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Fund Spy

AIM Housecleaning Highlights Important Lessons

What shareholders can learn from these proposed fund mergers.

If shareholders approve the proposals at the end of June 2005, eight funds will disappear from AIM's 70-fund lineup. Overall, we think this is good news for investors, but there are lessons for shareholders to learn from these mergers.

As at too many fund complexes out there, AIM's roster of funds is redundant in places, so the rationalization makes sense. While better than in previous years, its growth lineup has been particularly confusing--it's often tough to distinguish one fund from another in a meaningful and substantive way. And they're all fairly highly correlated with one another; in other words, they behave very similarly, despite using slightly different approaches. AIM's merger proposals would eliminate four growth funds.

Further, there aren't any huge red flags with the proposed individual mergers. True, merging the $1.8 billion  AIM Balanced (AMBLX) into the $174 million AIM Basic Balanced (BBLAX), rather than making the more logical move and merging the smaller fund into its larger, older sibling, conveniently expunges AIM Balanced's generally weak 25-year performance record. But the fact that manager Bret Stanley and his team have run Balanced since December 2003 and Basic Balanced since its September 2001 inception means the combination does make sense. (Basic Balanced is also absorbing  AIM Total Return  (FSFLX).) It's also appropriate for investors to look to Basic Balanced's record and investment style to ascertain its suitability for an investor portfolio.