1 As filed with the Securities and Exchange Commission on May 28, 1999 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., 2nd Floor (Name and Address of Agent for Service) 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 June 27, 1999 pursuant to Rule 488. Title of securities being registered: Class A Shares of beneficial interest, par value $0.01 per share No filing fee is required because of reliance on Section 24(f) of the Investment Company Act of 1940, as amended. 2 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 Form N-14 Cross Reference Sheet o Part A - Prospectus/Proxy Statement o Part B - Statement of Additional Information o Part C - Other Information o Signature Page o Exhibits 3 AIM INVESTMENT FUNDS FORM N-14 CROSS REFERENCE SHEET Part A Item No. Prospectus/Proxy and Caption Statement Caption - --------------- ----------------- 1. Beginning of Registration Statement and Outside Front Cover Page Cover Page of Prospectus 2. Beginning and Outside Back Cover Page of Prospectus Table of Contents 3. Fee Table, Synopsis Information, and Risk Factors Synopsis; Comparison of Principal Risk Factors 4. Information about the Transaction Synopsis; Additional Information about the Reorganization 5. Information about the Registrant Synopsis; Comparison of Principal Risk Factors; Organization of the Funds; Capitalization. See also the Prospectus for AIM Developing Markets Fund, dated March 1, 1999, previously filed on EDGAR, Accession Number 0000950129-99-00061 6. Information about the Company Being Acquired Synopsis; Comparison of Principal Risk Factors; Organization of the Funds; Capitalization; NAV, Market Price, and Discount of Eastern Europe Fund shares. See also the Annual Report to Shareholders of AIM Eastern Europe Fund for the fiscal year ended October 31, 1998, previously filed on EDGAR, Accession Number 0001047469-99-000591 7. Voting Information Introduction 8. Interest of Certain Persons and Experts Not Applicable 9. Additional Information Required for Re-offering by Not Applicable Persons Deemed to be Underwriters 4 AIM INVESTMENT FUNDS FORM N-14 CROSS REFERENCE SHEET Part B Item No. Statement of Additional and Caption Information Caption - --------------- ----------------------- 10. Cover Page Cover Page 11. Table of Contents Not Applicable 12. Additional Information about the Registrant Statement of Additional Information of AIM Developing Markets Fund, dated March 1, 1999 and previously filed on EDGAR, Accession Number 0000950129-99-00061; Annual Report to Shareholders of AIM Developing Markets Fund for the fiscal year ended October 31, 1998, previously filed on EDGAR, Accession Number 0001047469-98-045383 13. Additional Information about the Company Being Annual Report to Shareholders of AIM Eastern Europe Fund Acquired for the fiscal year ended October 31, 1998, previously filed on EDGAR, Accession Number 0001047469-99-000591 14. Financial Statements Annual Report to Shareholders of AIM Developing Markets Fund for the fiscal year ended October 31, 1998, previously filed on EDGAR, Accession Number 0001047469-98-045383; Annual Report to Shareholders of AIM Eastern Europe Fund for the fiscal year ended October 31, 1998, previously filed on EDGAR, Accession Number 0001047469-99-000591; Pro Forma Financial Statements for the fiscal year ended October 31, 1998. 5 Part C Information required to be included in Part C is set forth under the appropriate item, so numbered, in Part C of this Registration Statement. 6 AIM EASTERN EUROPE FUND 11 GREENWAY PLAZA, SUITE 100 HOUSTON, TEXAS 77046-1173 June 28, 1999 Dear Shareholder: Enclosed is a combined proxy statement and prospectus seeking your approval of a proposal pursuant to which AIM Eastern Europe Fund ("Eastern Europe Fund") would convert from a closed-end investment company to an open-end investment company by reorganizing it into AIM Developing Markets Fund ("Developing Markets Fund"), a series of AIM Investment Funds (the "Trust"), an open-end investment company (the "Reorganization"). If the proposal is approved and implemented, each shareholder of Eastern Europe Fund automatically would become a holder of Class A shares of Developing Markets Fund, and Eastern Europe Fund would thereafter be liquidated. After careful consideration, the Board of Trustees of Eastern Europe Fund (the "Board") has unanimously approved each proposal and recommends that you read the enclosed materials carefully and then vote FOR each proposal. As with many closed-end investment companies, Eastern Europe Fund shares have historically traded on the New York Stock Exchange at a discount to (i.e., below) the net asset value of those shares. The Board believes that the Reorganization would provide Eastern Europe Fund shareholders with the benefits of the open-end investment company form of organization, while also providing shareholders with the economies of scale and other benefits of a combination with an existing fund having similar investment objectives but broader investment policies. Eastern Europe Fund's investment objective is long-term capital appreciation. Developing Markets Fund has a primary investment objective of long-term growth of capital and a secondary objective of income, to the extent consistent with seeking growth of capital. To achieve its investment objectives, Developing Markets Fund invests substantially all of its assets in the securities of issuers located in developing markets. In contrast, Eastern Europe Fund invests primarily in securities of issuers located in Eastern Europe. As a result, Developing Markets Fund possesses greater investment flexibility than Eastern Europe Fund, because it can and does invest in other regions, including Latin America, Asia and Africa. The accompanying document describes the proposed transaction and compares the investment policies, operating expenses, and performance histories of the Funds in more detail. Your vote is important. Please take a moment now to sign and return your proxy cards 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. Sincerely, /s/ Robert H. Graham --------------------- Robert H. Graham Chairman and President 7 AIM EASTERN EUROPE FUND 11 GREENWAY PLAZA, SUITE 100 HOUSTON, TEXAS 77046-1173 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON AUGUST 25, 1999 TO THE SHAREHOLDERS OF AIM Eastern Europe Fund: NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders ("Meeting") of AIM Eastern Europe Fund ("Eastern Europe Fund") will be held at 11 Greenway Plaza, Suite 100, Houston, TX 77046, on August 25, 1999, at 3:00 p.m., Central time, for the following purposes: 1. To approve an Agreement and Plan of Reorganization and Termination ("Plan") that provides for the reorganization of Eastern Europe Fund into AIM Developing Markets Fund ("Developing Markets Fund"), a series of AIM Investment Funds ("Trust") ("Reorganization"). Pursuant to the Plan, Eastern Europe Fund will transfer all of its assets to Developing Markets Fund, which will assume all the liabilities of Eastern Europe Fund, and the Trust will issue to each Eastern Europe Fund shareholder a number of full and fractional Class A shares 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 in Eastern Europe Fund; 2. To elect a Trustee of Eastern Europe Fund; 3. To ratify the selection of PricewaterhouseCoopers LLP as Eastern Europe Fund's independent public accountants; and 4. To transact such other business 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 June 21, 1999, are entitled to notice of, and to vote at, the Meeting or any adjournment thereof. Please execute and return promptly in the enclosed envelope the accompanying proxy, which is being solicited by the Board of Trustees of Eastern Europe Fund. You may also vote your shares through a web site established for that purpose by following the instructions on the enclosed proxy insert. Returning your proxy promptly is important to ensure a quorum at the Meeting. You may revoke your proxy at any time before it is exercised by the subsequent execution and submission of a revised proxy, by giving written notice of revocation to Eastern Europe Fund at any time before the proxy is exercised, or by voting in person at the Meeting. By Order of the Board of Trustees, /s/ Samuel D. Sirko -------------------- Samuel D. Sirko Secretary June 28, 1999 11 Greenway Plaza, Suite 100 Houston, Texas 77046-1173 8 AIM EASTERN EUROPE FUND 11 GREENWAY PLAZA, SUITE 100 HOUSTON, TX 77046-1173 TOLL FREE: (800) 347-4246 AIM DEVELOPING MARKETS FUND (A PORTFOLIO OF AIM INVESTMENT FUNDS) 11 GREENWAY PLAZA, SUITE 100 HOUSTON, TX 77046-1173 TOLL FREE: (800) 347-4246 COMBINED PROXY STATEMENT AND PROSPECTUS Dated: June 28, 1999 This document is being furnished in connection with the Annual Meeting of Shareholders of AIM Eastern Europe Fund ("Eastern Europe Fund"), a Massachusetts business trust, to be held at 11 Greenway Plaza, Suite 100, Houston, TX 77046 on August 25, 1999 at 3:00 p.m., Central time (such meeting and any adjournments thereof are referred to as the "Meeting"). At the Meeting, the shareholders of Eastern Europe Fund are being asked to consider and approve an Agreement and Plan of Reorganization and Termination ("Plan") that provides for the reorganization of Eastern Europe Fund into AIM Developing Markets Fund ("Developing Markets Fund"), a series of AIM Investment Funds, a Delaware business trust ("Trust") ("Reorganization"). A form of the Plan is attached as Appendix A to this Combined Proxy Statement and Prospectus ("Proxy Statement/Prospectus"). THE BOARD OF TRUSTEES OF EASTERN EUROPE FUND ("BOARD") HAS UNANIMOUSLY APPROVED THE PLAN AS BEING IN THE BEST INTEREST OF EASTERN EUROPE FUND. Pursuant to the Plan, Eastern Europe Fund will transfer all of its assets to Developing Markets Fund, which will assume all liabilities of Eastern Europe Fund, and the Trust will issue a number of full and fractional Class A shares of beneficial interest in 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 outstanding shares of beneficial interest in Eastern Europe Fund. The value of each Eastern Europe Fund shareholder's account with Developing Markets Fund immediately after the Reorganization will be same as the net asset value of such shareholder's shares of Eastern Europe Fund immediately prior to the Reorganization. The Reorganization has been structured as a tax-free transaction. No initial sales charge will be imposed on Developing Markets Fund Class A shares issued in connection with the Reorganization. Such shares will be subject to a 2% fee if they are presented for redemption within the first year following 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. Developing Markets Fund's primary investment objective is long-term growth of capital; 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 Eastern Europe Fund should know before voting on the Plan. It should be read and retained for future reference. A copy of the current Prospectus of Developing Markets Fund, dated March 1, 1999, is attached as Appendix B to this Proxy Statement/Prospectus. In addition, the management's discussion of the performance of Developing Markets Fund, which is included in the Annual Report to Shareholders of Developing Markets Fund for the fiscal year ended October 31, 1998, is attached as Appendix C to this Proxy Statement/Prospectus. The current Annual Report to Shareholders of Eastern Europe Fund for the fiscal year ended October 31, 1998 is on file with the Securities and Exchange Commission (the "SEC") and is incorporated by reference into this Proxy Statement/Prospectus. In addition, the current Statement of Additional Information of Developing Markets Fund, dated March 1, 1999, and the Annual Report to Shareholders of Developing Markets Fund for the fiscal year ended October 31, 1998 (part of which is attached as Appendix C), are on file with the SEC and are incorporated by reference into this Proxy Statement/Prospectus. Such documents are available without charge by writing to A I M Distributors, Inc., 9 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 documents described above and other information about Eastern Europe Fund and the Trust. Additional information about Developing Markets Fund may also be obtained on the web at http://www.aimfunds.com. 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 PROXY STATEMENT/PROSPECTUS IS ADEQUATE OR ACCURATE. ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A CRIME. 10 [AIMLOGO] THE AIM FAMILY OF FUNDS TABLE OF CONTENTS SECTION TITLE PAGE - ------------- ---- INTRODUCTION................................................ 1 PROPOSAL NO. 1: REORGANIZATION OF EASTERN EUROPE FUND INTO DEVELOPING MARKETS FUND................................... 3 REASONS FOR THE REORGANIZATION.............................. 3 BOARD CONSIDERATIONS...................................... 3 SYNOPSIS.................................................... 5 THE REORGANIZATION........................................ 5 COMPARISON OF THE FUNDS................................... 6 COMPARISON OF PRINCIPAL RISK FACTORS........................ 11 PRIMARY DIFFERENCES IN RISKS OF THE FUNDS................. 11 RISKS COMMON TO BOTH FUNDS................................ 12 Investing in Securities Generally...................... 12 Investing in Foreign Securities and Developing Markets............................................... 12 Lower Quality Debt..................................... 12 Sovereign Debt......................................... 13 Illiquid Securities.................................... 13 Non-Diversified Classification......................... 13 Year 2000.............................................. 13 FINANCIAL HIGHLIGHTS........................................ 13 ADDITIONAL INFORMATION ABOUT THE REORGANIZATION............. 16 TERMS OF THE REORGANIZATION............................... 16 DESCRIPTION OF SECURITIES TO BE ISSUED.................... 16 DIVIDENDS AND OTHER DISTRIBUTIONS......................... 17 POTENTIAL NET REDEMPTION.................................. 17 ACCOUNTING TREATMENT...................................... 18 FEDERAL INCOME TAX CONSIDERATIONS......................... 18 ORGANIZATION OF THE FUNDS................................... 19 NAV, MARKET PRICE, AND DISCOUNT OF EASTERN EUROPE FUND SHARES.................................................... 19 CAPITALIZATION.............................................. 20 PROPOSAL NO. 2: ELECTION OF A TRUSTEE....................... 20 PROPOSAL NO. 3: RATIFICATION OF THE SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS........................................ 23 i 11 SECTION TITLE PAGE - ------------- ---- LEGAL MATTERS............................................... 23 INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND NYSE....................................... 24 INFORMATION ABOUT THE FUNDS' ADVISOR AND SUB-ADVISOR, AND DEVELOPING MARKETS FUND'S DISTRIBUTOR..................... 24 ADDITIONAL INFORMATION ABOUT EASTERN EUROPE FUND AND DEVELOPING MARKETS FUND................................... 25 EXPERTS..................................................... 25 SHAREHOLDER PROPOSALS....................................... 25 OWNERSHIP OF EASTERN EUROPE FUND AND DEVELOPING MARKETS FUND SHARES.................................................... 26 APPENDIX A: Agreement and Plan of Reorganization and Termination............................................... A-1 APPENDIX B: Prospectus of AIM Developing Markets Fund....... B-1 APPENDIX C: Management's Discussion of Fund Performance..... C-1 The AIM Family of Funds, the AIM Family of Funds and Design (i.e., the AIM logo), AIM and Design, AIM, AIM Link, AIM Institutional Funds, aimfunds.com, Invest with Discipline, La Familia AIM de Fondos and La Familia AIM de Fondos and Design are registered service marks, and AIM Bank Connection is a service mark, of A I M Management Group, Inc. ii 12 INTRODUCTION This Proxy Statement/Prospectus is being furnished to shareholders of Eastern Europe Fund 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 all the proposals described in this Proxy Statement/Prospectus and in accordance with management's recommendation on other matters. The presence in person or by proxy of Eastern Europe Fund shareholders entitled to cast 50% of all the votes entitled to be cast at the Meeting will constitute a quorum. If a quorum is not present at the Meeting or a quorum is present but sufficient votes to approve any proposal described in this Proxy Statement/ Prospectus 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 any proposal in favor of such an adjournment and will vote those proxies required to be voted AGAINST any proposal against such adjournment. In addition, if you sign, date, and return the proxy card, the duly appointed proxies may, in their discretion, vote upon such other matters as may come before the Meeting. The proposal to approve the Plan requires the affirmative vote of a "majority of the outstanding voting securities" of Eastern Europe Fund, which for this purpose means the affirmative vote of the lesser of (1) more than 50% of the outstanding shares of Eastern Europe Fund or (2) 67% or more of the shares of Eastern Europe Fund present at the meeting if more than 50% of the outstanding shares of Eastern Europe Fund are represented at the Meeting in person or by proxy. A plurality of all the votes cast at the Meeting is required for the election of the Trustee. Ratification of the selection of PricewaterhouseCoopers LLP as independent accountants for Eastern Europe Fund requires the affirmative vote of a majority of the votes cast thereon at the Meeting. 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. Accordingly, abstentions and broker non-votes are effectively a vote against a proposal where the required vote is a percentage of the shares present 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 Eastern Europe Fund (the "Secretary"). To be effective, such revocation must be received by the Secretary 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 June 21, 1999 (the "Record Date"), are entitled to vote at the Meeting. On the Record Date, there were approximately 5,864,784 shares of Eastern Europe Fund outstanding. Each share is entitled to one vote for each full share held and a fractional vote for a fractional share held. Except as set forth below, AIM does not know of any person who owned beneficially 5% or more of the shares of Eastern Europe Fund or Developing Markets Fund on the Record Date. Eastern Europe Fund has engaged the services of Shareholder Communications Corporation ("SCC") to assist it in the solicitation of proxies for the Meeting. Eastern Europe Fund expects to solicit proxies principally by mail, but it or SCC may also solicit proxies by telephone, facsimile, telegraph, or personal interview. Eastern Europe Fund officers and employees of A I M Advisors, Inc. ("AIM") who assist in the proxy solicitation will not receive any additional or special compensation for any such efforts. Each Fund will bear its own expenses incurred in connection with the Reorganization (including any shareholder solicitation costs), which are expected to be approximately $70,000 for Eastern Europe Fund and $15,000 for Developing Markets Fund. However, because Eastern Europe Fund and Developing Markets Fund currently operate at their respective expense limits, their portion of the Reorganization expenses will effectively be borne by AIM 1 13 through reimbursement of expenses and waivers. Eastern Europe Fund 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. Eastern Europe Fund may reimburse such brokers/dealer firms, custodians, nominees, and fiduciaries for their reasonable expenses incurred in connection with such proxy solicitation. Eastern Europe Fund intends to mail this Proxy Statement/Prospectus and the accompanying proxy on or about June 28, 1999. 2 14 PROPOSAL NO. 1: REORGANIZATION OF EASTERN EUROPE FUND INTO DEVELOPING MARKETS FUND REASONS FOR THE REORGANIZATION BOARD CONSIDERATIONS The Board, including a majority of trustees who are not "interested persons" of Eastern Europe Fund, as that term is defined in the Investment Company Act of 1940 ("1940 Act"), has determined that the Reorganization is in the best interests of Eastern Europe Fund and that the interests of Eastern Europe Fund's shareholders will not be diluted as a result of the Reorganization. At a Board meeting held on May 13, 1999, AIM proposed that the Board approve the reorganization of Eastern Europe Fund into Developing Markets Fund (each a "Fund"). The Board received from AIM written materials that described the structure and expected tax consequences of the Reorganization and contained information concerning both Funds, including comparative total return information, a comparison of their investment objectives, policies, and risks, comparative and pro forma expense information, and biographical information on the portfolio managers of Developing Markets Fund. The Board then made 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 Funds' respective investment performance; (3) the effect of the Reorganization on the expense ratio of Developing Markets Fund Class A shares and that expense ratio relative to Eastern Europe Fund's current expense ratio; (4) the costs to be incurred by each Fund as a result of the Reorganization; (5) the tax consequences of the Reorganization; (6) possible alternatives to the Reorganization, including continuing to operate Eastern Europe Fund as a closed-end fund, converting it to an open-end investment company without reorganizing it into any pre-existing fund, or liquidating it; and (7) the potential benefits of the Reorganization to other persons, especially AIM and its affiliates. As compared to the available alternatives, the Board determined that converting Eastern Europe Fund to open-end format by merging it into Developing Markets Fund was the most advantageous to Eastern Europe Fund. As with most closed-end funds, shares of Eastern Europe Fund have historically traded at a discount to net asset value ("NAV"). This discount has persisted despite conversion of Eastern Europe Fund to "interval fund" status and the occurrence of repurchase offers at NAV for each of the past four years. Converting Eastern Europe Fund to open-end format would eliminate the discount by enabling shareholders to redeem shares at NAV, rather than selling them in the secondary market. Combining the Funds, rather than operating Eastern Europe Fund as a stand-alone open-end fund, would provide Eastern Europe Fund shareholders with the benefits of the open-end form of organization, while also providing them with potential economies of scale and other benefits of a combination with an existing fund having a similar primary investment objective and broader investment policies. The Board also considered the following alternatives to the Reorganization: (1) continuing to operate Eastern Europe Fund as a closed-end fund; (2) converting it to an open-end fund without reorganizing it into any pre-existing fund; and (3) liquidating it. In considering whether to continue to operate Eastern Europe Fund as a closed-end fund, the Board compared the benefits of operating as an open-end fund to those of operating as a closed-end fund. Particularly, the Board noted that the closed-end structure offers benefits in terms of portfolio management, such as the ability to invest without limitation in illiquid securities and to manage the portfolio without concern to inflows and outflows of fund assets. However, the Board also noted that continuing to operate Eastern Europe Fund as a closed-end fund would not address the persistent discount to NAV at which Fund shares have historically traded. Conversion to open-end format would result in immediate elimination of this discount. On balance, the Board concluded that the benefits of the closed-end structure were outweighed by the advantages of operating as an open-end fund, most notably elimination of the discount to NAV. Converting Eastern Europe Fund to an open-end fund operating on a stand-alone basis would eliminate the discount to NAV, but would result in added distribution-related expenses borne entirely by Eastern 3 15 Europe Fund's asset base, rather than by the combined assets of two funds. In addition, operating Eastern Europe Fund as a stand-alone open-end fund might not be economically feasible given its comparatively small asset base, which would be subject to further reduction by possible net redemptions following conversion to open-end format. The Reorganization would combine Eastern Europe Fund's assets with those of Developing Markets Fund, potentially realizing economies of scale and the benefits noted above. Terminating Eastern Europe Fund was determined by the Board to be undesirable because it would result in additional expenses arising out of liquidating the Fund's portfolio securities and would be a taxable event to shareholders. The Board then considered the investment objectives and policies of the Funds. Eastern Europe Fund's investment objective is long-term capital appreciation. Developing Markets Fund has a primary investment objective of long-term growth of capital and a secondary objective of income, to the extent consistent with growth of capital. To achieve its investment objectives, Developing Markets Fund may invest substantially all of its assets in the securities of issuers located in developing markets. In contrast, Eastern Europe Fund invests at least 65% of its total assets in securities of issuers located in eastern Europe. As a result, Developing Markets Fund possesses greater investment flexibility than Eastern Europe Fund. 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 Funds' investment objectives and policies are sufficiently compatible to enable Developing Markets Fund to maintain its investment policies without any material changes due to the Reorganization. The Board also noted that Eastern Europe Fund is subject to somewhat greater risk than Developing Markets Fund because of its narrower geographical focus, but recognized that Developing Markets Fund is potentially subject to more risk to the extent that the other countries and regions in which it invests, primarily in Latin American and Pacific Region countries, have experienced and may continue to experience substantial economic difficulties. More information on the risks of investing in developing markets generally, and in Latin America and Pacific Region countries specifically, is provided below in "Comparison of Principal Risk Factors -- Investing in Foreign Countries and Developing Markets." The Board also considered the historic performance of Eastern Europe Fund in relation to the performance of Developing Markets Fund. AIM advised the Board that, while past performance provides no guarantee of future results, Developing Markets Fund recently had experienced better investment performance than Eastern Europe Fund. Information on the relative performance of the Funds is provided below in "Comparison of the Funds -- Performance." The Board also considered the impact the Reorganization would have on expenses. As a closed-end fund, Eastern Europe Fund currently pays no Rule 12b-1 distribution or service fees. The Developing Markets Fund Class A shares that Eastern Europe Fund shareholders would receive in the Reorganization are subject to an annual Rule 12b-1 distribution and service fee of up to 0.50% of average net assets attributable to Class A. Open-end funds such as Developing Markets Fund also normally pay higher transfer agency fees than closed-end funds due to the continuous sale and redemption of their shares. In addition, open-end funds such as Developing Markets Fund incur expenses associated with maintaining continuous federal securities registration. Closed-end funds such as Eastern Europe Fund typically do not incur these expenses. In analyzing expenses, the Board also considered the lower investment advisory and administration fees paid by Developing Market Fund. Eastern Europe Fund pays total investment advisory and administrative fees of 1.40% of its average net assets, which includes a voluntary reimbursement by AIM of 0.05% of average net assets. Developing Markets Fund pays investment advisory and administration fees of 0.975% on the first $500 million of its average net assets, 0.95% on the next $500 million of those assets, 0.925% on the next $500 million of those assets, and 0.90% on those assets over $1.5 billion. The Board considered the level and quality of investment advisory services provided by AIM and INVESCO Asset Management Limited ("IAML"), and decided that these services should be continued. As a result, if the Reorganization is effected, this investment advisory and administration fee schedule will apply to the assets of the combined entity. The Board also considered that, overall, the Reorganization may result in slightly higher total operating expenses for Eastern Europe Fund shareholders. For its fiscal year ended October 31, 1998, Eastern Europe Fund had total operating expenses of 1.78% (1.83% before reimbursements) of average weekly net assets. For 4 16 its fiscal year ended October 31, 1998, Developing Markets Fund Class A shares had total operating expenses of 1.93% (2.34% before a contractual fee cap) of average daily net assets. The Board noted that, in the fiscal year ended October 31, 1998, Developing Markets Fund had experienced interest expenses of 0.20% of average daily net assets. The Board also considered information provided by AIM that, based on the first six months of the current fiscal year, those interest expenses have decreased by approximately 0.19%. Accordingly, the Reorganization may result in an increase in total annual operating expenses for Eastern Europe Fund shareholders. For more information on the comparative fees and expenses of Developing Markets Fund and Eastern Europe Fund, see "Comparison of the Funds -- Fees and Expenses," below. The Board noted that no initial sales charges would be imposed on the Developing Markets Fund Class A shares issued to Eastern Europe Fund shareholders in connection with the Reorganization. However, those shares will be subject to a 2% redemption fee for the first year following the Reorganization, payable to Developing Markets Fund. The Board approved the temporary imposition of this redemption fee as reasonable in light of Developing Markets Fund's anticipated expenses in connection with post-Reorganization redemptions of those shares. These expenses include brokerage and other costs of selling portfolio securities to raise cash for redemption requests and transfer agency and other administrative expenses caused by redeeming shareholders. The redemption fee will decrease the likelihood that these expenses would be borne by present Developing Markets Fund shareholders. The Board also noted that imposition of the redemption fee may deter some redemptions of Developing Markets Fund Class A shares immediately following the Reorganization and may deter short-term trading in Eastern Europe Fund shares just prior to the Reorganization. In this regard, the Board considered the detrimental effect that such short-term trading would have on Developing Markets Fund. The Board also considered that, although AIM will effectively bear Developing Markets Fund's portion of the Reorganization-related expenses, it may also receive an indirect benefit from the Reorganization. To the extent that Developing Markets Fund's operating expenses decrease as a result of the Reorganization, there could be a reduction in payment by AIM to cover its reimbursement obligation to limit the expenses of Developing Markets Fund Class A shares to 2.00% of average net assets. Further, the obligation of AIM to reimburse the expenses of Eastern Europe Fund will terminate with the close of the Reorganization. Finally, the Board reviewed the principal terms of the Plan and noted that Eastern Europe Fund would be provided with an opinion of counsel that the Reorganization would be tax-free to it and its shareholders. On the basis on the information provided to the Board and on its evaluation of that information, the Board determined that the proposed Reorganization will not dilute the interests of shareholders of Eastern Europe Fund and is in the best interest of Eastern Europe Fund. Therefore, the Board recommended the approval of the Plan by the shareholders of Eastern Europe Fund at the Meeting. SYNOPSIS THE REORGANIZATION The Plan provides for the acquisition by Developing Markets Fund of all of Eastern Europe Fund's assets in exchange solely for Developing Markets Fund Class A shares and the assumption by Developing Markets Fund of all of Eastern Europe Fund's liabilities. Those transactions will occur at 4:00 p.m., Central time, on August 27, 1999, or on such later date as the conditions to the closing are satisfied ("Closing Date"). Eastern Europe Fund will then distribute the Developing Markets Fund Class A shares to its shareholders so that each Eastern Europe Fund shareholder will receive full and fractional Developing Markets Fund Class A shares equal in aggregate value to the NAV of the shareholder's shares of Eastern Europe Fund as of the Closing Date. Eastern Europe Fund will be liquidated as soon as is practicable thereafter. Eastern Europe Fund and the Trust will receive an opinion of Kirkpatrick & Lockhart LLP, their counsel, to the effect that the Reorganization will constitute a tax-free reorganization within the meaning of section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended ("Code"). Accordingly, neither 5 17 Fund nor any of their shareholders will recognize any gain or loss as a result of the Reorganization. See "Additional Information About the Reorganization -- Federal Income Tax Considerations," below. COMPARISON OF THE FUNDS Forms of Organization Developing Markets Fund is an open-end fund organized as a series of the Trust, a Delaware business trust, whose shares are continuously sold and redeemed at NAV. Eastern Europe Fund is a closed-end "interval" fund organized as a Massachusetts business trust whose shares are traded on the New York Stock Exchange ("NYSE") and are subject to annual repurchase offers pursuant to Rule 23c-3 under the 1940 Act. Open-end funds such as Developing Markets Fund continuously offer and redeem their shares, causing their total assets to fluctuate. In contrast, most closed-end funds make a single offering of non-redeemable shares and thus retain a stable pool of assets, which changes only upon appreciation or depreciation of their portfolio investments. Closed-end interval funds, like Eastern Europe Fund, conduct periodic repurchase offers, which result in some fluctuation in their assets, although generally less than that experienced by open-end funds like Developing Markets Fund. Investment Objectives The investment objectives of Developing Markets Fund and Eastern Europe Fund are similar. Developing Markets Fund's primary investment objective is long-term growth of capital. Its secondary investment objective is income, to the extent consistent with seeking growth of capital. Eastern Europe Fund's investment objective is long-term capital appreciation. Investment Policies As described below, the primary difference in the investment policies of Developing Markets Fund and Eastern Europe Fund is the geographic focus of their investments. Developing Markets Fund invests in issuers in developing markets in Asia, Europe, Latin America, and elsewhere. Eastern Europe Fund, in contrast, invests primarily in issuers located in Eastern Europe. Developing Markets Fund seeks its investment objectives by investing, normally, substantially all of its assets in equity and debt securities of issuers located in developing markets. A majority of the Developing Markets Fund's assets ordinarily is invested in developing market equity securities. Developing Markets Fund may 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/or current income. There is no limit on the percentage of assets that Developing Markets Fund may invest in non-investment grade debt securities. Eastern Europe Fund seeks its objective by investing, normally, at least 65% of its total assets in equity and debt securities of issuers (including government issuers) located in Eastern Europe. "Eastern European" countries include Albania, Bulgaria, the Czech Republic, Germany, Hungary, Poland, Romania, Slovakia, all countries west of the Ural Mountains that were formerly a part of the USSR (including Russia, Belarus, Estonia, Latvia, Lithuania, and the Ukraine), and all countries that formerly constituted Yugoslavia. Eastern Europe Fund normally invests at least 50% of its total assets in the developing markets of Eastern Europe, which includes all of the countries listed above except Germany. In addition, Eastern Europe Fund may invest up to 35% of its total assets in equity and debt securities of issuers (including government issuers) located elsewhere in Europe, most of which are developed countries. There is no limit on the percentage of assets that Eastern Europe Fund may invest in non-investment grade debt securities. Portfolio Management Closed-end interval funds such as Eastern Europe Fund generally have greater freedom in managing their portfolios than open-end funds like Developing Markets Fund. Because closed-end interval funds are not subject to forced sale of portfolio securities at undesirable times or prices to meet redemption requests (except to the extent that securities must be sold to meet the demands of periodic repurchase offers), they have more 6 18 freedom to invest in illiquid securities and may keep a larger percentage of their assets fully invested in equity or debt securities, rather than in cash. In addition, closed-end funds have greater flexibility under the 1940 Act to leverage their portfolios by borrowing. Despite having greater flexibility in portfolio management, Eastern Europe Fund has generally not engaged in such leveraging. Moreover, as of April 30, 1999, only about 14% of Eastern Europe Fund's assets were invested in illiquid securities. Performance Set forth below are average annual total returns for the periods indicated for Eastern Europe Fund and Developing Markets Fund. Average annual total return figures do not take into account sales charges applicable to purchases of Developing Markets Fund Class A shares. AVERAGE ANNUAL TOTAL RETURNS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SINCE INCEPTION (FOR THE PERIODS ENDED DECEMBER 31, 1998) 1 YEAR 5 YEARS INCEPTION DATE Eastern Europe Fund....................... (51.49)% (7.66)% (4.44)% 3/29/90 Developing Markets Fund(1) (Class A Shares)................................. (35.32)% N/A (9.09)% 01/11/94 MSCI Emerging Markets Free Index(2)....... (25.34)% (9.27)% 7.26 % (9.27)% - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) Prior to November 1, 1997, Developing Markets Fund operated as a closed-end fund and was subject to different fees and expenses. (2) The Morgan Stanley Capital International ("MSCI") 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. The first "Since Inception" figure is based on the period beginning March 31, 1990, which is the closest month-end to the date of completion of Eastern Europe Fund's initial public offering; the second such figure is based on the period beginning December 31, 1993, which is the closest month-end to Developing Markets Fund's inception date. Fees and Expenses These tables describe the fees and expenses that you may pay if you buy and hold shares of Developing Markets Fund and Eastern Europe Fund. The pro forma information reflects the effects of the Reorganization. The information set forth below is based on the Funds' fees and expenses for the year ended October 31, 1998. SHAREHOLDER FEES DEVELOPING MARKETS DEVELOPING MARKETS FUND CLASS A FUND CLASS A PRO FORMA ==================================================================================================== (fees paid directly from your investment) Maximum Sales Charge (load) Imposed on Purchases......... 4.75%(1) 4.75%(1) (as a percentage of offering price) Maximum Deferred Sales Charge (load)..................... None(2) None(2) (as a percentage of original purchase price or redemption proceeds, whichever is less) Redemption Fee........................................... None None(3) (as a percentage of amount redeemed) 7 19 ANNUAL FUND OPERATING EXPENSES ====================================================================================== (expenses that are deducted from fund assets) Management Fees............................................. 0.98% 0.98% Distribution and/or Service (12b-1) Fees.................... 0.25% 0.32% Other Expenses.............................................. Other..................................................... 0.91% 0.91% Interest.................................................. 0.20% 0.20% ----- ----- Total Annual Fund Operating Expenses........................ 2.34% 2.41% Expense Reimbursement(4).................................... 0.39% 0.39% ----- ----- Net Expenses................................................ 1.95% 2.02% ====================================================================================== (1) Shares issued in connection with the Reorganization are not subject to the sales charge. (2) If you buy $1,000,000 or more of Developing Markets Fund 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. (3) A 2% redemption fee applies for the first year following the Reorganization to shares issued in connection with the Reorganization. (4) The investment advisor has contractually agreed to limit expenses. As a result of Rule 12b-1 fees, long-term shareholders in Developing Markets Fund may pay more than the maximum permitted initial sales charge. 8 20 Set forth below are the annual operating expenses as a percentage of net assets for shares of Eastern Europe Fund. EASTERN EUROPE FUND - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SHAREHOLDER TRANSACTION EXPENSES ================================================================== Sales Load (as a percentage of offering price).............. None(1) Dividend Reinvestment and Cash Purchase Plan Fees........... None ANNUAL FUND OPERATING EXPENSES =================================================================== Management Fees............................................. 1.25% Administration Fees......................................... 0.20% Other Expenses.............................................. 0.38% Total Annual Fund Operating Expenses........................ 1.83% Expense Reimbursement(2).................................... 0.05% ----- Net Expenses................................................ 1.78% =================================================================== (1) Eastern Europe Fund shares tendered in conjunction with an Annual Repurchase Offer conducted by the Fund pursuant to Rule 23c-3 under the 1940 Act are subject to a repurchase fee that does not exceed 2%. (2) AIM has voluntarily undertaken to reduce the administration fee that Eastern Europe Fund pays by 0.05%. Expense Example The example is intended to help you compare the costs of investing in Class A shares of Developing Markets Fund, both before and after the Reorganization, with the costs of investing in shares of Eastern Europe Fund. The example assumes that you invest $10,000 in each Fund for the time periods indicated. The example also assumes that your investments each have 5% return each year and that each Fund's 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 ================================================================================================== Developing Markets Fund Class A shares..................... $727 $1,248 $1,794 $3,279 Eastern Europe Fund........................................ $186 $ 576 $ 990 $2,148 Combined Fund Pro Forma Class A shares..................... $708 $1,191 $1,699 $3,091 Sales Charges Developing Markets Fund Class A shares received in connection with the Reorganization are not subject to the customary initial sales charge of 4.75%. However, those shares will be subject to a 2% redemption fee for the first year following the Reorganization. Shares received in connection with the Reorganization and exchanged for shares in other AIM Funds will be subject to the 2% redemption fee upon the exchange. Any new purchases of Developing Markets Fund Class A shares will be subject to the initial sales charge but not the redemption fee. Distribution, Purchase, Exchange, and Redemption Shares of Developing Markets Fund are available through A I M Fund Services, Inc. ("Transfer Agent") or through any dealer authorized by A I M Distributors, Inc. ("AIM Distributors") to sell shares of the AIM Funds. The minimum initial investment in Developing Markets 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 9 21 affiliates, certain pension plans and retirement accounts, and participants in an AIM Fund's automatic investment plan. Developing Markets Fund Class A shares pay a fee in the amount of up to 0.50% of average daily net assets to AIM Distributors for distribution and shareholder services pursuant to a Rule 12b-1 plan (the "12b-1 fee"). As noted above, Developing Markets Fund Class A shares are generally subject to an initial sales charge of 4.75%. Shares of Developing Markets Fund may be exchanged for shares of other AIM Funds of the corresponding class and may be acquired through exchange of the corresponding Class of shares of other AIM Funds, as described in Developing Markets Fund's prospectus. No initial sales charge is imposed on the shares acquired through an exchange. Exchanges are subject to minimum investment and other requirements of the AIM Fund into which exchanges are made. Developing Markets Fund Class A shares may be redeemed by the Fund at NAV and are generally not subject to a CDSC. Shares of Eastern Europe Fund are listed and publicly traded on the NYSE under the symbol "GTF" and are not subject to distribution fees. The Developing Markets Fund Class A shares that would be issued to Eastern Europe Fund shareholders in connection with the Reorganization are subject to the 12b-1 fee. Eastern Europe Fund shares were issued in a public offering completed on March 29, 1990. Shareholders of Eastern Europe Fund currently do not have an exchange privilege. Upon completion of the Reorganization, however, former Eastern Europe Fund shareholders would hold Developing Markets Fund Class A shares and would enjoy the same exchange privileges as other Developing Markets Fund Class A shareholders, although such exchanges would be subject to the one-year redemption fee described above. Although Eastern Europe Fund shares are non-redeemable, shareholders of Eastern Europe Fund may sell their shares on the NYSE or participate in one of the Fund's annual repurchase offers. As noted above, the Developing Markets Fund Class A shares received by Eastern Europe Fund shareholders in the Reorganization will be subject to a redemption fee in certain circumstances. Operations of Developing Markets Fund Following the Reorganization Although there are differences in the investment objectives and policies of the Funds, it is not expected that Developing Markets Fund will revise any of its investment objectives or policies following the Reorganization to reflect those of Eastern Europe Fund. Rather, because Eastern Europe Fund's assets are predominantly equity securities of Eastern European issuers, all of which are consistent with Developing Markets Fund's investment policies, AIM and IAML, Eastern Europe Fund's investment advisor and sub-advisor, respectively, believe that substantially all of Eastern Europe Fund's assets could be transferred to and held by Developing Markets Fund if the Reorganization is approved. Upon such approval of the Reorganization, Eastern Europe Fund 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 Eastern Europe Fund 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 Eastern Europe Fund's realizing gains or losses that would not otherwise have been realized. Investment Advisors and Portfolio Management AIM serves as investment adviser, and IAML serves as investment sub-adviser, to both Eastern Europe Fund and Developing Markets Fund. AIM and IAML use a team approach to managing the Funds' respective investment portfolios. The individual members of the team who are responsible for the day-to-day management of Eastern Europe Fund's portfolio are: - Peter Jarvis, Portfolio Manager for Eastern Europe Fund since 1998 and a Fund Manager with IAML since 1993. Also since 1998, he has been a member of the INVESCO Central and Eastern Europe Asset Management Group specializing in Eastern Europe. - Jonathan Brock, Portfolio Manager for Eastern Europe Fund since 1998 and a Senior Investment Manager with IAML since 1994. Also since 1994, he has been a member of the INVESCO Central 10 22 and Eastern Europe Asset Management Group. From 1991 to 1994, he was a Chartered Accountant with Price Waterhouse in London. - Nadya Wells, Portfolio Manager for Eastern Europe Fund since 1998 and an Investment Manager with IAML since 1995. Also since 1995, she has been a member of the INVESCO Central and Eastern Europe Asset Management Group. From 1993 to 1995 she was with Ernst & Young Management Consultancy in London. The individual members of the team who are responsible for the day-to-day management of Developing Markets Fund's portfolio are: - Francesco Bertoni, Portfolio Manager for Developing Markets Fund since 1998 and Head of Global Emerging Markets for IAML since 1995. Mr. Bertoni was, from 1994 to 1999, Investment Director for IAML, from 1990 to 1995, a Portfolio Manager for IAML and, from June to December 1998, a Portfolio Manager for INVESCO (NY), Inc., an indirect wholly owned subsidiary of AMVESCAP PLC. - Craig Munro, Portfolio Manager of Developing Markets Fund since 1999 and Head of Emerging Markets Fixed Income and a Portfolio Manager for IAML since December 1998. Prior to this, Mr. Munro was, from August 1997 to December 1998, a Portfolio Manager for INVESCO (NY), Inc. and, from 1993 to August 1997, Vice President and Senior Analyst in the Emerging Markets Group of the Global Fixed Income Division of Merrill Lynch Asset Management. - Christine Rowley, Portfolio Manager of Developing Markets Fund since 1999 and a Portfolio Manager for IAML since December 1998. Prior to this, Ms. Rowley was, from January 1991 to December 1998, a Portfolio Manager for INVESCO (NY), Inc., GT Asset Management PLC (London) and INVESCO GT Asset Management Asia Ltd. (Hong Kong), all indirect wholly owned subsidiaries of AMVESCAP PLC. COMPARISON OF PRINCIPAL RISK FACTORS PRIMARY DIFFERENCES IN RISKS OF THE FUNDS Developing Markets Fund and Eastern Europe Fund are subject to substantially the same investment risks arising out of investing in foreign securities generally and developing markets specifically. However, Eastern Europe Fund is subject to additional risk arising out of its narrower geographic focus. Eastern Europe Fund focuses its investments in a small number of countries, many of which are either involved in, or may be affected by, the current instability in that region. By contrast, Developing Markets Fund may invest in developing markets around the world, and thus has greater latitude to limit its investments in countries that are undergoing political or economic upheaval. On the other hand, some of the non-European countries and regions in which Developing Markets Fund invests, such as Latin America and the Pacific Region, have recently experienced substantial economic difficulties. Investments in Latin American countries involve special risks. Most Latin American countries have experienced substantial, and in some periods extremely high, rates of inflation for many years, which have had, and may continue to have, very negative effects on the economies and securities markets of Latin American countries. Certain Latin American countries are among the largest debtors to commercial banks and foreign governments. At times, some of these countries have suspended payments of principal and/or interest on external debt. Some Latin American securities markets have experienced high volatility in recent years. Latin American countries may close certain sectors of their economies to equity investments by foreigners. Due to these and other restrictions on direct investment by foreign entities, and to the absence of securities markets and publicly owned corporations in certain Latin American countries, investments may be made solely or primarily through governmentally approved investment vehicles or companies. Certain Latin American countries may have managed currencies that are maintained at artificially high levels to the U.S. dollar rather than at market determined levels. This type of system can lead to sudden and large adjustments in the 11 23 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. 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 currency exchange constraints. Territorial disputes exist between North Korea and South Korea. Developing Markets Fund may invest in Hong Kong, which reverted to Chinese administration on July 1, 1997. Investments in Hong Kong may be subject to expropriation, nationalization, or confiscation, in which case Developing Markets Fund could lose its entire investment in Hong Kong. In addition, reversion of Hong Kong also presents a risk that the Hong Kong dollar will be devalued and a risk of possible loss of investor confidence in Hong Kong's currency, stock market, and assets. RISKS COMMON TO BOTH FUNDS Investing in Securities Generally Investing in either Developing Markets Fund or Eastern Europe Fund entails a risk that you could lose all or a portion of your investment. The value of your investment in either Fund goes 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. When interest rates rise, bond prices fall; the longer the bond's duration, the more sensitive it is to this risk. Investing in Foreign Securities and Developing Markets Investments in foreign securities may be affected by, among others, the following factors: - Currency exchange rates -- The dollar value of the Funds' 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 Funds' 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 their prices may be more volatile than U.S. securities. These factors may affect the prices of securities issued by foreign companies 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. Lower Quality Debt Both Developing Markets Fund and Eastern Europe Fund may invest up to 100% of their respective total assets in debt securities rated below investment grade or, if unrated, deemed by AIM or IAML to be of comparable quality ("junk bonds"). 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 12 24 unsecured and may be subordinated to other creditors' claims. The value of junk bonds often fluctuates in response to issuer, 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 may be difficult to value or sell at a fair price. Credit ratings on junk bonds do not necessarily reflect their actual market risk. Sovereign Debt Both Developing Markets Fund and Eastern Europe Fund may invest in sovereign debt securities of developing country governments, including Brady Bonds. Brady Bonds are debt restructurings that provide for the exchange of cash and loans for newly issued bonds. Investments in sovereign debt securities of developing countries involve special risks. Sovereign debt securities of developing countries are generally lower-quality debt securities, equivalent to junk bonds. Accordingly, they are subject to many of the same risks as junk bonds, detailed above. In addition, sovereign debt securities are subject to the risk that, under certain political, diplomatic, social, or economic circumstances, some developing countries that issue sovereign debt securities may be unable or unwilling to make principal or interest payments as they come due. Illiquid Securities Developing Markets Fund may invest up to 15% of its net assets in illiquid securities. Eastern Europe Fund may invest without restriction (consistent with its obligation to maintain adequate liquidity to satisfy its annual repurchase offers) in certain restricted or otherwise illiquid securities. Any limitations on resale and marketability of such securities may have the effect of preventing the Funds from disposing of such securities at the time desired or at a reasonable price. In addition, in order to resell restricted securities, the Funds might have to bear the expense and incur the delays associated with registering such securities. Non-Diversified Classification Both Developing Markets Fund and Eastern Europe Fund are classified under the 1940 Act as "non-diversified" funds. Non-diversified funds may invest in fewer issuers than diversified funds. As a result, each Fund may be subject to greater investment and credit risk, than if it invested more broadly. Year 2000 The value of shares in both Developing Markets Fund and Eastern Europe Fund could be adversely affected if the computer systems used by the Funds' investment advisors or other service providers are unable to distinguish the year 2000 from the year 1900. The Funds' investment advisors and independent technology consultants are working to avoid Year 2000-related problems in their systems and to obtain assurances that other service providers are taking similar steps. Year 2000 problems may also affect issuers in whose securities the Funds invest. AIM considers the Year 2000 preparedness of the companies in which the Funds invest as one factor among many in deciding whether to purchase or sell a security. FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand the financial performance of Developing Markets Fund's Class A shares. Certain information reflects financial results for a single Developing Markets Fund Class A 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 Class A shares (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 to Shareholders, which is available upon request. 13 25 On October 31, 1997, Developing Markets Fund, which had no previous 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 whose single class of shares traded on the NYSE. 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. DEVELOPING MARKETS FUND: CLASS A(A) --------------------------------------------------------------------------- TEN YEAR MONTHS ENDED ENDED YEAR ENDED JANUARY 11, 1994 OCTOBER 31, OCTOBER 31, DECEMBER 31, TO DECEMBER 31, 1998(B) 1997(C) 1996(C) 1995(C) 1994(C) ----------- ----------- -------- -------- ---------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period.................... $ 12.56 $ 13.84 $ 11.60 $ 12.44 $ 15.00 Income From Investment operations: Net investment income....... 0.39(d)(e) 0.25 0.53 0.72 0.35 Net realized and unrealized gain (loss) on investments.......... (5.10) (1.53) 2.19 (0.84) (2.46) ------- -------- -------- -------- -------- Net increase (decrease) from investment operations.............. (4.71) (1.28) 2.72 (0.12) (2.11) ------- -------- -------- -------- -------- Redemption fees retained................ 0.28 -- -- -- -- ------- Distributions to shareholders: From net investment income.................. (0.60) -- (0.48) (0.72) (0.35) From net realized gain on investments............. -- -- -- -- (0.10) ------- -------- -------- -------- -------- Total distributions....... (0.60) -- (0.48) (0.72) (0.45) ------- -------- -------- -------- -------- Net asset value, end of period.................... $ 7.53 $ 12.56 $ 13.84 $ 11.60 $ 12.44 ======= ======== ======== ======== ======== Market value, end of period.................... N/A $ 11.81 $ 11.63 $ 9.75 $ 9.75 ======= ======== ======== ======== ======== Total investment return (based on market value)... N/A 1.62%(f) 24.18% 6.60% (32.16)%(f) Total investment return (based on net asset value).................... (37.09)%(g) (9.25)%(f) 23.59% (0.95)% (14.07)%(f) Ratios and supplemental data: Net assets, end of period (in 000's)................ $87,517 $457,379 $504,012 $422,348 $452,872 Ratio of net investment income to average net assets: With expense reductions and reimbursement....... 3.84% 2.03%(h) 4.07% 6.33% 2.75%(h) Without expense reductions and reimbursement....... 3.43% 1.95%(h) 4.04% 6.30% 2.75%(h) Ratio of expenses to average net assets excluding interest expense: With expense reductions and reimbursement....... 1.73% 1.75%(h) 1.82% 1.77% 2.01%(h) Without expense reductions and reimbursement....... 2.14% 1.83%(h) 1.85% 1.80% 2.01%(h) Ratio of interest expense to average net assets(i)..... 0.20% N/A N/A N/A N/A Portfolio turnover rate(i)................... 111% 184%(h) 138% 75% 56% - --------------- (a) All capital shares of the Predecessor Fund issued and outstanding on October 31, 1997 were reclassified as Class A shares. 14 26 (b) These selected per share data were calculated based upon average shares outstanding during the period. (c) These financial highlights provide per share information of the Predecessor Fund for the period January 11, 1994 (commencement of operations) up to and including October 31, 1997. (d) Net investment income per share reflects an interest payment received from the conversion of Vnesheconombank loan agreements of $0.14 per share. (e) Before reimbursement, the net investment income per share would have been reduced by $0.04. (f) Not annualized. (g) Total investment return does not include sales charges. (h) Annualized. (i) Portfolio turnover rates and ratio of interest expense to average net assets are calculated on the basis of Developing Markets Fund as a whole without distinguishing between the classes of shares issued. N/A Not Applicable. 15 27 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 form of which is attached as Appendix A to this Proxy Statement/Prospectus. The Plan contemplates (a) Developing Markets Fund acquiring on the Closing Date all the assets of Eastern Europe Fund in exchange solely for Developing Markets Fund Class A shares and Developing Markets Fund's assumption of all of Eastern Europe Fund's liabilities and (b) the distribution of those shares to Eastern Europe Fund shareholders. Eastern Europe Fund's assets include 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 its books, and other property owned by it as of the close of regular trading on the NYSE on the Closing Date ("Valuation Time") (collectively, the "Assets"). Developing Markets Fund will assume from Eastern Europe Fund all its 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 referred to in the Plan (collectively, the "Liabilities"); provided, however, that Eastern Europe Fund will use its best efforts to discharge all of its known Liabilities prior to the Valuation Time. Developing Markets Fund will deliver its Class A shares to Eastern Europe Fund, which then will be distributed to Eastern Europe 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 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 the quotations, provided they adequately reflect, in AIM's judgment, the fair value of the security. Where market quotations are not readily available, securities will be valued based upon appraisals received from a pricing service using a computerized matrix system or 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 a Fund's Board of Trustees 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 each Fund's Board of Trustees. On, or as soon as practicable after, the Closing Date, Eastern Europe Fund will distribute to its shareholders of record the Developing Markets Fund Class A shares it receives so that each Eastern Europe Fund shareholder will receive a number of full and fractional Class A shares of Developing Markets Fund equal in aggregate NAV to the shareholder's shares in Eastern Europe Fund. Such distribution will be accomplished by opening accounts on the books of Developing Markets Fund in the names of Eastern Europe Fund's shareholders and crediting such accounts with Developing Markets Fund Class A shares equal in aggregate NAV to the shareholders' shares in Eastern Europe Fund. Fractional shares of Developing Markets Fund will be rounded to the third decimal place. Immediately after the Reorganization, each former shareholder of Eastern Europe Fund will own Class A shares of Developing Markets Fund equal in NAV to the aggregate NAV of that shareholder's shares in Eastern Europe Fund immediately prior to the Reorganization. The NAV per share of Developing Markets Fund will not be changed as a result of the Reorganization. Thus, the Reorganization will not result in a dilution of any shareholder interest. 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 Agreement and Declaration of Trust, the Trust may issue an unlimited number of shares. The Trust's Board of Trustees (the "Trust's Board") has established Developing Markets Fund as a series of the Trust and has authorized the public offering of four classes of shares of that Fund, designated Class A, Class B, Class C, 16 28 and Advisor Class shares. Only Class A shares will be issued in connection with the Reorganization. Although Class A shares are generally subject to an initial sales charge of 4.75%, this sales charge will be waived for the shares issued in connection with the Reorganization. As noted above, those shares will be subject to a 2% redemption fee for the first year following the Reorganization. Each share of Developing Markets 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 Developing Markets Fund Statement of Additional Information, 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 Trust's Board. 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 Developing Markets Fund, when issued, are fully paid and nonassessable. DIVIDENDS AND OTHER DISTRIBUTIONS Dividends from Developing Markets Fund's net investment income, if any, are distributed at least annually. 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 are also distributed at least annually. Shareholders of Developing Markets 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. Dividends from Eastern Europe Fund's net investment income, if any, are distributed at least annually. Any net capital gain and net short-term capital gain realized from the sale of portfolio securities and net gains from foreign currency transactions are also distributed at least annually. Shareholders of Eastern Europe Fund may participate in the Fund's Dividend Reinvestment Plan, under which dividends and capital gains distributions are automatically invested in additional shares of the Fund at NAV. Alternatively, shareholders may elect to receive dividends and other distributions in cash. Each Fund may make additional distributions if necessary to avoid a 4% excise tax on certain undistributed ordinary income and capital gains. On or before the Closing Date, Eastern Europe Fund will declare as a distribution substantially all of its undistributed net investment income, net capital gain, net short-term capital gain, and net gains from foreign currency transactions to maintain its tax status as a regulated investment company. The consummation of the Reorganization is subject to a number of conditions set forth in the Plan, some of which may be waived by Eastern Europe 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 Eastern Europe Fund shareholders' interests. POTENTIAL NET REDEMPTION If a large percentage of Eastern Europe Fund shareholders redeem their shares after the Reorganization, significant costs may be imposed on Developing Markets Fund. The proposed redemption fee is intended to offset such costs, but, to the extent those costs exceed the fees charged, those costs would be borne by Developing Markets Fund shareholders. To meet redemption requests, Developing Markets Fund may be required either to draw upon a line of credit, which would impose some interest costs, or to sell portfolio securities, which would incur brokerage costs and may result in capital gain or loss that would not otherwise have been recognized. Any gain would, to the extent it is not otherwise offset during the year, be distributed to shareholders. Recognition and distribution of gain would have two negative consequences: first, non-redeeming shareholders would be required to pay taxes on larger capital gain distributions than they would 17 29 otherwise; and second, Developing Markets Fund may need to sell additional portfolio securities to raise cash to make the distributions, potentially resulting in recognition of additional capital gain. 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 will be the same as Eastern Europe Fund's book cost basis of the Assets. FEDERAL INCOME TAX CONSIDERATIONS The exchange of all of Eastern Europe Fund's assets solely for Developing Markets Fund Class A shares and Developing Markets Fund's assumption of all the liabilities of Eastern Europe Fund is intended to qualify for federal income tax purposes as a tax-free reorganization under section 368 of the Code. Eastern Europe Fund and the Trust will receive an opinion of Kirkpatrick & Lockhart LLP, their counsel, substantially to the effect that: (1) Developing Markets Fund's acquisition of the Assets in exchange solely for Developing Markets Fund Class A shares and Developing Markets Fund's assumption of the Liabilities, followed by Eastern Europe Fund's distribution of those shares pro rata to its shareholders constructively in exchange for their Eastern Europe Fund 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; (2) Eastern Europe Fund will recognize no gain or loss on the transfer of the Assets to Developing Markets Fund in exchange solely for Developing Markets Fund Class A shares and Developing Markets Fund's assumption of the Liabilities or on the subsequent distribution of those shares to Eastern Europe Fund's shareholders in constructive exchange for their Eastern Europe Fund shares; (3) Developing Markets Fund will recognize no gain or loss on its receipt of the Assets in exchange solely for Developing Markets Fund Class A shares and its assumption of the Liabilities; (4) Developing Markets Fund's basis for the Assets will be the same as Eastern Europe Fund's basis therefor immediately before the Reorganization, and Developing Markets Fund's holding period for the Assets will include Eastern Europe Fund's holding period therefor; (5) An Eastern Europe Fund shareholder will recognize no gain or loss on the constructive exchange of all its Eastern Europe Fund shares solely for Developing Markets Fund Class A shares pursuant to the Reorganization; and (6) An Eastern Europe Fund shareholder's aggregate basis for the Developing Markets Fund Class A shares to be received by it in the Reorganization will be the same as the aggregate basis for its Eastern Europe Fund shares to be constructively surrendered in exchange for those Developing Market Fund shares, and its holding period for those Developing Market Fund Class A shares will include its holding period for those Eastern Europe Fund shares, provided they are held as capital assets by the shareholder on the Closing Date. Notwithstanding the foregoing, however, the opinion will not express any conclusion about the tax consequences of the Reorganization regarding the treatment of unrealized gain or loss on Assets (such as certain futures and foreign currency contracts) that is required to be recognized for federal income tax purposes under a market-to-market system of accounting. The funds do not expect that the amount of such gain will be significant. Utilization by Developing Markets Fund after the Reorganization of any pre-Reorganization capital losses realized by Eastern Europe Fund would be subject to limitation in future years under the Code. Shareholders of Eastern Europe 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 18 30 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 Developing Markets Fund is a non-diversified series of the Trust, an open-end management investment company. Developing Markets Fund commenced operations, as a series of AIM Investment Funds, Inc. ("Investment Funds, Inc."), an open-end management investment company on November 1, 1997, as the successor (in a reorganization) to G.T. Global Developing Markets Fund, Inc., a closed-end investment company that had commenced operations on January 11, 1994. The Trust was organized as a Delaware business trust on May 7, 1998, and on September 8, 1998, it acquired the assets and assumed the liabilities of Investment Funds, Inc. As a result of this acquisition, Developing Markets Fund became a series of the Trust. The operations of the Trust, as a Delaware business trust, are governed by its Agreement and Declaration of Trust, as amended, and Delaware law. The overall direction and supervision of Developing Markets Fund is the responsibility of the Trust's Board, which has the primary duty of ensuring that the Fund's general investment policies and programs are adhered to and the Fund is properly administered. Eastern Europe Fund is a non-diversified closed-end management investment company that was organized as a Massachusetts business trust under the name "G.T. Greater Europe Fund" on December 6, 1989. On May 31, 1996, the Fund's investment focus was narrowed and its name changed to "G.T. Global Eastern Europe Fund." Concurrent with the name change, the Fund was converted to "interval fund" status pursuant to Rule 23c-3 under the 1940 Act and has since conducted annual repurchase offers for its shares. On May 29, 1998, the Fund was renamed "AIM Eastern Europe Fund." Eastern Europe Fund shares have been listed and publicly traded on the NYSE under the symbol "GTF" since March 29, 1990. The operations of Eastern Europe Fund, as a Massachusetts business trust, are governed by its Agreement and Declaration of Trust, as amended, and Massachusetts law. The overall direction and supervision of Eastern Europe Fund is the responsibility of its Board, which has the primary duty of ensuring that the Fund's general investment policies and programs are adhered to and the Fund is properly administered. NAV, MARKET PRICE, AND DISCOUNT OF EASTERN EUROPE FUND SHARES Eastern Europe Fund shares trade on the NYSE. The following table sets forth, on a quarterly basis, the high and low NAVs of the shares, the high and low sales prices of the shares, and the discount to NAV that these figures represent, since May 1, 1996, when Eastern Europe Fund was converted to "interval fund" status pursuant to Rule 23c-3 under the 1940 Act. NAV MARKET PRICE (DISCOUNT) ------------- --------------- ---------------- HIGH LOW HIGH LOW HIGH LOW ----- ----- ------ ------ ------ ------ May 1, 1996 to July 31, 1996............... 16.03 15.43 14.625 12.625 [. ]% (5.64)% August 1, 1996 to October 31, 1996......... 16.99 15.71 14.125 12.750 (25.20)% (19.49)% November 1, 1996 to January 31, 1997....... 18.21 15.01 15.625 12.125 (24.90)% (13.63)% February 1, 1997 to April 30, 1997......... 18.78 16.85 16.000 14.000 (22.00)% (13.38)% May 1, 1997 to July 31, 1997............... 20.72 17.21 18.750 14.750 (21.82)% (10.27)% August 1, 1997 to October 31, 1997......... 23.47 18.62 20.625 16.250 (34.83)% (8.20)% November 1, 1997 to January 31, 1998....... 18.62 12.05 16.875 10.563 (40.85)% (5.56)% February 1, 1998 to April 30, 1998......... 14.77 12.05 12.750 10.938 (20.21)% (5.93)% May 1, 1998 to July 31, 1998............... 14.68 10.13 12.250 7.938 (31.91)% (17.33)% August 1, 1998 to October 31, 1998......... 10.97 6.00 8.750 4.438 (61.53)% (20.91)% November 1, 1998 to January 31, 1999....... 8.28 7.23 6.688 5.563 (33.11)% (16.08)% February 1, 1999 to April 30, 1999......... 7.96 7.11 6.625 5.500 (30.91)% (15.92)% 19 31 CAPITALIZATION The following table shows the capitalization of each Fund as of its fiscal year ended October 31, 1998, and on a pro forma combined basis (unaudited) as of that date, giving effect to the Reorganization. DEVELOPING MARKETS PRO FORMA CLASS A EASTERN EUROPE FUND FUND: CLASS A COMBINED ------------------- ------------------ ----------------- Net Assets................................ $47,099,546 $87,517,225 $134,616,771 Shares Outstanding........................ 6,516,426 11,616,154 17,872,961 Net Asset Value Per Share................. $ 7.23 $ 7.53 $ 7.53 The following table shows the capitalization of each Fund as of April 30, 1999, and on a pro forma combined basis (unaudited) as of that date, giving effect to the Reorganization. DEVELOPING MARKETS PRO FORMA CLASS A EASTERN EUROPE FUND FUND: CLASS A COMBINED ------------------- ------------------ ----------------- Net Assets.............................. $51,869,960(1) $138,271,639(2) $190,141,599(1)(2) Shares Outstanding...................... 6,516,426(1) 14,529,141 19,977,749(1) Net Asset Value Per Share............... $ 7.96 $ 9.52 $ 9.52 - --------------- (1) These figures do not reflect the payment made on May 7, 1999, in the amount of $5,082,820.11 to Eastern Europe Fund shareholders participating in the 1999 repurchase offer, nor do they reflect the decrease in the number of outstanding shares as a result of that repurchase offer. (2) These figures reflect the addition of the assets of AIM Emerging Markets Fund resulting from the reorganization of that fund into Developing Markets Fund completed on February 12, 1999. REQUIRED VOTE. The proposal to approve the Plan requires the affirmative vote of a "majority of the outstanding voting securities" of Eastern Europe Fund, which for this purpose means the affirmative vote of the lesser of (1) more than 50% of the outstanding shares of Eastern Europe Fund or (2) 67% or more of the shares of Eastern Europe Fund present at the meeting if more than 50% of the outstanding shares of Eastern Europe Fund are represented at the Meeting in person or by proxy. THE BOARD RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL 1 ------------------------ PROPOSAL NO. 2: ELECTION OF A TRUSTEE The Board has nominated the individual identified below for election to the Board at the Meeting. It is the intention of each proxyholder named on the accompanying proxy card to vote FOR the election of the nominee listed below unless the Eastern Europe Fund shareholder specifically indicates on his or her proxy card a desire to withhold authority to vote for the nominee. The Board does not contemplate that the nominee, who has consented to being nominated, will be unable to serve as a Trustee for any reason but if that should occur prior to the Meeting, the proxies will be voted for such other nominee as the Board may recommend. 20 32 INFORMATION REGARDING THE NOMINEE FOR ELECTION AT THE MEETING POSITION(S) WITH EASTERN NAME, AGE, AND BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS AND OTHER DIRECTORSHIPS EUROPE FUND AND TENURE - ------------------------------------------------------------------------------------- --------------------------- ROBERT H. GRAHAM, Age 52*............................................... Trustee, Since 1998 Mr. Graham is Director, President and Chief Executive Officer, A I M Management Group Chairman and Inc.; Director and President, AIM; Director and Senior Vice President, A I M Capital President Management, Inc., A I M Distributors, Inc., A I M Fund Services, Inc. and Fund Management Company; and Director, AMVESCAP PLC. INFORMATION REGARDING TRUSTEES WHOSE CURRENT TERMS CONTINUE POSITION(S) WITH EASTERN NAME, AGE, AND BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS AND OTHER DIRECTORSHIPS EUROPE FUND AND TENURE - ------------------------------------------------------------------------------------- --------------------------- C. DEREK ANDERSON, Age 57............................................... Trustee Since 1990 Mr. Anderson is President, Plantagenet Capital Management, LLC (an investment partnership); Chief Executive Officer, Plantagenet Holdings, Ltd. (an investment banking firm); Director, Anderson Capital Management, Inc., since 1988; Director, PremiumWear, Inc. (formerly Munsingwear, Inc.) (a casual apparel company); and Director, "R" Homes, Inc. and various other companies. Mr. Anderson is also a director or trustee of several other investment companies registered under the 1940 Act that are managed or administered by AIM. FRANK S. BAYLEY, Age 59................................................. Trustee Since 1990 Mr. Bayley is a partner of the law firm of Baker & Mackenzie; and Director and Chairman of C.D. Stimpson Company (a private investment company). Mr. Bayley is also a director or trustee of several other investment companies registered under the 1940 Act that are managed or administered by AIM. ARTHUR C. PATTERSON, Age 55............................................. Trustee Since 1990 Mr. Patterson is a Managing Partner of Accel Partners (a venture capital firm). He also serves as a director of Viasoft and Pagemart, Inc. (both publicly-traded software companies), as well as several privately held software and communications companies. Mr. Patterson is also a director or trustee of several other investment companies registered under the 1940 Act that are managed or administered by AIM. RUTH H. QUIGLEY, Age 64................................................. Trustee Since 1990 Ms. Quigley is a private investor. From 1984 to 1986, she was President of Quigley Friedlander & Co., Inc. (a financial advisory services firm). Ms. Quigley is also a director or trustee of several other investment companies registered under the 1940 Act that are managed or administered by AIM. - --------------- * Mr. Graham is deemed an "interested person" of Eastern Europe Fund, as defined in the 1940 Act, by virtue both of his association with AIM and its affiliates. 21 33 INFORMATION REGARDING THE EXECUTIVE OFFICERS OF EASTERN EUROPE FUND POSITION(S) WITH EASTERN NAME, AGE, AND BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS EUROPE FUND AND TENURE - ------------------------------------------------------------- --------------------------- ROBERT H. GRAHAM, Age 52.................................... Trustee, Since 1998 Mr. Graham is Director, President and Chief Executive Chairman, and Officer, A I M Management Group Inc.; Director and President, President AIM; Director and Senior Vice President, A I M Capital Management, Inc., A I M Distributors, Inc., A I M Fund Services, Inc. and Fund Management Company; and Director, AMVESCAP PLC. DANA R. SUTTON, Age 40...................................... Vice President Since 1999 Ms. Sutton is Vice President and Fund Controller, AIM and and Treasurer Vice President and Assistant Treasurer, Fund Management Company. SAMUEL D. SIRKO, Age 39..................................... Vice President Since 1998 Mr. Sirko is Associate General Counsel and Assistant and Secretary 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; and Vice President, Assistant General Counsel and Assistant Secretary of AIM. MELVILLE B. COX, Age 55..................................... Vice President Since 1998 Mr. Cox is Vice President and Chief Compliance Officer, AIM, A I M Capital Management, Inc., A I M Distributors, Inc., A I M Fund Services, Inc., and Fund Management Company. GARY T. CRUM, Age 51........................................ Vice President Since 1998 Mr. Crum is Director and President, A I M Capital Management, Inc.; Director and Senior Vice President, A I M and AIM Management Group, Inc.; and Director, A I M Distributors, Inc. and AMVESCAP. CAROL F. RELIHAN, Age 44.................................... Vice President Since 1998 Ms. Relihan is Director, Senior Vice President, General Counsel, and Secretary, AIM; 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. To the knowledge of Eastern Europe Fund's management, as of the Record Date, the Trustees and Officers of Eastern Europe Fund owned, as a group, less than 1% of the outstanding shares of Eastern Europe Fund. There were fourteen meetings of Eastern Europe Fund's Board held during the Fund's fiscal year ended October 31, 1998. The Board has a Nominating and Audit Committee composed of Miss Quigley (Chairman) and Messrs. Anderson, Bayley and Patterson. The purpose of the Nominating and Audit Committee is to nominate persons to serve as Trustees, review annual audits of Eastern Europe Fund, and recommend firms to serve as independent auditors for Eastern Europe Fund. The Nominating and Audit Committee does not normally consider nominees recommended by security holders. During Eastern Europe Fund's last completed fiscal year, the Nominating and Audit Committee met [once]. Each Trustee attended at least 75% of the total number of meetings of the Board, and [each member of the Nominating and Audit Committee has attended at least 75% of the meetings of that committee.] All of Eastern Europe Fund's Trustees also serve as directors or trustees of some or all of the other investment companies managed, administered or advised by AIM. Eastern Europe Fund pays each Trustee, who is not a director, officer or employee of AIM or any affiliated company, an annual retainer component, 22 34 plus a per-meeting fee component for each Board or committee meeting attended by such Trustee and reimburses travel and other out-of-pocket expenses incurred in connection with attending such meetings. The table below summarizes the compensation of Eastern Europe Fund's Trustees for the fiscal year ended October 31, 1998 and provides the total compensation of the Board members by the Fund Complex for the fiscal year ended October 31, 1998. COMPENSATION TABLE(1) AGGREGATE COMPENSATION TOTAL COMPENSATION FROM FROM EASTERN EUROPE EASTERN EUROPE FUND AND NAME OF PERSON, POSITION(2) FUND the Fund Complex(3) - --------------------------- ---------------------- ------------------------ C. Derek Anderson.................................. $6,450 $ 97,600 Trustee Frank S. Bayley.................................... $7,400 $ 97,500 Trustee Arthur C. Patterson................................ $7,700 $105,450 Trustee Ruth H. Quigley.................................... $7,700 $106,350 Trustee - --------------- (1) The Trustees do not receive any pension or retirement benefits as compensation for their services to Eastern Europe Fund. (2) As an employee of AIM, Mr. Graham receives no additional compensation from Eastern Europe Fund for serving as a Trustee. (3) The "Fund Complex" includes all investment companies advised by AIM; however, each of the Trustees listed above serves on the board of only 12 of those investment companies. REQUIRED VOTE. A plurality of all the votes cast at the Meeting is required for the election of the Trustee. THE BOARD RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL 2 ------------------------ PROPOSAL NO. 3: RATIFICATION OF THE SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS At a meeting called for the purpose of such selection, the firm of PricewaterhouseCoopers LLP was selected by Eastern Europe Fund's Board, including its trustees who are not "interested persons" of Eastern Europe Fund, Developing Markets Fund, AIM or IAML, as the independent public accountants to audit the books and accounts of Eastern Europe Fund for the fiscal year ending October 31, 1999 and to include its opinion in financial statements filed with the SEC. The Board has directed the submission of this selection to the Eastern Europe Fund shareholders for ratification. PricewaterhouseCoopers LLP has advised the Board that it has no financial interest in Eastern Europe Fund. For the fiscal year ended October 31, 1998, the professional services rendered by PricewaterhouseCoopers LLP included the issuance of an opinion on the financial statements of Eastern Europe Fund and an opinion on other reports of Eastern Europe Fund filed with the SEC. Representatives of PricewaterhouseCoopers LLP are not expected to be present at the Meeting, but have been given the opportunity to make a statement if they so desire and will be available should any matter arise requiring their presence. REQUIRED VOTE. Ratification of the selection of PricewaterhouseCoopers LLP requires the affirmative vote of a majority of the votes cast thereon at the Meeting. THE BOARD RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL 3 ------------------------ 23 35 LEGAL MATTERS Certain legal matters concerning Eastern Europe Fund and the Trust and their participation in the Reorganization, the issuance of Class A shares of Developing Markets Fund in connection with the Reorganization, and the tax consequences of the Reorganization will be passed upon by Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W., Washington, D.C. 20036-1800, counsel to Eastern Europe Fund and to the Trust. INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND NYSE This Proxy Statement/Prospectus and the related Statement of Additional Information do not contain all the information set forth in the registration statements and the exhibits relating thereto and annual reports which Eastern Europe Fund has filed with the Securities and Exchange Commission ("SEC") pursuant to the requirements of the Securities Act of 1933 Act and the 1940 Act, to which reference is hereby made. The SEC file number for Eastern Europe Fund's Annual Report to Shareholders dated October 31, 1998, is 811-5978. Such Annual Report to Shareholders is 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. Eastern Europe Fund and the Trust are each subject to the informational requirements of the 1940 Act and in accordance therewith each files reports and other information with the SEC. Reports, proxy statements, registration statements and other information filed by Eastern Europe Fund and the Trust (including the Registration Statement of the Trust relating to the Developing Markets Fund and Eastern Europe 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, N.W., 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, 14th floor, Chicago, IL 60661. Copies of such material may also be obtained from the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, DC 20549 at the prescribed rates. The SEC maintains an internet web site at http://www.sec.gov that contains information regarding the Trust, Eastern Europe Fund, and other registrants that file electronically with the SEC. Eastern Europe Fund shares are listed and publicly traded on the NYSE. If the Reorganization is approved, Eastern Europe Fund will no longer be listed on the NYSE. Reports, proxy statements and other information concerning Eastern Europe Fund may be inspected at the offices of the NYSE, 20 Broad Street, New York, NY 10005. INFORMATION ABOUT THE FUNDS' ADVISOR AND SUB-ADVISOR, AND DEVELOPING MARKETS FUND'S DISTRIBUTOR AIM serves as investment advisor, and IAML serves as investment sub-advisor, to both Eastern Europe Fund and Developing Markets Fund. AIM is located at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. IAML is located at 11 Devonshire Square, London, EC2M 4YR, England. The advisors supervise all aspects of the Funds' respective operations and provide investment advisory services to each Fund, including obtaining and evaluating economic, statistical, and financial information to formulate and implement investment programs for the Funds. AIM has acted as an investment advisor since its organization in 1976, and IAML has acted as an investment advisor since 1967. Today, AIM, together with its subsidiaries, advises or manages over 110 investment portfolios, including Eastern Europe Fund and Developing Markets Fund, encompassing a broad range of investment objectives. AIM Distributors acts as Developing Markets Fund's distributor. AIM Distributors is located at 11 Greenway Plaza, Suite 100, Houston, Texas, 77046-1173. 24 36 AIM, IAML, and AIM Distributors are each indirect wholly-owned subsidiaries of AMVESCAP PLC, which is an independent investment 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. ADDITIONAL INFORMATION ABOUT EASTERN EUROPE FUND AND DEVELOPING MARKETS FUND For more information with respect to Eastern Europe Fund concerning the following topics, please refer to the Eastern Europe Fund Annual Report to Shareholders, dated October 31, 1998, as indicated: (i) see "Related Parties" for further information regarding Eastern Europe Fund's investment advisor, investment sub-advisor, and administrator; (ii) see discussion in "About the Portfolio Managers" for further information regarding management of Eastern Europe Fund; (iii) see "Capital Shares" and "Portfolio Valuation" for further information regarding the shares of Eastern Europe Fund; (iv) see "Dividend Reinvestment Plan" for further information regarding the reinvestment of dividends paid by Eastern Europe Fund; and (v) see "Fundamental Periodic Repurchase Policy," for further information regarding participation in annual repurchase offers conducted by the Fund pursuant to Rule 23c-3. For more information with respect to the Trust and Developing Markets Fund concerning the following topics, please refer to Developing Markets Fund Prospectus, dated March 1, 1999 and attached as Appendix B to this Proxy Statement/Prospectus, as indicated: (i) see "Investment Objectives and Strategies," and "Fund Management" for further information regarding Developing Market Fund; (ii) see discussion in "Fund Management" and "Investment Objectives and Strategies" for further information regarding management of Developing Markets Fund; (iii) see "Shareholder Information," and "Other Information" for further information regarding the shares of Developing Markets Fund; (iv) see "Shareholder Information" for further information regarding the purchase, redemption and repurchase of shares of Developing Markets Fund. EXPERTS The audited financial statements of Eastern Europe Fund and Developing Markets Fund are incorporated by reference herein and in included in Eastern Europe Fund's Annual Report to Shareholders for the fiscal year ended October 31, 1998 and Developing Markets Fund's Statement of Additional Information dated March 1, 1999, respectively, have each been audited by PricewaterhouseCoopers LLP, independent accountants, whose reports thereon are included in the Funds' respective Annual Reports to Shareholders for the fiscal year ended October 31, 1998. 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. SHAREHOLDER PROPOSALS Any shareholder who wishes to submit a proposal for consideration at Eastern Europe Fund's next annual shareholders meeting (which will not be held if the Reorganization is approved and Eastern Europe Fund is liquidated) should submit such proposal to the Fund no later than [February 1, 2000.] Shareholder proposals that are submitted in a timely manner will not necessarily be included in Eastern Europe Fund's proxy materials. Inclusion of such proposals is subject to limitations under the federal securities laws. 25 37 OWNERSHIP OF EASTERN EUROPE FUND AND DEVELOPING MARKETS FUND SHARES Listed below is the name, address and percent ownership of each person who as of June 21, 1999, to the knowledge of the Trust or Eastern Europe Fund, owned beneficially 5 percent or more of the outstanding shares of Eastern Europe Fund or owned beneficially 5 percent or more of the outstanding Class A shares of Developing Markets Fund: EASTERN EUROPE FUND PERCENT NUMBER OF BENEFICIAL NAME AND ADDRESS SHARES OWNED OWNERSHIP - ---------------- ------------ ---------- [ ] [ ] DEVELOPING MARKETS FUND: CLASS A PERCENT NUMBER OF BENEFICIAL NAME AND ADDRESS SHARES OWNED OWNERSHIP - ---------------- ------------ ---------- [none] 26 38 APPENDIX A AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION THIS AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION ("Agreement") is made as of May 14, 1999, between AIM Investment Funds, a Delaware business trust ("Trust"), on behalf of AIM Developing Markets Fund, a segregated portfolio of assets ("series") thereof ("Acquiring Fund"), and AIM Eastern Europe Fund, a Massachusetts business trust ("Target"). (Acquiring Fund and Target are sometimes referred to herein individually as a "Fund" and collectively as the "Funds," and Trust and Target are sometimes referred to herein individually as an "Investment Company" and collectively as the "Investment Companies.") All agreements, representations, actions, and obligations described herein made or to be taken or undertaken by Acquiring Fund are made and shall be taken or undertaken by Trust. The Investment Companies wish to effect a reorganization described in section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended ("Code"). The reorganization will involve the transfer of Target's assets to Acquiring Fund in exchange solely for voting shares of beneficial interest ("shares") in Acquiring Fund and the assumption by Acquiring Fund of Target's liabilities, followed by the constructive distribution of those shares pro rata to the holders of shares in Target ("Target Shares") in exchange therefor, all on the terms and conditions set forth in this Agreement (which is intended to be, and is adopted as, a "plan of reorganization" within the meaning of the regulations under the Code). The foregoing transactions are referred to herein collectively as the "Reorganization." Acquiring Fund is an open-end management investment company. Its shares are divided into four classes, designated Class A, Class B, Class C, and Advisor Class shares; only Acquiring Fund's Class A shares ("Acquiring Fund Shares") are involved in the Reorganization. Target is a closed-end management investment company that has only a single class of shares. Target Shares can be purchased and sold only on the New York Stock Exchange ("NYSE"), except for purchases by Target through periodic repurchase offers pursuant to Rule 23c-3 under the Investment Company Act of 1940, as amended ("1940 Act"). In consideration of the mutual promises contained herein, the parties agree as follows: 1. PLAN OF REORGANIZATION AND TERMINATION 1.1. Target agrees to assign, sell, convey, transfer, and deliver all of its assets described in paragraph 1.2 ("Assets") to Acquiring Fund. Acquiring Fund agrees in exchange therefor -- (a) to issue and deliver to Target the number of full and fractional (rounded to the third decimal place) Acquiring Fund Shares, determined by dividing the net value of Target (computed as set forth in paragraph 2.1) by the net asset value ("NAV") of an Acquiring Fund Share (computed as set forth in paragraph 2.2), and (b) to assume all of Target's liabilities described in paragraph 1.3 ("Liabilities"). Such transactions shall take place at the Closing (as defined in paragraph 3.1). 1.2. The Assets shall include, without limitation, 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 Target's books, and other property owned by Target at the Effective Time (as defined in paragraph 3.1). 1.3. The Liabilities shall include (except as otherwise provided herein) all of Target'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 Effective Time, and whether or not specifically referred to in this Agreement. Notwithstanding the foregoing, Target agrees to use its best efforts to discharge all its known Liabilities before the Effective Time. 39 1.4. At or immediately before the Effective Time, Target shall declare and pay to its shareholders a dividend and/or other distribution in an amount large enough so that it will have distributed substantially all (and in any event not less than 90%) of its investment company taxable income (computed without regard to any deduction for dividends paid) and substantially all of its realized net capital gain, if any, for the current taxable year through the Effective Time. 1.5. At the Effective Time (or as soon thereafter as is reasonably practicable), Target shall distribute the Acquiring Fund Shares received by it pursuant to paragraph 1.1 to Target's shareholders of record, determined as of the Effective Time (each a "Shareholder" and collectively "Shareholders"), in constructive exchange for their Target Shares. Such distribution shall be accomplished by Trust's transfer agent's opening accounts on Acquiring Fund's share transfer books in the Shareholders' names and transferring such Acquiring Fund Shares thereto. Each Shareholder's account shall be credited with the respective pro rata number of full and fractional (rounded to the third decimal place) Acquiring Fund Shares due that Shareholder. All outstanding Target Shares, including any represented by certificates, shall simultaneously be canceled on Target's share transfer books. Acquiring Fund shall not issue certificates representing the Acquiring Fund Shares issued in connection with the Reorganization. 1.6. As soon as reasonably practicable after distribution of the Acquiring Fund Shares pursuant to paragraph 1.5, but in all events within six months after the Effective Time, Target shall be terminated and any further actions shall be taken in connection therewith as required by applicable law. 1.7. Any reporting responsibility of Target to a public authority is and shall remain its responsibility up to and including the date on which it is terminated. 1.8. Any transfer taxes payable upon issuance of Acquiring Fund Shares in a name other than that of the registered holder on Target's books of the Target Shares constructively exchanged therefor shall be paid by the person to whom such Acquiring Fund Shares are to be issued, as a condition of such transfer. 2. VALUATION 2.1. For purposes of paragraph 1.1(a), Target's net value shall be (a) the value of the Assets computed as of the close of regular trading on the NYSE on the date of the Closing ("Valuation Time"), using the valuation procedures set forth in Target's most recent annual report to its shareholders, less (b) the amount of the Liabilities as of the Valuation Time. 2.2. For purposes of paragraph 1.1(a), the NAV of an Acquiring Fund Share shall be computed as of the Valuation Time, using the valuation procedures set forth in Acquiring Fund's then-current prospectus and statement of additional information ("SAI"). 2.3. All computations pursuant to paragraphs 2.1 and 2.2 shall be made by or under the direction of A I M Advisors, Inc. 3. CLOSING AND EFFECTIVE TIME 3.1. The Reorganization, together with related acts necessary to consummate the same ("Closing"), shall occur at the Funds' principal office on August [ ], 1999, or at such other place and/or on such other date as to which the parties may agree. All acts taking place at the Closing shall be deemed to take place simultaneously as of the close of business on the date thereof or at such other time as to which the parties may agree ("Effective Time"). If, immediately before the Valuation Time, (a) the NYSE is closed to trading or trading thereon is restricted or (b) trading or the reporting of trading on the NYSE or elsewhere is disrupted, so that accurate appraisal of the net value of Target and the NAV of an Acquiring Fund Share is impracticable, the Effective Time 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. 3.2. Target's fund accounting and pricing agent shall deliver at the Closing a certificate of an authorized officer verifying that the information (including adjusted basis and holding period, by lot) concerning the Assets, including all portfolio securities, transferred by Target to Acquiring Fund, as reflected on Acquiring Fund's books immediately following the Closing, does or will conform to such information on Target's books A-2 40 immediately before the Closing. Target's custodian shall deliver at the Closing a certificate of an authorized officer stating that (a) the Assets held by the custodian will be transferred to Acquiring Fund at the Effective Time and (b) all necessary taxes in conjunction with the delivery of the Assets, including all applicable federal and state stock transfer stamps, if any, have been paid or provision for payment has been made. 3.3. Target shall deliver to Trust at the Closing a list of the names and addresses of the Shareholders and the number of outstanding Target Shares owned by each Shareholder, all as of the Effective Time, certified by Target's Secretary or Assistant Secretary. Trust's transfer agent shall deliver at the Closing a certificate as to the opening on Acquiring Fund's share transfer books of accounts in the Shareholder's names. Trust shall issue and deliver a confirmation to Target evidencing the Acquiring Fund Shares to be credited to Target at the Effective Time or provide evidence satisfactory to Target that such Acquiring Fund Shares have been credited to Target's account on Acquiring Fund's books. At the Closing, each party shall deliver to the other such bills of sale, checks, assignments, stock certificates, receipts, or other documents as the other party or its counsel may reasonably request. 3.4. Each Investment Company shall deliver to the other at the Closing a certificate executed in its name by its President or a Vice President in form and substance satisfactory to the recipient and dated the Effective Time, to the effect that the representations and warranties it made in this Agreement are true and correct at the Effective Time except as they may be affected by the transactions contemplated by this Agreement. 4. REPRESENTATIONS AND WARRANTIES 4.1 Target represents and warrants as follows: 4.1.1. Target is a trust operating under a written declaration of trust, the beneficial interest in which is divided into transferable shares ("Business Trust"), that is duly organized and validly existing under the laws of the Commonwealth of Massachusetts; and a copy of its Agreement and Declaration of Trust is on file with the Secretary of the Commonwealth of Massachusetts; 4.1.2. Target is duly registered as a closed-end management investment company under the 1940 Act, and such registration will be in full force and effect at the Effective Time; 4.1.3. At the Closing, Target will have good and marketable title to the Assets and full right, power, and authority to sell, assign, transfer, and deliver the Assets free of any liens or other encumbrances; and upon delivery and payment for the Assets, Acquiring Fund will acquire good and marketable title thereto; 4.1.4. Target is not in violation of, and the execution and delivery of this Agreement and consummation of the transactions contemplated hereby will not conflict with or violate, Massachusetts law or any provision of its Agreement and Declaration of Trust or Amended and Restated By-Laws or of any agreement, instrument, lease, or other undertaking to which Target is a party or by which it is bound or result in the acceleration of any obligation, or the imposition of any penalty, under any agreement, judgment, or decree to which Target is a party or by which it is bound, except as previously disclosed in writing to and accepted by Trust; 4.1.5. Except as otherwise disclosed in writing to and accepted by Trust, all material contracts and other commitments of Target (other than this Agreement and investment contracts, including options, futures, and forward contracts) will be terminated, or provision for discharge of any liabilities of Target thereunder will be made, at or prior to the Effective Time, without either Fund's incurring any liability or penalty with respect thereto and without diminishing or releasing any rights Target may have had with respect to actions taken or omitted or to be taken by any other party thereto prior to the Closing; 4.1.6. Except as otherwise disclosed in writing to and accepted by Trust, no litigation, administrative proceeding, or investigation of or before any court or governmental body is presently pending or (to Target's knowledge) threatened against Target or any of its properties or assets that, if adversely determined, would materially and adversely affect its financial condition or the conduct of its business; and Target knows of no facts that might form the basis for the institution of any such litigation, proceeding, or investigation and is not a party to or subject to the provisions of any order, decree, or judgment of any court or governmental body that materially or adversely affects its business or its ability to consummate the transactions contemplated hereby; A-3 41 4.1.7. The execution, delivery, and performance of this Agreement have been duly authorized as of the date hereof by all necessary action on the part of Target's board of trustees, which has made the determinations required by Rule 17a-8(a) under the 1940 Act; and, subject to approval by Target's shareholders, this Agreement constitutes a valid and legally binding obligation of Target, enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, and similar laws relating to or affecting creditors' rights and by general principles of equity; 4.1.8. At the Effective Time, the performance of this Agreement shall have been duly authorized by all necessary action by Target's shareholders; 4.1.9. No governmental consents, approvals, authorizations, or filings are required under the Securities Act of 1933, as amended ("1933 Act"), the Securities Exchange Act of 1934, as amended ("1934 Act"), or the 1940 Act for the execution or performance of this Agreement by Target, except for (a) the filing with the Securities and Exchange Commission ("SEC") of a registration statement by Trust on Form N-14 relating to the Acquiring Fund Shares issuable hereunder, and any supplement or amendment thereto ("Registration Statement"), including therein a prospectus/proxy statement ("Proxy Statement"), and (b) such consents, approvals, authorizations, and filings as have been made or received or as may be required subsequent to the Effective Time; 4.1.10. On the effective date of the Registration Statement, at the time of the shareholders' meeting referred to in paragraph 5.2, and at the Effective Time, the Proxy Statement will (a) comply in all material respects with the applicable provisions of the 1933 Act, the 1934 Act, and the 1940 Act and the rules and regulations thereunder and (b) not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading; providing that the foregoing shall not apply to statements in or omissions from the Proxy Statement made in reliance on and in conformity with information furnished by Trust for use therein; 4.1.11. The Liabilities were incurred by Target in the ordinary course of its business; and there are no Liabilities other than liabilities disclosed or provided for in its financial statements referred to in paragraph 4.1.17 and liabilities incurred by Target in the ordinary course of its business subsequent to October 31, 1998, or otherwise previously disclosed to Trust, none of which has been materially adverse to the business, assets, or results of Target operations; 4.1.12. Target qualified for treatment as a regulated investment company under Subchapter M of the Code ("RIC") for each past taxable year since it commenced operations and will continue to meet all the requirements for such qualification for its current taxable year; it has no earnings and profits accumulated in any taxable year in which the provisions of Subchapter M did not apply to it; and the Assets will be invested at all times through the Effective Time in a manner that ensures compliance with the foregoing; 4.1.13. Target 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; 4.1.14. Not more than 25% of the value of Target's total assets (excluding cash, cash items, 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; 4.1.15. Target will be terminated as soon as reasonably practicable after the Effective Time, but in all events within six months thereafter; 4.1.16. Target's federal income tax returns, and all applicable state and local tax returns, for all taxable years through and including the taxable year ended October 31, [1998], have been timely filed and all taxes payable pursuant to such returns have been timely paid; and 4.1.17. Target's financial statements for the year ended October 31, 1998, to be delivered to Trust, fairly represent Target's financial position as of that date and the results of its operations and changes in its net assets for the year then ended. A-4 42 4.2. Acquiring Fund represents and warrants as follows: 4.2.1. Trust is a business trust duly organized and validly existing under the laws of the State of Delaware, and its Certificate of Trust has been duly filed in the office of the Secretary of State thereof; 4.2.2. Trust is duly registered as an open-end management investment company under the 1940 Act, and such registration will be in full force and effect at the Effective Time; 4.2.3. Acquiring Fund is a duly established and designated series of Trust; 4.2.4. No consideration other than Acquiring Fund Shares (and Acquiring Fund's assumption of the Liabilities) will be issued in exchange for the Assets in the Reorganization; 4.2.5. The Acquiring Fund Shares to be issued and delivered to Target hereunder will, at the Effective Time, have been duly authorized and, when issued and delivered as provided herein, will be duly and validly issued and outstanding shares of Acquiring Fund, fully paid and non-assessable; 4.2.6. Acquiring Fund's current prospectus and SAI conform in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the rules and regulations thereunder and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; 4.2.7. Acquiring Fund is not in violation of, and the execution and delivery of this Agreement and consummation of the transactions contemplated hereby will not conflict with or violate, Delaware law or any provision of Trust's Agreement and Declaration of Trust or Amended and Restated Bylaws or of any provision of any agreement, instrument, lesse, or other undertaking to which Acquiring Fund is a party or by which it is bound or result in the acceleration of any obligation, or the imposition of any penalty, under any agreement, judgment, or decree to which Acquiring Fund is a party or by which it is bound, except as previously disclosed in writing to and accepted by Target; 4.2.8. Except as otherwise disclosed in writing to and accepted by Target, no litigation, administrative proceeding, or investigation of or before any court or governmental body is presently pending or (to Acquiring Fund's knowledge) threatened against Trust with respect to Acquiring Fund or any of its properties or assets that, if adversely determined, would materially and adversely affect Acquiring Fund's financial condition or the conduct of its business; and Acquiring Fund knows of no facts that might form the basis for the institution of any such litigation, proceeding, or investigation and is not a party to or subject to the provisions of any order, decree, or judgment of any court or governmental body that materially or adversely affects its business or its ability to consummate the transactions contemplated hereby; 4.2.9. The execution, delivery, and performance of this Agreement have been duly authorized as of the date hereof by all necessary action on the part of Trust's board of trustees (together with Target's board of trustees, the "Boards"), which has made the determinations required by Rule 17a-8(a) under the 1940 Act; and this Agreement constitutes a valid and legally binding obligation of Acquiring Fund, enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, and similar laws relating to or affecting creditors' rights and by general principles of equity; 4.2.10. No governmental consents, approvals, authorizations, or filings are required under the 1933 Act, the 1934 Act, or the 1940 Act for the execution or performance of this Agreement by Trust, except for (a) the filing with the SEC of the Registration Statement and (b) such consents, approvals, authorizations, and filings as have been made or received or as may be required subsequent to the Effective Time; 4.2.11. On the effective date of the Registration Statement, at the time of the shareholders' meeting referred to in paragraph 5.2, and at the Effective Time, the Proxy Statement will (a) comply in all material respects with the applicable provisions of the 1933 Act, the 1934 Act, and the 1940 Act and the rules and regulations thereunder and (b) not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances A-5 43 under which such statements were made, not misleading; provided that the foregoing shall not apply to statements in or omissions from the Proxy Statement made in reliance on and in conformity with information furnished by Target for use therein; 4.2.12. Acquiring Fund is a "fund" as defined in section 851(g)(2) of the Code; it qualified for treatment as a RIC for each past taxable year since it commenced operations and will continue to meet all the requirements for such qualification for its current taxable year; Acquiring Fund intends to continue to meet all such requirements for the next taxable year; and it has no earnings and profits accumulated in any taxable year in which the provisions of Subchapter M of the Code did not apply to it; 4.2.13. Acquiring Fund has no plan or intention to issue additional Acquiring Fund Shares following the Reorganization except for shares issued in the ordinary course of its business as a series of an open-end investment company; nor does Acquiring Fund have any plan or intention to redeem or otherwise reacquire any Acquiring Fund Shares issued to the Shareholders pursuant to the Reorganization, except to the extent it is required by the 1940 Act to redeem any of its shares presented for redemption at NAV in the ordinary course of that business; 4.2.14. Following the Reorganization, Acquiring fund (a) will continue Target's "historic business" (within the meaning of section 1.368-1(d)(2) of the Income Tax Regulations under the Code), (b) use a significant portion of Target's historic business assets (within the meaning of section 1.3681(d)(3) of those regulations) in a business, (c) has no plan or intention to sell or otherwise dispose of any of the Assets, except for dispositions made in the ordinary course of that business and dispositions necessary to maintain its status as a RIC, and (d) expects to retain substantially all the Assets in the same form as it receives them in the Reorganization, unless and until subsequent investment circumstances suggest the desirability of change or it becomes necessary to make dispositions thereof to maintain such status; 4.2.15. There is no plan or intention for 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; 4.2.16. Immediately after the Reorganization, (a) not more than 25% of the value of 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; 4.2.17. Acquiring Fund does not own, directly or indirectly, nor at the Effective Time will it own, directly or indirectly, nor has it owned, directly or indirectly, at any time during the past five years, any shares of Target; 4.2.18. Acquiring Fund's federal income tax returns, and all applicable state and local tax returns, for all taxable years through and including the taxable year ended October 31, [1998], have been timely filed and all taxes payable pursuant to such returns have been timely paid; and 4.2.19. Trust's financial statements for the year ended October 31, 1998, to be delivered to Target, fairly represent Acquiring Fund's financial position as of that date and the results of its operations and changes in its net assets for the year then ended. 4.3. Each Fund represents and warrants as follows: 4.3.1. The fair market value of the Acquiring Fund Shares received by each Shareholder will be approximately equal to the fair market value of its Target Shares constructively surrendered in exchange therefor; 4.3.2. Its management is unaware of any plan or intention of Shareholders to redeem, sell, or otherwise dispose of (a) any portion of their Target Shares before the Reorganization to any person related (within the meaning of section 1.368-1(e)(3) of the Income Tax Regulations under the Code) 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 Acquiring Fund; A-6 44 4.3.3. The Shareholders will pay their own expenses, if any, incurred in connection with the Reorganization; 4.3.4. The fair market value of the Assets on a going concern basis will equal or exceed the Liabilities to be assumed by Acquiring Fund and those to which the Assets are subject; 4.3.5. There is no intercompany indebtedness between the Funds that was issued or acquired, or will be settled, at a discount; 4.3.6 Pursuant to the Reorganization, Target will transfer to Acquiring Fund, and 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 Target immediately before the Reorganization. For the purposes of this representation, any amounts used by Target to pay its Reorganization expenses and to make redemptions and distributions immediately before the Reorganization (except (a) redemptions 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) will be included as assets held thereby immediately before the Reorganization; 4.3.7 None of the compensation received by any Shareholder who is an employee of or service provider to Target will be separate consideration for, or allocable to, any of the Target Shares held by such Shareholder, none of the Acquiring Fund 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 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; 4.3.8 Immediately after the Reorganization, the Shareholders will not own shares constituting "control" (within the meaning of section 304(c) of the Code) of Acquiring Fund; and 4.3.9 Neither Fund will be reimbursed for any expenses incurred by it or on its behalf in connection with the Reorganization unless those expenses are solely and directly related to the Reorganization (determined in accordance with the guidelines set forth in Rev. Rul. 73-54, 1973-1 C.B. 187). 5. COVENANTS 5.1 Each Fund covenants to operate its respective business in the ordinary course between the date hereof and the Closing, it being understood that -- (a) such ordinary course will include declaring and paying customary dividends and other distributions and changes in operations contemplated by each Fund's normal business activities, and (b) each Fund will retain exclusive control of the composition of its portfolio until the Closing; provided that (1) Target shall not dispose of more than an insignificant portion of its historic business assets during such period without Acquiring Fund's prior consent and (2) if Target's shareholders approve this Agreement (and the transactions contemplated hereby), then between the date of such approval and the Closing, the Funds shall coordinate their respective portfolios so that the transfer of the Assets to Acquiring Fund will not cause it to fail to be in compliance with all of its investment policies and restrictions immediately after the Closing. 5.2. Target covenants to call a shareholders' meeting to consider and act on this Agreement and to take all other action necessary to obtain approval of the transactions contemplated hereby. 5.3. Target covenants that the Acquiring Fund Shares to be delivered hereunder are not being acquired for the purpose of making any distribution thereof, other than in accordance with the terms hereof. 5.4. Target covenants that it will assist Trust in obtaining information Trust reasonably requests concerning the beneficial ownership of Target Shares. A-7 45 5.5. Target covenants that its books and records (including all books and records required to be maintained under the 1940 Act and the rules and regulations thereunder) will be turned over to Trust at the Closing. 5.6. Each Fund covenants to cooperate in preparing the Proxy Statement in compliance with applicable federal and state securities laws. 5.7. Each Fund covenants that it will, from time to time, as and when requested by the other Fund, execute and deliver or cause to be executed and delivered all such assignments and other instruments, and will take or cause to be taken such further action, as the other Fund may deem necessary or desirable in order to vest in, and confirm to, (a) Acquiring Fund, title to and possession of all the Assets, and (b) Target, title to and possession of the Acquiring Fund Shares to be delivered hereunder, and otherwise to carry out the intent and purpose hereof. 5.8. Acquiring Fund covenants to use all reasonable efforts to obtain the approvals and authorizations required by the 1993 Act, the 1940 Act, and such state securities laws it may deem appropriate to continue its operations after the Effective Time. 5.9. Subject to this Agreement, each Fund covenants to take or cause to be taken all actions, and to do or cause to be done all things, reasonably necessary, proper, or advisable to consummate and effectuate the transactions contemplated hereby. 6. CONDITIONS PRECEDENT Each Fund's obligations hereunder shall be subject to (a) performance by the other Fund of all its obligations to be performed hereunder at or before the Effective Time, (b) all representations and warranties of the other Fund contained herein being true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated hereby, as of the Effective Time, with the same force and effect as if made at and as of the Effective Time, and (c) the following further conditions that, at or before the Effective Time: 6.1. This Agreement and the transactions contemplated hereby shall have been duly adopted and approved by the Boards and shall have been approved by Target's shareholders in accordance with its Agreement and Declaration of Trust and applicable law. 6.2. All necessary filings shall have been made with the SEC and state securities authorities, and no order or directive shall have been received that any other or further action is required to permit the parties to carry out the transactions contemplated hereby. The Registration Statement shall have become effective under the 1933 Act, no stop orders suspending the effectiveness thereof shall have been issued, and the SEC shall not have issued an unfavorable report with respect to the Reorganization under section 25(b) of the 1940 Act nor instituted any proceedings seeking to enjoin consummation of the transactions contemplated hereby under section 25(c) of the 1940 Act. All consents, orders, and permits of federal, state, and local regulatory authorities (including the SEC and state securities authorities) deemed necessary by either Investment Company to permit consummation, in all material respects, of the transactions contemplated hereby shall have been obtained, except where failure to obtain same would not involve a risk of a material adverse effect on either Fund's assets or properties, provided that either Investment Company may for itself waive any of such conditions. 6.3. At the Effective Time, no action, suit, or other proceeding shall be pending before any court or governmental agency in which it is sought to restrain or prohibit, or to obtain damages or other relief in connection with, the transactions contemplated hereby. 6.4. Target shall have received an opinion of Kirkpatrick & Lockhart LLP ("Counsel") substantially to the effect that: 6.4.1. Acquiring Fund is a duly established series of Trust, a business trust duly organized and validly existing under the laws of the State of Delaware with power under its Agreement and Declaration A-8 46 of Trust to own all its properties and assets and, to the knowledge of Counsel, to carry on its business as presently conducted; 6.4.2. This Agreement (a) has been duly authorized, executed, and delivered by Trust on behalf of Acquiring Fund and (b) assuming due authorization, execution, and delivery of this Agreement by Target, is a valid and legally binding obligation of Trust with respect to Acquiring Fund, enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, and similar laws relating to or affecting creditors' rights and by general principles of equity; 6.4.3. The Acquiring Fund Shares to be issued and distributed to the Shareholders under this Agreement, assuming their due delivery as contemplated by this Agreement, will be duly authorized, validly issued and outstanding, and fully paid and non-assessable; 6.4.4. The execution and delivery of this Agreement did not, and the consummation of the transactions contemplated hereby will not, materially violate Trust's Agreement and Declaration of Trust or Amended and Restated Bylaws or any provision of any agreement (known to Counsel, without any independent inquiry or investigation) to which Trust (with respect to Acquiring Fund) is a party or by which it is bound or (to the knowledge of Counsel, without any independent inquiry or investigation) result in the acceleration of any obligation, or the imposition of any penalty, under any agreement, judgment, or decree to which Trust (with respect to Acquiring Fund) is a party or by which it is bound, except as set forth in such opinion or as previously disclosed in writing to and accepted by Target; 6.4.5. To the knowledge of Counsel (without any independent inquiry or investigation), no consent, approval, authorization, or order of any court or governmental authority is required for the consummation by Trust on behalf of Acquiring Fund of the transactions contemplated herein, except those obtained under the 1933 Act, the 1934 Act, and the 1940 Act and those that may be required under state securities laws; 6.4.6. Trust is registered with the SEC as an investment company, and to the knowledge of Counsel no order has been issued or proceeding instituted to suspend such registration; and 6.4.7. To the knowledge of Counsel (without any independent inquiry or investigation), (a) no litigation, administrative proceeding, or investigation of or before any court or governmental body is pending or threatened as to Trust (with respect to Acquiring Fund) or any of its properties or assets attributable or allocable to Acquiring Fund and (b) Trust (with respect to Acquiring Fund) is not a party to or subject to the provisions of any order, decree, or judgment of any court or governmental body that materially and adversely affects Acquiring Fund's business, except as set forth in such opinion or as otherwise disclosed in writing to and accepted by Target. In rendering such opinion, Counsel may (1) rely, as to matters governed by the laws of the State of Delaware, on an opinion of competent Delaware counsel, (2) make assumptions regarding the authenticity, genuineness, and/or conformity of documents and copies thereof without independent verification thereof, (3) limit such opinion to applicable federal and state law, and (4) define the word "knowledge" and related terms to mean the knowledge of attorneys then with Counsel who have devoted substantive attention to matters directly related to this Agreement and the Reorganization. 6.5. Trust shall have received an opinion of Counsel substantially to the effect that: 6.5.1. Target is a Business Trust duly organized and validly existing under the laws of the Commonwealth of Massachusetts with power under its Agreement and Declaration of Trust to own all its properties and assets and, to the knowledge of Counsel, to carry on its business as presently conducted; 6.5.2. This Agreement (a) has been duly authorized, executed, and delivered by Target and (b) assuming due authorization, execution, and delivery of this Agreement by Trust on behalf of Acquiring Fund, is a valid and legally binding obligation of Target, enforceable in accordance with its A-9 47 terms, except as the same may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, and similar laws relating to or affecting creditors' rights and by general principles of equity; 6.5.3. The execution and delivery of this Agreement did not, and the consummation of the transactions contemplated hereby will not, materially violate Target's Agreement and Declaration of Trust or Amended and Restated By-Laws or any provision of any agreement (known to Counsel, without any independent inquiry or investigation) to which Target is a party or by which it is bound or (to the knowledge of Counsel, without any independent inquiry or investigation) result in the acceleration of any obligation, or the imposition of any penalty, under any agreement, judgment, or decree to which Target is a party or by which it is bound, except as set forth in such opinion or as previously disclosed in writing to and accepted by Trust; 6.5.4. To the knowledge of Counsel (without any independent inquiry or investigation), no consent, approval, authorization, or order of any court or governmental authority is required for the consummation by Target of the transactions contemplated herein, except those obtained under the 1933 Act, the 1934 Act, and the 1940 Act and those that may be required under state securities laws; 6.5.5. Target is registered with the SEC as an investment company, and to the knowledge of Counsel no order has been issued or proceeding instituted to suspend such registration; and 6.5.6. To the knowledge of Counsel (without any independent inquiry or investigation), (a) no litigation, administrative proceeding, or investigation of or before any court or governmental body is pending or threatened as to Target or any of its properties or assets and (b) Target is not a party to or subject to the provisions of any order, decree, or judgment of any court or governmental body that materially and adversely affects Target's business, except as set forth in such opinion or as otherwise disclosed in writing to and accepted by Trust. In rendering such opinion, Counsel may (1) rely, as to matters governed by the laws of the Commonwealth of Massachusetts, on an opinion of competent Massachusetts counsel, (2) make assumptions regarding the authenticity, genuineness, and/or conformity of documents and copies thereof without independent verification thereof, (3) limit such opinion to applicable federal and state law, and (4) define the word "knowledge" and related terms to mean the knowledge of attorneys then with Counsel have devoted substantive attention to matters directly related to this Agreement and the Reorganization. 6.6. Each Investment Company shall have received an opinion of Counsel, addressed to and in form and substance satisfactory to it, as to the federal income tax consequences mentioned below ("Tax Opinion"). In rendering the Tax Opinion, Counsel may rely as to factual matters, exclusively and without independent verification, on the representations made in this Agreement (or in separate letters addressed to Counsel) and the certificates delivered pursuant to paragraph 3.4. The Tax Opinion shall be substantially to the effect that, based on the facts and assumptions stated therein and conditioned on consummation of the Reorganization in accordance with this Agreement, for federal income tax purposes: 6.6.1. Acquiring Fund's acquisition of the Assets in exchange solely for Acquiring Fund Shares and Acquiring Fund's assumption of the Liabilities, followed by Target's distribution of those shares pro rata to the Shareholders constructively in exchange for their Target 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; 6.6.2. Target will recognize no gain or loss on the transfer of the Assets to Acquiring Fund in exchange solely for Acquiring Fund Shares and Acquiring Fund's assumption of the Liabilities or on the subsequent distribution of those shares to the Shareholders in constructive exchange for their Target Shares; 6.6.3. Acquiring Fund will recognize no gain or loss on its receipt of the Assets in exchange solely for Acquiring Fund Shares and its assumption of the Liabilities; A-10 48 6.6.4. Acquiring Fund's basis for the Assets will be the same as Target's basis therefor immediately before the Reorganization, and Acquiring Fund's holding period for the Assets will include Target's holding period therefor; 6.6.5. A Shareholder will recognize no gain or loss on the constructive exchange of all its Target Shares solely for Acquiring Fund Shares pursuant to the Reorganization; and 6.6.6. A Shareholder's aggregate basis for the Acquiring Fund Shares to be received by it in the Reorganization will be the same as the aggregate basis for its Target Shares to be constructively surrendered in exchange for those Acquiring Fund Shares, and its holding period for those Acquiring Fund Shares will include its holding period for those Target Shares, provided they are held as capital assets by the Shareholder at the Effective Time. Notwithstanding subparagraphs 6.6.2 and 6.6.4, the Tax 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. At any time before the Closing, either Investment Company may waive any of the foregoing conditions (except that set forth in paragraph 6.1) if, in the judgment of its Board, such waiver will not have a material adverse effect on its Fund's shareholders' interests. 7. BROKERAGE FEES AND EXPENSES 7.1. Each Investment Company represents and warrants to the other that there are no brokers or finders entitled to receive any payments in connection with the transactions provided for herein. 7.2. Each Fund will bear its own Reorganization expenses. 8. ENTIRE AGREEMENT: NO SURVIVAL Neither party has made any representation, warranty, or covenant not set forth herein, and this Agreement constitutes the entire agreement between the parties. The representations, warranties, and covenants contained herein or in any document delivered pursuant hereto or in connection herewith shall not survive the Closing. 9. TERMINATION OF AGREEMENT This Agreement may be terminated at any time at or prior to the Effective Time, whether before or after approval by Target's shareholders: 9.1. By either Fund (a) in the event of the other Fund's material breach of any representation, warranty, or covenant contained herein to be performed at or prior to the Effective Time, (b) if a condition to its obligations has not been met and it reasonably appears that such condition will not or cannot be met, or (c) if the Closing has not occurred on or before December 31, 1999; or 9.2. By the parties' mutual agreement. In the event of termination under paragraphs 9.1(c) or 9.2, there shall be no liability for damages on the part of either Fund, or the trustees or officers of either Investment Company, to the other Fund. 10. AMENDMENT This Agreement may be amended, modified, or supplemented at any time, notwithstanding approval thereof by Target's shareholders, in any manner mutually agreed upon in writing by the parties; provided that following such approval no such amendment shall have a material adverse effect on the Shareholders' interests. A-11 49 11. MISCELLANEOUS 11.1. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware; provided that, in the case of any conflict between such laws and the federal securities laws, the latter shall govern. 11.2. Nothing expressed or implied herein is intended or shall be construed to confer upon or give any person, firm, trust, or corporation other than the parties and their respective successors and assigns any rights or remedies under or by reason of this Agreement. 11.3. The parties acknowledge that Target is a Business Trust. This Agreement is executed on behalf of Target and by its trustees and/or officers in their capacities as such, and not individually. Target's obligations under this Agreement are not binding on or enforceable against any of its trustees, officers, or shareholders but are only binding on and enforceable against Target's assets and property. Acquiring Fund agrees that, in asserting any rights or claims under this Agreement, it shall look only to Target's assets and property in settlement of such rights or claims and not to such trustees, officers, or shareholders. 11.4. A trustee of Trust shall not be personally liable hereunder to Target or its trustees or shareholders for any act, omission, or obligation of Trust or any other trustee thereof. Target agrees that, in asserting any claim against Trust or its trustees, it shall look only to Acquiring Fund's assets for payment under such claim; and neither the shareholders nor the trustees of Trust, nor any of their agents, whether past, present, or future, shall be personally liable therefor. 11.5. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been executed by each Investment Company and delivered to the other party hereto. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. IN WITNESS WHEREOF, each party has caused this Agreement to be executed and delivered by its duly authorized officers as of the day and year first written above. ATTEST: AIM EASTERN EUROPE FUND - ----------------------------------------------------- By: ------------------------------------------------- Secretary President ATTEST: AIM INVESTMENT FUNDS, on behalf of its series, AIM Developing Markets Fund - ----------------------------------------------------- By: ------------------------------------------------- Secretary President A-12 50 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 MARCH 1, 1999 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. [AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE --Registered Trademark-- B-1 51 --------------------------- 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-7 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 is a service mark of A I M Management Group Inc. No dealer, salesperson or any other person has been authorized to give any information or to make any representations other than those contained in this prospectus, and you should not rely on such other information or representations. B-2 52 --------------------------- 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 or for cash management purposes, the fund may hold all or a portion of its assets in cash (U.S. dollars, foreign currencies or multinational currency units), money market instruments or high-quality debt securities. As a result, the fund may not achieve its investment objectives. 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. When interest rates rise, bond prices fall; the longer a bond's duration, the more sensitive it is to this risk. 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. These factors may affect the prices of securities issued by foreign companies 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. B-3 53 --------------------------- AIM DEVELOPING MARKETS FUND --------------------------- 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. The value of your shares could be adversely affected if the computer systems used by the fund's investment advisor and the fund's other service providers are unable to distinguish the year 2000 from the year 1900. The fund's investment advisor and independent technology consultants are working to avoid year 2000-related problems in its systems and to obtain assurances that other service providers are taking similar steps. Year 2000 problems may also affect issuers in whose securities the fund invests. An investment in the fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. B-4 54 --------------------------- 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] Total Year Ended Annual December 31, Return - ------------ ------ 1995 -95% 1996 23.59% 1997 -8.49% 1998 -35.32% During the periods shown in the bar chart, the highest quarterly return was 15.38% (quarter ended June 30, 1995) 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. AVERAGE ANNUAL TOTAL RETURNS - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (for the periods ended SINCE INCEPTION December 31, 1998) 1 YEAR INCEPTION DATE - ------------------------------------------------------------------------- Class A (38.38)% (9.98)% 1/11/94 Class B (38.96) (35.70) 11/3/97 Class C -- -- 03/01/99 MSCI Emerging Markets Free Index(1) (25.34) (9.27)(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. B-5 55 --------------------------- 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 - ------------------------------------------------------- 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 0.50 1.00 1.00 Other Expenses Other 0.66 0.91 0.91 Interest 0.20 0.20 0.20 Total Other Expenses 0.86 1.11 1.11 Total Annual Fund Operating Expenses 2.34 3.09 3.09 Expense Reimbursement(2) 0.41 0.41 0.41 Net Expenses 1.93 2.68 2.68 - ------------------------------------------------------- (1) If you buy $1,000,000 or more of Class A shares and redeem these shares within 18 months from the date of purchase, you may pay a 1% contingent deferred sales charge (CDSC) at the time of redemption. (2) The investment advisor has contractually agreed to limit net expenses. 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 $701 $1,171 $1,666 $3,024 Class B 812 1,254 1,820 3,228 Class C 412 954 1,620 3,402 - ---------------------------------------------- You would pay the following expenses if you did not redeem your shares: 1 YEAR 3 YEARS 5 YEARS 10 YEARS - ---------------------------------------------- Class A $701 $1,171 $1,666 $3,024 Class B 312 954 1,620 3,228 Class C 312 954 1,620 3,402 - ---------------------------------------------- B-6 56 --------------------------- 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 110 investment portfolios, including the fund, encompassing a broad range of investment objectives. ADVISOR COMPENSATION During the fiscal year ended October 31, 1998, the advisor and Chancellor LGT Asset Management, Inc. (the advisor for the period November 1, 1997 through May 28, 1998) together received compensation of 0.616% of average daily net assets, consisting of a management and administrative fee of 0.59% and an accounting fee of 0.026%. 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 - - Francesco Bertoni, Portfolio Manager, who has been responsible for the fund since 1998 and has been associated with the advisor and/or its affiliates since 1990. - - Craig Munro, Portfolio Manager, who has been responsible for the fund since 1999 and has been associated with the advisor and/or its affiliates since 1997. From 1993 to 1997, he was Vice President and Senior Analyst in the Emerging Markets Group of the Global Fixed Income Division of Merrill Lynch Asset Management. - - 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 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 (including any net gains from foreign currency transactions), if any, annually. B-7 57 --------------------------- 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 TEN MONTHS ENDED ENDED YEAR ENDED OCTOBER 31, OCTOBER 31, DECEMBER 31, JANUARY 11, TO 1998(b) 1997(c) 1996(c) 1995(c) DECEMBER 31, 1994(c) - ------------------------------------------------------------------------------------------------------------------------ Per Share Operating Performance: Net asset value, beginning of period $ 12.56 $ 13.84 $ 11.60 $ 12.44 $ 15.00 Income from investment operations: Net investment income 0.39(d)(e) 0.25 0.53 0.72 0.35 Net realized and unrealized gain (loss) on investments (5.10) (1.53) 2.19 (0.84) (2.46) Net increase (decrease) from investment operations (4.71) (1.28) 2.72 (0.12) (2.11) Redemption fees retained 0.28 -- -- -- -- Distributions to shareholders: From net investment income (0.60) -- (0.48) (0.72) (0.35) From net realized gain on investments -- -- -- -- (0.10) Total distributions (0.60) -- (0.48) (0.72) (0.45) Net asset value, end of period $ 7.53 $ 12.56 $ 13.84 $ 11.60 $ 12.44 Market value, end of period N/A $ 11.81 $ 11.63 $ 9.75 $ 9.75 Total investment return (based on market value) N/A 1.62%(f) 24.18% 6.60% (32.16)%(f) Total investment return (based on net asset value) (37.09)%(g) (9.25)%(f) 23.59% (0.95)% (14.07)%(f) - ------------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data: Net assets, end of period (in 000s) $87,517 $457,379 $504,012 $422,348 $452,872 Ratio of net investment income to average net assets: With expense reductions and reimbursement 3.84% 2.03%(h) 4.07% 6.33% 2.75%(h) Without expense reductions and reimbursement 3.43% 1.95%(h) 4.04% 6.30% 2.75%(h) Ratio of expenses to average net assets excluding interest expense: With expense reductions and reimbursement 1.73% 1.75%(h) 1.82% 1.77% 2.01%(h) Without expense reductions and reimbursement 2.14% 1.83%(h) 1.85% 1.80% 2.01%(h) Ratio of interest expense to average net assets(i) 0.20% N/A N/A N/A N/A Portfolio turnover rate(i) 111% 184%(h ) 138% 75% 56% - ------------------------------------------------------------------------------------------------------------------------ (a) All capital shares issued and outstanding of the predecessor fund on October 31, 1997 were reclassified as Class A shares. (b) These selected per share data were calculated based upon average shares outstanding during the period. (c) These financial highlights provide per share information of G.T. Global Developing Markets Fund, Inc. ("predecessor fund") for the period January 11, 1994 (commencement of operations) up to and including October 31, 1997. The fees and expenses of the fund differ from those of the predecessor fund. (d) Net investment income per share reflects an interest payment received from the conversion of Vnesheconombank loan agreements of $0.14 per share. (e) Before reimbursement the net investment income per share would have been reduced by $0.04. (f) Not annualized. (g) Total investment return does not include sales charges. (h) Annualized. (i) Portfolio turnover rates and ratio of interest expense to average net assets are calculated on the basis of the fund as whole without distinguishing between the classes of shares issued. N/A Not applicable. B-8 58 --------------------------- AIM DEVELOPING MARKETS FUND --------------------------- FINANCIAL HIGHLIGHTS (CONTINUED) - -------------------------------------------------------------------------------- CLASS B(a) ---------------------- YEAR ENDED OCTOBER 31, 1998(b) - ------------------------------------------------------------------------------------ Per Share Operating Performance: Net asset value, beginning of period $ 12.56 Income from investment operations: Net investment income 0.31(c)(d) Net realized and unrealized gain (loss) on investments (5.07) Net increase (decrease) from investment operations (4.76) Redemption fees retained 0.28 Distributions to shareholders: From net investment income (0.59) From net realized gain on investments -- Total distributions (0.59) Net asset value, end of period $ 7.49 Total investment return (based on net asset value) (39.76)%(e) - ------------------------------------------------------------------------------------ Ratios and supplemental data: Net assets, end of period (in 000s) $ 154 Ratio of net investment income to average net assets: With expense reductions and reimbursement 3.09% Without expense reductions and reimbursement 2.68% Ratio of expenses to average net assets excluding interest expense: With expense reductions and reimbursement 2.48% Without expense reductions and reimbursement 2.89% Ratio of interest expense to average net assets(f) 0.20% Portfolio turnover rate(f) 111% - ------------------------------------------------------------------------------------ (a) Commencing November 1, 1997, the fund began offering Class B shares. (b) These selected per share data were calculated based upon the average shares outstanding during the period. (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 investment return does not include sales charges. (f) Portfolio turnover rates and ratio of interest expense to average net assets are calculated on the basis of the fund as whole without distinguishing between the classes of shares issued. B-9 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 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 Distributors, Inc. 11 Greenway Plaza, Suite 100 Houston, TX 77046-1173 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 obtain copies of the fund's SAI and other information at the SEC's Public Reference Room in Washington, DC, on the SEC's website (http://www.sec.gov), or by sending a letter, including a duplicating fee, to the SEC's Public Reference Section, Washington, DC 20549-6009. Please call the SEC at 1-800-SEC-0330 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-- B-10 60 ANNUAL REPORT / MANAGERS' OVERVIEW FUND ENDURES TUMULTUOUS YEAR IN EMERGING MARKETS Global Market Volatility Dominated Financial News in 1998. How Did the Fund Perform in this Environment? We have been in a very challenging environment over the last year. The Fund has suffered from the particular crises hitting individual countries, but it has also been hurt by the increasingly negative perception of the riskiness of emerging market investing. Results for the fiscal year ended October 31, 1998 were quite disappointing. Total return was -37.09% for Class A shares. In comparison, the MSCI Emerging Markets Free Index had a return of -30.98%. Since their inception on November 3, 1997, Class B shares had a cumulative total return of -39.76%. Why Was Market Turmoil So Pervasive? The chain reaction started in Asia. Devalued currencies plus billions in bad loans curtailed the region's ability to purchase goods and raw materials from the world's sellers. When Asian companies flooded global commodities markets with their inventories to produce desperately needed revenues, the combination of oversupply and weakened demand caused prices to plummet, contributing to worldwide deflation. Meanwhile, investors worried over news of Russia's overwhelming government debt and the speculative borrowing practiced by its private banks. The situation was especially troubling because it was set against a backdrop of weakening oil and commodity prices. In August, Russia attempted to stabilize the banking system by floating the ruble and suspending repayment of much of its foreign debt. These events spurred a worldwide flight to quality, resulting in a broad-based selloff. Even though Russia has a relatively small economy and engages in just a tiny portion of world trade, many investors sustained millions of dollars in losses from their exposure to both its debt and its equity markets. In the wake of the Asian and Russian crises, investors began to reduce their exposure to emerging markets. Latin America as well as the more open markets in the Emerging EMEA (Europe, Middle East, and Africa) region suffered both from investor flight and from the associated rising interest rates. What Is Your Overall Strategy In Managing the Fund? First we determine the portfolio's target country allocations through a top-down process that evaluates and scores countries based on their economic growth, monetary cycle, government policy, and overall earnings growth. Our stock research and selection process identifies stocks demonstrating growth, but at a reasonable price. We then adjust our top-down allocation depending on the availability of stocks suitable for investment in a particular country or sector. OUR STOCK RESEARCH AND SELECTION PROCESS IDENTIFIES STOCKS DEMONSTRATING GROWTH, BUT AT A REASONABLE PRICE. What Are the Most Significant Changes You've Made in the Portfolio Recently? The most important strategy we've taken in the last few months has been to concentrate the portfolio in the markets and stocks where we are most confident about the growth and valuation outlook. We've deliberately reduced the breadth of holdings, and we've eliminated exposure to such highly unstable markets as Pakistan, Sri Lanka, the Philippines, Thailand, and Malaysia. We've also virtually eliminated the Fund's exposure to Russia. We don't expect to invest in the Russian market until the political and economic environment has stabilized. Your Largest Country Allocations Are in Latin America. Why Did You Favor This Region? Despite recent market turbulence, we still believe in Latin America's long-term potential. Relative to Asia, Latin America stands to perform much better because of its more favorable trade ties to the United C-1 61 States. The governments of the major economies in Latin America continue to emphasize responsible fiscal and monetary policies. We feel that many are truly committed to reform and deregulation. In fact, we've already witnessed important restructuring efforts in the banking industries of several Latin American countries and the first stages of fiscal reform in Brazil. Which Stocks Did You Like? In Brazil, we own a number of privatization candidates. Many of the larger utilities in Brazil appear undervalued given the strong medium-term growth prospects for the economy. We emphasized oil and natural resource stocks because they benefit from U.S. dollar revenues and from privatization efforts, which should encourage greater operating efficiency. We also liked Brazil's utilities such as Companhia Energetica de Minas Gerais (CEMIG), provider of electric power to the Brazilian state of Minas Gerais. With political uncertainties now reduced, such stocks have attracted investor interest once again. Our largest country allocation was in Mexico, which we believe will show relatively stable economic growth into 1999. We've focused on blue chips as well as stocks that stand to benefit from the large devaluation of the peso. Although earnings will certainly be affected this year by the monetary correction, it should help the competitive position of companies like Fomento Economico Mexicano, S.A. de C.V., a soft-drink producer that exports to 63 countries around the world. PORTFOLIO COMPOSITION AS OF OCTOBER 31, 1998, BASED ON TOTAL NET ASSETS TOP 10 PORTFOLIO HOLDINGS - ------------------------- 1. Telecomunicacoes Brasileiras S.A. (Telebras) Preferred -- ADR.......................................... (Brazil) 4.3% 2. Telefonos de Mexico, S.A. de C.V. "L" -- ADR............ (Mexico) 3.0 3. Merrill Lynch -- Kospi 200 Call Warrants, due 9/9/99.... (United States) 2.9 4. Petroleo Brasileiro, S.A. (Petrobras) Preferred......... (Brazil) 2.3 5. Companhia Energetica de Minas Gerais (CEMIG) -- ADR..... (Brazil) 2.2 6. South African Breweries Ltd............................. (South Africa) 2.0 7. Hellenic Telecommunication Organization S.A. (OTE)...... (Greece) 1.9 8. Magyar Tavkozlesi Rt. -- ADR............................ (Hungary) 1.8 9. Grupo Carso, S.A. de C.V. "A1".......................... (Mexico) 1.8 10. MISR Elgadida for Housing and Reconstruction............ (Egypt) 1.8 TOP 10 INDUSTRIES TOP 10 COUNTRIES - ----------------- ---------------- 1. Services........................... 20.2% 1. Mexico............................. 16.3% 2. Finance............................ 15.0 2. Brazil............................. 16.1 3. Energy............................. 9.7 3. South Africa....................... 6.9 4. Consumer Non-Durables.............. 9.5 4. Argentina.......................... 6.9 5. Materials/Basic Industry........... 8.3 5. India.............................. 6.2 6. Multi-Industry/Miscellaneous....... 6.7 6. Taiwan............................. 5.9 7. Technology......................... 4.3 7. Greece............................. 5.8 8. Capital Goods...................... 2.9 8. Egypt.............................. 5.7 9. Health Care........................ 1.9 9. United States...................... 5.3 10. Consumer Durables.................. 0.6 10. Israel............................. 4.2 Please keep in mind that the Fund's portfolio is subject to change and there is no assurance the Fund will continue to hold any particular security. Where Else Did You Find Opportunities? One of the advantages of a global emerging markets portfolio is its diversity. We have found a number of investments that were relatively sheltered from global economic difficulties. For example, Hindustan Lever, C-2 62 one of the largest low-end consumer good manufacturers in India, has announced better-than-anticipated earnings expectations. The company makes soap, toothpaste, and other personal care products. Global volatility has created good buying opportunities in such smaller markets as Egypt and Morocco, which have demonstrated relatively strong growth, falling interest rates, a decline in inflation, and attractive valuations. Similarly, problems in Russia have affected the prices of some of Eastern Europe's more attractive stocks. For instance, Magyar Olaj-es Gazipari (MOL) -- the gas distributor in Hungary, and KREDYT BANK of Poland are both strong stocks that we believe are trading at a discount. We've raised our weighting in Greece, which is committed to joining Europe's Economic and Monetary Union (EMU). In anticipation of that goal, the country has made major strides in economic and fiscal reform. An example of a Greek company we liked is Stet Hellas, a cellular company that has shown very strong earnings growth in recent quarters. What About Emerging-Markets Debt? Political and currency instabilities have kept us in a cautious mode with this asset class. At the end of the reporting period, just over 11% of the portfolio was in foreign government and government agency obligations. The largest allocation went to Mexican government debt; the remainder was spread across several Eastern European and Latin American countries. We have very limited exposure to corporate bonds, with a scattering of holdings in Argentina, Brazil, and a few other countries. What Is Your Outlook for Emerging Markets and for the Fund? Although we expect growth to be disappointing over the next year, we believe that emerging markets continue to offer a long-term investment option for the most aggressive investors. The fundamentals driving growth in emerging markets are still there: consumption, industrialization, a maturing financial services industry, and continuing investment in infrastructure. Emerging markets potentially can offer earnings growth rates that exceed those in developed countries; however, there are also many more risks associated with this type of investment. We urge you to read your prospectus for more information about the Fund's objectives, strategies, and risks. C-3 63 ANNUAL REPORT / PERFORMANCE HISTORY YOUR FUND'S LONG-TERM PERFORMANCE RESULTS OF A $10,000 INVESTMENT AIM DEVELOPING MARKETS FUND VS. BENCHMARK INDEXES 1/11/94-10/31/98 MSCI EMERGING IFC INVESTABLE AIM DEVELOPING MARKETS COMPOSITE MARKETS FUND FREE INDEX INDEX -------------- ------------- -------------- 1/11/94............................................ $9,524 $10,000 $10,000 4/30/94............................................ 7,943 8,922 8,601 10/31/94........................................... 9,314 10,641 10,176 4/30/95............................................ 7,250 8,494 7,776 10/31/95........................................... 7,664 8,573 7,782 4/30/96............................................ 9,036 9,716 8,963 10/31/96........................................... 9,581 9,130 8,598 4/30/97............................................ 10,511 10,133 9,433 10/31/97........................................... 9,092 8,356 7,735 4/30/98............................................ 9,427 8,660 8,018 10/31/98........................................... 5,720 5,767 5,503 Past performance cannot guarantee comparable future results. AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED OCTOBER 31, 1998, INCLUDING SALES CHARGES CLASS A SHARES Inception (1/11/94)......................................... -10.98% 1 year...................................................... -40.09* CLASS B SHARES Inception (11/3/97)......................................... -42.63%** ADVISOR CLASS SHARES (sales charges do not apply) Inception (11/3/97)......................................... -39.21%*** - --------------- * -37.09%, excluding sales charges ** -39.76%, excluding CDSC. Total return provided is cumulative total return that has not been annualized. *** Total return provided is cumulative total return that has not been annualized. Sources: Towers Data Systems Hypo -- Registered Trademark-- and Bloomberg. Your Fund's total return includes sales charges, expenses, and management fees. The performance of the Fund's Class B and Advisor Class shares will differ from Class A shares due to differing fees and expenses. For Fund data performance calculations and descriptions of indexes cited on this page, please refer to the inside front cover. On October 31, 1997, shareholders of record as of a certain date of GT Global Developing Markets Fund, Inc., a closed-end fund, became Class A shareholders of the Fund, an open-end fund. Performance of Class A shares prior to November 1, 1997 reflects the different fees and expenses of the closed-end fund. C-4 64 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 above compares your Fund's Class A shares to benchmark indexes. Use of these indexes is intended to give you a general idea of your Fund's comparative performance. It is important to understand the differences between your Fund and these indexes. An index measures performance of a hypothetical portfolio. A market index such as the MSCI Emerging Markets Free Index is not managed and incurs 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. Since the last reporting period, AIM Developing Markets Fund has elected to use the MSCI Emerging Markets Free Index as one of its benchmarks. This index more closely reflects the performance of the securities in which the Fund invests. The Fund will no longer be measured against the IFC Investable Composite Index, the index published in previous reports to shareholders. Because this is the first reporting period since we have adopted the new index, SEC guidelines require that we compare the Fund's performance to both the old and the new index. ANNUAL REPORT / FOR CONSIDERATION TAKE A CLOSER LOOK AT MARKET INDEXES You step into your car after work and hear the radio announcer say, "The market was down 200 points today." Instantly you start to worry. But should you? The question is, what exactly is "the market"? And how are your investments going to be affected by it? You need the facts, and fast. Market indexes are a good place to start. They can help you gauge how your investments are performing. "The market" actually is much broader than newspapers and television reports make it out to be. The media often report movements in the Dow Jones Industrial Average (the Dow) as indicative of the market as a whole. But the Dow is made up of just 30 stocks; the U.S. market is made up of more than 12,000 stocks traded on the New York Stock Exchange, regional exchanges, and over the counter. The Dow only measures the performance of the largest American companies. If you're like most investors, you've got a range of investments across market segments, not just blue-chip stocks. The best way to compare your investments to their peers in the marketplace is to find the right index. An index measures the performance of a particular group of stocks. But keep in mind, there is rarely a perfect match between the stocks in a mutual fund and the stocks in an index. Indexes and funds have different purposes. Mutual funds select stocks based on their past performance or future potential. Indexes pick stocks based on their ability to act as reliable measuring tools. For example, index makers for the S&P 500 look for actively traded, widely owned stocks that reflect the active stock market. There are other important differences between a fund and an index. You cannot invest directly in an index. Because indexes are unmanaged, they incur no sales charges, expenses, or fees. Even if you bought all the securities making up an index, your transaction expenses would lower your investment returns. As you follow the various indexes, you'll notice that their tracks often diverge. When large-caps are up, small-caps or overseas stocks are down -- and vice versa. The chart at the right shows calendar-year returns for two domestic and one foreign equity index for the decade 12/31/87 through 12/31/97. The market segments often move out of synch, and performance leadership often rotates from one segment to another. By positioning your investments strategically in various market segments, you're less likely to miss out on the peaks, and you'll be more protected from the valleys. Remember, patience is the key. If you jump in and C-5 65 out of investments, you could miss out on some of the market's best moments. See your financial adviser to build a diversified portfolio suited to fluctuating markets. THE USUAL INDEXES THE DOW JONES INDUSTRIAL AVERAGE What It Is: In its 102-year history, the Dow always has focused on the largest, most successful U.S. companies. The types of firms in the index have changed drastically over the years -- from the cotton companies of the 19th century to the computer icons of the 20th. The 30 stocks now in the Dow include household names such as International Business Machines Corp., Boeing Co., McDonald's Corp., and Walt Disney Co. What It Tells You: While stocks in the Dow make up about 20% of the value of all U.S. stocks, the index leaves out many sectors of the market. For most mutual fund investors, the Dow is an inadequate and often inappropriate measure of comparison. Use it to check the pulse of American big business, but look elsewhere for a more inclusive market view. S&P 500 What It Is: The S&P 500 (Standard & Poor's Composite Index of 500 Stocks) is often used as a gauge of the whole market. But it measures only 500 stocks in the large-capitalization portion of the U.S. stock market. Included in the index are Apple Computer, Hilton Hotels, NIKE Inc., and Pennzoil Co. What It Tells You: The S&P 500 is useful for evaluating a fund that invests in large-capitalization U.S. stocks. It's a poor gauge for others funds, such as a small-cap aggressive growth fund. Keep in mind that the S&P 500 is very concentrated. The top 50 companies represent half the S&P 500's assets. For the past few years, the total return of the S&P 500 has been unusually high, but much of this performance can be attributed to just a few stocks in the index. Most mutual funds are more diversified than this index. NASDAQ COMPOSITE INDEX What It Is: The NASDAQ (National Association of Securities Dealers Automated Quotation system) Composite Index measures the performance of all NASDAQ domestic and foreign stocks. Often associated with the over-the-counter market, the index also includes some exchange-listed stocks. More than 5,300 stocks are in the NASDAQ Composite Index. What It Tells You: Many consider NASDAQ a barometer for small- and mid-cap stocks. However, the index is market-value weighted -- each company's stock affects the index in proportion to that company's market value. Large-cap technology stocks such as Microsoft, Intel, and Dell Computer dominate it. The NASDAQ is not a good measure of small- and mid-cap stock performance. It basically tells you how large-cap technology stocks are doing. It is not a suitable index for most mutual funds. C-6 66 DIVERGING INDEXES S&P 500 INDEX EUROPE-AUSTRALASIA-FAR WITH MONTHLY DIVIDENDS EAST INDEX WITH DIVIDENDS* RUSSELL 2000 STOCK INDEX ---------------------- -------------------------- ------------------------ 12/88......................... 16.55% 25.02% 28.59% 12/89......................... 31.64 16.26 10.8 12/90......................... -3.09 19.48 23.2 12/91......................... 30.41 46.04 12.5 12/92......................... 7.61 18.41 11.85 12/93......................... 10.06 18.88 32.94 12/94......................... 1.32 -1.82 8.06 12/95......................... 37.54 28.45 11.55 12/96......................... 22.95 16.49 6.36 12/97......................... 33.35 22.36 2.06 Past performance is no guarantee of future investment results. - --------------- * International investing presents risks not associated with investing solely in the United States. These include risks relating to fluctuation in the value of the U.S. dollar, custody arrangements made for a 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. A FEW MORE INDEXES S&P 400 What It Is: The Standard & Poor's 400 Mid-Cap Index is a relatively new index that dates to 1981 and measures performance of 400 stocks in the mid-capitalization sector of the domestic stock market. Companies in the index include America Online, Inc., CompuWare Corp., Starbucks Corp., and Office Depot. As of July 31, the median market capitalization in the S&P 400 was approximately $1.8 billion, but some stocks in the index have capitalizations as large as $5 billion. What It Tells You: If your fund invests primarily in mid-caps, this is one of the best benchmarks to use. But keep in mind that the index may include companies smaller or larger than the ones in your fund. RUSSELL 2000 INDEX What It Is: The Russell 2000 Index measures the performance of small-cap stocks. A total of 2,000 U.S. companies are represented in the index, including such well-known firms as Bally Total Fitness, Bethlehem Steel, Coca-Cola Bottling Co., and Coors Brewing Co. The index, which is cap-weighted, represents about 10% of the U.S. stock market. More than 900 of the stocks in the Russell 2000 trade on either the New York Stock Exchange or the American Stock Exchange. What It Tells You: The Russell 2000 Index is a very good indicator of small-cap stock performance. It is a true small-cap index with the market value of companies represented in this index ranging from $171.7 million to $1.1 billion. Many mutual funds investing in small-cap stocks use the Russell 2000 as their benchmark index. THE EUROPE, AUSTRALASIA, AND FAR EAST INDEX (EAFE) What It Is: The EAFE consists of approximately 1,600 foreign stocks tracked by Morgan Stanley Capital International (MSCI). They are listed on stock exchanges in 20 developed countries. Stocks are chosen to reflect 60% of the market capitalization of each country and of each major industry group. What It Tells You: As international investing has grown, a need has arisen to measure global stock-market performance. The EAFE fulfills this need for developed markets in Europe, Australia and the Far C-7 67 East. It is frequently used as a benchmark for mutual funds investing in stocks in these markets. MSCI also has developed indexes for specific countries and regions and for emerging markets. Since your fund's country allocation may be different from EAFE, you may need to look at a more specific index. An index is not an investment product available for purchase. An index measures the performance of a hypothetical portfolio. 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. C-8 68 AIM DEVELOPING MARKETS FUND (A PORTFOLIO OF AIM INVESTMENT FUNDS) AIM EASTERN EUROPE FUND 11 GREENWAY PLAZA, SUITE 100 HOUSTON, TEXAS 77046 STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information relates specifically to the proposed Reorganization whereby AIM Developing Markets Fund ("Developing Markets Fund"), a portfolio of AIM Investment Funds, would acquire all of the assets of AIM Eastern Europe Fund ("Eastern Europe Fund") in exchange solely for Class A shares of beneficial interest in Developing Markets Fund and the assumption by Developing Markets Fund of all of Eastern Europe Fund's liabilities. This Statement of Additional Information consists of this cover page, the pro forma financial statements of Developing Markets Fund (giving effect to the Reorganization) for the fiscal year ended October 31, 1998, and the following described documents, each of which is incorporated by reference herein: (1) The Statement of Additional Information of Developing Markets Fund, dated March 1, 1999. (2) The Annual Report to Shareholders of Developing Markets Fund for the fiscal year ended October 31, 1998. (3) The Annual Report to Shareholders of Eastern Europe Fund for the fiscal year ended October 31, 1998. This Statement of Additional Information is not a prospectus and should be read only in conjunction with the Proxy Statement dated June 28, 1999 relating to the above-referenced matter. A copy of the Proxy Statement may be obtained without charge by writing to A I M Distributors, Inc., P.O. Box 4739, Houston, Texas 77210-4739 or by calling toll-free 1-800-347-4246. This Statement of Additional Information is dated June 28, 1999. 69 AIM DEVELOPING MARKETS FUND AIM EASTERN EUROPE FUND PRO FORMA COMBINING STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 1998 (UNAUDITED) AIM Developing AIM Emerging Markets Markets Adjustments INVESTMENT INCOME: Interest $ 5,875,109 $ 250,454 ------------ ------------ ----------- Dividends 4,212,609 4,700,768 (net of $263,295 foreign withholding tax-AIM Developing Markets Fund) (net of $75,619 foreign withholding tax-AIM Eastern Europe Fund) ------------ ------------ ----------- Securities lending income 241,088 186,080 ------------ ------------ ----------- Total investment income 10,328,806 5,137,302 ============ ============ =========== EXPENSES: Investment management and administration fees 1,740,733 1,660,548 ------------ ------------ ----------- Administration fees -- ------------ ------------ ----------- Transfer agent fees 538,250 1,069,500 ------------ ------------ ----------- Service and distribution expenses: Class A 454,554 406,198 ------------ ------------ ----------- Service and distribution expenses: Class B 1,576 871,360 ------------ ------------ ----------- Professional fees 360,255 122,310 ------------ ------------ ----------- Interest expense 359,635 447,556 ------------ ------------ ----------- Printing and postage expenses 312,740 219,000 ------------ ------------ ----------- Custodian fees 155,690 160,000 ------------ ------------ ----------- Registration and filing fees 96,900 74,900 ------------ ------------ ----------- Amortization of organization costs 70,755 ------------ ------------ ----------- Fund accounting fees 53,782 45,603 ------------ ------------ ----------- Trustees' fees and expenses 30,660 13,870 ------------ ------------ ----------- Other expenses 17,000 10,950 ------------ ------------ ----------- Total expenses 4,192,530 5,101,795 ============ ============ =========== Less Expense reimbursement by AIM Advisors, Inc. (691,157) (821,992) ------------ ------------ ----------- Expense reductions (41,663) (39,255) ------------ ------------ ----------- Net expenses 3,459,710 4,240,548 ============ ============ =========== Net investment income 6,869,096 896,754 ============ ============ =========== Net realized and unrealized gain (loss) on investments and foreign currencies: Net realized loss on investments (81,224,308) (72,668,661) ------------ ------------ ----------- Net realized loss on foreign currency transactions (2,134,815) (2,512,849) ------------ ------------ ----------- Net realized loss during the year (83,359,123) (75,181,510) ============ ============ =========== Net change in unrealized appreciations (depreciation) on translation of assets and liabilities in foreign currencies 197,153 601,285 ------------ ------------ ----------- Net change in unrealized appreciation (depreciation) of investments 13,544,276 5,031,551 ------------ ------------ ----------- Net unrealized appreciation (depreciation) during the year 13,741,429 5,632,836 ============ ============ =========== Net realized and unrealized loss on investments and foreign currencies (69,617,694) (69,548,674) ============ ============ =========== Net decrease in net assets resulting from operations ($62,748,598) ($68,651,920) ============ ============ =========== Pro Forma AIM Eastern Combining Europe INVESTMENT INCOME: Interest $ 6,125,563 $ 840,587 ------------- ------------- Dividends 8,913,377 497,178 (net of $263,295 foreign withholding tax-AIM Developing Markets Fund) (net of $75,619 foreign withholding tax-AIM Eastern Europe Fund) ------------- ------------- Securities lending income 427,168 -- ------------- ------------- Total investment income 15,466,108 1,337,765 ============= ============= EXPENSES: Investment management and administration fees 3,401,281 1,017,796 ------------- ------------- Administration fees 0 162,844 ------------- ------------- Transfer agent fees 1,607,750 29,713 ------------- ------------- Service and distribution expenses: Class A 860,752 -- ------------- ------------- Service and distribution expenses: Class B 872,936 -- ------------- ------------- Professional fees 482,565 59,412 ------------- ------------- Interest expense 807,191 -- ------------- ------------- Printing and postage expenses 531,740 73,465 ------------- ------------- Custodian fees 315,690 42,988 ------------- ------------- Registration and filing fees 171,800 -- ------------- ------------- Amortization of organization costs 70,755 -- ------------- ------------- Fund accounting fees 99,385 -- ------------- ------------- Trustees' fees and expenses 44,530 34,432 ------------- ------------- Other expenses 27,950 54,438 ------------- ------------- Total expenses 9,294,325 1,475,088 ============= ============= Less Expense reimbursement by AIM Advisors, Inc. (1,513,149) (40,711) ------------- ------------- Expense reductions (80,918) -- ------------- ------------- Net expenses 7,700,258 1,434,377 ============= ============= Net investment income 7,765,850 (96,612) ============= ============= Net realized and unrealized gain (loss) on investments and foreign currencies: Net realized loss on investments (153,892,969) (7,904,517) ------------- ------------- Net realized loss on foreign currency transactions (4,647,664) (194,719) ------------- ------------- Net realized loss during the year (158,540,633) (8,099,236) ============= ============= Net change in unrealized appreciations (depreciation) on translation of assets and liabilities in foreign currencies 798,438 (49,219) ------------- ------------- Net change in unrealized appreciation (depreciation) of investments 18,575,827 (38,905,480) ------------- ------------- Net unrealized appreciation (depreciation) during the year 19,374,265 (38,954,699) ============= ============= Net realized and unrealized loss on investments and foreign currencies (139,166,368) (47,053,935) ============= ============= Net decrease in net assets resulting from operations $(131,400,518) $ (47,150,547) ============= ============= Pro Forma Adjustments Combining INVESTMENT INCOME: Interest $ 6,966,150 --------- ------------- Dividends 9,410,555 (net of $263,295 foreign withholding tax-AIM Developing Markets Fund) (net of $75,619 foreign withholding tax-AIM Eastern Europe Fund) --------- ------------- Securities lending income 427,168 --------- ------------- Total investment income 16,803,873 ========= ============= EXPENSES: Investment management and administration fees (260,627) 4,158,450 --------- ------------- Administration fees (162,844) 0 --------- ------------- Transfer agent fees 1,637,463 --------- ------------- Service and distribution expenses: Class A 202,330 1,063,082 --------- ------------- Service and distribution expenses: Class B 872,936 --------- ------------- Professional fees 541,977 --------- ------------- Interest expense 807,191 --------- ------------- Printing and postage expenses 605,205 --------- ------------- Custodian fees 358,678 --------- ------------- Registration and filing fees 171,800 --------- ------------- Amortization of organization costs 70,755 --------- ------------- Fund accounting fees 24,835 124,220 --------- ------------- Trustees' fees and expenses 78,962 --------- ------------- Other expenses 82,388 --------- ------------- Total expenses (196,306) 10,573,107 ========= ============= Less Expense reimbursement by AIM Advisors, Inc. (1,553,860) --------- ------------- Expense reductions (80,918) ========= ============= Net expenses (196,306) 8,938,329 ========= ============= Net investment income 196,306 7,865,544 ========= ============= Net realized and unrealized gain (loss) on investments and foreign currencies: Net realized loss on investments (161,797,486) --------- ------------- Net realized loss on foreign currency transactions (4,842,383) --------- ------------- Net realized loss during the year (166,639,869) ========= ============= Net change in unrealized appreciations (depreciation) on translation of assets and liabilities in foreign currencies 749,219 --------- ------------- Net change in unrealized appreciation (depreciation) of investments (20,329,653) --------- ------------- Net unrealized appreciation (depreciation) during the year (19,580,434) ========= ============= Net realized and unrealized loss on investments and foreign currencies (186,220,303) ========= ============= Net decrease in net assets resulting from operations $ 196,306 $(178,354,759) ========= ============= See Accompanying Notes to Pro Forma Combining Financial Statements. 70 AIM DEVELOPING MARKETS FUND AIM EMERGING MARKETS AIM EASTERN EUROPE FUND Pro Forma Combining Statements of Assets and Liabilities October 31, 1998 (Unaudited) AIM Developing AIM Emerging Pro Forma Markets Markets Combining ------------ ------------ ------------ ASSETS: Investments, at market value $ 90,220,411 $ 95,678,089 $185,898,500 ------------ ------------ ------------ (cost $117,236,708-AIM Developing Markets Fund) (cost $73,141,633-AIM Eastern Europe Fund) ------------ ------------ ------------ Repurchase agreement, at value and cost -- 0 ------------ ------------ ------------ U.S. currency 895 827 1,722 ------------ ------------ ------------ Foreign currencies 723,408 1,235,418 1,958,826 ------------ ------------ ------------ (cost $730,519-AIM Developing Markets Fund) (cost $99,392-AIM Eastern Europe Fund) ------------ ------------ ------------ Receivable for Securities Sold 903,099 66,130 969,229 ------------ ------------ ------------ Receivable for Fund shares sold 5,619 413,554 419,173 ------------ ------------ ------------ Dividends and foreign withholding taxes receivable 268,551 320,223 588,774 ------------ ------------ ------------ Prepaid expenses -- 0 ------------ ------------ ------------ Interest receivable 424,599 2,692 427,291 ------------ ------------ ------------ Unamortized organizational costs 14,557 14,557 ------------ ------------ ------------ Total assets 92,561,139 97,716,933 190,278,072 ============ ============ ============ LIABILITIES: Payables for: ------------ ------------ ------------ Securities purchased 3,823,511 3,143,073 6,966,584 ------------ ------------ ------------ Fund shares repurchased 394,946 288,586 683,532 ------------ ------------ ------------ Investment management and administration fees 356,752 394,425 751,177 ------------ ------------ ------------ Service and distribution expenses 96,087 147,714 243,801 ------------ ------------ ------------ Professional fees 49,710 43,949 93,659 ------------ ------------ ------------ Transfer agent fees 30,788 136,937 167,725 ------------ ------------ ------------ Trustees' fees and expenses 25,309 4,101 29,410 ------------ ------------ ------------ Custodian 10,081 8,199 18,280 ------------ ------------ ------------ Registration and filing fees 7,596 24,709 32,305 ------------ ------------ ------------ Printing and postage expenses 6,093 102,809 108,902 ------------ ------------ ------------ Open forward foreign currency contracts 950 950 ------------ ------------ ------------ Fund Accounting fees 883 4,847 5,730 ------------ ------------ ------------ Administration fees -- 0 ------------ ------------ ------------ Other accrued expenses 57,979 15,003 72,982 ------------ ------------ ------------ Total liabilities 4,860,685 4,314,352 9,175,037 ============ ============ ============ Net assets applicable to shares outstanding 87,700,454 93,402,581 181,103,035 ============ ============ ============ NET ASSETS: Class A $ 87,517,225 $ 43,925,435 $131,442,660 ============ ============ ============ Class B $ 153,941 $ 49,439,410 $ 49,593,351 ============ ============ ============ Advisor Class $ 29,288 $ 37,736 $ 67,024 ============ ============ ============ SHARES OUTSTANDING: Class A 11,616,154 5,964,824 17,446,312 ------------ ------------ ------------ Class B 20,565 6,894,258 6,620,273 ------------ ------------ ------------ Class C 3,877 5,067 8,877 ------------ ------------ ------------ Class A: Net asset value and redemption price per share $ 7.53 $ 7.36 $ 7.53 ------------ ------------ ------------ Offering price per share: (Net asset value of $7.53/95.25%)-AIM Developing Markets Fund) $ 7.91 ============ ============ ============ Class B: Net asset value and offering price per share $ 7.49 $ 7.17 $ 7.49 ============ ============ ============ Class C: Net asset value and offering price per share $ 7.55 $ 7.45 $ 7.55 ============ ============ ============ AIM Eastern Pro Forma Europe Combining ------------ ------------ ASSETS: Investments, at market value $ 41,708,968 $227,607,468 ------------ ------------ (cost $117,236,708-AIM Developing Markets Fund) (cost $73,141,633-AIM Eastern Europe Fund) ------------ ------------ Repurchase agreement, at value and cost 5,036,000 5,036,000 ------------ ------------ U.S. currency 685 2,407 ------------ ------------ Foreign currencies 97,972 2,056,798 ------------ ------------ (cost $730,519-AIM Developing Markets Fund) (cost $99,392-AIM Eastern Europe Fund) ------------ ------------ Receivable for Securities Sold 635,491 1,604,720 ------------ ------------ Receivable for Fund shares sold -- 419,173 ------------ ------------ Dividends and foreign withholding taxes receivable 132,076 720,850 ------------ ------------ Prepaid expenses 4,905 4,905 ------------ ------------ Interest receivable 741 428,032 ------------ ------------ Unamortized organizational costs -- 14,557 ------------ ------------ Total assets 47,616,838 237,894,910 ============ ============ LIABILITIES: Payables for: ------------ ------------ Securities purchased 310,383 7,276,967 ------------ ------------ Fund shares repurchased -- 683,532 ------------ ------------ Investment management and administration fees 38,395 789,572 ------------ ------------ Service and distribution expenses -- 243,801 ------------ ------------ Professional fees 53,350 147,009 ------------ ------------ Transfer agent fees -- 167,725 ------------ ------------ Trustees' fees and expenses 10,400 39,810 ------------ ------------ Custodian 2,500 20,780 ------------ ------------ Registration and filing fees -- 32,305 ------------ ------------ Printing and postage expenses 75,000 183,902 ------------ ------------ Open forward foreign currency contracts -- 950 ------------ ------------ Fund Accounting fees -- 5,730 ------------ ------------ Administration fees 7,132 7,132 ------------ ------------ Other accrued expenses 20,132 93,114 ------------ ------------ Total liabilities 517,292 9,692,329 ============ ============ Net assets applicable to shares outstanding 47,099,546 228,202,581 ============ ============ NET ASSETS: Class A $ 47,099,546 $178,542,206 ============ ============ Class B -- $ 49,593,351 ============ ============ Advisor Class -- $ 67,024 ============ ============ SHARES OUTSTANDING: Class A 6,516,426 23,703,119 ============ ============ Class B -- 6,620,273 ============ ============ Class C -- 8,877 ============ ============ Class A: Net asset value and redemption price per share $ 7.23 $ 7.53 Offering price per share: (Net asset value of $7.53/95.25%)-AIM Developing Markets Fund) -- -- ============ ============ Class B: Net asset value and offering price per share -- $ 7.49 ============ ============ Class C: Net asset value and offering price per share -- $ 7.55 ============ ============ See Accompanying Notes to Pro Forma Combining Financial Statements. 71 AIM DEVELOPING MARKETS FUND AIM EASTERN EUROPE FUND PRO FORMA COMBINING SCHEDULE OF INVESTMENTS OCTOBER 31, 1998 (UNAUDITED) SHARES AIM AIM Pro Forma AIM Pro Forma Developing Emerging Combining Eastern Combining Markets Markets Europe EQUITY INVESTMENTS (81.9%) SERVICES (20.4%) --------- ---------- ---------- --------- ---------- ----------------------------------------------------- Telecomunicacoes Brasileiras S.A. (Telebras) 49,291 59,262 108,553 108,553 Preferred - ADR (a) (Telephone Networks) --------- ---------- ---------- --------- ---------- ----------------------------------------------------- 50,583 48,027 98,610 98,610 Telefonos de Mexico, S.A. de C.V. "L" - ADR (a) (Telephone Networks) --------- ---------- ---------- --------- ---------- ----------------------------------------------------- 74,322 57,266 131,588 131,588 Hellenic Telecommunication Organization S.A. (OTE) (Telephone Networks) --------- ---------- ---------- --------- ---------- ----------------------------------------------------- 59,100 67,990 127,090 202,700 329,790 Magyar Tavkozlesi Rt. - ADR (a) (Telephone Networks) --------- ---------- ---------- --------- ---------- ----------------------------------------------------- 64,000 64,000 Julius Meinl International AG (Retailers - Food) --------- ---------- ---------- --------- ---------- ----------------------------------------------------- 80,900 81,400 162,300 162,300 Telefonica del Peru S.A. - ADR (a) (Telephone Networks) --------- ---------- ---------- --------- ---------- ----------------------------------------------------- 748,662 995,730 1,744,392 1,744,392 Cifra, S.A. de C.V. "V" (b) (Retailers - Other) --------- ---------- ---------- --------- ---------- ----------------------------------------------------- 27,528 30,983 58,511 58,511 Telefonica de Argentina S.A. - ADR (a) (Telephone Networks) --------- ---------- ---------- --------- ---------- ----------------------------------------------------- Telecomunicacoes de Sao Paulo S.A. (TELESP): (Telephone Regional/Local) 7,001,000 10,859,000 17,860,000 17,860,000 Common (b) 150,157 185,406 335,563 335,563 Preferred --------- ---------- ---------- --------- ---------- ----------------------------------------------------- 26,700 35,100 61,800 61,800 Grupo Televisa, S.A. de C.V. - GDR (a)(b) (Broadcasting & Publishing) --------- ---------- ---------- --------- ---------- ----------------------------------------------------- 24,976 24,829 49,805 49,805 STET Hellas Telecommunications S.A. - ADR (a)(b) (Wireless Communications) --------- ---------- ---------- --------- ---------- ----------------------------------------------------- Mahanagar Telephone Nigam Ltd. (a)(b)(c) (Telecom - Other) 43,300 43,300 43,300 GDR 143,500 84,400 227,900 227,900 Common --------- ---------- ---------- --------- ---------- ----------------------------------------------------- 37,000 37,000 Danubius Hotels and Spa Rt. (b) (Leisure & Tourism) --------- ---------- ---------- --------- ---------- ----------------------------------------------------- 7,132,127 10,607,155 17,739,282 17,739,282 Companhia de Saneamento Basico do Estado de Sao Paulo (Business & Public Services) --------- ---------- ---------- --------- ---------- ----------------------------------------------------- 37,000 37,000 74,000 74,000 Videsh Sanchar Nigam Ltd. - Reg S GDR (a)(b)(c) (Telecom - Other) --------- ---------- ---------- --------- ---------- ----------------------------------------------------- 15,500 27,900 43,400 43,400 Nortel Inversora S.A. - ADR (a) (Telephone Networks) --------- ---------- ---------- --------- ---------- ----------------------------------------------------- 10,300 19,400 29,700 29,700 Telecom Argentina S.A. - ADR (a) (Telephone Networks) --------- ---------- ---------- --------- ---------- ----------------------------------------------------- 2,320 2,809 5,129 5,129 ONA (Omnium Nord Africain) S.A. "A" (Business & Public Services) --------- ---------- ---------- --------- ---------- ----------------------------------------------------- 86,900 108,700 195,600 195,600 Bezeq Israeli Telecommunication Corporation Ltd. (Telephone Networks) --------- ---------- ---------- --------- ---------- ----------------------------------------------------- 295,000 295,000 Nizhny Novgorod Sviazinform (a) (Telecom - Other) --------- ---------- ---------- --------- ---------- ----------------------------------------------------- 14,898 18,591 33,489 33,489 Blue Square Chain Investments & Properties Ltd. (b) (Retailers - Food) --------- ---------- ---------- --------- ---------- ----------------------------------------------------- Russian Telecommunication Development Corp. (Telephone Networks) 52,600 52,600 Non-Voting (a)(b)(d)(e) 38,400 38,400 Voting (a)(b)(d)(e) --------- ---------- ---------- --------- ---------- ----------------------------------------------------- MARKET VALUE AIM AIM Pro Forma AIM Pro Forma Developing Emerging Combining Eastern Combining Country Markets Markets Europe EQUITY INVESTMENTS (81.9%) SERVICES (20.4%) Telecomunicacoes Brasileiras S.A. (Telebras) Preferred - ADR (a) BRZL 3,743,034 4,500,208 8,243,242 8,243,242 (Telephone Networks) - ----------------------------------------------------- ---- --------- --------- --------- --------- --------- Telefonos de Mexico, S.A. de C.V. "L" - ADR (a) MEX 2,671,415 2,536,426 5,207,841 5,207,841 (Telephone Networks) - ----------------------------------------------------- ---- --------- --------- --------- --------- --------- Hellenic Telecommunication Organization S.A. (OTE) GREC 1,690,938 1,302,888 2,993,826 2,993,826 (Telephone Networks) - ----------------------------------------------------- ---- --------- --------- --------- --------- --------- Magyar Tavkozlesi Rt. - ADR (a) HGRY 1,588,313 1,827,231 3,415,544 5,447,562 8,863,106 (Telephone Networks) - ----------------------------------------------------- ---- --------- --------- --------- --------- --------- Julius Meinl International AG ASTRI 1,319,248 1,319,248 (Retailers - Food) - ----------------------------------------------------- ---- --------- --------- --------- --------- --------- Telefonica del Peru S.A. - ADR (a) PERU 1,051,700 1,058,200 2,109,900 2,109,900 (Telephone Networks) - ----------------------------------------------------- ---- --------- --------- --------- --------- --------- Cifra, S.A. de C.V. "V" (b) MEX 1,015,210 1,350,243 2,365,453 2,365,453 (Retailers - Other) - ----------------------------------------------------- ---- --------- --------- --------- --------- --------- Telefonica de Argentina S.A. - ADR (a) ARG 910,145 1,024,375 1,934,520 1,934,520 (Telephone Networks) - ----------------------------------------------------- ---- --------- --------- --------- --------- --------- Telecomunicacoes de Sao Paulo S.A. (TELESP): BRZL (Telephone Regional/Local) Common (b) 760,144 1,179,032 1,939,176 1,939,176 Preferred 25,177 31,088 56,265 56,265 - ----------------------------------------------------- ---- --------- --------- --------- --------- --------- Grupo Televisa, S.A. de C.V. - GDR (a)(b) MEX 724,238 952,088 1,676,326 1,676,326 (Broadcasting & Publishing) - ----------------------------------------------------- ---- --------- --------- --------- --------- --------- STET Hellas Telecommunications S.A. - ADR (a)(b) GREC 655,620 651,761 1,307,381 1,307,381 (Wireless Communications) - ----------------------------------------------------- ---- --------- --------- --------- --------- --------- Mahanagar Telephone Nigam Ltd. (a)(b)(c) IND (Telecom - Other) GDR 465,475 465,475 465,475 Common 620,816 365,135 985,951 985,951 - ----------------------------------------------------- ---- --------- --------- --------- --------- --------- Danubius Hotels and Spa Rt. (b) HGRY 597,159 597,159 (Leisure & Tourism) - ----------------------------------------------------- ---- --------- --------- --------- --------- --------- Companhia de Saneamento Basico do Estado de Sao Paulo BRZL 574,014 853,695 1,427,709 1,427,709 (Business & Public Services) - ----------------------------------------------------- ---- --------- --------- --------- --------- --------- Videsh Sanchar Nigam Ltd. - Reg S GDR (a)(b)(c) IND 388,500 388,500 777,000 777,000 (Telecom - Other) - ----------------------------------------------------- ---- --------- --------- --------- --------- --------- Nortel Inversora S.A. - ADR (a) ARG 344,875 620,775 965,650 965,650 (Telephone Networks) - ----------------------------------------------------- ---- --------- --------- --------- --------- --------- Telecom Argentina S.A. - ADR (a) ARG 332,175 625,650 957,825 957,825 (Telephone Networks) - ----------------------------------------------------- ---- --------- --------- --------- --------- --------- ONA (Omnium Nord Africain) S.A. "A" MOR 301,551 365,111 666,662 666,662 (Business & Public Services) - ----------------------------------------------------- ---- --------- --------- --------- --------- --------- Bezeq Israeli Telecommunication Corporation Ltd. ISRL 249,999 312,714 562,713 562,713 (Telephone Networks) - ----------------------------------------------------- ---- --------- --------- --------- --------- --------- Nizhny Novgorod Sviazinform (a) RUS 247,800 247,800 (Telecom - Other) - ----------------------------------------------------- ---- --------- --------- --------- --------- --------- Blue Square Chain Investments & Properties Ltd. (b) ISRL 190,525 237,753 428,278 428,278 (Retailers - Food) - ----------------------------------------------------- ---- --------- --------- --------- --------- --------- Russian Telecommunication Development Corp. RUS (Telephone Networks) Non-Voting (a)(b)(d)(e) 129,396 129,396 Voting (a)(b)(d)(e) 94,464 94,464 72 AIM DEVELOPING MARKETS FUND AIM EASTERN EUROPE FUND PRO FORMA COMBINING SCHEDULE OF INVESTMENTS OCTOBER 31, 1998 (UNAUDITED) SHARES AIM AIM Pro Forma AIM Pro Forma Developing Emerging Combining Eastern Combining Markets Markets Europe Samara Svyazinform (Telephone - Regional/Local) 4,600 4,600 Common (a)(e) 8,900 8,900 Preferred (a)(e) - ---------- ---------- ---------- ------- ---------- ------------------------------------------- 14,109 14,109 Chelyabinsk Svyazinform (a) (Telecom - Other) - ---------- ---------- ---------- ------- ---------- ------------------------------------------- 1,400 1,400 Technoimpex (a)(b)(d)(e) (Wholesale & International Trade) - ---------- ---------- ---------- ------- ---------- ------------------------------------------- 50 50 50 Indian Hotels Co., Ltd. (Leisure & Tourism) - ---------- ---------- ---------- ------- ---------- ------------------------------------------- FINANCE (16.3%) - ---------- ---------- ---------- ------- ---------- ------------------------------------------- 88,250 91,470 179,720 179,720 Liberty Life Association of Africa Ltd. (Insurance - Life) - ---------- ---------- ---------- ------- ---------- ------------------------------------------- Bank Handlowy W. Warszawie (Banks - Money Center) 70,000 70,000 Common 47,139 47,139 Reg S GDR (a)(c) 2,590 2,590 GDR (f) - ---------- ---------- ---------- ------- ---------- ------------------------------------------- 63,120 63,120 Bank Rozwoju Eksportu S.A. (Banks - Money Center) - ---------- ---------- ---------- ------- ---------- ------------------------------------------- 26,059 26,059 Bank Slaski S.A. (Banks - Money Center) - ---------- ---------- ---------- ------- ---------- ------------------------------------------- 301,200 382,800 684,000 684,000 Cathay Life Insurance Co., Ltd. (Insurance - Life) - ---------- ---------- ---------- ------- ---------- ------------------------------------------- 28,000 28,000 OTP Bank Reg S GDR (a)(c) (Banks - Money Center) - ---------- ---------- ---------- ------- ---------- ------------------------------------------- 6,520 8,845 15,365 15,365 National Bank of Greece S.A. (Banks - Money Center) - ---------- ---------- ---------- ------- ---------- ------------------------------------------- 11,255 14,955 26,210 26,210 Alpha Credit Bank (Banks - Regional) - ---------- ---------- ---------- ------- ---------- ------------------------------------------- 797,733 797,733 Big Bank Gdanski S.A. (Banks - Money Center) - ---------- ---------- ---------- ------- ---------- ------------------------------------------- Uniao de Bancos Brasileiros S.A. (Unibanco) (Banks - Money Center) 14,649,042 16,569,429 31,218,471 31,218,471 Units (g) 18,510 21,670 40,180 40,180 GDR (a) - ---------- ---------- ---------- ------- ---------- ------------------------------------------- 440,500 642,510 1,083,010 1,083,010 Bank Hapoalim Ltd. (Banks - Money Center) - ---------- ---------- ---------- ------- ---------- ------------------------------------------- 691,100 1,007,400 1,698,500 1,698,500 Grupo Financiero Banamex Accival, S.A. de C.V. "B" (b) (Banks - Money Center) - ---------- ---------- ---------- ------- ---------- ------------------------------------------- 43,000 46,000 89,000 89,000 BIG Bank Gdanski S.A. - Reg S GDR (a)(c) (Banks - Regional) - ---------- ---------- ---------- ------- ---------- ------------------------------------------- 519,768 768,745 1,288,513 1,288,513 Bank Leumi Le - Israel (Banks - Money Center) - ---------- ---------- ---------- ------- ---------- ------------------------------------------- 69,400 95,500 164,900 164,900 MISR International Bank - Reg S GDR (a)(c) (Banks - Money Center) - ---------- ---------- ---------- ------- ---------- ------------------------------------------- 23,068,549 34,305,200 57,373,749 57,373,749 Turkiye Is Bankasi (Isbank) "C" (Banks - Money Center) - ---------- ---------- ---------- ------- ---------- ------------------------------------------- 28,872 28,226 57,098 57,098 Banco de Galicia y Buenos Aires, S.A. de C.V. - ADR (a) (Banks - Money Center) - ---------- ---------- ---------- ------- ---------- ------------------------------------------- 5,800 7,460 13,260 13,260 Commercial Bank of Greece S.A. (Banks - Money Center) - ---------- ---------- ---------- ------- ---------- ------------------------------------------- 104,591 104,591 Vilniaus Bankas AB Reg S GDR (a)(c) (Banks - Money Center) - ---------- ---------- ---------- ------- ---------- ------------------------------------------- MARKET VALUE AIM AIM Pro Forma AIM Pro Forma Developing Emerging Combining Eastern Combining Country Markets Markets Europe Samara Svyazinform RUS (Telephone - Regional/Local) Common (a)(e) 94,300 94,300 Preferred (a)(e) 91,225 91,225 - ------------------------------------------- ------- ----------- ----------- ---------- --------- ---------- Chelyabinsk Svyazinform (a) RUS 93,472 93,472 (Telecom - Other) - ------------------------------------------- ------- ----------- ----------- ---------- --------- ---------- Technoimpex (a)(b)(d)(e) HGRY (Wholesale & International Trade) - ------------------------------------------- ------- ----------- ----------- ---------- --------- ---------- Indian Hotels Co., Ltd. IND 484 484 484 (Leisure & Tourism) - ------------------------------------------- ------- ----------- ----------- ---------- --------- ---------- 17,838,873 20,648,348 38,487,221 8,114,626 46,601,847 FINANCE (16.3%) - ------------------------------------------- ------- ----------- ----------- ---------- --------- ---------- Liberty Life Association of Africa Ltd. SAFR 1,515,564 1,570,862 3,086,426 3,086,426 (Insurance - Life) - ------------------------------------------- ------- ----------- ----------- ---------- --------- ---------- Bank Handlowy W. Warszawie POL (Banks - Money Center) Common 772,807 772,807 Reg S GDR (a)(c) 537,384 537,384 GDR (f) 29,576 29,576 - ------------------------------------------- ------- ----------- ----------- ---------- --------- ---------- Bank Rozwoju Eksportu S.A. 1,320,349 1,320,349 (Banks - Money Center) - ------------------------------------------- ------- ----------- ----------- ---------- --------- ---------- Bank Slaski S.A. POL 1,302,193 1,302,193 (Banks - Money Center) - ------------------------------------------- ------- ----------- ----------- ---------- --------- ---------- Cathay Life Insurance Co., Ltd. TWN 1,065,248 1,353,841 2,419,089 2,419,089 (Insurance - Life) - ------------------------------------------- ------- ----------- ----------- ---------- --------- ---------- OTP Bank Reg S GDR (a)(c) HGRY 1,015,000 1,015,000 (Banks - Money Center) - ------------------------------------------- ------- ----------- ----------- ---------- --------- ---------- National Bank of Greece S.A. GREC 927,124 1,257,732 2,184,856 2,184,856 (Banks - Money Center) - ------------------------------------------- ------- ----------- ----------- ---------- --------- ---------- Alpha Credit Bank GREC 900,040 1,195,922 2,095,962 2,095,962 (Banks - Regional) - ------------------------------------------- ------- ----------- ----------- ---------- --------- ---------- Big Bank Gdanski S.A. POL 822,764 822,764 (Banks - Money Center) - ------------------------------------------- ------- ----------- ----------- ---------- --------- ---------- Uniao de Bancos Brasileiros S.A. (Unibanco) BRZL (Banks - Money Center) Units (g) 480,810 543,841 1,024,651 1,024,651 GDR (a) 323,925 379,225 703,150 703,150 - ------------------------------------------- ------- ----------- ----------- ---------- --------- ---------- Bank Hapoalim Ltd. ISRL 796,944 1,162,416 1,959,360 1,959,360 (Banks - Money Center) - ------------------------------------------- ------- ----------- ----------- ---------- --------- ---------- Grupo Financiero Banamex Accival, S.A. de C.V. "B" (b) MEX 718,257 1,046,986 1,765,243 1,765,243 (Banks - Money Center) - ------------------------------------------- ------- ----------- ----------- ---------- --------- ---------- BIG Bank Gdanski S.A. - Reg S GDR (a)(c) POL 692,300 740,600 1,432,900 1,432,900 (Banks - Regional) - ------------------------------------------- ------- ----------- ----------- ---------- --------- ---------- Bank Leumi Le - Israel ISRL 664,712 983,119 1,647,831 1,647,831 (Banks - Money Center) - ------------------------------------------- ------- ----------- ----------- ---------- --------- ---------- MISR International Bank - Reg S GDR (a)(c) EGPT 654,095 900,088 1,554,183 1,554,183 (Banks - Money Center) - ------------------------------------------- ------- ----------- ----------- ---------- --------- ---------- Turkiye Is Bankasi (Isbank) "C" TRKY 633,157 941,566 1,574,723 1,574,723 (Banks - Money Center) - ------------------------------------------- ------- ----------- ----------- ---------- --------- ---------- Banco de Galicia y Buenos Aires, S.A. de C.V. - ADR (a) ARG 492,629 481,606 974,235 974,235 (Banks - Money Center) - ------------------------------------------- ------- ----------- ----------- ---------- --------- ---------- Commercial Bank of Greece S.A. GREC 491,753 632,496 1,124,249 1,124,249 (Banks - Money Center) - ------------------------------------------- ------- ----------- ----------- ---------- --------- ---------- Vilniaus Bankas AB Reg S GDR (a)(c) LIT 483,733 483,733 (Banks - Money Center) - ------------------------------------------- ------- ----------- ----------- ---------- --------- ---------- 73 AIM DEVELOPING MARKETS FUND AIM EASTERN EUROPE FUND PRO FORMA COMBINING SCHEDULE OF INVESTMENTS OCTOBER 31, 1998 (UNAUDITED) SHARES AIM AIM Pro Forma AIM Pro Forma Developing Emerging Combining Eastern Combining Markets Markets Europe 5,360 7,170 12,530 1 12,531 Ergo Bank S.A. (Banks - Regional) - ---------- ---------- ---------- --------- ---------- ------------------------------------------------------- 41,379,593 48,631,340 90,010,933 90,010,933 Yapi ve Kredi Bankasi AS (Banks - Regional) - ---------- ---------- ---------- --------- ---------- ------------------------------------------------------- 56,220 77,770 133,990 133,990 Credicorp Ltd. - ADR (a) (Banks - Money Center) - ---------- ---------- ---------- --------- ---------- ------------------------------------------------------- 2,900 3,500 6,400 6,400 Wafabank (Banks - Money Center) - ---------- ---------- ---------- --------- ---------- ------------------------------------------------------- 14,680 22,010 36,690 34,770 71,460 Kredyt Bank S.A. Reg S GDR (a)(b)(c) (Banks - Money Center) - ---------- ---------- ---------- --------- ---------- ------------------------------------------------------- 19,162,500 22,711,500 41,874,000 41,874,000 Akbank T.A.S. (Banks - Regional) - ---------- ---------- ---------- --------- ---------- ------------------------------------------------------- 26,900 32,100 59,000 59,000 Banco Rio de La Plata S.A. - ADR (a) (Banks - Money Center) - ---------- ---------- ---------- --------- ---------- ------------------------------------------------------- 9,000 10,750 19,750 19,750 Inversiones y Representaciones S.A. (IRSA) - GDR (a) (Real Estate) - ---------- ---------- ---------- --------- ---------- ------------------------------------------------------- 70,000 68,000 138,000 138,000 National Development Bank (Banks - Regional) - ---------- ---------- ---------- --------- ---------- ------------------------------------------------------- 12,700 12,610 25,310 25,310 Kazkommertsbank Co. - GDR (a)(b) (Banks - Regional) - ---------- ---------- ---------- --------- ---------- ------------------------------------------------------- 5,820 5,820 Zagrebacka Banka d.d. GDR (a)(b) (Banks - Money Center) - ---------- ---------- ---------- --------- ---------- ------------------------------------------------------- 4,200 4,200 4,200 Commercial National Bank (Banks - Money Center) - ---------- ---------- ---------- --------- ---------- ------------------------------------------------------- 3,000 1,650 4,650 4,650 State Bank of India Ltd. (Banks - Money Center) - ---------- ---------- ---------- --------- ---------- ------------------------------------------------------- 5 5 5 Housing Development Finance Corp. (Other - Financial) - ---------- ---------- ---------- --------- ---------- ------------------------------------------------------- ENERGY (12.1%) - ---------- ---------- ---------- --------- ---------- ------------------------------------------------------- 16,207,398 16,324,080 32,531,478 32,531,478 Petroleo Brasileiro S.A. (Petrobras) Preferred (Oil) - ---------- ---------- ---------- --------- ---------- ------------------------------------------------------- 97,731 96,750 194,481 194,481 Companhia Energetica de Minas Gerais (CEMIG) - ADR (a) (Electrical & Gas Utilities) - ---------- ---------- ---------- --------- ---------- ------------------------------------------------------- 68,330 72,410 140,740 218,800 359,540 MOL Magyar Olaj-es Gazipari RT - Reg S GDR (a)(c) (Gas Production & Distribution) - ---------- ---------- ---------- --------- ---------- ------------------------------------------------------- 130,000 130,000 Gazprom Reg S ADR (a)(c) (Electrical & Gas Utilities) - ---------- ---------- ---------- --------- ---------- ------------------------------------------------------- 70,958 110,068 181,026 181,026 Huaneng Power International, Inc. - ADR (a)(b) (Electrical & Gas Utilities) - ---------- ---------- ---------- --------- ---------- ------------------------------------------------------- 30,728 44,268 74,996 74,996 Enersis S.A. - ADR (a) (Electrical & Gas Utilities) - ---------- ---------- ---------- --------- ---------- ------------------------------------------------------- Unified Energy Systems (Electrical & Gas Utilities) 88,500 88,500 Reg S GDR (a)(c) 6,920,000 6,920,000 Common (a) - ---------- ---------- ---------- --------- ---------- ------------------------------------------------------- 208,480 208,480 Mosenergo (a) (Electrical & Gas Utilities) - ---------- ---------- ---------- --------- ---------- ------------------------------------------------------- 516,295 516,295 Bitech Pertoleum Corp. (b) (Oil) - ---------- ---------- ---------- --------- ---------- ------------------------------------------------------- 15,600 15,600 Ceske Energeticke Zavody AS (b) (Electrical & Gas Utilities) - ---------- ---------- ---------- --------- ---------- ------------------------------------------------------- 12,500,000 15,100,000 27,600,000 27,600,000 Companhia de Electricidade do Estado da Bahia (Electrical & Gas Utilities) - ---------- ---------- ---------- --------- ---------- ------------------------------------------------------- MARKET VALUE AIM AIM Pro Forma AIM Pro Forma Developing Emerging Combining Eastern Combining Country Markets Markets Europe Ergo Bank S.A GREC 476,360 637,220 1,113,580 89 1,113,669 (Banks - Regional) - ---------------------------------------------------- ------ ---------- ---------- ---------- --------- ---------- Yapi ve Kredi Bankasi AS TRKY 467,233 549,115 1,016,348 1,016,348 (Banks - Regional) - ---------------------------------------------------- ------ ---------- ---------- ---------- --------- ---------- Credicorp Ltd. - ADR (a) PERU 379,485 524,948 904,433 904,433 (Banks - Money Center) - ---------------------------------------------------- ------ ---------- ---------- ---------- --------- ---------- Wafabank MOR 378,516 456,830 835,346 835,346 (Banks - Money Center) - ---------------------------------------------------- ------ ---------- ---------- ---------- --------- ---------- Kredyt Bank S.A. Reg S GDR (a)(b)(c) POL 292,866 439,100 731,966 693,661 1,425,627 (Banks - Money Center) - ---------------------------------------------------- ------ ---------- ---------- ---------- --------- ---------- Akbank T.A.S TRKY 282,947 335,350 618,297 618,297 (Banks - Regional) - ---------------------------------------------------- ------ ---------- ---------- ---------- --------- ---------- Banco Rio de La Plata S.A. - ADR (a) ARG 242,100 288,900 531,000 531,000 (Banks - Money Center) - ---------------------------------------------------- ------ ---------- ---------- ---------- --------- ---------- Inversiones y Representaciones S.A. (IRSA) - GDR (a) ARG 232,875 278,156 511,031 511,031 (Real Estate) - ---------------------------------------------------- ------ ---------- ---------- ---------- --------- ---------- National Development Bank SLNKA 80,910 78,598 159,508 159,508 (Banks - Regional) - ---------------------------------------------------- ------ ---------- ---------- ---------- --------- ---------- Kazkommertsbank Co. - GDR (a)(b) KAZ 70,485 69,986 140,471 140,471 (Banks - Regional) - ---------------------------------------------------- ------ ---------- ---------- ---------- --------- ---------- Zagrebacka Banka d.d. GDR (a)(b) CRT 62,274 62,274 (Banks - Money Center) - ---------------------------------------------------- ------ ---------- ---------- ---------- --------- ---------- Commercial National Bank EGPT 33,723 33,723 33,723 (Banks - Money Center) - ---------------------------------------------------- ------ ---------- ---------- ---------- --------- ---------- State Bank of India Ltd. IND 11,035 6,070 17,105 17,105 (Banks - Money Center) - ---------------------------------------------------- ------ ---------- ---------- ---------- --------- ---------- Housing Development Finance Corp. IND 264 264 264 (Other - Financial) - ---------------------------------------------------- ------ ---------- ---------- ---------- --------- ---------- 13,271,370 16,888,560 30,159,930 7,039,830 37,199,760 ENERGY (12.1%) - ---------------------------------------------------- ------ ---------- ---------- ---------- --------- ---------- Petroleo Brasileiro S.A. (Petrobras) Preferred BRZL 2,038,154 2,052,827 4,090,981 4,090,981 (Oil) - ---------------------------------------------------- ------ ---------- ---------- ---------- --------- ---------- Companhia Energetica de Minas Gerais (CEMIG) - ADR BRZL 1,893,538 1,874,531 3,768,069 3,768,069 (Electrical & Gas Utilities) - ---------------------------------------------------- ------ ---------- ---------- ---------- --------- ---------- MOL Magyar Olaj-es Gazipari RT - Reg S GDR (a)(c) HGRY 1,556,216 1,649,138 3,205,354 4,977,700 8,183,054 (Gas Production & Distribution) - ---------------------------------------------------- ------ ---------- ---------- ---------- --------- ---------- Gazprom Reg S ADR (a)(c) RUS 1,212,250 1,212,250 (Electrical & Gas Utilities) - ---------------------------------------------------- ------ ---------- ---------- ---------- --------- ---------- Huaneng Power International, Inc. - ADR (a)(b) CHNA 975,673 1,513,435 2,489,108 2,489,108 (Electrical & Gas Utilities) - ---------------------------------------------------- ------ ---------- ---------- ---------- --------- ---------- Enersis S.A. - ADR (a) CHLE 641,447 924,095 1,565,542 1,565,542 (Electrical & Gas Utilities) - ---------------------------------------------------- ------ ---------- ---------- ---------- --------- ---------- Unified Energy Systems RUS (Electrical & Gas Utilities) Reg S GDR (a)(c) 276,563 276,563 Common (a) 221,440 221,440 - ---------------------------------------------------- ------ ---------- ---------- ---------- --------- ---------- Mosenergo (a) RUS 416,960 416,960 (Electrical & Gas Utilities) - ---------------------------------------------------- ------ ---------- ---------- ---------- --------- ---------- Bitech Pertoleum Corp. (b) CAN 401,656 401,656 (Oil) - ---------------------------------------------------- ------ ---------- ---------- ---------- --------- ---------- Ceske Energeticke Zavody AS (b) CZK 355,088 355,088 (Electrical & Gas Utilities) - ---------------------------------------------------- ------ ---------- ---------- ---------- --------- ---------- Companhia de Electricidade do Estado da Bahia BRZL 398,223 481,053 879,276 879,276 (Electrical & Gas Utilities) - ---------------------------------------------------- ------ ---------- ---------- ---------- --------- ---------- 74 AIM DEVELOPING MARKETS FUND AIM EASTERN EUROPE FUND PRO FORMA COMBINING SCHEDULE OF INVESTMENTS OCTOBER 31, 1998 (UNAUDITED) SHARES AIM AIM Pro Forma AIM Pro Forma Developing Emerging Combining Eastern Combining Markets Markets Europe 163,020 225,855 388,875 743,500 1,132,375 Surgutneftegaz - ADR (a) (Oil) - ---------- ---------- ---------- ------- ---------- -------------------------------------------------------- 7,843,375 9,317,824 17,161,199 17,161,199 Electropaulo Metropolitana Preferred (Electrical & Gas Utilities) - ---------- ---------- ---------- ------- ---------- -------------------------------------------------------- 1,654,290 2,158,561 3,812,851 3,812,851 Light - Servicos de Electricidade S.A. (Electrical & Gas Utilities) - ---------- ---------- ---------- ------- ---------- -------------------------------------------------------- 7,843,375 9,317,824 17,161,199 17,161,199 Empresa Bandeirante de Energia S.A. (b) (Electrical & Gas Utilities) - ---------- ---------- ---------- ------- ---------- -------------------------------------------------------- 12,154,000 14,418,000 26,572,000 26,572,000 Companhia Brasileira de Petroleo Ipiranga S.A. Preferred (Gas) - ---------- ---------- ---------- ------- ---------- -------------------------------------------------------- 4,653 4,653 Elektrim Spolka Akcyjna S.A. (Energy Sources) - ---------- ---------- ---------- ------- ---------- -------------------------------------------------------- 1,350 1,350 1,350 Bombay Suburban Electric Supply (BSES) Ltd. (b) (Electrical & Gas Utilities) - ---------- ---------- ---------- ------- ---------- -------------------------------------------------------- 65 65 65 Pakistan State Oil., Ltd (Oil) - ---------- ---------- ---------- ------- ---------- -------------------------------------------------------- CONSUMER NON-DURABLES (9.0%) - ---------- ---------- ---------- ------- ---------- -------------------------------------------------------- 89,806 92,963 182,769 182,769 South African Breweries Ltd. (Beverages - Alcoholic) - ---------- ---------- ---------- ------- ---------- -------------------------------------------------------- 40,650 51,000 91,650 91,650 Hindustan Lever Ltd. (Personal Care/Cosmetics) - ---------- ---------- ---------- ------- ---------- -------------------------------------------------------- 79,900 92,128 172,028 172,028 ITC Ltd. (Tobacco) - ---------- ---------- ---------- ------- ---------- -------------------------------------------------------- 44,311 64,322 108,633 108,633 Fomento Economico Mexicano, S.A. de C.V. - ADR (a) (Beverages - Non-alcoholic) - ---------- ---------- ---------- ------- ---------- -------------------------------------------------------- 34,000 50,000 84,000 84,000 Panamerican Beverages, Inc. "A" (a) (Beverages - Non-alcoholic) - ---------- ---------- ---------- ------- ---------- -------------------------------------------------------- 82,626 82,626 Okocimskie Zaklady Piwowarskie S.A. (b) (Beverage - Alcoholic) - ---------- ---------- ---------- ------- ---------- -------------------------------------------------------- 38,500 38,500 Pick Szeged Rt. - Reg S GDR (a)(c) (Food) - ---------- ---------- ---------- ------- ---------- -------------------------------------------------------- A-Ahram Beverages Co. S.A.E. - 144A GDR (a)(h) (Beverages - Alcoholic) 15,814 21,235 37,049 37,049 144A GDR 11,000 11,000 11,000 GDR - ---------- ---------- ---------- ------- ---------- -------------------------------------------------------- 18,100 36,546 54,646 54,646 Compania Cervecerias Unidas S.A. - ADR (a) (Beverages - Alcoholic) - ---------- ---------- ---------- ------- ---------- -------------------------------------------------------- 2,747,000 5,002,000 7,749,000 7,749,000 Companhia de Tecidos Norte de Minas Preferred (Textiles & Apparel) - ---------- ---------- ---------- ------- ---------- -------------------------------------------------------- 563,721 663,129 1,226,850 1,226,850 Companhia Cervejaria Brahma Preferred (Beverages - Alcoholic) - ---------- ---------- ---------- ------- ---------- -------------------------------------------------------- 11,400 12,000 23,400 23,400 Oriental Weavers "C" (Textiles & Apparel) - ---------- ---------- ---------- ------- ---------- -------------------------------------------------------- 1,243 1,560 2,803 2,168 4,971 Zaklady Piwowarskie w Zywcu S.A. (Zywiec) (Beverages - Alcoholic) - ---------- ---------- ---------- ------- ---------- -------------------------------------------------------- 50,000 50,000 Russkie Samotsvety (a)(b) (Other Consumer Goods) - ---------- ---------- ---------- ------- ---------- -------------------------------------------------------- 47,740 58,916 106,656 106,656 Truworths International Ltd. (Textiles & Apparel) - ---------- ---------- ---------- ------- ---------- -------------------------------------------------------- MATERIALS/BASIC INDUSTRY (7.9%) MARKET VALUE AIM AIM Pro Forma AIM Pro Forma Developing Emerging Combining Eastern Combining Country Markets Markets Europe Surgutneftegaz - ADR (a) RUS 326,040 451,710 777,750 1,579,937 2,357,687 (Oil) - -------------------------------------------------------- ------- --------- --------- ---------- --------- ---------- Electropaulo Metropolitana Preferred BRZL 264,339 314,031 578,370 578,370 (Electrical & Gas Utilities) - -------------------------------------------------------- ------- --------- --------- ---------- --------- ---------- Light - Servicos de Electricidade S.A. BRZL 205,261 267,830 473,091 473,091 (Electrical & Gas Utilities) - -------------------------------------------------------- ------- --------- --------- ---------- --------- ---------- Empresa Bandeirante de Energia S.A. (b) BRZL 76,211 90,538 166,749 166,749 (Electrical & Gas Utilities) - -------------------------------------------------------- ------- --------- --------- ---------- --------- ---------- Companhia Brasileira de Petroleo Ipiranga S.A. Preferred BRZL 65,213 77,360 142,573 142,573 (Gas) - -------------------------------------------------------- ------- --------- --------- ---------- --------- ---------- Elektrim Spolka Akcyjna S.A. POL 55,425 55,425 (Energy Sources) - -------------------------------------------------------- ------- --------- --------- ---------- --------- ---------- Bombay Suburban Electric Supply (BSES) Ltd. (b) IND 4,774 4,774 4,774 (Electrical & Gas Utilities) - -------------------------------------------------------- ------- --------- --------- ---------- --------- ---------- Pakistan State Oil., Ltd PAK 64 64 64 (Oil) - -------------------------------------------------------- ------- --------- --------- ---------- --------- ---------- 8,445,089 9,696,612 18,141,701 9,497,019 27,638,720 CONSUMER NON-DURABLES (9.0%) - -------------------------------------------------------- ------- --------- --------- ---------- --------- ---------- South African Breweries Ltd. SAFR 1,747,924 1,809,369 3,557,293 3,557,293 (Beverages - Alcoholic) - -------------------------------------------------------- ------- --------- --------- ---------- --------- ---------- Hindustan Lever Ltd. IND 1,540,472 1,932,695 3,473,167 3,473,167 (Personal Care/Cosmetics) - -------------------------------------------------------- ------- --------- --------- ---------- --------- ---------- ITC Ltd. IND 1,321,750 1,524,032 2,845,782 2,845,782 (Tobacco) - -------------------------------------------------------- ------- --------- --------- ---------- --------- ---------- Fomento Economico Mexicano, S.A. de C.V. - ADR (a) MEX 1,154,855 1,676,392 2,831,247 2,831,247 (Beverages - Non-alcoholic) - -------------------------------------------------------- ------- --------- --------- ---------- --------- ---------- Panamerican Beverages, Inc. "A" (a) MEX 688,500 1,012,500 1,701,000 1,701,000 (Beverages - Non-alcoholic) - -------------------------------------------------------- ------- --------- --------- ---------- --------- ---------- Okocimskie Zaklady Piwowarskie S.A. (b) POL 535,317 535,317 (Beverage - Alcoholic) - -------------------------------------------------------- ------- --------- --------- ---------- --------- ---------- Pick Szeged Rt. - Reg S GDR (a)(c) HGRY 332,063 332,063 (Food) - -------------------------------------------------------- ------- --------- --------- ---------- --------- ---------- A-Ahram Beverages Co. S.A.E. - 144A GDR (a)(h) EGPT (Beverages - Alcoholic) 144A GDR 443,583 595,642 1,039,225 1,039,225 GDR 308,550 308,550 308,550 - -------------------------------------------------------- ------- --------- --------- ---------- --------- ---------- Compania Cervecerias Unidas S.A. - ADR (a) CHLE 325,800 657,828 983,628 983,628 (Beverages - Alcoholic) - -------------------------------------------------------- ------- --------- --------- ---------- --------- ---------- Companhia de Tecidos Norte de Minas Preferred BRZL 317,812 578,702 896,514 896,514 (Textiles & Apparel) - -------------------------------------------------------- ------- --------- --------- ---------- --------- ---------- Companhia Cervejaria Brahma Preferred BRZL 264,658 311,328 575,986 575,986 (Beverages - Alcoholic) - -------------------------------------------------------- ------- --------- --------- ---------- --------- ---------- Oriental Weavers "C" EGPT 245,974 258,920 504,894 504,894 (Textiles & Apparel) - -------------------------------------------------------- ------- --------- --------- ---------- --------- ---------- Zaklady Piwowarskie w Zywcu S.A. (Zywiec) POL 169,369 212,562 381,931 295,407 677,338 (Beverages - Alcoholic) - -------------------------------------------------------- ------- --------- --------- ---------- --------- ---------- Russkie Samotsvety (a)(b) RUS 252,500 252,500 (Other Consumer Goods) - -------------------------------------------------------- ------- --------- --------- ---------- --------- ---------- Truworths International Ltd. SAFR 36,381 44,898 81,279 81,279 (Textiles & Apparel) - -------------------------------------------------------- ------- --------- --------- ---------- --------- ---------- 8,257,078 10,923,418 19,180,496 1,415,287 20,595,783 MATERIALS/BASIC INDUSTRY (7.9%) 75 AIM DEVELOPING MARKETS FUND AIM EASTERN EUROPE FUND PRO FORMA COMBINING SCHEDULE OF INVESTMENTS OCTOBER 31, 1998 (UNAUDITED) SHARES AIM AIM Pro Forma AIM Pro Forma Developing Emerging Combining Eastern Combining Markets Markets Europe 47,673 47,673 Pannonplast Rt. (Plastics & Rubber) - ---------- ---------- ----------- -------- ----------- ------------------------------------------------- 95,195 109,535 204,730 204,730 Suez Cement Co. - Reg S GDR (a)(c) (Cement) - ---------- ---------- ----------- -------- ----------- ------------------------------------------------- 87,900 90,800 178,700 178,700 Anglo American Platinum Corporation Ltd. (Metals - Non-Ferrous) - ---------- ---------- ----------- -------- ----------- ------------------------------------------------- 31,500 34,370 65,870 65,870 Sociedad Quimica y Minera de Chile S.A. - ADR (a) (Chemicals) - ---------- ---------- ----------- -------- ----------- ------------------------------------------------- 55,700 54,200 109,900 109,900 Companhia Vale do Rio Doce "A" Preferred (Metals - Steel) - ---------- ---------- ----------- -------- ----------- ------------------------------------------------- 161,674 161,674 Stomil Olsztyn S.A. (Plastics & Rubber) - ---------- ---------- ----------- -------- ----------- ------------------------------------------------- 47,792 54,606 102,398 102,398 Compania de Minas Buenaventura S.A. - ADR (a) (Gold) - ---------- ---------- ----------- -------- ----------- ------------------------------------------------- Cemex, S.A. de C.V. "CPO" (Cement) 238,120 349,153 587,273 587,273 "CPO" 43,400 43,400 43,400 "A" - ---------- ---------- ----------- -------- ----------- ------------------------------------------------- 115,233 147,781 263,014 263,014 Apasco, S.A. de C.V. "A" (Cement) - ---------- ---------- ----------- -------- ----------- ------------------------------------------------- Hindalco Industries Ltd.: (Metals - Non-Ferrous) 26,200 34,200 60,400 60,400 GDR (a) 1,634 1,802 3,436 3,436 Common - ---------- ---------- ----------- -------- ----------- ------------------------------------------------- 144,665 142,780 287,445 287,445 Makhteshim-Agan Industries Ltd. (b) (Chemicals) - ---------- ---------- ----------- -------- ----------- ------------------------------------------------- 118,000 187,600 305,600 305,600 Siderca S.A. "A" (Metals - Steel) - ---------- ---------- ----------- -------- ----------- ------------------------------------------------- 283,300 537,100 820,400 820,400 Grupo Cementos de Chihuahua, S.A. de C.V. "B" (Cement) - ---------- ---------- ----------- -------- ----------- ------------------------------------------------- 69,370 72,711 142,081 142,081 Engro Chemicals Pakistan Ltd. (Chemicals) - ---------- ---------- ----------- -------- ----------- ------------------------------------------------- 35,360 43,350 78,710 78,710 Nan Ya Plastics Corp. (b) (Plastics & Rubber) - ---------- ---------- ----------- -------- ----------- ------------------------------------------------- 16 16 16 Associated Cement Cos., Ltd. (Cement) - ---------- ---------- ----------- -------- ----------- ------------------------------------------------- 4 4 4 Dewan Salman Fibre Ltd. (b) (Chemicals) - ---------- ---------- ----------- -------- ----------- ------------------------------------------------- MULTI-INDUSTRY/MISCELLANEOUS (5.5%) - ---------- ---------- ----------- -------- ----------- ------------------------------------------------- 452,400 664,600 1,117,000 1,117,000 Grupo Carso, S.A. de C.V. "A1" (Multi-Industry) - ---------- ---------- ----------- -------- ----------- ------------------------------------------------- 220,610 228,160 448,770 448,770 Rembrandt Group Ltd. (Conglomerate) - ---------- ---------- ----------- -------- ----------- ------------------------------------------------- 43,775,250 57,726,250 101,501,500 101,501,500 Haci Omer Sabanci Holding AS (Conglomerate) - ---------- ---------- ----------- -------- ----------- ------------------------------------------------- 288,900 380,700 669,600 669,600 China Development Corp. (Conglomerate) - ---------- ---------- ----------- -------- ----------- ------------------------------------------------- 175,000 156,000 331,000 331,000 Central Asia Regional Growth Fund (a)(b)(e) (Country Funds) - ---------- ---------- ----------- -------- ----------- ------------------------------------------------- 5,220,550 3,488,650 8,709,200 8,709,200 Koc Holding AS (Conglomerate) - ---------- ---------- ----------- -------- ----------- ------------------------------------------------- 24,643 31,615 56,258 56,258 Koor Industries Ltd. - ADR (a) (Conglomerate) MARKET VALUE AIM AIM Pro Forma AIM Pro Forma Developing Emerging Combining Eastern Combining Country Markets Markets Europe Pannonplast Rt. HGRY 1,472,882 1,472,882 (Plastics & Rubber) - --------------------------------------------- ------- --------- --------- --------- --------- --------- Suez Cement Co. - Reg S GDR (a)(c) EGPT 1,404,126 1,615,641 3,019,767 3,019,767 (Cement) - --------------------------------------------- ------- --------- --------- --------- --------- --------- Anglo American Platinum Corporation Ltd. SAFR 1,336,583 1,380,680 2,717,263 2,717,263 (Metals - Non-Ferrous) - --------------------------------------------- ------- --------- --------- --------- --------- --------- Sociedad Quimica y Minera de Chile S.A. - ADR (a) CHLE 1,047,375 1,142,803 2,190,178 2,190,178 (Chemicals) - --------------------------------------------- ------- --------- --------- --------- --------- --------- Companhia Vale do Rio Doce "A" Preferred BRZL 840,543 817,907 1,658,450 1,658,450 (Metals - Steel) - --------------------------------------------- ------- --------- --------- --------- --------- --------- Stomil Olsztyn S.A. POL 821,992 821,992 (Plastics & Rubber) - --------------------------------------------- ------- --------- --------- --------- --------- --------- Compania de Minas Buenaventura S.A. - ADR (a) PERU 585,452 668,924 1,254,376 1,254,376 (Gold) - --------------------------------------------- ------- --------- --------- --------- --------- --------- Cemex, S.A. de C.V. "CPO" MEX (Cement) "CPO" 568,019 832,880 1,400,899 1,400,899 "A" 104,387 104,387 104,387 - --------------------------------------------- ------- --------- --------- --------- --------- --------- Apasco, S.A. de C.V. "A" MEX 422,015 541,215 963,230 963,230 (Cement) - --------------------------------------------- ------- --------- --------- --------- --------- --------- Hindalco Industries Ltd.: IND (Metals - Non-Ferrous) GDR (a) 307,195 400,995 708,190 708,190 Common 19,759 21,790 41,549 41,549 - --------------------------------------------- ------- --------- --------- --------- --------- --------- Makhteshim-Agan Industries Ltd. (b) ISRL 256,973 253,624 510,597 510,597 (Chemicals) - --------------------------------------------- ------- --------- --------- --------- --------- --------- Siderca S.A. "A" ARG 165,250 262,719 427,969 427,969 (Metals - Steel) - --------------------------------------------- ------- --------- --------- --------- --------- --------- Grupo Cementos de Chihuahua, S.A. de C.V. "B" MEX 151,983 288,140 440,123 440,123 (Cement) - --------------------------------------------- ------- --------- --------- --------- --------- --------- Engro Chemicals Pakistan Ltd. PAK 63,948 67,027 130,975 130,975 (Chemicals) - --------------------------------------------- ------- --------- --------- --------- --------- --------- Nan Ya Plastics Corp. (b) TWN 44,780 54,899 99,679 99,679 (Plastics & Rubber) - --------------------------------------------- ------- --------- --------- --------- --------- --------- Associated Cement Cos., Ltd. IND 356 356 356 (Cement) - --------------------------------------------- ------- --------- --------- --------- --------- --------- Dewan Salman Fibre Ltd. (b) PAK - 1 1 1 (Chemicals) - --------------------------------------------- ------- --------- --------- --------- --------- --------- 7,214,001 8,453,988 15,667,989 2,294,874 17,962,863 MULTI-INDUSTRY/MISCELLANEOUS (5.5%) - --------------------------------------------- ------- --------- --------- --------- --------- --------- Grupo Carso, S.A. de C.V. "A1" MEX 1,567,257 2,302,385 3,869,642 3,869,642 (Multi-Industry) - --------------------------------------------- ------- --------- --------- --------- --------- --------- Rembrandt Group Ltd. SAFR 1,472,049 1,522,427 2,994,476 2,994,476 (Conglomerate) - --------------------------------------------- ------- --------- --------- --------- --------- --------- Haci Omer Sabanci Holding AS TRKY 661,579 872,422 1,534,001 1,534,001 (Conglomerate) - --------------------------------------------- ------- --------- --------- --------- --------- --------- China Development Corp. TWN 571,107 752,581 1,323,688 1,323,688 (Conglomerate) - --------------------------------------------- ------- --------- --------- --------- --------- --------- Central Asia Regional Growth Fund (a)(b)(e) IRE 525,000 468,000 993,000 993,000 (Country Funds) - --------------------------------------------- ------- --------- --------- --------- --------- --------- Koc Holding AS TRKY 480,647 321,194 801,841 801,841 (Conglomerate) - --------------------------------------------- ------- --------- --------- --------- --------- --------- Koor Industries Ltd. - ADR (a) ISRL 398,909 511,768 910,677 910,677 (Conglomerate) - --------------------------------------------- ------- --------- --------- --------- --------- --------- 76 AIM DEVELOPING MARKETS FUND AIM EASTERN EUROPE FUND PRO FORMA COMBINING SCHEDULE OF INVESTMENTS OCTOBER 31, 1998 (UNAUDITED) SHARES AIM AIM Pro Forma AIM Pro Forma Developing Emerging Combining Eastern Combining Markets Markets Europe 17,000 3,800 20,800 20,800 John Keells Holdings Ltd. (Conglomerate) - ------- ------- --------- ------- --------- ------------------------------------------------- 75,800 75,800 75,800 Romanian Growth Fund (a) (b) (Country Funds) - ------- ------- --------- ------- --------- ------------------------------------------------- 200 200 200 KEC International (b) (Miscellaneous) - ------- ------- --------- ------- --------- ------------------------------------------------- TECHNOLOGY (3.7%) - ------- ------- --------- ------- --------- ------------------------------------------------- 597,950 667,450 1,265,400 1,265,400 Taiwan Semiconductor Manufacturing Co. (b) (Semiconductors) - ------- ------- --------- ------- --------- ------------------------------------------------- 96,862 127,997 224,859 224,859 Asustek Computer Inc. - Reg S GDR (a)(b)(c) (Computers & Peripherals) - ------- ------- --------- ------- --------- ------------------------------------------------- 112,000 141,960 253,960 253,960 Hon Hai Precision Industry (Computers & Peripherals) - ------- ------- --------- ------- --------- ------------------------------------------------- 160,000 212,000 372,000 372,000 Compal Electronics, Inc. (b) (Computers & Peripherals) - ------- ------- --------- ------- --------- ------------------------------------------------- 153,600 196,800 350,400 350,400 Delta Electronics, Inc. (Computers & Peripherals) - ------- ------- --------- ------- --------- ------------------------------------------------- 16,505 21,505 38,010 38,010 Formula Systems Ltd. (b) (Software) - ------- ------- --------- ------- --------- ------------------------------------------------- INVESTMENT FUNDS (.8%) - ------- ------- --------- ------- --------- ------------------------------------------------- 9,000 9,000 Baltic Republics Fund Ltd. (a)(b)(d) (Country Fund) - ------- ------- --------- ------- --------- ------------------------------------------------- 15,000 15,000 Romania Fund Ltd. (a)(b) (Country Fund) - ------- ------- --------- ------- --------- ------------------------------------------------- 15,000 15,000 Ladenburg Thalmann Ukraine Fund Ltd. (a)(b) (Country Fund) - ------- ------- --------- ------- --------- ------------------------------------------------- 75,000 75,000 Romanian Growth Fund PLC (a)(b) (Country Fund) - ------- ------- --------- ------- --------- ------------------------------------------------- CAPITAL GOODS (3.0%) - ------- ------- --------- ------- --------- ------------------------------------------------- 17,100 20,165 37,265 37,265 MISR Elgadida for Housing and Reconstruction (Construction) - ------- ------- --------- ------- --------- ------------------------------------------------- 330,000 330,000 Uralmash Zavody (a)(b)(e) (Machinery & Engineering) - ------- ------- --------- ------- --------- ------------------------------------------------- 23,005 27,170 50,175 50,175 NASR (E1) City Company For Housing & Construction (Construction) - ------- ------- --------- ------- --------- ------------------------------------------------- 165,800 214,600 380,400 380,400 Corporacion GEO, S.A. de C.V. "B" (b) (Construction) - ------- ------- --------- ------- --------- ------------------------------------------------- 41,822 41,822 41,822 Arabian International Construction (b) (Construction) - ------- ------- --------- ------- --------- ------------------------------------------------- HEALTH CARE (2.2%) - ------- ------- --------- ------- --------- ------------------------------------------------- 81,000 81,000 Pliva d.d. Reg S GDR (a)(c) (Pharmaceuticals) - ------- ------- --------- ------- --------- ------------------------------------------------- 79,850 75,000 154,850 154,850 Ranbaxy Laboratories Ltd. (Medical Technology & Supplies) - ------- ------- --------- ------- --------- ------------------------------------------------- 18,700 29,600 48,300 48,300 Teva Pharmaceutical Industries Ltd. (Pharmaceuticals) - ------- ------- --------- ------- --------- ------------------------------------------------- CONSUMER DURABLES (1.0%) MARKET VALUE AIM AIM Pro Forma AIM Pro Forma Developing Emerging Combining Eastern Combining Country Markets Markets Europe John Keells Holdings Ltd. SLNKA 48,173 10,768 58,941 58,941 (Conglomerate) ------------------------------------------------- ------ --------- --------- ---------- --------- ---------- Romanian Growth Fund (a) (b) ROM 94,750 94,750 94,750 (Country Funds) ------------------------------------------------- ------ --------- --------- ---------- --------- ---------- KEC International (b) IND 113 113 113 (Miscellaneous) ------------------------------------------------- ------ --------- --------- ---------- --------- ---------- 5,724,721 6,856,408 12,581,129 -- 12,581,129 TECHNOLOGY (3.7%) ------------------------------------------------- ------ --------- --------- ---------- --------- ---------- Taiwan Semiconductor Manufacturing Co. (b) TWN 1,209,752 1,350,362 2,560,114 2,560,114 (Semiconductors) ------------------------------------------------- ------ --------- --------- ---------- --------- ---------- Asustek Computer Inc. - Reg S GDR (a)(b)(c) TWN 743,416 982,377 1,725,793 1,725,793 (Computers & Peripherals) ------------------------------------------------- ------ --------- --------- ---------- --------- ---------- Hon Hai Precision Industry TWN 539,676 684,039 1,223,715 1,223,715 (Computers & Peripherals) ------------------------------------------------- ------ --------- --------- ---------- --------- ---------- Compal Electronics, Inc. (b) TWN 499,151 661,375 1,160,526 1,160,526 (Computers & Peripherals) ------------------------------------------------- ------ --------- --------- ---------- --------- ---------- Delta Electronics, Inc. TWN 443,602 568,364 1,011,966 1,011,966 (Computers & Peripherals) ------------------------------------------------- ------ --------- --------- ---------- --------- ---------- Formula Systems Ltd. (b) ISRL 353,214 460,212 813,426 813,426 (Software) ------------------------------------------------- ------ --------- --------- ---------- --------- ---------- 3,788,811 4,706,729 8,495,540 -- 8,495,540 INVESTMENT FUNDS (.8%) ------------------------------------------------- ------ --------- --------- ---------- --------- ---------- Baltic Republics Fund Ltd. (a)(b)(d) IRE 720,000 720,000 (Country Fund) ------------------------------------------------- ------ --------- --------- ---------- --------- ---------- Romania Fund Ltd. (a)(b) ROM 562,500 562,500 (Country Fund) ------------------------------------------------- ------ --------- --------- ---------- --------- ---------- Ladenburg Thalmann Ukraine Fund Ltd. (a)(b) UKR 525,000 525,000 (Country Fund) ------------------------------------------------- ------ --------- --------- ---------- --------- ---------- Romanian Growth Fund PLC (a)(b) ROM 93,750 93,750 (Country Fund) ------------------------------------------------- ------ --------- --------- ---------- --------- ---------- -- -- -- 1,901,250 1,901,250 CAPITAL GOODS (3.0%) ------------------------------------------------- ------ --------- --------- ---------- --------- ---------- MISR Elgadida for Housing and Reconstruction EGPT 1,563,864 1,844,170 3,408,034 3,408,034 (Construction) ------------------------------------------------- ------ --------- --------- ---------- --------- ---------- Uralmash Zavody (a)(b)(e) RUS 825,000 825,000 (Machinery & Engineering) ------------------------------------------------- ------ --------- --------- ---------- --------- ---------- NASR (E1) City Company For Housing & Construction EGPT 713,659 842,865 1,556,524 1,556,524 (Construction) ------------------------------------------------- ------ --------- --------- ---------- --------- ---------- Corporacion GEO, S.A. de C.V. "B" (b) MEX 287,192 371,721 658,913 658,913 (Construction) ------------------------------------------------- ------ --------- --------- ---------- --------- ---------- Arabian International Construction (b) EGPT 303,927 303,927 303,927 (Construction) ------------------------------------------------- ------ --------- --------- ---------- --------- ---------- 2,564,715 3,362,683 5,927,398 825,000 6,752,398 HEALTH CARE (2.2%) ------------------------------------------------- ------ --------- --------- ---------- --------- ---------- Pliva d.d. Reg S GDR (a)(c) CRT 1,190,700 1,190,700 (Pharmaceuticals) ------------------------------------------------- ------ --------- --------- ---------- --------- ---------- Ranbaxy Laboratories Ltd. IND 942,438 885,195 1,827,633 1,827,633 (Medical Technology & Supplies) ------------------------------------------------- ------ --------- --------- ---------- --------- ---------- Teva Pharmaceutical Industries Ltd. ISRL 737,188 1,166,886 1,904,074 1,904,074 (Pharmaceuticals) ------------------------------------------------- ------ --------- --------- ---------- --------- ---------- 1,679,626 2,052,081 3,731,707 1,190,700 4,922,407 CONSUMER DURABLES (1.0%) 77 AIM DEVELOPING MARKETS FUND AIM EASTERN EUROPE FUND PRO FORMA COMBINING SCHEDULE OF INVESTMENTS OCTOBER 31, 1998 (UNAUDITED) SHARES AIM AIM Pro Forma AIM Pro Forma Developing Emerging Combining Eastern Combining Markets Markets Europe 40,000 40,000 Mezogazdasagi Gepgyarto (b)(d) (Auto Parts) - --------- --------- --------- ------- --------- ---------------------------------------------------------- 50,000 50,000 North American Business Industries (b) (Auto Parts) - --------- --------- --------- ------- --------- ---------------------------------------------------------- 100,000 100,000 Nizhnekamskshina (a)(b) (Auto Parts) - --------- --------- --------- ------- --------- ---------------------------------------------------------- 29,300 29,300 29,300 Bajaj Auto Ltd. (Automobiles) - --------- --------- --------- ------- --------- ---------------------------------------------------------- 100 100 100 Tata Engineering and Locomotive Co., Ltd. (Automobiles) - --------- --------- --------- ------- --------- ---------------------------------------------------------- 1,022,000 1,475,000 2,497,000 2,497,000 Qingling Motors Co., Ltd. (i) (Automobiles) - --------- --------- --------- ------- --------- ---------------------------------------------------------- TOTAL EQUITY INVESTMENTS (COST $92,943,216) FIXED INCOME INVESTMENTS (9.5%) GOVERNMENT AGENCY OBLIGATIONS (7.8%) - --------- --------- --------- ------- --------- ---------------------------------------------------------- Algeria (0.2%) 1,050,000 1,050,000 1,050,000 Algeria Tranche 1 Loan Assignment, 6.625% due 9/4/06 (j) - --------- --------- --------- ------- --------- ---------------------------------------------------------- Argentina (0.8%) Republic of Argentina: 1,425,000 1,425,000 1,425,000 Discount Bond, 6.625% due 3/31/23 (j) 875,000 875,000 875,000 Par Bond Series 1, 5.75%(6% at 3/31/99) due 3/31/23 (k) 350,000 350,000 350,000 I.O. Strip, 12.11% due 4/10/05 - --------- --------- --------- ------- --------- ---------------------------------------------------------- Brazil (0.2%) 845,000 845,000 845,000 Brazil Floating Rate Discount Note, 6.125% due 4/15/24 (j) - --------- --------- --------- ------- --------- ---------------------------------------------------------- Bulgaria (0.4%) Republic of Bulgaria: 771,000 771,000 771,000 Discount Bond Series A, 6.6875% due 7/28/24 - Euro (j) 760,000 760,000 760,000 Front Loaded Interest Reduction Bond Series A, 2.5% (2.75% at 7/99) due 7/28/12 (k) - --------- --------- --------- ------- --------- ---------------------------------------------------------- Colombia (0.2%) Republic of Colombia: 472,000 472,000 472,000 8.625% due 4/1/08 (l) 59,000 59,000 59,000 7.27% due 6/15/03 - 144A (h) - --------- --------- --------- ------- --------- ---------------------------------------------------------- Mexico (1.7%) United Mexican States: 1,570,000 1,570,000 1,570,000 Discount Bond Series D, 6.6016% due 12/31/19 (j) 1,353,000 1,353,000 1,353,000 Discount Bond Series C, 6.6172% due 12/31/19 (j)(m) 575,000 575,000 575,000 9.875% due 1/15/07 3,000,000 3,000,000 3,000,000 6.63% due 12/31/19 MARKET VALUE AIM AIM Pro Forma AIM Pro Forma Developing Emerging Combing Eastern Combining Country Markets Markets Europe Mezogazdasagi Gepgyarto (b)(d) HGRY 580,097 580,097 (Auto Parts) - ------------------------------------------------------- ------- ---------- ---------- ----------- ---------- ----------- North American Business Industries (b) HGRY 417,320 417,320 (Auto Parts) - ------------------------------------------------------- ------- ---------- ---------- ----------- ---------- ----------- Nizhnekamskshina (a)(b) RUS 407,500 407,500 (Auto Parts) - ------------------------------------------------------- ------- ---------- ---------- ----------- ---------- ----------- Bajaj Auto Ltd. IND 383,567 383,567 383,567 (Automobiles) - ------------------------------------------------------- ------- ---------- ---------- ----------- ---------- ----------- Tata Engineering and Locomotive Co., Ltd. IND 267 267 267 (Automobiles) - ------------------------------------------------------- ------- ---------- ---------- ----------- ---------- ----------- Qingling Motors Co., Ltd. (i) CHNA 188,709 272,355 461,064 461,064 (Automobiles) - ------------------------------------------------------- ------- ---------- ---------- ----------- ---------- ----------- 572,276 272,622 844,898 1,404,917 2,249,815 TOTAL EQUITY INVESTMENTS (COST $92,943,216) 69,356,560 83,861,449 153,218,009 33,683,503 186,901,512 FIXED INCOME INVESTMENTS (9.5%) GOVERNMENT AGENCY OBLIGATIONS (7.8%) - ------------------------------------------------------- ------- ---------- ---------- ----------- ---------- ----------- Algeria (0.2%) Algeria Tranche 1 Loan Assignment, 6.625% due 9/4/06 (j) USD 535,500 535,500 535,500 - ------------------------------------------------------- ------- ---------- ---------- ----------- ---------- ----------- Argentina (0.8%) Republic of Argentina: Discount Bond, 6.625% due 3/31/23 (j) USD 970,781 970,781 970,781 Par Bond Series 1, 5.75%(6% at 3/31/99) due 3/31/23 (k) USD 608,125 608,125 608,125 I.O. Strip, 12.11% due 4/10/05 USD 308,000 308,000 308,000 - ------------------------------------------------------- ------- ---------- ---------- ----------- ---------- ----------- Brazil (0.2%) Brazil Floating Rate Discount Note, 6.125% due 4/15/24 (j) USD 502,247 502,247 502,247 - ------------------------------------------------------- ------- ---------- ---------- ----------- ---------- ----------- Bulgaria (0.4%) Republic of Bulgaria: Discount Bond Series A, 6.6875% due 7/28/24 - Euro (j) USD 541,628 541,628 541,628 Front Loaded Interest Reduction Bond Series A, 2.5% USD 419,900 419,900 419,900 (2.75% at 7/99) due 7/28/12 (k) - ------------------------------------------------------- ------- ---------- ---------- ----------- ---------- ----------- Colombia (0.2%) Republic of Colombia: 8.625% due 4/1/08 (l) USD 370,520 370,520 370,520 7.27% due 6/15/03 - 144A (h) USD 48,085 48,085 48,085 - ------------------------------------------------------- ------- ---------- ---------- ----------- ---------- ----------- Mexico (1.7%) United Mexican States: Discount Bond Series D, 6.6016% due 12/31/19 (j) USD 1,225,581 1,225,581 1,225,581 Discount Bond Series C, 6.6172% due 12/31/19 (j)(m) USD 1,056,186 1,056,186 1,056,186 9.875% due 1/15/07 USD 546,969 546,969 546,969 6.63% due 12/31/19 FRF 420,666 420,666 420,666 78 AIM DEVELOPING MARKETS FUND AIM EASTERN EUROPE FUND PRO FORMA COMBINING SCHEDULE OF INVESTMENTS OCTOBER 31, 1998 (UNAUDITED) SHARES AIM AIM Pro Forma AIM Pro Forma Developing Emerging Combining Eastern Combining Markets Markets Europe 412,000 412,000 412,000 Discount Bond Series A, 6.1156% due 12/31/19 (j)(m) 375,000 375,000 375,000 Discount Bond Series B, 6.47656% due 12/31/19 (j)(m) - --------- --------- ---------- ---------- ----------------------------------------------------------- Panama (0.2%) Republic of Panaman: 370,000 370,000 370,000 Interest Reduction Bond, 4% (4.25% at 7/99) due 7/17/14 (k) 67,000 67,000 67,000 8.875% due 9/30/27 - --------- --------- ---------- ---------- ----------------------------------------------------------- Peru (0.3%) Republic of Peru: 1,116,000 1,116,000 1,116,000 Past Due Interest Bond, 4% (4.5% at 3/8/99) due 3/7/17 (k) - --------- --------- ---------- ---------- ----------------------------------------------------------- Poland (0.2%) 685,000 685,000 685,000 3% (3.5% at 10/28/99) due 10/27/24 -Euro (k) 2,000 2,000 2,000 Past Due Interest Bond, 5% (6% at 10/28/99) due 10/27/14 - Euro (k) - --------- --------- ---------- ---------- ----------------------------------------------------------- Russia (0.1%) 2,717,360 2,717,360 2,717,360 Bank for Foreign Economic Affairs (Venesheconombank) Principal Loans, 6.625% due 12/15/20 (j) - --------- --------- ---------- ---------- ----------------------------------------------------------- United States (3.5%) U.S. Treasury Bills: 4,050,000 4,050,000 5.00% due 1/7/99 (n) 4,020,000 4,020,000 5.00% due 11/27/98 (n) - --------- --------- ---------- ---------- ----------------------------------------------------------- United Kingdom (0.0%) 14,652,000 14,652,000 Deutsche Bank AG London Note linked to Gosudarstvennyie Kratkosrochynie Obligatsii 0.00% due 6/9/99 (b)(e)(o) - --------- --------- ---------- ---------- ----------------------------------------------------------- TOTAL GOVERNMENT & GOVERNMENT AGENCY OBLIGATIONS (COST $11,677,186) CORPORATE BONDS (1.5%) - --------- --------- ---------- ---------- ----------------------------------------------------------- Argentina (0.6%) 1,504,000 1,504,000 1,504,000 Telefonica de Argentina, 9.125% due 5/7/08 - Reg S (c) - --------- --------- ---------- ---------- ----------------------------------------------------------- Brazil (0.5%) 710,000 710,000 710,000 Banco Hipotecario Espana, 10% due 4/17/03 - 144A (h) 1,042,000 1,042,000 1,042,000 RBS Participacoes S.A., 11% due 4/1/07 - 144A (h) 125,000 125,000 125,000 Globo Comunicacoes Participacoes, 10.625% due 5/12/08 - 144A (h) - --------- --------- ---------- ---------- ----------------------------------------------------------- MARKET VALUE AIM AIM Pro Forma AIM Pro Forma Developing Emerging Combining Eastern Combining Country Markets Markets Europe Discount Bond Series A, 6.1156% due 12/31/19 (j)(m) USD 321,618 321,618 321,618 Discount Bond Series B, 6.47656% due 12/31/19 (j)(m) USD 292,734 292,734 292,734 - -------------------------------------------------------------- ------- --------- -------- --------- --------- ---------- Panama (0.2%) Republic of Panaman: Interest Reduction Bond, 4% (4.25% at 7/99) due 7/17/14 (k) USD 270,794 270,794 270,794 8.875% due 9/30/27 USD 61,808 61,808 61,808 - -------------------------------------------------------------- ------- --------- -------- --------- --------- ---------- Peru (0.3%) Republic of Peru: Past Due Interest Bond, 4% (4.5% at 3/8/99) due 3/7/17 (k) USD 641,700 641,700 641,700 - -------------------------------------------------------------- ------- --------- -------- --------- --------- ---------- Poland (0.2%) 3% (3.5% at 10/28/99) due 10/27/24 -Euro (k) USD 455,525 455,525 455,525 Past Due Interest Bond, 5% (6% at 10/28/99) USD 1,819 1,819 1,819 due 10/27/14 - Euro (k) - -------------------------------------------------------------- ------- --------- -------- --------- --------- ---------- Russia (0.1%) Bank for Foreign Economic Affairs (Venesheconombank) USD 215,690 215,690 215,690 Principal Loans, 6.625% due 12/15/20 (j) - -------------------------------------------------------------- ------- --------- -------- --------- --------- ---------- United States (3.5%) U.S. Treasury Bills: 5.00% due 1/7/99 (n) USD 4,017,941 4,017,941 5.00% due 11/27/98 (n) USD 4,007,524 4,007,524 - -------------------------------------------------------------- ------- --------- -------- --------- --------- ---------- United Kingdom (0.0%) Deutsche Bank AG London Note linked to Gosudarstvennyie RUR Kratkosrochynie Obligatsii 0.00% due 6/9/99 (b)(e)(o) - -------------------------------------------------------------- ------- --------- -------- --------- --------- ---------- TOTAL GOVERNMENT & GOVERNMENT AGENCY OBLIGATIONS (COST $11,677,186) 9,815,876 9,815,876 8,025,465 17,841,341 CORPORATE BONDS (1.5%) - -------------------------------------------------------------- ------- --------- -------- --------- --------- ---------- Argentina (0.6%) Telefonica de Argentina, 9.125% due 5/7/08 - Reg S (c) USD 1,305,649 1,305,649 1,305,649 - -------------------------------------------------------------- ------- --------- -------- --------- --------- ---------- Brazil (0.5%) Banco Hipotecario Espana, 10% due 4/17/03 - 144A (h) USD 624,800 624,800 624,800 RBS Participacoes S.A., 11% due 4/1/07 - 144A (h) USD 468,900 468,900 468,900 Globo Comunicacoes Participacoes, 10.625% due 5/12/08 USD 71,563 71,563 71,563 - 144A (h) - -------------------------------------------------------------- ------- --------- -------- --------- --------- ---------- 79 AIM DEVELOPING MARKETS FUND AIM EASTERN EUROPE FUND PRO FORMA COMBINING SCHEDULE OF INVESTMENTS OCTOBER 31, 1998 (UNAUDITED) SHARES AIM AIM Pro Forma AIM Pro Forma Developing Emerging Combining Eastern Combining Markets Markets Europe Colombia (0.1%) 148,000 148,000 148,000 Financiera Energia Nacional, 9.375% due 6/15/06 - Reg S (c) - ----------- --------- --------- ------- --------- --------------------------------------------------------------- Korea (0.0%) 5,500,000 5,500,000 5,500,000 Pohang Iron & Steel, 2% due 10/9/00 - ----------- --------- --------- ------- --------- --------------------------------------------------------------- Mexico (0.2%) 360,000 360,000 360,000 Petroleos Mexicanos (PEMEX), 9.25% due 3/30/18 - 144A (h) 210,000 210,000 210,000 Dine, S.A. de C.V., 8.75% due 10/15/07 - 144A (h) 97,000 97,000 97,000 Banco Nacional Comercio Exte., 8% due 7/18/02 - Reg S (c) - ----------- --------- --------- ------- --------- --------------------------------------------------------------- Russia (0.1%) 851,000 851,000 851,000 Lukinter Finance BV Convertible, 3.5% due 5/6/02 - 144A (h) 5,000 5,000 5,000 Mosenergo Finance BV, 8.375% due 10/9/02 - 144A (h) - ----------- --------- --------- ------- --------- --------------------------------------------------------------- TOTAL CORPORATE BONDS (COST $4,998,295) STRUCTURED NOTES (0.2%) - ----------- --------- --------- ------- --------- --------------------------------------------------------------- Korea (0.2%) 470,000 470,000 470,000 Fixed Rate Trust Certificate 13.55% due 2/15/02 (p) (Issued y a newly created Deleware Business Trust, collateralized by triple A paper. This trust certificate has a credit risk component linked to the value of a referenced security. Korean Development Bonds, 1.875% 2002.) (Cost $470,000) - ----------- --------- --------- ------- --------- --------------------------------------------------------------- TOTAL FIXED INCOME INVESTMENTS (COST $17,145,481) WARRANTS (2.3%) - ----------- --------- --------- ------- --------- --------------------------------------------------------------- 765,294 765,294 796,274 1,561,568 Merrill Lynch - Kospi Call Warrants due 9/9/99 Performance linked to equity securities. Redemption amount 100% of the final closing price of the Korean Kospi 200 Index converted to the prevailing foreign exchange rate. (Cost $2,495,011) (Investment Management) - ----------- --------- --------- ------- --------- --------------------------------------------------------------- REPURCHASE AGREEMENTS (8.2%) - ----------- --------- --------- ------- --------- --------------------------------------------------------------- 4,653,000 4,653,000 4,653,000 Dated October 30,1998 with State Street Bank & Trust Co., due Novemeber 2,1998, for an effective yield of 5.30%, collateralized by $4,145,000 U.S. Treasury Notes, 6.50% due 5/15/05 (market value of collateral is $4,750,253, including accrued interest.) (Cost $4,653,000) - ----------- --------- --------- ------- --------- --------------------------------------------------------------- Dated October 30,1998 with State Street Bank & Trust Co., due Novemeber 2,1998, for an effective yield of 5.30%, collateralized by $4,145,000 U.S. Treasury Notes, 6.50% due 5/15/05 (market value of collateral is $4,750,253, 9,141,000 9,141,000 9,141,000 including accrued interest.) (Cost $4,653,000) - ----------- --------- --------- ------- --------- --------------------------------------------------------------- MARKET VALUE AIM AIM Pro Forma AIM Pro Forma Developing Emerging Combining Eastern Combining Country Markets Markets Europe Colombia (0.1%) Financiera Energia Nacional, 9.375% due 6/15/06 - Reg S (c) USD 108,528 108,528 108,528 - -------------------------------------------------------------- ------- ---------- --------- ---------- --------- ---------- Korea (0.0%) Pohang Iron & Steel, 2% due 10/9/00 JPY 40,886 40,886 40,886 - -------------------------------------------------------------- ------- ---------- --------- ---------- --------- ---------- Mexico (0.2%) Petroleos Mexicanos (PEMEX), 9.25% due 3/30/18 - 144A (h) USD 293,400 293,400 293,400 Dine, S.A. de C.V., 8.75% due 10/15/07 - 144A (h) USD 165,900 165,900 165,900 Banco Nacional Comercio Exte., 8% due 7/18/02 - Reg S (c) USD 88,513 88,513 88,513 - -------------------------------------------------------------- ------- ---------- --------- ---------- --------- ---------- Russia (0.1%) Lukinter Finance BV Convertible, 3.5% due 5/6/02 - 144A (h) USD 310,615 310,615 310,615 Mosenergo Finance BV, 8.375% due 10/9/02 - 144A (h) USD 875 875 875 - -------------------------------------------------------------- ------- ---------- --------- ---------- --------- ---------- TOTAL CORPORATE BONDS (COST $4,998,295) 3,479,629 3,479,629 3,479,629 STRUCTURED NOTES (0.2%) - -------------------------------------------------------------- ------- ---------- --------- ---------- --------- ---------- Korea (0.2%) Fixed Rate Trust Certificate 13.55% due 2/15/02 (p) USD 343,805 343,805 343,805 (Issued y a newly created Deleware Business Trust, collateralized by triple A paper. This trust certificate has a credit risk component linked to the value of a referenced security. Korean Development Bonds, 1.875% 2002.) (Cost $470,000) - -------------------------------------------------------------- ------- ---------- --------- ---------- --------- ---------- TOTAL FIXED INCOME INVESTMENTS (COST $17,145,481) 13,639,310 13,639,310 8,025,465 21,664,775 WARRANTS (2.3%) - -------------------------------------------------------------- ------- ---------- --------- ---------- --------- ---------- Merrill Lynch - Kospi Call Warrants due 9/9/99 US 2,571,541 2,675,640 5,247,181 5,247,181 Performance linked to equity securities. Redemption amount 100% of the final closing price of the Korean Kospi 200 Index converted to the prevailing foreign exchange rate. (Cost $2,495,011) (Investment Management) - -------------------------------------------------------------- ------- ---------- --------- ---------- --------- ---------- REPURCHASE AGREEMENTS (8.2%) - -------------------------------------------------------------- ------- ---------- --------- ---------- --------- ---------- Dated October 30,1998 with State Street Bank & Trust Co., 4,653,000 4,653,000 4,653,000 due Novemeber 2,1998, for an effective yield of 5.30%, collateralized by $4,145,000 U.S. Treasury Notes, 6.50% due 5/15/05 (market value of collateral is $4,750,253, including accrued interest.) (Cost $4,653,000) - -------------------------------------------------------------- ------- ---------- --------- ---------- --------- ---------- Dated October 30,1998 with State Street Bank & Trust Co., due Novemeber 2,1998, for an effective yield of 5.30%, collateralized by $4,145,000 U.S. Treasury Notes, 6.50% due 5/15/05 (market value of collateral is $4,750,253, including accrued interest.) (Cost $4,653,000) 9,141,000 9,141,000 9,141,000 - -------------------------------------------------------------- ------- ---------- --------- ---------- --------- ---------- 80 AIM DEVELOPING MARKETS FUND AIM EASTERN EUROPE FUND PRO FORMA COMBINING SCHEDULE OF INVESTMENTS OCTOBER 31, 1998 (UNAUDITED) SHARES AIM AIM Pro Forma AIM Pro Forma Developing Emerging Combining Eastern Combining Markets Markets Europe Dated October 30, 1998 with State Street Bank & Trust Co., due November 2, 1998, for an effective yield of 5.30%, collateralized by $4,905,000 U.S. Treasury Bonds, 7.125% due 2/29/00 (market value of collateral is $5,136,832, including accrued interest.) 5,036,000 5,036,000 (Cost $5,036,000) - ----------- --------- --------- --------- --------- ------------------------------------------- TOTAL INVESTMENTS (COST $117,236,708)- 101.9% - ----------- --------- --------- --------------------------------------------- LIABILITIES LESS OTHER ASSETS - (1.9)% - ----------- --------- --------- --------------------------------------------- NET ASSETS- 100.0% =========== ========= ========= ============================================= MARKET VALUE AIM AIM Pro Forma AIM Pro Forma Developing Emerging Combining Eastern Combining Country Markets Markets Europe Dated October 30, 1998 with State Street Bank & Trust Co., due November 2, 1998, for an effective yield of 5.30%, collateralized by $4,905,000 U.S. Treasury Bonds, 7.125% due 2/29/00 (market value of collateral is $5,136,832, including accrued interest.) (Cost $5,036,000) 5,036,000 5,036,000 - ------------------------------------------------ ------- ----------- ----------- ----------- ----------- ------------ TOTAL INVESTMENTS (COST $117,236,708)- 101.9% 90,220,411 95,678,089 185,898,500 46,744,968 232,643,468 - ------------------------------------------------ ------- ----------- ----------- ----------- ----------- ------------ LIABILITIES LESS OTHER ASSETS - (1.9)% (2,519,957) (2,275,508) (4,795,465) 354,578 (4,440,887) - ------------------------------------------------ ------- ----------- ----------- ----------- ----------- ------------ NET ASSETS- 100.0% $87,700,454 $93,402,581 181,103,035 $47,099,546 $228,202,581 ================================================ ======= =========== =========== =========== =========== ============ Notes to Schedule of Investments: (a) U.S. currency denominated. (b) Non-income producing security. (c) Security issued under Regulation S. Rule 144A and additional restrictions may apply in the resale of such securities. (d) At October 31, 1998, the Fund owned the following restriced securities constituting 3.2% of net assets which may not be publicly sold without registation under the Securites Act of 1933. Additional information on restricted securities is as follows: Acquisition Value Date Shares Cost Per Share Baltic Republics Fund Ltd. 9/2/94 9,000 $900,000 $80.00 Mezogazdasagi Gepgyarto 2/26/97 40,000 572,188 14.50 Russian Telecommunications Development Corp.: Non-Voting 12/20/93 52,600 526,000 2.46 Voting 12/20/93 38,400 384,000 2.46 Technoimpex 11/22/90 1,400 2,989,406 0.00 (e) Valued in good faith at fair value using procedures approved by the Board of Trustees. (f) Denominated in Deutsche Marks. (g) Each unit represents one preferred share of Unibanco and one preferred "B" share of Unibanco Holdings. (h) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. (i) Security denominated in Hong Kong Dollars. (j) The coupon rate shown on floating rate note represents the rate at period end. (k) The coupon rate shown on step-up coupon bond represents the rate at period end. (l) All or part of the Fund's holdings in this security is segregated as collateral for extended settlement of derivatvie instruments. (m) Issued with detachable warrants or value recovery rights. The current market value of each warrant or right is zero. (n) These securities are traded on a discount basis; the interest rates shown are the discount rates paid at the time of purchase of the Fund. (o) The issuer's obligation is limited to paying the holder a maturity value based on the amounts that would have been paid to a direct holder of the referenced zero coupon government security. In August 1998, the Russian government announced a potential restructuring of its short-term debt. At that time, interest accruals ceased due to this uncertainty. Details of the restructuring have not been finalized. (p) Certain events may cause the contract to terminate prior to date shown. Abbreviations: ADR - American Depositary Receipt GDR - Global Depositary Receipt See Accompanying Notes to Pro Forma Combining Financial Statements. 81 AIM Developing Markets Fund AIM Eastern Europe Fund Notes to Pro Forma Combining Financial Statements October 31, 1998 (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 and Termination between AIM Eastern Europe Fund and AIM Developing Markets Fund, a portfolio of AIM Investment Funds, Inc., and the consummation of the transactions contemplated therein to be accounted for as a tax-free reorganization of investment companies, and the transaction of the tax-free reorganization of AIM Emerging Markets Fund and AIM Developing Markets Fund, both portfolios of AIM Investment Funds, Inc., transacted on February 18, 1999. The Agreement and Plan of Reorganization and Termination would be accomplished by an exchange of Class A shares of AIM Developing Markets Fund for the net assets of AIM Eastern Europe Fund and the distribution of AIM Developing Markets Fund Class A shares to AIM Eastern Europe Fund shareholders. If the Agreement and Plan of Reorganization and Termination had taken place at October 31, 1998, AIM Eastern Europe Fund shareholders would have received 6,256,807 shares of AIM Developing Markets Fund - Class A shares. Note 2 - Pro Forma Adjustments Pro forma adjustments have been made to reflect the contractual expenses of the surviving entity. 82 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 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. 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. 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 83 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-Avisory Contract. ITEM 16. EXHIBITS. Exhibit Number Description - ------- ----------- (1) (a) - Agreement and Declaration of Trust of Registrant, dated May 7, 1998 was filed as an Exhibit to Post-Effective Amendment No. 55 on August 26, 1998 and is hereby incorporated by reference. (b) - First Amendment to Agreement and Declaration of Trust of Registrant, dated August 12, 1998, was filed as an Exhibit to Post-Effective Amendment No. 56 on December 26, 1998 and is hereby incorporated by reference. (c) - Second Amendment to Agreement and Declaration of Trust of Registrant, dated December 10, 1998, was filed as an Exhibit to Post-Effective Amendment No. 57 on February 22, 1998 and is hereby incorporated by reference. (d) - Third Amendment to Agreement and Declaration of Trust of Registrant, dated February 4, 1999, is filed herewith electronically. (e) - Fourth Amendment to Agreement and Declaration of Trust of Registrant, dated February 16, 1999, is filed herewith electronically. (2) - Amended and Restated Bylaws of Registrant, adopted effective May 7, 1998 and amended effective December 10, 1998 are filed herewith electronically. (3) - Voting Trust Agreements - None. (4) - A copy of the form of Agreement and Plan of Reorganization and Termination is attached as Appendix I to the Prospectus contained in the Registration Statement. 84 (5) - Provisions of instruments defining the rights of holders of Registrant's securities are contained in Articles II, VI, VII, VIII and IX of the Agreement and Declaration of Trust, as amended, which were filed as part of Exhibit (a)(1) to Post-Effective Amendment No. 57 on February 22, 1999 and are hereby incorporated by reference, and Articles IV, V, VI, VII and VIII of the Amended and Restated Bylaws, which are part of Exhibit (2) filed herewith electronically. (6) (a) - Investment Management and Administration Contract, dated September 8, 1998, between Registrant and A I M Advisors, Inc. was filed as an Exhibit to Post-Effective Amendment No. 55 on August 26, 1998 and is hereby incorporated by reference. (b) - Administration Contract, dated September 8, 1998, between Registrant and A I M Advisors, Inc. was filed as an Exhibit to Post-Effective Amendment No. 55 on August 26, 1998 and is hereby incorporated by reference. (c) - 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 Post-Effective Amendment No. 55 on August 26, 1998 and is hereby incorporated by reference. (d) - 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 Post-Effective Amendment No. 55 on August 26, 1998 and is hereby incorporated by reference. (e) - 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 Post-Effective Amendment No. 55 on August 26, 1998 and is hereby incorporated reference. (f) - 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 Post-Effective Amendment No. 55 on August 26, 1998 and is hereby incorporated by reference. (g) - 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 Post-Effective Amendment No. 57 on February 22, 1999 and is hereby incorporated by reference. 85 (h) - 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 Post-Effective Amendment No. 57 on February 22, 1999 and is hereby incorporated by reference. (i) - Form of Sub-Advisory Contract between A I M Advisors, Inc. and INVESCO (NY), Inc. with respect to the Registrant was filed as an Exhibit to Post-Effective Amendment No. 57 on February 22, 1999 and is hereby incorporated by reference. (j) - Sub-Advisory Contract, dated February 12, 1999, between A I M Advisors, Inc. and INVESCO Asset Management Limited with respect to the Registrant is filed herewith electronically. (k) - Form of Sub-Advisory Contract between A I M Advisors, Inc. and INVESCO Asset Management Limited with respect to Emerging Markets Debt Portfolio was filed as an Exhibit to Post-Effective Amendment No. 57 on February 22, 1999 and is hereby incorporated by reference. (7) (a) - (i) 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 Post-Effective Amendment No. 55 on August 26, 1998 and is hereby incorporated by reference. - (ii) Master Distribution Agreement, dated March 1, 1999, between Registrant and A I M Distributors, Inc. with respect to Class A and C shares is filed herewith electronically. - (iii) Amendment No. 1, dated March 18, 1999, to Master Distribution Agreement, dated September 8, 1998, between Registrant and AIM Distributors, Inc. with respect to Class B shares is filed herewith electronically. - (iv) Amendment No. 1, dated March 18, 1999, to Master Distribution Agreement, dated March 1, 1999, between Registrant and A I M Distributors, Inc. with respect to Class A and C shares is filed herewith electronically. (b) - 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 Post-Effective Amendment No. 55 on August 26, 1998 and is hereby incorporated by reference. (c) - Distribution Agreement, dated September 8, 1998, between Registrant and A I M Distributors, Inc. with respect to Advisor Class shares was filed as an Exhibit to Post-Effective Amendment No. 55 on August 26, 1998 and is hereby incorporated by reference. 86 (d) -- Form of Selected Dealer Agreement between A I M Distributors, Inc. and selected dealers was filed as an Exhibit to Post-Effective Amendment No. 57 February 22, 1999 and is hereby incorporated by reference. (e) -- Form of Bank Selling Group Agreement between A I M Distributors, Inc. and banks was filed as an Exhibit to Post-Effective Amendment No. 57 on February 22, 1999, and is hereby incorporated by reference. (8) -- Agreements Concerning Officers and Directors/Trustees Benefits - None. (9) (a) -- Custodian Contract, dated April 27, 1988, between Registrant and State Street Bank and Trust Company was filed as an Exhibit to Post-Effective Amendment No. 56 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 Post-Effective Amendment No. 56 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 Post-Effective Amendment No. 56 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 Post-Effective Amendment No. 56 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 Post-Effective Amendment No. 56 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 Post-Effective Amendment No. 56 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 Post-Effective Amendment No. 56 on December 30, 1998 and is hereby incorporated by reference. 87 (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 Post-Effective Amendment No. 56 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 Post-Effective Amendment No. 56 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 Post-Effective Amendment No. 56 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 Post-Effective Amendment No. 56 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 Post-Effective Amendment No. 56 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 Post-Effective Amendment No. 56 on December 30, 1998 and is hereby incorporated by reference. (n) - Amendment to Custodian Contract, dated January 26, 1989, was filed as an Exhibit to Post-Effective Amendment No. 57 on February 22, 1999 and is hereby incorporated by reference. (10) (a) - Form of Master Distribution Plan, pursuant to Rule 12b-1 with respect to Class A and Class C shares was filed as an Exhibit to Post-Effective Amendment No. 57 on February 22, 1999 and is hereby incorporated by reference. (b) - (i) Distribution Plan, effective as of September 8, 1998, adopted pursuant to Rule 12b-1 with respect to Class B shares was filed as an Exhibit to Post-Effective Amendment No. 53 on May 29, 1998 and is hereby incorporated by reference. 88 (c) -- (i) Form of Shareholder Service Agreement to be used in connection with Registrant's Master Distribution Plan is filed herewith electronically. -- (ii) Form of Bank Shareholder Service Agreement to be used in connection with Registrant's Master Distribution Plan is filed herewith electronically. -- (iii) Form of Service Agreement for Bank Trust Department and for Brokers to be used in connection with Registrant's Master Distribution Plan is filed herewith electronically. -- (iv) Form of Service Agreement for Bank Trust Departments to be used in connection with Registrant's Master Distribution Plan is filed electronically herewith. -- (v) Form of Service Agreement for Brokers for Bank Trust Departments to be used in connection with Registrant's Master Distribution Plan is filed electronically herewith. -- (vi) Form of Agency Pricing Agreement to be used in connection with Registrant's Master Distribution Plan is filed herewith electronically. (d) -- Rule 18f-3 Multiple Class Plan was filed as an Exhibit to Post-Effective Amendment No. 55 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 herewith electronically. (b) -- Opinion and Consent of Delaware Counsel is filed herewith electronically. (12) -- Opinion and Consent of Kirkpatrick & Lockhart LLP supporting the tax matters and consequences to shareholders discussed in the prospectus will be filed in an amendment to this Registration Statement. (13) (a) -- (i) Transfer Agency and Service Agreement, dated September 8, 1998, between Registrant and A I M Fund Services, Inc. was filed as an Exhibit to Post-Effective Amendment No. 56 on December 30, 1998 and is hereby incorporated by reference. 89 - (ii) Form of Amendment No. 1 to Transfer Agency and Services Agreement, dated September 8, 1998, between Registrant and A I M Fund Services, Inc. was filed as an Exhibit to Post-Effective Amendment No. 57 on February 22, 1999 and is hereby incorporated by reference. (b) - (i) Remote Access and Related Services Agreement, dated as of December 23, 1994, was filed as an Exhibit to Post-Effective Amendment No. 55 on August 26, 1998 and is hereby incorporated by reference. - (ii) Amendment No. 1, dated October 4, 1995, to the Remote Access and Related Services Agreement, dated as of December 23, 1994, was filed as an Exhibit to Post-Effective Amendment No. 55 on August 26, 1998 and is hereby incorporated by reference. - (iii) Addendum No. 2, dated October 12, 1995, to the Remote Access and Related Services Agreement, dated as of December 23, 1994, was filed as an Exhibit to Post-Effective Amendment No. 55 on August 26, 1998 and is hereby incorporated by reference. - (iv) Amendment No. 3, dated February 1, 1997, to the Remote Access and Related Services Agreement, dated December 23, 1994, was filed as an Exhibit to Post-Effective Amendment No. 55 on August 26, 1998 and is hereby incorporated as reference. - (v) Exhibit 1, effective as of August 4, 1997, to the Remote Access and Related Services Agreement, dated December 23, 1994, was filed as an Exhibit to Post-Effective Amendment No. 55 on August 26, 1998 and is hereby incorporated by reference. - (vi) Preferred Registration Technology Escrow Agreement, dated September 10, 1997, was filed as an Exhibit to Post-Effective Amendment No. 55 on August 26, 1998 and is hereby incorporated by reference. - (vii) Amendment No. 4, dated June 30, 1998, to the Remote Access and Related Services Agreement, dated December 23, 1994, was filed as an Exhibit to Post-Effective Amendment No. 56 on December 30, 1998 and is hereby incorporated by reference. - (viii) Amendment No. 5, dated July 1, 1998, to the Remote Access and Related Services Agreement, dated December 23, 1994, was filed as an Exhibit to Post-Effective Amendment No. 56 on December 30, 1998 and is hereby incorporated by reference. 90 (c) - Fund Accounting and Pricing Agent Agreement between Registrant and A I M Advisors, Inc., dated June 1, 1998, was filed as an Exhibit to Post-Effective Amendment No. 57 on February 22, 1999 and is hereby incorporated by reference. (14) - Consent of PricewaterhouseCoopers LLP is filed herewith electronically. (15) - Omitted Financial Statements - None. (16) - Powers of Attorney - None. (17) (a) - Form of Proxy. ITEM 17. UNDERTAKINGS. (1) The undersigned Registrant agrees that prior to any public re-offering of the securities registered through the use of the 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 of 1933, the re-offering prospectus will contain the information called for by the applicable registration form for re-offering by persons who may be deemed underwriters, in addition to the information called for by 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 Securities Act of 1933, 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. 91 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 27th day of May, 1999. REGISTRANT: AIM INVESTMENT FUNDS 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 dates indicated. SIGNATURES TITLE DATE ---------- ----- ---- /s/ Robert H. Graham Chairman, Trustee & President May 27, 1999 - ------------------------ (Principal Executive Officer) (Robert H. Graham) /s/ Carol F. Relihan* Trustee May 27, 1999 - ------------------------ (C. Derek Anderson) /s/ Frank S. Bayley Trustee May 27, 1999 - ------------------------ (Frank S. Bayley) /s/ Arthur C. Patterson Trustee May 27, 1999 - ------------------------ (Arthur C. Patterson) /s/ Ruth H. Quigley Trustee May 27, 1999 - ------------------------ (Ruth H. Quigley) /s/ Dana R. Sutton Vice President and Treasurer May 27, 1999 - ------------------------ (Dana R. Sutton) *POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints Robert H. Graham or Carol F. Relihan, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all his capacities as a Trustee or officer of AIM Investment Funds, a Delaware business trust, to sign on his or its behalf any and all Registration Statements (including any amendments to Registration Statements) under the Securities Act of 1933, the Investment Company Act of 1940 and any amendments and supplements thereto and applications thereunder, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission and any other applicable regulatory authority, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, and fully as to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and each of them, may lawfully do or cause to be done by virtue hereof. DATED this 27th day of May, 1999. /s/ C. Derek Anderson ------------------------- C. Derek Anderson 92 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION - ----------- ----------- (1) (d) -- Third Amendment to Agreement and Declaration of Trust of Registrant, dated February 4, 1999. (1) (e) -- Fourth Amendment to Agreement and Declaration of Trust of Registrant, dated February 16, 1999. (2) -- Amended and Restated Bylaws of Registrant, adopted effective May 7, 1998 and amended effective December 10, 1998. (6) (j) -- Sub-Advisory Contract, dated February 12, 1999, between A I M Advisors, Inc. and INVESCO Asset Management Limited with respect to the Registrant. (7) (a) -- (ii) Master Distribution Agreement, dated March 1, 1999, between Registrant and A I M Distributors, Inc. with respect to Class A and C shares. (7) (a) -- (iii) Amendment No. 1, dated March 18, 1999, to Master Distribution Agreement, dated September 8, 1998, between Registrant and AIM Distributors, Inc. with respect to Class B shares is filed herewith electronically. (7) (a) -- (iv) Amendment No. 1, dated March 18, 1999, to Master Distribution Agreement, dated March 1, 1999, between Registrant and A I M Distributors, Inc. with respect to Class A and C shares. (10) (c) -- (i) Form of Shareholder Service Agreement to be used in connection with Registrant's Master Distribution Plan. (10) (c) -- (ii) Form of Bank Shareholder Service Agreement to be used in connection with Registrant's Master Distribution Plan. (10) (c) -- (iii) Form of Service Agreement for Bank Trust Department and for Brokers to be used in connection with Registrant's Master Distribution Plan. (10) (c) -- (vi) Form of Agency Pricing Agreement to be used in connection with Registrant's Master Distribution Plan. (11) (a) -- Opinion and Consent of Kirkpatrick & Lockhart LLP as to the legality of the securities being registered. 93 (11) (b) Opinion and Consent of Delaware Counsel. (14) Consent of PricewaterhouseCoopers LLP. (17) (a) Form of Proxy.