497 1 h92857e497.txt AIM INTERNATIONAL FUNDS, INC. - INST'L. - 497(C) INSTITUTIONAL CLASS SHARES OF AIM INTERNATIONAL EQUITY FUND Supplement dated March 15, 2002 to the Prospectus dated March 15, 2002 The Board of Directors of the fund has approved the changes described in this supplement as part of a review by AIM of all of its funds in light of recent changes to federal securities laws, rules and interpretations. At a meeting held on February 7, 2002, the Board of Directors of AIM International Funds, Inc., on behalf of AIM International Equity Fund, voted to change the fund's name to "AIM International Growth Fund." The Board of Directors also approved the following changes to the fund's investment strategies: The following information replaces the second sentence of the second paragraph under the heading "INVESTMENT OBJECTIVE AND STRATEGIES": "The fund focuses its investments in marketable equity securities of foreign companies that are listed on a recognized foreign or U.S. securities exchange or traded in a foreign or U.S. over-the-counter market." The following information replaces in its entirety the fifth paragraph under the heading "INVESTMENT OBJECTIVE AND STRATEGIES": "In anticipation of or in response to adverse market or other conditions, or atypical circumstances such as unusually large cash inflows or redemptions, the fund may temporarily hold all or a portion of its assets in cash or the following liquid assets: money market instruments, shares of affiliated money market funds or high-quality debt obligations. As a result, the fund may not achieve its investment objective. For cash management purposes, the fund may also hold a portion of its assets in cash or such liquid assets." The changes noted above become effective July 1, 2002. AIM INTERNATIONAL EQUITY FUND -------------------------------------------------------------------------- INSTITUTIONAL CLASS AIM--Registered Trademark-- PROSPECTUS MARCH 15, 2002 AIM International Equity Fund seeks to provide long-term growth of capital. This prospectus contains important information about the Institutional Class shares of the fund. Please read it before investing and keep it for future reference. As with all other mutual fund securities, the Securities and Exchange Commission has not approved or disapproved these securities or determined whether the information in this prospectus is adequate or accurate. Anyone who tells you otherwise is committing a crime. An investment in the fund: - is not FDIC insured; - may lose value; and - is not guaranteed by a bank. [AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE --Registered Trademark-- --Registered Trademark-- ----------------------------- AIM INTERNATIONAL EQUITY FUND ----------------------------- TABLE OF CONTENTS -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE AND STRATEGIES 1 ------------------------------------------------------- PRINCIPAL RISKS OF INVESTING IN THE FUND 1 ------------------------------------------------------- PERFORMANCE INFORMATION 2 ------------------------------------------------------- Annual Total Returns 2 Performance Table 2 FEE TABLE AND EXPENSE EXAMPLE 3 ------------------------------------------------------- Fee Table 3 Expense Example 3 FUND MANAGEMENT 4 ------------------------------------------------------- The Advisor 4 Advisor Compensation 4 Portfolio Managers 4 OTHER INFORMATION 5 ------------------------------------------------------- Dividends and Distributions 5 Suitability for Investors 5 FINANCIAL HIGHLIGHTS 6 ------------------------------------------------------- SHAREHOLDER INFORMATION A-1 ------------------------------------------------------- Purchasing Shares A-1 Redeeming Shares A-2 Pricing of Shares A-2 Taxes A-2 OBTAINING ADDITIONAL INFORMATION Back Cover -------------------------------------------------------
The AIM Family of Funds, AIM and Design, AIM, AIM Funds, AIM Funds and Design, AIM Investor, AIM LINK, AIM Institutional Funds, aimfunds.com, La Familia AIM de Fondos, La Familia AIM de Fondos and Design, Invierta con DISCIPLINA and Invest with DISCIPLINE are registered service marks and AIM Bank Connection, AIM Internet Connect, AIM Private Asset Management, AIM Private Asset Management and Design, AIM stylized and/or Design, AIM Alternative Assets and Design, myaim.com, The AIM College Savings Plan, AIM Solo 401(k) and AIM Lifetime America are service marks of A I M Management Group Inc. No dealer, salesperson or any other person has been authorized to give any information or to make any representations other than those contained in this prospectus, and you should not rely on such other information or representations. ----------------------------- AIM INTERNATIONAL EQUITY FUND ----------------------------- INVESTMENT OBJECTIVE AND STRATEGIES -------------------------------------------------------------------------------- The fund's investment objective is to provide long-term growth of capital. The investment objective of the fund may be changed by the Board of Directors without shareholder approval. The fund seeks to meet its objective by investing in a diversified portfolio of international equity securities whose issuers are considered by the fund's portfolio managers to have strong earnings momentum. The fund invests, normally, at least 70% of its total assets in marketable equity securities of foreign companies that are listed on a recognized foreign securities exchange or traded in a foreign over-the-counter market. The fund will normally invest in companies located in at least four countries outside of the United States, emphasizing investment in companies in the developed countries of Western Europe and the Pacific Basin. At the present time, the fund's portfolio managers intend to invest no more than 20% of the fund's total assets in foreign companies located in developing countries, i.e., those that are in the initial stages of their industrial cycles. The fund may invest up to 20% of its total assets in securities exchangeable for or convertible into marketable equity securities of foreign issuers. The fund may also invest up to 20% of its total assets in high-grade short-term securities and debt securities, including U.S. Government obligations, investment grade corporate bonds or taxable municipal securities, whether denominated in U.S. dollars or foreign currencies. Any percentage limitations with respect to assets of the fund are applied at the time of purchase. The portfolio managers focus on companies that have experienced above-average, long-term growth in earnings and have strong prospects for future growth. In selecting countries in which the fund will invest, the fund's 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 fund's portfolio managers consider whether to sell a particular security when any of those factors materially changes. In anticipation of or in response to adverse market conditions, for cash management purposes, or for defensive purposes, the fund may temporarily hold all or a portion of its assets in cash, money market instruments, shares of affiliated money market funds, bonds or other debt securities. As a result, the fund may not achieve its investment objective. 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. 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. 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 devaluated 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. An investment in the fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. 1 ----------------------------- AIM INTERNATIONAL EQUITY FUND ----------------------------- PERFORMANCE INFORMATION -------------------------------------------------------------------------------- Institutional Class shares of the fund were first made available for public sale on March 15, 2002. The bar chart and table shown below provide an indication of the risks of investing in the fund. A fund's past performance (before and after taxes) is not necessarily an indication of its future performance. The returns shown are those of the fund's Class A shares, which are not offered in this prospectus. Institutional Class shares would have higher annual returns because, although the shares are invested in the same portfolio of securities, Institutional Class shares have lower expenses. 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. Institutional Class shares are not subject to front-end or back-end sales loads. [GRAPH]
ANNUAL YEAR ENDED TOTAL DECEMBER 31 RETURNS ----------- ------- 1993.................................... 45.78% 1994.................................... -3.34% 1995.................................... 16.41% 1996.................................... 18.98% 1997.................................... 5.70% 1998.................................... 13.42% 1999.................................... 55.08% 2000.................................... -25.69% 2001.................................... -22.36%
During the periods shown in the bar chart, Class A shares' highest quarterly return was 43.09% (quarter ended December 31, 1999) and the lowest quarterly return of the fund's Class A shares was -16.31% (quarter ended March 31, 2001). PERFORMANCE TABLE The following performance table compares the fund's Class A shares performance to that of a broad-based securities market index. The fund's performance reflects payment of sales loads.
AVERAGE ANNUAL TOTAL RETURNS ------------------------------------------------------------------------------------------------------------ (for the periods ended SINCE INCEPTION December 31, 2001) 1 YEAR 5 YEARS INCEPTION DATE ------------------------------------------------------------------------------------------------------------ Class A Return Before Taxes (26.64)% 0.27% 7.55% 04/07/92 Return After Taxes on Distributions (26.64) (0.28) 6.94 04/07/92 Return After Taxes on Distributions and Sale of Fund Shares (16.22) 0.31 6.29 04/07/92 ------------------------------------------------------------------------------------------------------------ MSCI EAFE Index(1) (21.44) 0.89 5.94(2) 03/31/92(2) (reflects no deduction for fees, expenses, or taxes) ------------------------------------------------------------------------------------------------------------
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Class A only and after-tax returns for Class B and C will vary. (1) The Morgan Stanley Capital International Europe, Australasia and Far East Index measures performance of global stock markets in 20 developed countries. (2) The average annual total return given is since the date closest to the inception date of the class with the longest performance history. 2 ----------------------------- AIM INTERNATIONAL EQUITY FUND ----------------------------- FEE TABLE AND EXPENSE EXAMPLE -------------------------------------------------------------------------------- FEE TABLE This table describes the fees and expenses that you may pay if you buy and hold Institutional Class shares of the fund:
SHAREHOLDER FEES ---------------------------------------------- (fees paid directly from your investment) INSTITUTIONAL CLASS ---------------------------------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption proceeds, whichever is less) None ----------------------------------------------
ANNUAL FUND OPERATING EXPENSES(1) ---------------------------------------------- (expenses that are deducted from fund assets) INSTITUTIONAL CLASS ---------------------------------------------- Management Fees 0.92% Distribution and/or Service (12b-1) Fees None Other Expenses(2,3) 0.22 Total Annual Fund Operating Expenses 1.14 Fee Waiver(4) 0.04 Net Expenses 1.10 ----------------------------------------------
(1) There is no guarantee that actual expenses will be the same as those shown in the table. (2) Based on estimated assets for the current fiscal year. (3) Other Expenses have been restated to reflect expense arrangements in effect as of March 4, 2002. (4) The investment advisor has contractually agreed to waive 0.05% of Management Fees on average net assets in excess of $500 million. You should also consider the effect of any account fees charged by the financial institution managing your account. EXPENSE EXAMPLE This example is intended to help you compare the costs of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the fund's operating expenses remain the same. To the extent fees are waived and/or expenses are reimbursed, your 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 ---------------------------------------------------- Institutional Class $116 $362 $628 $1,386 ----------------------------------------------------
3 ----------------------------- AIM INTERNATIONAL EQUITY FUND ----------------------------- FUND MANAGEMENT -------------------------------------------------------------------------------- THE ADVISOR A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor and is responsible for its day-to-day management. The advisor is located at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The advisor supervises all aspects of the fund's operations and provides investment advisory services to the fund, including obtaining and evaluating economic, statistical and financial information to formulate and implement investment programs for the fund. The advisor has acted as an investment advisor since its organization in 1976. Today, the advisor, together with its subsidiaries, advises or manages over 150 investment portfolios, including the fund, encompassing a broad range of investment objectives. ADVISOR COMPENSATION During the fiscal year ended October 31, 2001, the advisor received compensation of 0.88% of average daily net assets. PORTFOLIO MANAGERS The advisor uses a team approach to investment management. The individual members of the team who are primarily responsible for the day-to-day management of the fund's portfolio are - A. Dale Griffin, III, Senior Portfolio Manager, who has been responsible for the fund since its inception in 1992 and has been associated with the advisor and/or its affiliates since 1989. - Jason T. Holzer, Senior Portfolio Manager, who has been responsible for the fund since 1999 and has been associated with the advisor and/or its affiliates since 1996. - Clas G. Olsson, Senior Portfolio Manager, who has been responsible for the fund since 1997 and has been associated with the advisor and/or its affiliates since 1994. - Barrett K. Sides, Senior Portfolio Manager, who has been responsible for the fund since 1995 and has been associated with the advisor and/or its affiliates since 1990. 4 ----------------------------- AIM INTERNATIONAL EQUITY FUND ----------------------------- OTHER INFORMATION -------------------------------------------------------------------------------- DIVIDENDS AND DISTRIBUTIONS The fund expects that its distributions, if any, will consist primarily of capital gains. DIVIDENDS The fund generally declares and pays dividends, if any, annually. CAPITAL GAINS DISTRIBUTIONS The fund generally distributes long-term and short-term capital gains, if any, annually. SUITABILITY FOR INVESTORS The Institutional Class of the fund is intended for use by institutional investors. Shares of the Institutional Class of the fund are available for banks and trust companies acting in a fiduciary or similar capacity, bank and trust company common and collective trust funds, banks and trust companies investing for their own account, entities acting for the account of a public entity (e.g. Taft-Hartley funds, states, cities or government agencies), defined benefit plans, endowments, foundations and defined contribution plans offered pursuant to Sections 401, 457, 403(a), or 403(b) or (c) (defined contribution plans offered pursuant to Section 403(b) must be sponsored by a Section 501(c)(3) organization). For defined contribution plans for which the sponsor has combined defined contribution and defined benefit assets of at least $100 million there is no minimum initial investment requirement, otherwise the minimum initial investment requirement for defined contribution plans is $10 million. There is no minimum initial investment requirement for defined benefit plans, and the minimum initial investment requirement for all other investors for which the Institutional Class of the fund is available is $1 million. The Institutional Class of the fund is designed to be a convenient and economical vehicle in which institutions can invest in a portfolio of equity securities. An investment in the fund may relieve the institution of many of the investment and administrative burdens encountered when investing in equity securities directly. These include: selection and diversification of portfolio investments; surveying the market for the best price at which to buy and sell; valuation of portfolio securities; receipt, delivery and safekeeping of securities; and portfolio recordkeeping. 5 ----------------------------- AIM INTERNATIONAL EQUITY FUND ----------------------------- FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- Institutional Class shares of the fund were first made available for public sale on March 15, 2002. The financial highlights table is intended to help you understand the financial performance of the fund's Class A shares. 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). The information for the fiscal year 2001 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. Information prior to fiscal year 2001 was audited by KPMG LLP.
CLASS A ----------------------------------------------------------------------------- YEAR ENDED OCTOBER 31, ----------------------------------------------------------------------------- 2001 2000(a) 1999 1998(a) 1997(a) ---------- ---------- ---------- ---------- ---------- Net asset value, beginning of period $ 21.60 $ 21.73 $ 17.59 $ 16.64 $ 15.37 --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.01) 0.08 (0.03) 0.05 0.04 --------------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (5.66) 0.72 4.49 0.96 1.68 ================================================================================================================================= Total from investment operations (5.67) 0.80 4.46 1.01 1.72 ================================================================================================================================= Less distributions: Dividends from net investment income -- -- (0.11) (0.06) (0.02) --------------------------------------------------------------------------------------------------------------------------------- Distributions from net realized gains (1.48) (0.93) (0.21) -- (0.43) ================================================================================================================================= Total distributions (1.48) (0.93) (0.32) (0.06) (0.45) ================================================================================================================================= Net asset value, end of period $ 14.45 $ 21.60 $ 21.73 $ 17.59 $ 16.64 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Total return(b) (27.96)% 3.16% 25.73% 6.11% 11.43% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $1,404,269 $2,325,636 $2,058,419 $1,724,635 $1,577,390 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratio of expenses to average net assets: With fee waivers 1.57%(c) 1.44% 1.48% 1.45% 1.47% --------------------------------------------------------------------------------------------------------------------------------- Without fee waivers 1.61%(c) 1.48% 1.52% 1.49% 1.51% ================================================================================================================================= Ratio of net investment income (loss) to average net assets (0.04)%(c) 0.30% (0.14)% 0.28% 0.24% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Portfolio turnover rate 85% 87% 86% 78% 50% _________________________________________________________________________________________________________________________________ =================================================================================================================================
(a) Calculated using average shares outstanding. (b) Does not include sales charges. (c) Ratios are based on average daily net assets of $1,851,420,253. 6 ----------------------------------- THE AIM FUNDS - INSTITUTIONAL CLASS ----------------------------------- SHAREHOLDER INFORMATION -------------------------------------------------------------------------------- In addition to the fund, A I M Advisors, Inc. serves as investment advisor to many other mutual funds (the AIM Funds). The following information is about all the Institutional Classes of the AIM Funds. SHARES SOLD WITHOUT SALES CHARGES You will not pay an initial or contingent deferred sales charge on purchases of any Institutional Class of shares. PURCHASING SHARES MINIMUM INVESTMENTS PER AIM FUND ACCOUNT The minimum investments for AIM Fund Institutional Class accounts are as follows:
INITIAL ADDITIONAL TYPE OF ACCOUNT INVESTMENTS INVESTMENTS --------------------------------------------------------------------------------------- Defined Benefit Plans or Platform Sponsors for Defined Contribution Plans $ 0 no minimum Banks acting in a fiduciary or similar capacity, Collective and Common Trust Funds, Banks and Broker-Dealers acting for their own account or Foundations and Endowments 1 million no minimum Defined Contribution Plans (Corporate, Non-profit or Governmental) 10 million no minimum ---------------------------------------------------------------------------------------
HOW TO PURCHASE SHARES You may purchase shares using one of the options below. Purchase orders will not be processed unless the account application and purchase payment are received in good order. PURCHASE OPTIONS --------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT ---------------------------------------------------------------------------------------------------------- Through a Financial Consultant Contact your financial consultant. Same The financial consultant should mail your completed account application to the transfer agent, A I M Fund Services, Inc., P.O. Box 4497, Houston, TX 77210-4497. The financial consultant should call the transfer agent at (800) 659-1005 to receive a reference number. Then, use the following wire instructions: Beneficiary Bank ABA/Routing #: 113000609 Beneficiary Account Number: 00100366732 Beneficiary Account Name: A I M Fund Services, Inc. RFB: Fund Name, Reference # OBI: Your Name, Account # By Telephone Open your account as described Call the transfer agent at (800) above. 659-1005 and wire payment for your purchase order in accordance with the wire instructions noted above. ----------------------------------------------------------------------------------------------------------
SPECIAL PLANS AUTOMATIC DIVIDEND INVESTMENT All of your dividends and distributions may be paid in cash or invested in the same AIM Fund at net asset value. Unless you specify otherwise, your dividends and distributions will automatically be reinvested in the same AIM Fund. A-1 ICF--3/02 ----------------------------------- THE AIM FUNDS - INSTITUTIONAL CLASS ----------------------------------- REDEEMING SHARES REDEMPTION FEES Generally, we will not charge you any fees to redeem your shares. Your broker or financial consultant may charge service fees for handling redemption transactions. HOW TO REDEEM SHARES -------------------------------------------------------------------------------- Through a Financial Consultant Contact your financial consultant. Redemption proceeds will be sent in accordance with the wire instructions specified in the account application provided to the transfer agent. The transfer agent must receive your financial intermediary's call before the close of the customary trading session of the New York Stock Exchange (NYSE) on days the NYSE is open for business in order to effect the redemption at the day's closing price. By Telephone A person who has been authorized in the account application to effect transactions may make redemptions by telephone. You must call the transfer agent before the close of the customary trading session of the NYSE on days the NYSE is open for business in order to effect the redemption at that day's closing price.
-------------------------------------------------------------------------------- TIMING AND METHOD OF PAYMENT We normally will send out redemption proceeds within one business day, and in any event no more than seven days, after we accept your request to redeem. REDEMPTION BY TELEPHONE If you redeem by telephone, we will transmit the amount of the redemption proceeds electronically to your pre-authorized bank account. We use reasonable procedures to confirm that instructions communicated by telephone are genuine and are not liable for telephone instructions that are reasonably believed to be genuine. REDEMPTIONS BY THE AIM FUNDS If an AIM Fund determines that you have not provided a correct Social Security or other tax ID number on your account application, the AIM Fund may, at its discretion, redeem the account and distribute the proceeds to you. EACH AIM FUND AND ITS AGENTS RESERVE THE RIGHT AT ANY TIME TO: - REJECT OR CANCEL ALL OR ANY PART OF ANY PURCHASE OR EXCHANGE ORDER; - MODIFY ANY TERMS OR CONDITIONS OF PURCHASE OF SHARES OF ANY AIM FUND; OR - WITHDRAW ALL OR ANY PART OF THE OFFERING MADE BY THIS PROSPECTUS. PRICING OF SHARES DETERMINATION OF NET ASSET VALUE The price of each AIM Fund's shares is the fund's net asset value per share. The AIM Funds value portfolio securities for which market quotations are readily available at market value. The AIM Fund's short-term investments are valued at amortized cost when the security has 60 days or less to maturity. The AIM Funds value all other securities and assets at their fair value. Securities and other assets quoted in foreign currencies are valued in U.S. dollars based on the prevailing exchange rates on that day. In addition, if, between the time trading ends on a particular security and the close of the customary trading session of the NYSE, events occur that materially affect the value of the security, the AIM Funds may value the security at its fair value as determined in good faith by or under the supervision of the Board of Directors or Trustees of the AIM Fund. The effect of using fair value pricing is that an AIM Fund's net asset value will be subject to the judgment of the Board of Directors or Trustees or its designee instead of being determined by the market. Because some of the AIM Funds may invest in securities that are primarily listed on foreign exchanges that trade on days when the AIM Funds do not price their shares, the value of those funds' assets may change on days when you will not be able to purchase or redeem fund shares. Each AIM Fund determines the net asset value of its shares on each day the NYSE is open for business, as of the close of the customary trading session, or any earlier NYSE closing time that day. TIMING OF ORDERS You can purchase, exchange or redeem shares during the hours of the customary trading session of the NYSE. The AIM Funds price purchase, exchange and redemption orders at the net asset value calculated after the transfer agent receives an order in good order. An AIM Fund may postpone the right of redemption only under unusual circumstances, as allowed by the Securities and Exchange Commission, such as when the NYSE restricts or suspends trading. TAXES In general, dividends and distributions you receive are taxable as ordinary income or long-term capital gains for federal income tax purposes, whether you reinvest them in additional shares or take them in cash. Distributions are generally taxable to you at different rates depending on the length of time the fund holds ICF--3/02 A-2 ----------------------------------- THE AIM FUNDS - INSTITUTIONAL CLASS ----------------------------------- its assets. Different tax rates may apply to ordinary income and long-term capital gain distributions, regardless of how long you have held your shares. Every year, you will be sent information showing the amount of dividends and distributions you received from each AIM Fund during the prior year. Any long-term or short-term capital gains realized from redemptions of AIM Fund shares will be subject to federal income tax. Exchanges of shares for shares of another AIM Fund are treated as a sale, and any gain realized on the transaction will generally be subject to federal income tax. The foreign, state and local tax consequences of investing in AIM Fund shares may differ materially from the federal income tax consequences described above. You should consult your tax advisor before investing. A-3 ICF--3/02 THE AIM FUNDS -- INSTITUTIONAL CLASS SHAREHOLDER INFORMATION -------------------------------------------------------------------------------- In addition to the fund, A I M Advisors, Inc. serves as investment advisor to many other mutual funds (the AIM Funds). The following information is about all the Institutional Classes of the AIM Funds. SHARES SOLD WITHOUT SALES CHARGES You will not pay an initial or contingent deferred sales charge on purchases of any Institutional Class of shares. PURCHASING SHARES MINIMUM INVESTMENTS PER AIM FUND ACCOUNT The minimum investments for AIM Fund Institutional Class accounts are as follows:
INITIAL ADDITIONAL TYPE OF ACCOUNT INVESTMENTS INVESTMENTS --------------------------------------------------------------------------------------- Defined Benefit Plans or Platform Sponsors for Defined Contribution Plans $ 0 no minimum Banks acting in a fiduciary or similar capacity, Collective and Common Trust Funds, Banks and Broker-Dealers acting for their own account or Foundations and Endowments 1 million no minimum Defined Contribution Plans (Corporate, Non-profit or Governmental) 10 million no minimum ---------------------------------------------------------------------------------------
HOW TO PURCHASE SHARES You may purchase shares using one of the options below. Purchase orders will not be processed unless the account application and purchase payment are received in good order. PURCHASE OPTIONS -
OPENING AN ACCOUNT ADDING TO AN ACCOUNT ---------------------------------------------------------------------------------------------------------- Through a Financial Consultant Contact your financial consultant. Same The financial consultant should mail your completed account application to the transfer agent, A I M Fund Services, Inc., P.O. Box 4497, Houston, TX 77210-4497. The financial consultant should call the transfer agent at (800) 659-1005 to receive a reference number. Then, use the following wire instructions: Beneficiary Bank ABA/Routing #: 113000609 Beneficiary Account Number: 00100366732 Beneficiary Account Name: A I M Fund Services, Inc. RFB: Fund Name, Reference # OBI: Your Name, Account # By Telephone Open your account as described Call the transfer agent at (800) above. 659-1005 and wire payment for your purchase order in accordance with the wire instructions noted above. ----------------------------------------------------------------------------------------------------------
SPECIAL PLANS AUTOMATIC DIVIDEND INVESTMENT All of your dividends and distributions may be paid in cash or invested in the same AIM Fund at net asset value. Unless you specify otherwise, your dividends and distributions will automatically be reinvested in the same AIM Fund. A- 1 ICF--3/02 THE AIM FUNDS -- INSTITUTIONAL CLASS REDEEMING SHARES REDEMPTION FEES Generally, we will not charge you any fees to redeem your shares. Your broker or financial consultant may charge service fees for handling redemption transactions. HOW TO REDEEM SHARES -------------------------------------------------------------------------------- Through a Financial Consultant Contact your financial consultant. Redemption proceeds will be sent in accordance with the wire instructions specified in the account application provided to the transfer agent. The transfer agent must receive your financial intermediary's call before the close of the customary trading session of the New York Stock Exchange (NYSE) on days the NYSE is open for business in order to effect the redemption at the day's closing price. By Telephone A person who has been authorized in the account application to effect transactions may make redemptions by telephone. You must call the transfer agent before the close of the customary trading session of the NYSE on days the NYSE is open for business in order to effect the redemption at that day's closing price.
-------------------------------------------------------------------------------- TIMING AND METHOD OF PAYMENT We normally will send out redemption proceeds within one business day, and in any event no more than seven days, after we accept your request to redeem. REDEMPTION BY TELEPHONE If you redeem by telephone, we will transmit the amount of the redemption proceeds electronically to your pre-authorized bank account. We use reasonable procedures to confirm that instructions communicated by telephone are genuine and are not liable for telephone instructions that are reasonably believed to be genuine. REDEMPTIONS BY THE AIM FUNDS If an AIM Fund determines that you have not provided a correct Social Security or other tax ID number on your account application, the AIM Fund may, at its discretion, redeem the account and distribute the proceeds to you. EACH AIM FUND AND ITS AGENTS RESERVE THE RIGHT AT ANY TIME TO: - REJECT OR CANCEL ALL OR ANY PART OF ANY PURCHASE OR EXCHANGE ORDER; - MODIFY ANY TERMS OR CONDITIONS OF PURCHASE OF SHARES OF ANY AIM FUND; OR - WITHDRAW ALL OR ANY PART OF THE OFFERING MADE BY THIS PROSPECTUS. PRICING OF SHARES DETERMINATION OF NET ASSET VALUE The price of each AIM Fund's shares is the fund's net asset value per share. The AIM Funds value portfolio securities for which market quotations are readily available at market value. The AIM Fund's short-term investments are valued at amortized cost when the security has 60 days or less to maturity. The AIM Funds value all other securities and assets at their fair value. Securities and other assets quoted in foreign currencies are valued in U.S. dollars based on the prevailing exchange rates on that day. In addition, if, between the time trading ends on a particular security and the close of the customary trading session of the NYSE, events occur that materially affect the value of the security, the AIM Funds may value the security at its fair value as determined in good faith by or under the supervision of the Board of Directors or Trustees of the AIM Fund. The effect of using fair value pricing is that an AIM Fund's net asset value will be subject to the judgment of the Board of Directors or Trustees or its designee instead of being determined by the market. Because some of the AIM Funds may invest in securities that are primarily listed on foreign exchanges that trade on days when the AIM Funds do not price their shares, the value of those funds' assets may change on days when you will not be able to purchase or redeem fund shares. Each AIM Fund determines the net asset value of its shares on each day the NYSE is open for business, as of the close of the customary trading session, or any earlier NYSE closing time that day. TIMING OF ORDERS You can purchase, exchange or redeem shares during the hours of the customary trading session of the NYSE. The AIM Funds price purchase, exchange and redemption orders at the net asset value calculated after the transfer agent receives an order in good order. An AIM Fund may postpone the right of redemption only under unusual circumstances, as allowed by the Securities and Exchange Commission, such as when the NYSE restricts or suspends trading. TAXES In general, dividends and distributions you receive are taxable as ordinary income or long-term capital gains for federal income tax purposes, whether you reinvest them in additional shares or take them in cash. Distributions are generally taxable to you at ICF--3/02 A- 2 THE AIM FUNDS -- INSTITUTIONAL CLASS different rates depending on the length of time the fund holds its assets. Different tax rates may apply to ordinary income and long-term capital gain distributions, regardless of how long you have held your shares. Every year, you will be sent information showing the amount of dividends and distributions you received from each AIM Fund during the prior year. Any long-term or short-term capital gains realized from redemptions of AIM Fund shares will be subject to federal income tax. Exchanges of shares for shares of another AIM Fund are treated as a sale, and any gain realized on the transaction will generally be subject to federal income tax. The foreign, state and local tax consequences of investing in AIM Fund shares may differ materially from the federal income tax consequences described above. You should consult your tax advisor before investing. A- 3 ICF--3/02 ----------------------------------- THE AIM FUNDS - INSTITUTIONAL CLASS ----------------------------------- OBTAINING ADDITIONAL INFORMATION -------------------------------------------------------------------------------- More information may be obtained free of charge upon request. The Statement of Additional Information (SAI), a current version of which is on file with the Securities and Exchange Commission (SEC), contains more details about the fund and is incorporated by reference into the prospectus (is legally a part of this prospectus). Annual and semiannual reports to shareholders contain additional information about the fund's investments. The fund's annual report also discusses the market conditions and investment strategies that significantly affected the fund's performance during its last fiscal year. If you have questions about this fund, another fund in The AIM Family of Funds--Registered Trademark-- or your account, or wish to obtain free copies of the fund's current SAI or annual or semiannual reports, please contact us --------------------------------------------------------- BY MAIL: A I M Fund Services, Inc. P.O. Box 4497 Houston, TX 77001-4497 BY TELEPHONE: (800) 451-4246 ON THE INTERNET: You can send us a request by e-mail or download prospectuses, annual or semiannual reports via our website: http://www.aimfunds.com
--------------------------------------------------------- You also can review and obtain copies of the fund's SAI, reports and other information at the SEC's Public Reference Room in Washington, DC; on the EDGAR database on the SEC's Internet website (http://www.sec.gov); or, after paying a duplication fee, by sending a letter to the SEC's Public Reference Section, Washington, DC 20549-0102 or by sending an electronic mail request to publicinfo@sec.gov. Please call the SEC at 1-202-942-8090 for information about the Public Reference Room. ------------------------------------ AIM International Equity Fund SEC 1940 Act file number: 811-6463 ------------------------------------ [AIM LOGO APPEARS HERE] www.aimfunds.com AIFI-PRO-1 INVEST WITH DISCIPLINE --Registered Trademark-- --Registered Trademark-- INSTITUTIONAL CLASS SHARES OF AIM INTERNATIONAL EQUITY FUND (A SERIES PORTFOLIO OF AIM INTERNATIONAL FUNDS, INC.) Supplement dated March 15, 2002 to the Statement of Additional Information dated March 15, 2002 The Securities and Exchange Commission ("SEC") has adopted a rule that generally requires mutual funds with names suggesting a focus in a particular type of investment, industry or geographic region to invest at least 80% of their assets in such investment, industry or geographic region. In accordance with the requirements of this new SEC rule and the underlying statutory purposes of the rule, the Board of Directors has approved the change described in this supplement. At a meeting held on February 7, 2002, the Board of Directors of AIM International Funds, Inc., on behalf of AIM International Equity Fund, voted to change the fund's name to "AIM International Growth Fund." The change noted above becomes effective July 1, 2002. STATEMENT OF ADDITIONAL INFORMATION AIM INTERNATIONAL FUNDS, INC. 11 GREENWAY PLAZA SUITE 100 HOUSTON, TEXAS 77046-1173 (713) 626-1919 ---------- THIS STATEMENT OF ADDITIONAL INFORMATION RELATES TO THE INSTITUTIONAL CLASS OF THE AIM INTERNATIONAL EQUITY FUND PORTFOLIO OF AIM INTERNATIONAL FUNDS, INC. THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, AND IT SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE INSTITUTIONAL CLASS OF AIM INTERNATIONAL EQUITY FUND. YOU MAY OBTAIN A COPY OF A PROSPECTUS FOR THE INSTITUTIONAL CLASS OF AIM INTERNATIONAL EQUITY FUND FROM AN AUTHORIZED DEALER OR BY WRITING TO: A I M FUND SERVICES, INC. P.O. BOX 4739 HOUSTON, TEXAS 77210-4739 OR BY CALLING (800) 347-4246 ---------- THIS STATEMENT OF ADDITIONAL INFORMATION, DATED MARCH 15, 2002, RELATES TO THE PROSPECTUS FOR THE INSTITUTIONAL CLASS OF AIM INTERNATIONAL EQUITY FUND DATED MARCH 15, 2002. AIM INTERNATIONAL FUNDS, INC. STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS PAGE GENERAL INFORMATION ABOUT THE COMPANY..........................................1 Fund History.............................................................1 The Company and its Shares...............................................1 DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS..........................2 Classification...........................................................2 Investment Strategies and Risks..........................................2 Equity Investments.................................................5 Foreign Investments................................................6 Debt Investments...................................................7 Other Investments..................................................8 Investment Techniques..............................................9 Derivatives.......................................................13 Fund Policies...........................................................19 Temporary Defensive Positions...........................................20 MANAGEMENT OF THE COMPANY.....................................................21 Board of Directors......................................................21 Management Information..................................................21 Director Ownership of Fund Shares.................................22 Factors Considered in Approving the Investment Advisory Agreement.......22 Compensation............................................................23 Retirement Plan For Directors.....................................23 Deferred Compensation Agreements..................................23 Purchases of Class A Shares of the Funds at Net Asset Value.............24 Codes of Ethics.........................................................24 CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES...........................24 INVESTMENT ADVISORY AND OTHER SERVICES........................................24 Investment Advisor......................................................24 Service Agreements......................................................26 Other Service Providers.................................................26 BROKERAGE ALLOCATION AND OTHER PRACTICES......................................27 Brokerage Transactions..................................................27 Commissions.............................................................27 Brokerage Selection.....................................................27 Directed Brokerage (Research Services)..................................28 Regular Brokers or Dealers..............................................28 Allocation of Portfolio Transactions....................................29 Allocation of Equity Offering Transactions..............................29 PURCHASE, REDEMPTION AND PRICING OF SHARES....................................30 Purchase and Redemption of Shares.......................................30 Redemptions by the Funds................................................30 Offering Price..........................................................30 Redemption In Kind......................................................32 Backup Withholding......................................................32 DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS......................................33 Dividends and Distributions.............................................33 Tax Matters.............................................................33 i DISTRIBUTION OF SECURITIES....................................................40 Distributor.............................................................40 CALCULATION OF PERFORMANCE DATA...............................................40 APPENDICES: RATINGS OF DEBT SECURITIES...................................................A-1 DIRECTORS AND OFFICERS.......................................................B-1 DIRECTOR COMPENSATION TABLE..................................................C-1 CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES..........................D-1 MANAGEMENT FEES..............................................................E-1 ADMINISTRATIVE SERVICES FEES.................................................F-1 BROKERAGE COMMISSIONS........................................................G-1 DIRECTED BROKERAGE (RESEARCH SERVICES) AND PURCHASES OF SECURITIES OF REGULAR BROKERS OR DEALERS...................................................H-1 PERFORMANCE DATA.............................................................I-1 FINANCIAL STATEMENTS..........................................................FS ii GENERAL INFORMATION ABOUT THE COMPANY FUND HISTORY AIM International Funds, Inc. (the "Company") was organized in 1991 as a Maryland corporation and is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company. The Company currently consists of six separate portfolios: AIM Asian Growth Fund, AIM European Development Fund, AIM Global Aggressive Growth Fund, AIM Global Growth Fund, AIM Global Income Fund and AIM International Equity Fund, (each a "Fund" and collectively, the "Funds"). Under the Articles of Incorporation of the Company, dated October 30, 1991, as supplemented and amended, the Board of Directors is authorized to create new series of shares without the necessity of a vote of shareholders of the Company. THE COMPANY AND ITS SHARES Shares of the Company are redeemable at their net asset value (subject, in certain circumstances, to a contingent deferred sales charge) at the option of the shareholder or at the option of the Company in certain circumstances. The Company allocates moneys and other property it receives from the issue or sale of shares of each of its series of shares, and all income, earnings and profits from such issuance and sales, subject only to the rights of creditors, to the appropriate Fund. These assets constitute the underlying assets of each Fund, are segregated on the Company's books of account, and are charged with the expenses of such Fund and its respective classes. The Company allocates any general expenses of the Company not readily identifiable as belonging to a particular Fund by or under the direction of the Board of Directors, primarily on the basis of relative net assets, or other relevant factors. Each share of each Fund represents an equal proportionate interest in that Fund with each other share and is entitled to such dividends and distributions out of the income belonging to such Fund as are declared by the Board. Each Fund, other than AIM International Equity Fund, offers three separate classes of shares: Class A shares, Class B shares and Class C shares. AIM International Equity Fund offers four separate classes of shares: Class A shares, Class B shares, Class C shares and Institutional Class shares. This Statement of Additional Information relates solely to the Institutional Class shares of AIM International Equity Fund. Each class of shares represents interests in the same portfolio of investments. Differing sales charges and expenses will result in differing net asset values and dividends and distributions. Upon any liquidation of the Company, shareholders of each class are entitled to share pro rata in the net assets belonging to the applicable Fund allocable to such class available for distribution after satisfaction of outstanding liabilities of the Fund allocable to such class. Each share of a Fund has the same voting, dividend, liquidation and other rights; however, each class of shares of a Fund is subject to different sales loads, conversion features, exchange privileges and class-specific expenses. Except as specifically noted above, shareholders of each Fund are entitled to one vote per share (with proportionate voting for fractional shares), irrespective of the relative net asset value of the shares of a Fund. However, on matters affecting an individual Fund or class of shares, a separate vote of shareholders of that Fund or class is required. Shareholders of a Fund or class are not entitled to vote on any matter which does not affect that Fund or class but that requires a separate vote of another Fund or class. An example of a matter that would be voted on separately by shareholders of each Fund is the approval of the advisory agreement with A I M Advisors, Inc. ("AIM"), and an example of a matter that would be voted on separately by shareholders of each class of shares is approval of the distribution plans. When issued, shares of each Fund are fully paid and nonassessable, have no preemptive or subscription rights, and are freely transferable. Shares do not have cumulative voting rights, which means that in situations in which shareholders elect directors, holders of more than 50% of the shares voting for the election of directors can elect all of the directors of the Company, and the holders of less than 50% of the shares voting for the election of directors will not be able to elect any directors. 1 The Articles of Incorporation of the Company authorize the issuance of 8.1 billion shares with a par value of $.001 each, of which 720 million shares represent an interest in AIM Asian Growth Fund (or the classes thereof), 720 million shares represent an interest in AIM European Development Fund (or the classes thereof), 720 million shares represent an interest in AIM Global Aggressive Growth Fund (or the classes thereof), 720 million shares represent an interest in AIM Global Growth Fund (or the classes thereof), 720 million shares represent an interest in AIM Global Income Fund (or the classes thereof), and 1.2 billion shares represent an interest in AIM International Equity Fund (or the classes thereof). The Articles of Incorporation provide that no director or officer of the Company shall be liable to the Company or its shareholders for money damages, except (i) to the extent that it is proved that such director or officer actually received an improper benefit or profit in money, property or services, for the amount of the benefit or profit in money, property or services actually received, or (ii) to the extent that a judgment or other final adjudication adverse to such director or officer is entered in a proceeding based on a finding in the proceeding that such director's or officer's action, or failure to act was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding. The foregoing shall not be construed to protect or purport to protect any director or officer of the Company against any liability to the Company or its shareholders to which such director or officer would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such office. The Company shall indemnify and advance expenses to its currently acting and former directors to the fullest extent that indemnification of directors is permitted by the Maryland General Corporation Law. The Company shall indemnify and advance expenses to its officers to the same extent as its directors and to such further extent as is consistent with law. The Board of Directors may, by by-law, resolution or agreement make further provision for indemnification of directors, officers, employees and agents of the Company to the fullest extent permitted by the Maryland General Corporation Law. SHARE CERTIFICATES. Each Fund will issue share certificates upon written request to A I M Fund Services, Inc. ("AFS"). AFS will not issue certificates for shares held in prototype retirement plans sponsored by AMVESCAP National Trust Company, an affiliate of AIM. DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS CLASSIFICATION The Company is an open-end management investment company. The Fund is "diversified" for purposes of the 1940 Act. INVESTMENT STRATEGIES AND RISKS The table on the following pages identifies various securities and investment techniques used by AIM in managing The AIM Family of Funds--Registered Trademark--. The table has been marked to indicate those securities and investment techniques that AIM may use to manage the Fund. The Fund may not use all of these techniques at any one time. The Fund's transactions in a particular security or use of a particular technique is subject to limitations imposed by the Fund's investment objective, policies and restrictions described in the Fund's Prospectus and/or this Statement of Additional Information, as well as federal securities laws. The Fund's investment objective, policies, strategies and practices are non-fundamental unless otherwise indicated. A more detailed description of the securities and investment techniques, as well as the risks associated with those securities and investment techniques that the Fund utilizes, follows the table. The descriptions of the securities and investment techniques in this section supplement the discussion of principal investment strategies contained in the Fund's Prospectus; where a particular type of security or investment technique is not discussed in the Fund's Prospectus, that security or investment technique is not a principal investment strategy. 2 AIM INTERNATIONAL FUNDS, INC. SUMMARY OF SECURITIES AND INVESTMENT TECHNIQUES
-------------------------------------------------------------------------------- FUND AIM INTERNATIONAL EQUITY FUND SECURITY/ INVESTMENT TECHNIQUE -------------------------------------------------------------------------------- EQUITY INVESTMENTS -------------------------------------------------------------------------------- Common Stock X -------------------------------------------------------------------------------- Preferred Stock X -------------------------------------------------------------------------------- Convertible Securities X -------------------------------------------------------------------------------- Alternative Entity Securities X -------------------------------------------------------------------------------- FOREIGN INVESTMENTS -------------------------------------------------------------------------------- Foreign Securities X -------------------------------------------------------------------------------- Foreign Government Obligations -------------------------------------------------------------------------------- Foreign Exchange Transactions X -------------------------------------------------------------------------------- DEBT INVESTMENTS FOR EQUITY FUNDS -------------------------------------------------------------------------------- U.S. Government Obligations X -------------------------------------------------------------------------------- Liquid Assets X -------------------------------------------------------------------------------- Investment Grade Corporate Debt Obligations X -------------------------------------------------------------------------------- Junk Bonds -------------------------------------------------------------------------------- OTHER INVESTMENTS -------------------------------------------------------------------------------- REITs -------------------------------------------------------------------------------- Other Investment Companies -------------------------------------------------------------------------------- Defaulted Securities -------------------------------------------------------------------------------- Municipal Forward Contracts -------------------------------------------------------------------------------- Variable or Floating Rate Instruments --------------------------------------------------------------------------------
3 AIM INTERNATIONAL FUNDS, INC. SUMMARY OF SECURITIES AND INVESTMENT TECHNIQUES
-------------------------------------------------------------------------------- FUND AIM INTERNATIONAL EQUITY FUND SECURITY/ INVESTMENT TECHNIQUE -------------------------------------------------------------------------------- Indexed Securities -------------------------------------------------------------------------------- Zero-Coupon and Pay-in-Kind Securities -------------------------------------------------------------------------------- Synthetic Municipal Instruments -------------------------------------------------------------------------------- INVESTMENT TECHNIQUES -------------------------------------------------------------------------------- Delayed Delivery Transactions X -------------------------------------------------------------------------------- When-Issued Securities X -------------------------------------------------------------------------------- Short Sales X -------------------------------------------------------------------------------- Margin Transactions -------------------------------------------------------------------------------- Swap Agreements X -------------------------------------------------------------------------------- Interfund Loans X -------------------------------------------------------------------------------- Borrowing X -------------------------------------------------------------------------------- Lending Portfolio Securities X -------------------------------------------------------------------------------- Repurchase Agreements X -------------------------------------------------------------------------------- Reverse Repurchase Agreements X -------------------------------------------------------------------------------- Dollar Rolls -------------------------------------------------------------------------------- Illiquid Securities X -------------------------------------------------------------------------------- Rule 144A Securities X -------------------------------------------------------------------------------- Unseasoned Issuers X -------------------------------------------------------------------------------- Sale of Money Market Securities --------------------------------------------------------------------------------
4 AIM INTERNATIONAL FUNDS, INC. SUMMARY OF SECURITIES AND INVESTMENT TECHNIQUES
-------------------------------------------------------------------------------- FUND AIM INTERNATIONAL EQUITY FUND SECURITY/ INVESTMENT TECHNIQUE -------------------------------------------------------------------------------- Standby Commitments -------------------------------------------------------------------------------- DERIVATIVES -------------------------------------------------------------------------------- Equity-Linked Derivatives X -------------------------------------------------------------------------------- Put Options X -------------------------------------------------------------------------------- Call Options X -------------------------------------------------------------------------------- Straddles X -------------------------------------------------------------------------------- Warrants X -------------------------------------------------------------------------------- Futures Contracts and Options on Futures Contracts X -------------------------------------------------------------------------------- Forward Currency Contracts X -------------------------------------------------------------------------------- Cover X --------------------------------------------------------------------------------
Equity Investments COMMON STOCK. Common stock is issued by companies principally to raise cash for business purposes and represents a residual interest in the issuing company. The Fund participates in the success or failure of any company in which it holds stock. 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. PREFERRED STOCK. Preferred stock, unlike common stock, often offers a stated dividend rate payable from a corporation's earnings. If interest rates rise, the fixed dividend on preferred stocks may be less attractive, causing the price of preferred stocks to decline. Preferred stock may have mandatory sinking fund provisions, as well as call/redemption provisions prior to maturity, a negative feature when interest rates decline. Dividends on some preferred stock may be "cumulative," requiring all or a portion of prior unpaid dividends to be paid before dividends are paid on the issuer's common stock. Preferred stock also generally has a preference over common stock on the distribution of a corporation's assets in the event of liquidation of the corporation, and may be "participating," which means that it may be entitled to a dividend exceeding the stated dividend in certain cases. In some cases an issuer may offer auction rate preferred stock, which means that the interest to be paid is set by auction and will often be reset at stated intervals. The rights of preferred stocks on the distribution of a corporation's assets in the event of a liquidation are generally subordinate to the rights associated with a corporation's debt securities. 5 CONVERTIBLE SECURITIES. Convertible securities include bonds, debentures, notes, preferred stocks and other securities that may be converted into a prescribed amount of common stock or other equity securities at a specified price and time. The holder of convertible securities is entitled to receive interest paid or accrued on debt, or dividends paid or accrued on preferred stock, until the security matures or is converted. The value of a convertible security depends on interest rates, the yield of similar nonconvertible securities, the financial strength of the issuer and the seniority of the security in the issuer's capital structure. Convertible securities may be illiquid, and may be required to convert at a time and at a price that is unfavorable to the Fund. ALTERNATIVE ENTITY SECURITIES. Companies that are formed as limited partnerships, limited liability companies, business trusts or other non-corporate entities may issue equity securities that are similar to common or preferred stock of corporations. Foreign Investments FOREIGN SECURITIES. Foreign securities are equity or debt securities issued by issuers outside the United States, and include securities in the form of American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), or other securities representing underlying securities of foreign issuers. Depositary receipts are typically issued by a bank or trust company and evidence ownership of underlying securities issued by foreign corporations. The Fund may invest all of its total assets in foreign securities. Investments by the Fund in foreign securities, whether denominated in U.S. dollars or foreign currencies, may entail all of the risks set forth below. Investments by the Fund in ADRs, EDRs or similar securities also may entail some or all of the risks described below. Currency Risk. The value of the Fund's foreign investments will be affected by changes in currency exchange rates. The U.S. dollar value of a foreign security decreases when the value of the U.S. dollar rises against the foreign currency in which the security is denominated, and increases when the value of the U.S. dollar falls against such currency. Political and Economic Risk. The economies of many of the countries in which the Fund may invest may not be as developed as the United States' economy and may be subject to significantly different forces. Political or social instability, expropriation or confiscatory taxation, and limitations on the removal of funds or other assets could also adversely affect the value of the Fund's investments. Regulatory Risk. Foreign companies are not registered with the Securities and Exchange Commission ("SEC") and are generally not subject to the regulatory controls imposed on United States issuers and, as a consequence, there is generally less publicly available information about foreign securities than is available about domestic securities. Foreign companies are not subject to uniform accounting, auditing and financial reporting standards, corporate governance practices and requirements comparable to those applicable to domestic companies. Income from foreign securities owned by the Fund may be reduced by a withholding tax at the source, which tax would reduce dividend income payable to the Fund's shareholders. Market Risk. The securities markets in many of the countries in which the Fund invests will have substantially less trading volume than the major United States markets. As a result, the securities of some foreign companies may be less liquid and experience more price volatility than comparable domestic securities. Increased custodian costs as well as administrative costs (such as the need to use foreign custodians) may be associated with the maintenance of assets in foreign jurisdictions. There is generally less government regulation and supervision of foreign stock exchanges, brokers and issuers which may make it difficult to enforce contractual obligations. In addition, transaction costs in foreign 6 securities markets are likely to be higher, since brokerage commission rates in foreign countries are likely to be higher than in the United States. On January 1, 1999, certain members of the European Economic and Monetary Union ("EMU"), established a common European currency known as the "euro" and each member's local currency became a denomination of the euro. It is anticipated that each participating country (currently, Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain) will replace its local currency with the euro by July 1, 2002. The anticipated replacement of existing currencies with the euro on or before July 1, 2002 could cause market disruptions and could adversely affect the value of securities held by the Fund. Risks of Developing Countries. AIM International Equity Fund may invest without limit, but does not intend to invest more than 20% of its total assets in securities of companies domiciled in developing countries. Investments in developing countries present risks greater than, and in addition to, those presented by investments in foreign issuers in general. A number of developing countries restrict, to varying degrees, foreign investment in stocks. Repatriation of investment income, capital, and the proceeds of sales by foreign investors may require governmental registration and/or approval in some developing countries. A number of the currencies of developing countries have experienced significant declines against the U.S. dollar in recent years, and devaluation may occur subsequent to investments in these currencies by the Fund. Inflation and rapid fluctuations in inflation rates have had and may continue to have negative effects on the economies and securities markets of certain emerging market countries. Many of the developing securities markets are relatively small or less diverse, have low trading volumes, suffer periods of relative illiquidity, and are characterized by significant price volatility. There is a risk in developing countries that a future economic or political crisis could lead to price controls, forced mergers of companies, expropriation or confiscatory taxation, seizure, nationalization, or creation of government monopolies, any of which may have a detrimental effect on the Fund's investments. FOREIGN EXCHANGE TRANSACTIONS. Foreign exchange transactions include direct purchases of futures contracts with respect to foreign currency, and contractual agreements to purchase or sell a specified currency at a specified future date (up to one year) at a price set at the time of the contract. Such contractual commitments may be forward contracts entered into directly with another party or exchange traded futures contracts. The Fund has authority to deal in foreign exchange between currencies of the different countries in which it will invest as a hedge against possible variations in the foreign exchange rates between those currencies. The Fund may commit the same percentage of its total assets to foreign exchange hedges as it can invest in foreign securities. The Fund may utilize either specific transactions ("transaction hedging") or portfolio positions ("position hedging") to hedge foreign currency exposure through foreign exchange transactions. Transaction hedging is the purchase or sale of foreign currency with respect to specific receivables or payables of the Fund accruing in connection with the purchase or sale of its portfolio securities, the sale and redemption of shares of the Fund, or the payment of dividends and distributions by the Fund. Position hedging is the purchase or sale of foreign currency with respect to portfolio security positions (or underlying portfolio security positions, such as in an ADR) denominated or quoted in a foreign currency. Additionally, foreign exchange transactions may involve some of the risks of investments in foreign securities. Debt Investments U.S. GOVERNMENT OBLIGATIONS. Obligations issued or guaranteed by the U.S. Government, its agencies and instrumentalities include bills, notes and bonds issued by the U.S. Treasury, as well as "stripped" or "zero coupon" U.S. Treasury obligations representing future interest or principal payments on U.S. Treasury notes or bonds. Stripped securities are sold at a discount to their "face value," and may exhibit greater price volatility than interest-bearing securities since investors receive no payment until maturity. Obligations of certain agencies and instrumentalities of the U.S. Government, such as the 7 Government National Mortgage Association ("GNMA"), are supported by the full faith and credit of the U.S. Treasury; others, such as those of the Federal National Mortgage Association ("FNMA"), are supported by the right of the issuer to borrow from the Treasury; others, such as those of the Student Loan Marketing Association ("SLMA"), are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations; still others, though issued by an instrumentality chartered by the U.S. Government, like the Federal Farm Credit Bureau ("FFCB"), are supported only by the credit of the instrumentality. The U.S. Government may choose not to provide financial support to U.S. Government-sponsored agencies or instrumentalities if it is not legally obligated to do so. LIQUID ASSETS. In anticipation of or in response to adverse market or other conditions, or atypical circumstances such as unusually large cash inflows or redemptions, the Fund may temporarily hold all or a portion of its assets in cash or the following liquid assets: money market instruments (such as certificates of deposit, time deposits, bankers' acceptances from U.S. or foreign banks, and repurchase agreements), shares of affiliated money market funds or high-quality debt obligations (such as U.S. Government obligations, commercial paper, master notes and other short-term corporate instruments, participation interests in corporate loans, and municipal obligations). For cash management purposes, the Fund may also hold a portion of its assets in cash or such liquid assets. INVESTMENT GRADE CORPORATE DEBT OBLIGATIONS. The Fund may invest in U.S. dollar-denominated debt obligations issued or guaranteed by U.S. corporations or U.S. commercial banks, U.S. dollar-denominated obligations of foreign issuers and debt obligations of foreign issuers denominated in foreign currencies. Such debt obligations include, among others, bonds, notes, debentures and variable rate demand notes. In choosing corporate debt securities on behalf of the Fund, its investment adviser may consider (i) general economic and financial conditions; (ii) the specific issuer's (a) business and management, (b) cash flow, (c) earnings coverage of interest and dividends, (d) ability to operate under adverse economic conditions, (e) fair market value of assets, and (f) in the case of foreign issuers, unique political, economic or social conditions applicable to such issuer's country; and, (iii) other considerations deemed appropriate. The Fund will purchase only investment grade corporate debt securities. Descriptions of debt securities ratings are found in Appendix A. Other Investments REAL ESTATE INVESTMENT TRUSTS ("REITS"). REITs are trusts that sell equity or debt securities to investors and use the proceeds to invest in real estate or interests therein. A REIT may focus on particular projects, such as apartment complexes, or geographic regions, such as the southeastern United States, or both. To the extent consistent with its investment objective and policies, the Fund may invest up to 15% of its total assets in equity and/or debt securities issued by REITs. To the extent that the Fund has the ability to invest in REITs, the Fund could conceivably own real estate directly as a result of a default on the securities it owns. The Fund, therefore, may be subject to certain risks associated with the direct ownership of real estate including difficulties in valuing and trading real estate, declines in the value of real estate, risks related to general and local economic conditions, adverse changes in the climate for real estate, environmental liability risks, increases in property taxes and operating expenses, changes in zoning laws, casualty or condemnation losses, limitations on rents, changes in neighborhood values, the appeal of properties to tenants, and increases in interest rates. In addition to the risks described above, equity REITs may be affected by any changes in the value of the underlying property owned by the trusts, while mortgage REITs may be affected by the quality of any credit extended. Equity and mortgage REITs are dependent upon management skill, are not diversified, and are therefore subject to the risk of financing single or a limited number of projects. Such trusts are also subject to heavy cash flow dependency, defaults by borrowers, self-liquidation, and the possibility of failing to maintain an exemption from the 1940 Act. Changes in interest rates may also 8 affect the value of debt securities held by the Fund. By investing in REITs indirectly through the Fund, a shareholder will bear not only his/her proportionate share of the expenses of the Fund, but also, indirectly, similar expenses of the REITs. OTHER INVESTMENT COMPANIES. With respect to the Fund's purchase of shares of another investment company, including Affiliated Money Market Funds (defined below), the Fund will indirectly bear its proportionate share of the advisory fees and other operating expenses of such investment company. The Fund has obtained an exemptive order from the SEC allowing it to invest in money market funds that have AIM or an affiliate of AIM as an investment advisor (the "Affiliated Money Market Funds"), provided that investments in Affiliated Money Market Funds do not exceed 25% of the total assets of the investing Fund. The following restrictions apply to investments in other investment companies other than Affiliated Money Market funds: (i) the Fund may not purchase more than 3% of the total outstanding voting stock of another investment company; (ii) the Fund may not invest more than 5% of its total assets in securities issued by another investment company; and (iii) the Fund may not invest more than 10% of its total assets in securities issued by other investment companies. Investment Techniques DELAYED DELIVERY TRANSACTIONS. Delayed delivery transactions or forward commitments, involve commitments by the Fund to dealers or issuers to acquire or sell securities at a specified future date beyond the customary settlement for such securities. These commitments may fix the payment price and interest rate to be received or paid on the investment. The Fund may purchase securities on a delayed delivery to the extent it can anticipate having available cash on settlement date. Delayed delivery agreements will not be used as a speculative or leverage technique. Investment in securities on a delayed delivery basis may increase the Fund's exposure to market fluctuation and may increase the possibility that the Fund will incur short-term gains subject to federal taxation or short-term losses if the Fund must engage in portfolio transactions in order to honor a delayed delivery commitment. Until the settlement date, the Fund will segregate liquid assets of a dollar value sufficient at all times to make payment for the delayed delivery transactions. Such segregated liquid assets will be marked-to-market daily, and the amount segregated will be increased if necessary to maintain adequate coverage of the delayed delivery commitments. No additional delayed delivery agreements or when-issued commitments (as described below) will be made by the Fund if, as a result, more than 25% of the Fund's total assets would become so committed. The delayed delivery securities, which will not begin to accrue interest or dividends until the settlement date, will be recorded as an asset of the Fund and will be subject to the risk of market fluctuation. The purchase price of the delayed delivery securities is a liability of the Fund until settlement. Absent extraordinary circumstances, the Fund will not sell or otherwise transfer the delayed delivery basis securities prior to settlement. The Fund may enter into buy/sell back transactions (a form of delayed delivery agreement). In a buy/sell back transaction, the Fund enters a trade to sell securities at one price and simultaneously enters a trade to buy the same securities at another price for settlement at a future date. WHEN-ISSUED SECURITIES. Purchasing securities on a "when-issued" basis means that the date for delivery of and payment for the securities is not fixed at the date of purchase, but is set after the securities are issued. The payment obligation and, if applicable, the interest rate that will be received on the securities are fixed at the time the buyer enters into the commitment. The Fund will only make commitments to purchase such securities with the intention of actually acquiring such securities, but the Fund may sell these securities before the settlement date if it is deemed advisable. Securities purchased on a when-issued basis and the securities held in the Fund's portfolio are subject to changes in market value based upon the public's perception of the creditworthiness of the 9 issuer and, if applicable, changes in the level of interest rates. Therefore, if the Fund is to remain substantially fully invested at the same time that it has purchased securities on a when-issued basis, there will be a possibility that the market value of the Fund's assets will fluctuate to a greater degree. Furthermore, when the time comes for the Fund to meet its obligations under when-issued commitments, the Fund will do so by using then available cash flow, by sale of the segregated liquid assets, by sale of other securities or, although it would not normally expect to do so, by directing the sale of the when-issued securities themselves (which may have a market value greater or less than the Fund's payment obligation). Investment in securities on a when-issued basis may increase the Fund's exposure to market fluctuation and may increase the possibility that the Fund will incur short-term gains subject to federal taxation or short-term losses if the Fund must sell another security in order to honor a when-issued commitment. If the Fund purchases a when-issued security, the Fund's custodian bank will segregate liquid assets in an amount equal to the when-issued commitment. If the market value of such segregated assets declines, additional liquid assets will be segregated on a daily basis so that the market value of the segregated assets will equal the amount of the Fund's when-issued commitments. No additional delayed delivery agreements (as described above) or when-issued commitments will be made by the Fund if, as a result, more than 25% of the Fund's total assets would become so committed. SHORT SALES. In a short sale, the Fund does not immediately deliver the securities sold and does not receive the proceeds from the sale. The Fund is said to have a short position in the securities sold until it delivers the securities sold, at which time it receives the proceeds of the sale. The Fund will make a short sale, as a hedge, when it believes that the price of a security may decline, causing a decline in the value of a security owned by the Fund or a security convertible into or exchangeable for such security, or when the Fund does not want to sell the security it owns, because it wishes to defer recognition of gain or loss for federal income tax purposes. In such case, any future losses in the Fund's long position should be reduced by a gain in the short position. Conversely, any gain in the long position should be reduced by a loss in the short position. The extent to which such gains or losses are reduced will depend upon the amount of the security sold short relative to the amount the Fund owns, either directly or indirectly, and, in the case where the Fund owns convertible securities, changes in the conversion premium. In determining the number of shares to be sold short against the Fund's position in a convertible security, the anticipated fluctuation in the conversion premium is considered. The Fund may also make short sales to generate additional income from the investment of the cash proceeds of short sales. The Fund will only make short sales "against the box," meaning that at all times when a short position is open, the Fund owns an equal amount to such securities or securities convertible into or exchangeable, without payment of any further consideration, for securities of the same issue as, and equal in amount to, the securities sold short. To secure its obligation to deliver the securities sold short, the Fund will segregate with its custodian an equal amount of the securities sold short or securities convertible into or exchangeable for such securities. The Fund may pledge no more than 10% of its total assets as collateral for short sales against the box. MARGIN TRANSACTIONS. The Fund will not purchase any security on margin, except that the Fund may obtain such short-term credits as may be necessary for the clearance of purchases and sales of portfolio securities. The payment by the Fund of initial or variation margin in connection with futures or related options transactions will not be considered the purchase of a security on margin. SWAP AGREEMENTS. The Fund may enter into interest rate, index and currency exchange rate swap agreements for purposes of attempting to obtain a particular desired return at a lower cost to the Fund than if it had invested directly in an instrument that yielded that desired return. Swap agreements are two-party contracts entered into primarily by institutional investors for periods ranging from a few weeks to more than one year. In a standard "swap" transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or "swapped" between the parties are calculated with respect to a "notional amount," i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate, in a particular foreign currency, or in a "basket" of securities 10 representing a particular index. Commonly used swap agreements include: (i) interest rate caps, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate, or "cap"; (ii) interest rate floors, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates fall below a specified level, or "floor"; and (iii) interest rate collars, under which a party sells a cap and purchases a floor or vice versa in an attempt to protect itself against interest rate movements exceeding given minimum or maximum levels. The "notional amount" of the swap agreement is only a fictitious basis on which to calculate the obligations that the parties to a swap agreement have agreed to exchange. Most swap agreements entered into by the Fund would calculate the obligations on a "net basis." Consequently, the Fund's obligations (or rights) under a swap agreement will generally be equal only to the net amount to be paid or received under the agreement based on the relative values of the positions held by each party to the agreement (the "net amount"). Obligations under a swap agreement will be accrued daily (offset against amounts owing to the Fund) and any accrued but unpaid net amounts owed to a swap counterparty will be covered by segregating liquid assets to avoid any potential leveraging of the Fund. The Fund will not enter into a swap agreement with any single party if the net amount owed to or to be received under existing contracts with that party would exceed 5% of the Fund's total assets. For a discussion of the tax considerations relating to swap agreements, see "Dividends, Distributions and Tax Matters - Swap Agreements." INTERFUND LOANS. The Fund may lend univested cash up to 15% of its net assets to other AIM Funds and may borrow from other AIM Funds to the extent permitted under the Fund's investment restrictions. During temporary or emergency periods, the percentage of the Fund's net assets that may be loaned to other AIM Funds may be increased as permitted by the SEC. If any interfund loans are outstanding, the Fund cannot make any additional investments. If the Fund has borrowed from other AIM Funds and has aggregate borrowings from all sources that exceed 10% of the Fund's total assets, the Fund will secure all of its loans from other AIM Funds. The ability of the Fund to lend its securities to other AIM Funds is subject to certain other terms and conditions. BORROWING. The Fund may borrow money to a limited extent for temporary or emergency purposes. If there are unusually heavy redemptions because of changes in interest rates or for any other reason, the Fund may have to sell a portion of its investment portfolio at a time when it may be disadvantageous to do so. Selling fund securities under these circumstances may result in a lower net asset value per share or decreased dividend income, or both. The Company believes that, in the event of abnormally heavy redemption requests, the Fund's borrowing ability would help to mitigate any such effects and could make the forced sale of their portfolio securities less likely. LENDING PORTFOLIO SECURITIES. The Fund may lend its portfolio securities (principally to broker-dealers) where such loans are callable at any time and are continuously secured by segregated collateral equal to no less than the market value, determined daily, of the loaned securities. Such collateral will be cash, letters of credit, or debt securities issued or guaranteed by the U.S. Government or any of its agencies. The Fund may lend portfolio securities to the extent of one-third of its total assets. The Fund would continue to receive the income on loaned securities and would, at the same time, earn interest on the loan collateral or on the investment of any cash collateral. The Fund will not have the right to vote securities while they are lent, but it can call a loan in anticipation of an important vote. Any cash collateral pursuant to these loans would be invested in short-term money market instruments or Affiliated Money Market Funds. Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the securities loaned increases and the collateral is not increased accordingly or in the event of default by the borrower. The Fund could also experience delays and costs in gaining access to the collateral. REPURCHASE AGREEMENTS. Repurchase agreements are agreements under which the Fund acquires ownership of a security from a broker-dealer or bank that agrees to repurchase the security at a mutually agreed upon time and price (which is higher than the purchase price), thereby determining the yield during the Fund's holding period. The Fund may, however, enter into a "continuing contract" or 11 "open" repurchase agreement under which the seller is under a continuing obligation to repurchase the underlying obligation from the Fund on demand and the effective interest rate is negotiated on a daily basis. The Fund may engage in repurchase agreement transactions involving the types of securities in which it is permitted to invest. If the seller of a repurchase agreement fails to repurchase the security in accordance with the terms of the agreement, the Fund might incur expenses in enforcing its rights, and could experience losses, including a decline in the value of the underlying security and loss of income. The securities underlying a repurchase agreement will be marked to market every business day so that the value of such securities is at least equal to the investment value of the repurchase agreement, including any accrued interest thereon. The Funds have obtained an exemptive order from the SEC allowing them to invest their cash balances in joint accounts for the purpose of investing in repurchase agreements with maturities not to exceed 60 days, and in certain other money market instruments with remaining maturities not to exceed 90 days. Repurchase agreements are considered loans by the Fund under the 1940 Act. REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements are agreements that involve the sale of securities held by the Fund to financial institutions such as banks and broker-dealers, with an agreement that the Fund will repurchase the securities at an agreed upon price and date. The Fund may employ reverse repurchase agreements (i) for temporary emergency purposes, such as to meet unanticipated net redemptions so as to avoid liquidating other portfolio securities during unfavorable market conditions; (ii) to cover short-term cash requirements resulting from the timing of trade settlements; or (iii) to take advantage of market situations where the interest income to be earned from the investment of the proceeds of the transaction is greater than the interest expense of the transaction. At the time it enters into a reverse repurchase agreement, the Fund will segregate liquid assets having a dollar value equal to the repurchase price, and will subsequently continually monitor the account to ensure that such equivalent value is maintained at all times. Reverse repurchase agreements involve the risk that the market value of securities to be purchased by the Fund may decline below the price at which it is obligated to repurchase the securities, or that the other party may default on its obligation, so that the Fund is delayed or prevented from completing the transaction. Reverse repurchase agreements are considered borrowings by the Fund under the 1940 Act. ILLIQUID SECURITIES. Illiquid securities are securities that cannot be disposed of within seven days in the normal course of business at the price at which they are valued. Illiquid securities may include securities that are subject to restrictions on resale because they have not been registered under the Securities Act of 1933 (the "1933 Act"). Restricted securities may, in certain circumstances, be resold pursuant to Rule 144A, and thus may or may not constitute illiquid securities. The Fund may invest up to 15% of its net assets in securities that are illiquid. Limitations on the resale of restricted securities may have an adverse effect on their marketability, which may prevent the Fund from disposing of them promptly at reasonable prices. The Fund may have to bear the expense of registering such securities for resale, and the risk of substantial delays in effecting such registrations. RULE 144A SECURITIES. Rule 144A securities are securities which, while privately placed, are eligible for purchase and resale pursuant to Rule 144A under the 1933 Act. This Rule permits certain qualified institutional buyers, such as the Fund, to trade in privately placed securities even though such securities are not registered under the 1933 Act. AIM, under the supervision of the Board of Directors, will consider whether securities purchased under Rule 144A are illiquid and thus subject to the Fund's restriction on investment in illiquid securities. Determination of whether a Rule 144A security is liquid or not is a question of fact. In making this determination AIM will consider the trading markets for the specific security taking into account the unregistered nature of a Rule 144A security. In addition, AIM could consider the (i) frequency of trades and quotes; (ii) number of dealers and potential purchasers; (iii) dealer undertakings to make a market; and (iv) nature of the security and of market place trades (for example, the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer). AIM will also monitor the liquidity of Rule 144A securities and, if as a result of changed 12 conditions, AIM determines that a Rule 144A security is no longer liquid, AIM will review the Fund's holdings of illiquid securities to determine what, if any, action is required to assure that the Fund complies with its restriction on investment in illiquid securities. Investing in Rule 144A securities could increase the amount of the Fund's investments in illiquid securities if qualified institutional buyers are unwilling to purchase such securities. UNSEASONED ISSUERS. Investments in the equity securities of companies having less than three years' continuous operations (including operations of any predecessor) involve more risk than investments in the securities of more established companies because unseasoned issuers have only a brief operating history and may have more limited markets and financial resources. As a result, securities of unseasoned issuers tend to be more volatile than securities of more established companies. Derivatives The Fund may invest in forward contracts, futures contracts, options on securities, options on indices, options on currencies, and options on futures contracts to attempt to hedge against the overall level of investment and currency risk normally associated with its investments. The Fund may also invest in equity-linked derivative products designed to replicate the composition and performance of particular indices. These instruments are often referred to as "derivatives," which may be defined as financial instruments whose performance is derived, at least in part, from the performance of another asset (such as a security, currency or an index of securities). EQUITY-LINKED DERIVATIVES. Equity-Linked Derivatives are interests in a securities portfolio designed to replicate the composition and performance of a particular index. Equity-Linked Derivatives are exchange traded. The performance results of Equity-Linked Derivatives will not replicate exactly the performance of the pertinent index due to transaction and other expenses, including fees to service providers, borne by the Equity-Linked Derivatives. Examples of such products include S&P Depositary Receipts ("SPDRs"), World Equity Benchmark Series ("WEBs"), NASDAQ 100 tracking shares ("QQQs"), Dow Jones Industrial Average Instruments ("DIAMONDS") and Optimised Portfolios As Listed Securities ("OPALS"). Investments in Equity-Linked Derivatives involve the same risks associated with a direct investment in the types of securities included in the indices such products are designed to track. There can be no assurance that the trading price of the Equity-Linked Derivatives will equal the underlying value of the basket of securities purchased to replicate a particular index or that such basket will replicate the index. Investments in Equity-Linked Derivatives may constitute investments in other investment companies and, therefore, the Fund may be subject to the same investment restrictions with Equity-Linked Derivatives as with other investment companies. See "Other Investment Companies." PUT AND CALL OPTIONS. A call option gives the purchaser the right to buy the underlying security, contract or foreign currency at the stated exercise price at any time prior to the expiration of the option (or on a specified date if the option is a European style option), regardless of the market price or exchange rate of the security, contract or foreign currency, as the case may be at the time of exercise. If the purchaser exercises the call option, the writer of a call option is obligated to sell the underlying security, contract or foreign currency. A put option gives the purchaser the right to sell the underlying security, contract or foreign currency at the stated exercise price at any time prior to the expiration date of the option (or on a specified date if the option is a European style option), regardless of the market price or exchange rate of the security, contract or foreign currency, as the case may be at the time of exercise. If the purchaser exercises the put option, the writer of a put option is obligated to buy the underlying security, contract or foreign currency. The premium paid to the writer is consideration for undertaking the obligations under the option contract. Until an option expires or is offset, the option is said to be "open." When an option expires or is offset, the option is said to be "closed." The Fund will not write (sell) options if, immediately after such sale, the aggregate value of securities or obligations underlying the outstanding options exceeds 20% of the Fund's total assets. The Fund will not purchase options if, at any time of the investment, the aggregate premiums paid for the options will exceed 5% of the Fund's total assets. 13 Pursuant to federal securities rules and regulations, if the Fund writes options it may be required to set aside assets to reduce the risks associated with writing those options. This process is described in more detail below in the section "Cover." Writing Options. The Fund may write put and call options in an attempt to realize, through the receipt of premiums, a greater current return than would be realized on the underlying security, contract, or foreign currency alone. In return for the premium received for writing a call option, the Fund foregoes the opportunity for profit from a price increase in the underlying security, contract, or foreign currency above the exercise price so long as the option remains open, but retains the risk of loss should the price of the security, contract, or foreign currency decline. In return for the premium received for writing a put option, the Fund assumes the risk that the price of the underlying security, contract, or foreign currency will decline below the exercise price, in which case the put would be exercised and the Fund would suffer a loss. If a call option that the Fund has written expires, it will realize a gain in the amount of the premium; however, such gain may be offset by a decline in the market value of the underlying security, contract or currency during the option period. If the call option is exercised, the Fund will realize a gain or loss from the sale of the underlying security, contract or currency, which will be increased or offset by the premium received. The Fund would write a put option at an exercise price that, reduced by the premium received on the option, reflects the price it is willing to pay for the underlying security, contract or currency. The obligation imposed upon the writer of an option is terminated upon the expiration of the option, or such earlier time at which the Fund effects a closing purchase transaction by purchasing an option (put or call as the case may be) identical to that previously sold. Writing call options can serve as a limited hedge because declines in the value of the hedged investment would be offset to the extent of the premium received for writing the option. Closing transactions may be effected in order to realize a profit on an outstanding call option, to prevent an underlying security, contract or currency from being called or to permit the sale of the underlying security, contract or currency. Furthermore, effecting a closing transaction will permit the Fund to write another call option on the underlying security, contract or currency with either a different exercise price or expiration date, or both. Purchasing Options. The Fund may purchase a call option for the purpose of acquiring the underlying security, contract or currency for its portfolio. Utilized in this fashion, the purchase of call options would enable the Fund to acquire the security, contract or currency at the exercise price of the call option plus the premium paid. So long as it holds such a call option, rather than the underlying security or currency itself, the Fund is partially protected from any unexpected increase in the market price of the underlying security, contract or currency. If the market price does not exceed the exercise price, the Fund could purchase the security on the open market and could allow the call option to expire, incurring a loss only to the extent of the premium paid for the option. The Fund may also purchase call options on underlying securities, contracts or currencies against which it has written other call options. For example, where the Fund has written a call option on an underlying security, rather than entering a closing transaction of the written option, it may purchase a call option with a different exercise strike and/or expiration date that would eliminate some or all of the risk associated with the written call. Used in combinations, these strategies are commonly referred to as "call spreads." The Fund may purchase a put option on an underlying security, contract or currency ("protective put") owned by the Fund in order to protect against an anticipated decline in the value of the security, contract or currency. Such hedge protection is provided only during the life of the put option. The premium paid for the put option and any transaction costs would reduce any profit realized when the security, contract or currency is delivered upon the exercise of the put option. Conversely, if the underlying security, contract or currency does not decline in value, the option may expire worthless and the premium paid for the protective put would be lost. The Fund may also purchase put options on underlying securities, contracts or currencies against which it has written other put options. For example, where the Fund has written a put option on an underlying security, rather than entering a closing transaction of the written option, it may purchase a put option with a different exercise price and/or 14 expiration date that would eliminate some or all of the risk associated with the written put. Used in combinations, these strategies are commonly referred to as "put spreads." Likewise, the Fund may write call options on underlying securities, contracts or currencies against which it has purchased protective put options. This strategy is commonly referred to as a "collar." Over-The-Counter Options. Options may be either listed on an exchange or traded in over-the-counter ("OTC") markets. Listed options are third-party contracts (i.e., performance of the obligations of the purchaser and seller is guaranteed by the exchange or clearing corporation) and have standardized strike prices and expiration dates. OTC options are two-party contracts with negotiated strike prices and expiration dates. The Fund will not purchase an OTC option unless it believes that daily valuations for such options are readily obtainable. OTC options differ from exchange-traded options in that OTC options are transacted with dealers directly and not through a clearing corporation (which guarantees performance). Consequently, there is a risk of non-performance by the dealer. Since no exchange is involved, OTC options are valued on the basis of an average of the last bid prices obtained from dealers, unless a quotation from only one dealer is available, in which case only that dealer's price will be used. In the case of OTC options, there can be no assurance that a liquid secondary market will exist for any particular option at any specific time. Because purchased OTC options in certain cases may be difficult to dispose of in a timely manner, the Fund may be required to treat some or all of these options (i.e., the market value) as illiquid securities. Although the Fund will enter into OTC options only with dealers that are expected to be capable of entering into closing transactions with it, there is no assurance that the Fund will in fact be able to close out an OTC option position at a favorable price prior to expiration. In the event of insolvency of the dealer, the Fund might be unable to close out an OTC option position at any time prior to its expiration. Index Options. Index options (or options on securities indices) are similar in many respects to options on securities, except that an index option gives the holder the right to receive, upon exercise, cash instead of securities, if the closing level of the securities index upon which the option is based is greater than, in the case of a call, or less than, in the case of a put, the exercise price of the option. The amount of cash is equal to the difference between the closing price of the index and the exercise price of the call or put times a specified multiple (the "multiplier"), which determines the total dollar value for each point of such difference. The risks of investment in index options may be greater than options on securities. Because index options are settled in cash, when the Fund writes a call on an index it cannot provide in advance for its potential settlement obligations by acquiring and holding the underlying securities. The Fund can offset some of the risk of writing a call index option position by holding a diversified portfolio of securities similar to those on which the underlying index is based. However, the Fund cannot, as a practical matter, acquire and hold a portfolio containing exactly the same securities as underlie the index and, as a result, bears a risk that the value of the securities held will not be perfectly correlated with the value of the index. Pursuant to federal securities rules and regulations, if the Fund writes index options, it may be required to set aside assets to reduce the risks associated with writing those options. This process is described in more detail below in the section "Cover." STRADDLES. The Fund, for hedging purposes, may write straddles (combinations of put and call options on the same underlying security) to adjust the risk and return characteristics of the Fund's overall position. A possible combined position would involve writing a covered call option at one strike price and buying a call option at a lower price, in order to reduce the risk of the written covered call option in the event of a substantial price increase. Because combined options positions involve multiple trades, they result in higher transaction costs and may be more difficult to open and close out. WARRANTS. Warrants are, in effect, longer-term call options. They give the holder the right to purchase a given number of shares of a particular company at specified prices within certain periods of time. The purchaser of a warrant expects that the market price of the security will exceed the purchase price of the warrant plus the exercise price of the warrant, thus giving him a profit. Since the market price may never exceed the exercise price before the expiration date of the warrant, the purchaser of the warrant risks the loss of the entire purchase price of the warrant. Warrants generally trade in the open 15 market and may be sold rather than exercised. Warrants are sometimes sold in unit form with other securities of an issuer. Units of warrants and common stock may be employed in financing young, unseasoned companies. The purchase price of a warrant varies with the exercise price of the warrant, the current market value of the underlying security, the life of the warrant and various other investment factors. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. A Futures Contract is a two party agreement to buy or sell a specified amount of a specified security or currency (or delivery of a cash settlement price, in the case of an index future) for a specified price at a designated date, time and place (collectively, "Futures Contracts"). A stock index Futures Contract provides for the delivery, at a designated date, time and place, of an amount of cash equal to a specified dollar amount times the difference between the stock index value at the close of trading on the contract and the price agreed upon in the Futures Contract; no physical delivery of stocks comprising the index is made. Brokerage fees are incurred when a Futures Contract is bought or sold, and margin deposits must be maintained at all times when a Futures Contract is outstanding. The Fund will enter into Futures Contracts for hedging purposes only; that is, Futures Contracts will be sold to protect against a decline in the price of securities or currencies that the Fund owns, or Futures Contracts will be purchased to protect the Fund against an increase in the price of securities or currencies it has committed to purchase or expects to purchase. The Fund's hedging may include sales of Futures Contracts as an offset against the effect of expected increases in interest rates, and decreases in currency exchange rates and stock prices, and purchases of Futures Contracts as an offset against the effect of expected declines in interest rates, and increases in currency exchange rates or stock prices. The Fund will only enter into Futures Contracts that are traded (either domestically or internationally) on futures exchanges and are standardized as to maturity date and underlying financial instrument. Futures exchanges and trading thereon in the United States are regulated under the Commodity Exchange Act and by the Commodity Futures Trading Commission ("CFTC"). Foreign futures exchanges and trading thereon are not regulated by the CFTC and are not subject to the same regulatory controls. For a further discussion of the risks associated with investments in foreign securities, see "Foreign Investments" in this Statement of Additional Information. Closing out an open Futures Contract is effected by entering into an offsetting Futures Contract for the same aggregate amount of the identical financial instrument or currency and the same delivery date. There can be no assurance, however, that the Fund will be able to enter into an offsetting transaction with respect to a particular Futures Contract at a particular time. If the Fund is not able to enter into an offsetting transaction, it will continue to be required to maintain the margin deposits on the Futures Contract. "Margin" with respect to Futures Contracts is the amount of funds that must be deposited by the Fund in order to initiate Futures Contracts trading and maintain its open positions in Futures Contracts. A margin deposit made when the Futures Contract is entered ("initial margin") is intended to ensure the Fund's performance under the Futures Contract. The margin required for a particular Futures Contract is set by the exchange on which the Futures Contract is traded and may be significantly modified from time to time by the exchange during the term of the Futures Contract. Subsequent payments, called "variation margin," to and from the futures commission merchant through which the Fund entered into the Futures Contract will be made on a daily basis as the price of the underlying security, currency or index fluctuates making the Futures Contract more or less valuable, a process known as marking-to-market. If the Fund were unable to liquidate a Futures Contract or an option on a Futures Contract position due to the absence of a liquid secondary market or the imposition of price limits, it could incur substantial losses. The Fund would continue to be subject to market risk with respect to the position. In addition, except in the case of purchased options, the Fund would continue to be required to make daily 16 variation margin payments and might be required to maintain the position being hedged by the Futures Contract or option or to maintain cash or securities in a segregated account. Options on Futures Contracts. Options on Futures Contracts are similar to options on securities or currencies except that options on Futures Contracts give the purchaser the right, in return for the premium paid, to assume a position in a Futures Contract (a long position if the option is a call and a short position if the option is a put) at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the Futures Contract position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writer's Futures Contract margin account. Limitations on Futures Contracts and Options on Futures Contracts and on Certain Options on Currencies. To the extent that the Fund enters into Futures Contracts, options on Futures Contracts and options on foreign currencies traded on a CFTC-regulated exchange, in each case other than for bona fide hedging purposes (as defined by the CFTC), the aggregate initial margin and premiums required to establish those positions (excluding the amount by which options are "in-the-money") will not exceed 5% of the total assets of the Fund, after taking into account unrealized profits and unrealized losses on any contracts it has entered into. This guideline may be modified by the Board, without a shareholder vote. This limitation does not limit the percentage of the Fund's assets at risk to 5%. Pursuant to federal securities rules and regulations, the Fund's use of Futures Contracts and options on Futures Contracts may require the Fund to set aside assets to reduce the risks associated with using Futures Contracts and options on Futures Contracts. This process is described in more detail below in the section "Cover." FORWARD CURRENCY CONTRACTS. A forward contract is an obligation, usually arranged with a commercial bank or other currency dealer, to purchase or sell a currency against another currency at a future date and price as agreed upon by the parties. The Fund either may accept or make delivery of the currency at the maturity of the forward contract. The Fund may also, if its contra party agrees prior to maturity, enter into a closing transaction involving the purchase or sale of an offsetting contract. Forward contracts are traded over-the-counter, and not on organized commodities or securities exchanges. As a result, it may be more difficult to value such contracts, and it may be difficult to enter into closing transactions. The Fund may engage in forward currency transactions in anticipation of, or to protect itself against, fluctuations in exchange rates. The Fund may enter into forward contracts with respect to a specific purchase or sale of a security, or with respect to its portfolio positions generally. When the Fund purchases a security denominated in a foreign currency for settlement in the near future, it may immediately purchase in the forward market the currency needed to pay for and settle the purchase. By entering into a forward contract with respect to the specific purchase or sale of a security denominated in a foreign currency, the Fund can secure an exchange rate between the trade and settlement dates for that purchase or sale transaction. This practice is sometimes referred to as "transaction hedging." Position hedging is the purchase or sale of foreign currency with respect to portfolio security positions denominated or quoted in a foreign currency. The cost to the Fund of engaging in forward contracts varies with factors such as the currencies involved, the length of the contract period and the market conditions then prevailing. Because forward contracts are usually entered into on a principal basis, no fees or commissions are involved. The use of forward contracts does not eliminate fluctuations in the prices of the underlying securities the Fund owns or intends to acquire, but it does establish a rate of exchange in advance. In addition, while forward contract sales limit the risk of loss due to a decline in the value of the hedged currencies, they also limit any potential gain that might result should the value of the currencies increase. Pursuant to federal securities rules and regulations, the Fund's use of forward contracts may require the Fund to set aside assets to reduce the risks associated with using forward contracts. This process is described in more detail below in the section "Cover." 17 COVER. Transactions using forward contracts, futures contracts and options (other than options purchased by the Fund) expose the Fund to an obligation to another party. The Fund will not enter into any such transactions unless it owns either (1) an offsetting ("covered") position in securities, currencies, or other options, forward contracts or futures contracts or (2) cash, liquid assets and/or short-term debt securities with a value sufficient at all times to cover its potential obligations not covered as provided in (1) above. The Fund will comply with SEC guidelines regarding cover for these instruments and, if the guidelines so require, set aside cash or liquid securities. To the extent that a futures contract, forward contract or option is deemed to be illiquid, the assets used to "cover" the Fund's obligation will also be treated as illiquid for purposes of determining the Fund's maximum allowable investment in illiquid securities. Even though options purchased by the Fund do not expose the Fund to an obligation to another party, but rather provide the Fund with a right to exercise, the Fund intends to "cover" the cost of any such exercise. To the extent that a purchased option is deemed illiquid, the Fund will treat the market value of the option (i.e., the amount at risk to the Fund) as illiquid, but will not treat the assets used as cover on such transactions as illiquid. Assets used as cover cannot be sold while the position in the corresponding forward contract, futures contract or option is open, unless they are replaced with other appropriate assets. If a large portion of the Fund's assets is used for cover or otherwise set aside, it could affect portfolio management or the Fund's ability to meet redemption requests or other current obligations. GENERAL RISKS OF OPTIONS, FUTURES AND CURRENCY STRATEGIES. The use by the Fund of options, futures contracts and forward currency contracts involves special considerations and risks, as described below. Risks pertaining to particular strategies are described in the sections that follow. (1) Successful use of hedging transactions depends upon AIM's ability to correctly predict the direction of changes in the value of the applicable markets and securities, contracts and/or currencies. While AIM is experienced in the use of these instruments, there can be no assurance that any particular hedging strategy will succeed. (2) There might be imperfect correlation, or even no correlation, between the price movements of an instrument (such as an option contract) and the price movements of the investments being hedged. For example, if a "protective put" is used to hedge a potential decline in a security and the security does decline in price, the put option's increased value may not completely offset the loss in the underlying security. Such a lack of correlation might occur due to factors unrelated to the value of the investments being hedged, such as changing interest rates, market liquidity, and speculative or other pressures on the markets in which the hedging instrument is traded. (3) Hedging strategies, if successful, can reduce risk of loss by wholly or partially offsetting the negative effect of unfavorable price movements in the investments being hedged. However, hedging strategies can also reduce opportunity for gain by offsetting the positive effect of favorable price movements in the hedged investments. (4) There is no assurance that a liquid secondary market will exist for any particular option, futures contract or option thereon or forward contract at any particular time. (5) As described above, the Fund might be required to maintain assets as "cover," maintain segregated accounts or make margin payments when it takes positions in instruments involving obligations to third parties. If the Fund were unable to close out its positions in such instruments, it might be required to continue to maintain such assets or accounts or make such payments until the position expired or matured. The requirements might impair the Fund's ability to sell a portfolio security or make an investment at a time when it would otherwise be favorable to do so, or require that the Fund sell a portfolio security at a disadvantageous time. 18 (6) There is no assurance that the Fund will use hedging transactions. For example, if the Fund determines that the cost of hedging will exceed the potential benefit to the Fund, the Fund will not enter into such transaction. FUND POLICIES FUNDAMENTAL RESTRICTIONS. The Fund is subject to the following investment restrictions, which may be changed only by a vote of a majority of the Fund's outstanding shares. Fundamental restrictions may be changed only by a vote of the lesser of (i) 67% or more of the Fund's shares present at a meeting if the holders of more than 50% of the outstanding shares are present in person or represented by proxy, or (ii) more than 50% of the Fund's outstanding shares. Any investment restriction that involves a maximum or minimum percentage of securities or assets (other than with respect to borrowing) shall not be considered to be violated unless an excess over or a deficiency under the percentage occurs immediately after, and is caused by, an acquisition or disposition of securities or utilization of assets by the Fund. (1) The Fund is a "diversified company" as defined in the 1940 Act. The Fund will not purchase the securities of any issuer if, as a result, the Fund would fail to be a diversified company within the meaning of the 1940 Act, and the rules and regulations promulgated thereunder, as such statute, rules and regulations are amended from time to time or are interpreted from time to time by the SEC staff (collectively, the "1940 Act Laws and Interpretations") or except to the extent that the Fund may be permitted to do so by exemptive order or similar relief (collectively, with the 1940 Act Laws and Interpretations, the "1940 Act Laws, Interpretations and Exemptions"). In complying with this restriction, however, the Fund may purchase securities of other investment companies to the extent permitted by the 1940 Act Laws, Interpretations and Exemptions. (2) The Fund may not borrow money or issue senior securities, except as permitted by the 1940 Act Laws, Interpretations and Exemptions. (3) The Fund may not underwrite the securities of other issuers. This restriction does not prevent the Fund from engaging in transactions involving the acquisition, disposition or resale of its portfolio securities, regardless of whether the Fund may be considered to be an underwriter under the 1933 Act. (4) The Fund will not make investments that will result in the concentration (as that term may be defined or interpreted by the 1940 Act Laws, Interpretations and Exemptions) of its investments in the securities of issuers primarily engaged in the same industry. This restriction does not limit the Fund's investments in (i) obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities, or (ii) tax-exempt obligations issued by governments or political subdivisions of governments. In complying with this restriction, the Fund will not consider a bank-issued guaranty or financial guaranty insurance as a separate security. (5) The Fund may not purchase real estate or sell real estate unless acquired as a result of ownership of securities or other instruments. This restriction does not prevent the Fund from investing in issuers that invest, deal, or otherwise engage in transactions in real estate or interests therein, or investing in securities that are secured by real estate or interests therein. (6) The Fund may not purchase physical commodities or sell physical commodities unless acquired as a result of ownership of securities or other instruments. This restriction does not prevent the Fund from engaging in transactions involving futures contracts and options thereon or investing in securities that are secured by physical commodities. (7) The Fund may not make personal loans or loans of its assets to persons who control or are under common control with the Fund, except to the extent permitted by 1940 Act Laws, Interpretations and Exemptions. This restriction does not prevent the Fund from, among other things, purchasing debt 19 obligations, entering into repurchase agreements, loaning its assets to broker-dealers or institutional investors, or investing in loans, including assignments and participation interests. (8) The Fund may, notwithstanding any other fundamental investment policy or limitation, invest all of its assets in the securities of a single open-end management investment company with substantially the same fundamental investment objectives, policies and restrictions as the Fund. The investment restrictions set forth above provide the Fund with the ability to operate under new interpretations of the 1940 Act or pursuant to exemptive relief from the SEC without receiving prior shareholder approval of the change. Even though the Fund has this flexibility, the Board of Directors has adopted non-fundamental restrictions for the Fund relating to certain of these restrictions which the advisor must follow in managing the Fund. Any changes to these non-fundamental restrictions, which are set forth below, require the approval of the Board of Directors. NON-FUNDAMENTAL RESTRICTIONS. The following non-fundamental investment restrictions apply to the Fund. They may be changed without approval of the Fund's voting securities. (1) In complying with the fundamental restriction regarding issuer diversification, the Fund will not, with respect to 75% of its total assets, purchase the securities of any issuer (other than securities issued or guaranteed by the U.S. Government or any of its agencies or instrumentalities), if, as a result, (i) more than 5% of the Fund's total assets would be invested in the securities of that issuer, or (ii) the Fund would hold more than 10% of the outstanding voting securities of that issuer. The Fund may (i) purchase securities of other investment companies as permitted by Section 12(d)(1) of the 1940 Act and (ii) invest its assets in securities of other money market funds and lend money to other investment companies or their series portfolios that have AIM or an affiliate of AIM as an investment advisor (an "AIM Advised Fund"), subject to the terms and conditions of any exemptive orders issued by the SEC. (2) In complying with the fundamental restriction regarding borrowing money and issuing senior securities, the Fund may borrow money in an amount not exceeding 33 1/3% of its total assets (including the amount borrowed) less liabilities (other than borrowings). The Fund may borrow from banks, broker-dealers or an AIM Advised Fund. The Fund may not borrow for leveraging, but may borrow for temporary or emergency purposes, in anticipation of or in response to adverse market conditions, or for cash management purposes. The Fund may not purchase additional securities when any borrowings from banks exceed 5% of the Fund's total assets or when any borrowings from an AIM Advised Fund are outstanding. (3) In complying with the fundamental restriction regarding industry concentration, the Fund may invest up to 25% of its total assets in the securities of issuers whose principal business activities are in the same industry. (4) In complying with the fundamental restriction with regard to making loans, the Fund may lend up to 33 1/3% of its total assets and may lend money to an AIM Advised Fund, on such terms and conditions as the SEC may require in an exemptive order. (5) Notwithstanding the fundamental restriction with regard to investing all assets in an open-end fund, the Fund may not invest all of its assets in the securities of a single open-end management investment company with the same fundamental investment objectives, policies and restrictions as the Fund. TEMPORARY DEFENSIVE POSITIONS In anticipation of or in response to adverse market conditions, or atypical circumstances such as unusually large cash inflows or redemptions, the Fund may temporarily hold all or a portion of its assets in cash or the following liquid assets: money market instruments, shares of affiliated money market funds or high-quality debt obligations. As a result, the Fund may not achieve its investment objectives. 20 MANAGEMENT OF THE COMPANY BOARD OF DIRECTORS The overall management of the business and affairs of the Fund and the Company is vested in the Board of Directors. The Board of Directors approves all significant agreements between the Company, on behalf of one or more of the Funds, and persons or companies furnishing services to the Funds. The day-to-day operations of the Fund are delegated to the officers of the Company and to AIM, subject always to the objective(s), restrictions and policies of the Fund and to the general supervision of the Board of Directors. Certain directors and officers of the Company are affiliated with AIM and A I M Management Group Inc. ("AIM Management"), the parent corporation of AIM. All of the Company's executive officers hold similar offices with some or all of the other AIM Funds. MANAGEMENT INFORMATION The directors and officers of the Company, their principal occupations during the last five years and certain other information concerning them is set forth in Appendix B. The standing committees of the Board of Directors are the Audit Committee, the Investments Committee, the Valuation Committee, the Committee on Directors/Trustees and the Capitalization Committee. The members of the Audit Committee are Frank S. Bayley, Bruce L. Crockett, Albert R. Dowden (Vice Chair), Edward K. Dunn, Jr. (Chair), Jack M. Fields, Carl Frischling (on leave of absence), Lewis F. Pennock and Louis S. Sklar, Dr. Prema Mathai-Davis and Miss Ruth H. Quigley. The Audit Committee is responsible for: (i) considering management's recommendations of independent accountants for the Fund and evaluating such accountants' performance, costs and financial stability; (ii) with AIM, reviewing and coordinating audit plans prepared by the Fund's independent accountants and management's internal audit staff; and (iii) reviewing financial statements contained in periodic reports to shareholders with the Fund's independent accountants and management. During the fiscal year ended October 31, 2001, the Audit Committee held nine meetings. The members of the Investments Committee are Messrs. Bayley, Crockett, Dowden, Dunn, Fields, Frischling, Pennock and Sklar (Chair), Dr. Mathai-Davis (Vice Chair) and Miss Quigley. The Investments Committee is responsible for: (i) overseeing AIM's investment-related compliance systems and procedures to ensure their continued adequacy; and (ii) considering and acting, on an interim basis between meetings of the full Board, on investment-related matters requiring Board consideration, including dividends and distributions, brokerage policies and pricing matters. During the fiscal year ended October 31, 2001, the Investments Committee held six meetings. The members of the Valuation Committee are Messrs. Dunn and Pennock (Chair), and Miss Quigley (Vice Chair). The Valuation Committee is responsible for: (i) periodically reviewing AIM's Procedures for Valuing Securities ("Procedures"), and making any recommendations to AIM with respect thereto; (ii) reviewing proposed changes to the Procedures recommended by AIM from time to time; (iii) periodically reviewing information provided by AIM regarding industry developments in connection with valuation; (iv) periodically reviewing information from AIM regarding fair value and liquidity determinations made pursuant to the Procedures, and making recommendations to the full Board in connection therewith (whether such information is provided only to the Committee or to the Committee and the full Board simultaneously); and (v) if requested by AIM, assisting AIM's internal valuation committee and/or the full Board in resolving particular valuation anomalies. During the fiscal year ended October 31, 2001, the Valuation Committee held no meetings. The members of the Committee on Directors/Trustees are Messrs. Bayley, Crockett (Chair), Dowden, Dunn, Fields (Vice Chair), Pennock and Sklar, Dr. Mathai-Davis and Miss Quigley. The Committee on Directors/Trustees is responsible for: (i) considering and nominating individuals to stand 21 for election as dis-interested directors as long as the Company maintains a distribution plan pursuant to Rule 12b-1 under the 1940 Act; (ii) reviewing from time to time the compensation payable to the dis-interested directors; and (iii) making recommendations to the Board regarding matters related to compensation, including deferred compensation plans and retirement plans for the dis-interested directors. During the fiscal year ended October 31, 2001, the Committee on Directors/Trustees held seven meetings. The Committee on Directors/Trustees will consider nominees recommended by a shareholder to serve as directors, provided: (i) that such person is a shareholder of record at the time he or she submits such names and is entitled to vote at the meeting of shareholders at which directors will be elected; and (ii) that the Committee on Directors/Trustees or the Board, as applicable, shall make the final determination of persons to be nominated. The members of the Capitalization Committee are Messrs. Bayley, Graham (Chairman) and Pennock. The Capitalization Committee is responsible for: (i) increasing or decreasing the aggregate number of shares of any class of the Company's stock by classifying and reclassifying the Company's authorized but unissued shares of common stock, up to the Company's authorized capital; (ii) fixing the terms of such classified or reclassified shares of common stock, and (iii) issuing such classified or reclassified shares of common stock upon the terms set forth in the Fund's prospectus, up to the Company's authorized capital. During the fiscal year ended October 31, 2001, the Capitalization Committee held no meetings. Director Ownership of Fund Shares The dollar range of equity securities beneficially owned by each director (i) in the Funds and (ii) on an aggregate basis, in all registered investment companies overseen by the director within the AIM Funds complex is set forth in Appendix B. FACTORS CONSIDERED IN APPROVING THE INVESTMENT ADVISORY AGREEMENT The advisory agreement with AIM was re-approved by the Fund's Board at a meeting held on May 8-9, 2001. In evaluating the fairness and reasonableness of the advisory agreement, the Board of Directors considered a variety of factors, including: the requirements of the Fund for investment supervisory and administrative services; the quality of AIM's services, including a review of the Fund's investment performance and AIM's investment personnel; the size of the fees in relationship to the extent and quality of the investment advisory services rendered; fees charged to AIM's other clients; fees charged by competitive investment advisors; the size of the fees in light of services provided other than investment advisory services; the expenses borne by the Fund as a percentage of its assets and in relation to contractual limitations; any fee waivers (or payments of Fund expenses) by AIM; AIM's profitability; the benefits received by AIM from its relationship to the Fund, including soft dollar arrangements, and the extent to which the Fund shares in those benefits; the organizational capabilities and financial condition of AIM and conditions and trends prevailing in the economy, the securities markets and the mutual fund industry; and the historical relationship between the Fund and AIM. In considering the above factors, the Board also took into account the fact that uninvested cash and cash collateral from securities lending arrangements (collectively, "cash balances") of the Fund may be invested in money market funds advised by AIM pursuant to the terms of an exemptive order. The Board found that the Fund may realize certain benefits upon investing cash balances in AIM advised money market funds, including a higher net return, increased liquidity, increased diversification or decreased transaction costs. The Board also found that Fund will not receive reduced services if it invests its cash balances in such money market funds. The Board further determined that the proposed securities lending program and related procedures with respect to each of the lending funds is in the best interests of each lending fund and its respective shareholders. The Board therefore concluded that the investment of cash collateral received in connection with the securities lending program in the money market funds according to the procedures is in the best interests of each lending fund and its respective shareholders. 22 After consideration of these factors, the Board found that: (i) the services provided to the Fund and its shareholders were adequate; (ii) the agreement was fair and reasonable under the circumstances; and (iii) the fees payable under the agreement would have been obtained through arm's length negotiations. The Board therefore concluded that the Fund's advisory agreement was in the best interests of the Fund and its shareholders and continued the agreement for an additional year. COMPENSATION Each director who is not affiliated with AIM is compensated for his or her services according to a fee schedule which recognizes the fact that such director also serves as a director or trustee of other AIM Funds. Each such director receives a fee, allocated among the AIM Funds for which he or she serves as a director or trustee, which consists of an annual retainer component and a meeting fee component. Information regarding compensation paid or accrued for each director of the Company who is not affiliated with AIM during the year ended December 31, 2001 is found in Appendix C. Retirement Plan For Directors The directors have adopted a retirement plan for the directors of the Company who are not affiliated with AIM. The retirement plan includes a retirement policy as well as retirement benefits for the non-AIM-affiliated directors. The retirement policy permits each non-AIM-affiliated director to serve until December 31 of the year in which the director turns 72. A majority of the directors may extend from time to time the retirement date of a director. Annual retirement benefits are available to each non-AIM-affiliated director of the Company and/or the other AIM Funds (each, a "Covered Fund") who has at least five years of credited service as a director (including service to a predecessor fund) for a Covered Fund. The retirement benefits will equal 75% of the director's annual retainer paid or accrued by any Covered Fund to such director during the twelve-month period prior to retirement, including the amount of any retainer deferred under a separate deferred compensation agreement between the Covered Fund and the director. The annual retirement benefits are payable in quarterly installments for a number of years equal to the lesser of (i) ten or (ii) the number of such director's credited years of service. A death benefit is also available under the plan that provides a surviving spouse with a quarterly installment of 50% of a deceased director's retirement benefits for the same length of time that the director would have received based on his or her service. A director must have attained the age of 65 (55 in the event of death or disability) to receive any retirement benefit. Deferred Compensation Agreements Messrs. Daly, Dunn, Fields, Frischling and Sklar and Dr. Mathai-Davis (for purposes of this paragraph only, the "Deferring Directors") have each executed a Deferred Compensation Agreement (collectively, the "Compensation Agreements"). Pursuant to the Compensation Agreements, the Deferring Directors have the option to elect to defer receipt of up to 100% of their compensation payable by the Company, and such amounts are placed into a deferral account. Currently, the Deferring Directors have the option to select various AIM Funds in which all or part of their deferral accounts shall be deemed to be invested. Distributions from the Deferring Directors' deferral accounts will be paid in cash, generally in equal quarterly installments over a period of up to ten (10) years (depending on the Compensation Agreement) beginning on the date selected under the Compensation Agreement. The Company's Board of Directors, in its sole discretion, may accelerate or extend the distribution of such deferral accounts after the Deferring Director's retirement benefits commence under the Plan. The Board, in its sole discretion, also may accelerate or extend the distribution of such deferral accounts after the Deferring Director's termination of service as a director of the Company. If a Deferring Director dies prior to the distribution of 23 amounts in his or her deferral account, the balance of the deferral account will be distributed to his or her designated beneficiary. The Compensation Agreements are not funded and, with respect to the payments of amounts held in the deferral accounts, the Deferring Directors have the status of unsecured creditors of the Company and of each other AIM Fund from which they are deferring compensation. PURCHASES OF CLASS A SHARES OF THE FUNDS AT NET ASSET VALUE The directors and other affiliated persons of the Company may purchase Class A shares of the AIM Funds without paying an initial sales charge. AIM Distributors permits such purchases because there is a reduced sales effort involved in sales to such purchasers, thereby resulting in relatively low expenses of distribution. CODES OF ETHICS AIM, the Company and A I M Distributors, Inc. ("AIM Distributors") have each adopted a Code of Ethics governing, as applicable, personal trading activities of all Directors/Trustees, officers of the Company, persons who, in connection with their regular functions, play a role in the recommendation of any purchase or sale of a security by any of the Funds or obtain information pertaining to such purchase or sale, and certain other employees. The Codes of Ethics are intended to prohibit conflicts of interest with the Company that may arise from personal trading. Personal trading, including personal trading involving securities that may be purchased or held by the Fund, is permitted by persons covered under the relevant Codes subject to certain restrictions; however those persons are generally required to pre-clear all security transactions with the Compliance Officer or his designee and to report all transactions on a regular basis. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES Information about the ownership of each class of each Fund's shares by beneficial or record owners of such Fund and by directors and officers as a group is found in Appendix D. A shareholder who owns beneficially 25% or more of the outstanding shares of a Fund is presumed to "control" that Fund. INVESTMENT ADVISORY AND OTHER SERVICES INVESTMENT ADVISOR AIM, the Fund's investment advisor, was organized in 1976, and along with its subsidiaries, manages or advises over 150 investment portfolios encompassing a broad range of investment objectives. AIM is a direct, wholly owned subsidiary of AIM Management, a holding company that has been engaged in the financial services business since 1976. AIM Management is an indirect, wholly owned subsidiary of AMVESCAP PLC. AMVESCAP PLC and its subsidiaries are an independent global investment management group. Certain of the directors and officers of AIM are also executive officers of the Company and their affiliations are shown under "Management Information" herein. As investment advisor, AIM supervises all aspects of the Fund's operations and provides investment advisory services to the Fund. AIM obtains and evaluates economic, statistical and financial information to formulate and implement investment programs for the Fund. AIM is also responsible for furnishing to the Fund, at AIM's expense, the services of persons believes to be competent to perform all supervisory and administrative services required by the Fund, in the judgment of the directors, to conduct their respective businesses effectively, as well as the offices, equipment and other facilities necessary for their operations. Such functions include the maintenance of the Fund's accounts and records, and the preparation of all requisite corporate documents such as tax returns and reports to the SEC and shareholders. 24 The Master Advisory Agreement provides that the Fund will pay or cause to be paid all expenses of the Fund not assumed by AIM, including, without limitation: brokerage commissions, taxes, legal, auditing or governmental fees, the cost of preparing share certificates, custodian, transfer and shareholder service agent costs, expenses of issue, sale, redemption, and repurchase of shares, expenses of registering and qualifying shares for sale, expenses relating to director and shareholder meetings, the cost of preparing and distributing reports and notices to shareholders, the fees and other expenses incurred by the Company on behalf of the Fund in connection with membership in investment company organizations, and the cost of printing copies of prospectuses and statements of additional information distributed to the Fund's shareholders. AIM, at its own expense, furnishes to the Company office space and facilities. AIM furnishes to the Company all personnel for managing the affairs of the Company and each of its series of shares. Pursuant to its advisory agreement with the Company, AIM receives a monthly fee from the Fund calculated at the following annual rates, based on the average daily net assets of the Fund during the year:
FUND NAME NET ASSETS ANNUAL RATE -------------------------------------------------------------------------------- AIM International Equity Fund First $1 billion 0.95% Amount over $1 billion 0.90%
AIM may from time to time waive or reduce its fee. Voluntary fee waivers or reductions may be rescinded at any time without further notice to investors. During periods of voluntary fee waivers or reductions, AIM will retain its ability to be reimbursed for such fee prior to the end of each fiscal year. Contractual fee waivers or reductions set forth in the Fee Table in a Prospectus may not be terminated or amended to the Fund's detriment during the period stated in the agreement between AIM and the Fund. AIM has voluntarily agreed, effective July 1, 2001, to waive a portion of advisory fees payable by the Fund. The amount of the waiver will equal 25% of the advisory fee AIM receives from the Affiliated Money Market Funds as a result of the Fund's investment of uninvested cash in an Affiliated Money Market Fund. See "Investment Strategies and Risks - Other Investments - Other Investment Companies." The management fees payable by the Fund, the amounts waived by AIM and the net fees paid by the Fund for the last three fiscal years ended October 31, 2001 are found in Appendix E. SECURITIES LENDING ARRANGEMENTS. If the Fund engages in securities lending, AIM will provide the Fund investment advisory services and related administrative services. The advisory agreement describes the administrative services to be rendered by AIM if the Fund engages in securities lending activities, as well as the compensation AIM may receive for such administrative services. Services to be provided include: (a) overseeing participation in the securities lending program to ensure compliance with all applicable regulatory and investment guidelines; (b) assisting the securities lending agent or principal (the agent) in determining which specific securities are available for loan; (c) monitoring the agent to ensure that securities loans are effected in accordance with AIM's instructions and with procedures adopted by the Board; (d) preparing appropriate periodic reports for, and seeking appropriate approvals from, the Board with respect to securities lending activities; (e) responding to agent inquiries; and (f) performing such other duties as may be necessary. AIM's compensation for advisory services rendered in connection with securities lending is included in the advisory fee schedule. As compensation for the related administrative services AIM will provide, a lending Fund will pay AIM a fee equal to 25% of the net monthly interest or fee income retained or paid to the Fund from such activities. AIM currently intends to waive such fee, and has agreed to seek Board approval prior to its receipt of all or a portion of such fee. 25 SERVICE AGREEMENTS ADMINISTRATIVE SERVICES AGREEMENT. AIM and the Company have entered into a Master Administrative Services Agreement ("Administrative Services Agreement") pursuant to which AIM may perform or arrange for the provision of certain accounting and other administrative services to the Fund which are not required to be performed by AIM under the advisory agreement. The Administrative Services Agreement provides that it will remain in effect and continue from year to year only if such continuance is specifically approved at least annually by the Company's Board of Directors, including the independent directors, by votes cast in person at a meeting called for such purpose. Under the Administrative Services Agreement, AIM is entitled to receive from the Fund reimbursement of its costs or such reasonable compensation as may be approved by the Board of Directors. Currently, AIM is reimbursed for the services of the Company's principal financial officer and her staff, and any expenses related to fund accounting services. Administrative services fees paid to AIM by the Fund for the last three fiscal years ended October 31, 2001 are found in Appendix F. OTHER SERVICE PROVIDERS TRANSFER AGENT. A I M Fund Services, Inc. ("AFS"), 11 Greenway Plaza, Suite 100, Houston, Texas 77046, a registered transfer agent and wholly owned subsidiary of AIM, acts as transfer and dividend disbursing agent for the Fund. The Transfer Agency and Service Agreement between the Company and AFS provides that AFS will perform certain shareholder services for the Fund. The Transfer Agency and Service Agreement provides that AFS will receive a per account fee plus out-of-pocket expenses to process orders for purchases, redemptions and exchanges of shares; prepare and transmit payments for dividends and distributions declared by the Fund; maintain shareholder accounts and provide shareholders with information regarding the Fund and its accounts. AFS may impose certain copying charges for requests for copies of shareholder account statements and other historical account information older than the current year and the immediately preceding year. It is anticipated that most investors will perform their own subaccounting. CUSTODIAN. State Street Bank and Trust Company (the "Custodian"), 225 Franklin Street, Boston, Massachusetts 02110, is custodian of all securities and cash of the Fund. Chase Bank of Texas, N.A., 712 Main, Houston, Texas 77002, serves as sub-custodian for retail purchases. The Bank of New York, 100 Church Street, New York, New York 10286, also serves as sub-custodian to facilitate cash management. The Custodian is authorized to establish separate accounts in foreign countries and to cause foreign securities owned by the Fund to be held outside the United States in branches of U.S. banks and, to the extent permitted by applicable regulations, in certain foreign banks and securities depositories. AIM is responsible for selecting eligible foreign securities depositories and for assessing the risks associated with investing in foreign countries, including the risk of using eligible foreign securities depositories in a country; the Custodian is responsible for monitoring eligible foreign securities depositories. Under its contract with the Company, the Custodian maintains the portfolio securities of the Fund, administers the purchases and sales of portfolio securities, collects interest and dividends and other distributions made on the securities held in the portfolios of the Fund and performs other ministerial duties. These services do not include any supervisory function over management or provide any protection against any possible depreciation of assets. AUDITORS. The Fund's independent public accountants are responsible for auditing the financial statements of the Fund. The Board of Directors has selected PricewaterhouseCoopers LLP, 1201 26 Louisiana, Suite 2900, Houston, Texas 77002, as the independent public accountants to audit the financial statements of the Fund. COUNSEL TO THE COMPANY. Legal matters for the Company have been passed upon by Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market Street, Philadelphia, Pennsylvania 19103. BROKERAGE ALLOCATION AND OTHER PRACTICES BROKERAGE TRANSACTIONS AIM makes decisions to buy and sell securities for the Fund, selects broker-dealers, effects the Fund's investment portfolio transactions, allocates brokerage fees in such transactions and, where applicable, negotiates commissions and spreads on transactions. AIM's primary consideration in effecting a security transaction is to obtain the most favorable execution of the order, which includes the best price on the security and a low commission rate. While AIM seeks reasonably competitive commission rates, the Fund may not pay the lowest commission or spread available. See "Brokerage Selection" below. Some of the securities in which the Fund invests are traded in over-the-counter markets. Portfolio transactions placed in such markets may be effected at either net prices without commissions, but which include compensation to the broker-dealer in the form of a mark up or mark down, or on an agency basis, which involves the payment of negotiated brokerage commissions. Traditionally, commission rates have not been negotiated on stock markets outside the United States. Although in recent years many overseas stock markets have adopted a system of negotiated rates, a number of markets maintain an established schedule of minimum commission rates. Brokerage commissions paid by the Fund during the last three fiscal years ended October 31, 2001 are found in Appendix G. COMMISSIONS During the last three fiscal years ended October 31, 2001, the Fund did not paid brokerage commissions to brokers affiliated with the Fund, AIM, AIM Distributors, or any affiliates of such entities. The Fund may engage in certain principal and agency transactions with banks and their affiliates that own 5% or more of the outstanding voting securities of an AIM Fund, provided the conditions of an exemptive order received by the AIM Funds from the SEC are met. In addition, the Fund may purchase or sell a security from or to another AIM Fund or account (and may invest in Affiliated Money Market Funds) provided the Fund follows procedures adopted by the Boards of Directors/Trustees of the various AIM Funds, including the Company. These inter-fund transactions do not generate brokerage commissions but may result in custodial fees or taxes or other related expenses. BROKERAGE SELECTION Section 28(e)(1) of the Securities Exchange Act of 1934 provides that AIM, under certain circumstances, lawfully may cause an account to pay a higher commission than the lowest available. Under Section 28(e), AIM must make a good faith determination that the commissions paid are "reasonable in relation to the value of the brokerage and research services provided ... viewed in terms of either that particular transaction or [AIM's] overall responsibilities with respect to the accounts as to which [it] exercises investment discretion." The services provided by the broker also must lawfully and appropriately assist AIM in the performance of its investment decision-making responsibilities. Accordingly, in recognition of research services provided to it, the Fund may pay a broker higher commissions than those available from another broker. 27 Research services received from broker-dealers supplement AIM's own research (and the research of its affiliates), and may include the following types of information: statistical and background information on the U.S. and foreign economies, industry groups and individual companies; forecasts and interpretations with respect to the U.S. and foreign economies, securities, markets, specific industry groups and individual companies; information on federal, state, local and foreign political developments; portfolio management strategies; performance information on securities, indexes and investment accounts; information concerning prices of securities; and information supplied by specialized services to AIM and to the Company's directors with respect to the performance, investment activities, and fees and expenses of other mutual funds. Broker-dealers may communicate such information electronically, orally, in written form or on computer software. Research services may also include the providing of electronic communications of trade information, the providing of custody services, as well as the providing of equipment used to communicate research information and the providing of specialized consultations with AIM personnel with respect to computerized systems and data furnished to AIM as a component of other research services, the arranging of meetings with management of companies, and the providing of access to consultants who supply research information. The outside research assistance is useful to AIM since the broker-dealers used by AIM tend to follow a broader universe of securities and other matters than AIM's staff can follow. In addition, the research provides AIM with a diverse perspective on financial markets. Research services provided to AIM by broker-dealers are available for the benefit of all accounts managed or advised by AIM or by its affiliates. Some broker-dealers may indicate that the provision of research services is dependent upon the generation of certain specified levels of commissions and underwriting concessions by AIM's clients, including the Fund. However, the Fund is not under any obligation to deal with any broker-dealer in the execution of transactions in portfolio securities. In some cases, the research services are available only from the broker-dealer providing them. In other cases, the research services may be obtainable from alternative sources in return for cash payments. AIM believes that the research services are beneficial in supplementing AIM's research and analysis and that they improve the quality of AIM's investment advice. The advisory fee paid by the Fund is not reduced because AIM receives such services. However, to the extent that AIM would have purchased research services had they not been provided by broker-dealers, the expenses to AIM could be considered to have been reduced accordingly. AIM may determine target levels of commission business with various brokers on behalf of its clients (including the Fund) over a certain time period. The target levels will be based upon the following factors, among others: (1) the execution services provided by the broker; (2) the research services provided by the broker; and (3) the broker's interest in mutual funds in general and in the Fund and other mutual funds advised by AIM or A I M Capital Management, Inc. (collectively, the "AIM Funds") in particular, including sales of the Fund and of the other AIM Funds. In connection with (3) above, the Fund's trades may be executed directly by dealers that sell shares of the AIM Funds or by other broker-dealers with which such dealers have clearing arrangements, consistent with obtaining best execution. AIM will not use a specific formula in connection with any of these considerations to determine the target levels. DIRECTED BROKERAGE (RESEARCH SERVICES) Directed brokerage (research services) paid by the Fund during the last fiscal year ended October 31, 2001 is found in Appendix H. REGULAR BROKERS OR DEALERS Information concerning the Fund's acquisition of securities of its regular brokers or dealers during the last fiscal year ended October 31, 2001 is found in Appendix H. 28 ALLOCATION OF PORTFOLIO TRANSACTIONS AIM and its affiliates manage numerous other investment accounts. Some of these accounts may have investment objectives similar to the Fund. Occasionally, identical securities will be appropriate for investment by the Fund and by another Fund or one or more of these investment accounts. However, the position of each account in the same securities and the length of time that each account may hold its investment in the same securities may vary. The timing and amount of purchase by each account will also be determined by its cash position. If the purchase or sale of securities is consistent with the investment policies of the Fund and one or more of these accounts, and is considered at or about the same time, AIM will fairly allocate transactions in such securities among the Fund(s) and these accounts. AIM may combine such transactions, in accordance with applicable laws and regulations, to obtain the most favorable execution. Simultaneous transactions could, however, adversely affect the Fund's ability to obtain or dispose of the full amount of a security which it seeks to purchase or sell. Sometimes the procedure for allocating portfolio transactions among the various investment accounts advised by AIM results in transactions which could have an adverse effect on the price or amount of securities available to the Fund. In making such allocations, AIM considers the investment objectives and policies of its advisory clients, the relative size of portfolio holdings of the same or comparable securities, the availability of cash for investment, the size of investment commitments generally held, and the judgments of the persons responsible for recommending the investment. This procedure would apply to transactions in both equity and fixed income securities. ALLOCATION OF EQUITY OFFERING TRANSACTIONS From time to time, certain of the AIM Funds or other accounts managed by AIM may become interested in participating in equity security distributions that are available in an equity "offering", which AIM defines as an IPO, a secondary (follow-on offering), a private placement, a direct placement or a PIPE (private investment in public equity) and occasions may arise when purchases of such securities by one AIM Fund or account may also be considered for purchase by one or more other AIM Funds or accounts. In such cases, it shall be AIM's practice to specifically combine or otherwise bunch indications of interest for offerings for all AIM Funds and accounts participating in purchase transactions for that offering, and to allocate such transactions in accordance with the following procedures: AIM will determine the eligibility of each AIM Fund and account that seeks to participate in a particular offering by reviewing a number of factors, including suitability of the investment with the AIM Fund's or account's investment objective, policies and strategies, the liquidity of the AIM Fund or account if such investment is purchased, and whether the portfolio manager intends to hold the security as a long-term investment. The allocation of limited supply securities issued in offerings will be made to eligible AIM Funds and accounts in a manner designed to be fair and equitable for the eligible AIM Funds and accounts, and so that there is equal allocation of offerings over the longer term. Where multiple funds or accounts are eligible, rotational participation may occur, based on the extent to which an AIM Fund or account has participated in previous offerings as well as the size of the AIM Fund or account. Each eligible AIM Fund and account with an asset level of less than $500 million will be placed in one of three tiers, depending upon each AIM Fund's or account's asset level. The AIM Funds and accounts in the tier containing funds and accounts with the smallest asset levels will participate first, each receiving a 40 basis point allocation (rounded to the nearest share round lot that approximates 40 basis points) (the "Allocation"), based on that AIM Fund's or account's net assets. This process continues until all of the AIM Funds and accounts in the three tiers receive their Allocations, or until the shares are all allocated. Should securities remain after this process, eligible AIM Funds and accounts will receive their Allocations on a straight pro rata basis. In addition, Incubator Funds, as described in AIM's Incubator and New Fund Investment Policy, will each be limited to a 40 basis point allocation only. Such allocations will be allocated to the nearest share round lot that approximates 40 basis points. When any AIM Funds and/or accounts with substantially identical investment objectives and policies participate in offerings, they will do so in amounts that are substantially proportionate to each other. In these cases, the net assets of the largest participating AIM Fund will be used to determine in 29 which tier, as described in the paragraph above, such group of AIM Funds or accounts will be placed. If no AIM Fund is participating, then the net assets of the largest account will be used to determine tier placement. The price per share of securities purchased in such offering transactions will be the same for each AIM Fund and account. PURCHASE, REDEMPTION AND PRICING OF SHARES PURCHASE AND REDEMPTION OF SHARES Before the initial purchase of shares, an investor must submit a completed account application to his financial intermediary, who should forward the application to A I M Fund Services, Inc. at P.O. Box 4497, Houston, Texas 77210-4497. An investor may change information in his account application by submitting written changes or a new account application to his intermediary or to AFS. Purchase and redemption orders must be received in good order. To be in good order, the financial intermediary must give AFS all required information and documentation with respect to the investor. If the intermediary fails to deliver the investor's payment on the required settlement date, the intermediary must reimburse the Fund for any overdraft charges incurred. A financial intermediary may submit a written request to AFS for correction of transactions involving Fund shares. If AFS agrees to correct a transaction, and the correction requires a dividend adjustment, the intermediary must agree in writing to reimburse the Fund for any resulting loss. An investor may terminate his relationship with an intermediary and become the shareholder of record on his account. However, until the investor establishes a relationship with an intermediary, the investor will not be able to purchase additional shares of the Fund, except through the reinvestment of distributions. Payment for redeemed shares is normally made by Federal Reserve wire to the bank account designated in the investor's account application, but may be sent by check at the investor's request. By providing written notice to his financial intermediary or to AFS, an investor may change the bank account designated to receive redemption proceeds. AFS may request additional documentation. AFS may request that an intermediary maintain separate master accounts in the Fund for shares held by the intermediary (a) for its own account, for the account of other institutions and for accounts for which the intermediary acts as a fiduciary; and (b) for accounts for which the intermediary acts in some other capacity. An intermediary may aggregate its master accounts and subaccounts to satisfy the minimum investment requirement. Platform sponsors that provide investment vehicles to fund Section 401 defined contribution plans and have entered into written agreements with AIM Distributors to waive applicable investment minimums may purchase accounts and subaccounts to satisfy the minimum investment requirements. REDEMPTIONS BY THE FUNDS If the Fund determines that you have provided incorrect information in opening an account or in the course of conducting subsequent transactions, the Fund may, at its discretion, redeem the account and distribute the proceeds to you. Additional information regarding purchases and redemptions is located in the Fund's prospectus, under the headings "Purchasing Shares" and "Redeeming Shares." OFFERING PRICE Institutional Class shares of the Fund are offered at their net asset value. 30 Calculation of Net Asset Value The Fund determines its net asset value per share once daily as of the close of the customary trading session of the NYSE (generally 4:00 p.m. Eastern time) on each business day of the Fund. In the event the NYSE closes early (i.e., before 4:00 p.m. Eastern time) on a particular day, the Fund determines its net asset value per share as of the close of the NYSE on such day. For purposes of determining net asset value per share, the Fund will generally use futures and options contract closing prices which are available fifteen (15) minutes after the close of the customary trading session of the NYSE. The Fund determines net asset value per share by dividing the value of the Fund's securities, cash and other assets (including interest accrued but not collected) attributable to a particular class, less all its liabilities (including accrued expenses and dividends payable) attributable to that class, by the total number of shares outstanding of that class. Determination of the Fund's net asset value per share is made in accordance with generally accepted accounting principles. Each security (excluding convertible bonds) held by the Fund is valued at its last sales price on the exchange where the security is principally traded or, lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security traded in the over-the-counter market (but not including securities reported on the NASDAQ National Market System) is valued at the closing bid price furnished by independent pricing services or market makers. Each security reported on the NASDAQ National Market System is valued at the last sales price on the valuation date or absent a last sales price, at the closing bid price on that day; option contracts are valued at the mean between the closing bid and asked prices on the exchange where the contracts are principally traded; futures contracts are valued at final settlement price quotations from the primary exchange on which they are traded. Debt securities (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to special securities, dividend rate, yield, quality, coupon rate, maturity, type of issue, individual trading characteristics and other market data. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and ask prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors. Short-term investments are valued at amortized cost when the security has 60 days or less to maturity. Foreign securities are converted into U.S. dollars using exchange rates as of the close of the NYSE. Generally, trading in foreign securities, corporate bonds, U.S. Government securities and money market instruments is substantially completed each day at various times prior to the close of the customary trading session of the NYSE. The values of such securities used in computing the net asset value of the Fund's shares are determined as the close of the respective markets. Occasionally, events affecting the values of such securities may occur between the times at which such values are determined and the close of the customary trading session of the NYSE which will not be reflected in the computation of the Fund's net asset value. If a development/event has actually caused that closing price to no longer reflect actual value, the closing prices, as of the close of the applicable market may be adjusted to reflect the fair value of the affected securities as of the close of the NYSE as determined in good faith by or under the supervision of the Board of Directors. Fund securities primarily traded in foreign markets may be traded in such markets on days which are not business days of the Fund. Because the net asset value per share of the Fund is determined only on business days of the Fund, the net asset value per share of the Fund may be significantly affected on days when an investor cannot exchange or redeem shares of the Fund. 31 REDEMPTION IN KIND AIM intends to redeem all shares of the Fund in cash. It is possible that future conditions may make it undesirable for the Fund to pay for redeemed shares in cash. In such cases, the Fund may make payment in securities or other property if the Fund has made an election under Rule 18f-1 under the 1940 Act. Rule 18f-1 obligates the Fund to redeem for cash all shares presented to the Fund for redemption by any one shareholder in an amount up to the lesser of $250,000 or 1% of the Fund's net assets in any 90-day period. Securities delivered in payment of redemptions are valued at the same value assigned to them in computing the Fund's net asset value per share. Shareholders receiving such securities are likely to incur brokerage costs on their subsequent sales of such securities. BACKUP WITHHOLDING Accounts submitted without a correct, certified taxpayer identification number or, alternatively, a completed Internal Revenue Service ("IRS") Form W-8 (for non-resident aliens) or Form W-9 (certifying exempt status) accompanying the registration information will generally be subject to backup withholding. Each AIM Fund, and other payers, generally must withhold as of January 1, 2002, 30% of redemption payments and reportable dividends (whether generally paid or accrued) in the case of any shareholder who fails to provide the Fund with a taxpayer identification number ("TIN") and a certification that he is not subject to backup withholding; however, the backup withholding rate decreases in phases to 28% for distributions made in the year 2006 and thereafter. An investor is subject to backup withholding if: 1. the investor fails to furnish a correct TIN to the Fund, or 2. the IRS notifies the Fund that the investor furnished an incorrect TIN, or 3. the investor or the Fund is notified by the IRS that the investor is subject to backup withholding because the investor failed to report all of the interest and dividends on such investor's tax return (for reportable interest and dividends only), or 4. the investor fails to certify to the Fund that the investor is not subject to backup withholding under (3) above (for reportable interest and dividend accounts opened after 1983 only), or 5. the investor does not certify his TIN. This applies only to non-exempt mutual fund accounts opened after 1983. Interest and dividend payments are subject to backup withholding in all five situations discussed above. Redemption proceeds and long-term gain distributions are subject to backup withholding only if (1), (2) or (5) above applies. Certain payees and payments are exempt from backup withholding and information reporting. AIM or AFS will not provide Form 1099 to those payees. Investors should contact the IRS if they have any questions concerning withholding. IRS PENALTIES - Investors who do not supply the AIM Funds with a correct TIN will be subject to a $50 penalty imposed by the IRS unless such failure is due to reasonable cause and not willful neglect. If an investor falsifies information on this form or makes any other false statement resulting in no backup withholding on an account which should be subject to backup withholding, such investor may be subject to a $500 penalty imposed by the IRS and to certain criminal penalties including fines and/or imprisonment. NONRESIDENT ALIENS - Nonresident alien individuals and foreign entities are not subject to the backup withholding previously discussed, but must certify their foreign status by attaching IRS Form W-8 to their application. Form W-8 generally remains in effect for a period starting on the date the Form is 32 signed and ending on the last day of the third succeeding calendar year. Such shareholders may, however, be subject to federal income tax withholding at a 30% rate on ordinary income dividends and other distributions. Under applicable treaty law, residents of treaty countries may qualify for a reduced rate of withholding or a withholding exemption. DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS DIVIDENDS AND DISTRIBUTIONS It is the present policy of the Fund to declare and pay annually net investment income dividends and capital gain distributions. It is the Fund's intention to distribute substantially all of its net investment income and realized net capital gains by the end of each taxable year. In determining the amount of capital gains, if any, available for distribution, capital gains will be offset against available net capital loss, if any, carried forward from previous fiscal periods. All dividends and distributions will be automatically reinvested in additional shares of the same class of the Fund unless the shareholder has requested in writing to receive such dividends and distributions in cash or that they be invested in shares of another AIM Fund, subject to the terms and conditions set forth in the Prospectus under the caption "Special Plans - Automatic Dividend Investment". Such dividends and distributions will be reinvested at the net asset value per share determined on the ex-dividend date. If a shareholder's account does not have any shares in it on a dividend or capital gain distribution payment date, the dividend or distribution will be paid in cash whether or not the shareholder has elected to have such dividends or distributions reinvested. A dividend or distribution paid by the Fund has the effect of reducing the net asset value per share on the ex-dividend date by the amount of the dividend or distribution. Therefore, a dividend or distribution declared shortly after a purchase of shares by an investor would represent, in substance, a return of capital to the shareholder with respect to such shares even though it would be subject to income taxes. TAX MATTERS The following is only a summary of certain additional tax considerations generally affecting the Fund and its shareholders that are not described in the Prospectus. No attempt is made to present a detailed explanation of the tax treatment of the Fund or its shareholders, and the discussion here and in the Prospectus is not intended as a substitute for careful tax planning. QUALIFICATION AS A REGULATED INVESTMENT COMPANY. The Fund has elected to be taxed as a regulated investment company under Subchapter M of the Code. As a regulated investment company, the Fund is not subject to federal income tax on the portion of its net investment income (i.e., taxable interest, dividends and other taxable ordinary income, net of expenses) and capital gain net income (i.e., the excess of capital gains over capital losses) that it distributes to shareholders, provided that it distributes (i) at least 90% of its investment company taxable income (i.e., net investment income, net foreign currency ordinary gain or loss and the excess of net short-term capital gain over net long-term capital loss) and (ii) at least 90% of the excess of its tax-exempt interest income under Code Section 103(a) over its deductions disallowed under Code Sections 265 and 171(a)(2) for the taxable year (the "Distribution Requirement"), and satisfies certain other requirements of the Code that are described below. Distributions by the Fund made during the taxable year or, under specified circumstances, within twelve months after the close of the taxable year, will be considered distributions of income and gain of the taxable year and can therefore satisfy the Distribution Requirement. The Fund may use "equalization accounting" in determining the portion of its net investment income and capital gain net income that has been distributed. The Fund that elects to use equalization accounting will allocate a portion of its realized investment income and capital gain to redemptions of Fund shares and will reduce the amount of such income and gain that it distributes in cash. However, the Fund intends to make cash distributions for each taxable year in an aggregate amount that is sufficient to 33 satisfy the Distribution Requirement without taking into account its use of equalization accounting. The Internal Revenue Service has not published any guidance concerning the methods to be used in allocating investment income and capital gain to redemptions of shares. In the event that the Internal Revenue Service determines that the Fund is using an improper method of allocation and has underdistributed its net investment income and capital gain net income for any taxable year, the Fund may be liable for additional federal income tax. In addition to satisfying the Distribution Requirement, a regulated investment company must derive at least 90% of its gross income from dividends, interest, certain payments with respect to securities loans, gain from the sale or other disposition of stock or securities or foreign currencies (to the extent such currency gains are directly related to the regulated investment company's principal business of investing in stock or securities) and other income (including, but not limited to, gain from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies (the "Income Requirement"). In addition to satisfying the requirements described above, the Fund must satisfy an asset diversification test in order to qualify as a regulated investment company (the "Asset Diversification Test"). Under this test, at the close of each quarter of the Fund's taxable year, at least 50% of the value of the Fund's assets must consist of cash and cash items, U.S. Government securities, securities of other regulated investment companies, and securities of other issuers, as to which the Fund has not invested more than 5% of the value of the Fund's total assets in securities of such issuer and as to which the Fund does not hold more than 10% of the outstanding voting securities of such issuer, and no more than 25% of the value of its total assets may be invested in the securities of any one issuer (other than U.S. Government securities and securities of other regulated investment companies), or in two or more issuers which the Fund controls and which are engaged in the same or similar trades or businesses. For purposes of the Asset Diversification Test, the IRS has ruled that the issuer of a purchased listed call option on stock is the issuer of the stock underlying the option. The IRS has also informally ruled that, in general, the issuers of purchased or written call and put options on securities, of long and short positions on futures contracts on securities and of options on such future contracts are the issuers of the securities underlying such financial instruments where the instruments are traded on an exchange. Where the writer of a listed call option owns the underlying securities, the IRS has ruled that the Asset Diversification Test will be applied solely to such securities and not to the value of the option itself. With respect to options on securities indexes, futures contracts on securities indexes and options on such futures contracts, the IRS has informally ruled that the issuers of such options and futures contracts are the separate entities whose securities are listed on the index, in proportion to the weighing of securities in the computation of the index. It is unclear under present law who should be treated as the issuer of forward foreign currency exchange contracts, of options on foreign currencies, or of foreign currency futures and related options. It has been suggested that the issuer in each case may be the foreign central bank or the foreign government backing the particular currency. Due to this uncertainty and because the Fund may not rely on informal rulings of the IRS, the Fund may find it necessary to seek a ruling from the IRS as to the application of the Asset Diversification Test to certain of the foregoing types of financial instruments or to limit its holdings of some or all such instruments in order to stay within the limits of such test. If for any taxable year the Fund does not qualify as a regulated investment company, all of its taxable income (including its net capital gain) will be subject to tax at regular corporate rates without any deduction for distributions to shareholders, and such distributions will be taxable as ordinary dividends to the extent of the Fund's current and accumulated earnings and profits. Such distributions generally will be eligible for the dividends received deduction in the case of corporate shareholders. DETERMINATION OF TAXABLE INCOME OF A REGULATED INVESTMENT COMPANY. In general, gain or loss recognized by the Fund on the disposition of an asset will be a capital gain or loss. However, gain recognized on the disposition of a debt obligation purchased by the Fund at a market discount (generally, at a price less than its principal amount) will be treated as ordinary income to the extent of the portion of 34 the market discount which accrued during the period of time the Fund held the debt obligation unless the Fund made an election to accrue market discount into income. If the Fund purchases a debt obligation that was originally issued at a discount, the Fund is generally required to include in gross income each year the portion of the original issue discount which accrues during such year. In addition, under the rules of Code Section 988, gain or loss recognized on the disposition of a debt obligation denominated in a foreign currency or an option with respect thereto (but only to the extent attributable to changes in foreign currency exchange rates), and gain or loss recognized on the disposition of a foreign currency forward contract or of foreign currency itself, will generally be treated as ordinary income or loss. Certain hedging transactions that may be engaged in by the Fund (such as short sales "against the box") may be subject to special tax treatment as "constructive sales" under Section 1259 of the Code if the Fund holds certain "appreciated financial positions" (defined generally as any interest (including a futures or forward contract, short sale or option) with respect to stock, certain debt instruments, or partnership interests if there would be a gain were such interest sold, assigned, or otherwise terminated at its fair market value). Upon entering into a constructive sales transaction with respect to an appreciated financial position, the Fund will generally be deemed to have constructively sold such appreciated financial position and will recognize gain as if such position were sold, assigned, or otherwise terminated at its fair market value on the date of such constructive sale (and will take into account any gain for the taxable year which includes such date). Some of the forward foreign currency exchange contracts, options and futures contracts that the Fund may enter into will be subject to special tax treatment as "Section 1256 contracts." Section 1256 contracts that the Fund holds are treated as if they are sold for their fair market value on the last business day of the taxable year, regardless of whether a taxpayer's obligations (or rights) under such contracts have terminated (by delivery, exercise, entering into a closing transaction or otherwise) as of such date. Any gain or loss recognized as a consequence of the year-end deemed disposition of Section 1256 contracts is combined with any other gain or loss that was previously recognized upon the termination of Section 1256 contracts during that taxable year. The net amount of such gain or loss for the entire taxable year (including gain or loss arising as a consequence of the year-end deemed sale of such contracts) is deemed to be 60% long-term and 40% short-term gain or loss. However, in the case of Section 1256 contracts that are forward foreign currency exchange contracts, the net gain or loss is separately determined and (as discussed above) generally treated as ordinary income or loss. If such a future or option is held as an offsetting position and can be considered a straddle under Section 1092 of the Code, such a straddle will constitute a mixed straddle. A mixed straddle will be subject to both Section 1256 and Section 1092 unless certain elections are made by the Fund. Other hedging transactions in which the Fund may engage may result in "straddles" or "conversion transactions" for U.S. federal income tax purposes. The straddle and conversion transaction rules may affect the character of gains (or in the case of the straddle rules, losses) realized by the Fund. In addition, losses realized by the Fund on positions that are part of a straddle may be deferred under the straddle rules, rather than being taken into account in calculating the taxable income for the taxable year in which the losses are realized. Because only a few regulations implementing the straddle rules and the conversion transaction rules have been promulgated, the tax consequences to the Fund of hedging transactions are not entirely clear. The hedging transactions may increase the amount of short-term capital gain realized by the Fund (and, if they are conversion transactions, the amount of ordinary income) which is taxed as ordinary income when distributed to shareholders. Because application of any of the foregoing rules governing Section 1256 contracts, constructive sales, straddle and conversion transactions may affect the character of gains or losses, defer losses and/or accelerate the recognition of gains or losses from the affected investment or straddle positions, the taxable income of the Fund may exceed its book income. Accordingly, the amount which must be distributed to shareholders and which will be taxed to shareholders as ordinary income or long-term capital gain may also differ from the book income of the Fund and may be increased or decreased as compared to a fund that did not engage in such transactions. 35 EXCISE TAX ON REGULATED INVESTMENT COMPANIES. A 4% non-deductible excise tax is imposed on a regulated investment company that fails to distribute in each calendar year an amount equal to 98% of ordinary taxable income for the calendar year and 98% of capital gain net income (excess of capital gains over capital losses) for the one-year period ended on October 31 of such calendar year (or, at the election of a regulated investment company having a taxable year ending November 30 or December 31, for its taxable year (a "taxable year election")). The balance of such income must be distributed during the next calendar year. For the foregoing purposes, a regulated investment company is treated as having distributed any amount on which it is subject to income tax for any taxable year ending in such calendar year. For purposes of the excise tax, a regulated investment company shall (1) reduce its capital gain net income (but not below its net capital gain) by the amount of any net ordinary loss for the calendar year and (2) exclude Section 988 foreign currency gains and losses incurred after October 31 (or after the end of its taxable year if it has made a taxable year election) in determining the amount of ordinary taxable income for the current calendar year (and, instead, include such gains and losses in determining ordinary taxable income for the succeeding calendar year). The Fund generally intends to make sufficient distributions or deemed distributions of its ordinary taxable income and capital gain net income prior to the end of each calendar year to avoid liability for the excise tax. However, in the event that the Internal Revenue Service determines that the Fund is using an improper method of allocation for purposes of equalization accounting (as discussed above), the Fund may be liable for excise tax. Moreover, investors should note that the Fund may in certain circumstances be required to liquidate portfolio investments to make sufficient distributions to avoid excise tax liability. In addition, under certain circumstances, the Fund may elect to pay a minimal amount of excise tax. PFIC INVESTMENTS. The Fund may invest in stocks of foreign companies that are classified under the Code as passive foreign investment companies ("PFICs"). In general, a foreign company is classified as a PFIC if at least one-half of its assets constitute investment-type assets or 75% or more of its gross income is investment-type income. The application of the PFIC rules may affect, among other things, the character of gain, the amount of gain or loss and the timing of the recognition of income with respect to PFIC stock, as well as subject the Fund itself to tax on certain income from PFIC stock. For these reasons the amount that must be distributed to shareholders, and which will be taxed to shareholders as ordinary income or long-term capital gain, may be increased or decreased substantially as compared to a fund that did not invest in PFIC stock. SWAP AGREEMENTS. The Fund may enter into swap agreements. The rules governing the tax aspects of swap agreements are in a developing stage and are not entirely clear in certain respects. Accordingly, while the Fund intends to account for such transactions in a manner deemed to be appropriate, the IRS might not accept such treatment. If it did not, the status of the Fund as a regulated investment company might be affected. The Fund intends to monitor developments in this area. Certain requirements that must be met under the Code in order for the Fund to qualify as a regulated investment company may limit the extent to which the Fund will be able to engage in swap agreements. FUND DISTRIBUTIONS. The Fund anticipates distributing substantially all of its investment company taxable income for each taxable year. Such distributions will be taxable to shareholders as ordinary income and treated as dividends for federal income tax purposes, but they will qualify for the 70% dividends received deduction for corporations only to the extent discussed below. The Fund may either retain or distribute to shareholders its net capital gain (net long-term capital gain over net short-term capital loss) for each taxable year. The Fund currently intends to distribute any such amounts. If net capital gain is distributed and designated as a capital gain dividend, it will be taxable to shareholders as long-term capital gain (currently taxable at a maximum rate of 20% for noncorporate shareholders) regardless of the length of time the shareholder has held his shares or whether such gain was recognized by the Fund prior to the date on which the shareholder acquired his shares. Conversely, 36 if the Fund elects to retain its net capital gain, the Fund will be taxed thereon (except to the extent of any available capital loss carry forwards) at the 35% corporate tax rate. If the Fund elects to retain its net capital gain, it is expected that the Fund also will elect to have shareholders treated as if each received a distribution of its pro rata share of such gain, with the result that each shareholder will be required to report its pro rata share of such gain on its tax return as long-term capital gain, will receive a refundable tax credit for its pro rata share of tax paid by the Fund on the gain, and will increase the tax basis for its shares by an amount equal to the deemed distribution less the tax credit. Legislation enacted in 1997 lowers the maximum capital gain tax rate from 20% to 18% with respect to capital assets which are held for five years and for which the holding period begins after December 31, 2000. In connection with this new legislation, the Fund may make elections to treat any readily tradable stock it holds on January 1, 2001 as having been sold and reacquired on January 2, 2001 at its closing market price on that date and to treat any other security in its portfolio as having been sold and reacquired on January 1 for an amount equal to its fair market value on that date. If the Fund makes any such election (when it files its tax return), it will recognize gain, but not loss, on the deemed sale, which may cause the Fund to increase the amount of distributions that the Fund will make in comparison to a fund that did not make such an election. The Fund has not yet determined whether it will make this election with respect to any stock or securities in its portfolio. Ordinary income dividends paid by the Fund with respect to a taxable year will qualify for the 70% dividends received deduction generally available to corporations (other than corporations, such as "S" corporations, which are not eligible for the deduction because of their special characteristics and other than for purposes of special taxes such as the accumulated earnings tax and the personal holding company tax) to the extent of the amount of qualifying dividends received by the Fund from domestic corporations for the taxable year. However, the alternative minimum tax applicable to corporations may reduce the value of the dividends received deduction. Alternative minimum tax ("AMT") is imposed in addition to, but only to the extent it exceeds, the regular tax and is computed at a maximum rate of 28% for non-corporate taxpayers and 20% for corporate taxpayers on the excess of the taxpayer's alternative minimum taxable income ("AMTI") over an exemption amount. The corporate dividends received deduction is not itself an item of tax preference that must be added back to taxable income or is otherwise disallowed in determining a corporation's AMTI. However, corporate shareholders will generally be required to take the full amount of any dividend received from the Fund into account (without a dividend received deduction) in determining their adjusted current earnings, which are used in computing an additional corporate preference item (i.e., 75% of the excess of a corporate taxpayer's adjusted current earnings over its AMTI (determined without regard to this item and the AMTI net operating loss deduction)) that is includable in AMTI. However, certain small corporations are wholly exempt from the AMT. Distributions by the Fund that do not constitute earnings and profits will be treated as a return of capital to the extent of (and in reduction of) the shareholder's tax basis in his shares; any excess will be treated as gain from the sale of his shares, as discussed below. Distributions by the Fund will be treated in the manner described above regardless of whether such distributions are paid in cash or reinvested in additional shares of the Fund (or of another Fund). Shareholders receiving a distribution in the form of additional shares will be treated as receiving a distribution in an amount equal to the fair market value of the shares received, determined as of the reinvestment date. Ordinarily, shareholders are required to take distributions by the Fund into account in the year in which the distributions are made. However, dividends declared in October, November or December of any year and payable to shareholders of record on a specified date in such a month will be deemed to have been received by the shareholders (and made by the Fund) on December 31 of such calendar year if such dividends are actually paid in January of the following year. Shareholders will be advised annually as to the U.S. federal income tax consequences of distributions made (or deemed made) during the year in accordance with the guidance that has been provided by the IRS. 37 If the net asset value of shares is reduced below a shareholder's cost as a result of a distribution by the Fund, such distribution generally will be taxable even though it represents a return of invested capital. Investors should be careful to consider the tax implications of buying shares of the Fund just prior to a distribution. The price of shares purchased at this time may reflect the amount of the forthcoming distribution. Those purchasing just prior to a distribution will receive a distribution which generally will be taxable to them. SALE OR REDEMPTION OF SHARES. A shareholder will recognize gain or loss on the sale or redemption of shares of the Fund in an amount equal to the difference between the proceeds of the sale or redemption and the shareholder's adjusted tax basis in the shares. All or a portion of any loss so recognized may be deferred if the shareholder purchases other shares of the Fund within thirty (30) days before or after the sale or redemption. In general, any gain or loss arising from (or treated as arising from) the sale or redemption of shares of the Fund will be considered capital gain or loss and will be long-term capital gain or loss if the shares were held for longer than one year. Currently, any long-term capital gain recognized by a non-corporate shareholder will be subject to tax at a maximum rate of 20%. However, any capital loss arising from the sale or redemption of shares held for six months or less will be treated as a long-term capital loss to the extent of the amount of capital gain dividends received on such shares. Capital losses in any year are deductible only to the extent of capital gains plus, in the case of a non-corporate taxpayer, $3,000 of ordinary income. If a shareholder (a) incurs a sales load in acquiring shares of the Fund, (b) disposes of such shares less than 91 days after they are acquired, and (c) subsequently acquires shares of the Fund or another fund at a reduced sales load pursuant to a right to reinvest at such reduced sales load acquired in connection with the acquisition of the shares disposed of, then the sales load on the shares disposed of (to the extent of the reduction in the sales load on the shares subsequently acquired) shall not be taken into account in determining gain or loss on the shares disposed of, but shall be treated as incurred on the acquisition of the shares subsequently acquired. The wash sale rules may also limit the amount of loss that may be taken into account. BACKUP WITHHOLDING. The Fund may be required to withhold as of January 1, 2002, 30% of distributions and/or redemption payments; however, this rate is reduced in phases to 28% for distributions made in the year 2006 and thereafter. For more information refer to "Purchase, Redemption and Pricing of Shares - Backup Withholding". FOREIGN SHAREHOLDERS. Taxation of a shareholder who, as to the United States, is a nonresident alien individual, foreign trust or estate, foreign corporation, or foreign partnership ("foreign shareholder"), depends on whether the income from the Fund is "effectively connected" with a U.S. trade or business carried on by such shareholder. If the income from the Fund is not effectively connected with a U.S. trade or business carried on by a foreign shareholder, distributions (other than distributions of long-term capital gain) will be subject to U.S. withholding tax at the rate of 30% (or lower treaty rate) upon the gross amount of the distribution. Such a foreign shareholder would generally be exempt from U.S. federal income tax on gain realized on the redemption of shares of the Fund, capital gain dividends and amounts retained by the Fund that are designated as undistributed net capital gain. If the income from the Fund is effectively connected with a U.S. trade or business carried on by a foreign shareholder, then ordinary income dividends, capital gain dividends and any gains realized upon the sale or redemption of shares of the Fund will be subject to U.S. federal income tax at the rates applicable to U.S. citizens or domestic corporations. In the case of foreign non-corporate shareholders, the Fund may be required to withhold U.S. federal income tax at a rate of 30% on distributions made on or after January 1, 2002 that are otherwise exempt from withholding tax (or taxable at a reduced treaty rate) unless such shareholders furnish the Fund with proper notification of their foreign status; however, this rate is reduced in phases to 28% for distributions made in the year 2006 and thereafter. 38 Foreign shareholders may be subject to U.S. withholding tax at a rate of 30% on the income resulting from the Fund's election to treat any foreign income tax paid by it as paid by its shareholders, but may not be able to claim a credit or deduction with respect to the withholding tax for the foreign tax treated as having been paid by them. Foreign persons who file a United States tax return to obtain a U.S. tax refund and who are not eligible to obtain a social security number must apply to the IRS for an individual taxpayer identification number, using IRS Form W-7. For a copy of the IRS Form W-7 and accompanying instructions, please contact your tax advisor or the IRS. Transfers by gift of shares of the Fund by a foreign shareholder who is a nonresident alien individual will not be subject to U.S. federal gift tax. An individual who, at the time of death, is a foreign shareholder will nevertheless be subject to U.S. federal estate tax with respect to shares at the graduated rates applicable to U.S. citizens and residents, unless a treaty exception applies. In the absence of a treaty, there is a $13,000 statutory estate tax credit. The tax consequences to a foreign shareholder entitled to claim the benefits of an applicable tax treaty may be different from those described herein. Foreign shareholders are urged to consult their own tax advisers with respect to the particular tax consequences to them of an investment in the Fund, including the applicability of foreign tax. FOREIGN INCOME TAX. Investment income received by the Fund from sources within foreign countries may be subject to foreign income tax withheld at the source. The United States has entered into tax treaties with many foreign countries which entitle the Fund to a reduced rate of, or exemption from, tax on such income. It is impossible to determine the effective rate of foreign tax in advance since the amount of the Fund's assets to be invested in various countries is not known. If more than 50% of the value of the Fund's total assets at the close of each taxable year consists of the stock or securities of foreign corporations, the Fund may elect to "pass through" to the Fund's shareholders the amount of foreign income tax paid by the Fund (the "Foreign Tax Election"). Pursuant to the Foreign Tax Election, shareholders will be required (i) to include in gross income, even though not actually received, their respective pro-rata shares of the foreign income tax paid by the Fund that are attributable to any distributions they receive; and (ii) either to deduct their pro-rata share of foreign tax in computing their taxable income, or to use it (subject to various Code limitations) as a foreign tax credit against Federal income tax (but not both). No deduction for foreign tax may be claimed by a non-corporate shareholder who does not itemize deductions or who is subject to alternative minimum tax. Unless certain requirements are met, a credit for foreign tax is subject to the limitation that it may not exceed the shareholder's U.S. tax (determined without regard to the availability of the credit) attributable to the shareholder's foreign source taxable income. In determining the source and character of distributions received from the Fund for this purpose, shareholders will be required to allocate Fund distributions according to the source of the income realized by the Fund. The Fund's gain from the sale of stock and securities and certain currency fluctuation gain and loss will generally be treated as derived from U.S. sources. In addition, the limitation on the foreign tax credit is applied separately to foreign source "passive" income, such as dividend income. Individuals who have no more than $300 ($600 for married persons filing jointly) of creditable foreign tax included on Form 1099 and whose foreign source income is all "qualified passive income" may elect each year to be exempt from the foreign tax credit limitation and will be able to claim a foreign tax credit without filing Form 1116 with its corresponding requirement to report income and tax by country. Moreover, no foreign tax credit will be allowable to any shareholder who has not held his shares of the Fund for at least 16 days during the 30-day period beginning 15 days before the day such shares become ex-dividend with respect to any Fund distribution to which foreign income taxes are attributed (taking into account certain holding period reduction requirements of the Code). Because of these limitations, shareholders may be unable to claim a credit for the full amount of their proportionate shares of the foreign income tax paid by the Fund. 39 EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS. The foregoing general discussion of U.S. federal income tax consequences is based on the Code and the regulations issued thereunder as in effect on the date of this Statement of Additional Information. Future legislative or administrative changes or court decisions may significantly change the conclusions expressed herein, and any such changes or decisions may have a retroactive effect with respect to the transactions contemplated herein. Rules of state and local taxation for ordinary income dividends and capital gain dividends from regulated investment companies often differ from the rules for U.S. federal income taxation described above. Distributions may also be subject to additional state, local and foreign taxes depending on each shareholder's particular situation. Non-U.S. shareholders may be subject to U.S. tax rules that differ significantly from those summarized above. Shareholders are urged to consult their tax advisers as to the consequences of these and other state and local tax rules affecting investment in the Fund. DISTRIBUTION OF SECURITIES DISTRIBUTOR The Company has entered into master distribution agreements, as amended, relating to the Fund (the "Distribution Agreements") with AIM Distributors, a registered broker-dealer and a wholly owned subsidiary of AIM, pursuant to which AIM Distributors acts as the distributor of shares of the Fund. The address of AIM Distributors is P.O. Box 4739, Houston, Texas 77210-4739. Certain directors and officers of the Company are affiliated with AIM Distributors. See "Management of the Company." The Distribution Agreements provide AIM Distributors with the exclusive right to distribute shares of the Fund on a continuous basis directly and through institutions with whom AIM Distributors has entered into selected dealer agreements. AIM Distributors has not undertaken to sell any specified number of shares of any classes of the Fund. The Company (on behalf of the Institutional Class of AIM International Equity Fund) or AIM Distributors may terminate the Distribution Agreement on sixty (60) days' written notice without penalty. The Distribution Agreement will terminate automatically in the event of its assignment. AIM Distributors may, from time to time at its expense, pay a bonus or other consideration or incentive to dealers or banks. The total amount of such additional bonus payments or other consideration shall not exceed 0.10% of the public offering price of the shares sold or of average daily net assets of the Fund attributable to that particular dealer. At the option of the dealer, such incentives may take the form of payment for travel expenses, including lodging, incurred in connection with trips taken by qualifying registered representatives and their families to places within or outside the United States. Any such bonus or incentive programs will not change the price paid by investors for the purchase of AIM International Equity Fund's shares or the amount that the Fund will receive as proceeds from such sales. Dealers may not use sales of AIM International Equity Fund's shares to qualify for any incentives to the extent that such incentives may be prohibited by the laws of any state. CALCULATION OF PERFORMANCE DATA Although performance data may be useful to prospective investors when comparing the Fund's performance with other funds and other potential investments, investors should note that the methods of computing performance of other potential investments are not necessarily comparable to the methods employed by the Fund. 40 Average Annual Total Return Quotation The standard formula for calculating average annual total return is as follows: n P(1+T) =ERV Where P = a hypothetical initial payment of $1,000. T = average annual total return (assuming the applicable maximum sales load is deducted at the beginning of the 1, 5, or 10 year periods). n = number of years. ERV = ending redeemable value of a hypothetical $1,000 payment at the end of the 1, 5, or 10 year periods (or fractional portion of such period). The average annual total returns for the Fund, with respect to its Class A shares, for the one, five and ten year periods (or since inception if applicable) ended October 31, 2001 are found in Appendix I. Total returns quoted in advertising reflect all aspects of the Fund's return, including the effect of reinvesting dividends and capital gain distributions, and any change in the Fund's net asset value per share over the period. Cumulative total return reflects the performance of the Fund over a stated period of time. Average annual total returns are calculated by determining the growth or decline in value of a hypothetical investment in the Fund over a stated period of time, and then calculating the annually compounded percentage rate that would have produced the same result if the rate of growth or decline in value had been constant over the period. The Fund's total return is calculated in accordance with a standardized formula for computation of annualized total return. The Fund's total return shows its overall change in value, including changes in share price and assuming all the Fund's dividends and capital gain distributions are reinvested. A cumulative total return reflects the Fund's performance over a stated period of time. An average annual total return reflects the hypothetical compounded annual rate of return that would have produced the same cumulative total return if the Fund's performance had been constant over the entire period. Because average annual returns tend to even out variations in the Fund's return, investors should recognize that such returns are not the same as actual year-by-year results. To illustrate the components of overall performance, the Fund may separate its cumulative and average annual returns into income results and capital gains or losses. Alternative Total Return Quotations Standard total return quotes may be accompanied by total return figures calculated by alternative methods. For example, average annual total return may be calculated without assuming payment of the full sales load according to the following formula: n P(1+U) =ERV Where P = a hypothetical initial payment of $1,000. U = average annual total return assuming payment of only a stated portion of, or none of, the applicable maximum sales load at the beginning of the stated period. n = number of years. ERV = ending redeemable value of a hypothetical $1,000 payment at the end of the stated period. 41 Cumulative total return across a stated period may be calculated as follows: P(1+V)=ERV Where P = a hypothetical initial payment of $1,000. V = cumulative total return assuming payment of all of, a stated portion of, or none of, the applicable maximum sales load at the beginning of the stated period. ERV = ending redeemable value of a hypothetical $1,000 payment at the end of the stated period. The cumulative total returns for the Fund, with respect to its Class A shares, for the one, five and ten year periods (or since inception if applicable) ended October 31, 2001 are found in Appendix I. Average Annual Total Return (After Taxes on Distributions) Quotation The Fund's average annual total return (after taxes on distributions) shows its overall change in value, including changes in share price and assuming all the Fund's dividends and capital gain distributions are reinvested. It reflects the deduction of federal income taxes on distributions, but not on redemption proceeds. Average annual total returns (after taxes on distributions) are calculated by determine the after-tax growth or decline in value of a hypothetical investment in the Fund over a stated period of time, and then calculating the annually compounded percentage rate that would have produced the same result if the rate of growth or decline in value had been constant over the period. Because average annual total returns (after taxes on distributions) tend to even out variations in the Fund's return, investors should recognize that such returns are not the same as actual year-by-year results. To illustrate the components of overall performance, the Fund may separate its average annual total returns (after taxes on distributions) into income results and capital gains or losses. The standard formula for calculating average annual total return (after taxes on distributions) is: n P(1+T) =ATV(D) where P = a hypothetical initial payment of $1,000; T = average annual total return (after taxes on distributions); n = number of years; and ATV(D) = ending value of a hypothetical $1,000 payment made at the beginning of the 1-, 5-, or 10-year periods (or since inception, if applicable) at the end of the 1-, 5-, or 10-year periods (or since inception, if applicable), after taxes on fund distributions but not after taxes on redemption. Standardized average total return (after taxes on distributions) for Class A shares reflects the deduction of a Fund's maximum front-end sales charge at the time of purchase. The after-tax returns assume all distributions by the Fund, less the taxes due on such distributions, are reinvested at the price calculated as stated in the prospectus on the reinvestment dates during the period. Taxes on the Fund's distributions are calculated by applying to each component of the distribution (e.g., ordinary income and long-term capital gain) the highest corresponding individual marginal federal income tax rates in effect on the reinvestment date. The taxable amount and tax character of each distribution is as specified by the Fund on the dividend declaration date, but reflects any subsequent recharacterizations of distributions. The effect of applicable tax credits, such as the foreign tax credit, are also taken into account. The calculations only reflect federal taxes, and thus do not reflect state and local taxes or the impact of the federal alternative minimum tax. The average annual total returns (after taxes on distributions) for the Fund, with respect to its Class A shares, for the one, five and ten year periods (or since inception if applicable) ended October 31, 2001 are found in Appendix I. 42 Average Annual Total Return (After Taxes on Distributions and Sale of Fund Shares) Quotation The Fund's average annual total return (after taxes on distributions and sale of Fund shares) shows its overall change in value, including changes in share price and assuming all the Fund's dividends and capital gain distributions are reinvested. It reflects the deduction of federal income taxes on both distributions and proceeds. Average annual total returns (after taxes on distributions and redemption) are calculated by determine the after-tax growth or decline in value of a hypothetical investment in the Fund over a stated period of time, and then calculating the annually compounded percentage rate that would have produced the same result if the rate of growth or decline in value had been constant over the period. Because average annual total returns (after taxes on distributions and redemption) tend to even out variations in the Fund's return, investors should recognize that such returns are not the same as actual year-by-year results. To illustrate the components of overall performance, the Fund may separate its average annual total returns (after taxes on distributions and redemption) into income results and capital gains or losses. The standard formula for calculating average annual total return (after taxes on distributions and redemption) is: n P(1+T) =ATV DR where P = a hypothetical initial payment of $1,000; T = average annual total return (after taxes on distributions and redemption); n = number of years; and ATV(DR) = ending value of a hypothetical $1,000 payment made at the beginning of the 1-, 5-, or 10-year periods (or since inception, if applicable) at the end of the 1-, 5-, or 10-year periods (or since inception, if applicable), after taxes on fund distributions and redemption. Standardized average annual total return (after taxes on distributions and redemption) for Class A shares reflects the deduction of the Fund's maximum front-end sales charge at the time of purchase. The after-tax returns assume all distributions by the Fund, less the taxes due on such distributions, are reinvested at the price calculated as stated in the prospectus on the reinvestment dates during the period. Taxes due on the Fund's distributions are calculated by applying to each component of the distribution (e.g., ordinary income and long-term capital gain) the highest corresponding individual marginal federal income tax rates in effect on the reinvestment date. The taxable amount and tax character of each distribution is as specified by the Fund on the dividend declaration date, but reflects any subsequent recharacterizations of distributions. The effect of applicable tax credits, such as the foreign tax credit, are also taken into account. The calculations only reflect federal taxes, and thus do not reflect state and local taxes or the impact of the federal alternative minimum tax. The ending values for each period assume a complete liquidation of all shares. The ending values for each period are determined by subtracting capital gains taxes resulting from the sale of Fund shares and adding the tax benefit from capital losses resulting from the sale of Fund shares. The capital gain or loss upon sale of Fund shares is calculated by subtracting the tax basis from the proceeds. Capital gains taxes (or the benefit resulting from tax losses) are calculated using the highest federal individual capital gains tax rate for gains of the appropriate character (e.g., ordinary income or long-term) in effect on the date of the sale of Fund shares and in accordance with federal tax law applicable on that date. The calculations assume that a shareholder may deduct all capital losses in full. The basis of shares acquired through the $1,000 initial investment are tracked separately from subsequent purchases through reinvested distributions. The basis for a reinvested distribution is the distribution net of taxes paid on the distribution. Tax basis is adjusted for any distributions representing returns of capital and for any other tax basis adjustments that would apply to an individual taxpayer. 43 The amount and character (i.e., short-term or long-term) of capital gain or loss upon sale of Fund shares is determined separately for shares acquired through the $1,000 initial investment and each subsequent purchase through reinvested distributions. The tax character is determined by the length of the measurement period in the case of the initial $1,000 investment and the length of the period between reinvestment and the end of the measurement period in the case of reinvested distributions. The average annual total returns (after taxes on distributions and redemption) for the Fund, with respect to its Class A shares, for the one, five and ten year periods (or since inception if applicable) ended October 31, 2001 are found in Appendix I. Performance Information All advertisements for the Fund's Class A, Class B and Class C shares will disclose the maximum sales charge (including deferred sales charges) imposed on purchases of the Fund's shares. If any advertised performance data for such classes does not reflect the maximum sales charge (if any), such advertisement will disclose that the sales charge has not been deducted in computing the performance data, and that, if reflected, the maximum sales charge would reduce the performance quoted. Further information regarding the Fund's performance is contained in the Fund's annual report to shareholders, which is available upon request and without charge. From time to time, AIM or its affiliates may waive all or a portion of their fees and/or assume certain expenses of the Fund. Fee waivers or reductions or commitments to reduce expenses will have the effect of increasing the Fund's yield and total return. The performance of the Fund will vary from time to time and past results are not necessarily indicative of future results. Total return and yield figures for the Fund are neither fixed nor guaranteed. The Fund may provide performance information in reports, sales literature and advertisements. The Fund may also, from time to time, quote information about the Fund published or aired by publications or other media entities which contain articles or segments relating to investment results or other data about the Fund. The following is a list of such publications or media entities: Advertising Age Forbes Nation's Business Barron's Fortune New York Times Best's Review Hartford Courant Pension World Broker World Inc. Pensions & Investments Business Week Institutional Investor Personal Investor Changing Times Insurance Forum Philadelphia Inquirer Christian Science Monitor Insurance Week USA Today Consumer Reports Investor's Business Daily U.S. News & World Report Economist Journal of the American Wall Street Journal FACS of the Week Society of CLU & ChFC Washington Post Financial Planning Kiplinger Letter CNN Financial Product News Money CNBC Financial Services Week Mutual Fund Forecaster PBS Financial World
The Fund may also compare its performance to performance data of similar mutual funds as published by the following services: Bank Rate Monitor Stanger Donoghue's Weisenberger Mutual Fund Values (Morningstar) Lipper, Inc. 44 The Fund's performance may also be compared in advertising to the performance of comparative benchmarks such as the following: Lipper International Fund Index Morgan Stanley Capital International Indices Including: EAFE Index MSCI EAFE Growth Index The Fund may also compare its performance to rates on Certificates of Deposit and other fixed rate investments such as the following: 10 year Treasury Notes 90 day Treasury Bills Advertising for the Fund may from time to time include discussions of general economic conditions and interest rates. Advertising for the Fund may also include references to the use of the Fund as part of an individual's overall retirement investment program. From time to time, sales literature and/or advertisements for any of the Fund may disclose: (i) the largest holdings in the Fund's portfolio; (ii) certain selling group members; (iii) certain institutional shareholders; (iv) measurements of risk, including standard deviation, Beta and Sharpe ratios; and/or (v) capitalization and sector analyses of holdings in the Fund's portfolios. From time to time, the Fund's sales literature and/or advertisements may discuss generic topics pertaining to the mutual fund industry. This includes, but is not limited to, literature addressing general information about mutual funds, discussions regarding investment styles, such as the growth, value or GARP (growth at a reasonable price) styles of investing, variable annuities, dollar-cost averaging, stocks, bonds, money markets, certificates of deposit, retirement, retirement plans, asset allocation, tax-free investing, college planning and inflation. 45 APPENDIX A RATINGS OF DEBT SECURITIES The following is a description of the factors underlying the debt ratings of Moody's, S&P and Fitch: MOODY'S BOND RATINGS Moody's describes its ratings for corporate bonds as follows: Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt-edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa: Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. These are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risk appear somewhat larger than the Aaa securities. A: Bonds which are rated A possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa: Bonds which are rated Baa are considered as medium-grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba: Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B: Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa: Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca: Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C: Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating classification from Aa through Caa in its corporate bond rating system. The modifier 1 indicates that the security ranks in A-1 the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. MOODY'S MUNICIPAL BOND RATINGS Aaa: Bonds rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa: Bonds rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. A: Bonds rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa: Bonds rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba: Bonds rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B: Bonds rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa: Bonds rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca: Bonds rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C: Bonds rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Note: Bonds in the Aa group which Moody's believes possess the strongest investment attributes are designated by the symbol Aa1. Note: Also, Moody's applies numerical modifiers 1, 2, and 3 in each generic rating classification from Aa to B. The modifier indicates that the issue ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic category. A-2 MOODY'S DUAL RATINGS In the case of securities with a demand feature, two ratings are assigned: one representing an evaluation of the degree of risk associated with scheduled principal and interest payments, and the other representing an evaluation of the degree of risk associated with the demand feature. MOODY'S SHORT-TERM LOAN RATINGS Moody's ratings for state and municipal short-term obligations will be designated Moody's Investment Grade or (MIG). Such ratings recognize the differences between short-term credit risk and long-term risk. Factors affecting the liquidity of the borrower and short-term cyclical elements are critical in short-term ratings, while other factors of major importance in bond risk, long-term secular trends for example, may be less important over the short run. A short-term rating may also be assigned on an issue having a demand feature variable rate demand obligation (VRDO). Such ratings will be designated as VMIG or, if the demand feature is not rated, as NR. Short-term ratings on issues with demand features are differentiated by the use of the VMIG symbol to reflect such characteristics as payment upon periodic demand rather than fixed maturity dates and payment relying on external liquidity. Additionally, investors should be alert to the fact that the source of payment may be limited to the external liquidity with no or limited legal recourse to the issuer in the event the demand is not met. A VMIG rating may also be assigned to commercial paper programs. Such programs are characterized as having variable short-term maturities but having neither a variable rate nor demand feature. Moody's short-term ratings are designated Moody's Investment Grade as MIG 1 or VMIG 1 through MIG 4 or VMIG 4. Gradations of investment quality are indicated by rating symbols, with each symbol representing a group in which the quality characteristics are broadly the same. MIG 1/VMIG 1: This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing. MIG 2/VMIG 2: This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group. MIG 3/VMIG 3: This designation denotes favorable quality. All security elements are accounted for but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established. MIG 4/VMIG 4: This designation denotes adequate quality. Protection commonly regarded as required of an investment security is present and although not distinctly or predominantly speculative, there is specific risk. MOODY'S COMMERCIAL PAPER RATINGS Moody's commercial paper ratings are opinions of the ability of issuers to repay punctually promissory obligations not having an original maturity in excess of nine months. PRIME-1: Issuers rated Prime-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. Prime-1 repayment capacity will normally be evidenced by the following characteristics: leading market positions in well-established industries; high rates of return on funds employed; conservative capitalization structures with moderate reliance on debt and A-3 ample asset protection; broad margins in earnings coverage of fixed financial charges and high internal cash generation; and well-established access to a range of financial markets and assured sources of alternate liquidity. PRIME-2: Issuers rated Prime-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. PRIME-3: Issuers rated Prime-3 (or related supported institutions) have an acceptable capacity for repayment of short-term promissory obligations. The effects of industry characteristics and market composition may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and the requirement for relatively high financial leverage. Adequate alternate liquidity is maintained. NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime rating categories. Note: A Moody's commercial paper rating may also be assigned as an evaluation of the demand feature of a short-term or long-term security with a put option. S&P BOND RATINGS S&P describes its ratings for corporate bonds as follows: AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. AA: Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in a small degree. A: Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. BB-B-CCC-CC-C: Debt rated BB, B, CCC, CC and C is regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal. BB indicates the lowest degree of speculation and C the highest. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or large exposure to adverse conditions. S&P MUNICIPAL BOND RATINGS An S&P municipal bond rating is a current assessment of the creditworthiness of an obligor with respect to a specific obligation. This assessment may take into consideration obligors such as guarantors, insurers, or lessees. The ratings are based, in varying degrees, on the following considerations: likelihood of default - capacity and willingness of the obligor as to the timely payment of interest and repayment of principal in accordance with the terms of the obligation; nature of and provisions of the obligation; and protection A-4 afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights. AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. AA Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in a small degree. Note: Ratings within the AA and A major rating categories may be modified by the addition of a plus (+) sign or minus (-) sign to show relative standing. S&P DUAL RATINGS S&P assigns "dual" ratings to all debt issues that have a put option or demand feature as part of their structure. The first rating addresses the likelihood of repayment of principal and interest as due, and the second rating addresses only the demand feature. The long-term debt rating symbols are used for bonds to denote the long-term maturity and the commercial paper rating symbols for the put option (for example, AAA/A-1+). With short-term demand debt, the note rating symbols are used with the commercial paper rating symbols (for example, SP-1+/A-1+). S&P MUNICIPAL NOTE RATINGS An S&P note rating reflects the liquidity factors and market-access risks unique to notes. Notes maturing in three years or less will likely receive a note rating. Notes maturing beyond three years will most likely receive a long-term debt rating. The following criteria will be used in making that assessment: amortization schedule (the larger the final maturity relative to other maturities, the more likely the issue will be treated as a note); and source of payment (the more the issue depends on the market for its refinancing, the more likely it is to be treated as a note). Note rating symbols and definitions are as follows: SP-1: Strong capacity to pay principal and interest. Issues determined to possess very strong characteristics are given a plus (+) designation. SP-2: Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes. SP-3: Speculative capacity to pay principal and interest. S&P COMMERCIAL PAPER RATINGS An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. A-5 Rating categories are as follows: A-1: This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2: Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1. A-3: Issues carrying this designation have adequate capacity for timely payment. They are, however, more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations. B: Issues with this rating are regarded as having only speculative capacity for timely payment. C: This rating is assigned to short-term debt obligations with a doubtful capacity for payment. D: Debt with this rating is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless it is believed that such payments will be made during such grace period. FITCH INVESTMENT GRADE BOND RATINGS Fitch investment grade bond ratings provide a guide to investors in determining the credit risk associated with a particular security. The ratings represent Fitch's assessment of the issuer's ability to meet the obligations of a specific debt issue in a timely manner. The rating takes into consideration special features of the issue, its relationship to other obligations of the issuer, the current and prospective financial condition and operating performance of the issuer and any guarantor, as well as the economic and political environment that might affect the issuer's future financial strength and credit quality. Fitch ratings do not reflect any credit enhancement that may be provided by insurance policies or financial guaranties unless otherwise indicated. Bonds carrying the same rating are of similar but not necessarily identical credit quality since the rating categories do not fully reflect small differences in the degrees of credit risk. Fitch ratings are not recommendations to buy, sell or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature of taxability of payments made in respect of any security. Fitch ratings are based on information obtained from issuers, other obligors, underwriters, their experts, and other sources Fitch believes to be reliable. Fitch does not audit or verify the truth or accuracy of such information. Ratings may be changed, suspended, or withdrawn as a result of changes in, or the unavailability of, information or for other reasons. AAA: Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. AA: Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated "F-1+." A-6 A: Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB: Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds and, therefore, impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. PLUS (+) MINUS (-): Plus and minus signs are used with a rating symbol to indicate the relative position of a credit within the rating category. Plus and minus signs, however, are not used in the "AAA" category. NR: Indicates that Fitch does not rate the specific issue. CONDITIONAL: A conditional rating is premised on the successful completion of a project or the occurrence of a specific event. SUSPENDED: A rating is suspended when Fitch deems the amount of information available from the issuer to be inadequate for rating purposes. WITHDRAWN: A rating will be withdrawn when an issue matures or is called or refinanced, and, at Fitch's discretion, when an issuer fails to furnish proper and timely information. FITCHALERT: Ratings are placed on FitchAlert to notify investors of an occurrence that is likely to result in a rating change and the likely direction of such change. These are designated as "Positive," indicating a potential upgrade, "Negative," for potential downgrade, or "Evolving," where ratings may be raised or lowered. FitchAlert is relatively short-term, and should be resolved within 12 months. RATINGS OUTLOOK An outlook is used to describe the most likely direction of any rating change over the intermediate term. It is described as "Positive" or "Negative." The absence of a designation indicates a stable outlook. FITCH SPECULATIVE GRADE BOND RATINGS Fitch speculative grade bond ratings provide a guide to investors in determining the credit risk associated with a particular security. The ratings ("BB" to "C") represent Fitch's assessment of the likelihood of timely payment of principal and interest in accordance with the terms of obligation for bond issues not in default. For defaulted bonds, the rating ("DDD" to "D") is an assessment of the ultimate recovery value through reorganization of liquidation. The rating takes into consideration special features of the issue, its relationship to other obligations of the issuer or possible recovery value in bankruptcy, the current and prospective financial condition and operating performance of the issuer and any guarantor, as well as the economic and political environment that might affect the issuer's future financial strength. Bonds that have the same rating are of similar but not necessarily identical credit quality since rating categories cannot fully reflect the differences in degrees of credit risk. BB: Bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified, which could assist the obligor in satisfying its debt service requirements. A-7 B: Bonds are considered highly speculative. While bonds in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue. CCC: Bonds have certain identifiable characteristics that, if not remedied, may lead to default. The ability to meet obligations requires an advantageous business and economic environment. CC: Bonds are minimally protected. Default in payment of interest and/or principal seems probable over time. C: Bonds are in imminent default in payment of interest or principal. DDD, DD, AND D: Bonds are in default on interest and/or principal payments. Such bonds are extremely speculative and should be valued on the basis of their ultimate recovery value in liquidation or reorganization of the obligor. "DDD" represents the highest potential for recovery on these bonds, and "D" represents the lowest potential for recovery. PLUS (+) MINUS (-): Plus and minus signs are used with a rating symbol to indicate the relative position of a credit within the rating category. Plus and minus signs, however, are not used in the "DDD," "DD," or "D" categories. FITCH SHORT-TERM RATINGS Fitch's short-term ratings apply to debt obligations that are payable on demand or have original maturities of generally up to three years, including commercial paper, certificates of deposit, medium-term notes, and municipal and investment notes. The short-term rating places greater emphasis than a long-term rating on the existence of liquidity necessary to meet the issuer's obligations in a timely manner. Fitch short-term ratings are as follows: F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are regarded as having the strongest degree of assurance for timely payment. F-1: Very Strong Credit Quality. Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than issues rated "F-1+." F-2: Good Credit Quality. Issues assigned this rating have a satisfactory degree of assurance for timely payment, but the margin of safety is not as great as for issues assigned "F-1+" and "F-1" ratings. F-3: Fair Credit Quality. Issues assigned this rating have characteristics suggesting that the degree of assurance for timely payment is adequate, however, near-term adverse changes could cause these securities to be rated below investment grade. F-S: Weak Credit Quality. Issues assigned this rating have characteristics suggesting a minimal degree of assurance for timely payment and are vulnerable to near-term adverse changes in financial and economic conditions. D: Default. Issues assigned this rating are in actual or imminent payment default. LOC: The symbol LOC indicates that the rating is based on a letter of credit issued by a commercial bank. A-8 APPENDIX B DIRECTORS AND OFFICERS As of December 31, 2001 The address of each trustee and officer is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 86 portfolios in the AIM Funds complex. Column two below includes length of time served with any predecessor entities.
NAME, YEAR OF BIRTH AND TRUSTEE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS OTHER POSITION(S) HELD WITH THE AND/OR DIRECTORSHIP(S) COMPANY OFFICER HELD BY TRUSTEE SINCE INTERESTED PERSON Robert H. Graham* -- 1991 Chairman, President and Chief Executive Officer, None 1946 A I M Management Group Inc. (financial services Director, Chairman and holding company); Chairman and President, A I M President Advisors, Inc. (registered investment advisor); Chairman, A I M Capital Management, Inc. (registered investment advisor), A I M Distributors, Inc. (registered broker dealer), A I M Fund Services, Inc., (registered transfer agent) and Fund Management Company (registered broker dealer); and Director and Vice Chairman, AMVESCAP PLC (parent of AIM and a global investment management firm) INDEPENDENT DIRECTORS Frank S. Bayley -- 2001 Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc. 1939 (registered investment Director company) Bruce L. Crockett -- 1992 Chairman, Crockett Technology Associates ACE Limited (insurance 1944 (technology consulting company) company); and Director Captaris, Inc. (unified messaging provider) Albert R. Dowden -- 2000 Chairman, Cortland Trust, Inc. (registered None 1941 investment company) and DHJ Media, Inc.; Director, Director Magellan Insurance Company; Member of Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); formerly, Director, President and CEO, Volvo Group North America, Inc.; and director of various affiliated Volvo companies
---------- * Mr. Graham is considered an interested person of the fund because he is an officer and a director of the advisor to, and a director of, the Company. B-1
NAME, YEAR OF BIRTH AND TRUSTEE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS OTHER POSITION(S) HELD WITH THE AND/OR DIRECTORSHIP(S) COMPANY OFFICER HELD BY TRUSTEE SINCE INDEPENDENT DIRECTORS Edward K. Dunn, Jr. -- 1935 1998 Formerly, Chairman, Mercantile Mortgage Corp.; Vice None Director Chairman, President and Chief Operating Officer, Mercantile-Safe Deposit & Trust Co.; and President, Mercantile Bankshares Corp. Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Group, Administaff Director Inc. (government affairs company) Carl Frischling** -- 1937 1991 Partner, law firm of Kramer Levin Naftalis and Cortland Trust, Director Frankel LLP Inc. (registered investment company) Prema Mathai-Davis -- 1950 1998 Formerly, Chief Executive Officer, YWCA of the USA None Director Lewis F. Pennock -- 1942 1991 Partner, law firm of Pennock & Cooper None Director Ruth H. Quigley -- 1935 2001 Retired None Director Louis S. Sklar -- 1939 1991 Executive Vice President, Development and None Director Operations, Hines Interests Limited Partnership (real estate development company) OTHER OFFICERS Gary T. Crum -- 1947 1991 Director, Chief Executive Officer and Director of N/A Senior Vice President Investments, A I M Capital Management, Inc.; Director and Executive Vice President, A I M Management Group Inc.; Director and Senior Vice President, A I M Advisors, Inc.; and Director, A I M Distributors, Inc. and AMVESCAP PLC (parent of AIM and a global investment management firm)
---------- ** The law firm in which Mr. Frischling is a partner is counsel to the independent directors/trustees of the AIM Funds and the AIM Funds pay such firm's fees. The AIM Funds believe that Mr. Frischling is not an interested person of the AIM Funds solely as a result of this relationship and are currently communicating with the SEC to confirm their view. B-2
NAME, YEAR OF BIRTH AND TRUSTEE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS OTHER POSITION(S) HELD WITH THE AND/OR DIRECTORSHIP(S) COMPANY OFFICER HELD BY TRUSTEE SINCE OTHER OFFICERS Carol F. Relihan -- 1954 1991 Director, Senior Vice President, General Counsel and N/A Senior Vice President Secretary, A I M Advisors, Inc. and A I M Management and Secretary Group Inc.; Director, Vice President and General Counsel, Fund Management Company; and Vice President, A I M Fund Services, Inc., A I M Capital Management, Inc. and A I M Distributors, Inc. Robert G. Alley -- 1948 1994 Managing Director and Chief Fixed Income Officer, N/A Vice President A I M Capital Management, Inc. and Vice President, A I M Advisors, Inc. Melville B. Cox -- 1943 1992 Vice President and Chief Compliance Officer, A I M N/A Vice President Advisors, Inc. and A I M Capital Management, Inc.; and Vice President, A I M Fund Services,V Inc. Edgar M. Larsen -- 1940 1999 Vice President, A I M Advisors, Inc.; and President N/A Vice President and Chief Investment Officer, A I M Capital Management, Inc. Dana R. Sutton -- 1959 1991 Vice President and Fund Treasurer, A I M Advisors, N/A Vice President and Inc. Treasurer
B-3 OWNERSHIP OF FUND SHARES AS OF DECEMBER 31, 2001
AGGREGATE DOLLAR RANGE OF NAME OF DIRECTOR DOLLAR RANGE OF EQUITY SECURITIES EQUITY SECURITIES IN ALL PER FUND REGISTERED INVESTMENT COMPANIES OVERSEEN BY DIRECTOR IN THE AIM FAMILY OF FUNDS(R) Robert H. Graham AIM Asian Growth Fund $50,001 - $100,000 AIM European Development Fund Over $100,000 Over $100,000 AIM Global Aggressive Growth Fund Over $100,000 AIM International Equity Fund Over $100,000 Frank S. Bayley AIM Global Growth Fund $10,001 - $50,000 $10,001 - $50,000 AIM Global Income Fund $1 - $10,000 Bruce L. Crockett AIM International Equity Fund $1 - $10,000 $1 - $10,000 Owen Daly II AIM International Equity Fund $10,001 - $50,000 Over $100,000(1) Albert R. Dowden -0- Over $100,000(1) Edward K. Dunn, Jr. AIM Global Aggressive Growth Fund $10,001 - $50,000 Over $100,000(1) AIM International Equity Fund $10,001 - $50,000 Jack M. Fields -0- Over $100,000(1) Carl Frischling -0- Over $100,000(1)
---------- (1) Includes the total amount of compensation deferred by the director at his or her election. Such deferred compensation is placed in a deferral account and deemed to be invested in one or more of the AIM Funds. B-4 APPENDIX C DIRECTOR COMPENSATION TABLE Set forth below is information regarding compensation paid or accrued for each director of the Company who was not affiliated with AIM during the year ended December 31, 2001:
RETIREMENT ESTIMATED AGGREGATE BENEFITS ANNUAL TOTAL COMPENSATION ACCRUED BENEFITS COMPENSATION FROM THE BY ALL UPON FROM ALL AIM DIRECTOR COMPANY(1) AIM FUNDS(2) RETIREMENT(3) FUNDS(4)(5) Frank S. Bayley(6) $ 667 $ -0- $75,000 $112,000 Bruce L. Crockett 8,558 36,312 75,000 126,500 Owen Daly II(7) 8,558 33,318 75,000 126,500 Albert R. Dowden 7,609 3,193 75,000 126,500 Edward K. Dunn, Jr. 8,558 8,174 75,000 126,500 Jack M. Fields 8,458 19,015 75,000 126,500 Carl Frischling(8) 8,530 54,394 75,000 126,500 Prema Mathai-Davis 8,558 21,056 75,000 126,500 Lewis F. Pennock 8,558 37,044 75,000 126,500 Ruth H. Quigley(6) 695 -0- 75,000 112,500 Louis S. Sklar 8,316 53,911 75,000 123,000
(1) The total amount of compensation deferred by all directors of the Company during the fiscal year ended October 31, 2001, including earnings, was $74,462. (2) During the fiscal year ended October 31, 2001, the total amount of expenses allocated to the Company in respect of such retirement benefits was $17,470. (3) Amounts shown assume each director serves until his or her normal retirement date. (4) All directors currently serve as directors or trustees of sixteen registered investment companies advised by AIM. (5) During the fiscal year ended October 31, 2001, the Company received reimbursement for compensation paid to the directors of $2,276. During the year ended December 31, 2001, all AIM Funds received reimbursement of total compensation paid to the directors of $31,500. (6) Mr. Bayley and Miss Quigley were elected to serve as directors on September 28, 2001. (7) Mr. Daly retired as director on December 31, 2001. (8) During the fiscal year ended October 31, 2001 the Company paid $28,988 in legal fees to Kramer Levin Naftalis & Frankel LLP for services rendered by such firm as counsel to the independent directors of the Company. Mr. Frischling is a partner of such firm. The AIM Funds believe that Mr. Frischling is not an interested person of the AIM Funds solely as a result of this relationship and are currently communicating with the SEC to confirm their view. C-1 APPENDIX D CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES To the best knowledge of the Company, the names and addresses of the record and beneficial holders of 5% or more of the outstanding shares of each class of the Company's equity securities and the percentage of the outstanding shares held by such holders are set forth below. Unless otherwise indicated below, the Company has no knowledge as to whether all or any portion of the shares owned of record are also owned beneficially. A shareholder who owns beneficially 25% or more of the outstanding securities of a Fund is presumed to "control" that Fund as defined in the 1940 Act. Such control may affect the voting rights of other shareholders. All information listed below is as of February 1, 2002. AIM ASIAN GROWTH FUND
CLASS A SHARES CLASS B SHARES CLASS C SHARES ------------------------------------------------------- PERCENTAGE PERCENTAGE PERCENTAGE NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF PRINCIPAL HOLDER RECORD RECORD RECORD ------------------------------------------------------------------------------------------------ Merrill Lynch Pierce Fenner & Smith FBO The Sole Benefit of Customers Attn: Fund Administration -0- -0- 11.12% 4800 Deer Lake Dr East 2nd Floor Jacksonville FL, 32246
AIM EUROPEAN DEVELOPMENT FUND
CLASS A SHARES CLASS B SHARES CLASS C SHARES ------------------------------------------------------- PERCENTAGE PERCENTAGE PERCENTAGE NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF PRINCIPAL HOLDER RECORD RECORD RECORD ------------------------------------------------------------------------------------------------ Merrill Lynch Pierce Fenner & Smith FBO The Sole Benefit of Customers Attn: Fund Administration 6.13% 7.70% 21.41% 4800 Deer Lake Dr East 2nd Floor Jacksonville, FL 32246 Charles Schwab & Co. Inc. Reinvestment Account 101 Montgomery St. -0- -0- 6.91% San Francisco, CA 94104
D-1 AIM GLOBAL AGGRESSIVE GROWTH FUND
CLASS A SHARES CLASS B SHARES CLASS C SHARES ------------------------------------------------------- PERCENTAGE PERCENTAGE PERCENTAGE NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF PRINCIPAL HOLDER RECORD RECORD RECORD ------------------------------------------------------------------------------------------------ Merrill Lynch Pierce Fenner & Smith FBO The Sole Benefit of Customers Attn: Fund Administration 8.93% 18.35% 23.93% 4800 Deer Lake Dr East 2nd Floor Jacksonville, FL 32246
AIM GLOBAL GROWTH FUND
CLASS A SHARES CLASS B SHARES CLASS C SHARES ------------------------------------------------------- PERCENTAGE PERCENTAGE PERCENTAGE NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF PRINCIPAL HOLDER RECORD RECORD RECORD ------------------------------------------------------------------------------------------------ Merrill Lynch Pierce Fenner & Smith FBO The Sole Benefit of Customers Attn: Fund Administration 6.32% 11.75% 25.43% 4800 Deer Lake Dr East 2nd Floor Jacksonville, FL 32246
AIM GLOBAL INCOME FUND
CLASS A SHARES CLASS B SHARES CLASS C SHARES ------------------------------------------------------- PERCENTAGE PERCENTAGE PERCENTAGE NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF PRINCIPAL HOLDER RECORD RECORD RECORD ------------------------------------------------------------------------------------------------ Charles Schwab & Co Inc. Reinvestment Account 101 Montgomery St 9.74% -0- -0- San Francisco, CA 94104-0000
D-2 AIM INTERNATIONAL EQUITY FUND
CLASS A CLASS B CLASS C INSTITUTIONAL SHARES SHARES SHARES CLASS SHARES ------------------------------------------------------------- PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF PRINCIPAL HOLDER RECORD RECORD RECORD RECORD ------------------------------------------------------------------------------------------------------ Merrill Lynch Pierce Fenner & Smith FBO The Sole Benefit of Customers Attn: Fund Administration 23.66% 28.27% 48.70% N/A 4800 Deer Lake Dr East 2nd Floor Jacksonville, FL 32246
* Institutional Class shares of AIM International Equity Fund were first made available for public sale on March 15, 2002. MANAGEMENT OWNERSHIP As of February 1, 2002, the directors and officers as a group owned less than 1% of the shares outstanding of each class of each Fund. D-3 APPENDIX E MANAGEMENT FEES For the last three fiscal years ended October 31, the management fees payable by the Fund, the amounts waived by AIM and the net fees paid by the Fund were as follows:
FUND NAME 2001 2000 1999 ---- ---- ---- NET NET NET MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT FEE PAYABLE FEE WAIVERS FEE PAID FEE PAYABLE FEE WAIVERS FEE PAID FEE PAYABLE FEE WAIVERS FEE PAID ----------- ----------- -------- ----------- ----------- -------- ----------- ----------- -------- AIM International Equity Fund $26,188,064 $1,184,439 $25,003,625 $35,553,208 $1,697,400 $33,855,808 $25,205,776 $1,122,543 $24,083,233
E-1 APPENDIX F ADMINISTRATIVE SERVICES FEES The Fund paid AIM the following amounts for administrative services for the last three fiscal years ended October 31:
FUND NAME 2001 2000 1999 ---- ---- ---- AIM International Equity Fund $239,396 $222,616 $150,312
F-1 APPENDIX G BROKERAGE COMMISSIONS Brokerage commissions paid by the Fund during the last three fiscal years were as follows:
2001 2000 1999 ----------- ----------- ----------- AIM International Equity Fund $ 9,379,067 $12,585,724 $ 9,975,166
G-1 APPENDIX H DIRECTED BROKERAGE (RESEARCH SERVICES) AND PURCHASES OF SECURITIES OF REGULAR BROKERS OR DEALERS During the last fiscal year ended October 31, 2001, the Fund allocated the following amount of transactions to broker-dealers that provided AIM with certain research, statistics and other information:
Related Fund Transactions Brokerage Commissions ---- ------------ --------------------- AIM International Equity Fund $105,774,615 $178,024
During the last fiscal year ended October 31, 2001, the Fund held securities issued by the following companies, which are "regular" brokers or dealers of the Fund:
Fund Security Market Value ---- -------- ------------ AIM International Equity Fund Man Group PLC $ 11,367,149 Common Stock
H-1 APPENDIX I PERFORMANCE DATA The average annual total returns (including sales load) for the Fund, with respect to its Class A shares, for the periods ended October 31, 2001 are as follows:
PERIODS ENDED OCTOBER 31, 2001 ---------------- SINCE INCEPTION CLASS A SHARES: 1 YEAR 5 YEARS INCEPTION DATE -------------- ------ ------- --------- ---- AIM International Equity Fund -31.93% 0.87% 7.34% 04/07/92
The cumulative total returns (including sales load) for the Fund, with respect to its Class A shares, for the periods ended October 31, 2001 are as follows:
PERIODS ENDED OCTOBER 31, 2001 ---------------- SINCE INCEPTION CLASS A SHARES: 1 YEAR 5 YEARS INCEPTION DATE -------------- ------ ------- --------- ---- AIM International Equity Fund -31.93% 4.43% 96.93% 04/07/92
The average annual total returns (after taxes on distributions and including sales loads) for the Fund, with respect to its Class A shares, for the periods ended October 31, 2001 are as follows:
PERIODS ENDED OCTOBER 31, 2001 ---------------- SINCE INCEPTION CLASS A SHARES: 1 YEAR 5 YEARS INCEPTION DATE -------------- ------ ------- --------- ---- AIM International Equity Fund -32.90% 0.15% 6.72% 04/07/92
The average annual total returns (after taxes on distributions and redemption and including sales load) for the Fund, with respect to its Class A shares, for the periods ended October 31, 2001 are as follows:
PERIODS ENDED OCTOBER 31, 2001 ---------------- SINCE INCEPTION CLASS A SHARES: 1 YEAR 5 YEARS INCEPTION DATE -------------- ------ ------- --------- ---- AIM International Equity Fund -18.01% 0.83% 6.12% 04/07/92
I-1 FINANCIAL STATEMENTS FS INTERNATIONAL EQUITY FUND REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of AIM International Equity Fund: In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the AIM International Equity Fund (one of the funds constituting AIM International Funds, Inc.; hereafter referred to as the "Fund") at October 31, 2001, and the results of its operations, the changes in its net assets, and the financial highlights for the year then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of securities at October 31, 2001 by correspondence with the custodian and brokers, provides a reasonable basis for our opinion. The statement of changes in net assets of the Fund for the year ended October 31, 2000 and the financial highlights for each of the periods ended on or before October 31, 2000 were audited by other independent accountants whose report, dated December 6, 2000, expressed an unqualified opinion on those statements. PRICEWATERHOUSECOOPERS LLP December 12, 2001 Houston, Texas FS-1 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of AIM International Funds, Inc.: We have audited the accompanying statement of changes in net assets of AIM International Equity Fund (a portfolio of AIM International Funds, Inc.) for the year ended October 31, 2000 and the financial highlights for each of the periods in the four-year period then ended. This financial statement and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on this financial statement and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2000, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statement and financial highlights referred to above present fairly, in all material respects, the changes in net assets of AIM International Equity Fund for the year ended October 31, 2000, and the financial highlights for each of the periods in the four-year period then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP December 6, 2000 Houston, Texas FS-2 SCHEDULE OF INVESTMENTS October 31, 2001
MARKET SHARES VALUE FOREIGN STOCKS & OTHER EQUITY INTERESTS-90.58% AUSTRALIA-0.89% AMP Ltd. (Multi-Line Insurance) 2,148,700 $ 19,510,309 ============================================================================= BRAZIL-1.11% Companhia de Bebidas das Americas-ADR (Brewers) 753,800 12,241,712 ----------------------------------------------------------------------------- Petroleo Brasileiro S.A.-Petrobras-Pfd. (Integrated Oil & Gas) 622,814 11,989,632 ============================================================================= 24,231,344 ============================================================================= CANADA-9.06% Alberta Energy Co. Ltd. (Oil & Gas Exploration & Production) 517,900 20,374,363 ----------------------------------------------------------------------------- Bank of Nova Scotia (Banks) 388,000 10,709,259 ----------------------------------------------------------------------------- Biovail Corp. (Pharmaceuticals)(a) 1,253,600 59,245,136 ----------------------------------------------------------------------------- Bombardier Inc.-Class B (Aerospace & Defense) 2,183,200 14,154,315 ----------------------------------------------------------------------------- Celestica Inc. (Electronic Equipment & Instruments)(a) 309,400 10,618,608 ----------------------------------------------------------------------------- Loblaw Cos. Ltd. (Food Retail) 1,375,200 42,501,618 ----------------------------------------------------------------------------- Manulife Financial Corp. (Life & Health Insurance) 683,000 16,874,016 ----------------------------------------------------------------------------- Talisman Energy Inc. (Oil & Gas Exploration & Production) 593,000 20,846,636 ----------------------------------------------------------------------------- TransCanada PipeLines Ltd. (Gas Utilities) 181,500 2,343,152 ============================================================================= 197,667,103 ============================================================================= DENMARK-3.41% Danske Bank A.S. (Banks) 1,741,390 25,799,306 ----------------------------------------------------------------------------- Novo Nordisk A.S.-Class B (Pharmaceuticals) 1,016,544 41,247,212 ----------------------------------------------------------------------------- Vestas Wind Systems A.S. (Heavy Electrical Equipment) 233,150 7,331,362 ============================================================================= 74,377,880 ============================================================================= FRANCE-18.47% Altran Technologies S.A. (IT Consulting & Services) 838,800 38,507,337 ----------------------------------------------------------------------------- Assurances Generales de France (Multi-Line Insurance) 347,749 16,058,247 ----------------------------------------------------------------------------- Aventis S.A. (Pharmaceuticals) 691,000 50,848,798 ----------------------------------------------------------------------------- BNP Paribas S.A. (Banks) 588,100 48,914,547 ----------------------------------------------------------------------------- Pinault-Printemps-Redoute S.A. (Department Stores) 47,950 5,520,444 ----------------------------------------------------------------------------- PSA Peugeot Citroen (Automobile Manufacturers) 1,015,000 41,251,399 ----------------------------------------------------------------------------- Publicis Groupe S.A. (Advertising) 315,400 6,984,120 -----------------------------------------------------------------------------
MARKET SHARES VALUE FRANCE-(CONTINUED) Sanofi-Synthelabo S.A. (Pharmaceuticals) 923,700 $ 60,905,072 ----------------------------------------------------------------------------- Sodexho Alliance S.A. (Restaurants)(a) 489,400 23,039,897 ----------------------------------------------------------------------------- TotalFinaElf S.A. (Integrated Oil & Gas) 380,644 53,451,325 ----------------------------------------------------------------------------- Vinci S.A. (Construction & Engineering) 445,200 26,850,034 ----------------------------------------------------------------------------- Vivendi Environnement (Multi-Utilities) 797,749 30,669,785 ============================================================================= 403,001,005 ============================================================================= GERMANY-5.27% Allianz A.G. (Multi-Line Insurance) 35,160 8,257,296 ----------------------------------------------------------------------------- Altana A.G. (Pharmaceuticals) 1,303,420 61,010,223 ----------------------------------------------------------------------------- Bayerisch Motoren Werke A.G. (Automobile Manufacturers) 196,866 5,847,895 ----------------------------------------------------------------------------- Muenchener Rueckversicherungs-Gesellschaft A.G. (Reinsurance) 128,200 33,915,834 ----------------------------------------------------------------------------- Porsche A.G.-Pfd. (Automobile Manufacturers) 21,450 5,985,547 ============================================================================= 115,016,795 ============================================================================= HONG KONG-1.19% China Mobile Ltd. (Wireless Telecommunication Services)(a) 3,090,000 9,369,219 ----------------------------------------------------------------------------- CNOOC Ltd.-ADR (Oil & Gas Exploration & Production) 843,000 16,548,090 ============================================================================= 25,917,309 ============================================================================= INDIA-0.45% Infosys Technologies Ltd. (IT Consulting & Services) 163,228 9,912,385 ============================================================================= IRELAND-2.37% Bank of Ireland (Banks) 2,817,100 25,180,619 ----------------------------------------------------------------------------- Elan Corp. PLC-ADR (Pharmaceuticals)(a) 579,700 26,463,305 ============================================================================= 51,643,924 ============================================================================= ISRAEL-2.63% Check Point Software Technologies Ltd. (Internet Software & Services)(a) 185,900 5,487,768 ----------------------------------------------------------------------------- Teva Pharmaceutical Industries Ltd.-ADR (Pharmaceuticals) 841,300 51,992,340 ============================================================================= 57,480,108 ============================================================================= ITALY-3.70% Autostrade-Concessioni e Costruzioni Autostrade S.p.A (Highways & Railtracks) 4,047,800 25,432,518 ----------------------------------------------------------------------------- Bulgari S.p.A. (Apparel & Accessories) 1,318,000 10,084,380 ----------------------------------------------------------------------------- ENI S.p.A. (Integrated Oil & Gas) 3,607,449 45,201,653 ============================================================================= 80,718,551 =============================================================================
FS-3
MARKET SHARES VALUE JAPAN-9.56% Banyu Pharmaceutical Co., Ltd. (Pharmaceuticals) 510,000 $ 9,913,427 ----------------------------------------------------------------------------- Crayfish Co., Ltd.-ADR (Internet Software & Services)(a) 89,430 848,691 ----------------------------------------------------------------------------- Fuji Photo Film Co., Ltd. (Photographic Products) 308,000 10,162,692 ----------------------------------------------------------------------------- Fujisawa Pharmaceutical Co., Ltd. (Pharmaceuticals) (Acquired 09/07/01- 09/13/01; Cost $17,857,081)(b) 889,000 21,346,455 ----------------------------------------------------------------------------- Hirose Electric Co., Ltd. (Electronic Equipment & Instruments) 234,000 17,162,039 ----------------------------------------------------------------------------- Honda Motor Co., Ltd. (Automobile Manufacturers) 371,100 13,305,530 ----------------------------------------------------------------------------- Hoya Corp. (Electronic Equipment & Instruments) 428,800 25,600,523 ----------------------------------------------------------------------------- Kao Corp. (Household Products) 121,000 2,865,893 ----------------------------------------------------------------------------- Nintendo Co. Ltd. (Consumer Electronics) 48,200 7,432,342 ----------------------------------------------------------------------------- NTT Data Corp. (IT Consulting & Services)(a) 1,984 8,669,062 ----------------------------------------------------------------------------- NTT DoCoMo, Inc. (Wireless Telecommunication Services) (Acquired 10/12/98-02/21/01; Cost $17,246,548)(b) 1,497 20,295,818 ----------------------------------------------------------------------------- Ricoh Co., Ltd. (Office Electronics) 920,000 15,328,324 ----------------------------------------------------------------------------- Sharp Corp. (Consumer Electronics) 1,093,000 11,301,356 ----------------------------------------------------------------------------- Takeda Chemical Industries, Ltd. (Pharmaceuticals) 336,000 16,273,113 ----------------------------------------------------------------------------- Toyota Motor Corp. (Automobile Manufacturers) 276,500 6,706,999 ----------------------------------------------------------------------------- Trend Micro Inc. (Application Software)(a) 991,400 21,295,181 ============================================================================= 208,507,445 ============================================================================= MEXICO-2.64% America Movil S.A. de C.V.-Series L-ADR (Wireless Telecommunication Services) 739,900 11,098,500 ----------------------------------------------------------------------------- Grupo Modelo S.A. de C.V.-Series C (Brewers) 4,538,900 10,423,565 ----------------------------------------------------------------------------- Telefonos de Mexico S.A. de C.V.- Class L-ADR (Integrated Telecommunication Services) 384,300 13,089,258 ----------------------------------------------------------------------------- Wal-Mart de Mexico S.A. de C.V.-Series C (General Merchandise Stores) 10,703,000 23,102,325 ============================================================================= 57,713,648 ============================================================================= NETHERLANDS-2.00% Koninklijke Ahold N.V. (Food Retail) 1,349,000 37,959,091 ----------------------------------------------------------------------------- Wolters Kluwer N.V. (Publishing & Printing) 268,700 5,640,416 ============================================================================= 43,599,507 =============================================================================
MARKET SHARES VALUE PORTUGAL-0.18% Portugal Telecom, SGPS, S.A. (Integrated Telecommunications Services)(a) 490,950 $ 3,888,972 ============================================================================= SINGAPORE-0.71% Datacraft Asia Ltd. (Networking Equipment) 4,797,136 15,542,721 ============================================================================= SOUTH KOREA-1.08% Korea Telecom Corp.-ADR (Integrated Telecommunication Services) 464,000 9,669,760 ----------------------------------------------------------------------------- Samsung Electronics Co., Ltd. (Semiconductors) 103,700 13,936,445 ============================================================================= 23,606,205 ============================================================================= SPAIN-3.73% Banco Bilbao Vizcaya Argentaria, S.A. (Banks) 467,700 5,233,032 ----------------------------------------------------------------------------- Banco Popular Espanol S.A. (Banks) 985,300 33,082,034 ----------------------------------------------------------------------------- Industria de Diseno Textil, S.A. (Apparel Retail)(a) 1,075,200 20,034,314 ----------------------------------------------------------------------------- Telefonica, S.A. (Integrated Telecommunication Services)(a) 1,926,877 23,137,941 ============================================================================= 81,487,321 ============================================================================= SWEDEN-1.53% Hennes & Mauritz A.B.-Class B (Apparel Retail)(a) 667,200 11,666,742 ----------------------------------------------------------------------------- Securitas A.B.-Class B (Diversified Commercial Services)(a) 1,305,900 21,733,166 ============================================================================= 33,399,908 ============================================================================= SWITZERLAND-2.82% Nestle S.A.-Class B (Packaged Foods) 192,600 39,958,017 ----------------------------------------------------------------------------- Serono S.A.-Class B (Biotechnology) 27,300 21,569,339 ============================================================================= 61,527,356 ============================================================================= TAIWAN-0.85% Taiwan Semiconductor Manufacturing Co. Ltd. (Semiconductors)(a) 10,433,736 18,448,055 ============================================================================= UNITED KINGDOM-16.93% BP PLC (Integrated Oil & Gas) 5,923,300 47,838,703 ----------------------------------------------------------------------------- Capita Group PLC (Employment Services) 6,514,800 41,239,466 ----------------------------------------------------------------------------- Man Group PLC (Diversified Financial Services) 705,000 11,367,149 ----------------------------------------------------------------------------- Matalan PLC (Apparel Retail)(a) 153,100 806,989 ----------------------------------------------------------------------------- Next PLC (Department Stores) 1,946,100 24,609,773 ----------------------------------------------------------------------------- Reckitt Benckiser PLC (Household Products) 2,839,000 39,660,603 ----------------------------------------------------------------------------- Rentokil Initial PLC (Diversified Commercial Services) 7,619,800 27,443,624 ----------------------------------------------------------------------------- Royal Bank of Scotland Group PLC (Banks) 2,185,400 52,314,193 -----------------------------------------------------------------------------
FS-4
MARKET SHARES VALUE UNITED KINGDOM-(CONTINUED) Safeway PLC (Food Retail) 6,205,100 $ 31,603,815 ----------------------------------------------------------------------------- Shell Transport & Trading Co. PLC (Integrated Oil & Gas) 4,568,700 34,239,117 ----------------------------------------------------------------------------- Smith & Nephew PLC (Health Care Supplies) 3,635,900 20,462,794 ----------------------------------------------------------------------------- Tesco PLC (Food Retail)(a) 5,408,900 19,087,251 ----------------------------------------------------------------------------- WPP Group PLC (Advertising) 2,065,900 18,714,203 ============================================================================= 369,387,680 ============================================================================= Total Foreign Stocks & Other Equity Interests (Cost $1,959,235,512) 1,976,585,531 =============================================================================
MARKET SHARES VALUE MONEY MARKET FUNDS-9.75% STIC Liquid Assets Portfolio(c) 106,438,222 $ 106,438,222 ----------------------------------------------------------------------------- STIC Prime Portfolio(c) 106,438,222 106,438,222 ============================================================================= Total Money Market Funds (Cost $212,876,444) 212,876,444 ============================================================================= TOTAL INVESTMENTS-100.33% (Cost $2,172,111,956) 2,189,461,975 ============================================================================= OTHER ASSETS LESS LIABILITIES-(0.33%) (7,211,679) ============================================================================= NET ASSETS-100.00% $2,182,250,296 _____________________________________________________________________________ =============================================================================
Investment Abbreviations: ADR - American Depositary Receipt Pfd. - Preferred
Notes to Schedule of Investments: (a) Non-income producing security. (b) Restricted security. May be resold to qualified institutional buyers in accordance with the provisions of Rule 144A under the Securities Act of 1933, as amended. The aggregate market value of these securities at 10/31/01 was $41,642,273, which represented 1.91% of the Fund's net assets. (c) The money market fund and the Fund are affiliated by having the same investment advisor. See Notes to Financial Statements. FS-5 STATEMENT OF ASSETS AND LIABILITIES October 31, 2001 ASSETS: Investments, at market value (cost $2,172,111,956)* $2,189,461,975 ------------------------------------------------------------- Foreign currencies, at value (cost $4,058,581) 4,032,501 ------------------------------------------------------------- Receivables for: Investments sold 26,144,480 ------------------------------------------------------------- Capital stock sold 4,942,801 ------------------------------------------------------------- Dividends 3,798,562 ------------------------------------------------------------- Investment for deferred compensation plan 82,151 ------------------------------------------------------------- Collateral for securities loaned 115,299,878 ------------------------------------------------------------- Other assets 53,624 ============================================================= Total assets 2,343,815,972 _____________________________________________________________ ============================================================= LIABILITIES: Payables for: Investments purchased 22,977,016 ------------------------------------------------------------- Capital stock reacquired 19,746,622 ------------------------------------------------------------- Deferred compensation plan 82,151 ------------------------------------------------------------- Collateral upon return of securities loaned 115,299,878 ------------------------------------------------------------- Accrued distribution fees 1,901,688 ------------------------------------------------------------- Accrued directors' fees 1,507 ------------------------------------------------------------- Accrued transfer agent fees 1,059,960 ------------------------------------------------------------- Accrued operating expenses 496,854 ============================================================= Total liabilities 161,565,676 ============================================================= Net assets applicable to shares outstanding $2,182,250,296 _____________________________________________________________ ============================================================= NET ASSETS: Class A $1,404,268,913 _____________________________________________________________ ============================================================= Class B $ 612,124,595 _____________________________________________________________ ============================================================= Class C $ 165,856,788 _____________________________________________________________ ============================================================= CAPITAL STOCK, $0.001 PAR VALUE PER SHARE: Class A: Authorized 400,000,000 ------------------------------------------------------------- Outstanding 97,188,477 _____________________________________________________________ ============================================================= Class B: Authorized 200,000,000 ------------------------------------------------------------- Outstanding 44,424,506 _____________________________________________________________ ============================================================= Class C: Authorized 200,000,000 ------------------------------------------------------------- Outstanding 12,027,171 _____________________________________________________________ ============================================================= Class A: Net asset value per share $ 14.45 ------------------------------------------------------------- Offering price per share: (Net asset value of $14.45 divided by 94.50%) $ 15.29 _____________________________________________________________ ============================================================= Class B: Net asset value and offering price per share $ 13.78 _____________________________________________________________ ============================================================= Class C: Net asset value and offering price per share $ 13.79 _____________________________________________________________ =============================================================
* At October 31, 2001, securities with an aggregate market value of $111,191,618 were on loan to brokers. STATEMENT OF OPERATIONS For the year ended October 31, 2001 INVESTMENT INCOME: Dividends (net of foreign withholding tax of $3,962,351) $ 31,204,706 ------------------------------------------------------------ Dividends from affiliated money market funds 10,136,941 ------------------------------------------------------------ Interest 134,796 ------------------------------------------------------------ Security lending income 2,055,217 ============================================================ Total investment income 43,531,660 ============================================================ EXPENSES: Advisory fees 26,188,064 ------------------------------------------------------------ Administrative services fees 239,396 ------------------------------------------------------------ Custodian fees 1,710,356 ------------------------------------------------------------ Distribution fees -- Class A 5,554,261 ------------------------------------------------------------ Distribution fees -- Class B 7,879,400 ------------------------------------------------------------ Distribution fees -- Class C 2,148,690 ------------------------------------------------------------ Transfer agent fees -- Class A 5,181,566 ------------------------------------------------------------ Transfer agent fees -- Class B 2,205,291 ------------------------------------------------------------ Transfer agent fees -- Class C 601,376 ------------------------------------------------------------ Directors' fees 19,260 ------------------------------------------------------------ Other 1,326,749 ============================================================ Total expenses 53,054,409 ============================================================ Less: Fees waived (1,184,439) ------------------------------------------------------------ Expenses paid indirectly (50,109) ============================================================ Net expenses 51,819,861 ============================================================ Net investment income (loss) (8,288,201) ============================================================ REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES AND FOREIGN CURRENCIES: Net realized gain (loss) from: Investment securities (321,418,911) ------------------------------------------------------------ Foreign currencies (3,081,472) ============================================================ (324,500,383) ============================================================ Change in net unrealized appreciation (depreciation) of: Investment securities (592,990,304) ------------------------------------------------------------ Foreign currencies 2,412,732 ============================================================ (590,577,572) ============================================================ Net gain (loss) from investment securities and foreign currencies (915,077,955) ============================================================ Net increase (decrease) in net assets resulting from operations $(923,366,156) ____________________________________________________________ ============================================================
See Notes to Financial Statements. FS-6 STATEMENT OF CHANGES IN NET ASSETS For the years ended October 31, 2001 and 2000
2001 2000 --------------- -------------- OPERATIONS: Net investment income (loss) $ (8,288,201) $ 1,818,566 ----------------------------------------------------------------------------------------------- Net realized gain (loss) from investment securities and foreign currencies (324,500,383) 290,796,677 ----------------------------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) of investment securities and foreign currencies (590,577,572) (274,429,169) =============================================================================================== Net increase (decrease) in net assets resulting from operations (923,366,156) 18,186,074 =============================================================================================== Distributions to shareholders from net realized gains: Class A (156,825,052) (86,520,783) ----------------------------------------------------------------------------------------------- Class B (70,681,276) (38,910,409) ----------------------------------------------------------------------------------------------- Class C (18,156,188) (5,375,907) ----------------------------------------------------------------------------------------------- Share transactions-net: Class A (180,428,359) 313,494,138 ----------------------------------------------------------------------------------------------- Class B (46,358,665) 148,996,045 ----------------------------------------------------------------------------------------------- Class C 589,170 163,874,554 =============================================================================================== Net increase (decrease) in net assets (1,395,226,526) 513,743,712 =============================================================================================== NET ASSETS: Beginning of year 3,577,476,822 3,063,733,110 =============================================================================================== End of year $ 2,182,250,296 $3,577,476,822 _______________________________________________________________________________________________ =============================================================================================== NET ASSETS CONSIST OF: Capital (par value and additional paid-in) $ 2,516,881,207 $2,727,015,413 ----------------------------------------------------------------------------------------------- Undistributed net investment income (loss) (160,057) (137,143) ----------------------------------------------------------------------------------------------- Undistributed net realized gain (loss) from investment securities and foreign currencies (351,577,431) 233,356,824 ----------------------------------------------------------------------------------------------- Unrealized appreciation of investment securities and foreign currencies 17,106,577 617,241,728 =============================================================================================== $ 2,182,250,296 $3,577,476,822 _______________________________________________________________________________________________ ===============================================================================================
See Notes to Financial Statements. FS-7 NOTES TO FINANCIAL STATEMENTS October 31, 2001 NOTE 1-SIGNIFICANT ACCOUNTING POLICIES AIM International Equity Fund (the "Fund") is a series portfolio of AIM International Funds, Inc. (the "Company"). The Company is a Maryland corporation registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of six separate portfolios. The Fund currently offers three different classes of shares: Class A shares, Class B shares and Class C shares. Class A shares are sold with a front-end sales charge. Class B shares and Class C shares are sold with a contingent deferred sales charge. Matters affecting each portfolio or class will be voted on exclusively by the shareholders of such portfolio or class. The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. The Fund's investment objective is long-term growth of capital. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements. A. Security Valuations -- Securities, including restricted securities, are valued according to the following policy. A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Each security reported on the NASDAQ National Market System is valued at the last sales price as of the close of the customary trading session on the valuation date or absent a last sales price, at the closing bid price. Debt obligations (including convertible bonds) are valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as yield, type of issue, coupon rate and maturity date. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Securities for which market quotations are not readily available or are questionable are valued at fair value as determined in good faith by or under the supervision of the Company's officers in a manner specifically authorized by the Board of Directors of the Company. Short-term obligations having 60 days or less to maturity are valued at amortized cost which approximates market value. For purposes of determining net asset value per share, futures and option contracts generally will be valued 15 minutes after the close of the customary trading session of the New York Stock Exchange ("NYSE"). Foreign securities are converted into U.S. dollar amounts using exchange rates as of the close of the NYSE. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of the Fund's shares are determined as of the close of the respective markets. Occasionally, events affecting the values of such foreign securities may occur between the times at which the particular foreign market closes and the close of the customary trading session of the NYSE which would not be reflected in the computation of the Fund's net asset value. If a development/event is so significant that there is a reasonably high degree of certainty as to both the effect and the degree of effect that the development/event has actually caused that closing price to no longer reflect actual value, the closing prices, as determined at the close of the applicable foreign market, may be adjusted to reflect the fair value of the affected foreign securities as of the close of the NYSE as determined in good faith by or under the supervision of the Board of Directors. B. Securities Transactions and Investment Income -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. On October 31, 2001, undistributed net investment income was increased by $8,265,287, undistributed net realized gains decreased by $14,771,356 and paid in capital increased by $6,506,069 as a result of book/tax differences due to foreign currency transactions, merger related adjustments, net operating loss and other reclassifications. Net assets of the Fund were unaffected by the reclassification discussed above. C. Distributions -- Distributions from income and net realized capital gains, if any, are generally paid annually and recorded on ex-dividend date. The Fund may elect to use a portion of the proceeds from redemptions as distributions for federal income tax purposes. D. Federal Income Taxes -- The Fund intends to comply with the requirements of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gains) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. FS-8 The Fund's capital loss carryforward of $328,198,427 is broken down by expiration date as follows:
CAPITAL LOSS CARRYFORWARD EXPIRATION ----------------- ---------- $ 11,425,187 October 31, 2008 ----------------------------------- 316,773,240 October 31, 2009 ----------------------------------- $328,198,427 __________________________________ ===================================
E. Foreign Currency Translations -- Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. F. Foreign Currency Contracts -- A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund may enter into a foreign currency contract to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. The Fund may also enter into a foreign currency contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of that security. The Fund could be exposed to risk if counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. G. Expenses -- Distribution expenses and certain transfer agency expenses directly attributable to a class of shares are charged to those classes' operations. All other expenses which are attributable to more than one class are allocated among the classes based on relative net assets. NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Company has entered into a master investment advisory agreement with A I M Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.95% of the first $1 billion of the Fund's average daily net assets, plus 0.90% of the Fund's average daily net assets in excess of $1 billion. AIM has agreed to waive advisory fees payable by the Fund to AIM at the annual rate of 0.05% on net assets in excess of $500 million. Effective July 1, 2001, AIM has voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM receives from the affiliated money market fund of which the Fund has invested. For the year ended October 31, 2001, AIM waived fees of $1,184,439. The Fund, pursuant to a master administrative services agreement with AIM, has agreed to pay AIM for certain administrative costs incurred in providing accounting services to the Fund. For the year ended October 31, 2001, AIM was paid $239,396 for such services. The Fund, pursuant to a transfer agency and service agreement, has agreed to pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and shareholder services to the Fund. During the year ended October 31, 2001, AFS was paid $3,018,417 for such services. The Company has entered into master distribution agreements with A I M Distributors, Inc. ("AIM Distributors") to serve as the distributor for the Class A, Class B and Class C shares of the Fund. The Company has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A shares, Class B shares and Class C shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at the annual rate of 0.30% of the Fund's average daily net assets of Class A shares and 1.00% of the average daily net assets of Class B and C shares. Of these amounts, the Fund may pay a service fee of 0.25% of the average daily net assets of the Class A, Class B or Class C shares to selected dealers and financial institutions who furnish continuing personal shareholder services to their customers who purchase and own the appropriate class of shares of the Fund. Any amounts not paid as a service fee under the Plans would constitute an asset-based sales charge. The Plans also impose a cap on the total sales charges, including asset-based sales charges that may be paid by the respective classes. For the year ended October 31, 2001, the Class A, Class B and Class C shares paid AIM Distributors $5,554,261, $7,879,400 and $2,148,690, respectively, as compensation under the Plans. AIM Distributors received commissions of $291,152 from sales of the Class A shares of the Fund during the year ended October 31, 2001. Such commissions are not an expense of the Fund. They are deducted from, and are not included in, the proceeds from sales of Class A shares. During the year ended October 31, 2001, AIM Distributors received $315,479 in contingent deferred sales charges imposed on redemptions of Fund shares. Certain officers and directors of the Company are officers and directors of AIM, AFS and AIM Distributors. During the year ended October 31, 2001, the Fund paid legal fees of $7,414 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Company's directors. A member of that firm is a director of the Company. NOTE 3-INDIRECT EXPENSES For the year ended October 31, 2001, the Fund received reductions in transfer agency fees from AFS (an affiliate of AIM) of $50,109 under an expense offset arrangement which resulted in a reduction of the Fund's total expenses of $50,109. NOTE 4-DIRECTORS' FEES Directors' fees represent remuneration paid to directors who are not an "interested person" of AIM. The Company invests directors' fees, if so elected by a director, in mutual fund shares in accordance with a deferred compensation plan. FS-9 NOTE 5-BANK BORROWINGS The Fund is a participant in a committed line of credit facility with a syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of (i) $1,000,000,000 or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the line of credit may borrow on a first come, first served basis. During the year ended October 31, 2001, the Fund did not borrow under the line of credit agreement. The funds which are party to the line of credit are charged a commitment fee of 0.09% on the unused balance of the committed line. The commitment fee is allocated among the funds based on their respective average net assets for the period. NOTE 6-PORTFOLIO SECURITIES LOANED The Fund may lend portfolio securities to the extent of one-third of the Fund's total assets. Such loans are secured by collateral equal to no less than the market value, determined daily, of the loaned securities. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its agencies. Cash collateral pursuant to these loans is invested in short-term money market instruments or affiliated money market funds. Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. It is the Fund's policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day. Therefore, the value of the collateral may be temporarily less than the value of the securities on loan. At October 31, 2001, securities with an aggregate value of $111,191,618 were on loan to brokers. The loans were secured by cash collateral of $115,299,878 received by the Fund and invested in STIC Liquid Assets Portfolio, an affiliated money market fund. For the year ended October 31, 2001, the Fund received fees of $2,055,217 for securities lending. NOTE 7-INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities) purchased and sold by the Fund during the year ended October 31, 2001 was $2,211,065,667 and $2,518,733,700 respectively. The amount of unrealized appreciation (depreciation) of investment securities, for tax purposes, as of October 31, 2001 is as follows: Aggregate unrealized appreciation of investment securities $200,596,623 --------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (197,068,026) ========================================================= Net unrealized appreciation of investment securities $ 3,528,597 _________________________________________________________ ========================================================= Cost of investments for tax purposes is $2,185,933,378.
NOTE 8-CAPITAL STOCK Changes in capital stock outstanding during the years ended October 31, 2001 and 2000 were as follows:
2001 2000 ------------------------------- ------------------------------ SHARES AMOUNT SHARES AMOUNT ------------ --------------- ----------- --------------- Sold: Class A 175,580,029 $ 2,950,679,623 74,959,702 $ 1,884,430,622 ----------------------------------------------------------------------------------------------------------------------------- Class B 4,979,371 82,782,098 10,706,006 266,318,794 ----------------------------------------------------------------------------------------------------------------------------- Class C 14,086,051 222,470,653 11,663,828 288,872,717 ============================================================================================================================= Issued as reinvestment of dividends: Class A 7,606,981 146,967,008 3,304,133 80,984,287 ----------------------------------------------------------------------------------------------------------------------------- Class B 3,458,005 64,111,410 1,485,236 35,304,035 ----------------------------------------------------------------------------------------------------------------------------- Class C 924,281 17,145,423 214,163 5,094,930 ============================================================================================================================= Issued in connection with acquisition:* Class A 2,217,146 33,310,375 -- -- ----------------------------------------------------------------------------------------------------------------------------- Class B 1,619,058 23,291,645 -- -- ----------------------------------------------------------------------------------------------------------------------------- Class C 232,554 3,348,737 -- -- ============================================================================================================================= Reacquired: Class A (195,871,662) (3,311,385,365) (65,335,468) (1,651,920,771) ----------------------------------------------------------------------------------------------------------------------------- Class B (13,584,017) (216,543,818) (6,258,901) (152,626,784) ----------------------------------------------------------------------------------------------------------------------------- Class C (15,412,641) (242,375,643) (5,276,103) (130,093,093) ============================================================================================================================= (14,164,844) $ (226,197,854) 25,462,596 $ 626,364,737 _____________________________________________________________________________________________________________________________ =============================================================================================================================
* As of the close of business on September 07, 2001, the Fund acquired all the net assets of AIM Japan Growth Fund pursuant to a plan of reorganization approved by AIM Japan Growth Fund shareholders on August 17, 2001. The acquisition was accomplished by a tax-free exchange of 4,068,758 shares of the Fund for 9,652,967 shares of AIM Japan Growth Fund outstanding as of the close of business on September 07, 2001. AIM Japan Growth Fund net assets at that date of $59,950,757 including $(9,557,579) of unrealized depreciation, were combined with those of the Fund. The aggregate net assets of the Fund immediately before the acquisition were $2,282,502,806. FS-10 NOTE 9-FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
CLASS A ------------------------------------------------------------------ YEAR ENDED OCTOBER 31, ------------------------------------------------------------------ 2001 2000(a) 1999 1998(a) 1997(a) ---------- ---------- ---------- ---------- ---------- Net asset value, beginning of period $ 21.60 $ 21.73 $ 17.59 $ 16.64 $ 15.37 -------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.01) 0.08 (0.03) 0.05 0.04 -------------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (5.66) 0.72 4.49 0.96 1.68 ================================================================================================================================ Total from investment operations (5.67) 0.80 4.46 1.01 1.72 ================================================================================================================================ Less distributions: Dividends from net investment income -- -- (0.11) (0.06) (0.02) -------------------------------------------------------------------------------------------------------------------------------- Distributions from net realized gains (1.48) (0.93) (0.21) -- (0.43) ================================================================================================================================ Total distributions (1.48) (0.93) (0.32) (0.06) (0.45) ================================================================================================================================ Net asset value, end of period $ 14.45 $ 21.60 $ 21.73 $ 17.59 $ 16.64 ________________________________________________________________________________________________________________________________ ================================================================================================================================ Total return(b) (27.96)% 3.16% 25.73% 6.11% 11.43% ________________________________________________________________________________________________________________________________ ================================================================================================================================ Ratios/supplemental data: Net assets, end of period (000s omitted) $1,404,269 $2,325,636 $2,058,419 $1,724,635 $1,577,390 ________________________________________________________________________________________________________________________________ ================================================================================================================================ Ratio of expenses to average net assets: With fee waivers 1.57%(c) 1.44% 1.48% 1.45% 1.47% -------------------------------------------------------------------------------------------------------------------------------- Without fee waivers 1.61%(c) 1.48% 1.52% 1.49% 1.51% ================================================================================================================================ Ratio of net investment income (loss) to average net assets (0.04)%(c) 0.30% (0.14)% 0.28% 0.24% ________________________________________________________________________________________________________________________________ ================================================================================================================================ Portfolio turnover rate 85% 87% 86% 78% 50% ________________________________________________________________________________________________________________________________ ================================================================================================================================
(a) Calculated using average shares outstanding. (b) Does not include sales charges. (c) Ratios are based on average daily net assets of $1,851,420,253.
CLASS B -------------------------------------------------------- YEAR ENDED OCTOBER 31, -------------------------------------------------------- 2001 2000(a) 1999(a) 1998(a) 1997(a) -------- -------- -------- -------- -------- Net asset value, beginning of period $ 20.81 $ 21.11 $ 17.13 $ 16.27 $ 15.13 ---------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.13) (0.11) (0.17) (0.09) (0.09) ---------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (5.42) 0.74 4.36 0.95 1.66 ====================================================================================================================== Total from investment operations (5.55) 0.63 4.19 0.86 1.57 ====================================================================================================================== Less distributions from net realized gains (1.48) (0.93) (0.21) -- (0.43) ====================================================================================================================== Net asset value, end of period $ 13.78 $ 20.81 $ 21.11 $ 17.13 $ 16.27 ______________________________________________________________________________________________________________________ ====================================================================================================================== Total return(b) (28.48)% 2.42% 24.72% 5.29% 10.61% ______________________________________________________________________________________________________________________ ====================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $612,125 $997,843 $887,106 $744,987 $678,809 ______________________________________________________________________________________________________________________ ====================================================================================================================== Ratio of expenses to average net assets: With fee waivers 2.27%(c) 2.18% 2.27% 2.22% 2.25% ---------------------------------------------------------------------------------------------------------------------- Without fee waivers 2.31%(c) 2.22% 2.31% 2.26% 2.28% ====================================================================================================================== Ratio of net investment income (loss) to average net assets (0.75)%(c) (0.44)% (0.93)% (0.49)% (0.53)% ______________________________________________________________________________________________________________________ ====================================================================================================================== Portfolio turnover rate 85% 87% 86% 78% 50% ______________________________________________________________________________________________________________________ ======================================================================================================================
(a) Calculated using average shares outstanding. (b) Does not include contingent deferred sales charges. (c) Ratios are based on average daily net assets of $787,939,985. FS-11 NOTE 9-FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS C ------------------------------------------------------------- AUGUST 4, 1997 (DATE SALES YEAR ENDED OCTOBER 31, COMMENCED) ------------------------------------------- TO OCTOBER 31, 2001 2000(a) 1999(a) 1998(a) 1997(a) -------- -------- -------- ------- -------------- Net asset value, beginning of period $ 20.82 $ 21.13 $ 17.14 $ 16.27 $ 17.64 --------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.13) (0.11) (0.17) (0.09) (0.02) --------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (5.42) 0.73 4.37 0.96 (1.35) =========================================================================================================================== Total from investment operations (5.55) 0.62 4.20 0.87 (1.37) =========================================================================================================================== Less distributions from net realized gains (1.48) (0.93) (0.21) -- -- =========================================================================================================================== Net asset value, end of period $ 13.79 $ 20.82 $ 21.13 $ 17.14 $ 16.27 ___________________________________________________________________________________________________________________________ =========================================================================================================================== Total return(b) (28.47)% 2.37% 24.76% 5.35% 7.77% ___________________________________________________________________________________________________________________________ =========================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $165,857 $253,998 $118,208 $58,579 $12,829 ___________________________________________________________________________________________________________________________ =========================================================================================================================== Ratio of expenses to average net assets: With fee waivers 2.27%(c) 2.18% 2.27% 2.22% 2.27%(d) --------------------------------------------------------------------------------------------------------------------------- Without fee waivers 2.31%(c) 2.22% 2.31% 2.26% 2.30%(d) =========================================================================================================================== Ratio of net investment income (loss) to average net assets (0.75)%(c) (0.44)% (0.93)% (0.49)% (0.55)%(d) ___________________________________________________________________________________________________________________________ =========================================================================================================================== Portfolio turnover rate 85% 87% 86% 78% 50% ___________________________________________________________________________________________________________________________ ===========================================================================================================================
(a) Calculated using average shares outstanding. (b) Does not include contingent deferred sales charges and is not annualized for period less than one year. (c) Ratios are based on average daily net assets of $214,869,043. (d) Annualized. FS-12