
shares of the AIM Funds (except for (i) Class A shares of AIM Tax-Exempt Cash
Fund and AIM Cash Reserve Shares of AIM Money Market Fund, (ii) Class B and
Class C shares of the AIM Funds and (iii) shares of AIM Floating Rate Fund)
owned by such purchaser, calculated at their then current public offering price.
If a purchaser so qualifies for a reduced sales charge, the reduced sales charge
applies to the total amount of money then being invested by such purchaser and
not just to the portion that exceeds the breakpoint above which a reduced sales
charge applies. For example, if a purchaser already owns qualifying shares of
any AIM Fund with a value of $20,000 and wishes to invest an additional $20,000
in a fund, with a maximum initial sales charge of 5.50%, the reduced initial
sales charge of 5.25% will apply to the full $20,000 purchase and not just to
the $15,000 in excess of the $25,000 breakpoint. To qualify for obtaining the
discount applicable to a particular purchase, the purchaser or his dealer must
furnish AFS with a list of the account numbers and the names in which such
accounts of the purchaser are registered at the time the purchase is made.
PURCHASES AT NET ASSET VALUE. Purchases of shares of any of the AIM
Funds at net asset value (without payment of an initial sales charge) may be
made in connection with: (a) the reinvestment of dividends and distributions
from a fund; (b) exchanges of shares of certain funds; (c) use of the
reinstatement privilege; or (d) a merger, consolidation or acquisition of assets
of a fund.
The following purchasers will not pay initial sales charges on
purchases of Class A shares because there is a reduced sales effort involved in
sales to these purchasers:
o AIM Management and its affiliates, or their clients;
o Any current or retired officer, director or employee (and members
of their immediate family) of AIM Management, its affiliates or
The AIM Family of Funds--Registered Trademark--, and any
foundation, trust or employee benefit plan established
exclusively for the benefit of, or by, such persons;
o Any current or retired officer, director, or employee (and
members of their immediate family), of CIGNA Corporation or its
affiliates, or of First Data Investor Services Group; and any
deferred compensation plan for directors of investment companies
sponsored by CIGNA Investments, Inc. or its affiliates;
o Sales representatives and employees (and members of their
immediate family) of selling group members or financial
institutions that have arrangements with such selling group
members;
o Purchases through approved fee-based programs;
o Employee benefit plans designated as purchasers as defined above,
and non-qualified plans offered in conjunction therewith,
provided the initial investment in the plan(s) is at least $1
million; the sponsor signs a $1 million LOI; the
employer-sponsored plan(s) has at least 100 eligible employees;
or all plan transactions are executed through a single omnibus
account per Fund and the financial institution or service
organization has entered into the appropriate agreements with the
distributor. Section 403(b) plans sponsored by public educational
institutions are not eligible for a sales charge exception based
on the aggregate investment made by the plan or the number of
eligible employees. Purchases of AIM Small Cap Opportunities Fund
by such plans are subject to initial sales charges;
o Shareholders of record or discretionary advised clients of any
investment advisor holding shares of AIM Weingarten Fund or AIM
Constellation Fund on September 8, 1986, or of AIM Charter Fund
on November 17, 1986, who have continuously owned shares having a
market value of at least $500 and who purchase additional shares
of the same Fund;
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o Shareholders of record of Advisor Class shares of AIM
International Growth Fund or AIM Worldwide Growth Fund on
February 12, 1999 who have continuously owned shares of the AIM
Funds.
o Unitholders of G/SET series unit investment trusts investing
proceeds from such trusts in shares of AIM Weingarten Fund or AIM
Constellation Fund; provided, however, prior to the termination
date of the trusts, a unitholder may invest proceeds from the
redemption or repurchase of his units only when the investment in
shares of AIM Weingarten Fund and AIM Constellation Fund is
effected within 30 days of the redemption or repurchase;
o A shareholder of a fund that merges or consolidates with an AIM
Fund or that sells its assets to an AIM Fund in exchange for
shares of an AIM Fund;
o Shareholders of the GT Global funds as of April 30, 1987 who
since that date continually have owned shares of one or more of
these funds; and
o Certain former AMA Investment Advisers' shareholders who became
shareholders of the AIM Global Health Care Fund in October 1989,
and who have continuously held shares in the GT Global funds
since that time.
o Shareholders of record of Advisor Class shares of an AIM Fund on
February 11, 2000 who have continuously owned shares of that AIM
Fund, and who purchase additional shares of that AIM Fund.
As used above, immediate family includes an individual and his or her
spouse, children, parents and parents of spouse.
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS
Former GT Global funds Class A shares that are subject to a contingent
deferred sales charge and that were purchased before June 1, 1998 are entitled
to the following waivers from the contingent deferred sales charge otherwise due
upon redemption: (1) minimum required distributions made in connection with an
IRA, Keogh Plan or custodial account under Section 403(b) of the Code or other
retirement plan following attainment of age 70 1/2; (2) total or partial
redemptions resulting from a distribution following retirement in the case of a
tax-qualified employer-sponsored retirement plan; (3) when a redemption results
from a tax-free return of an excess contribution pursuant to Section 408(d)(4)
or (5) of the Code or from the death or disability of the employee; (4)
redemptions pursuant to a Fund's right to liquidate a shareholder's account
involuntarily; (5) redemptions pursuant to distributions from a tax-qualified
employer-sponsored retirement plan, which is invested in the former GT Global
funds, which are permitted to be made without penalty pursuant to the Code,
other than tax-free rollovers or transfers of assets, and the proceeds of which
are reinvested in the former GT Global funds; (6) redemptions made in connection
with participant-directed exchanges between options in an employer-sponsored
benefit plan; (7) redemptions made for the purpose of providing cash to fund a
loan to a participant in a tax-qualified retirement plan; (8) redemptions made
in connection with a distribution from any retirement plan or account that is
permitted in accordance with the provisions of Section 72(t)(2) of the Code, and
the regulations promulgated thereunder; (9) redemptions made in connection with
a distribution from any retirement plan or account that involves the return of
an excess deferral amount pursuant to Section 401(k)(8) or Section 402(g)(2) of
the Code; (10) redemptions made in connection with a distribution from a
qualified profit-sharing or stock bonus plan described in Section 401(k) of the
Code to a participant or beneficiary under Section 401(k)(2)(B)(IV) of the Code
upon hardship of the covered employee (determined pursuant to Treasury
Regulation Section 1.401(k)-1(d)(2)); and (11) redemptions made by or for the
benefit of certain states, counties or cities, or any instrumentalities,
departments or authorities thereof where such entities are prohibited or limited
by applicable law from paying a sales charge or commission.
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Former GT Global funds Class B shares purchased before June 1, 1998 are
subject to the following waivers from the contingent deferred sales charge
otherwise due upon redemption: (1) total or partial redemptions resulting from a
distribution following retirement in the case of a tax-qualified
employer-sponsored retirement; (2) minimum required distributions made in
connection with an IRA, Keogh Plan or custodial account under Section 403(b) of
the Code or other retirement plan following attainment of age 70 1/2; (3)
redemptions pursuant to distributions from a tax-qualified employer-sponsored
retirement plan, which is invested in the former GT Global funds, which are
permitted to be made without penalty pursuant to the Code, other than tax-free
rollovers or transfers of assets, and the proceeds of which are reinvested in
the former GT Global funds; (4) redemptions made in connection with
participant-directed exchanges between options in an employer-sponsored benefit
plan; (5) redemptions made for the purpose of providing cash to fund a loan to a
participant in a tax-qualified retirement plan; (6) redemptions made in
connection with a distribution from any retirement plan or account that is
permitted in accordance with the provisions of Section 72(t)(2) of the Code, and
the regulations promulgated thereunder; (7) redemptions made in connection with
a distribution from a qualified profit-sharing or stock bonus plan described in
Section 401(k) of the Code to a participant or beneficiary under Section
401(k)(2)(B)(IV) of the Code upon hardship of the covered employee (determined
pursuant to Treasury Regulation Section 1.401(k)-1(d)(2)); and (8) redemptions
made by or for the benefit of certain states, counties or cities, or any
instrumentalities, departments or authorities thereof where such entities are
prohibited or limited by applicable law from paying a sales charge or
commission.
CDSCs will not apply to the following:
o Additional purchases of Class C shares of AIM Advisor Flex Fund,
AIM Advisor International Value Fund, AIM Advisor Large Cap Value
Fund and AIM Advisor Real Estate Fund by shareholders of record
on April 30, 1995, of these Funds, except that shareholders whose
broker-dealers maintain a single omnibus account with AFS on
behalf of those shareholders, perform sub-accounting functions
with respect to those shareholders, and are unable to segregate
shareholders of record prior to April 30, 1995, from shareholders
whose accounts were opened after that date will be subject to a
CDSC on all purchases made after March 1, 1996;
o Redemptions following the death or post-purchase disability of
(1) any registered shareholders on an account or (2) a settlor of
a living trust, of shares held in the account at the time of
death or initial determination of post-purchase disability;
o Certain distributions from individual retirement accounts,
Section 403(b) retirement plans, Section 457 deferred
compensation plans and Section 401 qualified plans, where
redemptions result from (i) required minimum distributions to
plan participants or beneficiaries who are age 70-1/2 or older,
and only with respect to that portion of such distributions that
does not exceed 12% annually of the participant's or
beneficiary's account value in a particular AIM Fund; (ii) in
kind transfers of assets where the participant or beneficiary
notifies the distributor of the transfer no later than the time
the transfer occurs; (iii) tax-free rollovers or transfers of
assets to another plan of the type described above invested in
Class B or Class C shares of one or more of the AIM Funds; (iv)
tax-free returns of excess contributions or returns of excess
deferral amounts; and (v) distributions on the death or
disability (as defined in the Internal Revenue Code of 1986, as
amended) of the participant or beneficiary;
o Amounts from a Systematic Withdrawal Plan of up to an annual
amount of 12% of the account value on a per fund basis, at the
time the withdrawal plan is established, provided the investor
reinvests his dividends;
o Liquidation by the Fund when the account value falls below the
minimum required account size of $500;
o Investment account(s) of AIM; and
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o Class C shares where the investor's dealer of record notifies the
distributor prior to the time of investment that the dealer
waives the payment otherwise payable to him.
Upon the redemption of shares of funds in sales charge Categories I and
II (see "Sales Charges and Dealer Concessions") purchased in amounts of $1
million or more, no CDSC will be applied in the following situations:
o Shares held more than 18 months;
o Redemptions from employee benefit plans designated as qualified
purchasers, as defined above, where the redemptions are in
connection with employee terminations or withdrawals, provided
the total amount invested in the plan is at least $1,000,000; the
sponsor signs a $1 million LOI; or the employer-sponsored plan
has at least 100 eligible employees; provided, however, that
403(b) plans sponsored by public educational institutions shall
qualify for the CDSC waiver on the basis of the value of each
plan participant's aggregate investment in the AIM Funds, and not
on the aggregate investment made by the plan or on the number of
eligible employees;
o Private foundations or endowment funds;
o Redemption of shares by the investor where the investor's dealer
waives the amounts otherwise payable to it by the distributor and
notifies the distributor prior to the time of investment; and
o Shares acquired by exchange from Class A shares of funds in sales
charge Categories I and II unless the shares acquired by exchange
are redeemed within 18 months of the original purchase of the
Class A shares.
HOW TO PURCHASE AND REDEEM SHARES
A complete description of the manner by which shares of each Fund may
be purchased appears in the Prospectus under the heading "Purchasing Shares --
How to Purchase Shares."
The sales charge normally deducted on purchases of Class A shares of
the Funds is used to compensate AIM Distributors and participating dealers for
their expenses incurred in connection with the distribution of such shares.
Since there is little expense associated with unsolicited orders placed directly
with AIM Distributors by persons, who because of their relationship with the
Funds or with AIM and its affiliates, are familiar with the Funds, or whose
programs for purchase involve little expense (e.g., because of the size of the
transaction and shareholder records required), AIM Distributors believes that it
is appropriate and in the Funds' best interests that such persons be permitted
to purchase Class A shares of the Funds through AIM Distributors without payment
of a sales charge. The persons who may purchase Class A shares of the Funds
without a sales charge are set forth under the caption "Reductions in Initial
Sales Charges--Purchases At Net Asset Value."
Complete information concerning the method of exchanging shares of the
Funds for shares of the other AIM Funds is set forth in the Prospectus under the
heading "Exchanging Shares."
Information concerning redemption of each Fund's shares is set forth in
the Prospectus under the caption "Redeeming Shares." Shares of the AIM Funds may
be redeemed directly through AIM Distributors or through any dealer who has
entered into an agreement with AIM Distributors. In addition to the Funds'
obligation to redeem shares, AIM Distributors may also repurchase shares as an
accommodation to shareholders. To effect a repurchase, those dealers who have
executed Selected Dealer Agreements with
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AIM Distributors must phone orders to the order desk of the Fund telephone:
(800) 347-4246 and guarantee delivery of all required documents in good order. A
repurchase is effected at the net asset value of the Fund next determined after
such order is received. Such arrangement is subject to timely receipt by AFS of
all required documents in good order. If such documents are not received within
a reasonable time after the order is placed, the order is subject to
cancellation. While there is no charge imposed by the Funds or by AIM
Distributors (other than any applicable CDSC) when shares are redeemed or
repurchased, dealers may charge a fair service fee for handling the transaction.
AIM intends to redeem all shares of the Funds in cash.
The right of redemption may be suspended or the date of payment
postponed when (a) trading on the New York Stock Exchange ("NYSE") is
restricted, as determined by applicable rules and regulations of the SEC, (b)
the NYSE is closed for other than customary weekend and holiday closings, (c)
the SEC has by order permitted such suspension, or (d) an emergency as
determined by the SEC exists making disposition of portfolio securities or the
valuation of the net assets of a Fund not reasonably practicable.
BACKUP WITHHOLDING
Accounts submitted without a correct, certified taxpayer identification
number or, alternatively, a completed Internal Revenue Service ("IRS") Form W-8
(for non-resident aliens) or Form W-9 (certifying exempt status) accompanying
the registration information will generally be subject to backup withholding.
Each AIM Fund, and other payers, must, according to IRS regulations,
withhold 31% of redemption payments and reportable dividends (whether paid or
accrued) in the case of any shareholder who fails to provide the Fund with a
taxpayer identification number ("TIN") and a certification that he is not
subject to backup withholding.
An investor is subject to backup withholding if:
(1) the investor fails to furnish a correct TIN to the Fund, or
(2) the IRS notifies the Fund that the investor furnished an
incorrect TIN, or
(3) the investor or the Fund is notified by the IRS that the investor
is subject to backup withholding because the investor failed to
report all of the interest and dividends on such investor's tax
return (for reportable interest and dividends only), or
(4) the investor fails to certify to the Fund that the investor is
not subject to backup withholding under (3) above (for reportable
interest and dividend accounts opened after 1983 only), or
(5) the investor does not certify his TIN. This applies only to
non-exempt mutual fund accounts opened after 1983.
Interest and dividend payments are subject to backup withholding in all
five situations discussed above. Redemption proceeds and long-term gain
distributions are subject to backup withholding only if (1) (2) or (5) above
applies.
Certain payees and payments are exempt from backup withholding and
information reporting. A complete listing of such exempt entities appears in the
Instructions for the Requester of Form W-9 (which can be obtained from the IRS)
and includes, among others, the following:
o a corporation
o an organization exempt from tax under Section 501(a), an
individual retirement plan (IRA), or a custodial account under
Section 403(b)(7)
o the United States or any of its agencies or instrumentalities
o a state, the District of Columbia, a possession of the United
States, or any of their political subdivisions or
instrumentalities
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o a foreign government or any of its political subdivisions,
agencies or instrumentalities
o an international organization or any of its agencies or
instrumentalities
o a foreign central bank of issue
o a dealer in securities or commodities required to register in the
U.S. or a possession of the U.S.
o a futures commission merchant registered with the Commodity
Futures Trading Commission
o a real estate investment trust
o an entity registered at all times during the tax year under the
1940 Act
o a common trust fund operated by a bank under Section 584(a)
o a financial institution
o a middleman known in the investment community as a nominee or
listed in the most recent publication of the American Society of
Corporate Secretaries, Inc., Nominee List
o a trust exempt from tax under Section 664 or described in Section
4947
Investors should contact the IRS if they have any questions concerning
entitlement to an exemption from backup withholding.
NOTE: Section references are to sections of the Code.
IRS PENALTIES -- Investors who do not supply the AIM Funds with a
correct TIN will be subject to a $50 penalty imposed by the IRS unless such
failure is due to reasonable cause and not willful neglect. If an investor
falsifies information on this form or makes any other false statement resulting
in no backup withholding on an account which should be subject to backup
withholding, such investor may be subject to a $500 penalty imposed by the IRS
and to certain criminal penalties including fines and/or imprisonment.
NONRESIDENT ALIENS -- Nonresident alien individuals and foreign
entities are not subject to the backup withholding previously discussed, but
must certify their foreign status by attaching IRS Form W-8 to their
application. Form W-8 remains in effect for three calendar years beginning with
the calendar year in which it is received by the Fund. Such shareholders may,
however, be subject to federal income tax withholding at a 30% rate on ordinary
income dividends and distributions and return of capital distributions. Under
applicable treaty law, residents of treaty countries may qualify for a reduced
rate of withholding or a withholding exemption.
NET ASSET VALUE DETERMINATION
The net asset value per share of each Fund or Portfolio is normally
determined once daily as of the close of the customary trading session of the
NYSE (generally 4:00 p.m. Eastern time) on each business day of the Fund or
Portfolio. In the event the NYSE closes early (i.e., before 4:00 p.m. Eastern
time) on a particular day, the net asset value of a Fund or Portfolio share is
determined as of the close of the NYSE on such day. Net asset value per share is
determined by dividing the value of the equity securities, cash and other assets
(including interest accrued but not collected) attributable to a particular
class, less all its liabilities (including accrued expenses and dividends
payable) attributable to that class, by the total number of shares
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outstanding of that class. Determination of each Fund's or Portfolio's net asset
value per share is made in accordance with generally accepted accounting
principles.
Each equity security held by a Fund is valued at its last sales price
on the exchange where the security is principally traded or, lacking any sales
on a particular day, the security is valued at the last available bid. Each
security traded in the over-the-counter market (but not including securities
reported on the NASDAQ National Market System) is valued at the mean between the
last bid and asked prices based upon quotes furnished by market makers for such
securities. Each security reported on the NASDAQ National Market System is
valued at the last sales price on the valuation date or absent a last sales
price, at the mean between the closing bid and asked prices on that day. Debt
securities are valued on the basis of prices provided by an independent pricing
service. Prices provided by the pricing service may be determined without
exclusive reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments related
to special securities, yield, quality, coupon rate, maturity, type of issue,
individual trading characteristics and other market data. Securities for which
market quotations are not readily available or are questionable are valued at
fair value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of Trustees.
Short-term obligations having 60 days or less to maturity are valued on the
basis of amortized cost. For purposes of determining net asset value per share,
futures and options contracts generally will be valued 15 minutes after the
close of the customary trading session of the NYSE.
Generally, trading in foreign securities, corporate bonds, U.S.
Government securities and money market instruments is substantially completed
each day at various times prior to the close of the customary trading session of
the NYSE. The values of such securities used in computing the net asset value of
each Fund's shares are determined at such times. Foreign currency exchange rates
are also generally determined prior to the close of the NYSE. Occasionally,
events affecting the values of such securities and such exchange rates may occur
between the times at which such values are determined and the close of the
customary trading session of the NYSE which will not be reflected in the
computation of a Fund's net asset value. If events materially affecting the
value of such securities occur during such period, then these securities will be
valued at their fair value as determined in good faith by or under the
supervision of the Board of Trustees.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
Income dividends and capital gain distributions are automatically
reinvested in additional shares of the same class of each Fund unless the
shareholder has requested in writing to receive such dividends and distributions
in cash or that they be invested in shares of another AIM Fund, subject to the
terms and conditions set forth in each Fund's Prospectus under the caption
"Shareholder Information -- Purchasing Shares - Special Plans - Automatic
Dividend Investment." If a shareholder's account does not have any shares in it
on a dividend or capital gain distribution payment date, the dividend or
distribution will be paid in cash whether or not the shareholder has elected to
have such dividends or distributions reinvested.
TAX MATTERS
The following is only a summary of certain additional tax
considerations generally affecting the Funds and their shareholders that are not
described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of each Fund or its shareholders, and the
discussion here and in the Prospectus is not intended as a substitute for
careful tax planning.
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GENERAL
Each Fund is treated as a separate corporation for federal income tax
purposes. To continue to qualify for treatment as a regulated investment company
("RIC") under the Code, each Fund must distribute to its shareholders for each
taxable year at least 90% of its investment company taxable income (consisting
generally of net investment income, net short-term capital gain and net gains
from certain foreign currency transactions) ("Distribution Requirement") and
must meet several additional requirements. These requirements include the
following: (1) the Fund must derive at least 90% of its gross income each
taxable year from dividends, interest, payments with respect to securities loans
and gains from the sale or other disposition of securities or foreign
currencies, or other income (including gains from options, futures or forward
contracts) derived with respect to its business of investing in securities or
those currencies ("Income Requirement"); and (2) the Diversification
Requirements.
By qualifying for treatment as a RIC, each Fund (but not its
shareholders) will be relieved of federal income tax on the part of its
investment company taxable income and net capital gain (the excess of net
long-term capital gain over net short-term capital loss) that it distributes to
its shareholders. If a Fund failed to qualify for treatment as a RIC for any
taxable year, (1) it would be taxed as an ordinary corporation on the full
amount of its taxable income for that year without being able to deduct the
distributions it makes to its shareholders and (2) the shareholders would treat
all those distributions, including distributions of net capital gain, as
dividends (that is, ordinary income) to the extent of the Fund's earnings and
profits. In addition, the Fund could be required to recognize unrealized gains,
pay substantial taxes and interest and make substantial distributions before
requalifying for RIC treatment.
Dividends and other distributions declared by a Fund in, and payable to
shareholders of record as of a date in, October, November or December of any
year will be deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if the distributions are paid by the
Fund during the following January. Accordingly, those distributions will be
taxed to shareholders for the year in which that December 31 falls.
If Fund shares are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital loss
to the extent of any capital gain distributions received on those shares.
Investors also should be aware that if shares are purchased shortly before the
record date for any dividend or other distribution, the shareholder will pay
full price for the shares and receive some portion of the price back as a
taxable distribution.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts.
EXCHANGE AND REINSTATEMENT PRIVILEGES AND WASH SALES
If a shareholder disposes of a Fund's shares ("original shares")
within 90 days after purchase thereof and subsequently reacquires shares of that
Fund or acquires shares of another AIM Fund on which a sales charge normally is
imposed ("replacement shares"), without paying the sales charge (or paying a
reduced charge) due to an exchange privilege or a reinstatement privilege, then
(1) any gain on the disposition of the original shares will be increased, or
the loss thereon decreased, by the amount of the sales charge paid when those
shares were acquired and (2) that amount will increase the adjusted basis of
the replacement shares that were subsequently acquired. In addition, if a
shareholder purchases shares of a Fund (whether pursuant to the reinstatement
privilege or otherwise) within 30 days before or after redeeming at a loss
other shares of that Fund (regardless of class), all or part of that loss will
not be deductible and instead will increase the basis of the newly purchased
shares.
FOREIGN TAXES
Dividends and interest received by each Fund, and gains realized
thereby, may be subject to income, withholding or other taxes imposed by foreign
countries and U.S. possessions ("foreign taxes") that would reduce the yield
and/or total return on its securities. Tax conventions between certain countries
and the United States may reduce or eliminate foreign taxes, however, and many
foreign countries do not impose taxes on capital gains in respect of investments
by foreign investors. If more than 50% of the value of a Fund's total assets at
the close of its taxable year consists of securities of foreign corporations,
the Fund will be eligible to, and may, file an election with the Internal
Revenue Service that will enable its shareholders, in effect, to receive the
benefit of the foreign tax credit with respect to any foreign taxes paid by it.
Pursuant to the election, the Fund would treat those taxes as dividends paid to
its shareholders and each shareholder would be required to (1) include in gross
income, and treat as paid by him, his share of those taxes, (2) treat his share
of those taxes and of any dividend paid by the Fund that represents income from
foreign and U.S. possessions sources as his own income from those sources and
(3) either deduct the taxes deemed paid by him in computing his taxable income
or, alternatively, use the foregoing information in calculating the foreign tax
credit against his federal income tax. Each Fund will report to its shareholders
shortly after each taxable year their respective shares of the Fund's foreign
taxes and income from sources within, and taxes
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paid to, foreign countries and U.S. possessions if it makes this election.
Pursuant to the Taxpayer Relief Act of 1997 ("Tax Act"), individuals who have no
more than $300 ($600 for married persons filing jointly) of creditable foreign
taxes included on Form 1099 and all of whose foreign source income is "qualified
passive income" may elect each year to be exempt from the foreign tax credit
limitation and will be able to claim a foreign tax credit without having to file
the Form 1116 that otherwise is required.
PASSIVE FOREIGN INVESTMENT COMPANIES
Each Fund may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is any foreign corporation (with certain
exceptions) that, in general, meets either of the following tests: (1) at least
75% of its gross income is passive or (2) an average of at least 50% of its
assets produce, or are held for the production of, passive income. Under certain
circumstances, a Fund will be subject to federal income tax on a portion of any
"excess distribution" received on, or of any gain from the disposition of, stock
of a PFIC (collectively "PFIC income"), plus interest thereon, even if the Fund
distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the Fund's investment company
taxable income and, accordingly, will not be taxable to it to the extent it
distributes that income to its shareholders.
If a Fund invests in a PFIC and elects to treat the PFIC as a
"qualified electing fund" ("QEF"), then in lieu of the foregoing tax and
interest obligation, the Fund would be required to include in income each year
its pro rata share of the QEF's ordinary earnings and net capital gain which
most likely would have to be distributed by the Fund to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax--even if those earnings and
gain were not received by the Fund from the QEF. In most instances it will be
very difficult, if not impossible, to make this election because of certain
requirements thereof.
Each Fund may elect to "mark to market" its stock in any PFIC.
"Marking-to-market," in this context, means including in ordinary income each
taxable year the excess, if any, of the fair market value of the stock over a
Fund's adjusted basis therein as of the end of that year. Pursuant to the
election, a Fund also will be allowed to deduct (as an ordinary, not capital,
loss) the excess, if any, of its adjusted basis in PFIC stock over the fair
market value thereof as of the taxable year-end, but only to the extent of any
net mark-to-market gains with respect to that stock included in income by the
Fund for prior taxable years. A Fund's adjusted basis in each PFIC's stock
subject to the election will be adjusted to reflect the amounts of income
included and deductions taken thereunder. Regulations proposed in 1992 provided
a similar election with respect to the stock of certain PFICs.
NON-U.S. SHAREHOLDERS
Dividends paid by a Fund to a shareholder who, as to the United States,
is a nonresident alien individual, nonresident alien fiduciary of a trust or
estate, foreign corporation or foreign partnership ("foreign shareholder")
generally will be subject to U.S. withholding tax (at a rate of 30% or lower
treaty rate). Withholding will not apply, however, to a dividend paid by a Fund
to a foreign shareholder that is "effectively connected with the conduct of a
U.S. trade or business," in which case the reporting and withholding
requirements applicable to domestic shareholders will apply. A distribution of
net capital gain by a Fund to a foreign shareholder generally will be subject to
U.S. federal income tax (at the rates applicable to domestic persons) only if
the distribution is "effectively connected" or the foreign shareholder is
treated as a resident alien individual for federal income tax purposes.
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OPTIONS, FUTURES AND FOREIGN CURRENCY TRANSACTIONS
Each Fund's use of hedging transactions, such as selling (writing) and
purchasing options and futures and entering into forward contracts, involves
complex rules that will determine, for federal income tax purposes, the amount,
character and timing of recognition of the gains and losses a Fund realizes in
connection therewith. Gains from the disposition of foreign currencies (except
certain gains that may be excluded by future regulations), and gains from
options, futures and forward contracts derived by a Fund with respect to its
business of investing in securities or foreign currencies, will qualify as
permissible income under the Income Requirement.
Futures and forward contracts that are subject to section 1256 of the
Code (other than those that are part of a "mixed straddle") ("Section 1256
Contracts") and that are held by a Fund at the end of its taxable year generally
will be deemed to have been sold at that time at market value for federal income
tax purposes. Sixty percent of any net gain or loss recognized on these deemed
sales, and 60% of any net gain or loss realized from any actual sales of Section
1256 Contracts, will be treated as long-term capital gain or loss, and the
balance will be treated as short-term capital gain or loss. That 60% portion
will qualify for the reduced maximum tax rates on noncorporate taxpayers' net
capital gain--20% (10% for non-corporate taxpayers in the 15% marginal tax
bracket) for gain recognized on capital assets held for more than 12 months.
Section 988 of the Code also may apply to gains and losses from
transactions in foreign currencies, foreign-currency-denominated debt securities
and options, futures and forward contracts on foreign currencies ("Section 988"
gains and losses). Each Section 988 gain or loss generally is computed
separately and treated as ordinary income or loss. In the case of overlap
between sections 1256 and 988, special provisions determine the character and
timing of any income, gain or loss. The Funds attempt to monitor section 988
transactions to minimize any adverse tax impact.
If a Fund has an "appreciated financial position"--generally, an
interest (including an interest through an option, futures or forward contract
or short sale) with respect to any stock, debt instrument (other than "straight
debt") or partnership interest the fair market value of which exceeds its
adjusted basis--and enters into a "constructive sale" of identical property, the
Fund will be treated as having made an actual sale thereof, with the result that
gain will be recognized at that time unless the closed transaction exception
applies. A constructive sale generally consists of a short sale, an offsetting
notional principal contract or futures or forward contract entered into by a
Fund or a related person with respect to the same or substantially identical
property. In addition, if the appreciated financial position is itself a short
sale or such a contract, acquisition of the underlying property or substantially
identical property will be deemed a constructive sale.
The foregoing is a general and abbreviated summary of certain federal
tax considerations in effect at the date of this Statement of Additional
Information and affecting each Fund and its shareholders. Investors are urged to
consult their own tax advisors for more detailed information and for information
regarding any foreign, state and local taxes applicable to distributions
received from the Funds.
SHAREHOLDER INFORMATION
This information supplements the discussion in each Fund's Prospectus
under the title "Shareholder Information."
TIMING OF PURCHASE ORDERS. It is the responsibility of the dealer to
ensure that all orders are transmitted on a timely basis to the Transfer Agent.
Any loss resulting from the dealer's failure to submit an order within the
prescribed time frame will be borne by that dealer. If a check used to purchase
shares does not clear, or if any investment order must be canceled due to
nonpayment, the investor will be responsible for any resulting loss to an AIM
Fund or to AIM Distributors.
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SHARE CERTIFICATES. AIM Funds will issue share certificates upon
written request to AFS. Otherwise, shares are held on the shareholder's behalf
and recorded on the Fund books. AIM Funds will not issue certificates for shares
held in prototype retirement plans.
SYSTEMATIC WITHDRAWAL PLAN. Under a Systematic Withdrawal Plan, all
shares are to be held by the Transfer Agent and all dividends and distributions
are reinvested in shares of the applicable AIM Fund by the Transfer Agent. To
provide funds for payments made under the Systematic Withdrawal Plan, the
Transfer Agent redeems sufficient full and fractional shares at their net asset
value in effect at the time of each such redemption.
Payments under a Systematic Withdrawal Plan constitute taxable events.
Since such payments are funded by the redemption of shares, they may result in a
return of capital and in capital gains or losses, rather than in ordinary
income. Because sales charges are imposed on additional purchases of shares
(other than Class B or Class C Shares of the AIM Funds and AIM Cash Reserve
Shares of AIM Money Market Fund), it is disadvantageous to effect such purchases
while a Systematic Withdrawal Plan is in effect.
Each AIM Fund bears its share of the cost of operating the Systematic
Withdrawal Plan.
TERMS AND CONDITIONS OF EXCHANGE. Normally, shares of an AIM Fund to be
acquired by exchange are purchased at their net asset value or applicable
offering price, as the case may be, determined on the date that such request is
received, but under unusual market conditions such purchases may be delayed for
up to five business days if it is determined that a fund would be materially
disadvantaged by an immediate transfer of the proceeds of the exchange. If a
shareholder is exchanging into a fund paying daily dividends, and the release of
the exchange proceeds is delayed for the foregoing five-day period, such
shareholder will not begin to accrue dividends until the sixth business day
after the exchange.
EXCHANGES BY TELEPHONE. AIM Distributors has made arrangements with
certain dealers and investment advisory firms to accept telephone instructions
to exchange shares between any of the AIM Funds. AIM Distributors reserves the
right to impose conditions on dealers or investment advisors who make telephone
exchanges of shares of the funds, including the condition that any such dealer
or investment advisor enter into an agreement (which contains additional
conditions with respect to exchanges of shares) with AIM Distributors. To
exchange shares by telephone, a shareholder, dealer or investment advisor who
has satisfied the foregoing conditions must call AFS at (800) 959-4246. If a
shareholder is unable to reach AFS by telephone, he may also request exchanges
by telegraph or use overnight courier services to expedite exchanges by mail,
which will be effective on the business day received by the Transfer Agent as
long as such request is received prior to NYSE Close. The Transfer Agent and AIM
Distributors may in certain cases be liable for losses due to unauthorized or
fraudulent transactions if they do not follow reasonable procedures for
verification of telephone transactions. Such reasonable procedures may include
recordings of telephone transactions (maintained for six months), requests for
confirmation of the shareholder's Social Security Number and current address,
and mailings of confirmations promptly after the transaction.
By signing an account application form, an investor appoints the
Transfer Agent as his true and lawful attorney-in-fact to surrender for
redemption any and all unissued shares held by the Transfer Agent in the
designated account(s), or in any other account with any of the AIM Funds,
present or future, which has the identical registration as the designated
account(s), with full power of substitution in the premises. The Transfer Agent
and AIM Distributors are thereby authorized and directed to accept and act upon
any telephone redemptions of shares held in any of the account(s) listed, from
any person who requests the redemption proceeds to be applied to purchase shares
in any one or more of the AIM Funds, provided that such fund is available for
sale and provided that the registration and mailing address of the shares to be
purchased are identical to the registration of the shares being redeemed. An
investor acknowledges by signing the form that he understands and agrees that
the Transfer Agent and AIM Distributors may not be liable for any loss, expense
or cost arising out of any telephone exchange requests effected in accordance
with the authorization set forth in these instructions if they reasonably
believe such request to be genuine, but may in certain cases be liable for
losses due to unauthorized or fraudulent transactions. Procedures for
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verification of telephone transactions may include recordings of telephone
transactions (maintained for six months), requests for confirmation of the
shareholder's Social Security Number and current address, and mailings of
confirmations promptly after the transactions. The Transfer Agent reserves the
right to modify or terminate the telephone exchange privilege at any time
without notice. An investor may elect not to have this privilege by marking the
appropriate box on the application. Then any exchanges must be effected in
writing by the investor.
REDEMPTIONS BY TELEPHONE. By signing an account application form, an
investor appoints the Transfer Agent as his true and lawful attorney-in-fact to
surrender for redemption any and all unissued shares held by the Transfer Agent
in the designated account(s), present or future, with full power of substitution
in the premises. The Transfer Agent and AIM Distributors are thereby authorized
and directed to accept and act upon any telephone redemptions of shares held in
any of the account(s) listed, from any person who requests the redemption. An
investor acknowledges by signing the form that he understands and agrees that
the Transfer Agent and AIM Distributors may not be liable for any loss, expense
or cost arising out of any telephone redemption requests effected in accordance
with the authorization set forth in these instructions if they reasonably
believe such request to be genuine, but may in certain cases be liable for
losses due to unauthorized or fraudulent transactions. Procedures for
verification of telephone transactions may include recordings of telephone
transactions (maintained for six months), requests for confirmation of the
shareholder's Social Security Number and current address, and mailings of
confirmations promptly after the transaction. The Transfer Agent reserves the
right to cease to act as attorney-in-fact subject to this appointment, and AIM
Distributors reserves the right to modify or terminate the telephone redemption
privilege at any time without notice. An investor may elect not to have this
privilege by marking the appropriate box on the application. Then any
redemptions must be effected in writing by the investor.
SIGNATURE GUARANTEES. In addition to those circumstances listed in the
"Shareholder Information" section of each Fund's prospectus, signature
guarantees are required in the following situations: (1) requests to transfer
the registration of shares to another owner; (2) telephone exchange and
telephone redemption authorization forms; (3) changes in previously designated
wiring or electronic funds transfer instructions; and (4) written redemptions or
exchanges of shares previously reported as lost, whether or not the redemption
amount is under $50,000 or the proceeds are to be sent to the address of record.
AIM Funds may waive or modify any signature guarantee requirements at any time.
Acceptable guarantors include banks, broker-dealers, credit unions,
national securities exchanges, savings associations and any other organization,
provided that such institution or organization qualifies as an "eligible
guarantor institution" as that term is defined in rules adopted by the SEC, and
further provided that such guarantor institution is listed in one of the
reference guides contained in the Transfer Agent's current Signature Guarantee
Standards and Procedures, such as certain domestic banks, credit unions,
securities dealers, or securities exchanges. The Transfer Agent will also accept
signatures with either: (1) a signature guaranteed with a medallion stamp of the
STAMP Program, or (2) a signature guaranteed with a medallion stamp of the NYSE
Medallion Signature Program, provided that in either event, the amount of the
transaction involved does not exceed the surety coverage amount indicated on the
medallion. For information regarding whether a particular institution or
organization qualifies as an "eligible guarantor institution," an investor
should contact the Client Services Department of AFS.
TRANSACTIONS BY INTERNET. An investor may effect transactions in his
account through the Internet by selecting the AIM Internet Connect option on his
completed account application form or completing an AIM Internet Connect
Authorization Form. By signing either form the investor acknowledges and agrees
that the Transfer Agent and AIM Distributors will not be liable for any loss,
expense or cost arising out of any internet transaction effected in accordance
with the instructions set forth in the forms if they reasonably believe such
request to be genuine. Procedures for verification of internet transactions
include requests for confirmation of the shareholder's personal identification
number and mailing of confirmations promptly after the transactions. The
investor also acknowledges that (1) if he no longer wants the AIM Internet
Connect option, he will notify the Transfer Agent in writing, and (2) the AIM
Internet Connect option may be terminated at any time by the AIM Funds.
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DIVIDENDS AND DISTRIBUTIONS. In determining the amount of capital
gains, if any, available for distribution, net capital gains are offset against
available net capital losses, if any, carried forward from previous fiscal
periods.
For funds that do not declare a dividend daily, such dividends and
distributions will be reinvested at the net asset value per share determined on
the ex-dividend date. For funds that declare a dividend daily, such dividends
and distributions will be reinvested at the net asset value per share determined
on the payable date.
Dividends on Class B and Class C shares are expected to be lower than
those for Class A shares or AIM Cash Reserve Shares because of higher
distribution fees paid by Class B and Class C shares. Dividends on all shares
may also be affected by other class-specific expenses.
Changes in the form of dividend and distribution payments may be made
by the shareholder at any time by notice to the Transfer Agent and are effective
as to any subsequent payment if such notice is received by the Transfer Agent
prior to the record date of such payment. Any dividend and distribution election
remains in effect until the Transfer Agent receives a revised written election
by the shareholder.
Any dividend or distribution paid by a fund which does not declare
dividends daily has the effect of reducing the net asset value per share on the
ex-dividend date by the amount of the dividend or distribution. Therefore, a
dividend or distribution declared shortly after a purchase of shares by an
investor would represent, in substance, a return of capital to the shareholder
with respect to such shares even though it would be subject to income taxes.
MISCELLANEOUS INFORMATION
CHARGES FOR CERTAIN ACCOUNT INFORMATION
The Transfer Agent may impose certain copying charges for requests for
copies of shareholder account statements and other historical account
information older than the current year and the immediately preceding year.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company (the "Custodian"), 225 Franklin
Street, Boston, Massachusetts 02110, is custodian of all securities and cash of
the Funds. The Custodian attends to the collection of principal and income, pays
and collects all monies for securities bought and sold by the Funds and performs
certain other ministerial duties. AIM Fund Services, Inc., a wholly owned
subsidiary of AIM, 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173, acts
as transfer and dividend disbursing agent for the Funds. These services do not
include any supervisory function over management or provide any protection
against any possible depreciation of assets. The Funds pay the Custodian and the
Transfer Agent such compensation as may be agreed upon from time to time.
INDEPENDENT ACCOUNTANTS
The Funds' independent accountants are PricewaterhouseCoopers LLP.
PricewaterhouseCoopers LLP conducts an annual audit of each Fund, assists in the
preparation of the Funds' federal and state income tax returns and consults with
the Trust and the Funds as to matters of accounting, regulatory filings, and
federal and state income taxation.
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The audited financial statements of the Trust included in this
Statement of Additional Information have been examined by PricewaterhouseCoopers
LLP, as stated in their opinion appearing herein and are included in reliance
upon such opinion given upon the authority of that firm as experts in accounting
and auditing.
LEGAL MATTERS
The law firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue
N.W., Washington, D.C. 20036-1800, acts as counsel to the Trust and the Funds.
SHAREHOLDER LIABILITY
Under Delaware law, the shareholders of the Trust enjoy the same
limitations extended to shareholders of private, for-profit corporations. There
is a remote possibility, however, that under certain circumstances shareholders
of the Trust may be held personally liable for the Trust's obligations. However,
the Trust Agreement disclaims shareholder liability for acts or obligations of
the Trust and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Trust or a
trustee. If a shareholder is held personally liable for the obligations of the
Trust, the Trust Agreement provides that the shareholder shall be entitled out
of the assets belonging to the applicable Fund (or allocable to the applicable
Class), to be held harmless from and indemnified against all loss and expense
arising from such liability in accordance with the Trust's Bylaws and applicable
law. Thus, the risk of a shareholder incurring financial loss on account of such
liability is limited to circumstances in which the Trust itself would be unable
to meet its obligations and where the other party was held not to be bound by
the disclaimer.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To the best knowledge of the Trust, the names and addresses of the
holders of 5% or more of the outstanding shares of any class of each Fund as of
February 14, 2000, and the percentage of the outstanding shares held by such
holders are set forth below:
PERCENT
PERCENT OWNED OF
NAME AND ADDRESS OWNED OF RECORD AND
FUND OF RECORD OWNER RECORD ONLY* BENEFICIALLY
- ---- ---------------- ------------ ------------
AIM Developing Markets Fund -
Class A Merrill Lynch Pierce Fenner & Smith 5.70% -0-
FBO The Sole Benefit of Customers
4800 Deer Lake Dr East 2nd Floor
Jacksonville, FL 32246
AIM Developing Markets Fund -
Class B Merrill Lynch Pierce Fenner & Smith 6.10% -0-
FBO The Sole Benefit of Customers
4800 Deer Lake Dr East 2nd Floor
Jacksonville, FL 32246
- ----------------------
* The Trust has no knowledge as to whether all or any portion of the
shares owned of record are also owned beneficially.
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PERCENT
PERCENT OWNED OF
NAME AND ADDRESS OWNED OF RECORD AND
FUND OF RECORD OWNER RECORD ONLY* BENEFICIALLY
- ---- ---------------- ------------ ------------
AIM Developing Markets Fund -
Class C First Clearing Corporation -0- 11.70%
W L Burgess IRA R/O FCC as Custodian 7893
Vue Estates Road Meridian, ID 83642-5207
Painewebber for the Benefit of -0- 6.26%
Jeffrey D. Salzman Trustee
Jeffrey D. Salzman Trust
1720 Sunset Blvd.
Boulder, CO 80304-4243
AIM Latin American Growth Fund -
Class A Santander SA Para Fondo 11.92% -0-
Mutuo Mutinaional
Natias Cousino 199 Piso 6
Santiage, Chile
AIM Latin American Growth Fund -
Class B Merrill Lynch Pierce Fenner & Smith 10.55% -0-
FBO The Sole Benefit of Customers
4800 Deer Lake Dr East 2nd Floor
Jacksonville, FL 32246
AIM Latin American Growth Fund -
Class C Merrill Lynch Pierce Fenner & Smith 31.23% -0-
FBO The Sole Benefit of Customers
4800 Deer Lake Dr East 2nd Floor
Jacksonville, FL 32246
Prudential Securities Inc FBO -0- 24.46%
Mr. Donald Ellis and
Ms. Janice Burrows Ellis
Ten Com
64 Walnut Cir
Basking Ridge, NJ 07920-1020
- -------------------------
* The Trust has no knowledge as to whether all or any portion of the
shares owned of record are also owned beneficially.
As of February 14, 2000, the trustees and officers of the Trust as a
group owned beneficially less than 1% of the outstanding shares of each class of
Developing Markets Fund and Latin American Fund.
75
143
INVESTMENT RESULTS
TOTAL RETURN QUOTATIONS
The standard formula for calculating total return is as follows:
n
P(1+T) =ERV
Where P = a hypothetical initial payment of $1,000.
T = average annual total return (assuming the
applicable maximum sales load is deducted at the
beginning of the 1, 5, or 10 year periods).
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000
payment at the end of the 1, 5, or 10 year periods
(or fractional portion of such period).
The standard total returns of Class A and Class B shares of Developing
Markets Fund, stated as average annualized total returns for the periods shown,
were as follows. Standard total returns for Class A shares reflect, where
appropriate, the fees and expenses of the Predecessor Fund and are recomputed to
reflect the deduction of the maximum sales charge of 4.75%.
ONE FIVE TEN SINCE
YEAR YEARS YEARS INCEPTION*
---- ----- ----- ----------
Developing Markets Fund Class A ........ 53.89% 2.20% N/A (0.72)%
Developing Markets Fund Class B ........ 55.57% N/A N/A (1.31)
* The inception dates for Class A and Class B shares are 01/11/94 and
11/03/97, respectively.
The standard total returns of Class C shares of Developing Markets
Fund, stated as aggregate total return for the periods shown, were as follows:
ONE FIVE TEN SINCE
YEAR YEARS YEARS INCEPTION*
---- ----- ----- ----------
Developing Markets Fund.................. N/A N/A N/A 63.66%
* The inception date for Developing Markets Fund Class C shares is
03/01/99.
The standard total returns for the Class A and Class B shares of Latin
American Fund, stated as average annualized total returns for the periods shown,
were as follows. Total returns for the Class A shares reflect the deduction of
the maximum sales charge of 4.75%.
ONE FIVE TEN SINCE
YEAR YEARS YEARS INCEPTION*
---- ----- ----- ----------
Latin American Fund Class A.............. 52.51% (2.18)% N/A 4.94%
Latin American Fund Class B.............. 54.28% (2.08)% N/A 3.12%
* The inception dates for Latin American Fund Class A and Class B shares
are 08/13/91 and 04/01/93, respectively.
76
144
The standard total return for Class C shares of Latin American Fund,
stated as aggregate total return for the periods shown, were as follows:
ONE FIVE TEN SINCE
YEAR YEARS YEARS INCEPTION*
---- ----- ----- ----------
Latin American Fund.................... N/A N/A N/A 79.19%
* The inception date for Class C shares of Latin American Fund is
03/01/99.
Standard total return quotes may be accompanied by total return figures
calculated by alternative methods. For example, average annual total return may
be calculated without assuming payment of the full sales load according to the
following formula:
n
P(1+U) =ERV
Where P = a hypothetical initial payment of $1,000.
U = average annual total return assuming payment of only a
stated portion of, or none of, the applicable maximum sales
load at the beginning of the stated period.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment at
the end of the stated period.
The average annual non-standard total returns of Class A and Class B
shares of Developing Markets Fund, stated as average annualized total returns
for the periods shown, were as follows. Non-standard total returns for Class A
shares reflect, where appropriate, the fees and expenses of the Predecessor
Fund.
ONE FIVE TEN SINCE
YEAR YEARS YEARS INCEPTION*
----- ----- ---- ----------
Developing Markets Fund Class A ... 61.50% 3.19% N/A 0.09%
Developing Markets Fund Class B ... 60.57% N/A N/A 0.01%
* The inception dates for Developing Markets Fund Class A and Class B
shares are 01/11/94 and 11/03/97, respectively.
The average annual non-standard total return of Class C shares of
Developing Markets Fund, stated as aggregate total return for the periods shown,
were as follows:
ONE FIVE TEN SINCE
YEAR YEARS YEARS INCEPTION*
---- ----- ----- ----------
Developing Markets Fund............ N/A N/A N/A 64.66%
* The inception date for Class C shares of Developing Markets Fund is
03/01/99.
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145
The average annual non-standard total returns for the Class A and Class
B shares of Latin American Fund, stated as average annualized total returns for
the periods shown, were as follows:
ONE FIVE TEN SINCE
YEAR YEARS YEARS INCEPTION*
---- ----- ----- ----------
Latin American Fund Class A.................... 60.10% (1.22)% N/A 5.55%
Latin American Fund Class B.................... 59.28% (1.69)% N/A 3.12%
* The inception dates for Class A and Class B shares of Latin American
Fund are 08/13/91 and 04/01/93, respectively.
The aggregate non-standard total return for Class C shares of Latin
American Fund, stated as aggregate total return for the periods shown, were as
follows:
ONE FIVE TEN SINCE
YEAR YEARS YEARS INCEPTION*
---- ----- ----- ----------
Latin American Fund............................ N/A N/A N/A 80.19%
* The inception date for Class C shares of Latin American Fund is
03/01/99.
Cumulative total return across a stated period may be calculated as
follows:
n
P(1+V) =ERV
Where P = a hypothetical initial payment of $1,000.
V = cumulative total return assuming payment of all of,
a stated portion of, or none of, the applicable
maximum sales load at the beginning of the stated
period.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000
payment at the end of the stated period.
The cumulative total returns of Class A, Class B and Class C shares of
Developing Markets Fund (not taking sales charges into account) for the periods
shown were as follows. The cumulative total returns for Class A shares reflects,
where appropriate, the fees and expenses of the Predecessor Fund.
ONE FIVE TEN SINCE
YEAR YEARS YEARS INCEPTION*
---- ----- ----- ----------
Developing Markets Fund Class A ........ 61.50% 17.03% N/A 0.57%
Developing Markets Fund Class B ........ 60.57% N/A N/A 0.02%
Developing Markets Fund Class C ........ N/A N/A N/A 64.66%
* The inception dates for Developing Markets Fund Class A, Class B and
Class C shares are 01/11/94, 11/03/97 and 03/01/99, respectively.
78
146
The cumulative total returns of Class A and Class B shares of
Developing Markets Fund (taking sales charges into account) for the periods
shown were as follows. The cumulative total returns for Class A shares reflects,
where appropriate, the fees and expenses of the Predecessor Fund and are
recomputed to reflect the deduction of the maximum sales charge of 4.75%.
ONE FIVE TEN SINCE
YEAR YEARS YEARS INCEPTION*
---- ----- ----- ----------
Developing Markets Fund Class A............ 53.89% 11.47% N/A (4.22)%
Developing Markets Fund Class B............ 55.57% N/A N/A (2.81)%
Developing Markets Fund Class C............ N/A N/A N/A 63.66%
* The inception dates for Developing Markets Fund Class A, Class B and
Class C shares are 01/11/94, 11/03/97 and 03/01/99, respectively.
The cumulative total returns (not taking sales charges into account)
for the Class A, Class B and Class C shares of Latin American Fund, stated as
aggregate total returns for the periods shown, were:
ONE FIVE TEN SINCE
YEAR YEARS YEARS INCEPTION*
---- ----- ----- ----------
Latin American Fund Class A.................. 60.10% (5.95)% N/A 57.28%
Latin American Fund Class B.................. 59.28% (8.16)% N/A 23.07%
Latin American Fund Class C.................. N/A N/A N/A 80.19%
* The inception dates for Class A, Class B and Class C shares of Latin
American Fund are 08/31/91, 04/01/93 and 03/01/99, respectively.
The aggregate cumulative total returns (taking sales charges into
account) for the Class A, Class B and Class C shares of Latin American Fund,
stated as aggregate total returns for the periods shown, where:
ONE FIVE TEN SINCE
YEAR YEARS YEARS INCEPTION*
---- ----- ----- ----------
Latin American Fund Class A.................. 52.51% (10.42)% N/A 49.84%
Latin American Fund Class B.................. 54.28% (9.98)% N/A 23.07%
Latin American Fund Class C.................. N/A N/A N/A 79.19%
* The inception dates for Class A, Class B and Class C shares of Latin
American Fund are 08/13/91, 04/01/93 and 03/01/99, respectively.
79
147
PERFORMANCE INFORMATION
All advertisements of a Fund will disclose the maximum sales charge
(including deferred sales charges) imposed on purchases of the Fund's shares. If
any advertised performance data does not reflect the maximum sales charge (if
any), such advertisement will disclose that the sales charge has not been
deducted in computing the performance data, and that, if reflected, the maximum
sales charge would reduce the performance quoted. See the Statement of
Additional Information for further details concerning performance comparisons
used in advertisements by the Fund. Further information regarding the Fund's
performance is contained in the Fund's annual report to shareholders, which is
available upon request and without charge.
A Fund's total return is calculated in accordance with a standardized
formula for computation of annualized total return. Standardized total return
for Class A shares reflects the deduction of the Fund's maximum front-end sales
charge at the time of purchase. Standardized total return for Class B shares
reflects the deduction of the maximum applicable contingent deferred sales
charge on a redemption of shares held for the period.
A Fund's total return shows its overall change in value, including
changes in share price and assuming all the Fund's dividends and capital gain
distributions are reinvested. A cumulative total return reflects the Fund's
performance over a stated period of time. An average annual total return
reflects the hypothetical compounded annual rate of return that would have
produced the same cumulative total return if the Fund's performance had been
constant over the entire period. BECAUSE AVERAGE ANNUAL RETURNS TEND TO EVEN OUT
VARIATIONS IN THE FUND'S RETURN, INVESTORS SHOULD RECOGNIZE THAT SUCH RETURNS
ARE NOT THE SAME AS ACTUAL YEAR-BY-YEAR RESULTS. To illustrate the components of
overall performance, the Fund may separate its cumulative and average annual
returns into income results and capital gains or losses.
From time to time AIM or its affiliates may waive all or a portion of
their fees and/or assume certain expenses of any Fund. Voluntary fee waivers or
reductions or commitments to assume expenses may be rescinded at any time
without further notice to investors. During periods of voluntary fee waivers or
reductions or commitments to assume expenses, AIM will retain its ability to be
reimbursed for such fee prior to the end of each fiscal year. Contractual fee
waivers or reductions or reimbursement of expenses set forth in the Fee Table in
a Prospectus may not be terminated or amended to the Funds' detriment during the
period stated in the agreement between AIM and the Fund. Fee waivers or
reductions or commitments to reduce expenses will have the effect of increasing
that Fund's yield and total return.
The performance of each Fund will vary from time to time and past
results are not necessarily indicative of future results. A Fund's performance
is a function of its portfolio management in selecting the type and quality of
portfolio securities and is affected by operating expenses of the Fund and
market conditions. A shareholder's investment in a Fund is not insured or
guaranteed. These factors should be carefully considered by the investor before
making an investment in any Fund.
Total return and yield figures for the Funds are neither fixed nor
guaranteed, and no Fund's principal is insured. Performance quotations reflect
historical information and should not be considered representative of a Fund's
performance for any period in the future. Performance is a function of a number
of factors which can be expected to fluctuate. The Funds may provide performance
information in reports, sales literature and advertisements. The Funds may also,
from time to time, quote information about the Funds published or aired by
publications or other media entities which contain articles or segments relating
to investment results or other data about one or more of the Funds. Such
publications or media entities may include the following, among others:
80
148
Advertising Age Fortune New York Times
Barron's Global Finance Pension World
Best's Review Hartford Courant Inc. Pensions & Investments
Broker World Institutional Investor Personal Investor
Business Week Insurance Forum Financial Services Week
Changing Times Insurance Week Philadelphia Inquirer
Christian Science Monitor Investor's Daily Smart Money
Consumer Reports Journal of the American USA Today
Economist Society of CLU & ChFC U.S. News & World Report
EuroMoney Kiplinger Letter Wall Street Journal
FACS of the Week Money Washington Post
Financial Planning Mutual Fund Forecaster CNN
Financial Product News Mutual Fund Magazine CNBC
Financial World Nation's Business PBS
Forbes
The Funds and AIM Distributors may from time to time, in
advertisements, sales literature and reports furnished to present or prospective
shareholders, compare each Fund with the following, or compare each Fund's
performance to performance data of similar mutual funds as published in the
following, among others:
Bank Rate National Monitor Index Moody's Investors Service (publications)
Bear Stearns Foreign Bond Index Morgan Stanley Capital International All
Bond Buyer Index Country (AC) World Index
CDA/Wiesenberger Investment Company Services Morgan Stanley Capital International World
(data and mutual fund rankings and Indices
comparisons) Morningstar, Inc. (data and mutual fund rankings
CNBC/Financial News Composite Index and comparisons)
COFI NASDAQ
Consumer Price Index Organization for Economic Cooperation and
Datastream Development (publications)
Donoghue's Salomon Brothers Global Telecommunications
Dow Jones Industrial Average Index
EAFE Index Salomon Brothers World Government Bond
First Boston High Yield Index Index -Non U.S.
Fitch IBCA, Inc. (publications) Salomon Brothers World Government Bond
Ibbotson Associates International Bond Index Index
International Bank for Reconstruction and Standard & Poor's (publications)
Development (publications) Standard & Poor's 500 Composite Stock Price
International Finance Corporation Emerging Index
Markets Database Stangar
International Financial Statistics Wilshire Associates
Lehman Bond Indices World Bank (publications and reports)
Lipper Inc. (data and The World Bank Publication of Trends in
mutual fund rankings and comparisons) Developing Countries
Micropal, Inc. (data and mutual fund rankings Worldscope
and comparisons)
81
149
Each Fund may also compare its performance to rates on Certificates of
Deposit and other fixed rate investments such as the following:
10-year Treasuries
30-year Treasuries
30-day Treasury Bills
Information relating to foreign market performance, capitalization and
diversification is based on sources believed to be reliable but may be subject
to revision and has not been independently verified by the Funds or AIM
Distributors. Advertising for the Funds may from time to time include
discussions of general economic conditions and interest rates. Advertising for
the Funds may also include reference to the use of those Funds as part of an
individual's overall retirement investment program. From time to time, sales
literature and/or advertisements for any of the Funds may disclose (i) the
largest holdings in the Fund's portfolio, (ii) certain selling group members
and/or (iii) certain institutional shareholders.
From time to time, the Funds' sales literature and/or advertisements
may discuss generic topics pertaining to the mutual fund industry. This
includes, but is not limited to, literature addressing general information about
mutual funds, variable annuities, dollar-cost averaging, stocks, bonds, money
markets, certificates of deposit, retirement, retirement plans, asset
allocation, tax-free investing, college planning, and inflation.
Although performance data may be useful to prospective investors when
comparing a Fund's performance with other funds and other potential investments,
investors should note that the methods of computing performance of other
potential investments are not necessarily comparable to the methods employed by
a Fund.
82
150
APPENDIX
DESCRIPTION OF BOND RATINGS
Moody's Investors Service, Inc. ("Moody's") rates the debt securities
issued by various entities from "Aaa" to "C." Investment grade ratings are the
first four categories: Aaa--Bonds which are rated Aaa are judged to be of the
best quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues. Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bond because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than the Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future. Baa--Bonds
which are rated Baa are considered as medium-grade obligations, (i.e., they are
neither highly protected nor poorly secured). Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well. Ba--Bonds which are rated Ba are judged to
have speculative elements; their future cannot be considered as well-assured.
Often the protection of interest and principal payments may be very moderate,
and thereby not well safeguarded during other good and bad times over the
future. Uncertainty of position characterizes bonds in this class. B--Bonds
which are rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small. Caa--Bonds which are
rated Caa are of poor standing. Such issues may be in default or there may be
present elements of danger with respect to principal or interest. Ca--Bonds
which are rated Ca represent obligations which are speculative in a high degree.
Such issues are often in default or have other marked shortcomings. C--Bonds
which are rated C are the lowest rated class of bonds, and issues so rated can
be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Standard & Poor's, a division of The McGraw-Hill Companies, Inc.
("S&P"), rates the securities debt of various entities in categories ranging
from "AAA" to "D" according to quality. Investment grade ratings are the first
four categories: AAA--An obligation rated "AAA" has the highest rating assigned
by S&P. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong. AA--An obligation rated "AA" differs from the
highest rated obligations only in a small degree. The obligor's capacity to meet
its financial commitment on the obligation is very strong. A--An obligation
rated "A" is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher rated
categories. BBB--An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation. BB, B, CCC, CC, C--Obligations rated "BB," "B,"
"CCC," "CC," and "C" are regarded as having significant speculative
characteristics. "BB" indicates the least degree of speculation and "C" the
highest. While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions. BB--An obligation rated "BB" is less vulnerable
to nonpayment than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or economic conditions
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation. B--An obligation rated "B" is more vulnerable to
nonpayment than obligations rated "BB," but the obligor currently has the
capacity to meet its financial commitment on the obligation. Adverse business,
financial, or economic conditions will likely impair the obligor's capacity or
willingness to meet its financial commitment on the obligation. CCC--An
obligation rated "CCC" is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial
83
151
commitment on the obligation. In the event of adverse business, financial, or
economic conditions, the obligor is not likely to have the capacity to meet its
financial commitment on the obligation. CC--An obligation rated "CC" is
currently highly vulnerable to nonpayment. C--The "C" rating may be used to
cover a situation where a bankruptcy petition has been filed or similar action
has been taken, but payments on this obligation are being continued. D--An
obligation rated "D" is in payment default. The "D" rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grace period. The "D" rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified
by the addition of a plus or minus sign to show relative standing within the
major rating categories.
NR: Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's employs the designation "Prime-1" to indicate commercial paper
having a superior ability for repayment of senior short-term debt obligations.
Prime-1 repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources of
alternate liquidity. Issues rated Prime-2 have a strong ability for repayment of
senior short-term debt obligations. This normally will be evidenced by many of
the characteristics cited above but to a lesser degree. Earnings trends and
coverage ratios, while sound, may be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
S&P ratings of commercial paper are graded into several categories
ranging from "A-1" for the highest quality obligations to "D" for the lowest.
Issues in the "A" category are delineated with numbers 1, 2, and 3 to indicate
the relative degree of safety. A-1--This highest category indicates that the
degree of safety regarding timely payment is strong. Those issues determined to
possess extremely strong safety characteristics will be denoted with a plus sign
(+) designation. A-2--Capacity for timely payments on issues with this
designation is satisfactory; however, the relative degree of safety is not as
high as for issues designated "A-1."
ABSENCE OF RATING
Where no rating has been assigned or where a rating has been suspended
or withdrawn, it may be for reasons unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies
that are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or
issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
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152
Suspension or withdrawal may occur if new and material circumstances
arise, the effects of which preclude satisfactory analysis; if there is no
longer available reasonable up-to-date data to permit a judgment to be formed;
if a bond is called for redemption; or for other reasons.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic
rating classification from Aa to Caa. The modifier 1 indicates that the Company
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates that the Company ranks in the
lower end of its generic rating category.
85
153
FINANCIAL STATEMENTS
FS
154
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of AIM Developing Markets Fund
and Board of Trustees of AIM Investment Funds:
In our opinion, the accompanying statement of assets and
liabilities, including the schedule of investments, and
the related statements of operations and of changes in
net assets and the financial highlights present fairly,
in all material respects, the financial position of the
AIM Developing Markets Fund at October 31, 1999, and the
results of its operations, the changes in its net assets
and the financial highlights for the periods indicated
therein, in conformity with generally accepted accounting
principles. These financial statements and financial
highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion
on these financial statements based on our audits. We
conducted our audits of these financial statements in
accordance with generally accepted auditing standards
which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our
audits, which included confirmation of securities at
October 31, 1999 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion
expressed above.
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
December 23, 1999
FS-1
155
SCHEDULE OF INVESTMENTS
October 31, 1999
MARKET
SHARES VALUE
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-97.49%
ARGENTINA-0.95%
Banco de Galicia y Buenos Aires
S.A. de C.V.-ADR
(Banks-Regional) 62,236 $ 1,314,743
- --------------------------------------------------------------
Nortel Inversora S.A.-ADR
(Telephone) 43,400 656,425
- --------------------------------------------------------------
1,971,168
- --------------------------------------------------------------
AUSTRIA-0.26%
Julius Meinl International A.G.
(Retail-Food Chains) 44,854 537,951
- --------------------------------------------------------------
BRAZIL-10.14%
Companhia Brasileira de
Distribuicao Grupo Pao de
Acucar-Pfd. GDR (Retail-Food
Chains) 55,700 1,218,437
- --------------------------------------------------------------
Companhia de Saneamento Basico do
Estado de Sao Paulo (Water
Utilities) 11,791,509 794,356
- --------------------------------------------------------------
Companhia de Tecidos Norte de
Minas (Textiles-Specialty) 7,836,000 553,980
- --------------------------------------------------------------
Companhia Energetica de Minas
Gerais-ADR (Electric Companies) 167,280 2,390,883
- --------------------------------------------------------------
Companhia Paranaense de Energia-
Copel-ADR (Electric Companies) 209,000 1,384,625
- --------------------------------------------------------------
Companhia Vale do Rio Doce-Pfd. A
(Iron & Steel) 124,700,000 2,478,029
- --------------------------------------------------------------
Eletropaulo
Metropolitana-Eletricidade de
Sao Paulo S.A. (Electric
Companies) 31,201,339 1,422,602
- --------------------------------------------------------------
Petroleo Brasileiro
S.A.-Petrobras-Pfd. (Oil &
Gas-Exploration & Production) 21,999,978 3,499,484
- --------------------------------------------------------------
Telebras-ADR (Telephone) 43,853 3,415,052
- --------------------------------------------------------------
Telecomunicacoes de Sao Paulo
S.A. (Telephone) 17,750,000 1,228,587
- --------------------------------------------------------------
Telecomunicacoes de Sao Paulo
S.A.-Pfd. (Telephone) 335,563 31,545
- --------------------------------------------------------------
Uniao de Bancos Brasileiros
S.A.-GDR (Banks-Regional) 76,816 1,776,370
- --------------------------------------------------------------
Unibanco-Uniao de Bancos
Brasileiros S.A. (Banks-Major
Regional)(a) 19,000,472 876,144
- --------------------------------------------------------------
21,070,094
- --------------------------------------------------------------
CHILE-0.99%
Compania Cervecerias Unidas
S.A.-ADR (Beverages-Alcoholic) 40,000 872,500
- --------------------------------------------------------------
Enersis S.A.-ADR (Electric
Companies) 52,596 1,183,410
- --------------------------------------------------------------
2,055,910
- --------------------------------------------------------------
CHINA-0.96%
Beijing Yanhua Petrochemical Co.
Ltd. (Chemical Diversified)(b) 11,026,000 1,987,153
- --------------------------------------------------------------
MARKET
SHARES VALUE
EGYPT-1.11%
Al-Ahram Beverages Co. S.A.E.-GDR
(Beverages-Alcoholic) 163 $ 4,809
- --------------------------------------------------------------
Al-Ahram Beverages Co. S.A.E.-GDR
(Beverages-Alcoholic) (Acquired
06/10/97-08/07/97; Cost
$838,350)(c) 37,049 1,092,946
- --------------------------------------------------------------
Suez Cement Co.-GDR (Building
Materials) 71,830 1,203,153
- --------------------------------------------------------------
2,300,908
- --------------------------------------------------------------
GREECE-3.32%
Alpha Credit Bank
(Banks-Regional) 20,660 1,579,762
- --------------------------------------------------------------
Commercial Bank of Greece, S.A.
(Banks-Major Regional) 20,400 1,516,985
- --------------------------------------------------------------
Hellenic Telecommunication
Organization S.A.
(Telecommunication-Cellular/Wireless) 122,988 2,605,761
- --------------------------------------------------------------
National Bank of Greece S.A.
(Banks-Money Center) 16,708 1,197,725
- --------------------------------------------------------------
6,900,233
- --------------------------------------------------------------
HONG KONG-1.22%
China Everbright Ltd. (Land
Development) 3,535,500 2,525,975
- --------------------------------------------------------------
HUNGARY-2.77%
Matv Rt.-ADR (Telephone)(b) 110,000 3,169,375
- --------------------------------------------------------------
MOL Magyar Olaj-es Gazipari
Rt.-GDR (Oil- Domestic
Integrated) 128,000 2,540,800
- --------------------------------------------------------------
Pannonplast Rt. (Building
Materials)(b) 2,270 36,886
- --------------------------------------------------------------
Technoimpex (Services-Commercial
& Consumer)(b) 1,400 0
- --------------------------------------------------------------
5,747,061
- --------------------------------------------------------------
INDIA-6.21%
Associated Cement Co. Ltd.
(Construction-
Cement/Aggregates) 164 757
- --------------------------------------------------------------
BSES Ltd. (Electric Companies) 200 743
- --------------------------------------------------------------
Hindustan Lever Ltd. (Aluminum) 73,850 3,914,679
- --------------------------------------------------------------
Indian Hotels Co. Ltd.
(Lodging-Hotels) 50 423
- --------------------------------------------------------------
ITC Ltd. (Tobacco) 110,428 1,770,638
- --------------------------------------------------------------
KEC International Ltd. (Electric
Companies) 100 141
- --------------------------------------------------------------
Larsen & Toubro Ltd.
(Manufacturing- Diversified) 150,400 1,379,273
- --------------------------------------------------------------
Larsen & Tourbo Ltd.-GDR
(Manufacturing- Diversified) 65,900 1,430,030
- --------------------------------------------------------------
Mahanagar Telephone Nigam Ltd.
(Telephone) 142,100 561,067
- --------------------------------------------------------------
FS-2
156
MARKET
SHARES VALUE
INDIA-(CONTINUED)
Mahindra & Mahindra Ltd.
(Automobiles)(b) 379,700 $ 3,109,499
- --------------------------------------------------------------
Ranbaxy Laboratories Ltd. (Health
Care- Drugs-Generic & Other) 200 4,008
- --------------------------------------------------------------
State Bank of India (Banks-Major
Regional) 4,650 26,565
- --------------------------------------------------------------
Tata Engineering and Locomotive
Co. Ltd. (Automobiles) 100 552
- --------------------------------------------------------------
Videsh Sanchar Nigam Ltd.
(Telecommunications-Cellular/Wireless) 44,600 712,485
- --------------------------------------------------------------
12,910,860
- --------------------------------------------------------------
INDONESIA-2.87%
PT Indah Kiat Pulp & Paper Corp.
TbK (Paper & Forest
Products)(b) 4,074,000 1,753,217
- --------------------------------------------------------------
PT Lippo Bank Tbk (Banks-Major
Regional)(b) 128,519,400 4,218,361
- --------------------------------------------------------------
5,971,578
- --------------------------------------------------------------
IRELAND-0.28%
Central Asia Growth Fund
(Investment Management)(b) 331,000 579,250
- --------------------------------------------------------------
ISRAEL-3.60%
Bank Leumi Le-Israel (Banks-Money
Center) 1,180,113 2,082,201
- --------------------------------------------------------------
Blue Square Chain Investments and
Properties Ltd. (Retail-Food
Chains) 78,589 1,079,313
- --------------------------------------------------------------
Blue Square-Israel Ltd.-ADR
(Retail-Food Chains) 78,100 1,020,181
- --------------------------------------------------------------
Discount Investment Corp.
(Investment Banking/Brokerage) 40,500 1,544,611
- --------------------------------------------------------------
Internet Gold-Golden Lines
(Computers-Software &
Services)(b) 74,861 561,458
- --------------------------------------------------------------
Jacada Ltd. (Computers-Software &
Services)(b) 81,687 1,184,462
- --------------------------------------------------------------
Makhteshim-Agan Industries Ltd.
(Investment Management)(b) 1 2
- --------------------------------------------------------------
7,472,228
- --------------------------------------------------------------
LITHUANIA-0.15%
Vilniaus Bankas A.B.-GDR
(Banks-Regional) 54,591 313,898
- --------------------------------------------------------------
MALAYSIA-6.61%
Berjaya Sports Toto Berhad
(Leisure Time- Products) 1,157,000 2,511,908
- --------------------------------------------------------------
Commerce Asset-Holdings Berhad
(Finance- Asset Management)(b) 1,393,000 3,079,263
- --------------------------------------------------------------
Public Finance Berhad
(Banks-Regional) 1,034,000 1,110,189
- --------------------------------------------------------------
Resorts World Berhad
(Lodging-Hotels) 776,000 2,225,895
- --------------------------------------------------------------
RHB Capital Berhad (Banks-Major
Regional) 480,000 432,000
- --------------------------------------------------------------
Rothmans of Pall Mall (Malaysia)
Berhad (Tobacco)(b) 159,000 1,108,816
- --------------------------------------------------------------
MARKET
SHARES VALUE
MALAYSIA-(CONTINUED)
Telekom Malaysia Berhad
(Telephone) 1,059,000 $ 3,260,605
- --------------------------------------------------------------
13,728,676
- --------------------------------------------------------------
MEXICO-10.51%
Alpha S.A. de C.V.-Class A
(Manufacturing- Diversified) 121,000 464,368
- --------------------------------------------------------------
Cemex S.A. de C.V.
(Construction-Cement &
Aggregates) 570,392 2,580,557
- --------------------------------------------------------------
Cifra S.A. de C.V.
(Retail-General Merchandise)(b) 1,156,392 1,818,476
- --------------------------------------------------------------
Consorcio Ara, S.A. de C.V.
(Homebuilding)(b) 1,182,600 1,330,809
- --------------------------------------------------------------
Corporacion GEO S.A. de
C.V.-Series B
(Construction-Cement &
Aggregates)(b) 380,400 965,342
- --------------------------------------------------------------
Fomento Economico Mexicano, S.A.
de C.V.-ADR
(Beverages-Alcoholic) 105,474 3,460,866
- --------------------------------------------------------------
Grupo Bimbo S.A. de C.V.
(Foods)(b) 655,700 1,202,969
- --------------------------------------------------------------
Grupo Financiero Bancomer, S.A.
de C.V.-Class O
(Banks-Regional)(b) 5,275,388 1,399,089
- --------------------------------------------------------------
Grupo Televisa S.A.-GDR
(Entertainment)(b) 50,699 2,154,708
- --------------------------------------------------------------
Telefonos de Mexico S.A.-ADR
(Telephone) 56,062 4,793,301
- --------------------------------------------------------------
Tubos de Acero de Mexico S.A.-ADR
(Oil & Gas-Drilling &
Equipment) 152,088 1,663,463
- --------------------------------------------------------------
21,833,948
- --------------------------------------------------------------
PAKISTAN-0.00%
Dewan Salman Fibre Ltd.
(Chemicals-Specialty)(b) 4 2
- --------------------------------------------------------------
Pakistan State Oil Co. Ltd.
(Oil-International Integrated) 78 207
- --------------------------------------------------------------
209
- --------------------------------------------------------------
PHILIPPINES-1.63%
Far East Bank & Trust Co.
(Banks-Regional) 531,663 908,202
- --------------------------------------------------------------
Manila Electric Co. (Electric
Power) 409,290 1,122,741
- --------------------------------------------------------------
Philippine Long Distance
Telephone Co.-ADR (Telephone) 66,500 1,367,406
- --------------------------------------------------------------
3,398,349
- --------------------------------------------------------------
POLAND-1.98%
Bank Handlowy w Warszawie
(Banks-Major Regional)(b) 70,000 987,084
- --------------------------------------------------------------
Bank Handlowy w Warszawie-GDR
(Banks-Major Regional) 2,590 37,057
- --------------------------------------------------------------
BRE Bank S.A. (Banks-Major
Regional) 31,295 852,927
- --------------------------------------------------------------
Elektrim Spolka Akcyjna S.A.
(Electrical Equipment)(b) 117,144 1,013,332
- --------------------------------------------------------------
Telekomunikacja Polska S.A.-GDR
(Telephone)(b) 242,000 1,216,050
- --------------------------------------------------------------
4,106,450
- --------------------------------------------------------------
FS-3
157
MARKET
SHARES VALUE
RUSSIA-1.27%
Nizhnekamsknefte Khim (Chemicals-
Diversified)(b) 100,000 $ 67,000
- --------------------------------------------------------------
Russian Telecommunications
Development Corp.-Non-Voting
(Telecommunications-
Cellular-Wireless)(b) 52,600 1
- --------------------------------------------------------------
Russian Telecommunications
Development Corp.-Voting
(Telecommunications-
Cellular-Wireless)(b) 38,400 0
- --------------------------------------------------------------
Surgutneftegaz-ADR
(Oil-International Integrated) 307,930 2,563,517
- --------------------------------------------------------------
2,630,518
- --------------------------------------------------------------
SOUTH AFRICA-8.98%
Anglo American Platinum Corp.
Ltd. (Metals Mining) 105,000 3,025,641
- --------------------------------------------------------------
Anglo American PLC (Metals
Mining) 39,600 2,108,132
- --------------------------------------------------------------
Barlow Ltd.
(Manufacturing-Diversified) 327,200 1,595,383
- --------------------------------------------------------------
FirstRand Ltd. (Banks-Regional) 1,643,600 1,899,806
- --------------------------------------------------------------
Liberty Life Association of
Africa Ltd. (Insurance Brokers) 122,624 1,137,903
- --------------------------------------------------------------
Rembrandt Group Ltd. (Investment
Management) 294,270 2,201,336
- --------------------------------------------------------------
Sanlam Ltd.
(Insurance-Life/Health) 1,798,960 2,064,740
- --------------------------------------------------------------
Sappi Ltd. (Paper & Forest
Products) 305,000 2,527,391
- --------------------------------------------------------------
South African Breweries PLC
(Beverages- Alcoholic) 210,538 1,844,028
- --------------------------------------------------------------
Standard Bank Investment Corp.
Ltd. (Banks-Major Regional)(b) 75,550 258,291
- --------------------------------------------------------------
18,662,651
- --------------------------------------------------------------
SOUTH KOREA-12.31%
Housing & Commercial Bank-GDR
(Banks-Major Regional)(b) 37,500 991,039
- --------------------------------------------------------------
Kia Motors Corp. (Automobiles)(b) 180,900 1,809,754
- --------------------------------------------------------------
Kia Motors Corp.-Rts., expiring
11/09/99 (Automobiles)(b) 30,898 69,549
- --------------------------------------------------------------
Korea Electric Power Corp.-ADR
(Electric Companies) 116,847 1,840,340
- --------------------------------------------------------------
Korea Telecom Corp.-ADR
(Telephone)(b) 57,450 2,025,113
- --------------------------------------------------------------
Merrill Lynch International & Co.
KOSPI 200-Wts., expiring
09/14/00 (Investment Banking) 1,582,230 13,101,814
- --------------------------------------------------------------
Pohang Iron & Steel Co. Ltd.-ADR
(Iron & Steel) 123,540 4,123,148
- --------------------------------------------------------------
Shinhan Bank-GDR (Banks-Major
Regional)(b) 75,747 1,619,092
- --------------------------------------------------------------
25,579,849
- --------------------------------------------------------------
TAIWAN-14.79%
ABN AMRO Bank N.V.-EPN, expiring
04/28/00 (Investment
Management)(b)(d) 465 5,184,285
- --------------------------------------------------------------
MARKET
SHARES VALUE
TAIWAN-(CONTINUED)
ABN AMRO Bank N.V.-EPN, expiring
09/28/00 (Investment
Management)(b)(d) 600 $ 5,692,200
- --------------------------------------------------------------
Asian Petro Equity Linke (Oil &
Gas-Refining & Marketing)(b) 361 2,623,835
- --------------------------------------------------------------
Austek Computer, Inc. (Computers-
Hardware)(b) 773 10,924
- --------------------------------------------------------------
Cathay Life Insurance Co., Ltd.
(Insurance Brokers) 200,000 517,024
- --------------------------------------------------------------
China Development Industrial Bank
(Investment Management)(b) 937,438 1,391,971
- --------------------------------------------------------------
China Steel Corp. (Metals Mining) 3,172,000 2,440,000
- --------------------------------------------------------------
Compeq Manufacturing Co., Ltd.
(Computers-Hardware) 297,700 1,520,410
- --------------------------------------------------------------
Delta Electronics, Inc.
(Electronics-Component
Distributors) 267,480 1,117,311
- --------------------------------------------------------------
Hon Hai Precision Industry Co.,
Ltd. (Electronics-Component
Distributors)(b) 355,544 2,432,316
- --------------------------------------------------------------
Hon Hai Precision Industry Co.,
Ltd.-GDR (Electronics-Component
Distributors)(b) 46,413 753,051
- --------------------------------------------------------------
Nan Ya Plastic Corp.
(Chemicals-Specialty) 1 1
- --------------------------------------------------------------
Taiwan Semiconductor
Manufacturing Co. Ltd.
(Electronics-Semiconductors)(b) 300,000 1,333,544
- --------------------------------------------------------------
Taiwan Semiconductor
Manufacturing Co. Ltd.-ADR
(Electronics-Semiconductors) 80,000 2,770,000
- --------------------------------------------------------------
United Microelectronics Corp.
Ltd. (Electronics-Component
Distributors)(b) 578,000 1,503,310
- --------------------------------------------------------------
Yang Ming Marine Transport
(Shipping)(b) 2,571,000 1,434,637
- --------------------------------------------------------------
30,724,819
- --------------------------------------------------------------
THAILAND-0.90%
Siam Commercial Bank PLC
(Banks-Regional)(b) 303,850 330,571
- --------------------------------------------------------------
Siam Commercial Bank PLC-Pfd.
(Banks-Regional)(b) 972,442 1,102,042
- --------------------------------------------------------------
Siam Commercial Bank-Wts.,
expiring 05/10/02
(Banks-Regional)(b) 1,248,542 436,093
- --------------------------------------------------------------
1,868,706
- --------------------------------------------------------------
TURKEY-3.27%
Haci Omer Sabanci Holding A.S.
(Investment Management) 71,501,500 2,119,301
- --------------------------------------------------------------
Turkiye Is Bankasi (Isbank)
(Banks-Money Center) 85,258,247 1,684,700
- --------------------------------------------------------------
Yapi ve Kredi Bankasi A.S.
(Banks-Money Center) 205,904,400 2,997,963
- --------------------------------------------------------------
6,801,964
- --------------------------------------------------------------
FS-4
158
MARKET
SHARES VALUE
VENEZUELA-0.41%
Cia. Anonima Nacional Telefonos
de Venezuela-ADR
(Telecommunications- Long
Distance) 32,900 $ 849,231
- --------------------------------------------------------------
Total Foreign Stocks & Other
Equity Interests (Cost
$205,590,442) 202,529,637
- --------------------------------------------------------------
PRINCIPAL
AMOUNT
U.S. DOLLAR DENOMINATED
NON-CONVERTIBLE BONDS &
NOTES-0.00%
SOVEREIGN DEBT-0.00%
Bank of Foreign Economic Affairs
(Vnesheconombank) (Russia),
Interest in Arrears Notes,
5.968%, 12/15/15 (Cost
$7,777)(e)(f) $ 45,784 5,322
- --------------------------------------------------------------
MARKET
SHARES VALUE
MONEY MARKET FUNDS-1.74%
STIC Liquid Assets Portfolio(g) 1,806,852 $ 1,806,852
- --------------------------------------------------------------
STIC Prime Portfolio(g) 1,806,852 1,806,852
- --------------------------------------------------------------
Total Money Market Funds
(Cost $3,613,704) 3,613,704
- --------------------------------------------------------------
TOTAL INVESTMENTS-99.23% 206,148,663
- --------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-0.77% 1,599,357
- --------------------------------------------------------------
NET ASSETS-100.00% $207,748,020
==============================================================
Investment Abbreviations:
ADR - American Depositary Receipt
EPN - Equity Participation Notes
GDR - Global Depositary Receipt
Pfd. - Preferred
Rts. - Rights
Wts. - Warrants
Notes to Schedule of Investments:
(a) Each unit represents one preferred share of Unibanco and one preferred "B"
share of Unibanco Holdings.
(b) Non-income producing security.
(c) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The valuation of these securities has been determined in
accordance with procedures established by the Board of Trustees. The
aggregate market value of these securities at 10/31/99 was $1,092,945 which
represented 0.53% of the Fund's net assets.
(d) Equity participation notes on basket of Taiwan stocks.
(e) The coupon rate shown in floating rate note represents the rate at period
end.
(f) Defaulted security. Currently, the issuer is in default with respect to
interest payments.
(g) The security shares the same investment advisor as the Fund.
See Notes to Financial Statements.
FS-5
159
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1999
ASSETS:
Investments, at value (cost $209,211,923) $206,148,663
- ------------------------------------------------------------
Foreign currencies, at value (cost $2,528,014) 2,503,509
- ------------------------------------------------------------
Receivables for:
Investments sold 570,570
- ------------------------------------------------------------
Fund shares sold 699,871
- ------------------------------------------------------------
Dividends and interest 799,063
- ------------------------------------------------------------
Total assets 210,721,676
- ------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 1,384,045
- ------------------------------------------------------------
Fund shares reacquired 946,210
- ------------------------------------------------------------
Amount due to custodian bank 3,446
- ------------------------------------------------------------
Accrued advisory fees 173,001
- ------------------------------------------------------------
Accrued distribution fees 135,524
- ------------------------------------------------------------
Accrued accounting services fees 4,201
- ------------------------------------------------------------
Accrued transfer agent fees 127,021
- ------------------------------------------------------------
Accrued trustees' fees 4,882
- ------------------------------------------------------------
Accrued operating expenses 195,326
- ------------------------------------------------------------
Total liabilities 2,973,656
- ------------------------------------------------------------
Net assets applicable to shares outstanding $207,748,020
============================================================
NET ASSETS:
Class A $157,197,964
============================================================
Class B $ 49,723,202
============================================================
Class C $ 411,826
============================================================
Advisor Class $ 415,028
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 15,944,507
============================================================
Class B 5,079,702
============================================================
Class C 42,079
============================================================
Advisor Class 42,020
============================================================
Class A:
Net asset value and redemption price per
share $ 9.86
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $9.86 divided by
95.25%) $ 10.35
============================================================
Class B:
Net asset value and offering price per share $ 9.79
============================================================
Class C:
Net asset value and offering price per share $ 9.79
============================================================
Advisor Class:
Net asset value, redemption and offering
price per share $ 9.88
============================================================
STATEMENT OF OPERATIONS
For the year ended October 31, 1999
INVESTMENT INCOME:
Dividends (net of $294,405 foreign withholding
tax) $ 3,536,471
- ------------------------------------------------------------
Interest 452,845
- ------------------------------------------------------------
Securities lending 141,802
- ------------------------------------------------------------
Total investment income 4,131,118
- ------------------------------------------------------------
EXPENSES:
Advisory and administrative fees 1,560,741
- ------------------------------------------------------------
Accounting services fees 42,462
- ------------------------------------------------------------
Custodian fees 152,242
- ------------------------------------------------------------
Distribution fees -- Class A 439,522
- ------------------------------------------------------------
Distribution fees -- Class B 357,273
- ------------------------------------------------------------
Distribution fees -- Class C 1,425
- ------------------------------------------------------------
Transfer agent fees -- Class A 654,830
- ------------------------------------------------------------
Transfer agent fees -- Class B 189,040
- ------------------------------------------------------------
Transfer agent fees -- Class C 754
- ------------------------------------------------------------
Transfer agent fees -- Advisor Class 2,367
- ------------------------------------------------------------
Interest (Note 4) 18,797
- ------------------------------------------------------------
Printing fees 335,170
- ------------------------------------------------------------
Other 265,876
- ------------------------------------------------------------
Total expenses 4,020,499
- ------------------------------------------------------------
Less: Expenses paid indirectly (9,544)
- ------------------------------------------------------------
Fees waived by advisor (747,433)
- ------------------------------------------------------------
Net expenses 3,263,522
- ------------------------------------------------------------
Net investment income 867,596
- ------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES
Net realized gain (loss) from:
Investment securities 3,287,085
- ------------------------------------------------------------
Foreign currencies (466,771)
- ------------------------------------------------------------
2,820,314
- ------------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of:
Investment securities 23,953,037
- ------------------------------------------------------------
Foreign currencies (65,862)
- ------------------------------------------------------------
23,887,175
- ------------------------------------------------------------
Net gain from investment securities and
foreign currencies 26,707,489
- ------------------------------------------------------------
Net increase in net assets resulting from
operations $27,575,085
============================================================
See Notes to Financial Statements.
FS-6
160
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended October 31, 1999 and 1998
1999 1998
------------- -------------
OPERATIONS:
Net investment income $ 867,596 $ 6,869,096
- --------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
foreign currencies 2,820,314 (83,359,123)
- --------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 23,887,175 13,741,429
- --------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 27,575,085 (62,748,598)
- --------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A (1,347,785) (11,841,080)
- --------------------------------------------------------------------------------------------
Class B (1,895) (1,499)
- --------------------------------------------------------------------------------------------
Advisor Class (510) (46)
- --------------------------------------------------------------------------------------------
SHARE TRANSACTIONS-NET:
Class A 46,116,184 (295,354,688)
- --------------------------------------------------------------------------------------------
Class B 46,956,910 226,865
- --------------------------------------------------------------------------------------------
Class C 409,272 --
- --------------------------------------------------------------------------------------------
Advisor Class 340,305 40,312
- --------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 120,047,566 (369,678,734)
- --------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 87,700,454 457,379,188
- --------------------------------------------------------------------------------------------
End of period $ 207,748,020 $ 87,700,454
============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 462,286,688 $ 250,014,000
- --------------------------------------------------------------------------------------------
Undistributed net investment income 601,051 1,105,906
- --------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities and foreign currencies (252,000,704) (136,393,263)
- --------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities and foreign currencies (3,139,015) (27,026,189)
- --------------------------------------------------------------------------------------------
$ 207,748,020 $ 87,700,454
============================================================================================
NOTES TO FINANCIAL STATEMENTS
October 31, 1999
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Developing Markets Fund (the "Fund") is a separate series of AIM Investment
Funds (the "Trust"). The Trust is organized as a Delaware business trust and is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of twelve
separate series portfolios, each having an unlimited number of shares of
beneficial interest. The Fund consists of four different classes of shares:
Class A shares, Class B shares, Class C shares and Advisor Class shares. Class A
shares are sold with a front-end sales charge. Class B shares and Class C shares
are sold with a contingent deferred sales charge. Advisor Class shares were sold
without a sales charge. Matters affecting each portfolio or class will be voted
on exclusively by the shareholders of such portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is long-term growth of capital and its
secondary objective is income, to the extent consistent with seeking growth of
capital.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the preparation of its financial statements.
A. Security Valuations--A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
reported on the NASDAQ National Market System is valued at the last sales
price on the valuation date or absent a last sales price, at the closing bid
price. Debt obligations (including convertible bonds) are valued on the basis
of prices provided by an independent pricing service. Prices provided by the
pricing service may be determined without exclusive reliance on
FS-7
161
quoted prices, and may reflect appropriate factors such as yield, type of
issue, coupon rate and maturity date. Securities for which market prices are
not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in the
case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. Securities for which market quotations
are not readily available or are questionable are valued at fair value as
determined in good faith by or under the supervision of the Trust's officers
in a manner specifically authorized by the Board of Trustees. Short-term
obligations having 60 days or less to maturity are valued at amortized cost
which approximates market value. For purposes of determining net asset value
per share, futures and options contracts generally will be valued 15 minutes
after the close of trading of the New York Stock Exchange ("NYSE").
Generally, trading in foreign securities is substantially completed each
day at various times prior to the close of the NYSE. The values of such
securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the NYSE. Occasionally, events
affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of the NYSE
which would not be reflected in the computation of the Fund's net asset
value. If events materially affecting the value of such securities occur
during such period, then these securities will be valued at their fair value
as determined in good faith by or under the supervision of the Board of
Trustees.
B. Securities Transactions, Investment Income and Distributions--Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income is recorded on the
ex-dividend date. The Fund may elect to use a portion of the proceeds of fund
share redemptions as distributions for Federal income tax purposes.
Distributions from income and net realized capital gains, if any, are
generally paid annually and recorded on ex-dividend date.
On October 31, 1999, undistributed net investment income was decreased by
$22,262, undistributed net realized losses increased by $118,427,755 and
paid-in capital increased by $118,450,017 in order to comply with the
requirements of the American Institute of Certified Public Accountants
Statement of Position 93-2. Net assets of the Fund were unaffected by the
reclassification discussed above.
C. Federal Income Taxes--The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements. The Fund has a capital loss
carryforward of $251,405,753 as of October 31, 1999 which may be carried
forward to offset future taxable gains, if any, and expires in varying
increments, if not previously utilized, in the year 2007.
D. Foreign Currency Translations--Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S. dollar
amounts at date of valuation. Purchases and sales of portfolio securities and
income items denominated in foreign currencies are translated into U.S.
dollar amounts on the respective dates of such transactions. The Fund does
not separately account for that portion of the results of operations
resulting from changes in foreign exchange rates on investments and the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
E. Foreign Currency Contracts--A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
F. Expenses--Distribution expenses directly attributable to a class of shares
are charged to that class' operations. All other expenses which are
attributable to more than one class are allocated among the classes.
G. Foreign Securities--There are certain additional considerations and risks
associated with investing in foreign securities and currency transactions
that are not inherent in investments of domestic origin. The Fund's
investment in emerging market countries may involve greater risks than
investments in more developed markets and the price of such investments may
be volatile. These risks of investing in foreign and emerging markets may
include foreign currency exchange fluctuations, perceived credit risk,
adverse political and economic developments and possible adverse foreign
government intervention.
H. Indexed Securities--The Fund may invest in indexed securities whose value
is linked either directly or indirectly to changes in foreign currencies,
interest rates, equities, indices, or other reference instruments. Indexed
securities may be more volatile than the reference instrument itself, but any
loss is limited to the amount of the original investment.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
A I M Advisors, Inc. ("AIM") is the Fund's investment manager and administrator.
INVESCO Asset Management Limited is the Fund's sub-advisor and
sub-administrator. The Fund pays AIM investment management and administration
fees at an annual rate of 0.975% on the first $500 million of the Fund's average
daily net assets, plus 0.95% on the next $500 million of the Fund's average
daily net assets, plus 0.925% on the next $500 million of the Fund's average
daily net assets, plus 0.90% on the Fund's average daily net assets exceeding
$1.5 billion. AIM has contractually agreed to limit the Fund's expenses
(exclusive of brokerage commissions, taxes, interest and extraordinary expenses)
to the maximum annual rate of 2.00%, 2.50%, 2.50% and 1.50% of the average daily
net assets of the Fund's Class A, Class B, Class C and Advisor Class shares,
respectively. During the year ended October 31, 1999, the AIM waived fees of
$747,433.
FS-8
162
Effective July 1, 1999, the Trust entered into a master administrative
services agreement with AIM, replacing the prior pricing and accounting
agreement. The Fund, pursuant to the master administrative services agreement
with AIM, has agreed to pay AIM for certain administrative costs incurred in
providing accounting services to the Fund. Prior to July 1, 1999, AIM was the
pricing and accounting agent for the Fund. The monthly fee for these services
paid to AIM was a percentage, not to exceed 0.03% annually, of a Fund's average
daily net assets. The annual fee rate was derived based on the aggregate net
assets of the funds which comprised the following investment companies: AIM
Growth Series, AIM Investment Funds, AIM Series Trust, G.T. Global Variable
Investment Series and G.T. Global Variable Investment Trust. The fee was
calculated at the rate of 0.03% of the first $5 billion of assets and 0.02% to
the assets in excess of $5 billion. An amount is allocated to and paid by each
such fund based on its relative average daily net assets. For the year ended
October 31, 1999, AIM was paid $42,462 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. For the year ended October 31, 1999, AFS was
paid $686,201 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C and Advisor Class shares of the Fund. The Trust has
adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A shares, Class B shares and Class C shares (collectively the
"Plans"). The Fund , pursuant to the Plans, pays AIM Distributors compensation
at the annual rate of 0.50% of the Fund's average daily net assets of Class A
shares and 1.00% of the average daily net assets of Class B and C shares. Of
these amounts, the Fund may pay a service fee of 0.25% of the average daily net
assets of the Class A, Class B or Class C shares to selected dealers and
financial institutions who furnish continuing personal shareholder services to
their customers who purchase and own the appropriate class of shares of the
Fund. Any amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. The Plans also impose a cap on the total sales
charges, including asset-based sales charges that may be paid by the respective
classes. For the year ended October 31, 1999, the Class A, Class B and Class C
shares paid AIM Distributors $439,522, $357,273 and $1,425, respectively, as
compensation under the Plans.
AIM Distributors received commissions of $16,209 from sales of the Class A
shares of the Fund during the year ended October 31, 1999. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended October 31, 1999,
AIM Distributors received $6,877 in contingent deferred sales charges imposed on
redemptions of Fund shares. Certain officers and trustees of the Trust are
officers and directors of AIM, AFS and AIM Distributors.
NOTE 3-INDIRECT EXPENSES
During the year ended October 31, 1999, the Fund received reductions in
custodian fees of $9,544 under expense offset arrangements. The effect of the
above arrangements resulted in a reduction of the Fund's total expenses of
$9,544 during the year ended October 31, 1999.
NOTE 4-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $1,000,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. The funds which
are party to the line of credit are charged a commitment fee of 0.09% on the
unused balance of the committed line. The commitment fee is allocated among the
funds based on their respective average net assets for the period. Prior to May
28, 1999, the Fund, along with certain other funds advised and/or administered
by AIM, had a line of credit with BankBoston and State Street Bank & Trust
Company. The arrangements with the banks allowed the Fund and certain other
funds to borrow, on a first come, first served basis, an aggregate maximum
amount of $250,000,000.
During the year ended October 31, 1999, the average outstanding daily balance
of bank loans for the Fund was $337,903 with a weighted average interest rate of
5.33%. Interest expense for the Fund for the year ended October 31, 1999 was
$18,797.
NOTE 5-PORTFOLIO SECURITIES LOANED
At October 31, 1999, securities with an aggregate value of $17,226,481 were on
loan to brokers. The loans were secured by cash collateral of $17,571,010
received by the Fund. For the year ended October 31, 1999, the Fund received
fees of $141,802 for securities lending.
For international securities, cash collateral is received by the Fund against
loaned securities in an amount at least equal to 105% of the market value of the
loaned securities at the inception of each loan. This collateral must be
maintained at not less than 103% of the market value of the loaned securities
during the period of the loan. For domestic securities, cash collateral is
received by the Fund against loaned securities in the amount at least equal to
102% of the market value of the loaned securities at the inception of each loan.
This collateral must be maintained at not less than 100% of the market value of
the loaned securities during the period of the loan. The cash collateral is
invested in a securities lending trust which consists of a portfolio of high
quality short duration securities whose average effective duration is restricted
to 120 days or less.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended October 31, 1999 was
$280,768,924 and $191,097,959, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of October 31, 1999 is as follows:
Aggregate unrealized appreciation of
investment securities $ 26,747,536
- ---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (37,735,639)
- ---------------------------------------------------------
Net unrealized depreciation of investment
securities $(10,988,103)
=========================================================
Cost of investments for tax purposes is $217,136,766.
FS-9
163
NOTE 7-SHARE INFORMATION
Changes in shares outstanding during the years ended October 31, 1999 and 1998
were as follows:
1999 1998
------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ----------- -------------
Sold:
Class A 3,932,389 $ 45,584,475 486,628 $ 5,011,027
- ---------------------------------------------------------------------------------------------------------------------
Class B 911,202 18,260,670 30,654 314,666
- ---------------------------------------------------------------------------------------------------------------------
Class C* 68,223 667,879 -- --
- ---------------------------------------------------------------------------------------------------------------------
Advisor Class 67,714 758,300 4,782 49,262
- ---------------------------------------------------------------------------------------------------------------------
Issued in connection with acquisition:**
Class A 9,961,789 87,235,238 -- --
- ---------------------------------------------------------------------------------------------------------------------
Class B 5,660,631 42,680,510 -- --
- ---------------------------------------------------------------------------------------------------------------------
Advisor Class 64,652 488,221 -- --
- ---------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A 125,865 932,660 676,257 8,203,222
- ---------------------------------------------------------------------------------------------------------------------
Class B 255 1,881 124 1,499
- ---------------------------------------------------------------------------------------------------------------------
Advisor Class 69 510 4 46
- ---------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (9,691,690) (87,636,190)+ (25,963,398) (308,568,937)
- ---------------------------------------------------------------------------------------------------------------------
Class B (1,512,951) (13,986,150) (10,213) (89,300)
- ---------------------------------------------------------------------------------------------------------------------
Class C* (26,144) (258,606) -- --
- ---------------------------------------------------------------------------------------------------------------------
Advisor Class (94,292) (906,727) (909) (8,996)
- ---------------------------------------------------------------------------------------------------------------------
9,467,712 $ 93,822,671 (24,776,071) $(295,087,511)
=====================================================================================================================
* Class C shares commenced sales on March 1, 1999.
** AIM Emerging Markets Fund ("Emerging Markets Fund") and AIM Eastern Europe
Fund ("Eastern Europe Fund") transferred all of their assets to the Fund on
February 12, 1999 and September 10, 1999, respectively, pursuant to a plan of
reorganization and termination. The Fund assumed all of the liabilities of the
Emerging Markets Fund and the Eastern Europe Fund. Shareholders of the Emerging
Markets Fund and Eastern Europe Fund were issued full and fractional shares of
the applicable class of the Fund. The acquisitions, which were approved by the
shareholders of Emerging Markets Fund and Eastern Europe Fund on February 10,
1999 and August 25, 1999, respectively, were accomplished by an exchange of
10,912,463 shares of the Fund for the 11,087,719 shares then outstanding of the
Emerging Markets Fund and 4,774,609 shares of the Fund for the 5,864,782 shares
then outstanding of the Eastern Europe Fund. Based on the opinion of the Fund
counsel, the reorganization qualified as a tax-free reorganization for federal
income tax purposes with no gain or loss recognized to the Fund or its
shareholders. Emerging Markets Fund's and Eastern Europe Fund's net assets,
including ($18,098,264) and ($1,068,554), respectively, of unrealized
depreciation were combined with the Fund for total net assets after the
acquisition of $159,666,366 and $238,151,276, respectively.
+ This amount includes $370,669 of redemption fees associated with merger of
Eastern Europe.
FS-10
164
NOTE 8-FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
CLASS A
------------------------------------------------------------------------------------
YEAR YEAR TEN MONTHS YEAR ENDED
ENDED ENDED ENDED DECEMBER 31, JANUARY 11, 1994
OCTOBER 31, OCTOBER 31, OCTOBER 31, ------------------- TO DECEMBER 31,
1999(a) 1998(a) 1997(b) 1996 1995 1994
--------- ---------- ----------- -------- -------- ----------------
Net asset value, beginning of period 7.53 $ 12.56 $ 13.84 $ 11.60 $ 12.44 $ 15.00
- --------------------------------------------- -------- --------- ---------- --------- --------- --------
Income from investment operations:
Net investment income 0.06 0.39(c)(d) 0.25 0.53 0.72 0.35
- --------------------------------------------- -------- --------- ---------- --------- --------- --------
Net realized and unrealized gain (loss) on
investments 2.36 (5.10) (1.53) 2.19 (0.84) (2.46)
- --------------------------------------------- -------- --------- ---------- --------- --------- --------
Net increase (decrease) from investment
operations 2.42 (4.71) (1.28) 2.72 (0.12) (2.11)
- --------------------------------------------- -------- --------- ---------- --------- --------- --------
Redemption fees retained 0.03 0.28 -- -- -- --
- --------------------------------------------- -------- --------- ---------- --------- --------- --------
Distributions to shareholders:
From net investment income (0.12) (0.60) -- (0.48) (0.72) (0.35)
- --------------------------------------------- -------- --------- ---------- --------- --------- --------
From net realized gain on investments -- -- -- -- -- (0.10)
- --------------------------------------------- -------- --------- ---------- --------- --------- --------
Total distributions (0.12) (0.60) -- (0.48) (0.72) (0.45)
- --------------------------------------------- -------- --------- ---------- --------- --------- --------
Net asset value, end of period 9.86 $ 7.53 $ 12.56 $ 13.84 $ 11.60 $ 12.44
============================================= ======== ========= ========== ========= ========= ========
Total return(e) 33.11% (37.09)% (9.25)% 23.59% (0.95)% (14.07)%
============================================= ======== ========= ========== ========= ========= ========
Ratios and supplemental data:
Net assets, end of period (in 000's) 157,198 $ 87,517 $ 457,379 $ 504,012 $ 422,348 $ 452,872
============================================= ======== ========= ========== ========= ========= ========
Ratio of net investment income to average net
assets:
With fee waivers 0.68%(f) 3.84 2.03%(g) 4.07% 6.33% 2.75%(g)
============================================= ======== ========= ========== ========= ========= ========
Without fee waivers 0.21%(f) 3.43% 1.95%(g) 4.04% 6.30% 2.75%(g)
============================================= ======== ========= ========== ========= ========= ========
Ratio of expenses to average net assets
excluding interest expense:
With fee waivers 1.90%(f) 1.73% 1.75%(g) 1.82% 1.77% 2.01%(g)
============================================= ======== ========= ========== ========= ========= ========
Without fee waivers 2.37%(f) 2.14% 1.83%(g) 1.85% 1.80% 2.01%(g)
============================================= ======== ========= ========== ========= ========= ========
Ratio of interest expense to average net
assets (Note 5) 0.01% 0.20% N/A N/A N/A N/A
============================================= ======== ========= ========== ========= ========= ========
Portfolio turnover rate 125% 111% 184%(g) 138% 75% 56%(g)
============================================= ======== ========= ========== ========= ========= ========
(a) These selected per share data were calculated based upon the average shares
outstanding during the period.
(b) Prior to November 1, 1997 the Fund was known as G.T. Developing Markets
Fund, Inc. All capital shares issued and outstanding on October 31, 1997
were reclassified as Class A shares.
(c) Before reimbursement the net investment income per share would have been
reduced by $0.04.
(d) Net investment income per share reflects an interest payment received from
the conversion of Vnesheconombank loan agreements of $0.14 per share.
(e) Total return does not include sales charges and is not annualized for
periods less than one year.
(f) Ratios are based on average net assets of $123,758,642.
(g) Annualized.
FS-11
165
NOTE 8-FINANCIAL HIGHLIGHTS (CONTINUED)
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
CLASS B CLASS C ADVISOR CLASS
----------------------- -------------- --------------------
YEAR YEAR MARCH 1, YEAR ENDED
ENDED ENDED 1999 OCTOBER 31,
OCTOBER 31, OCTOBER 31, TO OCTOBER 31, --------------------
1999(a) 1998(a) 1999(a) 1999(a) 1998(a)
------- ------- ------- ------- -------
Net asset value, beginning of period $ 7.49 $ 12.56 $ 7.47 $ 7.55 $ 12.56
- ---------------------------------------------------------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss) 0.01 0.31(b)(c) -- 0.10 0.40(b)(c)
- ---------------------------------------------------------- ------- ------- ------- ------- -------
Net realized and unrealized gain (loss) on investments 2.37 (5.07) 2.32 2.39 (5.09)
- ---------------------------------------------------------- ------- ------- ------- ------- -------
Net increase (decrease) from investment operations 2.38 (4.76) 2.32 2.49 (4.69)
- ---------------------------------------------------------- ------- ------- ------- ------- -------
Redemption fees retained -- 0.28 -- -- 0.28
- ---------------------------------------------------------- ------- ------- ------- ------- -------
Distributions to shareholders:
From net investment income (0.08) (0.59) -- (0.16) (0.60)
- ---------------------------------------------------------- ------- ------- ------- ------- -------
Net asset value, end of period $ 9.79 $ 7.49 $ 9.79 $ 9.88 $ 7.55
========================================================== ======= ======= ======= ======= =======
Total return (based on net asset value)(d) 32.14% (39.76)% 31.06% 33.62% (42.63)%
========================================================== ======= ======= ======= ======= =======
Ratios and supplemental data:
Net assets, end of period (in 000's) $49,723 $ 154 $ 412 $ 415 $ 29
========================================================== ======= ======= ======= ======= =======
Ratio of net investment income (loss) to average net
assets:
With fee waivers 0.08%(e) 3.09% 0.08%(f) 1.07%(e) 4.09%
========================================================== ======= ======= ======= ======= =======
Without fee waivers (0.39)%(e) 2.68% (0.39)%(f) 0.60%(e) 3.68%
========================================================== ======= ======= ======= ======= =======
Ratio of expenses to average net assets excluding interest
expense:
With fee waivers 2.50%(e) 2.48% 2.50%(f) 1.51%(e) 1.48%
========================================================== ======= ======= ======= ======= =======
Without fee waivers 2.97%(e) 2.89% 2.97%(f) 1.98%(e) 1.89%
========================================================== ======= ======= ======= ======= =======
Ratio of interest expense to average net assets (Note 5) 0.01% 0.20% 0.01% 0.01% 0.20%
========================================================== ======= ======= ======= ======= =======
Portfolio turnover rate 125% 111% 125% 125% 111%
========================================================== ======= ======= ======= ======= =======
(a) These selected per share data were calculated based upon the average shares
outstanding during the period.
(b) Before reimbursement the net investment income per share would have been
reduced by $0.04.
(c) Net investment income per share reflects an interest payment received from
the conversion of Vnesheconombank loan agreements of $0.14 per share.
(d) Total return does not include sales charges and is not annualized for
periods less than one year.
(e) Ratios are based on average net assets of $35,727,260 and $447,433 for
Class B and Advisor Class, respectively.
(f) Ratios are annualized and based on average net assets of $208,934.
NOTE 9-SUBSEQUENT EVENT
On November 3, 1999, the Board of Trustees approved the conversion of Advisor
Class Shares into Class A Shares. The proposed effective date of this conversion
is February 11, 2000.
FS-12
166
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of AIM Latin American Growth Fund
and Board of Trustees of AIM Investment Funds:
In our opinion, the accompanying statement of assets and
liabilities, including the schedule of investments, and
the related statements of operations and of changes in
net assets and the financial highlights present fairly,
in all material respects, the financial position of the
AIM Latin American Growth Fund at October 31, 1999, and
the results of its operations, the changes in its net
assets and the financial highlights for the periods
indicated, in conformity with generally accepted
accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion
on these financial statements based on our audits. We
conducted our audits of these financial statements in
accordance with generally accepted auditing standards
which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our
audits, which included confirmation of securities at
October 31, 1999 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion
expressed above.
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
December 23, 1999
FS-13
167
SCHEDULE OF INVESTMENTS
October 31, 1999
MARKET
SHARES VALUE
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-97.58%
ARGENTINA-11.90%
Acindar Industria Argentina de
Aceros S.A.-Series B (Iron &
Steel)(a) 400,000 $ 640,301
- --------------------------------------------------------------
Banco de Galicia y Buenos Aires
S.A. de C.V.-ADR (Banks-Regional) 46,118 974,243
- --------------------------------------------------------------
Banco Hipotecario S.A.-Wts.
(Banks-Regional), expiring
02/02/04(b) 617 339,350
- --------------------------------------------------------------
Banco Rio de La Plata S.A.-ADR
(Banks-Major Regional) 100,233 1,290,500
- --------------------------------------------------------------
Fivenez Banco Hipotecario
(Banks-Regional) 122,243 1,388,143
- --------------------------------------------------------------
IRSA Inversiones y Representaciones
S.A.-GDR (Land Development) 35,157 1,061,302
- --------------------------------------------------------------
Juan Minetti S.A.
(Construction-Cement &
Aggregates)(a) 170,390 461,974
- --------------------------------------------------------------
Nortel Inversora S.A.-ADR
(Telephone) 200,500 3,032,563
- --------------------------------------------------------------
Quilmes Industrial S.A.-ADR
(Beverages-Alcoholic) 132,164 1,379,462
- --------------------------------------------------------------
10,567,838
- --------------------------------------------------------------
BRAZIL-35.74%
C.A. La Electricidad de Caracas-ADR
(Electric Companies) 88,588 1,669,866
- --------------------------------------------------------------
Caemi Mineracao E Metalurgica
S.A.-Pfd. (Iron & Steel) 12,750,000 597,656
- --------------------------------------------------------------
Companhia Brasileira de Petroleo
Ipiranga (Oil & Gas-Refining &
Marketing) 120,000,000 960,861
- --------------------------------------------------------------
Companhia Cimento Portland Itau
(Construction-Cement &
Aggregates) 650,000 64,101
- --------------------------------------------------------------
Companhia de Saneamento Basico do
Estado de Sao Paulo (Water
Utilities) 17,292,622 1,164,949
- --------------------------------------------------------------
Companhia de Tecidos Norte de Minas
(Textiles-Specialty) 11,622,000 821,637
- --------------------------------------------------------------
Companhia Energetica de Minas
Gerais-ADR (Electric Companies) 114,506 1,636,600
- --------------------------------------------------------------
Companhia Paranaense de
Energia-Copel-ADR (Electric
Companies) 150,782 602,510
- --------------------------------------------------------------
Companhia Paranaense de Energia-
Copel-(Electric Companies) 147,935 980,069
- --------------------------------------------------------------
Companhia Vale do Rio Doce-Pfd. A
(Iron & Steel) 141,823 2,818,296
- --------------------------------------------------------------
Eletropaulo Metropolitana-
Eletricidade de Sao
Paulo S.A. (Electric Companies) 38,440,242 1,752,654
- --------------------------------------------------------------
Embratel Participacoes S.A.-Pfd.
(Telecommunications-Long
Distance) 109,450,000 1,396,160
- --------------------------------------------------------------
Itausa-Investimentos Itau S.A.-Pfd.
(Investment Management) 3,749,289 2,266,476
- --------------------------------------------------------------
Itausa-Investimentos Itau S.A.-Pfd.
Receipts (Investment Management) 151,050 91,311
- --------------------------------------------------------------
Petroleo Brasileiro
S.A.-Petrobras-Pfd. (Oil &
Gas-Exploration & Production) 30,958,655 4,924,520
- --------------------------------------------------------------
MARKET
SHARES VALUE
BRAZIL-(CONTINUED)
Tele Centro Sul Participacoes
S.A.-ADR (Telephone) 22,500 $ 1,344,375
- --------------------------------------------------------------
Tele Norte Leste Participacoes
S.A.-Pfd. (Telephone) 52,745,000 886,289
- --------------------------------------------------------------
Telecomunicacoes Brasileiras C.M.
(Telephone) 41,725,004 2,167,477
- --------------------------------------------------------------
Telecomunicacoes Brasileiras S.A.
(Telephone)(a) 86,027,000 2,644
- --------------------------------------------------------------
Telecomunicacoes de Sao Paulo
S.A.-Pfd. (Telephone) 7,448,813 700,234
- --------------------------------------------------------------
Telesp Celular S.A.
(Telecommunications-
Cellular/Wireless) 12,532,000 436,933
- --------------------------------------------------------------
Telesp Celular S.A.-Pfd. B
(Telecommunications-
Cellular/Wireless) 6,373,727 333,053
- --------------------------------------------------------------
Uniao de Bancos Brasileiros
S.A.-GDR (Banks-Regional) 49,672,000 1,148,665
- --------------------------------------------------------------
Unibanco-Uniao de Bancos
Brasileiros S.A. (Banks-Major
Regional)(c) 15,000,200 691,684
- --------------------------------------------------------------
Usinas Siderurgicas de Minas Gerais
S.A.-Pfd. A
(Manufacturing-Diversified) 160,300,000 583,058
- --------------------------------------------------------------
Votorantim Celulose e Papel S.A.
(Paper & Forest Products) 57,900,000 1,690,727
- --------------------------------------------------------------
31,732,805
- --------------------------------------------------------------
CHILE-7.50%
Administradora de Fondos de
Peniones Provida S.A.-ADR
(Financial-Diversified) 100,642 1,736,075
- --------------------------------------------------------------
Banco de A. Edwards-ADR
(Banks-Regional) 41,904 612,846
- --------------------------------------------------------------
Compania Cervecerias Unidas
S.A.-ADR (Beverages-Alcoholic) 67,500 1,472,344
- --------------------------------------------------------------
Embotelladora Arica S.A.-ADR
(Beverages- Non-Alcoholic)
(Acquired 04/23/99; Cost
$536,625(d) 40,500 391,092
- --------------------------------------------------------------
Quinenco S.A.-ADR
(Financial-Diversified) 29,900 278,444
- --------------------------------------------------------------
Sociedad Quimica y Minera de Chile
S.A.-ADR (Chemicals) 59,100 1,717,594
- --------------------------------------------------------------
Supermercados Unimarc S.A.-ADR
(Retail-Food Chains) 207,200 453,250
- --------------------------------------------------------------
6,661,645
- --------------------------------------------------------------
MEXICO-35.62%
Alpha S.A. de C.V.-Class A
(Manufacturing- Diversified) 472,700 1,814,106
- --------------------------------------------------------------
Apasco S.A. de C.V.
(Construction-Cement &
Aggregates) 213,731 1,133,675
- --------------------------------------------------------------
Carso Global Telecom-Class A1
(Telephone)(a) 550,000 3,660,946
- --------------------------------------------------------------
Cemex S.A. de C.V.
(Construction-Cement &
Aggregates) 364,968 1,651,181
- --------------------------------------------------------------
Cintra S.A. (Airlines) 393,300 173,437
- --------------------------------------------------------------
Consorcio Ara, S.A. de C.V.
(Homebuilding)(a) 690,000 776,474
- --------------------------------------------------------------
Controladora Comercial Mexicana
S.A. de C.V. (Retail-Department
Stores)(e) 1,750,000 1,448,778
- --------------------------------------------------------------
FS-14
168
MARKET
SHARES VALUE
MEXICO-(CONTINUED)
Corporacion GEO S.A. de C.V.-Series
B (Construction-Cement &
Aggregates)(a) 271,000 $ 687,717
- --------------------------------------------------------------
El Puerto de Liverpool S.A. de
C.V.-Series 1 (Retail-Department
Stores) 45,941 78,838
- --------------------------------------------------------------
Fomento Economico Mexicano, S.A. de
C.V.-ADR (Beverages-Alcoholic)(b) 80,000 2,625,000
- --------------------------------------------------------------
Grupo Bimbo S.A. de C.V. (Foods)(a) 579,800 1,063,720
- --------------------------------------------------------------
Grupo Carso S.A. de C.V.-Series A1
(Manufacturing-Diversified)(a) 611,000 2,560,926
- --------------------------------------------------------------
Grupo Cementos de Chihuahua S.A. de
C.V.-Class B (Construction-Cement
& Aggregates) 210,000 133,229
- --------------------------------------------------------------
Grupo Financiero Bancomer, S.A. de
C.V.-Class O (Banks-Regional)(a) 4,715,464 1,250,591
- --------------------------------------------------------------
Grupo Financiero Banorte S.A. de
C.V.-Class O
(Financial-Diversified)(a) 1,500,000 1,872,075
- --------------------------------------------------------------
Grupo Industrial Maseca S.A. de
C.V.-Class B (Foods) 1,686,100 841,735
- --------------------------------------------------------------
Grupo Mexico S.A.-Series B (Metals
Mining) 205,824 744,948
- --------------------------------------------------------------
Grupo Posadas S.A.-Series A
(Lodging-Hotels)(a) 471,000 254,727
- --------------------------------------------------------------
Grupo Posadas S.A.-Series L
(Lodging-Hotels)(a) 752,300 344,266
- --------------------------------------------------------------
Grupo Televisa S.A.-GDR
(Entertainment)(a) 105,600 4,488,000
- --------------------------------------------------------------
Industrias Penoles S.A. (Metals
Mining) 484,600 1,527,133
- --------------------------------------------------------------
Kimberly-Clark de Mexico, S.A. de
C.V.-Class A (Paper & Forest
Products) 600,000 1,921,997
- --------------------------------------------------------------
Pepsi-Gemex S.A.-GDR (Beverages-
Non-Alcoholic)(a) 122,800 567,950
- --------------------------------------------------------------
31,621,449
- --------------------------------------------------------------
PANAMA-1.55%
Banco Latinoamericano de
Exportaciones, S.A.
(Banks-Regional) 57,597 1,378,728
- --------------------------------------------------------------
PERU-2.80%
Credicorp Ltd.
(Financial-Diversified) 152,332 1,618,528
- --------------------------------------------------------------
MARKET
SHARES VALUE
PERU-(CONTINUED)
Telefonica del Peru S.A.A.-ADR
(Telephone) 42,500 $ 491,406
- --------------------------------------------------------------
Union de Cervecerias Backus &
Johnston S.A.A.
(Beverages-Alcoholic) 1,008,223 371,948
- --------------------------------------------------------------
2,481,882
- --------------------------------------------------------------
UNITED KINGDOM-1.86%
Antofagasta Holdings PLC (Gold &
Precious Metals Mining) 240,000 1,649,361
- --------------------------------------------------------------
VENEZUELA-0.61%
C.A. La Electricidad de Caracas
(Electric Companies)(f) 186,266 70,768
- --------------------------------------------------------------
Corporacion Venezolana de Cementos
S.A.C.A.-I (Constructions-Cement
& Aggregates) 675,057 293,875
- --------------------------------------------------------------
Corporacion Venezolana de Cementos
S.A.C.A.-II (Constructions-Cement
& Aggregates) 446,248 176,606
- --------------------------------------------------------------
541,249
- --------------------------------------------------------------
Total Foreign Stocks & Other
Equity Interests (Cost
$102,130,895) 86,634,957
- --------------------------------------------------------------
PRINCIPAL
AMOUNT(g)
CORPORATE BONDS-0.00%
BRAZIL-0.00%
Companhia Vale do Rio Doce-Non
Convertible (Cost $0) BRL 276,400 0
- --------------------------------------------------------------
MARKET
SHARES VALUE
MONEY MARKET FUNDS-0.91%
STIC Liquid Assets Portfolio(h) 404,169 404,169
- --------------------------------------------------------------
STIC Prime Portfolio(h) 404,169 404,169
- --------------------------------------------------------------
Total Money Market Funds (Cost
$808,338) 808,338
- --------------------------------------------------------------
TOTAL INVESTMENTS-98.49% 87,443,295
- --------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-1.51% 1,344,875
- --------------------------------------------------------------
NET ASSETS-100.00% $88,788,170
- --------------------------------------------------------------
Investment Abbreviations:
ADR - American Depositary Receipt
GDR - Global Depositary Receipt
Pfd. - Preferred
Wts. - Warrants
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Non-income producing security acquired as part of a unit with or in exchange
for other securities.
(c) Each unit represents one preferred share of Unibanco and one preferred B
share of Unibanco Holdings.
(d) Restricted security. May be resold to qualified institutional buyers in
accordance with provisions of Rule 144A under the Securities Act of 1933, as
amended. The valuation of this security has been determined in accordance
with procedures established by the Board of Trustees. The market value at
10/31/99 was $391,092 which represented 0.44% of the Fund's net assets.
(e) Each unit represents three B shares and one C share.
(f) Each unit represents one share of Electricidad de Caracas and one share of
Corporacion EDC.
(g) Foreign denominated security. Par value and coupon are denominated in
currency indicated.
(h) The security shares the same investment advisor as the Fund.
See Notes to Financial Statements.
FS-15
169
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1999
ASSETS:
Investments, at value (cost $102,939,233) $ 87,443,295
- -------------------------------------------------------------
Foreign currencies, at value (cost $568,244) 573,893
- -------------------------------------------------------------
Receivables for:
Investments sold 843,462
- -------------------------------------------------------------
Fund shares sold 80,031
- -------------------------------------------------------------
Dividends and interest 279,049
- -------------------------------------------------------------
Other assets 20,338
- -------------------------------------------------------------
Total assets 89,240,068
- -------------------------------------------------------------
LIABILITIES:
Payable for fund shares reacquired 254,077
- -------------------------------------------------------------
Accrued advisory fees 9,838
- -------------------------------------------------------------
Accrued distribution fees 40,251
- -------------------------------------------------------------
Accrued accounting services fees 4,247
- -------------------------------------------------------------
Accrued transfer agent fees 21,021
- -------------------------------------------------------------
Accrued trustees' fees 2,762
- -------------------------------------------------------------
Other liabilities 119,702
- -------------------------------------------------------------
Total liabilities 451,898
- -------------------------------------------------------------
Net assets applicable to shares outstanding $ 88,788,170
- -------------------------------------------------------------
NET ASSETS:
Class A $ 49,788,968
- -------------------------------------------------------------
Class B $ 38,455,515
- -------------------------------------------------------------
Class C $ 146,525
- -------------------------------------------------------------
Advisor Class $ 397,162
- -------------------------------------------------------------
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 3,564,736
- -------------------------------------------------------------
Class B 2,788,851
- -------------------------------------------------------------
Class C 10,624
- -------------------------------------------------------------
Advisor Class 28,479
- -------------------------------------------------------------
Class A:
Net asset value and redemption price per
share $ 13.97
- -------------------------------------------------------------
Offering price per share:
(Net asset value of $13.97 divided by
95.25%) $ 14.67
- -------------------------------------------------------------
Class B:
Net asset value and offering price per
share $ 13.79
- -------------------------------------------------------------
Class C:
Net asset value and offering price per
share $ 13.79
- -------------------------------------------------------------
Advisor Class:
Net asset value, redemption and offering
price per share $ 13.95
- -------------------------------------------------------------
STATEMENT OF OPERATIONS
For the year ended October 31, 1999
INVESTMENT INCOME:
Dividends (net of $479,760 foreign withholding
tax) $ 3,291,105
- ------------------------------------------------------------
Interest 35,745
- ------------------------------------------------------------
Securities lending 91,156
- ------------------------------------------------------------
Total investment income 3,418,006
- ------------------------------------------------------------
EXPENSES:
Advisory and administrative fees 952,046
- ------------------------------------------------------------
Accounting services fees 38,349
- ------------------------------------------------------------
Custodian fees 53,267
- ------------------------------------------------------------
Interest expense (Note 5) 54,310
- ------------------------------------------------------------
Distribution fees -- Class A 273,567
- ------------------------------------------------------------
Distribution fees -- Class B 422,771
- ------------------------------------------------------------
Distribution fees -- Class C 713
- ------------------------------------------------------------
Printing fees 284,503
- ------------------------------------------------------------
Trustees' fees 11,926
- ------------------------------------------------------------
Transfer agent fees -- Class A 338,413
- ------------------------------------------------------------
Transfer agent fees -- Class B 261,324
- ------------------------------------------------------------
Transfer agent fees -- Class C 445
- ------------------------------------------------------------
Transfer agent fees -- Advisor Class 3,624
- ------------------------------------------------------------
Other 93,931
- ------------------------------------------------------------
Total expenses 2,789,189
- ------------------------------------------------------------
Less: Expenses paid indirectly (3,131)
- ------------------------------------------------------------
Fees waived by advisor (572,144)
- ------------------------------------------------------------
Net expenses 2,213,914
- ------------------------------------------------------------
Net investment income 1,204,092
- ------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN
CURRENCIES:
Net realized gain (loss) from:
Investment securities (29,737,138)
- ------------------------------------------------------------
Foreign currencies (539,564)
- ------------------------------------------------------------
(30,276,702)
- ------------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of:
Investment securities 48,113,915
- ------------------------------------------------------------
Foreign currencies (35,910)
- ------------------------------------------------------------
48,078,005
- ------------------------------------------------------------
Net gain from investment securities and
foreign currencies 17,801,303
- ------------------------------------------------------------
Net increase in net assets resulting from
operations $ 19,005,395
- ------------------------------------------------------------
See Notes to Financial Statements.
FS-16
170
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended October 31, 1999 and 1998
1999 1998
------------ -------------
OPERATIONS:
Net investment income $ 1,204,092 $ 1,153,228
- -------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
foreign currencies (30,276,702) (18,715,746)
- -------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies 48,078,005 (54,475,416)
- -------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 19,005,395 (72,037,934)
- -------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (703,214) (219,544)
- -------------------------------------------------------------------------------------------
Class B (122,741) --
- -------------------------------------------------------------------------------------------
Advisor Class (9,487) (5,514)
- -------------------------------------------------------------------------------------------
Share transactions-net:
Class A (22,064,281) (61,587,566)
- -------------------------------------------------------------------------------------------
Class B (15,015,084) (52,032,524)
- -------------------------------------------------------------------------------------------
Class C 158,037 --
- -------------------------------------------------------------------------------------------
Advisor Class (144,362) (13,073)
- -------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (18,895,737) (185,896,155)
- -------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 107,683,907 293,580,062
- -------------------------------------------------------------------------------------------
End of period $ 88,788,170 $ 107,683,907
===========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $167,043,253 $ 204,122,934
- -------------------------------------------------------------------------------------------
Undistributed net investment income 675,072 831,995
- -------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities and foreign currencies (63,367,151) (33,630,013)
- -------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities and foreign currencies (15,563,004) (63,641,009)
- -------------------------------------------------------------------------------------------
$ 88,788,170 $ 107,683,907
===========================================================================================
See Notes to Financial Statements.
FS-17
171
NOTES TO FINANCIAL STATEMENTS
October 31, 1999
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Latin American Growth Fund (the "Fund") is a separate series of AIM
Investment Funds (the "Trust"). The Trust is organized as a Delaware business
trust and is registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), as an open-end series management investment company consisting
of twelve separate series portfolios, each having an unlimited number of shares
of beneficial interest. The Fund consists of four different classes of shares:
Class A shares, Class B shares, Class C shares and Advisor Class shares. Class A
shares are sold with a front-end sales charge. Class B shares and Class C shares
are sold with a contingent deferred sales charge. Advisor Class shares were sold
without a sales charge. Matters affecting each portfolio or class will be voted
on exclusively by the shareholders of such portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is growth of capital.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the preparation of its financial statements.
A. Security Valuations -- A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular
day, the security is valued at the closing bid price on that day. Each
security reported on the NASDAQ National Market System is valued at the
last sales price on the valuation date or absent a last sales price, at the
closing bid price. Debt obligations (including convertible bonds) are
valued on the basis of prices provided by an independent pricing service.
Prices provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
yield, type of issue, coupon rate and maturity date. Securities for which
market prices are not provided by any of the above methods are valued based
upon quotes furnished by independent sources and are valued at the last bid
price in the case of equity securities and in the case of debt obligations,
the mean between the last bid and asked prices. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity are
valued at amortized cost which approximates market value. For purposes of
determining net asset value per share, futures and options contracts
generally will be valued 15 minutes after the close of trading of the New
York Stock Exchange ("NYSE").
Generally, trading in foreign securities is substantially completed each
day at various times prior to the close of the NYSE. The values of such
securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the NYSE. Occasionally, events
affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of the NYSE
which would not be reflected in the computation of the Fund's net asset
value. If events materially affecting the value of such securities occur
during such period, then these securities will be valued at their fair
value as determined in good faith by or under the supervision of the Board
of Trustees.
B. Securities Transactions, Investment Income and Distributions -- Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income is recorded on the
ex-dividend date. The Fund may elect to use a portion of the proceeds of
fund share redemptions as distributions for Federal income tax purposes.
Distributions from income and net realized capital gains, if any, are
generally paid annually and recorded on ex-dividend date.
On October 31, 1999, undistributed net investment income was decreased by
$525,573, undistributed net realized gains increased by $539,564 and
paid-in capital decreased by $13,991 as a result of differing book/tax
treatment of foreign currency transactions and net operating loss
reclassifications in order to comply with the requirements of the American
Institute of Certified Public Accountants Statement of Position 93-2. Net
assets of the Fund were unaffected by the reclassifications discussed
above.
C. Federal Income Taxes -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements. The Fund has a capital loss
carryforward of $61,871,107 as of October 31, 1999 which may be carried
forward to offset future taxable gains, if any, and expires in varying
increments, if not previously utilized, in the year 2007.
D. Foreign Currency Translations -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for that portion of the
results of operations resulting from changes in
FS-18
172
foreign exchange rates on investments and the fluctuations arising from
changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gain or loss from investments.
E. Foreign Currency Contracts -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
F. Futures Contracts -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. Risks include the
possibility of an illiquid market and that a change in value of the
contracts may not correlate with changes in the value of the securities
being hedged.
G. Expenses -- Distribution expenses directly attributable to a class of
shares are charged to that class' operations. All other expenses which are
attributable to more than one class are allocated among the classes.
H. Foreign Securities -- There are certain additional considerations and risks
associated with investing in foreign securities and currency transactions
that are not inherent in investments of domestic origin. The Fund's
investment in emerging market countries may involve greater risks than
investments in more developed markets and the price of such investments may
be volatile. These risks of investing in foreign and emerging markets may
include foreign currency exchange fluctuations, perceived credit
risk,adverse political and economic developments and possible adverse
foreign government intervention.
I. Indexed Securities -- The Fund may invest in indexed securities whose value
is linked either directly or indirectly to changes in foreign currencies,
interest rates, equities, indices, or other reference instruments. Indexed
securities may be more volatile than the reference instrument itself, but
any loss is limited to the amount of the original investment.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
A I M Advisors, Inc. ("AIM") is the Fund's investment manager and administrator.
INVESCO Asset Management Limited is the Fund's sub-advisor and
sub-administrator. The Fund pays AIM investment management and administration
fees at an annual rate of 0.975% on the first $500 million of the Fund's average
daily net assets, plus 0.95% on the next $500 million of the Fund's average
daily net assets, plus 0.925% on the next $500 million of the Fund's average
daily net assets, plus 0.90% on the Fund's average daily net assets exceeding
$1.5 billion. AIM has contractually agreed to limit the Fund's expenses
(exclusive of brokerage commissions, taxes, interest and extraordinary expenses)
to the maximum annual rate of 2.00%, 2.50%, 2.50% and 1.50% of the average daily
net assets of the Fund's Class A, Class B, Class C and Advisor Class shares,
respectively. During the year ended October 31, 1999, AIM waived fees of
$572,144.
Effective July 1, 1999, the Trust entered into a master administrative
services agreement with AIM, replacing the prior pricing and accounting
agreement. The Fund, pursuant to the master administrative services agreement
with AIM, has agreed to pay AIM for certain administrative costs incurred in
providing accounting services to the Fund. Prior to July 1, 1999, AIM was the
pricing and accounting agent for the Fund. The monthly fee for these services
paid to AIM was a percentage, not to exceed 0.03% annually, of a Fund's average
daily net assets. The annual fee rate was derived based on the aggregate net
assets of the funds which comprised the following investment companies: AIM
Growth Series, AIM Investment Funds, AIM Series Trust, G.T. Global Variable
Investment Series and G.T. Global Variable Investment Trust. The fee was
calculated at the rate of 0.03% of the first $5 billion of assets and 0.02% to
the assets in excess of $5 billion. An amount is allocated to and paid by each
such fund based on its relative average daily net assets. For the year ended
October 31, 1999, AIM was paid $38,349 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. For the year ended October 31, 1999, AFS was
paid $570,779 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C and Advisor Class shares of the Fund. The Trust has
adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A shares, Class B shares and Class C shares (collectively the
"Plans"). The Fund , pursuant to the Plans, pays AIM Distributors compensation
at the annual rate of 0.50% of the Fund's average daily net assets of Class A
shares and 1.00% of the average daily net assets of Class B and C shares. Of
these amounts, the Fund may pay a service fee of 0.25% of the average daily net
assets of the Class A, Class B or Class C shares to selected dealers and
financial institutions who furnish continuing personal shareholder services to
their customers who purchase and own the appropriate class of shares of the
Fund. Any amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. The Plans also impose a cap on the total sales
charges, including asset-based sales charges that may be paid by the respective
classes. For the
FS-19
173
year ended October 31, 1999, the Class A, Class B and Class C shares paid AIM
Distributors $273,567, $422,771 and $713, respectively, as compensation under
the Plans.
AIM Distributors received commissions of $12,934 from sales of the Class A
shares of the Fund during the year ended October 31, 1999. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended October 31, 1999,
AIM Distributors received $536 in contingent deferred sales charges imposed on
redemptions of Fund shares. Certain officers and trustees of the Trust are
officers and directors of AIM, AFS and AIM Distributors.
NOTE 3-INDIRECT EXPENSES
During the year ended October 31, 1999, the Fund received reductions in
custodian fees of $3,131 under expense offset arrangements. The effect of the
above arrangements resulted in a reduction of the Fund's total expenses of
$3,131 during the year ended October 31, 1999.
NOTE 4-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $1,000,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. The funds which
are party to the line of credit are charged a commitment fee of 0.09% on the
unused balance of the committed line. The commitment fee is allocated among the
funds based on their respective average net assets for the period. Prior to May
28, 1999, the Fund, along with certain other funds advised and/or administered
by AIM, had a line of credit with BankBoston and State Street Bank & Trust
Company. The arrangements with the banks allowed the Fund and certain other
funds to borrow, on a first come, first served basis, an aggregate maximum
amount of $250,000,000.
During the year ended October 31, 1999, the average outstanding daily balance
of bank loans for the Fund was $965,592 with a weighted average interest rate of
5.62%. Interest expense for the Fund for the year ended October 31, 1999 was
$54,310.
NOTE 5-PORTFOLIO SECURITIES LOANED
At October 31, 1999, securities with an aggregate value of $2,926,733 were on
loan to brokers. The loans were secured by cash collateral of $2,985,267
received by the Fund. For the year ended October 31, 1999, the Fund received
fees of $91,156 for securities lending.
For international securities, cash collateral is received by the Fund against
loaned securities in an amount at least equal to 105% of the market value of the
loaned securities at the inception of each loan. This collateral must be
maintained at not less than 103% of the market value of the loaned securities
during the period of the loan. For domestic securities, cash collateral is
received by the Fund against loaned securities in the amount at least equal to
102% of the market value of the loaned securities at the inception of each loan.
This collateral must be maintained at not less than 100% of the market value of
the loaned securities during the period of the loan. The cash collateral is
invested in a securities lending trust which consists of a portfolio of high
quality short duration securities whose average effective duration is restricted
to 120 days or less.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended October 31, 1999 was
$28,967,058 and $62,536,455, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of October 31, 1999 is as follows:
Aggregate unrealized appreciation of
investment securities $ 10,237,584
- ---------------------------------------------------------
Aggregate unrealized appreciation
(depreciation) of investment securities (27,229,564)
- ---------------------------------------------------------
Net unrealized appreciation (depreciation)
of investment securities $(16,991,980)
=========================================================
Cost of investments for tax purposes is $104,435,275.
FS-20
174
NOTE 7-SHARE INFORMATION
Changes in shares outstanding during the years ended October 31, 1999 and 1998
were as follows:
1999 1998
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- -------------
Sold:
Class A 10,698,303 $130,700,031 31,480,158 $ 504,106,417
- ----------------------------------------------------------------------------------------------------------------------
Class B 1,074,686 14,304,893 14,533,097 243,328,768
- ----------------------------------------------------------------------------------------------------------------------
Class C* 20,395 302,050 -- --
- ----------------------------------------------------------------------------------------------------------------------
Advisor Class 103,353 1,459,954 1,261,470 24,366,740
- ----------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A 56,745 633,836 8,770 183,909
- ----------------------------------------------------------------------------------------------------------------------
Class B 9,959 110,343 -- --
- ----------------------------------------------------------------------------------------------------------------------
Advisor Class 833 9,259 261 5,468
- ----------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (12,381,943) (153,398,148) (34,474,810) (565,877,892)
- ----------------------------------------------------------------------------------------------------------------------
Class B (2,351,288) (29,430,320) (17,417,330) (295,361,292)
- ----------------------------------------------------------------------------------------------------------------------
Class C* (9,771) (144,013) -- --
- ----------------------------------------------------------------------------------------------------------------------
Advisor Class (106,874) (1,613,575) (1,263,040) (24,385,281)
- ----------------------------------------------------------------------------------------------------------------------
(2,885,602) $(37,065,690) (5,871,424) $(113,633,163)
======================================================================================================================
* Class C shares commenced sales on March 1, 1999.
NOTE 8-FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
CLASS A
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1999 1998(a) 1997(a) 1996(a) 1995(a)
------- ------- -------- -------- --------
Net asset value, beginning of period $ 11.70 $ 19.50 $ 17.95 $ 15.38 $ 26.11
- -------------------------------------------------------- ------- ------- -------- -------- --------
Income from investment operations:
Net investment income (loss) 0.21 0.13(b) 0.11 0.09 0.15
- -------------------------------------------------------- ------- ------- -------- -------- --------
Net realized and unrealized gain (loss) on investments 2.20 (7.90) 1.44 2.59 (9.28)
- -------------------------------------------------------- ------- ------- -------- -------- --------
Net increase (decrease) from investment operations 2.41 (7.77) 1.55 2.68 (9.13)
- -------------------------------------------------------- ------- ------- -------- -------- --------
Distributions to shareholders:
From net investment income (0.14) (0.03) -- (0.08) --
- -------------------------------------------------------- ------- ------- -------- -------- --------
From net realized gain on investments -- -- -- -- (1.60)
- -------------------------------------------------------- ------- ------- -------- -------- --------
In excess of net investment income -- -- -- (0.03) --
- -------------------------------------------------------- ------- ------- -------- -------- --------
Total distributions (0.14) (0.03) -- (0.11) (1.60)
- -------------------------------------------------------- ------- ------- -------- -------- --------
Net asset value, end of period $ 13.97 $ 11.70 $ 19.50 $ 17.95 $ 15.38
======================================================== ======= ======= ======== ======== ========
Total return(c) 20.93% (39.86)% 8.52% 17.52% (37.16)%
======================================================== ======= ======= ======== ======== ========
Ratios and supplemental data:
Net assets, end of period (in 000s) $49,789 $60,720 $159,496 $177,373 $182,462
- -------------------------------------------------------- ------- ------- -------- -------- --------
Ratio of net investment income to average net assets:
With fee waivers 1.44%(d) 0.78% 0.52% 0.46% 0.86%
- -------------------------------------------------------- ------- ------- -------- -------- --------
Without fee waivers 0.85%(d) 0.64% 0.42% 0.39% 0.85%
======================================================== ======= ======= ======== ======== ========
Ratio of expenses to average net assets (excluding
interest expense):
With fee waivers 2.00%(d) 2.00% 1.96% 2.03% 2.11%
- -------------------------------------------------------- ------- ------- -------- -------- --------
Without fee waivers 2.59%(d) 2.14% 2.06% 2.10% 2.12%
======================================================== ======= ======= ======== ======== ========
Ratio of interest expense to average net assets 0.06% 0.17% N/A N/A N/A
- -------------------------------------------------------- ------- ------- -------- -------- --------
Portfolio turnover rate 30% 39% 130% 101% 125%
======================================================== ======= ======= ======== ======== ========
(a) These selected per share data were calculated based upon the average shares
outstanding during the period.
(b) Before reimbursement the net investment income per share would have been
reduced by $.02.
(c) Total return does not include sales charges and is not annualized for
periods less than one year.
(d) Ratios are based on average net assets of $54,713,405.
FS-21
175
NOTE 8-FINANCIAL HIGHLIGHTS (CONTINUED)
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
CLASS B
-----------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------
1999 1998(a) 1997(a) 1996(a) 1995(a)
------------ ------- -------- -------- --------
Net asset value, beginning of period $ 11.49 $ 19.23 $ 17.78 $ 15.21 $ 25.94
- ----------------------------------------------------------- ------- ------- -------- -------- --------
Income from investment operations:
Net investment income 0.17 0.04(b) 0.01 -- 0.06
- ----------------------------------------------------------- ------- ------- -------- -------- --------
Net realized and unrealized gain (loss) on investments 2.16 (7.78) 1.44 2.59 (9.19)
- ----------------------------------------------------------- ------- ------- -------- -------- --------
Net increase (decrease) from investment operations 2.33 (7.74) 1.45 2.59 (9.13)
- ----------------------------------------------------------- ------- ------- -------- -------- --------
Distributions to shareholders:
From net investment income (0.03) -- -- (0.01) --
- ----------------------------------------------------------- ------- ------- -------- -------- --------
From net realized gain on investments -- -- -- -- (1.60)
- ----------------------------------------------------------- ------- ------- -------- -------- --------
In excess of net investment income -- -- -- (0.01) --
- ----------------------------------------------------------- ------- ------- -------- -------- --------
Total distributions (0.03) -- -- (0.02) (1.60)
- ----------------------------------------------------------- ------- ------- -------- -------- --------
Net asset value, end of period $ 13.79 $ 11.49 $ 19.23 $ 17.78 $ 15.21
=========================================================== ======= ======= ======== ======== ========
Total return(c) 20.36% (40.19)% 8.04% 17.02% (37.42)%
=========================================================== ======= ======= ======== ======== ========
Ratios and supplemental data:
Net assets, end of period (in 000's) $38,456 $46,599 $133,448 $137,400 $134,527
=========================================================== ======= ======= ======== ======== ========
Ratio of net investment income (loss) to average net assets:
With fee waivers 0.94%(d) 0.28% 0.02% (0.04)% 0.36%
- ----------------------------------------------------------- ------- ------- -------- -------- --------
Without fee waivers 0.35%(d) 0.14% (0.08)% (0.11)% 0.35%
=========================================================== ======= ======= ======== ======== ========
Ratio of expenses to average net assets (excluding interest
expense):
With fee waivers 2.50%(d) 2.50% 2.46% 2.53% 2.61%
- ----------------------------------------------------------- ------- ------- -------- -------- --------
Without fee waivers 3.09%(d) 2.64% 2.56% 2.60% 2.62%
=========================================================== ======= ======= ======== ======== ========
Ratio of interest expenses to average net assets 0.06% 0.17% N/A N/A N/A
- ----------------------------------------------------------- ------- ------- -------- -------- --------
Portfolio turnover rate 30% 39% 130% 101% 125%
=========================================================== ======= ======= ======== ======== ========
(a) These selected per share data were calculated based upon the average shares
outstanding during the period.
(b) Before reimbursement the net investment income per share would have been
reduced by $0.02.
(c) Total return does not include sales charges.
(d) Ratios are based on average net assets of $42,277,069.
FS-22
176
NOTE 8-FINANCIAL HIGHLIGHTS (CONTINUED)
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
CLASS C ADVISOR CLASS
---------------- -----------------------------------------------------------------
YEAR ENDED OCTOBER 31,
MARCH 1, 1999 TO ------------------------------------------- JUNE 1, 1995 TO
OCTOBER 31, 1999 1999 1998(a) 1997(a) 1996(a) OCTOBER 31, 1995(a)
---------------- ------ ------- ------- ------- -------------------
Net asset value, beginning of period $10.21 $11.71 $19.57 $17.94 $15.40 $15.95
- ----------------------------------------- ------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income 0.12 0.31 0.21(b) 0.19 0.17 0.09
- ----------------------------------------- ------ ------ ------ ------ ------ ------
Net realized and unrealized gain (loss)
on investments 3.46 2.16 (7.92) 1.44 2.58 (0.64)
- ----------------------------------------- ------ ------ ------ ------ ------ ------
Net increase (decrease) from
investment operations 3.58 2.47 (7.71) 1.63 2.75 (0.55)
- ----------------------------------------- ------ ------ ------ ------ ------ ------
Distributions to shareholders:
From net investment income -- (0.23) (0.15) -- (0.14) --
- ----------------------------------------- ------ ------ ------ ------ ------ ------
In excess of net investment income -- -- -- -- (0.07) --
- ----------------------------------------- ------ ------ ------ ------ ------ ------
Total distributions -- (0.23) (0.15) -- (0.21) --
- ----------------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of period $13.79 $13.95 $11.71 $19.57 $17.94 $15.40
========================================= ====== ====== ====== ====== ====== ======
Total return(c) 35.06% 21.56% (39.67)% 8.91% 18.16% (3.45)%
========================================= ====== ====== ====== ====== ====== ======
Ratios and supplemental data:
Net assets, end of period (in 000's) $ 147 $ 397 $ 365 $ 636 $ 818 $ 369
========================================= ====== ====== ====== ====== ====== ======
Ratio of net investment income to average
net assets:
With fee waivers 0.94%(d) 1.94%(e) 1.28% 1.02% 0.96% 1.36%(f)
- ----------------------------------------- ------ ------ ------ ------ ------ ------
Without fee waivers 0.35%(d) 1.35%(e) 1.14% 0.92% 0.89% 1.35%(f)
========================================= ====== ====== ====== ====== ====== ======
Ratio of expenses to average net assets
(excluding interest expense):
With fee waivers 2.50%(d) 1.50%(e) 1.50% 1.46% 1.53% 1.61%(f)
- ----------------------------------------- ------ ------ ------ ------ ------ ------
Without fee waivers 3.09%(d) 2.09%(e) 1.64% 1.56% 1.60% 1.62%(f)
========================================= ====== ====== ====== ====== ====== ======
Ratio of interest expense to average net
assets 0.06% 0.06% 0.17% N/A N/A N/A
- ----------------------------------------- ------ ------ ------ ------ ------ ------
Portfolio turnover rate 30% 30% 39% 130% 101% 125%
========================================= ====== ====== ====== ====== ====== ======
(a) These selected per share data were calculated based upon the average shares
outstanding during the period.
(b) Before reimbursement the net investment income per share would have been
reduced by $0.02.
(c) Total return does not include sales charges and is not annualized for
periods less than one year.
(d) Ratios are annualized and based on average net assets of $106,283.
(e) Ratios are based on average net assets of $583,904.
(f) Annualized.
NOTE 9-SUBSEQUENT EVENT
On November 3, 1999, the Board of Trustees approved the conversion of Advisor
Class Shares into Class A Shares. The proposed effective date of this conversion
is February 11, 2000.
FS-23
177
APPENDIX II
ANNUAL REPORT / OCTOBER 31 1999
AIM EMERGING MARKETS DEBT FUND
[COVER IMAGE]
[AIM LOGO APPEARS HERE]
178
[ COVER IMAGE ]
------------------------------------
REFLECTION OF THE SUN IN THE SEA BY NICOLAS TARKHOFF
A FREQUENT SYMBOL IN NICOLAS TARKHOFF'S PAINTINGS WAS THE
SUN, WHICH HE SAW AS A SYMBOL OF REBIRTH AND OPPORTUNITY.
WHILE GLOBAL EVENTS CAN CREATE VOLATILE INVESTMENT CONDITIONS
IN EMERGING MARKETS, AIM BELIEVES THAT A DISCIPLINED INVESTMENT
APPROACH, SUPPORTED BY THOROUGH RESEARCH AND ANALYSIS,
CREATES OPPORTUNITY FOR PROFIT IN THE CHANGING WORLD OF
EMERGING MARKETS.
------------------------------------
AIM Emerging Markets Debt Fund is for shareholders who primarily seek a high
level of current income and secondarily seek capital appreciation. The fund
invests primarily in debt securities of issuers located in emerging markets.
ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT:
o AIM Emerging Markets Debt Fund's performance figures are historical, and
they reflect changes in net asset value and the reinvestment of
distributions.
o Had the advisor not absorbed fund expenses in the past, performance figures
would have been lower.
o When sales charges are included in performance figures, Class A share
performance reflects the maximum 4.75% sales charge, and Class B and Class C
share performance reflects the applicable contingent deferred sales charge
(CDSC) for the period involved. The CDSC on Class B shares declines from 5%
beginning at the time of purchase to zero at the beginning of the seventh
year. The CDSC on Class C shares is 1% for the first year after purchase.
The performance of the fund's Class B and Class C shares will differ from
that of Class A shares due to differences in sales-charge structure and
expenses.
o AIM Emerging Markets Debt Fund's average annual total returns (including
sales charges) as of 9/30/99 (the most recent calendar quarter end), are as
follows: for Class A shares, one year, 14.04%; five years, 4.12%; inception
(10/22/92), 7.61%. For Class B shares, one year, 14.01%; five years, 4.23%;
inception (10/22/92), 7.68%. For Class C shares, date sales commenced
(3/1/99), 6.30%. For Advisor Class shares, one year, 20.43%; inception
(6/1/95), 7.19%.
o Because Class C shares have been offered for less than a year (since
3/1/99), the return provided is the cumulative total return that has not
been annualized.
o Sales charges do not apply to Advisor Class shares. Beginning 3/1/99,
Advisor Class shares were closed to new investors.
o The 30-day yield is calculated on the basis of a formula defined by the
Securities and Exchange Commission (SEC). The formula is based on the
portfolio's potential earnings from dividends, interest, yield-to-maturity
or yield-to-call of the bonds in the portfolio, net of all expenses and
expressed on an annualized basis.
o The fund's 30-day distribution rate reflects its most recent monthly
dividend distribution multiplied by 12 and divided by the most recent
month-end maximum offering price. The fund's distribution rate and 30-day
SEC yield will differ.
o During the fiscal year ended 10/31/99, the fund's Class A shares paid
distributions of $0.9300; Class B shares, $0.8770; Class C shares, $0.5640;
and Advisor Class shares, $0.9580.
o International investing presents certain risks not associated with investing
solely in the United States. These include risks relating to fluctuations in
the value of the U.S. dollar relative to the values of other currencies, the
custody arrangements made for the fund's foreign holdings, differences in
accounting, political risks and the lesser degree of public information
required to be provided by non-U.S. companies.
o The fund's investment return and principal value will fluctuate, so an
investor's shares, when redeemed, may be worth more or less than their
original cost.
ABOUT INDEXES AND OTHER PERFORMANCE BENCHMARKS CITED IN THIS REPORT:
o The Dow Jones Industrial Average (the Dow) is a price-weighted average of 30
actively traded primarily industrial stocks.
o The J.P. Morgan Emerging Markets Bond Index (often referred to as the Brady
index) tracks total returns for traded external-debt Brady bonds (foreign
bonds collateralized by U.S. Treasury bonds) in 10 emerging bond markets. It
is measured in U.S. dollars, and it reflects the results of reinvested
coupons.
o The J.P. Morgan Emerging Markets Bond Index Plus (EMBI+) is a
market-value-weighted average of government bonds from 13 emerging bond
markets. It includes the effect of reinvested coupons and is measured in
U.S. dollars.
o An investment cannot be made in any index listed. Unless otherwise
indicated, index results include reinvested dividends and do not reflect
sales charges.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OF A BANK AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENT AGENCY. THERE IS A RISK THAT YOU COULD LOSE
SOME OR ALL OF YOUR MONEY.
This report may be distributed only to current shareholders or to
persons who have received a current prospectus of the fund.
AIM EMERGING MARKETS DEBT FUND
179
ANNUAL REPORT / CHAIRMAN'S LETTER
Dear Fellow Shareholder:
The fiscal year discussed in this report reconfirmed our
[PHOTO OF faith in two long-established principles of investing:
Charles T. portfolio diversification and long-term thinking. We could
Bauer, title this report "What a Difference a Year Makes."
Chairman of An investor surveying conditions when the fiscal year
the Board of opened on October 31, 1998, saw a market dominated by
THE FUND large-capitalization stocks and high-quality bonds,
APPEARS HERE] especially U.S. Treasuries. Ten months into 1998, two
well-known indexes of large-capitalization U.S. company
stocks, the S&P 500 and the Dow Jones Industrial Average,
were up by double digits, but the smaller-company stocks in
the Russell 2000 had lost 12.80%. Overseas, many markets
were languishing, especially in Asia, where many financial
difficulties originated in 1997.
In bond markets also, name-brand quality was the place
to be. The Lehman Corporate/Government Bond Index, which
follows intermediate and long-term government and investment-grade debt, was up
8.56%, while the Lehman High Yield Index, which tracks riskier "junk bonds," had
dropped 2.30%.
It would be easy for an investor to conclude that blue chips, whether equity
or fixed-income, were the only place to be. That investor, of course, would be
wrong.
MARKETS TURN
While large-capitalization stocks continue to do very well, during 1999 markets
broadened considerably, with many investment sectors performing a complete
turnaround. Year to date by October 31, 1999, the small-cap stocks in the
Russell 2000 were back in positive territory, and the many Asian markets had
staged a comeback. The same holds true for bonds. The higher-quality Lehman
index is down 1.49% year to date through October 31, 1999, while high-yield
bonds have moved into positive returns.
The point, at the risk of sounding repetitive to those of you who have
invested with us for a long time, is that this is why diversification is a
fundamental investing principle. Market sectors and asset classes go in and out
of favor, but over the long run-and the long run is several years-the markets'
overall trend has been upward. Selecting an asset class or a market sector on
the basis of a short-term snapshot of conditions is usually unwise, as is
concentrating your portfolio in one asset class. Staying fully invested in a
diversified portfolio remains a compelling strategy and one of your best
prospects for long-term gain.
LOOKING AHEAD
As we look about at the close of this fiscal year, we are encouraged by signs of
economic health in Europe and Asia, not to mention the prolonged U.S. economic
expansion. However, we are aware of how easily an investor could have been
misled by conditions just 12 months ago. For our shareholders, we therefore
reiterate our commitment to investing through a financial advisor. In addition
to helping you select investments appropriate to your time horizon and risk
tolerance, a financial advisor can keep you informed about how changing market
conditions affect you and your portfolio and can help assure that when you do
alter your investments, there's a logical reason for doing so. AIM believes
every investor should be guided by a financial professional.
FUND MANAGERS COMMENT
In the pages that follow, your fund's portfolio managers discuss how they
managed your fund during the year ended October 31, 1999, how the markets
behaved and what they foresee for the near future. We trust you will find their
discussion informative. If you have any questions or comments, we invite you to
contact us, either at our Web site, aimfunds.com, or through our Client Services
department at 800-959-4246. Information about your account is also available
through our automated AIM Investor Line, 800-246-5463.
Thank you for your continued participation in The AIM Family of
Funds--Registered trademark--
Sincerely,
/s/ CHARLES T. BAUER
Charles T. Bauer
Chairman, A I M Advisors, Inc.
------------------------------------
STAYING FULLY
INVESTED IN A DIVERSIFIED
PORTFOLIO REMAINS
A COMPELLING STRATEGY
AND ONE OF YOUR
BEST PROSPECTS FOR
LONG-TERM GAIN.
------------------------------------
AIM EMERGING MARKETS DEBT FUND
180
ANNUAL REPORT / MANAGERS' OVERVIEW
FUND FINISHES VOLATILE YEAR
WITH UPBEAT OUTLOOK
THE REPORTING PERIOD WAS ONE OF THE WORST IN HISTORY FOR BOND MARKETS. HOW DID
THE FUND PERFORM?
During the past 12 months, the bond markets seemed to have been afflicted by the
old Chinese curse, "May you live to see interesting times"-it was certainly an
interesting year. Emerging-markets debt securities, however, fared well overall.
The widely followed J.P. Morgan Emerging Markets Bond Index Plus (EMBI+) showed
a return of 19.98% for the year ended October 31, 1999, while the J.P. Morgan
EMBI (Brady) returned 16.66%. Our fund also ended this volatile year on a very
positive note, as shown in the table below.
YOUR FUND'S PERFORMANCE
As of 10/31/99, excluding sales charges
================================================================================
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
CLASS A SHARES
1 Year 18.38%
CLASS B SHARES
1 Year 17.61%
ADVISOR CLASS SHARES
1 Year 18.87%
CLASS C SHARES*
Inception (3/1/99) 11.74%
*Cumulative total return that has not been
annualized
================================================================================
As of October 31, 1999, the fund's 30-day distribution rates at net asset
value were 10.84% for Class A shares, 10.19% for Class B shares, 11.23% for
Advisor Class shares and 10.19% for Class C shares. The 30-day SEC yields at
maximum offering price were 8.43% for Class A shares, 8.21% for Class B shares,
9.24% for Advisor Class shares and 8.21% for Class C shares.
WHAT WERE THE BIGGEST CHALLENGES FACING EMERGING-MARKETS DEBT SECURITIES IN THE
REPORTING PERIOD?
The last 12 months were quite volatile, with markets seesawing between valleys
and peaks. In fall 1998, the fund's performance took a hit--as did virtually the
entire non-investment-grade bond market--after Russia effectively declared
bankruptcy in August. Then the underweighted Russian position we held after the
crisis hurt fund performance early in 1999, when Russian assets doubled on
expectations that euro-bonds would continue to be serviced. The January
devaluation of the Brazilian real also affected the fund somewhat, although we
were underweight in Brazil at the time and escaped the worst of the
devaluation's effects on the market.
After a strong rally from early March to the end of April, all the emerging
markets softened in sympathy with Brazil as it suffered through an investigation
of its central-bank president. In July and August, the market remained flat
amid concerns regarding the political situation in Brazil, Argentina's debt
profile and the looming default of Ecuador on its Brady bonds. These
country-specific issues were compounded by worries over the direction of U.S.
interest rate policy, new-issue supply in the corporate and high-yield markets,
and potential year 2000 "bug" (Y2K) issues.
WHAT POSITIVES COUNTERBALANCED THESE CHALLENGES?
Emerging-markets bonds have been--and still are--some of the cheapest assets
in the fixed-income marketplace. Uncertainty about Y2K, the Dow Jones Industrial
Average's ups and downs, and concerns about interest rate increases have created
a lack of support for the market, which in turn makes for buying opportunities.
We are also seeing effects from the end of a series of crises that erupted over
a period of about 18 months, beginning with the Asian crisis in the fall of 1997
and ending with Brazil's central-bank scandal. These crises, along with the
other events mentioned, have driven valuations to historically low levels.
So while the fund did face challenges, those challenges resulted in a lot of
prospects for bargain buying. We've also seen a large reduction in market
liquidity, which positively affects emerging-markets debt because it discourages
non-dedicated money, such as hedge funds, from moving in and out of the asset
class and increasing volatility.
In addition, we made some improvements to the proprietary models we use to
manage the fund and added a new one to try to prevent or lessen the impact of
another situation like the 1998 Russian default.
WHAT COUNTRIES IN PARTICULAR HAVE PERFORMED WELL?
Around the world, Asian debt has been one of the top performers. We increased
the portfolio's diversification by shifting money from Latin America to this
region in late summer--especially to South Korea, the Philippines and
Malaysia--given that issuance and liquidity in Asia increased over
------------------------------------
THE YEAR HAS BEEN MARKED BY
WIDE VARIATIONS IN INVESTMENT RETURNS
ACROSS REGIONS, COUNTRIES AND
SECURITIES. WE THINK WE HAVE
THE RIGHT POSITIONS
TO OUTPERFORM GOING FORWARD.
------------------------------------
See important fund and index disclosures inside front cover.
AIM EMERGING MARKETS DEBT FUND
2
181
ANNUAL REPORT / MANAGERS' OVERVIEW
PORTFOLIO COMPOSITION
As of 10/31/99, based on total net assets
===================================================================================================================================
TOP FIVE BOND HOLDINGS FUND ALLOCATION (Pie Chart)
COUNTRY COUPON MATURITY SECURITY % OF PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------------
South Korea 8.875 4/2008 Notes 4.37% MALAYSIA 2.38% BRAZIL 21.18%
Brazil 7.00 4/2012 Bonds 4.11 POLAND 2.63%
Brazil 8.00 4/2014 Bonds 4.05 CASH/CASH EQUIVALENTS 3.00% MEXICO 17.08%
Russia 11.75 6/2003 Bonds 3.93 UNITED STATES 3.78% OTHER 15.91%
Mexico 11.50 5/2026 Bonds 3.87 SOUTH KOREA 4.37% RUSSIA 6.74%
VENEZUELA 4.40%
BULGARIA 4.67% ARGENTINA 13.86%
The fund's portfolio is subject to change, and there is no assurance that the fund will continue to hold any particular security.
===================================================================================================================================
the past year. Although we reduced our exposure to Brazil and Argentina during
the same period because of concerns about fiscal management and the slow pace of
reform, we now plan to increase the allocation to Brazil because of its positive
performance.
Mexico was another strong position for the fund last year. We ended the
fiscal year with a large weighting there--a position we've held for some time
because of Mexico's relatively stable political situation and because the
country's public-sector finances are more in hand. We now plan to reduce
exposure there because in the short to intermediate term, we feel Brazil offers
higher returns. Mexico has a presidential election in July 2000, which has
historically been a time of very high volatility--in fact, the last three
elections ended in an economic crisis. We certainly don't expect that this time,
but we do feel that the chance of some moderate volatility could allow us to
re-enter the market at a more favorable level.
WHAT'S YOUR STRATEGY FOR THE SHORT TERM?
Recovery was the theme at the beginning of the year, and it may yet be the theme
for both the short and the long term. Emerging markets have begun to exhibit
much less volatility, which we expected because of Y2K concerns-many investors
are adopting a conservative investment posture until January 2000. We selected
more income-generating assets toward the end of the fiscal year, which may
provide a cushion in turbulent markets, and we also plan to maintain a modest
cash position over the new year.
WHAT'S THE OUTLOOK FOR 2000?
Historically, bond markets have staged a recovery on the heels of an extended
period of poor performance, and we look for 2000 to follow that trend. We're
optimistic about emerging markets because the major countries in our investment
universe continue to follow market-friendly economic policies--there appears to
be little appetite for a return to the state-controlled, low-growth,
high-inflation policies of the past. We believe this trend of solid economic
policy will drive performance in the coming year--and may offer investors a rare
investment opportunity right now.
------------------------------------
WE BELIEVE THE MARKET OFFERS
EXCELLENT LONG-TERM VALUE AT
CURRENT LEVELS AND LOOK FOR 2000
TO BE A YEAR OF RECOVERY
FOR BOND MARKETS.
------------------------------------
See important fund and index disclosures inside front cover.
AIM EMERGING MARKETS DEBT FUND
3
182
ANNUAL REPORT / PERFORMANCE HISTORY
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
AIM EMERGING MARKETS DEBT FUND VS. BENCHMARK INDEX
10/22/92-10/31/99
($10,000 Hypo Chart)
in thousands
================================================================================
AIM AIM
EMERGING MARKETS EMERGING MARKETS J.P. MORGAN
DEBT FUND DEBT FUND EMBI
CLASS A SHARES CLASS B SHARES (BRADY) INDEX
- --------------------------------------------------------------------------------
10/22/92 9,525 10,000 10,000
10/93 13,681 14,260 14,011
10/94 12,799 13,269 12,693
10/95 13,159 13,543 13,710
10/96 18,297 18,710 19,180
10/97 20,944 21,286 21,866
10/98 14,645 14,796 20,511
10/99 17,338 17,401 23,928
Source: Lipper Inc.
Past performance cannot guarantee comparable future results.
================================================================================
MARKET VOLATILITY CAN SIGNIFICANTLY IMPACT SHORT-TERM PERFORMANCE. RESULTS
OF AN INVESTMENT MADE TODAY MAY DIFFER SUBSTANTIALLY FROM THE HISTORICAL
PERFORMANCE SHOWN.
ABOUT THIS CHART
The chart compares your fund's Class A and B shares to a benchmark index. It is
intended to give you a general idea of how your fund compared to the bond market
over the period 10/22/92-10/31/99. (Please note that the index performance
figures are for the period 10/31/92-10/31/99.) It is important to understand the
differences between your fund and an index. Your fund's total return is shown
with a sales charge and includes fund expenses and management fees. An index
measures the performance of a hypothetical portfolio. Unlike your fund, an index
is not managed, incurring no sales charges, expenses or fees. If you could buy
all the securities that make up a market index, you would incur expenses that
would affect your investment's return.
AVERAGE ANNUAL TOTAL RETURNS
As of 10/31/99, including sales charges
===============================================================================
CLASS A SHARES
- -------------------------------------------------------------------------------
10 years 8.15%
5 years 5.22
1 year 12.78*
* 18.38% excluding sales charges
CLASS B SHARES
- -------------------------------------------------------------------------------
Inception (4/1/93) 8.21%
5 years 5.36
1 year 12.61*
* 17.61% excluding sales charges
CLASS C SHARES*
- -------------------------------------------------------------------------------
Inception (3/1/99) 10.74%
* Total return provided is cumulative total return that has
not been annualized; 11.74% excluding sales charges.
ADVISOR CLASS SHARES*
- -------------------------------------------------------------------------------
Inception (6/1/95) 8.06
1 year 18.87
* Sales charges do not apply to Advisor shares.
===============================================================================
Your fund's total return includes sales charges, expenses and management fees.
The performance of the fund's Advisor Class shares will differ from Class A,
Class B and Class C shares due to differing fees and expenses. For fund
performance calculations and a description of an index cited on this page,
please refer to the inside front cover.
AIM EMERGING MARKETS DEBT FUND
4
183
SCHEDULE OF INVESTMENTS
October 31, 1999
PRINCIPAL MARKET
AMOUNT(a) VALUE
CORPORATE BONDS-12.57%
ARGENTINA-2.29%
Banco Hipotecario S.A.
(Banks-Regional), Sr. Unsec.
Unsub. Notes, 10.00%, 04/17/03
(Acquired 04/07/98; Cost
$1,277,171)(b) $ 1,279,000 $ 1,179,877
- --------------------------------------------------------------
CEI Citicorp Holdings S.A.
(Investment Banking/Brokerage),
Bonds, 11.25%, 02/14/07
(Acquired 08/13/99; Cost
$2,175,315)(b)(c) ARS 3,000,000 2,333,597
- --------------------------------------------------------------
3,513,474
- --------------------------------------------------------------
BRAZIL-1.83%
Banco Nacional De Desenvolri
(Banks- Regional), Unsec. Unsub.
Floating Rate Notes, 13.64%,
06/16/08(d) 3,250,000 2,810,997
- --------------------------------------------------------------
CAYMAN ISLANDS-1.15%
PDVSA Finance Ltd.,
(Banks-Regional), Sr. Unsec.
Notes, 9.75%, 02/15/10 (Acquired
03/31/99; Cost $1,837,494)(b) 1,850,000 1,753,469
- --------------------------------------------------------------
JAMAICA-1.06%
Mechala Group
(Manufacturing-Diversified),
Series B, Sr. Gtd. Sub. Notes,
12.75%, 12/30/99 4,134,000 1,622,595
- --------------------------------------------------------------
MEXICO-6.24%
Alestra S.A., Sr. Notes, 12.625%
5/15/09 3,918,000 3,790,665
- --------------------------------------------------------------
Fideicomiso Petacalco Trust-Topolo
(Financial-Diversified), Sec.
Notes, 10.16%, 12/23/09
(Acquired 06/25/99; Cost
$1,575,000)(b) 1,750,000 1,540,000
- --------------------------------------------------------------
Grupo Televisa S.A.
(Entertainment), Sr. Disc.
Notes, 13.25%, 05/15/08(e) 2,400,000 2,055,000
- --------------------------------------------------------------
Petroleos Mexicanos (Oil &
Gas-Refining & Marketing),
Sr. Gtd. Sub. Bonds, 9.50%,
09/15/27 300,000 257,250
- --------------------------------------------------------------
Unsub. Bonds, 9.50%, 09/15/27 2,000,000 1,925,000
- --------------------------------------------------------------
9,567,915
- --------------------------------------------------------------
Total Corporate Bonds (Cost
$20,115,100) 19,268,450
- --------------------------------------------------------------
GOVERNMENT BONDS & GOVERNMENT
AGENCY OBLIGATIONS-80.32%
ARGENTINA-11.42%
Province of Buenos Aires, Series
2, Unsec. Unsub. Notes, 12.50%,
03/15/02 1,100,000 1,086,250
- --------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT(a) VALUE
ARGENTINA-(CONTINUED)
Republic of Argentina,
Floating Rate Deb., 6.8125%,
03/31/05(d) $ 4,092,000 $ 3,666,526
- --------------------------------------------------------------
Series L, Floating Rate Gtd.
Bonds, 6.00%, 03/31/23(d) 4,670,000 3,576,281
- --------------------------------------------------------------
Unsec. Unsub. Bonds,
11.375%, 01/30/17 3,395,000 3,250,713
- --------------------------------------------------------------
9.75%, 09/19/27 6,959,000 5,923,849
- --------------------------------------------------------------
17,503,619
- --------------------------------------------------------------
BRAZIL-19.35%
Republic of Brazil,
Bonds,
11.625%, 04/15/04 1,009,000 967,379
- --------------------------------------------------------------
5.75%, 04/15/24(f) 4,220,000 2,540,271
- --------------------------------------------------------------
Floating Rate Deb., 6.9375%,
04/15/06(d) 4,136,000 3,397,782
- --------------------------------------------------------------
Floating Rate Gtd. Notes, 7.00%,
04/15/09(d) 2,100,000 1,553,177
- --------------------------------------------------------------
Floating Rate Gtd. Bonds,
7.00%, 04/15/12(d) 9,493,000 6,297,836
- --------------------------------------------------------------
6.9375%, 04/15/24(d) 5,450,000 3,816,684
- --------------------------------------------------------------
Notes, 14.50%, 10/15/09 2,014,000 2,091,539
- --------------------------------------------------------------
Series C, Bonds, 8.00%, 04/15/14 9,175,507 6,215,626
- --------------------------------------------------------------
Unsec. Bonds, 10.125%, 05/15/27 3,520,000 2,786,164
- --------------------------------------------------------------
29,666,458
- --------------------------------------------------------------
BULGARIA-4.67%
Republic of Bulgaria,
Series A, Gtd. Bonds, 2.75%,
07/28/12(f) 3,520,000 2,379,041
- --------------------------------------------------------------
Series A, Gtd. Floating Rate
Sec. Bonds, 6.50%, 07/28/24(d) 3,999,000 2,984,670
- --------------------------------------------------------------
Floating Rate PDI Deb., 6.50%,
07/28/11(d) 2,350,000 1,795,896
- --------------------------------------------------------------
7,159,607
- --------------------------------------------------------------
COLOMBIA-1.80%
Republic of Colombia,
Unsec. Unsub. Notes, 7.625%,
02/15/07 1,880,000 1,551,000
- --------------------------------------------------------------
Unsub. Notes, 9.75%, 04/23/09 1,324,000 1,208,150
- --------------------------------------------------------------
2,759,150
- --------------------------------------------------------------
QATAR-1.13%
State of Qatar, Bonds, 9.50%,
05/21/09 (Acquired 06/25/99;
Cost $1,674,580)(b) 1,658,000 1,728,714
- --------------------------------------------------------------
5
184
PRINCIPAL MARKET
AMOUNT(a) VALUE
KAZAKHSTAN-1.74%
Republic of Kazakhstan, Bonds,
13.625%, 10/18/04 (Acquired
09/28/99; Cost $2,669,490)(b) $ 2,700,000 $ 2,673,000
- --------------------------------------------------------------
KOREA-4.37%
Republic of Korea, Unsub. Unsec.
Notes, 8.875%, 04/15/08 6,435,000 6,707,155
- --------------------------------------------------------------
LEBANON-1.22%
Republic of Lebanon, Series 3,
Notes, 10.25%, 10/06/09 1,850,000 1,869,686
- --------------------------------------------------------------
MALAYSIA-2.38%
Republic of Malaysia, Bonds,
8.75%, 06/01/09 3,538,000 3,647,041
- --------------------------------------------------------------
MEXICO-10.67%
United Mexican States,
Bonds,
10.375%, 02/17/09 1,700,000 1,731,875
- --------------------------------------------------------------
11.375%, 09/15/16 2,381,000 2,552,263
- --------------------------------------------------------------
11.50%, 05/15/26 5,248,000 5,930,980
- --------------------------------------------------------------
Series D, Floating Rate Sec.
Gtd. Bonds 6.0675%,
12/31/19(d) 2,220,000 1,970,752
- --------------------------------------------------------------
Sec. Gtd. Bonds, 6.25%, 12/31/19 5,500,000 4,166,382
- --------------------------------------------------------------
16,352,252
- --------------------------------------------------------------
MOROCCO-1.68%
Morocco Tranche A, Registered
Loans, 5.906%, 01/01/09
(Acquired 03/11/99; Cost
$2,420,780)(b) 2,964,000 2,582,385
- --------------------------------------------------------------
PANAMA-1.61%
Republic of Panama,
Bonds,
8.875%, 09/30/27 1,017,000 828,490
- --------------------------------------------------------------
9.375%, 04/01/29 626,000 593,135
- --------------------------------------------------------------
Gtd. Deb., 4.25%, 07/17/14(f) 1,400,000 1,053,392
- --------------------------------------------------------------
2,475,017
- --------------------------------------------------------------
PERU-2.30%
Republic of Peru,
Gtd. Bonds, 3.75%, 03/07/17(f) 2,725,000 1,535,478
- --------------------------------------------------------------
PDI Bonds, 4.50%, 03/07/17(f) 3,136,000 1,984,150
- --------------------------------------------------------------
3,519,628
- --------------------------------------------------------------
PHILIPPINES-1.12%
Republic of Philippines, Bonds,
9.875%, 01/15/19 1,770,000 1,721,325
- --------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT(a) VALUE
POLAND-2.63%
Republic of Poland,
Sec. Bonds, 3.50%, 10/27/24(f) $ 2,475,000 $ 1,524,214
- --------------------------------------------------------------
Unsec. PDI Bonds, 6.00%,
10/27/14(f) 2,812,000 2,503,501
- --------------------------------------------------------------
4,027,715
- --------------------------------------------------------------
RUSSIA-6.74%
Bank of Foreign Economic Affairs
(Vnesheconombank),
Interest in Arrears Notes, 6.0625%,
12/15/15(d)(g) 627,107 72,901
- --------------------------------------------------------------
Principal Loans, 6.0625%,
12/15/20(d)(g) 37,242,372 3,468,382
- --------------------------------------------------------------
Russian Federation, Sr. Unsec.
Unsub. Bonds, 11.75%, 06/10/03 9,870,000 6,028,191
- --------------------------------------------------------------
12.75%, 06/24/28 1,413,000 771,748
- --------------------------------------------------------------
10,341,222
- --------------------------------------------------------------
TURKEY-1.09%
Republic of Turkey,
Notes, 12.00%, 12/15/08 1,290,000 1,306,125
- --------------------------------------------------------------
Sr. Unsec. Unsub. Notes, 12.375%,
06/15/09 370,000 372,313
- --------------------------------------------------------------
1,678,438
- --------------------------------------------------------------
VENEZUELA-4.40%
Republic of Venezuela,
Floating Rate Deb., 6.313%,
12/18/07(d) 2,226,180 1,800,002
- --------------------------------------------------------------
Gtd. Sec. Bonds, 6.75%, 03/31/20 3,299,000 2,322,239
- --------------------------------------------------------------
Unsec. Bonds, 9.25%, 09/15/27 3,859,000 2,619,007
- --------------------------------------------------------------
6,741,248
- --------------------------------------------------------------
Total Government Bonds &
Government Agency
Obligations (Cost
$135,981,782) 123,153,660
- --------------------------------------------------------------
SHARES
WARRANTS-0.33%
SOVEREIGN DEBT-0.33%
Republic of Argentina (Argentina),
expiring 12/03/99(h) 8,810 9,911
- --------------------------------------------------------------
expiring 02/25/00(h) 9,630 217,879
- --------------------------------------------------------------
United Mexican States (Mexico),
expiring 02/18/00(h) 4,033 270,715
- --------------------------------------------------------------
498,505
- --------------------------------------------------------------
Total Warrants (Cost $0) 498,505
- --------------------------------------------------------------
6
185
MARKET
SHARES VALUE
MONEY MARKET FUNDS-3.78%
STIC Liquid Assets Portfolio(i) 2,901,337 $ 2,901,337
- --------------------------------------------------------------
STIC Prime Portfolio(i) 2,901,337 2,901,337
- --------------------------------------------------------------
Total Money Market Funds (Cost
$5,802,674) 5,802,674
- --------------------------------------------------------------
TOTAL INVESTMENTS-97.00% 148,723,289
- --------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-3.00% 4,605,719
- --------------------------------------------------------------
NET ASSETS-100.00% $153,329,008
==============================================================
Investment Abbreviations:
ARS - Argentine Peso
Deb. - Debentures
Gtd. - Guaranteed
PDI - Past Due Interest
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
Unsub. - Unsubordinated
Notes to Schedule of Investments:
(a)Principal amount is in U.S. dollars except as indicated by note (c).
(b)Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of 1933,
as amended. The valuation of this security has been determined in accordance
with procedures established by the Board of Trustees. The aggregate market
value of these securities at 10/31/99 was $13,791,043, which represented
8.99% of the Fund's net assets.
(c)Foreign denominated security. Par value and coupon are denominated in
currency indicated.
(d)The coupon rate shown of floating rate note represents the rate at period
end.
(e)Discount bond at purchase. Interest rate shown represents the coupon rate at
which the bond will accrue at a specified future date.
(f)The coupon rate shown on step-up coupon bonds represents the rate at period
end.
(g)Defaulted security. Currently, the issuer is in default with respect to
interest payments.
(h)Non-income producing security acquired as part of a unit with or in exchange
for other securities.
(i)The security shares the same investment advisor as the Fund.
See Notes to Financial Statements.
7
186
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1999
ASSETS:
Investments, at value (cost $161,899,556) $148,723,289
- ------------------------------------------------------------
Foreign currencies, at value (cost $37) 37
- ------------------------------------------------------------
Receivables for:
Investments sold 2,521,069
- ------------------------------------------------------------
Fund shares sold 114,064
- ------------------------------------------------------------
Dividends and interest 3,619,496
- ------------------------------------------------------------
Other assets 44,238
- ------------------------------------------------------------
Total assets 155,022,193
- ------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 1,082,939
- ------------------------------------------------------------
Fund shares reacquired 298,225
- ------------------------------------------------------------
Accrued advisory fees 145,351
- ------------------------------------------------------------
Accrued distribution fees 122,295
- ------------------------------------------------------------
Accrued accounting services fees 4,247
- ------------------------------------------------------------
Accrued trustees' fees 2,858
- ------------------------------------------------------------
Accrued operating expenses 37,270
- ------------------------------------------------------------
Total liabilities 1,693,185
- ------------------------------------------------------------
Net assets applicable to shares outstanding $153,329,008
============================================================
NET ASSETS:
Class A $ 54,330,409
============================================================
Class B $ 97,393,834
============================================================
Class C $ 208,357
============================================================
Advisor Class $ 1,396,408
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 6,543,402
============================================================
Class B 11,728,667
============================================================
Class C 25,096
============================================================
Advisor Class 168,733
============================================================
Class A:
Net asset value and redemption price per
share $ 8.30
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $8.30 / 95.25%) $ 8.71
============================================================
Class B:
Net asset value and offering price per share $ 8.30
============================================================
Class C:
Net asset value and offering price per share $ 8.30
============================================================
Advisor Class:
Net asset value, redemption and offering
price per share $ 8.28
============================================================
STATEMENT OF OPERATIONS
For the year ended October 31, 1999
INVESTMENT INCOME:
Dividend $ 5,558
- ------------------------------------------------------------
Interest 21,776,257
- ------------------------------------------------------------
Securities lending 179,871
- ------------------------------------------------------------
Total investment income 21,961,686
- ------------------------------------------------------------
EXPENSES:
Advisory and administrative fees 1,712,645
- ------------------------------------------------------------
Accounting services fees 51,980
- ------------------------------------------------------------
Custodian fees 130,677
- ------------------------------------------------------------
Distribution fees -- Class A 219,862
- ------------------------------------------------------------
Distribution fees -- Class B 1,097,291
- ------------------------------------------------------------
Distribution fees -- Class C 667
- ------------------------------------------------------------
Interest expense (Note 4) 221,531
- ------------------------------------------------------------
Transfer agent fees -- Class A 139,579
- ------------------------------------------------------------
Transfer agent fees -- Class B 243,815
- ------------------------------------------------------------
Transfer agent fees -- Class C 221
- ------------------------------------------------------------
Transfer agent fees -- Advisor Class 5,019
- ------------------------------------------------------------
Trustees' fees 7,532
- ------------------------------------------------------------
Other 227,916
- ------------------------------------------------------------
Total expenses 4,058,735
- ------------------------------------------------------------
Less: Expenses paid indirectly (87,116)
- ------------------------------------------------------------
Fees waived by advisor (75,488)
- ------------------------------------------------------------
Net expenses 3,896,131
- ------------------------------------------------------------
Net investment income 18,065,555
- ------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES
AND FORWARD CONTRACTS:
Net realized gain (loss) from:
Investment securities (22,143,209)
- ------------------------------------------------------------
Foreign currencies (775,867)
- ------------------------------------------------------------
Forward contracts 972,301
- ------------------------------------------------------------
(21,946,775)
- ------------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of:
Investment securities 32,555,182
- ------------------------------------------------------------
Foreign currencies (31,683)
- ------------------------------------------------------------
32,523,499
- ------------------------------------------------------------
Net gain from investment securities, foreign
currencies and forward contracts 10,576,724
- ------------------------------------------------------------
Net increase in net assets resulting from
operations $ 28,642,279
============================================================
See Notes to Financial Statements.
8
187
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended October 31, 1999 and 1998
1999 1998
------------ -------------
OPERATIONS:
Net investment income $ 18,065,555 $ 33,382,360
- -------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and forward contracts (21,946,775) (69,501,940)
- -------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and forward
contracts 32,523,499 (49,143,194)
- -------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 28,642,279 (85,262,774)
- -------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (6,769,760) (9,422,518)
- -------------------------------------------------------------------------------------------
Class B (11,031,707) (14,937,576)
- -------------------------------------------------------------------------------------------
Class C (6,633) --
- -------------------------------------------------------------------------------------------
Advisor Class (257,455) (246,624)
- -------------------------------------------------------------------------------------------
Distributions in excess of net investment income:
Class A (449,410) --
- -------------------------------------------------------------------------------------------
Class B (785,022) --
- -------------------------------------------------------------------------------------------
Class C (710) --
- -------------------------------------------------------------------------------------------
Advisor Class (16,159) --
- -------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A -- (24,756,370)
- -------------------------------------------------------------------------------------------
Class B -- (41,863,802)
- -------------------------------------------------------------------------------------------
Advisor Class -- (638,983)
- -------------------------------------------------------------------------------------------
Return of capital
Class A -- (3,147,917)
- -------------------------------------------------------------------------------------------
Class B -- (4,936,309)
- -------------------------------------------------------------------------------------------
Advisor Class -- (82,579)
- -------------------------------------------------------------------------------------------
Share transactions-net:
Class A (18,452,955) 3,431,336
- -------------------------------------------------------------------------------------------
Class B (17,772,062) (3,086,499)
- -------------------------------------------------------------------------------------------
Class C 206,296 --
- -------------------------------------------------------------------------------------------
Advisor Class (300,841) (518,649)
- -------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (26,994,139) (185,469,264)
- -------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 180,323,147 365,792,411
- -------------------------------------------------------------------------------------------
End of period $153,329,008 $ 180,323,147
===========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $249,451,851 $ 285,771,413
- -------------------------------------------------------------------------------------------
Distributions in excess of net investment income (1,665,521) (41,564)
- -------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities, foreign currencies and forward contracts (81,281,069) (59,706,950)
- -------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities, foreign currencies and forward contracts (13,176,253) (45,699,752)
- -------------------------------------------------------------------------------------------
$153,329,008 $ 180,323,147
===========================================================================================
See Notes to Financial Statements.
9
188
NOTES TO FINANCIAL STATEMENTS
October 31, 1999
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Emerging Markets Debt Fund (the "Fund") is a separate series of AIM
Investment Funds (the "Trust"). The Trust is organized as a Delaware business
trust and is registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), as an open-end series management investment company consisting
of twelve separate series portfolios, each having an unlimited number of shares
of beneficial interest. The Fund consists of four different classes of shares:
Class A shares, Class B shares, Class C shares and Advisor Class shares. Class A
shares are sold with a front-end sales charge. Class B shares and Class C shares
are sold with a contingent deferred sales charge. Advisor Class shares were sold
without a sales charge. Matters affecting each portfolio or class will be voted
on exclusively by the shareholders of such portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is high current income, and its secondary
investment objective is growth of capital. The Fund invests substantially all of
its investable assets in Emerging Markets Debt Portfolio (the "Portfolio"). The
Portfolio is organized as a Delaware business trust which is registered under
the 1940 Act as an open-end management investment company.
The Portfolio has investment objectives, policies and limitations
substantially identical to those of the Fund. Therefore, the financial
statements of the Fund and Portfolio have been presented on a consolidated
basis, and represent all activities of both the Fund and Portfolio. Through
October 31, 1999, all of the shares of beneficial interest of the Portfolio were
owned by either the Fund or INVESCO (NY) Asset Management, Inc., which has a
nominal ($100) investment in the Portfolio.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund and the Portfolio in the preparation of its financial statements.
A. Security Valuations--A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular
day, the security is valued at the closing bid price on that day. Each
security reported on the NASDAQ National Market System is valued at the
last sales price on the valuation date or absent a last sales price, at the
closing bid price. Debt obligations (including convertible bonds) are
valued on the basis of prices provided by an independent pricing service.
Prices provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
yield, type of issue, coupon rate and maturity date. Securities for which
market prices are not provided by any of the above methods are valued based
upon quotes furnished by independent sources and are valued at the last bid
price in the case of equity securities and in the case of debt obligations,
the mean between the last bid and asked prices. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity are
valued at amortized cost which approximates market value. For purposes of
determining net asset value per share, futures and options contracts
generally will be valued 15 minutes after the close of trading of the New
York Stock Exchange ("NYSE").
Generally, trading in foreign securities is substantially completed each
day at various times prior to the close of the NYSE. The values of such
securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the NYSE. Occasionally, events
affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of the NYSE
which would not be reflected in the computation of the Fund's net asset
value. If events materially affecting the value of such securities occur
during such period, then these securities will be valued at their fair
value as determined in good faith by or under the supervision of the Board
of Trustees.
B. Securities Transactions, Investment Income and Distributions--Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. Such distributions are
declared and paid monthly. The Fund may elect to use a portion of the
proceeds of fund share redemptions as distributions for Federal income tax
purposes. Distributions from net realized capital gains, if any, are
generally paid annually and recorded on ex-dividend date.
On October 31, 1999, undistributed net investment income was decreased
and undistributed net realized gain (loss) increased by $372,656 as a
result of differing book/tax treatment of foreign currency transactions in
order to comply with the requirements of the American Institute of
Certified Public Accountants Statement of Position 93-2. Net assets of the
Fund were unaffected by the reclassification discussed above.
C. Federal Income Taxes--The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be
10
189
subject to federal income taxes on otherwise taxable income (including net
realized capital gains) which is distributed to shareholders. Therefore, no
provision for federal income taxes is recorded in the financial statements.
The Fund has a capital loss carryforward of $76,114,462 as of October 31,
1999 which may be carried forward to offset future taxable gains, if any,
and expires in varying increments, if not previously utilized, in the year
2007.
D. Futures Contracts--The Portfolio may purchase or sell futures contracts
as a hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Portfolio's agent in acquiring the futures position). During
the period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Portfolio recognizes a realized gain or
loss equal to the difference between the proceeds from, or cost of, the
closing transaction and the Portfolio's basis in the contract. Risks
include the possibility of an illiquid market and that a change in value of
the contracts may not correlate with changes in the value of the securities
being hedged.
E. Foreign Currency Translations--Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for that portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
F. Foreign Currency Contracts--A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Portfolio may enter into a foreign currency contract to
attempt to minimize the risk to the Portfolio from adverse changes in the
relationship between currencies. The Portfolio may also enter into a
foreign currency contract for the purchase or sale of a security
denominated in a foreign currency in order to "lock in" the U.S. dollar
price of that security. The Portfolio could be exposed to risk if
counterparties to the contracts are unable to meet the terms of their
contracts or if the value of the foreign currency changes unfavorably.
G. Expenses--Distribution expenses directly attributable to a class of
shares are charged to that class' operations. All other expenses which are
attributable to more than one class are allocated among the classes.
H. Foreign Securities--There are certain additional considerations and risks
associated with investing in foreign securities and currency transactions
that are not inherent in investments of domestic origin. The Portfolio's
investment in emerging market countries may involve greater risks than
investments in more developed markets and the price of such investments may
be volatile. These risks of investing in foreign and emerging markets may
include foreign currency exchange fluctuations, perceived credit risk,
adverse political and economic developments and possible adverse foreign
government intervention.
I. Indexed Securities--The Portfolio may invest in indexed securities whose
value is linked either directly or indirectly to changes in foreign
currencies, interest rates, equities, indices, or other reference
instruments. Indexed securities may be more volatile than the reference
instrument itself, but any loss is limited to the amount of the original
investment.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH
AFFILIATES
A I M Advisors, Inc. ("AIM") is the Fund's and the Portfolio's investment
manager and administrator. INVESCO Asset Management Limited is the Fund's and
the Portfolio's subadvisor. The Fund pays AIM administration fees at an
annualized rate of 0.25% of the Fund's average daily net assets. The Portfolio
pays AIM investment management and administration fees at an annual rate of
0.475% on the first $500 million of the Portfolio's average daily net assets,
plus 0.45% on the next $1 billion of the Portfolio's average daily net assets,
plus 0.425% on the next $1 billion of the Portfolio's average daily net assets,
plus 0.40% on the Portfolio's average daily net assets exceeding $2.5 billion,
plus 2% of the Portfolio's total investment income calculated in accordance with
generally accepted accounting principles, adjusted daily for currency
revaluations, on a mark to market basis, of the Portfolio's assets; provided,
however, that during any fiscal year this amount shall not exceed 2% of the
Portfolio's total investment income calculated in accordance with generally
accepted accounting principles. AIM has contractually agreed to limit the Fund's
expenses (exclusive of brokerage commissions, taxes, interest and extraordinary
expenses) to the maximum annual rate of 1.75%, 2.40%, 2.40% and 1.40% of the
average daily net assets of the Fund's Class A, Class B, Class C and Advisor
Class shares, respectively. During the year ended October 31, 1999, AIM waived
fees of $75,488.
Effective July 1, 1999, the Trust entered into a master administrative
services agreement with AIM, replacing the prior pricing and accounting
agreement. The Fund, pursuant to the master administrative services agreement
with AIM, has agreed to pay AIM for certain administrative costs incurred in
providing accounting services to the Fund and the Portfolio. Prior to July 1,
1999, AIM was the pricing and accounting agent for the Fund and the Portfolio.
The monthly fee for these services paid to AIM was a percentage, not to exceed
0.03% annually, of a Fund's average daily net assets. The annual fee rate was
derived based on the aggregate net assets of the funds which comprised the
following investment companies: AIM Growth Series, AIM Investment Funds, AIM
Series Trust, G.T. Global Variable Investment Series and G.T. Global Variable
Investment Trust. The fee was calculated at the rate of 0.03% of the first $5
billion of assets and 0.02% to the assets in excess of $5 billion. An amount is
allocated to and paid by each
11
190
such fund based on its relative average daily net assets. For the year ended
October 31, 1999, AIM was paid $51,980 for such services. The Fund, pursuant to
a transfer agency and service agreement, has agreed to pay A I M Fund Services,
Inc. ("AFS") a fee for providing transfer agency and shareholder services to the
Fund. For the year ended October 31, 1999, AFS was paid $345,384 for such
services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C and Advisor Class shares of the Fund. The Trust has
adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A shares, Class B shares and Class C shares (collectively the
"Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at
the annual rate of 0.35% of the Fund's average daily net assets of Class A
shares and 1.00% of the average daily net assets of Class B and C shares. Of
these amounts, the Fund may pay a service fee of 0.25% of the average daily net
assets of the Class A, Class B or Class C shares to selected dealers and
financial institutions who furnish continuing personal shareholder services to
their customers who purchase and own the appropriate class of shares of the
Fund. Any amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. The Plans also impose a cap on the total sales
charges, including asset-based sales charges that may be paid by the respective
classes. For the year ended October 31, 1999, the Class A, Class B and Class C
shares paid AIM Distributors $219,862, $1,097,291 and $667, respectively, as
compensation under the Plans.
AIM Distributors received commissions of $26,041 from sales of the Class A
shares of the Fund during the year ended October 31, 1999. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended October 31, 1999,
AIM Distributors received $481 in contingent deferred sales charges imposed on
redemptions of Fund shares. Certain officers and trustees of the Trust are
officers and directors of AIM, AFS and AIM Distributors.
NOTE 3-INDIRECT EXPENSES
During the year ended October 31, 1999, the Fund received reductions in
custodian fees of $87,116 under expense offset arrangements. The effect of the
above arrangements resulted in a reduction of the Fund's total expenses of
$87,116 during the year ended October 31, 1999.
NOTE 4-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $1,000,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. The funds which
are party to the line of credit are charged a commitment fee of 0.09% on the
unused balance of the committed line. The commitment fee is allocated among the
funds based on their respective average net assets for the period. Prior to May
28, 1999, the Fund, along with certain other funds advised and/or administered
by AIM, had a line of credit with BankBoston and State Street Bank & Trust
Company. The arrangements with the banks allowed the Fund and certain other
funds to borrow, on a first come, first served basis, an aggregate maximum
amount of $250,000,000.
During the year ended October 31, 1999, the average outstanding daily balance
of bank loans for the Fund was $3,956,575 with a weighted average interest rate
of 5.60%. Interest expense for the Fund for the year ended October 31, 1999 was
$221,531.
NOTE 5-PORTFOLIO SECURITIES LOANED
At October 31, 1999, there were no securities on loan to brokers. For the year
ended October 31, 1999, the Portfolio received fees of $179,871 for securities
lending.
For international securities, cash collateral is received by the Fund against
loaned securities in an amount at least equal to 105% of the market value of the
loaned securities at the inception of each loan. This collateral must be
maintained at not less than 103% of the market value of the loaned securities
during the period of the loan. For domestic securities, cash collateral is
received by the Fund against loaned securities in the amount at least equal to
102% of the market value of the loaned securities at the inception of each loan.
This collateral must be maintained at not less than 100% of the market value of
the loaned securities during the period of the loan. The cash collateral is
invested in a securities lending trust which consists of a portfolio of high
quality short duration securities whose average effective duration is restricted
to 120 days or less.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Portfolio during the year ended October 31, 1999 was
$553,770,582 and $602,932,879, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of October 31, 1999 is as follows:
Aggregate unrealized appreciation of
investment securities $ 4,402,200
- ---------------------------------------------------------
Aggregate unrealized appreciation
(depreciation) of investment securities (22,874,837)
- ---------------------------------------------------------
Net unrealized appreciation (depreciation)
of investment securities $(18,472,637)
=========================================================
Cost of investments for tax purposes is $167,195,926.
12
191
NOTE 7-SHARE INFORMATION
Changes in shares outstanding during the years ended October 31, 1999 and 1998
were as follows:
1999 1998
------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ----------- -------------
Sold:
Class A 3,233,391 $ 26,598,153 10,918,639 $ 129,801,507
- ---------------------------------------------------------------------------------------------------------------------
Class B 4,696,545 38,346,742 5,958,185 73,991,330
- ---------------------------------------------------------------------------------------------------------------------
Class C* 24,266 199,586 -- --
- ---------------------------------------------------------------------------------------------------------------------
Advisor Class 363,714 2,925,142 490,309 6,221,370
- ---------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A 565,425 4,586,556 2,191,470 26,459,355
- ---------------------------------------------------------------------------------------------------------------------
Class B 906,003 7,345,956 3,020,192 36,460,585
- ---------------------------------------------------------------------------------------------------------------------
Class C* 830 6,710 -- --
- ---------------------------------------------------------------------------------------------------------------------
Advisor Class 33,070 268,042 76,464 920,280
- ---------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (6,073,553) (49,637,664) (12,901,851) (152,829,526)
- ---------------------------------------------------------------------------------------------------------------------
Class B (7,791,891) (63,464,760) (9,736,068) (113,538,414)
- ---------------------------------------------------------------------------------------------------------------------
Advisor Class (431,949) (3,494,025) (602,542) (7,660,299)
- ---------------------------------------------------------------------------------------------------------------------
(4,474,149) $(36,319,562) (585,202) $ (173,812)
=====================================================================================================================
* Class C shares commenced sales on March 1, 1999.
NOTE 8-FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
CLASS A
------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------
1999 1998(a) 1997(a) 1996(a) 1995
------- ------- -------- -------- --------
Net asset value, beginning of period $ 7.86 $15.56 $ 14.85 $ 11.70 $ 12.56
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.86 1.35(b) 1.19 1.27 1.35
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.51 (4.80) 0.93 3.09 (1.09)
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from investment operations 1.37 (3.45) 2.12 4.36 0.26
- --------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income (0.93) (1.06) (1.18) (1.11) (1.03)
- --------------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- (2.83) (0.23) (0.10) (0.03)
- --------------------------------------------------------------------------------------------------------------------
Return of capital -- (0.36) -- -- (0.06)
- --------------------------------------------------------------------------------------------------------------------
Total distributions (0.93) (4.25) (1.41) (1.21) (1.12)
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.30 $ 7.86 $ 15.56 $ 14.85 $ 11.70
====================================================================================================================
Total return(c) 18.38% (30.07)% 14.46% 39.05% 2.81%
====================================================================================================================
Ratios and supplemental data:
Net assets, end of period (in 000's) $54,330 $69,321 $133,973 $178,318 $142,002
====================================================================================================================
Ratio of net investment income to average net assets:(d) 10.73%(e) 11.27% 7.39% 9.52% 11.85%
====================================================================================================================
Ratio of expenses to average net assets excluding interest
expense:(f) 1.75%(e) 1.74% 1.58% 1.69% 1.75%
====================================================================================================================
Ratio of interest expense to average net asset 0.13% N/A N/A 0.04% N/A
====================================================================================================================
Portfolio turnover rate 336% 339% 214% 290% 213%
====================================================================================================================
(a) These selected per share data were calculated based upon average shares
outstanding during the period.
(b) Net investment income per share reflects an interest payment received from
the conversion of Vnesheconombank loan agreements of $0.21 per share.
(c) Total return does not include sales charges and is not annualized for
periods less than one year.
(d) After fee waivers and/or expense reimbursements. Ratio of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements was 10.69% for 1999.
(e) Ratios are based on average net assets of $62,817,833.
(f) After fee waiver and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
1.79% for 1999.
13
192
NOTE 8-FINANCIAL HIGHLIGHTS (CONTINUED)
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
CLASS B
-----------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------
1999 1998(a) 1997(a) 1996(a) 1995
--------- -------- -------- -------- --------
Net asset value, beginning of period $ 7.86 $ 15.54 $ 14.83 $ 11.69 $ 12.56
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.81 1.28(b) 1.09 1.17 1.27
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.51 (4.79) 0.93 3.09 (1.09)
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from investment operations 1.32 (3.51) 2.02 4.26 0.18
- -------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income (0.88) (0.98) (1.08) (1.03) (0.96)
- -------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- (2.83) (0.23) (0.09) (0.03)
- -------------------------------------------------------------------------------------------------------------------------
Return of capital -- (0.36) -- -- (0.06)
- -------------------------------------------------------------------------------------------------------------------------
Total distributions (0.88) (4.17) (1.31) (1.12) (1.05)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.30 $ 7.86 $ 15.54 $ 14.83 $ 11.69
=========================================================================================================================
Total return(c) 17.61% (30.49)% 13.77% 38.16% 2.07%
=========================================================================================================================
Ratios and supplemental data:
Net assets, end of period (in 000's) $ 97,394 $109,406 $228,101 $251,002 $214,897
=========================================================================================================================
Ratio of net investment income to average net assets(d) 10.08%(e) 10.62% 6.74% 8.87% 11.20%
=========================================================================================================================
Ratio of expenses to average net assets excluding interest
expense:(f) 2.40%(e) 2.39% 2.23% 2.34% 2.40%
=========================================================================================================================
Ratio of interest expense to average net assets 0.13% N/A N/A 0.04% N/A
=========================================================================================================================
Portfolio turnover rate 336% 339% 214% 290% 213%
=========================================================================================================================
(a) These selected per share operating data were calculated based upon the
average shares outstanding during the period.
(b) Net investment income per share reflects an interest payment received from
the conversion of Vnesheconombank loan agreements of $0.21 per share.
(c) Total return does not include sales charges and is not annualized for
periods less than one year.
(d) After fee waivers and/or expense reimbursements. Ratio of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements was 10.04% for 1999.
(e) Ratios are based on average net assets of $109,729,116.
(f) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
2.44% for 1999.
14
193
NOTE 8-FINANCIAL HIGHLIGHTS (CONTINUED)
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
ADVISOR CLASS
CLASS C -----------------------------------------------------------
---------------- JUNE 1, 1995
MARCH 1, 1999 YEAR ENDED OCTOBER 31, TO
TO ---------------------------- OCTOBER 31,
OCTOBER 31, 1999 1999(a) 1998(a) 1997(a) 1996(a) 1995
---------------- ------- ------- ------- ------- ----------------
Net asset value, beginning of period $ 7.96 $ 7.83 $15.52 $14.83 $11.71 $11.44
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.53 0.87 1.40(b) 1.22 1.34 0.57
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments 0.37 0.54 (4.79) 0.93 3.05 0.17
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from investment
operations 0.90 1.41 (3.39) 2.15 4.39 0.74
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income (0.56) (0.96) (1.11) (1.23) (1.16) (0.44)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- -- (2.83) (0.23) (0.11) --
- ---------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- (0.36) -- -- (0.03)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.56) (0.96) (4.30) (1.46) (1.27) (0.47)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.30 $ 8.28 $ 7.83 $15.52 $14.83 $11.71
=================================================================================================================================
Total return(c) 11.74% 18.87% (29.79)% 14.72% 39.38% 6.54%
=================================================================================================================================
Ratios and supplemental data:
Net assets, end of period (in 000's) $ 208 $1,396 $1,596 $3,719 $15,298 $1,463
=================================================================================================================================
Ratio of net investment income to average net
assets(d) 10.08%(e) 11.08%(f) 11.62% 7.74% 9.87% 12.20%(g)
=================================================================================================================================
Ratio of expenses to average net assets excluding
interest expense:(h) 2.40%(e) 1.40%(f) 1.39% 1.23% 1.34% 1.40%(g)
=================================================================================================================================
Ratio of interest expenses to average net assets 0.13% 0.13% N/A N/A 0.04% N/A
=================================================================================================================================
Portfolio turnover rate 336% 336% 339% 214% 290% 213%(f)
=================================================================================================================================
(a) These selected per share data were calculated based upon the average shares
outstanding during the period.
(b) Net investment income per share reflects an interest payment received from
the conversion of Vnesheconombank loan agreements of $0.21 per share.
(c) Total return does not include sales charge and is not annualized for
periods less than one year.
(d) After fee waivers and/or expense reimbursements. Ratio of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 10.04% (annualized) and 11.04% for Class C and Advisor
class, respectively, for 1999.
(e) Ratios are annualized and based on average net assets of $99,297.
(f) Ratios are based on average net assets of $2,258,611.
(g) Annualized.
(h) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
2.44% (annualized) and 1.44% for Class C and Advisor Class, respectively,
for 1999
NOTE 9-SUBSEQUENT EVENT
On November 3, 1999, the Board of Trustees approved the conversion of Advisor
Class Shares into Class A Shares. The proposed effective date of this conversion
is February 11, 2000.
15
194
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of AIM Emerging Markets Debt Fund
and Board of Trustees of AIM Investment Funds:
In our opinion, the accompanying statement of assets and
liabilities, including the schedule of investments, and
the related statements of operations and of changes in
net assets and the financial highlights present fairly,
in all material respects, the financial position of the
AIM Emerging Markets Debt Fund at October 31, 1999, and
the results of its operations, the changes in its net
assets and the financial highlights for the periods
indicated, in conformity with generally accepted
accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion
on these financial statements based on our audits. We
conducted our audits of these financial statements in
accordance with generally accepted auditing standards
which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our
audits, which included confirmation of securities at
October 31, 1999 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinions
expressed above.
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
December 23, 1999
16
195
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
C. Derek Anderson Robert H. Graham 11 Greenway Plaza
President, Plantagenet Capital Chairman and President Suite 100
Management, LLC (an investment Houston, TX 77046
partnership); Chief Executive Officer, Dana R. Sutton
Plantagenet Holdings, Ltd. Vice President and Treasurer INVESTMENT MANAGER
(an investment banking firm)
Samuel D. Sirko A I M Advisors, Inc.
Frank S. Bayley Vice President and Secretary 11 Greenway Plaza
Partner, law firm of Suite 100
Baker & McKenzie Melville B. Cox Houston, TX 77046
Vice President
Robert H. Graham TRANSFER AGENT
President and Chief Executive Officer, Gary T. Crum
A I M Management Group Inc. Vice President A I M Fund Services, Inc.
P.O. Box 4739
Ruth H. Quigley Carol F. Relihan Houston, TX 77210-4739
Private Investor Vice President
CUSTODIAN
Mary J. Benson
Assistant Vice President and State Street Bank and Trust Company
Assistant Treasurer 225 Franklin Street
Boston, MA 02110
Sheri Morris
Assistant Vice President and COUNSEL TO THE FUND
Assistant Treasurer
Kirkpatrick & Lockhart LLP
Nancy L. Martin 1800 Massachusetts Avenue, N.W.
Assistant Secretary Washington, D.C. 20036-1800
Ofelia M. Mayo COUNSEL TO THE TRUSTEES
Assistant Secretary
Paul, Hastings, Janofsky & Walker LLP
Kathleen J. Pflueger Twenty Third Floor
Assistant Secretary 555 South Flower Street
Los Angeles, CA 90071
DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046
AUDITORS
PricewaterhouseCoopers LLP
160 Federal St.
Boston, MA 02110
REQUIRED FEDERAL INCOME TAX INFORMATION - UNAUDITED
AIM Emerging Markets Debt Fund paid ordinary dividends in the amount of $0.930,
$0.877, $0.564 and $0.958 per share to Class A, Class B, Class C and Advisor
Class shareholders, respectively during its tax year ended October 31, 1999. Of
this amount, 0% is eligible for the dividends received deduction for
corporations.
196
THE AIM FAMILY FUNDS--Registered Trademark--
GROWTH FUNDS MONEY MARKET FUNDS A I M Management Group Inc. has provided
AIM Aggressive Growth Fund(1) AIM Money Market Fund leadership in the mutual fund industry
AIM Blue Chip Fund AIM Capital Development Fund AIM Tax-Exempt Cash Fund since 1976 and managed approximately
AIM Constellation Fund $120 billion in assets for more than 6.4
AIM Dent Demographic Trends Fund INTERNATIONAL GROWTH FUNDS million shareholders, including
AIM Large Cap Growth Fund AIM Advisor International Value Fund individual investors, corporate clients
AIM Mid Cap Equity Fund AIM Asian Growth Fund and financial institutions, as of
AIM Mid Cap Growth Fund AIM Developing Markets Fund September 30, 1999.
AIM Mid Cap Opportunities Fund AIM Euroland Growth Fund(4) The AIM Family of Funds--Registered
AIM Select Growth Fund AIM European Development Fund Trademark-- is distributed nationwide,
AIM Small Cap Growth Fund(2) AIM International Equity Fund and AIM today is the 10th-largest mutual
AIM Small Cap Opportunities Fund(3) AIM Japan Growth Fund fund complex in the United States in
AIM Value Fund AIM Latin American Growth Fund assets under management, according to
AIM Weingarten Fund AIM New Pacific Growth Fund Strategic Insight, an independent mutual
fund monitor.
GROWTH & INCOME FUNDS GLOBAL GROWTH FUNDS
AIM Advisor Flex Fund AIM Global Aggressive Growth Fund
AIM Advisor Large Cap Value Fund AIM Global Growth Fund
AIM Advisor Real Estate Fund
AIM Balanced Fund GLOBAL GROWTH & INCOME FUNDS
AIM Basic Value Fund AIM Global Growth & Income Fund
AIM Charter Fund AIM Global Utilities Fund
INCOME FUNDS GLOBAL INCOME FUNDS
AIM Floating Rate Fund AIM Emerging Markets Debt Fund
AIM High Yield Fund AIM Global Government Income Fund
AIM High Yield Fund II AIM Global Income Fund
AIM Income Fund AIM Strategic Income Fund
AIM Intermediate Government Fund
AIM Limited Maturity Treasury Fund THEME FUNDS
AIM Global Consumer Products and Services Fund
TAX-FREE INCOME FUNDS AIM Global Financial Services Fund
AIM High Income Municipal Fund AIM Global Health Care Fund
AIM Municipal Bond Fund AIM Global Infrastructure Fund
AIM Tax-Exempt Bond Fund of Connecticut AIM Global Resources Fund
AIM Tax-Free Intermediate Fund AIM Global Telecommunications and Technology Fund(5)
AIM Global Trends Fund(6)
(1)AIM Aggressive Growth Fund reopened to new investors on November 16, 1998.
(2)AIM Small Cap Growth Fund closed to new investors on November 8, 1999. (3)AIM
Small Cap Opportunities Fund closed to new investors on November 4, 1999. (4)On
September 1, 1999, AIM Europe Growth Fund was renamed AIM Euroland Growth Fund.
Previously the fund invested in all size companies in most areas of Europe. The
fund now seeks to invest at least 65% of its assets in large-cap companies
within countries using the euro as their currency (EMU-member countries). (5)On
June 1, 1999, AIM Global Telecommunications Fund was renamed AIM Global
Telecommunications and Technology Fund. (6) Effective August 27, 1999, AIM
Global Trends Fund was restructured to operate as a traditional mutual fund.
Before that date, the fund operated as a fund of funds. For more complete
information about any AIM fund(s), including sales charges and expenses, ask
your financial advisor or securities dealer for a free prospectus(es). Please
read the prospectus(es) carefully before you invest or send money. If used as
sales material after January 20, 2000, this report must be accompanied by a
current Quarterly Review of Performance for AIM Funds.
[AIM LOGO APPEARS HERE]
INVEST WITH DISCIPLINE
--Registered Trademark--
A I M Distributors, Inc.
EMD-AR-1
197
APPENDIX III
AIM DEVELOPING MARKETS FUND
AIM EMERGING MARKETS DEBT FUND
PRO FORMA COMBINING SCHEDULE OF INVESTMENTS
31-Oct-99
(Unaudited)
PRINCIPAL AMOUNT MARKET VALUE
- --------------------------------------- ---------------------------------------
AIM Emerging AIM AIM Emerging AIM
Markets Debt Developing Pro Forma Markets Debt Developing Pro Forma
Fund Markets Fund Combining Fund Markets Fund Combining
FOREIGN STOCKS & OTHER
EQUITY INTERESTS--56.09%
ARGENTINA--0.55%
Banco de Galicia y Buenos Aires S.A. de C.V.-
- 62,236 62,236 ADR (Banks-Regional) $ - $ 1,314,743 $1,314,743
- ------------ ---------- ---------- ------------ ----------- ----------
- 43,400 43,400 Nortel Inversora S.A.-ADR (Telephone) - 656,425 656,425
============ ========== ========== ============ =========== ==========
1,971,168
==========
AUSTRIA--0.15%
Julius Meinl International A.G. (Retail-Food
- 44,854 44,854 Chains) - 537,951 537,951
============ ========== ========== ============ =========== ==========
BRAZIL--5.83%
Companhia Brasileira de Distribuicao Grupo
- 55,700 55,700 Pao De Acucar-Pfd. GDR (Retail-Food Chains) - 1,218,437 1,218,437
- ------------ ---------- ---------- ------------ ----------- ----------
Companhia de Saneamento Basico do Estado de
- 11,791,509 11,791,509 Sao Paula (Water Utilities) - 794,356 794,356
- ------------ ---------- ---------- ------------ ----------- ----------
Companhia de Tecidos Norte de Minas
- 7,836,000 7,836,000 (Textiles-Specialty) - 553,980 553,980
- ------------ ---------- ---------- ------------ ----------- ----------
Companhia Energetica de Minas Gerais-ADR
- 167,280 167,280 (Electric Companies) - 2,390,883 2,390,883
- ------------ ---------- ---------- ------------ ----------- ----------
Companhia Paranaense de Energia-Copel-ADR
- 209,000 209,000 (Electric Companies) - 1,384,625 1,384,625
- ------------ ---------- ---------- ------------ ----------- ----------
Companhia Vale do Rio Doce-Pfd. A (Iron &
- 124,700,000 124,700,000 Steel) - 2,478,029 2,478,029
- ------------ ---------- ---------- ------------ ----------- ----------
Eletropaulo Metropolitana-Eletricidade de Sao
- 31,201,339 31,201,339 Paulo S.A. (Electric Companies) - 1,422,602 1,422,602
- ------------ ---------- ---------- ------------ ----------- ----------
Petroleo Brasileiro S.A.-Petrobras-Pfd. (Oil &
- 21,999,978 21,999,978 Gas-Exploration & Production) - 3,499,484 3,499,484
- ------------ ---------- ---------- ------------ ----------- ----------
- 43,853 43,853 Telebras-ADR (Telephone) - 3,415,052 3,415,052
- ------------ ---------- ---------- ------------ ----------- ----------
Telecomunicacoes de Sao Paulo S.A.
- 17,750,000 17,750,000 (Telephone) - 1,228,587 1,228,587
- ------------ ---------- ---------- ------------ ----------- ----------
Telecomunicacoes de Sao Paulo S.A.-Pfd.
- 335,563 335,563 (Telephone) - 31,545 31,545
- ------------ ---------- ---------- ------------ ----------- ----------
Uniao de Bancos Brasileiros S.A.-GDR (Banks-
- 76,816 76,816 Regional) - 1,776,370 1,776,370
- ------------ ---------- ---------- ------------ ----------- ----------
Unibanco-Uniao de Bancos Brasileiros
- 19,000,472 19,000,472 S.A.(Banks-Major Regional) a - 876,144 876,144
============ ========== ========== ============ =========== ==========
21,070,094
==========
CHILE--0.57%
Compania Cervecerias Unidas S.A.-ADR
- 40,000 40,000 (Beverages-Alcoholic) - 872,500 872,500
- ------------ ---------- ---------- ------------ ----------- ----------
- 52,596 52,596 Enersis S.A.-ADR (Electric Companies) - 1,183,410 1,183,410
============ ========== ========== ============ =========== ==========
2,055,910
==========
CHINA--0.55%
Beijing Yanhua Petrochemical Co. Ltd.
- 11,026,000 11,026,000 (Chemical Diversified) b - 1,987,153 1,987,153
============ ========== ========== ============ =========== ==========
EGYPT--0.64%
Al-Ahram Beverages Co. S.A.E.-GDR
- 163 163 (Beverages-Alcoholic) - 4,809 4,809
- ------------ ---------- ---------- ------------ ----------- ----------
Al-Ahram Beverages Co. S.A.E.-GDR
(Beverages-Alcoholic) (Acquired 06/10/97-
- 37,049 37,049 08/07/97; Cost $838,350) c - 1,092,946 1,092,946
- ------------ ---------- ---------- ------------ ----------- ----------
- 71,830 71,830 Suez Cement Co.-GDR (Building Materials) - 1,203,153 1,203,153
============ ========== ========== ============ =========== ==========
2,300,908
==========
GREECE--1.91%
- 20,660 20,660 Alpha Credit Bank (Banks-Regional) - 1,579,762 1,579,762
- ------------ ---------- ---------- ------------ ----------- ----------
Commercial Bank of Greece S.A. (Banks-Major
- 20,400 20,400 Regional) - 1,516,985 1,516,985
- ------------ ---------- ---------- ------------ ----------- ----------
Hellenic Telecommunication Organization S.A.
- 122,988 122,988 (Telecommunication-Cellular/Wireless) - 2,605,761 2,605,761
- ------------ ---------- ---------- ------------ ----------- ----------
National Bank of Greece S.A. (Banks-Money
- 16,708 16,708 Center) - 1,197,725 1,197,725
============ ========== ========== ============ =========== ==========
6,900,233
==========
HONG KONG--0.70%
- 3,535,500 3,535,500 China Everbright Ltd. (Land Development) - 2,525,975 2,525,975
============ ========== ========== ============ =========== ==========
198
PRINCIPAL AMOUNT MARKET VALUE
- --------------------------------------- ---------------------------------------
AIM Emerging AIM AIM Emerging AIM
Markets Debt Developing Pro Forma Markets Debt Developing Pro Forma
Fund Markets Fund Combining Fund Markets Fund Combining
Hungary--1.59%
- 110,000 110,000 Matv Rt.-ADR (Telephone) b - $ 3,169,375 $3,169,375
- ------------ ---------- ---------- ------------ ----------- ----------
MOL Magyar Olaj-es Gazipari Rt.-GDR (Oil-
- 128,000 128,000 Domestic Integrated) - 2,540,800 2,540,800
- ------------ ---------- ---------- ------------ ----------- ----------
- 2,270 2,270 Pannonplast Rt. (Building Materials) b - 36,886 36,886
- ------------ ---------- ---------- ------------ ----------- ----------
Technoimpex (Services-Commercial &
- 1,400 1,400 Consumer) b - 0 0
============ ========== ========== ============ =========== ==========
5,747,061
==========
INDIA--3.57%
Associated Cement Co. Ltd. (Construction-
- 164 164 Cement & Aggregates) - 757 757
- ------------ ---------- ---------- ------------ ----------- ----------
- 200 200 BSES Ltd. (Electric Companies) - 743 743
- ------------ ---------- ---------- ------------ ----------- ----------
- 73,850 73,850 Hindustan Lever Ltd. (Aluminum) - 3,914,679 3,914,679
- ------------ ---------- ---------- ------------ ----------- ----------
- 50 50 Indian Hotels Co. Ltd. (Lodging-Hotels) - 423 423
- ------------ ---------- ---------- ------------ ----------- ----------
- 110,428 110,428 ITC Ltd. (Tobacco) - 1,770,638 1,770,638
- ------------ ---------- ---------- ------------ ----------- ----------
- 100 100 KEC International Ltd. (Electric Companies) - 141 141
- ------------ ---------- ---------- ------------ ----------- ----------
Larsen & Toubro Ltd. (Manufacturing-
- 150,400 150,400 Diversified) - 1,379,273 1,379,273
- ------------ ---------- ---------- ------------ ----------- ----------
Larsen & Toubro Ltd.-GDR (Manufacturing-
- 65,900 65,900 Diversified) - 1,430,030 1,430,030
- ------------ ---------- ---------- ------------ ----------- ----------
- 142,100 142,100 Mahanagar Telephone Nigam Ltd. (Telephone) - 561,067 561,067
- ------------ ---------- ---------- ------------ ----------- ----------
- 379,700 379,700 Mahindra & Mahindra Ltd. (Automobiles) b - 3,109,499 3,109,499
- ------------ ---------- ---------- ------------ ----------- ----------
Ranbaxy Laboratories Ltd. (Health Care-Drugs-
- 200 200 Generic & Other) - 4,008 4,008
- ------------ ---------- ---------- ------------ ----------- ----------
- 4,650 4,650 State Bank of India (Banks-Major Regional) - 26,565 26,565
- ------------ ---------- ---------- ------------ ----------- ----------
Tata Engineering and Locomotive Co. Ltd.
- 100 100 (Automobiles) - 552 552
- ------------ ---------- ---------- ------------ ----------- ----------
Videsh Sanchar Nigam Ltd.
- 44,600 44,600 (Telecommunications-Cellular/Wireless) - 712,485 712,485
============ ========== ========== ============ =========== ==========
12,910,860
==========
INDONESIA--1.65%
PT Indah Kiat Pulp & Paper Corp. TbK (Paper
- 4,074,000 4,074,000 & Forest Products) b - 1,753,217 1,753,217
- ------------ ---------- ---------- ------------ ----------- ----------
- 128,519,400 128,519,400 PT Lippo Bank TbK (Banks-Major Regional) b - 4,218,361 4,218,361
============ ========== ========== ============ =========== ==========
5,971,578
==========
IRELAND--0.16%
Central Asia Growth Fund (Investment
- 331,000 331,000 Management) b - 579,250 579,250
Israel--2.07%
- 1,180,113 1,180,113 Bank Leumi Le-Israel (Banks-Money Center) - 2,082,201 2,082,201
- ------------ ---------- ---------- ------------ ----------- ----------
Blue Square Chain Investments and Properties
- 78,589 78,589 Ltd. (Retail-Food Chains) - 1,079,313 1,079,313
- ------------ ---------- ---------- ------------ ----------- ----------
Blue Square-Israel Ltd.-ADR (Retail-Food
- 78,100 78,100 Chains) - 1,020,181 1,020,181
- ------------ ---------- ---------- ------------ ----------- ----------
Discount Investment Corp. (Investment
- 40,500 40,500 Banking/Brokerage) - 1,544,611 1,544,611
- ------------ ---------- ---------- ------------ ----------- ----------
Internet Gold-Golden Lines (Computers-
- 74,861 74,861 Software & Services) b - 561,458 561,458
- ------------ ---------- ---------- ------------ ----------- ----------
- 81,687 81,687 Jacada Ltd. (Computers-Software & Services) b - 1,184,462 1,184,462
- ------------ ---------- ---------- ------------ ----------- ----------
Makhteshim-Agan Industries Ltd. (Investment
- 1 1 Management) b - 2 2
============ ========== ========== ============ =========== ==========
7,472,228
==========
LITHUANIA--0.09%
- 54,591 54,591 Vilniaus Bankas A.B.-GDR (Banks-Regional) - 313,898 313,898
Malaysia--3.80%
Berjaya Sports Toto Berhad (Leisure Time-
- 1,157,000 1,157,000 Products) - 2,511,908 2,511,908
- ------------ ---------- ---------- ------------ ----------- ----------
Commerce Asset-Holdings Berhad (Finance-
- 1,393,000 1,393,000 Asset Management) b - 3,079,263 3,079,263
- ------------ ---------- ---------- ------------ ----------- ----------
- 1,034,000 1,034,000 Public Finance Berhad (Banks-Regional) - 1,110,189 1,110,189
- ------------ ---------- ---------- ------------ ----------- ----------
- 776,000 776,000 Resorts World Berhad (Lodging-Hotels) - 2,225,895 2,225,895
- ------------ ---------- ---------- ------------ ----------- ----------
- 480,000 480,000 RHB Capital Berhad (Banks-Major Regional) - 432,000 432,000
- ------------ ---------- ---------- ------------ ----------- ----------
Rothmans of Pall Mall (Malaysia) Berhad
- 159,000 159,000 (Tobacco) b - 1,108,816 1,108,816
- ------------ ---------- ---------- ------------ ----------- ----------
- 1,059,000 1,059,000 Telekom Malaysia Berhad (Telephone) - 3,260,605 3,260,605
============ ========== ========== ============ =========== ==========
13,728,676
==========
199
PRINCIPAL AMOUNT MARKET VALUE
- --------------------------------------- ---------------------------------------
AIM Emerging AIM AIM Emerging AIM
Markets Debt Developing Pro Forma Markets Debt Developing Pro Forma
Fund Markets Fund Combining Fund Markets Fund Combining
MEXICO--6.05%
Alpha S.A. de C.V.-Class A (Manufacturing-
- 121,000 121,000 Diversified) - $ 464,368 464,368
- ------------ ---------- ---------- ------------ ----------- ----------
Cemex S.A. de C.V. (Construction-Cement &
- 570,392 570,392 Aggregates) - 2,580,557 2,580,557
- ------------ ---------- ---------- ------------ ----------- ----------
Cifra S.A. de C.V. (Retail-General
- 1,156,392 1,156,392 Merchandise) b - 1,818,476 1,818,476
- ------------ ---------- ---------- ------------ ----------- ----------
- 1,182,600 1,182,600 Consorcio Ara, S.A. de C.V. (Homebuilding)b - 1,330,809 1,330,809
- ------------ ---------- ---------- ------------ ----------- ----------
Corporacion GEO S.A. de C.V.-Series B
- 380,400 380,400 (Construction-Cement & Aggregates) b - 965,342 965,342
- ------------ ---------- ---------- ------------ ----------- ----------
Fomento Economico Mexicano, S.A. de C.V.-
- 105,474 105,474 ADR (Beverages-Alcoholic) - 3,460,866 3,460,866
- ------------ ---------- ---------- ------------ ----------- ----------
- 655,700 655,700 Grupo Bimbo S.A. de C.V. (Foods) b - 1,202,969 1,202,969
- ------------ ---------- ---------- ------------ ----------- ----------
Grupo Financiero Bancomer S.A. de C.V.
- 5,275,388 5,275,388 (Banks-Regional) b - 1,399,089 1,399,089
- ------------ ---------- ---------- ------------ ----------- ----------
- 50,699 50,699 Grupo Televisa S.A.-GDR (Entertainment) b - 2,154,708 2,154,708
- ------------ ---------- ---------- ------------ ----------- ----------
- 56,062 56,062 Telefonos de Mexico S.A.-ADR (Telephone) - 4,793,301 4,793,301
- ------------ ---------- ---------- ------------ ----------- ----------
Tubos de Acero de Mexico S.A.-ADR (Oil &
- 152,088 152,088 Gas-Drilling & Equipment) - 1,663,463 1,663,463
============ ========== ========== ============ =========== ==========
21,833,948
==========
PAKISTAN--0.00%
- 4 4 Dewan Salman Fibre Ltd. (Chemicals-Specialty) b - 2 2
- ------------ ---------- ---------- ------------ ----------- ----------
Pakistan State Oil Co. Ltd. (Oil-International
- 78 78 Integrated) - 207 207
============ ========== ========== ============ =========== ==========
209
==========
PHILIPPINES--0.94%
- 531,663 531,663 Far East Bank & Trust Co. (Banks-Regional) - 908,202 908,202
- ------------ ---------- ---------- ------------ ----------- ----------
- 409,290 409,290 Manila Electric Co. (Electric Power) - 1,122,741 1,122,741
- ------------ ---------- ---------- ------------ ----------- ----------
Philippine Long Distance Telephone Co.-ADR
- 66,500 66,500 (Telephone) - 1,367,406 1,367,406
============ ========== ========== ============ =========== ==========
3,398,349
==========
POLAND--1.14%
Bank Handlowy w Warszawie (Banks-Major
- 70,000 70,000 Regional) b - 987,084 987,084
- ------------ ---------- ---------- ------------ ----------- ----------
Bank Handlowy w Warszawie-GDR (Banks-
- 2,590 2,590 Major Regional) - 37,057 37,057
- ------------ ---------- ---------- ------------ ----------- ----------
- 31,295 31,295 BRE Bank S.A. (Banks-Major Regional) - 852,927 852,927
- ------------ ---------- ---------- ------------ ----------- ----------
Elektrim Spolka Akcyjna S.A. (Electrical
- 117,144 117,144 Equipment) b - 1,013,332 1,013,332
- ------------ ---------- ---------- ------------ ----------- ----------
- 242,000 242,000 Telekomunikacja Polska S.A.-GDR (Telephone) b - 1,216,050 1,216,050
============ ========== ========== ============ =========== ==========
4,106,450
==========
RUSSIA--0.73%
Niahnekamsknefte Khim (Chemicals-
- 100,000 100,000 Diversified) b - 67,000 67,000
- ------------ ---------- ---------- ------------ ----------- ----------
Russian Telecommunications Development
Corp.-Non-Voting (Telecommunications-
- 52,600 52,600 Cellular-Wireless) b - 1 1
- ------------ ---------- ---------- ------------ ----------- ----------
Russian Telecommunications Development
Corp.-Voting (Telecommunications-Cellular-
- 38,400 38,400 Wireless) b - 0 0
- ------------ ---------- ---------- ------------ ----------- ----------
Surgutneftegaz-ADR (Oil-International
- 307,930 307,930 Integrated) - 2,563,517 2,563,517
============ ========== ========== ============ =========== ==========
2,630,518
==========
SOUTH AFRICA--5.17%
Anglo American Platinum Corp. Ltd. (Metals
- 105,000 105,000 Mining) - 3,025,641 3,025,641
- ------------ ---------- ---------- ------------ ----------- ----------
- 39,600 39,600 Anglo American PLC (Metals Mining) - 2,108,132 2,108,132
- ------------ ---------- ---------- ------------ ----------- ----------
- 327,200 327,200 Barlow Ltd. (Manufacturing-Diversified) - 1,595,383 1,595,383
- ------------ ---------- ---------- ------------ ----------- ----------
- 1,643,600 1,643,600 FirstRand Ltd. (Banks-Regional) - 1,899,806 1,899,806
- ------------ ---------- ---------- ------------ ----------- ----------
Liberty Life Association of Africa Ltd.
- 122,624 122,624 (Insurance Brokers) - 1,137,903 1,137,903
- ------------ ---------- ---------- ------------ ----------- ----------
Rembrandt Group Ltd. (Investment
- 294,270 294,270 Management) - 2,201,336 2,201,336
- ------------ ---------- ---------- ------------ ----------- ----------
- 1,798,960 1,798,960 Sanlam Ltd. (Insurance-Life/Health) - 2,064,740 2,064,740
- ------------ ---------- ---------- ------------ ----------- ----------
- 305,000 305,000 Sappi Ltd. (Paper & Forest Products) - 2,527,391 2,527,391
- ------------ ---------- ---------- ------------ ----------- ----------
South African Breweries PLC (Beverages-
- 210,538 210,538 Alcoholic) - 1,844,028 1,844,028
- ------------ ---------- ---------- ------------ ----------- ----------
Standard Bank Investment Corp. Ltd. (Banks-
- 75,550 75,550 Major Regional) b - 258,291 258,291
============ ========== ========== ============ =========== ==========
18,662,651
==========
200
PRINCIPAL AMOUNT MARKET VALUE
- --------------------------------------- ---------------------------------------
AIM Emerging AIM AIM Emerging AIM
Markets Debt Developing Pro Forma Markets Debt Developing Pro Forma
Fund Markets Fund Combining Fund Markets Fund Combining
SOUTH KOREA--7.08%
Housing & Commercial Bank-GDR (Banks-
- 37,500 37,500 Major Regional) b - $991,039 $ 991,039
- ------------ ---------- ---------- ------------ ----------- ----------
- 180,900 180,900 Kia Motors Corp. (Automobiles) b - 1,809,754 1,809,754
- ------------ ---------- ---------- ------------ ----------- ----------
Kia Motors Corp.-Rts., expiring 11/09/99
- 30,898 30,898 (Automobiles) b - 69,549 69,549
- ------------ ---------- ---------- ------------ ----------- ----------
Korea Electric Power Corp.-ADR (Electric
- 116,847 116,847 Companies) - 1,840,340 1,840,340
- ------------ ---------- ---------- ------------ ----------- ----------
- 57,450 57,450 Korea Telecom Corp.-ADR (Telephone) b - 2,025,113 2,025,113
- ------------ ---------- ---------- ------------ ----------- ----------
Merrill Lynch International & Co. KOSPI 200-
- 1,582,230 1,582,230 Wts., expiring 09/14/00 (Investment Banking) - 13,101,814 13,101,814
- ------------ ---------- ---------- ------------ ----------- ----------
Pohang Iron & Steel Co. Ltd.-ADR (Iron &
- 123,540 123,540 Steel) - 4,123,148 4,123,148
- ------------ ---------- ---------- ------------ ----------- ----------
- 75,747 75,747 Shinhan Bank-GDR (Banks-Major Regional) b - 1,619,092 1,619,092
============ ========== ========== ============ =========== ==========
25,579,849
==========
TAIWAN--8.51%
ABN AMRO Bank N.V.-EPN, expiring
- 465 465 04/28/00 (Investment Management) bd - 5,184,285 5,184,285
- ------------ ---------- ---------- ------------ ----------- ----------
ABN AMRO Bank N.V.-EPN, expiring
- 600 600 09/28/00 (Investment Management) bd - 5,692,200 5,692,200
- ------------ ---------- ---------- ------------ ----------- ----------
Asian Petro Equity Linke (Oil & Gas-Refining
- 361 361 & Marketing) b - 2,623,835 2,623,835
- ------------ ---------- ---------- ------------ ----------- ----------
- 773 773 Austek Computer, Inc. (Computers-Hardware)b - 10,924 10,924
- ------------ ---------- ---------- ------------ ----------- ----------
Cathay Life Insurance Co., Ltd. (Insurance
- 200,000 200,000 Brokers) - 517,024 517,024
- ------------ ---------- ---------- ------------ ----------- ----------
China Development Industrial Bank (Investment
- 937,438 937,438 Management) b - 1,391,971 1,391,971
- ------------ ---------- ---------- ------------ ----------- ----------
- 3,172,000 3,172,000 China Steel Corp. (Metals Mining) - 2,440,000 2,440,000
- ------------ ---------- ---------- ------------ ----------- ----------
Compeq Manufacturing Co., Ltd. (Computers-
- 297,700 297,700 Hardware) - 1,520,410 1,520,410
- ------------ ---------- ---------- ------------ ----------- ----------
Delta Electronics, Inc. (Electronics- Component
- 267,480 267,480 Distributors) - 1,117,311 1,117,311
- ------------ ---------- ---------- ------------ ----------- ----------
Hon Hai Precision Industry Co., Ltd.
- 355,544 355,544 (Electronics- Component Distributors) b - 2,432,316 2,432,316
- ------------ ---------- ---------- ------------ ----------- ----------
Hon Hai Precision Industry Co., Ltd.-GDR
- 46,413 46,413 (Electronics- Component Distributors) b - 753,051 753,051
- ------------ ---------- ---------- ------------ ----------- ----------
- 1 1 Nan Ya Plastic Corp. (Chemicals-Specialty) - 1 1
- ------------ ---------- ---------- ------------ ----------- ----------
Taiwan Semiconductor Manufacturing Co., Ltd.
- 300,000 300,000 (Electronics-Semiconductors) b - 1,333,544 1,333,544
- ------------ ---------- ---------- ------------ ----------- ----------
Taiwan Semiconductor Manufacturing Co.,Ltd.-
- 80,000 80,000 ADR (Electronics-Semiconductors) - 2,770,000 2,770,000
- ------------ ---------- ---------- ------------ ----------- ----------
United Microelectronics Corp. Ltd. (Electronics
- 578,000 578,000 Component Distributors) b - 1,503,310 1,503,310
- ------------ ---------- ---------- ------------ ----------- ----------
- 2,571,000 2,571,000 Yang Ming Marine Transport (Shipping) b - 1,434,637 1,434,637
============ ========== ========== ============ =========== ==========
30,724,819
==========
THAILAND--0.52%
- 303,850 303,850 Siam Commercial Bank PLC (Banks-Regional) b - 330,571 330,571
============ ========== ========== ============ =========== ==========
Siam Commercial Bank PLC-PFd. (Banks-
- 972,442 972,442 Regional) b - 1,102,042 1,102,042
- ------------ ---------- ---------- ------------ ----------- ----------
Siam Commercial Bank PLC-Wts. Expiring
- 1,248,542 1,248,542 05/10/02 (Banks-Regional) b - 436,093 436,093
============ ========== ========== ============ =========== ==========
1,868,706
==========
TURKEY--1.88%
Haci Omer Sabanci Holding A.S. (Investment
- 71,501,500 71,501,500 Management) - 2,119,301 2,119,301
- ------------ ---------- ---------- ------------ ----------- ----------
Turkiye Is Bankasi (Isbank) (Banks-Money
- 85,258,247 85,258,247 Center) - 1,684,700 1,684,700
- ------------ ---------- ---------- ------------ ----------- ----------
Yapi ve Kredi Bankasi A.S. (Banks-Money
205,904,400 205,904,400 Center) - 2,997,963 2,997,963
============ =========== ========== ============ =========== ==========
6,801,964
==========
VENEZUELA--0.24%
Cia. Anonima Nacional Telefonos de Venezuela-
- 32,900 32,900 ADR (Telecommunications-Long Distance) - 849,231 849,231
- ------------ ---------- ---------- ------------ ----------- -----------
Total Foreign Stocks & Other Equity Interests
(Cost $205,590,442) - 202,529,637 202,529,637
============ ========== ========== ============ =========== ===========
201
PRINCIPAL AMOUNT MARKET VALUE
- --------------------------------------- ---------------------------------------
AIM Emerging AIM AIM Emerging AIM
Markets Debt Developing Pro Forma Markets Debt Developing Pro Forma
Fund Markets Fund Combining Fund Markets Fund Combining
GOVERNMENT BONDS &
GOVERNMENT AGENCY
OBLIGATIONS--34.11%
ARGENTINA--4.85%
Province of Buenos Aires, Series 2, Unsec.
$1,100,000 - $1,100,000 Unsub. Notes, 12.50%, 03/15/02 $1,086,250 - $1,086,250
- ---------- ------------- ---------- ------------ ------------ ------------
Republic of Argentina,
4,092,000 - 4,092,000 Floating Rate Deb., 6.8125%, 03/31/05 f 3,666,526 - 3,666,526
- ---------- ------------- ---------- ------------ ------------ ------------
Series L, Floating Rate Gtd. Bonds, 6.00%,
4,670,000 - 4,670,000 3/31/23 f 3,576,281 - 3,576,281
- ---------- ------------- ---------- ------------ ------------ ------------
Unsec. Unsub. Bonds,
- ---------- ------------- ---------- ------------ ------------ ------------
3,395,000 - 3,395,000 11.375%, 01/30/17 3,250,713 - 3,250,713
- ---------- ------------- ---------- ------------ ------------ ------------
6,959,000 - 6,959,000 9.75%, 09/19/27 5,923,849 - 5,923,849
========== ============= ========== ============ ============ ============
17,503,619
============
BRAZIL--8.22%
Republic of Brazil,
Bonds,
1,009,000 - 1,009,000 11.625%, 04/15/04 967,379 - 967,379
- ---------- ------------- ---------- ------------ ------------ ------------
4,220,000 - 4,220,000 5.75%, 04/15/24 g 2,540,271 - 2,540,271
- ---------- ------------- ---------- ------------ ------------ ------------
4,136,000 - 4,136,000 Floating Rate Deb., 6.9375%, 04/15/06 f 3,397,782 - 3,397,782
- ---------- ------------- ---------- ------------ ------------ ------------
2,100,000 - 2,100,000 Floating Rate Gtd. Notes, 7.00%, 04/15/09 f 1,553,177 - 1,553,177
- ---------- ------------- ---------- ------------ ------------ ------------
Floating Rate Gtd. Bonds,
9,493,000 - 9,493,000 7.00%, 04/15/12 f 6,297,836 - 6,297,836
- ---------- ------------- ---------- ------------ ------------ ------------
5,450,000 - 5,450,000 6.9375%, 04/15/24 f 3,816,684 - 3,816,684
- ---------- ------------- ---------- ------------ ------------ ------------
2,014,000 - 2,014,000 Notes, 14.50%, 10/15/09 2,091,539 - 2,091,539
- ---------- ------------- ---------- ------------ ------------ ------------
9,175,507 - 9,175,507 Series C, Bonds, 8.00%, 04/15/14 6,215,626 - 6,215,626
- ---------- ------------- ---------- ------------ ------------ ------------
3,520,000 - 3,520,000 Unsec. Bonds, 10.125%, 05/15/27 2,786,164 - 2,786,164
========== ============= ========== ============ ============ ============
29,666,458
============
BULGARIA--1.98%
Republic of Bulgaria,
3,520,000 - 3,520,000 Series A, Gtd. Bonds, 2.75%, 07/28/12 g 2,379,041 - 2,379,041
- ---------- ------------- ---------- ------------ ------------ ------------
Series A, Gtd. Floating Rate Sec. Bonds,
3,999,000 - 3,999,000 6.50%, 07/28/24 f 2,984,670 - 2,984,670
- ---------- ------------- ---------- ------------ ------------ ------------
2,350,000 - 2,350,000 Floating Rate PDI Deb., 6.50%, 07/28/11 f 1,795,896 - 1,795,896
========== ============= ========== ============ ============ ============
7,159,607
============
COLOMBIA--0.76%
Republic of Columbia,
1,880,000 - 1,880,000 Unsec. Unsub. Notes, 7.625%, 02/15/07 1,551,000 - 1,551,000
- ---------- ------------- ---------- ------------ ------------ ------------
1,324,000 - 1,324,000 Unsub. Notes, 9.75%, 04/23/09 1,208,150 - 1,208,150
========== ============= ========== ============ ============ ============
2,759,150
============
QATAR--0.48%
State of Qatar, Bonds, 9.50%, 05/21/09
1,658,000 - 1,658,000 (Acquired 06/25/99; Cost $1,674,580) c 1,728,714 - 1,728,714
========== ============= ========== ============ ============ ============
KAZAKHSTAN--0.74%
Republic of Kazakhstan, Bonds, 13.625%,
10/18/04
2,700,000 - 2,700,000 (Acquired 09/28/99; Cost $2,669,490) c 2,673,000 - 2,673,000
========== ============= ========== ============ ============ ============
KOREA--1.86%
Republic of Korea, Unsub. Unsec. Notes,
6,435,000 - 6,435,000 8.875%, 04/15/08 6,707,155 - 6,707,155
========== ============= ========== ============ ============ ============
LEBANON--0.52%
Republic of Lebanon, Series 3, Notes,
1,850,000 - 1,850,000 10.25%, 10/06/09 1,869,686 - 1,869,686
========== ============= ========== ============ ============ ============
MALAYSIA--1.01%
3,538,000 - 3,538,000 Republic of Malaysia, Bonds, 8.75%, 06/01/09 3,647,041 - 3,647,041
========== ============= ========== ============ ============ ============
MEXICO--4.53%
United Mexican States,
Bonds,
1,700,000 - 1,700,000 10.375%, 02/17/09 1,731,875 - 1,731,875
- ---------- ------------- ---------- ------------ ------------ ------------
2,381,000 - 2,381,000 11.375%, 09/15/16 2,552,263 - 2,552,263
- ---------- ------------- ---------- ------------ ------------ ------------
5,248,000 - 5,248,000 11.50%, 05/15/26 5,930,980 - 5,930,980
- ---------- ------------- ---------- ------------ ------------ ------------
Series D, Floating Rate Sec. Gtd. Bonds,
2,220,000 - 2,220,000 6.0675%, 12/31/19 f 1,970,752 - 1,970,752
- ---------- ------------- ---------- ------------ ------------ ------------
5,500,000 - 5,500,000 Sec. Gtd. Bonds, 6.25%, 12/31/19 4,166,382 - 4,166,382
========== ============= ========== ============ ============ ============
16,352,252
============
MOROCCO--0.71%
Morocco Tranche A, Registered Loans,
5.906%, 01/01/09
2,964,000 - 2,964,000 (Acquired 03/11/99; Cost $2,420,780) c 2,582,385 - 2,582,385
========== ============= ========== ============ ============ ============
202
PRINCIPAL AMOUNT MARKET VALUE
- --------------------------------------- ---------------------------------------
AIM Emerging AIM AIM Emerging AIM
Markets Debt Developing Pro Forma Markets Debt Developing Pro Forma
Fund Markets Fund Combining Fund Markets Fund Combining
PANAMA--0.69%
Republic of Panama Bonds,
$1,017,000 - $ 1,017,000 8.875%, 09/30/27 $ 828,490 - $ 828,490
- ---------- ------------- ---------- ------------ ------------ ------------
626,000 - 626,000 9.375%, 04/01/29 593,135 - 593,135
- ---------- ------------- ---------- ------------ ------------ ------------
1,400,000 - 1,400,000 Gtd. Deb., 4.25%, 07/17/14 g 1,053,392 - 1,053,392
========== ============= ========== ============ ============ ============
2,475,017
============
PERU--0.97%
Republic of Peru
2,725,000 - 2,725,000 Gtd. Bonds, 3.75%, 03/07/17 g 1,535,478 - 1,535,478
- ---------- ------------- ---------- ------------ ------------ ------------
3,136,000 - 3,136,000 PDI Bonds, 4.50%, 03/07/17 g 1,984,150 - 1,984,150
========== ============= ========== ============ ============ ============
3,519,628
============
PHILIPPINES--0.48%
Republic of Philippines, Bonds, 9.875%,
1,770,000 - 1,770,000 1/15/19 1,721,325 - 1,721,325
========== ============= ========== ============ ============ ============
POLAND--1.12%
Republic of Poland,
2,475,000 - 2,475,000 Sec. Bonds, 3.50%, 10/27/24 g 1,524,214 - 1,524,214
- ---------- ------------- ---------- ------------ ------------ ------------
2,812,000 - 2,812,000 Unsec. PDI Bonds, 6.00%, 10/27/14 g 2,503,501 - 2,503,501
========== ============= ========== ============ ============ ============
4,027,715
============
RUSSIA--2.86%
Bank of Foreign Economic Affairs
(Vnesheconombank),
627,107 - 627,107 Interest in Arrears Notes, 6.0625%, 12/15/15 fh 72,901 - 72,901
- ---------- ------------- ---------- ------------ ------------ ------------
37,242,372 - 37,242,372 Principal Loans, 6.0625%, 12/15/20 fh 3,468,382 - 3,468,382
- ---------- ------------- ---------- ------------ ------------ ------------
Russian Federation, Sr. Unsec. Unsub. Bonds,
9,870,000 - 9,870,000 11.75%, 06/10/03 6,028,191 - 6,028,191
- ---------- ------------- ---------- ------------ ------------ ------------
1,413,000 - 1,413,000 12.75%, 06/24/28 771,748 - 771,748
========== ============= ========== ============ ============ ============
10,341,222
============
TURKEY--0.46%
Republic of Turkey,
1,290,000 - 1,290,000 Notes, 12.00%, 12/15/08 1,306,125 - 1,306,125
- ---------- ------------- ---------- ------------ ------------ ------------
370,000 - 370,000 Sr. Unsec. Unsub. Notes, 12.375%, 06/15/09 372,313 - 372,313
========== ============= ========== ============ ============ ============
1,678,438
============
VENEZUELA--1.87%
Republic of Venezuela,
2,226,180 - 2,226,180 Floating Rate Deb., 6.313%, 12/18/07 f 1,800,002 - 1,800,002
- ---------- ------------- ---------- ------------ ------------ ------------
3,299,000 - 3,299,000 Gtd. Sec. Bonds, 6.75%, 03/31/20 2,322,239 - 2,322,239
- ---------- ------------- ---------- ------------ ------------ ------------
3,859,000 - 3,859,000 Unsec. Bonds, 9.25%, 09/15/27 2,619,007 - 2,619,007
========== ============= ========== ============ ============ ============
6,741,248
============
Total Government Bonds & Government
Agency Obligations (Cost $135,981,782) 123,153,660 - 123,153,660
============ ============ ============
CORPORATE BONDS--5.34%
ARGENTINA--0.97%
Banco Hipotecario S.A. (Banks-Regional), Sr.
Unsec. Unsub. Notes, 10.00%, 04/17/03
1,279,000 - 1,279,000 (Acquired 04/07/98; Cost $1,277,171) c 1,179,877 - 1,179,877
- ---------- ------------- ---------- ------------ ------------ ------------
CEI Citicorp Holdings S.A. (Investment
Banking/Brokerage), Bonds, 11.25%, 02/14/07
3,000,000 ARS - 3,000,000 (Acquired 08/13/99; Cost $2,175,315) ci 2,333,597 - 2,333,597
========== ============= ========== ============ ============ ============
3,513,474
============
BRAZIL--0.78%
Banco Nacional De Desenvolri (Banks-
Regional), Unsec. Unsub. Floating Rate Notes,
3,250,000 - 3,250,000 13.64%, 06/16/08 f 2,810,997 - 2,810,997
========== ============= ========== ============ ============ ============
CAYMAN ISLANDS--0.49%
PDVSA Finance Ltd., (Banks-Regional), Sr.
Unsec. Notes, 9.75%, 02/15/10 (Acquired
1,850,000 - 1,850,000 03/31/99; Cost $1,837,494) c 1,753,469 - 1,753,469
========== ============= ========== ============ ============ ============
JAMAICA--0.45%
Mechala Group (Manufacturing-Diversified),
4,134,000 - 4,134,000 Series B, Sr. Gtd. Sub. Notes, 12.75%, 12/30/99 1,622,595 - 1,622,595
========== ============= ========== ============ ============ ============
203
PRINCIPAL AMOUNT MARKET VALUE
- --------------------------------------- ---------------------------------------
AIM Emerging AIM AIM Emerging AIM
Markets Debt Developing Pro Forma Markets Debt Developing Pro Forma
Fund Markets Fund Combining Fund Markets Fund Combining
MEXICO--2.65%
$3,918,000 - $ 3,918,000 Alestra S.A., Sr. Notes, 12.625%, 05/15/09 $ 3,790,665 - $ 3,790,665
- ---------- ------------- ---------- ------------ ------------ ------------
Fideicomiso Petacalco Trust-Topolo (Financial-
Diversified), Sec. Notes, 10.16%, 12/23/09
1,750,000 - 1,750,000 (Acquired 06/25/99; Cost $1,575,000) c 1,540,000 - 1,540,000
- ---------- ------------- ---------- ------------ ------------ ------------
Grupo Televisa S.A. (Entertainment), Sr. Disc.
2,400,000 - 2,400,000 Notes, 13.25%, 05/15/08 j 2,055,000 - 2,055,000
- ---------- ------------- ---------- ------------ ------------ ------------
Petroleos Mexicanos (Oil & Gas-Refining &
Marketing)
300,000 - 300,000 Sr. Gtd. Sub. Bonds, 9.50%, 09/15/27 257,250 - 257,250
- ---------- ------------- ---------- ------------ ------------ ------------
2,000,000 - 2,000,000 Unsub. Bonds, 9.50%, 09/15/27 1,925,000 - 1,925,000
- ---------- ------------- ---------- ------------ ------------ ------------
9,567,915
============ ============ ============
Total Corporate Bonds (Cost $20,115,100) 19,268,450 - 19,268,450
============ ============ ============
U.S. DOLLAR DENOMINATED
NON-CONVERTIBLE BONDS &
NOTES--0.00%
SOVEREIGN DEBT--0.00%
Bank of Foreign Economic Affairs
(Vnesheconombank) (Russia), Interest in
45,784 45,784 Arrears Notes, 5.968%, 12/15/15 (Cost $7,777) fh - 5,322 5,322
============= ========== ============ ============ ============
Shares WARRANTS--0.14%
SOVEREIGN DEBT--0.14%
Republic of Argentina (Argentina),
8,810 - 8,810 expiring 12/03/99 k 9,911 - 9,911
- ---------- ------------- ---------- ------------ ------------ ------------
9,630 - 9,630 expiring 02/25/00 k 217,879 - 217,879
- ---------- ------------- ---------- ------------ ------------ ------------
United Mexican States (Mexico),
4,033 - 4,033 expiring 02/18/00 k 270,715 - 270,715
========== ============= ========== ============ ============ ============
Total Warrants (Cost $0) 498,505 - 498,505
============ ============ ============
MONEY MARKET FUNDS--2.61%
2,901,337 1,806,852 4,708,189 STIC Liquid Assets Portfolio l 2,901,337 1,806,852 4,708,189
========== ============= ========== ============ ============ ============
2,901,337 1,806,852 4,708,189 STIC Prime Portfolio l 2,901,337 1,806,852 4,708,189
========== ============= ========== ============ ============ ============
Total Money Market Funds (Cost $9,416,378) 5,802,674 3,613,704 9,416,378
============ ============ ============
TOTAL INVESTMENTS--98.28%,
(Cost $371,111,479) 148,723,289 206,148,663 354,871,952
============ ============ ============
OTHER ASSETS LESS LIABILITIES--1.72% 4,605,719 1,599,357 6,205,076
============ ============ ============
NET ASSETS--100.00% $153,329,008 $207,748,020 $361,077,028
============ ============ ============
Investment Abbreviations:
ADR - American Depositary Receipt
ARS - Argentine Peso
Deb. - Debenture
EPN - Equity Participation Notes
GDR - Global Depositary Receipt
Gtd. - Guaranteed
PDI - Past Due Interest
Pfd. - Preferred
Rts. - Rights
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
Unsub. - Unsubordinated
Wts. - Warrants
Notes to Schedule of Investments:
a Each unit represents one presharedof Unibanco and one preferred "B" share
of Unibanco Holdings.
b Non-income producing security.
c Restricted security. May be resold to qualified
institutionainbaccordancewith the provisions of RulunderAthe Securities Act
of 1933, as amended. The valuation of these securities has been determined
iaccordance wiprocedures establisbydthe BoaTrustees. The aggregate market
value of these securities at 10/31/99 was $14,883,988 which represents
4.12% of theFund's net assets.
d Equity pariticpation notes on basket of Taiwan stocks.
e Principal amount is in U.S. dollars except as indicated by note i.
f The coupon rate shown on floating rate note represents the rate at period
end.
g The coupon rate shown on step-up coupon bonds represents the rate at period
end.
h Defaulted security. Currentlthe issuer is in default with respect to
interest payments.
i Foreign denominated securiPar value and coupon are denominated in currency
indicated.
j Discount bond at purchase. Interestrate shown represents tcoupon rate at
which the bond will accrue at a specified future date.
k Non-income producing security acquired as part oa unit with or in exhange
for other securities.
l The money market fund has the same investment advisor as the Fund.
See Accompanying Notes to Combining Pro Forma Financial Statements
204
AIM DEVELOPING MARKETS FUND
AIM EMERGING MARKETS DEBT FUND
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
October 31, 1999
(Unaudited)
AIM Emerging AIM Developing
Markets Markets Pro Forma
Debt Fund Fund Combining
------------ -------------- ------------
ASSETS:
Investments, at value $148,723,289 $206,148,663 $354,871,952
(cost $161,899,556 - AIM Emerging Markets Debt Fund)
(cost $209,211,923 - AIM Developing Markets Fund)
(cost $371,111,479 - Pro forma combination)
Foreign currencies, at value 37 2,503,509 2,503,546
------------ ------------ ------------
(cost $37 - AIM Emerging Markets Debt Fund)
(cost $2,528,014 - AIM Developing Markets Fund)
(cost $2,528,051 - Pro forma combination)
Receivables for:
Investments sold 2,521,069 570,570 3,091,639
------------ ------------ ------------
Fund shares sold 114,064 699,871 813,935
------------ ------------ ------------
Dividends and interest 3,619,496 799,063 4,418,559
------------ ------------ ------------
Other assets 44,238 -- 44,238
============ ============ ============
Total Assets 155,022,193 210,721,676 365,743,869
============ ============ ============
LIABILITIES:
Payables for:
Investments purchased 1,082,939 1,384,045 2,466,984
------------ ------------ ------------
Fund shares reacquired 298,225 946,210 1,244,435
------------ ------------ ------------
Amount due to custodian bank -- 3,446 3,446
------------ ------------ ------------
Accrued advisory fees 145,351 173,001 318,352
------------ ------------ ------------
Accrued accounting services fees 4,247 4,201 8,448
------------ ------------ ------------
Accrued trustees' fees 2,858 4,882 7,740
------------ ------------ ------------
Accrued distribution fees 122,295 135,524 257,819
------------ ------------ ------------
Accrued transfer agent fees 21,015 127,021 148,036
------------ ------------ ------------
Accrued operating expenses 16,255 195,326 211,581
------------ ------------ ------------
Total liabilities 1,693,185 2,973,656 4,666,841
============ ============ ============
Net assets applicable to shares outstanding $153,329,008 $207,748,020 $361,077,028
============ ============ ============
NET ASSETS:
Class A $ 54,330,409 $157,197,964 $211,528,373
============ ============ ============
Advisor Class $ 1,396,408 $ 415,028 $ 1,811,436
============ ============ ============
Class B $ 97,393,834 $ 49,723,202 $147,117,036
============ ============ ============
Class C $ 208,357 $ 411,826 $ 620,183
============ ============ ============
Shares Outstanding, $.01 par value per share:
Class A 6,543,402 15,944,507 21,452,645
============ ============ ============
Advisor Class 168,733 42,020 183,428
============ ============ ============
Class B 11,728,667 5,079,702 15,023,311
============ ============ ============
Class C 25,096 42,079 63,355
============ ============ ============
Class A:
Net asset value and redemption price per share $ 8.30 $ 9.86 $ 9.86
------------ ------------ ------------
Offering price per share: $ 8.71 $ 10.35 $ 10.35
(Net asset value of $8.30 / 95.25%) #VALUE!
(Net asset value of $9.86 / 95.25%) #VALUE!
Advisor Class:
Net asset value, redemption and offering price per share $ 8.28 $ 9.88 $ 9.88
============ ============ ============
Class B:
Net asset value and offering price per share $ 8.30 $ 9.79 $ 9.79
============ ============ ============
Class C:
Net asset value and offering price per share $ 8.30 $ 9.79 $ 9.79
============ ============ ============
See Accompanying Notes to Pro Forma Combining Financial Statements
205
AIM DEVELOPING MARKETS FUND
AIM EMERGING MARKETS DEBT FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS
For the Year Ended October 31, 1999
(Unaudited)
AIM Emerging AIM Developing
Markets Markets Pro Forma
Debt Fund Fund Adjustments Combining
----------- ----------- ------------ -----------
Investment income:
Dividends $ 5,558 $ 3,536,471 -- $ 3,542,029
(net of foreign withholding tax of $294,405
- AIM Developing Markets Fund)
Interest 21,776,257 452,845 -- 22,229,102
----------- ----------- ------------ -----------
Securities lending 179,871 141,802 -- 321,673
=========== =========== ============ ===========
Total investment income 21,961,686 4,131,118 -- 26,092,804
=========== =========== ============ ===========
EXPENSES:
Advisory and administrative fees 1,712,645 1,560,741 -- 3,273,386
----------- ----------- ------------ -----------
Accounting services fees 51,980 42,462 -- 94,442
----------- ----------- ------------ -----------
Custodian fees 130,677 152,242 -- 282,919
----------- ----------- ------------ -----------
Distribution fees - Class A 219,862 439,522 94,227 753,611
----------- ----------- ------------ -----------
Distribution fees - Class B 1,097,291 357,273 -- 1,454,564
----------- ----------- ------------ -----------
Distribution fees - Class C 667 1,425 -- 2,092
----------- ----------- ------------ -----------
Interest expense 221,531 18,797 (221,531) 18,797
----------- ----------- ------------ -----------
Transfer agent fees 388,634 846,991 -- 1,235,625
----------- ----------- ------------ -----------
Trustees' fees 7,532 21,421 -- 28,953
----------- ----------- ------------ -----------
Printing fees 150,031 335,170 -- 485,201
=========== =========== ============ ===========
Other 77,885 244,455 -- 322,340
=========== =========== ============ ===========
Total expenses 4,058,735 4,020,499 (127,304) 7,951,930
=========== =========== ============ ===========
Less: Expenses paid indirectly (87,116) (9,544) -- (96,660)
----------- ----------- ------------ -----------
Fees waived by advisor (75,488) (747,433) (416,387) (1,239,308)
=========== =========== ============ ===========
Net expenses 3,896,131 3,263,522 (543,691) 6,615,962
=========== =========== ============ ===========
Net investment income (loss) 18,065,555 867,596 543,691 19,476,842
=========== =========== ============ ===========
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND FOREIGN
CURRENCY CONTRACTS:
Net realized gain (loss) from:
Investment securities (22,143,209) 3,287,085 -- (18,856,124)
----------- ----------- ------------ -----------
Foreign currencies (775,867) (466,771) -- (1,242,638)
=========== =========== ============ ===========
Foreign currency contracts 972,301 -- -- 972,301
=========== =========== ============ ===========
(21,946,775) 2,820,314 -- (19,126,461)
=========== =========== ============ ===========
Net unrealized appreciation (depreciation) of:
Investment securities 32,555,182 23,953,037 -- 56,508,219
----------- ----------- ------------ -----------
Foreign currencies (31,683) (65,862) -- (97,545)
=========== =========== ============ ===========
32,523,499 23,887,175 -- 56,410,674
=========== =========== ============ ===========
Net gain on investment securities, foreign
currencies and foreign currency contracts 10,576,724 26,707,489 -- 37,284,213
=========== =========== ============ ===========
Net increase in net assets resulting from operations $28,642,279 $27,575,085 $ 543,691 $56,761,055
=========== =========== ============ ===========
See Accompanying Notes to Pro Forma Combining Financial Statements.
206
AIM DEVELOPING MARKETS FUND
AIM EMERGING MARKETS DEBT FUND
NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS
October 31, 1999
(Unaudited)
Note 1 - Basis of Pro Forma Presentation
The pro forma financial statements and the accompanying pro forma schedule of
investments give effect to the proposed Agreement and Plan of Reorganization
within AIM Investment Funds, Inc. and the consummation of the transactions
contemplated therein to be accounted for as a tax-free reorganization of
investment companies. The Agreement and Plan of Reorganization would be
accomplished by an exchange of shares of AIM Developing Markets Fund for the net
assets of AIM Emerging Markets Debt Fund and the distribution of AIM Developing
Markets Fund shares to AIM Emerging Markets Debt Fund shareholders. If the
agreement and Plan of Reorganiztion were to have taken place at October 31,
1999, AIM Emerging Markets Debt Fund Class A shareholders would have received
5,508,138 shares of AIM Developing Markets Fund - Class A shares, AIM Emerging
Markets Debt Fund Class B shareholders would have received 9,943,609 shares of
AIM Developing Markets Fund - Class B shares, AIM Emerging Markets Debt Fund
Class C shareholders would have received 21,276 shares of AIM Developing Markets
Fund - Class C shares, and AIM Emerging Markets Debt Fund Advisor Class
shareholders would have received 141,408 shares of AIM Developing Markets Fund -
Advisor Class shares.
Note 2 - Pro Forma Adjustments
Pro Forma adjustments have been made to reflect the contractual expenses of the
combined entities.
207
NAVS
---- Shares conversion DMkt new
Emkt DMkt Ratio Emkt shares shares share balance
----- ----- -------- --------- ---------- ---------- -------------
A $8.30 $9.86 84.17850% 6,543,402 5,508,138 15,944,507 21,452,645
B $8.30 $9.79 84.78039% 11,728,667 9,943,609 5,079,702 15,023,311
C $8.30 $9.79 84.78039% 25,096 21,276 42,079 63,355
Advisor $8.28 $9.88 83.80567% 168,733 141,408 42,020 183,428
208
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
State the general effect of any contract, arrangements or statute under
which any director, officer, underwriter or affiliated person of the Registrant
is insured or indemnified in any manner against any liability which may be
incurred in such capacity, other than insurance provided by any director,
officer, affiliated person or underwriter for their own protection.
Articles VIII of the Registrant's Agreement and Declaration of Trust
(the "Agreement"), dated May 7, 1998, provides, among other things, (1)
that a Trustee shall not be liable for any act, omission or obligation
of the Registrant or any Trustee (except for liability to the
Registrant or its shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the Trustee's duties);
(2) that the Trustees and officers shall be indemnified by the
Registrant to the fullest extent permitted by the Delaware Business
Trust Act and other applicable law; and (3) that the shareholders and
former shareholders of the Registrant shall be held harmless by the
Registrant (or applicable portfolio or class) from personal liability
arising from their status as such, and shall be indemnified by the
Registrant (or applicable portfolio or class) against all loss and
expense arising from such personal liability in accordance with the
Registrant's Amended and Restated By-Laws and applicable law.
Article VIII of the Registrant's Agreement and Declaration of Trust, as
amended, provides for indemnification of certain persons acting on
behalf of the Registrant. Article VIII, Section 8.1 provides that a
Trustee, when acting in such capacity, shall not be personally liable
to any person for any act, omission, or obligation of the Registrant or
any Trustee; provided, however, that nothing contained in the
Registrant's Agreement and Declaration of Trust or in the Delaware
Business Trust Act shall protect any Trustee against any liability to
the Registrant or its shareholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence,
or reckless disregard of the duties involved in the conduct of the
office of Trustee.
Article VIII, Section 3 of the Registrant's Bylaws, as amended, also
provides that every person who is, or has been, a Trustee or Officer of
the Registrant is indemnified to the fullest extent permitted by the
Delaware Business Trust Act, the Registrant's Bylaws and other
applicable law.
A I M Advisors, Inc. ("AIM"), the Registrant and other investment
companies managed by AIM and their respective officers, trustees,
directors and employees are insured under a joint Mutual Fund and
Investment Advisory Professional and Directors and Officers Liability
Policy, issued by ICI Mutual Insurance Company, with a $35,000,000
limit of liability.
209
Section 9 of the Investment Management and Administration Contract
between the Registrant and AIM provides that AIM shall not be liable,
and each series of the Registrant shall indemnify AIM and its
directors, officers and employees, for any costs or liabilities arising
from any error of judgment or mistake of law or any loss suffered by
any series of the Registrant or the Registrant in connection with the
matters to which the Investment Management and Administration Contract
relates except a loss resulting from willful misfeasance, bad faith or
gross negligence on the part of AIM in the performance by AIM of its
duties or from reckless disregard by AIM of its obligations and duties
under the Investment Management and Administration Contract.
Section 7 of the Sub-Advisory Contract between AIM and INVESCO Asset
Management Limited ("IAML") (the "Sub-Advisory Contract") provides that
IAML shall not be liable for any costs or liabilities arising from any
error of judgment or any mistake of law or any loss suffered by any
series of the Registrant or the Registrant in connection with the
matters to which the Sub-Advisory Contract relates except a loss
resulting from willful misfeasance, bad faith or gross negligence on
the part of IAML in the performance by IAML of its duties or from
reckless disregard by IAML of its obligations and duties under the
Sub-Advisory Contract.
ITEM 16. EXHIBITS
Exhibit
Number Description
(1) (a) - Agreement and Declaration of Trust of the Registrant
was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 55 to the Registration
Statement on Form N-1A, filed August 26, 1998, and is
hereby incorporated by reference.
(b) - First Amendment to the Agreement and Declaration of
Trust of Registrant, dated August 12, 1998, was filed
as an Exhibit to Registrant's Post-Effective
Amendment No. 56 to the Registration Statement on
Form N-1A, filed on December 30, 1998, and is hereby
incorporated by reference.
(c) - Second Amendment to the Agreement and Declaration
of Trust of Registrant, dated December 10, 1998, was
filed as an Exhibit to Registrant's Post-Effective
Amendment No. 57 to the Registration Statement on
Form N-1A, filed on February 22, 1999, and is hereby
incorporated by reference.
210
(d) - Third Amendment to the Agreement and Declaration of
Trust of Registrant, dated February 4, 1999, was
filed as an Exhibit to Registrant's Post-Effective
Amendment No. 58 to the Registration Statement on
Form N-1A, filed on February 25, 2000, and is hereby
incorporated by reference.
(e) - Fourth Amendment to the Agreement and Declaration
of Trust of Registrant, dated February 16, 1999, was
filed as an Exhibit to Registrant's Post-Effective
Amendment No. 58 to the Registration Statement on
Form N-1A, filed on February 25, 2000, and is hereby
incorporated by reference.
(2) (a) - By-Laws of the Registrant were filed as an exhibit to
Registrant's Post-Effective Amendment No. 55 to the
Registration Statement on Form N-1A, filed on August
26, 1998, and is hereby incorporated by reference.
(b) - Amendment No. 1 to By-Laws of Registrant, dated
December 10, 1998, was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 57 to the
Registration Statement on Form N-1A, filed on
February 22, 1999, and is hereby incorporated by
reference.
(c) - Amended and Restated By-Laws of Registrant, adopted
effective May 7, 1998, amended December 10, 1998, was
filed as an Exhibit to Registrant's Post-Effective
Amendment No. 58 to the Registration Statement on
Form N-1A, filed on February 25, 2000, and is hereby
incorporated by reference.
(d) - First Amendment to Amended and Restated By-Laws of
Registrant, dated June 15, 1999, was filed as an
Exhibit to Registrant's Post-Effective Amendment No.
58 to the Registration Statement on Form N-1A, filed
on February 25, 2000, and is hereby incorporated by
reference.
(3) - Voting Trust Agreements - None.
(4) - A copy of the form of Plan of Reorganization is
attached as Appendix I to the Prospectus contained in
the Registration Statement.
(5) - Provisions of instruments defining the rights of
holders of Registrant's securities are contained in
the Declaration of Trust, as amended, Articles II,
VI, VII, VIII and IX and By-laws, as amended,
Articles IV, V, VI, VII and VIII, which were filed as
an Exhibit to Registrant's Post-Effective Amendment
No. 58 to the Registration Statement on Form N-1A,
filed on February 25, 2000, and are hereby
incorporated by reference.
(6) (a) - Investment Management and Administration Contract
between Registrant and A I M Advisors, Inc. was filed
as an Exhibit to Registrant's Post-Effective
Amendment No. 55 to the Registration Statement on
Form N-1A, filed on August 26, 1998.
211
(b) - Investment Management and Administration Contract,
dated September 8, 1998, between Registrant and A I M
Advisors, Inc. was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 55 to the
Registration Statement, filed on August 26, 1998.
(c) - Amended and Restated Investment Management and
Administration Contract, dated June 1, 1999, between
Registrant and A I M Advisors, Inc. was filed as
an Exhibit to Registrant's Post-Effective Amendment
No. 58 to the Registration Statement on Form N-1A,
filed on February 25, 2000, and is hereby
incorporated by reference.
(d) - Administration Contract, dated May 29, 1998, between
Registrant and A I M Advisors, Inc. was filed as an
Exhibit to Registrant's Post-Effective Amendment No.
55 to the Registration Statement on Form N-1A, filed
on August 26, 1998.
(e) - Administration Contract, dated September 8, 1998,
between Registrant and A I M Advisors, Inc. was filed
as an Exhibit to Registrant's Post-Effective
Amendment No. 55 to the Registration Statement on
Form N-1A, filed on August 26, 1998, and is hereby
incorporated by reference.
(f) - Sub-Administration Contract, dated May 29, 1998,
between A I M Advisors, Inc. and INVESCO (NY), Inc.
with respect to Registrant was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 55 to the
Registration Statement on Form N-1A, filed on August
26, 1998.
(g) - Sub-Administration Contract, dated September 8, 1998,
between A I M Advisors, Inc. and INVESCO (NY), Inc.
with respect to Registrant was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 55 to the
Registration Statement on Form N-1A, filed on August
26, 1998.
(h) - Sub-Advisory and Sub-Administration Contract, dated
May 29, 1998 between A I M Advisors, Inc. and INVESCO
(NY), Inc. with respect to Registrant was filed as an
Exhibit to Registrant's Post-Effective Amendment No.
55 to the Registration Statement on Form N-1A, filed
on August 26, 1998.
(i) - Sub-Advisory and Sub-Administration Contract, dated
September 8, 1998 between A I M Advisors, Inc. and
INVESCO (NY), Inc. with respect to Registrant was
filed as an Exhibit to Registrant's Post-Effective
Amendment No. 55 to the Registration Statement on
Form N-1A, filed on August 26, 1998.
212
(j) - Sub-Advisory and Sub-Administration Contract, dated
September 8, 1998, between A I M Advisors, Inc. and
INVESCO (NY), Inc. with respect to Registrant was
filed as an Exhibit to Registrant's Post-Effective
Amendment No. 55 to the Registration Statement on
Form N-1A, filed on August 26, 1998, and is hereby
incorporated by reference.
(k) - Investment Management and Administration Contract,
dated May 29, 1998, between Global Investment
Portfolio and A I M Advisors, Inc. was filed as an
Exhibit to Registrant's Post-Effective Amendment No.
55 to the Registration Statement on Form N-1A, filed
on August 26, 1998, and is hereby incorporated by
reference.
(l) - Investment Management and Administration Contract,
dated May 29, 1998, between Global High Income
Portfolio (now known as Emerging Markets Debt
Portfolio) and A I M Advisors, Inc. was filed as an
Exhibit to Registrant's Post-Effective Amendment No.
55 to the Registration Statement on Form N-1A, filed
on August 26, 1998, and is hereby incorporated by
reference.
(m) - Amended and Restated Investment Management and
Administration Contract, dated September 8, 1998,
between Emerging Markets Debt Portfolio and A I M
Advisors, Inc. was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 58 to the
Registration Statement on Form N-1A, filed on
February 25, 2000, and is hereby incorporated by
reference.
(n) - Sub-Advisory and Sub-Administration Contract, dated
May 29, 1998, between A I M Advisors, Inc. and
INVESCO (NY), Inc. with respect to Global Investment
Portfolio was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 55 to the Registration
Statement on Form N-1A, filed on August 26, 1998.
(o) - Sub-Advisory and Sub-Administration Contract, dated
May 29, 1998, between A I M Advisors, Inc. and
INVESCO (NY), Inc. with respect to Global High Income
Portfolio (now known as Emerging Markets Debt
Portfolio) was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 55 to the Registration
Statement on Form N-1A, filed on August 26, 1998.
(p) - Sub-Advisory Contract, dated December 14, 1998,
between A I M Advisors, Inc. and INVESCO (NY), Inc.
with respect to Registrant's AIM Strategic Income
Fund was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 58 to the Registration
Statement, filed on February 25, 2000, and is hereby
incorporated by reference.
213
(q) - Amended and Restated Sub-Advisory Contract, dated
February 12, 1999, between A I M Advisors, Inc. and
INVESCO Asset Management Limited with respect to
Registrant was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 58 to the Registration
Statement on Form N-1A, filed on February 25, 2000,
and is hereby incorporated by reference.
(r) - Sub-Advisory Contract, dated December 14, 1998,
between A I M Advisors, Inc. and INVESCO Asset
Management Limited with respect to Emerging Markets
Debt Portfolio was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 58 to the
Registration Statement on Form N-1A, filed on
February 25, 2000, and is hereby incorporated by
reference.
(7) (a) - Distribution Agreement, dated May 29, 1998, between
Registrant and A I M Distributors, Inc. with respect
to Class A shares was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 55 to the
Registration Statement on Form N-1A, filed on August
26, 1998.
(b) - Distribution Agreement, dated September 8, 1998,
between Registrant and A I M Distributors, Inc. with
respect to Class A shares was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 55 to the
Registration Statement on Form N-1A, filed on August
26, 1998, and is hereby incorporated by reference.
(c) - Master Distribution Agreement, dated March 1, 1999,
between Registrant and A I M Distributors, Inc. with
respect to Class A and Class C shares was filed as an
Exhibit to Registrant's Post-Effective Amendment No.
58 to the Registration Statement on Form N-1A, filed
on February 25, 2000, and is hereby incorporated by
reference.
(d) - Amendment No. 1, dated March 1, 1999, to the Master
Distribution Agreement, dated March 1, 1999, between
Registrant and A I M Distributors, Inc. with respect
to Class A and Class C shares was filed as an Exhibit
to Registrant's Post-Effective Amendment No. 58 to
the Registration Statement on Form N-1A, filed on
February 25, 2000, and is hereby incorporated by
reference.
(e) - Distribution Agreement, dated May 29, 1998, between
Registrant and A I M Distributors, Inc. with respect
to Class B shares was filed as an exhibit to
Registrant's Post-Effective Amendment No. 55 to the
Registration Statement on Form N-1A, filed on August
26, 1998.
(f) - Distribution Agreement, dated September 8, 1998,
between Registrant and A I M Distributors, Inc. with
respect to Class B shares was filed as an exhibit to
Registrant's Post-Effective Amendment No. 55 to the
Registration Statement on Form N-1A, filed on August
26, 1998, and is hereby incorporated by reference.
214
(g) - Amendment No. 1, dated March 18, 1999, to the
Distribution Agreement, dated September 8, 1998,
between Registrant and A I M Distributors, Inc. with
respect to Class B was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 58 to the
Registration Statement on Form N-1A, filed on
February 25, 2000, and is hereby incorporated by
reference.
(h) - Amendment No. 2, dated June 1, 1999, to the
Distribution Agreement, dated September 8, 1998,
between Registrant and A I M Distributors, Inc. with
respect to Class B was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 58 to the
Registration Statement on Form N-1A, filed on
February 25, 2000, and is hereby incorporated by
reference.
(8) - Agreements Concerning Officers and Directors/Trustees
Benefits - None.
(9) (a) - Custodian Agreement, dated April 27, 1988, between
Registrant and State Street Bank and Trust Company
was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 56 to the Registration
Statement on Form N-1A, filed on December 30, 1998,
and is hereby incorporated by reference.
(b) - Notice of Additional Fund, dated August 7, 1989, to
Custodian Contract, dated April 27, 1988, between
Registrant and State Street Bank and Trust Company
was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 56 to the Registration
Statement on Form N-1A, filed on December 30, 1998,
and is hereby incorporated by reference.
(c) - Notice of Additional Fund, dated September 23,
1990, to Custodian Contract, dated April 27, 1988,
between Registrant and State Street Bank and Trust
Company was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 56 to the Registration
Statement on Form N-1A, filed on December 30, 1998,
and is hereby incorporated by reference.
(d) - Notice of Additional Fund, dated August 8, 1991, to
Custodian Contract, dated April 27, 1988, between
Registrant and State Street Bank and Trust Company
was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 56 to the Registration
Statement on Form N-1A, filed on December 30, 1998,
and is hereby incorporated by reference.
(e) - Notice of Additional Fund, dated January 27, 1992,
to Custodian Contract, dated April 27, 1988, between
Registrant and State Street Bank and Trust Company
was filed as an Exhibit to Registrant's
Post-Effective
215
Amendment No. 56 to the Registration Statement on
Form N-1A, filed on December 30, 1998, and is hereby
incorporated by reference.
(f) - Notice of Additional Fund, dated May 10, 1992, to
Custodian Contract, dated April 27, 1988, between
Registrant and State Street Bank and Trust Company
was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 56 to the Registration
Statement on Form N-1A, filed on December 30, 1998,
and is hereby incorporated by reference.
(g) - Notice of Additional Fund, dated June 1, 1992, to
Custodian Contract, dated April 27, 1988, between
Registrant and State Street Bank and Trust Company
was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 56 to the Registration
Statement on Form N-1A, filed on December 30, 1998,
and is hereby incorporated by reference.
(h) - Notice of Additional Fund, dated October 22, 1992,
to Custodian Contract, dated April 27, 1988, between
Registrant and State Street Bank and Trust Company
was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 56 to the Registration
Statement on Form N-1A, filed on December 30, 1998,
and is hereby incorporated by reference.
(i) - Notice of Additional Fund, dated May 31, 1994, to
Custodian Contract, dated April 27, 1988, between
Registrant and State Street Bank and Trust Company
was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 56 to the Registration
Statement on Form N-1A, filed on December 30, 1998,
and is hereby incorporated by reference.
(j) - Amendment to Custodian Contract, dated August 17,
1994, was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 56 to the Registration
Statement on Form N-1A, filed on December 30, 1998,
and is hereby incorporated by reference.
(k) - Amendment to Custodian Contract, dated June 20,
1995, was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 56 to the Registration
Statement on Form N-1A, filed on December 30, 1998,
and is hereby incorporated by reference.
(l) - Notice of Additional Fund, dated October 24, 1997,
to Custodian Contract, dated April 27, 1988, between
Registrant and State Street Bank and Trust Company
was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 56 to the Registration
Statement on Form N-1A, filed on December 30, 1998,
and is hereby incorporated by reference.
(m) - Notice of Registrant's reorganization, dated
September 22, 1998, to Custodian was filed as an
Exhibit to Registrant's Post-Effective
216
Amendment No. 56 to the Registration Statement on
Form N-1A, filed on December 30, 1998, and is hereby
incorporated by reference.
(n) - Amendment to Custodian Contract, dated January 26,
1999, was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 57 to the Registration
Statement on Form N-1A, filed on February 22, 1999,
and is hereby incorporated by reference.
(o) - Transfer Agency and Service Agreement, dated
September 8, 1998, between Registrant and A I M Fund
Services, Inc. was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 56 to the
Registration Statement on Form N-1A, filed on
December 30, 1998, and is hereby incorporated by
reference.
(p) - Amendment No. 1, dated March 1, 1999, to the Transfer
Agency and Services Agreement, dated September 8,
1998, between Registrant and A I M Fund Services,
Inc. was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 58 to the Registration
Statement on Form N-1A, filed on February 25, 2000,
and is hereby incorporated by reference.
(q) - Amendment No. 2, dated July 1, 1999, to the Transfer
Agency and Services Agreement, dated September 8,
1998, between Registrant and A I M Fund Services,
Inc. was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 58 to the Registration
Statement on Form N-1A, filed on February 25, 2000,
and is hereby incorporated by reference.
(r) - Amendment No. 3, dated July 1, 1999, to the Transfer
Agency and Services Agreement, dated September 8,
1998, between Registrant and A I M Fund Services,
Inc. was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 58 to the Registration
Statement on Form N-1A, filed on February 25, 2000,
and is hereby incorporated by reference.
(s) - Amendment No. 4, dated February 11, 2000, to the
Transfer Agency and Services Agreement, dated
September 8, 1998, between Registrant and A I M Fund
Services, Inc. was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 58 to the
Registration Statement on Form N-1A, filed on
February 25, 2000, and is hereby incorporated by
reference.
(t) - Remote Access and Related Services Agreement, dated
as of December 23, 1994, between the Registrant and
First Data Investor Services Group, Inc. (formerly,
The Shareholder Services Group, Inc.) was filed as an
Exhibit to Registrant's Post-Effective Amendment No.
55 to the Registration Statement on Form N-1A, filed
on August 26, 1998, and is hereby incorporated by
reference.
217
(u) - Amendment No. 1, dated October 4, 1995, to the Remote
Access and Related Services Agreement, dated as of
December 23, 1994, between Registrant and First Data
Investor Services Group, Inc. (formerly, The
Shareholder Services Group, Inc.) was filed as an
Exhibit to Registrant's Post-Effective Amendment No.
55 to the Registration Statement on Form N-1A, filed
on August 26, 1998, and is hereby incorporated by
reference.
(v) - Addendum No. 2, dated October 12, 1995, to the Remote
Access and Related Services Agreement, dated as of
December 23, 1994, between Registrant and First Data
Investor Services Group, Inc. (formerly, The
Shareholder Services Group, Inc.) was filed as an
Exhibit to Registrant's Post-Effective Amendment No.
55 to the Registration Statement on Form N-1A, filed
on August 26, 1998, and is hereby incorporated by
reference.
(w) - Amendment No. 3, dated February 1, 1997, to the
Remote Access and Related Services Agreement, dated
as of December 23, 1994, between Registrant and First
Data Investor Services Group, Inc. (formerly, The
Shareholder Services Group, Inc.) was filed as an
Exhibit to Registrant's Post-Effective Amendment No.
55 to the Registration Statement on Form N-1A, filed
on August 26, 1998, and is hereby incorporated by
reference.
(x) - Exhibit 1, effective as of August 4, 1997, to the
Remote Access and Related Services Agreement, dated
as of December 23, 1994, between Registrant and First
Data Investor Services Group, Inc. (formerly, The
Shareholder Services Group, Inc.) was filed as an
Exhibit to Registrant's Post-Effective Amendment No.
55 to the Registration Statement on Form N-1A, filed
on August 26, 1998, and is hereby incorporated by
reference.
(y) - Preferred Registration Technology Escrow Agreement,
dated September 10, 1997, between Registrant and
First Data Investor Services Group, Inc. (formerly,
The Shareholder Services Group, Inc.) was filed as an
Exhibit to Registrant's Post-Effective Amendment No.
55 to the Registration Statement on Form N-1A, filed
on August 26, 1998, and is hereby incorporated by
reference.
(z) - Amendment No. 4, dated June 30, 1998, to the Remote
Access and Related Services Agreement, dated as of
December 23, 1994, between Registrant and First Data
Investor Services Group, Inc. (formerly, The
Shareholder Services Group, Inc.) was filed as an
Exhibit to Registrant's Post-Effective Amendment No.
56 to the Registration Statement on Form N-1A, filed
on December 30, 1998, and is hereby incorporated by
reference.
(aa) - Amendment No. 5, dated July 1, 1998, to the Remote
Access and Related Services Agreement, dated as of
December 23, 1994, between Registrant
218
and First Data Investor Services Group, Inc.
(formerly, The Shareholder Services Group, Inc.) was
filed as an Exhibit to Registrant's Post-Effective
Amendment No. 56 to the Registration Statement on
Form N-1A, filed on December 30, 1998, and is hereby
incorporated by reference.
(10) (a) - Distribution Plan, effective as of September 8, 1998,
adopted pursuant to Rule 12b-1 with respect to Class
A shares was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 56 to the Registration
Statement on Form N-1A, filed on December 30, 1998.
(b) - Master Distribution Plan, dated March 1, 1999,
pursuant to Rule 12b-1 with respect to Class A and
Class C shares was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 58 to the
Registration Statement on Form N-1A, filed on
February 25, 2000.
(c) - Amendment No. 1, dated March 18, 1999, to the
Master Distribution Plan, dated March 1, 1999,
pursuant to Rule 12b-1 with respect to Class A and
Class C shares was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 58 to the
Registration Statement on Form N-1A, filed on
February 25, 2000.
(d) - Amendment No. 2, dated June 1, 1999, to the Master
Distribution Plan, dated March 1, 1999, pursuant to
Rule 12b-1 with respect to Class A and Class C shares
was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 58 to the Registration
Statement on Form N-1A, filed on February 25, 2000.
(e) - Amended and Restated Master Distribution Plan,
effective as of July 1, 1999, with respect to Class A
and Class C shares was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 58 to the
Registration Statement on Form N-1A, filed on
February 25, 2000, and is hereby incorporated by
reference.
(f) - Distribution Plan, effective September 8, 1998,
adopted pursuant to Rule 12b-1 with respect to Class
B shares was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 56 to the Registration
Statement on Form N-1A, filed on December 30, 1998,
and is hereby incorporated by reference.
(g) - Amendment No. 1, dated March 18, 1999, to the
Distribution Plan, effective September 8, 1998,
adopted pursuant to Rule 12b-1 with respect to Class
B shares was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 58 to the Registration
Statement on Form N-1A, filed on February 25, 2000,
and is hereby incorporated by reference.
219
(h) - Amendment No. 2, dated June 1, 1999, to the
Distribution Plan, effective September 8, 1998,
adopted pursuant to Rule 12b-1 with respect to Class
B shares was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 58 to the Registration
Statement on Form N-1A, filed on February 25, 2000,
and is hereby incorporated by reference.
(i) - Rule 18f-3 Multiple Class Plan was filed as an
Exhibit to Registrant's Post-Effective Amendment No.
55 to the Registration Statement on Form N-1A, filed
on August 26, 1998, and is hereby incorporated by
reference.
(11) (a) - Opinion and Consent of Kirkpatrick & Lockhart LLP as
to the legality of the securities being registered is
filed electronically herewith.
(b) - Opinion and Consent of Delaware Counsel is filed
electronically herewith.
(12) - Opinion and Consent of Kirkpatrick & Lockhart LLP
supporting the tax matters and consequences to
shareholders discussed in the prospectus will be
filed as an amendment to this Registration Statement.
(13) (a) - Form of Selected Dealer Agreement between Registrant
and A I M Distributors, Inc. was filed as an exhibit
to Post-Effective Amendment No. 57 on Feb. 22, 1999,
and is hereby incorporated by reference.
(b) - Form of Bank Selling Group Agreement between
Registrant and A I M Distributors, Inc was filed as
an exhibit to Post-Effective Amendment No. 57 on Feb.
22, 1999, and is hereby incorporated by reference.
(c) - Form of Fund Accounting and Pricing Agent Agreement
between Registrant and INVESCO (NY), Inc. was filed
as an exhibit to Post Effective Amendment No. 55 on
Aug. 26, 1998.
(d) - Fund Accounting and Pricing Agreement between
Registrant and A I M Advisors, Inc. dated June 1,
1998, was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 57 to the Registration
Statement on Form N-1A, filed on February 22, 1999.
(e) - Master Accounting Services Agreement, dated July 1,
1999, between Registrant and A I M Advisors, Inc. was
filed as an Exhibit to Registrant's Post-Effective
Amendment No. 58 to the Registration Statement on
Form N-1A, filed on February 25, 2000, and is hereby
incorporated by reference.
(f) - Memorandum of Agreement, dated March 1, 1999, between
Registrant and A I M Advisors, Inc. was filed as an
Exhibit to Registrant's Post-Effective Amendment No.
58 to the Registration Statement on Form N-1A, filed
on February 25, 2000, and is hereby incorporated by
reference.
220
(g) - Form of Memorandum of Agreement between Registrant
and A I M Advisors, Inc. was filed as an exhibit to
Post-Effective Amendment No. 58 on Feb. 25, 2000, and
is hereby incorporated by reference.
(h) - Form of Shareholder Service Agreement used in
connection with Registrant's Master Distribution Plan
was filed as an exhibit to Post-Effective Amendment
No. 57 on Feb. 22, 1999, and is hereby incorporated
by reference.
(i) - Form of Bank Shareholder Service Agreement used in
connection with Registrant's Master Distribution was
filed as an exhibit to Post-Effective Amendment No.
57 on Feb. 22, 1999, and is hereby incorporated by
reference.
(j) - Form of Service Agreement for Bank Trust Department
and for Broker used in connection with Registrant's
Master Distribution Plan was filed as an exhibit to
Post-Effective Amendment No. 57 on Feb. 22, 1999, and
is hereby incorporated by reference.
(k) - Form of Agency Pricing Agreement used in connection
with Registrant's Master Distribution Plan was filed
as an exhibit to Post-Effective Amendment No. 57 on
Feb. 22, 1999, and is hereby incorporated by
reference.
(14) - Regarding opinions, appraisals or rulings and
consents relied on in preparing this Registration
Statement and required by Section 7 of the Securities
Act of 1933, the Consent of PricewaterhouseCoopers
LLP is filed herewith electronically.
(15) - Financial Statements - None.
(16) - Powers of Attorney - None.
(17) - Form of Proxy is filed electronically herewith.
ITEM 17. UNDERTAKINGS.
None.
(1) The undersigned registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is a part of
this registration statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act
[17 CRF 203.145c], the reoffering prospectus will contain the information
called for by the applicable registration form for reofferings by persons who
may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(2) The undersigned registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be
deemed to be the initial bona fide offering of them.
221
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement on Form N-14 to be
signed on its behalf by the undersigned, thereto duly authorized, in the City of
Houston, and the State of Texas, on the 22nd day of March, 2000.
AIM INVESTMENT FUNDS
Registrant
By: /s/ ROBERT H. GRAHAM
------------------------------------
Robert H. Graham
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-14 has been signed below by the following
persons in the capacities indicated on the 22 day of March, 2000.
/s/ ROBERT H. GRAHAM
- ------------------------------
Robert H. Graham President, Trustee and
Chairman of the Board
/s/ DANA R. SUTTON (Principal Executive Officer)
- ------------------------------
Dana R. Sutton Vice President and Treasurer
/s/ C. DEREK ANDERSON
- ------------------------------
C. Derek Anderson Trustee
/s/ FRANK S. BAYLEY
- ------------------------------
Frank S. Bayley Trustee
/s/ RUTH H. QUIGLEY
- ------------------------------
Ruth H. Quigley Trustee
222
INDEX TO EXHIBITS
11(a) Opinion and Consent of Kirkpatrick & Lockhart LLP as to the legality of
the securities being registered
(b) Opinion and Consent of Delaware Counsel
14 Consent of PricewaterhouseCoopers LLP
17 Form of Proxy