<PAGE> 1
[COVER IMAGE]
AIM
INTERMEDIATE GOVERNMENT FUND
[AIMM LOGO APPEARS HERE] ANNUAL REPORT DECEMBER 31 1998
INVEST WITH DISCIPLINE--Regstered Trademark--
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[ COVER IMAGE ]
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Fourth of July, 1916
by Frederick Childe Hassam (1839-1935, American)
Hassam was an American Impressionist painter famous
for his luminous paintings of flags and New York street
scenes. This vibrant painting depicts a parade route on Fifth
Avenue in 1916, prior to the U.S. entry into World War I.
Hassam captures the patriotic fervor of the day and the
burgeoning strength of the American spirit.
------------------------------------
AIM Intermediate Government Fund is 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 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 at net asset
value without a sales charge.
o During the fiscal year ended 12/31/98 the Fund paid distributions of $0.63
per Class A share, $0.55 per Class B share, and $0.55 per Class C share.
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 differences in sales charge structure and
class 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 The Fund's portfolio composition is subject to change, and there is no
assurance the Fund will continue to hold any particular security.
o The 30-day yield is calculated on the basis of a formula defined by the
Securities and Exchange Commission (SEC). The formula is based on the
portfolio's potential earnings from dividends, interest, yield-to-maturity
or yield-to-call of its holdings, net of all expenses and expressed on an
annualized basis.
o The Fund's annualized distribution rate reflects the Fund's most recent
monthly dividend distribution multiplied by 12 and divided by the most
recent month-end maximum offering price. The Fund's distribution rate and
30-day SEC yield will differ.
o 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. Fund shares are not insured and
their value and yield will vary with market conditions.
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 An investment cannot be made in any index listed. Unless otherwise
indicated, index results include reinvested dividends and do not reflect
sales charges.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OF A BANK AND IS
NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. THERE IS A RISK
THAT YOU COULD LOSE A PORTION OR ALL OF YOUR MONEY.
This report may be distributed only to current shareholders or to persons
who have received a current prospectus of the Fund.
AIM INTERMEDIATE GOVERNMENT FUND
<PAGE> 3
ANNUAL REPORT / CHAIRMAN'S LETTER
Dear Fellow Shareholder:
As the fiscal year opened, markets were recovering from the
[PHOTO OF concerns produced by financial crises in Asia during 1997,
Charles T. and this optimism early in 1998 led several equity market
Bauer, indexes to all-time highs in spring and early summer.
Chairman of However, the year was to bring two particularly serious
the Board of financial shocks, first the debt default by Russia, and
THE FUND later the gathering crisis in Brazil, which devalued its
APPEARS HERE] currency shortly after the fiscal year closed. The result
was another year of significant volatility in both equity
and fixed-income markets.
MARKET RECAP
Buoyant equity markets and healthy economic growth in Europe
and the U.S. kept bond prices relatively stable early in
1998. But optimism turned to profound pessimism over the
summer as global financial crises caused a worldwide loss of
confidence. Investors flocked to securities perceived as safe and liquid,
especially U.S. Treasuries. Even high-quality corporate bonds went out of favor,
and high-yield corporate bonds plummeted. Beginning in late September, the U.S.
Federal Reserve Board intervened to pump liquidity and confidence into markets.
Numerous interest rate cuts in other countries followed. Investors responded
favorably, and by year end, bond market volatility had generally subsided.
HOW SHOULD INVESTORS RESPOND?
We understood how unnerving 1998's level of volatility could have been. Our
repeated message to you is to keep a long-term outlook on investments rather
than responding to short-term fluctuations. And we are pleased to note that most
mutual fund shareholders remained cool headed and did not pull out of the
markets during 1998. In the end, most were rewarded for their long-term
perspective.
In view of recent volatility and the divergent performance of market
sectors, this may be a very good time to meet with your financial consultant to
review your current asset allocation and the diversification of your portfolio.
Broad portfolio diversification remains one of the most fundamental principles
of investing, along with long-term thinking and realistic expectations.
YOUR FUND MANAGERS' COMMENTS
On the pages that follow, your Fund's managers, experienced professionals who
have weathered previous periods of market turbulence, offer more detailed
discussion of how markets behaved, how they managed the portfolio in light of
recent volatility, and what they foresee for markets and your Fund. We hope you
find their discussion informative.
YEAR 2000 CONCERN Many of our shareholders have asked us about AIM's year
2000 readiness status. We appreciate these concerns, and we take the year 2000
issue seriously. AIM has devoted considerable effort to creating a comprehensive
plan for assessing, correcting and testing our in-house systems. We will also
participate in an industrywide testing effort scheduled to begin in March. But
no matter how well we prepare and test, no one can know for sure what the year
2000 will bring. Our industry's systems are connected in complex ways to many
third parties, and there may be unforeseen problems when the year 2000 actually
arrives. Though we cannot predict what all those problems might be, we are
working with our business recovery team to develop contingency plans appropriate
for a variety of year 2000 scenarios. We are pleased to send you this report on
your Fund's fiscal year. If you have any questions or comments, please contact
our Client Services department at 800-959-4246, or e-mail your inquiry to us at
[email protected]. You can access information about your account through our
AIM Investor Line at 800-246-5463 or on our Web site, www.aimfunds.com. We often
post market updates on our Web site.
We thank you for your continued participation in The AIM Family of
Funds--Registered Trademark--.
Sincerely,
/s/ CHARLES T. BAUER
Charles T. Bauer
Chairman, A I M Advisors, Inc.
------------------------------------
. . . WE ARE PLEASED
TO NOTE THAT MOST
MUTUAL FUND
SHAREHOLDERS REMAINED
COOL HEADED AND
DID NOT PULL OUT OF THE
MARKETS DURING 1998.
------------------------------------
AIM INTERMEDIATE GOVERNMENT FUND
<PAGE> 4
ANNUAL REPORT / MANAGERS' OVERVIEW
FUND PROVIDES STABILITY IN TURBULENT MARKET ENVIRONMENT
IT WAS A VOLATILE TIME FOR EQUITY AND FIXED-INCOME MARKETS ALIKE. HOW DID THE
FUND PERFORM DURING THE TWELVE MONTHS ENDED DECEMBER 31, 1998?
Despite an environment rife with turmoil and volatility, AIM Intermediate
Government Fund stayed in line with its investment objective of providing a
steady flow of income while preserving capital. For the fiscal year ended
December 31, 1998, the Fund's total return was 8.17% for Class A Shares, 7.40%
for Class B shares, and 7.31% for Class C shares.
In addition, the Fund continued to provide a high level of current income
during the year covered by this report. As of December 31, 1998 the Fund's
30-day distribution rate was 6.26% for Class A shares, 5.76% for Class B shares,
and 5.77% for Class C Shares. The Fund's 30-day SEC yield at maximum offering
price was 4.81%, 4.30%, and 4.30% for Class A, B, and C shares respectively.
WHAT WERE THE MAJOR FACTORS INFLUENCING THE INVESTING ENVIRONMENT DURING 1998?
In general, the reporting period was a tumultuous one as the Asian economic
crisis that began in the latter half of 1997 spent 1998 intermittently wreaking
havoc in both equity and fixed-income markets. Certainly this was most evident
in August and September when a combination of factors stemming from Asia
resulted in a fear-driven global flight from all forms of investment risk.
In a matter of weeks, aspirations for total returns were replaced with those
for preservation of capital. Investors abandoned riskier securities causing
equity and nongovernment bond markets around the world to tumble. The chief
beneficiaries of this volatile investment environment were government bonds in
the United States and the industrialized nations in Europe. As these securities
are backed by the full faith and credit of their governments, they were viewed
as a safe haven throughout this time of unrest.
Markets eventually rebounded after a series of interest rate cuts by the
Federal Reserve Board (the Fed). However the effects of the market sell-off left
many investors wary. As investors had watched the value of riskier securities
plummet, many saw fit to diversify their assets by adding a relatively more
stable asset to their portfolio, such as AIM Intermediate Government Fund, to
dampen market volatility. This is evident as the Fund's net assets grew from
$259 million to $522 million in 1998.
HOW DOES THE FUND'S STRATEGY COMPENSATE FOR TIMES OF MARKET UNCERTAINTY?
Diversification is a key element in weathering market volatility. As a result,
we spread the Fund's assets among U.S. government bonds that have a variety of
maturities and coupon rates. However, it is not unusual to re-allocate some of
our assets into securities that may respond favorably to the existing market
conditions.
As a general rule, the shorter the time period before a security matures,
the less volatile its price and yield. Thus, in times of uncertainty in the bond
market, the Fund may allocate more assets toward shorter-term securities, like
five-year notes, to help temper the volatility of the Fund's portfolio and
protect capital.
At the same time, mortgage-backed securities and bonds with longer
maturities, like 10-year U.S. Treasury notes, are more susceptible to price
fluctuations in a volatile market. While this creates a relatively greater risk,
it also offers greater opportunity for income and growth of capital. In times of
market stability, the Fund may allocate a greater amount of its assets to these
types of securities to take advantage of yield and total return opportunities.
Overall, our primary goal is to provide a product for the investor that will
maintain a low level of volatility while producing competitive returns. Through
diversification, the Fund strives to combine the average price volatility of a
five-year Treasury note with the yield of a 30-year Treasury bond. True to its
objective, in 1998 the Fund maintained 64% of the price volatility of a
five-year note, while producing a yield of 119% the rate of a 30-year bond.
GROWTH OF NET ASSETS
12/31/97 to 12/31/98
[BAR CHART]
101% Growth
================================================================================
$259 $522
Million Million
- --------------------------------------------------------------------------------
12/31/97 12/31/98
================================================================================
------------------------------------
OVERALL, OUR PRIMARY GOAL IS TO PROVIDE
A PRODUCT FOR THE INVESTOR THAT
WILL MAINTAIN A LOW LEVEL OF VOLATILITY
WHILE PRODUCING COMPETITIVE RETURNS.
------------------------------------
See important Fund and index disclosures inside front cover.
AIM INTERMEDIATE GOVERNMENT FUND
<PAGE> 5
ANNUAL REPORT / MANAGERS' OVERVIEW
HOW WAS THIS INVESTMENT STRATEGY UTILIZED DURING THE VOLATILITY IN AUGUST AND
SEPTEMBER?
After a strong first quarter in the equity markets, a volatile May and June gave
us a snapshot of what we believed could be expected from Asia in the second half
of 1998. As market volatility typically results in a demand for relatively safer
securities like U.S. Treasuries, we reduced our exposure to mortgage-backed
securities while reallocating a portion of our assets in Treasuries. This proved
beneficial for the Fund as the third quarter witnessed a surging demand for
Treasuries.
HOW DID FALLING INTEREST RATES AFFECT THE FUND'S HOLDINGS IN MORTGAGE-BACKED
SECURITIES?
Historically, the Fund maintains a substantial weighting in mortgage-backed
securities as they can provide a yield that is generally higher than
intermediate-term Treasury securities with comparable credit risk. Despite the
fact that the Fed cut rates three times during the fall--causing longer-term
interest rates to fall in tandem--the Fund did not suffer any serious setbacks
as a result. This can be largely attributed to the research-intensive approach
we take in selecting these securities. Using thorough research, the Fund targets
securitized mortgages that are less likely to be refinanced. While mortgage
refinancings did increase on the whole during the fall, we found that our
careful selection process sufficiently reduced the impact of refinancings on the
Fund.
HOW WAS THE FUND POSITIONED AT THE END OF THE REPORTING PERIOD?
The third-quarter flight from risk caused prices of mortgage-backed securities
to decline. As prices declined, yields on these securities rose considerably in
relation to Treasury yields. With low prices and attractive yields, the
mortgage-backed markets were awash with bargains. As it became clear that
investor confidence was returning and that the Treasury rally was in its final
stages, management was able to reduce its weighting in the lower-yielding
Treasury securities and add value to the portfolio with underpriced,
higher-yielding mortgage-backed securities.
At the close of the reporting period, the Fund had allocated 61.36% of its
investments to mortgage-backed securities, with the remaining assets allocated
among U.S. Treasury securities, U.S. Agency obligations, and cash, or cash
equivalents.
WHAT IS YOUR OUTLOOK FOR THE NEAR TERM?
While it appeared at the mid-point of 1998 that the robust economic growth might
result in an increase in the Federal Funds rate, it soon became apparent that
Asia's economic struggles and the effects on the global marketplace would not
allow for such action. Instead, the Fed cut short-term rates by 0.75% in the
final months of 1998 to enhance worldwide liquidity. In addition, the Fed has
made it clear that it would not hesitate to lower rates again if need dictates.
Uncertainty still remains regarding Japan and the emerging markets of Asia and
Latin America, specifically in China and Brazil. As in 1998, the devaluation of
a currency or a similar economic crisis could result in investors rushing back
into the U.S. Treasury market and additional interest rate cuts.
On the domestic front, most analysts expect a slowdown in U.S. economic
growth and a continuation of relatively low inflation. Historically, these
conditions have proven beneficial for bond investors. Regardless of what the
coming year may bring, AIM Intermediate Government Fund will strive to tailor
the portfolio to market conditions as they change. In doing so, the Fund will
endeavor to provide the same stability and level of income it has in the past.
------------------------------------
. . . the Fund will endeavor to provide
the same stability and level of
income it has in the past.
------------------------------------
BREAKDOWN OF
MORTGAGE-BACKED SECURITIES
As of 12/31/98
[Pie Chart]
==================================================================
Federal Home Loan Mortgage Corp. 19.80%
Government National Mortgage Assn. 33.92%
Federal National Mortgage Assn. 46.28%
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.
===================================================================
See important Fund and index disclosures inside front cover.
AIM INTERMEDIATE GOVERNMENT FUND
<PAGE> 6
ANNUAL REPORT / PERFORMANCE HISTORY
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
AIM INTERMEDIATE GOVERNMENT FUND VS. BENCHMARK INDEX
4/28/87-12/31/98
[Line Chart]
- --------------------------------------------------------------------------------
AIM Lehman Brothers
Intermediate Intermediate
Government Fund Government
Class A Shares Bond Index
- --------------------------------------------------------------------------------
In thousands
4/28/97 $9,524.00 $10,000.00
12/87 9,922.00 10,683.00
12/88 10,560.00 11,202.00
12/89 11,752.00 12,421.00
12/90 12,855.00 13,831.00
12/91 14,524.00 15,470.00
12/92 15,432.00 17,014.00
12/93 16,524.00 18,247.00
12/94 15,955.00 18,040.00
12/95 18,552.00 20,484.00
12/96 18,989.00 21,218.00
12/97 20,711.00 22,770.00
12/98 23,525.00 24,704.00
================================================================================
PAST PERFORMANCE IS NO GUARANTEE OF COMPARABLE FUTURE RESULTS.
================================================================================
AVERAGE ANNUAL TOTAL RETURNS
As of 12/31/98, including sales charges
CLASS A SHARES
Inception (4/28/87) 7.15%
10 years 7.29%
5 years 5.25%
1 year 3.05%*
CLASS B SHARES
Inception (9/7/93) 4.96%
5 years 5.14%
1 year 2.40%**
CLASS C SHARES
Inception (8/4/97) 7.84%
1 year 6.31%***
* 8.17% excluding sales charge
** 7.40% excluding CDSC
*** 7.31% excluding CDSC
================================================================================
Source: Bloomberg, Towers Data Systems HYPO--Registered Trademark--. Your Fund's
total return includes applicable sales charges, expenses, and management fees.
The performance of 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 indexes cited on this page, please refer to the inside front
cover.
MARKET VOLATILITY CAN SIGNIFICANTLY IMPACT SHORT-TERM PERFORMANCE. RESULTS OF AN
INVESTMENT MADE TODAY MAY DIFFER SUBSTANTIALLY FROM THE HISTORICAL PERFORMANCE
SHOWN.
ABOUT THIS CHART
The chart above compares your Fund's Class A shares to a benchmark index. It is
intended to give you a general idea of how your Fund compared to the government
bond market over the period 4/28/87-12/31/98. (Data for the index are for the
period 4/30/87-12/31/98.) It is important to understand differences between your
Fund and this index. Your Fund's total return is shown with a sales charge and
includes Fund expenses and management fees. An index measures performance of a
hypothetical portfolio, in this case the Lehman Brothers Intermediate Government
Bond Index. Unlike your Fund, an index is not managed, incurring no sales
charges, expenses, or fees. But if you could buy all the securities that make up
a market index, you would incur expenses that would affect the return on your
investment.
AIM INTERMEDIATE GOVERNMENT FUND
<PAGE> 7
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. GOVERNMENT AGENCY
SECURITIES-89.92%
FEDERAL FARM CREDIT BANK-1.02%
Debentures
6.15%, 09/01/00 $ 700,000 $ 714,007
- --------------------------------------------------------------
6.22%, 06/17/08 4,500,000 4,592,070
- --------------------------------------------------------------
5,306,077
- --------------------------------------------------------------
FEDERAL HOME LOAN BANK-1.40%
Debentures
7.31%, 07/06/01 4,000,000 4,226,240
- --------------------------------------------------------------
7.36%, 07/01/04 2,800,000 3,083,276
- --------------------------------------------------------------
7,309,516
- --------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP.
("FHLMC")-16.08%
Pass through certificates
12.00%, 04/01/00 to 02/01/13 21,385 24,304
- --------------------------------------------------------------
6.50%, 07/01/01 to 11/01/28 28,103,205 28,385,142
- --------------------------------------------------------------
6.50%, 01/01/29 TBA(a) 5,000,000 5,037,500
- --------------------------------------------------------------
9.00%, 12/01/05 to 04/01/25 5,234,953 5,532,144
- --------------------------------------------------------------
8.00%, 07/01/06 to 10/01/10 407,206 419,717
- --------------------------------------------------------------
8.50%, 07/01/07 to 12/01/26 6,786,107 7,127,059
- --------------------------------------------------------------
7.00%, 11/01/10 to 04/01/11 1,389,914 1,426,275
- --------------------------------------------------------------
10.00%, 11/01/11 to 04/01/20 11,301,740 12,534,120
- --------------------------------------------------------------
6.00%, 12/01/13 9,950,000 9,984,228
- --------------------------------------------------------------
10.50%, 08/01/19 to 01/01/21 1,994,761 2,200,924
- --------------------------------------------------------------
9.50%, 11/01/20 to 04/01/25 10,342,546 11,186,033
- --------------------------------------------------------------
83,857,446
- --------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION ("FNMA")-43.88%
Debentures
8.25%, 12/18/00 5,000,000 5,310,600
- --------------------------------------------------------------
7.50%, 02/01/02 9,000,000 9,638,370
- --------------------------------------------------------------
8.50%, 02/01/05 4,500,000 4,651,603
- --------------------------------------------------------------
5.875, 02/02/06 8,000,000 8,286,640
- --------------------------------------------------------------
Medium term notes
6.40%, 09/27/05 4,610,000 4,910,987
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION
("FNMA")-(CONTINUED)
Pass through certificates
8.50%, 01/01/07 to 03/01/07 $ 24,386 $ 25,400
- --------------------------------------------------------------
6.00%, 01/01/09 to 04/01/24 23,018,376 23,096,981
- --------------------------------------------------------------
7.50%, 06/01/10 to 03/01/27 20,529,246 21,176,306
- --------------------------------------------------------------
7.00%, 05/01/11 to 10/01/12 8,741,914 8,957,681
- --------------------------------------------------------------
5.50%, 01/20/14 40,000,000 39,542,614
- --------------------------------------------------------------
9.50%, 07/01/16 to 08/01/22 2,065,040 2,219,696
- --------------------------------------------------------------
10.00%, 12/01/19 to 12/01/21 10,184,521 11,260,162
- --------------------------------------------------------------
8.00%, 04/01/25 to 07/01/26 7,497,739 7,795,250
- --------------------------------------------------------------
6.50%, 05/01/13 to 11/01/28 28,272,652 28,544,543
- --------------------------------------------------------------
6.50%, 01/01/29 TBA(a) 5,000,000 5,034,375
- --------------------------------------------------------------
6.50%, 01/14/29 48,000,000 48,394,054
- --------------------------------------------------------------
228,845,262
- --------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION ("GNMA")-27.54%
Pass through certificates
6.00%, 10/15/08 to 1/21/29 78,536,178 77,967,762
- --------------------------------------------------------------
6.50%, 10/15/08 510,612 522,897
- --------------------------------------------------------------
9.00%, 10/15/08 to 04/15/21 1,482,663 1,600,516
- --------------------------------------------------------------
9.50%, 06/15/09 to 03/15/23 5,554,078 6,008,989
- --------------------------------------------------------------
10.00%, 11/15/09 to 10/15/19 12,115,087 13,278,238
- --------------------------------------------------------------
11.00%, 12/15/09 to 09/15/15 117,928 131,104
- --------------------------------------------------------------
12.50%, 11/15/10 151,379 175,599
- --------------------------------------------------------------
13.00%, 01/15/11 to 05/15/15 347,109 403,871
- --------------------------------------------------------------
12.00%, 01/15/13 to 07/15/15 512,453 583,753
- --------------------------------------------------------------
10.50%, 07/15/13 to 02/15/16 215,242 237,035
- --------------------------------------------------------------
13.50%, 07/15/10 to 04/15/15 288,034 339,171
- --------------------------------------------------------------
8.00%, 01/15/22 to 06/15/27 15,176,291 15,859,602
- --------------------------------------------------------------
7.50%, 03/15/26 to 08/15/28 8,038,391 8,299,071
- --------------------------------------------------------------
7.00%, 10/15/08 to 07/15/28 17,808,840 18,255,191
- --------------------------------------------------------------
143,662,799
- --------------------------------------------------------------
Total U.S. Government Agency
Securities (Cost
$464,842,643) 468,981,100
- --------------------------------------------------------------
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. TREASURY SECURITIES-28.04%
U.S. TREASURY NOTES &
BONDS-26.47%
11.75%, 02/15/01 $26,375,000 $ 30,154,274
- --------------------------------------------------------------
6.125%, 12/31/01 5,000,000 5,208,400
- --------------------------------------------------------------
6.00%, 07/31/02 5,000,000 5,217,100
- --------------------------------------------------------------
5.25%, 08/15/03 to 11/15/28 21,000,000 21,532,270
- --------------------------------------------------------------
4.25%, 11/15/03 5,000,000 4,937,200
- --------------------------------------------------------------
5.625%, 05/15/08 10,000,000 10,662,400
- --------------------------------------------------------------
4.75%, 11/15/08 5,000,000 5,035,950
- --------------------------------------------------------------
7.50%, 11/15/16 5,500,000 6,833,750
- --------------------------------------------------------------
7.25%, 08/15/22 1,100,000 1,369,797
- --------------------------------------------------------------
5.50%, 08/15/28 45,000,000 47,113,650
- --------------------------------------------------------------
138,064,791
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. TREASURY STRIPS-1.57%(b)
5.38% to 6.85%, 05/15/06 to
11/15/18 (8,000,000)(c) $15,750,000 $ 8,197,513
- --------------------------------------------------------------
Total U.S. Treasury
Securities (Cost
$143,967,245) 146,262,304
- --------------------------------------------------------------
Total Investments (excluding
Repurchase Agreements) 615,243,404
- --------------------------------------------------------------
REPURCHASE AGREEMENT-14.38%(d)
Greenwich Capital Markets, Inc.,
5.10% 01/04/99(e) 4,556,250 4,556,250
- --------------------------------------------------------------
SBC Warburg Dillon Read, Inc.,
4.75% 01/04/99(f) 70,460,703 70,460,703
- --------------------------------------------------------------
Total Repurchase Agreements
(Cost $75,016,953) 75,016,953
- --------------------------------------------------------------
TOTAL INVESTMENTS-132.34% 690,260,357
- --------------------------------------------------------------
LIABILITIES LESS OTHER
ASSETS-(32.34%) (168,702,843)
- --------------------------------------------------------------
NET ASSETS-100.00% $ 521,557,514
==============================================================
</TABLE>
Notes to Schedule of Investments:
(a) At 12/31/98, cost of securities purchased on a when-issued basis totaled
$175,422,691. These securities are also subject to dollar roll transactions.
See Note 1.B. of Notes to Financial Statements.
(b) 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.
(c) Amount in parenthesis represents principal amount deposited in escrow with
custodian as collateral for reverse repurchase agreements outstanding at
12/31/98.
(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 12/31/98 with a maturing value of
$300,170,000. Collateralized by $383,443,653 U.S. Government obligations,
5.50% to 10.00%, due 10/01/01 to 01/01/29 with an aggregate market value at
12/31/98 of $306,003,501.
(f) Joint repurchase agreement entered into 12/31/98 with a maturing value of
$1,000,527,778. Collateralized by $2,207,068,000 U.S. Government
obligations, 0% to 6.75%, due 06/30/99 to 11/15/21 with an aggregate market
value at 12/31/98 of $1,020,001,079.
Abbreviation:
TBA - To Be Announced
STRIPS - Separately Traded Registered Interest and Principal Security
See Notes to Financial Statements.
6
<PAGE> 9
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$608,809,888) $615,243,404
- ---------------------------------------------------------
Repurchase agreements (cost $75,016,953) 75,016,953
- ---------------------------------------------------------
Cash 3,598
- ---------------------------------------------------------
Receivables for:
Fund shares sold 8,516,934
- ---------------------------------------------------------
Interest 5,821,191
- ---------------------------------------------------------
Principal paydowns 1,059,791
- ---------------------------------------------------------
Investment for deferred compensation plan 34,753
- ---------------------------------------------------------
Other assets 58,901
- ---------------------------------------------------------
Total assets 705,755,525
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased (on when issued or
delayed delivery basis) 175,422,691
- ---------------------------------------------------------
Fund shares reacquired 2,183,727
- ---------------------------------------------------------
Dividends 952,047
- ---------------------------------------------------------
Reverse repurchase agreements (Note 5) 4,556,250
- ---------------------------------------------------------
Interest expense (Note 5) 410
- ---------------------------------------------------------
Deferred compensation plan 34,753
- ---------------------------------------------------------
Accrued advisory fees 190,150
- ---------------------------------------------------------
Accrued administrative services fees 6,276
- ---------------------------------------------------------
Accrued distribution fees 485,806
- ---------------------------------------------------------
Accrued transfer agent fees 54,720
- ---------------------------------------------------------
Accrued operating expenses 311,181
- ---------------------------------------------------------
Total liabilities 184,198,011
- ---------------------------------------------------------
Net assets applicable to shares outstanding $521,557,514
- ---------------------------------------------------------
NET ASSETS:
Class A $245,612,558
=========================================================
Class B $237,918,779
=========================================================
Class C $ 38,026,177
=========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 25,647,222
=========================================================
Class B 24,816,721
=========================================================
Class C 3,977,986
=========================================================
Class A:
Net asset value and redemption price per
share $ 9.58
- ---------------------------------------------------------
Offering price per share:
(Net asset value of $9.58
divided by 95.25%) $ 10.06
=========================================================
Class B:
Net asset value and offering price per
share $ 9.59
=========================================================
Class C:
Net asset value and offering price per
share $ 9.56
=========================================================
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $26,948,269
- ---------------------------------------------------------
EXPENSES:
Advisory fees 1,611,515
- ---------------------------------------------------------
Administrative services fees 80,271
- ---------------------------------------------------------
Custodian fees 64,754
- ---------------------------------------------------------
Distribution fees - Class A 478,781
- ---------------------------------------------------------
Distribution fees - Class B 1,359,570
- ---------------------------------------------------------
Distribution fees - Class C 248,197
- ---------------------------------------------------------
Interest (Note 5) 851,004
- ---------------------------------------------------------
Transfer agent fees - Class A 311,166
- ---------------------------------------------------------
Transfer agent fees - Class B 170,992
- ---------------------------------------------------------
Transfer agent fees - Class C 30,268
- ---------------------------------------------------------
Trustees' fees 10,622
- ---------------------------------------------------------
Other 254,001
- ---------------------------------------------------------
Total expenses 5,471,141
- ---------------------------------------------------------
Less: Expenses paid indirectly (3,953)
- ---------------------------------------------------------
Net expenses 5,467,188
- ---------------------------------------------------------
Net investment income 21,481,081
- ---------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES:
Net realized gain from investment securities 6,570,449
- ---------------------------------------------------------
Net unrealized appreciation (depreciation)
of investment securities (2,570,929)
- ---------------------------------------------------------
Net gain on investment securities 3,999,520
- ---------------------------------------------------------
Net increase in net assets resulting from
operations $25,480,601
=========================================================
</TABLE>
7
<PAGE> 10
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 21,481,081 $ 15,863,224
- --------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities 6,570,449 (73,291)
- --------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities (2,570,929) 4,443,700
- --------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 25,480,601 20,233,633
- --------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (12,395,672) (10,575,295)
- --------------------------------------------------------------------------------------------
Class B (7,690,274) (4,595,241)
- --------------------------------------------------------------------------------------------
Class C (1,395,135) (19,501)
- --------------------------------------------------------------------------------------------
Distributions in excess of net investment income:
Class A (247,750) --
- --------------------------------------------------------------------------------------------
Class B (176,643) --
- --------------------------------------------------------------------------------------------
Class C (32,108) --
- --------------------------------------------------------------------------------------------
Return of capital:
Class A -- (430,314)
- --------------------------------------------------------------------------------------------
Class B -- (214,788)
- --------------------------------------------------------------------------------------------
Class C -- (713)
- --------------------------------------------------------------------------------------------
Share transactions-net:
Class A 76,269,628 (9,731,599)
- --------------------------------------------------------------------------------------------
Class B 147,670,216 8,255,456
- --------------------------------------------------------------------------------------------
Class C 35,531,445 1,834,127
- --------------------------------------------------------------------------------------------
Net increase in net assets 263,014,308 4,755,765
- --------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 258,543,206 253,787,441
- --------------------------------------------------------------------------------------------
End of period $521,557,514 $258,543,206
============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $524,340,223 $264,984,880
- --------------------------------------------------------------------------------------------
Undistributed net investment income (42,488) (32,484)
- --------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities (9,173,737) (15,413,635)
- --------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 6,433,516 9,004,445
- --------------------------------------------------------------------------------------------
$521,557,514 $258,543,206
============================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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: Class A shares,
Class B shares, and Class C shares. 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.
8
<PAGE> 11
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. The Fund may engage in
dollar roll transactions with respect to mortgage backed securities issued
by GNMA, FNMA and FHLMC. In a dollar roll transaction, the Fund sells a
mortgage backed security held in the Fund 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 backed
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.
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.
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 "C". On December 31, 1998, $720,772
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. Also, undistributed net investment income was
increased by $1,167,269, undistributed net realized gain (loss) was decreased
by $1,051,323 and paid-in-capital was decreased by $115,946 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. 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 $8,696,199 (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.
D. 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, 1998, AIM
was reimbursed $80,271 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, 1998, the
Fund paid AFS $286,864 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 compensation at an annual
rate of 1.00% of the average daily net assets of 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
9
<PAGE> 12
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. During the year ended December 31, 1998, the Class A, Class B and Class
C shares paid AIM Distributors $478,781, $1,359,570 and $248,197 respectively,
as compensation under the Plans.
AIM Distributors received commissions of $196,016 from sales of the Class A
shares of the Fund during the year ended December 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. During the year ended December 31, 1998,
AIM Distributors received $108,148 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, 1998, the Fund paid legal fees of $3,924
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
During the year ended December 31, 1998, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) and reductions in custodian
fees of $3,885 and $68, respectively under expense offset arrangements. The
effect of the above arrangements resulted in a reduction of the Fund's total
expenses of $3,953 during the year ended December 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-BORROWINGS
Reverse repurchase agreements involve 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, 1998 was $85,146,250 while
borrowings averaged $25,733,082 per day with a weighted average interest rate of
3.31%.
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.
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) $1,000,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. 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 May 1, 1998, the Fund was limited
to borrowing up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. During the year ended December 31, 1998, 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, 1998 was
$694,080,621 and $477,249,743, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of December 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $ 7,766,451
- ---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (1,807,868)
- ---------------------------------------------------------
Net unrealized appreciation of investment
securities $ 5,958,583
=========================================================
Cost of investments for tax purposes is $609,284,821.
</TABLE>
NOTE 7-SHARE INFORMATION
Changes in shares outstanding during the years ended December 31, 1998 and 1997
were as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Sold:
Class A 29,655,462 $ 283,586,927 6,693,588 $ 62,348,371
- -------------------------------------------------------------------------------
Class B 27,535,042 264,070,374 4,448,136 41,365,183
- -------------------------------------------------------------------------------
Class C* 6,742,689 63,813,508 734,169 6,890,070
- -------------------------------------------------------------------------------
Issued as
reinvestment of
dividends:
Class A 1,069,069 10,191,327 953,629 8,857,846
- -------------------------------------------------------------------------------
Class B 568,105 5,430,298 349,182 3,245,433
- -------------------------------------------------------------------------------
Class C* 143,118 1,253,716 1,978 18,637
- -------------------------------------------------------------------------------
Reacquired:
Class A (22,783,533) (217,508,626) (8,720,230) (80,937,816)
- -------------------------------------------------------------------------------
Class B (12,722,862) (121,830,456) (3,920,140) (36,355,160)
- -------------------------------------------------------------------------------
Class C* (3,103,831) (29,535,779) (540,137) (5,074,580)
- -------------------------------------------------------------------------------
27,103,259 $ 259,471,289 175 $ 357,984
===============================================================================
</TABLE>
* Class C shares commenced sales on August 4, 1997.
10
<PAGE> 13
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A and a share of
Class B outstanding during each of the years in the five-year period ended
December 31, 1998 and for a share of Class C outstanding during the year ended
December 31, 1998 and the period August 4, 1997 (date sales commenced) through
December 31, 1997.
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.46 $ 9.28 $ 9.70 $ 8.99 $ 10.05
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.62 0.63 0.63 0.69 0.68
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net gains (losses) on securities (both realized and
unrealized) 0.13 0.18 (0.42) 0.73 (1.02)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total from investment operations 0.75 0.81 0.21 1.42 (0.34)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.63) (0.61) (0.59) (0.67) (0.58)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Distributions from net realized gains -- -- -- -- (0.04)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Return of capital -- (0.02) (0.04) (0.04) (0.10)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total distributions (0.63) (0.63) (0.63) (0.71) (0.72)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net asset value, end of period $ 9.58 $ 9.46 $ 9.28 $ 9.70 $ 8.99
============================================================ ======== ======== ======== ======== ========
Total return(a) 8.17% 9.07% 2.35% 16.28% (3.44)%
============================================================ ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $245,613 $167,427 $174,344 $176,318 $158,341
============================================================ ======== ======== ======== ======== ========
Ratio of expenses to average net assets (exclusive of
interest expense) 0.96%(b) 1.00% 1.00% 1.08% 1.04%(c)
============================================================ ======== ======== ======== ======== ========
Ratio of net investment income to average net assets 6.43%(b) 6.77% 6.76% 7.36% 7.34%(d)
============================================================ ======== ======== ======== ======== ========
Portfolio turnover rate 147% 99% 134% 140% 109%
============================================================ ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<S> <C>
(a) Does not deduct sales charges.
(b) Ratios are based on average net assets of $191,512,442.
(c) After fee waivers and/or expense reimbursements. Ratio of
expenses to average net assets prior to fee waivers and/or
expense reimbursements was 1.05% for 1994.
(d) After fee waivers and/or expense reimbursements. Ratio of
net investment income to average net assets prior to fee
waivers and/or expense reimbursements was 7.32% for 1994.
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS C
-------------------------------------------------- ------------------
1998 1997 1996 1995 1994 1998 1997
-------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.46 $ 9.28 $ 9.69 $ 8.99 $ 10.04 $ 9.44 $ 9.33
- ----------------------------------------------------- -------- ------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income 0.55 0.56 0.55 0.63 0.61 0.56 0.24
- ----------------------------------------------------- -------- ------- ------- ------- ------- ------- -------
Net gains (losses) on securities (both realized and
unrealized) 0.13 0.17 (0.41) 0.70 (1.02) 0.11 0.10
- ----------------------------------------------------- -------- ------- ------- ------- ------- ------- -------
Total from investment operations 0.68 0.73 0.14 1.33 (0.41) 0.67 0.34
- ----------------------------------------------------- -------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income (0.55) (0.53) (0.51) (0.59) (0.50) (0.55) (0.22)
- ----------------------------------------------------- -------- ------- ------- ------- ------- ------- -------
Distributions from net realized gains -- -- -- -- (0.04) -- --
- ----------------------------------------------------- -------- ------- ------- ------- ------- ------- -------
Return of capital -- (0.02) (0.04) (0.04) (0.10) -- (0.01)
- ----------------------------------------------------- -------- ------- ------- ------- ------- ------- -------
Total distributions (0.55) (0.55) (0.55) (0.63) (0.64) (0.55) (0.23)
- ----------------------------------------------------- -------- ------- ------- ------- ------- ------- -------
Net asset value, end of period $ 9.59 $ 9.46 $ 9.28 $ 9.69 $ 8.99 $ 9.56 $ 9.44
==================================================== ======= ======= ======= ======= ======= ======= =======
Total return(a) 7.40% 8.16% 1.61% 15.22% (4.13)% 7.31% 3.64%
==================================================== ======= ======= ======= ======= ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $237,919 $89,265 $79,443 $61,300 $23,415 $38,026 $ 1,851
==================================================== ======= ======= ======= ======= ======= ======= =======
Ratio of expenses to average net assets (exclusive of
interest expense) 1.72%(b) 1.76% 1.76% 1.86% 1.82%(c) 1.72%(b) 1.76%(d)
==================================================== ======= ======= ======= ======= ======= ======= =======
Ratio of net investment income to average net
assets(e) 5.68%(b) 6.01% 6.00% 6.58% 6.56%(e) 5.68%(b) 6.01%(d)
==================================================== ======= ======= ======= ======= ======= ======= =======
Portfolio turnover rate 147% 99% 134% 140% 109% 147% 99%
==================================================== ======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<S> <C>
(a) Does not deduct contingent deferred sales charges and is not
annualized for periods less than one year.
(b) Ratios are based on average net assets of $136,546,632 and
$24,819,682 for Class B and Class C, respectively.
(c) After fee waivers and/or expense reimbursements. Ratio of
expenses to average net assets prior to fee waivers and/or
expense reimbursements was 1.87% for 1994.
(d) Annualized.
(e) After fee waivers and/or expense reimbursements. Ratio of
net investment income to average net assets prior to fee
waivers and/or expense reimbursements was 6.50% for 1994.
</TABLE>
11
<PAGE> 14
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, 1998, 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 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. Our procedures included confirmation of
securities owned as of December 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 AIM
Intermediate Government Fund as of December 31, 1998, 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 in the five-year period then ended,
in conformity with generally accepted accounting
principles.
KPMG LLP
Houston, Texas
February 5, 1999
12
<PAGE> 15
<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. Dana R. Sutton Houston, TX 77210-4739
Chairman, Mercantile Mortgage Corp.; Vice President and Assistant Treasurer
Formerly Vice Chairman and President, CUSTODIAN
Mercantile-Safe Deposit & Trust Co.; and Robert G. Alley
President, Mercantile Bankshares Vice President State Street Bank and Trust Company
225 Franklin Street
Jack Fields Stuart W. Coco Boston, MA 02110
Chief Executive Officer Vice President
Texana Global, Inc.; COUNSEL TO THE FUND
Formerly Member Melville B. Cox
of the U.S. House of Representatives Vice President Ballard Spahr
Andrews & Ingersoll, LLP
Carl Frischling Karen Dunn Kelley 1735 Market Street
Partner Vice President Philadelphia, PA 19103
Kramer, Levin, Naftalis & Frankel
Jonathan C. Schoolar COUNSEL TO THE TRUSTEES
Robert H. Graham Vice President
President and Chief Executive Officer Kramer, Levin, Naftalis & Frankel
A I M Management Group Inc. Renee A. Friedli 919 Third Avenue
Assistant Secretary New York, NY 10022
Prema Mathai-Davis
Chief Executive Officer, YWCA of the U.S.A., P. Michelle Grace DISTRIBUTOR
Commissioner, New York City Dept. for Assistant Secretary
the Aging; and member of the Board of Directors, A I M Distributors, Inc.
Metropolitan Transportation Authority of Jeffrey H. Kupor 11 Greenway Plaza
New York State Assistant Secretary Suite 100
Houston, TX 77046
Lewis F. Pennock Nancy L. Martin
Attorney Assistant Secretary AUDITORS
Ian W. Robinson Ofelia M. Mayo KPMG LLP
Consultant; Formerly Executive Assistant Secretary 700 Louisiana
Vice President and Houston, TX 77002
Chief Financial Officer Lisa A. Moss
Bell Atlantic Management Assistant Secretary
Services, Inc.
Kathleen J. Pflueger
Louis S. Sklar Assistant Secretary
Executive Vice President
Hines Interests Samuel D. Sirko
Limited Partnership Assistant Secretary
Stephen I. Winer
Assistant Secretary
Mary J. Benson
Assistant Treasurer
</TABLE>
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, $0.552, and $0.552 per share,
respectively, to shareholders during the Fund's tax year ended December 31,
1998.
STATE INCOME TAX INFORMATION
Of the total income dividends paid, 24.56% were derived from U.S. Treasury
obligations.
<PAGE> 16
THE AIM FAMILY OF FUNDS--Registered Trademark--
<TABLE>
<S> <C> <C>
GROWTH FUNDS MONEY MARKET FUNDS A I M Management Group Inc. has
AIM Aggressive Growth Fund(1) AIM Money Market Fund provided leadership in the
AIM Blue Chip Fund AIM Tax-Exempt Cash Fund mutual fund industry since 1976
AIM Capital Development Fund and managed approximately $109
AIM Constellation Fund INTERNATIONAL GROWTH FUNDS billion in assets for more than
AIM Mid Cap Equity Fund(2),(A) AIM Advisor International Value Fund 6.2 million shareholders,
AIM Select Growth Fund(3) AIM Asian Growth Fund including individual investors,
AIM Small Cap Growth Fund(2),(B) AIM Developing Markets Fund(2) corporate clients, and
AIM Small Cap Opportunities Fund AIM Europe Growth Fund(2) financial institutions, as of
AIM Value Fund AIM European Development Fund December 31, 1998.
AIM Weingarten Fund AIM International Equity Fund The AIM Family Of Funds--
AIM Japan Growth Fund(2) Registered Trademark-- is
GROWTH & INCOME FUNDS AIM Latin American Growth Fund(2) distributed nationwide, and AIM
AIM Advisor Flex Fund AIM New Pacific Growth Fund(2) today is the 10th-largest
AIM Advisor Large Cap Value Fund mutual fund complex in the U.S.
AIM Advisor MultiFlex Fund GLOBAL GROWTH FUNDS in assets under management,
AIM Advisor Real Estate Fund AIM Global Aggressive Growth Fund according to Strategic Insight,
AIM Balanced Fund AIM Global Growth Fund an independent mutual fund
AIM Basic Value Fund(2),(C) monitor.
AIM Charter Fund
GLOBAL GROWTH & INCOME FUNDS
INCOME FUNDS AIM Global Growth & Income Fund(2)
AIM Floating Rate Fund(2) AIM Global Utilities Fund
AIM High Yield Fund
AIM High Yield Fund II GLOBAL INCOME FUNDS
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
AIM High Income Municipal Fund THEME FUNDS
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)
AIM Global Resources Fund(2)
AIM Global Telecommunications Fund(2)
AIM Global Trends Fund(2),(E)
</TABLE>
(1) AIM Aggressive Growth Fund reopened to new investors November 16, 1998. (2)
Effective May 29, 1998, A I M 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.
