<PAGE> 1
AIM EUROPE GROWTH FUND
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ADVISOR CLASS
AIM Europe Growth Fund seeks to provide long-term growth of capital.
PROSPECTUS
MAY 3, 1999
This prospectus contains important
information. Please read it before
investing and keep it for future
reference.
The Advisor Class is closed to new
investors.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE
--Registered Trademark--
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AIM EUROPE GROWTH FUND
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TABLE OF CONTENTS
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<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE
FUND 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 2
- - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 2
Performance Table 2
FEE TABLE AND EXPENSE EXAMPLE 3
- - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 3
Expense Example 3
FUND MANAGEMENT 4
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisors 4
Advisor Compensation 4
Portfolio Manager 4
OTHER INFORMATION 4
- - - - - - - - - - - - - - - - - - - - - - - - -
Dividends and Distributions 4
FINANCIAL HIGHLIGHTS 5
- - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - -
Purchasing Shares A-1
Redeeming Shares A-2
Exchanging Shares A-3
Pricing of Shares A-4
Taxes A-4
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com, La
Familia AIM de Fondos, La Familia AIM de Fondos and Design and Invest with
Discipline are registered service marks and AIM Bank Connection is a service
mark of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
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AIM EUROPE GROWTH FUND
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INVESTMENT OBJECTIVE AND STRATEGIES
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The fund's investment objective is long-term growth of capital.
The fund seeks to meet this objective by investing, normally, at least 65% of
its total assets in equity securities of issuers domiciled in eighteen countries
located in Europe. These countries are designated as the fund's primary
investment area, and the list of countries may be revised with the approval of
the fund's Board of Trustees. The fund typically considers a company to be
domiciled in a particular country if it (1) is organized under the laws of a
particular country or has its principal office in a particular country; or (2)
derives 50% or more of its total revenues from business in that country,
provided that, in the view of the portfolio manager, the value of the issuer's
securities tend to reflect such country's development to a greater extent than
developments elsewhere.
The fund may invest up to 35% of its total assets in the equity securities of
issuers domiciled outside of its primary investment area or in U.S. and foreign
investment-grade debt securities, or securities deemed by the portfolio manager
to be of comparable quality. The fund may also invest in securities of issuers
located in developing countries, i.e., those that are in the initial stages of
their industrial cycles.
In selecting investments, the portfolio manager seeks to identify those
countries and industries where political and economic factors, including
currency movements, are likely to produce above-average growth rates. The
portfolio manager then balances the potential benefits with the risks of
investing in those countries and industries. The portfolio manager allocates
investments among fixed-income securities based on his views as to the best
values then available in the marketplace. The portfolio manager considers
whether to sell a particular security when any of those factors materially
changes.
In anticipation of or in response to adverse market conditions, for cash
management purposes, or for defensive purposes, the fund may temporarily hold
all or a portion of its assets in cash (U.S. dollars, foreign currency or
multinational currency units), money market instruments, or high-quality debt
securities. In anticipation of or in response to adverse market conditions or
for defensive purposes, the fund may temporarily invest up to 100% of its total
assets in the securities of U.S. issuers and denominated in U.S. dollars. As a
result, the fund may not achieve its investment objective.
PRINCIPAL RISKS OF INVESTING IN THE FUND
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There is a risk that you could lose all or a portion of your investment in the
fund. The value of your investment in the fund will go up and down with the
prices of the securities in which the fund invests. The prices of equity
securities change in response to many factors, including the historical and
prospective earnings of the issuer, the value of its assets, general economic
conditions, interest rates, investor perceptions, and market liquidity.
Because the fund focuses its investments in European countries, the value of
your shares may rise and fall more than the value of shares of a fund that
invests in a broader geographic region.
The prices of foreign securities may be further affected by other factors,
including:
- - Currency exchange rates--The dollar value of the fund's foreign investments
will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are traded.
- - Political and economic conditions--The value of the fund's investments may be
adversely affected by political and social instability in their home countries
and by changes in economic or taxation policies.
- - Regulations--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available information
about foreign companies than about U.S. companies.
- - Markets--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and more volatile than U.S. securities.
These factors may affect the prices of securities issued by foreign companies
located in developing countries more than those in countries with mature
economies. For example, many developing countries have, in the past, experienced
high rates of inflation or sharply devalued their currencies against the U.S.
dollar, thereby causing the value of investments in companies located in those
countries to decline. Transaction costs are often higher in developing countries
and there may be delays in settlement procedures.
The value of your shares could be adversely affected if the computer systems
used by the fund's investment advisor and other service providers are unable to
distinguish the year 2000 from the year 1900.
The fund's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the fund invests.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
1
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AIM EUROPE GROWTH FUND
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PERFORMANCE INFORMATION
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The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS
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The following bar chart shows changes in the performance of the fund's Advisor
Class shares from year to year.
[GRAPH]
<TABLE>
<CAPTION>
Annual
Year Ended Total
December 31 Return
- ----------- ------
<S> <C>
1996 ....................................... 20.21%
1997 ....................................... 11.64%
1998 ....................................... 16.88%
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
23.46% (quarter ended March 31, 1998) and the lowest quarterly return was
- -21.06% (quarter ended September 30, 1998).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- -----------------------------------------------------------------------
(for the periods ended SINCE INCEPTION
December 31, 1998) 1 YEAR INCEPTION DATE
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Advisor Class 16.88% 15.55% 6/1/95
MSCI AC Europe Index(1) 27.18 22.94(2) 5/31/95(2)
- -----------------------------------------------------------------------
</TABLE>
(1) The Morgan Stanley Capital International All Country Europe Index is an
unmanaged index that is designed to represent the performance of stock
markets in Europe, including both developed and emerging countries.
(2) The average annual total return given is since the date closest to the
inception date of the Advisor Class.
2
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AIM EUROPE GROWTH FUND
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FEE TABLE AND EXPENSE EXAMPLE
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FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- -------------------------------------------------------------------------------
(fees paid directly from
your investment) ADVISOR CLASS
- ---------------------------------------------------
<S> <C>
Maximum Sales Charge (Load) Imposed
on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load)
(as a percentage of original
purchase price or redemption
proceeds, whichever is less) None
- ---------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- -------------------------------------------------------------------------------
(expenses that are deducted
from fund assets) ADVISOR CLASS
- ---------------------------------------------------
<S> <C>
Management Fees 0.98%
Distribution and/or Service
(12b-1) Fees None
Other Expenses:
Other 0.42
Interest 0.27
Total Other Expenses 0.69
Total Annual Fund Operating
Expenses 1.67
- ---------------------------------------------------
</TABLE>
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in the
Advisor Class of the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's operating expenses remain the same. Although your actual returns and
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------
<S> <C> <C> <C> <C>
Advisor Class $170 $526 $907 $1,976
- ----------------------------------------------------
</TABLE>
3
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AIM EUROPE GROWTH FUND
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FUND MANAGEMENT
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THE ADVISORS
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor.
INVESCO Asset Management Ltd. (the subadvisor) an affiliate of the advisor, is
the fund's subadvisor and is responsible for its day-to-day management. The
advisor is located at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173.
The subadvisor is located at 11 Devonshire Square, London, EC2M 4YR, England.
The advisors supervise all aspects of the fund's operations and provide
investment advisory services to the fund, including obtaining and evaluating
economic, statistical and financial information to formulate and implement
investment programs for the fund.
The advisor has acted as an investment advisor since its organization in 1976
and the subadvisor has acted as an investment advisor since its organization in
1967. Today, the advisor, together with its subsidiaries, advises or manages
over 110 investment portfolios, including the fund, encompassing a broad range
of investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended December 31, 1998, the advisor and Chancellor LGT
Asset Management, Inc. (the advisor for the period January 1, 1998 through May
28, 1998) together received compensation of 1.01% of average daily net assets,
consisting of a management and administrative fee of 0.98% and an accounting fee
of 0.03%.
PORTFOLIO MANAGER
The advisor uses a team approach to investment management. The individual member
of the team who is primarily responsible for the day-to-day management of the
fund's portfolio is
- - Steven Chamberlain, Portfolio Manager, who has been responsible for the fund
since 1999 and has been associated with the advisor and/or its affiliates
since 1989.
Other Information
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, annually.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains (including
any net gains from foreign currency transactions), if any, annually.
4
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AIM EUROPE GROWTH FUND
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FINANCIAL HIGHLIGHTS
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The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the fund's financial statements, is included in the fund's annual
report which is available upon request.
<TABLE>
<CAPTION>
ADVISOR CLASS(a)
------------------------------------------
YEAR ENDED DECEMBER 31, JUNE 1, TO
--------------------------- DECEMBER 31,
1998(b) 1997(b) 1996(b) 1995(b)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $14.41 $12.92 $10.85 $10.24
Income from investment operations:
Net investment income (loss) 0.02 0.01 0.01 0.08
Net realized and unrealized gain (loss) on
investments 2.36 1.49 2.18 0.71
Net increase (decrease) from investment
operations 2.38 1.50 2.19 0.79
Distributions to shareholders:
From net investment income -- -- -- (0.14)
From net realized gain on investments (0.97) (0.01) (0.12) (0.04)
In excess of net realized gain on investments -- -- -- --
Total distributions (0.97) (0.01) (0.12) (0.18)
Net asset value, end of period $15.82 $14.41 $12.92 $10.85
Total investment return(c) 16.88% 11.64% 20.21% 7.75%(d)
- --------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (in 000s) $1,643 $3,239 $1,416 $ 718
Ratio of net investment income (loss) to average
net assets 0.15% 0.06% 0.09% 0.73%(e)
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions 1.40% 1.40% 1.47% 1.48%(e)
Without expense reductions 1.40% 1.54% 1.53% 1.54%(e)
Ratio of interest expense to average net
assets(f) 0.27% N/A N/A N/A
Portfolio turnover rate(f) 97% 107% 123% 108%(e)
- --------------------------------------------------------------------------------------------
</TABLE>
(a) Commencing June 1, 1995, the Fund began offering Advisor Class shares.
(b) These selected per share data were calculated based upon average shares
outstanding during the period.
(c) Total investment return does not include sales charges.
(d) Not annualized
(e) Annualized
(f) Portfolio turnover rates and ratio of interest expense to average net assets
are calculated on the basis of the Fund as a whole without distinguishing
between the classes of shares issued.
N/A Not Applicable.
5
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THE AIM FUNDS
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SHAREHOLDER INFORMATION FOR ADVISOR CLASS SHARES
- --------------------------------------------------------------------------------
In addition to the fund, A I M Advisors, Inc. serves as investment advisor to
many other mutual funds (the AIM Funds). The following information is about
Advisor Class shares of all the AIM Funds.
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
The minimum initial investment for Advisor Class shares is $500; and the minimum
investment for purchases of additional Advisor Class shares is $50.
HOW TO PURCHASE SHARES
Shares offered by this prospectus are available for purchase only by certain
investors and are offered at net asset value without the imposition of a
front-end or contingent deferred sales charge or Rule 12b-1 fees. Advisor Class
shares are available through financial consultants (such as financial planners,
trust companies, bank trust departments, and registered investment advisors). In
order to purchase Advisor Class shares of any of the AIM Funds, your financial
consultant, on your behalf, must submit a fully completed new account
application form directly to the transfer agent.
You may purchase shares using one of the options below.
PURCHASE OPTIONS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Through a Financial Consultant Contact your financial consultant. Same
By Mail Must be submitted by your financial Mail your check and the remittance
consultant. slip from your confirmation
statement to the transfer agent.
A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
By Wire Your financial consultant must mail Call the transfer agent to receive
a completed account application to a reference number. Then, use the
the transfer agent. You or your wire instructions at left.
financial consultant may call the
transfer agent at (800) 959-4246 to
receive a reference number. Then,
use the following wire
instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number:
00100366807
Beneficiary Account Name: A I M
Fund Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection(SM) form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase order.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
A-1 ADV--05/99
<PAGE> 9
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THE AIM FUNDS
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SPECIAL PLANS
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in
Advisor Class shares of certain AIM Funds. Unless you specify otherwise, your
dividends and distributions will automatically be reinvested in the same AIM
Fund.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in Advisor Class shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend or distribution
must be at least $5,000; or (b) in the AIM Fund receiving the dividend or
distribution must be at least $500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends and
distributions into another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this program, you can designate how the
total value of your holdings of Advisor Class shares of AIM Funds should be
rebalanced, on a percentage basis, between two and ten of your AIM Funds on a
quarterly, semiannual, or annual basis. Your portfolio will be rebalanced
through the exchange of shares in one or more of your AIM Funds for Advisor
Class shares of one or more other AIM Funds in your portfolio. If you wish to
participate in the Program, make changes or cancel the Program, the transfer
agent must receive your request to participate, changes, or cancellation in good
order at least five business days prior to the next rebalancing date, which is
normally the 28th day of the last month of the period you choose. You may
realize taxable gains from these exchanges. We may modify, suspend, or terminate
the Program at any time on 60 days' prior written notice.
EACH AIM FUND AND THE DISTRIBUTOR RESERVE THE RIGHT AT ANY TIME TO REJECT OR
CANCEL ANY PART OF ANY PURCHASE OR EXCHANGE ORDER; MODIFY ANY TERMS OR
CONDITIONS OF PURCHASE OF SHARES OF ANY AIM FUND; OR WITHDRAW ALL OR ANY PART
OF THE OFFERING MADE BY THIS PROSPECTUS. TO PROTECT THE INTERESTS OF
INVESTORS, EACH AIM FUND AND THE DISTRIBUTOR MAY REJECT ANY ORDER CONSIDERED
MARKET TIMING ACTIVITY.
REDEEMING SHARES
REDEMPTION FEES
No redemption fee is imposed when shares are redeemed or repurchased; however,
dealers/financial institutions may charge service fees for handling repurchase
transactions.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
Consultant
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners;
(2) the name of the AIM Fund and your account number; (3) if
the transfer agent does not hold your shares, endorsed share
certificates or share certificates accompanied by an
executed stock power; and (4) signature guarantees, if
necessary (see below). The transfer agent may require that
you provide additional information, such as corporate
resolutions or powers of attorney, if applicable.
By Telephone Call the transfer agent. You will be allowed to redeem by
telephone if (1) the proceeds are to be mailed to the
address on record with us or transferred electronically to a
pre-authorized checking account; (2) the address on record
with us has not been changed within the last 30 days; (3)
you do not hold physical share certificates; (4) you can
provide proper identification information; (5) the proceeds
of the redemption do not exceed $50,000; and (6) you have
not previously declined the telephone redemption privilege.
The transfer agent must receive your call during the hours
the New York Stock Exchange (NYSE) is open for business in
order to effect the redemption at that day's closing price.
</TABLE>
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ADV--05/99 A-2
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THE AIM FUNDS
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TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds at the address on record with us.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
(1) the amount is greater than $50,000;
(2) you request that payment be made to someone other than the name registered
on the account;
(3) you request that payment be sent somewhere other than the bank of record on
the account; or
(4) you request that payment be sent to a new address or an address that changed
in the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of
financial institutions. Call the transfer agent for additional information.
REDEMPTIONS BY THE AIM FUNDS
If your account has been open at least one year, you have not made an additional
purchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions or
exchanges (excluding retirement accounts), the AIM Funds have the right to
redeem the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500.
If an AIM Fund determines that you have provided incorrect information in
opening an account or in the course of conducting subsequent transactions, the
AIM Fund may, in its discretion, redeem the account and distribute the proceeds
to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange Advisor Class shares in one AIM
Fund for Advisor Class shares of another AIM Fund. You also may exchange Advisor
Class shares for AIM Cash Reserve shares of AIM Money Market Fund. Before
requesting an exchange, review the prospectus of the AIM Fund you wish to
acquire.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be qualified for sale in your
state of residence;
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - The AIM Fund from which you are exchanging must have received the full amount
of the purchase price for the shares being exchanged;
- - Recently acquired shares must have been held in your account for ten business
days, and all other shares must have been held for at least one day, prior to
the exchange; and
- - If you have physical share certificates, you must return them to the transfer
agent prior to the exchange.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the purchase of shares
being acquired in an exchange for up to five business days if it determines that
it would be materially disadvantaged by the immediate transfer of exchange
proceeds.
There is no fee for exchanges. The exchange privilege is not an option or
right to purchase shares. Any of the participating AIM Funds or the distributor
may modify or discontinue this privilege at any time.
BY MAIL
If you wish to make an exchange by mail, you must include original signatures of
each registered owner exactly as the shares are registered, the account
registration and account number, the dollar amount or number of shares to be
exchanged and the names of the AIM Funds from which and into which the exchange
is to be made.
BY TELEPHONE
Conditions that apply to exchanges by telephone are the same as redemptions by
telephone, including that the transfer agent must receive exchange requests
during the hours the NYSE is open for business; however, you still will be
A-3 ADV--05/99
<PAGE> 11
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THE AIM FUNDS
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allowed to exchange by telephone even if you have changed your address of record
within the preceding 30 days.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share.
The AIM Funds value portfolio securities for which market quotations are
readily available at market value. The AIM Funds value short-term investments
maturing within 60 days at amortized cost, which approximates market value. The
AIM Funds value all other securities and assets at their fair value. Securities
and other assets quoted in foreign currencies are valued in U.S. dollars based
on the prevailing exchange rates on that day. In addition, if, between the time
trading ends on a particular security and the close of the NYSE, events occur
that materially affect the value of the security, the AIM Funds may value the
security at its fair value as determined in good faith by or under the
supervision of the Board of Trustees of the AIM Fund. The effect of using fair
value pricing is that an AIM Fund's net asset value will be subject to the
judgment of the Board of Trustees instead of being determined by the market.
Because some of the AIM Funds may invest in securities that are primarily
listed on foreign exchanges, the value of those funds' shares may change on
days when you will not be able to purchase or redeem shares.
Each AIM Fund determines the net asset value of its shares as of the close of
the NYSE on each day the NYSE is open for business.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours the NYSE is open
for business. The AIM Funds price purchase, exchange, and redemption orders
at the net asset value calculated after the transfer agent receives an order in
good form. An AIM Fund may postpone the right of redemption only under unusual
circumstances, as allowed by the Securities and Exchange Commission, such as
when the NYSE restricts or suspends trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund
holds its assets. Different tax rates apply to ordinary income and long-term
capital gain distributions, regardless of how long you have held your shares.
Every year, you will be sent information showing the amount of dividends and
distributions you received from each AIM Fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of AIM
Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
The foreign, state, and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
ADV--05/99 A-4
<PAGE> 12
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AIM EUROPE GROWTH FUND
----------------------
OBTAINING ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Distributors, Inc.
11 Greenway Plaza, Suite
100
Houston, TX 77046-1173
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov) or by sending a letter, including a duplicating fee, to the
SEC's Public Reference Section, Washington, DC 20549-6009. Please call the SEC
at 1-800-SEC-0330 for information about the Public Reference Room.
- --------------------------------------
AIM Europe Growth Fund--Advisor Class
SEC 1940 Act file number: 811-2699
- --------------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com ERG-PRO-2 INVEST WITH DISCIPLINE
--Registered Trademark--
<PAGE> 13
AIM JAPAN GROWTH FUND
------------------------------------------------------------------------
ADVISOR CLASS
AIM Japan Growth Fund seeks to provide long-term growth of capital.
PROSPECTUS
MAY 3, 1999
This prospectus contains important
information. Please read it before
investing and keep it for future
reference.
The Advisor Class is closed to new
investors.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE
-- Registered Trademark --
<PAGE> 14
---------------------
AIM JAPAN GROWTH FUND
---------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE FUND 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 2
- - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 2
Performance Table 2
FEE TABLE AND EXPENSE EXAMPLE 3
- - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 3
Expense Example 3
FUND MANAGEMENT 4
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisors 4
Advisor Compensation 4
Portfolio Manager 4
OTHER INFORMATION 4
- - - - - - - - - - - - - - - - - - - - - - - - -
Dividends and Distributions 4
FINANCIAL HIGHLIGHTS 5
- - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - -
Purchasing Shares A-1
Redeeming Shares A-2
Exchanging Shares A-3
Pricing of Shares A-4
Taxes A-4
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com, La
Familia AIM de Fondos, La Familia AIM de Fondos and Design and Invest with
Discipline are registered service marks and AIM Bank Connection is a service
mark of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such information or representations.
<PAGE> 15
---------------------
AIM JAPAN GROWTH FUND
---------------------
INVESTMENT OBJECTIVE AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's investment objective is long-term growth of capital.
The fund seeks to meet this objective by investing, normally, at least 65% of
its total assets in equity securities of issuers domiciled in Japan. The fund
typically considers a company to be domiciled in Japan if it (1) is organized
under the laws of, or has its principal office in, Japan; or (2) normally
derives 50% or more of its total revenues from business in Japan, provided that,
in the view of the portfolio managers, the value of the issuer's securities tend
to reflect Japan's development to a greater extent than developments elsewhere.
The fund may invest up to 35% of its total assets in the equity securities of
issuers domiciled outside of Japan. The fund may also invest up to 35% of its
total assets in U.S. and foreign investment-grade debt securities, or securities
deemed by the portfolio manager to be of comparable quality.
The fund may also invest in securities of issuers located in developing
countries, i.e., those that are in the initial stages of their industrial
cycles.
In selecting investments, the portfolio manager seeks to identify industries
that, in view of political and economic considerations, including currency
movements, are likely to produce above-average growth rates. The portfolio
manager then balances the potential benefits with the risks of investing in
those industries. The portfolio manager allocates investments among fixed-income
securities based on his views as to the best values then available in the
marketplace. The portfolio manager considers whether to sell a particular
security when any of those factors materially changes.
In anticipation of or in response to adverse market conditions, for cash
management purposes, or for defensive purposes, the fund may temporarily hold
all or a portion of its assets in cash (U.S. dollars, foreign currencies or
multinational currency units), money market instruments, or high-quality debt
securities. As a result, the fund may not achieve its investment objective.
PRINCIPAL RISKS OF INVESTING IN THE FUND
- --------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund. The value of your investment in the fund will go up and down with the
prices of the securities in which the fund invests. The prices of equity
securities change in response to many factors, including the historical and
prospective earnings of the issuer, the value of its assets, general economic
conditions, interest rates, investor perceptions, and market liquidity.
Because the fund focuses its investments in Japan, the value of your shares
may rise and fall more than the value of shares of a fund that invests in a
broader geographic region. Additionally, the market prices of Japanese
securities may be distorted to serve political or other purposes, and
shareholders' rights are not always equally enforced.
The prices of foreign securities may be further affected by other factors,
including:
- - Currency exchange rates--The dollar value of the fund's foreign investments
will be affected by changes in the rates between the dollar and the currencies
in which those investments are traded.
- - Political and economic conditions--The value of the fund's foreign investments
may be adversely affected by political and social instability in their home
countries and by changes in economic or taxation policies in those countries.
- - Regulations--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available information
about foreign companies than about U.S. companies.
- - Markets--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and more volatile than the U.S. securities.
If the seller of a repurchase agreement in which the fund invests defaults on
its obligation or declares bankruptcy, the fund may experience delays in selling
the securities underlying the repurchase agreement. As a result, the fund may
incur losses arising from decline in the value of those securities, reduced
levels of income and expenses of enforcing its rights.
The value of your shares could be adversely affected if the computer systems
used by the fund's investment advisor and other service providers are unable to
distinguish the year 2000 from the year 1900.
The fund's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the fund invests.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
1
<PAGE> 16
---------------------
AIM JAPAN GROWTH FUND
---------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
The following bar chart shows changes in the performance of the fund's Advisor
Class shares from year to year.
[GRAPH]
<TABLE>
<CAPTION>
Annual
Year Ended Total
December 31 Return
- ----------- ------
<S> <C>
1996 ........................................... -7.14%
1997 ........................................... -7.54%
1998 ........................................... -0.31%
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
14.74% (quarter ended June 30, 1997) and the lowest quarterly return was -9.02%
(quarter ended December 31, 1997).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(for the periods ended SINCE INCEPTION
December 31, 1998) 1 YEAR INCEPTION DATE
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
Advisor Class (0.31)% 0.13% 6/1/95
MSCI Japan Index(1) 5.05 (9.15)(2) 5/31/95(2)
- -----------------------------------------------------------
</TABLE>
(1) The Morgan Stanley Capital International Japan Index measures the
performance of 310 securities listed on the Japanese stock exchanges.
(2) The average annual total return given is since the date closest to the
inception date of the Advisor Class.
2
<PAGE> 17
---------------------
AIM JAPAN GROWTH FUND
---------------------
FEE TABLE AND EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) ADVISOR CLASS
- ---------------------------------------------------
<S> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever is less) None
- ---------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets) ADVISOR CLASS
- ---------------------------------------------------
<S> <C>
Management Fees 0.98%
Distribution and/or
Service (12b-1) Fees None
Other Expenses 1.00
Total Annual Fund
Operating Expenses 1.98
Expense Reimbursements(1) 0.33
Net Expenses 1.65
- ---------------------------------------------------
</TABLE>
(1) The investment advisor has contractually agreed to limit net expenses.
EXPENSE EXAMPLE
This example is intended to help you compare the cost of investing in the
Advisor Class of the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's gross operating expenses remain the same. To the extent fees are waived
or expenses are reimbursed, the expenses will be lower. Although your actual
returns and costs may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------
<S> <C> <C> <C> <C>
Advisor Class $201 $621 $1,068 $2,306
- ----------------------------------------------------
</TABLE>
3
<PAGE> 18
---------------------
AIM JAPAN GROWTH FUND
---------------------
FUND MANAGEMENT
- --------------------------------------------------------------------------------
THE ADVISORS
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor.
INVESCO Asset Management (Japan) Limited (the subadvisor), an affiliate of the
advisor, is the fund's subadvisor and is responsible for its day-to-day
management. The advisor is located at 11 Greenway Plaza, Suite 100, Houston,
Texas 77046-1173. The subadvisor is located at Imperial Tower, 1-1-1
Uchisaiwai-cho, Chiyoda-Ku, Tokyo 100-0011. The advisors supervise all aspects
of the fund's operations and provide investment advisory services to the fund,
including obtaining and evaluating economic, statistical and financial
information to formulate and implement investment programs for the fund.
The advisor has acted as an investment advisor since its organization in 1976
and the subadvisor has acted as an investment advisor since its organization in
1990. Today, the advisor, together with its subsidiaries, advises or manages
over 110 investment portfolios, including the fund, encompassing a broad range
of investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended December 31, 1998, the advisor and Chancellor LGT
Asset Management, Inc. (the advisor for the period January 1, 1998 through May
28, 1998) together received compensation of 1.01% of average daily net assets,
consisting of a management and administrative fee of 0.98% and an accounting fee
of 0.03%.
PORTFOLIO MANAGER
The advisor uses a team approach to investment management. The individual member
of the team who is primarily responsible for the day-to-day management of the
fund's portfolio is
- - Andrew Callender, Portfolio Manager, who has been responsible for the fund
since 1997 and has been associated with the advisor and/or its affiliates
since 1990.
OTHER INFORMATION
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, annually.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains (including
any net gains from foreign currency transactions), if any, annually.
4
<PAGE> 19
---------------------
AIM JAPAN GROWTH FUND
---------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the fund's financial statements, is included in the fund's annual
report which is available upon request.
<TABLE>
<CAPTION>
ADVISOR CLASS(a)
-------------------------------- JUNE 1,
YEAR ENDED DECEMBER 31, TO
-------------------------------- DECEMBER 31,
1998(b) 1997(b) 1996(b) 1995(b)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 9.05 $ 9.81 $11.02 $ 10.50
Income from investment operations:
Net investment income (loss) 0.01(c) (0.01) (0.01) (0.00)
Net realized and unrealized gain (loss) on
investments (0.04) (0.73) (0.77) 1.89
Net increase (decrease) from investment
operations (0.03) (0.74) (0.78) 1.89
Distributions to shareholders:
From net realized gain on investments (0.01) (0.02) (0.43) (1.37)
In excess of net realized gain on investments -- -- -- --
Total distributions (0.01) (0.02) (0.43) (1.37)
Net asset value, end of period $ 9.01 $ 9.05 $ 9.81 $ 11.02
- -------------------------------------------------------------------------------------------------
Total investment return (0.31)% (7.54)% (7.14)% 18.14%(d)
Ratios/supplemental data:
Net assets, end of period (in 000s) $ 1,973 $ 30,351 $ 413 $ 558
Ratio of net investment income (loss) to average
net assets 0.16% (0.26)% (0.05)% (0.05)%(e)
Ratio of operating expenses to average net
assets:
With expense reductions and/or reimbursement 1.61% 1.64% 1.49% 1.64%(e)
Without expense reductions and/or
reimbursement 1.98% 1.71% 1.59% 1.79%(e)
Portfolio turnover rate(f) 67% 58% 31% 67%(e)
- -------------------------------------------------------------------------------------------------
</TABLE>
(a) Commencing June 1, 1995, the Fund began offering Advisor Class Shares.
(b) These selected per share data were calculated based upon average shares
outstanding during the period.
(c) Includes reimbursement of Fund operating expenses per share of $0.03.
(d) Not Annualized
(e) Annualized
(f) Portfolio turnover rates are calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
5
<PAGE> 20
-------------
THE AIM FUNDS
-------------
SHAREHOLDER INFORMATION FOR ADVISOR CLASS SHARES
- --------------------------------------------------------------------------------
In addition to the fund, A I M Advisors, Inc. serves as investment advisor to
many other mutual funds (the AIM Funds). The following information is about
Advisor Class shares of all the AIM Funds.
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
The minimum initial investment for Advisor Class shares is $500; and the minimum
investment for purchases of additional Advisor Class shares is $50.
HOW TO PURCHASE SHARES
Shares offered by this prospectus are available for purchase only by certain
investors and are offered at net asset value without the imposition of a
front-end or contingent deferred sales charge or Rule 12b-1 fees. Advisor Class
shares are available through financial consultants (such as financial planners,
trust companies, bank trust departments, and registered investment advisors). In
order to purchase Advisor Class shares of any of the AIM Funds, your financial
consultant, on your behalf, must submit a fully completed new account
application form directly to the transfer agent.
You may purchase shares using one of the options below.
PURCHASE OPTIONS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Through a Financial Consultant Contact your financial consultant. Same
By Mail Must be submitted by your financial Mail your check and the remittance
consultant. slip from your confirmation
statement to the transfer agent.
A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
By Wire Your financial consultant must mail Call the transfer agent to receive
a completed account application to a reference number. Then, use the
the transfer agent. You or your wire instructions at left.
financial consultant may call the
transfer agent at (800) 959-4246 to
receive a reference number. Then,
use the following wire
instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number:
00100366807
Beneficiary Account Name: A I M
Fund Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection(SM) form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase order.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
A-1 ADV--05/99
<PAGE> 21
-------------
THE AIM FUNDS
-------------
SPECIAL PLANS
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in
Advisor Class shares of certain AIM Funds. Unless you specify otherwise, your
dividends and distributions will automatically be reinvested in the same AIM
Fund.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in Advisor Class shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend or distribution
must be at least $5,000; or (b) in the AIM Fund receiving the dividend or
distribution must be at least $500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends and
distributions into another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this program, you can designate how the
total value of your holdings of Advisor Class shares of AIM Funds should be
rebalanced, on a percentage basis, between two and ten of your AIM Funds on a
quarterly, semiannual, or annual basis. Your portfolio will be rebalanced
through the exchange of shares in one or more of your AIM Funds for Advisor
Class shares of one or more other AIM Funds in your portfolio. If you wish to
participate in the Program, make changes or cancel the Program, the transfer
agent must receive your request to participate, changes, or cancellation in good
order at least five business days prior to the next rebalancing date, which is
normally the 28th day of the last month of the period you choose. You may
realize taxable gains from these exchanges. We may modify, suspend, or terminate
the Program at any time on 60 days' prior written notice.
EACH AIM FUND AND THE DISTRIBUTOR RESERVE THE RIGHT AT ANY TIME TO REJECT OR
CANCEL ANY PART OF ANY PURCHASE OR EXCHANGE ORDER; MODIFY ANY TERMS OR
CONDITIONS OF PURCHASE OF SHARES OF ANY AIM FUND; OR WITHDRAW ALL OR ANY PART
OF THE OFFERING MADE BY THIS PROSPECTUS. TO PROTECT THE INTERESTS OF
INVESTORS, EACH AIM FUND AND THE DISTRIBUTOR MAY REJECT ANY ORDER CONSIDERED
MARKET TIMING ACTIVITY.
REDEEMING SHARES
REDEMPTION FEES
No redemption fee is imposed when shares are redeemed or repurchased; however,
dealers/financial institutions may charge service fees for handling repurchase
transactions.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
Consultant
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners;
(2) the name of the AIM Fund and your account number; (3) if
the transfer agent does not hold your shares, endorsed share
certificates or share certificates accompanied by an
executed stock power; and (4) signature guarantees, if
necessary (see below). The transfer agent may require that
you provide additional information, such as corporate
resolutions or powers of attorney, if applicable.
By Telephone Call the transfer agent. You will be allowed to redeem by
telephone if (1) the proceeds are to be mailed to the
address on record with us or transferred electronically to a
pre-authorized checking account; (2) the address on record
with us has not been changed within the last 30 days; (3)
you do not hold physical share certificates; (4) you can
provide proper identification information; (5) the proceeds
of the redemption do not exceed $50,000; and (6) you have
not previously declined the telephone redemption privilege.
The transfer agent must receive your call during the hours
the New York Stock Exchange (NYSE) is open for business in
order to effect the redemption at that day's closing price.
</TABLE>
- --------------------------------------------------------------------------------
ADV--05/99 A-2
<PAGE> 22
-------------
THE AIM FUNDS
-------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds at the address on record with us.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
(1) the amount is greater than $50,000;
(2) you request that payment be made to someone other than the name registered
on the account;
(3) you request that payment be sent somewhere other than the bank of record on
the account; or
(4) you request that payment be sent to a new address or an address that changed
in the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of
financial institutions. Call the transfer agent for additional information.
REDEMPTIONS BY THE AIM FUNDS
If your account has been open at least one year, you have not made an additional
purchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions or
exchanges (excluding retirement accounts), the AIM Funds have the right to
redeem the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500.
If an AIM Fund determines that you have provided incorrect information in
opening an account or in the course of conducting subsequent transactions, the
AIM Fund may, in its discretion, redeem the account and distribute the proceeds
to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange Advisor Class shares in one AIM
Fund for Advisor Class shares of another AIM Fund. You also may exchange Advisor
Class shares for AIM Cash Reserve shares of AIM Money Market Fund. Before
requesting an exchange, review the prospectus of the AIM Fund you wish to
acquire.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be qualified for sale in your
state of residence;
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - The AIM Fund from which you are exchanging must have received the full amount
of the purchase price for the shares being exchanged;
- - Recently acquired shares must have been held in your account for ten business
days, and all other shares must have been held for at least one day, prior to
the exchange; and
- - If you have physical share certificates, you must return them to the transfer
agent prior to the exchange.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the purchase of shares
being acquired in an exchange for up to five business days if it determines that
it would be materially disadvantaged by the immediate transfer of exchange
proceeds.
There is no fee for exchanges. The exchange privilege is not an option or
right to purchase shares. Any of the participating AIM Funds or the distributor
may modify or discontinue this privilege at any time.
BY MAIL
If you wish to make an exchange by mail, you must include original signatures of
each registered owner exactly as the shares are registered, the account
registration and account number, the dollar amount or number of shares to be
exchanged and the names of the AIM Funds from which and into which the exchange
is to be made.
BY TELEPHONE
Conditions that apply to exchanges by telephone are the same as redemptions by
telephone, including that the transfer agent must receive exchange requests
during the hours the NYSE is open for business; however, you still will be
A-3 ADV--05/99
<PAGE> 23
-------------
THE AIM FUNDS
-------------
allowed to exchange by telephone even if you have changed your address of record
within the preceding 30 days.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share.
The AIM Funds value portfolio securities for which market quotations are
readily available at market value. The AIM Funds value short-term investments
maturing within 60 days at amortized cost, which approximates market value. The
AIM Funds value all other securities and assets at their fair value. Securities
and other assets quoted in foreign currencies are valued in U.S. dollars based
on the prevailing exchange rates on that day. In addition, if, between the time
trading ends on a particular security and the close of the NYSE, events occur
that materially affect the value of the security, the AIM Funds may value the
security at its fair value as determined in good faith by or under the
supervision of the Board of Trustees of the AIM Fund. The effect of using fair
value pricing is that an AIM Fund's net asset value will be subject to the
judgment of the Board of Trustees instead of being determined by the market.
Because some of the AIM Funds may invest in securities that are primarily
listed on foreign exchanges, the value of those funds' shares may change on
days when you will not be able to purchase or redeem shares.
Each AIM Fund determines the net asset value of its shares as of the close of
the NYSE on each day the NYSE is open for business.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours the NYSE is open
for business. The AIM Funds price purchase, exchange, and redemption orders
at the net asset value calculated after the transfer agent receives an order in
good form. An AIM Fund may postpone the right of redemption only under unusual
circumstances, as allowed by the Securities and Exchange Commission, such as
when the NYSE restricts or suspends trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund
holds its assets. Different tax rates apply to ordinary income and long-term
capital gain distributions, regardless of how long you have held your shares.
Every year, you will be sent information showing the amount of dividends and
distributions you received from each AIM Fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of AIM
Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
The foreign, state, and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
ADV--05/99 A-4
<PAGE> 24
---------------------
AIM JAPAN GROWTH FUND
---------------------
OBTAINING ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Distributors, Inc.
11 Greenway Plaza,
Suite 100
Houston, TX 77046-1173
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov) or by sending a letter, including a duplicating fee, to the
SEC's Public Reference Section, Washington, DC 20549-6009. Please call the SEC
at 1-800-SEC-0330 for information about the Public Reference Room.
- ---------------------------------------
AIM Japan Growth Fund -- Advisor Class
SEC 1940 Act file number: 811-2699
- ---------------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com JPG-PRO-2 INVEST WITH DISCIPLINE
-- Registered Trademark --
<PAGE> 25
AIM MID CAP EQUITY FUND
- --------------------------------------------------------------------------------
ADVISOR CLASS
AIM Mid Cap Equity Fund seeks to provide long-term growth of capital.
PROSPECTUS
MAY 3, 1999
This prospectus contains important
information. Please
read it before investing and keep it
for future reference.
The Advisor Class is closed to new
investors.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE
--Registered Trademark--
<PAGE> 26
-----------------------
AIM MID CAP EQUITY FUND
-----------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE
FUND 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 2
- - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 2
Performance Table 2
FEE TABLE AND EXPENSE EXAMPLE 3
- - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 3
Expense Example 3
FUND MANAGEMENT 4
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisor 4
Advisor Compensation 4
Portfolio Managers 4
OTHER INFORMATION 4
- - - - - - - - - - - - - - - - - - - - - - - - -
Dividends and Distributions 4
FINANCIAL HIGHLIGHTS 5
- - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - -
Purchasing Shares A-1
Redeeming Shares A-2
Exchanging Shares A-3
Pricing of Shares A-4
Taxes A-4
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com, La
Familia AIM de Fondos, La Familia AIM de Fondos and Design and Invest with
Discipline are registered service marks and AIM Bank Connection is a service
mark of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 27
-----------------------
AIM MID CAP EQUITY FUND
-----------------------
INVESTMENT OBJECTIVE AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's investment objective is long-term growth of capital.
The fund seeks to meet this objective by investing, normally, at least 65% of
its total assets in equity securities of U.S. issuers that have market
capitalizations within the range of market capitalizations of companies included
in the Russell Midcap --Registered Trademark-- Index.
The fund may invest up to 35% of its total assets in equity securities of
other U.S. issuers or investment-grade debt securities of U.S. issuers. The Fund
may also invest up to 25% of its total assets in foreign securities.
In selecting investments, the portfolio managers seek to identify those
companies that are, in their view, undervalued relative to current or projected
earnings, or the current market value of assets owned by the company. The
primary emphasis of the portfolio managers' search for undervalued equity
securities is in four categories: (1) out-of-favor cyclical growth companies;
(2) established growth companies that are undervalued compared to historical
relative valuation parameters; (3) companies where there is early but tangible
evidence of improving prospects which are not yet reflected in the value of the
companies' equity securities; and (4) companies whose equity securities are
selling at prices that do not yet reflect the current market value of their
assets. The portfolio managers consider whether to sell a particular security
when any of these factors materially changes.
In anticipation of or in response to adverse market conditions, for cash
management purposes, or for defensive purposes, the fund may temporarily hold
all or a portion of its assets in cash (U.S. dollars, foreign currencies or
multi-national currency units), money market instruments, or high-quality debt
securities. As a result, the fund may not achieve its investment objective.
The fund may engage in active and frequent trading of portfolio securities to
achieve its investment objective. If the fund does trade in this way, it may
incur increased transaction costs and brokerage commissions, both of which can
lower the actual return on your investment. Active trading may also increase
short-term capital gains and losses, which may affect the taxes you have to pay.
PRINCIPAL RISKS OF INVESTING IN THE FUND
- --------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund. The value of your investment in the fund will go up and down with the
prices of the securities in which the fund invests. The prices of equity
securities change in response to many factors, including the historical and
prospective earnings of the issuer, the value of its assets, general economic
conditions, interest rates, investor perceptions, and market liquidity.
Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, the relative lack of information about these
companies, relatively low market liquidity, and the potential lack of
strict financial and accounting controls and standards.
The value of your shares could be adversely affected if the computer systems
used by the fund's investment advisor and other service providers are unable to
distinguish the year 2000 from the year 1900.
The fund's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the fund invests.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
1
<PAGE> 28
-----------------------
AIM MID CAP EQUITY FUND
-----------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
The following bar chart shows changes in the performance of the fund's Advisor
Class shares from year to year.
[GRAPH]
<TABLE>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURN
----------- -------
<S> <C>
1996 15.72%
1997 14.54%
1998 -4.59%
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
16.96% (quarter ended September 30, 1997) and the lowest quarterly return was
- -25.04% (quarter ended September 30, 1998).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
(for the periods ended SINCE INCEPTION
December 31, 1998) 1 YEAR INCEPTION DATE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Advisor Class (4.59)% 8.26% 6/01/95
Russell Midcap--Registered Trademark --
Index(1) 10.09 20.67(2) 5/31/95(2)
- --------------------------------------------------------------------------------
</TABLE>
1 The Russell Midcap--Registered Trademark-- Index measures the performance of
the smallest 800 companies in the Russell 1000--Registered Trademark-- Index.
These companies are considered representative of medium-sized companies.
2 The average annual total return given is since the date closest to the
inception date of the Advisor Class.
2
<PAGE> 29
-----------------------
AIM MID CAP EQUITY FUND
-----------------------
FEE TABLE AND EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) ADVISOR CLASS
- -----------------------------------------------
<S> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever is less) None
- -----------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets) ADVISOR CLASS
- -----------------------------------------------
<S> <C> <C>
Management Fees 0.73%
Distribution and/or
Service (12b-1) Fees None
Other Expenses 0.49
Total Annual Fund
Operating Expenses 1.22
- -----------------------------------------------
</TABLE>
EXPENSE EXAMPLE
This example is intended to help you compare the cost of investing in the
Advisor Class of the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's operating expenses remain the same. Although your actual returns and
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------
<S> <C> <C> <C> <C>
Advisor Class $124 $387 $670 $1,477
- ----------------------------------------------------
</TABLE>
3
<PAGE> 30
-----------------------
AIM MID CAP EQUITY FUND
-----------------------
FUND MANAGEMENT
- --------------------------------------------------------------------------------
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor and
is responsible for its day-to-day management. The advisor is located at 11
Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The advisor supervises all
aspects of the fund's operations and provides investment advisory services to
the fund, including obtaining and evaluating economic, statistical and financial
information to formulate and implement investment programs for the fund.
The advisor has acted as an investment advisor since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 110
investment portfolios, including the fund, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended December 31, 1998, the advisor and Chancellor LGT
Asset Management, Inc. (the advisor for the period January 1, 1998 through May
28, 1998) together received compensation of 0.76% of average daily net assets,
consisting of a management and administrative fee of 0.73% and an accounting fee
of 0.03%.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual
members of the team who are primarily responsible for the day-to-day management
of the fund's portfolio are
- - Ronald S. Sloan, Senior Portfolio Manager, who has been responsible for the
fund since 1998 and has been associated with the advisor and/or its affiliates
since 1998. From 1993 to 1998, he was President of Verissimo Research &
Management, Inc.
- - Paul J. Rasplicka, Senior Portfolio Manager, who has been responsible for the
fund since 1998 and has been associated with the advisor and/or its affiliates
since 1994.
- - Robert A. Shelton, Portfolio Manager, who has been responsible for the fund
since 1998 and has been associated with the advisor and/or its affiliates
since 1995. Prior to 1995, he was a financial analyst for CS First Boston.
OTHER INFORMATION
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, annually.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains (including
any net gains from foreign currency transactions), if any, annually.
4
<PAGE> 31
-----------------------
AIM MID CAP EQUITY FUND
-----------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the fund's financial statements, is included in the fund's annual
report which is available upon request.
<TABLE>
<CAPTION>
ADVISOR CLASS
----------------------------------------
YEAR ENDED DECEMBER 31, JUNE 1, TO
------------------------- DECEMBER 31,
1998(a) 1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $21.10 $20.76 $19.05 $20.61
Income from investment operations:
Net investment income (0.17)(b) (0.15) 0.09 0.21
Net gains (losses) on securities (both
realized and unrealized) (0.86) 3.05 2.91 1.09
Total from investment operations (1.03) 2.90 3.00 1.30
Less distributions:
Dividends from net investment income -- -- -- (0.28)
Distributions from net realized gains (0.99) (2.56) (1.29) (2.58)
Total distributions (0.99) (2.56) (1.29) (2.86)
Net asset value, end of period $19.08 $21.10 $20.76 $19.05
Total return(c) (4.59)% 14.54% 15.72% 6.01%
- ------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 913 $1,140 $1,986 $1,394
Ratio of expenses to average net assets:
With expense reductions and/or reimbursement 1.21%(d) 1.02% 1.01% 1.11%(e)
Without expense reductions and/or
reimbursement 1.22%(d) 1.13% 1.06% --
Ratio of net investment income to average net
assets
With expense reductions and/or reimbursement (0.74)%(d) 0.55% 0.47% 1.59%(e)
Without expense reductions and/or
reimbursement (0.75)%(d) (0.66)% 0.42% --
Portfolio turnover rate(f) 168% 190% 253% 71%
- ------------------------------------------------------------------------------------------
</TABLE>
(a) The Fund changed investment advisors on May 29, 1998.
(b) Calculated using average shares outstanding.
(c) Not annualized for periods less than one year.
(d) Ratios are based on average net assets of $1,120,683.
(e) Annualized.
(f) Portfolio turnover rates are calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
5
<PAGE> 32
-------------
THE AIM FUNDS
-------------
SHAREHOLDER INFORMATION FOR ADVISOR CLASS SHARES
- --------------------------------------------------------------------------------
In addition to the fund, A I M Advisors, Inc. serves as investment advisor to
many other mutual funds (the AIM Funds). The following information is about
Advisor Class shares of all the AIM Funds.
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
The minimum initial investment for Advisor Class shares is $500; and the minimum
investment for purchases of additional Advisor Class shares is $50.
HOW TO PURCHASE SHARES
Shares offered by this prospectus are available for purchase only by certain
investors and are offered at net asset value without the imposition of a
front-end or contingent deferred sales charge or Rule 12b-1 fees. Advisor Class
shares are available through financial consultants (such as financial planners,
trust companies, bank trust departments, and registered investment advisors). In
order to purchase Advisor Class shares of any of the AIM Funds, your financial
consultant, on your behalf, must submit a fully completed new account
application form directly to the transfer agent.
You may purchase shares using one of the options below.
PURCHASE OPTIONS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Through a Financial Consultant Contact your financial consultant. Same
By Mail Must be submitted by your financial Mail your check and the remittance
consultant. slip from your confirmation
statement to the transfer agent.
A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
By Wire Your financial consultant must mail Call the transfer agent to receive
a completed account application to a reference number. Then, use the
the transfer agent. You or your wire instructions at left.
financial consultant may call the
transfer agent at (800) 959-4246 to
receive a reference number. Then,
use the following wire
instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number:
00100366807
Beneficiary Account Name: A I M
Fund Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection(SM) form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase order.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
A-1 ADV--05/99
<PAGE> 33
-------------
THE AIM FUNDS
-------------
SPECIAL PLANS
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in
Advisor Class shares of certain AIM Funds. Unless you specify otherwise, your
dividends and distributions will automatically be reinvested in the same AIM
Fund.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in Advisor Class shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend or distribution
must be at least $5,000; or (b) in the AIM Fund receiving the dividend or
distribution must be at least $500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends and
distributions into another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this program, you can designate how the
total value of your holdings of Advisor Class shares of AIM Funds should be
rebalanced, on a percentage basis, between two and ten of your AIM Funds on a
quarterly, semiannual, or annual basis. Your portfolio will be rebalanced
through the exchange of shares in one or more of your AIM Funds for Advisor
Class shares of one or more other AIM Funds in your portfolio. If you wish to
participate in the Program, make changes or cancel the Program, the transfer
agent must receive your request to participate, changes, or cancellation in good
order at least five business days prior to the next rebalancing date, which is
normally the 28th day of the last month of the period you choose. You may
realize taxable gains from these exchanges. We may modify, suspend, or terminate
the Program at any time on 60 days' prior written notice.
EACH AIM FUND AND THE DISTRIBUTOR RESERVE THE RIGHT AT ANY TIME TO REJECT OR
CANCEL ANY PART OF ANY PURCHASE OR EXCHANGE ORDER; MODIFY ANY TERMS OR
CONDITIONS OF PURCHASE OF SHARES OF ANY AIM FUND; OR WITHDRAW ALL OR ANY PART
OF THE OFFERING MADE BY THIS PROSPECTUS. TO PROTECT THE INTERESTS OF
INVESTORS, EACH AIM FUND AND THE DISTRIBUTOR MAY REJECT ANY ORDER CONSIDERED
MARKET TIMING ACTIVITY.
REDEEMING SHARES
REDEMPTION FEES
No redemption fee is imposed when shares are redeemed or repurchased; however,
dealers/financial institutions may charge service fees for handling repurchase
transactions.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
Consultant
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners;
(2) the name of the AIM Fund and your account number; (3) if
the transfer agent does not hold your shares, endorsed share
certificates or share certificates accompanied by an
executed stock power; and (4) signature guarantees, if
necessary (see below). The transfer agent may require that
you provide additional information, such as corporate
resolutions or powers of attorney, if applicable.
By Telephone Call the transfer agent. You will be allowed to redeem by
telephone if (1) the proceeds are to be mailed to the
address on record with us or transferred electronically to a
pre-authorized checking account; (2) the address on record
with us has not been changed within the last 30 days; (3)
you do not hold physical share certificates; (4) you can
provide proper identification information; (5) the proceeds
of the redemption do not exceed $50,000; and (6) you have
not previously declined the telephone redemption privilege.
The transfer agent must receive your call during the hours
the New York Stock Exchange (NYSE) is open for business in
order to effect the redemption at that day's closing price.
</TABLE>
- --------------------------------------------------------------------------------
ADV--05/99 A-2
<PAGE> 34
-------------
THE AIM FUNDS
-------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds at the address on record with us.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
(1) the amount is greater than $50,000;
(2) you request that payment be made to someone other than the name registered
on the account;
(3) you request that payment be sent somewhere other than the bank of record on
the account; or
(4) you request that payment be sent to a new address or an address that changed
in the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of
financial institutions. Call the transfer agent for additional information.
REDEMPTIONS BY THE AIM FUNDS
If your account has been open at least one year, you have not made an additional
purchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions or
exchanges (excluding retirement accounts), the AIM Funds have the right to
redeem the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500.
If an AIM Fund determines that you have provided incorrect information in
opening an account or in the course of conducting subsequent transactions, the
AIM Fund may, in its discretion, redeem the account and distribute the proceeds
to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange Advisor Class shares in one AIM
Fund for Advisor Class shares of another AIM Fund. You also may exchange Advisor
Class shares for AIM Cash Reserve shares of AIM Money Market Fund. Before
requesting an exchange, review the prospectus of the AIM Fund you wish to
acquire.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be qualified for sale in your
state of residence;
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - The AIM Fund from which you are exchanging must have received the full amount
of the purchase price for the shares being exchanged;
- - Recently acquired shares must have been held in your account for ten business
days, and all other shares must have been held for at least one day, prior to
the exchange; and
- - If you have physical share certificates, you must return them to the transfer
agent prior to the exchange.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the purchase of shares
being acquired in an exchange for up to five business days if it determines that
it would be materially disadvantaged by the immediate transfer of exchange
proceeds.
There is no fee for exchanges. The exchange privilege is not an option or
right to purchase shares. Any of the participating AIM Funds or the distributor
may modify or discontinue this privilege at any time.
BY MAIL
If you wish to make an exchange by mail, you must include original signatures of
each registered owner exactly as the shares are registered, the account
registration and account number, the dollar amount or number of shares to be
exchanged and the names of the AIM Funds from which and into which the exchange
is to be made.
BY TELEPHONE
Conditions that apply to exchanges by telephone are the same as redemptions by
telephone, including that the transfer agent must receive exchange requests
during the hours the NYSE is open for business; however, you still will be
A-3 ADV--05/99
<PAGE> 35
-------------
THE AIM FUNDS
-------------
allowed to exchange by telephone even if you have changed your address of record
within the preceding 30 days.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share.
The AIM Funds value portfolio securities for which market quotations are
readily available at market value. The AIM Funds value short-term investments
maturing within 60 days at amortized cost, which approximates market value. The
AIM Funds value all other securities and assets at their fair value. Securities
and other assets quoted in foreign currencies are valued in U.S. dollars based
on the prevailing exchange rates on that day. In addition, if, between the time
trading ends on a particular security and the close of the NYSE, events occur
that materially affect the value of the security, the AIM Funds may value the
security at its fair value as determined in good faith by or under the
supervision of the Board of Trustees of the AIM Fund. The effect of using fair
value pricing is that an AIM Fund's net asset value will be subject to the
judgment of the Board of Trustees instead of being determined by the market.
Because some of the AIM Funds may invest in securities that are primarily
listed on foreign exchanges, the value of those funds' shares may change on
days when you will not be able to purchase or redeem shares.
Each AIM Fund determines the net asset value of its shares as of the close of
the NYSE on each day the NYSE is open for business.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours the NYSE is open
for business. The AIM Funds price purchase, exchange, and redemption orders
at the net asset value calculated after the transfer agent receives an order in
good form. An AIM Fund may postpone the right of redemption only under unusual
circumstances, as allowed by the Securities and Exchange Commission, such as
when the NYSE restricts or suspends trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund
holds its assets. Different tax rates apply to ordinary income and long-term
capital gain distributions, regardless of how long you have held your shares.
Every year, you will be sent information showing the amount of dividends and
distributions you received from each AIM Fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of AIM
Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
The foreign, state, and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
ADV--05/99 A-4
<PAGE> 36
-----------------------
AIM MID CAP EQUITY FUND
-----------------------
OBTAINING ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Distributors, Inc.
11 Greenway Plaza, Suite
100
Houston, TX 77046-1173
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov) or by sending a letter, including a duplicating fee, to the
SEC's Public Reference Section, Washington, DC 20549-6009. Please call the SEC
at 1-800-SEC-0330 for information about the Public Reference Room.
- ---------------------------------------
AIM Mid Cap Equity Fund--Advisor Class
SEC 1940 Act file number: 811-2699
- ---------------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com MCE-PRO-2 INVEST WITH DISCIPLINE
-- Registered Trademark --
<PAGE> 37
AIM NEW PACIFIC GROWTH FUND
------------------------------------------------------------------------
ADVISOR CLASS
AIM New Pacific Growth Fund seeks to provide long-term growth of
capital.
PROSPECTUS
MAY 3, 1999
This prospectus contains important
information. Please read it before
investing and keep it for future
reference.
The Advisor Class is closed to new
investors.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE
-- Registered Trademark --
<PAGE> 38
---------------------------
AIM NEW PACIFIC GROWTH FUND
---------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE FUND 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 2
- - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 2
Performance Table 2
FEE TABLE AND EXPENSE EXAMPLE 3
- - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 3
Expense Example 3
FUND MANAGEMENT 4
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisors 4
Advisor Compensation 4
Portfolio Managers 4
OTHER INFORMATION 4
- - - - - - - - - - - - - - - - - - - - - - - - -
Dividends and Distributions 4
FINANCIAL HIGHLIGHTS 5
- - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - -
Purchasing Shares A-1
Redeeming Shares A-2
Exchanging Shares A-3
Pricing of Shares A-4
Taxes A-4
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com, La
Familia AIM de Fondos, La Familia AIM de Fondos and Design and Invest with
Discipline are registered service marks and AIM Bank Connection is a service
mark of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 39
---------------------------
AIM NEW PACIFIC GROWTH FUND
---------------------------
INVESTMENT OBJECTIVE AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's investment objective is long-term growth of capital.
The fund seeks to meet this objective by investing, normally, at least 65% of
its total assets in equity securities of issuers domiciled in twelve countries,
other than Japan, located in the Pacific region, including developing countries,
i.e., those that are in the initial stages of their industrial cycles. These
countries are designated as the fund's primary investment area, and the list of
countries may be revised with the approval of the fund's Board of Trustees. The
fund typically considers a company to be domiciled in a particular country if
it (1) is organized under the laws of a particular country or has a principal
office in a particular country; or (2) derives 50% or more of its total
revenues from business in that country, provided that, in the view of the
portfolio managers, the value of the issuers' securities tend to reflect such
country's development to a greater extent than developments elsewhere.
The fund may invest up to 35% of its total assets in equity securities of
issuers domiciled outside of its primary investment area, including developing
countries. The fund may also invest up to 35% of its total assets in U.S. and
foreign investment-grade debt securities, or securities deemed by the portfolio
managers to be of comparable quality. The fund may invest in securities of
issuers located in developing countries, i.e., those that are in the initial
stages of their industrial cycles.
In selecting investments, the portfolio managers seek to identify those
countries and industries where political and economic factors, including
currency movements, are likely to produce above-average growth rates. The
portfolio managers then balance the potential benefits with the risks of
investing in those countries and industries. The portfolio managers allocate
investments among fixed-income securities based on their views as to the best
values then available in the marketplace. The portfolio managers consider
whether to sell a particular security when any of those factors materially
changes.
In anticipation of or in response to adverse market conditions, for cash
management purposes, or for defensive purposes, the fund may temporarily hold
all or a portion of its assets in cash (U.S. dollars, foreign currencies or
multinational currency units), money market instruments, or high-quality debt
securities. As a result, the fund may not achieve its investment objective.
PRINCIPAL RISKS OF INVESTING IN THE FUND
- --------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund. The value of your investment in the fund will go up and down with the
prices of the securities in which the fund invests. The prices of equity
securities change in response to many factors, including the historical and
prospective earnings of the issuer, the value of its assets, general economic
conditions, interest rates, investor perceptions, and market liquidity.
The value of the fund's shares is particularly vulnerable to factors affecting
Pacific region countries, such as substantial economic or regulatory changes.
Because the fund focuses its investments in Pacific region countries, the value
of your shares may rise and fall more than the value of shares of a fund that
invests more broadly.
The prices of foreign securities may be further affected by other factors,
including:
- - Currency exchange rates--The dollar value of the fund's foreign investments
will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are traded.
- - Political and economic conditions--The value of the fund's foreign investments
may be adversely affected by political and social instability in their home
countries and by changes in economic or taxation policies in those countries.
- - Regulations--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available information
about foreign companies than about U.S. companies.
- - Markets--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and more volatile than U.S. securities.
These factors may affect the prices of securities issued by foreign companies
located in developing countries more than those in countries with mature
economies. For example, many developing countries have, in the past, experienced
high rates of inflation or sharply devaluated their currencies against the U.S.
dollar, thereby causing the value of investments in companies located in those
countries to decline. Transaction costs are often higher in developing countries
and there may be delays in settlement procedures.
The value of your shares could be adversely affected if the computer systems
used by the fund's investment advisor and other service providers are unable to
distinguish the year 2000 from the year 1900.
The fund's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the fund invests.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
1
<PAGE> 40
---------------------------
AIM NEW PACIFIC GROWTH FUND
---------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
The following bar chart shows changes in the performance of the fund's Advisor
Class shares from year to year.
[GRAPH]
<TABLE>
<CAPTION>
Annual
Year Ended Total
December 31 Return
- ----------- ------
<S> <C>
1996 ................................. 20.56%
1997 ................................. -44.26%
1998 ................................. -18.51%
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
17.58% (quarter ended December 31, 1998) and the lowest quarterly return was
- -31.57% (quarter ended December 31, 1997).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(for the periods ended SINCE INCEPTION
December 31, 1998) 1 YEAR INCEPTION DATE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advisor Class (18.51)% (15.60)% 6/1/95
MSCI AC Pacific Free ex-Japan Index(1) (2.07) (8.75)(2) 5/31/95(2)
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) The Morgan Stanley Capital International All Country Pacific Free ex-Japan
Index measures the performance of 11 developed and emerging countries in the
Pacific rim, excluding Japan. The index excludes shares that are not readily
purchased by non-local investors.
(2) The average annual total return given is since the date closest to the
inception date of the Advisor Class.
2
<PAGE> 41
---------------------------
AIM NEW PACIFIC GROWTH FUND
---------------------------
FEE TABLE AND EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from your
investment) ADVISOR CLASS
- ---------------------------------------------------
<S> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever is less) None
- ---------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets) ADVISOR CLASS
- ---------------------------------------------------
<S> <C>
Management Fees 0.98%
Distribution and/or
Service (12b-1) Fees None
Other Expenses 1.07
Total Annual Fund
Operating Expenses 2.05
Expense Reimbursement(1) 0.40
Net Expenses 1.65
- ---------------------------------------------------
</TABLE>
(1) The investment advisor has contractually agreed to limit net expenses.
EXPENSE EXAMPLE
This example is intended to help you compare the cost of investing in the
Advisor Class of the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's gross operating expenses remain the same. To the extent fees are waived
or expenses are reimbursed, the expense will be lower. Although your actual
returns and costs may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------
<S> <C> <C> <C> <C>
Advisor Class $208 $643 $1,103 $2,379
- ----------------------------------------------------
</TABLE>
3
<PAGE> 42
---------------------------
AIM NEW PACIFIC GROWTH FUND
---------------------------
FUND MANAGEMENT
- --------------------------------------------------------------------------------
THE ADVISORS
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor.
INVESCO Asia Limited (the subadvisor) an affiliate of the advisor, is the fund's
subadvisor and is responsible for its day-to-day management. The advisor is
located at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The
subadvisor is located at 12/F, Three Exchange Square, 8 Connaught Place, Hong
Kong. The advisors supervise all aspects of the fund's operations and provide
investment advisory services to the fund, including obtaining and evaluating
economic, statistical and financial information to formulate and implement
investment programs for the fund.
The advisor has acted as an investment advisor since its organization in 1976
and the subadvisor has acted as an investment advisor since its organization in
1972. Today, the advisor, together with its subsidiaries, advises or manages
over 110 investment portfolios, including the fund, encompassing a broad range
of investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended December 31, 1998, the advisor and Chancellor LGT
Asset Management, Inc. (the advisor for the period January 1, 1998 through May
28, 1998) together received compensation of 1.01% of average daily net assets,
consisting of a management and administrative fee of 0.98% and an accounting fee
of 0.03%.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual
members of the team who are primarily responsible for the day-to-day management
of the fund's portfolio are
- - Anna Tong, Portfolio Manager, who has been responsible for the fund since 1998
and has been associated with the advisor and/or its affiliates since 1985.
- - Sammy Lau, Portfolio Manager, who has been responsible for the fund since 1998
and has been associated with the advisor and/or its affiliates since December
1994. From November 1993 to November 1994, he was an Associate at J.P. Morgan
(Hong Kong).
OTHER INFORMATION
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, annually.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains (including
any net gains from foreign currency transactions), if any, annually.
4
<PAGE> 43
---------------------------
AIM NEW PACIFIC GROWTH FUND
---------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the fund's financial statements, is included in the fund's annual
report which is available upon request.
<TABLE>
<CAPTION>
ADVISOR CLASS(a)
------------------------------------------
YEAR ENDED DECEMBER 31, JUNE 1, TO
--------------------------- DECEMBER 31,
1998(b) 1997(b) 1996(b) 1995(b)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 6.45 $13.16 $12.45 $12.89
Income from investment operations:
Net investment income (loss) 0.08(c) 0.08 0.07 0.09
Net realized and unrealized gain (loss) on
investments (1.28) (5.89) 2.45 0.05
Net increase (decrease) from investment
operations (1.20) (5.81) 2.52 0.14
Distributions to shareholders:
From net investment income (0.07) (0.08) -- (0.15)
From net realized gain on investments -- (0.82) (1.81) (0.43)
In excess of net investment income -- -- -- --
In excess of net realized gain on investments -- -- -- --
Total distributions (0.07) (0.90) (1.81) (0.58)
Net asset value, end of period $ 5.18 $ 6.45 $13.16 $12.45
Total investment return (18.51)% (44.26)% 20.56% 1.07%(d)
- --------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (in 000s) $1,402 $1,488 $1,575 $ 935
Ratio of net investment income (loss) to average
net assets 1.65% 0.76% 0.52% 1.26%(e)
Ratio of expenses to average net assets:
With expense reductions and/or reimbursement 1.65% 1.31% 1.51% 1.54%(e)
Without expense reductions and/or
reimbursement 2.05% 1.58% 1.64% 1.59%(e)
Portfolio turnover rate(f) 96% 80% 93% 63%(e)
- --------------------------------------------------------------------------------------------
</TABLE>
(a) Commencing June 1, 1995, the Fund began offering Advisor Class shares.
(b) These selected per share data were calculated based upon average shares
outstanding during the period.
(c) Includes reimbursement of Fund operating expenses per share of $0.02.
(d) Not annualized.
(e) Annualized.
(f) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
5
<PAGE> 44
-------------
THE AIM FUNDS
-------------
SHAREHOLDER INFORMATION FOR ADVISOR CLASS SHARES
- --------------------------------------------------------------------------------
In addition to the fund, A I M Advisors, Inc. serves as investment advisor to
many other mutual funds (the AIM Funds). The following information is about
Advisor Class shares of all the AIM Funds.
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
The minimum initial investment for Advisor Class shares is $500; and the minimum
investment for purchases of additional Advisor Class shares is $50.
HOW TO PURCHASE SHARES
Shares offered by this prospectus are available for purchase only by certain
investors and are offered at net asset value without the imposition of a
front-end or contingent deferred sales charge or Rule 12b-1 fees. Advisor Class
shares are available through financial consultants (such as financial planners,
trust companies, bank trust departments, and registered investment advisors). In
order to purchase Advisor Class shares of any of the AIM Funds, your financial
consultant, on your behalf, must submit a fully completed new account
application form directly to the transfer agent.
You may purchase shares using one of the options below.
PURCHASE OPTIONS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Through a Financial Consultant Contact your financial consultant. Same
By Mail Must be submitted by your financial Mail your check and the remittance
consultant. slip from your confirmation
statement to the transfer agent.
A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
By Wire Your financial consultant must mail Call the transfer agent to receive
a completed account application to a reference number. Then, use the
the transfer agent. You or your wire instructions at left.
financial consultant may call the
transfer agent at (800) 959-4246 to
receive a reference number. Then,
use the following wire
instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number:
00100366807
Beneficiary Account Name: A I M
Fund Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection(SM) form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase order.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
A-1 ADV--05/99
<PAGE> 45
-------------
THE AIM FUNDS
-------------
SPECIAL PLANS
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in
Advisor Class shares of certain AIM Funds. Unless you specify otherwise, your
dividends and distributions will automatically be reinvested in the same AIM
Fund.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in Advisor Class shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend or distribution
must be at least $5,000; or (b) in the AIM Fund receiving the dividend or
distribution must be at least $500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends and
distributions into another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this program, you can designate how the
total value of your holdings of Advisor Class shares of AIM Funds should be
rebalanced, on a percentage basis, between two and ten of your AIM Funds on a
quarterly, semiannual, or annual basis. Your portfolio will be rebalanced
through the exchange of shares in one or more of your AIM Funds for Advisor
Class shares of one or more other AIM Funds in your portfolio. If you wish to
participate in the Program, make changes or cancel the Program, the transfer
agent must receive your request to participate, changes, or cancellation in good
order at least five business days prior to the next rebalancing date, which is
normally the 28th day of the last month of the period you choose. You may
realize taxable gains from these exchanges. We may modify, suspend, or terminate
the Program at any time on 60 days' prior written notice.
EACH AIM FUND AND THE DISTRIBUTOR RESERVE THE RIGHT AT ANY TIME TO REJECT OR
CANCEL ANY PART OF ANY PURCHASE OR EXCHANGE ORDER; MODIFY ANY TERMS OR
CONDITIONS OF PURCHASE OF SHARES OF ANY AIM FUND; OR WITHDRAW ALL OR ANY PART
OF THE OFFERING MADE BY THIS PROSPECTUS. TO PROTECT THE INTERESTS OF
INVESTORS, EACH AIM FUND AND THE DISTRIBUTOR MAY REJECT ANY ORDER CONSIDERED
MARKET TIMING ACTIVITY.
REDEEMING SHARES
REDEMPTION FEES
No redemption fee is imposed when shares are redeemed or repurchased; however,
dealers/financial institutions may charge service fees for handling repurchase
transactions.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
Consultant
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners;
(2) the name of the AIM Fund and your account number; (3) if
the transfer agent does not hold your shares, endorsed share
certificates or share certificates accompanied by an
executed stock power; and (4) signature guarantees, if
necessary (see below). The transfer agent may require that
you provide additional information, such as corporate
resolutions or powers of attorney, if applicable.
By Telephone Call the transfer agent. You will be allowed to redeem by
telephone if (1) the proceeds are to be mailed to the
address on record with us or transferred electronically to a
pre-authorized checking account; (2) the address on record
with us has not been changed within the last 30 days; (3)
you do not hold physical share certificates; (4) you can
provide proper identification information; (5) the proceeds
of the redemption do not exceed $50,000; and (6) you have
not previously declined the telephone redemption privilege.
The transfer agent must receive your call during the hours
the New York Stock Exchange (NYSE) is open for business in
order to effect the redemption at that day's closing price.
</TABLE>
- --------------------------------------------------------------------------------
ADV--05/99 A-2
<PAGE> 46
-------------
THE AIM FUNDS
-------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds at the address on record with us.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
(1) the amount is greater than $50,000;
(2) you request that payment be made to someone other than the name registered
on the account;
(3) you request that payment be sent somewhere other than the bank of record on
the account; or
(4) you request that payment be sent to a new address or an address that changed
in the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of
financial institutions. Call the transfer agent for additional information.
REDEMPTIONS BY THE AIM FUNDS
If your account has been open at least one year, you have not made an additional
purchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions or
exchanges (excluding retirement accounts), the AIM Funds have the right to
redeem the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500.
If an AIM Fund determines that you have provided incorrect information in
opening an account or in the course of conducting subsequent transactions, the
AIM Fund may, in its discretion, redeem the account and distribute the proceeds
to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange Advisor Class shares in one AIM
Fund for Advisor Class shares of another AIM Fund. You also may exchange Advisor
Class shares for AIM Cash Reserve shares of AIM Money Market Fund. Before
requesting an exchange, review the prospectus of the AIM Fund you wish to
acquire.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be qualified for sale in your
state of residence;
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - The AIM Fund from which you are exchanging must have received the full amount
of the purchase price for the shares being exchanged;
- - Recently acquired shares must have been held in your account for ten business
days, and all other shares must have been held for at least one day, prior to
the exchange; and
- - If you have physical share certificates, you must return them to the transfer
agent prior to the exchange.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the purchase of shares
being acquired in an exchange for up to five business days if it determines that
it would be materially disadvantaged by the immediate transfer of exchange
proceeds.
There is no fee for exchanges. The exchange privilege is not an option or
right to purchase shares. Any of the participating AIM Funds or the distributor
may modify or discontinue this privilege at any time.
BY MAIL
If you wish to make an exchange by mail, you must include original signatures of
each registered owner exactly as the shares are registered, the account
registration and account number, the dollar amount or number of shares to be
exchanged and the names of the AIM Funds from which and into which the exchange
is to be made.
BY TELEPHONE
Conditions that apply to exchanges by telephone are the same as redemptions by
telephone, including that the transfer agent must receive exchange requests
during the hours the NYSE is open for business; however, you still will be
A-3 ADV--05/99
<PAGE> 47
-------------
THE AIM FUNDS
-------------
allowed to exchange by telephone even if you have changed your address of record
within the preceding 30 days.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share.
The AIM Funds value portfolio securities for which market quotations are
readily available at market value. The AIM Funds value short-term investments
maturing within 60 days at amortized cost, which approximates market value. The
AIM Funds value all other securities and assets at their fair value. Securities
and other assets quoted in foreign currencies are valued in U.S. dollars based
on the prevailing exchange rates on that day. In addition, if, between the time
trading ends on a particular security and the close of the NYSE, events occur
that materially affect the value of the security, the AIM Funds may value the
security at its fair value as determined in good faith by or under the
supervision of the Board of Trustees of the AIM Fund. The effect of using fair
value pricing is that an AIM Fund's net asset value will be subject to the
judgment of the Board of Trustees instead of being determined by the market.
Because some of the AIM Funds may invest in securities that are primarily
listed on foreign exchanges, the value of those funds' shares may change on
days when you will not be able to purchase or redeem shares.
Each AIM Fund determines the net asset value of its shares as of the close of
the NYSE on each day the NYSE is open for business.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours the NYSE is open
for business. The AIM Funds price purchase, exchange, and redemption orders
at the net asset value calculated after the transfer agent receives an order in
good form. An AIM Fund may postpone the right of redemption only under unusual
circumstances, as allowed by the Securities and Exchange Commission, such as
when the NYSE restricts or suspends trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund
holds its assets. Different tax rates apply to ordinary income and long-term
capital gain distributions, regardless of how long you have held your shares.
Every year, you will be sent information showing the amount of dividends and
distributions you received from each AIM Fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of AIM
Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
The foreign, state, and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
ADV--05/99 A-4
<PAGE> 48
---------------------------
AIM NEW PACIFIC GROWTH FUND
---------------------------
OBTAINING ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Distributors, Inc.
11 Greenway Plaza,
Suite 100
Houston, TX 77046-1173
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov) or by sending a letter, including a duplicating fee, to the
SEC's Public Reference Section, Washington, DC 20549-6009. Please call the SEC
at 1-800-SEC-0330 for information about the Public Reference Room.
- --------------------------------------------
AIM New Pacific Growth Fund--Advisor Class
SEC 1940 Act file number: 811-2699
- --------------------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com NPG-PRO-2 INVEST WITH DISCIPLINE
-- Registered Trademark --
<PAGE> 49
STATEMENT OF
ADDITIONAL INFORMATION
ADVISOR CLASS SHARES OF
AIM EUROPE GROWTH FUND
AIM JAPAN GROWTH FUND
AIM MID CAP EQUITY FUND
AIM NEW PACIFIC GROWTH FUND
(SERIES PORTFOLIOS OF
AIM GROWTH SERIES)
11 GREENWAY PLAZA
SUITE 100
HOUSTON, TX 77046-1173
(713) 626-1919
---------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND
IT SHOULD BE READ IN CONJUNCTION WITH A PROSPECTUS OF THE
ABOVE-NAMED FUNDS, A COPY OF WHICH MAY BE OBTAINED FREE
OF CHARGE FROM AUTHORIZED DEALERS OR BY WRITING
A I M DISTRIBUTORS, INC.,
P.O. BOX 4739, HOUSTON, TX 77210-4739
OR BY CALLING (800) 347-4246.
---------------------
STATEMENT OF ADDITIONAL INFORMATION DATED MAY 3, 1999
RELATING TO THE AIM EUROPE GROWTH FUND PROSPECTUS, THE AIM JAPAN GROWTH FUND
PROSPECTUS, THE AIM MID CAP EQUITY FUND PROSPECTUS AND THE AIM NEW PACIFIC
GROWTH FUND PROSPECTUS
EACH DATED MAY 3, 1999
<PAGE> 50
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
INTRODUCTION................................................ 4
GENERAL INFORMATION ABOUT THE FUNDS......................... 4
The Trust and its Shares.................................. 4
INVESTMENT POLICIES......................................... 5
Selection of Investments.................................. 6
Investments in Other Investment Companies................. 7
Samurai and Yankee Bonds.................................. 7
Depositary Receipts....................................... 7
Warrants or Rights........................................ 8
Lending of Portfolio Securities........................... 8
Commercial Bank Obligations............................... 8
Privatizations............................................ 8
Repurchase Agreements..................................... 9
Borrowing, Reverse Repurchase Agreements and "Roll"
Transactions........................................... 9
When-Issued or Forward Commitment Securities.............. 9
Temporary Defensive Strategies............................ 10
OPTIONS, FUTURES AND CURRENCY STRATEGIES.................... 10
Special Risks of Options, Futures and Currency
Strategies............................................. 10
Writing Call Options...................................... 11
Writing Put Options....................................... 11
Purchasing Put Options.................................... 12
Purchasing Call Options................................... 12
Index Options............................................. 13
Interest Rate, Currency and Stock Index Futures
Contracts.............................................. 14
Options on Futures Contracts.............................. 16
Limitations on Use of Futures, Options on Futures and
Certain Options on Currencies.......................... 16
Forward Contracts......................................... 16
Foreign Currency Strategies -- Special Considerations..... 17
Cover..................................................... 18
RISK FACTORS................................................ 18
Illiquid Securities....................................... 18
Foreign Securities........................................ 19
Debt Securities........................................... 24
Equity Securities......................................... 24
INVESTMENT LIMITATIONS...................................... 24
EXECUTION OF PORTFOLIO TRANSACTIONS......................... 26
Portfolio Trading and Turnover............................ 27
MANAGEMENT.................................................. 28
Trustees and Executive Officers........................... 28
Investment Management and Administration Services......... 30
Distribution Services..................................... 31
Expenses of the Funds..................................... 31
</TABLE>
2
<PAGE> 51
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
NET ASSET VALUE DETERMINATION............................... 31
HOW TO PURCHASE AND REDEEM SHARES........................... 32
Backup Withholding........................................ 32
Programs and Services for Shareholders.................... 34
Dividend Order............................................ 34
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS.................... 34
Reinvestment of Dividends and Distributions............... 34
Tax Matters............................................... 34
General................................................... 34
Reinstatement Privilege................................... 35
Foreign Taxes............................................. 35
Passive Foreign Investment Companies...................... 35
Non-U.S. Shareholders..................................... 36
Options, Futures and Foreign Currency Transactions........ 36
SHAREHOLDER INFORMATION..................................... 37
MISCELLANEOUS INFORMATION................................... 38
Charges for Certain Account Information................... 38
Custodian................................................. 39
Transfer Agency and Accounting Agency Services............ 39
Independent Accountants................................... 39
Legal Matters............................................. 39
Shareholder Liability..................................... 39
Names..................................................... 39
Control Persons and Principal Holders of Securities....... 40
INVESTMENT RESULTS.......................................... 42
Total Return Quotations................................... 42
Performance Information................................... 43
APPENDIX.................................................... 46
Description of Bond Ratings............................... 46
Description of Commercial Paper Ratings................... 47
Absence of Rating......................................... 47
FINANCIAL STATEMENTS........................................ FS
</TABLE>
3
<PAGE> 52
INTRODUCTION
This Statement of Additional Information relates to the Advisor Class shares
of AIM Europe Growth Fund ("Europe Fund"), AIM Japan Growth Fund ("Japan Fund"),
AIM Mid Cap Equity Fund, formerly AIM Mid Cap Growth Fund ("Mid Cap Fund") and
AIM New Pacific Growth Fund ("Pacific Fund") (individually, a "Fund," and
collectively, the "Funds"). Each Fund is a diversified series of AIM Growth
Series (the "Trust"), a registered open-end management investment company.
A I M Advisors, Inc. ("AIM") serves as the investment manager of and
administrator for Europe Fund, Japan Fund, Mid Cap Fund and Pacific Fund.
INVESCO Asset Management (Japan) Limited ("INVESCO Japan") serves as the
investment sub-advisor of Japan Fund. INVESCO Asia Limited ("INVESCO Asia")
serves as the investment sub-advisor of Pacific Fund. INVESCO Asset Management
Ltd. ("INVESCO AML") serves as the investment sub-advisor of Europe Fund.
INVESCO Japan, INVESCO Asia and INVESCO AML may be referred to collectively as
the "Sub-advisors."
The Trust is a series mutual fund. The rules and regulations of the Securities
and Exchange Commission (the "SEC") require all mutual funds to furnish
prospective investors certain information concerning the activities of the fund
being considered for investment. This information for Pacific Fund is included
in a separate Prospectus dated May 3, 1999, for Europe Fund is included in a
separate Prospectus dated May 3, 1999, for Mid Cap Fund is included in a
separate Prospectus dated May 3, 1999, and for Japan Fund is included in a
separate Prospectus dated May 3, 1999. Additional copies of the Prospectuses and
this Statement of Additional Information may be obtained without charge by
writing the principal distributor of the Funds' shares, A I M Distributors, Inc.
("AIM Distributors"), P.O. Box 4739, Houston, TX 77210-4739 or by calling (800)
347-4246. Investors must receive a Prospectus before they invest.
This Statement of Additional Information is intended to furnish prospective
investors with additional information concerning the Funds. Some of the
information required to be in this Statement of Additional Information is also
included in the Prospectus; and, in order to avoid repetition, reference will be
made to sections of the Prospectus. Additionally, the Prospectus and this
Statement of Additional Information omit certain information contained in the
Registration Statement filed with the SEC. Copies of the Registration Statement,
including items omitted from the Prospectus and this Statement of Additional
Information, may be obtained from the SEC by paying the charges prescribed under
its rules and regulations.
GENERAL INFORMATION ABOUT THE FUNDS
THE TRUST AND ITS SHARES
The Trust previously operated under the name GT Global Growth Series, which
was organized as a Massachusetts business trust on February 19, 1985. The Trust
was reorganized on May 29, 1998 as a Delaware business trust, and is registered
with the SEC as a diversified open-end series management investment company. The
Trust currently consists of the following portfolios: each of the four Funds,
AIM Small Cap Growth Fund, formerly known as AIM Small Cap Equity Fund, and AIM
Basic Value Fund, formerly known as AIM America Value Fund. Each of these funds
has four separate classes: Class A, Class B, Class C and Advisor Class shares.
All historical financial and other information contained in this Statement of
Additional Information for periods prior to May 29, 1998, is that of the series
GT Global Growth Series.
This Statement of Additional Information relates solely to the Advisor Class
shares of the Funds.
The term "majority of the outstanding shares" of the Trust, a particular Fund,
or a particular class of a Fund means, respectively, the vote of the lesser of
(a) 67% or more of the shares of the Trust, such Fund or such class present at a
meeting of the Trust's shareholders, if the holders of more than 50% of the
outstanding shares of the Trust, such Fund or such class are present or
represented by proxy, or (b) more than 50% of the outstanding shares of the
Trust, such Fund or such class.
Class A, Class B and Class C and Advisor Class shares of each Fund have equal
rights and privileges. Each share of a particular class is entitled to one vote,
to participate equally in dividends and distributions declared by the Trust's
Board of Trustees (the "Board") with respect to the class of such Fund and, upon
liquidation of the Fund, to participate proportionately in the net assets of the
Fund allocable to such class remaining after satisfaction of outstanding
liabilities of the Fund allocable to such class. Fund shares are fully paid,
non-assessable and fully transferable when issued and have no preemptive rights
and have such conversion and exchange rights as set forth in the Prospectus and
this Statement of Additional Information. Fractional shares have proportionately
the same rights, including voting rights, as are provided for a full share.
Shareholders of the Funds do not have cumulative voting rights, and therefore
the holders of more than 50% of the outstanding shares of all Funds voting
together for election of trustees may elect all of the members of the Trust's
Board. In such event, the remaining holders cannot elect any trustees of the
Trust.
4
<PAGE> 53
On any matter submitted to a vote of shareholders, shares of a Fund will be
voted by the Fund's shareholders individually when the matter affects the
specific interest of the Fund only, such as approval of the Fund's investment
management arrangements. In addition, shares of a particular class of a Fund may
vote on matters affecting only that class. The shares of a Fund and of the
Trust's other series will be voted in the aggregate on other matters, such as
the election of Trustees and ratification of the selection of the Trust's
independent accountants.
Normally there will be no annual meeting of shareholders for any of the Funds
in any year, except as required under the Investment Company Act of 1940, as
amended (the "1940 Act"). A Trustee may be removed at any meeting of the
shareholders of the Trust by a vote of the shareholders owning at least
two-thirds of the outstanding shares. Any Trustee may call a special meeting of
shareholders for any purpose. Furthermore, Trustees shall promptly call a
meeting of shareholders solely for the purpose of removing one or more Trustees
when requested in writing to do so by shareholders holding 10% of the Trust's
outstanding shares.
Pursuant to the Trust's Agreement and Declaration of Trust, the Trust may
issue an unlimited number of shares of each Fund. Each share of a Fund
represents an interest in the Fund only, has a par value of $0.01 per share,
represents an equal proportionate interest in the Fund with other shares of the
Fund and is entitled to such dividends and distributions out of the income
earned and gain realized on the assets belonging to the Fund as may be declared
by the Board of Trustees. Each share of a Fund is equal in earnings, assets and
voting privileges except that each class normally has exclusive voting rights
with respect to its distribution plan and bears the expenses, if any, related to
the distribution of its shares. Shares of a Fund, when issued, are fully paid
and nonassessable.
Advisor Class shares are offered through the Prospectuses and this Statement
of Additional Information to (a) trustees or other fiduciaries purchasing shares
for employee benefit plans which are sponsored by organizations which have at
least 1,000 employees; (b) any account with assets of at least $10,000 if (i) a
financial planner, trust company, bank trust department or registered investment
advisor has investment discretion over such account, and (ii) the account holder
pays such person as compensation for its advice and other services an annual fee
of at least 0.50% on the assets in the account; (c) any account with assets of
at least $10,000 if (i) such account is established under a "wrap fee" program,
and (ii) the account holder pays the sponsor of such program an annual fee of at
least 0.50% on the assets in the account; (d) accounts advised by the
Sub-advisors or one of the companies formerly affiliated with the Asset
Management Division of Liechtenstein Global Trust AG, provided such accounts
were invested in Advisor Class shares of any of the funds in The AIM Family of
Funds on May 29, 1998; and (e) any of the companies affiliated with AMVESCAP
PLC. Pursuant to a separate prospectus, the Fund also offers Class A, Class B
and Class C shares, which represent interests in the Fund. The Class A, Class B
and Class C shares have different distribution arrangements.
INVESTMENT POLICIES
In addition to the primary investment policies set forth in the Prospectuses,
each Fund may engage in other types of investments, as described below. Unless
specifically noted, the Fund's investment policies described in this Statement
of Additional Information are not fundamental policies and may be changed by
vote of the Trust's Board of Trustees, without shareholder approval.
Pacific Growth Fund's primary investment area includes: Australia, Hong Kong,
India, Indonesia, Malaysia, New Zealand, Pakistan, the Philippines, Singapore,
South Korea, Taiwan and Thailand. Europe Growth Fund's primary investment area
includes: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland,
Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden,
Switzerland, Turkey and the United Kingdom.
Pacific Fund, Europe Fund, and Japan Fund each may invest up to 35% of its
total assets in the equity securities of issuers domiciled outside of its
primary investment areas. Such investments may include: (a) securities of
issuers in countries that are not located in the primary investment area but are
linked by tradition, economic markets, cultural similarities or geography to the
countries in such primary investment area; and (b) securities of issuers located
elsewhere in the world that have operations in the primary investment area or
that stand to benefit from political and economic events in the primary
investment area. Accordingly, the Funds are regional funds for investors
interested in more geographically concentrated investment but still desiring to
diversify across multiple markets.
For purposes of the Prospectus and this Statement of Additional Information,
an issuer typically is considered to be domiciled in a particular country if it
is (a) organized under the laws of, or has its principal office in, a particular
country or (b) normally derives 50% or more of its total revenues from business
in that country, provided that, in the view of AIM and/or the Sub-advisors, the
value of such issuer's securities tends to reflect such country's development to
a greater extent than developments elsewhere. However, these are not absolute
requirements, and certain companies incorporated
5
<PAGE> 54
in a particular country and considered by AIM and/or the Sub-advisors to be
located in that country may have substantial foreign operations or subsidiaries
and/or export sales exceeding in size the assets or sales in that country.
Pacific Fund, Europe Fund, and Japan Fund each may invest up to 35% of its
total assets in debt securities, including U.S. and foreign government
securities and corporate debt securities, Samurai and Yankee bonds, Euro bonds
and Depositary Receipts. The issuers of such debt securities may or may not be
domiciled in the primary investment area of a Fund. Each Fund will limit its
purchases of debt securities to investment grade obligations. "Investment grade"
debt refers to those securities rated within one of the four highest ratings
categories by Moody's Investors Service, Inc. ("Moody's") or by Standard &
Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"), or, if not
similarly rated by any other nationally recognized statistical rating
organization ("NRSRO"), deemed by AIM and/or the Sub-advisors to be of
equivalent quality.
There is no assurance that the Funds will achieve their investment objectives.
SELECTION OF INVESTMENTS
Because the development of the world's economies and stock markets is rapidly
evolving, from time to time the Board of Trustees may add or delete countries
from a Fund's primary investment area as set forth in the Fund's Prospectus.
In determining the appropriate distribution of investments among various
countries and geographic regions for the Funds, AIM and/or the Sub-advisors
ordinarily consider the following factors: prospects for relative economic
growth between the different countries in which each Fund may invest; expected
levels of inflation; government policies influencing business conditions; the
outlook for currency relationships; and the range of the individual investment
opportunities available to international investors.
In analyzing companies for investment by each Fund, AIM and/or the
Sub-advisors ordinarily look for one or more of the following characteristics:
an above-average earnings growth per share; high return on invested capital; a
healthy balance sheet; sound financial and accounting policies and overall
financial strength; strong competitive advantages; effective research and
product development and marketing; efficient service; pricing flexibility;
strength of management; and general operating characteristics which will enable
the companies to compete successfully in their respective marketplaces. In
certain countries, governmental restrictions and other limitations on investment
may affect the maximum percentage of equity ownership in any one company by a
Fund or the Funds in the aggregate. In addition, in some instances only special
classes of securities may be purchased by foreigners and the market prices,
liquidity and rights with respect to those securities may vary from shares owned
by nationals.
AIM and/or the Sub-advisors allocate investments among fixed income securities
of particular issuers on the basis of its views as to the best values then
currently available in the marketplace. Such values are a function of yield,
maturity, issue classification and quality characteristics, coupled with
expectations regarding the economy, movements in the general level and term of
interest rates, currency values, political developments, and variations in the
supply of funds available for investment in the world bond market relative to
the demands placed upon it. If market interest rates decline, fixed income
securities generally appreciate in value and vice versa. Fixed income securities
denominated in currencies other than the U.S. dollar or in multinational
currency units are evaluated on the strength of the particular currency against
the U.S. dollar as well as on the current and expected levels of interest rates
in the country or countries. In addition to the foregoing, a Fund may seek to
take advantage of differences in relative values of fixed income securities
among various countries.
Equity securities in which the Funds may invest include common stocks,
preferred stocks, convertible debt securities and warrants to acquire such
securities.
Mid Cap Fund. The Fund may invest up to 35% of its total assets in the equity
securities of (a) issuers domiciled in the United States that, at the time of
purchase, have market capitalizations outside the range of market
capitalizations of companies that are included in the Russell Mid Cap Index; and
(b) issuers domiciled outside the United States, including (i) issuers linked by
tradition, economic markets, cultural similarities or geography to the United
States; and (ii) issuers located elsewhere in the world that have operations in
the United States or that stand to benefit from political or economic events in
the United States. In addition, the Fund may invest up to 35% of its total
assets in investment grade debt securities, including U.S. and foreign
government securities and corporate debt securities, Samurai and Yankee bonds,
Euro bonds and Depositary Receipts. The issuers of such debt securities may or
may not be domiciled in the United States.
As of June 30, 1998, the market capitalizations of companies comprising the
Russell Mid Cap Index ranged from approximately $1.4 to $10.3 billion. Market
capitalization means the total market value of a company's outstanding common
stock. There is no necessary correlation between market capitalization and the
financial attributes (such as level of assets, revenues or income) often used to
measure a company's size.
6
<PAGE> 55
At this time, AIM and/or the Sub-advisors are not aware of the existence of
any investment or exchange control regulations that might substantially impair
the operations of the Funds as described in the Prospectus and this Statement of
Additional Information. Although restrictions may in the future make it
undesirable to invest in certain countries, AIM and/or the Sub-advisors does not
believe that any current repatriation restrictions would affect its decisions to
invest in the countries eligible for investment by any Fund. It should be noted,
however, that this situation could change at any time.
INVESTMENTS IN OTHER INVESTMENT COMPANIES
With respect to certain countries, investments by a Fund presently may be made
only by acquiring shares of other investment companies (including investment
vehicles or companies advised by AIM and/or the Sub-advisors or their affiliates
("Affiliated Funds")) with local governmental approval to invest in those
countries. At such time as direct investment in these countries is allowed, the
Funds anticipate investing directly in these markets. The Funds may also invest
in the securities of closed-end investment companies within the limits of the
1940 Act. These limitations currently provide that, in part, each Fund may
purchase shares of a closed-end investment company unless: (a) such a purchase
would cause a Fund to own more than 3% of the total outstanding voting stock of
the investment company or (b) such a purchase would cause a Fund to have more
than 5% of its assets invested in the investment company or more than 10% of its
assets invested in an aggregate of all such investment companies. Investment in
investment companies may involve the payment of substantial premiums above the
value of such companies' portfolio securities. The Funds do not intend to invest
in such vehicles or funds unless AIM and/or the Sub-advisors determine that the
potential benefits of such investments justify the payment of any applicable
premiums. As a shareholder in an investment company, a Fund would bear its
ratable share of that investment company's expenses, including its advisory and
administration fees. The return on such securities will be reduced by operating
expenses of such companies including payments to the investment managers of
those investment companies. At the same time, such Fund would continue to pay
its own management fees and other expenses. With respect to investments in
Affiliated Funds, AIM and/or the Sub-advisors waive their advisory fee to the
extent that such fees are based on assets of a Fund invested in Affiliated
Funds.
SAMURAI AND YANKEE BONDS
The Japan Fund and the Pacific Fund may invest in yen-denominated bonds sold
in Japan by non-Japanese issuers ("Samurai bonds"), and the Mid Cap Fund may
invest in dollar-denominated bonds sold in the United States by non-U.S. issuers
("Yankee bonds"). As compared with bonds issued in their countries of domicile,
such bond issues normally carry a higher interest rate but are less actively
traded. It is the policy of each Fund to invest in Samurai or Yankee bond issues
only after taking into account considerations of quality and liquidity, as well
as yield. These bonds are issued by governments that are members of the
Organization for Economic Cooperation and Development or have AAA ratings. None
of the Funds has invested in Samurai or Yankee bonds since 1982.
DEPOSITARY RECEIPTS
Each Fund may hold foreign securities. Such investments may include American
Depositary Receipts ("ADRs"), American Depositary Shares ("ADSs"), Global
Depositary Receipts ("GDRs") and European Depositary Receipts ("EDRs"). ADRs and
ADSs typically are issued by an American bank or trust company and evidence
ownership of underlying securities issued by a foreign corporation. EDRs, which
are sometimes referred to as Continental Depositary Receipts ("CDRs"), are
issued in Europe typically by foreign banks and trust companies and evidence
ownership of either foreign or domestic securities. GDRs are similar to EDRs and
are designed for use in several international financial markets. Generally, ADRs
and ADSs in registered form are designed for use in United States securities
markets and EDRs in bearer form are designed for use in European securities
markets. For purposes of a Fund's investment policies, its investments in ADRs,
ADSs, GDRs and EDRs will be deemed to be investments in the underlying foreign
equity securities.
ADR facilities may be established as either "unsponsored" or "sponsored."
While ADRs issued under these two types of facilities are in some respects
similar, there are distinctions between them relating to the rights and
obligations of ADR holders and the practices of market participants. A
depository may establish an unsponsored facility without participation by (or
even necessarily the acquiescence of) the issuer of the deposited securities,
although typically the depository requests a letter of non-objection from such
issuer prior to the establishment of the facility. Holders of unsponsored ADRs
generally bear all the costs of such facilities. The depository usually charges
fees upon the deposit and withdrawal of the deposited securities, the conversion
of dividends into U.S. dollars, the disposition of non-cash distributions and
the performance of other services. The depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited securities or to pass through voting
rights to ADR holders with respect to the deposited securities. Sponsored ADR
facilities are created in generally the same manner as
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unsponsored facilities, except that the issuer of the deposited securities
enters into a deposit agreement with the depository. The deposit agreement sets
out the rights and responsibilities of the issuer, the depository and the ADR
holders. With sponsored facilities, the issuer of the deposited securities
generally will bear some of the costs relating to the facility (such as dividend
payment fees of the depository), although ADR holders continue to bear certain
other costs (such as deposit and withdrawal fees). Under the terms of most
sponsored arrangements, depositories agree to distribute notices of shareholder
meetings and voting instructions, and to provide shareholder communications and
other information to the ADR holders at the request of the issuer of the
deposited securities. The Funds may invest in both sponsored and unsponsored
ADRs.
WARRANTS OR RIGHTS
Warrants or rights may be acquired by a Fund in connection with other
securities or separately and provide the Fund with the right to purchase at a
later date other securities of the issuer. Warrants are securities permitting,
but not obligating, their holder to subscribe for other securities or
commodities. Warrants do not carry with them the right to dividends or voting
rights with respect to the securities that they entitle their holder to
purchase, and they do not represent any rights in the assets of the issuer. As a
result, warrants may be considered more speculative than certain other types of
investments. In addition, the value of a warrant does not necessarily change
with the value of the underlying securities and a warrant ceases to have value
if it is not exercised prior to its expiration date.
LENDING OF PORTFOLIO SECURITIES
For the purpose of realizing additional income, each Fund may make secured
loans of its portfolio securities amounting to not more than 30% of its total
assets. Securities loans are made to broker/dealers or institutional investors
pursuant to agreements requiring that the loans continuously be secured by
collateral at least equal at all times to the value of the securities lent, plus
any accrued interest, "marked to market" on a daily basis. While a loan is
outstanding, the borrower must maintain with the Fund's custodian collateral
consisting of cash, U.S. government securities or certain irrevocable letters of
credit equal to at least the value of the borrowed securities, plus any accrued
interest or such other collateral as permitted by the Fund's investment program
and regulatory agencies, and as approved by the Board. The risks of lending
portfolio securities, as with other extensions of secured credit, consist of
possible delay in receiving additional collateral or in recovery of the
securities and possible loss of rights in the collateral should the borrower
fail financially. The Funds may pay reasonable administrative and custodial fees
in connection with the loans of their securities. While the securities loans are
outstanding, the Funds will continue to receive the equivalent of the interest
or dividends paid by the issuer on the securities, as well as interest on the
investment of the collateral or a fee from the borrower. Each Fund will have a
right to call each loan at any time and obtain the securities within the stated
settlement period. The Funds will not have the right to vote equity securities
while they are being lent, but may call in a loan in anticipation of any
important vote. Loans only will be made to firms deemed by AIM and/or the
Sub-advisors to be of good standing and will not be made unless, in the judgment
of AIM and/or the Sub-advisors, the consideration to be earned from such loans
would justify the risk.
COMMERCIAL BANK OBLIGATIONS
For the purposes of each Fund's investment policies with respect to bank
obligations, obligations of foreign branches of U.S. banks and of foreign banks
are obligations of the issuing bank and may be general obligations of the parent
bank. Such obligations, however, may be limited by the terms of a specific
obligation and by government regulation. As with investment in non-U.S.
securities in general, investments in the obligations of foreign branches of
U.S. banks and of foreign banks may subject the Funds to investment risks that
are different in some respects from those of investments in obligations of
domestic issuers. Although a Fund typically will acquire obligations issued and
supported by the credit of U.S. or foreign banks having total assets at the time
of purchase of $1 billion or more, this $1 billion figure is not an investment
policy or restriction of any Fund. For the purposes of calculation with respect
to the $1 billion figure, the assets of a bank will be deemed to include the
assets of its U.S. and non-U.S. branches.
PRIVATIZATIONS
The governments of some foreign countries have been engaged in programs of
selling part or all of their stakes in government owned or controlled
enterprises ("privatizations"). AIM and/or the Sub-advisors believe that
privatizations may offer opportunities for significant capital appreciation and
intends to invest in privatizations in appropriate circumstances. In certain
foreign countries, the ability of foreign entities to participate in
privatizations may be limited by local law, or the terms on which a Fund may be
permitted to participate may be less advantageous than those for local
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investors. There can be no assurance that foreign governments will continue to
sell companies currently owned or controlled by them or that privatization
programs will be successful.
REPURCHASE AGREEMENTS
A repurchase agreement is a transaction in which a Fund purchases a security
from a bank or recognized securities dealer and simultaneously commits to resell
that security to the bank or dealer at an agreed-upon price, date and market
rate of interest unrelated to the coupon rate or maturity of the purchased
security. Although repurchase agreements carry certain risks not associated with
direct investments in securities, including possible decline in the market value
of the underlying securities and delays and costs to the Fund if the other party
to the repurchase agreement becomes bankrupt, the Funds intend to enter into
repurchase agreements only with banks and dealers believed by AIM and/or the
Sub-advisors to present minimal credit risks in accordance with guidelines
approved by the Trust's Board. AIM and/or the Sub-advisors reviews and monitors
the creditworthiness of such institutions under the Board's general supervision.
A Fund will invest only in repurchase agreements collateralized at all times
in an amount at least equal to the repurchase price plus accrued interest. To
the extent that the proceeds from any sale of such collateral upon a default in
the obligation to repurchase were less than the repurchase price, the Fund would
suffer a loss. If the financial institution which is party to the repurchase
agreement petitions for bankruptcy or otherwise becomes subject to bankruptcy or
other liquidation proceedings, there may be restrictions on the Fund's ability
to sell the collateral and the Fund could suffer a loss. However, with respect
to financial institutions whose bankruptcy or liquidation proceedings are
subject to the U.S. Bankruptcy Code, each Fund intends to comply with provisions
under the U.S. Bankruptcy Code that would allow it immediately to resell the
collateral. A Fund will not enter into a repurchase agreement with a maturity of
more than seven days if, as a result, more than 15% of the value of its net
assets would be invested in such repurchase agreements and other illiquid
investments.
BORROWING, REVERSE REPURCHASE AGREEMENTS AND "ROLL" TRANSACTIONS
Each Fund's borrowings will not exceed 33 1/3% of its total assets, i.e., each
Fund's total assets at all times will equal at least 300% of the amount of
outstanding borrowings. If market fluctuations in the value of a Fund's
portfolio holdings or other factors cause the ratio of the Fund's total assets
to outstanding borrowings to fall below 300%, within three days (excluding
Sundays and holidays) of such event the Fund may be required to sell portfolio
securities to restore the 300% asset coverage, even though from an investment
standpoint such sales might be disadvantageous. Each Fund also may borrow up to
5% of its total assets for temporary or emergency purposes other than to meet
redemptions. A Fund may borrow in connection with meeting requests for the
redemption of a Fund's shares. Any borrowing by a Fund may cause greater
fluctuation in the value of its shares than would be the case if the Fund did
not borrow.
Each Fund's fundamental investment limitations permit the Fund to borrow money
for leveraging purposes. Each Fund, however, currently is prohibited, pursuant
to a non-fundamental investment policy, from borrowing money in order to
purchase securities. Nevertheless, this policy may be changed in the future by
the Trust's Board of Trustees. If a Fund employs leverage in the future, it
would be subject to certain additional risks. Use of leverage creates an
opportunity for greater growth of capital but would exaggerate any increases or
decreases in a Fund's net asset value. When the income and gains on securities
purchased with the proceeds of borrowings exceed the costs of such borrowings, a
Fund's earnings or net asset value will increase faster than otherwise would be
the case; conversely, if such income and gains fail to exceed such costs, a
Fund's earnings or net asset value would decline faster than would otherwise be
the case.
Each Fund may enter into reverse repurchase agreements. A reverse repurchase
agreement is a borrowing transaction in which the Fund transfers possession of a
security to another party, such as a bank or broker/dealer in return for cash,
and agrees to repurchase the security in the future at an agreed upon price,
which includes an interest component. Each Fund also may engage in "roll"
borrowing transactions which involve its sale of Government National Mortgage
Association certificates or other securities together with a commitment (for
which the Fund may receive a fee) to purchase similar, but not identical,
securities at a future date. A Fund will segregate with a custodian liquid
assets in an amount sufficient to cover its obligations under "roll"
transactions and reverse repurchase agreements with broker/dealers. No
segregation is required for reverse repurchase agreements with banks. A Fund may
borrow through reverse repurchase agreements and "roll" transactions in
connection with meeting requests for the redemption of a Fund's shares.
WHEN-ISSUED OR FORWARD COMMITMENT SECURITIES
A Fund may purchase debt securities on a "when-issued" basis and may purchase
or sell such securities on a "forward commitment" basis in order to hedge
against anticipated changes in interest rates and prices. The Price, which
generally is expressed in yield terms, is fixed at the time the commitment is
made, but delivery and payment for the securities take
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place at a later date. When-issued securities and forward commitments may be
sold prior to the settlement date, but a Fund will purchase or sell when-issued
securities or enter into forward commitments only with the intention of actually
receiving or delivering the securities, as the case may be. No income accrues on
securities that have been purchased pursuant to a forward commitment or on a
when-issued basis prior to delivery to a Fund. If a Fund disposes of the right
to acquire a when-issued security prior to its acquisition or disposes of its
right to deliver or receive against a forward commitment, it may incur a gain or
loss. At the time a Fund enters into a transaction on a when-issued or forward
commitment basis, it will segregate cash or liquid securities equal to the value
of the when-issued or forward commitment securities with its custodian and will
mark to market daily such assets. There is a risk that the securities may not be
delivered and that a Fund may incur a loss.
TEMPORARY DEFENSIVE STRATEGIES
Money market instruments in which the Funds may invest include the following:
government securities; high grade commercial paper; bank certificates of
deposit; bankers' acceptances; and repurchase agreements related to any of the
foregoing. High grade commercial paper refers to commercial paper rated P-1 by
Moody's or A-1 by S&P, at the time of investment or, if unrated, deemed by the
Sub-advisors to be of comparable quality.
OPTIONS, FUTURES AND CURRENCY STRATEGIES
SPECIAL RISKS OF OPTIONS, FUTURES AND CURRENCY STRATEGIES
The use of options, futures contracts and forward currency contracts ("Forward
Contracts") involves special considerations and risks, as described below. Risks
pertaining to particular instruments are described in the sections that follow.
(1) Successful use of most of these instruments depends upon AIM
and/or the Sub-advisors' ability to predict movements of the overall
securities and currency markets, which requires different skills than
predicting changes in the prices of individual securities. While AIM and/or
the Sub-advisors are experienced in the use of these instruments, there can
be no assurance that any particular strategy adopted will succeed.
(2) There might be imperfect correlation, or even no correlation,
between price movements of an instrument and price movements of the
investments being hedged. For example, if the value of an instrument used
in a short hedge increased by less than the decline in value of the hedged
investment, the hedge would not be fully successful. Such a lack of
correlation might occur due to factors unrelated to the value of the
investments being hedged, such as speculative or other pressures on the
markets in which the hedging instrument is traded. The effectiveness of
hedges using hedging instruments on indices will depend on the degree of
correlation between price movements in the index and price movements in the
investments being hedged.
(3) Hedging strategies, if successful, can reduce risk of loss by
wholly or partially offsetting the negative effect of unfavorable price
movements in the investments being hedged. However, hedging strategies can
also reduce opportunity for gain by offsetting the positive effect of
favorable price movements in the hedged investments. For example, if a Fund
entered into a short hedge because AIM and/or the Sub-advisors projected a
decline in the price of a security in the Fund's portfolio, and the price
of that security increased instead, the gain from threat increase might by
wholly or partially offset by a decline in the price of the hedging
instrument. Moreover, if the price of the hedging instrument declined by
more than the increase in the price of the security, the Fund could suffer
a loss. In either such case, the Fund would have been in a better position
had it not hedged at all.
(4) There is no assurance that a liquid secondary market will exist
for any particular option, futures contract or option thereon at any
particular time.
(5) As described below, a Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in instruments involving obligations to third parties (i.e.,
instruments other than purchased options). If the Fund were unable to close
out its positions in such instruments, it might be required to continue to
maintain such assets or accounts or make such payments until the position
expired or matured. The requirements might impair the Fund's ability to
sell a portfolio security or make an investment at a time when it would
otherwise be favorable to do so, or require that the Fund sell a portfolio
security at a disadvantageous time. The Fund's ability to close out a
position in an instrument prior to expiration or maturity depends on the
existence of a liquid secondary market or, in the absence of such a market,
the ability and willingness of the other party to the transaction ("contra
party") to enter into a transaction closing out the position. Therefore,
there is no assurance that any position can be closed out at a time and
price that is favorable to the Fund.
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WRITING CALL OPTIONS
A Fund may write (sell) call options on securities, indices and currencies.
Call options generally will be written on securities and currencies that, in the
opinion of AIM and/or the Sub-advisors, are not expected to make any major price
moves in the near future but that, over the long term, are deemed to be
attractive investments for the Fund.
A call option gives the holder (buyer) the right to purchase a security or
currency at a specified price (the exercise price) at any time until (American
style) or on (European style) a certain date (the expiration date). So long as
the obligation of the writer of a call option continues, he may be assigned an
exercise notice, requiring him to deliver the underlying security or currency
against payment of the exercise price. This obligation terminates upon the
expiration of the call option, or such earlier time at which the writer effects
a closing purchase transaction by purchasing an option identical to that
previously sold.
Portfolio securities or currencies on which call options may be written will
be purchased solely on the basis of investment considerations consistent with
each Fund's investment objectives. When writing a call option, a Fund, in return
for the premium, gives up the opportunity for profit from a price increase in
the underlying security or currency above the exercise price, and retains the
risk of loss should the price of the security or currency decline. Unlike one
who owns securities or currencies not subject to an option, a Fund has no
control over when it may be required to sell the underlying securities or
currencies, since most options may be exercised at any time prior to the
option's expiration. If a call option that a Fund has written expires, the Fund
will realize a gain in the amount of the premium; however, such gain may be
offset by a decline in the market value of the underlying security or currency
during the option period. If the call option is exercised, the Fund will realize
a gain or loss from the sale of the underlying security or currency, which will
be increased or offset by the premium received. The Fund does not consider a
security or currency covered by a call option to be "pledged" as that term is
used in the Fund's policy that limits the pledging or mortgaging of its assets.
Writing call options can serve as a limited short hedge because declines in
the value of the hedged investment would be offset to the extent of the premium
received for writing the option. However, if the security or currency
appreciates to a price higher than the exercise price of the call option, it can
be expected that the option will be exercised and a Fund will be obligated to
sell the security or currency at less than its market value.
The premium that a Fund receives for writing a call option is deemed to
constitute the market value of an option. The premium a Fund will receive from
writing a call option will reflect, among other things, the current market price
of the underlying investment, the relationship of the exercise price to such
market price, the historical price volatility of the underlying investment and
the length of the option period. In determining whether a particular call option
should be written, AIM and/or the Sub-advisors will consider the reasonableness
of the anticipated premium and the likelihood that a liquid secondary market
will exist for those options.
Closing transactions will be effected in order to realize a profit on an
outstanding call option, to prevent an underlying security or currency from
being called, or to permit the sale of the underlying security or currency.
Furthermore, effecting a closing transaction will permit the Fund to write
another call option on the underlying security or currency with either a
different exercise price or expiration date or both.
The Funds will pay transaction costs in connection with the writing of options
and in entering into closing purchase contracts. Transaction costs relating to
options activity normally are higher than those applicable to purchases and
sales of portfolio securities.
The exercise price of the options may be below, equal to or above the current
market values of the underlying securities, indices or currencies at the time
the options are written. From time to time, a Fund may purchase an underlying
security or currency for delivery in accordance with the exercise of an option,
rather than delivering such security or currency from its portfolio. In such
cases, additional costs will be incurred.
A Fund will realize a profit or loss from a closing purchase transaction if
the cost of the transaction is less or more, respectively, than the premium
received from writing the option. Because increases in the market price of a
call option generally will reflect increases in the market price of the
underlying security or currency, any loss resulting from the repurchase of a
call option is likely to be offset in whole or in part by appreciation of the
underlying security or currency owned by the Fund.
WRITING PUT OPTIONS
The Funds may write put options on securities, indices and currencies. A put
option gives the purchaser of the option the right to sell, and the writer
(seller) the obligation to buy, the underlying security or currency at the
exercise price at
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any time until (American style) or on (European style) the expiration date. The
operation of put options in other respects, including their related risks and
rewards, is substantially identical to that of call options.
A Fund generally would write put options in circumstances where AIM and/or the
Sub-advisors wish to purchase the underlying security or currency for the Fund's
portfolio at a price lower than the current market price of the security or
currency. In such event, the Fund would write a put option at an exercise price
that, reduced by the premium received on the option, reflects the lower price it
is willing to pay. Since the Fund also would receive interest on debt securities
or currencies maintained to cover the exercise price of the option, this
technique could be used to enhance current return during periods of market
uncertainty. The risk in such a transaction would be that the market price of
the underlying security or currency would decline below the exercise price, less
the premium received.
Writing put options can serve as a limited long hedge because increases in the
value of the hedged investment would be offset to the extent of the premium
received for writing the option. However, if the security or currency
depreciates to a price lower than the exercise price of the put option, it can
be expected that the put option will be exercised and a Fund will be obligated
to purchase the security or currency at more than its market value.
PURCHASING PUT OPTIONS
Each Fund may purchase put options on securities, indices and currencies. As
the holder of a put option, a Fund would have the right to sell the underlying
security or currency at the exercise price at any time until (American style) or
on (European style) the expiration date. A Fund may enter into closing sale
transactions with respect to such option, exercise such option or permit such
option to expire.
A Fund may purchase a put option on an underlying security or currency
("protective put") owned by the Fund in order to protect against an anticipated
decline in the value of the security or currency. Such hedge protection is
provided only during the life of the put option when the Fund, as the holder of
the put option, is able to sell the underlying security or currency at the put
exercise price regardless of any decline in the underlying security's market
price or currency's exchange value. The premium paid for the put option and any
transaction costs would reduce any profit otherwise available for distribution
when the security or currency eventually is sold.
A Fund also may purchase put options at a time when the Fund does not own the
underlying security or currency. By purchasing put options on a security or
currency it does not own, a Fund seeks to benefit from a decline in the market
price of the underlying security or currency. If the put option is not sold when
it has remaining value, and if the market price of the underlying security or
currency remains equal to or greater than the exercise price during the life of
the put option, the Fund will lose its entire investment in the put option. In
order for the purchase of a put option to be profitable, the market price of the
underlying security or currency must decline sufficiently below the exercise
price to cover the premium and transaction costs, unless the put option is sold
in a closing sale transaction.
PURCHASING CALL OPTIONS
Each Fund may purchase call options on securities, indices and currencies. As
the holder of a call option, a Fund would have the right to purchase the
underlying security or currency at the exercise price at any time until
(American style) or on (European style) the expiration date. A Fund may enter
into closing sale transactions with respect to such option, exercise such option
or permit such option to expire.
Call options may be purchased by a Fund for the purpose of acquiring the
underlying security or currency for its portfolio. Utilized in this fashion, the
purchase of call options would enable a Fund to acquire the security or currency
at the exercise price of the call option plus the premium paid. At times, the
net cost of acquiring the security or currency in this manner may be less than
the cost of acquiring the security or currency directly. This technique also may
be useful to the Funds in purchasing a large block of securities that would be
more difficult to acquire by direct market purchases. As long as it holds such a
call option, rather than the underlying security or currency itself, a Fund is
partially protected from any unexpected decline in the market price of the
underlying security or currency and, in such event, could allow the call option
to expire, incurring a loss only to the extent of the premium paid for the
option.
Each Fund also may purchase call options on underlying securities or
currencies it owns to avoid realizing losses that would result in a reduction of
its current return. For example, where a Fund has written a call option on an
underlying security or currency having a current market value below the price at
which it purchased the security or currency, an increase in the market price
could result in the exercise of the call option written by the Fund and the
realization of a loss on the underlying security or currency. Accordingly, the
Fund could purchase a call option on the same underlying security or currency,
which could be exercised to fulfill the Fund's delivery obligations under its
written call (if it is
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exercised). This strategy could allow the Fund to avoid selling the portfolio
security or currency at a time when it has an unrealized loss; however, the Fund
would have to pay a premium to purchase the call option plus transaction costs.
Aggregate premiums paid for put and call options will not exceed 5% of such
Fund's total assets at the time of purchase.
Each Fund may attempt to accomplish objectives similar to those involved in
using Forward Contracts by purchasing put or call options on currencies. A put
option gives a Fund as purchaser the right (but not the obligation) to sell a
specified amount of currency at the exercise price at any time until (American
style) or on (European style) the expiration of the option. A call option gives
a Fund as purchaser the right (but not the obligation) to purchase a specified
amount of currency at the exercise price at any time until (American style) or
on (European style) the expiration date of the option. A Fund might purchase a
currency put option, for example, to protect itself against a decline in the
dollar value of a currency in which it holds or anticipates holding securities.
If the currency's value should decline against the dollar, the loss in currency
value should be offset, in whole or in part, by an increase in the value of the
put. If the value of the currency instead should rise against the dollar, any
gain to the Fund would be reduced by the premium it had paid for the put option.
A currency call option might be purchased, for example, in anticipation of, or
to protect against, a rise in the value against the dollar of a currency in
which the Fund anticipates purchasing securities.
Options may be either listed on an exchange or traded in over-the-counter
("OTC") markets. Listed options are third-party contracts (i.e., performance of
the obligations of the purchaser and seller is guaranteed by the exchange or
clearing corporation), and have standardized strike prices and expiration dates.
OTC options are two-party contracts with negotiated strike prices and expiration
dates. A Fund will not purchase an OTC option unless AIM and/or the Sub-advisors
believe that daily valuations for such options are readily obtainable. OTC
options differ from exchange-traded options in that OTC options are transacted
with dealers directly and not through a clearing corporation (which guarantees
performance). Consequently, there is a risk of non-performance by the dealer.
Since no exchange is involved, OTC options are valued on the basis of an average
of the last bid prices obtained from dealers, unless a quotation from only one
dealer is available, in which case only that dealer's price will be used. In the
case of OTC options, there can be no assurance that a liquid secondary market
will exist for any particular option at any specific time.
The staff of the SEC considers purchased OTC options to be illiquid
securities. A Fund may also sell OTC options and, in connection therewith,
segregate assets or cover its obligations with respect to OTC options written by
the Fund. The assets used as cover for OTC options written by a Fund will be
considered illiquid unless the OTC options are sold to qualified dealers who
agree that the Fund may repurchase any OTC option it writes at a maximum price
to be calculated by a formula set forth in the option agreement. The cover for
an OTC option written subject to this procedure would be considered illiquid
only to the extent that the maximum repurchase price under the formula exceeds
the intrinsic value of the option.
A Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. A Fund intends to purchase
or write only those exchange-listed options for which there appears to be a
liquid secondary market. However, there can be no assurance that such a market
will exist at any particular time. Closing transactions can be made for OTC
options only by negotiating directly with the contra party or by a transaction
in the secondary market if any such market exists. Although a Fund will enter
into OTC options only with contra parties that are expected to be capable of
entering into closing transactions with the Fund, there is no assurance that the
Fund will in fact be able to close out an OTC option position at a favorable
price prior to expiration. In the event of insolvency of the contra party, the
Fund might be unable to close out an OTC option position at any time prior to
its expiration.
INDEX OPTIONS
Puts and calls on indices are similar to puts and calls on securities or
futures contracts except that all settlements are in cash and gain or loss
depends on changes in the index in question (and thus on price movements in the
securities market or a particular market sector generally) rather than on price
movements in individual securities or futures contracts. When a Fund writes a
call on an index, it receives a premium and agrees that, prior to the expiration
date, the purchaser of the call, upon exercise of the call, will receive from
the Fund an amount of cash if the closing level of the index upon which the call
is based is greater than the exercise price of the call. The amount of cash is
equal to the difference between the closing price of the index and the exercise
price of the call times a specified multiple (the "multiplier"), which
determines the total dollar value for each point of such difference. When a Fund
buys a call on an index, it pays a premium and has the same rights as to such
calls as are indicated above. When a Fund buys a put on an index, it pays a
premium and has the right, prior to the expiration date, to require the seller
of the put, upon the Fund's exercise of the put, to deliver to the Fund an
amount of cash if the closing level of the index upon which the put is based is
less than the exercise price of the put, which amount of cash is determined by
the multiplier, as described above for calls. When a Fund writes a put on an
index, it receives a premium and the purchaser has the right, prior to the
expiration date, to require the Fund to
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deliver to it an amount of cash equal to the difference between the closing
level of the index and the exercise price times the multiplier, if the closing
level is less than the exercise price.
The risks of investment in index options may be greater than options on
securities. Because index options are settled in cash, when a Fund writes a call
on an index it cannot provide in advance for its potential settlement
obligations by acquiring and holding the underlying securities. A Fund can
offset some of the risk of writing a call index option position by holding a
diversified portfolio of securities similar to those on which the underlying
index is based. However, a Fund cannot, as a practical matter, acquire and hold
a portfolio containing exactly the same securities as underlie the index and, as
a result, bears a risk that the value of the securities held will vary from the
value of the index.
Even if a Fund could assemble a securities portfolio that exactly reproduced
the composition of the underlying index, it still would not be fully covered
from a risk standpoint because of the "timing risk" inherent in writing index
options. When an index option is exercised, the amount of cash that the holder
is entitled to receive is determined by the difference between the exercise
price and the closing index level on the date when the option is exercised. As
with other kinds of options, the Fund, as the call writer, will not know that it
has been assigned until the next business day at the earliest. The time lag
between exercise and notice of assignment poses no risk for the writer of a
covered call on a specific underlying security, such as common stock, because
there the writer's obligation is to deliver the underlying security, not to pay
its value as of a fixed time in the past. So long as the writer already owns the
underlying security, it can satisfy its settlement obligations by simply
delivering it, and the risk that its value may have declined since the exercise
date is borne by the exercising holder. In contrast, even if the writer of an
index call holds securities that exactly match the composition of the underlying
index, it will not be able to satisfy its assignment obligations by delivering
those securities against payment of the exercise price. Instead, it will be
required to pay cash in an amount based on the closing index value on the
exercise date; and by the time it learns that it has been assigned, the index
may have declined, with a corresponding decline in the value of its securities
portfolio. This "timing risk" is an inherent limitation on the ability of index
call writers to cover their risk exposure by holding securities positions.
If a Fund purchases an index option and exercises it before the closing index
value for that day is available, it runs the risk that the level of the
underlying index may subsequently change. If such a change causes the exercised
option to fall out-of-the-money, the Fund will be required to pay the difference
between the closing index value and the exercise price of the option (times the
applicable multiplier) to the assigned writer.
INTEREST RATE, CURRENCY AND STOCK INDEX FUTURES CONTRACTS
A Fund may enter into interest rate, currency or stock index futures contracts
("Futures" or "Futures Contracts") as a hedge against changes in prevailing
levels of interest rates, currency exchange rates or stock price levels in order
to establish more definitely the effective return on securities or currencies
held or intended to be acquired by the Fund. The Funds' hedging may include
sales of Futures as an offset against the effect of expected increases in
interest rates, or decreases in currency exchange rates and stock prices, and
purchases of Futures as an offset against the effect of expected declines in
interest rates, or increases in currency exchange rates or stock prices.
The Funds only will enter into Futures Contracts that are traded on futures
exchanges and are standardized as to maturity date and underlying financial
instrument. Futures exchanges and trading thereon in the United States are
regulated under the Commodity Exchange Act by the Commodity Futures Trading
Commission ("CFTC"). Futures are exchanged in London at the London International
Financial Futures Exchange.
Although techniques other than sales and purchases of Futures Contracts could
be used to reduce the Funds' exposure to interest rate and currency exchange
rate fluctuations, the Funds may be able to hedge its exposure more effectively
and at a lower cost through using Futures Contracts.
A Futures Contract provides for the future sale by one party and purchase by
another party of a specified amount of a specific financial instrument (security
or currency) for a specified price at a designated date, time and place. A stock
index Futures Contract provides for the delivery, at a designated date, time and
place, of an amount of cash equal to a specified dollar amount times the
difference between the stock index value at the close of trading on the contract
and the price at which the Futures Contract is originally struck; no physical
delivery of stocks comprising the index is made. Brokerage fees are incurred
when a Futures Contract is bought or sold, and margin deposits must be
maintained at all times the Futures Contract is outstanding.
Although Futures Contracts typically require future delivery of and payment
for financial instruments or currencies, Futures Contracts usually are closed
out before the delivery date. Closing out an open Futures Contract sale or
purchase is effected by entering into an offsetting Futures Contract purchase or
sale, respectively, for the same aggregate amount of the identical financial
instrument or currency and the same delivery date. If the offsetting purchase
price is less than the
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original sale price, the Fund realizes a gain; if it is more, the Fund realizes
a loss. Conversely, if the offsetting sale price is more than the original
purchase price, the Fund realizes a gain; if it is less, the Fund realizes a
loss. The transaction costs also must be included in these calculations. There
can be no assurance, however, that the Funds will be able to enter into an
offsetting transaction with respect to a particular Futures Contract at a
particular time. If a Fund is not able to enter into an offsetting transaction,
the Fund will continue to be required to maintain the margin deposits on the
Futures Contract.
As an example of an offsetting transaction, the contractual obligations
arising from the sale of one Futures Contract of September deutschmarks on an
exchange may be fulfilled at any time before delivery under the Futures Contract
is required (i.e., on a specified date in September, the "delivery month") by
the purchase of another Futures Contract of September deutschmarks on the same
exchange. In such instance, the difference between the price at which the
Futures Contract was sold and the price paid for the offsetting purchase, after
allowance for transaction costs, represents the profit or loss to the Fund.
The Funds' Futures transactions will be entered into for hedging purposes
only; that is, Futures Contracts will be sold to protect against a decline in
the price of securities or currencies that a Fund owns, or Futures Contracts
will be purchased to protect the Fund against an increase in the price of
securities or currencies it has committed to purchase or expects to purchase.
"Margin" with respect to Futures Contracts is the amount of funds that must be
deposited by a Fund in order to initiate Futures trading and to maintain the
Fund's open positions in Futures Contracts. A margin deposit made when the
Futures Contract is entered into ("initial margin") is intended to ensure the
Fund's performance under the Futures Contract. The margin required for a
particular Futures Contract is set by the exchange on which the Futures Contract
is traded and may be significantly modified from time to time by the exchange
during the term of the Futures Contract.
Subsequent payments, called "variation margin," to and from the futures
commission merchant through which the Fund entered into the Futures Contract
will be made on a daily basis as the price of the underlying security, currency
or index fluctuates making the Futures Contract more or less valuable, a process
known as marking-to-market.
Risks of Using Futures Contracts. The prices of Futures Contracts are volatile
and are influenced by, among other things, actual and anticipated changes in
interest and currency rates, which in turn are affected by fiscal and monetary
policies and national and international political and economic events.
There is a risk of imperfect correlation between changes in prices of Futures
Contracts and prices of the securities or currencies in the Fund's portfolio
being hedged. The degree of imperfection of correlation depends upon
circumstances such as: variations in speculative market demand for Futures and
for securities or currencies, including technical influences in Futures trading;
and differences between the financial instruments being hedged and the
instruments underlying the standard Futures Contracts available for trading. A
decision of whether, when and how to hedge involves skill and judgment, and even
a well-conceived hedge may be unsuccessful to some degree because of unexpected
market behavior or interest or currency rate trends.
Because of the low margin deposits required, Futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a Futures Contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the Futures Contract is deposited as margin, a subsequent 10%
decrease in the value of the Futures Contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the Futures Contract were closed out.
Thus, a purchase or sale of a Futures Contract may result in losses in excess of
the amount invested in the Futures Contract.
Most U.S. Futures exchanges limit the amount of fluctuation permitted in
Futures Contract and option on Futures Contract prices during a single trading
day. The daily limit establishes the maximum amount that the price of a Futures
Contract or option may vary either up or down from the previous day's settlement
price at the end of a trading session. Once the daily limit has been reached in
a particular type of Futures Contract or option, no trades may be made on that
day at a price beyond that limit. The daily limit governs only price movement
during a particular trading day and therefore does not limit potential losses,
because the limit may prevent the liquidation of unfavorable positions. Futures
Contract and option prices occasionally have moved to the daily limit for
several consecutive trading days with little or no trading, thereby preventing
prompt liquidation of positions and subjecting some traders to substantial
losses.
If a Fund were unable to liquidate a Futures or option on Futures position due
to the absence of a liquid secondary market or the imposition of price limits,
it could incur substantial losses. The Fund would continue to be subject to
market risk with respect to the position. In addition, except in the case of
purchased options, the Fund would continue to be
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required to make daily variation margin payments and might be required to
maintain the position being hedged by the Future or option or to maintain cash
or securities in a segregated account.
Certain characteristics of the Futures market might increase the risk that
movements in the prices of Futures Contracts or options on Futures might not
correlate perfectly with movements in the prices of the investments being
hedged. For example, all participants in the Futures and options on Futures
markets are subject to daily variation margin calls and might be compelled to
liquidate Futures or options on Futures positions whose prices are moving
unfavorably to avoid being subject to further calls. These liquidations could
increase price volatility of the instruments and distort the normal price
relationship between the Futures or options and the investments being hedged.
Also, because initial margin deposit requirements in the Futures market are less
onerous than margin requirements in the securities markets, there might be
increased participation by speculators in the Futures markets. This
participation also might cause temporary price distortions. In addition,
activities of large traders in both the Futures and securities markets involving
arbitrage, "program trading" and other investment strategies might result in
temporary price distortions.
OPTIONS ON FUTURES CONTRACTS
Options on Futures Contracts are similar to options on securities or
currencies, except that options on Futures Contracts give the purchaser the
right, in return for the premium paid, to assume a position in a Futures
Contract (a long position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during the period of
the option. Upon exercise of the option, the delivery of the Futures position by
the writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's Futures margin account,
which represents the amount by which the market price of the Futures Contract,
at exercise, exceeds (in the case of a call) or is less than (in the case of a
put) the exercise price of the option on the Futures Contract. If an option is
exercised on the last trading day prior to the expiration date of the option,
the settlement will be made entirely in cash equal to the difference between the
exercise price of the option and the closing level of the securities, currencies
or index upon which the Futures Contract is based on the expiration date.
Purchasers of options who fail to exercise their options prior to the exercise
date suffer a loss of the premium paid.
The purchase of call options on Futures can serve as a long hedge, and the
purchase of put options on Futures can serve as a short hedge. Writing call
options on Futures can serve as a limited short hedge, and writing put options
on Futures can serve as a limited long hedge, using a strategy similar to that
used for writing options on securities, foreign currencies or indices.
If a Fund writes an option on a Futures Contract, it will be required to
deposit initial and variation margin pursuant to requirements similar to those
applicable to Futures Contracts. Premiums received from the writing of an option
on a Futures Contract are included in the initial margin deposit.
A Fund may seek to close out an option position by selling an option covering
the same Futures Contract and having the same exercise price and expiration
date. The ability to establish and close out positions on such options is
subject to the maintenance of a liquid secondary market.
LIMITATIONS ON USE OF FUTURES, OPTIONS ON FUTURES AND CERTAIN OPTIONS ON
CURRENCIES
To the extent that a Fund enters into Futures Contracts, options on Futures
Contracts, and options on foreign currencies traded on a CFTC-regulated
exchange, in each case other than for bona fide hedging purposes (as defined by
the CFTC), the aggregate initial margin and premiums required to establish those
positions (excluding the amount by which options are "in-the-money") will not
exceed 5% of the liquidation value of the Fund's portfolio, after taking into
account unrealized profits and unrealized losses on any contracts the Fund has
entered into. In general, a call option on a Futures Contract is "in-the-money"
if the value of the underlying Futures Contract exceeds the strike, i.e.,
exercise, price of the call; a put option on a Futures Contract is
"in-the-money" if the value of the underlying Futures Contract is exceeded by
the strike price of the put. This guideline may be modified by the Trust's Board
of Trustees without a shareholder vote. This limitation does not limit the
percentage of a Fund's assets at risk to 5%.
FORWARD CONTRACTS
A Forward Contract is an obligation, generally arranged with a commercial bank
or other currency dealer, to purchase or sell a currency against another
currency at a future date and price as agreed upon by the parties. A Fund may
either accept or make delivery of the currency at the maturity of the Forward
Contract. A Fund may also, if its contra party agrees, prior to maturity, enter
into a closing transaction involving the purchase or sale of an offsetting
contract.
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A Fund engages in forward currency transactions in anticipation of or to
protect itself against fluctuations in exchange rates. A Fund might sell a
particular foreign currency forward, for example, when it holds bonds
denominated in a foreign currency but anticipates, and seeks to be protected
against, a decline in the currency against the U.S. dollar. Similarly, a Fund
might sell the U.S. dollar forward when it holds bonds denominated in U.S.
dollars but anticipates, and seeks to be protected against, a decline in the
U.S. dollar relative to other currencies. Further, a Fund might purchase a
currency forward to "lock in" the price of securities denominated in that
currency that it anticipates purchasing.
Forward Contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers. A
Forward Contract generally has no deposit requirement, and no commissions are
charged at any stage for trades. Each Fund will enter into such Forward
Contracts with major U.S. or foreign banks and securities or currency dealers in
accordance with guidelines approved by the Board.
Each Fund may enter into Forward Contracts either with respect to specific
transactions or with respect to the overall investments of the Fund. The precise
matching of the Forward Contract amounts and the value of specific securities
generally will not be possible because the future value of such securities in
foreign currencies will change as a consequence of market movements in the value
of those securities between the date the Forward Contract is entered into and
the date it matures. Accordingly, it may be necessary for a Fund to purchase
additional foreign currency on the spot (i.e., cash) market (and bear the
expense of such purchase) if the market value of the security is less than the
amount of foreign currency the Fund is obligated to deliver and if a decision is
made to sell the security and make delivery of the foreign currency. Conversely,
it may be necessary to sell on the spot market some of the foreign currency the
Fund is obligated to deliver. The projection of short-term currency market
movements is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. Forward Contracts involve the risk that
anticipated currency movements will not be predicted accurately, causing a Fund
to sustain losses on these contracts and transaction costs.
At or before the maturity of a Forward Contract requiring a Fund to sell a
currency, the Fund either may sell a portfolio security and use the sale
proceeds to make delivery of the currency or retain the security and offset its
contractual obligation to deliver the currency by purchasing a second contract
pursuant to which the Fund will obtain, on the maturity date, the same amount of
the currency that it is obligated to deliver. Similarly, a Fund may close out a
Forward Contract requiring it to purchase a specified currency by entering into
a second contract if its contra party agrees, entitling it to sell the same
amount of the same currency on the maturity date of the first contract. The Fund
would realize a gain or loss as a result of entering into such an offsetting
Forward Contract under either circumstance to the extent the exchange rate or
rates between the currencies involved moved between the execution dates of the
first contract and the offsetting contract.
The cost to a Fund of engaging in Forward Contracts varies with factors such
as the currencies involved, the length of the contract period and the market
conditions then prevailing. Because Forward Contracts usually are entered into
on a principal basis, no fees or commissions are involved. The use of Forward
Contracts does not eliminate fluctuations in the prices of the underlying
securities a Fund owns or intends to acquire, but it does establish a rate of
exchange in advance. In addition, while Forward Contracts limit the risk of loss
due to a decline in the value of the hedged currencies, they also limit any
potential gain that might result should the value of the currencies increase.
FOREIGN CURRENCY STRATEGIES -- SPECIAL CONSIDERATIONS
A Fund may use options on foreign currencies, Futures on foreign currencies,
options on Futures on foreign currencies and Forward Contracts to hedge against
movements in the values of the foreign currencies in which the Fund's securities
are denominated. Such currency hedges can protect against price movements in a
security that a Fund owns or intends to acquire that are attributable to changes
in the value of the currency in which it is denominated. Such hedges do not,
however, protect against price movements in the securities that are attributable
to other causes.
A Fund might seek to hedge against changes in the value of a particular
currency when no Futures Contract, Forward Contract or option involving that
currency is available or one of such contracts is more expensive than certain
other contracts. In such cases, the Fund may hedge against price movements in
that currency by entering into a contract on another currency or basket of
currencies, the values of which AIM and/or the Sub-advisors believe will have a
positive correlation to the value of the currency being hedged. The risk that
movements in the price of the contract will not correlate perfectly with
movements in the price of the currency being hedged is magnified when this
strategy is used.
The value of Futures Contracts, options on Futures Contracts, Forward
Contracts and options on foreign currencies depends on the value of the
underlying currency relative to the U.S. dollar. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of Futures Contracts, Forward
Contracts or options, a Fund could be disadvantaged by dealing in the odd lot
market (generally
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consisting of transactions of less than $1 million) for the underlying foreign
currencies at prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirements that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or Futures markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements might take place in the underlying markets that cannot
be reflected in the markets for the Futures contracts or options until they
reopen.
Settlement of Futures Contracts, Forward Contracts and options involving
foreign currencies might be required to take place within the country issuing
the underlying currency. Thus, a Fund might be required to accept or make
delivery of the underlying foreign currency in accordance with any U.S. or
foreign regulations regarding the maintenance of foreign banking arrangements by
U.S. residents and might be required to pay any fees, taxes and charges
associated with such delivery assessed in the issuing country.
COVER
Transactions using Forward Contracts, Futures Contracts and options (other
than options purchased by a Fund) expose the Fund to an obligation to another
party. A Fund will not enter into any such transactions unless it owns either
(1) an offsetting ("covered") position in securities, currencies or other
options, Forward Contracts or Futures Contracts, or (2) cash, receivables and
short-term debt securities with a value sufficient at all times to cover its
potential obligations not covered as provided in (1) above. Each Fund will
comply with SEC guidelines regarding cover for these instruments and, if the
guidelines so require, set aside cash or liquid securities.
Assets used as cover or held in a segregated account cannot be sold while the
position in the corresponding Forward Contract, Futures Contract or option is
open, unless they are replaced with other appropriate assets. If a large portion
of a Fund's assets is used for cover or otherwise set aside, it could affect
portfolio management or the Fund's ability to meet redemption requests or other
current obligations.
RISK FACTORS
ILLIQUID SECURITIES
A Fund may invest up to 15% of its net assets in illiquid securities.
Securities may be considered illiquid if a Fund cannot reasonably expect within
seven days to sell the securities for approximately the amount at which the Fund
values such securities. See "Investment Limitations." The sale of illiquid
securities, if they can be sold at all, generally will require more time and
result in higher brokerage charges or dealer discounts and other selling
expenses than the sale of liquid securities such as securities eligible for
trading on U.S. securities exchanges or in the OTC markets. Moreover, restricted
securities, which may be illiquid for purposes of this limitation, often sell,
if at all, at a price lower than similar securities that are not subject to
restrictions on resale.
Illiquid securities include those that are subject to restrictions contained
in the securities laws of other countries. However, securities that are freely
marketable in the country where they are principally traded, but would not be
freely marketable in the United States, will not be considered illiquid. Where
registration is required, a Fund may be obligated to pay all or part of the
registration expenses and a considerable period may elapse between the time of
the decision to sell and the time the Fund may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, the Fund might obtain a less favorable price
than prevailed when it decided to sell.
Not all restricted securities are illiquid. In recent years a large
institutional market has developed for certain securities that are not
registered under the Securities Act of 1933, as amended (the "1933 Act"),
including private placements, repurchase agreements, commercial paper, foreign
securities and corporate bonds and notes. These instruments are often restricted
securities because the securities are sold in transactions not requiring
registration. Institutional investors generally will not seek to sell these
instruments to the general public, but instead will often depend either on an
efficient institutional market in which such unregistered securities can be
readily resold or on an issuer's ability to honor a demand for repayment.
Therefore, the fact that there are contractual or legal restrictions on resale
to the general public or certain institutions is not dispositive of the
liquidity of such investments.
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Rule 144A under the 1933 Act establishes a "safe harbor" from the registration
requirements of the 1933 Act for resales of certain securities to qualified
institutional buyers. Institutional markets for restricted securities have
developed as a result of Rule 144A, providing both readily ascertainable values
for restricted securities and the ability to liquidate an investment to satisfy
share redemption orders. Such markets include automated systems for the trading,
clearance and settlement of unregistered securities of domestic and foreign
issuers, such as the PORTAL System sponsored by the National Association of
Securities Dealers, Inc. An insufficient number of qualified institutional
buyers interested in purchasing Rule 144A-eligible restricted securities held by
a Fund, however, could affect adversely the marketability of such portfolio
securities and the Fund might be unable to dispose of such securities promptly
or at favorable prices.
With respect to liquidity determinations generally, the Trust's Board of
Trustees has the ultimate responsibility for determining whether specific
securities, including restricted securities eligible for resale to qualified
institutional buyers pursuant to Rule 144A under the 1933 Act, are liquid or
illiquid. The Trust's Board has delegated the function of making day-to-day
determinations of liquidity to AIM and/or the Sub-advisors in accordance with
procedures approved by the Board. AIM and/or the Sub-advisors take into account
a number of factors in reaching liquidity decisions, including: (i) the
frequency of trading in the security; (ii) the number of dealers who make quotes
for the security; (iii) the number of dealers who have undertaken to make a
market in the security; (iv) the number of other potential purchasers; and (v)
the nature of the security and how trading is effected (e.g., the time needed to
sell the security, how offers are solicited, and the mechanics of transfer.) AIM
and/or the Sub-advisors monitor the liquidity of securities in each Fund's
portfolio and periodically reports such determinations to the Trust's Board of
Trustees. If the liquidity percentage restriction of a Fund is satisfied at the
time of investment, a later increase in the percentage of illiquid securities
held by the Fund resulting from a change in market value or assets will not
constitute a violation of that restriction. If as a result of a change in market
value or assets, the percentage of illiquid securities held by the Fund
increases above the applicable limit, AIM and/or the Sub-advisors will take
appropriate steps to bring the aggregate amount of illiquid assets back within
the prescribed limitations as soon as reasonably practicable, taking into
account the effect of any disposition on the Fund.
FOREIGN SECURITIES
Political, Social and Economic Risks. Investing in securities of non-U.S.
companies may entail additional risks due to the potential political, social and
economic instability of certain countries and the risks of expropriation,
nationalization, confiscation or the imposition of restrictions on foreign
investment, convertibility of currencies into U.S. dollars and on repatriation
of capital invested. In the event of such expropriation, nationalization,
confiscatory taxation, or other confiscation by any country, a Fund could lose
its entire investment in any such country. Moreover, individual foreign
economies may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rate of inflation, rate of savings
and capital reinvestment, resource self-sufficiency and balance of payments
positions.
Religious, Political and Ethnic Instability. Certain countries in which a Fund
may invest may have groups that advocate radical religious or revolutionary
philosophies or support ethnic independence. Any disturbance on the part of such
individuals could carry the potential for widespread destruction or confiscation
of property owned by individuals and entities foreign to such country and could
cause the loss of the Fund's investment in those countries. Instability may also
result from, among other things: (i) authoritarian governments or military
involvement in political and economic decision-making, including changes in
government through extra-constitutional means; (ii) popular unrest associated
with demands for improved political, economic and social conditions; and (iii)
hostile relations with neighboring or other countries. Such political, social
and economic instability could disrupt the principal financial markets in which
a Fund invests and adversely affect the value of its assets.
Foreign Investment Restrictions. Certain countries prohibit or impose
substantial restrictions on investments in their capital markets, particularly
their equity markets, by foreign entities such as a Fund. These restrictions or
controls may at times limit or preclude investment in certain securities and may
increase the cost and expenses of the Fund. For example, certain countries
require prior governmental approval before investments by foreign persons may be
made, or may limit the amount of investment by foreign persons in a particular
company, or limit the investment by foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals. Moreover, the national policies
of certain countries may restrict investment opportunities in issuers or
industries deemed sensitive to national interests. In addition, some countries
require governmental approval for the repatriation of investment income, capital
or the proceeds of securities sales by foreign investors. In addition, if there
is a deterioration in a country's balance of payments or for other reasons, a
country may impose restrictions on foreign capital remittances abroad. A Fund
could be adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation, as well as by the application to it of
other restrictions on investments.
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Additionally, certain costs attributable to foreign investing, such as custody
charges, are higher than those attributable to domestic investing.
Non-Uniform Corporate Disclosure Standards and Governmental
Regulation. Foreign companies are subject to accounting, auditing and financial
standards and requirements that differ, in some cases significantly, from those
applicable to U.S. companies. In particular, the assets, liabilities and profits
appearing on the financial statements of such a company may not reflect its
financial position or results of operations in the way they would be reflected
had such financial statements been prepared in accordance with U.S. generally
accepted accounting principles. Most of the foreign securities held by a Fund
(other than the Mid Cap Fund) will not be registered with the SEC or regulators
of any foreign country, nor will the issuers thereof be subject to the SEC's
reporting requirements. Thus, there will be less available information
concerning most foreign issuers of securities held by a Fund than is available
concerning U.S. issuers. In instances where the financial statements of an
issuer are not deemed to reflect accurately the financial situation of the
issuer, AIM and/or the Sub-advisors will take appropriate steps to evaluate the
proposed investment, which may include on-site inspection of the issuer,
interviews with its management and consultations with accountants, bankers and
other specialists. There is substantially less publicly available information
about foreign companies than there are reports and ratings published about U.S.
companies and the U.S. government. In addition, where public information is
available, it may be less reliable than such information regarding U.S. issuers.
Issuers of securities in foreign jurisdictions are generally not subject to the
same degree of regulation as are U.S. issuers with respect to such matters as
restrictions on market manipulation, insider trading rules, shareholder proxy
requirements and timely disclosure of information.
Currency Fluctuations. Because each Fund, other than the Mid Cap Fund, under
normal circumstances will invest a substantial portion of its total assets in
the securities of foreign issuers that are denominated in foreign currencies,
the strength or weakness of the U.S. dollar against such foreign currencies will
account for a significant part of the Fund's investment performance. A decline
in the value of any particular currency against the U.S. dollar will cause a
decline in the U.S. dollar value of a Fund's holdings of securities and cash
denominated in such currency and, therefore, will cause an overall decline in
the Fund's net asset value and any net investment income and capital gains
derived from such securities to be distributed in U.S. dollars to shareholders
of the Fund. Moreover, if the value of the foreign currencies in which a Fund
receives its income declines relative to the U.S. dollar between the receipt of
income and the making of Fund distributions, it may be required to liquidate
securities in order to make distributions if it has insufficient cash in U.S.
dollars to meet distribution requirements. Currencies generally are evaluated on
the basis of fundamental economic criteria (e.g., relative inflation and
interest rate levels and trends, growth rate forecasts, balance of payments
status and economic policies) as well as technical and political data. The
exchange rates between the U.S. dollar and other currencies are determined by
supply and demand in the currency exchange markets, the international balance of
payments, governmental intervention, speculation and other economic and
political conditions.
The rate of exchange between the U.S. dollar and other currencies is
determined by several factors, including the supply and demand for particular
currencies, central bank efforts to support particular currencies, the relative
movement of interest rate and the pace of business activity in the other
countries and the United States, and other economic and financial conditions
affecting the world economy.
Although each Fund values its assets daily in terms of U.S. dollars, they do
not intend to convert their holdings of foreign currencies into U.S. dollars on
a daily basis. Each Fund will do so, from time to time, and investors should be
aware of the costs of currency conversion. Although foreign exchange dealers do
not charge a fee for conversion, they do realize a profit based on the
difference ("spread") between the prices at which they buy and sell various
currencies. Thus, a dealer may offer to sell a foreign currency to a Fund at one
rate, while offering a lesser rate of exchange should a Fund desire to sell that
currency to the dealer.
Adverse Market Characteristics. Securities of many foreign issuers may be less
liquid and their prices more volatile than securities of comparable U.S.
issuers. In addition, foreign securities markets and brokers generally are
subject to less governmental supervision and regulation than in the United
States, and foreign securities exchange transactions usually are subject to
fixed commissions, which generally are higher than negotiated commissions on
U.S. transactions. In addition, foreign securities exchange transactions may be
subject to difficulties associated with the settlement of such transactions.
Delays in settlement could result in temporary periods when assets of a Fund are
uninvested and no return is earned thereon. The inability of a Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of a portfolio
security due to settlement problems either could result in losses to a Fund due
to subsequent declines in value of the portfolio security or, if a Fund has
entered into a contract to sell the security, could result in possible liability
to the purchaser. AIM and/or the Sub-advisors will consider such difficulties
when determining the allocation of each Fund's assets, although AIM and/or the
Sub-advisors do not believe that such difficulties will have a material adverse
effect on the Funds' portfolio trading activities.
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<PAGE> 69
The Funds may use foreign custodians, which may involve risks in addition to
those related to the use of U.S. custodians. Such risks include uncertainties
relating to: (i) determining and monitoring the financial strength, reputation
and standing of the foreign custodian; (ii) maintaining appropriate safeguards
to protect the Funds' investments and (iii) obtaining and enforcing judgments
against such custodians.
The risk also exists that an emergency situation may arise in one or more
foreign markets as a result of which trading of securities may cease or may be
substantially curtailed and prices for a Fund's portfolio securities in such
markets may not be readily available. Section 22(e) of the 1940 Act permits a
registered investment company to suspend redemption of its shares for any period
during which an emergency exists, as determined by the SEC. Accordingly, when a
Fund believes that appropriate circumstances warrant, it will promptly apply to
the SEC for a determination that an emergency exists within the meaning of
Section 22(e). During the period commencing from a Fund's identification of such
conditions until the date of SEC action, the portfolio securities of the Fund in
the affected markets will be valued at fair value as determined in good faith by
or under the direction of the Trust's Board of Trustees.
Withholding Taxes. A Fund's net investment income from foreign issuers may be
subject to non-U.S. withholding taxes by the foreign issuer's country, thereby
reducing the Fund's net investment income or delaying the receipt of income
where those taxes may be recaptured. See "Taxes" herein.
Concentration. To the extent a Fund invests a significant portion of its
assets in securities of issuers located in a particular country or region of the
world, it may be subject to greater risks and may experience greater volatility
than a fund that is more broadly diversified geographically.
Special Considerations Affecting Western European Countries. The countries
that are members of the European Economic Community ("Common Market") (Austria,
Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
the Netherlands, Portugal, Spain, Sweden and the United Kingdom) eliminated
certain import tariffs and quotas and other trade barriers with respect to one
another over the past several years. AIM and/or the Sub-advisors believe that
this deregulation should improve the prospects for economic growth in many
Western European countries. Among other things, the deregulation could enable
companies domiciled in one country to avail themselves of lower labor costs
existing in other countries. In addition, this deregulation could benefit
companies domiciled in one country by opening additional markets for their goods
and services in other countries. Since, however, it is not clear what the exact
form or effect of these Common Market reforms will be on business in Western
Europe, it is impossible to predict the long-term impact of the implementation
of these programs on the securities owned by a Fund.
Special Considerations Affecting Russia and Eastern European
Countries. Investing in Russia and Eastern European countries involves a high
degree of risk and special considerations not typically associated with
investing in the U.S. securities markets and should be considered highly
speculative. Such risks include: (1) delays in settling portfolio transactions
and risk of loss arising out of the system of share registration and custody;
(2) the risk that it may be impossible or more difficult than in other countries
to obtain and/or enforce a judgment; (3) pervasiveness of corruption and crime
in the economic system; (4) currency exchange rate volatility and the lack of
available currency hedging instruments; (5) higher rates of inflation (including
the risk of social unrest associated with periods of hyper-inflation) and high
unemployment; (6) controls on foreign investment and local practices disfavoring
foreign investors and limitations on repatriation of invested capital, profits
and dividends and on a Fund's ability to exchange local currencies for U.S.
dollars; (7) political instability and social unrest and violence; (8) the risk
that the governments of Russia and Eastern European countries may decide not to
continue to support the economic reform programs implemented recently and may
follow radically different political and/or economic policies to the detriment
of investors, including non-market-oriented policies such as the support of
certain industries at the expense of other sectors or investors, or a return to
the centrally planned economy that existed when such countries had a communist
form of government; (9) the financial condition of companies in these countries,
including large amounts of inter-company debt that may create a payments crisis
on a national scale; (10) dependency on exports and the corresponding importance
of international trade; (11) the risk that the tax system in these countries
will not be reformed to prevent inconsistent, retroactive and/or exorbitant
taxation; and (12) the underdeveloped nature of the securities markets.
Special Considerations Affecting Pacific Region Countries. Many Pacific region
countries may be subject to a greater degree of social, political and economic
instability than is the case in the United States. Such instability may result
from, among other things, the following: (i) authoritarian governments or
military involvement in political and economic decision making, and changes in
government through extra-constitutional means; (ii) popular unrest associated
with demands for improved political, economic and social conditions; (iii)
internal insurgencies; (iv) hostile relations with neighboring countries; and
(v) ethnic, religious and racial disaffection. Such social, political and
economic instability could significantly disrupt the principal financial markets
in which a Fund invests and adversely affect the value of a Fund's
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<PAGE> 70
assets. In addition, there may be the possibility of asset expropriations or
future confiscatory levels of taxation affecting the Funds.
In China, India, Indonesia, Malaysia, the Philippines, Singapore, South Korea
and Thailand, government regulation or a company's charter may limit the maximum
foreign aggregate ownership of equity in the company. South Korea generally
prohibits foreign investment in won-denominated debt securities, and Sri Lanka
prohibits foreign investment in government debt securities. South Korea
prohibits foreign investment in specified telecommunications companies, and the
Philippines prohibits foreign investment in mass media companies and companies
providing certain professional services. In the Philippines, a Fund may
generally invest in "B" shares of Philippine issuers engaged in partly
nationalized business activities, the market prices, liquidity and rights of
which may vary from shares owned by nationals. Similarly, in China, a Fund may
only invest in "B" shares of securities traded on The Shanghai Securities
Exchange and The Shenzhen Stock Exchange, currently the two officially
recognized securities exchanges in China. "B" shares traded on The Shanghai
Securities Exchange are settled in U.S. dollars, and those traded on The
Shenzhen Stock Exchange are generally settled in Hong Kong dollars. Certain
countries, such as India, face serious exchange constraints.
If, because of restrictions on repatriation or conversion of funds, a Fund
were unable to timely distribute substantially all of its net investment income,
and net capital gains, the Fund could be subject to federal income and excise
taxes that would not otherwise be incurred and could cease to qualify for the
favorable tax treatment afforded to regulated investment companies ("RICs")
under the Internal Revenue Code of 1986, as amended (the "Code"). In such case,
it would become subject to federal income tax on all of its income and net
gains.
Several Pacific region countries have or in the past have had hostile
relationships with neighboring nations or have experienced internal insurgency.
Thailand has experienced border conflicts with Laos and Cambodia, and India is
engaged in border disputes with several of its neighbors, including China and
Pakistan. An uneasy truce exists between North Korea and South Korea, and the
recurrence of hostilities remains possible. Reunification of North Korea and
South Korea could have a detrimental effect on the economy of South Korea. Also,
China continues to claim sovereignty over Taiwan and has, in the past, conducted
military maneuvers near Taiwan.
The economies of most Pacific region countries are heavily dependent upon
international trade and are accordingly affected by protective trade barriers
and the economic conditions of their trading partners, principally the United
States, Japan, China and the European Community. The enactment by the United
States or other principal trading partners of protectionist trade legislation,
reduction of foreign investment in the local economies and general declines in
the international securities markets could have a significant adverse effect
upon the securities markets of Pacific region countries. In addition, the
economies of some of the Asia Pacific region countries, Australia and Indonesia,
for example, are vulnerable to weakness in world prices for their commodity
exports, including crude oil.
Few of the Pacific region countries have Western-style or fully democratic
governments. Some governments in the region are authoritarian in nature and
influenced by security forces. For example, during the course of the last 25
years, governments in the region have been installed or removed as a result of
military coups, while others have periodically demonstrated repressive police
state characteristics. In several Pacific region countries, the leadership
ability of the government has suffered as a result of recent corruption
scandals. Disparities of wealth, among other factors, have also led to social
unrest in some of the Asia Pacific region countries, accompanied, in certain
cases, by violence and labor unrest. Ethnic, religious and racial disaffection,
as evidenced in India, Pakistan, and Sri Lanka, for example, have created
social, economic and political problems. Such problems also have occurred in
other regions.
Starting in mid-1997, some Pacific region countries began to experience
currency devaluations that resulted in high interest rate levels and sharp
reductions in economic activity. While the currency crisis diminished prospects
for short-term corporate earnings growth, AIM and/or the Sub-advisors believe
that high interest rate levels may force governments and corporations to
restructure the financial sector in a manner that may facilitate a return to
high levels of long-term economic activity.
China assumed sovereignty over Hong Kong in July 1997. Although China has
committed by treaty to preserve the economic and social freedoms enjoyed in Hong
Kong for fifty years, the continuation of the current form of the economic
system in Hong Kong will depend on the actions of the government of China. In
addition, such assumption of sovereignty has increased sensitivity in Hong Kong
to political developments and statements by public figures in China. Business
confidence in Hong Kong, therefore, can be significantly affected by such
developments and statements, which in turn can affect markets and business
performance. Investments in Hong Kong may be subject to expropriation,
nationalization or confiscation, in which case a Fund could lose its entire
investment in Hong Kong.
In addition, there is continuing risk that the Hong Kong dollar will be
devalued and a risk of possible loss of investor confidence in the Hong Kong
markets and dollar. However, factors exist that are likely to mitigate this
risk. First, China
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<PAGE> 71
has stated its intention to implement a "one country, two systems" policy, which
would preserve monetary sovereignty and leave control in the hands of the Hong
Kong Monetary Authority ("HKMA").
Second, fixed rate parity with the U.S. dollar is seen as critical to
maintaining investors' confidence in the transition to Chinese rule and,
therefore, it is anticipated that, if international investors lose confidence in
Hong Kong dollar assets, the HKMA would take steps to support the currency,
though the taking of such steps cannot be assured. Third, Hong Kong's and
China's sizable combined foreign exchange reserve may be used to support the
value of the Hong Kong dollar, provided that China does not appropriate such
reserves for other uses, which is not anticipated but cannot be assured.
Finally, China would be likely to experience significant adverse political and
economic consequences if confidence in the Hong Kong dollar and the territory
assets were to be endangered.
Special Considerations Affecting Japan. Japan's economic growth has declined
significantly since 1990. The general government position has deteriorated as a
result of weakening economic growth and stimulative measures taken to support
economic activity and to restore financial stability. Although the decline in
interest rates and fiscal stimulation packages have helped to contain
recessionary forces, uncertainties remain. Japan is also heavily dependent upon
international trade, so its economy is especially sensitive to trade barriers
and disputes.
The common stocks of many Japanese companies trade at high price-earnings
ratios, which may be attributable in part to inefficiencies associated with
Japanese corporate operations. Differences in accounting methods make it
difficult to compare the earnings of Japanese companies with those of companies
in other countries, especially the United States. In general, however, reported
net income in Japan is understated relative to U.S. accounting standards and
this is one reason why price-earnings ratios of the stocks of Japanese companies
have tended historically to be higher than those for U.S. stocks. In addition,
Japanese companies have tended to have higher growth rates than U.S. companies,
and Japanese interest rates have generally been lower than in the United States,
both of which factors tend to result in lower discount rates and higher
price-earnings ratios in Japan than in the United States.
The Japanese securities markets are less regulated than those in the United
States. Evidence has emerged from time to time of distortion of market prices to
serve political or other purposes. Shareholders' rights are also not always
equally enforced.
In addition, Japan's banking industry is undergoing problems related to bad
loans and declining values in real estate.
Special Considerations Affecting Emerging Markets. Because of the special
risks associated with investing in emerging markets, an investment in a Fund
should be considered speculative. Investors are strongly advised to consider
carefully the special risks involved in emerging markets, which are in addition
to the usual risks of investing in developed foreign markets around the world.
Investing in the securities of companies in emerging markets may entail special
risks relating to potential political and economic instability and the risks of
expropriation, nationalization, confiscation or the imposition of restrictions
on foreign investment, convertibility into U.S. dollars and on repatriation of
capital invested. In the event of such expropriation, nationalization or other
confiscation by any country, a Fund could lose its entire investment in any such
country.
Economies in emerging markets generally are dependent heavily upon
international trade and, accordingly, have been and may continue to be affected
adversely by trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by the
countries with which they trade. These economies also have been and may continue
to be affected adversely by economic conditions in the countries in which they
trade. There also may be a lower level of monitoring and regulation of emerging
securities markets and the activities of investors in such markets, and
enforcement of existing regulations has been extremely limited.
Emerging securities markets are substantially smaller, less developed, less
liquid and more volatile than the major securities markets. The limited size of
emerging securities markets and limited trading value in issuers compared to the
volume of trading in U.S. securities could cause prices to be erratic for
reasons apart from factors that affect the quality of the securities. For
example, limited market size may cause prices to be unduly influenced by traders
who control large positions. Adverse publicity and investors' perceptions,
whether or not based on fundamental analysis, may decrease the value and
liquidity of portfolio securities, especially in these markets. In addition,
securities traded in certain emerging markets may be subject to risks due to the
inexperience of financial intermediaries, a lack of modern technology, the lack
of a sufficient capital base to expand business operations, and the possibility
of permanent or temporary termination of trading.
Settlement mechanisms in emerging securities markets may be less efficient and
reliable than in more developed markets. In such emerging markets there may be
share registration and delivery delays or failures.
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<PAGE> 72
Many emerging market countries have experienced substantial, and in some
periods extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates and corresponding currency devaluations have had
and may continue to have negative effects on the economies and securities
markets of certain emerging market countries.
DEBT SECURITIES
The value of debt securities held by a Fund will fluctuate with changes in the
perceived creditworthiness of the issuers of such securities and interest rates.
Each Fund is permitted to purchase investment grade debt securities. In
selecting debt securities for investment, AIM and/or the Sub-advisors review and
monitor the creditworthiness of each issuer and issue and analyze interest rate
trends and specific developments that may affect individual issuers, in addition
to relying on ratings assigned by S&P, Moody's or another NRSRO as indicators of
quality. Debt securities rated Baa by Moody's or BBB by S&P are investment
grade, although Moody's considers securities rated Baa to have speculative
characteristics. Changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity for such securities to make principal and
interest payments than is the case for higher grade debt securities. Each Fund
is also permitted to purchase debt securities that are not rated by S&P, Moody's
or another NRSRO, but that AIM and/or the Sub-advisors determine to be of
comparable quality to that of rated securities in which the Fund may invest.
Such securities are included in the computation of any percentage limitations
applicable to the comparable rated securities.
Ratings of debt securities represent the rating agencies' opinions regarding
their quality, are not a guarantee of quality and may be reduced after a Fund
has acquired the security. AIM and/or the Sub-advisors will consider such an
event in determining whether a Fund should continue to hold the security but is
not required to dispose of it. Credit ratings attempt to evaluate the safety of
principal and interest payments and do not reflect an assessment of the
volatility of the security's market value or the liquidity of an investment in
the security. Also, NRSROs may fail to make timely changes in credit ratings in
response to subsequent events, so that an issuer's current financial condition
may be better or worse than the rating indicates. For a description of Moody's
and S&P ratings, see "Appendix" herein.
EQUITY SECURITIES
Equity securities, particularly common stocks, generally represent the most
junior position in an issuer's capital structure and entitle holders to an
interest in the assets of an issuer, if any, remaining after all more senior
claims have been satisfied.
INVESTMENT LIMITATIONS
Each Fund has adopted the following investment limitations as fundamental
policies that may not be changed without approval by the affirmative vote of a
majority of the outstanding shares of the Fund. No Fund may:
(1) Purchase or sell real estate, except that investments in
securities of issuers that invest in real estate and investments in
mortgage-backed securities, mortgage participations or other instruments
supported by interests in real estate are not subject to this limitation,
and except that the Fund may exercise rights under agreements relating to
such securities, including the right to enforce security interests and to
hold real estate acquired by reason of such enforcement until that real
estate can be liquidated in an orderly manner;
(2) Purchase or sell physical commodities, but the Fund may purchase,
sell or enter into financial options and futures, forward and spot currency
contracts, swap transactions and other financial contracts or derivative
instruments;
(3) Issue senior securities or borrow money, except as permitted under
the 1940 Act and then not in excess of 33 1/3% of the Fund's total assets
(including the amount borrowed but reduced by any liabilities not
constituting borrowings) at the time of the borrowing, except that the Fund
may borrow up to an additional 5% of its total assets (not including the
amount borrowed) for temporary or emergency purposes;
(4) Make loans, except through loans of portfolio securities or
through repurchase agreements, provided that for purposes of this
limitation, the acquisition of bonds, debentures, other debt securities or
instruments, or participations or other interests therein and investments
in government obligations, commercial paper, certificates of deposit,
bankers' acceptances or similar instruments will not be considered the
making of a loan;
(5) Purchase securities of any one issuer if, as a result, more than
5% of the Fund's total assets would be invested in securities of that
issuer or the Fund would own or hold more than 10% of the outstanding
voting securities of that issuer, except that up to 25% of the Fund's total
assets may be invested without regard to this
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<PAGE> 73
limitation, and except that this limitation does not apply to securities
issued or guaranteed by the U.S. government, its agencies or
instrumentalities or to securities issued by other investment companies;
(6) Engage in the business of underwriting securities of other
issuers, except to the extent that the Fund might be considered an
underwriter under the federal securities laws in connection with its
disposition of portfolio securities; or
(7) Purchase any security if, as a result of that purchase, 25% or
more of the Fund's total assets would be invested in securities of issuers
having their principal business activities in the same industry, except
that this limitation does not apply to securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities.
Notwithstanding any other investment policy of the Fund, the Fund may invest
all of its investable assets (cash, securities and receivables related to
securities) in an open-end management investment company having substantially
the same investment objective, policies and limitations as the Fund.
For purposes of the concentration policy contained in limitation (7) above,
each Fund intends to comply with the SEC staff position that securities issued
or guaranteed as to principal and interest by any single foreign government or
any supranational organization are considered to be securities of issuers in the
same industry.
The following investment limitations of each Fund are not fundamental policies
and may be changed by vote of the Trust's Board of Trustees without shareholder
approval. Each Fund may not:
(1) Invest more than 15% of its net assets in illiquid securities, a
term which means securities that cannot be disposed of within seven days in
the normal course of business at approximately the amount at which the Fund
has valued the securities and includes, among other things, repurchase
agreements maturing in more than seven days;
(2) Borrow money except for temporary or emergency purposes (not for
leveraging) in excess of 33 1/3% of the value of the Fund's total assets;
(3) Enter into a futures contract, an option on a futures contract or
an option on foreign currency traded on a CFTC-regulated exchange, in each
case other than for bona fide hedging purposes (as defined by the CFTC), if
the aggregate initial margin and premiums required to establish all of
these positions (excluding the amount by which options are "in-the-money")
exceeds 5% of the liquidation value of the Fund's portfolio, after taking
into account unrealized profits and unrealized losses on any contracts the
Fund has entered into;
(4) Purchase securities on margin, provided that the Fund may obtain
short-term credits as may be necessary for the clearance of purchases and
sales of securities, and further provided that the Fund may make margin
deposits in connection with its use of financial options and futures,
forward and spot currency contracts, swap transactions and other financial
contracts or derivative instruments; or
(5) Mortgage, pledge, or hypothecate any of its assets, provided that
this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
If a percentage restriction on investment or utilization of assets in an
investment policy or limitation is adhered to at the time an investment is made,
a later change in percentage ownership of a security or kind of securities
resulting from changing market values or a similar type of event will not be
considered a violation of a Fund's investment policies or restrictions. A Fund
may exchange securities, exercise conversion or subscription rights, warrants,
or other rights to purchase common stock or other equity securities and may
hold, except to the extent limited by the 1940 Act, any such securities so
acquired without regard to the Fund's investment policies and restrictions. The
original cost of the securities so acquired will be included in any subsequent
determination of a Fund's compliance with the investment percentage limitations
referred to above and in the Prospectus.
Investors should refer to each Fund's Prospectus for further information with
respect to that particular Fund's investment objective, which may not be changed
without the approval of its shareholders, and other investment policies,
techniques and limitations, which may be changed without shareholder approval.
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EXECUTION OF PORTFOLIO TRANSACTIONS
Subject to policies established by the Trust's Board, AIM and/or the
Sub-advisors are responsible for the execution of the Funds' portfolio
transactions and the selection of brokers/dealers who execute such transactions
on behalf of the Funds. In executing transactions, AIM and/or the Sub-advisors
seek the best net results for each Fund, taking into account such factors as the
price (including the applicable brokerage commission or dealer spread), size of
the order, difficulty of execution and operational facilities of the firm
involved. Although AIM and/or the Sub-advisors generally seek reasonably
competitive commission rates and spreads, payment of the lowest commission or
spread is not necessarily consistent with the best net results. While the Funds
may engage in soft dollar arrangements for research services, as described
below, the Funds have no obligation to deal with any broker/dealer or group of
broker/dealers in the execution of portfolio transactions.
Consistent with the interests of the Funds, AIM and/or the Sub-advisors may
select brokers to execute the Funds' portfolio transactions on the basis of the
research services they provide to AIM and/or the Sub-advisors for its use in
managing the Funds and its other advisory accounts. Such services may include
furnishing analysis, reports and information concerning issuers, industries,
securities, geographic regions, economic factors and trends, portfolio strategy,
and performance of accounts; and effecting securities transactions and
performing functions incidental thereto (such as clearance and settlement).
Research and brokerage services received from such broker are in addition to,
and not in lieu of, the services required to be performed by AIM and/or the
Sub-advisors under the applicable investment management and administration
contract. A commission paid to such broker may be higher than that which another
qualified broker would have charged for effecting the same transaction, provided
that AIM and/or the Sub-advisors determine in good faith that such commission is
reasonable in terms either of that particular transaction or the overall
responsibility of AIM and/or the Sub-advisors to the Funds and its other clients
and that the total commissions paid by each Fund will be reasonable in relation
to the benefits received by the Funds over the long term. Research services may
also be received from dealers who execute Fund transactions in OTC markets.
AIM and/or the Sub-advisors may allocate brokerage transactions to
broker/dealers who have entered into arrangements under which the broker/dealer
allocates a portion of the commissions paid by the Fund toward payment of its
expenses, such as transfer agent and custodian fees.
Investment decisions for each Fund and for other investment accounts managed
by AIM and/or the Sub-advisors are made independently of each other in light of
differing conditions. However, the same investment decision occasionally may be
made for two or more of such accounts, including one or more Funds. In such
cases, simultaneous transactions may occur. Purchases or sales are then
allocated as to price or amount in a manner deemed fair and equitable to all
accounts involved. While in some cases this practice could have a detrimental
effect upon the price or value of the security as far as a Fund is concerned, in
other cases AIM and/or the Sub-advisors believe that coordination and the
ability to participate in volume transactions will be beneficial to the Funds.
Under a policy adopted by the Trust's Board, and subject to the policy of
obtaining the best net results, AIM and/or the Sub-advisors may consider a
broker/dealer's sale of the shares of the Funds and the other funds for which
AIM or the Sub-advisors serve as investment manager and/or administrator in
selecting broker/dealers for the execution of portfolio transactions. This
policy does not imply a commitment to execute portfolio transactions through all
broker/dealers that sell shares of the Funds and such other funds.
Each Fund contemplates purchasing most foreign equity securities in OTC
markets or stock exchanges located in the countries in which the respective
principal offices of the issuers of the various securities are located, if that
is the best available market. The fixed commissions paid in connection with most
such foreign stock transactions generally are higher than negotiated commissions
on U.S. transactions. There generally is less government supervision and
regulation of foreign stock exchanges and brokers than in the United States.
Foreign security settlements may in some instances be subject to delays and
related administrative uncertainties.
Foreign equity securities may be held by a Fund in the form of ADRs, ADSs,
EDRs, GDRs, CDRs or securities convertible into foreign equity securities. ADRs,
ADSs, EDRs, GDRs and CDRs may be listed on stock exchanges, or traded in the OTC
markets in the United States or Europe, as the case may be. ADRs, like other
securities traded in the United States, will be subject to negotiated commission
rates. The foreign and domestic debt securities and money market instruments in
which the Funds may invest are generally traded in the OTC markets.
Each Fund contemplates that, consistent with the policy of obtaining the best
net results, brokerage transactions may be conducted through certain companies
that are affiliated with AIM or any of the Sub-advisors. The Trust's Board has
adopted procedures in conformity with Rule 17e-1 under the 1940 Act to ensure
that all brokerage commissions paid to
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such affiliates are reasonable and fair in the context of the market in which
they are operating. Any such transactions will be effected and related
compensation paid only in accordance with applicable SEC regulations.
The Funds may engage in certain principal and agency transactions with banks
and their affiliates that own 5% or more of the outstanding voting securities of
a Fund, provided the conditions of an exemptive order received by the Funds from
the SEC are met. In addition, a Fund may purchase or sell a security from or to
another AIM Fund provided the Funds follow procedures adopted by the Boards of
Directors/Trustees of the various AIM Funds, including the Trust. These inter-
fund transactions do not generate brokerage commissions but may result in
custodial fees or taxes or other related expenses.
For the fiscal years ended December 31, 1998 and 1997, no payments were made
to affiliated brokers.
Aggregate brokerage commissions paid by the Funds for their three most recent
fiscal years were:
<TABLE>
<CAPTION>
FUND 1998 1997 1996
---- ---------- ---------- ----------
<S> <C> <C> <C>
Europe Fund................................ $1,989,166 $2,217,385 $2,711,139
Japan Fund................................. $ 235,325 $ 218,841 $ 253,623
Mid Cap Fund............................... $1,528,607 $2,193,539 $2,760,768
Pacific Fund............................... $ 930,036 $2,767,789 $5,151,533
</TABLE>
PORTFOLIO TRADING AND TURNOVER
Although the Funds generally do not intend to trade for short-term profits,
the securities held by a Fund will be sold whenever AIM and/or the Sub-advisors
believe it is appropriate to do so, without regard to the length of time a
particular security may have been held. Portfolio turnover rate is calculated by
dividing the lesser of sales or purchases of portfolio securities by each Fund's
average month-end portfolio sales, excluding short-term investments. The
portfolio turnover rate will not be a limiting factor when AIM and/or the
Sub-advisors deem portfolio changes appropriate. High portfolio turnover (over
100%) involves correspondingly greater brokerage commissions and other
transaction costs that a Fund will bear directly and may result in the
realization of net capital gains that are taxable when distributed to the Fund's
shareholders. The portfolio turnover rates for the fiscal years ended December
31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
FUND 1998 1997
---- ---- ----
<S> <C> <C>
Europe Fund................................................. 97% 107%
Japan Fund.................................................. 67% 58%
Mid Cap Fund................................................ 168% 190%
Pacific Fund................................................ 96% 80%
</TABLE>
27
<PAGE> 76
MANAGEMENT
The Trust's Board of Trustees has overall responsibility for the operation of
the Funds. The Board has approved all significant agreements between the Trust
and persons or companies furnishing services to the Funds including the
investment management and administration agreement with AIM, the investment
sub-advisory agreement between AIM and the Sub-advisors, the agreements with AIM
Distributors regarding distribution of the Funds' shares, the custody agreement
and the transfer agency agreement. The day-to-day operations of the Funds are
delegated to the officers of the Trust, subject always to the investment
objectives and policies of the Funds and to the general supervision of the
Trust's Board.
TRUSTEES AND EXECUTIVE OFFICERS
The Trust's Trustees and Executive Officers are listed below. Unless otherwise
indicated, the address of each Executive Officer is 11 Greenway Plaza, Suite
100, Houston, Texas 77046.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
POSITIONS HELD
NAME, ADDRESS AND AGE WITH REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
*ROBERT H. GRAHAM, (52) Trustee, Chairman of the Director, President and Chief Executive Officer,
Board and President A I M Management Group Inc.; Director and President,
A I M Advisors, Inc.; Director and Senior Vice
President, A I M Capital Management, Inc., A I M
Distributors, Inc., A I M Fund Services, Inc. and
Fund Management Company; and Director, AMVESCAP PLC.
- ----------------------------------------------------------------------------------------------------------
C. DEREK ANDERSON, (57) Trustee Mr. Anderson is President, Plantagenet Capital
220 Sansome Street Management, LLC (an investment partnership); Chief
Suite 400 Executive Officer, Plantagenet Holdings, Ltd. (an
San Francisco, CA 94104 investment banking firm); Director, Anderson Capital
Management, Inc. since 1988; Director, PremiumWear,
Inc. (formerly Munsingwear, Inc.) (a casual apparel
company) and Director, "R" Homes, Inc. and various
other companies. Mr. Anderson is also a trustee of
each of the other investment companies registered
under the 1940 Act that is sub-advised or sub-
administered by the Sub-advisors.
- ----------------------------------------------------------------------------------------------------------
FRANK C. BAYLEY, (59) Trustee Mr. Bayley is a partner of the law firm of Baker &
Two Embarcadero Center McKenzie, and serves as a Director and Chairman of
Suite 2400 C.D. Stimson Company (a private investment company).
San Francisco, CA 94111 Mr. Bayley is also a trustee of each of the other
investment companies registered under the 1940 Act
that is sub-advised or sub-administered by the
Sub-advisors.
- ----------------------------------------------------------------------------------------------------------
ARTHUR C. PATTERSON, (55) Trustee Mr. Patterson is Managing Partner of Accel Partners
428 University Avenue (a venture capital firm). He also serves as a
Palo Alto, CA 94301 director of Viasoft and PageMart, Inc. (both public
software companies) as well as several other
privately held software and communications companies.
Mr. Patterson is also a trustee of each of the other
investment companies registered under the 1940 Act
that is sub-advised or sub-administered by the Sub-
advisors.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
* A trustee who is an "interested person" of the Trust and A I M Advisors, Inc. as defined in the 1940
Act.
</TABLE>
28
<PAGE> 77
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
POSITIONS HELD
NAME, ADDRESS AND AGE WITH REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
RUTH H. QUIGLEY, (64) Trustee Miss Quigley is a private investor. From 1984 to
1055 California Street 1986, she was President of Quigley Friedlander & Co.,
San Francisco, CA 94108 Inc. (a financial advisory services firm). Miss
Quigley is also a trustee of each of the other
investment companies registered under the 1940 Act
that is sub-advised or sub-administered by the
Sub-advisors.
- ----------------------------------------------------------------------------------------------------------
MELVILLE B. COX, (54) Vice President Vice President and Chief Compliance Officer, A I M
Advisors, Inc., A I M Capital Management, Inc., A I M
Distributors, Inc., A I M Fund Services, Inc. and
Fund Management Company.
- ----------------------------------------------------------------------------------------------------------
GARY T. CRUM, (50) Vice President Director and President, A I M Capital Management,
Inc.; Director and Senior Vice President, A I M
Management Group Inc. and A I M Advisors, Inc.; and
Director, A I M Distributors, Inc. and AMVESCAP PLC.
- ----------------------------------------------------------------------------------------------------------
CAROL F. RELIHAN, (43) Vice President Director, Senior Vice President, General Counsel and
Secretary, A I M Advisors, Inc.; Senior Vice
President, General Counsel and Secretary, A I M
Management Group Inc.; Director, Vice President and
General Counsel, Fund Management Company; Vice
President and General Counsel, A I M Fund Services,
Inc.; and Vice President, A I M Capital Management,
Inc. and A I M Distributors, Inc.
- ----------------------------------------------------------------------------------------------------------
SAMUEL D. SIRKO (39) Vice President and Vice President, Assistant General Counsel and
Secretary Assistant Secretary, A I M Advisors, Inc.; and
Assistant General Counsel and Assistant Secretary,
A I M Management Group Inc., A I M Capital
Management, Inc., A I M Distributors, Inc., A I M
Fund Services, Inc. and Fund Management Company.
- ----------------------------------------------------------------------------------------------------------
DANA R. SUTTON, (39) Vice President and Vice President and Fund Controller, A I M Advisors,
Treasurer Inc.; and Assistant Vice President and Assistant
Treasurer, Fund Management Company.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The Board of Trustees has a Nominating and Audit Committee, comprised of Miss
Quigley and Messrs. Anderson, Bayley and Patterson, which is responsible for
nominating persons to serve as Trustees, reviewing audits of the Trust and the
Funds and recommending firms to serve as independent auditors of the Trust. All
of the Trust's Trustees also serve as directors or trustees of some or all of
the other investment companies managed, administered or advised by AIM. All of
the Trust's Executive Officers hold similar offices with some or all of the
other investment companies managed, administered or advised by AIM. Each Trustee
who is not a director, officer or employee of AIM and/or the Sub-advisors or any
affiliated company is paid an annual retainer component plus a per-meeting fee
component, and reimbursed travel and other expenses incurred in connection
with attendance at such meetings. Other Trustees and Officers receive no
compensation or expense reimbursements from the Trust.
For the fiscal year ended December 31, 1998, the Trust paid Mr. Anderson, Mr.
Bayley, Mr. Patterson and Miss Quigley, who are not directors, officers or
employees of AIM and/or the Sub-advisors or any affiliated company, total
compensation of $13,300, $10,900, $12,100 and $13,300, respectively, for their
services as Trustees. For the year ended December 31, 1998, Mr. Anderson, Mr.
Bayley, Mr. Patterson and Miss Quigley, who are not directors, officers or
employees of AIM and/or the Sub-advisors or any other affiliated company,
received total compensation of $106,850, $90,650, $98,600 and $99,500,
respectively, from the investment companies managed or administered by AIM and
sub-advised or sub-administered by the Sub-advisors for which he or she serves
as a Trustee. Fees and expenses disbursed to the Trustees contained no accrued
or payable pension or retirement benefits. As of April 1, 1999, the Officers
and Trustees and their families as a group owned in the aggregate beneficially
or of record less than 1% of the outstanding shares of any Fund.
29
<PAGE> 78
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES
AIM, 11 Greenway Plaza, Suite 100, Houston, Texas 77046, was organized in 1976
and, together with its subsidiaries, manages or advises approximately 110
investment portfolios encompassing a broad range of investment objectives.
INVESCO Asset Management Limited, 11 Devonshire Square, London, EC2M 4YR,
England, has provided investment management and/or administrative services to
pension funds, insurance funds, index funds, unit trusts, offshore funds and a
variety of institutional accounts since 1967. INVESCO Asset Management (Japan)
Limited, Imperial Tower, 1-1-1 Uchisaiwai-cho, Chiyoda-Ku, Tokyo, 100-0011, has
provided investment management services since 1990. INVESCO Asia Limited, 12/F,
Three Exchange Square, 8 Connaught Place, Hong Kong, has provided investment
management services since 1972. AIM, the Sub-advisors and their world-wide asset
management affiliates provide investment management and/or administrative
services to institutional, corporate and individual clients around the world.
AIM is a direct, wholly owned subsidiary of A I M Management Group Inc. ("AIM
Management"), a holding company that has been engaged in the financial services
business since 1976. AIM is also the sole shareholder of the Funds' principal
underwriter, AIM Distributors.
AIM Management, AIM and the Sub-Advisors are indirect wholly owned
subsidiaries of AMVESCAP PLC, 11 Devonshire Square, London, EC2M 4YR, England.
AMVESCAP PLC and its subsidiaries are an independent management group that has a
significant presence in the institutional and retail segment of the investment
management industry in North America and Europe, and a growing presence in Asia.
In addition to the investment resources of their Houston and London offices,
AIM and the Sub-advisors draw upon the expertise, personnel, data and systems of
other offices in Atlanta, Boston, Dallas, Denver, Louisville, Miami, New York,
Portland (Oregon), Frankfurt, Hong Kong, London, Singapore, Sydney, Tokyo and
Toronto. In managing the Funds and the Portfolio, the Sub-advisors employ a team
approach, taking advantage of its investment resources around the world.
AIM serves as the investment manager and administrator to each Fund under an
investment management and administration contract ("Management Contract")
between the Trust and AIM. INVESCO Japan serves as the sub-advisor to Japan Fund
under a sub-advisory contract between AIM and INVESCO Japan ("Sub-Management
Contract"). INVESCO Asia serves as the sub-advisor to Pacific Fund under a
sub-advisory contract between AIM and INVESCO Asia ("Sub-Management Contract").
INVESCO AML serves the sub-adviser to Europe Fund under a sub-advisory contract
between AIM and INVESCO AML ("Sub-Management Contract"). The Sub-Management
Contracts together with the Management Contract may be referred to hereafter as
the "Management Contracts." As investment managers and administrators, AIM
and/or the Sub-advisors make all investment decisions for each Fund and
administer each Fund's affairs. Among other things, AIM and/or the Sub-advisors
furnish the services and pay the compensation and travel expenses of persons who
perform the executive, administrative, clerical and bookkeeping functions of the
Trust and the Funds and provide suitable office space and necessary small office
equipment and utilities.
The Management Contracts may be renewed for additional one-year terms with
respect to each Fund, provided that any such renewal has been specifically
approved at least annually by: (i) the Board of Trustees or the vote of a
majority of the Fund's outstanding voting securities (as defined in the 1940
Act), and (ii) a majority of Trustees who are not parties to the Management
Contracts or "interested persons" of any such party (as defined in the 1940
Act), cast in person at a meeting called for the specific purpose of voting on
such approval. With respect to any Fund, either the Trust or each of AIM or the
Sub-advisors may terminate the Management Contracts without penalty upon sixty
days' written notice to the other party. The Management Contracts terminate
automatically in the event of their assignment (as defined in the 1940 Act).
For these services, each Fund (other than Mid Cap Fund) pays AIM investment
management and administrative fees, computed daily and paid monthly, based on
its average daily net assets, at the annualized rate of 0.975% on the first $500
million, 0.95% on the next $500 million, 0.925% on the next $500 million and
0.90% on the amounts thereafter. Mid Cap Fund pays AIM investment management and
administration fees, computed daily and paid monthly, based on its average daily
net assets, at the annualized rate of 0.725% on the first $500 million, 0.70% on
the next $500 million, 0.675% on the next $500 million and 0.65% on amounts
thereafter. AIM pays each Sub-advisor sub-advisory fees, computed weekly and
paid monthly based on each Fund's average daily net assets, at the annualized
rate of 0.39% of the first $500 million, 0.38% on the next $500 million, 0.37%
on the next $500 million, and 0.36% on the amounts thereafter. The investment
management and administration fees paid by the Funds are higher than those paid
by most mutual funds. The Funds pay all expenses not assumed by AIM, the
Sub-advisors, AIM Distributors or other agents. AIM has undertaken to limit
expenses of each of Europe Fund, Japan Fund and Pacific Fund (exclusive of
brokerage commissions, taxes, interest and extraordinary expenses) to the annual
rate of 1.65% of the average daily net assets of each Fund's Advisor Class
shares, and has undertaken to limit expenses of Mid Cap Fund to the annual rate
of 1.40% of the average daily net assets of each Fund's Advisor Class until May
31, 2000.
30
<PAGE> 79
AIM may from time to time waive or reduce its fee. Voluntary fee waivers or
reductions may be rescinded at any time without further notice to investors.
During periods of voluntary fee waivers or reductions, AIM will retain its
ability to be reimbursed for such fee prior to the end of each fiscal year.
Contractual fee waivers or reductions set forth in the Fee Tables in a
Prospectus may not be terminated or amended to the Funds' detriment during the
period stated in the agreement between AIM and the Fund.
AIM also serves as the Funds' pricing and accounting agent. For these
services, AIM receives a fee based on the aggregate net assets of the funds
which comprise the following investment companies: AIM Growth Series, AIM
Investment Funds, AIM Investment Portfolios, AIM Series Trust, G.T. Global
Variable Investment Series and G.T. Global Variable Investment Trust. The fee is
calculated at the rate of 0.03% of the first $5 billion of assets, and 0.02% of
the assets in excess of $5 billion. An amount is allocated to and paid by each
such fund based on its relative average daily net assets.
In placing securities for a Fund's portfolio transactions, the Sub-advisors
seek to obtain the best net results. Consistent with its obligation to obtain
the best net results, the Sub-advisor may consider a broker/dealer's sale of
shares of the AIM Funds as a factor in considering through whom portfolio
transactions will be effected. Brokerage transactions may be executed through
affiliates of AIM or the Sub-advisors.
For the fiscal years ended December 31, 1998, 1997 and 1996, each Fund paid
the current and former Advisors the following investment management and
administration fees:
<TABLE>
<CAPTION>
FUND 1998 1997 1996
---- ---------- ---------- ----------
<S> <C> <C> <C>
Europe Fund.............................. $5,643,072 $5,228,246 $5,416,280
Japan Fund............................... $ 740,164 $1,017,788 $1,367,702
Mid Cap Fund............................. $3,140,938 $3,999,732 $4,982,969
Pacific Fund............................. $1,447,661 $3,736,264 $5,260,774
</TABLE>
DISTRIBUTION SERVICES
Each Fund's Advisor Class shares are offered continuously through the Funds'
principal underwriter and distributor, AIM Distributors, on a "best efforts"
basis without a front-end sales charge or a contingent deferred sales charge.
EXPENSES OF THE FUNDS
Each Fund pays all expenses not assumed by AIM, the Sub-advisors, AIM
Distributors and other agents. These expenses include, in addition to the
advisory, distribution, transfer agency, pricing and accounting agency and
brokerage fees discussed above, legal and audit expenses, custodian fees,
trustees' fees, organizational fees, fidelity bond and other insurance premiums,
taxes, extraordinary expenses and expenses of reports and prospectuses sent to
existing investors. Certain of these expenses, such as custodial fees and
brokerage fees generally are higher for non-U.S. securities. The allocation of
general Trust expenses, and expenses shared by the Funds with one another, are
made on a basis deemed fair and equitable, which may be based on the relative
net assets of the Funds or the nature of the services performed and relative
applicability to each Fund. Expenditures, including costs incurred in connection
with the purchase or sale of portfolio securities, that are capitalized in
accordance with generally accepted accounting principles applicable to
investment companies, are accounted for as capital items and not as expenses.
The ratio of each Fund's, other than Mid Cap Fund's, expenses to its relative
net assets can be expected to be higher than the expense ratios of funds
investing solely in domestic securities, since the cost of maintaining the
custody of foreign securities and the rate of investment management fees paid by
each Fund generally are higher than the comparable expenses of such other funds.
NET ASSET VALUE DETERMINATION
The net asset value per share of each Fund is normally determined daily as of
the close of trading on the New York Stock Exchange ("NYSE") (generally 4:00
p.m. Eastern time) on each business day of the Fund. In the event the NYSE
closes early (i.e., before 4:00 p.m. Eastern time) on a particular day, the net
asset value of a Fund is determined as of the close of the NYSE on such day. Net
asset value per share is determined by dividing the value of each Fund's
securities, cash and other assets (including interest accrued but not collected)
attributable to a particular class, less all its liabilities (including accrued
expenses and dividends payable) attributable to that class, by the total number
of shares outstanding of that class. Determination of each Fund's net asset
value per share is made in accordance with generally accepted accounting
principles.
Each equity security held by a Fund is valued at its last sales price on the
exchange where the security is principally traded or, lacking any sales on a
particular day, the security is valued at the mean between the closing bid and
asked
31
<PAGE> 80
prices on that day. Each security traded in the over-the-counter market (but not
including securities reported on the NASDAQ National Market System) is valued at
the mean between the last bid and asked prices based upon quotes furnished by
market makers for such securities. Each security reported on the NASDAQ National
Market System is valued at the last sales price on the valuation date or absent
a last sales price, at the mean between the closing bid and asked prices on that
day. Debt securities are valued on the basis of prices provided by an
independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to special securities, yield, quality, coupon
rate, maturity, type of issue, individual trading characteristics and other
market data. Securities for which market quotations are not readily available or
are questionable are valued at fair value as determined in good faith by or
under the supervision of the 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 on the basis of amortized cost. For purposes of
determining net asset value per share, futures and options contracts generally
will be valued 15 minutes after the close of trading of the NYSE.
Generally, trading in foreign securities, corporate bonds, U.S. Government
securities and money market instruments is substantially completed each day at
various times prior to the close of the NYSE. The values of such securities used
in computing the net asset value of each Fund's shares are determined at such
times. Foreign currency exchange rates are also generally determined prior to
the close of the NYSE. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which such
values are determined and the close of the NYSE which will not be reflected in
the computation of a Fund's net asset value. If events materially affecting the
value of such securities occur during such period, then these securities will be
valued at their fair value as determined in good faith by or under the
supervision of the Board of Trustees of the Fund.
Fund securities primarily traded in foreign markets may be traded in such
markets on days which are not business days of the Funds. Because the net asset
value per share of each Fund is determined only on business days of the Fund,
the net asset value per share of a Fund may be significantly affected on days
when an investor cannot exchange or redeem shares of a Fund.
HOW TO PURCHASE AND REDEEM SHARES
A complete description of the manner in which shares of the Funds may be
purchased appears in the Funds' Prospectuses under the heading "Purchasing
Shares."
Complete information concerning the method of exchanging shares of the Funds
for shares of the other AIM Funds is set forth in the Prospectuses under the
heading "Exchanging Shares."
Information concerning redemption of the Funds' shares is set forth in the
Prospectuses under the heading "Redeeming Shares." Shares of the AIM Funds may
be redeemed directly through AIM Distributors or through any dealer who has
entered into an agreement with AIM Distributors. AIM intends to redeem all
shares of the Funds in cash. In addition to the Funds' obligation to redeem
shares, AIM Distributors may also repurchase shares as an accommodation to
shareholders. To effect a repurchase, those dealers who have executed Selected
Dealer Agreements with AIM Distributors must phone orders to the order desk of
the Funds at (800) 959-4246 and guarantee delivery of all required documents in
good order. A repurchase is effected at the net asset value per share of the
applicable Fund next determined after the repurchase order is received. Such an
arrangement is subject to timely receipt by A I M Fund Services, Inc. ("AFS"),
of all required documents in good order. If such documents are not received
within a reasonable time after the order is placed, the order is subject to
cancellation. While there is no charge imposed by a Fund or by AIM Distributors
(other than any applicable contingent deferred sales charge) when shares are
redeemed or repurchased, dealers may charge a fair service fee for handling the
transaction.
The right of redemption may be suspended or the date of payment postponed when
(a) trading on the NYSE is restricted, as determined by applicable rules and
regulations of the SEC, (b) the NYSE is closed for other than customary weekend
and holiday closings, (c) the SEC has by order permitted such suspension, or (d)
an emergency as determined by the SEC exists making disposition of portfolio
securities or the valuation of the net assets of a Fund not reasonably
practicable.
BACKUP WITHHOLDING
Accounts submitted without a correct, certified taxpayer identification number
or, alternatively, a completed Internal Revenue Service ("IRS") Form W-8 (for
nonresident aliens) or Form W-9 (certifying exempt status) accompanying the
registration information will generally be subject to backup withholding.
32
<PAGE> 81
Each AIM Fund, and other payers, must, according to IRS regulations, withhold
31% of redemption payments and reportable dividends (whether paid or accrued) in
the case of any shareholder who fails to provide the Fund with a taxpayer
identification number ("TIN") and a certification that he is not subject to
backup withholding.
An investor is subject to backup withholding if:
(1) the investor fails to furnish a correct TIN to the Fund, or
(2) the IRS notifies the Fund that the investor furnished an incorrect
TIN, or
(3) the investor is notified by the IRS that the investor is subject
to backup withholding because the investor failed to report all of the
interest and dividends on such investor's tax return (for reportable
interest and dividends only), or
(4) the investor fails to certify to the Fund that the investor is not
subject to backup withholding under (3) above (for reportable interest and
dividend accounts opened after 1983 only), or
(5) the investor does not certify his TIN. This applies only to
reportable interest, dividend, broker or barter exchange accounts opened
after 1983, or broker accounts considered inactive during 1983.
Except as explained in (5) above, other reportable payments are subject to
backup withholding only if (1) or (2) above applies.
Certain payees and payments are exempt from backup withholding and information
reporting. A complete listing of such exempt entities appears in the
Instructions for the Requester of Form W-9 (which can be obtained from the IRS)
and includes, among others, the following:
- a corporation
- an organization exempt from tax under Section 501(a), an individual
retirement plan (IRA), or a custodial account under Section 403(b)(7)
- the United States or any of its agencies or instrumentalities
- a state, the District of Columbia, a possession of the United States, or any
of their political subdivisions or instrumentalities
- a foreign government or any of its political subdivisions, agencies or
instrumentalities
- an international organization or any of its agencies or instrumentalities
- a foreign central bank of issue
- a dealer in securities or commodities required to register in the U.S. or a
possession of the U.S.
- a futures commission merchant registered with the Commodity Futures Trading
Commission
- a real estate investment trust
- an entity registered at all times during the tax year under the 1940 Act
- a common trust fund operated by a bank under Section 584(a)
- a financial institution
- a middleman known in the investment community as a nominee or listed in the
most recent publication of the American Society of Corporate Secretaries,
Inc., Nominee List
- a trust exempt from tax under Section 664 or described in Section 4947
Investors should contact the IRS or their tax advisor if they have any
questions concerning entitlement to an exemption from backup withholding.
NOTE: Section references are to sections of the Code.
IRS Penalties -- Investors who do not supply the AIM Funds with a correct TIN
will be subject to a $50 penalty imposed by the IRS unless such failure is due
to reasonable cause and not willful neglect. If an investor falsifies
information on this form or makes any other false statement resulting in no
backup withholding on an account which
33
<PAGE> 82
should be subject to backup withholding, such investor may be subject to a $500
penalty imposed by the IRS and to certain criminal penalties including fines
and/or imprisonment.
Nonresident Aliens -- Nonresident alien individuals and foreign entities are
not subject to the backup withholding previously discussed, but must certify
their foreign status by attaching IRS Form W-8 to their application. Form W-8
remains in effect for three calendar years beginning with the calendar year in
which it is received by the Fund. Such shareholders may, however, be subject to
federal income tax withholding at a 30% rate on ordinary income dividends and
distributions and return of capital distributions. Under applicable treaty law,
residents of treaty countries may qualify for a reduced rate of withholding or a
withholding exemption.
PROGRAMS AND SERVICES FOR SHAREHOLDERS
The Funds provide certain services for shareholders and certain investment or
redemption programs. See "Exchanging Shares" and "Redeeming Shares" in the
Prospectuses. All inquiries concerning these programs should be made directly to
A I M Fund Services, Inc., P.O. Box 4739, Houston, Texas 77210-4739, toll free
at (800) 959-4246.
DIVIDEND ORDER
Dividends may be paid to someone other than the registered owner, or sent to
an address other than the address of record. (Please note that signature
guarantees are required to effect this option.) An investor also may direct that
his or her dividends be invested in one of the other AIM Funds and there is no
sales charge for these investments; initial investment minimums apply. See
"Dividends and Distributions" in the Prospectuses. To effect this option, please
contact your authorized dealer. For more information concerning AIM Funds other
than the Funds, please obtain a current prospectus by contacting your authorized
dealer, by writing to A I M Fund Services, Inc., P.O. Box 4739, Houston, Texas
77210-4739, or by calling toll free (800) 959-4246.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
Income dividends and capital gains distributions are automatically reinvested
in additional shares of the same class of each Fund unless the shareholder has
requested in writing to receive such dividends and distributions in cash or that
they be invested in shares of another AIM Fund, subject to the terms and
conditions set forth herein under the caption "Shareholder Information." If a
shareholder's account does not have any shares in it on a dividend or capital
gains distribution payment date, the dividend or distribution will be paid in
cash whether or not the shareholder has elected to have such dividends or
distributions reinvested.
TAX MATTERS
The following is only a summary of certain additional tax considerations
generally affecting the Funds and their shareholders that are described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of each Fund or its shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning.
GENERAL
Each Fund is treated as a separate corporation for federal income tax
purposes. To continue to qualify for treatment as a RIC under the Code, each
Fund must distribute to its shareholders for each taxable year at least 90% of
its investment company taxable income (consisting generally of net investment
income, net short-term capital gain and net gains from certain foreign currency
transactions) ("Distribution Requirement") and must meet several additional
requirements. With respect to each Fund, these requirements include the
following: (1) the Fund must derive at least 90% of its gross income each
taxable year from dividends, interest, payments with respect to securities loans
and gains from the sale or other disposition of securities or foreign
currencies, or other income (including gains from options, Futures or Forward
Contracts) derived with respect to its business of investing in securities or
those currencies ("Income Requirement"); and (2) the Diversification
Requirements.
Dividends and other distributions declared by a Fund in, and payable to
shareholders of record as of a date in, October, November or December of any
year will be deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if the distributions are paid by the
Fund during the following January. Accordingly, those distributions will be
taxed to shareholders for the year in which that December 31 falls.
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<PAGE> 83
If Fund shares are sold at a loss after being held for six months or less, the
loss will be treated as long-term, instead of short-term, capital loss to the
extent of any capital gain distributions received on those shares. Investors
also should be aware that if shares are purchased shortly before the record date
for any dividend or other distribution, the shareholder will pay full price for
the shares and receive some portion of the price back as a taxable distribution.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to
the extent it fails to distribute by the end of any calendar year substantially
all of its ordinary income for that year and capital gain net income for the
one-year period ending on October 31 of that year, plus certain other amounts.
REINSTATEMENT PRIVILEGE
For federal income tax purposes, exercise of your reinstatement privilege may
increase the amount of gain or reduce the amount of loss recognized in the
original redemption transaction, because the initial sales charge will not be
taken into account in determining such gain or loss to the extent there has been
a reduction in the initial sales charge payable upon reinstatement.
FOREIGN TAXES
Dividends and interest received by a Fund, and gains realized thereby, may be
subject to income, withholding or other taxes imposed by foreign countries and
U.S. possessions ("foreign taxes") that would reduce the yield and/or total
return on its securities. Tax conventions between certain countries and the
United States may reduce or eliminate foreign taxes, however, and many foreign
countries do not impose taxes on capital gains in respect of investments by
foreign investors. If more than 50% of the value of a Fund's total assets at the
close of its taxable year consists of securities of foreign corporations, the
Fund will be eligible to, and may, file an election with the Internal Revenue
Service that will enable its shareholders, in effect, to receive the benefit of
the foreign tax credit with respect to any foreign taxes paid by it. Pursuant to
the election, a Fund would treat those taxes as dividends paid to its
shareholders and each shareholder would be required to (1) include in gross
income, and treat as paid by him, his share of those taxes, (2) treat his share
of those taxes and of any dividend paid by the Fund that represents its income
from foreign and U.S. possessions sources as his own income from those sources,
and (3) either deduct the taxes deemed paid by him in computing his taxable
income or, alternatively, use the foregoing information in calculating the
foreign tax credit against his federal income tax. Each Fund will report to its
shareholders shortly after each taxable year their respective shares of the
Fund's foreign taxes and income from sources within foreign countries and U.S.
possessions if it makes this election. Pursuant to the Taxpayer Relief Act of
1997 ("Tax Act"), individuals who have no more than $300 ($600 for married
persons filing jointly) of creditable foreign taxes included on Forms 1099 and
all of whose foreign source income is "qualified passive income" may elect each
year to be exempt from the foreign tax credit limitation and will be able to
claim a foreign tax credit without having to file the Form 1116 that otherwise
is required.
PASSIVE FOREIGN INVESTMENT COMPANIES
Each Fund (other than the Mid Cap Fund) may invest in the stock of "passive
foreign investment companies" ("PFICs"). A PFIC is a foreign
corporation -- other than a "controlled foreign corporation" (i.e., a foreign
corporation in which, on any day during its taxable year, more than 50% of the
total voting power of all voting stock therein or the total value of all stock
therein is owned, directly, indirectly or constructively, by "U.S.
shareholders," defined as U.S. persons that individually own, directly,
indirectly or constructively, at least 10% of that voting power) as to which a
Fund is a U.S. shareholder -- that, in general, meets either of the following
tests: (1) at least 75% of its gross income is passive or (2) an average of at
least 50% of its assets produce, or are held for the production of, passive
income. Under certain circumstances, a Fund will be subject to federal income
tax on a portion of any "excess distribution" received on, or of any gain from
disposition of, stock of a PFIC (collectively "PFIC income"), plus interest
thereon, even if the Fund distributes the PFIC income as a taxable dividend to
its shareholders. The balance of the PFIC income will be included in the Fund's
investment company taxable income and, accordingly, will not be taxable to the
Fund to the extent it distributes that income to its shareholders.
If a Fund invests in a PFIC and elects to treat the PFIC as a "qualified
electing fund" ("QEF"), then in lieu of the foregoing tax and interest
obligation, the Fund would be required to include in income each year its pro
rata share of the QEF's annual ordinary earnings and net capital gain (i.e., the
excess of net long-term capital gain over net short-term capital loss) -- which
most likely would have to be distributed by the Fund to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax -- even if those earnings and
gain were not received by the Fund from the QEF. In most instances, it will be
very difficult, if not impossible, to make this election because of certain
requirements thereof.
35
<PAGE> 84
A Fund may elect to "mark to market" its stock in any PFIC.
"Marking-to-market," in this context, means including in ordinary income each
taxable year the excess, if any, of the fair market value of the stock over the
Fund's adjusted basis therein as of the end of that year. Pursuant to the
election, a Fund also will be allowed to deduct (as ordinary, not capital, loss)
the excess, if any, of its adjusted basis in PFIC stock over the fair market
value thereof as of the taxable year-end, but only to the extent of any net
mark-to-market gains with respect to that stock included in income by the Fund
for prior taxable years. A Fund's adjusted basis in each PFIC's stock subject to
the election will be adjusted to reflect the amounts of income included and
deductions taken thereunder. Regulations proposed in 1992 provided a similar
election with respect to the stock of certain PFICs.
NON-U.S. SHAREHOLDERS
Ordinary dividends and return of capital distributions paid by a Fund to a
shareholder who, as to the United States, is a nonresident alien individual,
nonresident alien fiduciary of a trust or estate, foreign corporation or foreign
partnership ("foreign shareholder") generally will be subject to U.S.
withholding tax (at a rate of 30% or lower treaty rate). Withholding will not
apply, however, to a distribution paid by a Fund to a foreign shareholder that
is "effectively connected with the conduct of a U.S. trade or business," in
which case the reporting and withholding requirements applicable to domestic
shareholders will apply. A distribution of net capital gain by a Fund to foreign
shareholders generally will be subject to U.S. federal income tax (at the rates
applicable to domestic persons) only if the distribution is "effectively
connected" or the foreign shareholder is treated as a resident alien individual
for federal income tax purposes.
OPTIONS, FUTURES AND FOREIGN CURRENCY TRANSACTIONS
Each Fund's use of hedging transactions, such as selling (writing) and
purchasing options and Futures Contracts and entering into Forward Contracts,
involves complex rules that will determine, for federal income tax purposes, the
amount, character and timing of recognition of the gains and losses a Fund
realizes in connection therewith. Gains from the disposition of foreign
currencies (except certain gains that may be excluded by future regulations),
and gains from options, Futures and Forward Contracts derived by a Fund with
respect to its business of investing in securities or foreign currencies, will
qualify as permissible income under the Income Requirement.
Futures and Forward Contracts that are subject to Section 1256 of the Code
(other than those that are part of a "mixed straddle") ("Section 1256
Contracts") and that are held by a Fund at the end of its taxable year generally
will be deemed to have been sold at that time at market value for federal income
tax purposes. Sixty percent of any net gain or loss recognized on these deemed
sales, and 60% of any net realized gain or loss from any actual sales of Section
1256 Contracts, will be treated as long-term capital gain or loss, and the
balance will be treated as short-term capital gain or loss. That 60% portion
will qualify for the reduced maximum tax rates on noncorporate taxpayers' net
capital gain -- 20% (10% for taxpayers in the 15% marginal tax bracket) for gain
recognized on capital assets held for more than 12 months.
Section 988 of the Code also may apply to gains and losses from transactions
in foreign currencies, foreign-currency-denominated debt securities and options,
Futures and Forward Contracts on foreign currencies ("Section 988" gains and
losses). Each Section 988 gain or loss generally is computed separately and
treated as ordinary income or loss. In the case of overlap between sections 1256
and 988, special provisions determine the character and timing of any income,
gain or loss. Each Fund attempts to monitor section 988 transactions to minimize
any adverse tax impact.
If a Fund has an "appreciated financial position" -- generally, an interest
(including an interest through an option, Futures or Forward Contract or short
sale) with respect to any stock, debt instrument (other than "straight debt") or
partnership interest the fair market value of which exceeds its adjusted
basis -- and enters into a "constructive sale" of the same or substantially
similar property, the Fund will be treated as having made an actual sale
thereof, with the result that gain will be recognized at that time unless the
completed transaction exception applies. A constructive sale generally consists
of a short sale, an offsetting notional principal contract or Futures or Forward
Contract entered into by a Fund or a related person with respect to the same or
substantially similar property. In addition, if the appreciated financial
position is itself a short sale or such a contract, acquisition of the
underlying property or substantially similar property will be deemed a
constructive sale.
The foregoing is a general and abbreviated summary of certain federal tax
considerations affecting the Funds and their shareholders. Investors are urged
to consult their own tax advisers for more detailed information and for
information regarding any foreign, state and local taxes applicable to
distributions received from a Fund.
36
<PAGE> 85
SHAREHOLDER INFORMATION
This information supplements the discussion in each Fund's Prospectus under
the title "Shareholder Information."
Timing of Purchase Orders. It is the responsibility of the dealer to ensure
that all orders are transmitted on a timely basis to the Transfer Agent. Any
loss resulting from the dealer's failure to submit an order within the
prescribed time frame will be borne by that dealer. If a check used to purchase
shares does not clear, or if any investment order must be canceled due to
nonpayment, the investor will be responsible for any resulting loss to an AIM
Fund or to AIM Distributors.
Share Certificates. AIM Funds will issue share certificates upon written
request to AFS. Otherwise, shares are held on the shareholder's behalf and
recorded on the Fund books. AIM Funds will not issue certificates for shares
held in prototype retirement plans.
Systematic Withdrawal Plan. Under a Systematic Withdrawal Plan, all shares are
to be held by the Transfer Agent and all dividends and distributions are
reinvested in shares of the applicable AIM Fund by the Transfer Agent. To
provide funds for payments made under the Systematic Withdrawal Plan, the
Transfer Agent redeems sufficient full and fractional shares at their net asset
value in effect at the time of each such redemption.
Payments under a Systematic Withdrawal Plan constitute taxable events. Since
such payments are funded by the redemption of shares, they may result in a
return of capital and in capital gains or losses, rather than in ordinary
income. Because sales charges are imposed on additional purchases of shares
(other than Class B or Class C Shares of the AIM Funds and AIM Cash Reserve
Shares of AIM Money Market Fund), it is disadvantageous to effect such purchases
while a Systematic Withdrawal Plan is in effect.
Each AIM Fund bears its share of the cost of operating the Systematic
Withdrawal Plan.
Terms and Conditions of Exchanges. If a shareholder is exchanging into a fund
paying daily dividends, and the release of the exchange proceeds is delayed for
the foregoing five-day period, such shareholder will not begin to accrue
dividends until the sixth business day after the exchange.
Exchanges by Telephone. AIM Distributors has made arrangements with certain
dealers and investment advisory firms to accept telephone instructions to
exchange shares between any of the AIM Funds. AIM Distributors reserves the
right to impose conditions on dealers or investment advisors who make telephone
exchanges of shares of the funds, including the condition that any such dealer
or investment advisor enter into an agreement (which contains additional
conditions with respect to exchanges of shares) with AIM Distributors. To
exchange shares by telephone, a shareholder, dealer or investment advisor who
has satisfied the foregoing conditions must call AFS at (800) 959-4246. If a
shareholder is unable to reach AFS by telephone, he may also request exchanges
by telegraph or use overnight courier services to expedite exchanges by mail,
which will be effective on the business day received by the Transfer Agent as
long as such request is received prior to NYSE Close. The Transfer Agent and AIM
Distributors may in certain cases be liable for losses due to unauthorized or
fraudulent transactions if they do not follow reasonable procedures for
verification of telephone transactions. Such reasonable procedures may include
recordings of telephone transactions (maintained for six months), requests for
confirmation of the shareholders Social Security Number and current address, and
mailings of confirmations promptly after the transaction.
By signing an account application form, an investor appoints the Transfer
Agent as his true and lawful attorney-in-fact to surrender for redemption any
and all unissued shares held by the Transfer Agent in the designated account(s),
or in any other account with any of the AIM Funds, present or future, which has
the identical registration as the designated account(s), with full power of
substitution in the premises. The Transfer Agent and AIM Distributors are
thereby authorized and directed to accept and act upon any telephone redemptions
of shares held in any of the account(s) listed, from any person who requests the
redemption proceeds to be applied to purchase shares in any one or more of the
AIM Funds, provided that such fund is available for sale and provided that the
registration and mailing address of the shares to be purchased are identical to
the registration of the shares being redeemed. An investor acknowledges by
signing the form that he understands and agrees that the Transfer Agent and AIM
Distributors may not be liable for any loss, expense or cost arising out of any
telephone exchange requests effected in accordance with the authorization set
forth in these instructions if they reasonably believe such request to be
genuine, but may in certain cases be liable for losses due to unauthorized or
fraudulent transactions. Procedures for verification of telephone transactions
may include recordings of telephone transactions (maintained for six months),
requests for confirmation of the shareholder's Social Security Number and
current address, and mailings of confirmations promptly after the transactions.
The Transfer Agent reserves the right to modify or terminate the telephone
exchange privilege at any time without notice. An investor may elect not to have
this privilege by marking the appropriate box on the application. Then any
exchanges must be effected in writing by the investor.
37
<PAGE> 86
Redemptions by Telephone. By signing an account application form, an investor
appoints the Transfer Agent as his true and lawful attorney-in-fact to surrender
for redemption any and all unissued shares held by the Transfer Agent in the
designated account(s), present or future, with full power of substitution in the
premises. The Transfer Agent and AIM Distributors are thereby authorized and
directed to accept and act upon any telephone redemptions of shares held in any
of the account(s) listed, from any person who requests the redemption. An
investor acknowledges by signing the form that he understands and agrees that
the Transfer Agent and AIM Distributors may not be liable for any loss, expense
or cost arising out of any telephone redemption requests effected in accordance
with the authorization set forth in these instructions if they reasonably
believe such request to be genuine, but may in certain cases be liable for
losses due to unauthorized or fraudulent transactions. Procedures for
verification of telephone transactions may include recordings of telephone
transactions (maintained for six months), requests for confirmation of the
shareholder's Social Security Number and current address, and mailings of
confirmations promptly after the transactions. The Transfer Agent reserves the
right to cease to act as attorney-in-fact subject to this appointment, and AIM
Distributors reserves the right to modify or terminate the telephone redemption
privilege at any time without notice. An investor may elect not to have this
privilege by marking the appropriate box on the application. Then any
redemptions must be effected in writing by the investor.
Signature Guarantees. In addition to those circumstances listed in the
"Shareholder Information" section of each Fund's prospectus, signature
guarantees are required in the following situations: (1) requests to transfer
the registration of shares to another owner; (2) telephone exchange and
telephone redemption authorization forms; (3) changes in previously designated
wiring or electronic funds transfer instructions; and (4) written redemptions or
exchanges of shares previously reported as lost, whether or not the redemption
amount is under $50,000 or the proceeds are to be sent to the address of record.
AIM Funds may waive or modify any signature guarantee requirements at any time.
Acceptable guarantors include banks, broker-dealers, credit unions, national
securities exchanges, savings associations and any other organization, provided
that such institution or organization qualifies as an "eligible guarantor
institution" as that term is defined in rules adopted by the SEC, and further
provided that such guarantor institution is listed in one of the reference
guides contained in the Transfer Agent's current Signature Guarantee Standards
and Procedures, such as certain domestic banks, credit unions, securities
dealers, or securities exchanges. The Transfer Agent will also accept signatures
with either: (1) a signature guaranteed with a medallion stamp of the STAMP
Program, or (2) a signature guaranteed with a medallion stamp of the NYSE
Medallion Signature Program, provided that in either event, the amount of the
transaction involved does not exceed the surety coverage amount indicated on the
medallion. For information regarding whether a particular institution or
organization qualifies as an "eligible guarantor institution," an investor
should contact the Client Services Department of AFS.
Dividends and Distributions. In determining the amount of capital gains, if
any, available for distribution, net capital gains are offset against available
net capital losses, if any, carried forward from previous fiscal periods.
For funds that do not declare a dividend daily, such dividends and
distributions will be reinvested at the net asset value per share determined on
the ex-dividend date. For funds that declare a dividend daily, such dividends
and distributions will be reinvested at the net asset value per share determined
on the payable date.
Dividends on Class B and Class C shares are expected to be lower than those
for Class A shares or AIM Cash Reserve Shares because of higher distribution
fees paid by Class B and Class C shares. Dividends on all shares may also be
affected by other class-specific expenses.
Changes in the form of dividend and distribution payments may be made by the
shareholder at any time by notice to the Transfer Agent and are effective as to
any subsequent payment if such notice is received by the Transfer Agent prior to
the record date of such payment. Any dividend and distribution election remains
in effect until the Transfer Agent receives a revised written election by the
shareholder.
Any dividend or distribution paid by a fund which does not declare dividends
daily has the effect of reducing the net asset value per share on the
ex-dividend date by the amount of the dividend or distribution. Therefore, a
dividend or distribution declared shortly after a purchase of shares by an
investor would represent, in substance, a return of capital to the shareholder
with respect to such shares even though it would be subject to income taxes.
MISCELLANEOUS INFORMATION
CHARGES FOR CERTAIN ACCOUNT INFORMATION
The Transfer Agent may impose certain copying charges for requests for copies
of shareholder account statements and other historical account information older
than the current year and the immediately preceding year.
38
<PAGE> 87
CUSTODIAN
State Street Bank and Trust Company (the "Custodian"), 225 Franklin Street,
Boston, Massachusetts 02110, is custodian of all securities and cash of the
Funds. The Custodian attends to the collection of principal and income, pays and
collects all monies for securities bought and sold by the Funds and performs
certain other ministerial duties. The Custodian is authorized to establish and
has established separate accounts in foreign currencies and to cause securities
of the Company to be held in separate accounts outside the United States in the
custody of non-U.S. banks.
TRANSFER AGENCY AND ACCOUNTING AGENCY SERVICES
A I M Fund Services, Inc., a wholly owned subsidiary of AIM, acts as transfer
agent and dividend disbursing agent for the Funds. The Transfer Agency and
Service Agreement between the Trust and AFS provides that AFS will perform
certain shareholder services for the Funds for a fee per account serviced. The
Transfer Agency and Service Agreement provides that AFS will receive a per
account fee plus out-of-pocket expenses to process orders for purchases,
redemptions and exchanges of shares; prepare and transmit payments for dividends
and distributions declared by the Funds; maintain shareholder accounts and
provide shareholders with information regarding the Funds and their accounts.
The Transfer Agency and Service Agreement became effective on September 8, 1998.
Pursuant to the Transfer Agency and Service Agreement, INVESCO NY, as
Sub-advisor also serves as pricing and accounting agent for the Funds and
received accounting services fees as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Europe Fund*.......................................... $158,561 $138,072 $139,442
Japan Fund............................................ $ 20,629 $ 26,210 $ 35,119
Mid Cap Fund.......................................... $118,894 $142,274 $173,767
Pacific Fund.......................................... $ 40,387 $ 99,321 $135,182
</TABLE>
- ---------------
* INVESCO AML became the Fund's Sub-Advisor on December 14, 1998. The fees
reflected represent fees received by both Sub-Advisors.
INDEPENDENT ACCOUNTANTS
The Trust's and the Funds' independent accountants are PricewaterhouseCoopers
LLP. PricewaterhouseCoopers LLP conducts annual audits of the Funds, assists in
the preparation of the Funds' federal and state income tax returns and consults
with the Trust and the Funds as to matters of accounting, regulatory filings and
federal and state income taxation.
The audited financial statements of the Trust included in this Statement of
Additional Information have been examined by PricewaterhouseCoopers LLP as
stated in their opinion appearing herein and are included in reliance upon such
opinion given upon the authority of that firm as experts in accounting and
auditing.
LEGAL MATTERS
The law firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue N.W.,
Washington, DC 20036-1800, acts as counsel to the Trust and the Funds.
SHAREHOLDER LIABILITY
Under Delaware law, the shareholders of the Trust enjoy the same limitations
of liability extended to shareholders of private, for-profit corporations. There
is a remote possibility, however, that under certain circumstances shareholders
of the Trust may be held personally liable for the Trust's obligations. However,
the Trust's Agreement and Declaration of Trust disclaims shareholder liability
for acts or obligations of the Trust and requires that notice of such disclaimer
be given in each agreement, obligation or instrument entered into or executed by
the Trust or a trustee. If a shareholder is held personally liable for the
obligations of the Trust, the Trust Agreement provides that the shareholder
shall be entitled out of the assets belonging to the applicable Fund (or
allocable to the applicable Class), to be held harmless from and indemnified
against all loss and expense arising from such liability in accordance with the
Trust's Bylaws and applicable law. Thus, the risk of a shareholder incurring
financial loss on account of such liability is limited to circumstances in which
the Trust itself would be unable to meet its obligations and where the other
party was held not to be bound by the disclaimer.
NAMES
Prior to May 29, 1998, AIM New Pacific Growth Fund operated under the name of
GT Global New Pacific Growth Fund; AIM Europe Growth Fund operated under the
name GT Global Europe Growth Fund; AIM Japan Growth Fund operated
39
<PAGE> 88
under the name of GT Global Japan Growth Fund; and AIM Mid Cap Growth Fund
operated under the name of GT Global America Mid Cap Growth Fund.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To the best knowledge of the Trust, the names and addresses of the holders of
5% or more of the outstanding shares of any class of each Fund's equity
securities as of April 1, 1999, and the percentage of the outstanding shares
held by such holders are set forth below.
<TABLE>
<CAPTION>
PERCENT
PERCENT OWNED OF
OWNED OF RECORD AND
FUND NAME AND ADDRESS OF OWNER RECORD* BENEFICIALLY
- ---- ------------------------- -------- ------------
<S> <C> <C> <C>
Europe Growth Fund -- Advisor Class LGT Asset Management 401(k) Plan 83.311%
Judy Creel, Arthur Sprague, or
Robert Alley, TTEES
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
LGT Asset Management SERP Plan 7.919%
Judy Creel, Arthur Sprague, or
Robert Alley, TTEES
Attn: Debbie Nettles
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
Europe Growth Fund -- Class A MLPF&S for the Sole Benefit of Its 13.536%
Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Europe Growth Fund -- Class B MLPF&S for the Sole Benefit of Its 8.231%
Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Japan Fund -- Advisor Class Prudential Securities, Inc. 33.065%
Special Custody Acct. For the
Exclusive Benefit of Customers-PC
Attn: Mutual Funds
1 New York Plaza
New York, NY 10004-1901
FTC & Co. 23.407%
Attn: Datalynx #147
P.O. Box 173736
Denver, CO 80217
Charles Schwab & Co. Inc. 20.429%
Reinvestment Account
101 Montgomery St.
San Francisco, CA 94104
LGT Asset Management 401(k) Plan 9.002%
Judy Creel, Arthur Sprague, or
Robert Alley, TTEES
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
Japan Growth Fund -- Class A MLPF&S for the Sole Benefit of Its 10.159%
Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
</TABLE>
- ---------------
<TABLE>
<S> <C> <C> <C>
* The Trust has no knowledge as to whether all or any portion of the shares owned of
record are also owned beneficially.
</TABLE>
40
<PAGE> 89
<TABLE>
<CAPTION>
PERCENT
PERCENT OWNED OF
OWNED OF RECORD AND
FUND NAME AND ADDRESS OF OWNER RECORD* BENEFICIALLY
- ---- ------------------------- -------- ------------
<S> <C> <C> <C>
Japan Growth Fund -- Class B MLPF&S for the Sole Benefit of Its 16.337%
Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Mid Cap Equity Fund -- Advisor Class LGT Asset Management 401(k) Plan 55.877%
Judy Creel, Arthur Sprague, or
Robert Alley, TTEES
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
LGT Asset Management SERP Plan 44.066%
Judy Creel, Arthur Sprague, or
Robert Alley, TTEES
Attn: Debbie Nettles
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
Mid Cap Growth -- Class A MLPF&S for the Sole Benefit of Its 10.472%
Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Mid Cap Equity -- Class B MLPF&S for the Sole Benefit of Its 11.147%
Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Pacific Fund -- Advisor Class LGT Asset Management 401(k) Plan 73.875%
Judy Creel, Arthur Sprague, or
Robert Alley, TTEES
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
LGT Asset Management SERP Plan 21.159%
Judy Creel, Arthur Sprague, or
Robert Alley, TTEES
Attn: Debbie Nettles
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
Pacific Fund -- Class A MLPF&S for the Sole Benefit of Its 7.157%
Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Pacific Fund -- Class B MLPF&S for the Sole Benefit of Its 6.151%
Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
</TABLE>
- ---------------
* The Trust has no knowledge as to whether all or any portion of the shares
owned of record are also owned beneficially.
41
<PAGE> 90
INVESTMENT RESULTS
TOTAL RETURN QUOTATIONS
The standard formula for calculating total return is as follows:
n
P(1+T) =ERV
<TABLE>
<S> <C> <C> <C>
Where P = a hypothetical initial payment of $1,000.
T = average annual total return (assuming the applicable maximum
sales load is deducted at the beginning of the 1, 5, or 10
year periods).
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment at
the end of the 1, 5, or 10 year periods (or fractional
portions of such period).
</TABLE>
The standardized returns for the Advisor Class shares of the Europe Fund,
stated as average annualized total returns for the periods shown, were:
<TABLE>
<CAPTION>
EUROPE FUND
PERIOD (ADVISOR CLASS)
------ ---------------
<S> <C>
Fiscal year ended December 31, 1998......................... 16.88%
For the five years ended December 31, 1998.................. n/a
For the ten years ended December 31, 1998................... n/a
June 1, 1995 (commencement of operations) through December
31, 1998.................................................. 15.55%
</TABLE>
The standardized returns for the Advisor Class shares of the Japan Fund,
stated as average annualized total returns for the periods shown, were:
<TABLE>
<CAPTION>
JAPAN FUND
PERIOD (ADVISOR CLASS)
------ ---------------
<S> <C>
Fiscal year ended December 31, 1998......................... (0.31)%
For the five years ended December 31, 1998.................. n/a
For the ten years ended December 31, 1998................... n/a
June 1, 1995 (commencement of operations) through December
31, 1998.................................................. 0.13%
</TABLE>
The standardized returns for the Advisor Class shares of the Mid Cap Fund,
stated as average annualized total returns for the periods shown, were:
<TABLE>
<CAPTION>
MID CAP FUND
PERIOD (ADVISOR CLASS)
------ ---------------
<S> <C>
Fiscal year ended December 31, 1998......................... (4.59)%
For the five years ended December 31, 1998.................. n/a
For the ten years ended December 31, 1998................... n/a
June 1, 1995 (commencement of operations) through December
31, 1998.................................................. 8.26%
</TABLE>
The standardized returns for the Advisor Class shares of the Pacific Fund,
stated as average annualized total returns for the periods shown, were:
<TABLE>
<CAPTION>
PACIFIC FUND
PERIOD (ADVISOR CLASS)
------ ---------------
<S> <C>
Fiscal year ended December 31, 1998......................... (18.51)%
For the five years ended December 31, 1998.................. n/a
For the ten years ended December 31, 1998................... n/a
June 1, 1995 (commencement of operations) through December
31, 1998.................................................. (15.60)%
</TABLE>
42
<PAGE> 91
Standard total return quotes may be accompanied by total return figures
calculated by alternative methods. For example, cumulative total return across a
stated period may be calculated as follows:
n
P(1+V) =ERV
<TABLE>
<S> <C> <C> <C>
Where P = a hypothetical initial payment of $1,000.
V = cumulative total return assuming payment of all of, a stated
portion of, or none of, the applicable maximum sales load at
the beginning of the stated period.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment at
the end of the stated period.
</TABLE>
The aggregate non-standardized returns (not taking sales charges into account)
for the Advisor Class shares of the Europe Fund, stated as aggregate total
returns for the periods shown, were:
<TABLE>
<CAPTION>
EUROPE FUND
PERIOD (ADVISOR CLASS)
------ ---------------
<S> <C>
June 1, 1995 (commencement of operations) through December
31, 1998.................................................. 67.86%
</TABLE>
The aggregate non-standardized returns (not taking sales charges into account)
for the Advisor Class shares of the Japan Fund, stated as aggregate total
returns for the periods shown, were:
<TABLE>
<CAPTION>
JAPAN FUND
PERIOD (ADVISOR CLASS)
------ ---------------
<S> <C>
June 1, 1995 (commencement of operations) through December
31, 1998.................................................. 1.24%
</TABLE>
The aggregate non-standardized returns (not taking sales charges into account)
for the Advisor Class shares of the Mid Cap Fund, stated as aggregate total
returns for the periods shown, were:
<TABLE>
<CAPTION>
MID CAP FUND
PERIOD (ADVISOR CLASS)
------ ---------------
<S> <C>
June 1, 1995 (commencement of operations) through December
31, 1998.................................................. 32.89%
</TABLE>
The aggregate non-standardized returns (not taking sales charges into account)
for the Advisor Class shares of the Pacific Fund, stated as aggregate total
returns for the periods shown, were:
<TABLE>
<CAPTION>
PACIFIC FUND
PERIOD (ADVISOR CLASS)
------ ---------------
<S> <C>
June 1, 1995 (commencement of operations) through December
31, 1998.................................................. (45.54)%
</TABLE>
Each Fund's investment results will vary from time to time depending upon
market conditions, the composition of each Fund's portfolio and operating
expenses of each Fund, so that current or past yield or total return should not
be considered representative of what an investment in each Fund may earn in any
future period. These factors and possible differences in the methods used in
calculating investment results should be considered when comparing each Fund's
investment results with those published for other investment companies and other
investment vehicles. Each Fund's results also should be considered relative to
the risks associated with such Fund's investment objective and policies.
PERFORMANCE INFORMATION
A Fund's total return shows its overall change in value, including changes in
share price and assuming all the Fund's dividends and capital gain distributions
are reinvested. A cumulative total return reflects the Fund's performance over a
stated period of time. An average annual total return reflects the hypothetical
compounded annual rate of return that would have produced the same cumulative
total return if the Fund's performance had been constant over the entire period.
BECAUSE AVERAGE ANNUAL RETURNS TEND TO EVEN OUT VARIATIONS IN THE FUND'S RETURN,
INVESTORS SHOULD RECOGNIZE THAT SUCH RETURNS ARE NOT THE SAME AS ACTUAL
YEAR-BY-YEAR RESULTS. To illustrate the components of overall performance, the
Fund may separate its cumulative and average annual returns into income results
and capital gains or losses.
From time to time, AIM or its affiliates may waive all or a portion of their
fees and/or assume certain expenses of any Fund. Voluntary fee waivers or
reductions or commitments to assume expenses may be rescinded at any time
without further notice to investors. During periods of voluntary fee waivers or
reductions or commitments to assume expenses,
43
<PAGE> 92
AIM will retain its ability to be reimbursed for such fee prior to the end of
each fiscal year. Contractual fee waivers or reductions or reimbursement of
expenses set forth in the Fee Table in a Prospectus may not be terminated or
amended to the Funds' detriment during the period stated in the agreement
between AIM and the Fund. Fee waivers or reductions or commitments to reduce
expenses will have the effect of increasing that Fund's yield and total return.
The performance of each Fund will vary from time to time and past results are
not necessarily indicative of future results. A Fund's performance is a function
of its portfolio management in selecting the type and quality of portfolio
securities and is affected by operating expenses of the Fund and market
conditions. A shareholder's investment in a Fund is not insured or guaranteed.
These factors should be carefully considered by the investor before making an
investment in any Fund. Further information regarding the Fund's performance is
contained in the Fund's annual report to shareholders, which is available upon
request and without charge.
Total return figures for the Funds are neither fixed nor guaranteed, and no
Fund's principal is insured. Performance quotations reflect historical
information and should not be considered representative of a Fund's performance
for any period in the future. Performance is a function of a number of factors
which can be expected to fluctuate. The Funds may provide performance
information in reports, sales literature and advertisements. The Funds may also,
from time to time, quote information about the Funds published or aired by
publications or other media entities which contain articles or segments relating
to investment results or other data about one or more of the Funds. Such
publications or media entities may include the following, among others:
Advertising Age
Barron's
Best's Review
Broker World
Business Week
Changing Times
Christian Science Monitor
Consumer Reports
Economist
EuroMoney
FACS of the Week
Financial Planning
Financial Product News
Financial World
Forbes
Fortune
Global Finance
Hartford Courant Inc.
Institutional Investor
Insurance Forum
Insurance Week
Investor's Daily
Journal of the American
Society of CLU & ChFC
Kiplinger Letter
Money
Mutual Fund Forecaster
Mutual Fund Magazine
Nation's Business
New York Times
Pension World
Pensions & Investments
Personal Investor
Financial Services Week
Philadelphia Inquirer
Smart Money
USA Today
U.S. News & World Report
Wall Street Journal
Washington Post
CNN
CNBC
PBS
44
<PAGE> 93
The Funds and AIM Distributors may from time to time, in advertisements, sales
literature and reports furnished to present or prospective shareholders, compare
each Fund with the following, or compare each Fund's performance to performance
data of similar mutual funds as published in the following, among others:
Bank Rate National Monitor Index
Bear Stearns Foreign Bond Index
Bond Buyer Index
CDA/Wiesenberger Investment Company Services
(data and mutual fund rankings and comparisons)
CNBC/Financial News Composite Index
COFI
Consumer Price Index
Datastream
Donoghue's
Dow Jones Industrial Average
EAFE Index
First Boston High Yield Index
Fitch IBCA (publications)
Ibbotson Associates International Bond Index
International Bank for Reconstruction and
Development (publications)
International Finance Corporation Emerging
Markets Database
International Financial Statistics
Lehman Bond Indices
Lipper Analytical Data Services, Inc. (data and
mutual fund rankings and comparisons)
Micropal, Inc. (data and mutual fund rankings
and comparisons)
Moody's Investors Service (publications)
Morgan Stanley Capital International All Country
(AC) World Index
Morgan Stanley Capital International World
Indices
Morningstar, Inc. (data and mutual fund rankings
and comparisons)
Nasdaq
Organization for Economic Cooperation and
Development (publications)
Salomon Brothers Global Telecommunications
Index
Salomon Brothers World Government Bond
Index-Non-U.S.
Salomon Brothers World Government Bond
Index
Standard & Poor's (publications)
Standard & Poor's 500 Composite Stock Price
Index
Stangar
Wilshire Associates
World Bank (publications and reports)
The World Bank Publication of Trends in
Developing Countries
Worldscope
Each Fund may also compare its performance to rates on Certificates of Deposit
and other fixed rate investments such as the following:
10-year Treasuries
30-year Treasuries
30-day Treasury Bills
Information relating to foreign market performance, capitalization and
diversification is based on sources believed to be reliable but may be subject
to revision and has not been independently verified by the Funds or AIM
Distributors. Advertising for the Funds may from time to time include
discussions of general economic conditions and interest rates. Advertising for
the Funds may also include reference to the use of those Funds as part of an
individual's overall retirement investment program. From time to time, sales
literature and/or advertisements for any of the Funds may disclose (i) the
largest holdings in the Fund's portfolio, (ii) certain selling group members
and/or (iii) certain institutional shareholders.
From time to time, the Funds' sales literature and/or advertisements may
discuss generic topics pertaining to the mutual fund industry. This includes,
but is not limited to, literature addressing general information about mutual
funds, variable annuities, dollar-cost averaging, stocks, bonds, money markets,
certificates of deposit, retirement, retirement plans, asset allocation,
tax-free investing, college planning, and inflation.
Although performance data may be useful to prospective investors when
comparing a Fund's performance with other funds and other potential investments,
investors should note that the methods of computing performance of other
potential investments are not necessarily comparable to the methods employed by
a Fund.
45
<PAGE> 94
APPENDIX
DESCRIPTION OF BOND RATINGS
Moody's Investors Service, Inc. ("Moody's") rates the debt securities issued
by various entities from "Aaa" to "C." Investment Grade Ratings are the first
four categories: Aaa -- Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than the Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa -- Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. Ba -- Bonds which are rated Ba
are judged to have speculative elements; their future cannot be considered as
well-assured. Often the protection of interest and principal payments may be
very moderate, and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest. Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings. C -- Bonds which are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Standard & Poor's, a division of the McGraw Hill Companies, Inc. ("S&P") rates
the securities debt of various entities in categories ranging from "AAA" to "D"
according to quality. Investment grade ratings are the first four categories:
AAA -- An obligation rated "AAA" has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong. AA -- An obligation rated "AA" differs from the highest rated
obligations only in a small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong. A -- An obligation rated "A" is
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than obligations in higher rated categories. BBB -- An
obligation rated "BBB" exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on the
obligation. BB, B, CCC, CC, C -- Obligations rated "BB," "B," "CCC," "CC," and
"C" are regarded as having significant speculative characteristics. "BB"
indicates the least degree of speculation and "C" the highest. While such
obligations will likely have some quality and protective characteristics, these
may be outweighed by large uncertainties or major exposures to adverse
conditions. BB -- An obligation rated "BB" is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to the obligor's inadequate capacity to meet its financial commitment on the
obligation. B -- An obligation rated "B" is more vulnerable to nonpayment than
obligations rated "BB," but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation. CCC -- An obligation rated "CCC" is
currently vulnerable to nonpayment, and is dependent upon favorable business,
financial and economic conditions for the obligor to meet its financial
commitment on the obligation. In the event of adverse business, financial, or
economic conditions, the obligor is not likely to have the capacity to meet its
financial commitment on the obligation. CC -- An obligation rated "CC" is
currently highly vulnerable to nonpayment. C -- The "C" rating may be used to
cover a situation where a bankruptcy petition has been filed or similar action
has been taken, but payments on this obligation are being continued. D -- An
obligation rated "D" is in payment default. The "D" rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grace period. The "D" rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
46
<PAGE> 95
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR: Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's employs the designation "Prime-1" to indicate commercial paper having
a superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources of
alternate liquidity. Issues rated Prime-2 have a strong ability for repayment of
senior short-term debt obligations. This normally will be evidenced by many of
the characteristics cited above but to a lesser degree. Earnings trends and
coverage ratios, while sound, may be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternative liquidity is maintained.
S&P ratings of commercial paper are graded into several categories ranging
from "A-1" for the highest quality obligations to "D" for the lowest. Issues in
the "A" category are delineated with numbers 1, 2, and 3 to indicate the
relative degree of safety. "A-1" -- This highest category indicates that the
degree of safety regarding timely payment is strong. Those issues determined to
possess extremely strong safety characteristics will be denoted with a plus sign
(+) designation. "A-2" -- Capacity for timely payments on issues with this
designation is satisfactory; however, the relative degree of safety is not as
high as for issues designated "A-1."
ABSENCE OF RATING
Where no rating has been assigned or where a rating has been suspended or
withdrawn, it may be for reasons unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies
that are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or
issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa to Caa. The modifier 1 indicates that the Company ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the Company ranks in the
lower end of its generic rating category.
47
<PAGE> 96
FINANCIAL STATEMENTS
FS
<PAGE> 97
REPORT OF
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders of AIM Europe Growth Fund (formerly GT Global Europe Growth
Fund) and Board of Trustees of AIM Growth Series (formerly GT Global Growth
Series):
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Europe Growth Fund at
December 31, 1998, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
BOSTON, MASSACHUSETTS
FEBRUARY 19, 1999
FS-1
<PAGE> 98
PORTFOLIO OF INVESTMENTS
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Services (29.2%)
Orange PLC-/- ............................................. UK 1,543,401 $ 17,800,947 3.4
WIRELESS COMMUNICATIONS
TNT Post Group N.V. ....................................... NETH 488,041 15,720,626 3.0
TRANSPORTATION - SHIPPING
Vodafone Group PLC ........................................ UK 898,220 14,539,401 2.8
WIRELESS COMMUNICATIONS
MobilCom AG ............................................... GER 39,499 12,562,692 2.4
TELECOM - OTHER
Mannesmann AG ............................................. GER 99,250 11,375,870 2.2
WIRELESS COMMUNICATIONS
Telecel - Comunicacaoes Pessoais S.A. ..................... PORT 51,227 10,480,844 2.0
WIRELESS COMMUNICATIONS
Swisscom AG-/- ............................................ SWTZ 24,728 10,354,355 2.0
TELEPHONE NETWORKS
Telecom Italia SpA ........................................ ITLY 1,189,452 10,125,492 2.0
TELEPHONE NETWORKS
Telecom Italia Mobile SpA ................................. ITLY 1,359,699 10,039,576 1.9
TELEPHONE NETWORKS
Helsingin Puhelin Oyj (Helsinki Telephone Corp.) .......... FIN 152,600 9,072,461 1.8
TELEPHONE NETWORKS
Corporate Services Group PLC .............................. UK 3,380,455 8,511,236 1.6
BUSINESS & PUBLIC SERVICES
STET Hellas Telecommunications S.A. - ADR-/- {\/} ......... GREC 196,532 6,362,724 1.2
WIRELESS COMMUNICATIONS
EM.TV & Merchandising AG .................................. GER 11,063 6,306,919 1.2
BROADCASTING & PUBLISHING
ASSA Abloy AB "B" ......................................... SWDN 122,267 4,667,829 0.9
BUSINESS & PUBLIC SERVICES
Esat Telecom Group PLC - ADR-/- {\/} ...................... IRE 77,500 2,983,750 0.6
TELEPHONE NETWORKS
Panafon Hellenic Telecom S.A.-/- .......................... GREC 31,411 842,178 0.2
WIRELESS COMMUNICATIONS
------------
151,746,900
------------
Finance (22.3%)
Axa - UAP ................................................. FR 82,862 12,007,911 2.3
INSURANCE - MULTI-LINE
Zurich Allied AG .......................................... SWTZ 13,853 10,259,613 2.0
INSURANCE - MULTI-LINE
ING Groep N.V. ............................................ NETH 166,578 10,155,032 2.0
OTHER FINANCIAL
UBS AG - Registered ....................................... SWTZ 32,455 9,973,791 1.9
BANKS-MONEY CENTER
Unicredito Italiano SpA ................................... ITLY 1,680,892 9,927,505 1.9
OTHER FINANCIAL
Abbey National PLC ........................................ UK 456,001 9,753,246 1.9
BANKS-SUPER REGIONAL
Safra Republic Holdings S.A.{\/} .......................... LUX 156,000 8,502,000 1.6
OTHER FINANCIAL
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-2
<PAGE> 99
PORTFOLIO OF INVESTMENTS (cont'd)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Finance (Continued)
Lloyds TSB Group PLC ...................................... UK 575,860 $ 8,163,394 1.6
BANKS-MONEY CENTER
Nordbanken Holding AB ..................................... SWDN 1,135,143 7,269,389 1.4
BANKS-REGIONAL
ForeningsSparbanken AB .................................... SWDN 255,682 6,612,466 1.3
BANKS-REGIONAL
Mediolanum SpA ............................................ ITLY 875,230 6,493,129 1.3
INSURANCE-LIFE
Skandia Forsakrings AB Free ............................... SWDN 414,494 6,329,711 1.2
INSURANCE - MULTI-LINE
CGU PLC ................................................... UK 327,013 5,105,833 1.0
INSURANCE - MULTI-LINE
BPI-SGPS S.A. ............................................. PORT 141,607 4,809,890 0.9
BANKS-MONEY CENTER
------------
115,362,910
------------
Technology (15.9%)
Dassault Systemes S.A. .................................... FR 247,694 11,641,330 2.3
COMPUTERS & PERIPHERALS
Equant N.V.-/- {V} ........................................ NETH 163,518 11,377,073 2.2
NETWORKING
TT Tieto Oy "B" ........................................... FIN 228,328 10,169,814 2.0
COMPUTERS & PERIPHERALS
Saville Systems PLC - ADR{\/} ............................. IRE 467,000 8,873,000 1.7
TELECOM TECHNOLOGY
SAP AG Non-Voting ......................................... GER 18,153 8,662,545 1.7
COMPUTERS & PERIPHERALS
Misys PLC ................................................. UK 1,120,686 8,176,234 1.6
SOFTWARE
Mobistar S.A.-/- .......................................... BEL 151,688 7,617,328 1.5
TELECOM TECHNOLOGY
Computacenter PLC-/- ...................................... UK 869,978 6,361,592 1.2
COMPUTERS & PERIPHERALS
Sonera Group Oyj-/- ....................................... FIN 194,800 3,440,008 0.7
TELECOM TECHNOLOGY
Energis PLC-/- ............................................ UK 151,300 3,381,941 0.7
TELECOM TECHNOLOGY
JBA Holdings PLC .......................................... UK 515,660 1,585,404 0.3
SOFTWARE
------------
81,286,269
------------
Health Care (11.1%)
Novartis AG ............................................... SWTZ 7,389 14,528,328 2.8
PHARMACEUTICALS
Roche Holding AG .......................................... SWTZ 864 10,545,179 2.0
PHARMACEUTICALS
SmithKline Beecham PLC .................................... UK 732,592 10,269,566 2.0
PHARMACEUTICALS
Glaxo Wellcome PLC ........................................ UK 292,286 10,040,453 1.9
PHARMACEUTICALS
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-3
<PAGE> 100
PORTFOLIO OF INVESTMENTS (cont'd)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Health Care (Continued)
Nycomed Amersham PLC ...................................... UK 1,034,910 $ 7,137,654 1.4
PHARMACEUTICALS
Genset - ADR-/- {\/} ...................................... FR 159,794 4,414,309 0.9
BIOTECHNOLOGY
Primamedic Ltd.-/- ........................................ ASTRI 618,200 685,541 0.1
PHARMACEUTICALS
------------
57,621,030
------------
Capital Goods (7.4%)
Nokia Oyj "A" ............................................. FIN 205,148 24,956,688 4.8
TELECOM EQUIPMENT
Telefonaktiebolaget LM Ericsson "B" ....................... SWDN 495,180 11,769,672 2.3
TELECOM EQUIPMENT
Altran Technologies S.A. .................................. FR 6,074 1,464,845 0.3
MACHINERY & ENGINEERING
------------
38,191,205
------------
Consumer Non-Durables (7.3%)
Nestle S.A. - Registered .................................. SWTZ 4,534 9,872,313 1.9
FOOD
Cadbury Schweppes PLC ..................................... UK 572,834 9,748,405 1.9
FOOD
Tabacalera S.A. "A" ....................................... SPN 265,300 6,685,254 1.3
TOBACCO
Diageo PLC ................................................ UK 499,547 5,607,981 1.1
BEVERAGES - ALCOHOLIC
Raisio Group PLC-/- ....................................... FIN 500,807 5,502,834 1.1
FOOD
------------
37,416,787
------------
Energy (3.3%)
BP Amoco PLC .............................................. UK 471,997 7,036,173 1.4
OIL
Petroleum Geo-Services ASA-/- ............................. NOR 422,448 5,393,758 1.0
ENERGY EQUIPMENT & SERVICES
Coflexip - ADR{\/} ........................................ FR 150,769 4,843,454 0.9
ENERGY EQUIPMENT & SERVICES
------------
17,273,385
------------
Consumer Durables (1.7%)
Porsche AG Preferred-/- ................................... GER 3,741 8,530,845 1.7
AUTOMOBILES
------------ -----
TOTAL EQUITY INVESTMENTS (cost $441,896,026) ................ 507,429,331 98.2
------------ -----
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-4
<PAGE> 101
PORTFOLIO OF INVESTMENTS (cont'd)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
REPURCHASE AGREEMENT (NOTE 1) ASSETS
- ------------------------------------------------------------- ------------ -------------
<S> <C> <C> <C> <C>
Dated December 31, 1998, with State Street Bank & Trust
Co., due January 4, 1999, for an effective yield of 4.50%,
collateralized by $10,370,000 U.S. Treasury Bonds, 8.75%
due 5/15/17 (market value of collateral is $14,513,396,
including accrued interest) (cost $14,223,000) ........... $ 14,223,000 2.8
------------ -----
TOTAL INVESTMENTS (cost $456,119,026) * .................... 521,652,331 101.0
Other Assets and Liabilities ................................ (5,000,159) (1.0)
------------ -----
NET ASSETS .................................................. $516,652,172 100.0
------------ -----
------------ -----
</TABLE>
- --------------
-/- Non-income producing security.
{\/} U.S. currency denominated.
{V} Security is denominated in French Francs.
* For Federal income tax purposes, cost is $461,177,839 and
appreciation (depreciation) is as follows:
<TABLE>
<S> <C>
Unrealized appreciation: $ 96,242,133
Unrealized depreciation: (35,767,641)
-------------
Net unrealized appreciation: $ 60,474,492
-------------
-------------
</TABLE>
Abbreviation:
ADR--American Depositary Receipt
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Fund's Portfolio of Investments at December 31, 1998, was concentrated in
the following countries:
<TABLE>
<CAPTION>
PERCENTAGE OF NET ASSETS {D}
------------------------------
SHORT-TERM
COUNTRY (COUNTRY CODE/CURRENCY CODE) EQUITY & OTHER TOTAL
- -------------------------------------- ------ ------------- -----
<S> <C> <C> <C>
Austria (ASTRI/ATS) .................. 0.1 0.1
Belgium (BEL/BEF) .................... 1.5 1.5
Finland (FIN/FIM) .................... 10.4 10.4
France (FR/FRF) ...................... 6.7 6.7
Germany (GER/DEM) .................... 9.2 9.2
Greece (GREC/GRD) .................... 1.4 1.4
Ireland (IRE/IEP) .................... 2.3 2.3
Italy (ITLY/ITL) ..................... 7.1 7.1
Luxembourg (LUX/LUF) ................. 1.6 1.6
Netherlands (NETH/NLG) ............... 7.2 7.2
Norway (NOR/NOK) ..................... 1.0 1.0
Portugal (PORT/PTE) .................. 2.9 2.9
Spain (SPN/ESP) ...................... 1.3 1.3
Sweden (SWDN/SEK) .................... 7.1 7.1
Switzerland (SWTZ/CHF) ............... 12.6 12.6
United Kingdom (UK/GBP) .............. 25.8 25.8
United States (US/USD) ............... 1.8 1.8
------ ----- -----
Total ............................... 98.2 1.8 100.0
------ ----- -----
------ ----- -----
</TABLE>
- --------------
{d} Percentages indicated are based on net assets of $516,652,172.
The accompanying notes are an integral part of the financial statements.
FS-5
<PAGE> 102
STATEMENT OF ASSETS
AND LIABILITIES
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at value (cost $456,119,026) (Note 1)............................ $521,652,331
U.S. currency.................................................................... $ 891
Foreign currencies (cost $566,885)............................................... 572,681 573,572
---------
Receivable for Fund shares sold............................................................. 6,979,690
Dividends and dividend withholding tax reclaims receivable.................................. 438,913
Miscellaneous and interest receivable....................................................... 5,208
-----------
Total assets.............................................................................. 529,649,714
-----------
Liabilities:
Payable for Fund shares repurchased......................................................... 11,326,788
Payable for securities purchased............................................................ 572,681
Payable for service and distribution expenses (Note 2)...................................... 488,767
Payable for investment management and administration fees (Note 2).......................... 431,502
Payable for transfer agent fees (Note 2).................................................... 104,812
Payable for custodian fees.................................................................. 19,043
Payable for professional fees............................................................... 15,518
Payable for fund accounting fees (Note 2)................................................... 11,935
Payable for printing and postage expenses................................................... 10,316
Payable for registration and filing fees.................................................... 5,169
Payable for Trustees' fees and expenses (Note 2)............................................ 5,106
Other accrued expenses...................................................................... 5,905
-----------
Total liabilities......................................................................... 12,997,542
-----------
Net assets.................................................................................... $516,652,172
-----------
-----------
Class A:
Net asset value and redemption price per share ($415,066,115 DIVIDED BY 26,485,045 shares
outstanding)................................................................................. $ 15.67
-----------
-----------
Maximum offering price per share (100 DIVIDED BY 94.5 of $15.67) *............................ $ 16.58
-----------
-----------
Class B:+
Net asset value and offering price per share ($99,943,136 DIVIDED BY 6,551,353 shares
outstanding)................................................................................. $ 15.26
-----------
-----------
Advisor Class:
Net asset value, offering price per share, and redemption price per share ($1,642,921 DIVIDED
BY 103,868 shares outstanding)............................................................... $ 15.82
-----------
-----------
Net assets consist of:
Paid in capital (Note 4).................................................................... $364,202,132
Accumulated net realized gain on investments and foreign currency transactions.............. 86,905,207
Net unrealized appreciation on translation of assets and liabilities in foreign
currencies................................................................................. 11,528
Net unrealized appreciation of investments.................................................. 65,533,305
-----------
Total -- representing net assets applicable to capital shares outstanding..................... $516,652,172
-----------
-----------
<FN>
- --------------
* On sales of $25,000 or more, the offering price is reduced.
+ Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-6
<PAGE> 103
STATEMENT OF OPERATIONS
Year ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment income: (Note 1)
Dividend income (net of foreign withholding tax of $1,801,354)............................ $ 9,216,947
Interest income........................................................................... 782,335
Securities lending income................................................................. 563,149
-----------
Total investment income................................................................. 10,562,431
-----------
Expenses:
Investment management and administration fees (Note 2).................................... 5,643,072
Service and distribution expenses: (Note 2)
Class A.................................................................... $ 1,649,617
Class B.................................................................... 1,052,508 2,702,125
-----------
Interest expense (Note 1)................................................................. 1,549,511
Transfer agent fees....................................................................... 1,215,665
Custodian fees............................................................................ 414,640
Printing and postage expenses............................................................. 390,815
Registration and filing fees.............................................................. 163,150
Fund accounting fees (Note 2)............................................................. 158,561
Professional fees......................................................................... 157,950
Trustees' fees and expenses (Note 2)...................................................... 16,060
Other expenses............................................................................ 32,313
-----------
Total expenses before reductions........................................................ 12,443,862
-----------
Expense reductions (Note 5)........................................................... (30,709)
-----------
Total net expenses...................................................................... 12,413,153
-----------
Net investment loss......................................................................... (1,850,722)
-----------
Net realized and unrealized gain on investments and foreign currencies: (Note
1)
Net realized gain on investments............................................. 118,937,449
Net realized gain on foreign currency transactions........................... 119,748
-----------
Net realized gain during the year....................................................... 119,057,197
Net change in unrealized appreciation on translation of assets and
liabilities in foreign currencies........................................... 217,346
Net change in unrealized appreciation of investments......................... 6,189,915
-----------
Net unrealized appreciation during the year............................................. 6,407,261
-----------
Net realized and unrealized gain on investments and foreign currencies...................... 125,464,458
-----------
Net increase in net assets resulting from operations........................................ $123,613,736
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-7
<PAGE> 104
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
-------------- --------------
<S> <C> <C>
Increase (Decrease) in net assets
Operations:
Net investment loss...................................................... $ (1,850,722) $ (2,163,876)
Net realized gain on investments and foreign currency transactions....... 119,057,197 107,144,938
Net change in unrealized appreciation (depreciation) on translation of
assets and liabilities in foreign currencies............................ 217,346 (237,701)
Net change in unrealized appreciation (depreciation) of investments...... 6,189,915 (31,970,694)
-------------- --------------
Net increase in net assets resulting from operations................... 123,613,736 72,772,667
-------------- --------------
Class A:
Distributions to shareholders: (Note 1)
From net realized gain on investments.................................... (28,578,354) (368,261)
Class B:
Distributions to shareholders: (Note 1)
From net realized gain on investments.................................... (6,161,419) (76,445)
Advisor Class:
Distributions to shareholders: (Note 1)
From net realized gain on investments.................................... (89,449) (1,099)
-------------- --------------
Total distributions.................................................... (34,829,222) (445,805)
-------------- --------------
Capital share transactions: (Note 4)
Increase from capital shares sold and reinvested......................... 5,304,793,872 2,415,165,409
Decrease from capital shares repurchased................................. (5,368,180,025) (2,538,538,626)
-------------- --------------
Net decrease from capital share transactions........................... (63,386,153) (123,373,217)
-------------- --------------
Total increase (decrease) in net assets.................................... 25,398,361 (51,046,355)
Net assets:
Beginning of year........................................................ 491,253,811 542,300,166
-------------- --------------
End of year *............................................................ $ 516,652,172 $ 491,253,811
-------------- --------------
-------------- --------------
* Includes undistributed net investment income............................ $ -- $ --
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-8
<PAGE> 105
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout the period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1998 (d) 1997 (d) 1996 (d) 1995 (d) 1994 (d)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 14.32 $ 12.89 $ 10.88 $ 10.03 $ 10.84
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income (loss).......... (0.03) (0.04) (0.03) 0.04 0.06
Net realized and unrealized gain
(loss) on investments................ 2.35 1.48 2.16 0.95 (0.69)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. 2.32 1.44 2.13 0.99 (0.63)
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income............ -- -- -- (0.10) (0.05)
From net realized gain on
investments.......................... (0.97) (0.01) (0.12) (0.04) --
In excess of net realized gain on
investments.......................... -- -- -- -- (0.13)
---------- ---------- ---------- ---------- ----------
Total distributions................. (0.97) (0.01) (0.12) (0.14) (0.18)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 15.67 $ 14.32 $ 12.89 $ 10.88 $ 10.03
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return (c)............. 16.63% 11.20% 19.61% 9.86% (5.8)%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 415,066 $ 407,004 $ 453,792 $ 483,375 $ 646,313
Ratio of net investment income (loss) to
average net assets..................... (0.20)% (0.29)% (0.26)% 0.38% 0.61%
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions (Note 5)...... 1.75% 1.75% 1.82% 1.83% 1.73%
Without expense reductions............ 1.75% 1.89% 1.88% 1.89% 1.81%
Ratio of interest expense to average net
assets++............................... 0.27% N/A N/A N/A N/A
Portfolio turnover rate++............... 97% 107% 123% 108% 91%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates and ratio of interest expense to average net
assets are calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-9
<PAGE> 106
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout the period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1998 (d) 1997 (d) 1996 (d) 1995 (d) 1994 (d)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 14.06 $ 12.73 $ 10.81 $ 9.97 $ 10.79
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income (loss).......... (0.14) (0.13) (0.11) (0.03) --
Net realized and unrealized gain
(loss) on investments................ 2.31 1.47 2.15 0.94 (0.69)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. 2.17 1.34 2.04 0.91 (0.69)
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income............ -- -- -- (0.03) --
From net realized gain on
investments.......................... (0.97) (0.01) (0.12) (0.04) --
In excess of net realized gain on
investments.......................... -- -- -- -- (0.13)
---------- ---------- ---------- ---------- ----------
Total distributions................. (0.97) (0.01) (0.12) (0.07) (0.13)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 15.26 $ 14.06 $ 12.73 $ 10.81 $ 9.97
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return (c)............. 15.80% 10.55% 18.79% 9.20% (6.38)%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 99,943 $ 81,011 $ 87,092 $ 73,025 $ 81,602
Ratio of net investment income (loss) to
average net assets..................... (0.85)% (0.94)% (0.91)% (0.27)% (0.04)%
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions (Note 5)...... 2.40% 2.40% 2.47% 2.48% 2.38%
Without expense reductions............ 2.40% 2.54% 2.53% 2.54% 2.46%
Ratio of interest expense to average net
assets++............................... 0.27% N/A N/A N/A N/A
Portfolio turnover rate++............... 97% 107% 123% 108% 91%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates and ratio of interest expense to average net
assets are calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-10
<PAGE> 107
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout the period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
ADVISOR CLASS+
------------------------------------------------------
YEAR ENDED JUNE 1, 1995
DECEMBER 31, TO
--------------------------------------- DECEMBER 31,
1998 (d) 1997 (d) 1996 (d) 1995 (d)
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 14.41 $ 12.92 $ 10.85 $ 10.24
------------- ----------- ----------- -------------
Income from investment operations:
Net investment income (loss).......... 0.02 0.01 0.01 0.08
Net realized and unrealized gain
(loss) on investments................ 2.36 1.49 2.18 0.71
------------- ----------- ----------- -------------
Net increase (decrease) from
investment operations.............. 2.38 1.50 2.19 0.79
------------- ----------- ----------- -------------
Distributions to shareholders:
From net investment income............ -- -- -- (0.14)
From net realized gain on
investments.......................... (0.97) (0.01) (0.12) (0.04)
In excess of net realized gain on
investments.......................... -- -- -- --
------------- ----------- ----------- -------------
Total distributions................. (0.97) (0.01) (0.12) (0.18)
------------- ----------- ----------- -------------
Net asset value, end of period.......... $ 15.82 $ 14.41 $ 12.92 $ 10.85
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
Total investment return (c)............. 16.88% 11.64% 20.21% 7.75%(b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 1,643 $ 3,239 $ 1,416 $ 718
Ratio of net investment income (loss) to
average net assets..................... 0.15% 0.06% 0.09% 0.73%(a)
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions (Note 5)...... 1.40% 1.40% 1.47% 1.48%(a)
Without expense reductions............ 1.40% 1.54% 1.53% 1.54%(a)
Ratio of interest expense to average net
assets++............................... 0.27% N/A N/A N/A
Portfolio turnover rate++............... 97% 107% 123% 108%(a)
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates and ratio of interest expense to average net
assets are calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-11
<PAGE> 108
NOTES TO
FINANCIAL STATEMENTS
December 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (SEE ALSO NOTE 2)
AIM Europe Growth Fund (the "Fund") formerly GT Global Europe Growth Fund, is a
separate series of AIM Growth Series (the "Trust") formerly GT Global Growth
Series. The Trust is organized as a Delaware business trust and is registered
under the Investment Company Act of 1940, as amended ("1940 Act"), as a
diversified, open-end management investment company. The Trust has eight series
of shares in operation, each series corresponding to a distinct portfolio of
investments.
The Fund offers Class A, Class B, and Advisor Class shares, each of which has
equal rights as to assets and voting privileges. Class A and Class B each has
exclusive voting rights with respect to its distribution plan. Investment
income, realized and unrealized capital gains and losses, and the common
expenses of the Fund are allocated on a pro rata basis to each class based on
the relative net assets of each class to the total net assets of the Fund. Each
class of shares differs in its respective distribution expenses, and may differ
in its transfer agent, registration, and certain other class-specific fees and
expenses.
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 and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies in conformity with generally accepted accounting
principles consistently followed by the Fund in the preparation of the financial
statements.
(A) PORTFOLIO VALUATION
The Fund calculates the net asset value of Fund shares and completes orders to
purchase, exchange or repurchase Fund shares on each business day, with the
exception of those days on which the New York Stock Exchange is closed.
Equity securities are valued at the last sale price on the exchange on which
such securities are traded or on the principal over-the-counter market in which
such securities are traded, as of the close of business on the day the
securities are being valued, or, lacking any sales, at the last available bid
price. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange determined by A I M Advisors, Inc. (the
"Manager") to be the primary market.
Fixed income investments are valued at the mean of representative quoted bid and
asked prices for such investments or, if such prices are not available, at
prices for investments of comparative maturity, quality and type; however, when
the Manager deems it appropriate, prices obtained for the day of valuation from
a bond pricing service will be used. Short-term investments with a maturity of
60 days or less are valued to amortized cost, adjusted for foreign exchange
translation and market fluctuation, if any.
Investments for which market quotations are not readily available (including
restricted securities which are subject to limitations on their sale) are valued
at fair value as determined in good faith by or under the direction of the
Trust's Board of Trustees.
Portfolio securities which are primarily traded on foreign exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S. dollars at
the current exchange rates, except that when an occurrence subsequent to the
time a value was so established is likely to have materially changed such value,
then the fair value of those securities will be determined by consideration of
other factors by or under the direction of the Trust's Board of Trustees.
(B) FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings, other assets and liabilities
are recorded in the books and records of the Fund after translation to U.S.
dollars based on the exchange rates on that day. The cost of each security is
determined using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when earned or incurred.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuation
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains and losses arise from sales and
maturities of short-term securities, forward foreign currency contracts, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the differences between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities other than investments in securities at period
end, resulting from changes in exchange rates.
(C) REPURCHASE AGREEMENTS
With respect to repurchase agreements entered into by the Fund, it is the Fund's
policy to always receive, as collateral, U.S. government securities or other
high quality debt securities of which the value, including accrued interest, is
at least equal to the amount to be repaid to the Fund under each agreement at
its maturity.
(D) FORWARD FOREIGN CURRENCY CONTRACTS
A forward foreign currency contract ("Forward Contract") is an agreement between
two parties to buy and sell a currency at a set price on a future date. The
market value of the Forward Contract fluctuates with changes in currency
exchange rates. The Forward Contract is marked-to-market daily and the change in
market value is recorded by the Fund as an unrealized gain or loss. When the
Forward Contract is closed, the Fund records a realized gain or loss
FS-12
<PAGE> 109
equal to the difference between the value at the time it was opened and the
value at the time it was closed. The Fund could be exposed to risk if a counter
party is unable to meet the terms of a contract or if the value of the currency
changes unfavorably. The Fund may enter into Forward Contracts in connection
with planned purchases or sales of securities, or to hedge against adverse
fluctuations in exchange rates between currencies.
(E) OPTION ACCOUNTING PRINCIPLES
When the Fund writes a call or put option, an amount equal to the premium
received is included in the Fund's "Statement of Assets and Liabilities" as an
asset and an equivalent liability. The amount of the liability is subsequently
market-to-market to reflect the current market value of the option. The current
market value of an option listed on a traded exchange is valued at its last bid
price, or, in the case of on over-the-counter option, is valued at the average
of the last bid prices obtained from brokers, unless a quotation from only one
broker is available, in which case only that broker's price will be used. If an
option expires on its stipulated expiration date or if the Fund enters into a
closing purchase transaction, a gain or loss is realized without regard to any
unrealized gain or loss on the underlying security, and the liability related to
such option is extinguished. If a written call option is exercised, a gain or
loss is realized from the sale of the underlying security and the proceeds of
the sale are increased by the premium originally received. If a written put
option is exercised, the cost of the underlying security purchased would be
decreased by the premium originally received. The Fund can write options only on
a covered basis, which, for a call, requires that the Fund hold the underlying
security, and, for a put, requires the Fund to set aside cash, U.S. government
securities or other liquid securities in an amount not less than the exercise
price or otherwise provide adequate cover at all times while the put option is
outstanding. The Fund may use options to manage its exposure to the stock market
and to fluctuations in currency values or interest rates.
The premium paid by the Fund for the purchase of a call or put option is
included in the Fund's "Statement of Assets and Liabilities" as an investment
and subsequently "marked-to-market" to reflect the current market value of the
option. If an option which the Fund has purchased expires on the stipulated
expiration date, the Fund realizes a loss in the amount of the cost of the
option. If the Fund enters into a closing sale transaction, the Fund realizes a
gain or loss, depending on whether proceeds from the closing sale transaction
are greater or less than the cost of the option. If the Fund exercises a call
option, the cost of the securities acquired by exercising the call is increased
by the premium paid to buy the call. If the Fund exercises a put option, it
realizes a gain or loss from the sale of the underlying security, and the
proceeds from such sale are decreased by the premium originally paid.
The risk associated with purchasing options is limited to the premium originally
paid. The risk in writing a call option is that the Fund may forego the
opportunity of profit if the market value of the underlying security or index
increases and the option is exercised. The risk in writing a put option is that
the Fund may incur a loss if the market value of the underlying security or
index decreases and the option is exercised. In addition, there is the risk the
Fund may not be able to enter into a closing transaction because of an illiquid
secondary market.
(F) FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. Upon entering into such a contract the
Fund is required to pledge to the broker an amount of cash or securities equal
to the minimum "initial margin" requirements of the exchange on which the
contract is traded. Pursuant to the contract, the Fund agrees to receive from or
pay to the broker an amount of cash equal to the daily fluctuation in value of
the contract. Such receipts or payments are known as "variation margin" and are
recorded by the Fund as unrealized gains or losses. When the contract is closed,
the Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time it was
closed. The potential risk to the Fund is that the change in value of the
underlying securities may not correlate to the change in value of the contracts.
The Fund may use futures contracts to manage its exposure to the stock market
and to fluctuations in currency values or interest rates.
(G) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). The cost of securities sold is determined on a first-in,
first-out basis, unless otherwise specified. Dividends are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. Where a high
level of uncertainty exists as to its collection, income is recorded net of all
withholding tax with any rebate recorded when received. The Fund may trade
securities on other then normal settlement terms. This may increase the risk if
the other party to the transaction fails to deliver and causes the Fund to
subsequently invest at less advantageous prices.
(H) PORTFOLIO SECURITIES LOANED
At December 31, 1998, stocks with an aggregate value of approximately
$16,294,685 were on loan to brokers. The loans were secured by cash collateral
of $17,024,659, received by the Fund. For the year ended December 31, 1998, the
Fund received securities lending fees of $563,149.
For international securities, cash collateral is received by the Fund against
loaned securities in an amount at least equal to 105% of the market value of the
loaned securities at the inception of each loan. This collateral must be
maintained at not less than 103% of the market value of the loaned securities
during the period of the loan. For domestic securities, cash collateral is
received by the Fund against loaned securities in an amount at least equal to
102% of the market value of the loaned securities at the inception of each loan.
This collateral must be maintained at not less than 100% of the market value of
the loaned securities during the period of the loan. The cash collateral is
invested in a securities lending trust which consists of a portfolio of high
quality short duration securities whose average effective duration is restricted
to 120 days or less.
(I) TAXES
It is the policy of the Fund to meet the requirements for qualification as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended ("Code"). It is also the intention of the
FS-13
<PAGE> 110
Fund to make distributions sufficient to avoid imposition of any excise tax
under Section 4982 of the Code. Therefore, no provision has been made for
Federal taxes on income, capital gains, or unrealized appreciation of securities
held, or excise tax on income and capital gains.
(J) DISTRIBUTION TO SHAREHOLDERS
Distribution to shareholders are recorded by the Fund on the ex-date. Income and
capital gain distributions are determined in accordance with Federal income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Fund and timing differences.
(K) FOREIGN SECURITIES
There are certain additional considerations and risks associated with investing
in foreign securities and currency transactions that are not inherent in
investments of domestic origin. The Fund's investments in emerging market
countries may involve greater risks than investments in more developed markets,
and the prices of such investments may be volatile. These risks of investing in
foreign and emerging markets may include foreign currency exchange rate
fluctuations, perceived credit risk, adverse political and economic developments
and possible adverse foreign government intervention.
(L) RESTRICTED SECURITIES
The Fund is permitted to invest in privately placed restricted securities. These
securities may be resold in transactions exempt from registration or to the
public if the securities are registered. Disposal of these securities may
involve time-consuming negotiations and expense, and prompt sale at an
acceptable price may be difficult.
(M) INDEXED SECURITIES
The Fund may invest in indexed securities whose value is linked either directly
or indirectly to changes in foreign currencies, interest rates, equities,
indices, or other reference instruments. Indexed securities may be more volatile
than the reference instrument itself, but any loss is limited to the amount of
the original investment.
(N) LINE OF CREDIT
The Fund, along with certain other funds advised and/or administered by the
Manager, has a line of credit with BankBoston and State Street Bank and Trust
Company. The arrangements with the banks allow the Fund and certain other funds
to borrow, on a first come, first served basis, an aggregate maximum amount of
$250,000,000. The Fund is limited to borrowing up to 33 1/3% of the value of the
Fund's total assets. On December 31, 1998, the Fund had no outstanding loans.
For the year ended December 31, 1998, the weighted average outstanding daily
balance of bank loans (based on the number of days the loans were outstanding)
was $40,237,214 with a weighted average interest rate of 6.26%. Interest expense
for the year ended December 31, 1998 was $1,539,318. Other interest expense
amounted to $10,193.
2. RELATED PARTIES
A I M Advisors, Inc. (the "Manager"), an indirect wholly-owned subsidiary of
AMVESCAP PLC, is the Fund's investment manager and administrator, and as of
December 14, 1998, sub-advisory and sub-administration responsibility for the
Fund was transferred from INVESCO (NY), Inc.,(formerly, Chancellor LGT Asset
Management, Inc.) to INVESCO Asset Management Ltd., both indirect wholly-owned
subsidiaries of AMVESCAP PLC. As of the close of business on May 29, 1998,
Liechtenstein Global Trust AG ("LGT"), the former indirect parent organization
of Chancellor LGT Asset Management, Inc. ("Chancellor LGT"), consummated a
purchase agreement with AMVESCAP PLC pursuant to which AMVESCAP PLC acquired
LGT's Asset Management Division, which included Chancellor LGT and certain other
affiliates. As a result of this transaction, Chancellor LGT was renamed INVESCO
(NY), Inc., and is now an indirect wholly-owned subsidiary of AMVESCAP PLC.
Also, as of the close of business on May 29, 1998, A I M Distributors, Inc.
("AIM Distributors"), a wholly-owned subsidiary of the Manager, became the
Fund's distributor, and the Trust was reorganized from a Massachusetts business
trust into a Delaware business trust. Finally, A I M Fund Services, Inc.
("AFS"), an affiliate of the Manager and AIM Distributors, replaced GT Global
Investor Services, Inc. ("GT Services") as transfer agent of the Fund as of the
close of business on September 4, 1998.
The Fund pays investment management and administration fees to the Manager at
the following annualized rates: 0.975% on the first $500 million of the average
daily net assets of the Fund; 0.95% on the next $500 million; 0.925% on the next
$500 million and 0.90% on amounts thereafter. These fees are computed daily and
paid monthly.
AIM Distributors serves as the Fund's distributor. For the period ended May 29,
1998, GT Global, Inc. ("GT Global"), an affiliate of the investment sub-advisor,
served as the Fund's distributor.
Class A shares are subject to initial sales charges imposed at the time of
purchase, in accordance with the schedule included in the Fund's current
prospectus. AIM Distributors collects the sales charges imposed on sales of
Class A shares, and reallows a portion of such charges to dealers through which
the sales are made. For the year ended December 31, 1998, AIM Distributors and
GT Global retained $55,381 and $789, respectively, of such sales charges.
Purchases of Class A shares exceeding $1,000,000 may be subject to a contingent
deferred sales charge ("CDSC") upon redemption, in accordance with the Fund's
current prospectus. AIM Distributors and GT Global collected such CDSCs in the
amount of $29,478 and $0, respectively, for the year ended December 31, 1998.
AIM Distributors also makes ongoing shareholder servicing and trail commission
payments to dealers whose clients hold Class A shares.
Class B shares are not subject to initial sales charges. When Class B shares are
sold, AIM Distributors from its own resources pays commissions to dealers
through which the sales are made. Certain redemptions of Class B shares made
within six years of purchase are subject to CDSCs, in accordance with the Fund's
current prospectus. During the year ended December 31, 1998, AIM Distributors
and GT Global collected such CDSCs in the amount of $199,555 and $178,096,
respectively. In addition, AIM Distributors makes ongoing shareholder servicing
and trail commission payments to dealers whose clients hold Class B shares.
FS-14
<PAGE> 111
For the period ended May 29, 1998, pursuant to the then effective separate
distribution plans adopted under the 1940 Act Rule 12b-1 by the Trust's Board of
Trustees with respect to the Fund's Class A shares ("Class A Plan") and Class B
shares ("Class B Plan"), the Fund reimbursed GT Global for a portion of its
shareholder servicing and distribution expenses. Under the Class A Plan, the
Fund was permitted to pay GT Global a service fee at the annualized rate of up
to 0.25% of the average daily net assets of the Fund's Class A shares for GT
Global's expenditures incurred in servicing and maintaining shareholder
accounts, and was permitted to pay GT Global a distribution fee at the
annualized rate of up to 0.35% of the average daily net assets of the Fund's
Class A shares, less any amounts paid by the Fund as the aforementioned service
fee, for its expenditures incurred in providing services as distributor. All
expenses for which GT Global was reimbursed under the Class A Plan would have
been incurred within one year of such reimbursement.
For the period ended May 29, 1998, pursuant to the Class B Plan, the Fund was
permitted to pay GT Global a service fee at the annualized rate of up to 0.25%
of the average daily net assets of the Fund's Class B shares for its
expenditures incurred in servicing and maintaining shareholder accounts, and was
permitted to pay GT Global a distribution fee at the annualized rate of up to
0.75% of the average daily net assets of the Fund's Class B shares for GT
Global's expenditures incurred in providing services as distributor. Expenses
incurred under the Class B Plan in excess of 1.00% annually were permitted to be
carried forward for reimbursement in subsequent years as long as that Plan
continued in effect.
Effective as of the close of business May 29, 1998, pursuant to Rule 12b-1 under
the 1940 Act, the Trust's Board of Trustees adopted a Master Distribution Plan
applicable to the Fund's Class A shares ("Class A Plan") and Class B shares
("Class B Plan"), pursuant to which a Fund compensates AIM Distributors for the
purpose of financing any activity that is intended to result in the sale of
Class A or Class B shares of the Fund. Under the Class A Plan, the Fund
compensates AIM Distributors at the annualized rate of 0.35% of the average
daily net assets of the Fund's Class A shares. Under the Class B Plan, the Fund
compensates AIM Distributors at an annualized rate of 1.00% of the average daily
net assets of the Fund's 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 or Class B
shares to selected dealers and financial institutions who furnish continuing
personal shareholder services to their customers who purchase and own the
appropriate class of shares of the Fund. Any amounts not paid as a service fee
under the Plans would constitute an asset-based sales charge.
The Manager and AIM Distributors have voluntarily undertaken to limit the Fund's
expenses (exclusive of brokerage commissions, taxes,interest, and extraordinary
items) to the maximum annual level of 2.00%, 2.65%, and 1.65% of the average
daily net assets of the Fund's Class A, Class B, and Advisor Class shares,
respectively. If necessary, this limitation will be effected by waivers by the
Manager of investment management and administration fees, waivers by AIM
Distributors of payments under the Class A Plan and/or Class B Plan and/or
reimbursements by the Manager or AIM Distributors of portions of the Fund's
other operating expenses.
Effective as of the close of business September 4, 1998, the Fund, pursuant to a
transfer agency and service agreement, has agreed to pay AFS an annualized fee
of $24.85 per shareholder accounts that are open during any monthly period (this
fee includes all out-of-pocket expenses), and an annualized fee of $0.70 per
shareholder account that is closed during any monthly period. Both fees shall be
billed by AFS monthly in arrears on a prorated basis of 1/12 of the annualized
fee for all such accounts.
For the period January 1, 1998 to September 4, 1998, GT Services, an affiliate
of the Manager and AIM Distributors, was the transfer agent of the Fund. For
performing shareholder servicing, reporting, and general transfer agent
services, GT Services received an annual maintenance fee of $17.50 per account,
a new account fee of $4.00 per account, a per transaction fee of $1.75 for all
transactions other than exchanges and a per exchange fee of $2.25. GT Services
also was reimbursed by the Fund for its out-of-pocket expenses for such items as
postage, forms, telephone charges, stationery and office supplies.
The Manager is the pricing and accounting agent for the Fund. The monthly fee
for these services to the Manager is a percentage, not to exceed 0.03% annually,
of the Fund's average daily net assets. The annual fee rate is derived based on
the aggregate net assets of the funds which comprise the following investment
companies: AIM Growth Series, AIM Investment Funds, AIM Investment Portfolios,
AIM Series Trust, G.T. Global Variable Investment Series and G.T. Global
Variable Investment Trust. The fee is calculated at the rate of 0.03% to the
first $5 billion of assets and 0.02% to the assets in excess of $5 billion. An
amount is allocated to and paid by each such fund based on its relative average
daily net assets.
The Trust pays each of its Trustees who is not an employee, officer or director
of the Manager, AIM Distributors or GT Services $5,000 per year plus $300 for
each meeting of the board or any committee thereof attended by the Trustee.
3. PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 1998, purchases and sales of investment
securities by the Fund, other than U.S. government obligations and short-term
investments, aggregated $551,235,800 and $637,985,802, respectively. There were
no purchases or sales of U.S. government obligations by the Fund during the
period.
FS-15
<PAGE> 112
4. CAPITAL SHARES
At December 31, 1998, there were an unlimited number of shares of beneficial
interest authorized, at no par value. Transactions in capital shares of the Fund
were as follows:
CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
--------------------------------- ---------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------------------------------ --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Shares sold................... 284,179,353 $ 4,678,178,730 146,863,882 $ 2,008,141,712
Shares issued in connection
with reinvestment of
distributions............... 1,565,424 23,371,501 20,229 286,488
--------------- --------------- --------------- ---------------
285,744,777 4,701,550,231 146,884,111 2,008,428,200
Shares repurchased............ (287,680,343) (4,771,589,437) (153,681,853) (2,115,903,158)
--------------- --------------- --------------- ---------------
Net decrease.................. (1,935,566) $ (70,039,206) (6,797,742) $ (107,474,958)
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
<CAPTION>
CLASS B
- ------------------------------
<S> <C> <C> <C> <C>
Shares sold................... 29,683,015 $ 488,430,227 25,162,463 $ 340,605,118
Shares issued in connection
with reinvestment of
distributions............... 370,423 5,382,231 4,768 66,175
--------------- --------------- --------------- ---------------
30,053,438 493,812,458 25,167,231 340,671,293
Shares repurchased............ (29,265,734) (483,839,015) (26,243,592) (357,657,223)
--------------- --------------- --------------- ---------------
Net increase (decrease)....... 787,704 $ 9,973,443 (1,076,361) $ (16,985,930)
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
<CAPTION>
ADVISOR CLASS
- ------------------------------
<S> <C> <C> <C> <C>
Shares sold................... 6,484,352 $ 109,346,851 4,798,844 $ 66,064,822
Shares issued in connection
with reinvestment of
distributions............... 5,605 84,332 77 1,094
--------------- --------------- --------------- ---------------
6,489,957 109,431,183 4,798,921 66,065,916
Shares repurchased............ (6,610,936) (112,751,573) (4,683,709) (64,978,245)
--------------- --------------- --------------- ---------------
Net increase (decrease)....... (120,979) $ (3,320,390) 115,212 $ 1,087,671
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
</TABLE>
5. EXPENSE REDUCTIONS
The Manager has directed certain portfolio trades to brokers who then paid a
portion of the Fund's expenses. For the year ended December 31, 1998, the Fund's
expenses were reduced by $30,709 under these arrangements.
- --------------
FEDERAL TAX INFORMATION (UNAUDITED):
For the fiscal year ended December 31, 1998, the amount of income received by
the Fund from sources within foreign countries and possessions of the United
States was $.3013 per share (representing a total of $10,719,966). The amount of
taxes paid by the Fund to such countries for the fiscal year ended December 31,
1998 was $.0505 per share (representing a total of $1,795,341). The following
table provides a breakdown by country of ordinary income dividends and foreign
taxes paid by the Fund during the fiscal year ended December 31, 1998:
<TABLE>
<CAPTION>
COUNTRY GROSS INCOME % FOREIGN TAX PAID %
- ------------------------------ -------------- ------------------
<S> <C> <C>
Finland....................... 0.76 2.65
France........................ 2.94 22.91
Germany....................... 0.49 1.15
Italy......................... 1.31 4.56
Netherlands................... 2.86 8.44
Portugal...................... 0.47 1.90
Sweden........................ 3.40 11.85
Switzerland................... 3.03 20.14
United Kingdom................ 10.33 25.92
------- -------
25.59 99.52
Nonqualifying................. 0.02 0.48
United States................. 74.39 --
------- -------
100.00% 100.00%
------- -------
------- -------
</TABLE>
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$59,633,841 as a capital gain dividend for the fiscal year ended December 31,
1998.
FS-16
<PAGE> 113
REPORT OF
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders of AIM Japan Growth Fund (formerly GT Global Japan Growth
Fund) and Board of Trustees of AIM Growth Series (formerly GT Global Growth
Series):
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Japan Growth Fund at
December 31, 1998, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as 'financial statements') are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
BOSTON, MASSACHUSETTS
FEBRUARY 19, 1999
FS-17
<PAGE> 114
PORTFOLIO OF INVESTMENTS
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS SHARES (NOTE 1) ASSETS
- ----------------------------------------------------------------------- ----------- ----------- -------------
<S> <C> <C> <C>
Services (24.9%)
Ito-Yokado Co., Ltd.{z} ............................................. 55,000 $ 3,845,813 6.2
RETAILERS-OTHER
NTT Mobile Communications{z} ........................................ 75 3,086,830 4.9
WIRELESS COMMUNICATIONS
Yoshinoya D&C Co., Ltd. ............................................. 160 1,741,901 2.8
RESTAURANTS
Secom Co., Ltd. ..................................................... 18,000 1,491,237 2.4
CONSUMER SERVICES
Fast Retailing Co., Ltd. ............................................ 80,000 1,414,764 2.3
RETAILERS-APPAREL
Fuji Photo Film Co., Ltd. ........................................... 35,000 1,301,115 2.1
CONSUMER SERVICES
Ryohin Keikaku Co., Ltd. ............................................ 6,300 839,219 1.3
RETAILERS-APPAREL
Nippon Telegraph & Telephone Corp. .................................. 101 779,536 1.2
TELEPHONE NETWORKS
Tsutsumi Jewelry Co., Ltd. .......................................... 41,800 665,959 1.1
RETAILERS-OTHER
Southland Corp.{l} -/- {\/} ......................................... 185,600 353,800 0.6
RETAILERS-OTHER
-----------
15,520,174
-----------
Technology (16.0%)
Murata Manufacturing Co., Ltd. ...................................... 52,000 2,158,612 3.5
INSTRUMENTATION & TEST
Matsushita-Kotobuki Electronics Ltd. ................................ 95,000 2,051,691 3.3
COMPUTERS & PERIPHERALS
Fujitsu Ltd. ........................................................ 134,000 1,785,006 2.9
COMPUTERS & PERIPHERALS
Rohm Co., Ltd. ...................................................... 16,000 1,457,249 2.3
SEMICONDUCTORS
TDK Corp. ........................................................... 15,000 1,371,482 2.2
COMPUTERS & PERIPHERALS
Nihon Unisys Ltd. ................................................... 80,000 1,125,863 1.8
COMPUTERS & PERIPHERALS
-----------
9,949,903
-----------
Consumer Durables (14.4%)
Sony Corp. .......................................................... 35,200 2,564,135 4.1
CONSUMER ELECTRONICS
Bridgestone Corp.{z} ................................................ 100,000 2,270,313 3.6
AUTO PARTS
Citizen Watch Co., Ltd. ............................................. 300,000 1,805,629 2.9
CONSUMER ELECTRONICS
Sekisui Chemical Co., Ltd. .......................................... 250,000 1,681,714 2.7
HOUSING
Toyota Motor Corp. .................................................. 25,000 679,324 1.1
AUTOMOBILES
-----------
9,001,115
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-18
<PAGE> 115
PORTFOLIO OF INVESTMENTS (cont'd)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS SHARES (NOTE 1) ASSETS
- ----------------------------------------------------------------------- ----------- ----------- -------------
<S> <C> <C> <C>
Health Care (11.9%)
Takeda Chemical Industries{z} ....................................... 105,000 $ 4,042,751 6.5
PHARMACEUTICALS
Yamanouchi Pharmaceutical Co., Ltd. ................................. 76,000 2,448,575 3.9
PHARMACEUTICALS
Taisho Pharmaceutical Co., Ltd. ..................................... 35,000 963,445 1.5
PHARMACEUTICALS
-----------
7,454,771
-----------
Finance (10.0%)
Nichiei Co., Ltd.{z} ................................................ 32,000 2,549,124 4.1
OTHER FINANCIAL
Jafco Co., Ltd. ..................................................... 45,000 1,218,800 2.0
INVESTMENT MANAGEMENT
Acom Co., Ltd. ...................................................... 14,000 899,628 1.4
CONSUMER FINANCE
Diamond Lease Co., Ltd. ............................................. 119,000 853,160 1.4
OTHER FINANCIAL
Takefuji Corp. ...................................................... 9,300 679,102 1.1
CONSUMER FINANCE
-----------
6,199,814
-----------
Consumer Non-Durables (8.6%)
Wacoal Corp. ........................................................ 118,000 1,517,561 2.4
TEXTILES & APPAREL
Asahi Breweries Ltd.{z} ............................................. 100,000 1,473,712 2.4
BEVERAGES - ALCOHOLIC
Nintendo Corp., Ltd. ................................................ 13,000 1,254,204 2.0
TOYS
Paris Miki, Inc. .................................................... 50,000 1,150,647 1.8
OTHER CONSUMER GOODS
-----------
5,396,124
-----------
Capital Goods (5.3%)
Canon, Inc.{z} ...................................................... 95,000 2,030,669 3.3
OFFICE EQUIPMENT
Toshiba Corp. ....................................................... 215,000 1,280,713 2.0
ELECTRICAL PLANT/EQUIPMENT
-----------
3,311,382
----------- -----
TOTAL EQUITY INVESTMENTS (cost $56,835,148) ........................... 56,833,283 91.1
----------- -----
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-19
<PAGE> 116
PORTFOLIO OF INVESTMENTS (cont'd)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
REPURCHASE AGREEMENT (NOTE 1) ASSETS
- ----------------------------------------------------------------------- ----------- -------------
<S> <C> <C> <C>
Dated December 31, 1998, with State Street Bank & Trust Co., due
January 4, 1999, for an effective yield of 4.50%, collateralized by
$5,305,000 U.S. Treasury Bonds, 8.75% due 5/15/17 (market value of
collateral is $7,424,645, including accrued interest).
(cost $7,277,000) .................................................. $ 7,277,000 11.6
----------- -----
TOTAL INVESTMENTS (cost $64,112,148) * ............................... 64,110,283 102.7
Other Assets and Liabilities .......................................... (1,713,929) (2.7)
----------- -----
NET ASSETS ............................................................ $62,396,354 100.0
----------- -----
----------- -----
</TABLE>
- --------------
{z} All or part of the Fund's holdings in this security is segregated
as collateral for written futures. See Note 1 to the Financial
Statements.
{l} This is a U.S. security of which approximately 62.5% of its
outstanding stock is owned by Ito-Yokado Co., Ltd.
{\/} U.S. currency denominated.
-/- Non-income producing security.
* For Federal income tax purposes, cost is $64,933,650 and
appreciation (depreciation) is as follows:
<TABLE>
<S> <C>
Unrealized appreciation: $ 5,944,696
Unrealized depreciation: (6,768,063)
-------------
Net unrealized depreciation: $ (823,367)
-------------
-------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS OUTSTANDING
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET VALUE UNREALIZED
(U.S. CONTRACT DELIVERY APPRECIATION
CONTRACTS TO SELL: DOLLARS) PRICE DATE (DEPRECIATION)
- ---------------------------------------- ------------- ---------- -------- ---------------
<S> <C> <C> <C> <C>
Japanese Yen............................ 44,514,932 120.81250 2/12/99 $(3,128,486)
Japanese Yen............................ 6,232,090 122.51500 2/12/99 (518,504)
Japanese Yen............................ 2,670,896 118.24000 2/12/99 (133,683)
------------- ---------------
Total Contracts to Sell (Receivable
amount $49,637,245).................. 53,417,918 (3,780,673)
------------- ---------------
THE VALUE OF CONTRACTS TO SELL AS
PERCENTAGE OF NET ASSETS IS 85.61%.
Total Open Forward Foreign Currency
Contracts............................ $(3,780,673)
---------------
---------------
</TABLE>
- ----------------
See Note 1 of Notes to the Financial Statements.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WRITTEN FUTURE CONTRACT OUTSTANDING
DECEMBER 31, 1998
<TABLE>
<CAPTION>
EXPIRATION NO. OF
DESCRIPTION DATE CONTRACTS CURRENCY MARKET VALUE
- ---------------------------------------- --------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Simex Nikkei 225 Index Future (Face
17,799,224)............................ March 1999 290 JPY $ 18,965,146
</TABLE>
- ----------------
See Note 1 of Notes to the Financial Statements.
The accompanying notes are an integral part of the financial statements.
FS-20
<PAGE> 117
STATEMENT OF ASSETS
AND LIABILITIES
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at value (cost $56,835,148) (Note 1).................................. $56,833,283
Repurchase agreement, at value and cost.......................................................... 7,277,000
U.S. currency.................................................................................... 270
Receivable for initial margin (Note 1)........................................................... 1,868,000
Receivable for Fund shares sold.................................................................. 628,411
Receivable from A I M Advisors, Inc.............................................................. 252,032
Dividends receivable............................................................................. 34,664
Interest receivable.............................................................................. 910
-----------
Total assets................................................................................... 66,894,570
-----------
Liabilities:
Payable for open forward foreign currency contracts (Note 1)..................................... 3,780,673
Payable for investment management and administration fees (Note 2)............................... 297,101
Payable for Fund shares repurchased.............................................................. 285,231
Payable for service and distribution expenses (Note 2)........................................... 63,391
Payable for transfer agent fees (Note 2)......................................................... 26,130
Payable for printing and postage expenses........................................................ 15,566
Payable for professional fees.................................................................... 10,167
Payable for registration and filing fees......................................................... 8,021
Payable for Trustees' fees and expenses (Note 2)................................................. 5,654
Payable for custodian fees....................................................................... 5,537
Payable for fund accounting fees................................................................. 641
Other accrued expenses........................................................................... 104
-----------
Total liabilities.............................................................................. 4,498,216
-----------
Net assets......................................................................................... $62,396,354
-----------
-----------
Class A:
Net asset value and redemption price per share ($37,607,822 DIVIDED BY 4,226,699 shares
outstanding)...................................................................................... $ 8.90
-----------
-----------
Maximum offering price per share (100/94.50 of $8.90) *............................................ $ 9.42
-----------
-----------
Class B:+
Net asset value and offering price per share ($22,815,096 DIVIDED BY 2,669,627 shares
outstanding)...................................................................................... $ 8.55
-----------
-----------
Advisor Class:
Net asset value, offering price per share, and redemption price per share ($1,973,436 DIVIDED BY
219,050 shares outstanding)....................................................................... $ 9.01
-----------
-----------
Net assets consist of:
Paid in capital (Note 4)......................................................................... $85,080,433
Accumulated net realized loss on investments and foreign currency transactions................... (20,069,001)
Net unrealized depreciation on translation of assets and liabilities in foreign currencies....... (3,779,135)
Net unrealized appreciation of investments....................................................... 1,164,057
-----------
Total -- representing net assets applicable to capital shares outstanding.......................... $62,396,354
-----------
-----------
<FN>
- --------------
* On sales of $25,000 or more, the offering price is reduced.
+ Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-21
<PAGE> 118
STATEMENT OF OPERATIONS
Year ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment income: (Note 1)
Interest income........................................................................... $ 802,460
Dividend income (net of foreign withholding tax of $86,653)............................... 491,033
Securities lending income................................................................. 53,757
-----------
Total investment income................................................................. 1,347,250
-----------
Expenses:
Investment management and administration fees (Note 2).................................... 740,164
Service and distribution expenses: (Note 2)
Class A.................................................................... $ 149,992
Class B.................................................................... 236,324 386,316
-----------
Transfer agent fees (Note 2).............................................................. 294,620
Printing and postage expenses............................................................. 179,750
Registration and filing fees.............................................................. 123,400
Professional fees......................................................................... 62,645
Custodian fees............................................................................ 48,620
Fund accounting fees (Note 2)............................................................. 20,629
Trustees' fees and expenses (Note 2)...................................................... 13,140
Other expenses............................................................................ 24,753
-----------
Total expenses before reductions........................................................ 1,894,037
-----------
Expenses reimbursed by A I M Advisors, Inc. (Note 2).................................. (252,032)
Expense reductions (Note 5)........................................................... (27,338)
-----------
Total net expenses...................................................................... 1,614,667
-----------
Net investment loss......................................................................... (267,417)
-----------
Net realized and unrealized gain (loss) on investments and foreign currencies:
(Note 1)
Net realized loss on investments............................................. (18,161,660)
Net realized gain on foreign currency transactions........................... 3,387,626
-----------
Net realized loss during the year....................................................... (14,774,034)
Net change in unrealized appreciation on translation of assets and
liabilities in foreign currencies........................................... (6,527,794)
Net change in unrealized depreciation of investments......................... 22,781,499
-----------
Net unrealized appreciation during the year............................................. 16,253,705
-----------
Net realized and unrealized gain on investments and foreign currencies...................... 1,479,671
-----------
Net increase in net assets resulting from operations........................................ $ 1,212,254
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-22
<PAGE> 119
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------- -------------
<S> <C> <C>
Increase (Decrease) in net assets
Operations:
Net investment loss...................................................... $ (267,417) $ (801,848)
Net realized loss on investments and foreign currency transactions....... (14,774,034) (1,309,551)
Net change in unrealized appreciation (depreciation) on translation of
assets and liabilities in foreign currencies............................ (6,527,794) 630,890
Net change in unrealized appreciation (depreciation) of investments...... 22,781,499 (8,170,261)
------------- -------------
Net increase (decrease) in net assets resulting from operations........ 1,212,254 (9,650,770)
------------- -------------
Class A:
Distributions to shareholders: (Note 1)
From net realized gain on investments.................................... (54,192) (110,678)
In excess of net realized gain on investments............................ (607)
Class B:
Distributions to shareholders: (Note 1)
From net realized gain on investments.................................... (30,844) (61,407)
In excess of net realized gain on investments............................ (345)
Advisor Class:
Distributions to shareholders: (Note 1)
From net realized gain on investments.................................... (1,907)
In excess of net realized gain on investments............................ (21) (71,057)
------------- -------------
Total distributions.................................................... (87,916) (243,142)
------------- -------------
Capital share transactions: (Note 4)
Increase from capital shares sold and reinvested......................... 323,386,822 280,419,107
Decrease from capital shares repurchased................................. (361,299,089) (267,455,599)
------------- -------------
Net increase (decrease) from capital share transactions................ (37,912,267) 12,963,508
------------- -------------
Total increase (decrease) in net assets.................................... (36,787,929) 3,069,596
Net assets:
Beginning of year........................................................ 99,184,283 96,114,687
------------- -------------
End of year *........................................................... $62,396,354 $99,184,283
------------- -------------
------------- -------------
* Includes undistributed net investment income............................ $ -- $ --
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-23
<PAGE> 120
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout the period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1998 (d) 1997 (d) 1996 (d) 1995 (d) 1994
---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 8.96 $ 9.76 $ 11.00 $ 12.15 $ 11.61
---------- ---------- ----------- ---------- ----------
Income from investment operations:
Net investment income (loss).......... (0.02) * (0.08) (0.04) (0.04) (0.04)
Net realized and unrealized gain
(loss) on investments................ (0.03) (0.70) (0.77) 0.26 0.79
---------- ---------- ----------- ---------- ----------
Net increase (decrease) from
investment operations.............. (0.05) (0.78) (0.81) 0.22 0.75
---------- ---------- ----------- ---------- ----------
Distributions to shareholders:
From net realized gain on
investments.......................... (0.01) (0.02) (0.43) (1.37) (0.21)
In excess of net realized gain on
investments.......................... -- -- -- -- --
---------- ---------- ----------- ---------- ----------
Total distributions................. (0.01) (0.02) (0.43) (1.37) (0.21)
---------- ---------- ----------- ---------- ----------
Net asset value, end of period.......... $ 8.90 $ 8.96 $ 9.76 $ 11.00 $ 12.15
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------
Total investment return (c)............. (0.54)% (7.99)% (7.43)% 1.94% 6.56%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 37,608 $ 44,583 $ 63,585 $ 111,105 $ 98,066
Ratio of net investment income (loss) to
average net assets..................... (0.19)% (0.61)% (0.40)% (0.40)% (0.32)%
Ratio of operating expenses to average
net assets:
With expense reductions and/or
reimbursement (Notes 2 & 5).......... 1.96% 1.99% 1.84% 1.99% 1.91%
Without expense reductions and/or
reimbursement........................ 2.33% 2.06% 1.94% 2.14% 2.03%
Portfolio turnover rate++............... 67% 58% 31% 67% 49%
</TABLE>
- ----------------
(a) Annualized
(b) Not Annualized
(c) Total investment return does not include sales charge.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Includes reimbursement of Fund operating expenses per share of $0.03.
+ Commencing June 1, 1995, the Fund began offering Advisor Class Shares.
++ Portfolio turnover rates are calculated on the basis of the Fund as a
whole without distinguishing between the classes of shares issued.
The accompanying notes are an integral part of the financial statements.
FS-24
<PAGE> 121
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout the period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1998 (d) 1997 (d) 1996 (d) 1995 (d) 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 8.67 $ 9.49 $ 10.78 $ 12.02 $ 11.57
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income (loss).......... (0.07) * (0.14) (0.11) (0.12) (0.13)
Net realized and unrealized gain
(loss) on investments................ (0.04) (0.66) (0.75) 0.25 0.79
---------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. (0.11) (0.80) (0.86) 0.13 0.66
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net realized gain on
investments.......................... (0.01) (0.02) (0.43) (1.37) (0.21)
In excess of net realized gain on
investments.......................... -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total distributions................. (0.01) (0.02) (0.43) (1.37) (0.21)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 8.55 $ 8.67 $ 9.49 $ 10.78 $ 12.02
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return (c)............. (1.25)% (8.42)% (8.05)% 1.20% 5.81%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 22,815 $ 24,250 $ 32,116 $ 41,274 $ 27,355
Ratio of net investment income (loss) to
average net assets..................... (0.84)% (1.26)% (1.05)% (1.05)% (0.97)%
Ratio of operating expenses to average
net assets:
With expense reductions and/or
reimbursement (Notes 2 & 5).......... 2.61% 2.64% 2.49% 2.64% 2.56%
Without expense reductions and/or
reimbursement........................ 2.98% 2.71% 2.59% 2.79% 2.68%
Portfolio turnover rate++............... 67% 58% 31% 67% 49%
</TABLE>
- ----------------
(a) Annualized
(b) Not Annualized
(c) Total investment return does not include sales charge.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Includes reimbursement of Fund operating expenses per share of $0.03.
+ Commencing June 1, 1995, the Fund began offering Advisor Class Shares.
++ Portfolio turnover rates are calculated on the basis of the Fund as a
whole without distinguishing between the classes of shares issued.
The accompanying notes are an integral part of the financial statements.
FS-25
<PAGE> 122
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout the period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
ADVISOR CLASS+
---------------------------------------------------
JUNE 1, 1995
YEAR ENDED DECEMBER 31, TO
------------------------------------- DECEMBER 31,
1998 (d) 1997 (d) 1996 (d) 1995 (d)
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 9.05 $ 9.81 $ 11.02 $ 10.50
----------- ----------- ----------- ------------
Income from investment operations:
Net investment income (loss).......... 0.01* (0.01) (0.01) (0.00)
Net realized and unrealized gain
(loss) on investments................ (0.04) (0.73) (0.77) 1.89
----------- ----------- ----------- ------------
Net increase (decrease) from
investment operations.............. (0.03) (0.74) (0.78) 1.89
----------- ----------- ----------- ------------
Distributions to shareholders:
From net realized gain on
investments.......................... (0.01) (0.02) (0.43) (1.37)
In excess of net realized gain on
investments.......................... -- -- -- --
----------- ----------- ----------- ------------
Total distributions................. (0.01) (0.02) (0.43) (1.37)
----------- ----------- ----------- ------------
Net asset value, end of period.......... $ 9.01 $ 9.05 $ 9.81 $ 11.02
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
Total investment return (c)............. (0.31)% (7.54)% (7.14)% 18.14 %(b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 1,973 $ 30,351 $ 413 $ 558
Ratio of net investment income (loss) to
average net assets..................... 0.16% (0.26)% (0.05)% (0.05)%(a)
Ratio of operating expenses to average
net assets:
With expense reductions and/or
reimbursement (Notes 2 & 5).......... 1.61% 1.64% 1.49% 1.64 %(a)
Without expense reductions and/or
reimbursement........................ 1.98% 1.71% 1.59% 1.79 %(a)
Portfolio turnover rate++............... 67% 58% 31% 67 %(a)
</TABLE>
- ----------------
(a) Annualized
(b) Not Annualized
(c) Total investment return does not include sales charge.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Includes reimbursement of Fund operating expenses per share of $0.03.
+ Commencing June 1, 1995, the Fund began offering Advisor Class Shares.
++ Portfolio turnover rates are calculated on the basis of the Fund as a
whole without distinguishing between the classes of shares issued.
The accompanying notes are an integral part of the financial statements.
FS-26
<PAGE> 123
NOTES TO
FINANCIAL STATEMENTS
December 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (SEE ALSO NOTE 2)
AIM Japan Growth Fund (the "Fund") formerly, GT Global Japan Growth Fund, is a
separate series of AIM Growth Series (the "Trust") formerly, GT Global Growth
Series. The Trust is organized as a Delaware business trust and is registered
under the Investment Company Act of 1940, as amended ("1940 Act"), as a
diversified, open-end management investment company. The Trust has eight series
of shares in operation, each series corresponding to a distinct portfolio of
investments.
The Fund offers Class A, Class B, and Advisor Class shares, each of which has
equal rights as to assets and voting privileges. Class A and Class B each has
exclusive voting rights with respect to its distribution plan. Investment
income, realized and unrealized capital gains and losses, and the common
expenses of the Fund are allocated on a pro rata basis to each class based on
the relative net assets of each class to the total net assets of the Fund. Each
class of shares differs in its respective distribution expenses, and may differ
in its transfer agent, registration, and certain other class-specific fees and
expenses.
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 and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies in conformity with generally accepted accounting
principles consistently followed by the Fund in the preparation of the financial
statements.
(A) PORTFOLIO VALUATION
The Fund calculates the net asset value of and completes orders to purchase,
exchange or repurchase Fund shares on each business day, with the exception of
those days on which the New York Stock Exchange is closed.
Equity securities are valued at the last sale price on the exchange on which
such securities are traded or on the principal over-the-counter market in which
such securities are traded, as of the close of business on the day the
securities are being valued or, lacking any sales, at the last available bid
price. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange determined by A I M Advisors, Inc. (the
"Manager") to be the primary market.
Fixed income investments are valued at the mean of representative quoted bid and
ask prices for such investments or, if such prices are not available, at prices
for investments of comparative maturity, quality and type. However, when the
Manager deems it appropriate, prices obtained for the day of valuation from a
bond pricing service will be used. Short-term investments with a maturity of 60
days or less are valued at amortized cost, adjusted for foreign exchange
translation and market fluctuation, if any.
Investments for which market quotations are not readily available (including
restricted securities which are subject to limitations on their sale) are valued
at fair value as determined in good faith by or under the direction of the
Trust's Board of Trustees.
Portfolio securities which are primarily traded on foreign exchanges are
generally valued to the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S. dollars at
the current exchange rates, except that when an occurrence subsequent to the
time a value was so established is likely to have materially changed such value,
then the fair value of those securities will be determined by consideration of
other factors by or under the direction of the Trust's Board of Trustees.
(B) FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings, other assets and liabilities
are recorded in the books and records of the Fund after translation to U.S.
dollars based on the exchange rates on that day. The cost of each security is
determined using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when earned or incurred.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains and losses arise from sales and
maturities of short-term securities, forward foreign currency contracts, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the differences between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities other than investments in securities at period
end, resulting from changes in exchange rates.
(C) REPURCHASE AGREEMENTS
With respect to repurchase agreements entered into by the Fund, it is the Fund's
policy to always receive, as collateral, United States government securities or
other high quality debt securities of which the value, including accrued
interest, is at least equal to the amount to be repaid to the Fund under each
agreement at its maturity.
(D) FORWARD FOREIGN CURRENCY CONTRACTS
A forward foreign currency contract ("Forward Contract") is an agreement between
two parties to buy and sell a currency at a set price on a future date. The
market value of the Forward Contract
FS-27
<PAGE> 124
fluctuates with changes in currency exchange rates. The Forward Contract is
marked-to-market daily and the change in market value is recorded by the Fund as
an unrealized gain or loss. When the Forward Contract is closed, the Fund
records a realized gain or loss equal to the difference between the value at the
time it was opened and the value at the time it was closed. The Fund could be
exposed to risk if a counter party is unable to meet the terms of a contract or
if the value of the currency changes unfavorably. The Fund may enter into
Forward Contracts in connection with planned purchases or sales of securities,
or to hedge against adverse fluctuations in exchange rates between currencies.
(E) OPTION ACCOUNTING PRINCIPLES
When the Fund writes a call or put option, an amount equal to the premium
received is included in the Fund's "Statement of Assets and Liabilities" as an
asset and an equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option. The current
market value of an option listed on a traded exchange is valued at its last bid
price, or, in the case of an over-the-counter option, is valued at the average
of the last bid prices obtained from brokers, unless a quotation from only one
broker is available, in which case only that broker's price will be used. If an
option expires on its stipulated expiration date or if the Fund enters into a
closing purchase transaction, a gain or loss is realized without regard to any
unrealized gain or loss on the underlying security, and the liability related to
such option is extinguished. If a written call option is exercised, a gain or
loss is realized from the sale of the underlying security and the proceeds of
the sale are increased by the premium originally received. If a written put
option is exercised, the cost of the underlying security purchased would be
decreased by the premium originally received. The Fund can write options only on
a covered basis, which, for a call, requires that the Fund hold the underlying
security, and, for a put, requires the Fund to set aside cash, U.S. government
securities or other liquid securities in an amount not less than the exercise
price or otherwise provide adequate cover at all times while the put option is
outstanding. The Fund may use options to manage its exposure to the stock and
bond markets and to fluctuations in currency values or interest rates.
The premium paid by the Fund for the purchase of a call or put option is
included in the Fund's "Statement of Assets and Liabilities" as an investment
and subsequently "marked-to-market" to reflect the current market value of the
option. If an option which the Fund has purchased expires on the stipulated
expiration date, the Fund realizes a loss in the amount of the cost of the
option. If the Fund enters into a closing sale transaction, the Fund realizes a
gain or loss, depending on whether proceeds from the closing sale transaction
are greater or less than the cost of the option. If the Fund exercises a call
option, the cost of the securities acquired by exercising the call is increased
by the premium paid to buy the call. If the Fund exercises a put option, it
realizes a gain or loss from the sale of the underlying security, and the
proceeds from such sale are decreased by the premium originally paid.
The risk associated with purchasing options is limited to the premium originally
paid. The risk in writing a call option is that the Fund may forego the
opportunity of profit if the market value of the underlying security or index
increases and the option is exercised. The risk in writing a put option is that
the Fund may incur a loss if the market value of the underlying security or
index decreases and the option is exercised. In addition, there is the risk the
Fund may not be able to enter into a closing transaction because of an illiquid
secondary market.
(F) FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. Upon entering into such a contract the
Fund is required to pledge to the broker an amount of cash or securities equal
to the minimum "initial margin" requirements of the exchange on which the
contract is traded. Pursuant to the contract, the Fund agrees to receive from or
pay to the broker an amount of cash equal to the daily fluctuation in value of
the contract. Such receipts or payments are known as "variation margin" and are
recorded by the Fund as unrealized gains or losses. When the contract is closed,
the Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time it was
closed. The potential risk to the Fund is that the change in value of the
underlying securities may not correlate to the change in value of the contracts.
The Fund may use futures contracts to manage its exposure to the stock and bond
markets and to fluctuations in currency values or interest rates. At December
31, 1998, the Fund had segregated securities valued at $19,299,212 and cash of
$1,868,000 to cover intial margin requirements on open futures contracts.
(G) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). The cost of securities sold is determined on a first-in,
first-out basis, unless otherwise specified. Dividends are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. Where a high
level of uncertainty exists as to its collection, income is recorded net of all
withholding tax with any rebate recorded when received. The Fund may trade
securities on other than normal settlement terms. This may increase the risk if
the other party to the transaction fails to deliver and causes the Fund to
subsequently invest at less advantageous prices.
(H) PORTFOLIO SECURITIES LOANED
At December 31, 1998, stocks with an aggregate value of $736,856 were on loan to
brokers. The loans were secured by cash collateral of $762,500 received by the
Fund. For the year ended December 31, 1998, the Fund received securities lending
fees of $53,757.
For international securities, cash collateral is received by the Fund against
loaned securities in an amount at least equal to 105% of the market value of the
loaned securities at the inception of each loan. This collateral must be
maintained at not less than 103% of the market value of the loaned securities
during the period of the loan. For domestic securities, cash collateral is
received by the Fund against loaned securities in an amount at least equal to
102% of the market
FS-28
<PAGE> 125
value of the loaned securities at the inception of each loan. This collateral
must be maintained at not less than 100% of the market value of the loaned
securities during the period of each loan. The cash collateral is invested in a
securities lending trust which consists of a portfolio of high quality short
duration securities whose average effective duration is restricted to 120 days
or less.
(I) TAXES
It is the policy of the Fund to meet the requirements for qualification as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended ("Code"). It is also the intention of the Fund to make distributions
sufficient to avoid imposition of any excise tax under Section 4982 of the Code.
Therefore, no provision has been made for Federal taxes on income, capital
gains, and unrealized appreciation of securities held, or for excise tax on
income and capital gains. The Fund currently has a capital loss carryforward of
$14,061,105 which expires in 2006.
(J) DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded by the Fund on the ex-date. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Fund and timing differences.
(K) FOREIGN SECURITIES
There are certain additional considerations and risks associated with investing
in foreign securities and currency transactions that are not inherent in
investments of domestic origin. These risks of investing in foreign markets may
include foreign currency exchange rate fluctuations, perceived credit risk,
adverse political and economic developments and possible adverse foreign
government intervention.
(L) RESTRICTED SECURITIES
The Fund is permitted to invest in privately placed restricted securities. These
securities may by resold in transactions exempt from registration or to the
public if the securities are registered. Disposal of these securities may
involve time-consuming negotiations and expense, and prompt sale at an
acceptable price may be difficult. At the end of the year, restricted
securities, if any, (excluding 144A issues), are shown at the end of the Fund's
Portfolio of Investments.
(M) INDEXED SECURITIES
The Fund may invest in indexed securities whose value is linked either directly
or indirectly to changes in foreign currencies, interest rates, equities,
indices, or other reference instruments. Indexed securities may be more volatile
than the reference instrument itself, but any loss is limited to the amount of
the original investment.
(N) LINE OF CREDIT
The Fund, along with certain other funds advised and/or administered by the
Manager, has a line of credit with BankBoston and State Street Bank and Trust
Company. The arrangements with the banks allow the Fund and certain other funds
to borrow, on a first come, first served basis, an aggregate maximum amount of
$250,000,000. The Fund is limited to borrowing up to 33 1/3% of the value of the
Fund's total assets. On December 31, 1998, the Fund had no loans outstanding.
For the year ended December 31, 1998, the weighted average outstanding daily
balance of bank loans (based on the number of days the loans were outstanding)
was $4,412,250 with a weighted average interest rate of 6.33%. Interest expense
for the year ended December 31, 1998, was $3,103 and is included in "Other
expenses" on the Statement of Operations.
2. RELATED PARTIES
A I M Advisors, Inc. (the "Manager"), an indirect wholly-owned subsidiary of
AMVESCAP PLC, is the Fund's investment manager and administrator, and INVESCO
(NY), Inc., (formerly, Chancellor LGT Asset Management, Inc.) is the Fund's
investment sub-adviser and sub-administrator. As of the close of business on May
29, 1998, Liechtenstein Global Trust AG ("LGT"), the former indirect parent
organization of Chancellor LGT Asset Management, Inc. ("Chancellor LGT"),
consummated a purchase agreement with AMVESCAP PLC pursuant to which AMVESCAP
PLC acquired LGT's Asset Management Division, which included Chancellor LGT and
certain other affiliates. As a result of this transaction, Chancellor LGT was
renamed INVESCO (NY), Inc., and is now an indirect wholly-owned subsidiary of
AMVESCAP PLC. Also, as of the close of business May 29, 1998, A I M
Distributors, Inc. ("AIM Distributors"), a wholly-owned subsidiary of the
Manager, became the Fund's distributor, and the Trust was reorganized from a
Massachusetts business trust into a Delaware business trust. Finally, as of the
close of business on September 4, 1998, A I M Fund Services, Inc. ("AFS"), an
affiliate of the Manager and AIM Distributors, replaced GT Global Investor
Services, Inc. ("GT Services") as the transfer agent of the Fund.
The Fund pays investment management and administration fees to the Manager at
the following annualized rates: 0.975% on the first $500 million of average
daily net assets of the Fund; 0.95% on the next $500 million; 0.925% of the next
$500 million and 0.90% on amounts thereafter. These fees are computed daily and
paid monthly.
AIM Distributors, an affiliate of the Manager, serves as the Fund's distributor.
For the period ended May 29, 1998, GT Global, Inc. ("GT Global"), an affiliate
of the investment sub-advisor, served as the Fund's distributor.
Class A shares are subject to initial sales charges imposed at the time of
purchase, in accordance with the schedule included in the Fund's current
prospectus. AIM Distributors collects the sales charges imposed on sales of
Class A shares, and reallows a portion of such charges to dealers through which
the sales are made. For the year ended December 31, 1998, AIM Distributors and
GT Global retained sales charges of $18,903 and $8,184, respectively, Purchases
of Class A shares exceeding $1,000,000 may be subject to a contingent deferred
sales charge ("CDSC") upon redemption, in accordance with the Fund's current
prospectus. AIM Distributors and GT Global collected such CDSCs in the amount of
$394 and $1,128 for the year ended December 31, 1998, respectively. AIM
Distributors also makes ongoing shareholder servicing and trail commission
payments to dealers whose clients hold Class A shares.
FS-29
<PAGE> 126
Class B shares are not subject to initial sales charges. When Class B shares are
sold, AIM Distributors, from its own resources, pays commissions to dealers
through which the sales are made. Certain redemptions of Class B shares made
within six years of purchase are subject to CDSCs, in accordance with the Fund's
current prospectus. For the year ended December 31, 1998, AIM Distributors and
GT Global collected such CDSCs in the amount of $81,408 and $98,773,
respectively. In addition, AIM Distributors makes ongoing shareholder servicing
and trail commission payments to dealers whose clients hold Class B shares.
For the period ended May 29, 1998, pursuant to the then effective separate
distribution plans adopted under the 1940 Act Rule 12b-1 by the Trust's Board of
Trustees with respect to the Fund's Class A shares ("Class A Plan") and Class B
shares ("Class B Plan"), the Fund reimbursed GT Global for a portion of its
shareholder servicing and distribution expenses. Under the Class A Plan, the
Fund was permitted to pay GT Global a service fee at the annualized rate of up
to 0.25% of the average daily net assets of the Fund's Class A shares for GT
Global's expenditures incurred in servicing and maintaining shareholder
accounts, and was permitted to pay GT Global a distribution fee at the
annualized rate of up to 0.35% of the average daily net assets of the Fund's
Class A shares, less any amounts paid by the Fund as the aforementioned service
fee, for GT Global's expenditures incurred in providing services as distributor.
All expenses for which GT Global was reimbursed under the Class A Plan would
have been incurred within one year of such reimbursement.
For the period ended May 29, 1998, pursuant to the Class B Plan, the Fund was
permitted to pay GT Global a service fee at the annualized rate of up to 0.25%
of the average daily net assets of the Fund's Class B shares for GT Global's
expenditures incurred in servicing and maintaining shareholder accounts, and was
permitted to pay GT Global a distribution fee at the annualized rate of up to
0.75% of the average daily net assets of the Fund's Class B shares for GT
Global's expenditures incurred in providing services as distributor. Expenses
incurred under the Class B Plan in excess of 1.00% annually were permitted to be
carried forward for reimbursement in subsequent years as long as that Plan
continues in effect.
Effective as of the close of business May 29, 1998, pursuant to Rule 12b-1 under
the 1940 Act, the Trust's Board of Trustees adopted a Master Distribution Plan
applicable to the Fund's Class A shares ("Class A Plan") and Class B shares
("Class B Plan"), pursuant to which the Fund compensates AIM Distributors for
the purpose of financing any activity that is intended to result in the sale of
Class A or Class B shares of the Funds. Under the Class A Plan, the Fund
compensates AIM Distributors at the annualized rate of 0.35% of the average
daily net assets of the Fund's Class A shares. Under the Class B Plan, the Fund
compensates AIM Distributors at an annualized rate of 1.00% of the average daily
net assets of the Fund's 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 or Class B
shares to selected dealers and financial institutions who furnish continuing
personal shareholder services to their customers who purchase and own the
appropriate class of shares of the Fund. Any amounts not paid as a service fee
under the Plans would constitute an asset-based sales charge.
The Manager and AIM Distributors have voluntarily undertaken to limit the Fund's
expenses (exclusive of brokerage commissions, taxes, interest, and extraordinary
items) to the maximum annual level of 2.00%, 2.65%, and 1.65% of the average
daily net assets of the Fund's Class A, Class B, and Advisor Class shares,
respectively. If necessary, this limitation will be effected by waivers by the
Manager of investment management and administration fees, waivers by AIM
Distributors of payments under the Class A Plan and/or Class B Plan and/or
reimbursements by the Manager or AIM Distributors of portions of the Fund's
other operating expenses.
Effective as of the close of business September 4, 1998, the Fund, pursuant to a
transfer agency and service agreement, has agreed to pay AFS an annualized fee
of $24.85 per shareholder accounts that are open during any monthly period (this
fee includes all out-of-pocket expenses), and an annualized fee of $0.70 per
shareholder account that is closed during any monthly period. Both fees shall be
billed by AFS monthly in arrears on a prorated basis of 1/12 of the annualized
fee for all such accounts.
For the period January 1, 1998 to September 4, 1998, GT Services, an affiliate
of the Manager and AIM Distributors, was the transfer agent of the Fund. For
performing shareholder servicing, reporting, and general transfer agent
services, GT Services received an annual maintenance fee of $17.50 per account,
a new account fee of $4.00 per account, a per transaction fee of $1.75 for all
transactions other than exchanges and a per exchange fee of $2.25. GT Services
was also reimbursed by the Fund for its out-of-pocket expenses for such items as
postage, forms, telephone charges, stationery and office supplies.
The Manager is the pricing and accounting agent for the Fund. The monthly fee
for these services to the Manager is a percentage, not to exceed 0.03% annually,
of the Fund's average daily net assets. The annual fee rate is derived based on
the aggregate net assets of the funds which comprise the following investment
companies: AIM Growth Series, AIM Investment Funds, AIM Investment Portfolios,
AIM Series Trust, G.T. Global Variable Investment Series and G. T. Global
Variable Investment Trust. The fee is calculated at the rate of 0.03% to the
first $5 billion of assets and 0.02% to the assets in excess of $5 billion. An
amount is allocated to and paid by each such fund based on its relative average
daily net assets.
The Trust pays each of its Trustees who is not an employee, officer or director
of the Manager, AIM Distributors or GT Services $5,000 per year plus $300 for
each meeting of the board or any committee thereof attended by the Trustee.
3. PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 1998, purchases and sales of investment
securities by the Fund, other than U.S. government obligations and short-term
investments, aggregated $41,076,712 and $60,506,578, respectively. There were no
purchases or sales of U.S. government obligations by the Fund during the year.
FS-30
<PAGE> 127
4. CAPITAL SHARES
At December 31, 1998, there were an unlimited number of shares of beneficial
interest authorized, at no par value. Transactions in capital shares of the Fund
were as follows:
CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
CLASS A
- ---------------------------------------------------------------
Shares sold.................................................... 31,462,291 $276,913,744 18,880,969 $187,727,101
Shares issued in connection with reinvestment of
distributions................................................ 5,162 45,216 9,319 84,712
----------- ------------ ----------- ------------
31,467,453 276,958,960 18,890,288 187,811,813
Shares repurchased............................................. (32,214,010) (285,404,844) (20,434,942) (203,841,370)
----------- ------------ ----------- ------------
Net decrease................................................... (746,557) $ (8,445,884) (1,544,654) $(16,029,557)
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
<CAPTION>
CLASS B
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold.................................................... 3,640,751 $ 31,434,436 5,059,734 $ 49,439,098
Shares issued in connection with reinvestment of
distributions................................................ 3,285 27,680 4,729 41,630
----------- ------------ ----------- ------------
3,644,036 31,462,116 5,064,463 49,480,728
Shares repurchased............................................. (3,772,881) (32,567,659) (5,648,959) (54,991,415)
----------- ------------ ----------- ------------
Net decrease................................................... (128,845) $ (1,105,543) (584,496) $ (5,510,687)
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
<CAPTION>
ADVISOR CLASS
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold.................................................... 1,661,544 $ 14,964,767 4,149,684 $ 43,125,403
Shares issued in connection with reinvestment of
distributions................................................ 110 979 126 1,163
----------- ------------ ----------- ------------
1,661,654 14,965,746 4,149,810 43,126,566
Shares repurchased............................................. (4,795,465) (43,326,586) (839,053) (8,622,814)
----------- ------------ ----------- ------------
Net increase (decrease)........................................ (3,133,811) $(28,360,840) 3,310,757 $ 34,503,752
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
</TABLE>
5. EXPENSE REDUCTIONS
The Manager has directed certain portfolio trades to brokers who then paid a
portion of the Fund's expenses. For the year ended December 31, 1998, the Fund's
expenses were reduced by $27,338 under these arrangements.
- --------------
FEDERAL TAX INFORMATION (UNAUDITED):
For the fiscal year ended December 31, 1998, the amount of income received by
the Fund from sources within foreign countries and possessions of the United
States was $.0767 per share (representing a total of $576,355). The amount of
taxes paid by the Fund to such countries for the fiscal year ended December 31,
1998 was $.0115 per share (representing a total of $86,545). The following table
provides a breakdown by country of ordinary income dividends and foreign taxes
paid by the Fund during the fiscal year ended December 31, 1998:
<TABLE>
<CAPTION>
COUNTRY GROSS INCOME % FOREIGN TAX PAID %
- --------------------------------------------------------------- -------------- ------------------
<S> <C> <C>
Japan.......................................................... 37.87 99.88
Nonqualifying.................................................. 0.09 0.12
United States.................................................. 62.04 --
------- -------
100.00% 100.00%
------- -------
------- -------
</TABLE>
FS-31
<PAGE> 128
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of AIM Mid Cap Equity Fund (formerly
AIM Mid Cap Growth Fund) and
Board of Trustees of AIM Growth Series:
In our opinion, the accompanying statement of assets and
liabilities, including the portfolio of investments, and
the related statements of operations and of changes in
net assets and the financial highlights present fairly,
in all material respects, the financial position of the
AIM Mid Cap Equity Fund at December 31, 1998, and the
results of its operations, the changes in its net assets
and the financial highlights for the periods indicated,
in conformity with generally accepted accounting
principles. These financial statements and financial
highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion
on these financial statements based on our audits. We
conducted our audits of these financial statements in
accordance with generally accepted auditing standards
which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our
audits, which included confirmation of securities at
December 31, 1998 by correspondence with the custodian
and brokers, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 19, 1999
FS-32
<PAGE> 129
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-90.98%
AUTO PARTS & EQUIPMENT-0.62%
Keystone Automotive Industries,
Inc.(a) 103,000 $ 2,156,563
- --------------------------------------------------------------
BANKS (REGIONAL)-1.04%
Bank United Corp.-Class A 92,000 3,611,000
- --------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO, & CABLE)-6.00%
Cablevision Systems Corp.-Class
A(a)(b) 200,000 10,037,500
- --------------------------------------------------------------
Chancellor Media Corp.(a) 95,500 4,572,063
- --------------------------------------------------------------
Jacor Communications, Inc.(a) 96,300 6,199,313
- --------------------------------------------------------------
20,808,876
- --------------------------------------------------------------
CHEMICALS (SPECIALTY)-1.63%
International Specialty Products,
Inc.(a) 415,700 5,637,931
- --------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-1.94%
Discreet Logic, Inc. (Canada)(a) 272,100 5,135,888
- --------------------------------------------------------------
Tekelec(a) 95,000 1,573,438
- --------------------------------------------------------------
6,709,326
- --------------------------------------------------------------
COMPUTERS (NETWORKING)-2.43%
FORE Systems, Inc.(a) 166,900 3,056,356
- --------------------------------------------------------------
Xylan Corp.(a) 304,800 5,353,050
- --------------------------------------------------------------
8,409,406
- --------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-9.27%
BMC Software, Inc.(a) 76,300 3,400,119
- --------------------------------------------------------------
Citrix Systems, Inc.(a) 46,900 4,552,231
- --------------------------------------------------------------
Electronic Arts, Inc.(a) 25,000 1,403,125
- --------------------------------------------------------------
Hyperion Solutions Corp.(a) 68,000 1,224,000
- --------------------------------------------------------------
I2 Technologies, Inc.(a) 65,000 1,974,375
- --------------------------------------------------------------
Mastech Corp.(a) 80,000 2,290,000
- --------------------------------------------------------------
Novell, Inc.(a) 240,700 4,362,688
- --------------------------------------------------------------
Oracle Corp.(a) 123,500 5,325,938
- --------------------------------------------------------------
Rational Software Corp.(a) 156,600 4,149,900
- --------------------------------------------------------------
Unisys Corp.(a) 100,000 3,443,750
- --------------------------------------------------------------
32,126,126
- --------------------------------------------------------------
CONSUMER (JEWELRY, NOVELTIES & GIFTS)-0.60%
Blyth Industries, Inc.(a) 67,000 2,093,750
- --------------------------------------------------------------
CONSUMER FINANCE-1.79%
Providian Financial Corp. 82,500 6,187,500
- --------------------------------------------------------------
CONTAINERS (METAL & GLASS)-0.92%
Owens-Illinois, Inc.(a) 104,400 3,197,250
- --------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH)-5.00%
U S Foodservice, Inc.(a)(b) 353,400 17,316,600
- --------------------------------------------------------------
ELECTRICAL EQUIPMENT-1.99%
Molex, Inc.-Class A 135,100 4,306,313
- --------------------------------------------------------------
SCI Systems, Inc.(a) 45,000 2,598,750
- --------------------------------------------------------------
6,905,063
- --------------------------------------------------------------
ELECTRONICS (SEMICONDUCTOR)-7.47%
Advanced Micro Devices, Inc.(a) 145,600 4,213,300
- --------------------------------------------------------------
Analog Devices, Inc.(a) 106,200 3,332,025
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ELECTRONICS (SEMICONDUCTOR)-(CONTINUED)
Burr-Brown Corp.(a) 247,300 $ 5,796,094
- --------------------------------------------------------------
Dallas Semiconductor Corp. 49,000 1,996,750
- --------------------------------------------------------------
Lattice Semiconductor Corp.(a) 64,000 2,938,000
- --------------------------------------------------------------
Level One Communications, Inc.(a) 68,300 2,424,650
- --------------------------------------------------------------
Xilinx, Inc.(a) 79,600 5,183,950
- --------------------------------------------------------------
25,884,769
- --------------------------------------------------------------
EQUIPMENT (SEMICONDUCTOR)-0.85%
KLA-Tencor Corp.(a) 68,200 2,958,175
- --------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-1.33%
Ambac Financial Group, Inc. 35,000 2,106,563
- --------------------------------------------------------------
SEI Investments Co. 25,000 2,484,375
- --------------------------------------------------------------
4,590,938
- --------------------------------------------------------------
HEALTHCARE (DRUGS-GENERIC & OTHER)-4.46%
Barr Laboratories, Inc.(a) 42,000 2,016,000
- --------------------------------------------------------------
Forest Laboratories, Inc.(a) 113,000 6,010,188
- --------------------------------------------------------------
Jones Pharma, Inc. 55,400 2,022,100
- --------------------------------------------------------------
Teva Pharmaceutical Industries
Ltd.-ADR (Israel) 78,900 3,210,244
- --------------------------------------------------------------
Watson Pharmaceuticals, Inc.(a) 35,000 2,200,625
- --------------------------------------------------------------
15,459,157
- --------------------------------------------------------------
HEALTHCARE (MEDICAL EQUIPMENT & SUPPLIES)-5.05%
Allegiance Corp. 40,000 1,865,000
- --------------------------------------------------------------
Arterial Vascular Engineering, Inc.(a) 108,100 5,675,250
- --------------------------------------------------------------
Guidant Corp. 28,000 3,087,000
- --------------------------------------------------------------
Henry Schein, Inc.(a) 50,000 2,237,500
- --------------------------------------------------------------
PSS World Medical, Inc.(a) 95,000 2,185,000
- --------------------------------------------------------------
Sybron International Corp.(a) 90,000 2,446,875
- --------------------------------------------------------------
17,496,625
- --------------------------------------------------------------
HEALTHCARE (SPECIALIZED SERVICES)-1.55%
Alza Corp.(a) 66,000 3,448,500
- --------------------------------------------------------------
Omnicare, Inc. 55,000 1,911,250
- --------------------------------------------------------------
5,359,750
- --------------------------------------------------------------
INSURANCE
(PROPERTY-CASUALTY)-0.93%
EXEL Limited-Class A 43,100 3,232,500
- --------------------------------------------------------------
LODGING-HOTELS-0.94%
Promus Hotel Corp.(a) 100,500 3,253,688
- --------------------------------------------------------------
MACHINERY (DIVERSIFIED)-1.18%
Applied Power, Inc.-Class A 108,100 4,080,775
- --------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-2.53%
Pall Corp. 135,700 3,434,906
- --------------------------------------------------------------
United States Filter Corp. 233,249 5,335,571
- --------------------------------------------------------------
8,770,477
- --------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT)-2.95%
BJ Services Co.(a) 174,900 2,732,812
- --------------------------------------------------------------
Cooper Cameron Corp.(a) 102,800 2,518,600
- --------------------------------------------------------------
Rowan Companies, Inc.(a) 116,000 1,160,000
- --------------------------------------------------------------
</TABLE>
F-33
<PAGE> 130
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
OIL & GAS (DRILLING & EQUIPMENT)-(CONTINUED)
Transocean Offshore Inc. 45,600 $ 1,222,650
- --------------------------------------------------------------
Weatherford International, Inc.(a) 134,400 2,604,000
- --------------------------------------------------------------
10,238,062
- --------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-3.44%
Anadarko Petroleum Corp. 81,800 2,525,575
- --------------------------------------------------------------
Burlington Resources, Inc. 132,200 4,734,412
- --------------------------------------------------------------
Devon Energy Corp. 50,000 1,534,375
- --------------------------------------------------------------
Noble Affiliates, Inc. 50,000 1,231,250
- --------------------------------------------------------------
Seagull Energy Corp.(a) 301,200 1,901,325
- --------------------------------------------------------------
11,926,937
- --------------------------------------------------------------
PERSONAL CARE-0.49%
Avon Products, Inc. 38,000 1,681,500
- --------------------------------------------------------------
PUBLISHING (NEWSPAPERS)-0.25%
New York Times Co. (The)-Class A 25,000 867,187
- --------------------------------------------------------------
RETAIL (DEPARTMENT STORES)-0.40%
Federated Department Stores,
Inc.(a) 33,000 1,437,562
- --------------------------------------------------------------
RETAIL (FOOD CHAINS)-0.63%
Kroger Co.(a) 36,000 2,178,000
- --------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE)-1.04%
Kmart Corp.(a) 235,000 3,598,437
- --------------------------------------------------------------
RETAIL (SPECIALTY)-1.37%
Pep Boys-Manny, Moe & Jack 301,800 4,734,487
- --------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-1.61%
Abercrombie & Fitch Co.-Class A(a) 18,600 1,315,950
- --------------------------------------------------------------
Intimate Brands, Inc. 142,200 4,248,225
- --------------------------------------------------------------
5,564,175
- --------------------------------------------------------------
SAVINGS & LOAN COMPANIES-0.94%
GreenPoint Financial Corp. 92,900 3,263,111
- --------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING)-10.39%
Outdoor Systems, Inc.(a)(b) 831,180 24,935,400
- --------------------------------------------------------------
Snyder Communications, Inc.(a) 152,700 5,153,625
- --------------------------------------------------------------
Young & Rubicam, Inc.(a) 183,200 5,931,100
- --------------------------------------------------------------
36,020,125
- --------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-1.16%
Metzler Group, Inc.(a) 60,000 2,921,250
- --------------------------------------------------------------
Stewart Enterprises, Inc.- Class A 50,000 1,112,500
- --------------------------------------------------------------
4,033,750
- --------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS)-2.87%
Cambridge Technology Partners,
Inc.(a) 164,400 3,637,350
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SERVICES (COMPUTER SYSTEMS)-(CONTINUED)
Gerber Scientific, Inc. 82,600 $ 1,966,912
- --------------------------------------------------------------
Policy Management Systems Corp.(a) 86,000 4,343,000
- --------------------------------------------------------------
9,947,262
- --------------------------------------------------------------
SERVICES (DATA PROCESSING)-1.83%
CSG Systems International, Inc.(a) 41,000 3,239,000
- --------------------------------------------------------------
Equifax, Inc. 25,000 854,687
- --------------------------------------------------------------
NOVA Corp.(a) 65,300 2,265,093
- --------------------------------------------------------------
6,358,780
- --------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-0.68%
Metromedia Fiber Network, Inc.(a) 70,000 2,345,000
- --------------------------------------------------------------
WASTE MANAGEMENT-1.41%
Allied Waste Industries, Inc.(a) 207,000 4,890,375
- --------------------------------------------------------------
Total Common Stocks (Cost
$252,047,680) 315,330,995
- --------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
OPTIONS PURCHASED-0.03%
PUT OPTIONS-0.03%
BROADCASTING (TELEVISION, RADIO & CABLE)-0.00%
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF EXERCISE EXPIRATION
CONTRACTS PRICE DATE
<S> <C> <C> <C> <C>
Cablevision Systems Corp.-
Class A 1,230 40 Jan-99 $ 15,375
- -----------------------------------------------------------------------
DISTRIBUTORS (FOOD &
HEALTH)-0.01%
U S Foodservice, Inc. 2,828 45 Jan-99 35,350
- -----------------------------------------------------------------------
SERVICES (ADVERTISING/
MARKETING)-0.02%
Outdoor Systems, Inc. 7,010 22.50 Jan-99 65,718
- -----------------------------------------------------------------------
Total Options Purchased
(Cost $1,172,362) 116,443
- -----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
WARRANTS-0.50%
BANKS (REGIONAL)-0.50%
Golden State Bancorp, Litigation
Warrants, expiring 01/01/01
(Cost $2,296,743) 381,300 $ 1,739,682
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
REPURCHASE AGREEMENT-7.90%
SBC Warburg Dillon Read Inc.,
4.75%, 01/04/99 $27,371,944 $ 27,371,944
- --------------------------------------------------------------
TOTAL INVESTMENTS-99.41% 344,559,064
- --------------------------------------------------------------
OTHER ASSETS & LIABILITIES-0.59% 2,059,395
- --------------------------------------------------------------
NET ASSETS-100.00% $346,618,459
==============================================================
</TABLE>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) A portion of this security is subject to call options written. See Note 4.
(c) Collateral on repurchase agreements, including the fund's pro-rata interest
in joint repurchase agreement 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 12/31/98 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:
ADR - American Depositary Receipt
See Notes to Financial Statements.
F-34
<PAGE> 131
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value
(cost $282,888,729) $344,559,064
- ---------------------------------------------------------
Cash 718,265
- ---------------------------------------------------------
Receivables for:
Investments sold 3,035,046
- ---------------------------------------------------------
Fund shares sold 5,232,000
- ---------------------------------------------------------
Dividends and interest 57,064
- ---------------------------------------------------------
Other assets 14,660
- ---------------------------------------------------------
Total assets 353,616,099
- ---------------------------------------------------------
LIABILITIES:
Payable for fund shares reacquired 1,853,509
- ---------------------------------------------------------
Options written
(premiums received $2,262,028) 4,346,737
- ---------------------------------------------------------
Accrued investment management &
administration fees 203,493
- ---------------------------------------------------------
Accrued accounting fees 7,983
- ---------------------------------------------------------
Accrued distribution fees 352,058
- ---------------------------------------------------------
Accrued trustees' fees 7,113
- ---------------------------------------------------------
Accrued transfer agent fees 83,800
- ---------------------------------------------------------
Accrued operating expenses 142,947
- ---------------------------------------------------------
Total liabilities 6,997,640
- ---------------------------------------------------------
Net assets applicable to shares outstanding $346,618,459
- ---------------------------------------------------------
NET ASSETS:
Class A $180,258,032
=========================================================
Class B $165,447,122
=========================================================
Advisor Class $ 913,305
=========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 9,501,665
=========================================================
Class B 9,110,457
=========================================================
Advisor Class 47,866
=========================================================
Class A:
Net asset value and redemption price per
share $ 18.97
- ---------------------------------------------------------
Offering price per share:
(Net asset value of
$18.97 divided by 94.50%) $ 20.07
=========================================================
Class B:
Net asset value and offering price per
share $ 18.16
=========================================================
Advisor Class:
Net asset value and offering price per
share $ 19.08
=========================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $5,749 foreign
withholding tax) $ 1,161,164
- ---------------------------------------------------------
Interest 613,489
- ---------------------------------------------------------
Security lending income 254,918
- ---------------------------------------------------------
Total investment income 2,029,571
- ---------------------------------------------------------
EXPENSES:
Investment management & administration fees 3,140,938
- ---------------------------------------------------------
Accounting fees 118,894
- ---------------------------------------------------------
Trustees fees 17,403
- ---------------------------------------------------------
Distribution fees -- Class A 760,959
- ---------------------------------------------------------
Distribution fees -- Class B 2,148,252
- ---------------------------------------------------------
Transfer agent fees -- Class A 487,406
- ---------------------------------------------------------
Transfer agent fees -- Class B 483,318
- ---------------------------------------------------------
Transfer agent fees -- Advisor Class 2,521
- ---------------------------------------------------------
Other 1,043,368
- ---------------------------------------------------------
Total expenses 8,203,059
- ---------------------------------------------------------
Less: Expense reductions (46,733)
- ---------------------------------------------------------
Net expenses 8,156,326
- ---------------------------------------------------------
Net investment income (loss) (6,126,755)
- ---------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND OPTION
CONTRACTS:
Net realized gain (loss) from investment
securities (7,289,125)
- ---------------------------------------------------------
Net unrealized appreciation (depreciation)
of:
Investment securities (3,811,413)
- ---------------------------------------------------------
Option contracts written (2,084,709)
- ---------------------------------------------------------
(5,896,122)
- ---------------------------------------------------------
Net gain (loss) from investment
securities and option contracts (13,185,247)
- ---------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $(19,312,002)
=========================================================
</TABLE>
See Notes to Financial Statements.
F-35
<PAGE> 132
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 (loss) $ (6,126,755) $ (6,767,300)
- ----------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
option contracts (7,289,125) 91,288,360
- ----------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities and option contracts (5,896,122) (23,043,968)
- ----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (19,312,002) 61,477,092
- ----------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on
investment securities:
Class A (8,638,559) (27,861,047)
- ----------------------------------------------------------------------------------------------
Class B (8,762,197) (29,550,073)
- ----------------------------------------------------------------------------------------------
Advisor Class (46,305) (120,835)
- ----------------------------------------------------------------------------------------------
Share transactions-net:
Class A (59,340,039) (91,841,233)
- ----------------------------------------------------------------------------------------------
Class B (69,635,070) (78,964,718)
- ----------------------------------------------------------------------------------------------
Advisor Class 70,469 (860,102)
- ----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (165,663,703) (167,720,916)
- ----------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 512,282,162 680,003,078
- ----------------------------------------------------------------------------------------------
End of period $ 346,618,459 $ 512,282,162
==============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 295,648,297 $ 430,679,692
- ----------------------------------------------------------------------------------------------
Undistributed net investment income -- --
- ----------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities, foreign currencies and option contracts (8,615,464) 16,120,722
- ----------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies and option contracts 59,585,626 65,481,748
- ----------------------------------------------------------------------------------------------
$ 346,618,459 $ 512,282,162
==============================================================================================
</TABLE>
See Notes to Financial Statements.
F-36
<PAGE> 133
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Mid Cap Equity Fund, formerly AIM Mid Cap Growth Fund, (the "Fund"), is a
separate series of AIM Growth Series (the "Trust"). The Trust is a Delaware
business trust and is registered under the Investment Company Act of 1940, as
amended ("1940 Act"), as an open-end management investment company. The Trust
has six diversified series of shares in operation, each series corresponding to
a distinct portfolio of investments.
The Fund offers Class A, Class B, and Advisor Class shares, each of which has
equal rights as to assets and voting privileges. Class A and Class B each has
exclusive voting rights with respect to its distribution plan. Investment
income, realized and unrealized capital gains and losses, and the common
expenses of the Fund are allocated on a pro rata basis to each class based on
the relative net assets of each class to the total net assets of the Fund. Each
class of shares differs in its respective distribution expenses, and may differ
in its transfer agent, registration, and certain other class-specific fees and
expenses.
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 and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies in conformity with generally accepted accounting
principles consistently followed by the Fund in the preparation of the financial
statements.
A. Portfolio Valuation -- The Fund calculates the net asset value of and
completes orders to purchase, exchange or repurchase Fund shares on each
business day, with the exception of those days on which the New York Stock
Exchange is closed.
Equity securities are valued at the last sale price on the exchange on
which such securities are traded or on the principal over-the-counter market
on which such securities are traded, as of the close of business on the day
the securities are being valued or, lacking any sales, at the mean between
the closing bid and asked prices. In cases where securities are traded on
more than one exchange, the securities are valued on the exchange determined
by A I M Advisors, Inc. (the "Manager") to be the primary market.
Fixed income investments are valued at the mean of representative quoted
bid and ask prices for such investments or, if such prices are not available,
at prices for investments of comparative maturity, quality and type; however,
when the Manager deems it appropriate, prices obtained for the day of
valuation from a bond pricing service will be used. Short-term investments
with a maturity of 60 days or less are valued at amortized cost which
approximates market value.
Investments for which market quotations are not readily available
(including restricted securities which are subject to limitations on their
sale) are valued at fair value as determined in good faith by or under the
direction of the Trust's Board of Trustees.
B. Repurchase Agreements -- With respect to repurchase agreements entered into
by the Fund, it is the Fund's policy to always receive, as collateral, United
States government securities or other high quality debt securities of which
the value, including accrued interest, is at least equal to the amount to be
repaid to the Fund under each agreement at its maturity.
C. Option Accounting Principles -- When the Fund writes a call or put option, an
amount equal to the premium received is included in the Fund's "Statement of
Assets and Liabilities" as an asset and an equivalent liability. The amount
of the liability is subsequently marked-to-market to reflect the current
market value of the option. The current market value of an option is the mean
between the last bid and asked prices on that day. If an option expires on
its stipulated expiration date or if the Fund enters into a closing purchase
transaction, a gain or loss is realized without regard to any unrealized gain
or loss on the underlying security, and the liability related to such option
is extinguished. If a written call option is exercised, a gain or loss is
realized from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. If a written put
option is exercised, the cost of the underlying security purchased would be
decreased by the premium originally received. The Fund can write options only
on a covered basis, which, for a call, requires that the Fund hold the
underlying security, and, for a put, requires the Fund to set aside cash,
U.S. government securities or other liquid securities in an amount not less
than the exercise price or otherwise provide adequate cover at all times
while the put option is outstanding. The Fund may use options to manage its
exposure to the stock market and to fluctuations in interest rates.
The premium paid by the Fund for the purchase of a call or put option is
included in the Fund's "Statement of Assets and Liabilities" as an investment
and subsequently "marked-to-market" to reflect the current market value of
the option. If an option which the Fund has purchased expires on the
stipulated expiration date, the Fund realizes a loss in the amount of the
cost of the option. If the Fund enters into a closing sale transaction, the
Fund realizes a gain or loss, depending on whether proceeds from the closing
sale transaction are greater or less than the cost of the option. If the Fund
exercises a call option, the cost of the securities acquired by exercising
the call is increased by the premium paid to buy the call. If the Fund
exercises a put option, it realizes a gain or loss from the sale of the
underlying security, and the proceeds from such sale are decreased by the
premium originally paid.
The risk associated with purchasing options is limited to the premium
originally paid. The risk in writing a call option is that the Fund may
forego the opportunity of profit if the market value of the underlying
security or index increases and the option is exercised. The risk in writing
a put option is that the Fund may incur a loss if the market value of the
underlying security or index decreases and the option is exercised. In
addition, there is the risk the Fund may not be able to enter into a closing
transaction because of an illiquid secondary market.
D. Futures Contracts -- A futures contract is an agreement between two parties
to buy and sell a security at a set price on
F-37
<PAGE> 134
a future date. Upon entering into such a contract the Fund is required to
pledge to the broker an amount of cash or securities equal to the minimum
"initial margin" requirements of the exchange on which the contract is
traded. Pursuant to the contract, the Fund agrees to receive from or pay to
the broker an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as "variation margin" and are
recorded by the Fund as unrealized gains or losses. When the contract is
closed, the Fund records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value at
the time it was closed. The potential risk to the Fund is that the change in
value of the underlying securities may not correlate to the change in value
of the contracts. The Fund may use futures contracts to manage its exposure
to the stock market and to fluctuations in interest rates.
E. Security Transactions and Related Investment Income -- Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Realized gains and losses are computed on the basis of specific
identification of the Securities sold. Dividends are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. Where a
high level of uncertainty exists as to its collection, income is recorded net
of all withholding tax with any rebate recorded when received. The Fund may
trade securities on other than normal settlement terms. This may increase the
risk if the other party to the transaction fails to deliver and causes the
Fund to subsequently invest at less advantageous prices. On December 31, 1998
$6,126,755 was reclassified from paid-in capital to undistributed net
investment income as a result of a net operating tax loss 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 as a result of this reclassification.
F. Portfolio Securities Loaned -- At December 31, 1998, stocks with an aggregate
value listed below were on loan to brokers. The loans were secured by cash
collateral received by the Fund:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 PERIOD ENDED
----------------------------- DECEMBER 31, 1998
AGGREGATE VALUE CASH -----------------
ON LOANS COLLATERAL FEES RECEIVED
--------------- ----------- -----------------
<S> <C> <C> <C>
$49,076,261 $49,978,243 $254,918
</TABLE>
Cash collateral is received by the Fund against loaned securities in the
amount at least equal to 102% of the market value of the loaned securities at
the inception of each loan. This collateral must be maintained at not less
than 100% of the market value of the loaned securities during the period of
the loan. The cash collateral is invested in a securities lending trust which
consists of a portfolio of high quality short duration securities whose
average effective duration is restricted to 120 days or less.
G. Taxes -- It is the policy of the Fund to meet the requirements for
qualification as a "regulated investment company" under the Internal Revenue
Code of 1986, as amended ("Code"). It is also the intention of the Fund to
make distributions sufficient to avoid imposition of any excise tax under
Section 4982 of the Code. Therefore, no provision has been made for Federal
taxes on income, capital gains, or unrealized appreciation of securities
held, and excise tax on income and capital gains. The Fund has a capital loss
carryforward of $8,616,058 (which may be carried forward to offset future
taxable capital gains, if any) which expires, if not previously utilized,
through the year 2006. The Fund cannot distribute capital gains to
shareholders until the tax loss carryforwards have been utilized.
H. Distributions to Shareholders -- Distributions to shareholders are recorded
by the Fund on the ex-date. Income and capital gain distributions are
determined in accordance with Federal income tax regulations which may differ
from generally accepted accounting principles. These differences are
primarily due to differing treatments of income and gains on various
investment securities held by the Fund and timing differences.
I. Restricted Securities -- The Fund is permitted to invest in privately placed
restricted securities. These securities may be resold in transactions exempt
from registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations and
expense, and prompt sale at an acceptable price may be difficult.
J. Indexed Securities -- The Fund may invest in indexed securities whose value
is linked either directly or indirectly to changes in foreign currencies,
interest rates, equities, indices, or other reference instruments. Indexed
securities may be more volatile than the reference instrument itself, but
any loss is limited to the amount of the original investment.
K. Line of Credit -- The Fund, along with certain other funds advised and/or
administered by the Manager, has a line of credit with BankBoston and State
Street Bank & Trust Company. The arrangements with the banks allow the Fund
and certain other funds to borrow, on a first come, first serve basis, an
aggregate maximum amount of $250,000,000. The Fund is limited to borrowing up
to 33 1/3% of the value of the Fund's total assets. On December 31, 1998, the
Fund did not have loans outstanding.
For the period ended December 31, 1998, the average outstanding daily
balance of bank loans (based on the number of days the loans were
outstanding) for the Fund was $9,979,175 with a weighted average interest
rate of 6.33%. Interest expense for the Fund for the period ended December
31, 1998 was $253,985, and is included in "Other Expenses" on the Statement
of Operations.
NOTE 2-RELATED PARTIES
A I M Advisors, Inc. ("Manager") is the Fund's investment manager and
administrator. As of the close of business on May 29, 1998, Liechtenstein Global
Trust AG ("LGT"), the former indirect parent organization of Chancellor LGT
Asset Management, Inc. ("Chancellor LGT"), consummated a purchase agreement with
AMVESCAP PLC pursuant to which AMVESCAP PLC acquired LGT's Asset Management
Division, which included Chancellor LGT and certain other affiliates. As a
result of this transaction, Chancellor LGT was renamed INVESCO (NY), Inc., and
is now an indirect wholly-owned subsidiary of AMVESCAP PLC. In connection with
this transaction, A I M Advisors, Inc., an indirect wholly-owned subsidiary of
AMVESCAP PLC, became the investment manager and administrator of the Fund. Also
on May 29, 1998, A I M Distributors, Inc. ("AIM Distributors"), a wholly-owned
subsidiary of the Manager, became the Fund's distributor, and the Trust was
reorganized from a Massachusetts business trust into a Delaware business trust.
Finally, on September 4, 1998, A I M Fund Services, Inc. ("AFS"), a wholly-owned
subsidiary of the Manager, became the transfer agent of the Fund.
F-38
<PAGE> 135
The Fund pays investment management and administration fees to the Manager at
the annualized rate of 0.725% on the first $500 million of average daily net
assets of the Fund; 0.70% on the next $500 million; 0.675% on the next $500
million; and 0.65% on amounts thereafter.
AIM Distributors serves as the Fund's distributor. For the period ended May
29, 1998, GT Global, Inc. ("GT Global"), an affiliate of Chancellor LGT, served
as the Fund's distributor. The Fund offers Class A, Class B, and Advisor Class
shares for purchase.
Class A shares are subject to initial sales charges imposed at the time of
purchase, in accordance with the schedule included in the Fund's current
prospectus. AIM Distributors collects the sales charges imposed on sales of
Class A shares, and reallows a portion of such charges to dealers through which
the sales are made. For the year ended December 31, 1998, AIM Distributors and
GT Global retained the following sales charges: $4,819 and $17,303,
respectively. Purchases of Class A shares exceeding $1,000,000 may be subject to
a contingent deferred sales charge ("CDSC") upon redemption, in accordance with
the Fund's current prospectus. AIM Distributors also makes ongoing shareholder
servicing and trail commission payments to dealers whose clients hold Class A
shares.
Class B shares are not subject to initial sales charges. When Class B shares
are sold, AIM Distributors from its own resources pays commissions to dealers
through which the sales are made. Certain redemptions of Class B shares made
within six years of purchase are subject to CDSCs, in accordance with the Fund's
current prospectus. For the year ended December 31, 1998, AIM Distributors and
GT Global collected such CDSCs in the amount of: $191,592 and $770,735,
respectively. In addition, AIM Distributors makes ongoing shareholder servicing
and trail commission payments to dealers whose clients hold Class B shares.
For the period ended May 29, 1998, pursuant to the then effective separate
distribution plans adopted under the 1940 Act Rule 12b-1 by the Trust's Board of
Trustees with respect to the Fund's Class A shares ("Old Class A Plan") and
Class B shares ("Old Class B Plan"), the Fund reimbursed GT Global for a portion
of its shareholder servicing and distribution expenses. Under the Old Class A
Plan, the Fund was permitted to pay GT Global a service fee at the annualized
rate of up to 0.25% of the average daily net assets of the Fund's Class A shares
for GT Global's expenditures incurred in servicing and maintaining shareholder
accounts, and was permitted to pay GT Global a distribution fee at the
annualized rate of up to 0.35% of the average daily net assets of the Fund's
Class A shares, less any amounts paid by the Fund as the aforementioned service
fee, for GT Global's expenditures incurred in providing services as distributor.
All expenses for which GT Global was reimbursed under the Old Class A Plan would
have been incurred within one year of such reimbursement.
For the period ended May 29, 1998, pursuant to the Old Class B Plan, the Fund
was permitted to pay GT Global a service fee at the annualized rate of up to
0.25% of the average daily net assets of the Fund's Class B shares for GT
Global's expenditures incurred in servicing and maintaining shareholder
accounts, and was permitted to pay GT Global a distribution fee at the
annualized rate of up to 0.75% of the average daily net assets of the Fund's
Class B shares for GT Global's expenditures incurred in providing services as
distributor. Expenses incurred under the Old Class B Plan in excess of 1.00%
annually were permitted to be carried forward for reimbursement in subsequent
years as long as that Plan continued in effect.
Effective as of the close of business May 29, 1998, pursuant to Rule 12b-1
under the 1940 Act, the Trust's Board of Trustees adopted a Master Distribution
Plan applicable to the Fund's Class A shares ("Class A Plan") and Class B shares
("Class B Plan"), pursuant to which the Fund compensates AIM Distributors for
the purpose of financing any activity that is intended to result in the sale of
Class A or Class B shares of the Fund. Under the Class A Plan, the Fund
compensates AIM Distributors at the annualized rate of 0.35% of the average
daily net assets of each of the Fund's Class A shares.
Pursuant to the Class B Plan, the Fund compensates AIM Distributors at an
annualized rate of 1.00% of the average daily net assets of the Fund's Class B
shares.
The Class A Plan and the Class B Plan (together, the "Plans") are designed to
compensate AIM Distributors for certain promotional and other sales-related
costs, and to implement a dealer incentive program that provides for periodic
payments to selected dealers who furnish continuing personal shareholder
services to their customers who purchase and own Class A and Class B shares of
the Fund. Payments also can be directed by AIM Distributors to financial
institutions who have entered into service agreements with respect to Class A
and Class B shares of the Fund and who provide continuing personal services to
their customers who own Class A and Class B shares of the Fund. The service fees
payable to selected financial institutions are calculated at the annual rate of
0.25% of the average daily net asset value of those Fund shares that are held in
such institution's customers' accounts that were purchased on or after a
prescribed date set forth in the Plans.
The Manager and AIM Distributors have undertaken to limit the Fund's expenses
(exclusive of brokerage commissions, taxes, interest, and extraordinary
expenses) to the annual rate of 1.75%, 2.40%, and 1.40% of the average daily net
assets of the Fund's Class A, Class B, and Advisor Class Shares, respectively.
This undertaking may be changed or eliminated in the future. If necessary, this
limitation will be effected by waivers by the Manager of investment management
and administration fees, waivers by AIM Distributors of payments under the Class
A Plan and/or Class B Plan and/or reimbursements by the Manager or AIM
Distributors of portions of the Fund's other operating expenses.
Effective as of the close of business September 4, 1998, the Fund, pursuant to
a transfer agency and service agreement, has agreed to pay A I M Fund Services,
Inc. ("AFS") an annualized fee of $24.85 for each shareholder accounts that are
open during any calendar month (this fee includes all out-of-pocket expenses),
and an annualized fee of $0.70 per shareholder account that is closed during any
calendar month. Both fees are billed by AFS monthly in arrears on a prorated
basis of 1/12 of the annualized fee for all such accounts.
For the period January 1, 1998 to September 4, 1998, GT Global Investor
Services, Inc., an affiliate of Chancellor LGT, was the transfer agent of the
Fund. For performing shareholder servicing, reporting, and general transfer
agent services, GT Services received an annual maintenance fee of $17.50 per
account, a new account fee of $4.00 per account, a per transaction fee of $1.75
for all transactions other than exchanges and a per exchange fee of $2.25. GT
Services was also reimbursed by the
F-39
<PAGE> 136
Fund for its out-of-pocket expenses for such items as postage, forms, telephone
charges, stationery and office supplies.
The Manager is the pricing and accounting agent for the Fund. The monthly fee
for these services to the Manager is a percentage, not to exceed 0.03% annually,
of the Fund's average daily net assets. The annual fee rate is derived based on
the aggregate net assets of the funds which comprise the following investment
companies: AIM Growth Series, AIM Investment Funds, AIM Series Trust, G.T.
Global Variable Investment Series and G.T. Global Variable Investment Trust. The
fee is calculated at the rate of 0.03% to the first $5 billion of assets and
0.02% to the assets in excess of $5 billion. An amount is allocated to and paid
by each such fund based on its relative average daily net assets.
The Trust pays each of its Trustees who is not an employee, officer or
director of the Manager, AIM Distributors or AFS $5,000 per year plus $300 for
each meeting of the board or any committee thereof attended by the Trustee.
At December 31, 1998, all of the shares of beneficial interest were owned
either by the Fund or Invesco (NY), Inc.
NOTE 3-PURCHASES AND SALES OF 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 $710,371,237 and $898,879,718, 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 $70,168,213
- ---------------------------------------------------------------
Aggregate unrealized (depreciation) of investment
securities (8,497,878)
- ---------------------------------------------------------------
Net unrealized appreciation of investment
securities $61,670,335
===============================================================
Cost of investments is the same for tax and
financial statement purposes.
</TABLE>
NOTE 4-CALL OPTIONS CONTRACTS WRITTEN
Transactions in call options written during the year ended December 31, 1998 are
summarized as follows:
<TABLE>
<CAPTION>
CALL OPTION CONTRACTS
----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ----------
<S> <C> <C>
Beginning of period -- --
- -----------------------------------------------------------------
Written 11,068 $2,262,028
- -----------------------------------------------------------------
End of period 11,068 $2,262,028
=================================================================
</TABLE>
Open call option contracts written at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
NUMBER 1998 UNREALIZED
CONTRACT STRIKE OF PREMIUMS MARKET APPRECIATION
ISSUER MONTH PRICE CONTRACTS RECEIVED VALUE (DEPRECIATION)
- ------ -------- ------ --------- -------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Cablevision Systems
Corp. Jan 99 45 1230 $ 371,546 $ 691,875 $ (320,329)
- -------------------------------------------------------------------------------------------------
Outdoor Systems, Inc. Jan 99 25 7010 1,699,675 3,548,812 (1,849,137)
- -------------------------------------------------------------------------------------------------
U S Foodservice, Inc. Jan 99 50 2828 190,807 106,050 84,757
- -------------------------------------------------------------------------------------------------
$2,262,028 $4,346,737 $(2,084,709)
=================================================================================================
</TABLE>
NOTE 5-SHARE INFORMATION
Changes in the Fund's 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 23,952,734 $ 505,999,810 24,801,099 $ 522,081,212
- --------------------------------------------------------------------------------
Class B 5,833,056 120,542,669 9,218,434 190,231,954
- --------------------------------------------------------------------------------
Advisor Class 887,277 18,970,978 1,056,271 23,267,932
- --------------------------------------------------------------------------------
Issued as
reinvestment of
dividends:
Class A 448,265 7,998,160 1,170,749 23,490,213
- --------------------------------------------------------------------------------
Class B 471,450 8,052,203 1,240,395 24,063,873
- --------------------------------------------------------------------------------
Advisor Class 2,579 46,305 5,993 120,751
- --------------------------------------------------------------------------------
Reacquired:
Class A (27,068,413) (573,338,009) (30,338,852) (637,412,658)
- --------------------------------------------------------------------------------
Class B (9,774,765) (198,229,942) (14,376,532) (293,260,545)
- --------------------------------------------------------------------------------
Advisor Class (896,015) (18,946,814) (1,103,923) (24,248,785)
- --------------------------------------------------------------------------------
(6,143,832) $(128,904,640) (8,326,366) $(171,666,053)
================================================================================
</TABLE>
NOTE 6-EXPENSE REDUCTIONS
The Manager has directed certain portfolio trades to brokers who then paid a
portion of the Fund's expenses. For the year ended December 31, 1998, the
expenses of the Fund were reduced by $46,733 under these arrangements.
F-40
<PAGE> 137
NOTE 7-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A and Class B
outstanding during each of the years in the five-year period ended December 31,
1998 and for a share of Advisor Class capital stock outstanding during each of
the years in three-year period ended December 31, 1998 and the period June 1,
1995 (date operations commenced) through December 31, 1995.
<TABLE>
<CAPTION>
Class A
----------------------------------------------------
1998(a) 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 21.01 $ 20.77 $ 19.07 $ 17.69 $ 17.17
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Income from investment operations:
Net investment income (0.24)(b) (0.20) 0.03 0.24 0.04(b)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net gains (losses) on securities (both realized and
unrealized) (0.81) 3.00 2.96 3.93 2.55
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total from investment operations (1.05) 2.80 2.99 4.17 2.59
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income -- -- -- (0.21) (0.02)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Distributions from net realized gains (0.99) (2.56) (1.29) (2.58) (2.05)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total distributions (0.99) (2.56) (1.29) (2.79) (2.07)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net asset value, end of period $ 18.97 $ 21.01 $ 20.77 $ 19.07 $ 17.69
============================================================ ======== ======== ======== ======== ========
Total Return(C) (4.71)% 14.05% 15.65% 23.23% 15.69%
============================================================ ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $180,258 $255,674 $343,427 $396,291 $196,937
============================================================ ======== ======== ======== ======== ========
Ratio of expenses to average net assets:
With expense reductions and/or reimbursement 1.56%(d) 1.37% 1.36% 1.46% 1.58%
============================================================ ======== ======== ======== ======== ========
Without expense reductions and/or reimbursement 1.57%(d) 1.48% 1.41% -- --
============================================================ ======== ======== ======== ======== ========
Ratio of net investment income to average net assets
With expense reductions and/or reimbursement (1.09)%(d) (0.90)% 0.12% 1.24% 0.17%
============================================================ ======== ======== ======== ======== ========
Without expense reductions and/or reimbursement (1.10)%(d) (1.01)% 0.07% -- --
============================================================ ======== ======== ======== ======== ========
Portfolio turnover rate(e) 168% 190% 253% 71% 102%
============================================================ ======== ======== ======== ======== ========
</TABLE>
(a) The Fund changed investment advisors on May 29, 1998.
(b) Calculated using average shares outstanding.
(c) Does not deduct sales charges and is not annualized for periods less than
one year.
(d) Ratios are based on average net assets of $216,642,403.
(e) Portfolio turnover rates are calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
<TABLE>
<CAPTION>
Class B Advisor Class
--------------------------------------------------- ----------------------------------
1998(a) 1997 1996 1995 1994(a) 1998(a) 1997 1996 1995
-------- -------- -------- -------- ------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 20.31 $ 20.28 $ 18.77 $ 17.50 $ 17.09 $21.10 $20.76 $19.05 $20.61
- -------------------------------------- -------- -------- -------- -------- ------- ------ ------ ------ ------
Income from investment operations:
Net investment income (0.38)(b) (0.34) (0.11) 0.10 (0.09) (0.17)(b) (0.15) 0.09 0.21
- -------------------------------------- -------- -------- -------- -------- ------- ------ ------ ------ ------
Net gains (losses) on securities
(both realized and unrealized) (0.78) 2.93 2.91 3.87 2.55 (0.86) 3.05 2.91 1.09
- -------------------------------------- -------- -------- -------- -------- ------- ------ ------ ------ ------
Total from investment operations (1.16) 2.59 2.80 3.97 2.46 (1.03) 2.90 3.00 1.30
- -------------------------------------- -------- -------- -------- -------- ------- ------ ------ ------ ------
Less distributions:
Dividends from net investment income -- -- -- (0.12) -- -- -- -- (0.28)
- -------------------------------------- -------- -------- -------- -------- ------- ------ ------ ------ ------
Distributions from net realized
gains (0.99) (2.56) (1.29) (2.58) (2.05) (0.99) (2.56) (1.29) (2.58)
- -------------------------------------- -------- -------- -------- -------- ------- ------ ------ ------ ------
Total distributions (0.99) (2.56) (1.29) (2.70) (2.05) (0.99) (2.56) (1.29) (2.86)
- -------------------------------------- -------- -------- -------- -------- ------- ------ ------ ------ ------
Net asset value, end of period $ 18.16 $ 20.31 $ 20.28 $ 18.77 $ 17.50 $19.08 $21.10 $20.76 $19.05
====================================== ======== ======== ======== ======== ======= ====== ====== ====== ======
Total Return(c) (5.41)% 13.35% 14.82% 22.42% 15.06% (4.59)% 14.54% 15.72% 6.01%
====================================== ======== ======== ======== ======== ======= ====== ====== ====== ======
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $165,447 $255,468 $334,590 $348,435 $80,060 $913 $1,140 $1,986 $1,394
====================================== ======== ======== ======== ======== ======= ====== ====== ====== ======
Ratio of expenses to average net
assets:
With expense reductions and/or
reimbursement 2.21%(d) 2.02% 2.01% 2.11% 2.23% 1.21%(d) 1.02% 1.01% 1.11%(e)
====================================== ======== ======== ======== ======== ======= ====== ====== ====== ======
Without expense reductions and/or
reimbursement 2.22%(d) 2.13% 2.06% -- -- 1.22%(d) 1.13% 1.06% --
====================================== ======== ======== ======== ======== ======= ====== ====== ====== ======
Ratio of net investment income to
average net assets
With expense reductions and/or
reimbursement (1.74)%(d) (1.55)% (0.53)% 0.59% (0.48)% (0.74)%(d) 0.55% 0.47% 1.59%(e)
====================================== ======== ======== ======== ======== ======= ====== ====== ====== ======
Without expense reductions and/or
reimbursement (1.75)%(d) (1.66)% (0.58)% -- -- (0.75)%(d)(0.66)% 0.42% --
====================================== ======== ======== ======== ======== ======= ====== ====== ====== ======
Portfolio turnover rate(f) 168% 190% 253% 71% 102% 168% 190% 253% 71%
====================================== ======== ======== ======== ======== ======= ====== ====== ====== ======
</TABLE>
(a) The Fund changed investment advisors on May 29, 1998.
(b) Calculated using average shares outstanding.
(c) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(d) Ratios are based on average net assets of $214,825,194 and $1,120,683 for
Class B and Advisor Class, respectively.
(e) Annualized.
(f) Portfolio turnover rates are calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
FS-41
<PAGE> 138
REPORT OF
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders of AIM New Pacific Growth Fund (formerly GT Global New
Pacific Growth Fund) and Board of Trustees of AIM Growth Series (formerly GT
Global Growth Series):
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM New Pacific Growth Fund at
December 31, 1998, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
BOSTON, MASSACHUSETTS
FEBRUARY 19, 1999
FS-42
<PAGE> 139
PORTFOLIO OF INVESTMENTS
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Finance (30.2%)
National Australia Bank Ltd. .............................. AUSL 371,750 $ 5,599,513 4.9
BANKS-MONEY CENTER
Samsung Fire & Marine Insurance ........................... KOR 10,500 3,937,500 3.4
INSURANCE - MULTI-LINE
Australia & New Zealand Banking Group Ltd. ................ AUSL 574,750 3,758,500 3.3
BANKS-REGIONAL
AMP Ltd.-/- ............................................... AUSL 285,150 3,609,801 3.2
INSURANCE-LIFE
HSBC Holdings PLC ......................................... HK 115,021 2,865,466 2.5
BANKS-MONEY CENTER
Lend Lease Corp., Ltd. .................................... AUSL 210,000 2,828,827 2.5
REAL ESTATE
Overseas-Chinese Banking Corp., Ltd. - Foreign ............ SING 400,000 2,715,975 2.4
BANKS-REGIONAL
Development Bank of Singapore - Foreign ................... SING 300,000 2,709,912 2.4
BANKS-MONEY CENTER
Cathay Life Insurance Co., Ltd. ........................... TWN 700,000 2,262,978 2.0
INSURANCE-LIFE
Hang Seng Bank ............................................ HK 220,000 1,966,542 1.7
BANKS-MONEY CENTER
DBS Land Ltd. ............................................. SING 800,000 1,178,539 1.0
REAL ESTATE
First Commercial Bank ..................................... TWN 700,000 979,173 0.9
BANKS-MONEY CENTER
------------
34,412,726
------------
Services (23.0%)
Telstra Corporation Ltd.-/- ............................... AUSL 1,060,800 4,955,898 4.3
TELEPHONE - REGIONAL/LOCAL
Brambles Industries Ltd. .................................. AUSL 158,050 3,846,768 3.4
BUSINESS & PUBLIC SERVICES
Singapore Press Holdings Ltd. ............................. SING 310,816 3,297,533 2.9
BROADCASTING & PUBLISHING
News Corp., Ltd. Preferred ................................ AUSL 535,350 3,255,003 2.8
BROADCASTING & PUBLISHING
Hong Kong Telecommunications Ltd. ......................... HK 1,300,200 2,274,104 2.0
TELEPHONE NETWORKS
TABCORP Holdings Ltd. ..................................... AUSL 358,600 2,195,708 1.9
LEISURE & TOURISM
Telecom Corporation of New Zealand Ltd. ................... NZ 431,200 1,870,481 1.6
TELEPHONE NETWORKS
Philippine Long Distance Telephone Co. .................... PHIL 60,290 1,555,871 1.4
TELEPHONE - LONG DISTANCE
Telekom Malaysia Bhd.{F} .................................. MAL 367,750 806,469 0.7
TELEPHONE NETWORKS
Woolworths Ltd. ........................................... AUSL 234,550 797,925 0.7
RETAILERS-OTHER
Cable & Wireless Optus Ltd.-/- ............................ AUSL 330,500 694,113 0.6
WIRELESS COMMUNICATIONS
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-43
<PAGE> 140
PORTFOLIO OF INVESTMENTS (cont'd)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Services (Continued)
Malaysia International Shipping Bhd. - Foreign{F} ......... MAL 458,000 $ 502,193 0.4
TRANSPORTATION - SHIPPING
Berjaya Sports Toto Bhd.{F} ............................... MAL 300,000 311,842 0.3
LEISURE & TOURISM
------------
26,363,908
------------
Consumer Durables (11.1%)
Cheung Kong (Holdings) Ltd. ............................... HK 950,000 6,836,429 6.0
HOUSING
Samsung Electronics ....................................... KOR 32,000 2,152,000 1.9
CONSUMER ELECTRONICS
City Developments Ltd. .................................... SING 300,000 1,300,394 1.1
HOUSING
New World Development Co., Ltd. ........................... HK 500,000 1,258,535 1.1
HOUSING
Sun Hung Kai Properties Ltd. .............................. HK 150,000 1,093,958 1.0
HOUSING
------------
12,641,316
------------
Multi-Industry/Miscellaneous (9.6%)
Hutchison Whampoa ......................................... HK 1,000,000 7,067,161 6.2
MULTI-INDUSTRY
Shanghai Industrial Holdings Ltd. ......................... HK 800,000 1,616,089 1.4
MULTI-INDUSTRY
China Development Corp. ................................... TWN 744,500 1,365,418 1.2
CONGLOMERATE
PT Telekomunikasi Indonesia ............................... INDO 2,500,000 865,385 0.8
MULTI-INDUSTRY
------------
10,914,053
------------
Energy (8.7%)
CLP Holdings Ltd. ......................................... HK 700,000 3,487,757 3.0
ELECTRICAL & GAS UTILITIES
Manila Electric Co. "B" ................................... PHIL 430,000 1,387,097 1.2
ELECTRICAL & GAS UTILITIES
Hong Kong Electric Holdings Ltd. .......................... HK 400,000 1,213,357 1.1
ELECTRICAL & GAS UTILITIES
Electricity Generating Public Co., Ltd. - Foreign-/- ...... THAI 400,900 1,090,847 0.9
ELECTRICAL & GAS UTILITIES
PTT Exploration and Production Public Co., Ltd. -
Foreign-/- ............................................... THAI 140,600 994,298 0.9
OIL
Santos Ltd. ............................................... AUSL 327,200 877,509 0.8
OIL
Korea Electric Power Corp. ................................ KOR 35,000 869,167 0.8
ELECTRICAL & GAS UTILITIES
------------
9,920,032
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-44
<PAGE> 141
PORTFOLIO OF INVESTMENTS (cont'd)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Technology (5.7%)
LG Information & Communication ............................ KOR 85,562 $ 2,303,044 2.0
TELECOM TECHNOLOGY
Compeq Manufacturing Co., Ltd.-/- ......................... TWN 207,200 1,359,005 1.2
COMPUTERS & PERIPHERALS
Taiwan Semiconductor Manufacturing Co.-/- ................. TWN 550,000 1,213,864 1.1
SEMICONDUCTORS
Asustek Computer, Inc.-/- ................................. TWN 90,000 842,089 0.7
COMPUTERS & PERIPHERALS
Compal Electronics, Inc.-/- ............................... TWN 250,000 815,978 0.7
COMPUTERS & PERIPHERALS
------------
6,533,980
------------
Materials/Basic Industry (5.2%)
Broken Hill Proprietary Co., Ltd. ......................... AUSL 230,000 1,692,624 1.5
MISC. MATERIALS & COMMODITIES
Rio Tinto Ltd. ............................................ AUSL 116,000 1,374,724 1.2
MISC. MATERIALS & COMMODITIES
Western Mining Corporation Holdings Ltd. .................. AUSL 366,300 1,103,485 1.0
METALS - NON-FERROUS
North Ltd. ................................................ AUSL 661,000 1,076,583 0.9
METALS - STEEL
Hansol Paper Co. .......................................... KOR 57,000 650,750 0.6
PAPER/PACKAGING
------------
5,898,166
------------
Capital Goods (4.4%)
Samsung Display Devices Co. ............................... KOR 45,000 2,223,750 1.9
ELECTRICAL PLANT/EQUIPMENT
Singapore Technologies Engineering Ltd. ................... SING 1,800,000 1,680,509 1.5
AEROSPACE/DEFENSE
Cheung Kong Infrastructure Holdings ....................... HK 500,000 1,116,547 1.0
CONSTRUCTION
------------
5,020,806
------------
Consumer Non-Durables (2.9%)
Foster's Brewing Group Ltd. ............................... AUSL 1,209,371 3,273,001 2.9
BEVERAGES - ALCOHOLIC
------------ -----
TOTAL EQUITY INVESTMENTS (cost $112,323,801) ................ 114,977,988 100.8
------------ -----
<CAPTION>
NO. OF VALUE % OF NET
WARRANTS COUNTRY WARRANTS (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Merrill Lynch - Kospi 300 Call Warrants, due 3/11/99
Performance linked to equity securities. Redemption amount
100% of the final closing price of the Korean Kospi 300
Index converted to the prevailing foreign exchange rate.
(cost $1,560,001){\/} .................................... KOR 626,456 3,323,850 2.9
------------ -----
INVESTMENT MANAGEMENT
<CAPTION>
NO. OF VALUE % OF NET
RIGHTS COUNTRY RIGHTS (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Samsung Fire & Marine Insurance Rights, expire 1/13/99 .... KOR 2,137 $ 411,729 0.4
INSURANCE - MULTI-LINE
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-45
<PAGE> 142
PORTFOLIO OF INVESTMENTS (cont'd)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NO. OF VALUE % OF NET
RIGHTS COUNTRY RIGHTS (NOTE 1) ASSETS
- ------------------------------------------------------------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Compal Electronics, Inc. Rights, expire 1/21/99 ........... TWN 250,000 389 --
COMPUTERS & PERIPHERALS
------------ -----
TOTAL RIGHTS (cost $0) ...................................... 412,118 0.4
------------ -----
<CAPTION>
VALUE % OF NET
REPURCHASE AGREEMENT (NOTE 1) ASSETS
- ------------------------------------------------------------- ------------ -------------
<S> <C> <C> <C> <C>
Dated December 31, 1998, with State Street Bank & Trust
Co., due January 4, 1999, for an effective yield of 4.50%,
collateralized by $2,730,000 U.S. Treasury Notes, 6.25%
due 4/30/01 (market value of collateral is $2,852,850,
including accrued interest). (cost $2,796,000) ........... 2,796,000 2.4
------------ -----
TOTAL INVESTMENTS (cost $116,679,802) * .................... 121,509,956 106.5
Other Assets and Liabilities ................................ (7,446,371) (6.5)
------------ -----
NET ASSETS .................................................. $114,063,585 100.0
------------ -----
------------ -----
</TABLE>
- --------------
-/- Non-income producing security.
{\/} U.S. currency denominated.
{F} Security considered illiquid due to currency and capital controls
mandated by the Malaysian government.
* For Federal income tax purposes, cost is $117,549,663 and
appreciation (depreciation) is as follows:
<TABLE>
<S> <C>
Unrealized appreciation: $ 12,087,878
Unrealized depreciation: (8,127,585)
-------------
Net unrealized appreciation: $ 3,960,293
-------------
-------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Fund's Portfolio of Investments at December 31, 1998, was concentrated in
the following countries:
<TABLE>
<CAPTION>
PERCENTAGE OF NET ASSETS {D}
-------------------------------------------
FIXED INCOME,
RIGHTS & SHORT-TERM
COUNTRY (COUNTRY CODE/CURRENCY CODE) EQUITY WARRANTS & OTHER TOTAL
- -------------------------------------- ------ ------------- ---------- -----
<S> <C> <C> <C> <C>
Australia (AUSL/AUD) ................. 35.9 35.9
Hong Kong (HK/HKD) ................... 27.0 27.0
Indonesia (INDO/IDR) ................. 0.8 0.8
Korea (KOR/KRW) ...................... 10.6 3.3 13.9
Malaysia (MAL/MYR) ................... 1.4 1.4
New Zealand (NZ/NZD) ................. 1.6 1.6
Philippines (PHIL/PHP) ............... 2.6 2.6
Singapore (SING/SGD) ................. 11.3 11.3
Taiwan (TWN/TWD) ..................... 7.8 7.8
Thailand (THAI/THB) .................. 1.8 1.8
United States (US/USD) ............... (4.1) (4.1)
------ --- --- -----
Total ............................... 100.8 3.3 (4.1) 100.0
------ --- --- -----
------ --- --- -----
</TABLE>
- --------------
{d} Percentages indicated are based on net assets of $114,063,585.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACT OUTSTANDING
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET VALUE
(U.S. CONTRACT DELIVERY UNREALIZED
CONTRACT TO SELL: DOLLARS) PRICE DATE DEPRECIATION
- ---------------------------------------- ------------ -------- -------- -------------
<S> <C> <C> <C> <C>
Singapore Dollars....................... 3,166,553 1.64240 2/12/99 $ (455)
------------ -------------
Total Contract to Sell (Receivable
amount $3,166,098)................... 3,166,553 (455)
------------ -------------
THE VALUE OF CONTRACT TO SELL AS
PERCENTAGE OF NET ASSETS IS 2.78%
Total Open Forward Foreign Currency
Contract............................. $ (455)
-------------
-------------
</TABLE>
- ----------------
See Note 1 of Notes to Financial Statements.
The accompanying notes are an integral part of the financial statements.
FS-46
<PAGE> 143
STATEMENT OF ASSETS
AND LIABILITIES
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at value (cost $116,679,802) (Note 1)............................ $121,509,956
U.S. currency.................................................................... $ 556
Foreign currencies (cost $922,547)............................................... 934,105 934,661
---------
Receivable from A I M Advisors, Inc......................................................... 497,914
Receivable for Fund shares sold............................................................. 158,884
Dividends receivable........................................................................ 93,264
Receivable for securities sold.............................................................. 93,230
Miscellaneous and interest receivable....................................................... 6,795
-----------
Total assets.............................................................................. 123,294,704
-----------
Liabilities:
Payable for Fund shares repurchased......................................................... 8,033,717
Payable for investment management and administration fees (Note 2).......................... 902,957
Payable for service and distribution expenses (Note 2)...................................... 124,251
Payable for transfer agent fees (Note 2).................................................... 58,789
Payable for custodian fees.................................................................. 33,539
Payable for professional fees............................................................... 25,912
Payable for printing and postage expenses................................................... 14,419
Payable for registration and filing fees.................................................... 4,970
Payable for Trustees' fees and expenses (Note 2)............................................ 3,618
Payable for fund accounting fees (Note 2)................................................... 3,020
Payable for open forward foreign currency contract (Note 1)................................. 455
Other accrued expenses...................................................................... 25,472
-----------
Total liabilities......................................................................... 9,231,119
-----------
Net assets.................................................................................... $114,063,585
-----------
-----------
Class A:
Net asset value and redemption price per share ($80,824,489 DIVIDED BY 15,576,633 shares
outstanding)................................................................................. $ 5.19
-----------
-----------
Maximum offering price per share (100/94.50 of $5.19) *....................................... $ 5.49
-----------
-----------
Class B:+
Net asset value and offering price per share ($31,836,790 DIVIDED BY 6,318,490 shares
outstanding)................................................................................. $ 5.04
-----------
-----------
Advisor Class:
Net asset value, offering price per share, and redemption price per share ($1,402,306 DIVIDED
BY 270,869 shares outstanding)............................................................... $ 5.18
-----------
-----------
Net assets consist of:
Paid in capital (Note 4).................................................................... $196,845,058
Accumulated net investment loss............................................................. (22,386)
Accumulated net realized loss on investments and foreign currency transactions.............. (87,598,203)
Net unrealized appreciation on translation of assets and liabilities in foreign
currencies................................................................................. 8,962
Net unrealized appreciation of investments.................................................. 4,830,154
-----------
Total -- representing net assets applicable to capital shares outstanding..................... $114,063,585
-----------
-----------
<FN>
- --------------
* On sales of $25,000 or more, the offering price is reduced.
+ Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-47
<PAGE> 144
STATEMENT OF OPERATIONS
Year ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment income: (Note 1)
Dividend income (net of foreign withholding tax of $122,214).............................. $ 3,912,604
Interest income........................................................................... 696,245
Securities lending income................................................................. 308,990
-----------
Total investment income................................................................. 4,917,839
-----------
Expenses:
Investment management and administration fees (Note 2).................................... 1,447,661
Transfer agent fees (Note 2).............................................................. 884,800
Service and distribution expenses: (Note 2)
Class A.................................................................... $ 370,817
Class B.................................................................... 410,888 781,705
-----------
Printing and postage expenses............................................................. 218,595
Custodian fees............................................................................ 126,500
Registration and filing fees.............................................................. 121,000
Professional fees......................................................................... 85,489
Fund accounting fees (Note 2)............................................................. 40,387
Trustees' fees and expenses (Note 2)...................................................... 13,140
Other expenses (Note 1)................................................................... 113,073
-----------
Total expenses before reductions........................................................ 3,832,350
-----------
Expenses reimbursed by A I M Advisors, Inc. (Note 2).................................. (497,914)
Expense reductions (Note 5)........................................................... (88,368)
-----------
Total net expenses...................................................................... 3,246,068
-----------
Net investment income....................................................................... 1,671,771
-----------
Net realized and unrealized gain (loss) on investments and foreign currencies:
(Note 1)
Net realized loss on investments............................................. (42,030,213)
Net realized gain on foreign currency transactions........................... 1,956,431
-----------
Net realized loss during the year....................................................... (40,073,782)
Net change in unrealized appreciation on translation of assets and
liabilities in foreign currencies........................................... (1,281,283)
Net change in unrealized appreciation of investments......................... 24,192,659
-----------
Net unrealized appreciation during the year............................................. 22,911,376
-----------
Net realized and unrealized loss on investments and foreign currencies...................... (17,162,406)
-----------
Net decrease in net assets resulting from operations........................................ $(15,490,635)
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-48
<PAGE> 145
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------- -------------
<S> <C> <C>
Decrease in net assets
Operations:
Net investment income.................................................... $ 1,671,771 $ 864,307
Net realized loss on investments and foreign currency transactions....... (40,073,782) (48,653,550)
Net change in unrealized appreciation (depreciation) on translation of
assets and liabilities in foreign currencies............................ (1,281,283) 1,286,651
Net change in unrealized appreciation (depreciation) of investments...... 24,192,659 (113,591,619)
------------- -------------
Net decrease in net assets resulting from operations................... (15,490,635) (160,094,211)
------------- -------------
Class A:
Distributions to shareholders: (Note 1)
From net investment income............................................... (863,346) (427,042)
From net realized gain on investments.................................... -- (15,152,919)
In excess of net investment income....................................... (13,453) --
Class B:
Distributions to shareholders: (Note 1)
From net investment income............................................... (87,694) --
From net realized gain on investments.................................... -- (6,636,532)
In excess of net investment income....................................... (1,367) --
Advisor Class:
Distributions to shareholders: (Note 1)
From net investment income............................................... (19,467) (13,447)
From net realized gain on investments.................................... -- (179,887)
In excess of net investment income....................................... (303) --
------------- -------------
Total distributions.................................................... (985,630) (22,409,827)
------------- -------------
Capital share transactions: (Note 4)
Increase from capital shares sold and reinvested......................... 1,358,431,721 1,697,761,633
Decrease from capital shares repurchased................................. (1,421,007,158) (1,836,766,167)
------------- -------------
Net decrease from capital share transactions........................... (62,575,437) (139,004,534)
------------- -------------
Total decrease in net assets............................................... (79,051,702) (321,508,572)
Net assets:
Beginning of year........................................................ 193,115,287 514,623,859
------------- -------------
End of year *............................................................ $ 114,063,585 $ 193,115,287
------------- -------------
------------- -------------
* Includes accumulated net investment loss................................ $ (22,386) $ --
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-49
<PAGE> 146
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout the period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1998 (d) 1997 (d) 1996 (d) 1995 (d) 1994
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 6.48 $ 13.12 $ 12.47 $ 12.10 $ 15.86
----------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income (loss).......... 0.06* 0.05 0.02 0.11 0.02
Net realized and unrealized gain
(loss) on investments................ (1.30) (5.84) 2.44 0.79 (3.15)
----------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. (1.24) (5.79) 2.46 0.90 (3.13)
----------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income............ (0.05) (0.03) -- (0.10) (0.01)
From net realized gain on
investments.......................... -- (0.82) (1.81) (0.43) (0.55)
In excess of net investment income.... -- -- -- -- --
In excess of net realized gain on
investments.......................... -- -- -- -- (0.07)
----------- ---------- ---------- ---------- ----------
Total distributions................. (0.05) (0.85) (1.81) (0.53) (0.63)
----------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 5.19 $ 6.48 $ 13.12 $ 12.47 $ 12.10
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
Total investment return (c)............. (19.09)% (44.24)% 20.04% 7.45% (19.73)%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 80,824 $ 135,807 $ 361,244 $ 383,722 $ 404,680
Ratio of net investment income (loss) to
average net assets..................... 1.30% 0.41% 0.17% 0.91% 0.11%
Ratio of expenses to average net assets:
With expense reductions and/or
reimbursement (Notes 2 & 5).......... 2.00% 1.66% 1.86% 1.89% 1.81%
Without expense reductions and/or
reimbursement........................ 2.40% 1.93% 1.99% 1.94% N/A
Portfolio turnover rate++............... 96% 80% 93% 63% 87%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Includes reimbursement of Fund operating expenses per share of $0.02.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-50
<PAGE> 147
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout the period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1998 (d) 1997 (d) 1996 (d) 1995 (d) 1994
----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 6.28 $ 12.80 $ 12.29 $ 11.96 $ 15.79
----------- ----------- ---------- ---------- ----------
Income from investment operations:
Net investment income (loss).......... 0.03* (0.03) (0.06) 0.03 (0.06)
Net realized and unrealized gain
(loss) on investments................ (1.26) (5.67) 2.38 0.75 (3.15)
----------- ----------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. (1.23) (5.70) 2.32 0.78 (3.21)
----------- ----------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income............ (0.01) -- -- (0.02) --
From net realized gain on
investments.......................... -- (0.82) (1.81) (0.43) (0.55)
In excess of net investment income.... -- -- -- -- --
In excess of net realized gain on
investments.......................... -- -- -- -- (0.07)
----------- ----------- ---------- ---------- ----------
Total distributions................. (0.01) (0.82) (1.81) (0.45) (0.62)
----------- ----------- ---------- ---------- ----------
Net asset value, end of period.......... $ 5.04 $ 6.28 $ 12.80 $ 12.29 $ 11.96
----------- ----------- ---------- ---------- ----------
----------- ----------- ---------- ---------- ----------
Total investment return (c)............. (19.55)% (44.65)% 19.28% 6.54% (20.30)%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 31,837 $ 55,820 $ 151,805 $ 130,887 $ 120,171
Ratio of net investment income (loss) to
average net assets..................... 0.65% (0.24)% (0.48)% 0.26% (0.54)%
Ratio of expenses to average net assets:
With expense reductions and/or
reimbursement (Notes 2 & 5).......... 2.65% 2.31% 2.51% 2.54% 2.46%
Without expense reductions and/or
reimbursement........................ 3.05% 2.58% 2.64% 2.59% N/A
Portfolio turnover rate++............... 96% 80% 93% 63% 87%
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Includes reimbursement of Fund operating expenses per share of $0.02.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-51
<PAGE> 148
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout the period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
ADVISOR CLASS+
----------------------------------------------------
JUNE 1, 1995
YEAR ENDED DECEMBER 31, TO
------------------------------------- DECEMBER 31,
1998 (d) 1997 (d) 1996 (d) 1995 (d)
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 6.45 $ 13.16 $ 12.45 $ 12.89
----------- ----------- ----------- -------------
Income from investment operations:
Net investment income (loss).......... 0.08* 0.08 0.07 0.09
Net realized and unrealized gain
(loss) on investments................ (1.28) (5.89) 2.45 0.05
----------- ----------- ----------- -------------
Net increase (decrease) from
investment operations.............. (1.20) (5.81) 2.52 0.14
----------- ----------- ----------- -------------
Distributions to shareholders:
From net investment income............ (0.07) (0.08) -- (0.15)
From net realized gain on
investments.......................... -- (0.82) (1.81) (0.43)
In excess of net investment income.... -- -- -- --
In excess of net realized gain on
investments.......................... -- -- -- --
----------- ----------- ----------- -------------
Total distributions................. (0.07) (0.90) (1.81) (0.58)
----------- ----------- ----------- -------------
Net asset value, end of period.......... $ 5.18 $ 6.45 $ 13.16 $ 12.45
----------- ----------- ----------- -------------
----------- ----------- ----------- -------------
Total investment return (c)............. (18.51)% (44.26)% 20.56% 1.07%(b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 1,402 $ 1,488 $ 1,575 $ 935
Ratio of net investment income (loss) to
average net assets..................... 1.65% 0.76% 0.52% 1.26%(a)
Ratio of expenses to average net assets:
With expense reductions and/or
reimbursement (Notes 2 & 5).......... 1.65% 1.31% 1.51% 1.54%(a)
Without expense reductions and/or
reimbursement........................ 2.05% 1.58% 1.64% 1.59%(a)
Portfolio turnover rate++............... 96% 80% 93% 63%(a)
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Includes reimbursement of Fund operating expenses per share of $0.02.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
FS-52
<PAGE> 149
NOTES TO
FINANCIAL STATEMENTS
December 31, 1997
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (SEE ALSO NOTE 2)
AIM New Pacific Growth Fund (the "Fund") formerly, GT Global New Pacific Growth
Fund, is a separate series of AIM Growth Series (the "Trust") formerly, GT
Global Growth Series. The Trust is organized as a Delaware business trust and is
registered under the Investment Company Act of 1940, as amended ("1940 Act"), as
a diversified, open-end management investment company. The Trust has eight
series of shares in operation, each series corresponding to a distinct portfolio
of investments.
The Fund offers Class A, Class B, and Advisor Class shares, each of which has
equal rights as to assets and voting privileges. Class A and Class B each has
exclusive voting rights with respect to its distribution plan. Investment
income, realized and unrealized capital gains and losses, and the common
expenses of the Fund are allocated on a pro rata basis to each class based on
the relative net assets of each class to the total net assets of the Fund. Each
class of shares differs in its respective distribution expenses, and may differ
in its transfer agent, registration, and certain other class-specific fees and
expenses.
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 and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies in conformity with generally accepted accounting
principles consistently followed by the Fund in the preparation of the financial
statements.
(A) PORTFOLIO VALUATION
The Fund calculates the net asset value of and completes orders to purchase,
exchange or repurchase Fund shares on each business day, with the exception of
those days on which the New York Stock Exchange is closed.
Equity securities are valued at the last sale price on the exchange on which
such securities are traded or on the principal over-the-counter market in which
such securities are traded, as of the close of business on the day the
securities are being valued or, lacking any sales, at the last available bid
price. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange determined by A I M Advisors, Inc. (the
"Manager") to be the primary market.
Fixed income investments are valued at the mean of representative quoted bid and
ask prices for such investments or, if such prices are not available, at prices
for investments of comparative maturity, quality and type. However, when the
Manager deems it appropriate, prices obtained for the day of valuation from a
bond pricing service will be used. Short-term investments with a maturity of 60
days or less are valued at amortized cost, adjusted for foreign exchange
translation and market fluctuation, if any.
Investments for which market quotations are not readily available (including
restricted securities which are subject to limitations on their sale) are valued
at fair value as determined in good faith by or under the direction of the
Trust's Board of Trustees.
Portfolio securities which are primarily traded on foreign exchanges are
generally valued to the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S. dollars at
the current exchange rates, except that when an occurrence subsequent to the
time a value was so established is likely to have materially changed such value,
then the fair value of those securities will be determined by consideration of
other factors by or under the direction of the Trust's Board of Trustees.
(B) FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings, other assets and liabilities
are recorded in the books and records of the Fund after translation to U.S.
dollars based on the exchange rates on that day. The cost of each security is
determined using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when earned or incurred.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains and losses arise from sales and
maturities of short-term securities, forward foreign currency contracts, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the differences between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities other than investments in securities at period
end, resulting from changes in exchange rates.
(C) REPURCHASE AGREEMENTS
With respect to repurchase agreements entered into by the Fund, it is the Fund's
policy to always receive, as collateral, United States government securities or
other high quality debt securities of which the value, including accrued
interest, is at least equal to the amount to be repaid to the Fund under each
agreement at its maturity.
(D) FORWARD FOREIGN CURRENCY CONTRACTS
A forward foreign currency contract ("Forward Contract") is an agreement between
two parties to buy and sell a currency at a set price on a future date. The
market value of the Forward Contract
FS-53
<PAGE> 150
fluctuates with changes in currency exchange rates. The Forward Contract is
marked-to-market daily and the change in market value is recorded by the Fund as
an unrealized gain or loss. When the Forward Contract is closed, the Fund
records a realized gain or loss equal to the difference between the value at the
time it was opened and the value at the time it was closed. The Fund could be
exposed to risk if a counter party is unable to meet the terms of a contract or
if the value of the currency changes unfavorably. The Fund may enter into
Forward Contracts in connection with planned purchases or sales of securities,
or to hedge against adverse fluctuations in exchange rates between currencies.
(E) OPTION ACCOUNTING PRINCIPLES
When the Fund writes a call or put option, an amount equal to the premium
received is included in the Fund's "Statement of Assets and Liabilities" as an
asset and an equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option. The current
market value of an option listed on a traded exchange is valued at its last bid
price, or, in the case of an over-the-counter option, is valued at the average
of the last bid prices obtained from brokers, unless a quotation from only one
broker is available, in which case only that broker's price will be used. If an
option expires on its stipulated expiration date or if the Fund enters into a
closing purchase transaction, a gain or loss is realized without regard to any
unrealized gain or loss on the underlying security, and the liability related to
such option is extinguished. If a written call option is exercised, a gain or
loss is realized from the sale of the underlying security and the proceeds of
the sale are increased by the premium originally received. If a written put
option is exercised, the cost of the underlying security purchased would be
decreased by the premium originally received. The Fund can write options only on
a covered basis, which, for a call, requires that the Fund hold the underlying
security, and, for a put, requires the Fund to set aside cash, U.S. government
securities or other liquid securities in an amount not less than the exercise
price or otherwise provide adequate cover at all times while the put option is
outstanding. The Fund may use options to manage its exposure to the stock and
bond markets and to fluctuations in currency values or interest rates.
The premium paid by the Fund for the purchase of a call or put option is
included in the Fund's "Statement of Assets and Liabilities" as an investment
and subsequently "marked-to-market" to reflect the current market value of the
option. If an option which the Fund has purchased expires on the stipulated
expiration date, the Fund realizes a loss in the amount of the cost of the
option. If the Fund enters into a closing sale transaction, the Fund realizes a
gain or loss, depending on whether proceeds from the closing sale transaction
are greater or less than the cost of the option. If the Fund exercises a call
option, the cost of the securities acquired by exercising the call is increased
by the premium paid to buy the call. If the Fund exercises a put option, it
realizes a gain or loss from the sale of the underlying security, and the
proceeds from such sale are decreased by the premium originally paid.
The risk associated with purchasing options is limited to the premium originally
paid. The risk in writing a call option is that the Fund may forego the
opportunity of profit if the market value of the underlying security or index
increases and the option is exercised. The risk in writing a put option is that
the Fund may incur a loss if the market value of the underlying security or
index decreases and the option is exercised. In addition, there is the risk the
Fund may not be able to enter into a closing transaction because of an illiquid
secondary market.
(F) FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. Upon entering into such a contract the
Fund is required to pledge to the broker an amount of cash or securities equal
to the minimum "initial margin" requirements of the exchange on which the
contract is traded. Pursuant to the contract, the Fund agrees to receive from or
pay to the broker an amount of cash equal to the daily fluctuation in value of
the contract. Such receipts or payments are known as "variation margin" and are
recorded by the Fund as unrealized gains or losses. When the contract is closed,
the Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time it was
closed. The potential risk to the Fund is that the change in value of the
underlying securities may not correlate to the change in value of the contracts.
The Fund may use futures contracts to manage its exposure to the stock and bond
markets and to fluctuations in currency values or interest rates.
(G) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). The cost of securities sold is determined on a first-in,
first-out basis, unless otherwise specified. Dividends are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. Where a high
level of uncertainty exists as to its collection, income is recorded net of all
withholding tax with any rebate recorded when received. The Fund may trade
securities on other than normal settlement terms. This may increase the risk if
the other party to the transaction fails to deliver and causes the Fund to
subsequently invest at less advantageous prices.
(H) PORTFOLIO SECURITIES LOANED
At December 31, 1998, stocks with an aggregate value of $5,772,440 were on loan
to brokers. The loans were secured by cash collateral of $6,131,138 received by
the Fund. For the year ended December 31, 1998, the Fund received securities
lending fees of $308,990.
For international securities, cash collateral is received by the Fund against
loaned securities in an amount at least equal to 105% of the market value of the
loaned securities at the inception of each loan. This collateral must be
maintained at not less than 103% of the market value of the loaned securities
during the period of the loan. For domestic securities, cash collateral is
received by the Fund against loaned securities in an amount at least equal to
102% of the market value of the loaned securities at the inception of each loan.
This collateral must be maintained at not less than 100% of the market value of
the loaned securities during the period of each loan. The
FS-54
<PAGE> 151
cash collateral is invested in a securities lending trust which consists of a
portfolio of high quality short duration securities whose average effective
duration is restricted to 120 days or less.
(I) TAXES
It is the policy of the Fund to meet the requirements for qualification as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended ("Code"). It is also the intention of the Fund to make distributions
sufficient to avoid imposition of any excise tax under Section 4982 of the Code.
Therefore, no provision has been made for Federal taxes on income, capital
gains, and unrealized appreciation of securities held, or for excise tax on
income and capital gains. The Fund currently has a capital loss carryforward of
$81,520,585, of which $3,081,427 expires in 2005 and $78,439,158 expires in
2006.
(J) DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded by the Fund on the ex-date. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Fund and timing differences.
(K) FOREIGN SECURITIES
There are certain additional considerations and risks associated with investing
in foreign securities and currency transactions that are not inherent in
investments of domestic origin. These risks of investing in foreign markets may
include foreign currency exchange rate fluctuations, perceived credit risk,
adverse political and economic developments and possible adverse foreign
government intervention.
(L) RESTRICTED SECURITIES
The Fund is permitted to invest in privately placed restricted securities. These
securities may by resold in transactions exempt from registration or to the
public if the securities are registered. Disposal of these securities may
involve time-consuming negotiations and expense, and prompt sale at an
acceptable price may be difficult. At the end of the year, restricted
securities, if any, (excluding 144A issues), are shown at the end of the Fund's
Portfolio of Investments.
(M) INDEXED SECURITIES
The Fund may invest in indexed securities whose value is linked either directly
or indirectly to changes in foreign currencies, interest rates, equities,
indices, or other reference instruments. Indexed securities may be more volatile
than the reference instrument itself, but any loss is limited to the amount of
the original investment.
(N) LINE OF CREDIT
The Fund, along with certain other funds advised and/or administered by the
Manager, has a line of credit with BankBoston and State Street Bank and Trust
Company. The arrangements with the banks allow the Fund and certain other funds
to borrow, on a first come, first served basis, an aggregate maximum amount of
$250,000,000. The Fund is limited to borrowing up to 33 1/3% of the value of the
Fund's total assets. On December 31, 1998, the Fund had no loans outstanding.
For the year ended December 31, 1998, the weighted average outstanding daily
balance of bank loans (based on the number of days the loans were outstanding)
was $6,800,494 with a weighted average interest rate of 6.15%. Interest expense
for the year ended December 31, 1998, was $94,155 and is included in "Other
expenses" on the Statement of Operations.
2. RELATED PARTIES
A I M Advisors, Inc. (the "Manager"), an indirect wholly-owned subsidiary of
AMVESCAP PLC, is the Fund's investment manager and administrator, and INVESCO
(NY), Inc., (formerly, Chancellor LGT Asset Management, Inc.) is the Fund's
investment sub-adviser and sub-administrator. As of the close of business on May
29, 1998, Liechtenstein Global Trust AG ("LGT"), the former indirect parent
organization of Chancellor LGT Asset Management, Inc. ("Chancellor LGT"),
consummated a purchase agreement with AMVESCAP PLC pursuant to which AMVESCAP
PLC acquired LGT's Asset Management Division, which included Chancellor LGT and
certain other affiliates. As a result of this transaction, Chancellor LGT was
renamed INVESCO (NY), Inc., and is now an indirect wholly-owned subsidiary of
AMVESCAP PLC. Also, as of the close of business May 29, 1998, A I M
Distributors, Inc. ("AIM Distributors"), a wholly-owned subsidiary of the
Manager, became the Fund's distributor, and the Trust was reorganized from a
Massachusetts business trust into a Delaware business trust. Finally, as of the
close of business on September 4, 1998, A I M Fund Services, Inc. ("AFS"), an
affiliate of the Manager and AIM Distributors, replaced GT Global Investor
Services, Inc. ("GT Services") as the transfer agent of the Fund.
The Fund pays investment management and administration fees to the Manager at
the following annualized rates: 0.975% on the first $500 million of average
daily net assets of the Fund; 0.95% on the next $500 million; 0.925% of the next
$500 million and 0.90% on amounts thereafter. These fees are computed daily and
paid monthly.
AIM Distributors, an affiliate of the Manager, serves as the Fund's distributor.
For the period ended May 29, 1998, GT Global, Inc. ("GT Global"), an affiliate
of the investment sub-advisor, served as the Fund's distributor.
Class A shares are subject to initial sales charges imposed at the time of
purchase, in accordance with the schedule included in the Fund's current
prospectus. AIM Distributors collects the sales charges imposed on sales of
Class A shares, and reallows a portion of such charges to dealers through which
the sales are made. For the year ended December 31, 1998, AIM Distributors
retained sales charges of $23,466. Purchases of Class A shares exceeding
$1,000,000 may be subject to a contingent deferred sales charge ("CDSC") upon
redemption, in accordance with the Fund's current prospectus. AIM Distributors
and GT Global collected such CDSCs in the amount of $19,510 and $2,399 for the
year ended December 31, 1998, respectively. AIM Distributors also makes ongoing
shareholder servicing and trail commission payments to dealers whose clients
hold Class A shares.
FS-55
<PAGE> 152
Class B shares are not subject to initial sales charges. When Class B shares are
sold, AIM Distributors, from its own resources, pays commissions to dealers
through which the sales are made. Certain redemptions of Class B shares made
within six years of purchase are subject to CDSCs, in accordance with the Fund's
current prospectus. For the year ended December 31, 1998, AIM Distributors and
GT Global collected such CDSCs in the amount of $90,711 and $124,324,
respectively. In addition, AIM Distributors makes ongoing shareholder servicing
and trail commission payments to dealers whose clients hold Class B shares.
For the period ended May 29, 1998, pursuant to the then effective separate
distribution plans adopted under the 1940 Act Rule 12b-1 by the Trust's Board of
Trustees with respect to the Fund's Class A shares ("Class A Plan") and Class B
shares ("Class B Plan"), the Fund reimbursed GT Global for a portion of its
shareholder servicing and distribution expenses. Under the Class A Plan, the
Fund was permitted to pay GT Global a service fee at the annualized rate of up
to 0.25% of the average daily net assets of the Fund's Class A shares for GT
Global's expenditures incurred in servicing and maintaining shareholder
accounts, and was permitted to pay GT Global a distribution fee at the
annualized rate of up to 0.35% of the average daily net assets of the Fund's
Class A shares, less any amounts paid by the Fund as the aforementioned service
fee, for GT Global's expenditures incurred in providing services as distributor.
All expenses for which GT Global was reimbursed under the Class A Plan would
have been incurred within one year of such reimbursement.
For the period ended May 29, 1998, pursuant to the Class B Plan, the Fund was
permitted to pay GT Global a service fee at the annualized rate of up to 0.25%
of the average daily net assets of the Fund's Class B shares for GT Global's
expenditures incurred in servicing and maintaining shareholder accounts, and was
permitted to pay GT Global a distribution fee at the annualized rate of up to
0.75% of the average daily net assets of the Fund's Class B shares for GT
Global's expenditures incurred in providing services as distributor. Expenses
incurred under the Class B Plan in excess of 1.00% annually were permitted to be
carried forward for reimbursement in subsequent years as long as that Plan
continues in effect.
Effective as of the close of business May 29, 1998, pursuant to Rule 12b-1 under
the 1940 Act, the Trust's Board of Trustees adopted a Master Distribution Plan
applicable to the Fund's Class A shares ("Class A Plan") and Class B shares
("Class B Plan"), pursuant to which the Fund compensates AIM Distributors for
the purpose of financing any activity that is intended to result in the sale of
Class A or Class B shares of the Funds. Under the Class A Plan, the Fund
compensates AIM Distributors at the annualized rate of 0.35% of the average
daily net assets of the Fund's Class A shares. Under the Class B Plan, the Fund
compensates AIM Distributors at an annualized rate of 1.00% of the average daily
net assets of the Fund's 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 or Class B
shares to selected dealers and financial institutions who furnish continuing
personal shareholder services to their customers who purchase and own the
appropriate class of shares of the Fund. Any amounts not paid as a service fee
under the Plans would constitute an asset-based sales charge.
The Manager and AIM Distributors have voluntarily undertaken to limit the Fund's
expenses (exclusive of brokerage commissions, taxes, interest, and extraordinary
items) to the maximum annual level of 2.00%, 2.65%, and 1.65% of the average
daily net assets of the Fund's Class A, Class B, and Advisor Class shares,
respectively. If necessary, this limitation will be effected by waivers by the
Manager of investment management and administration fees, waivers by AIM
Distributors of payments under the Class A Plan and/or Class B Plan and/or
reimbursements by the Manager or AIM Distributors of portions of the Fund's
other operating expenses.
Effective as of the close of business September 4, 1998, the Fund, pursuant to a
transfer agency and service agreement, has agreed to pay AFS an annualized fee
of $24.85 per shareholder accounts that are open during any monthly period (this
fee includes all out-of-pocket expenses), and an annualized fee of $0.70 per
shareholder account that is closed during any monthly period. Both fees shall be
billed by AFS monthly in arrears on a prorated basis of 1/12 of the annualized
fee for all such accounts.
For the period January 1, 1998 to September 4, 1998, GT Services, an affiliate
of the Manager and AIM Distributors, was the transfer agent of the Fund. For
performing shareholder servicing, reporting, and general transfer agent
services, GT Services received an annual maintenance fee of $17.50 per account,
a new account fee of $4.00 per account, a per transaction fee of $1.75 for all
transactions other than exchanges and a per exchange fee of $2.25. GT Services
was also reimbursed by the Fund for its out-of-pocket expenses for such items as
postage, forms, telephone charges, stationery and office supplies.
The Manager is the pricing and accounting agent for the Fund. The monthly fee
for these services to the Manager is a percentage, not to exceed 0.03% annually,
of the Fund's average daily net assets. The annual fee rate is derived based on
the aggregate net assets of the funds which comprise the following investment
companies: AIM Growth Series, AIM Investment Funds, AIM Investment Portfolios,
AIM Series Trust, G.T. Global Variable Investment Series and G. T. Global
Variable Investment Trust. The fee is calculated at the rate of 0.03% to the
first $5 billion of assets and 0.02% to the assets in excess of $5 billion. An
amount is allocated to and paid by each such fund based on its relative average
daily net assets.
The Trust pays each of its Trustees who is not an employee, officer or director
of the Manager, AIM Distributors or GT Services $5,000 per year plus $300 for
each meeting of the board or any committee thereof attended by the Trustee.
3. PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 1998, purchases and sales of investment
securities by the Fund, other than U.S. government obligations and short-term
investments, aggregated $129,155,679 and $167,008,919, respectively. There were
no purchases or sales of U.S. government obligations by the Fund during the
year.
FS-56
<PAGE> 153
4. CAPITAL SHARES
At December 31, 1998, there were an unlimited number of shares of beneficial
interest authorized, at no par value. Transactions in capital shares of the Fund
were as follows:
CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------------------- -----------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------- ------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Shares sold.................................. 220,054,764 $ 1,179,166,766 110,903,994 $ 1,213,154,082
Shares issued in connection with reinvestment
of distributions........................... 151,132 760,569 2,058,341 13,577,615
------------ --------------- ------------ ---------------
220,205,896 1,179,927,335 112,962,335 1,226,731,697
Shares repurchased........................... (225,597,779) (1,226,798,121) (119,529,679) (1,324,924,362)
------------ --------------- ------------ ---------------
Net decrease................................. (5,391,883) $ (46,870,786) (6,567,344) $ (98,192,665)
------------ --------------- ------------ ---------------
------------ --------------- ------------ ---------------
<CAPTION>
CLASS B
- ---------------------------------------------
<S> <C> <C> <C> <C>
Shares sold.................................. 29,096,684 $ 151,336,461 37,888,593 $ 423,842,967
Shares issued in connection with reinvestment
of distributions........................... 15,481 77,283 856,732 5,478,474
------------ --------------- ------------ ---------------
29,112,165 151,413,744 38,745,325 429,321,441
Shares repurchased........................... (31,689,112) (166,703,231) (41,705,872) (470,119,000)
------------ --------------- ------------ ---------------
Net decrease................................. (2,576,947) $ (15,289,487) (2,960,547) $ (40,797,559)
------------ --------------- ------------ ---------------
------------ --------------- ------------ ---------------
<CAPTION>
ADVISOR CLASS
- ---------------------------------------------
<S> <C> <C> <C> <C>
Shares sold.................................. 5,119,563 $ 27,073,240 4,493,439 $ 41,526,678
Shares issued in connection with reinvestment
of distributions........................... 3,439 17,402 25,872 181,817
------------ --------------- ------------ ---------------
5,123,002 27,090,642 4,519,311 41,708,495
Shares repurchased........................... (5,082,992) (27,505,806) (4,408,085) (41,722,805)
------------ --------------- ------------ ---------------
Net increase (decrease)...................... 40,010 $ (415,164) 111,226 $ (14,310)
------------ --------------- ------------ ---------------
------------ --------------- ------------ ---------------
</TABLE>
5. EXPENSE REDUCTIONS
The Manager has directed certain portfolio trades to brokers who then paid a
portion of the Fund's expenses. For the year ended December 31, 1998, the Fund's
expenses were reduced by $88,368 under these arrangements.
- --------------
FEDERAL TAX INFORMATION (UNAUDITED):
For the fiscal year ended December 31, 1998, the amount of income received by
the Fund from sources within foreign countries and possessions of the United
States was $.1659 per share (representing a total of $3,975,000). The amount of
taxes paid by the Fund to such countries for the fiscal year ended December 31,
1998 was $.005 per share (representing a total of $120,535). The following table
provides a breakdown by country of ordinary income dividends and foreign taxes
paid by the Fund during the fiscal year ended December 31, 1998:
<TABLE>
<CAPTION>
COUNTRY GROSS INCOME % FOREIGN TAX PAID %
- --------------------------------------------- -------------- ------------------
<S> <C> <C>
Australia.................................... 30.91 --
Hong Kong.................................... 30.30 --
Malaysia..................................... 1.40 5.32
New Zealand.................................. 2.51 13.30
Phillipines.................................. 0.80 7.02
Singapore.................................... 9.86 60.18
Taiwan....................................... 2.59 12.81
Various...................................... 0.50 --
------- -------
78.87 98.63
Nonqualifying................................ 1.14 1.37
United States................................ 19.99 --
------- -------
100.00% 100.00%
------- -------
------- -------
</TABLE>
FS-57
