<PAGE> 1
(cover letter)
AIM INTERMEDIATE
GOVERNMENT FUND
[AIM LOGO APPEARS HERE] ANNUAL REPORT DECEMBER 31, 1997
<PAGE> 2
(cover photo)
----------------------------------------
AIM INTERMEDIATE
GOVERNMENT FUND
For shareholders
who seek
a high level of
current income
and relative price stability.
The Fund invests in
a portfolio
of U.S. government securities.
----------------------------------------
ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT:
o AIM Intermediate Government 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 4.75% sales charge, and Class B and Class C
share performance reflects the applicable contingent deferred sales charge
(CDSC) for the period involved. The CDSC on Class B shares declines from 5%
beginning at the time of purchase to 0% at the beginning of the seventh
year. The CDSC on Class C shares is 1% for the first year after purchase.
The performance of the Fund's Class B and Class C shares will differ from
that of Class A shares due to differing fees and expenses.
o Because Class C shares have been offered for less than one year (since
8/4/97), all total return figures for Class C shares reflect cumulative
total return that has not been annualized.
o During the year ended 12/31/97, the Fund paid distributions on Class A,
Class B, and Class C shares of $0.63, $0.55 and $0.23 per share,
respectively.
o The 30-day yield is calculated on the basis of a formula defined by the SEC.
The formula is based on the portfolio's potential earnings from dividends,
interest, yield-to-maturity or yield-to-call of the bonds in the portfolio,
net of all expenses and expressed on an annualized basis.
o The Fund's 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 Past performance cannot guarantee comparable future results.
ABOUT INDEXES AND OTHER PERFORMANCE BENCHMARKS CITED IN THIS REPORT:
o The Lehman Brothers Intermediate Government Bond Index is an unmanaged
composite generally considered representative of intermediate U.S. Treasury
and U.S. Government agency securities.
o The unmanaged Lipper Intermediate U.S. Government Funds Index represents an
average of the performance of the largest government securities funds. It is
compiled by Lipper Analytical Services, Inc., an independent mutual funds
performance monitor. Results shown reflect reinvestment of dividends.
o The Salomon Brothers Mortgage Index is the mortgage component of the Salomon
Brothers Broad Investment-Grade Bond Index. It is composed of 30- and
15-year Government National Mortgage Assn., Federal Home Loan Mortgage
Corp., and Federal National Mortgage Assn. Securities.
o The Consumer Price Index (CPI) is a measure of change in consumer prices as
determined by the U.S. Bureau of Labor Statistics.
o An investment cannot be made in any index 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:
1997 proved an eventful year in securities markets. The Dow
[PHOTO OF Jones Industrial Average reached its all-time high--and also
Charles T. had its largest one-day point drop ever, though not its
Bauer, largest percentage drop. Volatility was unabated, and we
Chairman of experienced the first 10% stock market correction in the U.S.
the Board of since 1991.
THE FUND Never dull and occasionally unsettling, 1997 was also a
APPEARS HERE] very good year for many investments. For an unprecedented
third year in a row, domestic equities rose more than 20%.
Late in the year, in the uncertainty brought on by events in
Asia, bond markets, especially the U.S. Treasury market,
fulfilled their usual role as relative safe havens, and a
bull market in bonds took hold. Overseas, though Asian
markets plummeted, Europe thrived.
Market expectations performed an about-face during the
year. Worry about the inflationary potential of vigorous
economic growth became concern about the potential negative
impact of Asia's financial crisis. At fiscal year end, there
was no consensus about how serious or widespread this impact would be.
An interview with your Fund's managers appears on the following pages. They
discuss their investment strategies, how your Fund performed in this context,
and their outlook for the future.
In uncertain times like these, your financial consultant remains your best
source for information on market trends and for advice on how to invest
strategically rather than emotionally. We encourage you to visit your financial
consultant regularly to make sure your chosen investments still suit your goals,
risk tolerance, and time horizon.
INVESTOR EDUCATION EVENTS
In addition to professional guidance, every investor needs fundamental
information about the saving and investing choices offered by the marketplace.
AIM has always championed investor education, convinced a more knowledgeable
shareholder is a better customer. A great deal of investment information will be
available during two upcoming events, and we hope our shareholders will
participate in and learn from them to the greatest extent possible.
First, from March 29 through April 4, the Securities and Exchange Commission
(SEC) will sponsor Saving and Investing Education Week. As the SEC points out,
financial markets are more stable when investors are confident in them, and
knowledge is a major confidence builder. The week's theme is "Get the facts.
It's your money. It's your future." The aim is to inform citizens about the
saving and investment possibilities available and to build understanding about
how one's financial needs and goals change throughout one's life. The week's
awareness and education events will culminate with a national investors town
meeting at satellite-linked locations across the nation. You can find out more
from the SEC's Web site at www.sec.gov.
The second event concerns citizens' financial planning for retirement, a
subject of growing urgency as the population ages and the solvency of the Social
Security system is increasingly debatable. In July, the first National Summit on
Retirement Savings will be held at the White House. Under the auspices of the
Department of Labor, working through public-private partnership, the summit's
goal is to advance the public's knowledge of retirement savings through
development of a broad-based education program and to develop recommendations
for public/private action to promote private retirement savings among American
workers.
Look for further information on both of these investor education events in
the national and local press.
We are pleased to send you this report on your Fund. Please contact our
Client Services department at 800-959-4246 if you have questions or comments.
Automated information about your account is available 24 hours a day on the AIM
Investor Line, 800-246-5463. Account information and much more can be found on
our Web site, www.aimfunds.com.
Sincerely,
/s/ CHARLES T. BAUER
Charles T. Bauer
Chairman
------------------------------------------
In uncertain times like these,
your financial consultant
remains your best source
for information on market trends
and for advice on
how to invest strategically
rather than emotionally.
------------------------------------------
<PAGE> 4
The Managers' Overview
FUND PROVIDES ATTRACTIVE CURRENT INCOME
AND RELATIVE STABILITY DESPITE MARKET VOLATILITY
A roundtable discussion with the Fund management team for AIM Intermediate
Government Fund for the fiscal year ended December 31,1997.
- --------------------------------------------------------------------------------
Q. ALTHOUGH FINANCIAL MARKETS WERE TURBULENT IN 1997, IT WAS A GOOD YEAR FOR
BONDS. WHAT CONTRIBUTED TO THEIR PERFORMANCE?
A. The major factor determining Treasury performance was the lowering of
inflation expectations. Inflation and price data were positive all year, and
much of the positive performance by bonds occurred during the second half of
1997 as it became evident that the Federal Reserve Board (the Fed) was
showing no signs of tightening monetary policy. During the fourth quarter,
Treasury prices edged higher as all focus was on trouble abroad and its
potentially positive effect on inflation and growth.
================================================================================
CURRENT YIELD COMPARISON
- --------------------------------------------------------------------------------
As of 12/31/97
Fund Class A 30-Day SEC Yield 5.71%
2-Year U.S. Treasury Note 5.65%
6-Month CD 4.50%
5.22% was the 30-day yield for the Fund's Class B and Class C shares. Government
securities, such as U.S. Treasury bills, notes, and bonds offer a high degree of
safety and are guaranteed as to the timely payment of principal and interest if
held to maturity. Bank certificates of deposit, which are insured by the FDIC
for up to $100,000, are short-term investments that pay fixed principal and
interest, but are subject to fluctuating rollover rates and early withdrawal
penalties. CD income is calculated using the six-month annualized average
monthly CD rate reported by the Bank Rate Monitor. Fund shares are not insured,
and their value will vary with market conditions.
================================================================================
Q. HOW DID THE FUND DO IN THIS ENVIRONMENT?
A. Your Fund continued to provide attractive yields compared to the appropriate
benchmarks. As of December 31,1997, the Fund's 30-day SEC yield was 5.71% on
Class A shares and 5.22% for Class B and Class C shares, compared to a 5.65%
yield for two-year Treasury notes. The Fund's 30-day distribution rate was
6.66% (Class A shares) 5.84% (Class B shares), and 5.85% (Class C shares).
In addition, the Fund's Class A shares had an annual price volatility
of 3.8%, less than that of the five-year Treasury note, which had volatility
of 3.97%.
The Fund's average annual total return for Class A shares was 9.07%,
outpacing the 8.22% total return of comparable funds in the Lipper
Intermediate U.S. Government Funds Index. Average annual total return for
Class B shares was 8.16%. Class C shares produced cumulative total return
of 3.64% from their inception 8/4/97 through 12/31/97.
Q. THE REPORTING PERIOD WAS CHARACTERIZED BY LOW INFLATION, LOW INTEREST RATES
AND A VOLATILE STOCK MARKET. HOW DID THOSE FACTORS AFFECT BOND INVESTMENTS?
A. News at mid-year that the Consumer Price Index had risen 0.1%--half the
increase expected by analysts--combined with a record six consecutive
declines in producer prices, encouraged the Fed to avoid tightening monetary
policy. Borrowing costs actually declined slightly during the remainder of
the year as inflation levels remained low. In addition, investors looking
for greater diversification amid the volatility of the stock market turned
to bonds.
Q. WHAT ADJUSTMENTS DID THE FUND MAKE IN THE PORTFOLIO OVER THE PAST 12 MONTHS?
A. The largest single investment category in the Fund's portfolio is
mortgage-backed obligations. The mortgage index staged another very strong
performance in 1997, beating duration-matched Treasuries by over 1.3%, after
outperforming in 1996 by over 1%. Despite falling U.S. interest rates, the
mortgage-backed obligations sector performed well as prepayments remained
tame and volatility declined. Despite the fact that interest rates generally
declined during 1997, particularly during the second half of the year,
prepayments were generally muted in 1997. The 30-year mortgage rate began
the year at 7.67%, gradually fell most of the year, and reached a level of
6.99% by the end of December.
Demand from a broader investor base re-emerged in the mortgage market
in 1997, another positive contributor to performance.
All of this outperformance came in the first half of the year. During
the second half of the year, as expectations of lower inflation and lower
interest rates began to be prominent in the market, the Fund moved to reduce
mortgage exposure in anticipation of an increase in mortgage prepayments and
refinancings.
The Fund also positioned itself for the continued flattening of the
yield curve by pursuing a barbell strategy of holding both short- and long-
dated securities. The benchmark 30-year Treasury yield declined 72 basis
points to 5.92%, and the curve from the two-year Treasury note to the 30-
year Treasury bond flattened 49 basis points to end the year at 28 basis
points. (A basis point is one one-hundredth of a percentage point.) Two main
factors contributing to the flattening were:
See important fund and index disclosures inside front cover.
2
<PAGE> 5
================================================================================
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
As of 12/31/97
Mortgage-Backed Obligations 57.4%
U.S. Treasury Obligations 23.5%
U.S. Agency Obligations 10.4%
Cash Equivalents 8.7%
================================================================================
================================================================================
BREAKDOWN OF
MORTGAGE-BACKED OBLIGATIONS
- --------------------------------------------------------------------------------
Government National Mortgage Assn. 42.97%
Federal National Mortgage Assn. 38.86
Federal Home Loan Mortgage Corp. 18.17
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.
================================================================================
first, data showing decreasing inflation in the U.S., and second, money moving
from emerging markets into long-term U.S. Treasury securities. The barbell
portfolio structure was well suited to this environment.
Q. DO YOU THINK MORTGAGE RE-FINANCINGS WILL HAVE A NEGATIVE IMPACT ON FUND
PERFORMANCE IN COMING MONTHS?
A. Thus far the impact has been minimal for three reasons. First, well over
half the mortgage-backed securities held by the Fund are owned below par,
which means we will realize a gain when mortgage refinancings occur on these
securities. Second, the last time we saw an environment like today's was in
1993. At that time it made sense for 75% of homeowners' existing mortgages
to be refinanced. Today estimates are that it makes sense for only 30% of
existing mortgages to be refinanced. Finally, and even more important, many
of the refinancings thus far this year have been of adjustable rate
mortgages taken out in 1993, and the Fund does not hold any adjustable rate
mortgages.
Although we currently do not expect prepayments to reach 1993 levels,
we are cautiously monitoring the market as a significant further drop in the
10-year Treasury could ignite a further wave of homeowners to refinance.
Q. WAS THERE ANY IMPACT ON THE FUND FROM THE DECLINE IN LONG-TERM INTEREST
RATES LATE IN 1997?
A. The Fund was positively affected by the decline in long-term interest rates.
Although the Fund maintains an average maturity of between three and 10
years, the Fund held a core position of long-maturity Treasury securities.
Thirty-year securities had a total return of 15.42% for 1997.
Q. WHAT IMPORTANCE DOES DIVERSIFICATION PLAY IN THE COMPOSITION OF THE FUND'S
PORTFOLIO?
A. The Fund invests only in debt securities issued, guaranteed or backed by the
U.S. government and its agencies. However, within those parameters,
achieving diversification of the Fund's portfolio is a key to successful
performance.
Having broad exposure among different government markets allows us to
participate in those areas that are performing best. For instance, in 1993,
the intermediate Treasury market outperformed the mortgage market by about
2.6%. In 1994, there was almost an exact reversal of performance in those
two markets. In 1995 and 1996, those two sectors had similar returns. And in
1997, the mortgage market outperformed again by about 1.3%.
The emphasis in the portfolio is to fine tune the amount allocated to
each of those sectors, but to always maintain a significant allocation to
all sectors of the government market.
Q. THE FUND IS A LITTLE OVER 10 YEARS OLD. HAS ITS INVESTMENT STRATEGY CHANGED
SINCE ITS INCEPTION?
A. The Fund's investment strategy remains the same as it was a decade ago--to
offer a balanced investment approach by striving to provide greater
consistency and lower volatility than benchmarks like the Salomon Brothers
Mortgage Index. While the Fund maintains an average maturity of less than
10 years, the Fund's goal is to compete with the yield of the 30-year
Treasury bond while maintaining the lower volatility of the five-year
Treasury note. The Fund's Class A shares achieved that goal in 1997.
Q. WHAT IS YOUR OUTLOOK FOR THE GOVERNMENT BOND MARKET?
A. 1997 was the year of what Fed Chair-man Alan Greenspan dubbed "the new
paradigm": strong growth, high productivity, full employment, and low
inflation. 1998 brings new challenges as the market begins to question
whether most of the good news is behind us and how much longer this ideal
environment can last.
On the positive side for the bond market, the financial difficulties
Asian countries are experiencing is ultimately deflationary, with higher
trade deficits and downward pressure on wages, especially in the
manufacturing sector. It is too early to tell how big the deflationary
impact will be on the U.S. The vastly improved U.S. budget deficit is more
good news for the market as we can expect reduced Treasury supply.On the
negative side, the unemployment rate is continuing to decline, which
tradition-ally has signaled inflation. At a minimum, the effects of Asian
developments will not be apparent for several months and the Fed will
probably remain prudent in leaving rates unchanged until the effects are
known.
See important fund and index disclosures inside front cover.
3
<PAGE> 6
Long-Term Performance
AIM INTERMEDIATE GOVERNMENT FUND VS. BENCHMARK INDEX
The chart below compares your Fund's Class A shares to a benchmark index. It is
intended to give you a general idea of how your Fund performed compared to the
government bond market over the period 4/28/87-12/31/97. It is important to
understand the difference between your Fund and an index. Your Fund's total
return is shown with a sales charge and includes fund expenses and management
fees. An index measures the performance of a hypothetical portfolio, in this
case the Lehman Intermediate Government Bond Index. Unlike your Fund, an index
is not managed; therefore, there are no sales charges, expenses, or fees. You
cannot invest in an index. But if you could buy all the securities that make up
a particular index, you would incur expenses that would affect the return on
your investment.
GROWTH OF A $10,000 INVESTMENT
4/28/87-12/31/97
(In thousands)
================================================================================
AIM Intermediate Government Lehman Brothers Intermediate
Fund, Class A Shares Government Bond Index
- --------------------------------------------------------------------------------
4/28/97 $9,524 $10,000
12/87 9,922 10,683
12/88 10,560 11,202
12/89 11,752 12,421
12/90 12,855 13,831
12/91 14,524 15,470
12/92 15,432 17,014
12/93 16,524 18,247
12/94 15,955 18,040
12/95 18,552 20,484
12/96 18,989 21,218
12/97 20,711 22,770
================================================================================
Past performance cannot guarantee comparable future results.
================================================================================
AVERAGE ANNUAL TOTAL RETURNS
As of 12/31/97, including sales charges
CLASS A SHARES
1 Year 3.92%*
5 Years 5.03
10 Years 7.12
Inception (4/28/87) 7.06
*9.07% excluding sales charge
CLASS B SHARES
1 Year 3.16%**
Inception (9/7/93) 4.20
**8.16% excluding CDSC
CLASS C SHARES
Inception (8/4/97) 2.64%***
***Total return provided is cumulative
total return that has not been annualized.
================================================================================
Source: Towers Data Systems HYPO --Registered trademark--; Lehman Brothers.
Your Fund's total return includes sales charges, expenses, and management fees.
The performance of the Fund's Class B and Class C shares will differ from that
of Class A shares due to differing fees and expenses. For Fund performance
calculations and descriptions of the index cited on this page, please refer to
the inside front cover.
4
<PAGE> 7
For Consideration
THE ROTH IRA: THE POWER TO KEEP MORE
Contribute After-Tax Dollars Now . . . So You Can Get Federally Tax-Free Savings
Later
A new and potentially more powerful type of IRA--the Roth IRA--became
available on January 1, 1998. What makes it more powerful? The Roth IRA
gives you the opportunity to keep more of what you earn.
Are you eligible to open a Roth IRA? The answer is yes if you or your
spouse has earned income for the tax year for which you want to make the
contribution, and your adjusted gross income is below $110,000 if you are a
single tax filer, $160,000 if you file jointly.
TWO KEY ROTH IRA BENEFITS:
TAX-FREE AND PENALTY-FREE WITHDRAWALS
o Of earnings after five years. Earnings on your Roth IRA are federally tax-
free if your Roth IRA account has been open for five years and you are at
least 59 1/2 years old, or in the case of death or disability. You may also
use up to $10,000 of your earnings to buy a first home (after five years).
o Of contributions at any time. For instance, if you make annual contributions
of $2,000 for the next three years, you may take out up to $6,000 and use
that money for any purpose.
HOW YOU MIGHT PUT BOTH BENEFITS TO WORK FOR YOU
Here's an example of how you may take full advantage of a Roth IRA. You are
39 1/2 years old. You contribute $2,000 after-tax annually in your Roth IRA
every year for 20 years, earning an average annual return of 10%. After 20
years, your account has grown to $126,005. Now at age 59 1/2 you can begin
taking withdrawals and pay no federal income tax or penalty on any of your
$126,005. Or you can keep your money invested and take it out whenever you
need it.
THE ROTH IRA: TO CONVERT OR NOT TO CONVERT
Can you convert your Traditional IRA to a Roth IRA? The answer is yes if you
meet these requirements:
You must pay taxes on the amount you convert. If you convert in 1998,
you can spread your tax payments over the next four years. This four-year
allowance will not be available after December 31, 1998.
You cannot convert to a Roth IRA if you are married and file your tax
return separately, or if your annual gross income is over $100,000.
================================================================================
SOME ROTH IRA CONVERSION
GUIDELINES
- --------------------------------------------------------------------------------
If you can check most of these boxes, converting your Traditional IRA to a Roth
IRA may make sense for you.
o You have assets outside your retirement savings with which you can easily
afford to pay the taxes due when you convert.
o You have 10 years or more before you retire. The longer you invest tax-free,
the more you benefit.
o Your tax rate will probably be higher in retirement than it is now. If so,
you'll pay less taxes now to convert than you would pay at retirement if you
withdrew from a traditional IRA.
o You plan to convert in 1998. On January 1, 1999, the ability to spread tax
payments over four years disappears.
o You want to keep making contributions after age 70 1/2 and may wish to pass
your IRA assets on to your heirs after your death.
================================================================================
ROTH IRA (graphic)
Calculator &
Analyzer
The Roth IRA Analyzer & Calculator at AIM's Internet Web site--
www.aimfunds.com-- can help you determine your IRA eligibility status and
whether it makes sense for you to convert an existing IRA into a Roth IRA.
MAKE YOUR IRA CONVERSION DECISION A TRULY
INFORMED ONE
Talk to your financial consultant, who knows your specific needs and goals.
You may also wish to talk with a tax adviser.
This discussion does not constitute tax advice. Your tax adviser can provide
guidance concerning your particular situation.
5
<PAGE> 8
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. GOVERNMENT AGENCY SECURITIES-78.59%
FEDERAL HOME LOAN BANK-4.73%
Debentures
5.97%, 12/11/00 $ 5,000,000 $ 5,023,950
- ---------------------------------------------------------------
7.31%, 07/06/01 4,000,000 4,184,040
- ---------------------------------------------------------------
7.36%, 07/01/04 2,800,000 3,007,676
- ---------------------------------------------------------------
12,215,666
- ---------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP. ("FHLMC")-12.08%
Pass through certificates
9.00%, 12/01/05 to 04/01/25 8,165,358 8,644,311
- ---------------------------------------------------------------
8.00%, 07/01/06 to 12/01/06 29,966 30,968
- ---------------------------------------------------------------
8.50%, 07/01/07 to 12/01/08 4,956,860 5,221,726
- ---------------------------------------------------------------
10.50%, 09/01/09 to 01/01/21 2,991,415 3,294,400
- ---------------------------------------------------------------
7.00%, 11/01/10 to 04/01/11 2,065,329 2,107,877
- ---------------------------------------------------------------
6.50%, 02/01/11 4,314,857 4,343,162
- ---------------------------------------------------------------
10.00%, 11/01/11 to 02/01/16 37,850 41,059
- ---------------------------------------------------------------
12.00%, 02/01/13 24,920 28,487
- ---------------------------------------------------------------
9.50%, 04/01/25 7,005,688 7,525,573
- ---------------------------------------------------------------
31,237,563
- ---------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION ("FNMA")-33.20%
Debentures
8.625%, 11/10/04 3,500,000 3,655,785
- ---------------------------------------------------------------
8.50%, 02/01/05 4,500,000 4,709,745
- ---------------------------------------------------------------
7.875%, 02/24/05 3,000,000 3,325,620
- ---------------------------------------------------------------
Medium term notes
5.97%, 07/31/00 6,000,000 6,024,660
- ---------------------------------------------------------------
Pass through certificates
6.24%, 02/01/06 4,418,679 4,441,479
- ---------------------------------------------------------------
8.50%, 01/01/07 to 03/01/07 36,079 37,488
- ---------------------------------------------------------------
6.625%, 02/01/07 4,466,185 4,620,491
- ---------------------------------------------------------------
7.50%, 06/01/10 to 03/01/27 29,622,511 30,434,149
- ---------------------------------------------------------------
7.00%, 05/01/11 to 10/01/12 11,489,189 11,684,575
- ---------------------------------------------------------------
9.50%, 07/01/16 to 08/01/22 3,004,005 3,234,923
- ---------------------------------------------------------------
8.00%, 04/01/25 to 07/01/26 11,933,045 12,363,889
- ---------------------------------------------------------------
STRIPS(a)
7.37%, 10/09/19 5,000,000 1,305,900
- ---------------------------------------------------------------
85,838,704
- ---------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
("GNMA")-28.58%
Pass through certificates
9.00%, 10/15/08 to 06/15/21 $ 6,514,942 $ 7,076,255
- ---------------------------------------------------------------
9.50%, 06/15/09 to 03/15/23 8,033,006 8,736,245
- ---------------------------------------------------------------
10.00%, 11/15/09 to 07/15/24 4,076,462 4,457,737
- ---------------------------------------------------------------
11.00%, 12/15/09 to 12/15/15 190,254 213,174
- ---------------------------------------------------------------
13.50%, 07/15/10 to 04/15/15 435,562 516,352
- ---------------------------------------------------------------
12.50%, 11/15/10 217,080 252,965
- ---------------------------------------------------------------
13.00%, 01/15/11 to 05/15/15 421,209 493,168
- ---------------------------------------------------------------
12.00%, 01/15/13 to 07/15/15 742,181 850,681
- ---------------------------------------------------------------
10.50%, 07/15/13 to 02/15/16 241,000 266,606
- ---------------------------------------------------------------
8.00%, 03/15/23 to 06/15/27 6,200,612 6,441,766
- ---------------------------------------------------------------
6.50%, 01/22/28 TBA(b) 45,000,000 44,585,159
- ---------------------------------------------------------------
73,890,108
- ---------------------------------------------------------------
Total U.S. Government Agency
Securities 203,182,041
- ---------------------------------------------------------------
U.S. TREASURY SECURITIES-27.18%
U.S. Treasury Notes & Bonds-25.73%
5.625%, 11/30/99 6,000,000 5,997,360
- ---------------------------------------------------------------
6.125%, 12/31/01 10,000,000 10,140,200
- ---------------------------------------------------------------
6.00%, 07/31/02 5,000,000 5,056,000
- ---------------------------------------------------------------
7.00%, 07/15/06 4,000,000 4,319,520
- ---------------------------------------------------------------
6.125%, 08/15/07 14,500,000 14,906,290
- ---------------------------------------------------------------
7.25%, 05/15/16 6,500,000 7,404,345
- ---------------------------------------------------------------
7.50%, 11/15/16 5,500,000 6,420,370
- ---------------------------------------------------------------
8.125%, 08/15/19 4,000,000 5,008,120
- ---------------------------------------------------------------
6.375%, 08/15/27 2,500,000 2,638,350
- ---------------------------------------------------------------
6.125%, 11/15/27 4,500,000 4,625,055
- ---------------------------------------------------------------
66,515,610
- ---------------------------------------------------------------
U.S. Treasury STRIPS(a)-1.45%
6.77%, 11/15/08 4,000,000 2,116,240
- ---------------------------------------------------------------
6.79%, 11/15/18 5,750,000 1,640,705
- ---------------------------------------------------------------
3,756,945
- ---------------------------------------------------------------
Total U.S. Treasury
Securities 70,272,555
- ---------------------------------------------------------------
Total Investments (excluding
Repurchase Agreement) 273,454,596
- ---------------------------------------------------------------
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
REPURCHASE AGREEMENT-10.09%(c)
Goldman Sachs & Co., 6.53%,
01/02/98(d) $26,089,190 $ 26,089,190
- ---------------------------------------------------------------
TOTAL INVESTMENTS-115.86% 299,543,786
- ---------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-(15.86%) (41,000,580)
- ---------------------------------------------------------------
NET ASSETS-100.00% $ 258,543,206
===============================================================
</TABLE>
Notes to Schedule of Investments:
(a) STRIPS 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.
(b) At 12/31/97, the cost of securities purchased on a when-issued basis
totalled $44,354,688. These securities are also subject to dollar roll
transactions. See Note I section C of Notes to Financial Statements.
(c) 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 as being 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.
(d) Joint repurchase agreement entered into 12/31/97 with a maturing value of
$900,326,500. Collateralized by $856,643,000 U.S. Government obligations, 0%
to 14% due 01/08/98 to 08/15/23 with an aggregate market value at 12/31/97
of $918,902,583.
Abbreviations:
TBA -- To Be Announced
See Notes to Financial Statements.
7
<PAGE> 10
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$290,539,341) $299,543,786
- ---------------------------------------------------------
Receivables for:
Fund shares sold 1,820,448
- ---------------------------------------------------------
Interest 2,545,894
- ---------------------------------------------------------
Investment for deferred compensation plan 27,011
- ---------------------------------------------------------
Other assets 229,658
- ---------------------------------------------------------
Total assets 304,166,797
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 44,354,688
- ---------------------------------------------------------
Fund shares reacquired 410,205
- ---------------------------------------------------------
Dividends 406,499
- ---------------------------------------------------------
Deferred compensation plan 27,011
- ---------------------------------------------------------
Accrued advisory fees 104,069
- ---------------------------------------------------------
Accrued administrative service fees 5,387
- ---------------------------------------------------------
Accrued distribution fees 203,620
- ---------------------------------------------------------
Accrued transfer agent fees 32,966
- ---------------------------------------------------------
Accrued operating expenses 79,146
- ---------------------------------------------------------
Total liabilities 45,623,591
- ---------------------------------------------------------
Net assets applicable to shares outstanding $258,543,206
=========================================================
NET ASSETS:
Class A $167,426,799
=========================================================
Class B $ 89,265,162
=========================================================
Class C $ 1,851,245
=========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 17,706,225
=========================================================
Class B 9,436,436
=========================================================
Class C 196,010
=========================================================
Class A:
Net asset value and redemption price per
share $ 9.46
=========================================================
Offering price per share:
(Net asset value of $9.46 divided
by 95.25%) $ 9.93
=========================================================
Class B:
Net asset value and offering price per
share $ 9.46
=========================================================
Class C:
Net asset value and offering price per
share $ 9.44
=========================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $19,191,667
- ---------------------------------------------------------
EXPENSES:
Advisory fees 1,174,166
- ---------------------------------------------------------
Administrative service fees 70,736
- ---------------------------------------------------------
Custodian fees 51,111
- ---------------------------------------------------------
Distribution fees -- Class A 405,373
- ---------------------------------------------------------
Distribution fees -- Class B 810,246
- ---------------------------------------------------------
Distribution fees -- Class C 3,829
- ---------------------------------------------------------
Interest (Note C) 278,331
- ---------------------------------------------------------
Transfer agent fees -- Class A 241,066
- ---------------------------------------------------------
Transfer agent fees -- Class B 120,445
- ---------------------------------------------------------
Transfer agent fees -- Class C 565
- ---------------------------------------------------------
Trustees' fees 9,912
- ---------------------------------------------------------
Other 166,284
- ---------------------------------------------------------
Total expenses 3,332,064
- ---------------------------------------------------------
Less: Expenses paid indirectly (3,621)
- ---------------------------------------------------------
Net expenses 3,328,443
- ---------------------------------------------------------
Net investment income 15,863,224
- ---------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES:
Net realized gain (loss) from investment
securities (73,291)
- ---------------------------------------------------------
Net unrealized appreciation of investment
securities 4,443,700
- ---------------------------------------------------------
Net gain on investment securities 4,370,409
- ---------------------------------------------------------
Net increase in net assets resulting from
operations $20,233,633
=========================================================
</TABLE>
See Notes to Financial Statements.
8
<PAGE> 11
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 15,863,224 $ 16,155,081
- --------------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investment securities (73,291) (4,339,042)
- --------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities 4,443,700 (6,405,094)
- --------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 20,233,633 5,410,945
- --------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (10,575,295) (11,114,092)
- --------------------------------------------------------------------------------------------
Class B (4,595,241) (3,966,734)
- --------------------------------------------------------------------------------------------
Class C (19,501) --
- --------------------------------------------------------------------------------------------
Return of capital:
Class A (430,314) (712,857)
- --------------------------------------------------------------------------------------------
Class B (214,788) (292,831)
- --------------------------------------------------------------------------------------------
Class C (713) --
- --------------------------------------------------------------------------------------------
Share transactions-net:
Class A (9,731,599) 5,857,162
- --------------------------------------------------------------------------------------------
Class B 8,255,456 20,988,143
- --------------------------------------------------------------------------------------------
Class C 1,834,127 --
- --------------------------------------------------------------------------------------------
Net increase in net assets 4,755,765 16,169,736
- --------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 253,787,441 237,617,705
- --------------------------------------------------------------------------------------------
End of period $258,543,206 $253,787,441
============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $264,984,880 $265,272,711
- --------------------------------------------------------------------------------------------
Undistributed net investment income (32,484) (19,243)
- --------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities (15,413,635) (16,026,772)
- --------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 9,004,445 4,560,745
- --------------------------------------------------------------------------------------------
$258,543,206 $253,787,441
============================================================================================
</TABLE>
See Notes to Financial Statements.
9
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Intermediate Government Fund (the "Fund") is a series portfolio of AIM Funds
Group (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 nine separate series
portfolios, each having an unlimited number of shares of beneficial interest.
The Fund currently offers three different classes of shares: the Class A shares,
the Class B shares, and the Class C shares. The new Class C shares commenced
sales on August 4, 1997. Class A shares are sold with a front-end sales charge.
Class B 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. The Fund's investment objective
is to seek to achieve a high level of current income consistent with reasonable
concern for safety of principal by investing in debt securities issued,
guaranteed or otherwise backed by the United States Government. Information
presented in these financial statements pertains only to the Fund.
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 -- Debt obligations that are issued or guaranteed by the
U.S. Government, its agencies, authorities, and instrumentalities 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, maturity date and seasoning differential. Securities for
which market prices are not provided by the pricing service are valued at
the mean between the last bid and asked prices based upon quotes furnished
by independent sources. Securities for which market quotations are either
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. 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. It is the policy of the Fund to
declare daily dividends from net investment income. Such dividends are paid
monthly. Distributions from net realized capital gains, if any, are recorded
on ex-dividend date and are paid annually subject to restrictions described
in Note 1 Section "D". On December 31, 1997, $686,428 was reclassified from
undistributed net realized gain (loss) to undistributed net investment
income as a result of permanent book/tax differences due to the differing
book/tax treatment for principal paydown losses on mortgage-backed
securities. The Fund incurred a return of capital in the amount of $645,815
that is reflected in the Statement of Changes in Net Assets. These
reclassifications were 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 reclassifications
discussed above.
C. Reverse Repurchase Agreements and Dollar Roll Transactions -- A reverse
repurchase agreement involves the sale of securities held by the Fund, with
an agreement that the Fund will repurchase such securities at an agreed-upon
price and date. Proceeds from reverse repurchase agreements are treated as
borrowings. The agreements are collateralized by the underlying securities
and are carried at the amount at which the securities will subsequently be
repurchased as specified in the agreements. The maximum amount outstanding
during the year ended December 31, 1997 was $20,568,750 while borrowings
averaged $6,673,588 per day with a weighted average interest rate of 5.08%.
The Fund may also engage in dollar roll transactions with respect to
mortgage securities issued by GNMA, FNMA and FHLMC. In a dollar roll
transaction, the Fund sells a mortgage security held in the portfolio to a
financial institution such as a bank or broker-dealer, and simultaneously
agrees to repurchase a substantially similar security (same type, coupon and
maturity) from the institution at a later date at an agreed upon price. The
mortgage securities that are repurchased will bear the same interest rate as
those sold, but generally will be collateralized by different pools of
mortgages with different prepayment histories. During the period between the
sale and repurchase, the Fund will not be entitled to receive interest and
principal payments on the securities sold. Proceeds of the sale will be
invested in short-term instruments, and the income from these investments,
together with any additional fee income received on the sale, could generate
income for the Fund exceeding the yield on the security sold.
10
<PAGE> 13
Dollar roll transactions involve the risk that the market value of the
securities retained by the Fund may decline below the price of the securities
that the Fund has sold but is obligated to repurchase under the agreement. In
the event the buyer of securities in a dollar roll transaction files for
bankruptcy or becomes insolvent, the Fund's use of the proceeds from the sale
of the securities may be restricted pending a determination by the other
party, or its trustee or receiver, whether to enforce the Fund's obligation
to repurchase the securities. The Fund will limit its borrowings from banks,
reverse repurchase agreements and dollar roll transactions to an aggregate of
33 1/3% of its total assets at the time of investment. The Fund will not
purchase additional securities when any borrowings from banks exceed 5% of
the Fund's total assets.
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. The Fund has a capital loss
carryforward of $15,253,330 (which may be carried forward to offset future
taxable capital gains, if any) which expires, if not previously utilized,
through the year 2004. The Fund cannot distribute capital gains to
shareholders until the tax loss carryforwards have been utilized.
E. 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 among
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 AIM an advisory fee at an annual rate of 0.50% of the
first $200 million of the Fund's average daily net assets, plus 0.40% of the
Fund's average daily net assets in excess of $200 million to and including $500
million, plus 0.35% of the Fund's average daily net assets in excess of $500
million to and including $1 billion, plus 0.30% of the Fund's average daily net
assets in excess of $1 billion.
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 year ended December 31, 1997, AIM
was reimbursed $70,736 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 December 31, 1997, the
Fund paid AFS $213,155 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 0.25% of the average daily net assets of the Class A shares
and 1.00% of the average daily net assets of the Class C shares. The Fund
pursuant to the Class B Plan, pays AIM Distributors 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 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 by the Class B or Class C shares 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. AIM Distributors may, from time to time, assign,
transfer, or pledge to one or more designees, its rights to all or a designated
portion of (a) compensation received by AIM Distributors from the Fund pursuant
to the Class B Plan (but not AIM Distributors' duties and obligations pursuant
to the Class B Plan) and (b) any contingent deferred sales charged received by
AIM Distributors related to the Class B shares. During the year ended December
31, 1997, the Class A shares and Class B shares, and the period August 4, 1997
through December 31, 1997 for the Class C shares, the Class A, Class B and Class
C shares paid AIM Distributors $405,373, $810,246 and $3,829 respectively, as
compensation under the Plans.
AIM Distributors received commissions of $116,124 from sales of the Class A
shares of the Fund during the year ended December 31, 1997. 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 December 31, 1997,
AIM Distributors received $131,697 in contingent deferred sales charges imposed
on redemptions of Fund shares. Certain officers and trustees of the Trust are
officers and directors of AIM, AIM Distributors and AFS.
During the year ended December 31, 1997, the Fund paid legal fees of $4,849
for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3-INDIRECT EXPENSES
AIM has directed certain portfolio trades to brokers who paid a portion of the
Fund's expenses related to pricing services used by the Fund which reduced Fund
expenses by $845 during the year ended December 31, 1997. Also during the year
ended
11
<PAGE> 14
December 31, 1997, the Fund received reductions in transfer agency fees from AFS
(an affiliate of AIM) and reductions in custodian fees of $2,756 and $20,
respectively, under expense offset arrangements. The effect of the above
arrangements resulted in a reduction of the Fund's total expenses of $3,621
during the year ended December 31, 1997.
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-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $500,000,000 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. Interest on
borrowings under the line of credit is payable on maturity or prepayment date.
Prior to an amendment of the line of credit on July 15, 1997, the Fund was
limited to borrowing up to the lesser of (i) $325,000,000 or (ii) the limits set
by its prospectus for borrowings. During the year ended December 31, 1997, the
Fund did not borrow under the line of credit agreement. The funds which are
parties to the line of credit are charged a commitment fee of 0.05% on the
unused balance of the committed line. The commitment fee is allocated among such
funds based on their respective average net assets for the period.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended December 31, 1997 was
$216,459,929 and $234,399,579, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of December 31, 1997 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $8,907,017
- ---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (5,411)
- ---------------------------------------------------------
Net unrealized appreciation of investment
securities $8,901,606
=========================================================
</TABLE>
Cost of investments for tax purposes is $290,642,180.
NOTE 7 - SHARE INFORMATION
Changes in shares outstanding during the years ended December 31, 1997 and 1996
were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold:
Class A 6,693,588 $ 62,348,371 7,920,265 $ 74,033,231
- --------------------- -----------------------------------------------------
Class B 4,448,136 41,365,183 5,052,488 47,193,668
- --------------------- -----------------------------------------------------
Class C* 734,169 6,890,070 -- --
- --------------------- -----------------------------------------------------
Issued as
reinvestment of
dividends:
Class A 953,629 8,857,846 1,025,026 9,536,042
- --------------------- -----------------------------------------------------
Class B 349,182 3,245,433 314,728 2,925,034
- --------------------- -----------------------------------------------------
Class C* 1,978 18,637 -- --
- --------------------- -----------------------------------------------------
Reacquired:
Class A (8,720,230) (80,937,816) (8,340,854) (77,712,111)
- --------------------- -----------------------------------------------------
Class B (3,920,140) (36,355,160) (3,132,635) (29,130,559)
- --------------------- -----------------------------------------------------
Class C* (540,137) (5,074,580) -- --
- --------------------- -----------------------------------------------------
175 $ 357,984 2,839,018 $ 26,845,305
=====================================================
</TABLE>
* Class C shares commenced sales on August 4, 1997.
12
<PAGE> 15
NOTE 8 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A outstanding
during each of the years in the five-year period ended December 31, 1997, for a
share of Class B outstanding during each of the years in the four-year period
ended December 31, 1997 and the period September 7, 1993 (date sales commenced)
through December 31, 1993 and for a share of Class C outstanding during the
period August 4, 1997 (date sales commenced) through December 31, 1997.
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.28 $ 9.70 $ 8.99 $ 10.05 $ 10.19
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.63 0.63 0.69 0.68 0.74
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net gains (losses) on securities (both realized and
unrealized) 0.18 (0.42) 0.73 (1.02) (0.04)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total from investment operations 0.81 0.21 1.42 (0.34) 0.70
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.61) (0.59) (0.67) (0.58) (0.70)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Distributions from net realized gains -- -- -- (0.04) (0.14)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Return of capital (0.02) (0.04) (0.04) (0.10) --
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total distributions (0.63) (0.63) (0.71) (0.72) (0.84)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net asset value, end of period $ 9.46 $ 9.28 $ 9.70 $ 8.99 $ 10.05
============================================================ ======== ======== ======== ======== ========
Total return(a) 9.07% 2.35% 16.28% (3.44)% 7.07%
============================================================ ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $167,427 $174,344 $176,318 $158,341 $139,586
============================================================ ======== ======== ======== ======== ========
Ratio of expenses to average net assets (exclusive of
interest expense)(b) 1.00%(c)(d) 1.00% 1.08% 1.04% 1.00%
============================================================ ======== ======== ======== ======== ========
Ratio of net investment income to average net assets(e) 6.77%(c) 6.76% 7.36% 7.34% 7.08%
============================================================ ======== ======== ======== ======== ========
Portfolio turnover rate 99% 134% 140% 109% 110%
============================================================ ======== ======== ======== ======== ========
Borrowings for the period:
Amount of debt outstanding at end of period (000s omitted) $ -- -- -- -- --
============================================================ ======== ======== ======== ======== ========
Average amount of debt outstanding during the period (000s
omitted)(f) $ 4,433 -- -- -- --
============================================================ ======== ======== ======== ======== ========
Average number of shares outstanding during the period (000s
omitted)(f) 17,470 -- -- -- --
============================================================ ======== ======== ======== ======== ========
Average amount of debt per share during the period $ 0.2537 -- -- -- --
============================================================ ======== ======== ======== ======== ========
</TABLE>
(a) Does not deduct sales charges.
(b) After fee waivers and/or expense reimbursements. Ratios of
expenses to average net assets prior to fee waivers and/or
expense reimbursements were 1.05% and 1.04%, for 1994-93,
respectively.
(c) Ratios are based on average net assets of $162,149,081.
(d) Includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets
would have remained the same.
(e) After fee waivers and/or expense reimbursements. Ratios of
net investment income to average net assets prior to fee
waivers and/or expense reimbursements were 7.32% and 7.04%
for 1994-93, respectively.
(f) Averages computed on a daily basis.
13
<PAGE> 16
<TABLE>
<CAPTION>
CLASS B CLASS C
----------------------------------------------------- -------
1997 1996 1995 1994 1993 1997
-------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.28 $ 9.69 $ 8.99 $ 10.04 $ 10.44 $ 9.33
- ------------------------------------------------------------ ------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income 0.56 0.55 0.63 0.61 0.21 0.24
- ------------------------------------------------------------ ------- ------- ------- ------- ------- -------
Net gains (losses) on securities (both realized and
unrealized) 0.17 (0.41) 0.70 (1.02) (0.27) 0.10
- ------------------------------------------------------------ ------- ------- ------- ------- ------- -------
Total from investment operations 0.73 0.14 1.33 (0.41) (0.06) 0.34
- ------------------------------------------------------------ ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income (0.53) (0.51) (0.59) (0.50) (0.20) (0.22)
- ------------------------------------------------------------ ------- ------- ------- ------- ------- -------
Distributions from net realized gains -- -- -- (0.04) (0.14) --
- ------------------------------------------------------------ ------- ------- ------- ------- ------- -------
Return of capital (0.02) (0.04) (0.04) (0.10) -- (0.01)
- ------------------------------------------------------------ ------- ------- ------- ------- ------- -------
Total distributions (0.55) (0.55) (0.63) (0.64) (0.34) (0.23)
- ------------------------------------------------------------ ------- ------- ------- ------- ------- -------
Net asset value, end of period $ 9.46 $ 9.28 $ 9.69 $ 8.99 $ 10.04 $ 9.44
============================================================ ======= ======= ======= ======= ======= =======
Total return(a) 8.16% 1.61% 15.22% (4.13)% (0.52)% 3.64%
============================================================ ======= ======= ======= ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $89,265 $79,443 $61,300 $23,415 $ 6,160 $ 1,851
============================================================ ======= ======= ======= ======= ======= =======
Ratio of expenses to average net assets (exclusive of
interest expense)(b) 1.76%(c)(d) 1.76% 1.86% 1.82% 1.71%(e) 1.76%(c)(d)(e)
============================================================ ======= ======= ======= ======= ======= =======
Ratio of net investment income to average net assets(f) 6.01%(c) 6.00% 6.58% 6.56% 6.37%(e) 6.01%(c)(e)
============================================================ ======= ======= ======= ======= ======= =======
Portfolio turnover rate 99% 134% 140% 109% 110% 99%
============================================================ ======= ======= ======= ======= ======= =======
Borrowings for the period:
Amount of debt outstanding at ended of period (000s omitted) $ -- -- -- -- -- $ --
============================================================ ======= ======= ======= ======= ======= =======
Average amount of debt outstanding during the period (000s
omitted)(g) $ 2,215 -- -- -- -- $ 25
============================================================ ======= ======= ======= ======= ======= =======
Average number of shares outstanding during the period (000s
omitted)(g) 8,726 -- -- -- -- 99
============================================================ ======= ======= ======= ======= ======= =======
Average amount of debt per share during the period $0.2537 -- -- -- -- $0.2537
============================================================ ======= ======= ======= ======= ======= =======
</TABLE>
(a) Does not deduct contingent deferred sales charges and are
not annualized for periods less than one year.
(b) After fee waivers and/or expense reimbursements. Ratio of
expenses to average net assets prior to fee waivers and/or
expense reimbursements were 1.87% and 2.18% (annualized) for
1994-93, respectively.
(c) Ratios are based on average net assets of $81,024,662 and
$931,755, respectively for Class B and Class C.
(d) Includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets
would have remained the same.
(e) Annualized.
(f) After fee waivers and/or expense reimbursements. Ratios of
net investment income to average net assets prior to fee
waivers and/or expense reimbursements were 6.50% and 5.90%
(annualized) for 1994-93, respectively.
(g) Averages computed on a daily basis.
14
<PAGE> 17
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders of
AIM Intermediate Government Fund:
We have audited the accompanying statement of assets and
liabilities of AIM Intermediate Government Fund (a
portfolio of AIM Funds Group), including the schedule of
investments, as of December 31, 1997, and the related
statement of operations for the year then ended, the
statement of changes in net assets for each of the years
in the two-year period then ended and the financial
highlights for each of the years or periods in the
five-year period then ended. 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 audits.
We conducted our audits 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 and financial highlights. Our procedures
included confirmation of securities owned as of December
31, 1997, 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 AIM
Intermediate Government Fund as of December 31, 1997, the
results of its operations for the year then ended, the
changes in its net assets for each of the years in the
two-year period then ended and the financial highlights
for each of the years or periods in the five-year period
then ended, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
February 6, 1998
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Trustees & Officers
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BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
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, Senior Vice President and Treasurer 11 Greenway Plaza
and Chief Executive Officer Suite 100
COMSAT Corporation Carol F. Relihan Houston, TX 77046
Senior Vice President
Owen Daly II and Secretary TRANSFER AGENT
Director
Cortland Trust Inc. Gary T. Crum A I M Fund Services, Inc.
Senior Vice President P.O. Box 4739
Jack Fields Houston, TX 77210-4739
Chief Executive Officer Dana R. Sutton
Texana Global, Inc.; Vice President and Assistant Treasurer CUSTODIAN
Formerly Member of the
U.S. House of Representatives Robert G. Alley State Street Bank & Trust Company
Vice President 225 Franklin Street
Carl Frischling Boston, MA 02110
Partner Stuart W. Coco
Kramer, Levin, Naftalis & Frankel Vice President COUNSEL TO THE FUND
Robert H. Graham Melville B. Cox Ballard Spahr
President and Chief Executive Officer Vice President Andrews & Ingersoll
A I M Management Group Inc. 1735 Market Street
Karen Dunn Kelley Philadelphia, PA 19103
John F. Kroeger Vice President
Formerly Consultant COUNSEL TO THE TRUSTEES
Wendell & Stockel Associates, Inc. Jonathan C. Schoolar
Vice President Kramer, Levin, Naftalis & Frankel
Lewis F. Pennock 919 Third Avenue
Attorney P. Michelle Grace New York, NY 10022
Assistant Secretary
Ian W. Robinson DISTRIBUTOR
Consultant; Formerly Executive Nancy L. Martin
Vice President and Assistant Secretary A I M Distributors, Inc.
Chief Financial Officer 11 Greenway Plaza
Bell Atlantic Management Ofelia M. Mayo Suite 100
Services, Inc. Assistant Secretary Houston, TX 77046
Louis S. Sklar Kathleen J. Pflueger AUDITORS
Executive Vice President Assistant Secretary
Hines Interests KPMG Peat Marwick LLP
Limited Partnership Samuel D. Sirko 700 Louisiana
Assistant Secretary Houston, TX 77002
Stephen I. Winer
Assistant Secretary
Mary J. Benson
Assistant Treasurer
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REQUIRED FEDERAL INCOME TAX INFORMATION
AIM Intermediate Government Fund Class A, Class B, and Class C shares paid
ordinary dividends in the amount of $0.63, $0.55, and $0.23 per share,
respectively, to shareholders during the Fund's tax year ended
December 31, 1997.
STATE INCOME TAX INFORMATION
Of the total income dividends paid, 18.97% were derived from U.S. Treasury
obligations.
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HOW AIM MAKES INVESTING
EASY FOR YOU
o LOW INITIAL INVESTMENT. You can get your investment program started for as
little as $500. Subsequent investments can be made for only $50.
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 $50 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 RETIREMENT PLANS. You may purchase shares of the fund for your Individual
Retirement Account (IRA) or any other type of retirement plan, and earn
tax-deferred dollars for your retirement.
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
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THE AIM FAMILY OF FUNDS--Registered Trademark--
AGGRESSIVE GROWTH
AIM Aggressive Growth Fund*
AIM Asian Growth Fund
AIM Capital Development Fund
AIM Constellation Fund
AIM European Development Fund
AIM Global Aggressive Growth Fund
GROWTH OF CAPITAL
AIM Advisor International Value Fund
[PHOTO OF 11 GREENWAY AIM Blue Chip Fund
PLAZA APPEARS AIM Global Growth Fund
HERE] AIM Growth Fund
AIM International Equity Fund
AIM Value Fund
AIM Weingarten Fund
GROWTH AND INCOME OR INCOME WITH CAPITAL GROWTH
AIM Advisor Flex Fund
AIM Advisor Large Cap Value Fund
AIM Advisor MultiFlex Fund
AIM Advisor Real Estate Fund
AIM Balanced Fund
AIM Charter Fund
AIM Global Utilities Fund
HIGH CURRENT INCOME OR CURRENT INCOME
AIM High Yield Fund
AIM Global Income Fund
AIM Income Fund
CURRENT TAX-FREE INCOME
AIM High Income Municipal Fund
AIM Municipal Bond Fund
AIM Tax-Exempt Bond Fund of Connecticut
AIM Tax-Free Intermediate Fund
CURRENT INCOME AND HIGH DEGREE OF SAFETY
AIM Intermediate Government Fund
AIM Limited Maturity Treasury Fund
AIM Money Market Fund
AIM Tax-Exempt Cash Fund
A I M Management Group Inc. has provided leadership in the *AIM Aggressive Growth Fund was closed to new investors on
mutual fund industry since 1976 and managed approximately June 5, 1997. For more complete information about any AIM
$83 billion in assets for more than 3.7 million shareholders, Fund(s), including sales charges and expenses, ask your
including individual investors, corporate clients, and financial financial consultant or securities dealer for a free
institutions as of December 31, 1997. The AIM Family of prospectus(es). Please read the prospectus(es) carefully
Funds--Registered Trademark-- is distributed nationwide, and before you invest or send money.
AIM today ranks among the nation's top 15 mutual fund
companies in assets under management, according to Lipper INVEST WITH DISCIPLINE-SM-
Analytical Services, Inc.
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