<PAGE> 1
AIM BASIC VALUE FUND
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ADVISOR CLASS
AIM Basic Value 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 BASIC VALUE 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
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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.
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AIM BASIC VALUE 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 all of its investable
assets in the Value Portfolio (the portfolio), which in turn normally invests at
least 65% of its total assets in equity securities of U.S. issuers that have
market capitalizations of greater than $500 million and that the portfolio
managers believe to be undervalued in relation to long-term earning power or
other factors.
The portfolio may also invest up to 35% of its total assets in equity
securities of U.S. issuers that have market capitalizations of less than $500
million and in investment-grade non-convertible debt securities, U.S. government
securities and high-quality money market instruments, all of which are issued by
U.S. issuers. The portfolio may also invest up to 25% of its total assets in
foreign securities.
In selecting investments, the portfolio managers seek to identify those
companies whose prospects and growth potential are undervalued by investors and
that provide the potential for attractive returns. 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 portfolio may temporarily
hold all or a portion of its assets in cash, money market instruments, or
high-quality debt securities. As a result, the fund or the portfolio may not
achieve its investment objective.
The portfolio may engage in active and frequent trading of portfolio
securities to achieve its investment objective. If the portfolio 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.
If the fund's Board of Trustees determines that it is in the best interests of
the fund and its shareholders, the fund may redeem its investment in the
portfolio.
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 portfolio 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 portfolio's investment advisor and other service providers are
unable to distinguish the year 2000 from the year 1900.
The portfolio'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 portfolio 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 BASIC VALUE 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
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
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<S> <C>
1996 ....................................... 15.58%
1997 ....................................... 27.78%
1997 ....................................... 7.43%
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
15.11% (quarter ended December 31, 1998) and the lowest quarterly return was
- -12.52% (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
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(for the periods ended SINCE INCEPTION
December 31, 1998) 1 YEAR INCEPTION DATE
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<S> <C> <C> <C>
Advisor Class 7.43% 19.57% 10/18/95
Russell 1000--Registered Trademark--
Index(1) 27.02 28.08(2) 10/31/95(2)
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</TABLE>
(1) The Russell 1000--Registered Trademark-- Index is a widely recognized,
unmanaged index of common stocks that measures the performance of the 1,000
largest companies in the Russell 3000--Registered Trademark-- Index, which
measures the performance of the 3,000 largest U.S. companies based on total
market capitalization.
(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 BASIC VALUE 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
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<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)(1) ADVISOR CLASS
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<S> <C>
Management Fees 0.73%
Distribution and/or Service
(12b-1) Fees None
Other Expenses 1.03
Total Annual Fund Operating
Expenses 1.76
Expense Reimbursement(2) 0.36
Net Expenses 1.40
- ---------------------------------------------------
</TABLE>
(1) This fee table, and the expense example below, reflect the expenses of both
the fund and the portfolio.
(2) 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
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<S> <C> <C> <C> <C>
Advisor Class $179 $554 $954 $2,073
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</TABLE>
3
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AIM BASIC VALUE FUND
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FUND MANAGEMENT
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THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the investment advisor for the
Value Portfolio (the portfolio) 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 portfolio's
operations and provides investment advisory services to the portfolio, including
obtaining and evaluating economic, statistical and financial information to
formulate and implement investment programs for the portfolio.
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 portfolio, 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 portfolio are
- - Bret W. Stanley, 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 1994 to 1998, he was Vice President and portfolio manager of
Van Kampen American Capital Asset Management, Inc.
- - Evan G. Harrel, 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 1994 to 1998, he was Vice President and portfolio manager of
Van Kampen American Capital Asset Management, Inc.
OTHER INFORMATION
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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 BASIC VALUE 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
----------------------------------------
OCTOBER 18,
YEAR ENDED DECEMBER 31, TO
------------------------- DECEMBER 31,
1998(a) 1997 1996 1995
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<S> <C> <C> <C> <C>
Net asset value, beginning of period $17.37 $14.72 $12.77 $ 11.43
Income from investment operations:
Net investment income(b) 0.07 0.15(c) 0.03(c) 0.04(c)
Net gains on securities (both realized and
unrealized) 1.21 3.91 1.96 1.30
Total from investment operations 1.28 4.06 1.99 1.34
Less distributions:
Dividends from net investment income -- (0.07) -- --
Distributions from net realized gains (0.32) (1.34) (0.04) --
Total distributions (0.32) (1.41) (0.04) --
Net asset value, end of period $18.33 $17.37 $14.72 $ 12.77
Total return(d) 7.43% 27.78% 15.58% 11.72%
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Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,038 $ 439 $ 191 $ 81
Ratio of expenses to average net assets:
With expense reductions and/or reimbursement 1.39%(e) 1.64% 1.65% 1.65%(f)
Without expense reductions and/or
reimbursement 1.76%(e) 2.62% 5.16% 50.19%(f)
Ratio of net investment income to average net
assets:
With expense reductions and/or reimbursement 0.60%(e) 0.91% 0.25% 1.45%(f)
Without expense reductions and/or
reimbursement 0.23%(e) 0.07)% (3.26)% (47.09)%(f)
Ratio of interest expense to average net
assets(g) -- 0.03% -- --
Portfolio turnover rate(g) 148% 93% 256% --
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</TABLE>
(a) The Portfolio changed investment advisors on May 29, 1998.
(b) Before reimbursement the net investment income (loss) per share would have
been $0.02, $(0.01), $(0.46) and $(1.10) for 1998-1995, respectively.
(c) Calculated based upon average shares outstanding during the period.
(d) Not annualized for periods less than one year.
(e) Ratios are based on average net assets of $783,941.
(f) Annualized.
(g) Portfolio turnover rates and ratio of interest expense to average net assets
are calculated on the basis of the Portfolio as a whole without
distinguishing between the classes of shares issued.
5
<PAGE> 8
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THE AIM FUNDS
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SHAREHOLDER INFORMATION FOR ADVISOR CLASS SHARES
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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
<PAGE> 10
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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 BASIC VALUE 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 Basic Value Fund--Advisor Class
SEC 1940 Act file number: 811-2699
- ------------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com BVA-PRO-2 INVEST WITH DISCIPLINE
--Registered Trademark--
<PAGE> 13
AIM SMALL CAP GROWTH FUND
------------------------------------------------------------------------
ADVISOR CLASS
AIM Small Cap 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 SMALL CAP 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 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> 15
-------------------------
AIM SMALL CAP 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 all of its investable
assets in the Small Cap Portfolio (the portfolio), which in turn normally
invests at least 65% of its total assets in equity securities of U.S. issuers
that have market capitalizations less than that of the largest company in the
Russell 2000--Registered Trademark-- Index.
The portfolio may also invest up to 35% of its total assets in equity
securities of U.S. issuers that have market capitalizations greater than that of
the largest company in the Russell 2000--Registered Trademark-- Index, and in
investment-grade non-convertible debt securities, U.S. government securities and
high-quality money market instruments, all of which are issued by U.S. issuers.
The portfolio 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 have strong earnings momentum or demonstrate other potential for
growth of capital. The portfolio managers anticipate that the portfolio, when
fully invested, will generally be comprised of companies that are currently
experiencing a greater than anticipated increase in earnings. 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 portfolio may temporarily
hold all or a portion of its assets in cash, money market instruments, or
high-quality debt securities. As a result, the fund or the portfolio may not
achieve its investment objective.
The portfolio may engage in active and frequent trading of portfolio
securities to achieve its investment objective. If the portfolio 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.
If the fund's Board of Trustees determines that it is in the best interests of
the fund and its shareholders, the fund may redeem its investment in the
portfolio.
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 portfolio 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. This is
especially true with respect to equity securities of smaller companies, whose
prices may go up and down more than equity securities of larger,
more-established companies. Also, since equity securities of smaller companies
may not be traded as often as equity securities of larger, more-established
companies, it may be difficult or impossible for the portfolio to sell
securities at a desirable price.
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.
If the seller of a repurchase agreement in which the portfolio invests
defaults on its obligation or declares bankruptcy, the portfolio may experience
delays in selling the securities underlying the repurchase agreement. As a
result, the portfolio 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 portfolio's investment advisor and other service providers are
unable to distinguish the year 2000 from the year 1900.
The portfolio'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 portfolio 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 SMALL CAP 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 ........................................... 14.22%
1997 ........................................... 16.63%
1998 ........................................... 23.38%
</TABLE>
During the periods shown in the bar chart, the highest quarterly return was
30.45% (quarter ended December 31, 1998) and the lowest quarterly return was
- -20.18% (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 23.38% 17.98% 10/18/95
Russell 2000--Registered Trademark-- Index(1) (2.55) 13.30(2) 10/31/95(2)
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) The Russell 2000--Registered Trademark-- Index is a widely recognized,
unmanaged index of common stocks that measures the performance of the 2,000
smallest companies in the Russell 3000--Registered Trademark-- Index, which
measures the performance of the 3,000 largest U.S. companies based on total
market capitalization.
(2) The average annual total return given is since the date closest to the
inception date of the Advisor Class.
2
<PAGE> 17
-------------------------
AIM SMALL CAP 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)(1) ADVISOR CLASS
- -------------------------------------------------
<S> <C>
Management Fees 0.72%
Distribution and/or Service
(12b-1) Fees None
Other Expenses:
Other 1.12
Interest 0.01
Total Other Expenses 1.13
Total Annual Fund Operating
Expenses 1.85
Expense Reimbursement(2) 0.44
Net Expenses 1.41
- -------------------------------------------------
</TABLE>
(1) This fee table, and the expense example below, reflects the expenses of both
the fund and the portfolio.
(2) 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 $188 $582 $1,001 $2,169
- ----------------------------------------------------
</TABLE>
3
<PAGE> 18
-------------------------
AIM SMALL CAP GROWTH FUND
-------------------------
FUND MANAGEMENT
- --------------------------------------------------------------------------------
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the investment advisor for the
Small Cap Portfolio (the portfolio), 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 portfolio's
operations and provides investment advisory services to the portfolio, including
obtaining and evaluating economic, statistical and financial information to
formulate and implement investment programs for the portfolio.
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 portfolio, 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 0.75% of average daily net assets,
consisting of a management and administrative fee of 0.72% 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 portfolio are
- - Robert M. Kippes, Senior Portfolio Manager, who has been responsible for the
fund since 1998 and has been associated with the advisor and/or its affiliates
since 1989.
- - 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.
- - Ryan E. Crane, Portfolio Manager, who has been responsible for the fund since
1999 and has been associated with the advisor and/or its affiliates since
1994.
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 SMALL CAP 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
- ------------------------------------------------------------------------------------------
OCTOBER 18,
YEAR ENDED DECEMBER 31, TO
------------------------- DECEMBER 31,
1998(a) 1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $14.39 $12.58 $11.81 $ 11.43
Income from investment operations:
Net investment income(b) (0.14)(c) (0.14)(c) -- 0.05(c)
Net gains on securities (both realized and
unrealized) 3.46 2.22 1.69 0.33
Total from investment operations 3.32 2.08 1.69 0.38
Less distributions:
Distributions from net realized gains (0.50) (0.27) (0.92) --
Total distributions (0.50) (0.27) (0.92) --
Net asset value, end of period $17.21 $14.39 $12.58 $ 11.81
Total return(d) 23.38% 16.63% 14.22% 3.32%
- ------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,045 $1,592 $ 435 $ 52
Ratio of expenses to average net assets:
With expense reductions and/or reimbursement 1.40%(e) 1.57% 1.65% 1.65%(f)
Without expense reductions and/or
reimbursement 1.84%(e) 2.17% 2.74% 23.85%(f)
Ratio of net investment income to average net
assets:
With expense reductions and/or reimbursement (0.94)%(e) (1.05)% (0.03)% (2.03)%(f)
Without expense reductions and/or
reimbursement (1.38)%(e) (1.65)% (1.12)% (20.17)%(f)
Ratio of interest expense to average net
assets(g) 0.01% -- -- --
Portfolio turnover rate(g) 190% 233% 150% --
- ------------------------------------------------------------------------------------------
</TABLE>
(a) The Portfolio changed investment advisors on May 29, 1998.
(b) Before reimbursement the net investment loss per share would have been
$(0.20), $(0.21), $(0.14), and $(0.46) for 1998-1995, respectively.
(c) Calculated using average shares outstanding.
(d) Not annualized for periods less than one year.
(e) Ratios are based on average net assets of $1,783,361.
(f) Annualized.
(g) Portfolio turnover rates and ratio of interest expense to average net assets
are calculated on the basis of the Portfolio 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 SMALL CAP 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 Small Cap Growth Fund - Advisor Class
SEC 1940 Act file number: 811-2699
- -------------------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com SCG-PRO-2 INVEST WITH DISCIPLINE
-- Registered Trademark --
<PAGE> 25
STATEMENT OF
ADDITIONAL INFORMATION
ADVISOR CLASS SHARES OF
AIM BASIC VALUE FUND
AIM SMALL CAP GROWTH FUND
(SERIES PORTFOLIOS OF
AIM GROWTH SERIES)
11 GREENWAY PLAZA
SUITE 100
HOUSTON, TEXAS 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, TEXAS 77210-4739
OR BY CALLING (800) 347-4246
---------------------
STATEMENT OF ADDITIONAL INFORMATION DATED MAY 3, 1999
RELATING TO THE AIM BASIC VALUE FUND PROSPECTUS
AND THE AIM SMALL CAP GROWTH FUND PROSPECTUS,
EACH DATED MAY 3, 1999
<PAGE> 26
TABLE OF CONTENTS
<TABLE>
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INTRODUCTION................................................ 4
GENERAL INFORMATION ABOUT THE FUNDS......................... 4
The Trust and Its Shares.................................. 4
INVESTMENT POLICIES......................................... 5
Selection of Investments.................................. 5
Investments in Other Investment Companies................. 6
Depositary Receipts....................................... 6
Warrants or Rights........................................ 6
Lending of Portfolio Securities........................... 6
Commercial Bank Obligations............................... 7
Repurchase Agreements..................................... 7
Borrowing, Reverse Repurchase Agreements and "Roll"
Transactions........................................... 7
When-Issued or Forward Commitment Securities.............. 8
Temporary Defensive Strategies............................ 8
OPTIONS AND FUTURES......................................... 8
Special Risks of Options and Futures...................... 8
Writing Call Options...................................... 9
Writing Put Options....................................... 9
Purchasing Put Options.................................... 10
Purchasing Call Options................................... 10
Index Options............................................. 11
Interest Rate and Stock Index Futures Contracts........... 12
Options on Futures Contracts.............................. 13
Limitations on Use of Futures and Options on Futures...... 13
Cover..................................................... 14
RISK FACTORS................................................ 14
Illiquid Securities....................................... 14
Debt Securities........................................... 15
Equity Securities......................................... 15
Small Cap Companies....................................... 15
INVESTMENT LIMITATIONS...................................... 15
EXECUTION OF PORTFOLIO TRANSACTIONS......................... 17
Portfolio Trading and Turnover............................ 17
MANAGEMENT.................................................. 18
Trustees and Executive Officers........................... 18
Investment Management and Administration Services Relating
to the Funds and the Portfolios........................ 19
Distribution Services..................................... 21
Expenses of the Funds and the Portfolios.................. 21
NET ASSET VALUE DETERMINATION............................... 21
HOW TO PURCHASE AND REDEEM SHARES........................... 22
Backup Withholding........................................ 22
DIVIDEND ORDER.............................................. 23
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS................... 23
Reinvestment of Dividends and Distributions............... 23
Tax Matters............................................... 23
Taxation of the Funds..................................... 24
Reinstatement Privilege................................... 24
Taxation of the Portfolios................................ 24
Taxation of the Funds' Shareholders....................... 25
</TABLE>
2
<PAGE> 27
<TABLE>
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PAGE NO.
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<S> <C>
SHAREHOLDER INFORMATION..................................... 25
MISCELLANEOUS INFORMATION................................... 27
Charges for Certain Account Information................... 27
Custodian................................................. 27
Transfer Agency and Accounting Agency Services............ 27
Independent Accountants................................... 27
Legal Matters............................................. 27
Shareholder Liability..................................... 27
Names..................................................... 28
Control Persons and Principal Holders of Securities....... 28
INVESTMENT RESULTS.......................................... 29
Total Return Quotations................................... 29
Performance Information................................... 30
APPENDIX.................................................... 33
Description of Bond Ratings............................... 33
Description of Commercial Paper Ratings................... 34
Absence of Rating......................................... 34
FINANCIAL STATEMENTS........................................ FS
</TABLE>
3
<PAGE> 28
INTRODUCTION
This Statement of Additional Information relates to the Advisor Class shares
of AIM Small Cap Growth Fund, formerly AIM Small Cap Equity Fund ("Small Cap
Fund") and AIM Basic Value Fund, formerly AIM America Value Fund ("Basic Value
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. The Small Cap Fund and Basic Value Fund invest
all of their investable assets in the Small Cap Portfolio and Value Portfolio
(individually, a "Portfolio," and collectively, the "Portfolios"), respectively.
A I M Advisors, Inc. ("AIM") serves as the investment manager of and
administrator for the Portfolios and for the Funds.
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 Small Cap Fund is included
in a Prospectus dated May 3, 1999, and for Basic Value 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 Prospectuses, and, in order to avoid repetition, reference will
be made to sections of the Prospectuses. Additionally, the Prospectuses 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 Prospectuses 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: AIM New Pacific Growth
Fund, AIM Europe Growth Fund, AIM Japan Growth Fund, AIM Mid Cap Equity Fund
(formerly known as AIM Mid Cap Growth Fund), AIM Small Cap Growth Fund (formerly
known as 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 of 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,
a particular class of a Fund, or a particular Portfolio means, respectively, the
vote of the lesser of (a) 67% or more of the shares of the Trust, such Fund,
such class or such Portfolio 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, such class or such Portfolio are present or represented by proxy, or (b)
more than 50% of the outstanding shares of the Trust, such Fund, such class or
such Portfolio.
Class A, Class B, 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 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.
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.
4
<PAGE> 29
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.
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 Board of
Trustees of the Trust, in such event, the remaining holders cannot elect any
trustees of the Trust.
INVESTMENT POLICIES
The Small Cap Fund and Basic Value Fund each seeks to achieve its investment
objective by investing all of its investable assets in the Small Cap Portfolio
and Value Portfolio, respectively, each of which is a subtrust (a "series") of
Growth Portfolio, a Delaware business trust registered as an open-end management
investment company with an investment objective that is identical to that of its
corresponding Fund. Whenever the phrase "all of the Fund's investable assets" is
used herein and in the Prospectus, it means that the only investment securities
that will be held by a Fund will be its interest in its corresponding Portfolio.
A Fund may withdraw its investment in its corresponding Portfolio at any time,
if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund and its shareholders to do so.
A change in a Portfolio's investment objective, policies or limitations that
is not approved by the Board or shareholders of the corresponding Fund could
require that Fund to redeem its interest in the Portfolio. Any such redemption
could result in a distribution in kind of portfolio securities (as opposed to a
cash distribution) by the Portfolio. In addition, a distribution in kind could
result in a less diversified portfolio of investments for a Fund and could
adversely affect its liquidity. Should such a distribution occur, the Fund could
incur brokerage fees or other transaction costs in converting such securities to
cash. Upon redemption, the Board would consider what action might be taken,
including the investment of all the investable assets of the Fund in another
pooled investment entity having substantially the same investment objective as
the Fund or the direct retention by the Fund of its own investment advisor to
manage its assets in accordance with its investment objective, policies and
limitations discussed herein.
In addition to selling an interest therein to the Funds, each Portfolio may
sell interests therein to other non-affiliated investment companies and/or other
institutional investors. All institutional investors in a Portfolio will pay a
proportionate share of that Portfolio's expenses and will invest in the
Portfolio on the same terms and conditions. However, if another investment
company invests any or all of its assets in a Portfolio, it would not be
required to sell its shares at the same public offering price as the
corresponding Fund and may charge different sales commissions. Therefore,
investors in a Fund may experience different returns than investors in another
investment company that invests exclusively in a Portfolio. As of the date of
the Prospectus and this Statement of Additional Information, the Funds are the
only institutional investors in the Portfolios.
The Funds may be materially affected by the actions of other large investors,
if any, in the Portfolios. For example, as with all open-end investment
companies, if a large investor were to redeem its interest in a Portfolio, (1)
the Portfolio's remaining investors could experience higher pro rata operating
expenses, thereby producing lower returns, and (2) the Portfolio's security
holdings may become less diverse, resulting in increased risk. Institutional
investors in a Portfolio that have a greater pro rata ownership interest in the
Portfolio than the corresponding Fund could have effective voting control over
the operation of the Portfolio.
Unless specifically noted, the Fund's investment policies described in this
Statement of Additional Information are not fundamental polices and may be
changed by vote of the Trust's Board of Trustees, without shareholder approval.
SELECTION OF INVESTMENTS
For purposes of the Prospectus and this Statement of Additional Information,
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.
The debt obligations that the Portfolios may invest in are limited to U.S.
government securities and corporate debt securities of issuers domiciled in the
U.S. Each Portfolio will limit its purchases of debt securities to investment
grade debt 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 to be of
equivalent quality.
AIM allocates 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 and
movements in the general level and term of interest rates.
Equity securities in which the Funds may invest include common stocks,
preferred stocks, convertible debt securities and warrants to acquire such
securities.
5
<PAGE> 30
INVESTMENTS IN OTHER INVESTMENT COMPANIES
The Portfolios may invest in the securities of closed-end investment companies
(including investment vehicles or companies advised by AIM or its affiliates
("Affiliated Funds")) within the limits of the Investment Company Act of 1940,
as amended (the "1940 Act"). These limitations currently provide that, in
general, each Portfolio may purchase shares of a closed-end investment company
unless (a) such a purchase would cause a Portfolio to own more than 3% of the
total outstanding voting stock of the investment company or (b) such a purchase
would cause a Portfolio 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 Portfolios do not intend to invest in such vehicles or funds
unless AIM determines that the potential benefits of such investments justify
the payment of any applicable premiums. As a shareholder in an investment
company, a Portfolio 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, the Portfolio would continue to pay its own management fees and other
expenses. With respect to investments in Affiliated Funds, AIM waives its
advisory fee to the extent that such fees are based on assets of a Fund invested
in Affiliated Funds.
DEPOSITARY RECEIPTS
Each Portfolio may invest up to 25% of its total assets in 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 Portfolio'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 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
Portfolios may invest in both sponsored and unsponsored ADRs.
WARRANTS OR RIGHTS
Warrants or rights may be acquired by a Portfolio in connection with other
securities or separately and provide the Portfolio 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 Portfolio 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 regula-
6
<PAGE> 31
tory 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 Portfolios may pay reasonable administrative and custodial fees in
connection with the loans of their securities. While the securities loans are
outstanding, the Portfolios 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 Portfolio
will have a right to call each loan at any time and obtain the securities within
the stated settlement period. The Portfolios 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 will only be made to firms deemed by
AIM to be of good standing and will not be made unless, in the judgment of AIM,
the consideration to be earned from such loans would justify the risk.
COMMERCIAL BANK OBLIGATIONS
For the purposes of each Portfolio's investment policies with respect to bank
obligations, obligations of foreign branches of U.S. 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. Although a Portfolio typically will acquire
obligations issued and supported by the credit of U.S. 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 Portfolio. 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.
REPURCHASE AGREEMENTS
A repurchase agreement is a transaction in which a Portfolio 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 investment in securities, including possible decline in
market value of the underlying securities and delays and costs to the Portfolio
if the other party to the repurchase agreement becomes bankrupt, the Portfolios
intend to enter into repurchase agreements only with banks and dealers believed
by AIM to present minimal credit risks in accordance with guidelines approved by
Growth Portfolio's Board of Trustees. AIM will review and monitor the
creditworthiness of such institutions under the general supervision of Growth
Portfolio's Board.
Each Portfolio 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
Portfolio's ability to sell the collateral and the Portfolio could suffer a
loss. However, with respect to financial institutions whose bankruptcy or
liquidation proceedings are subject to the U.S. Bankruptcy Code, the Portfolios
intend to comply with provisions under the U.S. Bankruptcy Code that would allow
them to immediately to resell the collateral. A Portfolio 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 Portfolio's borrowings will not exceed 33 1/3% of its total assets, i.e.,
each Portfolio'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
Portfolio's portfolio holdings or other factors cause the ratio of the
Portfolio's total assets to outstanding borrowings to fall below 300%, within
three days (excluding Sundays and holidays) of such event the Portfolio 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
Portfolio also may borrow up to 5% of its total assets for temporary or
emergency purposes other than to meet redemptions. A Portfolio may borrow in
connection with meeting requests for redemption. Any borrowing by a Portfolio
may cause greater fluctuation in the value of its corresponding Fund's shares
than would be the case if the Portfolio did not borrow.
Each Portfolio's fundamental investment limitations permit the Portfolio to
borrow money for leveraging purposes. Each Portfolio, 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 Growth Portfolio's Board of Trustees. If a Portfolio 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 Portfolio's net asset value. When the
income and gains on securities purchased with the proceeds of borrowings exceed
the costs of such borrowings, a Portfolio'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 Portfolio's earnings or net asset value would
decline faster than would otherwise be the case.
Each Portfolio may enter into reverse repurchase agreements. A reverse
repurchase agreement is a borrowing transaction in which the Portfolio 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 Portfolio also may
engage
7
<PAGE> 32
in "roll" borrowing transactions which involve its sale of Government National
Mortgage Association certificates or other securities together with a commitment
(for which the Portfolio may receive a fee) to purchase similar, but not
identical, securities at a future date. Each Portfolio 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
Portfolio may borrow through reverse repurchase agreements and "roll"
transactions in connection with meeting requests for redemption.
WHEN-ISSUED OR FORWARD COMMITMENT SECURITIES
Each Portfolio 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 place at a later date.
When-issued securities and forward commitments may be sold prior to the
settlement date, but a Portfolio 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 Portfolio. If a Portfolio 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 Portfolio 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 Portfolio may incur a loss.
TEMPORARY DEFENSIVE STRATEGIES
In the interest of preserving shareholders' capital, AIM and/or the
Sub-advisor may employ a temporary defensive investment strategy if it
determines such a strategy to be warranted due to market, economic or political
conditions. During such time, a Portfolio may invest less than 65% of its total
assets in the types of securities covered by its primary investment policy. In
addition, most or all investments of a Portfolio may be made in the United
States and denominated in U.S. dollars. Further, pending investment of proceeds
from new sales of Portfolio shares or to meet its ordinary daily cash needs, a
Portfolio may hold cash (U.S. dollars, foreign currencies or multinational
currency units such as euros) and may invest in high quality foreign or domestic
money market instruments.
Money market instruments in which the Portfolios 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
AIM to be of comparable quality.
OPTIONS AND FUTURES
SPECIAL RISKS OF OPTIONS AND FUTURES
The use of options and futures 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's
ability to predict movements of the overall securities markets, which
requires different skills than predicting changes in the prices of
individual securities. While AIM is 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
Portfolio entered into a short hedge because AIM projected a decline in the
price of a security in the Portfolio's securities portfolio, and the price
of that security increased instead, the gain from that increase might be
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 Portfolio could
suffer a loss. In either such case, the Portfolio 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.
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(5) As described below, a Portfolio 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 Portfolio
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 Portfolio'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 Portfolio sell a portfolio security at a disadvantageous
time. The Portfolio'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 a Portfolio.
WRITING CALL OPTIONS
A Portfolio may write (sell) call options on securities and indices. Call
options generally will be written on securities that, in the opinion of AIM, 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 Portfolio.
A call option gives the holder (buyer) the right to purchase a security 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 or she may be assigned an exercise
notice, requiring him or her to deliver the underlying security 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 on which call options may be written will be purchased
solely on the basis of investment considerations consistent with each
Portfolio's investment objective. When writing a call option, a Portfolio, in
return for the premium, gives up the opportunity for profit from a price
increase in the underlying security above the exercise price, and retains the
risk of loss should the price of the security decline. Unlike one who owns
securities not subject to an option, a Portfolio has no control over when it may
be required to sell the underlying securities, since most options may be
exercised at any time prior to the option's expiration. If a call option that a
Portfolio has written expires, the Portfolio 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 during the option period. If the call option is
exercised, the Portfolio will realize a gain or loss from the sale of the
underlying security, which will be increased or offset by the premium received.
Neither Portfolio considers a security covered by a call option to be "pledged"
as that term is used in the Portfolio'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 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 Portfolio will be obligated to sell the security
at less than its market value.
The premium that a Portfolio receives for writing a call option is deemed to
constitute the market value of an option. The premium a Portfolio 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 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 from being called, or
to permit the sale of the underlying security. Furthermore, effecting a closing
transaction will permit a Portfolio to write another call option on the
underlying security with either a different exercise price or expiration date or
both.
Each Portfolio 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 or indices at the time the options
are written. From time to time, a Portfolio may purchase an underlying security
for delivery in accordance with the exercise of an option, rather than
delivering such security from its portfolio. In such cases, additional costs
will be incurred.
A Portfolio 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, 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 owned by the Portfolio.
WRITING PUT OPTIONS
The Portfolios may write put options on securities and indices. A put option
gives the purchaser of the option the right to sell, and the writer (seller) the
obligation to buy, the underlying security at the exercise price at any time
until (American style) or on (Euro-
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pean 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 Portfolio generally would write put options in circumstances where AIM
wishes to purchase the underlying security for the Portfolio's portfolio at a
price lower than the current market price of the security. In such event, the
Portfolio 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 Portfolio also would receive interest on debt securities 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 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 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 Portfolio will be obligated to purchase the
security at greater than its market value.
PURCHASING PUT OPTIONS
Each Portfolio may purchase put options on securities and indices. As the
holder of a put option, a Portfolio would have the right to sell the underlying
security at the exercise price at any time until (American style) or on
(European style) the expiration date. A Portfolio may enter into closing sale
transactions with respect to such options, exercise such options or permit such
options to expire.
A Portfolio may purchase a put option on an underlying security ("protective
put") owned by the Portfolio in order to protect against an anticipated decline
in the value of the security. Such hedge protection is provided only during the
life of the put option when the Portfolio, as the holder of the put option, is
able to sell the underlying security at the put exercise price regardless of any
decline in the underlying security's market price. The premium paid for the put
option and any transaction costs would reduce any profit otherwise available for
distribution when the security eventually is sold.
A Portfolio also may purchase put options at a time when the Portfolio does
not own the underlying security. By purchasing put options on a security it does
not own, a Portfolio seeks to benefit from a decline in the market price of the
underlying security. If the put option is not sold when it has remaining value,
and if the market price of the underlying security remains equal to or greater
than the exercise price during the life of the put option, the Portfolio 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 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 Portfolio may purchase call options on securities and indices. As the
holder of a call option, a Portfolio would have the right to purchase the
underlying security at the exercise price at any time until (American style) or
on (European style) the expiration date. A Portfolio may enter into closing sale
transactions with respect to such options, exercise such options or permit such
options to expire.
Call options may be purchased by a Portfolio for the purpose of acquiring the
underlying security for its portfolio. Utilized in this fashion, the purchase of
call options would enable a Portfolio to acquire the security at the exercise
price of the call option plus the premium paid. At times, the net cost of
acquiring the security in this manner may be less than the cost of acquiring the
security directly. This technique also may be useful to the Portfolios 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 itself, a Portfolio is partially protected from any
unexpected decline in the market price of the underlying security 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 Portfolio also may purchase call options on underlying securities it owns
to avoid realizing losses that would result in a reduction of its current
return. For example, where a Portfolio has written a call option on an
underlying security having a current market value below the price at which it
purchased the security, an increase in the market price could result in the
exercise of the call option written by the Portfolio and the realization of a
loss on the underlying security. Accordingly, the Portfolio could purchase a
call option on the same underlying security, which could be exercised to fulfill
the Portfolio's delivery obligations under its written call (if it is
exercised). This strategy could allow the Portfolio to avoid selling the
portfolio security at a time when it has an unrealized loss; however, the
Portfolio 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
Portfolio's total assets at the time of purchase.
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 Portfolio will not purchase an OTC option unless AIM believes 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
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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 Portfolio may also sell OTC options and, in connection therewith,
set aside assets or cover its obligations with respect to OTC options written by
the Portfolio. The assets used as cover for OTC options written by a Portfolio
will be considered illiquid unless the OTC options are sold to qualified dealers
who agree that the Portfolio 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 Portfolio's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. A Portfolio 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
Portfolio will enter into OTC options only with contra parties that are expected
to be capable of entering into closing transactions with the Portfolio, there is
no assurance that the Portfolio 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 Portfolio 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 Portfolio 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 Portfolio 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 Portfolio buys a call on an index, it pays a premium and has
the same rights as to such call as are indicated above. When a Portfolio 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 Portfolio's exercise of the
put, to deliver to the Portfolio 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 Portfolio writes a put on an index, it receives a premium and the
purchaser has the right, prior to the expiration date, to require the Portfolio
to 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 Portfolio writes a
call on an index it cannot provide in advance for its potential settlement
obligations by acquiring and holding the underlying securities. A Portfolio 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 Portfolio 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 Portfolio 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 Portfolio, 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 Portfolio 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 Portfolio 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.
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INTEREST RATE AND STOCK INDEX FUTURES CONTRACTS
A Portfolio may enter into interest rate or stock index futures contracts
("Futures" or "Futures Contracts") as a hedge against changes in prevailing
levels of interest rates or stock price levels in order to establish more
definitely the effective return on securities held or intended to be acquired by
the Portfolio. A Portfolio's hedging may include sales of Futures as an offset
against the effect of expected increases in interest rates or decreases in stock
prices, and purchases of Futures as an offset against the effect of expected
declines in interest rates or increases in stock prices.
The Portfolios 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").
Although techniques other than sales and purchases of Futures Contracts could
be used to reduce a Portfolio's exposure to interest rate and stock market
fluctuations, the Portfolio 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 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, 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 and the same
delivery date. If the offsetting purchase price is less than the original sale
price, the Portfolio realizes a gain; if it is more, the Portfolio realizes a
loss. Conversely, if the offsetting sale price is more than the original
purchase price, the Portfolio realizes a gain; if it is less, the Portfolio
realizes a loss. The transaction costs also must be included in these
calculations. There can be no assurance, however, that a Portfolio will be able
to enter into an offsetting transaction with respect to a particular Futures
Contract at a particular time. If a Portfolio is not able to enter into an
offsetting transaction, the Portfolio 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 Portfolio.
Each Portfolio's 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 that a Portfolio owns, or Futures Contracts
will be purchased to protect a Portfolio against an increase in the price of
securities 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 Portfolio in order to initiate Futures trading and to maintain
the Portfolio's open positions in Futures Contracts. A margin deposit made when
the Futures Contract is entered into ("initial margin") is intended to ensure
the Portfolio'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 Portfolio entered into the Futures
Contract will be made on a daily basis as the price of the underlying security
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 rates and in stock market movements, 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 in the Portfolio'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,
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
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,
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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 options 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 Portfolio 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 Portfolio would continue to
be subject to market risk with respect to the position. In addition, except in
the case of purchased options, the Portfolio would continue to be 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, 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 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 or indices.
If a Portfolio 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 Portfolio 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 AND OPTIONS ON FUTURES
To the extent that a Portfolio enters into Futures Contracts and options on
Futures Contracts, in each case other than for bona fide hedging purposes (as
defined by the CFTC), the aggregate initial margin and premiums required to
establish these positions (excluding the amount by which options are
"in-the-money") will not exceed 5% of the liquidation value of the Portfolio's
portfolio, after taking into account unrealized profits and unrealized losses on
any contracts the Portfolio 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
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<PAGE> 38
price of the put. This guideline may be modified by Growth Portfolio's Board of
Trustees without a shareholder vote. This limitation does not limit the
percentage of a Portfolio's assets at risk to 5%.
COVER
Transactions using Futures Contracts and options (other than options purchased
by a Portfolio) expose the Portfolio to an obligation to another party. A
Portfolio will not enter into any such transactions unless it owns either (1) an
offsetting ("covered") position in securities or other options 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 Portfolio 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 Futures Contract or option is open, unless they
are replaced with other appropriate assets. If a large portion of a Portfolio's
assets are used for cover or otherwise set aside, it could affect portfolio
management or the Portfolio's ability to meet redemption requests or other
current obligations.
RISK FACTORS
ILLIQUID SECURITIES
A Portfolio may invest up to 15% of its net assets in illiquid securities.
Securities may be considered illiquid if a Portfolio cannot reasonably expect
within seven days to sell the securities for approximately the amount at which
the Portfolio 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 Portfolio 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 Portfolio may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Portfolio 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.
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 Portfolio, however, could affect adversely the marketability of such portfolio
securities and the Portfolio might be unable to dispose of such securities
promptly or at favorable prices.
With respect to liquidity determinations generally, Growth Portfolio'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. That Board of Trustees has delegated the function of making day-to-day
determinations of liquidity to AIM in accordance with procedures approved by
that Board of Trustees. AIM takes 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 monitors the liquidity of
securities in each Portfolio's securities portfolio and periodically reports
such determinations to the Growth Portfolio's Board of Trustees. If the
liquidity percentage restriction of a Portfolio is satisfied at the time of
investment, a later increase in the percentage of illiquid securities held by a
Portfolio 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 Portfolio increases
above the applicable limit, AIM will take appropriate steps to bring
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<PAGE> 39
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 that Portfolio.
DEBT SECURITIES
Each Portfolio may invest in U.S. government securities and corporate debt
securities of issuers domiciled in the United States. Each Portfolio limits its
purchases of debt securities to investment grade obligations. The value of debt
securities held by a Portfolio will fluctuate with changes in the perceived
creditworthiness of the issues of such securities and interest rates. In
selecting debt securities for investment, AIM reviews and monitors the
creditworthiness of each issuer and issue and analyzes 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
Portfolio is also permitted to purchase debt securities that are not rated by
S&P, Moody's or another NRSRO but that AIM determines to be of comparable
quality to that of rated securities in which the Portfolio 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
Portfolio has acquired the security. AIM will consider such an event in
determining whether a Portfolio 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 "Description of Debt Ratings" 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.
SMALL CAP COMPANIES
The Small Cap Portfolio invests primarily in equity securities of U.S. small
cap companies. Small cap companies may be more vulnerable than larger companies
to adverse business, economic or market developments. Small cap companies may
also have more limited product lines, markets or financial resources than
companies with larger capitalizations, and may be more dependent on a relatively
small management group. In addition, small cap companies may not be well-known
to the investing public, may not have institutional ownership and may have only
cyclical, static or moderate growth prospects. Most small cap company stocks pay
low or no dividends. Securities of small cap companies are generally less liquid
and their prices more volatile than those of securities of larger companies. The
securities of some small cap companies may not be widely traded, and the
Portfolio's position in securities of such companies may be substantial in
relation to the market for such securities. Accordingly, it may be difficult for
the Portfolio to dispose of securities of these small cap companies at
prevailing market prices in order to meet redemptions.
INVESTMENT LIMITATIONS
The Small Cap Fund and Basic Value Fund each has the following fundamental
investment policy to enable it to invest in the Small Cap Portfolio and Value
Portfolio, respectively:
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.
All other investment policies and limitations of each Fund and its
corresponding Portfolio are identical. Therefore, although the following
discusses certain investment policies and limitations of each Portfolio and
Growth Portfolio's Board of Trustees, it applies equally to each Fund and the
Trust's Board of Trustees.
Each Portfolio 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 Portfolio. Whenever a Fund is
requested to vote on a change in the investment limitations of its corresponding
Portfolio, the Fund will hold a meeting of its shareholders and will cast its
votes as instructed by the shareholders. Neither Portfolio 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 a Portfolio may exercise rights under agreements relating
to such securities, including the right
15
<PAGE> 40
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 a Portfolio 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 a Portfolio's total
assets (including the amount borrowed but reduced by any liabilities not
constituting borrowings) at the time of the borrowing, except that a
Portfolio 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,
banker's 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 a Portfolio's total assets would be invested in securities of that
issuer or the Portfolio would own or hold more than 10% of the outstanding
voting securities of that issuer, except that up to 25% of the Portfolio's
total assets may be invested without regard to this 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 a Portfolio 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 a Portfolio'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.
The following investment limitations of each Portfolio are not fundamental
policies and may be changed by vote of Growth Portfolio's Board of Trustees
without shareholder approval. Neither Portfolio may:
(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
Portfolio 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 Portfolio's total
assets;
(3) Enter into a futures contract or an option on a futures contract,
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 Portfolio's
portfolio, after taking into account unrealized profits and unrealized
losses on any contracts the Portfolio has entered into;
(4) Purchase securities of other investment companies, except to the
extent permitted by the 1940 Act, in the open market at no more than
customary commission rates. This limitation does not apply to securities
received or acquired as dividends, through offers of exchange, or as a
result of reorganization, consolidation, or merger;
(5) Purchase securities on margin, provided that a Portfolio may
obtain short-term credits as may be necessary for the clearance of
purchases and sales of securities, and further provided that a Portfolio
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
(6) 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.
The approval of the Fund and of other investors in a Portfolio, if any, is not
required to change the investment objective, policies or limitations of that
Portfolio, unless otherwise specified. Written notice shall be provided to
shareholders of a Fund thirty days prior to any changes in a Portfolio's
investment objective.
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 Portfolio's investment policies or restrictions. A
Portfolio 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 Portfolio's investment policies and
limitations. The original cost of the securities so acquired will be included in
any subsequent determination of a Portfolio's compliance with the investment
percentage limitations referred to above and in the Prospectus.
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<PAGE> 41
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.
EXECUTION OF PORTFOLIO TRANSACTIONS
Subject to policies established by Growth Portfolio's Board of Trustees, AIM
is responsible for the execution of the Portfolios' securities transactions and
the selection of brokers/dealers who execute such transactions on behalf of the
Portfolios. In executing transactions, AIM seeks the best net results for each
Portfolio, 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
generally seeks reasonably competitive commission rates and spreads, payment of
the lowest commission or spread is not necessarily consistent with the best net
results. While the Portfolios may engage in soft dollar arrangements for
research services, as described below, the Portfolios 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 Portfolios, AIM may select brokers to
execute the Portfolios' securities transactions on the basis of the research
services they provide to AIM for its use in managing the Portfolios and its
other advisory accounts. Such services may include furnishing analyses, 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 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 determines in good faith that such commission is
reasonable in terms either of that particular transaction or the overall
responsibility of AIM to the Portfolios and its other clients and that the total
commissions paid by each Fund will be reasonable in relation to the benefits
received by the Portfolios over the long term. Research services may also be
received from dealers who execute Portfolio transactions in OTC markets.
AIM 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 Portfolio toward payment of its expenses, such as
custodian fees.
Investment decisions for each Portfolio and for other investment accounts
managed by AIM 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 Portfolios. 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 Portfolio is concerned, in other cases AIM
believes that coordination and the ability to participate in volume transactions
will be beneficial to the Portfolios.
Under a policy adopted by Growth Portfolio's Board of Trustees, and subject to
the policy of obtaining the best net results, AIM may consider a broker/dealer's
sale of the shares of the Funds and the other funds for which AIM serves 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 Portfolio 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. Growth Portfolio's Board of Trustees has
adopted procedures in conformity with Rule 17e-1 under the 1940 Act to ensure
that all brokerage commissions paid to 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 Portfolios 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 Portfolio, provided the conditions of an exemptive order
received by the Funds from the SEC are met. In addition, a Portfolio may
purchase or sell a security from or to another AIM Fund provided the Portfolios
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, 1997 and 1996, the Small Cap
Portfolio paid aggregate brokerage commissions of $113,203, $91,971 and $54,241,
respectively. For the fiscal years ended December 31, 1998, 1997 and 1996, the
Value Portfolio paid aggregate brokerage commissions of $61,274, $22,202 and
$37,380, respectively.
PORTFOLIO TRADING AND TURNOVER
Although the Portfolios generally do not intend to trade for short-term
profits, the securities held by a Portfolio will be sold whenever AIM believes
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 Portfolio's
average month-end portfolio value, excluding short-term investments. The
portfolio turnover rate will not be a limiting factor when AIM deems portfolio
17
<PAGE> 42
changes appropriate. High portfolio turnover (over 100%) involves
correspondingly greater brokerage commissions and other transaction costs that a
Portfolio will bear directly and may result in the realization of net capital
gains that are taxable when distributed to each corresponding Fund's
shareholders. For the fiscal years ended December 31, 1998 and 1997, the Small
Cap Portfolio's and Value Portfolio's portfolio turnover rates were 190% and
233%, and 148% and 93%, respectively.
MANAGEMENT
The Trust's Board of Trustees has overall responsibility for the operations of
the Funds. The Board of Trustees 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 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-advisor.
- ---------------------------------------------------------------------------------------------------------------
FRANK S. 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-advisor.
- ---------------------------------------------------------------------------------------------------------------
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-advisor.
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
* A trustee who is an "interested person" of the Trust and A I M Advisors, Inc.
as defined in the 1940 Act.
18
<PAGE> 43
<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-advisor.
- ---------------------------------------------------------------------------------------------------------------
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 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, Mr. Anderson, Mr. Bayley, Mr.
Patterson and Miss Quigley, who are not directors, officers or employees of AIM
or any affiliated company, received total compensation of $6,650, $5,450, $6,050
and $6,650, respectively, from the Trust 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 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 for which he or she served 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 (i) 1% of the shares of the
Basic Value Fund and (ii) 3.026% of the shares of the Small Cap Fund.
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES RELATING TO THE FUNDS AND THE
PORTFOLIOS
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. AIM
and their world-wide asset management affiliates provide investment management
and/or administrative services to institutional, corporate and individual
clients around the world.
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<PAGE> 44
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 and AIM 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 draws 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, AIM employs a team approach, taking advantage of
its investment resources around the world.
AIM serves as each Portfolio's investment manager and administrator under an
investment management and administration contract between the Growth Portfolio
and AIM ("Portfolio Management Contract"). AIM serves as administrator to each
Fund under an administration contract between the Trust and AIM ("Administration
Contract").
The Administration Contracts will not be deemed advisory contracts, as defined
under the 1940 Act. As investment managers and administrators, AIM makes all
investment decisions for each Portfolio and, as administrator, AIM administers
each Portfolio's and Fund's affairs. Among other things, AIM furnishes the
services and pays the compensation and travel expenses of persons who perform
the executive, administrative, clerical and bookkeeping functions of the
Portfolios and the Funds and provide suitable office space and necessary small
office equipment and utilities.
The Portfolio Management Contracts may be renewed with respect to a Portfolio
for one-year terms, provided that any such renewal has been specifically
approved at least annually by: (i) the Portfolio's Board of Trustees or the vote
of a majority of the Portfolio's outstanding voting securities (as defined in
the 1940 Act), and (ii) a majority of the Portfolio's Trustees who are not
parties to the Portfolio 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. The Portfolio Management
Contracts provide that with respect to each Portfolio, and the Administration
Contracts provide that with respect to each Fund, either the Trust, the
Portfolio or AIM may terminate the contracts without penalty upon sixty days'
written notice to the other party. The Portfolio Management Contracts terminate
automatically in the event of its assignment (as defined in the 1940 Act).
The Funds pay AIM administration fees, computed daily and paid monthly, at the
annualized rate of 0.25% of each Fund's average daily net assets. The Funds bear
this pro rata portion of the investment management and administration fees paid
by the Portfolio to AIM. The Portfolios pay AIM such fees, computed daily and
paid monthly, based on the average daily net assets of each Portfolio, at the
annualized rate of 0.475% on the first $500 million, 0.45% on the next $500
million, 0.425% on the next $500 million and 0.40% on the amounts thereafter.
The investment management and administration fees paid by the Fund and the
Portfolio are higher than those paid by most mutual funds. The Funds pay all
expenses not assumed by AIM, AIM Distributors or other agents. AIM has
undertaken to limit each Funds expenses (exclusive of brokerage commissions,
taxes, interest and extraordinary expenses) to the annual rate of 1.40% of the
average daily net assets until May 31, 2000.
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, GT Global
Variable Investment Series and GT 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.
For the fiscal years ended December 31, 1998, December 31, 1997 and December
31, 1996, the Small Cap Portfolio and the Value Portfolio paid fees of $159,738,
$120,544 and $73,312; and $133,235, $74,372 and $27,487, respectively, to
INVESCO (NY), Inc. For the same periods, the Small Cap Fund and Basic Value Fund
paid administration fees of $84,258, $63,460 and $39,004; and $70,124, $39,171
and $14,722, respectively, to INVESCO (NY), Inc. For the fiscal years ended
December 31, 1998, December 31, 1997 and December 31, 1996, INVESCO (NY), Inc.
reimbursed the Small Cap Portfolio and Value Portfolio for their respective
investment management and administration fees in the amounts of $93,076, $67,837
and $73,312; and $60,760, $74,372 and $27,487, respectively; for the same
periods, INVESCO (NY), Inc. reimbursed the Small Cap Fund and Basic Value Fund
for their respective administration fees in the amounts of $55,651, $63,460 and
$39,004; and $41,599, $39,171 and $14,722, respectively. Accordingly, INVESCO
(NY), Inc. reimbursed each Fund and its corresponding Portfolio investment
management and administration fees in the aggregate amounts of $148,727,
$131,297 and $112,316; and $102,359, $113,543 and $42,209, respectively.
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<PAGE> 45
For the fiscal years ended December 31, 1998, December 31, 1997 and December
31, 1996, INVESCO (NY), Inc., pursuant to its voluntary expense undertaking,
reimbursed the Small Cap Fund and Basic Value Fund for expenses in the
additional amounts of $0, $0 and $58,269; and $0, $38,419 and $164,683,
respectively.
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 pursuant to a distribution contract between the Trust and AIM Distributors
without a front-end sales charge or a contingent deferred sales charge.
EXPENSES OF THE FUNDS AND THE PORTFOLIOS
Each Fund and each Portfolio pays all expenses not assumed by the AIM, 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. 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.
Similarly, the allocation of general Growth Portfolio expenses, and expenses
shared by the Portfolios with each other, are made on a basis deemed fair and
equitable and may be based on the relative net assets of the Portfolios or the
nature of the services performed and relative applicability to each Portfolio.
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.
NET ASSET VALUE DETERMINATION
The net asset value per share of each Fund and Portfolio 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 and
Portfolio. 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 or Portfolio is
determined as of the close of the NYSE on such day. Net asset value per share is
determined by dividing the value of a Fund's or a Portfolio'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 a Fund's or a Portfolio's net asset
value per share is made in accordance with generally accepted accounting
principles.
Each equity security held 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 the asked
prices on that day. Each security traded in the over-the-counter market (but not
including securities reported on the NASDAQ National Market System) is valued at
the mean between the last bid and asked prices based upon quotes furnished by
market makers for such securities. 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 specially authorized
by the Growth Portfolio's 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 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 or Portfolio'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 or Portfolio'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 Growth Portfolio's Board of Trustees.
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<PAGE> 46
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 headings "Purchasing
Shares."
For purposes of a Letter of Intent entered into prior to June 1, 1998, any
registered investment advisor, trust company or bank trust department which
exercises investment discretion and which intends within thirteen months to
invest $500,000 or more can be treated as a single purchaser, provided further
that such entity places all purchases and redemption orders. Such entities
should be prepared to establish their qualifications for such treatment.
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"),
the Funds' transfer agent, 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.
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 investors 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
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<PAGE> 47
- 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 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.
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 Prospectus. 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 not described in
the Prospectuses. 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 Prospectuses is not intended as a substitute for careful tax planning.
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<PAGE> 48
TAXATION OF THE FUNDS
Each Fund is treated as a separate corporation for federal income tax
purposes. In order to continue to qualify for treatment as a regulated
investment company ("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 and net short-term
capital gain 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 other income (including gains from options or
Futures) derived with respect to its business of investing in securities
("Income Requirement"); and (2) the Diversification Requirements. Each Fund, as
an investor in its corresponding Portfolio, is deemed to own a proportionate
share of the Portfolio's assets, and to earn a proportionate share of the
Portfolio's income, for purposes of determining whether the Fund satisfies all
of the requirements described above to qualify as a RIC.
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.
See "Taxation of the Portfolios" herein for a discussion of the tax
consequences to each Fund of hedging transactions engaged in by its
corresponding Portfolio.
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.
TAXATION OF THE PORTFOLIOS
The Portfolios and Their Relationship to the Fund. Each Portfolio is treated
as a separate partnership for federal income tax purposes and is not a "publicly
traded partnership." As a result, each Portfolio is not subject to federal
income tax; instead, each Fund, as an investor in its corresponding Portfolio,
is required to take into account in determining its federal income tax liability
its share of the Portfolio's income, gains, losses, deductions and credits,
without regard to whether it has received any cash distributions from the
Portfolio.
Because, as noted above, each Fund is deemed to own a proportionate share of
its corresponding Portfolio's assets, and to earn a proportionate share of its
corresponding Portfolio's income, for purposes of determining whether the Fund
satisfies the requirements to qualify as a RIC, each Portfolio intends to
conduct its operations so that its corresponding Fund will be able to continue
to satisfy all those requirements.
Distributions to each Fund from its corresponding Portfolio (whether pursuant
to a partial or complete withdrawal or otherwise) will not result in the Fund's
recognition of any gain or loss for federal income tax purposes, except that (1)
gain will be recognized to the extent any cash that is distributed exceeds the
Fund's basis for its interest in the Portfolio before the distribution, (2)
income or gain will be recognized if the distribution is in liquidation of the
Fund's entire interest in the Portfolio and includes a disproportionate share of
any unrealized receivables held by the Portfolio, and (3) loss will be
recognized if a liquidation distribution consists solely of cash and/or
unrealized receivables. Each Fund's basis for its interest in its corresponding
Portfolio generally will equal the amount of cash and the basis of any property
the Fund invests in the Portfolio, increased by the Fund's share of the
Portfolio's net income and gains and decreased by (a) the amount of cash and the
basis of any property the Portfolio distributes to the Fund and (b) the Fund's
share of the Portfolio's losses.
Options and Futures Transactions. The Portfolios' use of hedging transactions,
such as selling (writing) and purchasing options and Futures, involves complex
rules that will determine, for federal income tax purposes, the character and
timing of recognition of the gains and losses a Portfolio realizes in connection
therewith. Gains from options and Futures derived by a Portfolio with respect to
its business of investing in securities will qualify as permissible income under
the Income Requirement for its corresponding Fund.
Futures 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 Portfolio 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 (i.e., the excess
of net long-term capital gain over net short-term capital loss) -- 20% (10% for
taxpayers in the 15% marginal tax bracket) for gain recognized on capital assets
held for more than 12 months.
If a Portfolio has an "appreciated financial position" -- generally, an
interest (including an interest through an option, Futures 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
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<PAGE> 49
Portfolio 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 Contract entered into by a
Portfolio 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.
TAXATION OF THE FUNDS' SHAREHOLDERS
Dividends and 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.
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.
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 a
foreign shareholder 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.
The foregoing is a general and abbreviated summary of certain federal tax
considerations affecting the Funds, their shareholders and the Portfolios.
Investors are urged to consult their own tax advisors for more detailed
information and for information regarding any foreign, state and local taxes
applicable to distributions received from a Fund.
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
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<PAGE> 50
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 shareholders 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.
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
shareholders 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 Agents 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.
26
<PAGE> 51
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.
CUSTODIAN
State Street Bank and Trust Company (the "Custodian"), 225 Franklin Street,
Boston, Massachusetts 02110 is custodian of all securities and cash of the
Portfolios. The Custodian attends to the collection of principal and income,
pays and collects all monies for securities bought and sold by the Portfolios
and performs certain other ministerial duties.
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, a registered transfer agent and
wholly-owned subsidiary of AIM, 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. AIM
serves as each Fund's pricing and accounting agent. For the fiscal years ended
December 31, 1998, 1997 and December 31, 1996, the Small Cap Fund and Basic
Value Fund paid accounting services fees of $6,564, $6,379 and $3,900; and
$6,806, $3,938 and $1,472, respectively.
INDEPENDENT ACCOUNTANTS
The Trust's, the Funds' and the Portfolios' independent accountants are
PricewaterhouseCoopers LLP. PricewaterhouseCoopers LLP conducts annual audits of
the Funds and the Portfolios, assists in the preparation of the Funds' and the
Portfolios' federal and state income tax returns and consults with the Trust and
the Funds and Growth Portfolio and the Portfolios as to matters of accounting,
regulatory filings and federal and state income taxation.
The audited financial statements of the Trust and Growth Portfolio 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.
27
<PAGE> 52
NAMES
Prior to May 29, 1998, AIM Small Cap Equity Fund operated under the name of GT
Global America Small Cap Growth Fund, and AIM Basic Value Fund operated under
the name of GT Global America Value 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>
Basic Value Fund -- Advisor Class LGT Asset Management 401(K) Plan 57.537%
Judy Creel, Arthur Sprague, or
Robert Alley, TTEES
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
LGT Asset Management SERP Plan 36.980%
Judy Creel, Arthur Sprague, or
Robert Alley, TTEES
Attn: Debbie Nettles
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
INVESCO (NY) Asset Management Inc. 5.442%
Attn: Julio Garcia
1166 Avenue of the Americas
New York, New York 10036-2708
Basic Value Fund -- Class A AIM Foundation 15.955%
11 Greenway Plaza, Suite 2600
Houston, TX 77046
MLPF&S for the Sole Benefit of 5.814%
Its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Basic Value Fund -- Class B MLPF&S For the Sole Benefits of 5.139%
Its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Fl.
Jacksonville, Florida 32246-6484
Small Cap Fund -- Advisor Class LGT Asset Management 401(K) Plan 61.865%
Judy Creel, Arthur Sprague, or
Robert Alley, TTEES
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
Donaldson Lufkin Jenrette Securities
Corp. Inc. 12.944%
P.O. Box 2052
Jersey City, New Jersey 07303-2052
MLPF&S for the Sole Benefit of 6.742%
Its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246-6484
Small Cap Fund -- Class A Jonathan C. Schoolar 5.384%
3722 Tartan Lane
Houston, TX 77025
</TABLE>
28
<PAGE> 53
<TABLE>
<CAPTION>
PERCENT
PERCENT OWNED OF
OWNED OF RECORD AND
FUND NAME AND ADDRESS OF OWNER RECORD* BENEFICIALLY
- ---- ------------------------- -------- ------------
<S> <C> <C> <C>
Small Cap Fund -- Class B MLPF&S for the Sole Benefit of 9.781%
Its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Fl.
Jacksonville, Florida 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.
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
portion of such period).
</TABLE>
The Standardized Returns for the Advisor Class shares of the Basic Value Fund,
stated as average annualized total returns for the periods shown, were:
<TABLE>
<CAPTION>
BASIC
VALUE FUND
PERIOD (ADVISOR CLASS)
- ------ ---------------
<S> <C>
Fiscal year ended Dec. 31, 1998........................................... 7.43%
Oct. 18, 1995 (commencement of operations) through Dec. 31, 1998.......... 19.57%
</TABLE>
The standardized returns for the Advisor Class shares of the Small Cap Fund,
stated as average annualized total returns for the periods shown, were:
<TABLE>
<CAPTION>
SMALL CAP
FUND
PERIOD (ADVISOR CLASS)
- ------ ---------------
<S> <C>
Fiscal year ended Dec. 31, 1998........................................... 23.38%
Oct. 18, 1995 (commencement of operations) through Dec. 31, 1998.......... 17.98%
</TABLE>
Standard total return quotes may be accompanied by total return figures
calculated by alternative methods. For example, average annual total return may
be calculated without assuming payment of the full sales load according to the
following formula:
n
P(1+U) =ERV
<TABLE>
<S> <C> <C> <C>
Where P = a hypothetical initial payment of $1,000.
U = average annual total return assuming payment of only 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 stated period.
</TABLE>
29
<PAGE> 54
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 Basic Value Fund, stated as aggregate total
returns for the periods shown, were:
<TABLE>
<CAPTION>
BASIC
VALUE FUND
PERIOD (ADVISOR CLASS)
- ------ ---------------
<S> <C>
Oct. 18, 1995 (commencement of operations) through Dec. 31,
1998...................................................... 77.25%
</TABLE>
The aggregate non-standardized returns (not taking sales charges into account)
for the Advisor Class shares of the Small Cap Fund, stated as aggregate total
returns for the periods shown, were:
<TABLE>
<CAPTION>
SMALL CAP
FUND
PERIOD (ADVISOR CLASS)
- ------ ---------------
<S> <C>
Oct. 18, 1995 (commencement of operations) through Dec. 31,
1998...................................................... 69.82%
</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, 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 and yield 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
30
<PAGE> 55
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
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.
31
<PAGE> 56
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.
32
<PAGE> 57
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.
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.
33
<PAGE> 58
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 alternate 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.
34
<PAGE> 59
FINANCIAL STATEMENTS
FS
<PAGE> 60
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of AIM Basic Value Fund
(formerly AIM America Value 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 Basic Value 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> 61
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-92.23%
BANKS (MAJOR REGIONAL)-2.60%
Fleet Financial Group, Inc. 16,000 $ 715,000
- --------------------------------------------------------------
BANKS (MONEY CENTER)-5.54%
BankAmerica Corp. 12,725 765,091
- --------------------------------------------------------------
Chase Manhattan Corp. (The) 4,550 309,684
- --------------------------------------------------------------
First Union Corp. 7,400 450,012
- --------------------------------------------------------------
1,524,787
- --------------------------------------------------------------
CHEMICALS (SPECIALTY)-1.41%
Sigma-Aldrich Corp. 13,200 387,750
- --------------------------------------------------------------
COMPUTERS (PERIPHERALS)-3.53%
Adaptec, Inc.(a) 23,500 412,718
- --------------------------------------------------------------
Quantum Corp.(a) 26,300 558,875
- --------------------------------------------------------------
971,593
- --------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-4.71%
Adobe Systems, Inc. 9,200 430,100
- --------------------------------------------------------------
Computer Associates International,
Inc. 20,300 865,287
- --------------------------------------------------------------
1,295,387
- --------------------------------------------------------------
ELECTRIC COMPANIES-12.22%
Carolina Power & Light Co. 5,200 244,725
- --------------------------------------------------------------
DQE, Inc. 7,700 338,318
- --------------------------------------------------------------
Illinova Corp. 13,400 335,000
- --------------------------------------------------------------
Pinnacle West Capital Corp. 7,825 331,584
- --------------------------------------------------------------
GPU, Inc. 8,200 362,337
- --------------------------------------------------------------
Niagara Mohawk Power Corp. 40,500 653,062
- --------------------------------------------------------------
Northeast Utilities 23,400 374,400
- --------------------------------------------------------------
Texas Utilities Co. 15,500 723,656
- --------------------------------------------------------------
3,363,082
- --------------------------------------------------------------
ELECTRICAL EQUIPMENT-4.54%
Philips Electronics N.V.-ADR 10,600 717,487
- --------------------------------------------------------------
Raychem Corp. 16,500 533,156
- --------------------------------------------------------------
1,250,643
- --------------------------------------------------------------
ELECTRONICS (INSTRUMENTATION)-1.85%
Perkin-Elmer Corp. 5,200 507,325
- --------------------------------------------------------------
ELECTRONICS (SEMICONDUCTOR)-3.19%
Analog Devices, Inc.(a) 21,400 671,425
- --------------------------------------------------------------
Micron Technology, Inc. 4,100 207,307
- --------------------------------------------------------------
878,732
- --------------------------------------------------------------
ENGINEERING & CONSTRUCTION-1.31%
McDermott International, Inc. 14,600 360,438
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
EQUIPMENT (SEMICONDUCTOR)-2.55%
Novellus Systems, Inc.(a) 14,200 $ 702,900
- --------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-4.40%
Citigroup Inc. 13,900 688,050
- --------------------------------------------------------------
MGIC Investment Corp. 13,100 521,544
- --------------------------------------------------------------
1,209,594
- --------------------------------------------------------------
HEALTH CARE (LONG TERM CARE)-1.77%
HCR Manor Care, Inc.(a) 16,600 487,625
- --------------------------------------------------------------
HEALTH CARE (MANAGED CARE)-5.08%
PacifiCare Health Systems,
Inc.-Class B(a) 7,500 596,250
- --------------------------------------------------------------
United HealthCare Corp. 18,600 800,963
- --------------------------------------------------------------
1,397,213
- --------------------------------------------------------------
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS)-1.89%
Pharmacia & Upjohn, Inc. 9,200 520,950
- --------------------------------------------------------------
HEALTH CARE (MEDICAL SUPPLIES)-2.70%
Beckman Coulter Inc. 13,700 743,225
- --------------------------------------------------------------
INSURANCE (PROPERTY CASUALTY)-3.06%
Amerin Corp.(a) 4,200 99,225
- --------------------------------------------------------------
EXEL Limited-Class A 9,900 742,500
- --------------------------------------------------------------
841,725
- --------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-2.89%
Millipore Corp. 28,000 796,250
- --------------------------------------------------------------
OIL (DOMESTIC INTEGRATED)-1.73%
Atlantic Richfield Co. 7,300 476,325
- --------------------------------------------------------------
OIL (INTERNATIONAL INTEGRATED)-1.04%
Mobil Corp. 3,300 287,513
- --------------------------------------------------------------
OIL & GAS (DRILLING &
EQUIPMENT)-2.48%
ENSCO International, Inc. 26,200 280,012
- --------------------------------------------------------------
Schlumberger Ltd. 8,700 401,288
- --------------------------------------------------------------
681,300
- --------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-0.90%
Conoco Inc.-Class A(a) 11,800 246,325
- --------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST-0.51%
Starwood Hotels & Resorts(a) 6,183 140,278
- --------------------------------------------------------------
RETAIL (DEPARTMENT STORES)-5.52%
Federated Department Stores, Inc.(a) 13,500 588,093
- --------------------------------------------------------------
J.C. Penney Co., Inc. 8,600 403,125
- --------------------------------------------------------------
Saks Inc.(a) 16,700 527,094
- --------------------------------------------------------------
1,518,312
- --------------------------------------------------------------
</TABLE>
FS-2
<PAGE> 62
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (SPECIALTY)-0.77%
Toys "R" Us, Inc.(a) 12,600 $ 212,625
- --------------------------------------------------------------
SERVICES (DATA PROCESSING)-3.28%
First Data Corp. 28,500 903,095
- --------------------------------------------------------------
SERVICES (FACILITIES & ENVIRONMENTAL)-0.64%
Corrections Corp. of America(a) 10,000 176,250
- --------------------------------------------------------------
TELEPHONE-4.66%
Bell Atlantic Corp. 11,200 636,300
- --------------------------------------------------------------
US West, Inc. 10,000 646,250
- --------------------------------------------------------------
1,282,550
- --------------------------------------------------------------
TOBACCO-3.31%
Philip Morris Companies, Inc. 17,050 912,175
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
WASTE MANAGEMENT-2.15%
Waste Management, Inc. 12,667 $ 590,599
- --------------------------------------------------------------
Total Common Stocks (Cost
$21,863,862) 25,381,566
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
REPURCHASE AGREEMENT-3.73%(b)
SBC Warburg Dillon Read Inc., 4.75%,
01/04/99(c) $1,026,552 $ 1,026,552
- --------------------------------------------------------------
Total Repurchase Agreements
(Cost $1,026,552) 1,026,552
- --------------------------------------------------------------
TOTAL INVESTMENTS-95.96% 26,408,118
- --------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-4.04% 1,110,420
- --------------------------------------------------------------
NET ASSETS-100.00% $27,518,538
==============================================================
</TABLE>
Abbreviation:
ADR - American Depositary Receipt
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value is at least 102% of the sale 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.
(c) Joint repurchase agreement entered into 12/31/98 with a maturing value
$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.
See Notes to Financial Statements.
FS-3
<PAGE> 63
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$22,890,414) $26,408,118
- ---------------------------------------------------------
Receivables for:
Investment Advisor 118,468
- ---------------------------------------------------------
Investments sold 37,475
- ---------------------------------------------------------
Fund shares sold 1,201,931
- ---------------------------------------------------------
Dividends and interest 33,974
- ---------------------------------------------------------
Other assets 37,479
- ---------------------------------------------------------
Total assets 27,837,445
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 37,333
- ---------------------------------------------------------
Fund shares reacquired 156,968
- ---------------------------------------------------------
Accrued investment management &
administration fees 31,765
- ---------------------------------------------------------
Accrued accounting fees 587
- ---------------------------------------------------------
Accrued distribution fees 40,203
- ---------------------------------------------------------
Accrued trustees' fees 9,702
- ---------------------------------------------------------
Accrued transfer agent fees 7,000
- ---------------------------------------------------------
Accrued operating expenses 17,075
- ---------------------------------------------------------
Accrued filing fees 18,274
- ---------------------------------------------------------
Total liabilities 318,907
- ---------------------------------------------------------
Net assets applicable to shares outstanding $27,518,538
=========================================================
NET ASSETS:
Class A $ 9,073,952
=========================================================
Class B $17,406,329
=========================================================
Advisor Class $ 1,038,257
=========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 500,450
=========================================================
Class B 978,399
=========================================================
Advisor Class 56,634
=========================================================
Class A:
Net asset value and redemption price per
share $ 18.13
- ---------------------------------------------------------
Offering price per share:
(Net asset value of $18.13
divided by 94.50%) $ 19.19
=========================================================
Class B:
Net asset value and offering price per
share $ 17.79
- ---------------------------------------------------------
Advisor Class:
Net asset value and offering price per
share $ 18.33
=========================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $416 foreign withholding
tax) $ 502,395
- ---------------------------------------------------------
Interest 53,825
- ---------------------------------------------------------
Securities lending income 2,035
- ---------------------------------------------------------
Total investment income 558,255
- ---------------------------------------------------------
EXPENSES:
Investment management & administration fees 203,359
- ---------------------------------------------------------
Accounting fees 6,806
- ---------------------------------------------------------
Custodian fees 6,265
- ---------------------------------------------------------
Trustees' fees 16,714
- ---------------------------------------------------------
Distribution fees -- Class A 29,605
- ---------------------------------------------------------
Distribution fees -- Class B 188,068
- ---------------------------------------------------------
Transfer agent fees -- Class A 31,636
- ---------------------------------------------------------
Transfer agent fees -- Class B 70,338
- ---------------------------------------------------------
Transfer agent fees -- Advisor Class 2,932
- ---------------------------------------------------------
Filing fees 43,643
- ---------------------------------------------------------
Printing fees 70,882
- ---------------------------------------------------------
Other 40,141
- ---------------------------------------------------------
Total expenses 710,389
- ---------------------------------------------------------
Less: Fee waivers (102,359)
- ---------------------------------------------------------
Net expenses 608,030
- ---------------------------------------------------------
Net investment income (loss) (49,775)
- ---------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities 52,411
- ---------------------------------------------------------
Option contracts written (7,810)
- ---------------------------------------------------------
44,601
- ---------------------------------------------------------
Net unrealized appreciation of investment
securities 1,516,960
- ---------------------------------------------------------
Net gain from investment securities and
option contracts 1,561,561
- ---------------------------------------------------------
Net increase in net assets resulting from
operations $1,511,786
=========================================================
</TABLE>
See Notes to Financial Statements.
FS-4
<PAGE> 64
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) $ (49,775) $ 22,242
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities and option
contracts 44,601 1,352,859
- ------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities and
option contracts 1,516,960 2,016,032
- ------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,511,786 3,391,133
- ------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A -- (12,256)
- ------------------------------------------------------------------------------------------
Advisor Class -- (1,610)
- ------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on
investment securities:
Class A (141,471) (482,262)
- ------------------------------------------------------------------------------------------
Class B (313,992) (1,128,861)
- ------------------------------------------------------------------------------------------
Advisor Class (18,735) (30,657)
- ------------------------------------------------------------------------------------------
Share transactions-net:
Class A 1,006,548 4,423,280
- ------------------------------------------------------------------------------------------
Class B 87,004 10,245,557
- ------------------------------------------------------------------------------------------
Advisor Class 562,783 197,292
- ------------------------------------------------------------------------------------------
Net increase in net assets 2,693,923 16,601,616
- ------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 24,824,615 8,222,999
- ------------------------------------------------------------------------------------------
End of period $27,518,538 $24,824,615
==========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $24,031,065 $22,421,981
- ------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (2,524) --
- ------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities and option contracts (27,707) 401,890
- ------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities and
option contracts 3,517,704 2,000,744
- ------------------------------------------------------------------------------------------
$27,518,538 $24,824,615
==========================================================================================
</TABLE>
See Notes to Financial Statements.
FS-5
<PAGE> 65
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Basic Value Fund, formerly AIM America Value 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 invests substantially all of its investable assets in the Value
Portfolio (the "Portfolio"). The Portfolio is organized as a Delaware business
trust and is registered under the 1940 Act as a diversified, open-end management
investment company.
The Portfolio has investment objectives, policies, and limitations
substantially identical to the Fund. Therefore, the financial statements of the
Fund and the Portfolio have been presented on a consolidated basis, and
represent all activities of both the Fund and the Portfolio. At December 31,
1998, all of the shares of beneficial interest of the Portfolio were owned
either by the Fund or INVESCO (NY), Inc., which has a nominal ($100) investment
in the Portfolio.
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 and Portfolio 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 Portfolio, it is the Portfolio'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 Portfolio under each agreement at its
maturity.
C. Option Accounting Principles -- When the Portfolio writes a call or put
option, an amount equal to the premium received is included in the Fund's
consolidated "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 Portfolio 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 Portfolio can write options only on a covered basis,
which, for a call, requires that the Portfolio hold the underlying security,
and, for a put, requires the Portfolio 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 Portfolio may use options to manage its exposure to the
stock market and to fluctuations in interest rates.
The premium paid by the Portfolio for the purchase of a call or put option
is included in the Fund's consolidated "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 Portfolio has purchased
expires on the stipulated expiration date, the Portfolio realizes a loss in
the amount of the cost of the option. If the Portfolio enters into a closing
sale transaction, the Portfolio 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 Portfolio 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 Portfolio exercises a put option, it realizes a gain
or loss from the sale of the underlying security,
FS-6
<PAGE> 66
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 Portfolio 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 Portfolio 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 Portfolio 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 a future date. Upon entering
into such a contract the Portfolio 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 Portfolio 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
Portfolio as unrealized gains or losses. When the contract is closed, the
Portfolio 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 Portfolio is that the change in value
of the underlying securities may not correlate to the change in value of the
contracts. The Portfolio 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 calculated 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 Portfolio
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 Portfolio to subsequently invest at less advantageous prices. On December
31, 1998 additional paid-in capital was decreased by $47,251 and
undistributed net investment income was increased by $47,251 in order to
comply with the requirements of the American Institute of Certified Public
Accountants Statement of Position 93-2. Net assets of the Fund were
unaffected by the reclassifications discussed above.
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 Portfolio:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 YEAR ENDED
---------------------------- DECEMBER 31, 1998
AGGREGATE VALUE CASH -----------------
ON LOANS COLLATERAL FEES RECEIVED
--------------- ---------- -----------------
<S> <C> <C> <C>
$1,431,825 $1,433,821 $2,035
</TABLE>
Cash collateral is received by the Portfolio 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. Deferred Organizational Expenses -- Expenses incurred by the the Fund and the
Portfolio in connection with their organization, their initial registration
with the Securities and Exchange Commission and with various states and the
initial public offering of their shares aggregated $63,500 for the Fund and
$25,000 for the Portfolio. These expenses are being amortized on a
straight-line basis over a five-year period.
H. Taxes -- It is the policy of the Fund and the Portfolio 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.
I. 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 Portfolio and timing differences.
J. Restricted Securities -- The Portfolio 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.
K. Indexed Securities -- The Portfolio 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.
L. 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 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.
For the year 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 $87,889 with a weighted average interest rate of 6.24%. Interest
expense for the Fund for the year ended December 31, 1998 was $137, and is
included in "Other Expenses" on the Statement of Operations.
FS-7
<PAGE> 67
NOTE 2-RELATED PARTIES
A I M Advisors, Inc. ("Manager") is the Fund's and the Portfolio'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 administrator of the Fund and the
investment manager and administrator of the Portfolio. 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, and the Portfolio
was reorganized from a New York 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.
The Fund pays the Manager administration fees at the annualized rate of 0.25%
of the Fund's average daily net assets. The Portfolio pays investment management
and administration fees to the Manager at the annualized rate of 0.475% on the
first $500 million of average daily net assets of the Portfolio; 0.45% on the
next $500 million; 0.425% on the next $500 million; and 0.40% 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: $1,695 and $2,335, 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. No CDSC's for Class A were collected for the period 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. For the year ended December 31, 1998, AIM Distributors and
GT Global collected such CDSCs in the amount of: $15,167 and $38,159,
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
FS-8
<PAGE> 68
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 account that is
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 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 Portfolio pays each of its Trustees who is not an employee, officer or
director of the Manager, AIM Distributors or AFS $500 per year plus $150 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 of the
Portfolio 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 Portfolio during the year ended December 31, 1998 was
$39,540,620 and $39,657,090, 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 $4,110,581
- ---------------------------------------------------------------
Aggregate unrealized (depreciation) of investment
securities (688,180)
- ---------------------------------------------------------------
Net unrealized appreciation of investment
securities $3,422,401
===============================================================
</TABLE>
Cost of investments for tax purposes is $22,985,717.
NOTE 4-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 472,964 $ 8,362,868 781,797 $13,117,280
- ------------------------------------------------------------------------
Class B 587,988 10,276,429 1,148,582 19,043,834
- ------------------------------------------------------------------------
Advisor Class 41,555 747,776 14,203 230,962
- ------------------------------------------------------------------------
Issued as
reinvestment of
dividends:
Class A 7,580 134,463 26,859 454,725
- ------------------------------------------------------------------------
Class B 16,572 288,515 60,093 1,004,744
- ------------------------------------------------------------------------
Advisor Class 1,044 18,735 1,920 32,714
- ------------------------------------------------------------------------
Reacquired:
Class A (424,737) (7,490,783) (536,657) (9,148,725)
- ------------------------------------------------------------------------
Class B (607,196) (10,477,940) (606,167) (9,803,021)
- ------------------------------------------------------------------------
Advisor Class (11,248) (203,728) (3,834) (66,384)
- ------------------------------------------------------------------------
84,522 $ 1,656,335 886,796 $14,866,129
========================================================================
</TABLE>
NOTE 5-EXPENSE REDUCTIONS
The Manager has directed certain portfolio trades to brokers who then paid a
portion of the Portfolio's expenses. For the year ended December 31, 1998, the
expenses of the Portfolio were reduced by $1,546 under these arrangements.
FS-9
<PAGE> 69
NOTE 6-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A, Class B, and
Advisor Class outstanding during each of the years in the three-year period
ended December 31, 1998 and the period October 18, 1995 (date operations
commenced) through December 31, 1995:
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------
1998(a) 1997 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $17.25 $ 14.65 $ 12.76 $ 11.43
- ------------------------------------------------------------ ------ ------- ------- -------
Income from investment operations:
Net investment income(b) 0.04 0.09(c) (0.01)(c) 0.03(c)
- ------------------------------------------------------------ ------ ------- ------- -------
Net gains on securities (both realized and unrealized) 1.16 3.87 1.94 1.30
- ------------------------------------------------------------ ------ ------- ------- -------
Total from investment operations 1.20 3.96 1.93 1.33
- ------------------------------------------------------------ ------ ------- ------- -------
Less distributions:
Dividends from net investment income -- (0.03) -- --
- ------------------------------------------------------------ ------ ------- ------- -------
Distributions from net realized gains (0.32) (1.33) (0.04) --
- ------------------------------------------------------------ ------ ------- ------- -------
Total distributions (0.32) (1.36) (0.04) --
- ------------------------------------------------------------ ------ ------- ------- -------
Net asset value, end of period $18.13 $ 17.25 $ 14.65 $ 12.76
============================================================ ====== ======= ======= =======
Total Return(d) 7.02% 27.23% 15.12% 11.64%
============================================================ ====== ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $9,074 $ 7,688 $ 2,529 $ 870
============================================================ ====== ======= ======= =======
Ratio of expenses to average net assets:
With expense reductions and/or reimbursement 1.74%(e) 1.99% 2.00% 2.00%(f)
- ------------------------------------------------------------ ------ ------- ------- -------
Without expense reductions and/or reimbursement 2.11%(e) 2.97% 5.51% 50.54%(f)
============================================================ ====== ======= ======= =======
Ratio of net investment income to average net assets:
With expense reductions and/or reimbursement 0.25%(e) 0.56% (0.10)% 1.10%(f)
- ------------------------------------------------------------ ------ ------- ------- -------
Without expense reductions and/or reimbursement (0.08)%(e) (0.42)% (3.61)% (47.44)%(f)
============================================================ ====== ======= ======= =======
Ratio of interest expense to average net assets(g) -- 0.03% -- --
============================================================ ====== ======= ======= =======
Portfolio turnover rate(g) 148% 93% 256% --
============================================================ ====== ======= ======= =======
</TABLE>
(a) The Fund changed Investment Advisors on May 29, 1998.
(b) Before reimbursement the net investment loss per share would have been
$(0.02), $(0.07), $(0.50), and $(1.11) for 1998-1995, respectively.
(c) Calculated using average shares outstanding.
(d) Does not deduct sales charges and is not annualized for periods less than
one year.
(e) Ratios are based on average net assets of $8,458,715.
(f) Annualized.
(g) Portfolio turnover rates and ratio of interest expense to average net assets
are calculated on the basis of the Value Portfolio as a whole without
distinguishing between the classes of shares issued.
FS-10
<PAGE> 70
NOTE 6-FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
CLASS B ADVISOR CLASS
---------------------------------------------------- -----------
1998(a) 1997 1996 1995 1998(a)
------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 17.04 $ 14.54 $ 12.75 $ 11.43 $17.37
- ------------------------------------------------------ ------- -------- ------- -------- ------
Income from investment operations:
Net investment income(b) (0.08) (0.01)(c) (0.10)(c) 0.01(c) 0.07
- ------------------------------------------------------ ------- -------- ------- -------- ------
Net gains on securities (both realized and
unrealized) 1.15 3.83 1.93 1.31 1.21
- ------------------------------------------------------ ------- -------- ------- -------- ------
Total from investment operations 1.07 3.82 1.83 1.32 1.28
- ------------------------------------------------------ ------- -------- ------- -------- ------
Less distributions:
Dividends from net investment income -- -- -- -- --
- ------------------------------------------------------ ------- -------- ------- -------- ------
Distributions from net realized gains (0.32) (1.32) (0.04) -- (0.32)
- ------------------------------------------------------ ------- -------- ------- -------- ------
Total distributions (0.32) (1.32) (0.04) -- (0.32)
- ------------------------------------------------------ ------- -------- ------- -------- ------
Net asset value, end of period $ 17.79 $ 17.04 $ 14.54 $ 12.75 $18.33
====================================================== ======= ======== ======= ======== ======
Total Return(d) 6.34% 26.44% 14.35% 11.55% 7.43%
====================================================== ======= ======== ======= ======== ======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $17,406 $ 16,717 $ 5,503 $ 1,254 $1,038
====================================================== ======= ======== ======= ======== ======
Ratio of expenses to average net assets:
With expense reductions and/or reimbursement 2.39%(e) 2.64% 2.65% 2.65%(f) 1.39%(e)
- ------------------------------------------------------ ------- -------- ------- -------- ------
Without expense reductions and/or reimbursement 2.76%(e) 3.62% 6.16% 51.19%(f) 1.76%(e)
====================================================== ======= ======== ======= ======== ======
Ratio of net investment income to average net assets:
With expense reductions and/or reimbursement (0.40)%(e) (0.09)% (0.75)% 0.45%(f) 0.60%(e)
- ------------------------------------------------------ ------- -------- ------- -------- ------
Without expense reductions and/or reimbursement (0.72)%(e) (1.07)% (4.26)% (48.09)%(f) 0.23%(e)
====================================================== ======= ======== ======= ======== ======
Ratio of interest expense to average net assets(f) -- 0.03% -- -- --
====================================================== ======= ======== ======= ======== ======
Portfolio turnover rate(g) 148% 93% 256% -- 148%
====================================================== ======= ======== ======= ======== ======
<CAPTION>
ADVISOR CLASS
------------------------------------
1997 1996 1995
------- ------- --------
<S> <C> <C> <C>
Net asset value, beginning of period $ 14.72 $ 12.77 $ 11.43
- ------------------------------------------------------ ------- ------- --------
Income from investment operations:
Net investment income(b) 0.15(c) 0.03(c) 0.04(c)
- ------------------------------------------------------ ------- ------- --------
Net gains on securities (both realized and
unrealized) 3.91 1.96 1.30
- ------------------------------------------------------ ------- ------- --------
Total from investment operations 4.06 1.99 1.34
- ------------------------------------------------------ ------- ------- --------
Less distributions:
Dividends from net investment income (0.07) -- --
- ------------------------------------------------------ ------- ------- --------
Distributions from net realized gains (1.34) (0.04) --
- ------------------------------------------------------ ------- ------- --------
Total distributions (1.41) (0.04) --
- ------------------------------------------------------ ------- ------- --------
Net asset value, end of period $ 17.37 $ 14.72 $ 12.77
====================================================== ======= ======= ========
Total Return(d) 27.78% 15.58% 11.72%
====================================================== ======= ======= ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 439 $ 191 $ 81
====================================================== ======= ======= ========
Ratio of expenses to average net assets:
With expense reductions and/or reimbursement 1.64% 1.65% 1.65%(f)
- ------------------------------------------------------ ------- ------- --------
Without expense reductions and/or reimbursement 2.62% 5.16% 50.19%(f)
====================================================== ======= ======= ========
Ratio of net investment income to average net assets:
With expense reductions and/or reimbursement 0.91% 0.25% 1.45%(f)
====================================================== ======= ======= ========
Without expense reductions and/or reimbursement (0.07)% (3.26)% (47.09)%(f)
====================================================== ======= ======= ========
Ratio of interest expense to average net assets(f) 0.03% -- --
====================================================== ======= ======= ========
Portfolio turnover rate(g) 93% 256% --
====================================================== ======= ======= ========
</TABLE>
(a) The Fund changed Investment Advisors on May 29, 1998.
(b) Before reimbursement the net investment loss per share would have been
$(0.15), $(0.17), $(0.59), and $(1.13) for 1998-1995, respectively for Class
B, $0.02, $(0.01), $(0.46) and $(1.10) for 1998-1995, respectively for
Advisor Class.
(c) Calculated based upon average shares outstanding during the period.
(d) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(e) Ratios are based on average net assets of $18,806,810 and $783,941 for Class
B and Advisor Class, respectively.
(f) Annualized.
(g) Portfolio turnover rates and ratio of interest expense to average net assets
are calculated on the basis of the Portfolio as a whole without
distinguishing between the classes of shares issued.
FS-11
<PAGE> 71
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of AIM Small Cap Growth Fund
(formerly AIM Small Cap Equity 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 Small Cap 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-12
<PAGE> 72
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS-78.64%
AEROSPACE/DEFENSE-0.17%
Hawk Corp.(a) 10,300 $ 86,263
- --------------------------------------------------------------
AIRLINES-0.14%
Mesaba Holdings, Inc.(a) 3,500 72,188
- --------------------------------------------------------------
AUTO PARTS & EQUIPMENT-0.74%
Tower Automotive, Inc.(a) 15,600 389,025
- --------------------------------------------------------------
BANKING (REGIONAL)-0.91%
Centennial Bancorp(a) 6,500 121,875
- --------------------------------------------------------------
Columbia Bancorp 20,000 180,000
- --------------------------------------------------------------
Fort Bend Holdings Corp. 5,000 122,500
- --------------------------------------------------------------
Silicon Valley Bancshares(a) 3,000 51,094
- --------------------------------------------------------------
475,469
- --------------------------------------------------------------
BIOTECHNOLOGY-0.86%
Curative Health Services, Inc.(a) 1,400 46,900
- --------------------------------------------------------------
Scios, Inc.(a) 38,900 403,582
- --------------------------------------------------------------
450,482
- --------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE)-0.55%
Cox Radio, Inc.-Class A(a) 6,800 287,300
- --------------------------------------------------------------
CHEMICALS (SPECIALTY)-0.81%
Cambrex Corp. 8,400 201,600
- --------------------------------------------------------------
ChiRex, Inc.(a) 6,000 128,250
- --------------------------------------------------------------
OM Group, Inc. 2,500 91,250
- --------------------------------------------------------------
421,100
- --------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-2.97%
Brightpoint, Inc.(a) 20,000 275,000
- --------------------------------------------------------------
Excel Switching Corp.(a) 7,100 269,800
- --------------------------------------------------------------
Periphonics Corp.(a) 35,000 461,560
- --------------------------------------------------------------
REMEC, Inc.(a) 20,000 360,000
- --------------------------------------------------------------
VideoServer, Inc.(a) 10,000 183,750
- --------------------------------------------------------------
1,550,110
- --------------------------------------------------------------
COMPUTERS (HARDWARE)-0.39%
Visual Networks, Inc.(a) 5,500 206,250
- --------------------------------------------------------------
COMPUTERS (NETWORKING)-0.28%
ACT Networks, Inc.(a) 12,000 147,000
- --------------------------------------------------------------
COMPUTERS (PERIPHERALS)-1.44%
Actel Corp.(a) 15,000 300,000
- --------------------------------------------------------------
Cybex Computer Products Corp.(a) 3,600 105,750
- --------------------------------------------------------------
QLogic Corp.(a) 1,100 143,963
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (PERIPHERALS)-(CONTINUED)
Xircom, Inc.(a) 6,000 $ 204,000
- --------------------------------------------------------------
753,713
- --------------------------------------------------------------
COMPUTERS (SOFTWARE &
SERVICES)-10.46%
AnswerThink Consulting Group,
Inc.(a) 12,600 338,625
- --------------------------------------------------------------
Best Software, Inc.(a) 4,000 95,000
- --------------------------------------------------------------
Computer Management Sciences,
Inc.(a) 19,100 331,863
- --------------------------------------------------------------
Concord Communications, Inc.(a) 8,200 465,350
- --------------------------------------------------------------
Documentum, Inc.(a) 2,900 154,969
- --------------------------------------------------------------
Engineering Animation, Inc.(a) 3,700 199,800
- --------------------------------------------------------------
Entrust Technologies, Inc. 12,900 307,988
- --------------------------------------------------------------
InfoSpace.com, Inc.(a) 10,000 381,250
- --------------------------------------------------------------
Internet America, Inc.(a) 6,000 174,000
- --------------------------------------------------------------
ISS Group, Inc.(a) 3,000 165,000
- --------------------------------------------------------------
Macromedia, Inc.(a) 10,000 336,875
- --------------------------------------------------------------
MAPICS, Inc.(a) 19,300 318,450
- --------------------------------------------------------------
Metro Information Services, Inc.(a) 12,400 372,000
- --------------------------------------------------------------
MindSpring Enterprises, Inc.(a) 2,000 122,125
- --------------------------------------------------------------
Pervasive Software, Inc.(a) 10,000 192,500
- --------------------------------------------------------------
QuadraMed Corp.(a) 5,000 102,500
- --------------------------------------------------------------
ScanSource, Inc.(a) 11,000 236,500
- --------------------------------------------------------------
Software AG Systems, Inc.(a) 20,000 362,500
- --------------------------------------------------------------
Spyglass, Inc.(a) 12,000 264,000
- --------------------------------------------------------------
Stac Software, Inc.(a) 20,000 27,500
- --------------------------------------------------------------
USWeb Corp.(a) 14,000 369,250
- --------------------------------------------------------------
Wiztec Solutions Ltd.(a) 10,000 144,375
- --------------------------------------------------------------
5,462,420
- --------------------------------------------------------------
CONSUMER (JEWELRY, NOVELTIES AND GIFTS)-0.80%
Department 56, Inc.(a) 3,200 120,200
- --------------------------------------------------------------
Fossil, Inc.(a) 7,000 201,250
- --------------------------------------------------------------
Media Arts Group, Inc.(a) 7,000 98,438
- --------------------------------------------------------------
419,888
- --------------------------------------------------------------
CONSUMER FINANCE-0.42%
AmeriCredit Corp.(a) 15,800 218,238
- --------------------------------------------------------------
ELECTRICAL EQUIPMENT-1.89%
AFC Cable Systems, Inc.(a) 5,000 168,125
- --------------------------------------------------------------
General Cable Corp. 15,200 311,600
- --------------------------------------------------------------
Hadco Corp.(a) 1,700 59,500
- --------------------------------------------------------------
Hypercom Corp.(a) 12,500 123,438
- --------------------------------------------------------------
Optimal Robotics Corp.(a) 10,000 140,000
- --------------------------------------------------------------
Sawtek Inc.(a) 4,900 85,750
- --------------------------------------------------------------
</TABLE>
FS-13
<PAGE> 73
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ELECTRICAL EQUIPMENT-(CONTINUED)
SLI, Inc.(a) 3,500 $ 97,125
- --------------------------------------------------------------
985,538
- --------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS)-2.36%
Apex PC Solutions, Inc.(a) 5,000 144,375
- --------------------------------------------------------------
Applied Micro Circuits Corp.(a) 3,100 105,303
- --------------------------------------------------------------
Hi/Fn, Inc.(a) 5,069 119,757
- --------------------------------------------------------------
RF Micro Devices, Inc.(a) 7,000 324,625
- --------------------------------------------------------------
Sipex Corp.(a) 8,000 281,000
- --------------------------------------------------------------
TranSwitch Corp.(a) 6,700 260,881
- --------------------------------------------------------------
1,235,941
- --------------------------------------------------------------
ENTERTAINMENT-0.26%
SFX Entertainment, Inc.-Class A(a) 2,500 137,188
- --------------------------------------------------------------
EQUIPMENT (SEMICONDUCTOR)-0.51%
Asyst Technologies, Inc.(a) 7,500 152,813
- --------------------------------------------------------------
Etec Systems, Inc.(a) 2,900 116,000
- --------------------------------------------------------------
268,813
- --------------------------------------------------------------
FOODS-1.47%
Ben & Jerry's Homemade, Inc.-Class
A(a) 13,000 290,875
- --------------------------------------------------------------
Fresh Del Monte Produce Inc.(a) 3,000 65,063
- --------------------------------------------------------------
Hain Food Group, Inc. (The)(a) 6,200 155,000
- --------------------------------------------------------------
Horizon Organic Holding Corp.(a) 4,000 62,000
- --------------------------------------------------------------
United Natural Foods, Inc.(a) 8,000 193,000
- --------------------------------------------------------------
765,938
- --------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC AND OTHER)-3.47%
Anesta Corp.(a) 5,000 133,125
- --------------------------------------------------------------
Barr Laboratories, Inc.(a) 11,800 566,400
- --------------------------------------------------------------
Jones Pharma, Inc. 18,800 686,200
- --------------------------------------------------------------
Medicis Pharmaceutical-Class A(a) 3,000 178,875
- --------------------------------------------------------------
Parexel International Corp.(a) 10,000 250,000
- --------------------------------------------------------------
1,814,600
- --------------------------------------------------------------
HEALTH CARE (HOSPITAL
MANAGEMENT)-0.13%
New American Healthcare Corp.(a) 6,300 70,481
- --------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-1.92%
Colorado MEDtech, Inc.(a) 25,000 331,250
- --------------------------------------------------------------
Hologic, Inc.(a) 8,000 97,000
- --------------------------------------------------------------
Osteotech, Inc.(a) 5,000 232,500
- --------------------------------------------------------------
PSS World Medical, Inc.(a) 11,700 269,100
- --------------------------------------------------------------
Xomed Surgical Products, Inc.(a) 2,250 72,000
- --------------------------------------------------------------
1,001,850
- --------------------------------------------------------------
HEALTH CARE (SPECIALIZED
SERVICES)-3.23%
Hooper Holmes, Inc. 12,200 353,800
- --------------------------------------------------------------
Orthodontic Centers of America,
Inc.(a) 16,000 311,000
- --------------------------------------------------------------
Physician Reliance Network, Inc.(a) 38,300 502,688
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (SPECIALIZED SERVICES)-(CONTINUED)
Superior Consultant Holdings
Corp.(a) 5,000 $ 217,500
- --------------------------------------------------------------
Total Renal Care Holdings, Inc.(a) 10,300 304,493
- --------------------------------------------------------------
1,689,481
- --------------------------------------------------------------
INSURANCE (LIFE & HEALTH)-1.36%
Healthcare Recoveries, Inc.(a) 14,000 238,000
- --------------------------------------------------------------
Reinsurance Group of America, Inc. 7,800 473,850
- --------------------------------------------------------------
711,850
- --------------------------------------------------------------
INSURANCE (PROPERTY &
CASUALTY)-0.52%
FPIC Insurance Group, Inc. 3,000 142,500
- --------------------------------------------------------------
Medical Assurance, Inc. 3,850 127,291
- --------------------------------------------------------------
269,791
- --------------------------------------------------------------
INSURANCE BROKERS-0.39%
Clark/Bardes Holdings, Inc.(a) 12,200 205,875
- --------------------------------------------------------------
INVESTMENT MANAGEMENT-0.85%
Knight/Trimark Group, Inc.-Class
A(a) 18,600 445,238
- --------------------------------------------------------------
IRON & STEEL-0.44%
Gibraltar Steel Corp.(a) 10,000 227,500
- --------------------------------------------------------------
LEISURE TIME (PRODUCTS)-1.94%
Acclaim Entertainment, Inc.(a) 20,000 245,000
- --------------------------------------------------------------
JAKKS Pacific, Inc.(a) 7,500 80,625
- --------------------------------------------------------------
Noodle Kidoodle, Inc.(a) 20,000 190,000
- --------------------------------------------------------------
THQ, Inc.(a) 9,000 252,000
- --------------------------------------------------------------
Zomax Optical Media, Inc.(a) 15,000 243,750
- --------------------------------------------------------------
1,011,375
- --------------------------------------------------------------
LODGING (HOTELS)-0.63%
ExecuStay Corp.(a) 25,400 330,200
- --------------------------------------------------------------
MACHINERY (DIVERSIFIED)-0.12%
Gradall Industries, Inc.(a) 4,400 63,250
- --------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-0.39%
Matthews International Corp.-Class A 2,300 72,450
- --------------------------------------------------------------
Spartech Corp. 6,000 132,000
- --------------------------------------------------------------
204,450
- --------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES-1.01%
CompX International, Inc.(a) 6,800 179,350
- --------------------------------------------------------------
Knoll, Inc.(a) 11,700 346,613
- --------------------------------------------------------------
525,963
- --------------------------------------------------------------
OIL & GAS (DRILLING &
EQUIPMENT)-0.32%
Cal Dive International, Inc.(a) 3,500 72,625
- --------------------------------------------------------------
Gulfmark Offshore Inc.(a) 6,000 94,500
- --------------------------------------------------------------
167,125
- --------------------------------------------------------------
OIL & GAS (EXPLORATION AND PRODUCTION)-0.66%
Cabot Oil & Gas Corp.-Class A 4,000 60,000
- --------------------------------------------------------------
</TABLE>
FS-14
<PAGE> 74
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
OIL & GAS (EXPLORATION AND
PRODUCTION)-(CONTINUED)
Evergreen Resources, Inc.(a) 5,900 $ 104,725
- --------------------------------------------------------------
Louis Dreyfus Natural Gas Corp.(a) 2,000 28,500
- --------------------------------------------------------------
Newfield Exploration Co.(a) 5,700 118,988
- --------------------------------------------------------------
Seagull Energy Corp.(a) 5,000 31,563
- --------------------------------------------------------------
343,776
- --------------------------------------------------------------
PERSONAL CARE-0.70%
D & K Healthcare Resources, Inc.(a) 5,000 136,250
- --------------------------------------------------------------
Steiner Leisure Ltd.(a) 4,300 137,600
- --------------------------------------------------------------
Twinlab Corp.(a) 7,000 91,875
- --------------------------------------------------------------
365,725
- --------------------------------------------------------------
PUBLISHING-0.62%
Information Holdings, Inc.(a) 20,500 322,875
- --------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST-0.35%
Correctional Properties Trust 10,000 180,621
- --------------------------------------------------------------
RESTAURANTS-1.15%
P.F. Chang's China Bistro, Inc.(a) 10,000 227,500
- --------------------------------------------------------------
PJ America, Inc.(a) 12,000 217,500
- --------------------------------------------------------------
Taco Cabana-Class A(a) 20,000 155,000
- --------------------------------------------------------------
600,000
- --------------------------------------------------------------
RETAIL (COMPUTERS &
ELECTRONICS)-0.55%
Tweeter Home Entertainment Group,
Inc.(a) 10,000 287,500
- --------------------------------------------------------------
RETAIL (DISCOUNTERS)-1.46%
99 Cents Only Stores(a) 15,500 761,438
- --------------------------------------------------------------
RETAIL (DRUG STORES)-0.49%
Duane Reade, Inc.(a) 6,700 257,950
- --------------------------------------------------------------
RETAIL (FOOD CHAINS)-0.30%
Wild Oats Markets Inc.(a) 5,000 157,500
- --------------------------------------------------------------
RETAIL (HOME SHOPPING)-1.74%
DM Management Co.(a) 38,950 740,050
- --------------------------------------------------------------
Micro Warehouse, Inc.(a) 5,000 169,063
- --------------------------------------------------------------
909,113
- --------------------------------------------------------------
RETAIL (SPECIALTY)-2.55%
Blue Rhino Corp.(a) 13,000 289,250
- --------------------------------------------------------------
CSK Auto Corp.(a) 3,300 88,069
- --------------------------------------------------------------
Hollywood Entertainment Corp.(a) 10,000 272,500
- --------------------------------------------------------------
Renters Choice, Inc.(a) 8,000 254,000
- --------------------------------------------------------------
Rent-Way, Inc.(a) 8,000 194,500
- --------------------------------------------------------------
School Specialty, Inc. 6,000 126,000
- --------------------------------------------------------------
UBid, Inc.(a) 1,000 106,626
- --------------------------------------------------------------
1,330,945
- --------------------------------------------------------------
RETAIL (SPECIALTY APPAREL)-1.59%
Buckle, Inc. (The)(a) 5,200 124,800
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (SPECIALTY APPAREL)-(CONTINUED)
Chico's Fas, Inc.(a) 10,000 $ 233,750
- --------------------------------------------------------------
Children's Place Retail Stores, Inc.
(The)(a) 14,000 351,750
- --------------------------------------------------------------
Goody's Family Clothing, Inc.(a) 11,900 119,372
- --------------------------------------------------------------
829,672
- --------------------------------------------------------------
SAVINGS & LOAN COMPANY-0.66%
TeleBanc Financial Corp.(a) 10,100 343,400
- --------------------------------------------------------------
SERVICES
(ADVERTISING/MARKETING)-2.08%
Abacus Direct Corp.(a) 2,000 91,000
- --------------------------------------------------------------
Hagler Bailly, Inc.(a) 5,000 100,000
- --------------------------------------------------------------
HA-LO Industries, Inc.(a) 3,000 112,875
- --------------------------------------------------------------
Healthworld Corp.(a) 10,000 103,750
- --------------------------------------------------------------
Lamar Advertising Co.(a) 8,600 320,350
- --------------------------------------------------------------
Metris Companies Inc. 4,000 201,250
- --------------------------------------------------------------
Professional Detailing, Inc.(a) 5,500 155,375
- --------------------------------------------------------------
1,084,600
- --------------------------------------------------------------
SERVICES (COMMERCIAL &
CONSUMER)-7.04%
American Dental Partners, Inc.(a) 20,900 241,656
- --------------------------------------------------------------
Bright Horizons Family Solutions,
Inc.(a) 10,000 270,000
- --------------------------------------------------------------
Championship Auto Racing Teams,
Inc.(a) 14,300 423,638
- --------------------------------------------------------------
Comfort Systems USA, Inc.(a) 22,600 403,975
- --------------------------------------------------------------
Iron Mountain, Inc.(a) 24,150 870,909
- --------------------------------------------------------------
ITT Educational Services, Inc.(a) 10,200 346,800
- --------------------------------------------------------------
LaSalle Partners, Inc.(a) 5,000 147,188
- --------------------------------------------------------------
Metzler Group, Inc.(a) 6,600 321,338
- --------------------------------------------------------------
Strayer Education, Inc. 6,000 211,500
- --------------------------------------------------------------
United Road Services, Inc.(a) 23,900 439,163
- --------------------------------------------------------------
3,676,167
- --------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS)-2.74%
Analysts International Corp. 7,300 140,525
- --------------------------------------------------------------
Cotelligent Group, Inc.(a) 5,000 106,563
- --------------------------------------------------------------
Insight Enterprises, Inc.(a) 23,250 1,182,844
- --------------------------------------------------------------
1,429,932
- --------------------------------------------------------------
SERVICES (DATA PROCESSING)-2.02%
Lason Holdings, Inc.(a) 13,600 791,350
- --------------------------------------------------------------
Mecon, Inc.(a) 25,000 262,500
- --------------------------------------------------------------
1,053,850
- --------------------------------------------------------------
SERVICES (EMPLOYMENT)-1.40%
Data Processing Resources Corp.(a) 12,200 356,850
- --------------------------------------------------------------
Personnel Group of America, Inc.(a) 21,400 374,500
- --------------------------------------------------------------
731,350
- --------------------------------------------------------------
SERVICES (FACILITIES & ENVIRONMENTAL)-2.27%
Casella Waste Systems, Inc.(a) 10,000 371,250
- --------------------------------------------------------------
Cornell Corrections, Inc.(a) 11,100 210,900
- --------------------------------------------------------------
</TABLE>
FS-15
<PAGE> 75
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SERVICES (FACILITIES &
ENVIRONMENTAL)-(CONTINUED)
GP Strategies Corp.(a) 10,000 $ 150,000
- --------------------------------------------------------------
Tetra Tech, Inc.(a) 10,000 270,625
- --------------------------------------------------------------
Waste Connections, Inc.(a) 10,000 183,750
- --------------------------------------------------------------
1,186,525
- --------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-0.76%
Boston Communications Group, Inc.(a) 10,000 130,000
- --------------------------------------------------------------
Metro One Telecommunications,
Inc.(a) 20,000 265,000
- --------------------------------------------------------------
395,000
- --------------------------------------------------------------
TEXTILES (APPAREL)-0.29%
Quicksilver, Inc.(a) 5,000 150,000
- --------------------------------------------------------------
TEXTILES (SPECIALTY)-0.49%
Happy Kids, Inc.(a) 20,000 255,000
- --------------------------------------------------------------
TRUCKERS-0.15%
Hub Group, Inc.(a) 4,000 77,500
- --------------------------------------------------------------
WASTE MANAGEMENT-2.43%
Allied Waste Industries, Inc.(a) 26,565 627,598
- --------------------------------------------------------------
Eastern Environmental Services,
Inc.(a) 14,400 426,600
- --------------------------------------------------------------
KTI, Inc.(a) 10,000 216,250
- --------------------------------------------------------------
1,270,448
- --------------------------------------------------------------
Total Domestic Common Stocks
(Cost $31,794,190) 41,072,780
- --------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY INTERESTS-2.49%
BERMUDA-0.67%
Annuity and Life Re, Ltd.
(Insurance-Life) 13,000 351,000
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
CANADA-0.36%
Architel Systems Corp. (Electrical
Equipment)(a) 15,000 $ 189,375
- --------------------------------------------------------------
FRANCE-0.72%
Business Objects S.A.-ADR(a) 11,500 373,750
- --------------------------------------------------------------
ISRAEL-0.34%
Fundtech Ltd.
(Computers-Software)(a) 8,525 175,828
- --------------------------------------------------------------
NETHERLANDS-0.24%
Core Laboratories N.V. (Oil &
Gas-Drilling & Equipment)(a) 6,700 128,137
- --------------------------------------------------------------
UNITED KINGDOM-0.16%
ICON, PLC-ADR (Biotechnology)(a) 2,500 83,750
- --------------------------------------------------------------
Total Foreign Stocks and Other
Equity Interests (Cost
$946,565) 1,301,840
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
U.S. TREASURY SECURITIES-3.80%
U.S. TREASURY BILLS-3.80%(b)(c)
4.44%, 03/25/99 (Cost $1,984,429) $2,005,000 $ 1,984,429
- --------------------------------------------------------------
REPURCHASE AGREEMENT-10.74%(d)
SBC Warburg Dillon Read Inc., 4.75%,
01/04/99(e) (Cost $5,607,969) 5,607,969 5,607,969
- --------------------------------------------------------------
TOTAL INVESTMENTS-95.67% 49,967,018
- --------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-4.33% 2,263,845
- --------------------------------------------------------------
NET ASSETS-100.00% $52,230,863
==============================================================
</TABLE>
Notes to Schedule of Investments
(a) Non-income producing security.
(b) U.S. Treasury bills are traded on a discount basis. In such cases the
interest rate shown represents the rate of discount paid or received at the
time of purchase by the Fund.
(c) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See Note 5.
(d) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value is at least 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts, and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(e) Joint repurchase agreement entered into 12/31/98 with a maturing value of
$1,000,527,778. Collateralized by $2,207,068,000 U.S. Government
obligations, 0% to 6.75% with a market value at 12/31/98 of $1,020,001,079.
Abbreviation:
ADR - American Depositary Receipt
See Notes to Financial Statements
FS-16
<PAGE> 76
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$34,735,184) $44,359,049
- ---------------------------------------------------------
Repurchase agreement (cost $5,607,969) 5,607,969
- ---------------------------------------------------------
Receivables for:
Investments sold 445,267
- ---------------------------------------------------------
Fund shares sold 2,665,706
- ---------------------------------------------------------
Dividends and interest 1,724
- ---------------------------------------------------------
Variation margin 38,750
- ---------------------------------------------------------
Other assets 50,560
- ---------------------------------------------------------
Total assets 53,169,025
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 327,944
- ---------------------------------------------------------
Fund shares reacquired 501,597
- ---------------------------------------------------------
Accrued investment management &
administration fees 17,798
- ---------------------------------------------------------
Accrued accounting fees 790
- ---------------------------------------------------------
Accrued distribution fees 30,568
- ---------------------------------------------------------
Accrued trustees' fees 10,919
- ---------------------------------------------------------
Accrued transfer agent fees 8,700
- ---------------------------------------------------------
Accrued operating expenses 39,846
- ---------------------------------------------------------
Total liabilities 938,162
- ---------------------------------------------------------
Net assets applicable to shares outstanding $52,230,863
- ---------------------------------------------------------
NET ASSETS:
Class A $24,737,557
=========================================================
Class B $26,447,897
=========================================================
Advisor Class $ 1,045,409
=========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 1,452,229
=========================================================
Class B 1,589,687
=========================================================
Advisor Class 60,748
=========================================================
Class A:
Net asset value and redemption price per
share $ 17.03
- ---------------------------------------------------------
Offering price per share:
(Net asset value of $17.03
divided by 94.50%) $ 18.02
=========================================================
Class B:
Net asset value and offering price per
share $ 16.64
=========================================================
Advisor Class:
Net asset value and offering price per
share $ 17.21
=========================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends $ 42,607
- ---------------------------------------------------------
Interest 94,407
- ---------------------------------------------------------
Security lending income 17,459
- ---------------------------------------------------------
Total investment income 154,473
- ---------------------------------------------------------
EXPENSES:
Investment management & administration fees 243,996
- ---------------------------------------------------------
Accounting fees 6,564
- ---------------------------------------------------------
Custodian fees 31,093
- ---------------------------------------------------------
Trustees' fees 20,474
- ---------------------------------------------------------
Distribution fees -- Class A 44,266
- ---------------------------------------------------------
Distribution fees -- Class B 192,719
- ---------------------------------------------------------
Transfer agent fees -- Class A 41,468
- ---------------------------------------------------------
Transfer agent fees -- Class B 63,188
- ---------------------------------------------------------
Transfer agent fees -- Advisor Class 5,847
- ---------------------------------------------------------
Printing 95,135
- ---------------------------------------------------------
Professional fees 54,802
- ---------------------------------------------------------
Other 59,001
- ---------------------------------------------------------
Total expenses 858,553
- ---------------------------------------------------------
Less: expense reimbursements/reductions (148,727)
- ---------------------------------------------------------
Net expenses 709,826
- ---------------------------------------------------------
Net investment income (loss) (555,353)
- ---------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FUTURES
CONTRACTS:
Net realized gain (loss) from:
Investment securities 1,040,498
- ---------------------------------------------------------
Futures contracts (52,075)
- ---------------------------------------------------------
988,423
- ---------------------------------------------------------
Net unrealized appreciation of:
Investment securities 8,737,666
- ---------------------------------------------------------
Futures contracts 153,000
- ---------------------------------------------------------
8,890,666
- ---------------------------------------------------------
Net gain from investment securities,
foreign currencies and futures
contracts 9,879,089
- ---------------------------------------------------------
Net increase in net assets resulting from
operations $ 9,323,736
=========================================================
</TABLE>
See Notes to Financial Statements.
FS-17
<PAGE> 77
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) $ (555,353) $ (449,560)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities and futures
contracts 988,423 2,524,251
- ------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities and
futures contracts 8,890,666 1,674,235
- ------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 9,323,736 3,748,926
- ------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on
investment securities:
Class A (576,954) (213,287)
- ------------------------------------------------------------------------------------------
Class B (733,412) (410,555)
- ------------------------------------------------------------------------------------------
Advisor Class (30,675) (32,021)
- ------------------------------------------------------------------------------------------
Share transactions-net:
Class A 9,846,073 990,794
- ------------------------------------------------------------------------------------------
Class B 1,291,586 8,950,465
- ------------------------------------------------------------------------------------------
Advisor Class (600,234) 1,099,105
- ------------------------------------------------------------------------------------------
Net increase in net assets 18,520,120 14,133,427
- ------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 33,710,743 19,577,316
- ------------------------------------------------------------------------------------------
End of period $52,230,863 $33,710,743
==========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $42,095,396 $31,557,971
- ------------------------------------------------------------------------------------------
Undistributed net investment income (loss) -- --
- ------------------------------------------------------------------------------------------
Undistributed net realized gain from investment securities
and futures contracts 348,602 1,256,573
- ------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities and
futures contracts 9,786,865 896,199
- ------------------------------------------------------------------------------------------
$52,230,863 $33,710,743
==========================================================================================
</TABLE>
See Notes to Financial Statements.
FS-18
<PAGE> 78
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Small Cap Growth Fund, formerly AIM Small Cap Equity 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 invests substantially all of its investable assets in the Small Cap
Portfolio ("the Portfolio"). The Portfolio is organized as a Delaware business
trust and is registered under the 1940 Act as a diversified, open-end management
investment company.
The Portfolio has investment objectives, policies, and limitations
substantially identical to the Fund. Therefore, the financial statements of the
Fund and the Portfolio have been presented on a consolidated basis, and
represent all activities of both the Fund and the Portfolio. At December 31,
1998, all of the shares of beneficial interest of the Portfolio were owned
either by the Fund or INVESCO (NY), Inc., which has a nominal ($100) investment
in the Portfolio.
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 and Portfolio 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 Portfolio, it is the Portfolio'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 Portfolio under each agreement at its
maturity.
C. Option Accounting Principles -- When the Portfolio writes a call or put
option, an amount equal to the premium received is included in Fund's
consolidated "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. If an option expires on its stipulated expiration date or if the
Portfolio 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 Portfolio can write options only on a covered basis,
which, for a call, requires that the Portfolio hold the underlying security,
and, for a put, requires the Portfolio 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 Portfolio may use options to manage its exposure to the
stock market and to fluctuations in interest rates.
The premium paid by the Portfolio for the purchase of a call or put option
is included in Fund's consolidated "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 Portfolio has purchased
expires on the stipulated expiration date, the Portfolio realizes a loss in
the amount of the cost of the option. If the Portfolio enters into a closing
sale transaction, the Portfolio 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 Portfolio 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 Portfolio exercises a put option, it realizes a gain
or loss from the sale of the underlying security,
FS-19
<PAGE> 79
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 Portfolio 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 Portfolio 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 Portfolio 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 a future date. Upon entering
into such a contract the Portfolio 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 Portfolio 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
Portfolio as unrealized gains or losses. When the contract is closed, the
Portfolio 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 Portfolio is that the change in value
of the underlying securities may not correlate to the change in value of the
contracts. The Portfolio 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 calculated 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 Portfolio
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 Portfolio to subsequently invest at less advantageous prices.
On December 31, 1998, undistributed net investment income was increased and
undistributed net realized gains was decreased by $555,353 in order to comply
with the requirements of the American Institute of Certified Public
Accountants Statement of Position 93-2. Net assets of the Fund were
unaffected by the reclassifications discussed above.
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 Portfolio:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 PERIOD ENDED
---------------------------- DECEMBER 31, 1998
AGGREGATE VALUE CASH -----------------
ON LOANS COLLATERAL FEES RECEIVED
--------------- ---------- -----------------
<S> <C> <C>
$5,453,825 $5,571,152 $17,459
</TABLE>
Cash collateral is received by the Portfolio 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. Deferred Organizational Expenses -- Expenses incurred by the AIM Small Cap
Growth Fund and the Portfolio in connection with their organization, their
initial registration with the Securities and Exchange Commission and with
various states and the initial public offering of their shares aggregated
$63,500 for the Fund and $25,000 for the Portfolio. These expenses are being
amortized on a straight-line basis over a five-year period.
H. Taxes -- It is the policy of the Fund and the Portfolio 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.
I. 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 Portfolio and timing differences.
J. Restricted Securities -- The Portfolio 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.
K. Indexed Securities -- The Portfolio 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.
L. 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 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.
For the year 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 $591,476 with a weighted average interest rate of 5.87%.
Interest expense for the Fund for the year ended December 31, 1998 was
$3,706, and is included in "Other Expenses" on the Statement of Operations.
FS-20
<PAGE> 80
NOTE 2-RELATED PARTIES
A I M Advisors, Inc. (the "Manager") is the Fund's and the Portfolio'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 administrator of
the Fund and the investment manager and administrator of the Portfolio. 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,
and the Portfolio was reorganized from a New York 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.
The Fund pays the Manager administration fees at the annualized rate of 0.25%
of the Fund's average daily net assets. The Portfolio pays investment management
and administration fees to the Manager at the annualized rate of 0.475% on the
first $500 million of average daily net assets of the Portfolio; 0.45% on the
next $500 million; 0.425% on the next $500 million; and 0.40% 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 Chancellor LGT, served
as the Funds' 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: $12,218 and $6,814,
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: $244 and $16,156, 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 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
FS-21
<PAGE> 81
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 account that is
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 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 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% of the first $5 billion of assets of such
investment companies, 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.
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. The Portfolio pays each of its Trustees who is not an employee, officer
or director of the Manager, AIM Distributors or AFS $500 per year plus $150 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 of the
Portfolio 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 Portfolio during the year ended December
31, 1998 was $61,020,877 and $61,119,926, 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 $10,571,589
- ---------------------------------------------------------------
Aggregate unrealized (depreciation) of investment
securities (967,318)
- ---------------------------------------------------------------
Net unrealized appreciation of investment
securities $ 9,604,271
===============================================================
</TABLE>
Cost of investments for tax purposes is $34,754,778.
NOTE 4-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 2,808,949 $ 42,444,424 2,067,494 $ 28,341,345
- ----------------------------------------------------------------------------
Class B 1,807,272 26,359,785 2,192,656 29,216,057
- ----------------------------------------------------------------------------
Advisor Class 63,569 992,118 156,123 2,292,127
- ----------------------------------------------------------------------------
Issued as
reinvestment of
dividends:
Class A 35,278 549,813 14,194 195,720
- ----------------------------------------------------------------------------
Class B 45,364 690,497 26,438 359,234
- ----------------------------------------------------------------------------
Advisor Class 1,482 23,320 507 7,039
- ----------------------------------------------------------------------------
Reacquired:
Class A (2,155,365) (33,148,164) (1,992,960) (27,546,271)
- ----------------------------------------------------------------------------
Class B (1,772,161) (25,758,696) (1,570,899) (20,624,826)
- ----------------------------------------------------------------------------
Advisor Class (114,990) (1,615,672) (80,540) (1,200,061)
- ----------------------------------------------------------------------------
719,398 $ 10,537,425 813,013 $ 11,040,364
============================================================================
</TABLE>
NOTE 5-FUTURES CONTRACTS
On December 31, 1998, $100,000 principal amount of U.S. Treasury obligations
were pledged as collateral to cover margin requirements for futures contracts.
Open contracts were as follows:
<TABLE>
<CAPTION>
NO. OF MONTH/
CONTRACT CONTRACTS COMMITMENT APPRECIATION
-------- --------- ---------- --------------
<S> <C> <C> <C>
Russell 2000 Index 10 March 99 $153,000
</TABLE>
NOTE 6-EXPENSE REDUCTIONS
The Manager has directed certain portfolio trades to brokers who then paid a
portion of the Portfolio's expenses. For the year ended December 31, 1998, the
expenses of the Portfolio were reduced by $1,695 under these arrangements.
FS-22
<PAGE> 82
NOTE 7-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A, Class B, and
Advisor Class outstanding during each of the years in the three-year period
ended December 31, 1998 and the period October 18, 1995 (date operations
commenced) through December 31, 1995;
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------
1998(a) 1997 1996 1995
------- ------- ------ ------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 14.27 $ 12.52 $11.80 $11.43
- ------------------------------------------------------------ ------- ------- ------ ------
Income from investment operations:
Net investment income(b) (0.19)(c) (0.18)(c) (0.05)(c) 0.04(c)
- ------------------------------------------------------------ ------- ------- ------ ------
Net gains on securities (both realized and unrealized) 3.45 2.20 1.69 0.33
- ------------------------------------------------------------ ------- ------- ------ ------
Total from investment operations 3.26(b) 2.02 1.64 0.37
- ------------------------------------------------------------ ------- ------- ------ ------
Less distributions:
- ------------------------------------------------------------ ------- ------- ------ ------
Distributions from net realized gains (0.50) (0.27) (0.92) --
- ------------------------------------------------------------ ------- ------- ------ ------
Total distributions (0.50) (0.27) (0.92) --
- ------------------------------------------------------------ ------- ------- ------ ------
Net asset value, end of period $ 17.03 $ 14.27 $12.52 $11.80
============================================================ ======= ======= ====== ======
Total Return(d) 23.15% 16.23% 13.81% 3.24%
============================================================ ======= ======= ====== ======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $24,737 $10,896 $8,448 $1,931
============================================================ ======= ======= ====== ======
Ratio of expenses to average net assets:
With expense reductions and/or reimbursement 1.75%(e) 1.92% 2.00% 2.00%(f)
============================================================ ======= ======= ====== ======
Without expense reductions and/or reimbursement 2.19%(e) 2.52% 3.09% 24.20%(f)
============================================================ ======= ======= ====== ======
Ratio of net investment income to average net assets:
With expense reductions and/or reimbursement (1.29)%(e) (1.40)% (0.38)% 1.68%(f)
============================================================ ======= ======= ====== ======
Without expense reductions and/or reimbursement (1.73)%(e) (2.00)% (1.47)% (20.52)%(f)
============================================================ ======= ======= ====== ======
Ratio of interest expense to average net assets(g) 0.01% -- -- --
============================================================ ======= ======= ====== ======
Portfolio turnover rate(g) 190% 233% 150% --
============================================================ ======= ======= ====== ======
</TABLE>
(a) The Fund charged Investment Advisors on May 29, 1998.
(b) Before reimbursement the net investment loss per share would have been
$(0.24), $(0.25), $(0.19), and $(0.47) for 1998-1995, respectively.
(c) Calculated using average shares outstanding.
(d) Does not deduct sales charges and is not annualized for periods less than
one year.
(e) Ratios are based on average net assets of $12,647,418.
(f) Annualized
(g) Portfolio turnover rates and ratio of interest expense to average net assets
are calculated on the basis of the Portfolio as a whole without
distinguishing between the classes of shares issued.
<TABLE>
<CAPTION>
CLASS B ADVISOR CLASS
--------------------------------------- -------------------------------------
1998(a) 1997 1996 1995 1998(a) 1997 1996 1995
------- ------- ------- ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 14.06 $ 12.42 $ 11.78 $11.43 $14.39 $12.58 $11.81 $ 11.43
- ------------------------------------------- ------- ------- ------- ------ ------ ------ ------ -------
Income from investment operations:
Net investment income(b) (0.29)(c) (0.26)(c) (0.14)(c) 0.02(c) (0.14)(c) (0.14)(c) -- 0.05(c)
- ------------------------------------------- ------- ------- ------- ------ ------ ------ ------ -------
Net gains on securities (both
realized and unrealized) 3.37 2.17 1.70 0.33 3.46 2.22 1.69 0.33
- ------------------------------------------- ------- ------- ------- ------ ------ ------ ------ -------
Total from investment
operations 3.08 1.91 1.56 0.35 3.32 2.08 1.69 0.38
- ------------------------------------------- ------- ------- ------- ------ ------ ------ ------ -------
Less distributions:
- ------------------------------------------- ------- ------- ------- ------ ------ ------ ------ -------
Distributions from net
realized gains (0.50) (0.27) (0.92) -- (0.50) (0.27) (0.92) --
- ------------------------------------------- ------- ------- ------- ------ ------ ------ ------ -------
Total distributions (0.50) (0.27) (0.92) -- (0.50) (0.27) (0.92) --
- ------------------------------------------- ------- ------- ------- ------ ------ ------ ------ -------
Net asset value, end of period $ 16.64 $ 14.06 $ 12.42 $11.78 $17.21 $14.39 $12.58 $ 11.81
=========================================== ======= ======= ======= ====== ====== ====== ====== =======
Total Return(d) 22.22% 15.47% 13.14% 3.06% 23.38% 16.63% 14.22% 3.32%
=========================================== ======= ======= ======= ====== ====== ====== ====== =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $26,448 $21,222 $10,694 $2,024 $1,045 $1,592 $ 435 $ 52
=========================================== ======= ======= ======= ====== ====== ====== ====== =======
Ratio of expenses to average net assets:
With expense reductions
and/or reimbursement 2.40%(e) 2.57% 2.65% 2.65%(f) 1.40%(e) 1.57% 1.65% 1.65%(f)
=========================================== ======= ======= ======= ====== ====== ====== ====== =======
Without expense reductions
and/or reimbursement 2.85%(e) 3.17% 3.74% 24.85%(f) 1.84%(e) 2.17% 2.74% 23.85%(f)
=========================================== ======= ======= ======= ====== ====== ====== ====== =======
Ratio of net investment income to
average net assets:
With expense reductions
and/or reimbursement (1.95)%(e) (2.05)% (1.03)% 1.03%(f) (0.94)%(e) (1.05)% (0.03)% 2.03%(f)
=========================================== ======= ======= ======= ====== ====== ====== ====== =======
Without expense reductions
and/or reimbursement (2.39)%(e) (2.65)% (2.12)% --(f) (1.38)%(e) (1.65)% (1.12)% (20.17)%(f)
=========================================== ======= ======= ======= ====== ====== ====== ====== =======
Ratio of interest expense
to average net assets(g) 0.01% -- -- -- 0.01% -- -- --
=========================================== ======= ======= ======= ====== ====== ====== ====== =======
Portfolio turnover rate(g) 190% 233% 150% -- 190% 233% 150% --%
=========================================== ======= ======= ======= ====== ====== ====== ====== =======
</TABLE>
(a) The Fund changed Investment Advisors on May 29, 1998.
(b) Before reimbursement the net investment loss per share would have been
$(0.35), $(0.33), $(0.28), and $(0.49) for 1998-1995, respectively for Class
B, $(0.20), $(0.21), $(0.14), and $(0.46) for 1998-1995, respectively for
Advisor Class.
(c) Calculated using average shares outstanding.
(d) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(e) Ratios are based on average net assets of $19,271,876 for Class B and
$1,783,361 for Advisor Class.
(f) Annualized
(g) Portfolio turnover rates and ratio of interest expense to average net assets
are calculated on the basis of the Small Cap Growth Portfolio as a whole
without distinguishing between the classes of shares issued.
FS-23
