<PAGE> 1
AIM SMALL CAP
OPPORTUNITIES FUND
[AIM LOGO APPEARS HERE] ANNUAL REPORT JULY 31, 1998
<PAGE> 2
----------------------------
AIM SMALL CAP
OPPORTUNIES FUND
For shareholders who seek
long-term growth of capital
by investing in a portfolio
consisting primarily of
small-company stocks which
management believes involve
"special opportunities."
----------------------------
ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT:
o AIM Small Cap Opportunities Fund's performance figures are historical and
reflect reinvestment of all distributions and changes in net asset value.
Unless otherwise indicated, the Fund's performance is computed without a
sales charge.
o When sales charges are included in performance figures, Class A share
performance reflects the maximum 5.50% sales charge, and Class B share
performance reflects the applicable contingent deferred sales charge (CDSC)
for the period involved. The CDSC on Class B shares declines from 5%
beginning at the time of purchase to 0% at the beginning of the seventh
year. The performance of the Fund's Class B shares will differ from that of
Class A shares due to differing fees and expenses.
o The Fund's investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
o Investments that focus their portfolios in stocks of smaller companies may
experience greater volatility than portfolios made up primarily of larger,
more established companies.
o The Fund's portfolio composition is subject to change and there is no
assurance the Fund will continue to hold any particular security.
o Past performance is no guarantee of comparable future results.
ABOUT INDEXES AND OTHER PERFORMANCE BENCHMARKS CITED IN THIS REPORT:
o The unmanaged Russell 2000 Index is generally representative of the
performance of the stocks of small-capitalization companies.
o Russell 2000 Growth Index measures the performance of those Russell 2000
companies with higher price-to-book ratios and higher forecasted growth
values.
o The Dow Jones Industrial Average is a price-weighted average of 30 actively
traded primarily industrial stocks.
o An investment cannot be made in the indexes listed. Unless otherwise
indicated, index results include reinvested dividends and do not reflect
sales charges.
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENTS ARE NOT INSURED
BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY; ARE NOT DEPOSITS OR
OTHER OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK OR ANY AFFILIATE;
AND ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS
OF PRINCIPAL AMOUNT INVESTED.
This report may be distributed only to current shareholders or to persons
who have received a current prospectus of the Fund.
<PAGE> 3
The Chairman's Letter
Dear Fellow Shareholder:
We are pleased to send you this first report for AIM Small
Cap Opportunities Fund. Your Fund began sales on June 29,
[PHOTO OF 1998, during a period of uneven stock-market performance.
Charles T. While large-cap stocks were rallying, small-cap stocks were
Bauer, declining. However, after several major indexes set records
Chairman of on July 17, large-cap stocks also fell sharply amid concerns
the Board of about slowing earnings growth, especially for larger
THE FUND companies. The malaise affecting nearly every segment of the
APPEARS HERE] stock market extended into August, after the reporting period
ended, as investors became concerned about the ongoing
problems in Asia and the economic and political turmoil in
Russia.
In the face of such uncertainty, the best course for
investors is to remain realistic and ready. Even accounting
for the steep drop in equities in August, stocks still have
the potential to produce respectable returns this year. The
long bull market of the 1990s may have fostered unrealistic expectations among
investors, who would do well to remember that the long-term average return for
equities is close to 10% per year.
A well-diversified portfolio is still one of the most effective tools for
coping with shifts in a market's direction because different asset classes and
different national markets tend to move independently of one another. Of course,
your financial consultant remains your best source of information about how to
allocate your investments based on your particular goals and situation.
AIM FURTHER DIVERSIFIES ITS OFFERINGS
Shortly before the close of the reporting period, AIM broadened its offerings to
shareholders through the addition of the GT Global group of mutual funds. During
the next few months you will be receiving more details about this transaction
and the products it adds to The AIM Family of Funds--REGISTERED TRADEMARK--.
This transaction gives you, our shareholders, access to a greater variety of
investment choices through the expanded lineup of AIM funds. A complete list of
the funds now included in the AIM family appears on the back cover of this
report. We encourage you to discuss with your financial consultant how these
funds may fit into your portfolio.
The transaction also helps strengthen AIM's position as a major participant
in the money-management industry worldwide. Such strength will enable us to
continue enlarging both the scope of our fund offerings and our menu of services
for our shareholders. AIM continuously reviews its products and services with a
view to enhancing our ability to help shareholders meet their investment goals.
YOUR FUND MANAGERS COMMENT
On the pages that follow, the managers of your AIM Fund discuss how the Fund
performed during the period covered by this report and give their near-term
market outlook. We hope you will find their discussion informative.
We are pleased to send you this report on your Fund. If you have any
questions or comments, please contact our Client Services department at
800-959-4246 or visit our Web site at www.aimfunds.com. You can access
information about your account on our Web site and also on our automated AIM
Investor Line, 800-246-5463.
Thank you for your continued participation in The AIM Family of
Funds--REGISTERED TRADEMARK--.
Sincerely,
/s/ CHARLES T. BAUER
Charles T. Bauer
Chairman
<PAGE> 4
The Managers' Overview
DESPITE DIFFICULT MARKET ENVIRONMENT,
FUND OFF TO ENCOURAGING START
A roundtable discussion with the Fund management team for AIM Small Cap
Opportunities Fund for the period ended July 31, 1998.
- --------------------------------------------------------------------------------
Q. THE FUND DEBUTED DURING A DIFFICULT ENVIRONMENT FOR SMALL-CAP STOCKS. HOW
DID THE FUND PERFORM?
A. The Fund commenced sales on June 29, 1998, in the midst of a declining
market for small-cap stocks. Despite the difficult market environment, the
Fund's net assets grew rapidly and stood at approximately $192 million at
the end of the reporting period.
The Fund employs an alternative investment strategy that can be adapted
to rising or declining markets. This strategy is designed to cushion the
Fund during a declining market. From inception through July 31, 1998, the
Fund's cumulative total return was -2.40% for both Class A and B
shares--significantly better than the -8.35% total return for the Russell
2000 Growth Index for the same period. We are using the Russell 2000 Growth
Index as a benchmark because it tracks the stocks of companies expected to
experience rapid earnings growth--the type of companies represented in the
Fund's portfolio.
Q. CAN YOU DESCRIBE THE FUND'S INVESTMENT STRATEGY?
A. The Fund can hold both long and short positions. Long positions consist of
stocks that the Fund actually owns. Short positions constitute stocks that
have been borrowed with the intention of selling them and purchasing them at
a lower price. Short positions can comprise up to 25% of the Fund's net
assets.
We believe that earnings drive stock prices. The Fund endeavors to take
advantage of earnings surprises and disappointments. When earnings are
falling, we expect the Fund will have a greater number of short positions.
When earnings are rising, we anticipate that we will have more long
positions in the portfolio. As we are optimistic about the long-term
prospects for small-cap stocks, we anticipate the Fund will generally have a
"long" bias.
The companies represented in the portfolio will reflect the market
capitalization of those found in the Russell 2000 Index. We expect companies
represented in the Fund will have a market-cap range between $50 million and
$2.4 billion. The Fund will be at least 80% invested in the stocks of
companies that we believe represent "special opportunities."
Q. WHAT DO YOU MEAN BY THE TERM "SPECIAL OPPORTUNITIES?"
A. Special opportunities can include:
o Technological advances or discoveries. The Fund may invest in companies
offering new or unique products or services that may create changes in
consumer demand or consumption forecasts.
o Changes in competitive outlook. Significant positive or negative changes
in companies or industries, including changes in the scope or nature of
foreign competition or development of emerging industries, may create a
special opportunity.
o Management changes. The Fund may invest in companies with significant
changes in management policies or corporate structure.
o Significant economic or political events. Changes in foreign and
domestic import trends as well as revisions in tax laws or other
regulations may create investment opportunities.
o Other events. Natural disasters, favorable litigation settlements or
major changes in demographic patterns can also create investment
opportunities.
Q. HOW CAN SHORT SELLING BENEFIT THE FUND?
A. With short sales, we seek to take advantage of an anticipated drop in the
price
A SPECIAL NOTE ABOUT RISK
LEVERAGING AND SHORT SELLING, ALONG WITH OTHER HEDGING STRATEGIES, MAY PRESENT
HIGHER RISKS, BUT ALSO OFFER THE POTENTIAL FOR GREATER REWARDS. SHORT SALES
INVOLVE GREATER RISK IN THAT THEY RELY ON THE MANAGER'S ABILITY TO ACCURATELY
ANTICIPATE THE FUTURE VALUE OF A SECURITY. THE FUND IS NOT A COMPLETE INVESTMENT
PROGRAM AND MAY NOT BE APPROPRIATE FOR ALL INVESTORS. THERE IS NO GUARANTEE THAT
THE INVESTMENT STRATEGIES USED BY THE FUND'S MANAGERS WILL HELP INVESTORS ATTAIN
THEIR GOALS. PLEASE SEE THE PROSPECTUS FOR MORE INFORMATION ABOUT SPECIFIC
INVESTMENT STRATEGIES AND RISKS.
See important fund and index disclosures inside front cover.
2
<PAGE> 5
PORTFOLIO COMPOSITION
As of July 31, 1998, based on net assets
<TABLE>
<CAPTION>
====================================================================================================================================
TOP 10 EQUITY HOLDINGS TOP 10 INDUSTRIES SHORT POSITIONS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1. Shared Medical Systems Corp. 0.71% 1. Computers (Software & Services) 4.99% 1. Tenet Healthcare Corp. (0.31%)
2. Legato Systems, Inc. 0.68 2. Retail (Specialty) 4.06 2. Tektronix, Inc. (0.27)
3. Microchip Technology Inc. 0.67 3. Retail (Specialty-Apparel) 1.98 3. Aetna Inc. (0.27)
4. Helen of Troy Ltd. 0.66 4. Banks (Regional) 1.89 4. Lernout & Hauspie
5. Broadcom Corp. 0.65 5. Electronics (Semiconductors) 1.87 Speech Products N.V. (0.27)
6. Eagle Hardware & Garden 0.62 6. Health Care (Drugs-Generic & Other) 1.87 5. Cybercash, Inc. (0.21)
7. Superior Consultant Holdings 0.60 7. Services (Data Processing) 1.64 6. Melita International Corp. (0.19)
8. Concentra Managed Care 0.60 8. Services (Computer Systems) 1.64
9. Sanmina Corp. 0.59 9. Health Care (Medical Products & Supply) 1.45
10. The Finish Line 0.57 10. Services (Advertising-Marketing) 1.44
Please keep in mind that the Fund's portfolio is subject to change and there is
no assurance the Fund will continue to hold any particular security.
====================================================================================================================================
</TABLE>
of an overvalued stock of a company whose earnings are decelerating.
We sell the borrowed stock when we believe its price will fall, intending to
purchase the same stock at an anticipated lower price. The strategy offers
the potential for protection in a declining market, thereby reducing risk. A
mixed portfolio of long and short positions can potentially produce lower
volatility than an all-long portfolio.
Q. WHAT OTHER INVESTMENT TECHNIQUES CAN THE FUND EMPLOY?
A. We also can use leveraging--borrowing money, typically to purchase
additional securities. Leveraging may magnify changes in the Fund's net
asset value. The Fund may leverage up to one-third of its net assets.
We expect the Fund to close to new investors when it reaches $500
million in assets. When assets reach this point, leveraging will permit us
to buy attractive stocks during market downturns without selling holdings
already in the portfolio.
Q. DURING THE FUND'S BRIEF EXISTENCE, WHAT WERE SOME OF THE MAJOR THEMES IN THE
STOCK MARKET?
A. When the Fund debuted, large-cap stocks were rallying while small-cap stocks
were declining. In the uncertain environment created by the Asian economic
crisis, particularly the worsening
STEERING THE FUND THROUGH ROUGH WATERS
The Fund has the flexibility to adjust the portfolio's long-short ratio in
response to earnings trends. The combination may offer upside potential with
downside protection.
================================================================================
When Earnings are Trending . . . Hypothetical Porfolio Allocation
- --------------------------------------------------------------------------------
Three hypothetical mountain charts Pie chart 1 90% Long
showing upward earnings trend, 10% Short
sideways earnings trend, and Pie chart 2 75%-90% Long
downward earnings trend. 10%-25% Short
Pie chart 3 75% Long
25% Short
================================================================================
See important fund and index disclosures inside front cover.
3
<PAGE> 6
situation in Japan, investors displayed a willingness to pay premium prices
for the highly liquid stocks of the largest companies. In line with this
trend, the Dow Jones Industrial Average (DJIA) climbed to new heights in
mid-July while the Russell 2000 Index continued to decline from the record
it set in April 1998. However, after a number of large companies reported
disappointing earnings, both the DJIA and the Russell 2000 Index plummeted
as the reporting period ended.
Q. HOW DID YOU TAKE ADVANTAGE OF THESE MARKET TRENDS?
A. The market downturn provided us with an excellent opportunity to purchase
the stocks of attractive companies at relatively low prices. The average
earnings growth rate for companies represented in the portfolio was about
35%, considerably better than the single-digit growth rates for many large
companies. Consequently, we are very optimistic about the long-term
prospects for the holdings in the portfolio.
Q. HOW WAS THE FUND POSITIONED?
A. By the end of the reporting period, the Fund was already about 44% invested
in stocks. The Fund owned 151 stocks and had six short positions. About 33%
of the Fund's stock holdings were in the consumer-cyclical and
consumer-staples sectors. Technology stocks comprised about 23% of the
portfolio while health-care and financial-company stocks formed about 13%
and 12%, respectively. We don't expect the Fund's sector weightings to
change drastically over the near term, as these are the primary growth
sectors.
Consumer-cyclical and consumer-staple companies are benefiting from a
vibrant economy, nearly full employment, and rising wages. Technology
companies are getting a boost from increasing demand for more powerful
software, the need to reprogram older computers to recognize the year 2000,
and growth of the internet as a means of communication, commerce, and
entertainment. Health-care companies are benefiting from the increasing
needs of an aging population while falling interest rates have been a plus
for financial stocks.
Q. WHAT ARE SOME OF THE FUND'S TOP HOLDINGS?
A. Stocks that we liked included Shared Medical Systems Corp., Legato Systems,
Inc., Helen of Troy, Ltd., and Broadcom Corp. Shared Medical Systems Corp.
is the nation's second-largest health-care information and services provider
while Legato Systems, Inc., develops and supports network storage management
software products that back up and protect data across corporate computer
networks. Helen of Troy Ltd. is a producer and marketer of personal-care
products while Broadcom Corp. manufactures chips for high-speed data
transmission over cable lines.
Q. WHAT IS YOUR OUTLOOK?
A. In the U.S., we believe the economic conditions are favorable for stocks.
Inflation remains low, and the economy is growing at a reasonable pace.
However, the ongoing problems in Asia and Russia could periodically continue
to have an unsettling effect on the stock market.
Despite the current market preference for large-cap equities, we remain
optimistic about small-cap stocks. Relative to large-cap stocks, the
valuations of small-cap stocks are compelling. And while profits for the
largest companies appear to be gravitating toward the single-digit level,
profits continue to be robust for smaller companies as a group. We believe
if this trend continues small-cap stocks could become more attractive to
investors.
Two Ways to Catch the Earnings Wave
The left side of the curve shows where we seek to buy as a company's earnings
accelerate. As earnings decelerate, we will sell short to potentially profit as
the stock price falls.
================================================================================
We Seek to Buy When a We Seek to Sell Short When a
Company's Earnings Go Up Company's Earnings Go Down
- --------------------------------------------------------------------------------
An illustration of two curves labeled to show when AIM buys--Earning Surprise--
and when AIM sells--Earnings Disappointment.
================================================================================
The purpose of this chart is solely to illustrate the AIM growth-oriented equity
investment process and is not intended to be indicative of the performance of
any security within any AIM fund.
4
<PAGE> 7
SCHEDULE OF INVESTMENTS
July 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-44.21%
AEROSPACE/DEFENSE-0.35%
AAR Corp. 26,700 $ 675,844
- --------------------------------------------------------------
AIR FREIGHT-0.01%
Eagle USA Airfreight, Inc.(a) 600 16,650
- --------------------------------------------------------------
AIRLINES-0.46%
ASA Holdings, Inc. 5,800 246,500
- --------------------------------------------------------------
Atlantic Coast Airlines
Holdings(a) 400 10,550
- --------------------------------------------------------------
COMAIR Holdings, Inc. 20,000 631,250
- --------------------------------------------------------------
888,300
- --------------------------------------------------------------
BANKS (REGIONAL)-1.89%
Bank United Corp.-Class A 17,000 758,625
- --------------------------------------------------------------
First Virginia Banks, Inc. 11,000 604,313
- --------------------------------------------------------------
Golden State Bancorp, Inc.(a) 25,000 689,063
- --------------------------------------------------------------
Southwest Bancorporation of Texas,
Inc.(a) 50,000 893,750
- --------------------------------------------------------------
Sterling Bancshares, Inc. 45,000 675,000
- --------------------------------------------------------------
3,620,751
- --------------------------------------------------------------
BIOTECHNOLOGY-0.10%
ICON plc-ADR(a) (United Kingdom) 5,900 184,375
- --------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE)-0.57%
Citadel Communications Corp.(a) 12,500 275,000
- --------------------------------------------------------------
Heftel Broadcasting Corp.(a) 20,000 815,000
- --------------------------------------------------------------
1,090,000
- --------------------------------------------------------------
CHEMICALS (SPECIALTY)-0.02%
OM Group, Inc. 1,000 37,063
- --------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-0.62%
Anixter International, Inc.(a) 1,000 18,188
- --------------------------------------------------------------
Comverse Technology, Inc.(a) 14,000 714,875
- --------------------------------------------------------------
Dycom Industries, Inc.(a) 13,300 457,188
- --------------------------------------------------------------
1,190,251
- --------------------------------------------------------------
COMPUTERS (HARDWARE)-0.59%
IDX Systems Corp.(a) 20,000 992,500
- --------------------------------------------------------------
Splash Technology Holdings,
Inc.(a) 5,900 134,594
- --------------------------------------------------------------
1,127,094
- --------------------------------------------------------------
COMPUTERS (NETWORKING)-0.65%
Broadcom Corp.(a) 20,000 1,255,000
- --------------------------------------------------------------
COMPUTERS (PERIPHERALS)-0.78%
MICROS Systems, Inc.(a) 27,100 1,016,250
- --------------------------------------------------------------
SMART Modular Technologies,
Inc.(a) 25,000 478,125
- --------------------------------------------------------------
1,494,375
- --------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-4.95%
Aspect Development, Inc.(a) 300 18,300
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (SOFTWARE & SERVICES)-(CONTINUED)
Aspen Technology, Inc.(a) 1,700 $ 45,050
- --------------------------------------------------------------
AVT Corp.(a) 40,800 933,300
- --------------------------------------------------------------
Business Objects S.A.-ADR(a)
(France) 57,100 849,363
- --------------------------------------------------------------
Computer Management Sciences,
Inc.(a) 7,800 189,150
- --------------------------------------------------------------
Concord Communications, Inc. 100 3,450
- --------------------------------------------------------------
Concord EFS, Inc.(a) 30,000 735,000
- --------------------------------------------------------------
Datastream Systems, Inc.(a) 12,700 198,438
- --------------------------------------------------------------
HNC Software, Inc.(a) 20,000 821,250
- --------------------------------------------------------------
Jack Henry & Associates, Inc. 20,000 811,250
- --------------------------------------------------------------
Learning Company, Inc. (The)(a) 30,000 798,750
- --------------------------------------------------------------
Legato Systems, Inc.(a) 30,000 1,305,000
- --------------------------------------------------------------
QRS Corp.(a) 14,300 450,450
- --------------------------------------------------------------
QuadraMed Corp.(a) 35,700 1,044,225
- --------------------------------------------------------------
Rational Software Corp.(a) 65,000 1,072,500
- --------------------------------------------------------------
Secure Computing Corp.(a) 17,300 211,925
- --------------------------------------------------------------
9,487,401
- --------------------------------------------------------------
CONSUMER FINANCE-0.01%
AmeriCredit Corp.(a) 600 20,250
- --------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH)-0.09%
Patterson Dental Co.(a) 5,000 181,250
- --------------------------------------------------------------
ELECTRICAL EQUIPMENT-0.69%
Oak Industries, Inc.(a) 4,800 178,200
- --------------------------------------------------------------
Sanmina Corp.(a) 25,000 1,140,625
- --------------------------------------------------------------
1,318,825
- --------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS)-1.87%
Applied Micro Circuits Corp.(a) 25,000 567,188
- --------------------------------------------------------------
Artisan Components, Inc.(a) 35,000 450,625
- --------------------------------------------------------------
Dallas Semiconductor Corp. 200 6,425
- --------------------------------------------------------------
Level One Communications, Inc.(a) 20,400 453,900
- --------------------------------------------------------------
Micrel, Inc.(a) 15,000 450,000
- --------------------------------------------------------------
Microchip Technology, Inc.(a) 41,900 1,284,497
- --------------------------------------------------------------
PMC-Sierra, Inc.(a) 500 20,438
- --------------------------------------------------------------
Vitesse Semiconductor Corp.(a) 11,000 361,625
- --------------------------------------------------------------
3,594,698
- --------------------------------------------------------------
ENTERTAINMENT-0.36%
SFX Entertainment, Inc.-Class A(a) 16,000 688,000
- --------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-0.55%
NCO Group, Inc.(a) 50,000 1,056,250
- --------------------------------------------------------------
FOODS-0.27%
American Italian Pasta Co.-Class
A(a) 200 6,900
- --------------------------------------------------------------
Earthgrains Co. (The) 15,000 513,750
- --------------------------------------------------------------
520,650
- --------------------------------------------------------------
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FOOTWEAR-0.54%
Stride Rite Corp. 18,300 $ 221,888
- --------------------------------------------------------------
Wolverine World Wide, Inc. 50,000 812,500
- --------------------------------------------------------------
1,034,388
- --------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER)-1.87%
Alpharma, Inc.-Class A 40,000 990,000
- --------------------------------------------------------------
Dura Pharmaceuticals, Inc.(a) 36,000 927,000
- --------------------------------------------------------------
Jones Pharma, Inc. 30,000 954,375
- --------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class
A(a) 20,000 715,000
- --------------------------------------------------------------
3,586,375
- --------------------------------------------------------------
HEALTH CARE (MANAGED CARE)-1.06%
Concentra Managed Care, Inc.(a) 50,000 1,150,000
- --------------------------------------------------------------
Express Scripts, Inc.-Class A(a) 12,000 882,375
- --------------------------------------------------------------
2,032,375
- --------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES)-0.98%
Hooper Holmes, Inc. 35,000 700,000
- --------------------------------------------------------------
Superior Consultant Holdings
Corp.(a) 30,000 1,155,000
- --------------------------------------------------------------
Veterinary Centers of America,
Inc.(a) 1,000 18,875
- --------------------------------------------------------------
1,873,875
- --------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-1.45%
Henry Schein, Inc.(a) 21,000 1,010,625
- --------------------------------------------------------------
Hologic, Inc.(a) 15,100 250,094
- --------------------------------------------------------------
MiniMed, Inc.(a) 20,400 1,035,300
- --------------------------------------------------------------
ResMed, Inc.(a) 500 22,437
- --------------------------------------------------------------
VISX, Inc.(a) 7,500 468,750
- --------------------------------------------------------------
2,787,206
- --------------------------------------------------------------
HOMEBUILDING-0.32%
American Homestar Corp.(a) 30,800 604,450
- --------------------------------------------------------------
HOUSEWARES-1.01%
Helen of Troy Ltd.(a) 55,600 1,257,950
- --------------------------------------------------------------
Windmere-Durable Holdings Inc.(a) 25,000 684,375
- --------------------------------------------------------------
1,942,325
- --------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-0.01%
Penn Treaty American Corp.(a) 600 16,950
- --------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE-0.79%
EVEREN Capital Corp. 31,000 862,187
- --------------------------------------------------------------
Hambrecht & Quist Group 20,700 657,225
- --------------------------------------------------------------
1,519,412
- --------------------------------------------------------------
INVESTMENT MANAGEMENT-0.01%
Knight/Trimark Group, Inc.(a) 700 12,075
- --------------------------------------------------------------
LEISURE TIME (PRODUCTS)-0.39%
Bally Total Fitness Holding
Corp.(a) 30,000 744,375
- --------------------------------------------------------------
MACHINERY (DIVERSIFIED)-0.35%
Applied Power, Inc.-Class A 20,000 662,500
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MANUFACTURING (SPECIALIZED)-0.37%
Zebra Technologies Corp.(a) 22,000 $ 713,625
- --------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES-0.43%
Mail-Well, Inc.(a) 45,000 832,500
- --------------------------------------------------------------
PERSONAL CARE-0.51%
Twinlab Corp.(a) 23,500 975,250
- --------------------------------------------------------------
PUBLISHING-0.25%
IDG Books Worldwide, Inc.(a) 30,300 484,800
- --------------------------------------------------------------
RESTAURANTS-1.30%
Apple South, Inc. 20,000 250,000
- --------------------------------------------------------------
CEC Entertainment, Inc.(a) 10,000 267,500
- --------------------------------------------------------------
CKE Restaurants, Inc. 25,000 934,375
- --------------------------------------------------------------
Papa John's International, Inc.(a) 30,000 1,038,750
- --------------------------------------------------------------
2,490,625
- --------------------------------------------------------------
RETAIL (BUILDING SUPPLIES)-0.62%
Eagle Hardware & Garden, Inc.(a) 55,000 1,182,500
- --------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS)-0.29%
Rex Stores Corp.(a) 50,000 565,625
- --------------------------------------------------------------
RETAIL (DISCOUNTERS)-0.76%
Ames Department Stores, Inc.(a) 25,000 534,375
- --------------------------------------------------------------
99 Cents Only Stores(a) 22,500 922,500
- --------------------------------------------------------------
1,456,875
- --------------------------------------------------------------
RETAIL (HOME SHOPPING)-0.00%
DM Management Co.(a) 400 7,350
- --------------------------------------------------------------
RETAIL (SPECIALTY)-4.06%
Finish Line, Inc. (The)-Class A(a) 50,700 1,096,387
- --------------------------------------------------------------
Footstar, Inc.(a) 12,600 466,988
- --------------------------------------------------------------
Hibbett Sporting Goods, Inc.(a) 5,000 173,750
- --------------------------------------------------------------
Just for Feet, Inc.(a) 24,100 557,312
- --------------------------------------------------------------
Linens 'n Things, Inc.(a) 30,000 843,750
- --------------------------------------------------------------
Lithia Motors, Inc.-Class A(a) 50,000 850,000
- --------------------------------------------------------------
Michaels Stores, Inc.(a) 500 16,375
- --------------------------------------------------------------
Musicland Stores Corp.(a) 36,300 537,694
- --------------------------------------------------------------
O'Reilly Automotive, Inc.(a) 30,000 1,061,250
- --------------------------------------------------------------
Party City Corp.(a) 600 13,575
- --------------------------------------------------------------
Pier 1 Imports, Inc. 63,000 980,437
- --------------------------------------------------------------
Renters Choice, Inc.(a) 12,700 328,613
- --------------------------------------------------------------
Sunglass Hut International,
Inc.(a) 1,700 13,600
- --------------------------------------------------------------
Trans World Entertainment Corp.(a) 500 19,687
- --------------------------------------------------------------
Williams-Sonoma, Inc.(a) 25,000 826,562
- --------------------------------------------------------------
7,785,980
- --------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-1.98%
Abercrombie & Fitch Co.-Class A(a) 7,900 366,856
- --------------------------------------------------------------
AnnTaylor Stores Corp.(a) 20,200 425,462
- --------------------------------------------------------------
Buckle, Inc. (The)(a) 34,200 825,075
- --------------------------------------------------------------
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (SPECIALTY-APPAREL)-(CONTINUED)
Chico's Fas, Inc.(a) 25,000 $ 362,500
- --------------------------------------------------------------
Goody's Family Clothing, Inc.(a) 29,900 773,662
- --------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a) 23,600 746,350
- --------------------------------------------------------------
Pacific Sunwear of California,
Inc.(a) 10,000 295,000
- --------------------------------------------------------------
3,794,905
- --------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING)-1.44%
Abacus Direct Corp.(a) 15,400 662,200
- --------------------------------------------------------------
Acxiom Corp.(a) 400 9,150
- --------------------------------------------------------------
ADVO, Inc.(a) 5,500 169,812
- --------------------------------------------------------------
Catalina Marketing Corp.(a) 5,000 246,875
- --------------------------------------------------------------
Healthworld Corp.(a) 30,000 465,000
- --------------------------------------------------------------
Lamar Advertising Co.(a) 25,000 951,562
- --------------------------------------------------------------
Metris Companies Inc. 300 22,200
- --------------------------------------------------------------
Professional Detailing, Inc.(a) 10,000 230,000
- --------------------------------------------------------------
2,756,799
- --------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-1.04%
ABR Information Services, Inc.(a) 25,000 437,500
- --------------------------------------------------------------
Cerner Corp.(a) 700 19,862
- --------------------------------------------------------------
G & K Services, Inc.-Class A 10,000 497,500
- --------------------------------------------------------------
MSC Industrial Direct Co.,
Inc.-Class A(a) 25,000 746,875
- --------------------------------------------------------------
Sylvan Learning Systems, Inc.(a) 10,000 283,750
- --------------------------------------------------------------
1,985,487
- --------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS)-1.64%
Insight Enterprises, Inc.(a) 20,000 965,000
- --------------------------------------------------------------
InterVoice, Inc.(a) 1,900 35,269
- --------------------------------------------------------------
Leasing Solutions, Inc.(a) 25,600 795,200
- --------------------------------------------------------------
Shared Medical Systems Corp. 20,000 1,357,500
- --------------------------------------------------------------
3,152,969
- --------------------------------------------------------------
SERVICES (DATA PROCESSING)-1.64%
CSG Systems International, Inc.(a) 23,000 983,250
- --------------------------------------------------------------
FactSet Research Systems, Inc.(a) 20,000 735,000
- --------------------------------------------------------------
MedQuist, Inc.(a) 30,000 693,750
- --------------------------------------------------------------
National Data Corp. 18,000 741,375
- --------------------------------------------------------------
3,153,375
- --------------------------------------------------------------
SERVICES (EMPLOYMENT)-0.34%
Labor Ready, Inc.(a) 20,400 650,250
- --------------------------------------------------------------
On Assignment, Inc.(a) 100 3,587
- --------------------------------------------------------------
653,837
- --------------------------------------------------------------
SERVICES (FACILITIES & ENVIRONMENTAL)-0.41%
Cornell Corrections, Inc.(a) 30,000 461,250
- --------------------------------------------------------------
Tetra Tech, Inc.(a) 15,000 322,500
- --------------------------------------------------------------
783,750
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SPECIALTY PRINTING-0.01%
Consolidated Graphics, Inc.(a) 400 $ 23,525
- --------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-0.43%
Amdocs Limited(a) 17,300 236,794
- --------------------------------------------------------------
International Telecommunication Data Systems,
Inc.(a) 20,000 588,750
- --------------------------------------------------------------
825,544
- --------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-0.55%
ITC DeltaCom, Inc.(a) 22,000 1,050,500
- --------------------------------------------------------------
TELEPHONE-0.36%
GeoTel Communications Corp.(a) 15,500 689,750
- --------------------------------------------------------------
TEXTILES (APPAREL)-0.76%
Nautica Enterprises, Inc.(a) 13,800 355,782
- --------------------------------------------------------------
Quicksilver, Inc.(a) 30,100 538,037
- --------------------------------------------------------------
Russell Corp. 17,400 568,762
- --------------------------------------------------------------
1,462,581
- --------------------------------------------------------------
TEXTILES (HOME FURNISHINGS)-0.32%
Mohawk Industries, Inc.(a) 20,000 622,500
- --------------------------------------------------------------
WIRELESS EQUIPMENT-0.27%
Carrier Access Corp. 32,000 516,000
- --------------------------------------------------------------
WASTE MANAGEMENT-0.82%
American Disposal Services,
Inc.(a) 20,000 767,500
- --------------------------------------------------------------
KTI, Inc.(a) 33,800 811,200
- --------------------------------------------------------------
1,578,700
- --------------------------------------------------------------
Total Common Stocks (Cost $88,796,847) 84,808,685
- --------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
OPTIONS PURCHASED-0.08%
COMMUNICATIONS EQUIPMENT-0.04%
Ciena, Corp.-Sept. 90 calls 77,500 70,234
- --------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-0.04%
America Online Inc.-Aug. 120 calls 10,000 73,125
- --------------------------------------------------------------
Yahoo!, Inc.-Aug. 185 calls 300 3,300
- --------------------------------------------------------------
76,425
- --------------------------------------------------------------
Total Options Purchased (Cost
$243,882) 146,659
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
U.S. TREASURY SECURITIES-36.32%
U.S. TREASURY BILLS-36.32%(b)
4.835%, 09/24/98(c) $51,565,000 51,195,816
- --------------------------------------------------------------
4.862%, 09/24/98(c) 18,605,000 18,482,951
- --------------------------------------------------------------
Total U.S. Treasury Securities
(Cost $69,668,674) 69,678,767
- --------------------------------------------------------------
Total Investments, Excluding
Repurchase Agreements (Cost
$158,709,403) 154,634,111
- --------------------------------------------------------------
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
REPURCHASE AGREEMENTS-28.02%(d)
Dean Witter Reynolds, Inc., 5.67%,
08/03/98(e) $25,000,000 $ 25,000,000
- --------------------------------------------------------------
Goldman, Sachs & Co., 5.66%,
08/03/98(f) 28,740,077 28,740,077
- --------------------------------------------------------------
Total Repurchase Agreements
(Cost $53,740,077) 53,740,077
- --------------------------------------------------------------
TOTAL INVESTMENTS-108.63% 208,374,188
- --------------------------------------------------------------
LIABILITIES LESS OTHER ASSETS-(8.63)% (16,550,005)
- --------------------------------------------------------------
NET ASSETS-100.00% $191,824,183
==============================================================
</TABLE>
SECURITIES SOLD SHORT
July 31, 1998
<TABLE>
<CAPTION>
SHARES
SOLD MARKET
SECURITIES SOLD SHORT(g) SHORT VALUE
- ------------------------ ------ ----------
<S> <C> <C>
Aetna, Inc. 7,500 $ 519,844
Cybercash, Inc. 35,000 395,937
Lernout & Hauspie Speech Products
N.V. 10,000 516,250
Melita International Corp. 30,000 361,875
Tektronix, Inc. 19,000 520,125
Tenet Healthcare Corp. 20,000 598,750
----------
$2,912,781
----------
</TABLE>
Notes to Schedule of Investments:
(a) Non-income producing securities.
(b) U.S. Treasury bills are traded on a discount basis. In such cases the
interest rate shown represents the rate of discount paid or received at the
time of purchase by the Fund.
(c) A portion of the principal balance was pledged as collateral to cover margin
requirements for open future contracts. See Note 7.
(d) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value is at least 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(e) Joint repurchase agreement entered into 07/31/98, with a maturing value of
$300,141,750. Collateralized by $306,718,000 U.S. Treasury obligations 0% to
8.00% due 08/06/98 to 06/15/44 with an aggregate market value at 07/31/98 of
$306,000,958.
(f) Joint repurchase agreement entered into 07/31/98, with a maturing value of
$800,377,333. Collateralized by $657,534,000 U.S. Treasury obligations 0% to
14.25% due 10/31/98 to 02/15/27 with an aggregate market value at 07/31/98
of $816,817,098.
(g) Collateral on short sales was segregated by the Fund in the amount of
$4,423,077 which represents 152% of market value.
Abbreviation:
ADR - American Depositary Receipt
See Notes to Financial Statements.
8
<PAGE> 11
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, excluding repurchase
agreements, at market value (cost
$158,709,403) $154,634,111
- ---------------------------------------------------------
Repurchase agreements 53,740,077
- ---------------------------------------------------------
Cash 1,443,012
- ---------------------------------------------------------
Receivables for:
Investments sold 254,792
- ---------------------------------------------------------
Investments sold short 2,979,830
- ---------------------------------------------------------
Fund shares sold 6,763,892
- ---------------------------------------------------------
Dividends and interest 13,581
- ---------------------------------------------------------
Investment for deferred compensation plan 751
- ---------------------------------------------------------
Other assets 26,129
- ---------------------------------------------------------
Total assets 219,856,175
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 22,943,225
- ---------------------------------------------------------
Fund shares reacquired 572,146
- ---------------------------------------------------------
Options written 70,781
- ---------------------------------------------------------
Deferred compensation plan 751
- ---------------------------------------------------------
Variation margin 1,374,450
- ---------------------------------------------------------
Market value of securities sold short
(proceeds from sales $2,979,830) 2,912,781
- ---------------------------------------------------------
Accrued advisory fees 86,671
- ---------------------------------------------------------
Accrued administrative services fees 3,400
- ---------------------------------------------------------
Accrued distribution fees 54,253
- ---------------------------------------------------------
Accrued trustees' fees 842
- ---------------------------------------------------------
Accrued transfer agent fees 10,291
- ---------------------------------------------------------
Accrued operating expenses 2,401
- ---------------------------------------------------------
Total liabilities 28,031,992
- ---------------------------------------------------------
Net assets applicable to shares outstanding $191,824,183
=========================================================
NET ASSETS:
Class A $107,539,648
=========================================================
Class B $ 84,284,535
=========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 11,018,174
=========================================================
Class B 8,638,461
=========================================================
Class A:
Net asset value and redemption price per
share $ 9.76
=========================================================
Offering price per share:
(Net asset value of $9.76 divided by
94.50%) $ 10.33
=========================================================
Class B:
Net asset value and offering price per
share $ 9.76
=========================================================
</TABLE>
STATEMENT OF OPERATIONS
For the period June 29, 1998
(date operations commenced)
through July 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 306,109
- ---------------------------------------------------------
Dividends 4,870
- ---------------------------------------------------------
Total investment income 310,979
- ---------------------------------------------------------
EXPENSES:
Advisory fees 86,671
- ---------------------------------------------------------
Administrative services fees 3,400
- ---------------------------------------------------------
Custodian fees 528
- ---------------------------------------------------------
Transfer agent fees-Class A 5,743
- ---------------------------------------------------------
Transfer agent fees-Class B 6,496
- ---------------------------------------------------------
Trustees' fees 2,618
- ---------------------------------------------------------
Distribution fees-Class A 17,437
- ---------------------------------------------------------
Distribution fees-Class B 36,852
- ---------------------------------------------------------
Other 4,248
- ---------------------------------------------------------
Total expenses 163,993
- ---------------------------------------------------------
Less: Expenses paid indirectly (1,563)
- ---------------------------------------------------------
Net expenses 162,430
- ---------------------------------------------------------
Net investment income 148,549
- ---------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, SECURITIES SOLD SHORT, FUTURES AND OPTION
CONTRACTS:
Net realized gain (loss) from:
Investment securities 1,182,721
- ---------------------------------------------------------
Option contracts purchased 34,658
- ---------------------------------------------------------
1,217,379
- ---------------------------------------------------------
Net unrealized appreciation (depreciation)
of:
Investment securities (4,075,292)
- ---------------------------------------------------------
Securities sold short 67,049
- ---------------------------------------------------------
Futures contracts (3,348,202)
- ---------------------------------------------------------
Option contracts written 64,440
- ---------------------------------------------------------
(7,292,005)
- ---------------------------------------------------------
Net gain (loss) from investment
securities, securities sold short,
futures and option contracts (6,074,626)
- ---------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $(5,926,077)
=========================================================
</TABLE>
See Notes to Financial Statements.
9
<PAGE> 12
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD JUNE 29, 1998 (DATE OPERATIONS COMMENCED) THROUGH JULY 31, 1998
<TABLE>
<S> <C>
OPERATIONS:
Net investment income $ 148,549
- --------------------------------------------------------------------------
Net realized gain from investment securities and option
contracts purchased 1,217,379
- --------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities, securities sold short, futures and option
contracts written (7,292,005)
- --------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (5,926,077)
- --------------------------------------------------------------------------
Share transactions-net:
Class A 110,724,862
- --------------------------------------------------------------------------
Class B 86,925,398
- --------------------------------------------------------------------------
Net increase in net assets 191,724,183
- --------------------------------------------------------------------------
NET ASSETS:
Beginning of period 100,000
- --------------------------------------------------------------------------
End of period $191,824,183
==========================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $197,747,885
- --------------------------------------------------------------------------
Undistributed net investment income 150,924
- --------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, securities sold short, futures and option
contracts purchased 1,217,379
- --------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities, securities sold short, futures and option
contracts written (7,292,005)
- --------------------------------------------------------------------------
$191,824,183
==========================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
July 31, 1998
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Small Cap Opportunities Fund (the "Fund") is a series portfolio of AIM
Special Opportunities Funds (the "Trust"). The Trust is a Delaware business
trust registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of one
investment portfolio. The Fund commenced operations on June 29, 1998. The Fund
currently offers two different classes of shares: Class A shares and Class B
shares. Class A shares are sold with a front-end sales charge. Class B shares
are sold with a contingent deferred sales charge. Matters affecting each
portfolio or class are 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 capital
appreciation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
A. Security Valuations -- A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular day,
the security is valued at the mean between the closing bid and asked prices
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 mean between the last bid and asked prices based upon quotes furnished
by market makers for such securities. If a mean is not available, as is the
case in some foreign markets, the closing bid will be used absent a last
sales price. Each security reported on the NASDAQ National Market System is
valued at the last sales price on the valuation date or, absent a last sales
price, at the mean of the closing bid and asked prices. 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 at the mean between last bid and asked prices based upon
quotes furnished by independent sources. Securities for which market
quotations either are not readily available or are questionable are valued at
fair value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity are
valued at amortized cost which approximates market value.
B. Accounting for Securities Sold Short -- When the Fund sells common stock
short, an amount equal to the proceeds of the sale is recorded as an asset.
This asset is offset by a liability
10
<PAGE> 13
(representing the borrowed security) recorded on the books of the Fund at the
market value of the common stock determined each day in accordance with the
procedures for security valuations discussed in "A" above. The Fund's risk is
that the value of the security will increase rather than decline and thus an
unrealized loss will be recorded. When the Fund closes out a short position
by delivering the stock sold short, the Fund will realize a gain or loss and
the liability related to such short position will be eliminated. The Fund is
required to segregate cash or securities as collateral to secure its
obligation to the broker who delivered such securities to the buyer on behalf
of the Fund. The amount of the Fund's net assets that will at any time be
segregated as collateral deposits will not exceed 25%.
C. Securities Transactions, Investment Income and Distributions -- Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income, dividend expense on
short sales and distributions to shareholders are recorded on the ex-dividend
date. On July 31, 1998, $2,375 was reclassified from undistributed net
investment income to paid in capital. The reclassification was made in order
to comply with the requirements of the American Institute of Certified Public
Accountants Statement of Position 93-2. Net Assets of the Fund were
unaffected by the reclassification discussed above.
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.
E. Call Options -- The Fund may write and buy call options, including securities
index options. Options written by the Fund normally will have expiration
dates between three and nine months from the date written. The exercise price
of a call option may be below, equal to, or above the current market value of
the underlying security at the time the option is written. When the Fund
writes a call option, an amount equal to the premium received by the Fund is
recorded as an asset and an equivalent liability. The amount of the liability
is subsequently "marked-to-market" to reflect the current market value of the
option written. The current market value of a written option is the mean
between the last bid and asked prices on that day. If a written call option
expires on the stipulated expiration date, or if the Fund enters into a
closing purchase transaction, the fund realizes a gain (or a loss if the
closing purchase transaction exceeds the premium received when the option was
written) without regard to any unrealized gain or loss on the underlying
security, and the liability related to such option is extinguished. If a
written option is exercised, the Fund realizes a gain or a loss from the sale
of the underlying security and the proceeds of the sale are increased by the
premium originally received.
A call option gives the purchaser of such option the right to buy, and the
writer (the Fund) the obligation to sell, the underlying security at the
stated exercise price during the option period. The purchaser of a call
option has the right to acquire the security which is the subject of the call
option at any time during the option period. During the option period, in
return for the premium paid by the purchaser of the option, the Fund has
given up the opportunity for capital appreciation above the exercise price
should the market price of the underlying security increase, but has retained
the risk of loss should the price of the underlying security decline. During
the option period, the Fund may be required at any time to deliver the
underlying security against payment of the exercise price. This obligation is
terminated upon the expiration of the option period or at such earlier time
at which the Fund effects a closing purchase transaction by purchasing (at a
price which may be higher than that received when the call option was
written) a call option identical to the one originally written.
An option on a securities index gives the holder the right to receive a
cash "exercise settlement amount" equal to the difference between the
exercise price of the option and the value of the underlying stock index on
the exercise date, multiplied by a fixed "index multiplier." A securities
index fluctuates with changes in the market values of the securities included
in the index. In the purchase of securities index options the principal risk
is that the premium and transaction costs paid by the Fund in purchasing an
option will be lost if the changes in the level of the index do not exceed
the cost of the option. In writing securities index options, the principal
risk is that the Fund could bear a loss on the options that would be only
partially offset (or not offset at all) by the increased value or reduced
cost of hedged securities. Moreover, in the event the Fund were unable to
close an option it had written, it might be unable to sell the securities
used as cover.
The Fund will not write options if, immediately thereafter, the aggregate
value of the securities underlying all such options, determined as of the
dates such options were written, would exceed 50% of the total assets of the
Fund.
The Fund will not purchase options if, at the time of the investment, the
aggregate premiums paid for outstanding options will exceed 25% of the Fund's
total assets.
F. Put Options -- The Fund may purchase and write put options including
securities index options. By purchasing a put option, the Fund obtains the
right (but not the obligation) to sell the options' underlying instrument at
a fixed strike price. In return for this right, a Fund pays an option
premium. The option's underlying instrument may be a security, securities
index, or a futures contract. Put options may be used by a Fund to hedge
securities it owns by locking in a minimum price at which the Fund can sell.
If security prices fall, the put option could be exercised to offset all or a
portion of the Fund's resulting losses. At the same time, because the maximum
the Fund has at risk is the cost of the option, purchasing put options does
not eliminate the potential for the Fund to profit from an increase in the
value of the securities hedge. The Fund may write put options to earn
additional income in the form of option premiums if it expects the price of
the underlying securities to remain stable or rise during the option period
so that the option will not be exercised. The risk in this strategy is that
the price of the underlying securities may decline by an amount greater than
the premium received. The Fund will not write options if, immediately
thereafter, the aggregate value of the
11
<PAGE> 14
securities underlying all such options, determined as of the dates such
options were written, would exceed 50% of the total assets of the Fund. The
Fund will not purchase options if, at the time of the investment, the
aggregate premiums paid for outstanding options will exceed 25% of the Fund's
total assets.
G. Stock Index Futures Contracts -- The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities or cash as collateral for the
account of the broker (the Fund's agent in acquiring the futures position).
During the period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to market"
on a daily basis to reflect the market value of the contracts at the end of
each day's trading. Variation margin payments are made or received depending
upon whether unrealized gains or losses are incurred. When the contracts are
closed, the Fund recognizes a realized gain or loss equal to the difference
between the proceeds from, or cost of, the closing transaction and the Fund's
basis in the contract. Risks include the possibility of an illiquid market
and the change in the value of the contracts may not correlate with changes
in the value of the Fund's portfolio being hedged.
H. Expenses -- Distribution and transfer agency expenses directly attributable
to a class of shares are charged to that class' operations. All other
expenses which are attributable to more than one class are allocated between
the classes.
NOTE 2- ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 1% of the
Fund's average daily net assets.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to reimburse AIM for certain administrative costs incurred in providing
accounting services to the Fund. During the period June 29, 1998 (date
operations commenced) through July 31, 1998, AIM was reimbursed $3,400 for such
services.
The Fund, pursuant to a transfer agency and shareholder service agreement, has
agreed to pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer
agency shareholder services to the Fund. During the period June 29, 1998 (date
operations commenced) through July 31, 1998, AFS was paid $12,969 for such
services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted
distribution plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A shares and Class C shares (the "Class A and C Plan"), and the
Fund's Class B shares (the "Class B Plan") (collectively, the "Plans"). The
Fund, pursuant to the Class A and C Plan, pays AIM Distributors compensation at
an annual rate of 0.35% of the average daily net assets attributable to the
Class A shares and 1.00% of the average daily net assets attributable to the
Class C shares. The Fund pursuant to the Class B Plan, pays AIM Distributors
compensation at an annual rate of 1.00% of the average daily net assets
attributable to the Class B 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. As of July 31, 1998, Class C shares
are not currently available. During the period June 29, 1998 (date operations
commenced) through July 31, 1998, the Class A and Class B shares paid AIM
Distributors $17,437 and $36,852, respectively, as compensation under the Plans.
AIM Distributors received commissions of $626,915 from sales of the Class A
shares of the Fund during the period June 29, 1998 (date operations commenced)
through July 31, 1998. 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. Certain officers and trustees of the Trust are officers and directors of
AIM, AIM Distributors and AFS.
NOTE 3-INDIRECT EXPENSES
During the period June 29, 1998 (date operations commenced) through July 31,
1998, the Fund received reductions in transfer agency fees from AFS (an
affiliate of AIM) and reductions in custodian fees of $69 and $1,494,
respectively under expense offset arrangements. The effect of the above
arrangements resulted in a reduction of the Fund's total expenses of $1,563
during the period June 29, 1998 (date operations commenced) through July 31,
1998.
NOTE 4-TRUSTEES' FEES
Trustees' fees represent remuneration paid or accrued to each trustee who is not
an "interested person" of AIM. The Trust may invest trustees' fees, if so
elected by a trustee, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 5-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the period June 29, 1998 (date operations
commenced) through July 31, 1998 was $91,439,138 and $3,825,012, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of July 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of:
Investment securities $ 1,263,811
- ---------------------------------------------------------
Securities sold short 79,716
- ---------------------------------------------------------
Aggregate unrealized (depreciation) of:
Investment securities (5,340,929)
- ---------------------------------------------------------
Securities sold short (12,667)
- ---------------------------------------------------------
Net unrealized appreciation (depreciation)
of investment securities $(4,010,069)
=========================================================
</TABLE>
Cost of investments for tax purposes is $158,711,229.
Proceeds from securities sold short for tax purposes is $2,979,830.
12
<PAGE> 15
NOTE 6-SHARE INFORMATION
Changes in shares outstanding during the period June 29, 1998 (date operations
commenced) through July 31, 1998 were as follows:
<TABLE>
<CAPTION>
JULY 31, 1998
-------------------------
SHARES AMOUNT
---------- ------------
<S> <C> <C>
Sold:
Class A 11,173,989 $112,285,297
- -------------------------------------------------------------------
Class B 8,700,960 87,549,103
- -------------------------------------------------------------------
Reacquired:
Class A (155,815) (1,560,435)
- -------------------------------------------------------------------
Class B (62,499) (623,705)
- -------------------------------------------------------------------
19,656,635 $197,650,260
===================================================================
</TABLE>
NOTE 7-FUTURES CONTRACTS
On July 31, 1998, $3,294,000 principal amount of U.S. Treasury obligations were
pledged as collateral to cover margin requirements for open futures contracts.
Open futures contracts at July 31, 1998 were as follows:
<TABLE>
<CAPTION>
UNREALIZED
NO. OF APPRECIATION
CONTRACT CONTRACTS MONTH COMMITMENT (DEPRECIATION)
-------- --------- ----- ---------- --------------
<S> <C> <C> <C> <C>
S&P 500 Index 238 Sept. Buy $(3,348,202)
- ------------------------------------------------------------------
</TABLE>
NOTE 8-CALL OPTION CONTRACTS
Transactions in call options written during the period June 29, 1998 (date
operations commenced) through July 31, 1998 are summarized as follows:
<TABLE>
<CAPTION>
CALL OPTION CONTRACTS
----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
---------- ---------
<S> <C> <C>
Beginning of period -- $ --
- -------------------------------------------------------------
Written 775 71,774
- -------------------------------------------------------------
Closed -- --
- -------------------------------------------------------------
Expired -- --
- -------------------------------------------------------------
End of period 775 $71,774
- -------------------------------------------------------------
</TABLE>
Open call option contracts written at July 31, 1998 are summarized as follows:
<TABLE>
<CAPTION>
JULY 31,
1998
CONTRACT STRIKE NUMBER OF PREMIUM MARKET UNREALIZED
ISSUE MONTH PRICE CONTRACTS RECEIVED VALUE APPRECIATION
----- -------- ------ --------- -------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Tellabs, Inc. Aug. 90 775 $71,774 $14,531 $57,243
- --------------------------------------------------------------------------------------------
</TABLE>
NOTE 9-PUT OPTION CONTRACTS
Transactions in put options contracts written during the period June 29, 1998
(date operations commenced) through July 31, 1998 are summarized as follows:
<TABLE>
<CAPTION>
PUT OPTION CONTRACTS
--------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- --------
<S> <C> <C>
Beginning of period -- $ --
- -----------------------------------------------------------
Written 100 63,448
- -----------------------------------------------------------
End of period 100 $63,448
- -----------------------------------------------------------
</TABLE>
Open put option contracts written at July 31, 1998 were as follows:
<TABLE>
<CAPTION>
JULY 31,
1998
CONTRACT STRIKE NUMBER OF PREMIUM MARKET UNREALIZED
ISSUE MONTH PRICE CONTRACTS RECEIVED VALUE APPRECIATION
----- -------- ------ --------- -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
S&P 500 Index Aug. 1040 100 $63,448 $56,251 $7,197
- ------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 16
NOTE 10-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A and Class B
outstanding during the period June 29, 1998 (date operations commenced) through
July 31, 1998.
<TABLE>
<CAPTION>
CLASS A CLASS B
-------- -------
<S> <C> <C>
Net asset value, beginning of period $ 10.00 $ 10.00
- ------------------------------------------------------------ -------- -------
Income from investment operations:
Net investment income 0.02(a) 0.01(a)
- ------------------------------------------------------------ -------- -------
Net gains (losses) on securities (both realized and
unrealized) (0.26) (0.25)
- ------------------------------------------------------------ -------- -------
Total from investment operations (0.24) (0.24)
- ------------------------------------------------------------ -------- -------
Net asset value, end of period $ 9.76 $ 9.76
============================================================ ======== =======
Total return(b) (2.40)% (2.40)%
============================================================ ======== =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $107,540 $84,285
============================================================ ======== =======
Ratio of expenses to average net assets 1.59%(c) 2.30%(c)
============================================================ ======== =======
Ratio of net investment income to average net assets 2.00%(c) 1.29%(c)
============================================================ ======== =======
Portfolio turnover rate 13% 13%
============================================================ ======== =======
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct sales charges and is not annualized for periods less than
one year.
(c) Ratios are annualized and based on average net assets of $55,102,897 and
$40,760,109 for Class A and Class B shares, respectively.
14
<PAGE> 17
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders of
AIM Small Cap Opportunities Fund:
We have audited the accompanying statement of assets and liabilities of the AIM
Small Cap Opportunities Fund (a series of AIM Special Opportunities Funds)
including the schedule of investments, as of July 31, 1998, and the related
statement of operations, changes in net assets, and financial highlights for the
period June 29, 1998 (date operations commenced) through July 31, 1998. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 July
31, 1998, 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 statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
AIM Small Cap Opportunities Fund as of July 31, 1998, the results of its
operations, changes in its net assets and financial highlights for the period
June 29, 1998 (date operations commenced) through July 31, 1998, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
September 4, 1998
Houston, Texas
15
<PAGE> 18
Trustees & Officers
<TABLE>
<CAPTION>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
<S> <C> <C>
Charles T. Bauer Charles T. Bauer 11 Greenway Plaza
Chairman Chairman Suite 100
A I M Management Group Inc. Houston, TX 77046
Robert H. Graham
Bruce L. Crockett President INVESTMENT ADVISOR
Director
ACE Limited; John J. Arthur A I M Advisors, Inc.
Formerly Director, President, and Senior Vice President and Treasurer 11 Greenway Plaza
Chief Executive Officer Suite 100
COMSAT Corporation Carol F. Relihan Houston, TX 77046
Senior Vice President and Secretary
Owen Daly II TRANSFER AGENT
Director Gary T. Crum
Cortland Trust Inc. Senior Vice President A I M Fund Services, Inc.
P.O. Box 4739
Edward K. Dunn Jr. Jonathan C. Schoolar Houston, TX 77210-4739
Chairman, Mercantile Mortgage Corp.; Senior Vice President
Formerly Vice Chairman and President, CUSTODIAN
Mercantile-Safe Deposit & Trust Co.; and Dana R. Sutton
President, Mercantile Bankshares Vice President and Assistant Treasurer State Street Bank
and Trust Company
Jack Fields Melville B. Cox 225 Franklin Street
Chief Executive Officer Vice President Boston, MA 02111
Texana Global, Inc.;
Formerly Member Renee A. Friedli COUNSEL TO THE FUND
of the U.S. House of Representatives Assistant Secretary
Ballard Spahr
Carl Frischling P. Michelle Grace Andrews & Ingersoll, LLP
Partner Assistant Secretary 1735 Market Street
Kramer, Levin, Naftalis & Frankel Philadelphia, PA 19103
Jeffrey H. Kupor
Robert H. Graham Assistant Secretary COUNSEL TO THE TRUSTEES
President and Chief Executive Officer
A I M Management Group Inc. Nancy L. Martin Kramer, Levin, Naftalis & Frankel
Assistant Secretary 919 Third Avenue
Lewis F. Pennock New York, NY 10022
Attorney Ofelia M. Mayo
Assistant Secretary DISTRIBUTOR
Ian W. Robinson
Consultant; Formerly Executive Lisa A. Moss A I M Distributors, Inc.
Vice President and Assistant Secretary 11 Greenway Plaza
Chief Financial Officer Suite 100
Bell Atlantic Management Kathleen J. Pflueger Houston, TX 77046
Services, Inc. Assistant Secretary
AUDITOR
Louis S. Sklar Samuel D. Sirko
Executive Vice President Assistant Secretary KPMG Peat Marwick LLP
Hines Interests 700 Louisiana
Limited Partnership Stephen I. Winer NationsBank Building
Assistant Secretary Houston, TX 77002
Mary J. Benson
Assistant Treasurer
</TABLE>
16
<PAGE> 19
HOW AIM MAKES INVESTING
EASY FOR YOU
o INVESTMENT MINIMUMS. You can get your investment program started for
$10,000. Subsequent investments can be made for only $1,000.
o AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR CAPITAL GAINS. Distributions may
be received in cash or reinvested in the Fund free of charge. Over time, the
power of compounding can significantly increase the value of your assets.
o AUTOMATIC INVESTMENT PLAN. You may build your investment by regularly
purchasing additional shares. Pre-authorized checks for $1,000 or more can
be drafted monthly from your personal checking account.
o EASY ACCESS TO YOUR MONEY. Your shares may be redeemed at net asset value
any day the New York Stock Exchange is open. The price of shares sold may be
more or less than their original cost, depending on market conditions.
o SYSTEMATIC WITHDRAWAL PLAN. You may elect to receive checks of at least $50
monthly or quarterly through a systematic withdrawal plan.
o EXCHANGE PRIVILEGE. As your goals change, you may exchange all or part of
your assets for those of other funds within the same share class of The AIM
Family of Funds--REGISTERED TRADEMARK--. The exchange privilege may be
modified or discontinued for any of the AIM Funds.
o TOLL-FREE ACCESS. Current shareholders can call our AIM Investor Line at
800-246-5463 for 24-hour-a-day account information. Or, of course, you may
contact your financial consultant for assistance.
o www.aimfunds.com. As a current shareholder, you can check account balances
24 hours a day over the Internet. State-of-the-art encryption lets you send
us questions that include confidential information without the fear of
eavesdropping, tampering or forgery.
--------------------
Current shareholders
can call our
AIM Investor Line at
800-246-5463
for 24-hour-a-day
account information.
--------------------
<PAGE> 20
THE AIM FAMILY OF FUNDS--Registered Trademark--
<TABLE>
<S> <C> <C>
GROWTH FUNDS INTERNATIONAL GROWTH FUNDS
AIM Aggressive Growth Fund(1) AIM Advisor International Value Fund
AIM Blue Chip Fund AIM Asian Growth Fund
AIM Capital Development Fund AIM Developing Markets Fund(2)
AIM Constellation Fund AIM Emerging Markets Fund(2)
AIM Mid Cap Equity Fund(2), (A) AIM Europe Growth Fund(2)
AIM Select Growth Fund(3) AIM European Development Fund
[PHOTO OF AIM Small Cap Growth Fund(2), (B) AIM International Equity Fund
11 GREENWAY PLAZA AIM Small Cap Opportunities Fund AIM International Growth Fund(2)
APPEARS HERE] AIM Value Fund AIM Japan Growth Fund(2)
AIM Weingarten Fund AIM Latin American Growth Fund(2)
AIM New Pacific Growth Fund(2)
GROWTH & INCOME FUNDS
GLOBAL GROWTH FUNDS
AIM Advisor Flex Fund
AIM Advisor Large Cap Value Fund AIM Global Aggressive Growth Fund
AIM Advisor MultiFlex Fund AIM Global Growth Fund
AIM Advisor Real Estate Fund AIM Worldwide Growth Fund(2)
AIM Balanced Fund
AIM Basic Value Fund(2), (C) GLOBAL GROWTH & INCOME FUNDS
AIM Charter Fund
AIM Global Growth & Income Fund(2)
INCOME FUNDS AIM Global Utilities Fund
AIM Floating Rate Fund(2) GLOBAL INCOME FUNDS
AIM High Yield Fund
AIM Income Fund AIM Emerging Markets Debt Fund(2), (D)
AIM Intermediate Government Fund AIM Global Government Income Fund(2)
AIM Limited Maturity Treasury Fund AIM Global Income Fund
AIM Strategic Income Fund(2)
TAX-FREE INCOME FUNDS
THEME FUNDS
AIM High Income Municipal Fund
AIM Municipal Bond Fund AIM Global Consumer Products and Services Fund(2)
AIM Tax-Exempt Bond Fund of Connecticut AIM Global Financial Services Fund(2)
AIM Tax-Free Intermediate Fund AIM Global Health Care Fund(2)
AIM Global Infrastructure Fund(2)
MONEY MARKET FUNDS AIM Global Resources Fund(2)
AIM Global Telecommunications Fund(2)
AIM Dollar Fund(2) AIM Global Trends Fund(2), (E)
AIM Money Market Fund
AIM Tax-Exempt Cash Fund
</TABLE>
(1) Aggressive Growth Fund was closed to new investors on June 5, 1997.
(2) Effective May 29, 1998, AIM Advisors, Inc. became advisor to the former GT
Global Funds. (3) On May 1, 1998, AIM Growth Fund was renamed AIM Select Growth
Fund. (A) On September 8, 1998, AIM Mid Cap Growth Fund was renamed AIM Mid Cap
Equity Fund. (B) On September 8, 1998, AIM Small Cap Equity Fund was renamed AIM
Small Cap Growth Fund. (C) On September 8, 1998, AIM America Value Fund was
renamed AIM Basic Value Fund. (D) On September 8, 1998, AIM Global High Income
Fund was renamed AIM Emerging Markets Debt Fund. (E) On September 8, 1998, AIM
New Dimension Fund was renamed AIM Global Trends Fund. For more complete
information about any AIM Fund(s), including sales charges and expenses, ask
your financial consultant or securities dealer for a free prospectus(es). Please
read the prospectus(es) carefully before you invest or send money.
AIM Management Group Inc. has provided leadership in the mutual fund industry
since 1976 and managed approximately $101 billion in assets for more than 5.2
million shareholders, including individual investors, corporate clients, and
financial institutions, as of June 30, 1998. The AIM Family of Funds--Registered
Trademark-- is distributed nationwide, and AIM today is the ninth-largest mutual
fund complex in the U.S. in assets under management, according to Strategic
Insight, an independent mutual fund monitor.
INVEST WITH DISCIPLINE--Registered Trademark--
