<PAGE> 1
STATEMENT OF
ADDITIONAL INFORMATION
AIM ASIAN GROWTH FUND
AIM EUROPEAN DEVELOPMENT FUND
AIM GLOBAL AGGRESSIVE GROWTH FUND
AIM GLOBAL GROWTH FUND
AIM GLOBAL INCOME FUND
AIM INTERNATIONAL EQUITY FUND
(SERIES PORTFOLIOS OF AIM INTERNATIONAL FUNDS, INC.)
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, TX 7710-4739
OR BY CALLING (800) 347-4246
--------------------
STATEMENT OF ADDITIONAL INFORMATION DATED MARCH 1, 1999,
AS REVISED MAY 4, 1999, RELATING TO
THE AIM ASIAN GROWTH FUND PROSPECTUS DATED MARCH 1, 1999,
THE AIM EUROPEAN DEVELOPMENT FUND PROSPECTUS DATED MARCH 1, 1999,
THE AIM GLOBAL AGGRESSIVE GROWTH FUND PROSPECTUS DATED MARCH 1, 1999,
THE AIM GLOBAL GROWTH FUND PROSPECTUS DATED MARCH 1, 1999,
THE AIM GLOBAL INCOME FUND PROSPECTUS DATED MARCH 1, 1999,
AND THE AIM INTERNATIONAL EQUITY FUND PROSPECTUS DATED MARCH 1, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INTRODUCTION......................................................................................................3
GENERAL INFORMATION ABOUT THE COMPANY.............................................................................3
The Company and its Shares...............................................................................3
PERFORMANCE.......................................................................................................4
Total Return Calculations................................................................................5
Yield Quotations.........................................................................................6
Historical Portfolio Results.............................................................................7
PORTFOLIO TRANSACTIONS AND BROKERAGE.............................................................................10
General Brokerage Policy................................................................................10
Allocation of Portfolio Transactions....................................................................11
Section 28(e) Standards.................................................................................11
Transactions with Regular Brokers.......................................................................12
Brokerage Commissions Paid..............................................................................12
INVESTMENT STRATEGIES AND RISKS..................................................................................13
All Funds (except Income Fund)..........................................................................13
Asian Fund..............................................................................................14
European Fund...........................................................................................15
Aggressive Growth Fund and Growth Fund..................................................................17
Income Fund.............................................................................................18
Equity Fund.............................................................................................20
Real Estate Investment Trusts ("REITs").................................................................21
Repurchase Agreements and Reverse Repurchase Agreements.................................................21
Lending of Portfolio Securities.........................................................................22
Borrowings..............................................................................................23
Securities Issued on a When-Issued or Delayed Delivery Basis............................................23
Short Sales.............................................................................................23
Illiquid Securities.....................................................................................23
Rule 144A Securities....................................................................................24
Foreign Securities......................................................................................24
Portfolio Turnover......................................................................................27
Foreign Exchange Transactions...........................................................................27
Investment in other Investment Companies................................................................28
OPTIONS, FUTURES AND CURRENCY STRATEGIES.........................................................................28
Introduction............................................................................................28
General Risks of Options, Futures and Currency Strategies...............................................28
Cover...................................................................................................28
Writing Call Options....................................................................................28
Writing Put Options.....................................................................................28
Purchasing Put Options..................................................................................28
Purchasing Call Options.................................................................................28
Index Options...........................................................................................28
Limitations on Options..................................................................................28
HEDGING AND OTHER INVESTMENT TECHNIQUES..........................................................................28
Interest Rate, Currency and Stock Index Futures Contracts...............................................28
Options on Futures Contracts............................................................................28
Forward Contracts.......................................................................................28
Limitations on Use of Futures, Options on Futures and Certain Options on Currencies.....................28
Hedging Strategies......................................................................................28
Options.................................................................................................28
Writing Covered Call Options............................................................................29
Writing Covered Put Options.............................................................................29
Purchasing Put Options..................................................................................30
Purchasing Call Options.................................................................................30
Combined Option Positions...............................................................................30
Stock Index Options and Futures and Financial Futures...................................................30
Restrictions on the Use of Futures Transactions.........................................................33
Restrictions on OTC Options.............................................................................33
Asset Coverage for Futures and Options Positions........................................................34
Risk Factors in Options, Futures, Forward and Currency Transactions.....................................34
Other Hedging Techniques................................................................................35
Investment in Other Investment Companies................................................................35
INVESTMENT RESTRICTIONS..........................................................................................35
Aggressive Growth Fund, Growth Fund, and Income Fund....................................................35
Equity Fund.............................................................................................37
Asian Fund and European Fund............................................................................39
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
MANAGEMENT.......................................................................................................40
Directors and Officers..................................................................................41
Remuneration of Directors...............................................................................45
AIM Funds Retirement Plan for Eligible Directors/Trustees...............................................46
Deferred Compensation Agreements........................................................................47
Investment Advisory, Sub-Advisory and Administrative Services Agreements................................47
THE DISTRIBUTION PLANS...........................................................................................52
The Class A and C Plan..................................................................................52
The Class B Plan........................................................................................53
THE DISTRIBUTOR..................................................................................................57
SALES CHARGES AND DEALER CONCESSIONS.............................................................................59
REDUCTIONS IN INITIAL SALES CHARGES..............................................................................62
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS......................................................................65
HOW TO PURCHASE AND REDEEM SHARES................................................................................67
Backup Withholding......................................................................................67
NET ASSET VALUE DETERMINATION....................................................................................69
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS.........................................................................70
Reinvestment of Dividends and Distributions.............................................................70
Tax Matters.............................................................................................70
Special Tax Information.................................................................................70
Qualification as a Regulated Investment Company.........................................................71
Fund Distributions......................................................................................71
Investment in Foreign Financial Instruments.............................................................72
Hedging Transactions....................................................................................72
PFIC Investments........................................................................................73
Redemption or Exchange of Shares........................................................................74
Foreign Income Taxes....................................................................................74
Backup Withholding......................................................................................75
Reinstatement Privilege.................................................................................75
Foreign Shareholders....................................................................................75
Miscellaneous Considerations; Effect of Future Legislation..............................................76
SHAREHOLDER INFORMATION..........................................................................................76
MISCELLANEOUS INFORMATION........................................................................................78
Changes for Certain Account Information.................................................................78
Audit Reports...........................................................................................78
Legal Matters...........................................................................................79
Custodian and Transfer Agent............................................................................79
Principal Holders of Securities.........................................................................80
Other Information.......................................................................................84
APPENDIX A......................................................................................................A-1
APPENDIX B......................................................................................................B-1
APPENDIX C......................................................................................................C-1
FINANCIAL STATEMENTS.............................................................................................FS
</TABLE>
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<PAGE> 4
INTRODUCTION
AIM International Funds, Inc. (the "Company") 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 is included in the AIM Asian Growth Fund Prospectus, the AIM
European Development Fund Prospectus, the AIM Global Aggressive Growth Fund
Prospectus, the AIM Global Growth Fund Prospectus, the AIM Global Income Fund
Prospectus and the AIM International Equity Fund Prospectus, all dated March 1,
1999 (individually, a "Prospectus" and collectively, the "Prospectuses").
Copies of each Prospectus and additional copies of this Statement of Additional
Information may be obtained without charge by writing the principal distributor
of the Funds' (hereinafter defined) shares, A I M Distributors, Inc. ("AIM
Distributors"), P.O. Box 4739, Houston, Texas 77210-4739, or by calling (800)
347-4246. Investors must receive a Prospectus before they invest in the Funds.
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 each Fund's current Prospectus, and in order to avoid
repetition, reference will be made herein to sections of the applicable
Prospectus. Additionally, each Prospectus and this Statement of Additional
Information omit certain information contained in the Company's Registration
Statement filed with the SEC. Copies of the Registration Statement, including
items omitted from each Prospectus and this Statement of Additional
Information, may be obtained from the SEC by paying the charges prescribed
under its rules and regulations.
GENERAL INFORMATION ABOUT THE COMPANY
THE COMPANY AND ITS SHARES
The Company was organized in 1991 as a Maryland corporation, and is
registered with the SEC as an open-end, series, management investment company.
The Company currently consists of six separate portfolios: AIM Asian Growth
Fund (the "Asian Fund"), AIM European Development Fund ( the "European Fund"),
AIM Global Aggressive Growth Fund (the "Aggressive Growth Fund"), AIM Global
Growth Fund (the "Growth Fund"), AIM Global Income Fund ( the "Income Fund")
and AIM International Equity Fund (the "Equity Fund") (individually, a "Fund"
and collectively, the "Funds"). Each portfolio of the Company offers Class A,
Class B and Class C shares.
As used in each Prospectus, the term "majority of the outstanding
shares" of the Company, of a particular Fund or of a class of a Fund means,
respectively, the vote of the lesser of (i) 67% or more of the shares of the
Company, such Fund or such class present at a meeting of shareholders, if the
holders of more than 50% of the outstanding shares of the Company, such Fund or
such class are present or represented by proxy or (ii) more than 50% of the
outstanding shares of the Company, such Fund or such class.
Class A shares, Class B shares and Class C shares of each Fund
represent interests in the Fund's assets and have identical voting, dividend,
liquidation and other rights on the same terms and conditions, except that each
class of shares bears differing class-specific expenses (such as those
associated with the shareholder servicing of their shares) and is subject to
differing sales loads (which may affect performance), conversion features and
exchange privileges, and has exclusive voting rights on matters pertaining to
that class' distribution plan. Each share of a particular class is entitled to
one vote, to participate equally in dividends and distributions declared by the
Company's Board of Directors 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.
3
<PAGE> 5
Except as specifically noted above, shareholders of each Fund are
entitled to one vote per share (with proportionate voting for fractional
shares), irrespective of the relative net asset value of the different classes
of shares, where applicable, of a Fund. However, on matters affecting one
portfolio of the Company or one class of shares, a separate vote of
shareholders of that portfolio or class is required. Shareholders of a
portfolio or class are not entitled to vote on any matter which does not affect
that portfolio or class but which requires a separate vote of another portfolio
or class. An example of a matter which would be voted on separately by
shareholders of a portfolio is the approval of an advisory agreement, and an
example of a matter which would be voted on separately by shareholders of a
class of shares is approval of a distribution plan. When issued, shares of the
Fund are fully paid and nonassessable, have no preemptive or subscription
rights, and are fully transferable. Other than the automatic conversation of
Class B shares to Class A shares, there are no conversion rights. Shares do not
have cumulative voting rights, which means that in situations in which
shareholders elect directors, holders of more than 50% of the shares voting for
the election of directors can elect all of the directors of the Company, and
the holders of less than 50% of the shares voting for the election of directors
will not be able to elect any directors.
Under Maryland law and the Company's By-Laws, the Company need not
hold an annual meeting of shareholders to elect directors unless a meeting is
required under the Investment Company Act of 1940, as amended, (the "1940
Act"). Shareholders may remove directors from office, and a meeting of
shareholders may be called at the request of the holders of 10% or more of the
Company's outstanding shares.
PERFORMANCE
Each Fund's performance may be quoted in advertising in terms of yield
(Income Fund) or total return. All advertisements of the Funds will disclose
the maximum sales charge (including deferred sales charge) to which investments
in shares of the Funds may be subject. If any advertised performance data does
not reflect the maximum sales charge (if any), such advertisement will disclose
that the sales charge has not been deducted in computing the performance data,
and that, if reflected, the maximum sales charge would reduce the performance
quoted.
From time to time, A I M Advisors, Inc. ("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
Fund's 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 a 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.
Additional performance information is contained in a Fund's Annual
Report to Shareholders, which is available upon request without charge.
Total return and yield figures for the Funds are neither fixed nor
guaranteed, and no Fund's principal is insured. The Funds may provide
performance information in reports, sales literature and advertisements. The
Funds may also, from time to time, quote information about the Funds published
or aired by publications or other media entities which contain articles or
segments relating to investment results or other data about one or more of the
Funds. The following is a list of such publications or media entities:
4
<PAGE> 6
<TABLE>
<S> <C> <C>
Advertising Age Financial World Nation's Business
Barron's Forbes New York Times
Best's Review Fortune Pension World
Broker World Hartford Courant Inc. Pensions & Investment
Business Week Institutional Investor Personal Investor
Changing Times Insurance Forum Philadelphia Inquirer
Christian Science Monitor Insurance Week USA Today
Consumer Reports Investor's Daily U.S. News & World Report
Economist Journal of the American Wall Street Journal
FACS of the Week Society of CLU & ChFC Washington Post
Financial Planning Kiplinger Letter CNN
Financial Product News Money CNBC
Financial Services Week Mutual Fund Forecaster PBS
</TABLE>
Each Fund may also compare its performance to performance data of
similar mutual funds as published by the following services:
Bank Rate Monitor Stanger
Donoghue's Weisenberger
Mutual Fund Values (Morningstar) Lipper, Inc.
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.
TOTAL RETURN CALCULATIONS
Standardized total return for Class A shares of a Fund reflects the
deduction of the maximum initial sales charge at the time of purchase.
Standardized total return for Class B shares of a Fund reflects the deduction
of the maximum applicable contingent deferred sales charge on a redemption of
shares held for the period. Standardized total return for Class C shares of a
Fund reflects the deduction of a 1% contingent deferred sales charge, if
applicable, on a redemption of shares held for the period. Total returns quoted
in advertising reflect all aspects of the applicable Fund's return, including
the effect of reinvesting dividends and capital gain distributions, the
deduction of charges and expenses and any change in such Fund's net asset value
per share over the period. Average annual total returns are calculated by
determining the growth or decline in value of a hypothetical investment in a
particular Fund over a stated period of time, and then calculating the annually
compounded percentage rate that would have produced the same result if the rate
of growth or decline in value had been constant over the period. While average
annual total returns are a convenient means of comparing investment
alternatives, investors should realize that a Fund's performance is not
constant over time, but changes from year to year, and that average annual
total returns do not represent the actual year-to-year performance of such
Fund. The stated period for quotations of average annual total return will be
for periods of one year and the life of a Fund (commencing as of the effective
date of its registration statement).
In addition to average annual total returns, each Fund may quote
unaveraged or cumulative total returns reflecting the simple change in value of
an investment over a stated period. Average annual and cumulative total returns
may be quoted as a percentage or as a dollar amount, and may be calculated for
a single investment, a series of investments, and/or a series of redemptions,
over any time period. Total returns may be broken down into their components of
income and capital (including capital gains and changes in share price) in
order to illustrate the relationship of these factors and their contributions
to total return. Total returns and other performance information may be quoted
numerically or in tables, graphs or similar
5
<PAGE> 7
illustrations. For Asian Fund, European Fund and Equity Fund total returns may
be quoted with or without taking the Class A shares' 5.50% maximum sales charge,
the Class B shares' 5% maximum contingent deferred sales charge ("CDSC") or the
Class C shares' 1% maximum CDSC into account. For Aggressive Growth Fund, Growth
Fund and Income Fund total returns may be quoted with or without taking the
Class A shares' 4.75% maximum sales charge, the Class B shares' 5% maximum CDSC
or the Class C shares' 1% maximum CDSC into account. Excluding sales charges
from a total return calculation produces a higher total return figure.
YIELD QUOTATIONS
Yield is computed in accordance with the standardized formula
described below and can be expected to fluctuate from time to time and is not
necessarily indicative of future results. Accordingly, yield information may
not provide a basis for comparison with investments which pay a fixed rate of
interest for a stated period of time. Yield reflects investment income net of
expenses over the relevant period attributable to a share of Income Fund,
expressed as an annualized percentage of the maximum offering price per share
of Income Fund. Yield is a function of the type and quality of Income Fund's
investments, the Fund's maturity and the Fund's operating expense ratio. The
standard formula for calculating yield for the Income Fund, is as follows:
6
YIELD = 2[((a-b)/(c x d) + 1) -1]
Where a = dividends and interest earned during a stated
30-day period. For purposes of this calculation,
dividends are accrued rather than recorded on the
ex-dividend date. Interest earned under this formula
must generally be calculated based on the yield to
maturity of each obligation (or, if more appropriate,
based on yield to call date).
b = expenses accrued during period (net of reimbursement).
c = the average daily number of shares outstanding during
the period.
d = the maximum offering price per share on the last day
of the period.
The yields for the Class A, Class B and Class C shares of Income Fund
for the 30-day period ended October 31, 1998 were as follows:
<TABLE>
<CAPTION>
With Without
Waivers Waivers
------- -------
<S> <C> <C>
Class A.......................... 5.56% 5.10%
Class B.......................... 5.34% 4.86%
Class C.......................... 5.34% 4.86%
</TABLE>
6
<PAGE> 8
HISTORICAL PORTFOLIO RESULTS
Total returns for each of the named Funds, with respect to its Class A
shares, for the one-year and five-year (if applicable) periods and since
inception ended October 31, 1998 (which include the maximum sales charge and
reinvestment of all dividends and distributions), were as follows:
<TABLE>
<CAPTION>
Average Annual Total Return Cumulative Return
Periods ended October 31, 1998 Periods ended October 31, 1998
----------------------------------- ----------------------------------
One Five Since One Five Since
Class A Shares: Year Years Inception Year Years Inception
- --------------- -------- ----- --------- -------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Aggressive Growth Fund (12.51)% N/A 10.62%** (12.51)% N/A 51.68%**
Asian Fund N/A N/A (27.32)%*** N/A N/A 27.32%***
European Fund N/A N/A 22.50%*** N/A N/A 22.50%***
Equity Fund 0.27% 8.60% 12.02%* 0.27% 51.03% 110.76%*
Growth Fund 5.18% N/A 15.03%** 5.18% N/A 78.22%**
Income Fund (1.03)% N/A 8.38%** (1.03)% N/A 39.40%**
</TABLE>
* The inception date for the Class A shares of Equity Fund was April 7,
1992.
** The inception date for the Class A shares of each of Aggressive Growth
Fund, Growth Fund and Income Fund was September 15, 1994.
*** The inception date for the Class A shares of Asian Fund and European Fund
was November 3, 1997.
Total returns for each of the named Funds, with respect to its Class B
shares, for the one-year period and since inception ended October 31, 1998
(which include the maximum contingent deferred sales charge and reinvestment of
all dividends and distributions) were as follows:
<TABLE>
<CAPTION>
Average Annual Total Return Cumulative Return
Periods ended October 31, 1998 Periods ended October 31, 1998
----------------------------------- ----------------------------------
One Since One Since
Class B Shares: Year Inception Year Inception
- --------------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C>
Aggressive Growth Fund (13.27)% 10.99%* (13.27)% 53.76%*
Asian Fund N/A (27.52)%** N/A (27.52)%**
European Fund N/A 23.70%** N/A 23.70%**
Equity Fund 0.29% 8.18%* 0.29% 38.34%*
Growth Fund 4.78% 15.48%* 4.78% 81.08%*
Income Fund (1.47)% 8.73%* (1.47)% 41.23%*
</TABLE>
* The inception date for the Class B shares of each of Aggressive Growth
Fund, Equity Fund, Growth Fund and Income Fund was September 15, 1994.
** The inception date for the Class B shares of each of Asian Fund and
European Fund was November 3, 1997.
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<PAGE> 9
Total returns for each of the named Funds, with respect to its Class C
shares for the one-year period and since inception ended October 31, 1998
(which include the maximum contingent deferred sales charge and reinvestment of
all dividends and distributions) were as follows:
<TABLE>
<CAPTION>
Average Annual Total Return Cumulative Return
Periods ended October 31, 1998 Periods ended October 31, 1998
------------------------------ ------------------------------
One Since One Since
Class C Shares: Year Inception Year Inception
- --------------- ---- --------- ---- ---------
<S> <C> <C> <C> <C>
Aggressive Growth Fund (9.62)% (12.78)%* (9.62)% (15.61)%*
Asian Fund N/A (24.66)%** N/A (24.66)%**
European Fund N/A 27.80%** N/A 27.80%**
Equity Fund 4.35% (2.29)%* 4.35% (2.84)%*
Growth Fund 8.78% 2.79%* 8.78% 3.47%*
Income Fund 2.42% 5.19%* 2.42% 6.48%*
</TABLE>
* The inception date for the Class C shares of each of Aggressive Growth
Fund, Equity Fund, Growth Fund and Income Fund was August 4, 1997.
** The inception date for the Class C Shares of each of Asian Fund and
European Fund was November 3, 1997.
During the one-year period ended October 31, 1998, a hypothetical
$1,000 investment in the Class A shares of Aggressive Growth Fund, Equity Fund,
Growth Fund and Income Fund at the beginning of such period would have been
worth $874.87, $1,002.68, $1,051.84 and $989.67, respectively, assuming the
maximum sales charge was paid and all distributions were reinvested. For the
period September 15, 1994 (inception date for Aggressive Growth Fund, Growth
Fund and Income Fund) through October 31, 1998, and the five-year period ended
October 31, 1997, for Equity Fund, a hypothetical $1,000 investment in the
Class A shares of Aggressive Growth Fund, Equity Fund, Growth Fund and Income
Fund at the beginning of such period would have been worth $1,516.84,
$1,510.35, $1,782.21 and $1,394.05, respectively, assuming the maximum sales
charge was paid and all distributions were reinvested.
During the one-year period ended October 31, 1998, a hypothetical
$1,000 investment in the Class B shares of Aggressive Growth Fund, Equity Fund,
Growth Fund and Income Fund at the beginning of such period would have been
worth $867.30, $1,002.86, $1,047.84 and $985.32, respectively, assuming the
maximum contingent deferred sales charge was paid and all distributions were
reinvested. For the period September 15, 1994 (inception date) through October
31, 1998, a hypothetical $1,000 investment in the Class B shares of Aggressive
Growth Fund, Equity Fund, Growth Fund and Income Fund at the beginning of such
period would have been worth $1,537.59, $1,383.44, $1,810.79 and $1,412.33,
respectively, assuming the maximum contingent deferred sales charge was paid
and all distributions were reinvested.
During the one-year period ended October 31, 1998, a hypothetical
$1,000 investment in the Class C shares of Aggressive Growth Fund, Equity Fund,
Growth Fund and Income Fund at the beginning of such period would have been
worth $903.82, $1,043.48, $1,087.84 and $1,024.17, respectively, assuming the
maximum contingent deferred sales charge was paid and all distributions were
reinvested. For the period August 4, 1997 (inception date) through October 31,
1998, a hypothetical $1,000 investment in the Class C shares of Aggressive
Growth Fund, Equity Fund, Growth Fund and Income Fund at the beginning of such
period would have been worth $843.93, $971.65, $1,810.79, and $1,064.78,
respectively, assuming the maximum contingent deferred sales charge was paid
and all distributions were reinvested.
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<PAGE> 10
During the one-year period ended November 3, 1997 (inception date)
through October 31, 1998, a hypothetical $1,000 investment in the Class A
shares of Asian Fund and European Fund at the beginning of such period would
have been worth $726.84 and $1,224.95, assuming the maximum contingent deferred
sales charge was paid and all distributions were reinvested. For the period,
November 3, 1997 (inception date) through October 31, 1998, a hypothetical
$1,000 investment in the Class B shares of Asian Fund and European Fund at the
beginning of such period would have been worth $724.85 and $1,237.00, assuming
the maximum contingent deferred sales charge was paid and all distributions
were reinvested. For the period, November 3, 1997 (inception date) through
October 31, 1998, a hypothetical $1,000 investment in the Class C shares of
Asian Fund and European Fund at the beginning of such period would be worth
$753.39 and $1,278.00, assuming the maximum contingent deferred sales charged
was paid and all distributions were reinvested.
Each Fund's performance may be compared in advertising to the
performance of other mutual funds in general, or of particular types of mutual
funds, especially those with similar objectives. Such performance data may be
prepared by Lipper, Inc. and other independent services which monitor the
performance of mutual funds. The Funds may also advertise mutual fund
performance rankings which have been assigned to each respective Fund by such
monitoring services. Each Fund's performance may also be compared in
advertising and other materials to the performance of comparative benchmarks
such as indices of stocks comparable to those in which the Funds invest, as
well as the following:
<TABLE>
<S> <C>
Standard & Poor's 500 Stock Index Dow Jones Industrial Average
Consumer Price Index Morgan Stanley Capital International Indices,
Bond Buyer Index including:
NASDAQ EAFE Index
COFI Pacific Basin Index
First Boston High Yield Index Pacific Ex Japan Index (a widely
The Financial Times - Actuaries World recognized series of indices
Indices (a wide range of comprehensive in international market
measures of stock price performance performance)
for the world's major stock markets
and regional areas)
</TABLE>
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
90 Day Treasury Bills
Advertising for the Income Fund may from time to time include
discussions of general economic conditions and interest rates.
From time to time, each Fund's advertising may include discussions of
general domestic and international economic conditions and interest rates, and
may make reference to international economic sources such as The Bundesbank
(the German equivalent of the U.S. Federal Reserve Board). Each Fund's
advertising may also include references to the use of the Fund as part of an
individual's overall retirement investment program.
From time to time, each Fund's 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. Also from time
to time, sales literature and/or advertisements for the Funds may disclose (i)
the
9
<PAGE> 11
largest holdings in the Funds' portfolios, (ii) certain selling group
members and/or (iii) certain institutional shareholders.
PORTFOLIO TRANSACTIONS AND BROKERAGE
GENERAL BROKERAGE POLICY
AIM makes decisions to buy and sell securities for the Funds, selects
broker-dealers, effects the Funds' investment transactions, allocates brokerage
fees in such transactions, and where applicable, negotiates commissions and
spreads on transactions. Since purchases and sales of portfolio securities by
the Funds are usually principal transactions, the Funds incur little or no
brokerage commission. AIM's primary consideration in effecting a security
transaction is to obtain the most favorable execution of the order, which
includes the best price on the security and a low commission rate (as
applicable). While AIM seeks reasonably competitive commission rates, the Funds
may not pay the lowest commission or spread available. See "Section 28(e)
Standards" below.
In the event a Fund purchases securities traded over-the-counter, the
Fund deals directly with dealers who make markets in the securities involved,
except when better prices are available elsewhere. Fund transactions placed
through dealers who are primary market makers are effected at net prices
without commissions, but which include compensation in the form of a mark up or
mark down.
AIM may determine target levels of commission business with various
brokers on behalf of its clients (including the Funds) over a certain time
period. The target levels will be based upon the following factors, among
others: (1) the execution services provided by the broker; (2) the research
services provided by the broker; and (3) the broker's interest in mutual funds
in general and in the Funds and other mutual funds advised by AIM or A I M
Capital Management, Inc. (collectively, the "AIM Funds") in particular,
including sales of the Funds and of the other AIM Funds. In connection with (3)
above, the Funds' trades may be executed directly by dealers which sell shares
of the AIM Funds or by other broker-dealers with which such dealers have
clearing arrangements. AIM will not use a specific formula in connection with
any of these considerations to determine the target levels.
AIM will seek, whenever possible, to recapture for the benefit of the
Funds any commissions, fees, brokerage or similar payments paid by the Funds on
portfolio transactions. Normally, the only fees which AIM can recapture are the
soliciting dealer fees on the tender of the Funds' securities in a tender or
exchange offer.
The Funds may engage in certain principal and agency transactions with
banks and their affiliates that own 5% or more of the outstanding voting
securities of the Funds, provided the conditions of an exemptive order received
by the Funds from the SEC are met. In addition, the Funds may purchase or sell
a security from or to another AIM Fund provided the Funds follow procedures
adopted by the Board of Directors/Trustees of the various AIM Funds, including
the Company. These inter-fund transactions do not generate brokerage
commissions but may result in custodial fees or taxes or other related
expenses.
Under the 1940 Act, certain persons affiliated with the Company are
prohibited from dealing with the Company as principal in any purchase or sale
of securities unless an exemptive order allowing such transactions is obtained
from the SEC. The 1940 Act also prohibits the Company from purchasing a
security being publicly underwritten by a syndicate of which certain persons
affiliated with the Company are members except in accordance with certain
conditions. These conditions may restrict the ability of the Funds to purchase
municipal securities being publicly underwritten by such syndicate, and the
Funds may be required to wait until the syndicate has been terminated before
buying such securities. At such time, the market price of the securities may be
higher or lower than the original offering price. A person affiliated with the
Company may, from time to time, serve as placement agent or financial advisor
to an issuer of Municipal Securities and
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be paid a fee by such issuer. The Funds may purchase such Municipal Securities
directly from the issuer, provided that the purchase is reviewed by the
Company's Board of Directors and a determination is made that the placement fee
or other remuneration paid by the issuer to a person affiliated with the Company
is fair and reasonable in relation to the fees charged by others performing
similar services. During the fiscal years ended October 31, 1998, 1997 and 1996,
no securities or instruments were purchased by the Funds from issuers who paid
placement fees or other compensation to a broker affiliated with the Funds.
ALLOCATION OF PORTFOLIO TRANSACTIONS
AIM and its affiliates manage several other investment accounts. Some
of these accounts may have investment objectives similar to the Funds.
Occasionally, identical securities will be appropriate for investment by a Fund
and one or more of these investment accounts. However, the position of each
account in the same securities and the length of time that each account may
hold its investment in the same securities may vary. The timing and amount of
purchase by each account will also be determined by its cash position. If the
purchase or sale of securities is consistent with the investment policies of a
Fund and one or more of these accounts, and is considered at or about the same
time, AIM will fairly allocate transactions in such securities among such Fund
and these accounts. AIM may combine such transactions, in accordance with
applicable laws and regulations, to obtain the most favorable execution.
Simultaneous transactions could, however, adversely affect the Funds' ability
to obtain or dispose of the full amount of a security which it seeks to
purchase or sell.
Sometimes the procedure for allocating portfolio transactions among
the various investment accounts advised by AIM could have an adverse effect on
the price or amount of securities available to the Funds. In making such
allocations, AIM considers the investment objectives and policies of its
advisory clients, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held, and the judgments of the persons
responsible for recommending the investment.
SECTION 28(e) STANDARDS
Section 28(e) of the Securities Exchange Act of 1934 provides that
AIM, under certain circumstances, lawfully may cause an account to pay a higher
commission than the lowest available. Under Section 28(e), AIM must make a good
faith determination that the commissions paid are "reasonable in relation to
the value of the brokerage and research services provided viewed in terms of
either that particular transaction or [AIM's] overall responsibilities with
respect to the accounts as to which it exercises investment discretion." The
services provided by the broker also must lawfully and appropriately assist AIM
in the performance of its investment decision-making responsibilities.
Accordingly, in recognition of research services provided to them, Funds may
pay a broker higher commissions than those available from another broker.
Research services received from broker-dealers supplement AIM's own
research (and the research of its affiliates), and may include the following
types of information: statistical and background information on the U.S. and
foreign economies, industry groups and individual companies; forecasts and
interpretations with respect to the U.S. and foreign economies, securities,
markets, specific industry groups and individual companies; information on
federal, state, local and foreign political developments; portfolio management
strategies; performance information on securities, indexes and investment
accounts; information concerning prices of securities; and information supplied
by specialized services to AIM and to the Company's directors with respect to
the performance, investment activities, and fees and expenses of other mutual
funds. Broker-dealers may communicate such information electronically, orally,
in written form or on computer software. Research services may also include the
providing of custody services, as well as the providing of equipment used to
communicate research information, the providing of specialized consultations
with AIM personnel with respect to computerized systems and data furnished to
AIM as a component of other research services, the arranging
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<PAGE> 13
of meetings with management of companies, and the providing of access to
consultants who supply research information.
The outside research assistance is useful to AIM since the
broker-dealers used by AIM tend to follow a broader universe of securities and
other matters than AIM's staff can follow. In addition, the research provides
AIM with a diverse perspective on financial markets. Research services provided
to AIM by broker-dealers are available for the benefit of all accounts managed
or advised by AIM or by its affiliates. Some broker-dealers may indicate that
the provision of research services is dependent upon the generation of certain
specified levels of commissions and underwriting concessions by AIM's clients,
including the Funds. However, the Funds are not under any obligation to deal
with any broker-dealer in the execution of transactions in portfolio
securities.
In some cases, the research services are available only from the
broker-dealer providing them. In other cases, the research services may be
obtainable from alternative sources in return for cash payments. AIM believes
that the research services are beneficial in supplementing AIM's research and
analysis and that they improve the quality of AIM's investment advice. The
advisory fees paid by the Funds are not reduced because AIM receives such
services. However, to the extent that AIM would have purchased research
services had they not been provided by broker-dealers, the expenses to AIM
could be considered to have been reduced accordingly.
TRANSACTIONS WITH REGULAR BROKERS
As of October 31, 1998, Growth Fund had common stock holdings in
Merrill Lynch & Co., Inc. having a market value of $1,777,500. Merrill Lynch &
Co., Inc. is a regular broker/dealer of the Company, as defined in Rule 10b-1.
As of October 31, 1998, Growth Fund had common stock holdings in
Morgan Stanley, Dean Witter, Discovery & Co. having a market value of
$1,677,025. Morgan Stanley, Dean Witter, Discovery & Co. is a regular
broker/dealer of the Company, as defined in rule 10b-1.
BROKERAGE COMMISSIONS PAID
For the fiscal years ended October 31, 1998, 1997 and 1996, Aggressive
Growth Fund paid brokerage commissions of $5,519,840, $6,227,671 and
$5,169,447, respectively. For the fiscal year ended October 31, 1998, AIM
allocated certain of Aggressive Growth Fund's brokerage transactions to certain
broker-dealers that provided AIM with certain research, statistical and other
information. Such transactions amounted to $54,530,652 and the related
brokerage commissions were $110,236.
For the fiscal years ended October 31, 1998, 1997 and 1996, Equity
Fund paid brokerage commissions of $8,743,049, $6,002,915 and $5,666,504,
respectively. The increase in brokerage commissions from October 31, 1996
through October 31, 1998 was due to the increase in Equity Fund's net assets
during such period. For the fiscal year ended October 31, 1998, AIM allocated
certain of Equity Fund's brokerage transactions to certain broker-dealers that
provided AIM with certain research, statistical and other information. Such
transactions amounted to $2,845,668 and the related brokerage commissions were
$8,856.
For the fiscal years ended October 31, 1998, 1997 and 1996, Growth
Fund paid brokerage commissions of $1,482,482, $1,249,946 and $826,284,
respectively. The increase in brokerage commissions from October 31, 1996
through October 31, 1998 was due to the increase in Growth Fund's net assets
during such period. For the fiscal year ended October 31, 1998, AIM allocated
certain of Growth Fund's brokerage transactions to certain broker-dealers that
provided AIM with certain research, statistical and other information. Such
transactions amounted to $28,310,525 and the related brokerage commissions were
$33,859.
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<PAGE> 14
For the fiscal years ended October 31, 1998, 1997, and 1996, Income
Fund paid brokerage commissions of $2,638, $162, and $1,570, respectively. For
the fiscal year ended October 31, 1998, none of Income Fund's brokerage
transactions were allocated to broker-dealers that provided AIM with certain
research, statistical and other information.
For the fiscal period ended October 31, 1998, European Fund paid
brokerage commissions of $563,626. For the fiscal year ended October 31, 1998,
AIM allocated certain of European Fund's brokerage transactions to certain
broker-dealers that provided AIM with certain research, statistical and other
information. Such transactions amounted to $310,053 and the related brokerage
commissions were $254.
For the fiscal period ended October 31, 1998, Asian Fund paid brokerage
commissions of $75,694. For the fiscal year ended October 31, 1998, AIM
allocated certain of Asian Fund's brokerage transactions to certain
broker-dealers that provided AIM with certain research, statistical and other
information. Such transactions amounted to $14,801 and the related brokerage
commissions were $44.
INVESTMENT STRATEGIES AND RISKS
The following discussion of certain investment strategies and risks
supplements the discussion set forth in each Fund's Prospectus under the
headings "Investment Objective(s) and Strategies" and "Principal Risks of
Investing in the Fund."
The Funds' investment objective(s) are fundamental policies that
cannot be changed without shareholder approval. There can, of course, be no
assurance that any Fund will in fact achieve its objective(s). The Board of
Directors of the Company reserves the right to change any of the investment
policies, strategies or practices of any of the Funds, as described in this
Statement of Additional Information, without shareholder approval, except in
those instances where shareholder approval is expressly required.
ALL FUNDS (EXCEPT INCOME FUND)
In managing the Funds, AIM seeks to apply to each of the diversified
portfolios of equity securities the same investment strategy which it applies
to several of its other managed portfolios which have similar investment
objectives but which invest primarily in United States equities markets. Each
of the Funds will utilize to the extent practicable a fully managed investment
policy providing for the selection of securities which meet certain
quantitative standards determined by AIM. AIM reviews carefully the earnings
history and prospects for growth of each company considered for investment by
each of the Funds. It is anticipated that common stocks will be the principal
form of investment of the Funds. The portfolio of each of the Funds is
primarily comprised of securities of two basic categories of companies: (a)
"core" companies, which AIM considers to have experienced above-average and
consistent long-term growth in earnings and to have excellent prospects for
outstanding future growth, and (b) "earnings acceleration" companies which AIM
believes are currently enjoying a dramatic increase in earnings.
If a particular foreign company meets the quantitative standards
determined by AIM, its securities may be acquired by a Fund regardless of the
location of the company or their percentage of the Fund's investments in the
company's country or region. However, AIM will also consider other factors in
making investment decisions for these Funds including such factors as the
prospects for relative economic growth among countries or regions, economic and
political conditions, currency exchange fluctuations, tax considerations and
the liquidity of a particular security.
AIM recognizes that often there is less public information about
foreign companies than is available in reports supplied by domestic companies,
that foreign companies are not subject to uniform accounting and financial
reporting standards, and that there may be greater delays experienced by a Fund
in receiving
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<PAGE> 15
financial information supplied by foreign companies than comparable information
supplied by domestic companies. In addition, the value of the Fund's investments
that are denominated in a foreign currency may be affected by changes in
currency exchange rates. For these and other reasons, AIM from time to time may
encounter greater difficulty applying its disciplined stock selection strategy
to an international equity investment portfolio than to a portfolio of domestic
equity securities.
ASIAN FUND
The investment objective of the Asian Fund is to provide long-term
growth of capital.
The Asian Fund seeks to achieve its investment objective by investing
in a diversified portfolio of equity securities, the issuers of which are
located in Asia, and which are considered by AIM to have strong earnings
momentum or demonstrate other potential for capital appreciation. Any income
realized by the Asian Fund will be incidental and will not be an important
criterion in the selection of portfolio securities.
Under normal market conditions the Asian Fund will invest at least 80%
of its total assets in marketable equity securities, including common stock,
preferred stock, depositary receipts for stock and other securities having the
characteristics of stock (such as an equity or ownership interest in a company)
of Asian companies. The Asian Fund may satisfy the foregoing requirement in
part by investing in the securities of foreign issuers which are in the form of
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
or other securities representing underlying securities of Asian issuers. The
Asian Fund may also satisfy such requirement by investing up to 20% of its
total assets in securities exchangeable for or convertible into equity
securities of Asian companies. The Asian Fund will not invest in Japanese
securities. Any change to such policy must be submitted by AIM to the Company's
Board of Directors prior to the effectiveness of such change.
The Asian Fund considers an issuer of securities to be an Asian
company if: (i) it is organized under the laws of a country in Asia and has a
principal office in a country in Asia; (ii) it derives a significant portion
(i.e., 50% or more) of its total revenues from business in Asia; or (iii) its
equity securities are traded principally on a stock exchange in Asia or in an
over-the-counter market in Asia. The Asian Fund also considers shares of Asian
closed-end management investment companies, the assets of which are invested
primarily in Asian equity securities, to be securities of Asian companies.
There are no prescribed limits on geographic asset distribution within
Asia. Under normal market conditions, at least three countries will be
represented in the Asian Fund's portfolio of investments. The Asian Fund
intends to invest in securities of issuers in Asia as well as countries such as
Australia and New Zealand. The Asian Fund may invest, without limit, in
"developing" countries or "emerging markets." For a description of the risk
factors associated with investment in emerging markets. The Fund may invest up
to 20% of its total assets in securities of non-Asian companies.
A description of other investment strategies Asian Fund may pursue
follows after the section entitled " --Equity Fund."
The Asian Fund considers issuers of securities located in the
following countries to be Asian issuers:
Bangladesh Indonesia Philippines Thailand
China Korea Singapore Vietnam
Hong Kong Malaysia Sri Lanka
India Pakistan Taiwan
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<PAGE> 16
In addition to Asian issuers, Asian Fund may invest up to 20% of its
total assets in securities of non-Asian issuers. The following is a list of
some of the non-Asian countries in which Asian Fund may invest from time to
time:
Australia New Zealand
EUROPEAN FUND
The investment objective of the European Fund is to provide long-term
growth of capital.
The European Fund seeks to achieve its investment objective by
investing in a diversified portfolio of European equity securities, the issuers
of which are considered by AIM to have strong earnings momentum or demonstrate
other potential for capital appreciation. Any income realized by the European
Fund will be incidental and will not be an important criterion in the selection
of portfolio securities.
Under normal market conditions the European Fund will invest at least
80% of its total assets in marketable equity securities, including common
stock, preferred stock, depositary receipts for stock and other securities
having the characteristics of stock (such as an equity or ownership interest in
a company) of European companies. The European Fund may satisfy the foregoing
requirement in part by investing in the securities of European issuers which
are in the form of ADRs, EDRs, or other securities representing underlying
securities of European issuers. The European Fund may also satisfy such
requirement by investing up to 20% of its total assets in securities
exchangeable for or convertible into equity securities of European issuers.
Investments in foreign securities may include securities issued by enterprises
that have undergone or are currently undergoing privatization.
The European Fund considers an issuer of securities to be a European
company if; (i) it is organized under the laws of a European country and has a
principal office in a European country; (ii) it derives a significant portion
(i.e., 50% or more) of its total revenues from business in Europe; or (iii) its
equity securities are traded principally on a stock exchange in Europe or in an
over-the-counter market in Europe. The European Fund also considers European
equity securities of closed-end management investment companies, the assets of
which are invested primarily in European equity securities, to be securities of
European companies.
There are no prescribed limits on geographic asset distribution within
the European community. Under normal market conditions, at least three European
countries will be represented in the European Fund's portfolio of investments.
The European Fund intends to invest in securities of issuers in Western Europe
(such as the United Kingdom, Germany and the Netherlands) as well as companies
of issuers in Eastern Europe (such as Croatia, the Czech Republic, Russia and
Turkey). Many of the countries in Eastern Europe are "developing" countries or
"emerging markets." The European Fund may invest up to 65% of its total assets
in securities of European issuers located in "developing" countries or
"emerging markets." The European Fund may invest up to 20% of its total assets
in securities of non-European companies.
A description of other investment strategies European Fund may pursue
follows after the section entitled "--Equity Fund."
European Fund considers issuers of securities located in the following
countries to be European issuers:
Austria Denmark Greece Liechtenstein
Belgium Finland Hungary Luxembourg
Croatia France Ireland Netherlands
Czech Republic Germany Italy Norway
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Poland Russia Spain Turkey
Portugal Slovakia Sweden Ukraine
Romania Slovenia Switzerland United Kingdom
In addition to European issuers, European Fund may invest up to 20% of
its total assets in securities of non-European issuers. The following is a list
of some of the non-European countries in which European Fund may invest from
time to time:
Bermuda Israel South Africa United States
Egypt
The above lists may include foreign countries that have not yet been
approved by the Company's advisor. European Fund will only invest in foreign
countries that have been approved by the advisor.
The word "Development" in European Fund's name is designed to address
the general restructuring taking place in Europe as well as a more dramatic
political and economic restructuring taking place in regions such as Eastern
Europe. Also consistent with the name, the Fund has the ability to invest a
significant portion of its total assets in securities issued in emerging
markets.
PRIVATIZED ENTERPRISES. The governments of certain foreign countries
have, to varying degrees, embarked on privatization programs contemplating the
sale of all or part of their interests in state enterprises. European Fund's
investments in the securities of privatized enterprises include privately
negotiated investments in a government- or state-owned or controlled company or
enterprise that has not yet conducted an initial equity offering, investments
in the initial offering of equity securities of a state enterprise or former
state enterprise and investments in the securities of a state enterprise
following its initial equity offering.
In certain jurisdictions, the ability of foreign entities, such as
European Fund, to participate in privatizations may be limited by local law, or
the price or terms on which European Fund may be able to participate may be
less advantageous than for local investors. Moreover, there can be no assurance
that governments that have embarked on privatization programs will continue to
divest their ownership of state enterprises, that proposed privatizations will
be successful or that governments will not re-nationalize enterprises that have
been privatized.
In the case of the enterprises in which European Fund may invest,
large blocks of the stock of those enterprises may be held by a small group of
stockholders, even after the initial equity offerings by those enterprises. The
sale of some portion or all of those blocks could have an adverse effect on the
price of the stock of any such enterprise.
Prior to making an initial equity offering, most state enterprises or
former state enterprises go through an internal reorganization or management
changes. Such reorganizations are made in an attempt to better enable these
enterprises to compete in the private sector. However, certain reorganizations
could result in a management team that does not function as well as the
enterprise's prior management and may have a negative effect on such enterprise.
In addition, the privatization of an enterprise by its government may occur over
a number of years, with the government continuing to hold a controlling position
in the enterprise even after the initial equity offering for the enterprise.
Prior to privatization, most of the state enterprises in which
European Fund may invest enjoy the protection of and receive preferential
treatment from the respective sovereigns that own or control them. After making
an initial equity offering these enterprises may no longer have such protection
or receive such preferential treatment and may become subject to market
competition from which they were previously protected. Some of these
enterprises may not be able to effectively operate in a competitive market and
may suffer losses or experience bankruptcy due to such competition.
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AGGRESSIVE GROWTH FUND AND GROWTH FUND
Aggressive Growth Fund and Growth Fund have their own investment
objective and investment program as discussed herein.
The investment objective of Aggressive Growth Fund is to provide
above-average long-term growth of capital appreciation.
The Fund seeks to achieve its objective by investing in a portfolio of
global equity securities including securities of selected companies with
relatively small market capitalization.
The Aggressive Growth Fund will invest in companies throughout the
world which AIM believes possess exceptional growth potential that should
enhance such companies' prospects for future growth in earnings. As a result of
this policy, the market prices of many of the securities purchased and held by
Aggressive Growth Fund may fluctuate widely. Any income received from
securities held by the Fund will be incidental, and an investor should not
consider a purchase of shares of Aggressive Growth Fund as equivalent to a
complete investment program. Aggressive Growth Fund will emphasize investment
in small to medium-sized companies, but its strategy does not preclude
investment in large, seasoned companies which in AIM's judgement possess
superior potential returns similar to companies with formative growth profiles.
The Fund will also invest in established smaller companies (under $1 billion in
market capitalization) which in AIM's judgment offer exceptional value based
upon substantially above average earnings growth potential relative to market
value. Investors should realize that equity securities of small to medium-sized
companies may involve greater risk than is associated with investing in more
established companies. Small to medium-sized companies often have limited
product and market diversification, fewer financial and managerial resources or
may be dependent on a few key managers. Also, because smaller companies
normally have fewer shares outstanding than larger companies and trade less
frequently, it may be more difficult for the Fund to buy and sell shares
without an unfavorable impact on prevailing market prices. Some of the
companies in which the Fund may invest may distribute, sell or produce products
which have recently been brought to market. Any of the foregoing may change
suddenly and have an immediate impact on the value of the Fund's investments.
Furthermore, whenever the securities markets have experienced rapid price
changes due to national economic trends, secondary growth securities have
historically been subject to exaggerated price changes.
The investment objective of Growth Fund is to provide long-term growth
of capital.
The Fund seeks to achieve its objective by investing in a portfolio of
global equity securities of selected companies that are considered by AIM to
have strong earnings momentum. Current income will not be an important
criterion of investment section, and any such income should be considered
incidental.
Under normal market conditions, Aggressive Growth Fund and Growth Fund
will invest 65% of their respective total assets in marketable equity
securities (including common and preferred stock and other securities having
the characteristics of stock (such as an equity or ownership interest in a
company)) of companies which are listed on a recognized securities exchange or
traded in an over-the-counter market. Each of these Funds may satisfy the
foregoing requirement in part by investing in the securities of issuers which
are in the form of ADRs, EDRs, or other securities representing underlying
securities of foreign issuers. Each of Aggressive Growth Fund and Growth Fund
may invest up to 20% of its total assets in securities convertible into or
exchangeable for equity securities of foreign and domestic issuers which
(except in the case of ADRs, EDRs and other securities representing underlying
securities of foreign issuers) are listed on a recognized securities exchange
or traded in an over-the-counter market.
Under normal market conditions, the assets of each Fund will be
invested in the securities of companies located in at least four different
countries, including the United States. Aggressive Growth Fund and Growth Fund
will each emphasize investment in companies in developed countries such as the
United
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States, the countries of Western Europe and certain countries in the Pacific
Basin (such as Japan, Hong Kong and Australia). The Funds may also invest in the
securities of companies located in developing countries (such as Turkey, Poland
and Mexico) in various regions of the world. A "developing country" is a country
in the initial stages of this industrial cycle. Investment in the equity markets
of developing countries involves exposure to securities exchanges that may have
substantially less trading volume and greater price volatility, economic
structures that are less diverse and mature, and political systems that may be
less stable than the equity markets of developed countries.
A description of other investment strategies Aggressive Growth Fund
and Growth Fund may pursue follows the section entitled "Investment Strategies
and Risks."
INCOME FUND
Income Fund's primary investment objective is to provide a high level
of current income. As a secondary objective the Fund seeks preservation of
principal and capital appreciation.
The Fund seeks to achieve its objectives by investing in a portfolio
of U.S. and foreign government and corporate debt securities. Income Fund
intends to invest in (i) foreign government securities, (ii) securities issued
by supranational organizations (such as the World Bank), (iii) foreign and
domestic corporate debt securities, including lower-rated or unrated U.S.
dollar-denominated high yield corporate debt securities, commonly known as
"junk bonds" and (iv) U.S. Government securities, including U.S. Government
Agency mortgage-backed securities.
Income Fund is a non-diversified portfolio, which means that with
respect to 50% of its assets, it is permitted to invest more than 5% of its
assets in the securities of any one issuer. Income Fund will, however, invest
no more than 5% of its total assets in the securities of any one corporate
issuer, and will invest no more than 25% of its total assets in securities of
any one foreign government or supranational issuer. Income Fund will generally
invest in the securities of issuers located in at least four countries,
including the United States.
Income Fund will invest in securities issued by governments and
companies throughout the world, but expects that it will invest primarily in
securities of issuers in industrialized countries with established securities
markets, such as Western European countries, Canada, Japan, Australia, New
Zealand and the United States. Income Fund may, however, invest up to 20% of
its total assets in securities of issuers in developing countries such as
Turkey, Poland and Mexico.
Although Income Fund will invest at least 65% of its total assets in
non-convertible debt securities of foreign and domestic issuers, it may invest
up to 10% of its total assets in common stocks, preferred stocks and similar
equity securities of foreign and domestic issuers. Income Fund may also invest
up to 10% of its total assets in convertible debt securities of foreign and
domestic issuers.
Income Fund may invest less than 35% of its total assets in high yield
debt securities (i.e., "junk bonds"). Such securities, at the time of purchase,
are rated below investment grade or are determined by AIM to be non-investment
grade quality. For a description of the various rating categories of corporate
debt securities in which Income Fund may invest, see Appendix B. While
generally providing greater income and opportunity for gain, non-investment
grade debt securities may be subject to greater risks than higher-rated
securities. Economic downturns tend to disrupt the market for junk bonds and
adversely affect their values. Such economic downturns may be expected to
result in increased price volatility for junk bonds and of the value of shares
of the Fund, and increased issuer defaults on junk bonds.
In addition, many issuers of junk bonds are substantially leveraged,
which may impair their ability to meet their obligations. In some cases, junk
bonds are subordinated to the prior payment of senior indebtedness, which
potentially limits a Fund's ability to fully recover principal or to receive
payments when senior securities are subject to a default.
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The credit rating of a debt security does not necessarily address its
market value risk, and ratings may from time to time change to reflect
developments regarding the issuer's financial condition. Junk bonds have
speculative characteristics which are likely to increase in number and
significance with each successive lower rating category. Credit ratings evaluate
the safety of principal and interest payments, not market value risk of high
yield bonds. Also, since credit rating agencies may fail to timely change the
credit ratings to reflect subsequent events, AIM continuously monitors the
issuers of high yield bonds in Income Fund's portfolio to determine if the
issuers will have sufficient cash flow and profits to meet required principal
and interest payments, and to attempt to assure the bonds' liquidity so that
Income Fund can meet redemption requests. The achievement of Income Fund's
investment objective may be more dependent on AIM's own credit analysis than
might be the case for a fund which invests in higher quality bonds. Income Fund
may retain a portfolio security whose ratings has been changed.
When the secondary market for junk bonds becomes more illiquid, or in
the absence of readily available market quotations for such securities, the
relative lack of reliable objective data makes it more difficult for the
directors to value a Fund's securities, and judgment plays a more important
role in determining such valuations. Increased illiquidity in the junk bond
market also may affect a Fund's ability to dispose of such securities at
desirable prices.
In the event the Fund experiences an unexpected level of net
redemptions, the Fund could be forced to sell its junk bonds without regard to
their investment merits, thereby decreasing the asset base upon which the
Fund's expenses can be spread and possibly reducing the Fund's rate of return.
Prices of junk bonds have been found to be less sensitive to fluctuations in
interest rates, and more sensitive to adverse economic changes and individual
corporate developments, than those of higher-rated debt securities.
Securities issued by the U.S. Treasury (notes, bonds and bills) are
supported by the full faith and credit of the United States government, while
certain securities issued or guaranteed by agencies or instrumentalities of the
U.S. Government may not be supported by the full faith and credit of the United
States. These agency securities include both obligations supported by the right
of the issuer to borrow from the U.S. Treasury (such as obligations of the
Federal Home Loan Bank) and obligations supported by the credit of the agency
or instrumentality (such as Federal National Mortgage Association bonds.)
Similarly, obligations of foreign governments include obligations issued by
national, provincial, state or other governments that have taxing authority
over their local populations, or by agencies of such governments that may be
supported by the full faith and credit of the governmental entity, or solely by
the credit of such agency.
Supranational organizations include organizations formed and supported
by governmental entities to promote economic growth and development, or
international banking institutions, such as the International Bank of
Reconstruction and Development (the World Bank), the European Coal and Steel
Community, the Asian Development Bank and the Inter-American Development Bank.
Supranational organizations are generally formed and supported by the capital
contributions of governmental entities and, in their lending and other
activities, carry out the particular purposes designated by their member
governmental entities.
The value of the debt securities in which Income Fund invests will
change in response to interest rate changes and other factors. During periods
of rising interest rates, the values of outstanding long-term debt securities
will generally decline, and during periods of falling interest rates, the
values of such securities will generally rise. Such changes will affect the net
asset value per share of Income Fund. Longer-term fixed income securities tend
to be subject to greater fluctuations in price than shorter-term securities.
For a discussion of certain risks associated with investments in high
yield securities (i.e., "junk bonds"), foreign securities and non-diversified
funds, see "Principal Risks of Investing in the Fund" in the Fund's Prospectus.
A description of other investment strategies Income Fund may pursue follows
after the section below entitled "--Equity Fund."
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DOLLAR ROLL TRANSACTIONS. In order to enhance portfolio returns and
manage prepayment risk, Income Fund may engage in dollar roll transactions with
respect to mortgage securities issued by GNMA, FNMA and FHLMC. In a dollar roll
transaction, a Fund sells a mortgage security held in the portfolio to a
financial institution such as a bank or broker-dealer, and simultaneously
agrees to repurchase a substantially similar security (same type, coupon and
maturity) from the institution at a later date at an agreed upon price. The
mortgage securities that are repurchased will bear the same interest rate as
those sold, but generally will be collateralized by different pools of
mortgages with different prepayment histories. During the period between the
sale and repurchase, the Fund will not be entitled to receive interest and
principal payments on the securities sold. Proceeds of the sale will be
invested in short-term instruments, and the income from these investments,
together with any additional fee income received on the sale, could generate
income for the Fund exceeding the yield on the sold security.
Dollar roll transactions involve the risk that the market value of the
securities retained by a Fund may decline below the price of the securities
that the Fund has sold but is obligated to repurchase under the agreement. In
the event the buyer of securities under a dollar roll transaction files for
bankruptcy or becomes insolvent, the Fund's use of the proceeds from the sale
of the securities may be restricted pending a determination by the other party,
or its trustee or receiver, whether to enforce the Fund's obligation to
repurchase the securities. See "Borrowings," below for the applicable
limitation on dollar roll transactions.
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES. Income Fund may
invest in U.S. Government Agency Mortgage Backed Securities. These securities
are obligations issued or guaranteed by the United States Government or by one
of its agencies or instrumentalities, including but not limited to the
Government National Mortgage Association ("GNMA"), the Federal National
Mortgage Association ("FNMA"), or the Federal Home Loan Mortgage Corporation
("FHLMC"). U.S. Government Agency Mortgage-Backed Certificates provide for the
pass-through to investors of their pro-rata share of monthly payments
(including any principal prepayments) made by the individual borrowers on the
pooled mortgage loans, net of any fees paid to the guarantor of such securities
and the services of the underlying mortgage loans. GNMA, FNMA, and FHLMC each
guarantee timely distributions of interest to certificate holders. GNMA and
FNMA guarantee timely distributions of scheduled principal. FHLMC has in the
past guaranteed only the ultimate collection of principal of the underlying
mortgage loan; however, FHLMC Gold Participation Certificates now guarantee
timely payment of monthly principal reductions. Although their close
relationship with the U.S. Government is believed to make them high-quality
securities with minimal credit risks, the U.S. Government is not obligated by
law to support either FNMA or FHLMC. However, historically there have not been
any defaults of FNMA or FHLMC issues. See Appendix C for a more complete
description of these securities.
Mortgage-backed securities consist of interests in underlying
mortgages generally with maturities of up to thirty years. However, due to
early unscheduled payments of principal on the underlying mortgages, the
securities have a shorter average life and, therefore, less volatility than a
comparable thirty-year bond. The value of U.S. Government Agency
Mortgage-Backed Securities, like other traditional debt instruments, will tend
to decline as interest rates rise and increase as interest rates decline.
EQUITY FUND
The investment objective of the Equity Fund is to provide long-term
growth of capital by investing in a diversified portfolio of international
equity securities, the issuers of which are considered by AIM to have strong
earnings momentum. Any income realized by the Equity Fund will be incidental
and will not be an important criterion in the selection of portfolio
securities.
Under normal market conditions the Equity Fund will invest at least
70% of its total assets in marketable equity securities, including common
stock, preferred stock, depositary receipts for stock and other securities
having the characteristics of stock (such as an equity or ownership interest in
a company) of foreign companies which are listed on a recognized foreign
securities exchanged or traded in a foreign over-the-counter-market. The Equity
Fund may also satisfy the foregoing requirement in part by investing in the
securities of foreign
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issuers which are in the form of ADRs, EDRs, or other securities representing
underlying securities of foreign issuers. The Equity Fund may also invest up to
20% of its total assets in securities exchangeable for or convertible into
equity securities of foreign companies which are listed on a recognized foreign
securities exchange or traded in a foreign over-the-counter market.
Under normal market conditions, the Equity Fund intends to invest in
the securities of foreign companies located in at least four countries outside
the United States. The Equity Fund will emphasize investment in foreign
companies in the developed countries of Western Europe (such as Germany,
France, Switzerland, the Netherlands and the United Kingdom) and the Pacific
Basin (such as Japan, Hong Kong and Australia), and the Equity Fund may also
invest in the securities of companies located in developing countries (such as
Turkey, Malaysia and Mexico) in various regions of the world. A "developing
country" is a country in the initial stages of its industrial cycle.
Investment in the equity markets of developing countries involves
exposure to securities exchanges that may have substantially less trading
volume and greater price volatility, economic structures that are less diverse
and mature, and political systems that may be less stable than the equity
markets of developed countries. At the present time, AIM does not intent to
invest more than 20% of the Equity Fund's total assets in foreign companies in
developing countries.
REAL ESTATE INVESTMENT TRUSTS ("REITS")
To the extent consistent with the Funds' investment objectives and
policies, the Funds may invest in equity and/or debt securities issued by
REITs. Such investments will not exceed 5% of the total assets of any of the
Funds.
REITs are trusts which sell equity or debt securities to investors and
use the proceeds to invest in real estate or interests therein. A REIT may
focus on particular projects, such as apartment complexes, or geographic
regions, such as the Southeastern United States, or both.
To the extent that a Fund has the ability to invest in REITs, such
Fund could conceivably own real estate directly as a result of a default on the
securities it owns. A Fund, therefore, may be subject to certain risks
associated with the direct ownership of real estate including difficulties in
valuing and trading real estate, declines in the value of real estate,
environmental liability risks, risks related to general and local economic
condition, adverse change in the climate for real estate, increases in property
taxes and operating expense, changes in zoning laws, casualty or condemnation
losses, limitations on rents, changes in neighborhood values, the appeal of
properties to tenants, and increases in interest rates.
In addition to the risks described above, equity REITs may be affected
by any changes in the value of the underlying property owned by the trusts,
while mortgage REITs may be affected by the quality of any credit extended.
Equity and mortgage REITs are dependent upon management skill, are not
diversified, and are therefore subject to the risk of financing single or a
limited number of projects. Such trusts are also subject to heavy cash flow
dependency, defaults by borrowers, self-liquidation, and the possibility of
failing to maintain exemption from the 1940 Act. Changes in interest rates may
also affect the value of debt securities held by a Fund. By investing in REITs
indirectly through a Fund, a shareholder will bear not only his/her
proportionate share of the expenses of the Fund, but also, indirectly, similar
expenses of the REITs.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements and reverse repurchase
agreements. The Fund may enter into repurchase agreements with institutions
believed by the Company's Board of Directors to present minimal credit risk. A
repurchase agreement is an instrument under which a Fund acquires ownership of
a debt security and the seller (usually a broker or bank) agrees, at the time
of the sale, to repurchase the obligation at a mutually agreed upon time and
price, thereby determining the yield during the Fund's holding
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period. In the event of bankruptcy or other default of a seller of a repurchase
agreement, the Fund may experience both delays in liquidating the underlying
securities and losses, including: (a) a possible decline in the value of the
underlying security during the period in which the Fund seeks to enforce its
rights thereto; (b) a possible reduced levels of income and lack of access to
income during this period; and (c) expenses of enforcing its rights. A
repurchase agreement is collateralized by the security acquired by the Fund and
its value is marked to market daily in order to minimize the Fund's risk.
Repurchase agreements usually are for short periods, such as one or two days,
but may be entered into for longer periods of time. Repurchase agreements are
considered to be loans by the Funds under the 1940 Act. Repurchase agreements
will be secured by U.S. Treasury securities, U.S. Government agency securities
(including, but not limited to those which have been stripped of their interest
payments and mortgage backed securities) and commercial paper.
A reverse repurchase agreement involves the sale of securities held by
a Fund, with an agreement that the Fund will repurchase such securities at an
agreed-upon price, date, and interest payment. Each Fund may employ reverse
repurchase agreements (i) for temporary emergency purposes, such as to meet
unanticipated net redemptions so as to avoid liquidating other portfolio
securities during unfavorable market conditions; (ii) to cover short-term cash
requirements resulting from the timing of trade settlements; or (iii) to take
advantage of market situations where the interest income to be earned from the
investment of the proceeds of the transaction is greater than the interest
expense of the transaction. During the time a reverse repurchase agreement is
outstanding, the applicable Fund will segregate liquid assets having a value
equal to the repurchase price under such reverse repurchase agreement. Any
investment gains made by a Fund with monies borrowed through reverse repurchase
agreements will cause the net asset value of the Fund's shares to rise faster
than would be the case if the Fund had no such borrowings. On the other hand, if
the investment performance resulting from the investment of borrowings obtained
through reverse repurchase agreements fails to cover the cost of such borrowings
to the Fund, the net asset value of the Fund will decrease faster than would
otherwise be the case. Aggressive Growth Fund, Asian Fund, Growth Fund, European
Fund and Income Fund may enter into reverse repurchase agreements in amounts not
exceeding 33-1/3% of the value of its total assets. Equity Fund may enter into
reverse repurchase agreements in amounts not exceeding 10% of the value of its
total assets. Reverse repurchase agreements involve the risk that the market
value of securities retained by the Fund in lieu of liquidation may decline
below the repurchase price of the securities sold by the Fund which it is
obligated to repurchase. This risk, if encountered, could cause a reduction in
the net asset value of the Fund's shares. Reverse repurchase agreements are
considered to be borrowings under the 1940 Act.
LENDING OF PORTFOLIO SECURITIES
For the purpose of realizing additional income, the Funds may make
secured loans of portfolio securities amounting to not more than 33-1/3% of each
Fund's respective total assets. Securities loans are made to banks, brokers and
other financial institutions pursuant to agreements requiring that the loans be
continuously secured by collateral at least equal at all times to the value of
the securities lent marked to market on a daily basis. The collateral received
will consist of cash, U.S. Government securities, letters of credit or such
other collateral as may be permitted under the applicable Fund's investment
program. While the securities are being lent, the Fund 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. The Funds have a right to call each of their respective loans
and obtain the securities on five business days' notice or, in connection with
securities trading on foreign markets, within such longer period of time which
coincides with the normal settlement period for purchases and sales of such
securities in such foreign markets. The Funds will not have the right to vote
securities while they are being lent, but each Fund will call a loan in
anticipation of any important vote. The risks in lending portfolio securities,
as with other extensions of secured credit, consist of possible delay in
receiving additional collateral or in the recovery of the securities or possible
loss of rights in the collateral should the borrower fail financially. Loans
will not be made unless, in the judgment of AIM, the consideration to be earned
from such loans would justify the risk.
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BORROWINGS
Each Fund may borrow money to a limited extent from banks (including
the Funds' custodian bank) for temporary or emergency purposes subject to the
limitations under the 1940 Act. The current provisions of the 1940 Act restrict
borrowings (including reverse repurchase agreements and dollar roll
transactions) to an aggregate of 33-1/3% of the Fund's total assets at the time
of the transaction. In addition, the Funds, except for Income Fund, do not
intend to engage in leverage; therefore consistent with current interpretations
of the SEC, the Funds, except for Income Fund will not purchase additional
securities while borrowings from banks exceed 5% of each Fund's total assets.
Reverse repurchase agreement transactions and dollar roll transactions
are considered borrowings under the 1940 Act. Any investment gains made by
Income Fund with the borrowed monies in excess of interest paid by Income Fund
will cause the net asset value of Income Fund's shares to rise faster than
would otherwise be the case. On the other hand, if the investment performance
of the additional securities purchased with the proceeds of such borrowings
fails to cover the interest paid by the money borrowed by Income Fund, the net
asset value of Income Fund will decrease faster than would otherwise be the
case. This speculative factor is known as "leveraging."
SECURITIES ISSUED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS
Each Fund may purchase securities on a "when-issued" basis, that is,
delivery of and payment of the securities is not fixed at the date of purchase,
but is set after the securities are issued (normally within forty-five days
after the date of the transaction). Each Fund also may purchase or sell
securities on a delayed delivery basis. The payment obligation and the interest
rate that will be received on the delayed delivery securities are fixed at the
time the buyer enters into the commitment. Each Fund will only make commitments
to purchase when-issued or delayed delivery securities with the intention of
actually acquiring such securities, but each Fund may sell these securities
before the settlement date if it is deemed advisable. If a Fund purchases a
when-issued security or enters into a delayed delivery agreement, the Fund's
custodian bank will segregate cash or liquid securities in an amount at least
equal to the when-issued commitment or delayed delivery agreement commitment.
SHORT SALES
Each Fund may from time to time make short sales "against the box." A
short sale is a transaction in which a party sells a security it does not own
in anticipation of a decline in the market value of that security. A Fund will
not make short sales of securities or maintain a short position unless at all
times when a short position is open, the Fund owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short. This is a technique known as selling
short "against the box." Such short sales will be used by the Funds for the
purpose of deferring recognition of gain or loss for federal income tax
purposes. In no event may more than 10% of the value of a Fund's total assets
be deposited or pledged as collateral for such sales at any time.
ILLIQUID SECURITIES
Each Fund may invest up to 15% of its net assets in securities that are
illiquid, including restricted securities which are illiquid. Illiquid
securities include securities that cannot be disposed of promptly (within seven
days) in the normal course of business at a price at which they are valued.
Illiquid securities may include securities that are subject to restrictions on
resale because they have not been registered under the Securities Act of 1933.
Although securities which may be resold only to "qualified
institutional buyers" in accordance with the provisions of Rule 144A under the
Securities Act of 1933 are unregistered securities, each Fund may purchase
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Rule 144A securities without regard to the 15% limitation described above
provided that a determination is made that such securities have a readily
available trading market.
RULE 144A SECURITIES
The Funds may purchase privately placed securities that are eligible
for purchase and sale pursuant to Rule 144A under the Securities Act of 1933
(the "1933 Act"). This Rule permits certain qualified institutional buyers,
such as the Funds, to trade in securities that have not been registered under
the 1933 Act. AIM, under the supervision of the Company's Board of Directors,
will consider whether securities purchased under Rule 144A are illiquid and
thus subject to each Fund's restriction of investing no more than 15% of its
net assets in illiquid securities. Determination of whether a Rule 144A
security is liquid or not is a question of fact. In making this determination
AIM will consider the trading markets for the specific security taking into
account the unregistered nature of a Rule 144A security. In addition, AIM could
consider the (i) frequency of trades and quotes, (ii) number of dealers and
potential purchasers, (iii) dealer undertakings to make a market, and (iv)
nature of the security and of marketplace trades (for example, the time needed
to dispose of the security, the method of soliciting offers and the mechanics
of transfer). The liquidity of Rule 144A securities will also be monitored by
AIM and, if as a result of changed conditions, it is determined that a Rule
144A security is no longer liquid, a Fund's holdings of illiquid securities
will be reviewed to determine what, if any, action is required to assure that
the Fund does not invest more than 15% of its net assets in illiquid
securities. Investing in Rule 144A securities could have the effect of
increasing the amount of the Fund's investments in illiquid securities if
qualified institutional buyers are unwilling to purchase such securities.
FOREIGN SECURITIES
Each of the Funds may invest in foreign securities. For purposes of
computing such limitation ADRs, EDRs and other securities representing
underlying securities of foreign issuers are treated as foreign securities.
These securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically issued
by a United States bank or trust company which evidence ownership of underlying
securities issued by a foreign corporation. EDRs are receipts issued in Europe
which evidence a similar ownership arrangement. Generally, ADRs, in registered
form, are designed for use in the United States securities markets, and EDRs,
in bearer form, are designed for use in European securities markets. ADRs and
EDRs may be listed on stock exchanges, or traded in OTC markets in the United
States or Europe, as the case may be. ADRs, like other securities traded in the
United States, will be subject to negotiated commission rates.
To the extent a Fund invests in securities denominated in foreign
currencies, each Fund bears the risk of changes in the exchange rates between
U.S. currency and the foreign currency, as well as the availability and status
of foreign securities markets. These securities will be marketable equity
securities (including common and preferred stock, depositary receipts for stock
and fixed income or equity securities exchangeable for or convertible into
stock) of foreign companies which generally are listed on a recognized foreign
securities exchange or traded in a foreign over-the-counter market. Each of the
Funds may also invest in foreign securities listed on recognized U.S.
securities exchanges or traded in the U.S. over-the-counter market. Such
foreign securities may be issued by foreign companies located in developing
countries in various regions of the world. A "developing country" is a country
in the initial stages of its industrial cycle. As compared to investment in the
securities markets of developed countries, investment in the securities markets
of developing countries involves exposure to markets that may have
substantially less trading volume and greater price volatility, economic
structures that are less diverse and mature, and political systems that may be
less stable.
Investments by a Fund in foreign securities, whether denominated in
U.S. currencies or foreign currencies, may entail all of the risks set forth
below. Investments by a Fund in ADRs, EDRs or similar securities also may
entail some or all of the risks as set forth below.
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Currency Risk. The value of each Fund's foreign investments will be
affected by changes in currency exchange rates. The U.S. dollar value of a
foreign security decreases when the value of the U.S. dollar rises against the
foreign currency in which the security is denominated, and increases when the
value of the U.S. dollar falls against such currency.
On January 1, 1999, certain members of the European Economic and
Monetary Union ("EMU"), namely Austria, Belgium, Finland, France, Germany,
Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain established a
common European currency known as the "euro." It is anticipated that each
participating country will replace its existing currency with the euro on July
1, 2002. Any other European country that is a member of the European Union and
satisfies the criteria for participation in the EMU may elect to participate in
the EMU and may supplement its existing currency with the euro. The anticipated
replacement of existing currencies with the euro on July 1, 2002 could cause
market disruptions before or after July 1, 2002 and could adversely affect the
value of securities held by the Fund.
Political and Economic Risk. The economies of many of the countries in
which the Funds may invest are not as developed as the United States economy
and may be subject to significantly different forces. Political or social
instability, expropriation or confiscatory taxation, and limitations on the
removal of funds or other assets could also adversely affect the value of each
Fund's investments. Individual foreign economies may also differ favorably or
unfavorably from the United States economy in areas such as growth of gross
national product, rate of inflation, capital reinvestment, resource
self-sufficiency, and balance of payments position, which may likewise affect
the Fund's investments. Moreover, foreign legal systems may be affected by the
prevailing political climate and the Fund may not be able to obtain legal
remedies or enforce judgments in those courts.
Regulatory Risk. Foreign companies are not registered with the SEC and
are generally not subject to the regulatory controls imposed on United States
issuers and, as a consequence, there is generally less publicly available
information about foreign securities than is available about domestic
securities. Foreign companies are not subject to uniform accounting, auditing
and financial reporting standards, practices and requirements comparable to
those applicable to domestic companies. Income from foreign securities owned by
the Funds may be reduced by a withholding tax at the source, which tax would
reduce dividend income payable to the Funds' shareholders.
Market Risk. The securities markets in many of the countries in which
the Funds invest will have substantially less trading volume than the major
United States markets. As a result, the securities of some foreign companies
may be less liquid and experience more price volatility than comparable
domestic securities. Increased custodian costs as well as administrative costs
(such as the need to use foreign custodians) may be associated with the
maintenance of assets in foreign jurisdictions. There is generally less
government regulation and supervision of foreign stock exchanges, brokers and
issuers which may make it difficult to enforce contractual obligations. In
addition, transaction costs in foreign securities markets are likely to be
higher, since brokerage commission rates in foreign countries are likely to be
higher than in the United States. Further, the settlement period of securities
transactions in foreign markets may be longer than in domestic markets. These
considerations generally are more of a concern in developing countries. For
example, the possibility of revolution and the dependence on foreign economic
assistance may be greater in these countries than in developed countries. The
management of the Funds seeks to mitigate the risks associated with these
considerations through diversification and active professional management.
EMERGING MARKETS. General. A developing country or emerging
market country can be considered to be a country that is in the initial stages
of its industrialization cycle. Currently, emerging markets generally include
every country in the world other than the developed European countries
(primarily in Western Europe), the United States, Canada, Japan, Australia, New
Zealand, Hong Kong and Singapore. The characteristics of markets can change
over time. Currently, investing in many emerging markets may not be desirable
or feasible because of the lack of adequate custody arrangements for the Funds'
assets, overly burdensome repatriation and similar restrictions, the lack of
organized and liquid securities markets, unacceptable political
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risks or other reasons. As desirable opportunities to invest in securities in
emerging markets develop, the Funds may expand and further broaden the group of
emerging markets in which it invests. In the past, markets of developing
countries have been more volatile than the markets of developed countries;
however, such markets often have provided higher rates of return to investors.
AIM believes that these characteristics can be expected to continue in the
future.
Many of the risks described above relating to foreign securities
generally will be greater for emerging markets than for developed countries.
Many emerging markets have experienced substantial rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have very negative effects on the economies and securities markets
for certain developing markets. Economies in emerging markets generally are
heavily dependent upon international trade and accordingly, have been and may
continue to be affected adversely by trade barriers, exchange controls, managed
adjustments in relative currency values and other protectionist measures
imposed or negotiated by the countries with which they trade. These economies
also have been and may continue to be affected adversely by economic conditions
in the countries with which they trade.
Also, the securities markets of developing countries are substantially
smaller, less developed, less liquid and more volatile than the securities
markets of the United States and other more developed countries. Disclosure,
regulatory and accounting standards in many respects are less stringent than in
the United States and other developed markets. There also may be a lower level
of monitoring and regulation of developing markets and the activities of
investors in such markets, and enforcement of existing regulations has been
extremely limited.
In addition, brokerage commissions, custodial services and other costs
relating to investment in foreign markets generally are more expensive than in
the United States; this is particularly true with respect to emerging markets.
Such markets have different settlement and clearance procedures. In certain
markets there have been times when settlements have been unable to keep pace
with the volume of securities transactions, making it difficult to conduct such
transactions. Such settlement problems may cause emerging market securities to
be illiquid. The inability of the Funds to make intended securities purchases
due to settlement problems could cause the Funds to miss attractive investment
opportunities. Inability to dispose of a portfolio security caused by
settlement problems could result either in losses to the Funds due to
subsequent declines in value of the portfolio security or, if the Funds have
entered into contract to sell the security, could result in possible liability
to the purchaser. Certain emerging markets may lack clearing facilities
equivalent to those in developed countries. Accordingly, settlements can pose
additional risks in such markets and ultimately can expose the Funds to the
risk of losses resulting from the Funds' inability to recover from a
counterparty.
The risk also exists that an emergency situation may arise in one or
more emerging markets as a result of which trading of securities may cease or
may be substantially curtailed and prices for the Funds' portfolio securities
in such markets may not be readily available. The Funds' portfolio securities
in the affected markets will be valued at fair value determined in good faith
by or under the direction of the Board of Directors.
Investment in certain emerging markets securities is restricted or
controlled to varying degrees. These restrictions or controls may at times
limit or preclude foreign investment in certain emerging market securities and
increase the costs and expenses of the Fund. Emerging markets may require
governmental approval for the repatriation of investment income, capital or the
proceeds of sales of securities by foreign investors. In addition, if a
deterioration occurs in an emerging market's balance of payments, the market
could impose temporary restrictions on foreign capital remittances.
Eastern European Markets. European Fund intends to invest in the
securities of issuers domiciled in Eastern European countries. Investment in the
securities of issuers in Eastern European markets involves certain additional
risks not involved in investment in securities of issuers in more developed
markets, such as (i) low or non-existent trading volume, resulting in a lack of
liquidity and increased volatility in prices for such securities, as compared to
securities of comparable issuers in more developed capital markets, (ii)
uncertain
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national policies and social, political and economic instability (including
the possibility that such countries could revert to a centralist planned
government), increasing the potential for expropriation of assets, confiscatory
taxation, high rates of inflation or unfavorable diplomatic developments, (iii)
possible fluctuations in exchange rates, differing legal systems and the
existence or possible imposition of exchange controls, custodial restrictions or
other foreign or U.S. governmental laws or restrictions applicable to such
investments, (iv) national policies which may limit European Fund's investment
opportunities such as restrictions on investment in issuers or industries deemed
sensitive to national interests, and (v) the lack of developed legal structures
governing private and foreign investments and private property.
Eastern European capital markets are emerging in a dynamic political
and economic environment brought about by the recent events there that have
reshaped political boundaries and traditional ideologies. In such a dynamic
environment, there can be no assurance that the Eastern Europe capital markets
will continue to present viable investment opportunities for European Fund. In
the past, Eastern European governments have expropriated substantial amounts of
private property, and most claims of the property owners have never been fully
settled. There is no assurance that such expropriations will not recur. In such
an event, it is possible that European Fund could lose the entire value of its
investments in the affected Eastern European markets.
The currencies of Eastern European countries are not, at present,
freely convertible into other currencies. Also, certain Eastern European
authorities presently require that securities of certain Eastern European
issuers be held by custodians in Eastern Europe. At this time, it is possible
that certain Eastern European countries may not have available institutions
qualified under the 1940 Act to hold European Fund assets. Therefore, European
Fund may need to seek an exemptive order from the SEC prior to investing in
certain Eastern European countries. There is no assurance that the SEC would
issue such an order.
Reforms currently underway and anticipated throughout Eastern Europe
are directed at political and economic liberalization, with efforts to develop
increasingly market-oriented economies and to decentralize the economic and
political decision-making processes currently in the forefront. There can be no
assurance that these reforms will continue or, if continued, will achieve their
goals; in addition, there is the possibility that reforms may be reversed in
the future.
PORTFOLIO TURNOVER
Any particular security will be sold, and the proceeds reinvested,
whenever such action is deemed prudent from the viewpoint of the Fund's
investment objectives, regardless of the holding period of that security. A
higher rate of portfolio turnover may result in higher transaction costs,
including brokerage commissions. Also, to the extent that higher portfolio
turnover results in a higher rate of net realized capital gains to the Fund,
the portion of the Fund's distributions constituting taxable capital gains may
increase. Portfolio turnover is shown under "Financial Highlights" in the
applicable Prospectus.
FOREIGN EXCHANGE TRANSACTIONS
Purchases and sales of foreign securities are usually made with
foreign currencies, and consequently the Funds may from time to time hold cash
balances in the form of foreign currencies, and multinational currency units.
Such foreign currencies and multinational currency unites will usually be
acquired on a spot (i.e. cash) basis at the sport rate prevailing in foreign
exchange markets and will result in currency conversion costs to the Funds. The
Funds attempt to purchase and sell foreign currencies on as favorable a basis
as practicable; however, some price spread on foreign exchange transactions (to
cover service charges) may be incurred, particularly when the Funds change
investments from one country to another, or when U.S. dollars are used to
purchase foreign securities. Certain countries could adopt policies which would
prevent the Funds from transferring cash out of such countries, and the Funds
may be affected either favorably or unfavorably by fluctuations in relative
exchange rates while the Funds hold foreign currencies.
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Each Fund has authority to deal in foreign exchange between currencies
of the different countries in which it will invest either for the settlement of
transactions or as a hedge against possible variations in the foreign exchange
rates between those currencies. This may be accomplished through direct
purchases or sales of foreign currency, purchases of futures contracts with
respect to foreign currency (and options thereon), and contractual agreements
to purchase or sell a specified currency at a specified future date (up to one
year) at a price set at the time of the contract. For hedging purposes, Asian
Fund, European Fund and Equity Fund may also purchase foreign currencies in the
form of bank deposits as well as other foreign money market instruments,
including, but not limited to, bankers' acceptances, certificates of deposit,
commercial paper, short-term government and corporate obligations and
repurchase agreements.
INVESTMENT IN OTHER INVESTMENT COMPANIES
Each of the Funds may invest in other investment companies, to the
extent permitted by the 1940 Act, and rules and regulations thereunder, and, if
applicable, exemptive orders granted by the SEC.
European Fund and Asian Fund may invest up to 10% of its total assets
in the securities of certain closed-end investment companies. Shares of
closed-end investment companies are often traded at market prices that are less
than the net asset values of their shares. Such investments will involve the
payment of duplicative fees through the indirect payment of a portion of the
expenses, including advisory fees, of such closed-end investment companies.
OPTIONS, FUTURES AND CURRENCY STRATEGIES
The following discussion on options, futures and currency strategies
applies to AIM BALANCED FUND, AIM GLOBAL UTILITIES FUND, AIM SELECT GROWTH FUND
and AIM VALUE FUND.
INTRODUCTION
The Funds may each use forward contracts, futures contracts, options on
securities, options on indices, options on currencies, and options on futures
contracts to attempt to hedge against the overall level of investment and
currency risk normally associated with each Fund's investments. These
instruments are often referred to as "derivatives," which may be defined as
financial instruments whose performance is derived, at least in part, from the
performance of another asset (such as a security, currency or an index of
securities).
GENERAL RISKS OF OPTIONS, FUTURES AND CURRENCY STRATEGIES
The use by the Funds of options, futures contracts and forward currency
contracts involves special considerations and risks, as described below. Risks
pertaining to particular strategies are described in the sections that follow.
(1) Successful use of hedging transactions depends upon AIM's ability
to correctly predict the direction of changes in the value of the applicable
markets and securities, contracts and/or currencies. While AIM is experienced
in the use of these instruments, there can be no assurance that any particular
hedging strategy will succeed.
(2) There might be imperfect correlation, or even no correlation,
between the price movements of an instrument (such as an option contract) and
the price movements of the investments being hedged. For example, if a
"protective put" is used to hedge a potential decline in a security and the
security does decline in price, the put option's increased value may not
completely offset the loss in the underlying security. Such a lack of
correlation might occur due to factors unrelated to the value of the
investments being hedged, such as changing interest rates, market liquidity,
and speculative or other pressures on the markets in which the hedging
instrument is traded.
(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.
(4) There is no assurance that a liquid secondary market will exist
for any particular option, futures contract, forward contract or option thereon
at any particular time.
(5) As described below, a Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in instruments involving obligations to third parties. If a Fund
were unable to close out its positions in such instruments, it might be
required to continue to maintain such assets or accounts or make such payments
until the position expired or matured. The requirements might impair the
Fund's ability to sell a portfolio security or make an investment at a time
when it would otherwise be favorable to do so, or require that the Fund sell a
portfolio security at a disadvantageous time.
(6) There is no assurance that a Fund will use hedging transactions.
For example, if a Fund determines that the cost of hedging will exceed the
potential benefit to the Fund, the Fund will not enter into such transaction.
COVER
Transactions using forward contracts, futures contracts and options
(other than options purchased by a Fund) expose a Fund to an obligation to
another party. A Fund will not enter into any such transactions unless it owns
either (1) an offsetting ("covered") position in securities, currencies, or
other options, forward contracts or futures contracts or (2) cash, liquid
assets and/or short-term debt securities with a value sufficient at all times
to cover its potential obligations not covered as provided in (1) above. Each
Fund will comply with SEC guidelines regarding cover for these instruments and,
if the guidelines so require, set aside cash or liquid securities.
Assets used as cover cannot be sold while the position in the
corresponding forward contract, futures contract or option is open, unless they
are replaced with other appropriate assets. If a large portion of a Fund's
assets is used for cover or otherwise set aside, it could affect portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
WRITING CALL OPTIONS
Each of the Funds may write (sell) covered call options on securities,
futures contracts, forward contracts, indices and currencies. As the writer of
a call option, a Fund would have the obligation to deliver the underlying
security, cash or currency (depending on the type of derivative) to the holder
(buyer) 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 a Fund continues, it may be assigned an exercise notice,
requiring it to deliver the underlying security, cash or currency against
payment of the exercise price. This obligation terminates upon the expiration
of the call option, or such earlier time at which a Fund effects a closing
purchase transaction by purchasing an option identical to that previously sold.
When writing a call option a Fund, in return for the premium, gives up
the opportunity for profit from a price increase in the underlying security,
contract or currency above the exercise price, and retains the risk of loss
should the price of the security, contract or currency decline. Unlike one who
owns securities, contracts or currencies not subject to an option, a Fund has
no control over when it may be required to sell the underlying securities,
contracts or currencies, since most options may be exercised at any time prior
to the option's expiration. If a call option that a Fund has written expires,
it 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, contract or
currency during the option period. If the call option is exercised, a Fund
will realize a gain or loss from the sale of the underlying security, contract
or currency, which will be increased or offset by the premium received.
Writing call options can serve as a limited hedge because declines in
the value of the hedged investment would be offset to the extent of the premium
received for writing the option.
Closing transactions may be effected in order to realize a profit on an
outstanding call option, to prevent an underlying security, contract or
currency from being called or to permit the sale of the underlying security,
contract or currency. Furthermore, effecting a closing transaction will permit
a Fund to write another call option on the underlying security, contract or
currency with either a different exercise price or expiration date, or both.
WRITING PUT OPTIONS
Each of the Funds may write (sell) covered put options on securities,
futures contracts, forward contracts, indices and currencies. As the writer of
a put option, a Fund would have the obligation to buy the underlying security,
contract or currency (depending on the type of derivative) at the exercise
price at any time until (American style) or on (European style) the expiration
date. This obligation terminates upon the expiration of the put option, or
such earlier time at which a Fund effects a closing purchase transaction by
purchasing an option identical to that previously sold.
A Fund would write a put option at an exercise price that, reduced by
the premium received on the option, reflects the lower price it is willing to
pay for the underlying security, contract or currency. The risk in such a
transaction would be that the market price of the underlying security, contract
or currency would decline below the exercise price less the premium received.
PURCHASING PUT OPTIONS
Each of the Funds may purchase put options on securities, futures
contracts, forward contracts, indices and currencies. As the holder of a put
option, a Fund would have the right to sell the underlying security, contract
or currency at the exercise price at any time until (American style) or on
(European style) the expiration date. A Fund may enter into closing sale
transactions with respect to such options, exercise such option or permit such
option to expire.
A Fund may purchase a put option on an underlying security, contract or
currency ("protective put") owned by the Fund in order to protect against an
anticipated decline in the value of the security, contract or currency. Such
hedge protection is provided only during the life of the put option. The
premium paid for the put option and any transaction costs would reduce any
profit realized when the security, contract or currency is delivered upon
exercise of said option. Conversely, if the underlying security, contract or
currency does not decline in value, the option may expire worthless and the
premium paid for the protective put would be lost.
A Fund may also purchase put options on underlying securities,
contracts or currencies against which it has written other put options. For
example, where a Fund has written a put option on an underlying security,
rather than entering a closing transaction of the written option, it may
purchase a put option with a different exercise price and/or expiration date
that would eliminate some or all of the risk associated with the written put.
Used in combinations, these strategies are commonly referred to as "put
spreads." Likewise, a Fund may write call options on underlying securities,
contracts or currencies against which it has purchased protective put options.
This strategy is commonly referred to as a "collar."
PURCHASING CALL OPTIONS
Each of the Funds may purchase covered call options on securities,
futures contracts, forward contracts, indices and currencies. As the holder of
a call option, a Fund would have the right to purchase the underlying security,
contract or currency at the exercise price at any time until (American style)
or on (European style) the expiration date. A Fund may enter into closing sale
transactions with respect to such options, exercise such options or permit such
options to expire.
Call options may be purchased by a Fund for the purpose of acquiring
the underlying security, contract or currency for its portfolio. Utilized in
this fashion, the purchase of call options would enable a Fund to acquire the
security, contract or currency at the exercise price of the call option plus
the premium paid. So long as it holds such a call option, rather than the
underlying security or currency itself, the Fund is partially protected from
any unexpected decline in the market price of the underlying security, contract
or currency and, in such event, could allow the call option to expire,
incurring a loss only to the extent of the premium paid for the option.
Each of the Funds may also purchase call options on underlying
securities, contracts or currencies against which it has written other call
options. For example, where a Fund has written a call option on an underlying
security, rather than entering a closing transaction of the written option, it
may purchase a call option with a different exercise price and/or expiration
date that would eliminate some or all of the risk associated with the written
call. Used in combinations, these strategies are commonly referred to as "call
spreads."
Options may be either listed on an exchange or traded in
over-the-counter ("OTC") markets. Listed options are third-party contracts
(i.e., performance of the obligations of the purchaser and seller is guaranteed
by the exchange or clearing corporation) and have standardized strike prices
and expiration dates. OTC options are two-party contracts with negotiated
strike prices and expiration dates. A Fund will not purchase an OTC option
unless it 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 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. Although a Fund will enter into OTC options only with
dealers that are expected to be capable of entering into closing transactions
with it, there is no assurance that the Fund will in fact be able to close out
an OTC option position at a favorable price prior to expiration. In the event
of insolvency of the dealer, a Fund might be unable to close out an OTC option
position at any time prior to its expiration.
The staff of the SEC considers purchased OTC options to be illiquid
securities. A Fund may also sell OTC options and, in connection therewith,
segregate assets or cover its obligations with respect to OTC options written
by it. The assets used as cover for OTC options written by the Fund will be
considered illiquid unless the OTC options are sold to qualified dealers who
agree that the Fund may repurchase any OTC option it writes at a maximum price
to be calculated by a formula set forth in the option agreement. The cover for
an OTC option written subject to this procedure would be considered illiquid
only to the extent that the maximum repurchase price under the formula exceeds
the intrinsic value of the option.
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. The amount of cash is
equal to the difference between the closing price of the index and the exercise
price of the call or put times a specified multiple (the "multiplier"), which
determines the total dollar value for each point of such difference.
The risks of investment in index options may be greater than options on
securities. Because index options are settled in cash, when a Fund writes a
call on an index it cannot provide in advance for its potential settlement
obligations by acquiring and holding the underlying securities. A Fund can
offset some of the risk of writing a call index option position by holding a
diversified portfolio of securities similar to those on which the underlying
index is based. However, the Fund cannot, as a practical matter, acquire and
hold a portfolio containing exactly the same securities as underlie the index
and, as a result, bears a risk that the value of the securities held will not
be perfectly correlated with the value of the index.
LIMITATIONS ON OPTIONS
A Fund will not write options if, immediately after such sale, the
aggregate value of securities or obligations underlying the outstanding options
exceeds 20% of the Fund's total assets. A Fund will not purchase options if,
at any time of the investment, the aggregate premiums paid for the options will
exceed 5% of the Fund's total assets.
INTEREST RATE, CURRENCY AND STOCK INDEX FUTURES CONTRACTS
Each of the Funds may enter into interest rate, currency or stock index
futures contracts (collectively, "Futures" or "Futures Contracts") as a hedge
against changes in prevailing levels of interest rates, currency exchange rates
or stock price levels, respectively, in order to establish more definitely the
effective return on securities or currencies held or intended to be acquired by
it. A Fund's hedging may include sales of Futures as an offset against the
effect of expected increases in interest rates, and decreases in currency
exchange rates and stock prices, and purchases of Futures as an offset against
the effect of expected declines in interest rates, and increases in currency
exchange rates or stock prices.
A Futures Contract is a two party agreement to buy or sell a specified
amount of a specified security or currency (or delivery of a cash settlement
price, in the case of an index future) for a specified price at a designated
date, time and place. A stock index future 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 agreed upon in the Futures Contract;
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 Future is outstanding.
The Funds will only 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 and by the Commodity
Futures Trading Commission ("CFTC").
Closing out an open Future is effected by entering into an offsetting
Future for the same aggregate amount of the identical financial instrument or
currency and the same delivery date. There can be no assurance, however, that
a Fund will be able to enter into an offsetting transaction with respect to a
particular Future at a particular time. If a Fund is not able to enter into an
offsetting transaction, it will continue to be required to maintain the margin
deposits on the Future.
A Fund's Futures transactions will be entered into for hedging purposes
only; that is, Futures will be sold to protect against a decline in the price
of securities or currencies that the Fund owns, or Futures will be purchased to
protect the Fund against an increase in the price of securities or currencies
it has committed to purchase or expects to purchase.
"Margin" with respect to Futures is the amount of funds that must be
deposited by a Fund in order to initiate Futures trading and maintain its open
positions in Futures. A margin deposit made when the Futures Contract is
entered ("initial margin") is intended to ensure the Fund's performance under
the Futures Contract. The margin required for a particular Future is set by
the exchange on which the Future 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 a Fund entered into the Futures Contract will
be made on a daily basis as the price of the underlying security, currency or
index fluctuates making the Futures more or less valuable, a process known as
marking-to-market.
If a Fund were unable to liquidate a Future or an option on a Futures
position due to the absence of a liquid secondary market or the imposition of
price limits, it could incur substantial losses. The Fund would continue to be
subject to market risk with respect to the position. In addition, except in
the case of purchased options, the Fund would continue to be 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.
OPTIONS ON FUTURES CONTRACTS
Options on Futures Contracts are similar to options on securities or
currencies except that options on Futures Contracts give the purchaser the
right, in return for the premium paid, to assume a position in a Futures
Contract (a long position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during the period of
the option. Upon exercise of the option, the delivery of the Futures position
by the writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's Futures margin account.
FORWARD CONTRACTS
A forward contract is an obligation, usually arranged with a commercial
bank or other currency dealer, to purchase or sell a currency against another
currency at a future date and price as agreed upon by the parties. A Fund
either may accept or make delivery of the currency at the maturity of the
forward contract. A Fund may also, if its contra party agrees prior to
maturity, enter into a closing transaction involving the purchase or sale of an
offsetting contract. Forward contracts are traded over-the-counter, and not on
organized commodities or securities exchanges. As a result, it may be more
difficult to value such contracts, and it may be difficult to enter into
closing transactions.
Each of the Funds may engage in forward currency transactions in
anticipation of, or to protect itself against, fluctuations in exchange rates.
A Fund may enter into forward contracts with respect to a specific purchase or
sale of a security, or with respect to its portfolio positions generally. When
a Fund purchases a security denominated in a foreign currency for settlement in
the near future, it may immediately purchase in the forward market the currency
needed to pay for and settle the purchase. By entering into a forward contract
with respect to the specific purchase or sale of a security denominated in a
foreign currency, the Fund can secure an exchange rate between the trade and
settlement dates for that purchase or sale transaction. This practice is
sometimes referred to as "transaction hedging." Position hedging is the
purchase or sale of foreign currency with respect to portfolio security
positions denominated or quoted in a foreign currency.
The cost to a Fund of engaging in forward contracts varies with factors
such as the currencies involved, the length of the contract period and the
market conditions then prevailing. Because forward contracts are usually
entered into on a principal basis, no fees or commissions are involved. The
use of forward contracts does not eliminate fluctuations in the prices of the
underlying securities a Fund owns or intends to acquire, but it does establish
a rate of exchange in advance. In addition, while forward contract sales limit
the risk of loss due to a decline in the value of the hedged currencies, they
also limit any potential gain that might result should the value of the
currencies increase.
LIMITATIONS ON USE OF FUTURES, OPTIONS ON FUTURES AND CERTAIN OPTIONS ON
CURRENCIES
To the extent that a Fund enters into Futures Contracts, options on
Futures Contracts and options on foreign currencies traded on a CFTC-regulated
exchange, in each case other than for bona fide hedging purposes (as defined by
the CFTC), the aggregate initial margin and premiums required to establish
those positions (excluding the amount by which options are "in-the-money") will
not exceed 5% of the total assets of the Fund, after taking into account
unrealized profits and unrealized losses on any contracts it has entered into.
This guideline may be modified by the Board, without a shareholder vote. This
limitation does not limit the percentage of the Fund's assets at risk to 5%.
HEDGING AND OTHER INVESTMENT TECHNIQUES
HEDGING STRATEGIES
The Fund may seek to hedge its portfolio against movements in the
equity markets, interest rates and exchange rates between currencies and to
close out or offset existing positions in options or futures contracts through
the use of options, futures transactions, options on futures and foreign
forward exchange transactions. The Fund has authority to write (sell) covered
call and put options on its portfolio securities. The Fund may also purchase
and sell (i) options on domestic and foreign securities and currencies, (ii)
stock index options, (iii) stock, currency and interest rate futures, (iv)
options on stock, currency, stock index and interest rate futures and (v)
foreign forward currency exchange contracts purchase put and call options on
securities and engage in transactions in stock index options, stock index
futures and financial futures, and related options on such futures. The Fund
may also deal in certain forward contracts, including forward foreign exchange
transactions, foreign currency options and futures, and related options on such
futures. The Fund is authorized to enter into such options and futures
transactions either on exchanges or in the OTC markets. The purpose of such
transactions is to hedge against changes in the market value of the Fund's
portfolio securities caused by fluctuating interest rates, fluctuating currency
exchange rates and changing market conditions, and to close out or offset
existing positions in such options or futures contracts as described below. The
Fund will not engage in such transactions for speculative purposes. In
addition, the Fund will not engage in these transactions of the cost of the
transactions exceed the expected benefits. Any change to such policy must be
submitted by AIM to the Company's Board of Directors prior to the effectiveness
of such change. Although certain risks are involved in options and futures
transactions (as discussed below), AIM believes that, because the Fund will
only engage in these transactions for hedging purposes, the options and futures
portfolio strategies of the Fund will not subject the Fund to the risks
frequently associated with the speculative use of options and futures
transactions. While the Fund's use of hedging strategies is intended to reduce
the volatility of the respective net asset value of the Fund's shares, the
Fund's net asset value will nevertheless fluctuate. There can be no assurance
that the hedging transactions of the Fund will be effective.
OPTIONS
The Fund may purchase put or call options. Options purchased by
Income Fund must be issued by the Options Clearing Corporation. Such options
give the Fund the right for a fixed period of time to sell (in the case of
purchase of a put option) or to buy (in the case of purchase of a call option)
the number of units of the underlying security or obligation covered by the
option at a fixed or determinable exercise price. Buying a put option hedges
against the risk of a market decline. Buying a call option hedges against a
market advance. Prior to its expiration, a put or call option may be sold in a
closing sale transaction. Gain or loss from such a sale will depend on whether
the amount received is more or less than the premium paid for the option plus
the related transaction costs.
The Fund also may write (sell) put or call options, but only if such
options are covered and remain covered as long as the Fund is obligated as a
writer of the option (seller). A call option is "covered" the Fund owns the
underlying security covered by the call. A put option is "covered" if the Fund
segregates liquid assets with a value equal to the exercise price of the put
option. If a "covered" call or put option expires unexercised, the writer
realizes a gain in the amount of the premium received. If the covered call
option is exercised, the writer realizes either gain or loss from the sale or
purchase of the underlying security with the proceeds to the writer being
increased by the amount of the premium. If the covered put option is exercised,
the writer's cost of purchasing the underlying security is reduced by the
amount of the premium received from the initial sale
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of the put option. Prior to its expiration, a put or call option may be closed
out by means of a purchase of an identical option. Any gain or loss from such
transaction will depend on whether the amount paid is more or less than the
premium received for the option plus related transaction costs.
The Fund may also purchase and write options in combination with each
other to adjust the risk and return characteristics of certain portfolio
security positions. This technique is commonly served to as a "collar."
Options are subject to certain risks, including the risk of imperfect
correlation between the option and the Fund's other investments and the risk
that there might not be a liquid secondary market for the option when the Fund
seeks to hedge against adverse market movements. In general, options whose
strike prices are close to their underlying securities' current values will have
the highest trading value, while options whose strike prices are further away
may be less liquid. The liquidity of options may also be affected if options
exchanges impose trading halts, particularly when markets are volatile.
Options purchased or written by the Fund may be traded on the national
securities exchanges or negotiated with a dealer. Options traded in the
over-the-counter market may not be as actively traded as those on an exchange,
so it may be more difficult to value such options. In addition, it may be
difficult to enter into closing transactions with respect to such options. Such
options and the securities used as "cover" for such options, unless otherwise
indicated, would be considered illiquid securities.
The Fund will not write options if, immediately after such sale, the
aggregate value of the securities or obligations underlying the outstanding
options exceeds 25% of the Fund's total assets. The Fund will not purchase put
options (including options on securities indices and futures contracts) if, at
the time of investment, the aggregate premiums paid for such options will exceed
5% of the Fund's total assets.
Options purchased or written by the Fund may be traded on the national
securities exchanges or negotiated with a dealer. Options traded in the
over-the-counter market may not be as actively traded as those on an exchange,
so it may be more difficult to value such options. In addition, it may be
difficult to enter into closing transactions with respect to such options. Such
options and the securities used as "cover" for such options, unless otherwise
indicated, would be considered illiquid securities.
WRITING COVERED CALL OPTIONS
The Fund is authorized to write (sell) covered call options on the
securities in which it may invest and to enter into closing purchase
transactions with respect to such options. A call option is "covered" if the
Fund owns the underlying security covered by the call. Writing a call option
obligates the Fund to sell or deliver the option's underlying security, in
return for the strike price, upon exercise of the option. By writing a call
option, the Fund receives an option premium from the purchaser of the call
option. Writing covered call options is generally a profitable strategy if
prices remain the same or fall. Through receipt of the option premium, the Fund
would seek to mitigate the effects of a price decline. By writing covered call
options, however, the Fund gives up the opportunity, while the option is in
effect, to profit from any price increase in the underlying security above the
option exercise price. In addition, the Fund's ability to sell the underlying
security will be limited while the option is in effect unless the Fund effects a
closing purchase transaction.
WRITING COVERED PUT OPTIONS
The Fund is authorized to write (sell) covered put options on its
portfolio securities and to enter into closing transactions with respect to such
options.
When the Fund writes a put option, it takes the opposite side of the
transaction from the option's purchaser. In return for receipt of the premium,
the Fund assumes the obligation to pay the strike price for the option's
underlying instrument if the other party to the option chooses to exercise it.
The Fund may seek to terminate its position in a put option it writes before
exercise by closing out the option in the secondary market
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at its current price. If the secondary market is not liquid for an option the
Fund has written, however, the Fund must continue to be prepared to pay the
strike price while the option is outstanding, regardless of price changes, and
must continue to set aside assets to cover its position.
The Fund may write put options as an alternative to purchasing actual
securities. If security prices rise, the Fund would expect to profit from a
written put option, although its gain would be limited to the amount of the
premium it received. If security prices remain the same over time, it is likely
that the Fund will also profit, because it should be able to close out the
option at a lower price. If security prices fall, a Fund would expect to suffer
a loss. This loss should be less than the loss the Fund would have experienced
from purchasing the underlying instrument directly, however, because the premium
received for writing the option should mitigate the effects of the decline.
PURCHASING PUT OPTIONS
The Fund is authorized to purchase put options to hedge against a
decline in the market value of its portfolio securities. By buying a put option
the Fund has the right (but not the obligation) to sell the underlying security
at the exercise price, thus limiting the Fund's risk of loss through a decline
in the market value of the security until the put option expires. The amount of
any appreciation in the value of the underlying security will be partially
offset by the amount of the premium paid by the Fund for the put option and any
related transaction costs. Prior to its expiration, a put option may be sold in
a closing sale transaction and profit or loss from the sale will depend on
whether the amount received is more or less than the premium paid for the put
option plus the related transaction costs. A closing sale transaction cancels
out the Fund's position as the purchaser of an option by means of an offsetting
sale of an identical option prior to the expiration of the option it has
purchased. The Fund will not purchase put options on securities (including stock
index options discussed below) if as a result of such purchase, the aggregate
cost of all outstanding options on securities held by the Fund would exceed 5%
of the market value of the Fund's total assets.
PURCHASING CALL OPTIONS
The Fund is also authorized to purchase call options. The features of
call options are essentially the same as those of put options, except that the
purchaser of a call option obtains the right to purchase, rather than sell, the
underlying instrument at the option's strike price (call options on futures
contracts are settled by purchasing the underlying futures contract). The Fund
will purchase call options only in connection with "closing purchase
transactions."
COMBINED OPTION POSITIONS
The Fund, for hedging purposes, may purchase and write options in
combination with each other to adjust the risk and return characteristics of the
Fund's overall position. For example, the Fund may purchase a put option and
write a covered call option on the same underlying instrument, in order to
construct a combined position whose risk and return characteristics are similar
to selling a futures contact. This technique, called a "straddle," enables the
Fund to offset the cost of purchasing a put option with the premium received
from writing the call option. However, by selling the call option, the Fund
gives up the ability for potentially unlimited profit from the put option.
Another possible combined position would involve writing a covered call option
at one strike price and buying a call option at a lower price, in order to
reduce the risk of the written covered call option in the event of a substantial
price increase. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
STOCK INDEX OPTIONS AND FUTURES AND FINANCIAL FUTURES
The Fund is authorized to engage in transactions in stock index options
and futures and financial futures, and related options. Since substantially all
of the securities held by the Fund may be denominated in foreign currencies, the
value of the Fund's portfolio will be affected by changes in exchange rates
between
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<PAGE> 32
currencies (including the U.S. dollar), as well as by changes in the market
value of the securities themselves. The Fund may enter into interest rate,
exchange rate and currency futures contracts and related options, or it may
purchase or sell stock index futures contracts and related options in order to
hedge the value of its portfolio against changes in market conditions or in
exchange rates between currencies (including the U.S. dollar).
Futures contracts obligate the seller to deliver a specific type of
security called for in the contract, at a specified future time and for a
specified price. Futures contracts are traded on U.S. and foreign exchanges and
generally contain standardized strike prices and expiration dates. Certain
futures contacts may be satisfied by actual delivery of the securities or, more
typically, by entering into an offsetting transaction. An option on a futures
contract gives the purchaser the right, in return for the premium paid, to
assume a position in a futures contract. In addition to purchasing or selling
futures contracts on currencies and specific securities, interest rates and
exchange rates, the Fund may purchase or sell stock index futures contracts. A
stock index futures contract is an agreement to take or make delivery of an
amount of cash based on the difference between the value of a stock index at the
beginning and at the end of the contract period. The Fund may effect
transactions in stock index futures contracts in connection with equity
securities in which it invests and in financial futures contracts in connection
with the debt securities in which it invests, if any. Transactions by the Fund
in stock index futures and financial futures are subject to limitations as
described below under "Restrictions on the Use of Futures Transactions." No more
than 5% of the Fund's total assets will be committed to initial margin deposits
required pursuant to futures contracts. Percentage investment limitations on the
Fund's investment in options on futures contracts and asset coverage
requirements are set forth above under "Options." Although each Fund is
authorized to invest in futures contracts and related options with respect to
foreign securities, stock indices, interest rates and currencies, the Fund will
limit such investments to those which have been approved by the CFTC for
investment by United States investors.
Options on indices are similar to options on securities except that on
exercise or assignment, the parties to the contract pay or receive an amount of
cash equal to the difference between the closing value of the index and the
exercise price of the option times a specified multiple. The Fund may invest in
stock index options based on a broad market index, such as the S&P 500 Index, or
on a narrow index representing an industry or market segment, such as the AMEX
Oil & Gas Index. Additionally, with respect to the Fund's investments in foreign
options, unless such options are specifically authorized for investment by order
of the CFTC or meet the definition of "trade option" as set forth in the CFTC
Regulation 32.4, the Fund will not make such investments.
In attempting to manage its currency exposure, the Fund may buy and
sell currencies, either in spot (cash) market or in the forward market (through
forward contracts generally expiring within one year). The Fund may also enter
into forward contracts with respect to a specific purchase or sale of a
security, or with respect to its portfolio positions generally. When the Fund
purchases a security for settlement in the near future, it may immediately
purchase in the forward market the currency needed to pay for and settle the
purchase. By entering into a forward contract with respect to the specific
purchase or sale of a security denominated in a foreign currency, the Fund can
secure an exchange rate between the trade and settlement dates for that purchase
or sale transaction. This practice is sometimes referred to as "transaction
hedging." The Fund may enter into transaction hedging forward contracts with
respect to all or a substantial portion of its trades. In addition to hedging
specific securities transactions, the Fund may also generally hedge their
respective holdings denominated in a particular currency. This practice is
sometimes referred to as "position hedging." The Fund may not position hedge
with respect to the currency of a particular country to an extent greater than
the aggregate market value (at the time of making such sale) of the securities
held in any such Fund's portfolio denominated or quoted in that particular
foreign currency. The Fund will not enter into a position hedging commitment if,
as a result thereof the Fund would have more than 40% of the value of its total
assets committed to such contracts. The Fund will not enter into a forward
contract with a term of more than one year. Unlike futures
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<PAGE> 33
contracts, forward contracts are generally individually negotiated and
privately traded. A forward contract obligates the seller to sell a specific
security or currency at a specified price on a future date, which may be any
fixed number of days from the date of the contract.
In addition to the forward exchange contracts, the Fund may also
purchase or sell listed or OTC foreign currency options, foreign currency
futures and related options as a short or long hedge against possible variations
in foreign exchange rates. The cost to the Fund of engaging in foreign currency
transactions varies with such factors as the currencies involved, the length of
the contract period and the market conditions then prevailing. Since
transactions in foreign currency exchange usually are conducted on a principal
basis, no fees or commissions are involved. Transactions involving forward
exchange contracts and futures contracts and options thereon are subject to
certain risks. A detailed discussion of such risks appears under the caption
"Risk Factors in Options, Futures, Forward and Currency Transactions."
There are risks associated with the use of futures and forward
contracts and options thereon for hedging purposes. During certain market
conditions, sales of futures contracts may not completely offset a decline or
rise in the value of the Fund's portfolio securities or currency against which
the futures or forward contract or options thereon are being sold. In the
futures and options on futures markets, it may not always be possible to execute
a buy or sell order at the desired price, or to close out an open position due
to market conditions, limits on open positions and/or daily price fluctuations.
Risks in the use of futures contracts and options thereon also result from the
possibility that changes in the market value of securities or currency may
differ substantially from the charges anticipated by the Fund when hedged
positions were established. Successful use of futures and forward contracts and
options thereon is dependent upon AIM's ability to predict correctly movements
in the direction of the applicable markets. No assurance can be given that AIM's
judgment in this respect will be correct. Accordingly, the Funds may lose the
expected benefit of futures and forward transactions and options thereon if
markets move in a manner unanticipated by AIM.
The Fund may sell futures contracts in anticipation of or during a
market decline to attempt to offset the decrease in market value of the Fund's
securities portfolio that might otherwise result. When the Fund is not fully
invested in the securities markets and anticipates a significant market advance,
the Fund may purchase futures in order to gain rapid market exposure that may in
part or entirely offset increases in the cost of securities that the Fund
intends to purchase. As such purchases are made, an equivalent amount of futures
contracts will be terminated by offsetting sales. The Fund does not consider
purchases of futures contracts to be a speculative practice under these
circumstances. It is anticipated that, in a substantial majority of these
transactions, the Fund will purchase such securities upon termination of the
long futures position, whether the long position results from the purchase of a
futures contract or the purchase of a call option, but under unusual
circumstances (e.g., the Fund experiences a significant amount of redemptions) a
long futures position may be terminated without the corresponding purchase of
securities.
The Fund is also authorized to purchase and write call and put options
on futures contracts and stock indices in connection with their hedging
activities. Generally, these strategies would be utilized under the same market
and market sector conditions (i.e., conditions relating to specific types of
investments) in which a Fund enters into futures transactions. The Fund may
purchase put options or write call options on futures contracts and stock
indices rather than selling the underlying futures contract in anticipation of a
decrease in the market value of securities. Similarly, the Fund can purchase
call options, or write put options on futures contracts and stock indices, as a
substitute for the purchase of such futures to hedge against the increased cost
resulting from an increase in the market value of securities which the Fund
intends to purchase.
The Fund is also authorized to engage in options and futures
transactions on U.S. and foreign exchanges and in options in the OTC markets
("OTC options"). In general, exchange traded contracts are third-party contracts
(i.e., performance of the parties' obligations is guaranteed by an exchange or
clearing corporation) with standardized strike prices and expiration dates. OTC
options transactions are two-party contracts with price and terms negotiated by
the buyer and seller. See "Restrictions on OTC Options" below for information as
to restrictions on the use of OTC options.
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<PAGE> 34
The Fund is authorized to purchase or sell listed or OTC foreign
security or currency options, foreign security or currency futures and related
options as a short or long hedge against possible variations in foreign exchange
rates and market movements. Such transactions could be effected with respect to
hedges on non-U.S. dollar denominated securities owned by the Fund, sold by the
Fund but not yet delivered, or committed or anticipated to be purchased by the
Fund. As an illustration, the Fund may use such techniques to hedge the stated
value in U.S. dollars of an investment in a yen-denominated security. In such
circumstances, for example, the Fund can purchase a foreign currency put option
enabling it to sell a specified amount of yen for U.S. dollars at a specified
price by a future date. To the extent the hedge is successful, a loss in the
value of the yen relative to the U.S. dollar will tend to be offset by an
increase in the value of the put option.
Certain differences exist between these hedging instruments. For
example, foreign currency options provide the holder thereof the rights to buy
or sell a currency at a fixed price on a future date. A futures contract on a
foreign currency is an agreement between two parties to buy and sell a specified
amount of a currency for a set price on a future date. Futures contracts and
options on futures contracts are traded on boards of trade or futures exchanges.
The Fund will not speculate in foreign security or currency options, futures or
related options. The Fund will not hedge a currency substantially in excess of
the market value of securities which the Fund has committed or anticipates to
purchase which are denominated in such currency, and in the case of securities
which have been sold by the Fund but not yet delivered, the proceeds thereof in
its denominated currency. The Fund will not incur potential net liabilities of
more than 25% of its total assets from foreign security or currency options,
futures or related options.
RESTRICTIONS ON THE USE OF FUTURES TRANSACTIONS
The purchase or sale of a futures contract differs from the purchase or
sale of a security in that no price or premium is paid or received. Instead, an
amount of cash or securities acceptable to the broker and the relevant contract
market, which varies, but is generally about 5% of the contract amount, must be
deposited with the broker. This initial margin represents a "good faith" deposit
assuring the performance of both the purchaser and seller under the futures
contract. Subsequent variation margin payments to and from the broker are
required to be made on a daily basis as the price of the futures contract
fluctuates making the long and short positions in the futures contracts more or
less valuable, a process known as "marking to market." At any time prior to the
settlement date of the futures contract, the position may be closed out by
taking an opposite position which will operate to terminate the position in the
futures contract. A final determination of variation margin is then made,
additional cash is required to be paid to or released by the broker and the
purchaser realizes a loss or gain. In addition, a nominal commission is paid on
each completed sale transaction.
Regulations of the CFTC applicable to the Fund require that all of the
Fund's futures and options on futures transactions constitute bona fide hedging
transactions and that the Fund not enter into such transactions if, immediately
thereafter, the sum of the amount of initial margin deposits on the Fund's
existing futures positions and premiums paid for open positions with respect to
futures contracts, related options and options on securities indexes would
exceed 5% of the market value of the Fund's total assets. However, if an option
is "in-the-money" (the price of the option exceeds the strike price), the
in-the-money portion may be excluded in computing the 5% limit.
RESTRICTIONS ON OTC OPTIONS
The Fund will engage in transactions involving OTC options, including
over-the-counter stock index options, over-the-counter foreign security and
currency options and options on foreign security and currency futures, only with
member banks of the Federal Reserve System and primary dealers in U.S.
Government securities or with affiliates of such banks or dealers which have
capital of at least $50 million or whose obligations are guaranteed by an entity
having capital of at least $50 million. The Fund will acquire only those OTC
options for which AIM believes the Fund can receive on each business day at
least two independent bids or offers (one of which will be from an entity other
than a party to the option).
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The Staff of the SEC has taken the position that purchased OTC options
and the assets used as cover for written OTC options are illiquid securities.
Therefore, the Fund has adopted an operating policy pursuant to which the Fund
will not purchase or sell OTC options (including OTC options on futures
contracts) if, as a result of such transaction, the sum of (i) the market value
of OTC options currently outstanding which are held by the Fund, (ii) the market
value of the underlying securities covered by OTC call options currently
outstanding which were sold by the Fund, (iii) margin deposits on the Fund's
existing OTC options on futures contracts, and (iv) the market value of all
other assets of the Fund which are illiquid or are not otherwise readily
marketable, would exceed 15% of the net assets of the Fund taken at market
value. However, if an OTC option is sold by the Fund to a primary U.S.
Government securities dealer recognized by the Federal Reserve Bank of New York,
and the Fund has the unconditional contractual right to repurchase such OTC
option from the dealer at a predetermined price, then the Fund will treat as
illiquid such amount of the underlying securities as is equal to the repurchase
price less the amount by which the option is "in-the-money" (current market
value of the underlying security minus the option's strike price). The
repurchase price with primary dealers is typically a formula price which is
generally based on a multiple of the premium received for the option, plus the
amount by which the option is "in-the-money." This policy as to OTC options is
not a fundamental policy of the Fund and may be amended by the Board of
Directors of the Company without approval of the Fund's shareholders. However,
the Fund will not change or modify this policy prior to the change or
modification by the SEC staff of its position.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS
The Fund will not use leverage in its options and futures strategies.
Such investments will be made for hedging purposes only. The Fund will hold
securities or other options or futures positions whose values are expected to
offset its obligations under the hedge strategies. The Fund will not enter into
an option or futures position that exposes the Fund to an obligation to another
party unless it owns either (i) an offsetting position in securities or other
options or futures contracts or (ii) liquid assets with a value sufficient to
cover its potential obligations. The Fund will comply with guidelines
established by the SEC with respect to coverage of options and futures
strategies by mutual funds, and if the guidelines so require will segregate
liquid assets in the amount prescribed. The segregated liquid assets will not be
sold while the futures or option strategy is outstanding, unless they are
replaced with similar liquid assets. As a result, there is a possibility that
segregation of a large percentage of the Fund's liquid assets could impede
portfolio management or the Fund's ability to meet redemption requests or other
current obligations.
RISK FACTORS IN OPTIONS, FUTURES, FORWARD AND CURRENCY TRANSACTIONS
The use of options and futures transactions to hedge the Fund's
portfolio involves the risk of imperfect correlation in movements in the price
of options and futures and movements in the price of securities or currencies
which are the subject of the hedge. If the price of the option or future moves
more or less than the price of hedged securities or currencies, the Fund will
experience a gain or loss which will not be completely offset by movements in
the price of the subject of the hedge. The successful use of options and futures
also depends on AIM's ability to correctly predict price movements in the market
involved in a particular options or futures transaction. To compensate for
imperfect correlation's, the Fund may purchase or sell stock index options or
futures contracts in a greater dollar amount than the hedged securities if the
volatility of the hedged securities is historically greater than the volatility
of the stock index options or futures contracts. Conversely, the Fund may
purchase or sell fewer stock index options or futures contracts, if the
historical price volatility of the hedged securities is less than that of the
stock index options or futures contracts. The risk of imperfect correlation
generally tends to diminish as the maturity date of the stock index option or
futures contract approaches. Options are also subject to the risks of an
illiquid secondary market, particularly in strategies involving writing options,
which the Fund cannot terminate by exercise. In general, options whose strike
prices are close to their underlying instruments' current value will have the
highest trading volume, while options whose strike prices are further away may
be less liquid.
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The Fund intends to enter into options and futures transactions, on an
exchange or in the OTC market, only if there appears to be a liquid secondary
market for such options or futures or, in the case of OTC transactions, AIM
believes the Fund can receive on each business day at least two independent bids
or offers. However, there can be no assurance that a liquid secondary market
will exist at any specific time. Thus, it may not be possible to close an
options or futures position. The inability to close options and futures
positions also could have an adverse impact on the Fund's ability to
effectively hedge its portfolio. There is also the risk of loss by the Fund of
margin deposits or collateral in the event of bankruptcy of a broker with whom
the Fund has an open position in an option, a futures contract or related
option.
The exchanges on which options on portfolio securities and currency
options are traded have generally established limitations governing the maximum
number of call or put options on the same underlying security or currency
(whether or not covered) which may be written by a single investor, whether
acting alone or in concert with others (regardless of whether such options are
written on the same or different exchanges or are held or written in one or
more accounts or through one or more brokers). "Trading limits" are imposed on
the maximum number of contracts which any person may trade on a particular
trading day. AIM does not believe that these trading and position limits will
have any adverse impact on the portfolio strategies for hedging the Funds'
portfolio.
Because the Fund will engage in the options and futures transactions
described above solely in connection with their hedging activities, AIM does
not believe such options and futures transactions necessarily will have any
significant effect on the portfolio turnover rate of the Fund.
INVESTMENT RESTRICTIONS
AGGRESSIVE GROWTH FUND, GROWTH FUND, AND INCOME FUND
The following fundamental policies and investment restrictions have
been adopted by Aggressive Growth Fund, Growth Fund and Income Fund and, except
as noted, such policies cannot be changed without approval by the vote of a
majority of the outstanding voting securities of the applicable Fund, as
defined in the 1940 Act.
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The Funds may not:
1. Purchase or sell real estate or interests in real estate
(except that this restriction does not preclude investments in
marketable securities of companies engaged in real estate
activities).
2. Purchase or sell commodities or commodity contracts, except
that the Funds may purchase and sell stock index and currency
options, stock index futures, interest rate futures, financial
futures and currency futures contracts and related options on
such futures.
3. Purchase any security on margin, except that the Funds may
obtain such short-term credits as may be necessary for the
clearance of purchases and sales of portfolio securities. The
payment by the Fund of initial or variation margin in
connection with futures or related options transactions shall
not be considered the purchase of a security on margin.
4. Make loans, although the Funds may (a) purchase money market
securities and enter into repurchase agreements, (b) acquire
bonds, debentures, notes and other debt securities,
governmental obligations and certificates of deposit, and (c)
lend portfolio securities.
5. Issue senior securities, except to the extent permitted by the
1940 Act, including permitted borrowings.
6. Underwrite securities of other persons, except to the extent
that a Fund may be deemed to be an underwriter within the
meaning of the 1933 Act in connection with the purchase and
sale of its portfolio securities in the ordinary course of
pursuing its investment program.
7. Purchase or sell interests in oil, gas or other mineral
exploration or development programs.
8. Purchase the securities of any issuer if, as a result, more
than 25% of the value of a Fund's total assets, taken at
market value, would be invested in the securities of issuers
having their principal business activities in the same
industry. This restriction does not apply to obligations
issued or guaranteed by the U.S. Government or by any of its
agencies or instrumentalities but will (unless and until SEC
changes its position) apply to foreign government obligations
unless the SEC permits their exclusion.
9. Purchase a security if, as a result, with respect to 75% of
the value of a Fund's total assets, taken at market value,
more than 5% of a Fund's total assets, taken at market value,
would be invested in the securities of any one issuer
(including repurchase agreements with any one entity), except
securities issued or guaranteed by the U.S. Government or any
of its agencies or instrumentalities and except that a Fund
may purchase securities of other investment companies to the
extent permitted by applicable law or exemptive order. This
restriction does not apply to the Income Fund.
10. Purchase a security if, as a result, with respect to 50% of
the value of the Fund's total assets taken at market value,
more than 5% of the value of the Fund's total assets, taken at
market value, would be invested in securities of any one
issuer, except securities issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities and
except that a Fund may purchase securities of other investment
companies to the extent permitted by applicable law or
exemptive order. This restriction applies only to the Income
Fund.
11. Purchase a security if, as a result, more than 10% of the
outstanding voting securities of any issuer would be held by a
Fund, except that a Fund may purchase securities of other
investment companies to the extent permitted by applicable law
or exemptive order.
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12. Borrow money, except that the Fund may borrow from banks
(including the Fund's custodian bank) and enter into reverse
repurchase agreements and dollar roll transactions (Income
Fund only). With respect to Aggressive Growth Fund and Growth
Fund, such permitted borrowings shall be used as a temporary
defensive measure for extraordinary or emergency purposes.
Permitted borrowings shall be in amounts not exceeding 33-1/3%
of a Fund's total assets, taken at market value, and each Fund
may pledge amounts of up to 20% of its total assets, taken at
market value, to secure such borrowings. Whenever bank
borrowings exceed 5% of the value of the total assets of
Aggressive Growth Fund or Growth Fund, such Fund will not make
any additional purchases of securities for investment
purposes.
The following restrictions are non-fundamental and may be changed by
the Company's Board of Directors. Pursuant to such restrictions, the Funds will
not:
13. Make investments for the purpose of exercising control or
management.
14. Lend portfolio securities in excess of 33-1/3% of total
assets, taken at market value; provided that loans of
portfolio securities shall be made in accordance with the
guidelines set forth under the heading "Lending of Portfolio
Securities."
15. Invest in securities which are illiquid if more than 15% of a
Fund's net assets, taken at market value, would be invested in
such securities.
16. Effect short sales of securities, except that a Fund may make
short sales "against the box" to the extent that the value of
the securities sold short, in the aggregate, does not
represent more than 10% of the Fund's total assets, taken at
market value, at any given time.
Percentage restrictions apply as of the time of investment without
regard to later increases or decreases in the values of securities or total
assets.
EQUITY FUND
The following fundamental policies and investment restrictions have
been adopted by Equity Fund and, except as noted, such policies cannot be
changed without approval by the vote of a majority of the outstanding voting
securities of the Fund, as defined in the 1940 Act.
The Fund may not:
1. Purchase or sell real estate or interests in real estate
(except that this restriction does not preclude investments in
marketable securities of companies engaged in real estate
activities).
2. Purchase or sell commodities or commodity contracts, except
that the Fund may purchase and sell stock index and currency
options, stock index futures, financial futures and currency
futures contracts and related options on such futures.
3. Purchase any security on margin, except that the Fund may
obtain such short-term credits as may be necessary for the
clearance of purchases and sales of portfolio securities. The
payment by the Fund of initial or variation margin in
connection with futures or related options transactions shall
not be considered the purchase of a security on margin.
4. Make loans, although the Fund may (a) purchase money market
securities and enter into repurchase agreements, (b) acquire
bonds, debentures, notes and other debt securities,
governmental obligations and certificates of deposit, and (c)
lend portfolio securities.
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5. Borrow money, except that the Fund may borrow from banks
(including the Fund's custodian bank) and enter into reverse
repurchase agreements as a temporary defensive measure for
extraordinary or emergency purposes, and then only in amounts
not exceeding 10% of its total assets, taken at market value,
and may pledge amounts of up to 20% of its total assets, taken
at market value, to secure such borrowings. For purposes of
this restriction, collateral arrangements with respect to the
writing of options, futures contracts, options on futures
contracts, and collateral arrangements with respect to initial
and variation margin are not deemed to be a pledge of assets,
and neither such arrangements nor the purchase and sale of
options, futures or related options shall be deemed to be the
issuance of a senior security. Whenever bank borrowings and
the value of the Fund's reverse repurchase agreements exceed
5% of the value of the Fund's total assets, the Fund will not
make any additional purchases of securities for investment
purposes.
6. Underwrite securities of other persons, except to the extent
that the Fund may be deemed to be an underwriter within the
meaning of the 1933 Act in connection with the purchase and
sale of its portfolio securities in the ordinary course of
pursuing its investment program.
7. Purchase or sell interests in oil, gas or other mineral
exploration or development programs.
8. Purchase the securities of any issuer if, as a result, more
than 25% of the value of the Fund's total assets, taken at
market value, would be invested in the securities of issuers
having their principal business activities in the same
industry. This restriction does not apply to obligations
issued or guaranteed by the U.S. Government or by any of its
agencies or instrumentalities but will apply to foreign
government obligations unless the SEC permits their exclusion.
9. Purchase a security if, as a result, with respect to 75% of
the value of the Fund's total assets, taken at market value,
more than 5% of the Fund's total assets, taken at market
value, would be invested in the securities of any one issuer
(including repurchase agreements with any one entity), except
securities issued or guaranteed by the U.S. Government or any
of its agencies or instrumentalities, and except that the Fund
may purchase securities of other investment companies to the
extent permitted by applicable law or exemptive order.
10. Purchase a security if, as a result, more than 10% of the
outstanding voting securities of any issuer would be held by
the Fund, except that the Fund may purchase securities of
other investment companies to the extent permitted by
applicable law or exemptive order.
11. Issue senior securities, except as provided in restriction
number 5 above.
The following restrictions are non-fundamental and may be changed by
the Company's Board of Directors. Pursuant to such restrictions, the Fund will
not:
12. Make investments for the purpose of exercising control or
management.
13. Lend its portfolio securities in excess of 33-1/3% of its
total assets, taken at market value; provided that loans of
portfolio securities shall be made in accordance with the
guidelines set forth under the heading "Lending of Portfolio
Securities."
14. Invest in securities which are illiquid if more than 15% of
the Fund's net assets, taken at market value, would be
invested in such securities.
15. Effect short sales of securities, except that the Fund may
make short sales "against the box" to the extent that the
value of the securities sold short, in the aggregate, does not
represent more than 10% of the Fund's total assets, taken at
market value, at any given time.
38
<PAGE> 40
Percentage restrictions apply as of the time of investment without
regard to later increases or decreases in the values of securities or total
assets.
ASIAN FUND AND EUROPEAN FUND
The following fundamental policies and investment restrictions have
been adopted by Asian Fund and European Fund and, except as noted, such
policies cannot be changed without approval by the vote of a majority of the
outstanding voting securities of the applicable Fund, as defined in the 1940
Act.
The Funds may not:
1. Purchase or sell real estate or interests in real estate
(except that this restriction does not preclude investments in
marketable securities of companies engaged in real estate
activities).
2. Purchase or sell commodities or commodity contracts, except
that the Funds may purchase and sell stock index and currency
options, stock index futures, interest rate futures, financial
futures and currency futures contracts and related options on
such futures.
3. Purchase any security on margin, except that the Funds may
obtain such short-term credits as may be necessary for the
clearance of purchases and sales of portfolio securities. The
payment by the Fund of initial or variation margin in
connection with futures or related options transactions shall
not be considered the purchase of a security on margin.
4. Make loans, although the Funds may (a) purchase money market
securities and enter into repurchase agreements, (b) acquire
bonds, debentures, notes and other debt securities,
governmental obligations and certificates of deposit, and (c)
lend portfolio securities.
5. Issue senior securities, except to the extent permitted by the
1940 Act, including permitted borrowings.
6. Underwrite securities of other persons, except to the extent
that a Fund may be deemed to be an underwriter within the
meaning of the 1933 Act in connection with the purchase and
sale of its portfolio securities in the ordinary course of
pursuing its investment program.
7. Purchase the securities of any issuer if, as a result, more
than 25% of the value of a Fund's total assets, taken at
market value, would be invested in the securities of issuers
having their principal business activities in the same
industry. This restriction does not apply to obligations
issued or guaranteed by the U.S. Government or by any of its
agencies or instrumentalities but will (unless and until SEC
changes its position) apply to foreign government obligations
unless the SEC permits their exclusion.
8. Purchase a security if, as a result, with respect to 75% of
the value of a Fund's total assets, taken at market value,
more than 5% of a Fund's total assets, taken at market value,
would be invested in the securities of any one issuer, except
securities issued or guaranteed by the U.S. Government or any
of its agencies or instrumentalities and except that a Fund
may purchase securities of other investment companies to the
extent permitted by applicable law or exemptive order.
9. Purchase a security if, as a result, more than 10% of the
outstanding voting securities of any issuer would be held by a
Fund, except that a Fund may purchase securities of other
investment companies to the extent permitted by applicable law
or exemptive order.
39
<PAGE> 41
The following restrictions are non-fundamental and may be changed by
the Company's Board of Directors. Pursuant to such restrictions, each of the
Funds will not:
10. Make investments for the purpose of exercising control or
management.
11. Lend its portfolio securities in excess of 33-1/3% of its
total assets, taken at market value; provided that loans of
portfolio securities shall be made in accordance with the
guidelines set forth under the heading "Lending of Portfolio
Securities."
12. Invest in securities which are illiquid if more than 15% of a
Fund's net assets, taken at market value, would be invested in
such securities.
13. Effect short sales of securities, except that the Fund may
make short sales "against the box" to the extent that the
value of the securities sold short, in the aggregate, does not
represent more than 10% of the Fund's total assets, taken at
market value, at any given time.
The following non-fundamental policies apply to all Funds. Subject to
the investment restriction on lending portfolio securities (number 13 for
Aggressive Growth Fund, Equity Fund, Growth Fund and Income Fund and number 11
for Asian Fund and European Fund), the Funds may from time to time lend
securities from their respective portfolios to brokers, dealers and financial
institutions such as banks and trust companies and receive collateral in cash
or securities issued or guaranteed by the U.S. Government which will be
maintained in an amount equal to at least 100% of the current market value of
the loaned securities. Such cash will be invested in short-term securities,
which will increase the current income of the applicable Fund. Such loans will
not be for more than 30 days and will be terminable at any time. The Funds will
have the right to regain record ownership of loaned securities to exercise
beneficial rights such as voting rights, subscription rights and rights to
dividends, interest or other distributions. The Funds may pay reasonable fees
to persons unaffiliated with the Funds for services in arranging such loans.
With respect to the lending of portfolio securities, there is the risk of
failure by the borrower to return the securities involved in such transactions.
Each Fund's ability and decisions to purchase or sell portfolio
securities may be affected by laws or regulations relating to the
convertibility and repatriation of assets. Because the shares of a Fund are
redeemable on a daily basis in U.S. dollars, the Funds intend to manage their
portfolios so as to give reasonable assurance that they will be able to obtain
U.S. dollars to the extent necessary to meet anticipated redemptions. Under
present conditions, it is not believed that these considerations will have any
significant effect on the Funds' portfolio strategies.
MANAGEMENT
The overall management of the business and affairs of the Funds is
vested with the Company's Board of Directors. The Board of Directors approves
all significant agreements between the Company and persons or companies
furnishing services to a Fund, including the investment advisory agreement with
AIM, the administrative services agreement with AIM, the agreement with AIM
Distributors regarding the distribution of the shares of the Funds, the
agreement with State Street Bank and Trust Company as custodian and the
agreement with A I M Fund Services, Inc. ("AFS" or the "Transfer Agent") as
transfer agent. The day-to-day operations of each Fund are delegated to its
officers of the Company and to AIM, subject always to the objectives and
policies of the Fund and to the general supervision of the Company's Board of
Directors. Certain directors and officers of the Company are affiliated with
AIM and A I M Management Group Inc. ("AIM Management"), the parent corporation
of AIM.
40
<PAGE> 42
DIRECTORS AND OFFICERS
The directors and officers of the Company and their principal
occupations during at least the last five years are set forth below. Unless
otherwise indicated, the address of each director and officer is 11 Greenway
Plaza, Suite 100, Houston, Texas 77046-1173. All of the Company's executive
officers hold similar offices with some or all of the other AIM Funds.
<TABLE>
<CAPTION>
====================================================================================================================
POSITIONS HELD WITH PRINCIPAL OCCUPATION DURING AT LEAST THE PAST 5
NAME, ADDRESS AND AGE REGISTRANT YEARS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
*CHARLES T. BAUER (80) Director and Chairman Chairman of the Board of Directors,
A I M Management Group Inc., 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; and Vice
Chairman and Director, AMVESCAP PLC.
- --------------------------------------------------------------------------------------------------------------------
BRUCE L. CROCKETT (55) Director Director, ACE Limited (insurance company).
906 Frome Lane Formerly, Director, President and Chief Executive
McLean, VA 22102 Officer, COMSAT Corporation; and Chairman, Board
of Governors of INTELSAT (international
communications company).
- --------------------------------------------------------------------------------------------------------------------
OWEN DALY II (74) Director Director, Cortland Trust Inc. (investment
Six Blythewood Road company). Formerly, Director, CF & I Steel Corp.,
Baltimore, MD 21210 Monumental Life Insurance Company and Monumental
General Insurance Company; and Chairman of the
Board of Equitable Bancorporation.
- --------------------------------------------------------------------------------------------------------------------
EDWARD K. DUNN, JR. (63) Director Chairman of the Board of Directors, Mercantile
2 Hopkins Plaza, 20th Floor Mortgage Corp.; Formerly, Vice Chairman of the
Baltimore, MD 21201 Board of Directors and President, Mercantile -
Safe Deposit & Trust Co.; and President,
Mercantile Bankshares.
====================================================================================================================
</TABLE>
- ----------------------
* A director who is an "interested person" of AIM Advisors, Inc. and the
Company as defined in the 1940 Act.
41
<PAGE> 43
<TABLE>
<CAPTION>
====================================================================================================================
POSITIONS HELD WITH PRINCIPAL OCCUPATION DURING AT LEAST THE PAST 5
NAME, ADDRESS AND AGE REGISTRANT YEARS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
JACK FIELDS (47) Director Chief Executive Officer, Texana Global, Inc.
Jetero Plaza, Suite E (foreign trading company) and Twenty First
8810 Will Clayton Parkway Century, Inc. (a governmental affairs company).
Humble, TX 77338 Formerly, Member of the U.S. House of
Representatives.
- --------------------------------------------------------------------------------------------------------------------
**CARL FRISCHLING (62) Director Partner, Kramer, Levin, Naftalis & Frankel LLP
919 Third Avenue (law firm). Formerly, Partner, Reid & Priest
New York, NY 10022 (law firm).
- --------------------------------------------------------------------------------------------------------------------
*ROBERT H. GRAHAM (52) Director and Director, President and Chief Executive Officer,
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.
- --------------------------------------------------------------------------------------------------------------------
PREMA MATHAI-DAVIS (48) Director Chief Executive Officer, YWCA of the U.S.A.;
350 Fifth Avenue, Suite 301 Commissioner, New York City Department for
New York, NY 10118 The Aging; and Member of the Board of Directors,
Metropolitan Transportation Authority of New
York State.
- --------------------------------------------------------------------------------------------------------------------
LEWIS F. PENNOCK (56) Director Attorney in private practice in Houston, Texas.
6363 Woodway, Suite 825
Houston, TX 77057
====================================================================================================================
</TABLE>
- ----------------------
* A director who is an "interested person" of AIM Advisors, Inc. and the
Company as defined in the 1940 Act.
** A director who is an "interested person" of the Company as defined in the
1940 Act.
42
<PAGE> 44
<TABLE>
<CAPTION>
====================================================================================================================
POSITIONS HELD WITH PRINCIPAL OCCUPATION DURING AT LEAST THE PAST 5
NAME, ADDRESS AND AGE REGISTRANT YEARS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LOUIS S. SKLAR (59) Director Executive Vice President, Development and
Transco Tower, 50th Floor Operations, Hines Interests Limited Partnership
2800 Post Oak Blvd. (real estate development).
Houston, TX 77056
- --------------------------------------------------------------------------------------------------------------------
GARY T. CRUM (51) Senior 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 (44) Senior Vice Director, Senior Vice President, General Counsel
President and and Secretary, A I M Advisors, Inc.; Senior Vice
Secretary President, General Counsel and Secretary,
A I M Management Group Inc.; Director, Vice
President and General Counsel, Fund Management
Company; Vice President, A I M Capital
Management, Inc. and A I M Distributors, Inc.;
and General Counsel and Vice President,
A I M Fund Services, Inc.
====================================================================================================================
</TABLE>
43
<PAGE> 45
<TABLE>
<CAPTION>
====================================================================================================================
POSITIONS HELD WITH PRINCIPAL OCCUPATION DURING AT LEAST THE PAST 5
NAME, ADDRESS AND AGE REGISTRANT YEARS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DANA R. SUTTON (40) Vice President and Vice President and Fund Controller,
Treasurer A I M Advisors, Inc.; and Assistant Vice
President and Assistant Treasurer, Fund
Management Company.
- --------------------------------------------------------------------------------------------------------------------
ROBERT G. ALLEY (50) Vice President Senior Vice President, A I M Capital Management,
Inc.; and Vice President,
A I M Advisors, Inc.
- ----------------------------------------- ---------------------- ---------------------------------------------------
MELVILLE B. COX (55) 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.
- --------------------------------------------------------------------------------------------------------------------
EDGAR M. LARSEN (58) Vice President Vice President, A I M Capital Management, Inc.
====================================================================================================================
</TABLE>
The standing committees of the Board of Directors are the Audit
Committee, the Investments Committee and the Nominating and Compensation
Committee.
The members of the Audit Committee are Messrs. Crockett, Daly, Dunn
(Chairman), Fields, Frischling, Pennock, Sklar and Ms. Mathai-Davis. The Audit
Committee is responsible for meeting with the Company's auditors to review audit
procedures and results and to consider any matters arising from an audit to be
brought to the attention of the directors as a whole with respect to the
Company's fund accounting or its internal accounting controls, and for
considering such matters as may from time to time be set forth in a charter
adopted by the Board of Directors and such committee.
The members of the Investments Committee are Messrs. Bauer, Crockett,
Daly, Dunn, Fields, Frischling, Pennock, Sklar (Chairman) and Ms. Mathai-Davis.
The Investments Committee is responsible for reviewing portfolio compliance,
brokerage allocation, portfolio investment pricing issues, interim dividend and
distribution issues, and considering such matters as may from time to time be
set forth in a charter adopted by the Board of Directors and such committee.
The members of the Nominating and Compensation Committee are Messrs.
Crockett (Chairman), Daly, Dunn, Fields, Pennock, Sklar and Ms. Mathai-Davis.
The Nominating and Compensation Committee is responsible for considering and
nominating individuals to stand for election as directors who are not interested
persons as long as the Company maintains a distribution plan pursuant to Rule
12b-1 under the 1940 Act, reviewing from time to time the compensation payable
to the disinterested directors, and considering such matters as may from time to
time be set forth in a charter adopted by the Board of Directors and such
committee.
44
<PAGE> 46
All of the company's directors also serve as directors or trustee of
some or all of the investment companies managed or advised by AIM. All of the
company's executive offices hold similar offices with some or all of the other
investment companies managed or advised by AIM.
REMUNERATION OF DIRECTORS
Each director is reimbursed for expenses incurred in attending each
meeting of the Board of Directors or any committee thereof. Each director who
is not also an officer of the Company is compensated for his services according
to a fee schedule which recognizes the fact that such director also serves as a
director or trustee of other AIM Funds. Each such director receives a fee,
allocated among the AIM Funds for which he serves as a director or trustee,
which consists of an annual retainer component and a meeting fee component.
Set forth below is information regarding compensation paid or accrued
for each director of the Company:
<TABLE>
<CAPTION>
=============================================================================================================
RETIREMENT
BENEFITS TOTAL
ACCRUED COMPENSATION
AGGREGATE COMPENSATION BY ALL APPLICABLE FROM ALL APPLICABLE
DIRECTOR FROM COMPANY(1) AIM FUNDS(2)(3) AIM FUNDS(4)
<S> <C> <C> <C>
Charles T. Bauer $ 0 $ 0 $ 0
-------------------- -------------------- ------------------------
Bruce L. Crockett 8,564 37,485 96,000
-------------------- -------------------- ------------------------
Owen Daly II 8,564 122,898 96,000
-------------------- -------------------- ------------------------
Edward K. Dunn, Jr. 5,487 0 78,889
-------------------- -------------------- ------------------------
Jack Fields 8,520 15,826 95,500
-------------------- -------------------- ------------------------
Carl Frischling(4) 8,564 97,791 95,500
-------------------- -------------------- ------------------------
Robert H. Graham 0 0 0
-------------------- -------------------- ------------------------
John F. Kroeger(5) 8,157 107,896 91,654
-------------------- -------------------- ------------------------
Prema Mathai-Davis 784 0 32,636
-------------------- -------------------- ------------------------
Lewis F. Pennock 8,564 45,766 95,500
-------------------- -------------------- ------------------------
Ian W. Robinson(6) 8,428 94,442 94,500
-------------------- -------------------- ------------------------
Louis S. Sklar 8,480 90,232 95,500
-------------------- -------------------- ------------------------
=============================================================================================================
</TABLE>
45
<PAGE> 47
(1) The total amount of compensation deferred by all directors of the
Company during the fiscal year ended October 31, 1998, including
interest earned thereon, was $38,283.
(2) During the fiscal year ended October 31, 1998, the total amount of
expenses allocated to the Company in respect of such retirement
benefits was $37,180. Data reflect compensation earned for the calendar
year ended December 31, 1998.
(3) Each Director serves as director or trustee of a total of twelve
registered investment companies advised by AIM (comprised of over 50
portfolios). Data reflect total compensation earned during the calendar
year ended December 31, 1998.
(4) The Company paid the law firm of Kramer, Levin, Naftalis & Frankel LLP
$30,090 in legal fees for services provided to the Funds during the
fiscal year ended October 31, 1998. Mr. Frischling, a Director of the
Company, is a partner in such firm.
(5) Mr. Kroeger was a director until June 11, 1998, when he resigned. On
that date he became a consultant to the Company. Of the amount listed
above $4,765 was for compensation for service as a director and the
remainder as a consultant. Mr. Kroeger passed away on November 26,
1998. Mr. Kroeger's widow will receive his pension as described below
under "AIM Funds Retirement Plan for Eligible Directors/Trustee."
(6) Mr. Robinson was a director until March 12, 1999, when he retired.
AIM FUNDS RETIREMENT PLAN FOR ELIGIBLE DIRECTORS/TRUSTEES
Under the terms of the AIM Funds Retirement Plan for Eligible
Directors/Trustees (the "Plan"), each director (who is not a employee of any of
the AIM Funds, AIM Management or any of their affiliates) may be entitled to
certain benefits upon retirement from the Board of Directors. Pursuant to the
Plan, the normal retirement date is the date on which the eligible director has
attained age 65 and has completed at least five years of continuous service with
one or more of the regulated investment companies managed, administered or
distributed by AIM or its affiliates (the "Applicable AIM Funds"). Each eligible
director is entitled to receive an annual benefit from the Applicable AIM Funds
commencing on the first day of the calendar quarter coincident with or following
his date of retirement equal to a maximum of 75% of the annual retainer paid or
accrued by the Applicable AIM Funds for such director during the twelve-month
period immediately preceding the directors retirement (including amounts
deferred under a separate agreement between the Applicable AIM Funds and the
director) and based on the number of such director's years of service (not in
excess of 10 years of service) completed with respect to any of the Applicable
AIM Funds. Such benefit is payable to each eligible director in quarterly
installments. If an eligible director dies after attaining the normal retirement
date but before receipt of any benefits under the Plan commences, the director's
surviving spouse (if any) shall receive a quarterly survivor's benefit equal to
50% of the amount payable to the deceased director for no more than ten years
beginning the first day of the calendar quarter following the date of the
director's death. Payments under the Plan are not secured or funded by any AIM
Fund.
Set forth below is a table that shows the estimated annual benefits
payable to an eligible director upon retirement assuming the retainer amount
reflected below and various years of service. The estimated credited years of
service for Messrs. Crockett, Daly, Dunn, Fields, Frischling, Kroeger, Ms.
Mathai-Davis, Pennock, Robinson, and Sklar are 11,11, 0, 1, 21, 20, 0, 17, 11
and 9 years, respectively.
46
<PAGE> 48
ESTIMATED ANNUAL BENEFITS UPON RETIREMENT
<TABLE>
<CAPTION>
=====================================================================
Number of Years of Annual Retirement Compensation
Service with the Paid by all Applicable AIM Funds
Applicable AIM
Funds
- ---------------------------------------------------------------------
<S> <C>
10 $67,500
- ---------------------------------------------------------------------
9 $60,750
- ---------------------------------------------------------------------
8 $54,000
- ---------------------------------------------------------------------
7 $47,250
- ---------------------------------------------------------------------
6 $40,500
- ---------------------------------------------------------------------
5 $33,750
=====================================================================
</TABLE>
DEFERRED COMPENSATION AGREEMENTS
Messrs. Daly, Dunn, Fields, Frischling, Robinson and Sklar (for
purposes of this paragraph only, the "deferring directors") have each executed
a Deferred Compensation Agreement (collectively, the "Agreements"). Pursuant to
the Agreements, the deferring directors may elect to defer receipt of up to
100% of their compensation payable by the Company, and such amounts are placed
into a deferral account. Currently, the deferring directors may select various
AIM Funds in which all or part of their deferral accounts shall be deemed to be
invested. Distributions from the deferring directors' deferral accounts will be
paid in cash, in generally equal quarterly installments over a period of five
(5) or ten (10) years (depending on the Agreement) beginning on the date the
deferring director's retirement benefits commence under the Plan. The Company's
Board of Directors, in its sole discretion, may accelerate or extend the
distribution of such deferral accounts after the deferring director's
termination of service as a director of the Company. If a deferring director
dies prior to the distribution of amounts in his deferral account, the balance
of the deferral account will be distributed to his designated beneficiary in a
single lump sum payment as soon as practicable after such deferring director's
death. The Agreements are not funded and, with respect to the payments of
amounts held in the deferral accounts, the deferring directors have the status
of unsecured creditors of the Company and of each other AIM Fund from which
they are deferring compensation.
INVESTMENT ADVISORY, SUB-ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENTS
AIM is a wholly owned subsidiary of AIM Management, a holding company
that has been engaged in the financial services business since 1976. AIM
Management is an indirect wholly owned subsidiary of AMVESCAP PLC, 11 Devonshire
Square, London EC2M 4YR, United Kingdom. AMVESCAP PLC and its subsidiaries are
an independent investment management group engaged in institutional investment
and retail mutual fund businesses in the United States, Europe and the Pacific
Region. Certain of the directors and officers of AIM are also executive officers
of the Company and their affiliations are shown under "Management" herein.
AIM and the Company have adopted a Code of Ethics which requires
investment personnel and certain other employees (a) to pre-clear personal
securities transactions subject to the Code of Ethics, (b) to file reports or
duplicate confirmations regarding such transactions, (c) to refrain from
personally engaging in (i) short-term trading of a security, (ii) transactions
involving a security within seven days of an AIM Fund transaction involving the
same security, and (iii) transactions involving securities being considered for
investment by an AIM Fund and (d) to abide by certain other provisions under
the Code of Ethics. The Code of Ethics also prohibits investment personnel and
all other AIM employees from purchasing securities in an initial public
offering. Personal trading reports are reviewed periodically by AIM, and the
Board of Directors reviews quarterly and
47
<PAGE> 49
annual reports (including information on any substantial violations of the Code
of Ethics). Sanctions for violations of the Code of Ethics may include censure,
monetary penalties, suspension or termination of employment.
The Company, on behalf of the Funds, has entered into a Master
Investment Advisory Agreement ("Investment Advisory Agreement") and a Master
Administrative Services Agreement ("Administrative Services Agreement"), as
amended, with AIM. In addition, AIM has entered into a Master Sub-Advisory
Agreement (the "Sub-Advisory Agreement") with INVESCO Global Asset Management
Limited ("IGAM") with respect to Asian Fund and European Fund. In addition,
IGAM has entered into a Sub-Sub-Advisory Agreement with INVESCO Asia Limited
("IAL") with respect to Asian Fund and a Sub-Sub-Advisory Agreement with
INVESCO Asset Management Limited ("IAML") with respect to European Fund. See
"Fund Management" in each Fund's Prospectus.
Under the terms of the Investment Advisory Agreement, AIM supervises
aspects of the Funds' operations and provides investment advisory services to
the Funds. AIM obtains and evaluates economic, statistical and financial
information to formulate and implement investment programs for the Funds. AIM
will not be liable to the Funds or their shareholders except in the case of
AIM's willful misfeasance, bad faith, gross negligence or reckless disregard of
duty.
Pursuant to the Administrative Services Agreement, AIM has agreed to
provide or arrange for the provision of certain accounting and other
administrative services to the Funds, including the services of a principal
financial officer of the Funds and related staff. As compensation to AIM for its
services under the Administrative Service Agreements, the Funds reimburse AIM
for expenses incurred by AIM or its subsidiaries in connection with such
services.
By the terms of the Sub-Advisory Agreement and Sub-Sub-Advisory
Agreement, AIM has appointed IGAM and IGAM has appointed IAL to provide AIM
with international economic and market research, securities analyses and
investment recommendations with respect to the Fund's investment portfolio.
IGAM has delegated certain of its responsibilities to IAL through the
Sub-Sub-Advisory Agreement. IAL provides international economic and market
research, securities analyses and investment recommendations with respect to
the Fund's investment portfolio. The Sub-Advisor Agreement and Sub-Sub-Advisor
Agreement provide that neither IGAM nor IAL are responsible for the actual
portfolio investment decisions of the Fund or for the execution of portfolio
transactions on behalf of the Fund. The Fund's portfolio investment decisions
and the execution of securities transactions to carry out such decisions are
solely the responsibility of AIM as the Fund's investment advisor. The
professional investment staffs of IGAM and IAL include experienced portfolio
managers and research staffs.
The Investment Advisory Agreement and, with respect to Asian Fund and
European Fund, the Sub-Advisory Agreement and Sub-Sub-Advisory Agreements
provide that each Fund will pay or cause to be paid all expenses of the Fund
not assumed by AIM (or IGAM, IAL and IAML), including, without limitation:
brokerage commissions; taxes, legal, accounting, auditing or governmental fees;
the cost of preparing share certificates; custodian, transfer and shareholder
service agent costs; expenses of issue, sale, redemption and repurchase of
shares; expenses of registering and qualifying shares for sale; expenses
relating to directors and shareholders meetings; the cost of preparing and
distributing reports and notices to shareholders; the fees and other expenses
incurred by the Company on behalf of a Fund in connection with membership in
investment company organizations; the cost of printing copies of prospectuses
and statements of additional information distributed to each Fund's
shareholders; and all other charges and costs of a Fund's operations unless
otherwise expressly provided.
The Investment Advisory Agreement for the Funds and the Sub-Advisory
Agreement and Sub-Sub-Advisory Agreements for Asian Fund and European Fund,
each provides that such agreement will continue in effect for two years, and
from year to year thereafter only if such continuance is specifically approved
at least annually by the Company's Board of Directors and by the affirmative
vote of a majority of the
48
<PAGE> 50
directors who are not parties to the agreement or "interested persons" of any
such party (the "Non-Interested Directors") by votes cast in person at a meeting
called for such purpose. The Investment Advisory Agreement and the Sub-Advisory
Agreement each provides that the Funds or AIM and, with respect to the
Sub-Sub-Advisory Agreements each provides that the applicable Fund,
Sub-Sub-Advisor or the Sub-Advisor, may terminate such agreement on sixty (60)
days' written notice without penalty. The Investment Advisory Agreement,
Sub-Advisory Agreement and Sub-Sub-Advisory Agreements each terminates
automatically in the event of its assignment. Under the Investment Advisory
Agreement, AIM is entitled to receive from each Fund a fee calculated at the
following annual rates based on the average daily net assets of the Fund:
<TABLE>
<CAPTION>
AIM ASIAN GROWTH FUND
AIM EUROPEAN DEVELOPMENT FUND
Net Assets Annual Rate
---------- -----------
<S> <C>
First $ 500 million................................................. 0.95%
Over $ 500 million.................................................. 0.90%
AIM GLOBAL AGGRESSIVE GROWTH FUND
Net Assets Annual Rate
---------- -----------
First $1 billion.................................................... 0.90%
Over $1 billion..................................................... 0.85%
AIM GLOBAL GROWTH FUND
Net Assets Annual Rate
---------- -----------
First $1 billion.................................................... 0.85%
Over $1 billion..................................................... 0.80%
AIM GLOBAL INCOME FUND
Net Assets Annual Rate
---------- -----------
First $1 billion.................................................... 0.70%
Over $1 billion..................................................... 0.65%
AIM INTERNATIONAL EQUITY FUND
Net Assets Annual Rate
---------- -----------
First $1 billion.................................................... 0.95%
Over $1 billion..................................................... 0.90%
</TABLE>
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
49
<PAGE> 51
waivers or reductions 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.
AIM has agreed to waive advisory fees under the Investment Advisory
Agreement in order to achieve the following annual fee structure for Equity
Fund: 0.95% of the first $500 million of Equity Fund's average daily net
assets; 0.90% of the next $500 million of Equity Fund's average daily net
assets; and 0.85% of Equity Fund's average daily net assets exceeding $1
billion.
For the fiscal years ended October 31, 1998, 1997 and 1996, and for the
period November 3, 1997 (inception date) through October 31, 1998 relating to
Asian Fund and European Fund, AIM received advisory fees, net of advisory fee
waivers, from each Fund as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Aggressive Growth Fund $ 20,126,609 $19,996,061 $ 8,571,918
Asian Fund $ 11,388 $ -0- $ -0-
Equity Fund $ 21,628,803 $17,546,102 $ 10,085,495
European Fund $ 410,537 $ -0- $ -0-
Growth Fund $ 4,042,472 $ 2,895,282 $ 1,163,814
Income Fund $ 152,633 $ 44,375 $ -0-
</TABLE>
Under the Sub-Advisory Agreement, IGAM is entitled to receive from AIM
with respect to each of Asian Fund and European Fund, a fee calculated at the
following annual rates based on the average daily net assets of the Fund:
<TABLE>
<CAPTION>
Net Assets Annual Rate
---------- -----------
<S> <C>
First $ 500 million................................................. 0.20%
Over $ 500 million.................................................. 0.175%
</TABLE>
Under the Sub-Sub-Advisory Agreements IAL, with respect to Asian Fund,
and IAML, with respect to European Fund, are each entitled to receive from IGAM
an annual fee equal to 100% of the fee received by the Sub-Advisor with respect
to the applicable Fund.
For the fiscal years ended October 31, 1998, 1997 and 1996, and for the
period November 3, 1997 (inception date) through October 31, 1998 relating to
Asian Fund and European Fund, AIM waived advisory fees for each Fund as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Aggressive Growth Fund $ -0- $ -0- $ -0-
Asian Fund $ 51,040 $ -0- $ -0-
Equity Fund $ 978,165 $ 738,005 $ 299,147
European Fund $ 114,120 $ -0- $ -0-
Growth Fund $ -0- $ -0- $ -0-
Income Fund $ 365,730 $ 302,278 $ 182,596
</TABLE>
Although these fees are higher than those paid by most mutual funds
which invest in domestic securities, they are competitive with such fees paid
by mutual funds which invest primarily in foreign securities. The Company
believes such fees are justified due to the higher costs and additional
expenses associated with managing and operating funds holding primarily foreign
securities.
50
<PAGE> 52
For the year ended October 31, 1998, each Fund paid by the following
compensation to AIM for its advisory services, and the total expenses of each
class of such Fund were, stated as a percentage of that class average daily net
assets, as follows:
<TABLE>
<CAPTION>
Class A Class B Class C
Compensation Expense Expense Expense
to AIM Ratio Ratio Ratio
------ ----- ----- -----
<S> <C> <C> <C> <C>
Aggressive Growth Fund............... 0.87% 1.75% 2.32% 2.34%
Asian Fund*.......................... 0.17% 1.92% 2.80% 2.80%
Equity Fund ......................... 0.88% 1.45% 2.22% 2.22%
European Fund*....................... 0.75% 1.98% 2.72% 2.72%
Growth Fund ......................... 0.85% 1.76% 2.29% 2.29%
Income Fund ......................... 0.09% 1.25% 1.76% 1.76%
</TABLE>
* As annualized.
For the fiscal year ended October 31, 1998, AIM waived advisory fees
for Asian Fund, Equity Fund, European Fund and Income Fund which represented
0.78%, 0.04%, 0.21% and 0.61% of such Fund's average daily net assets.
For the fiscal year ended October 31, 1998, each Fund reimbursed AIM
for administrative services in the following amounts, stated as a percentage of
the Fund's average daily net assets:
<TABLE>
<CAPTION>
Reimbursement
Payments
--------
<S> <C>
Aggressive Growth Fund..................... 0.01%
Asian Fund*................................ 0.00%
Equity Fund................................ 0.01%
European Fund.............................. 0.12%
Growth Fund................................ 0.02%
Income Fund................................ 0.11%
</TABLE>
* Net of waivers
The Administrative Services Agreement for the Funds provides that AIM
may perform, or arrange for the performance of, certain accounting and other
administrative services to each Fund which are not required to be performed by
AIM under the Investment Advisory Agreement. For such services, AIM is entitled
to receive from each Fund reimbursement of AIM's costs or such reasonable
compensation as may be approved by the Company's Board of Directors. The
Administrative Services Agreement will continue in effect from year to year
only if such continuance is specifically approved at least annually by the
Company's Board of Directors, and by the affirmative vote of the Non-Interested
Directors by votes cast in person at a meeting called for such purpose.
51
<PAGE> 53
For the fiscal years ended October 31, 1998, 1997 and 1996, and for the
period November 3, 1997 (inception date) through October 31, 1998 relating to
Asian Fund and European Fund, AIM received reimbursement of administrative
service costs from each Fund as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Aggressive Growth Fund $116,964 $109,161 $86,330
Asian Fund $ 74,604 $ -- $ --
Equity Fund $115,146 $105,163 $94,250
European Fund $ 69,060 $ -- $ --
Growth Fund $ 80,267 $ 87,673 $78,151
Income Fund $ 81,456 $ 74,031 $74,433
</TABLE>
In addition, the Transfer Agency and Service Agreement for the Funds
provides that AFS, P.O. Box 4739, Houston, Texas 77210-4739, a registered
transfer agent and wholly owned subsidiary of AIM, will perform certain
shareholder services for the Funds for a fee per account serviced. The Transfer
Agency and Service Agreement provides that AFS will 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 DISTRIBUTION PLANS
THE CLASS A AND C PLAN
The Company has adopted a Master Distribution Plan pursuant to Rule
12b-1 under the 1940 Act relating to the Class A and Class C shares of the
Funds (the "Class A and C Plan"). The Class A and C Plan provides that for
Aggressive Growth Fund, Growth Fund and Income Fund the Class A shares pay
0.50% per annum of their average daily net assets, for Equity Fund the Class A
shares pay 0.30% per annum of their average daily net assets and for Asian Fund
and European Fund the Class A shares pay 0.35% per annum of their average daily
net assets as compensation to AIM Distributors for the purpose of financing any
activity which is primarily intended to result in the sale of Class A shares.
Under the Class A and C Plan, Class C shares of each Fund pay compensation to
AIM Distributors at an annual rate of 1.00% of the average daily net assets
attributable to Class C shares. The Class A and C Plan is designed to
compensate AIM Distributors, on a quarterly basis, for certain promotional and
other sales-related costs, and to implement a dealer incentive program which
provides for periodic payments to selected dealers who furnish continuing
personal shareholder services to their customers who purchase and own Class A
or Class C shares of a Fund. Payments can also be directed by AIM Distributors
to selected institutions who have entered into service agreements with respect
to Class A and Class C shares of each Fund and who provide continuing personal
services to their customers who own Class A and Class C shares of each Fund and
who provide continuing personal services to their customers who own Class A and
Class C shares of the Fund. The service fees payable to selected 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
which were purchased on or after a prescribed date set forth in the Plan.
Activities appropriate for financing under the Class A and C Plan include, but
are not limited to, the following: printing of prospectuses and statements of
additional information and reports for other than existing shareholders;
overhead; preparation and distribution of advertising material and sales
literature; expenses of organizing and conducting sales seminars; supplemental
payments to dealers and other institutions such as asset-based sales charges or
as payments of service fees under shareholder service arrangements; and costs
of administering the Class A and C Plan.
52
<PAGE> 54
Of the aggregate amount payable under the Class A and C Plan, payments
to dealers and other financial institutions that provide continuing personal
shareholder services to their customers who purchase and own shares of the
Fund, in amounts of up to 25% of the average net assets of the Fund
attributable to the customers of such dealers or financial institutions are
characterized as a service fee, and payments to dealers and other financial
institutions in excess of such amount and payments to AIM Distributors would be
characterized as an asset-based sales charge pursuant to the Class A and C
Plan. The Class A and C Plan also imposes a cap on the total amount of sales
charges, including asset-based sales charges, that may be paid by the Company
with respect to the Fund.
THE CLASS B PLAN
The Company has also adopted a Master Distribution Plan pursuant to
Rule 12b-1 under the 1940 Act relating to Class B shares of the Funds (the
"Class B Plan", and collectively with the Class A and C Plan, the "Plans").
Under the Class B Plan, each Fund pays compensation to AIM Distributors at an
annual rate of 1.00% of the average daily net assets attributable to Class B
shares. Of such amount, each Fund pays a service fee of 0.25% of the average
daily net assets attributable to Class B shares to selected dealers and other
institutions which furnish continuing personal shareholder services to their
customers who purchase and own Class B shares. Any amounts not paid as a
service fee would constitute an asset-based sales charge. Amounts paid in
accordance with the Class B Plan may be used to finance any activity primarily
intended to result in the sale of Class B shares, including but not limited to
printing of prospectuses and statements of additional information and reports
for other than existing shareholders; overhead; preparation and distribution of
advertising material and sales literature; expenses of organizing and
conducting sales seminars; supplemental payments to dealers and other
institutions such as asset-based sales charges or as payments of service fees
under shareholder service arrangements; and costs of administering the Class B
Plan.
BOTH PLANS. Pursuant to an incentive program, AIM Distributors may
enter into agreements ("Shareholder Service Agreements") with investment
dealers selected from time to time by AIM Distributors for the provision of
distribution assistance in connection with the sale of the Funds' shares to
such dealers' customers, and for the provision of continuing personal
shareholder services to customers who may from time to time directly or
beneficially own shares of the Funds. The distribution assistance and
continuing personal shareholder services to be rendered by dealers under the
Shareholder Service Agreements may include, but shall not be limited to, the
following: distributing sales literature; answering routine customer inquiries
concerning the Funds; assisting customers in changing dividend options, account
designations and addresses, and in enrolling in any of several special
investment plans offered in connection with the purchase of the Funds' shares;
assisting in the establishment and maintenance of customer accounts and records
and in the processing of purchase and redemption transactions; investing
dividends and any capital gains distributions automatically in the Funds'
shares; and providing such other information and services as the Funds or the
customer may reasonably request.
Under the Plans, in addition to the Shareholder Service Agreements
authorizing payments to selected dealers, banks may enter into Shareholder
Service Agreements authorizing payments under the Plans to be made to banks
which provide services to their customers who have purchased shares. Services
provided pursuant to Shareholder Service Agreements with banks may include some
or all of the following: answering shareholder inquiries regarding a Fund and
the Company; performing sub-accounting; establishing and maintaining
shareholder accounts and records; processing customer purchase and redemption
transactions; providing periodic statements showing a shareholder's account
balance and the integration of such statements with those of other transactions
and balances in the shareholder's other accounts serviced by the bank;
forwarding applicable prospectuses, proxy statements, reports and notices to
bank clients who hold Fund shares; and such other administrative services as a
Fund reasonably may request, to the extent permitted by applicable statute,
rule or regulation. Similar agreements may be permitted under the Plans for
institutions which provide recordkeeping for and administrative services to
401(k) plans.
53
<PAGE> 55
Financial intermediaries and any other person entitled to receive
compensation for selling Fund shares may receive different compensation for
selling shares of one particular class over another.
Under a Shareholder Service Agreement, a Fund agrees to pay
periodically fees to selected dealers and other institutions who render the
foregoing services to their customers. The fees payable under a Shareholder
Service Agreement generally will be calculated at the end of each payment
period for each business day of the Funds during such period at the annual rate
of 0.25% of the average daily net asset value of the Funds' shares purchased or
acquired through exchange. Fees calculated in this manner shall be paid only to
those selected dealers or other institutions who are dealers or institutions of
record at the close of business on the last business day of the applicable
payment period for the account in which the Fund's shares are held.
Payments pursuant to the Plans are subject to any applicable
limitations imposed by rules of the National Association of Securities Dealers,
Inc. ("NASD"). The Plans conform to rules of the NASD by limiting payments made
to dealers and other financial institutions who provide continuing personal
shareholder services to their customers who purchase and own shares of the
Funds to no more than 0.25% per annum of the average daily net assets of the
funds attributable to the customers of such dealers or financial institutions,
and by imposing a cap on the total sales charges, including asset based sales
charges, that may be paid by the Funds and their respective classes.
AIM Distributors may from time to time waive or reduce any portion of
its 12b-1 fee for Class A and Class C shares. 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 Distributors 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 Table
in a Prospectus may not be terminated or amended to the Funds' detriment during
the period stated in the agreement between AIM Distributors and the Fund.
Under the Plans, certain financial institutions which have entered
into service agreements and which sell shares of the Fund on an agency basis,
may receive payments from the Funds pursuant to the respective Plans. AIM
Distributors does not act as principal, but rather as agent for the Fund, in
making dealer incentive and shareholder servicing payments under the Plans.
These payments are an obligation of the Fund and not of AIM Distributors.
For the fiscal year ended October 31, 1998, the Funds paid the
following amounts under the Class A and C Plan and the Class B Plan:
<TABLE>
<CAPTION>
% of Class
Average Daily
Net Assets
----------
Class A Class B Class C Class A Class B Class C
--------------------------------------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Aggressive Growth Fund $ 5,666,115 $ 11,650,938 $ 106,960 0.50% 1.00% 1.00%
Asian Fund $ 16,790 $ 14,685 $ 3,057 0.35% 1.00% 1.00%
Equity Fund $ 4,979,983 $ 7,603,622 $ 359,693 0.30% 1.00% 1.00%
European Fund $ 117,376 $ 184,287 $ 32,622 0.35% 1.00% 1.00%
Growth Fund $ 1,029,313 $ 2,638,894 $ 58,329 0.50% 1.00% 1.00%
Income Fund $ 213,249 $ 304,834 $ 9,186 0.50% 1.00% 1.00%
</TABLE>
54
<PAGE> 56
An estimate by category of actual fees paid by the Funds with regard to
the Class A shares under the Class A and C Plan during the year ended October
31, 1998 follows:
<TABLE>
<CAPTION>
Aggressive Asian Equity European Growth Income
Growth Fund Fund Fund Fund Fund Fund
----------- ---- ---- ---- ---- ----
CLASS A
<S> <C> <C> <C> <C> <C> <C>
Advertising ............................. $ 183,093 $ 6,765 $ 545,618 $ 22,846 $ 28,662 $ 2,942
Printing and mailing prospectuses,
semi-annual reports and annual
reports (other than to current
shareholders) ........................... $ 18,734 $ 669 $ 56,133 $ 2,443 $ 3,039 $ 299
Seminars ................................ $ 39,574 $ 0 $ 117,509 $ 4,934 $ 6,202 $ 633
Compensation to Underwriters to partially
offset upfront dealer commissions and
other marketing costs ................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Compensation to Dealers ................. $5,424,714 $ 9,356 $4,260,723 $ 87,154 $ 991,409 $ 209,374
Compensation to Sales Personnel ......... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Annual Report Total ..................... $5,666,115 $ 16,790 $4,979,983 $ 117,377 $1,029,312 $ 213,248
</TABLE>
An estimate by category of actual fees paid by the Funds under the
Class B Plan during the year ended October 31, 1998 as follows:
<TABLE>
<CAPTION>
Aggressive Asian Equity European Growth Income
Growth Fund Fund Fund Fund Fund Fund
----------- ---- ---- ---- ---- ----
CLASS B
<S> <C> <C> <C> <C> <C> <C>
Advertising ............................. $ 514,629 $ 3,213 $ 444,081 $ 27,538 $ 137,711 $ 21,877
Printing and mailing prospectuses,
semi-annual reports and annual
reports (other than to current
shareholders) ........................... $ 52,165 $ 0 $ 45,344 $ 3,060 $ 14,251 $ 2,289
Seminars ................................ $ 107,716 $ 0 $ 95,006 $ 4,533 $ 29,371 $ 3,816
Compensation to Underwriters to partially
offset upfront dealer commissions and
other marketing costs ................... $ 8,738,204 $ 11,014 $ 5,702,746 $ 138,215 $ 1,979,170 $ 228,625
Compensation to Dealers ................. $ 2,238,227 $ 458 $ 1,316,485 $ 10,941 $ 478,390 $ 48,227
Compensation to Sales Personnel ......... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Annual Report Total ..................... $11,650,938 $ 14,685 $ 7,603,662 $ 184,287 $ 2,638,893 $ 304,834
</TABLE>
55
<PAGE> 57
An estimate by category of actual fees paid by the Funds with regard
to the Class C shares under the Class A and C Plan during the year ended
October 31, 1998 as follows:
<TABLE>
<CAPTION>
AGGRESSIVE ASIAN EQUITY EUROPEAN GROWTH INCOME
GROWTH FUND FUND FUND FUND FUND FUND
----------- ---- ---- ---- ---- ----
CLASS C
<S> <C> <C> <C> <C> <C> <C>
Advertising ............................. $ 16,668 $ 509 $ 54,061 $ 3,599 $ 2,195 $ 1,229
Printing and mailing prospectuses,
semi-annual reports and annual
reports (other than to current
shareholders) ........................... $ 1,649 $ 0 $ 5,769 $ 279 $ 239 $ 0
Seminars ................................ $ 4,071 $ 0 $ 11,752 $ 1,552 $ 443 $ 0
Compensation to Underwriters to partially
offset upfront dealer commissions and
other marketing costs ................... $ 80,220 $ 2,292 $269,770 $ 24,467 $ 43,747 $ 6,890
Compensation to Dealers ................. $ 4,352 $ 256 $ 18,341 $ 2,725 $ 11,705 $ 1,067
Compensation to Sales Personnel ......... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Annual Report Total ..................... $106,960 $ 3,057 $359,693 $ 32,622 $ 58,329 $ 9,186
</TABLE>
The Plans require AIM Distributors to provide the Board of Directors
at least quarterly with a written report of the amounts expended pursuant to
the Plans and the purposes for which such expenditures were made. The Board of
Directors reviews these reports in connection with their decisions with respect
to the Plans.
As required by Rule 12b-1, the Plans and related forms of Shareholder
Service Agreements were approved by the Board of Directors, including a
majority of the directors who are not "interested persons" (as defined in the
1940 Act) of the Company and who have no direct or indirect financial interest
in the operation of the Plans or in any agreements related to the Plans
("Qualified Directors"). In approving the Plans in accordance with the
requirements of Rule 12b-1, the directors considered various factors and
determined that there is a reasonable likelihood that the Plans would benefit
each class of the Funds and their respective shareholders.
The Plans do not obligate the Funds to reimburse AIM Distributors for
the actual expenses AIM Distributors may incur in fulfilling its obligations
under the Plans. Thus, even if AIM Distributors' actual expenses exceed the fee
payable to AIM Distributors thereunder at any given time, the Funds will not be
obligated to pay more than that fee. If AIM Distributors' expenses are less
than the fee it receives, AIM Distributors will retain the full amount of the
fee.
Unless the Plans are terminated earlier in accordance with their terms,
the Plans continue in effect as long as such continuance is specifically
approved at least annually by the Board of Directors, including a majority of
the Qualified Directors.
The Plans may be terminated by the vote of a majority of the
Independent Directors, or, with respect to a particular class, by the vote of a
majority of the outstanding voting securities of that class.
Any change in the Plans that would increase materially the
distribution expenses paid by the applicable class requires shareholder
approval; otherwise, it may be amended by the directors, including a majority
of the
56
<PAGE> 58
Qualified Directors, by votes cast in person at a meeting called for the purpose
of voting upon such amendment. As long as the Plans are in effect, the selection
or nomination of the Qualified Directors is committed to the discretion of the
Qualified Directors. In the event the Class A and C Plan is amended in a manner
which the Board of Directors determines would materially increase the charges
paid under the Class A and C Plan, the Class B shares of the Funds will no
longer convert into Class A shares of the same Funds unless the Class B shares,
voting separately, approve such amendment. If the Class B shareholders do not
approve such amendment, the Board of Directors will (i) create a new class of
shares of the Funds which is identical in all material respects to the Class A
shares as they existed prior to the implementation of the amendment and (ii)
ensure that the existing Class B shares of the Funds will be exchanged or
converted into such new class of shares no later than the date the Class B
shares were scheduled to convert into Class A shares.
The principal differences between the Class A and C Plan, on the one
hand, and the Class B Plan, on the other hand, are: (i) the Class A and C Plan
allows payment to AIM Distributors or to dealers or financial institutions of
up to 0.50% of average daily net assets of the Class A shares of Aggressive
Growth Fund, Income Fund, and Growth Fund, of up to 0.35% of average daily net
assets of the Class A shares of Asian Fund and European Fund, and of up to
0.30% of average daily net assets of the Class A shares of Equity Fund, as
compared to 1.00% of such assets of each Fund's Class B shares; (ii) the Class
B Plan obligates the Class B shares to continue to make payments to AIM
Distributors following termination of the Class B shares Distribution Agreement
with respect to Class B shares sold by or attributable to the distribution
efforts of AIM Distributors unless there has been a complete termination of the
Class B Plan (as defined in such Plan) and (iii) the Class B Plan expressly
authorizes AIM Distributors to assign, transfer or pledge its rights to
payments pursuant to the Class B Plan.
THE DISTRIBUTOR
The Company has entered into distribution arrangements with AIM
Distributors, P. O. Box 4739, Houston, Texas 77210-4739, a registered
broker-dealer and a wholly owned subsidiary of AIM, to act as the distributor
in the continuous offering of Class A, Class B and Class C shares of the Funds.
Certain directors and officers of the Company are affiliated with AIM
Distributors. A Master Distribution Agreement with AIM Distributors relating to
the Class A and Class C shares of the Funds was approved by the Board of
Directors on June 11, 1997. A Master Distribution Agreement with AIM
Distributors relating to the Class B shares of the Funds was also approved by
the Board of Directors on December 11, 1996. Both such Master Distribution
Agreements are hereinafter collectively referred to as the "Distribution
Agreements."
The Distribution Agreements provide AIM Distributors with the exclusive
right to distribute shares of the Funds directly and through institutions with
whom AIM Distributors has entered into selected dealer agreements. Under the
Distribution Agreement for the Class B shares, AIM Distributors sells Class B
shares at net asset value subject to a contingent deferred sales charge
established by AIM Distributors. AIM Distributors is authorized to advance to
institutions through whom Class B shares are sold a sales commission under
schedules established by AIM Distributors. The Distribution Agreement for the
Class B shares provides that AIM Distributors (or its assignee or transferee)
will receive 0.75% (of the total 1.00% payable under the distribution plan
applicable to Class B shares) of the Fund's average daily net assets
attributable to Class B shares attributable to the sales efforts of AIM
Distributors. In the event the Class B shares Distribution Agreement is
terminated, AIM Distributors would continue to receive payments of asset based
sales charges in respect of the outstanding Class B shares attributable to AIM
Distributors; provided, however, that a complete termination of the Class B
shares master distribution plan (as defined in the Plan) would terminate all
payments to AIM Distributors. Termination of the Class B shares distribution
plan or Distribution Agreement does not affect the obligation of Class B
shareholders to pay Contingent Deferred Sales Charges.
57
<PAGE> 59
The Distribution Agreements provide that AIM Distributors will bear the
expenses of printing from the final proof and distributing the Funds'
prospectuses and statements of additional information relating to public
offerings made by AIM Distributors pursuant to the Distribution Agreements
(other than those prospectuses and statements of additional information
distributed to existing shareholders of the Funds), and any promotional or
sales literature used by AIM Distributors or furnished by AIM Distributors to
dealers in connection with the public offering of the Funds' shares, including
expenses of advertising in connection with such public offerings. AIM
Distributors has not undertaken to sell any specified number of shares of any
classes of the Funds.
AIM Distributors expects to pay sales commissions from its own
resources to dealers and institutions who sell Class B and Class C shares of
the Funds at the time of such sales. Payments with respect to Class B shares
will equal 4.0% of the purchase price of the Class B shares sold by the dealer
or institution, and will consist of a sales commission equal to 3.75% of the
purchase price of the Class B shares sold plus an advance of the first year
service fee of 0.25% with respect to such shares. The portion of the payments
to AIM Distributors under the Class B Plan which constitutes an asset-based
sales charge (0.75%) is intended in part to permit AIM Distributors to recoup a
portion of such sales commissions plus financing costs. AIM Distributors
anticipates that it will require a number of years to recoup from Class B Plan
payments the sales commissions paid to dealers and institutions in connection
with sales of Class B shares. In the future, if multiple distributors serve a
Fund, each such distributor (or its assignee or transferee) would receive a
share of the payments under the Class B Plan based on the portion of the Fund's
Class B shares sold by or attributable to the distribution efforts of that
distributor.
AIM Distributors may pay sales commissions to dealers and institutions
who sell Class C shares of the AIM Funds at the time of such sales. Payments
with respect to Class C shares will equal 1.00% of the purchase price of the
Class C shares sold by the dealer or institution, and will consist of a sales
commission of 0.75% of the purchase price of the Class C shares sold plus an
advance of the first year service fee of 0.25% with respect to such shares. AIM
Distributors will retain all payments received by it relating to Class C shares
for the first year after they are purchased. The portion of the payments to AIM
Distributors under the Class A and C Plan attributable to Class C shares which
constitutes an asset-based sales charge (0.75%) is intended in part to permit
AIM Distributors to recoup a portion of on-going sales commissions to dealers
plus financing costs, if any. After the first full year, AIM Distributors will
make such payments quarterly to dealers and institutions based on the average
net asset value of Class C shares which are attributable to shareholders for
whom the dealers and institutions are designated as dealers of record.
The Company (on behalf of any class of the Funds) or AIM Distributors
may terminate the Distribution Agreements on sixty (60) days' written notice
without penalty. The Distribution Agreements will terminate automatically in
the event of their assignment. In the event the Class B shares Distribution
Agreement is terminated, AIM Distributors would continue to receive payments of
asset based distribution fees in respect of the outstanding Class B shares
attributable to the distribution efforts of AIM Distributors; provided,
however, that a complete termination of the Class B Plan (as defined in such
Plan) would terminate all payments to AIM Distributors. Termination of the
Class B Plan or Distribution Agreement does not affect the obligation of the
Funds and their Class B shareholders to pay contingent deferred sales charges.
From time to time, AIM Distributors may transfer and sell its right to
payments under the Distribution Agreements relating to Class B shares in order
to finance distribution expenditures in respect of Class B shares.
58
<PAGE> 60
The following chart reflects the total sales charges paid in connection
with the sale of Class A shares of each Fund and the amount retained by AIM
Distributors for the fiscal years ended October 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Sales Amount Sales Amount Sales Amount
Charges Retained Charges Retained Charges Retained
---------- ----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Aggressive Growth Fund $3,546,968 $ 622,054 $12,462,271 $2,200,552 $17,453,757 $3,270,278
Asian Fund* $ 180,148 $ 27,913 $ 0 $ 0 $ 0 $ 0
Equity Fund $3,608,107 $ 592,247 $ 7,481,513 $1,172,508 $ 8,663,571 $1,489,975
European Fund* $1,357,500 $ 207,603 $ 0 $ 0 $ 0 $ 0
Growth Fund $1,200,898 $ 208,115 $ 1,621,736 $ 286,414 $ 2,044,262 $ 388,799
Income Fund $ 285,983 $ 50,768 $ 348,033 $ 59,763 $ 325,210 $ 57,096
</TABLE>
- ---------------------
* Asian Fund and European Fund commenced operations November 3, 1997.
The following chart reflects the contingent deferred sales charges
paid by Class A, Class B and Class C shareholders for the fiscal years ended
October 31, 1998, 1997 and 1996 for Class A, Class B and Class C shares:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Aggressive Growth Fund $ 200,802 $ 133,018 $ 84,130
Asian Fund* $ 496 $ 0 $ 0
Equity Fund $ 208,603 $ 91,984 $ 39,753
European Fund* $ 7,299 $ 0 $ 0
Growth Fund $ 29,133 $ 25,870 $ 14,106
Income Fund $ 9,510 $ 3,397 $ 4,924
</TABLE>
- ---------------------
* Asian Fund and European Fund commenced operations November 3, 1997.
SALES CHARGES AND DEALER CONCESSIONS
CATEGORY I. Certain AIM Funds are currently sold with a sales charge
ranging from 5.50% to 2.00% of the offering price on purchases of less than
$1,000,000. These AIM Funds include Class A shares of each of AIM Advisor Flex
Fund, AIM Advisor International Value Fund, AIM Advisor Large Cap Value Fund,
AIM Advisor MultiFlex Fund, AIM Aggressive Growth Fund, AIM Asian Growth Fund,
AIM Basic Value Fund, AIM Blue Chip Fund, AIM Capital Development Fund, AIM
Charter Fund, AIM Constellation Fund, AIM European Development Fund, AIM Europe
Growth Fund, AIM Global Utilities Fund, AIM Global Growth & Income Fund, AIM
International Equity Fund, AIM Japan Growth Fund, AIM Large Cap Growth Fund, AIM
Mid Cap Equity Fund, AIM New Pacific Growth Fund, AIM Select Growth Fund, AIM
Small Cap Growth Fund, AIM Small Cap Opportunities Fund, AIM Value Fund and AIM
Weingarten Fund.
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<PAGE> 61
<TABLE>
<CAPTION>
Dealer
Concession
Investor's Sales Charge ----------
----------------------- As a
As a As a Percentage
Percentage Percentage of the
of the Public of the Net Public
Amount of Investment in Offering Amount Offering
Single Transaction Price Invested Price
------------------ ----- -------- -----
<S> <C> <C> <C>
Less than $ 25,000 5.50% 5.82% 4.75%
$ 25,000 but less than $ 50,000 5.25 5.54 4.50
$ 50,000 but less than $ 100,000 4.75 4.99 4.00
$100,000 but less than $ 250,000 3.75 3.90 3.00
$250,000 but less than $ 500,000 3.00 3.09 2.50
$500,000 but less than $1,000,000 2.00 2.04 1.60
</TABLE>
CATEGORY II. Certain AIM Funds are currently sold with a sales charge
ranging from 4.75% to 2.00% of the offering price on purchases of less than
$1,000,000. These AIM Funds are: the Class A shares of each of AIM Advisor Real
Estate Fund, AIM Balanced Fund, AIM Developing Markets Fund, AIM Emerging
Markets Debt Fund, AIM Global Aggressive Growth Fund, AIM Global Consumer
Products and Services Fund, AIM Global Financial Services Fund, AIM Global
Government Income Fund, AIM Global Growth Fund, AIM Global Health Care Fund,
AIM Global Income Fund, AIM Global Infrastructure Fund, AIM Global Resources
Fund, AIM Global Telecommunications Fund, AIM Global Trends Fund, AIM High
Income Municipal Fund, AIM High Yield Fund, AIM High Yield Fund II, AIM Income
Fund, AIM Intermediate Government Fund, AIM Latin American Fund, AIM Municipal
Bond Fund, AIM Strategic Income Fund and AIM Tax-Exempt Bond Fund of
Connecticut.
<TABLE>
<CAPTION>
Dealer
Concession
Investor's Sales Charge ----------
----------------------- As a
As a As a Percentage
Percentage Percentage of the
of the Public of the Net Public
Amount of Investment in Offering Amount Offering
Single Transaction Price Invested Price
------------------ ----- -------- -----
<S> <C> <C> <C>
Less than $ 50,000 4.75% 4.99% 4.00%
$ 50,000 but less than $ 100,000 4.00 4.17 3.25
$100,000 but less than $ 250,000 3.75 3.90 3.00
$250,000 but less than $ 500,000 2.50 2.56 2.00
$500,000 but less than $ 1,000,000 2.00 2.04 1.60
</TABLE>
CATEGORY III. Certain AIM Funds are currently sold with a sales charge
ranging from 1.00% to 0.50% of the offering price on purchases of less than
$1,000,000. These AIM Funds are the Class A shares of each of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund.
60
<PAGE> 62
<TABLE>
<CAPTION>
Dealer
Concession
Investor's Sales Charge ----------
----------------------- As a
As a As a Percentage
Percentage Percentage of the
of the Public of the Net Public
Amount of Investment in Offering Amount Offering
Single Transaction Price Invested Price
------------------ ----- -------- -----
<S> <C> <C> <C>
Less than $ 100,000 1.00% 1.01% 0.75%
$100,000 but less than $ 250,000 0.75 0.76 0.50
$250,000 but less than $1,000,000 0.50 0.50 0.40
</TABLE>
There is no sales charge on purchases of $1,000,000 or more; however,
AIM Distributors may pay a dealer concession and/or advance a service fee on
such transactions as set forth below.
ALL GROUPS OF AIM FUNDS. AIM Distributors may elect to re-allow the
entire initial sales charge to dealers for all sales with respect to which
orders are placed with AIM Distributors during a particular period. Dealers to
whom substantially the entire sales charge is re-allowed may be deemed to be
"underwriters" as that term is defined under the Securities Act of 1933.
In addition to amounts paid to dealers as a dealer concession out of
the initial sales charge paid by investors, AIM Distributors may, from time to
time, at its expense or as an expense for which it may be compensated under a
distribution plan, if applicable, pay a bonus or other consideration or
incentive to dealers who sell a minimum dollar amount of the shares of the AIM
Funds during a specified period of time. At the option of the dealer, such
incentives may take the form of payment for travel expenses, including lodging,
incurred in connection with trips taken by qualifying registered
representatives and their families to places within or outside the United
States. The total amount of such additional bonus payments or other
consideration shall not exceed 0.25% of the public offering price of the shares
sold. Any such bonus or incentive programs will not change the price paid by
investors for the purchase of the applicable AIM Fund's shares or the amount
that any particular AIM Fund will receive as proceeds from such sales. Dealers
may not use sales of the AIM Funds' shares to qualify for any incentives to the
extent that such incentives may be prohibited by the laws of any state.
AIM Distributors may make payments to dealers and institutions who are
dealers of record for purchases of $1 million or more of Class A shares (or
shares which normally involve payment of initial sales charges), which are sold
at net asset value and are subject to a contingent deferred sales charge, for
all AIM Funds other than Class A shares of each of AIM Limited Maturity
Treasury Fund and AIM Tax-Free Intermediate Fund as follows: 1% of the first $2
million of such purchases, plus 0.80% of the next $1 million of such purchases,
plus 0.50% of the next $17 million of such purchases, plus 0.25% of amounts in
excess of $20 million of such purchases. AIM Distributors may make payments to
dealers and institutions who are dealers of record for purchases of $1 million
or more of Class A shares (or shares which normally involve payment of initial
sales charges), and which are sold at net asset value and are not subject to a
contingent deferred sales charge, in an amount up to 0.10% of such purchases of
Class A shares of AIM Limited Maturity Treasury Fund, and in an amount up to
0.25% of such purchases of Class A shares of AIM Tax-Free Intermediate Fund.
AIM Distributors may pay sales commissions to dealers and institutions
who sell Class B shares of the AIM Funds at the time of such sales. Payments
with respect to Class B shares will equal 4.00% of the purchase price of the
Class B shares sold by the dealer or institution, and will consist of a sales
commission equal to 3.75% of the purchase price of the Class B shares sold plus
an advance of the first year service fee of 0.25% with respect to such shares.
The portion of the payments to AIM Distributors under the Class B Plan which
constitutes an asset-based sales charge (0.75%) is intended in part to permit
AIM Distributors to recoup a portion of such sales commissions plus financing
costs.
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<PAGE> 63
AIM Distributors may pay sales commissions to dealers and institutions
who sell Class C shares of the AIM Funds at the time of such sales. Payments
with respect to Class C shares will equal 1.00% of the purchase price of the
Class C shares sold by the dealer or institution, and will consist of a sales
commission of 0.75% of the purchase price of the Class C shares sold plus an
advance of the first year service fee of 0.25% with respect to such shares. AIM
Distributors will retain all payments received by it relating to Class C shares
for the first year after they are purchased. The portion of the payments to AIM
Distributors under the Class A and C Plan attributable to Class C shares which
constitutes an asset-based sales charge (0.75%) is intended in part to permit
AIM Distributors to recoup a portion of on-going sales commissions to dealers
plus financing costs, if any. After the first full year, AIM Distributors will
make such payments quarterly to dealers and institutions based on the average
net asset value of Class C shares which are attributable to shareholders for
whom the dealers and institutions are designated as dealers of record. These
commissions are not paid on sales to investors exempt from the CDSC, including
shareholders of record on April 30, 1995, who purchase additional shares in any
of the Funds on or after May 1, 1995, and in circumstances where AIM
Distributors grants an exemption on particular transactions.
AIM Distributors may pay investment dealers or other financial service
firms for share purchases (measured on an annual basis) of Class A Shares of
all AIM Funds except AIM Limited Maturity Treasury Fund, AIM Tax-Free
Intermediate Fund and AIM Tax-Exempt Cash Fund sold at net asset value to an
employee benefit plan as follows: 1% of the first $2 million of such purchases,
plus 0.80% of the next $1 million of such purchases, plus 0.50% of the next $17
million of such purchases, plus 0.25% of amounts in excess of $20 million of
such purchases and up to 0.10% of the net asset value of any Class A shares of
AIM Limited Maturity Treasury Fund sold at net asset value to an employee
benefit plan in accordance with this paragraph.
REDUCTIONS IN INITIAL SALES CHARGES
Reductions in the initial sales charges shown in the sales charge
tables (quantity discounts) apply to purchases of shares of the AIM Funds that
are otherwise subject to an initial sales charge, provided that such purchases
are made by a "purchaser" as hereinafter defined. Purchases of Class A shares
of AIM Tax-Exempt Cash Fund, AIM Cash Reserve Shares of AIM Money Market Fund
and Class B and Class C shares of the AIM Funds will not be taken into account
in determining whether a purchase qualifies for a reduction in initial sales
charges.
The term "purchaser" means:
o an individual and his or her spouse and children, including any
trust established exclusively for the benefit of any such person;
or a pension, profit-sharing, or other benefit plan established
exclusively for the benefit of any such person, such as an IRA,
Roth IRA, a single-participant money-purchase/profit-sharing plan
or an individual participant in a 403(b) plan (unless such 403(b)
plan qualifies as the purchaser as defined below);
o a 403(b) plan, the employer/sponsor of which is an organization
described under Section 501(c)(3) of the Internal Revenue Code of
1986, as amended (the "Code"), if:
a. the employer/sponsor must submit contributions for all
participating employees in a single contribution transmittal
(i.e., the Funds will not accept contributions submitted with
respect to individual participants);
b. each transmittal must be accompanied by a single check or
wire transfer; and
c. all new participants must be added to the 403(b) plan by
submitting an application on behalf of each new participant
with the contribution transmittal;
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<PAGE> 64
o a trustee or fiduciary purchasing for a single trust, estate or
single fiduciary account (including a pension, profit-sharing or
other employee benefit trust created pursuant to a plan qualified
under Section 401 of the Code) and 457 plans, although more than
one beneficiary or participant is involved;
o a Simplified Employee Pension (SEP), Salary Reduction and other
Elective Simplified Employee Pension account (SAR-SEP) or a
Savings Incentive Match Plans for Employees IRA (SIMPLE IRA),
where the employer has notified the distributor in writing that
all of its related employee SEP, SAR-SEP or SIMPLE IRA accounts
should be linked; or
o any other organized group of persons, whether incorporated or not,
provided the organization has been in existence for at least six
months and has some purpose other than the purchase at a discount
of redeemable securities of a registered investment company.
Investors or dealers seeking to qualify orders for a reduced initial
sales charge must identify such orders and, if necessary, support their
qualification for the reduced charge. AIM Distributors reserves the right to
determine whether any purchaser is entitled, by virtue of the foregoing
definition, to the reduced sales charge. No person or entity may distribute
shares of the AIM Funds without payment of the applicable sales charge other
than to persons or entities who qualify for a reduction in the sales charge as
provided herein.
1. LETTERS OF INTENT. A purchaser, as previously defined, may pay
reduced initial sales charges by completing the appropriate section of the
account application and by fulfilling a Letter of Intent ("LOI"). The LOI
privilege is also available to holders of the Connecticut General Guaranteed
Account, established for tax qualified group annuities, for contracts purchased
on or before June 30, 1992. The LOI confirms such purchaser's intention as to
the total investment to be made in shares of the AIM Funds (except for (i)
Class A shares of AIM Tax-Exempt Cash Fund, and AIM Cash Reserve Shares of AIM
Money Market Fund, (ii) Class B and Class C shares of the AIM Funds and (iii)
AIM Floating Rate Fund) within the following 13 consecutive months. By marking
the LOI section on the account application and by signing the account
application, the purchaser indicates that he understands and agrees to the terms
of the LOI and is bound by the provisions described below.
Each purchase of fund shares normally subject to an initial sales
charge made during the 13-month period will be made at the public offering
price applicable to a single transaction of the total dollar amount indicated
by the LOI, as described under "Sales Charges and Dealer Concessions." It is
the purchaser's responsibility at the time of purchase to specify the account
numbers that should be considered in determining the appropriate sales charge.
The offering price may be further reduced as described under "Rights of
Accumulation" if the Transfer Agent is advised of all other accounts at the
time of the investment. Shares acquired through reinvestment of dividends and
capital gains distributions will not be applied to the LOI. At any time during
the 13-month period after meeting the original obligation, a purchaser may
revise his intended investment amount upward by submitting a written and signed
request. Such a revision will not change the original expiration date. By
signing an LOI, a purchaser is not making a binding commitment to purchase
additional shares, but if purchases made within the 13-month period do not
total the amount specified, the investor will pay the increased amount of sales
charge as described below. Purchases made within 90 days before signing an LOI
will be applied toward completion of the LOI. The LOI effective date will be
the date of the first purchase within the 90-day period. The Transfer Agent
will process necessary adjustments upon the expiration or completion date of
the LOI. Purchases made more than 90 days before signing an LOI will be applied
toward completion of the LOI based on the value of the shares purchased
calculated at the public offering price on the effective date of the LOI.
To assure compliance with the provisions of the 1940 Act, out of the
initial purchase (or subsequent purchases if necessary) the Transfer Agent will
escrow in the form of shares an appropriate dollar amount (computed to the
nearest full share). All dividends and any capital gain distributions on the
escrowed shares will be credited to the purchaser. All shares purchased,
including those escrowed, will be registered in the
63
<PAGE> 65
purchaser's name. If the total investment specified under this LOI is completed
within the 13-month period, the escrowed shares will be promptly released. If
the intended investment is not completed, the purchaser will pay the Transfer
Agent the difference between the sales charge on the specified amount and the
amount actually purchased. If the purchaser does not pay such difference within
20 days of the expiration date, he irrevocably constitutes and appoints the
Transfer Agent as his attorney to surrender for redemption any or all shares, to
make up such difference within 60 days of the expiration date.
If at any time before completing the LOI Program, the purchaser wishes
to cancel the agreement, he must give written notice to AIM Distributors. If at
any time before completing the LOI Program the purchaser requests the Transfer
Agent to liquidate or transfer beneficial ownership of his total shares, a
cancellation of the LOI will automatically be effected. If the total amount
purchased is less than the amount specified in the LOI, the Transfer Agent will
redeem an appropriate number of escrowed shares equal to the difference between
the sales charge actually paid and the sales charge that would have been paid
if the total purchases had been made at a single time.
2. RIGHTS OF ACCUMULATION. A "purchaser," as previously defined, may
also qualify for reduced initial sales charges based upon such purchaser's
existing investment in shares of any of the AIM Funds (except for (i) Class A
shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund, (ii) Class B and Class C shares of the AIM Funds and (iii) AIM
Floating Rate Fund) at the time of the proposed purchase. Rights of Accumulation
are also available to holders of the Connecticut General Guaranteed Account,
established for tax-qualified group annuities, for contracts purchased on or
before June 30, 1992. To determine whether or not a reduced initial sales charge
applies to a proposed purchase, AIM Distributors takes into account not only the
money which is invested upon such proposed purchase, but also the value of all
shares of the AIM Funds (except for (i) Class A shares of AIM Tax-Exempt Cash
Fund and AIM Cash Reserve Shares of AIM Money Market Fund and (ii) Class B and
Class C shares of the AIM Funds) owned by such purchaser, calculated at their
then current public offering price. If a purchaser so qualifies for a reduced
sales charge, the reduced sales charge applies to the total amount of money then
being invested by such purchaser and not just to the portion that exceeds the
breakpoint above which a reduced sales charge applies. For example, if a
purchaser already owns qualifying shares of any AIM Fund with a value of $20,000
and wishes to invest an additional $20,000 in a fund, with a maximum initial
sales charge of 5.50%, the reduced initial sales charge of 5.25% will apply to
the full $20,000 purchase and not just to the $15,000 in excess of the $25,000
breakpoint. To qualify for obtaining the discount applicable to a particular
purchase, the purchaser or his dealer must furnish AFS with a list of the
account numbers and the names in which such accounts of the purchaser are
registered at the time the purchase is made.
PURCHASES AT NET ASSET VALUE. Purchases of shares of any of the AIM
Funds at net asset value (without payment of an initial sales charge) may be
made in connection with: (a) the reinvestment of dividends and distributions
from a fund; (b) exchanges of shares of certain other funds; (c) use of the
reinstatement privilege; or (d) a merger, consolidation or acquisition of
assets of a fund.
The following purchasers will not pay initial sales charges on
purchases of Class A shares because there is a reduced sales effort involved in
sales to these purchasers:
o AIM Management and its affiliates, or their clients;
o Any current or retired officer, director or employee (and members
of their immediate family) of AIM Management, its affiliates or
The AIM Family of Funds--Registered Trademark--; and any
foundation, trust or employee benefit plan established exclusively
for the benefit of, or by, such persons;
o Any current or retired officer, director, or employee (and
members of their immediate family), of CIGNA Corporation or its
affiliates, or of First Data Investor Services Group; and any
deferred compensation plan for directors of investment companies
sponsored by CIGNA Investments, Inc. or its affiliates;
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<PAGE> 66
o Sales representatives and employees (and members of their
immediate family) of selling group members or financial
institutions that have arrangements with such selling group
members;
o Purchases through approved fee-based programs;
o Employee benefit plans designated as purchasers as defined above,
and nonqualified plans offered in conjunction therewith, provided
the initial investment in the Plan(s) is at least $1 million; the
sponsor signs a $1 million LOI; the employer-sponsored plan(s) has
at least 100 eligible employees; or all plan transactions are
executed through a single omnibus account per Fund and the
financial institution or service organization has entered into the
appropriate agreements with the distributor. Section 403(b) plans
sponsored by public educational institutions are not eligible for
a sales charge exception based on the aggregate investment made by
the plan or the number of eligible employees. Purchases of AIM
Small Cap Opportunities Fund by such plans are subject to initial
sales charges;
o Shareholders of record or discretionary advised clients of any
investment advisor holding shares of AIM Weingarten Fund or AIM
Constellation Fund on September 8, 1986, or of AIM Charter Fund
on November 17, 1986, who have continuously owned shares having a
market value of at least $500 and who purchase additional shares
of the same Fund;
o Shareholders of record of Advisor Class shares of AIM
International Growth Fund or AIM Worldwide Growth Fund on
February 12, 1999 who have continuously owned shares of the AIM
Funds.
o Unitholders of G/SET series unit investment trusts investing
proceeds from such trusts in shares of AIM Weingarten Fund or AIM
Constellation Fund; provided, however, prior to the termination
date of the trusts, a unitholder may invest proceeds from the
redemption or repurchase of his units only when the investment in
shares of AIM Weingarten Fund and AIM Constellation Fund is
effected within 30 days of the redemption or repurchase;
o A shareholder of a fund that merges or consolidates with an AIM
Fund or that sells its assets to an AIM Fund in exchange for
shares of an AIM Fund;
o Shareholders of the GT Global funds as of April 30, 1987 who
since that date continually have owned shares of one or more of
these funds; and
o Certain former AMA Investment Advisers' shareholders who became
shareholders of the AIM Global Health Care Fund in October 1989,
and who have continuously held shares in the GT Global funds
since that time.
As used above, immediate family includes an individual and his or her
spouse, children, parents and parents of spouse.
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS
Former GT Global funds Class A shares that are subject to a contingent
deferred sales charge and that were purchased before June 1, 1998 are entitled
to the following waivers from the contingent deferred sales charge otherwise
due upon redemption: (1) minimum required distributions made in connection
with an IRA, Keogh Plan or custodial account under Section 403(b) of the Code or
other retirement plan following attainment of age 70 1/2; (2) total or partial
redemptions resulting from a distribution following retirement in the case of a
tax-qualified employer-sponsored retirement plan; (3) when a redemption results
from a tax-free return of an excess contribution pursuant to Section 408(d)(4)
or (5) of the Code or from the death or disability of the employee; (4)
redemptions pursuant to a Fund's right to liquidate a shareholder's account
involuntarily; (5) redemptions pursuant to distributions from a tax-qualified
employer-sponsored retirement plan, which is invested in the former GT Global
funds, which are permitted to be made without penalty pursuant to the Code,
other than tax-free rollovers or transfers of assets, and the proceeds of which
are reinvested in the former GT Global funds; (6) redemptions made in connection
with participant-directed exchanges between options in an employer-sponsored
benefit plan; (7) redemptions made for the purpose of providing cash to fund a
loan to a participant in a tax-qualified retirement plan; (8) redemptions made
in connection with a distribution from any retirement plan or account that is
permitted in accordance with the provisions of Section 72(t)(2) of the Code, and
the regulations promulgated thereunder; (9) redemptions made in connection with
a distribution from any retirement plan or account that involves the return of
an excess deferral amount pursuant to Section 401(k)(8) or Section 402(g)(2) of
the Code; (10) redemptions made in connection with a distribution from a
qualified profit-sharing or stock bonus plan described in Section 401(k) of the
Code to a participant or beneficiary under Section 401(k)(2)(B)(IV) of the Code
upon hardship of the covered employee (determined pursuant to Treasury
Regulation Section 1.401(k)-1(d)(2)); and (11) redemptions made by or for the
benefit of certain states, counties or cities, or any instrumentalities,
departments or authorities thereof where such entities are prohibited or limited
by applicable law from paying a sales charge or commission.
Former GT Global funds Class B shares purchased before June 1, 1998 are
subject to the following waivers from the contingent deferred sales charge
otherwise due upon redemption in addition to the waivers provided for
redemptions of currently issued Class B shares as described in a Prospectus: (1)
total or partial redemptions resulting from a distribution following retirement
in the case of a tax-qualified employer-sponsored retirement; (2) minimum
required distributions made in connection with an IRA, Keogh Plan or custodial
account under Section 403(b) of the Code or other retirement plan following
attainment of age 70 1/2; (3) a one-time reinvestment in Class B shares of a
Fund within 180 days of a prior redemption; (4) redemptions pursuant to
distributions from a tax-qualified employer-sponsored retirement plan, which is
invested in the former GT Global funds, which are permitted to be made without
penalty pursuant to the Code, other than tax-free rollovers or transfers of
assets, and the proceeds of which are reinvested in the former GT Global funds;
(5) redemptions made in connection with participant-directed exchanges between
options in an employer-sponsored benefit plan; (6) redemptions made for the
purpose of providing cash to fund a loan to a participant in a tax-qualified
retirement plan; (7) redemptions made in connection with a distribution from any
retirement plan or account that is permitted in accordance with the provisions
of Section 72(t)(2) of the Code, and the regulations promulgated thereunder; (8)
redemptions made in connection with a distribution from a qualified
profit-sharing or stock bonus plan described in Section 401(k) of the Code to a
participant or beneficiary under Section 401(k)(2)(B)(IV) of the Code upon
hardship of the covered employee (determined pursuant to Treasury Regulation
Section 1.401(k)-1(d)(2)); and (9) redemptions made by or for the benefit of
certain states, counties or cities, or any instrumentalities, departments or
authorities thereof where such entities are prohibited or limited by applicable
law from paying a sales charge or commission.
CDSCs will not apply to the following:
o Additional purchases of Class C shares of AIM Advisor Flex Fund,
AIM Advisor International Value Fund, AIM Advisor Large Cap Value
Fund, AIM Advisor MultiFlex Fund and AIM Advisor Real Estate Fund
by shareholders of record on April 30, 1995, of these Funds,
except that shareholders whose broker-dealers maintain a single
omnibus account with AFS on behalf of those shareholders, perform
sub-accounting functions with respect to those shareholders, and
are unable to segregate
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<PAGE> 67
shareholders of record prior to April 30, 1995, from shareholders
whose accounts were opened after that date will be subject to a
CDSC on all purchases made after March 1, 1996;
o Redemptions following the death or post-purchase disability of
(1) any registered shareholders on an account or (2) a settlor of
a living trust, of shares held in the account at the time of
death or initial determination of post-purchase disability;
o Certain distributions from individual retirement accounts,
Section 403(b) retirement plans, Section 457 deferred
compensation plans and Section 401 qualified plans, where
redemptions result from (i) required minimum distributions to
plan participants or beneficiaries who are age 70-1/2 or older,
and only with respect to that portion of such distributions that
does not exceed 12% annually of the participant's or
beneficiary's account value in a particular AIM Fund; (ii) in
kind transfers of assets where the participant or beneficiary
notifies the distributor of the transfer no later than the time
the transfer occurs; (iii) tax-free rollovers or transfers of
assets to another plan of the type described above invested in
Class B or Class C shares of one or more of the AIM Funds; (iv)
tax-free returns of excess contributions or returns of excess
deferral amounts; and (v) distributions on the death or
disability (as defined in the Internal Revenue Code of 1986, as
amended) of the participant or beneficiary;
o Amounts from a Systematic Withdrawal Plan of up to an annual
amount of 12% of the account value on a per fund basis, at the
time the withdrawal plan is established, provided the investor
reinvests his dividends;
o Liquidation by the Fund when the account value falls below the
minimum required account size of $500;
o Investment account(s) of AIM; and
o Class C shares where the investor's dealer or record notifies the
distributor prior to the time of investment that the dealer
waives the payment otherwise payable to him.
Upon the redemption of shares in Categories I and II purchased in
amounts of $1 million or more, no CDSC will be applied in the following
situations:
o Shares held more than 18 months;
o Redemptions from employee benefit plans designated as qualified
purchasers, as defined above, where the redemptions are in
connection with employee terminations or withdrawals, provided
the total amount invested in the plan is at least $1,000,000; the
sponsor signs a $1 million LOI; or the employer-sponsored plan
has at least 100 eligible employees; provided, however, that
403(b) plans sponsored by public educational institutions shall
qualify for the CDSC waiver on the basis of the value of each
plan participant's aggregate investment in the AIM Funds, and not
on the aggregate investment made by the plan or on the number of
eligible employees;
o Private foundations or endowment funds;
o Redemption of shares by the investor where the investor's dealer
waives the amounts otherwise payable to it by the distributor and
notifies the distributor prior to the time of investment; and
o Shares acquired by exchange from Class A shares in Categories I
and II unless the shares acquired by exchange are redeemed within
18 months of the original purchase of the Class A shares.
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HOW TO PURCHASE AND REDEEM SHARES
A complete description of the manner by which shares of each Fund may
be purchased appears in the Prospectus under the heading "Purchasing Shares."
The sales charge normally deducted on purchases of Class A shares of
each Fund is used to compensate AIM Distributors and participating dealers for
their expenses incurred in connection with the distribution of the Fund's Class
A shares. Since there is little expense associated with unsolicited orders
placed directly with AIM Distributors by persons who, because of their
relationship with the Funds or with AIM and its affiliates, are familiar with
the Funds, or whose programs for purchase involve little expense (e.g., because
of the size of the transaction and shareholder records required), AIM
Distributors believes that it is appropriate and in the Funds' best interest
that such persons, and certain other persons whose purchases result in
relatively low expenses of distribution, be permitted to purchase Class A
shares of the Funds through AIM Distributors without payment of a sales charge.
The persons who may purchase Class A shares of the Funds without a sales charge
are under the caption "Reduction in Initial Sales Charges -- Purchases of Net
Asset Value.''
Complete information concerning the method of exchanging shares of the
Funds for shares of the other AIM Funds is set forth in each Prospectus under
the heading "Exchanging Shares."
Information concerning redemption of the Funds' shares is set forth in
the Prospectus under the heading "Redeeming Shares -- How to Redeem 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. In
addition to the obligation of the Funds to redeem shares, AIM Distributors also
can repurchase shares. AIM may redeem all shares of Aggressive Growth Fund,
Equity Fund and Growth Fund 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 Fund (Telephone: (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 a Fund next determined after the repurchase order is
received. Such arrangement is subject to timely receipt by 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 the Funds or by AIM
Distributors (other than any applicable CDSC) 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 New York Stock Exchange ("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 non-resident 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.
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An investor is subject to backup withholding if:
(1) the investor fails to furnish a correct TIN to the Fund, or
(2) the IRS notifies the Fund that the investor furnished an
incorrect TIN, or
(3) the investor is notified by the IRS that the investor is subject
to backup withholding because the investor failed to report all
of the interest and dividends on such investor's tax return (for
reportable interest and dividends only), or
(4) the investor fails to certify to the Fund that the investor is
not subject to backup withholding under (3) above (for reportable
interest and dividend accounts opened after 1983 only), or
(5) the investor does not certify his TIN. This applies only to
reportable interest, dividend, broker or barter exchange accounts
opened after 1983, or broker accounts considered inactive during
1983.
Except as explained in (5) above, other reportable payments are
subject to backup withholding only if (1) or (2) above applies.
Certain payees and payments are exempt from backup withholding and
information reporting. A complete listing of such exempt entities appears in
the Instructions for the Requester of Form W-9 (which can be obtained from the
IRS) and includes, among others, the following:
o a corporation
o an organization exempt from tax under Section 501(a), an individual
retirement plan (IRA), or a custodial account under Section 403(b)(7)
o the United States or any of its agencies or instrumentalities
o a state, the District of Columbia, a possession of the United States, or
any of their political subdivisions or instrumentalities
o a foreign government or any of its political subdivisions, agencies or
instrumentalities
o an international organization or any of its agencies or instrumentalities
o a foreign central bank of issue
o a dealer in securities or commodities required to register in the U.S.
or a possession of the U.S.
o a futures commission merchant registered with the Commodity Futures
Trading Commission
o a real estate investment trust
o an entity registered at all times during the tax year under the 1940 Act
o a common trust fund operated by a bank under Section 584(a)
o a financial institution
o 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
o a trust exempt from tax under Section 664 or described in Section 4947
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Investors should contact the IRS 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.
NET ASSET VALUE DETERMINATION
In accordance with the current rules and regulations of the SEC, the
net asset value of a share of each Fund is determined once daily as of the
close of trading of the NYSE (generally 4:00 p.m. Eastern Time), on each
business day of the Fund. In the event the NYSE closes early (i.e., before 4:00
p.m. Eastern Time) on a particular day, the net asset value of a Fund share is
determined as of the close of the NYSE on such day. For purposes of determining
net asset value per share, futures and options contract closing prices which
are available fifteen (15) minutes after the close of trading on the NYSE will
generally be used. The net asset values per share of the Classes will differ
because different expenses are attributable to each class. The income or loss
and the expenses (except those listed below) of a Fund are allocated to each
class on the basis of the net assets of the Fund allocable to each such class,
calculated as of the close of business on the previous business day, as
adjusted for the current day's shareholder activity of each class. Distribution
and service fees and transfer agency fees (to the extent different rates are
charged to different classes) are allocated only to the class to which such
expenses relate. The net asset value per share of a class is determined by
subtracting the liabilities (e.g., the expenses) of the Fund allocated to the
class from the assets of the Fund allocated to the class and dividing the
result by the total number of shares outstanding of such class. Determination
of each Fund's net asset value per share is made in accordance with generally
accepted accounting principles.
A security listed or traded on an exchange (except convertible bonds)
is valued at its last sales price on the exchange where the security is
principally traded or, lacking any sales on a particular day, the security is
valued at the closing bid price 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 on the basis of prices provided by
independent pricing services. Each security reported on the NASDAQ National
Market System is valued at the last sales price on the valuation date, or
lacking a last sale, at the closing bid price on that day; option contracts are
valued at the mean between the closing bid and asked prices on the exchange
where the contracts are principally traded; futures contracts are valued at
final settlement price quotations from the primary exchange on which they are
traded. Debt obligations (including convertible bonds) are valued on the basis
of prices provided by an independent pricing service. Prices provided by an
independent pricing service may be determined without exclusive reliance on
quoted prices and may reflect appropriate factors such as dividend rate, yield,
type of issue, coupon rate and maturity date. Securities for which market
quotations are not readily available or for which market quotations are not
reflective of fair value are valued at fair value as determined in good faith
by or under the supervision of the Company's officers in a manner specifically
authorized by the Board of Directors of the Company. Short-term obligations
having sixty (60) days or less to maturity are valued at amortized cost, which
approximates market value. (See also "Purchasing Shares
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- -- How to Purchase Shares," and "Redeeming Shares -- How to Redeem Shares" and
"Pricing of Shares" in the Prospectus.)
Generally, trading in foreign securities, as well as 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 a Fund's shares are
determined as of 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 they are determined and the close of the NYSE which will not be
reflected in the computation of the Fund's net asset value. If events
materially affecting the value of such securities occur during such period,
then these securities will be valued at their fair value as determined in good
faith by or under the supervision of the Board of Directors.
Fund securities primarily traded in foreign markets may be traded in
such markets on days which are not business days of the Fund. Because the net
asset value per share of each Fund is determined only on business days of the
Fund, the net asset value per share of a Fund may be significantly affected on
days when an investor can not exchange or redeem shares of the Fund.
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 in the Prospectus under the
caption "Special Plans - Automatic Investment Plan," and "Special
Plans-Automatic Dividend Investment." 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 each Fund and its shareholders that are not
described in each Fund's Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of each Fund or its shareholders, and the
discussion here and in each Fund's Prospectus is not intended as a substitute
for careful tax planning.
SPECIAL TAX INFORMATION
For taxable years in which it is eligible to do so, the Funds may
elect to pass through to shareholders credits for foreign taxes paid. If the
fund makes such an election, a shareholder who receives a distribution (1) will
be required to include in gross income his proportionate share of foreign taxes
allocable to the distribution and (2) may claim a credit or deduction for such
share for his taxable year in which the distribution is received, subject to
the general limitations imposed on the allowance of foreign tax credits and
deductions. Shareholders should also note that certain gains or losses
attributable to fluctuations in exchange rates or foreign currency forward
contracts may increase or decrease the amount of income of the fund available
for distribution to shareholders, and should note that if such losses exceed
other income during a taxable year, the fund would not be able to pay ordinary
income dividends.
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QUALIFICATION AS A REGULATED INVESTMENT COMPANY
Each Fund intends to qualify each year as a regulated investment
company under Part I of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). In order to qualify for tax treatment as a regulated
investment company under the Code, each Fund is required, among other things, to
derive at least 90% of its gross income in each taxable year from dividends,
interest, certain payments with respect to securities loans, gains from the sale
or other disposition of stock or securities or foreign currencies and other
income (including but not limited to gains from options, futures or forward
contracts derived with respect to the Fund's business of investing in such
stock, securities or currencies) (the "Income Requirement"). Foreign currency
gains (including gains from options, futures or forward contracts on foreign
currencies) that are not "directly related" to a Fund's principal business may,
under regulations not yet issued, not be qualifying income for purposes of the
Income Requirement.
At the close of each quarter of its taxable year, at least 50% of the
value of each Fund's assets must consist of cash and cash items, U.S.
Government securities, securities of other regulated investment companies, and
securities of other issuers (as to which the Fund has not invested more than 5%
of the value of its total assets in securities of such issuer and as to which
the Fund does not hold more than 10% of the outstanding voting securities of
such issuer), and no more than 25% of the value of its total assets may be
invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies), or in two
or more issuers which the Fund controls and which are engaged in the same or
similar trades or businesses (the "Asset Diversification Test"). For purposes
of the Asset Diversification Test, it is unclear under present law who should
be treated as the issuer of forward foreign currency exchange contracts, of
options on foreign currencies, or of foreign currency futures and related
options. It has been suggested that the issuer in each case may be the foreign
central bank or foreign government backing the particular currency.
Consequently, a Fund may find it necessary to seek a ruling from the Internal
Revenue Service on this issue or to curtail its trading in forward foreign
currency exchange contracts in order to stay within the limits of the Asset
Diversification Test.
If for any taxable year a Fund does not qualify as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate rates without any deduction for distributions to shareholders, and
such distributions will be taxable as ordinary dividends to the extent of the
Fund's current and accumulated earnings and profits. Such distributions will be
eligible for the dividends received deduction in the case of corporate
shareholders.
FUND DISTRIBUTIONS
Under the Code, each Fund is exempt from U.S. federal income tax on
its net investment income and realized capital gains which it distributes to
shareholders, provided that it distributes at least 90% of its investment
company taxable income (net investment income, net foreign currency ordinary
gain or loss and the excess of net short-term capital gain over net long-term
capital loss) and its net exempt-interest income for the year. Distributions of
investment company taxable income will be taxable to shareholders as ordinary
income, regardless of whether such distributions are paid in cash or are
reinvested in shares.
Each Fund also intends to distribute to shareholders substantially
all of the excess of its net long-term capital gain over net short-term capital
loss as a capital gain dividend. Capital gain dividends are taxable to
shareholders as a long-term capital gain, regardless of the length of time a
shareholder has held his shares.
Treasury regulations permit a regulated investment company, in
determining its investment company taxable income and undistributed net capital
gain for any taxable year, to elect to treat all or part of any net capital
loss, any net long-term capital loss, or any net foreign currency loss incurred
after October 31 as if it had been incurred in the succeeding year.
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A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to distribute in each calendar year an amount equal to 98%
of their ordinary taxable income for the calendar year plus 98% of their
"capital gain net income" (excess of capital gains over capital losses) for the
one-year period ending on October 31 of such calendar year. The balance of such
income must be distributed during the next calendar year. For the foregoing
purposes, a regulated investment company is treated as having distributed any
amount on which it is subject to income tax for any taxable year ending in such
calendar year.
For purposes of the excise tax, a regulated investment company shall
(1) offset a net ordinary loss (but not below the net capital gain) for any
calendar year in determining its capital gain net income for the one-year
period ending on October 31 of such calendar year and (2) exclude foreign
currency gains and losses incurred after October 31 of any year in determining
the amount of ordinary taxable income for the current calendar year (and,
instead, to include such gains and losses in determining ordinary taxable
income for the succeeding calendar year). Each Fund intends to make sufficient
distributions or deemed distributions of its ordinary taxable income and
capital gain net income prior to the end of each calendar year to avoid
liability for the excise tax.
INVESTMENT IN FOREIGN FINANCIAL INSTRUMENTS
Under Code Section 988, gains or losses from certain foreign currency
forward contracts or fluctuations in exchange rates will generally be treated
as ordinary income or loss. Such Code Section 988 gains or losses will increase
or decrease the amount of a Fund's investment company taxable income available
to be distributed to shareholders as ordinary income, rather than increasing or
decreasing the amount of the Fund's net capital gains. Additionally, if Code
Section 988 losses exceed other investment company taxable income during a
taxable year, the Fund would not be able to pay any ordinary income dividends,
and any such dividends paid before the losses were realized, but in the same
taxable year, would be recharacterized as a return of capital to shareholders,
thereby reducing the tax basis of Fund shares.
HEDGING TRANSACTIONS
Some of the forward foreign currency exchange contracts, options and
futures contracts that the Funds may enter into will be subject to special tax
treatment as "Section 1256 contracts." Section 1256 contracts are treated as if
they are sold for their fair market value on the last business day of the
taxable year, regardless of whether a taxpayer's obligations (or rights) under
such contracts have terminated (by delivery, exercise, entering into a closing
transaction or otherwise) as of such date. Any gain or loss recognized as a
consequence of the year-end deemed disposition of Section 1256 contracts is
combined with any other gain or loss that was previously recognized upon the
termination of Section 1256 contracts during that taxable year. The net amount
of such gain or loss for the entire taxable year (including gain or loss
arising as a consequence of the year-end deemed sale of such contracts) is
deemed to be 60% long-term (taxable at a maximum 20%) and 40% short-term gain
or loss. However, in the case of Section 1256 contracts that are forward
foreign currency exchange contracts, the net gain or loss is separately
determined and (as discussed above) can be treated as ordinary income or loss.
The Funds may engage in certain hedging transactions (such as short
sales "against the box") that may be subject to special tax treatment as
"constructive sales" under Section 1259 of the Code if a Fund holds certain
"appreciated financial positions" (defined generally as any interest (including
a future or forward contract, short sale or option) with respect to stock,
certain debt instruments, or partnership interest if there would be a gain were
such interest sold, assigned, or otherwise terminated at its fair market
value.) Upon entering into a constructive sales transaction with respect to an
appreciated financial position, a Fund will be deemed to have constructively
sold such appreciated financial position and will recognize gain as if such
position were sold, assigned or otherwise terminated at its fair market value
on the date of such constructive sale (and will take into account any gain in
the taxable year which includes such date unless the closed transaction
exception applies).
Other hedging transactions in which the Funds may engage may result
in "straddles" or "conversion transactions" for U.S. federal income tax
purposes. The straddle and conversion transaction rules may affect
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the character of gains (or in the case of the straddle rules, losses) realized
by the Funds. In addition, losses realized by the Funds on positions that are
part of a straddle may be deferred under the straddle rules, rather than being
taken into account in calculating the taxable income for the taxable year in
which the losses are realized. Because only a few regulations implementing the
straddle rules and the conversion transaction rules have been promulgated, the
tax consequences to the Funds of hedging transactions are not entirely clear.
The hedging transactions may increase the amount of short-term capital gain
realized by the Funds (and, if they are conversion transactions, the amount of
ordinary income) which is taxed as ordinary income when distributed to
shareholders.
Each Fund may make one or more of the elections available under the
Code which are applicable to straddles. If a Fund makes any of the elections,
the amount, character, and timing of the recognition of gains or losses from
the affected straddle positions will be determined under rules that vary
according to the election(s) made. The rules applicable under certain of the
elections may operate to accelerate the recognition of gains or losses from the
affected straddle positions.
Because application of any of the foregoing rules governing Section
1256 contracts, constructive sales, straddle and conversion transactions may
affect the character of gains or losses, defer losses and/or accelerate the
recognition of gains or losses from the affected investment or straddle
positions, the amount which must be distributed to shareholders and which will
be taxed to shareholders as ordinary income or long-term capital gain may be
increased or decreased as compared to a fund that did not engage in such
transactions.
PFIC INVESTMENTS
Each Fund may invest in stocks of foreign companies that are
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign company is classified as a PFIC if at least one-half of its
assets constitute investment-type assets or 75% or more of its gross income is
investment-type income. Under the PFIC rules, an "excess distribution" received
with respect to PFIC stock is treated as having been realized ratably over the
period during which the Fund held the PFIC stock. The Fund itself will be
subject to tax on the portion, if any, of the excess distribution that is
allocated to the Fund's holding period in prior taxable years (and an interest
factor will be added to the tax, as if the tax had actually been payable in
such prior taxable years) even though the Fund distributes the corresponding
income to shareholders. Excess distributions include any gain from the sale of
PFIC stock as well as certain distributions from a PFIC. All excess
distributions are taxable as ordinary income.
Each Fund can elect alternative tax treatment with respect to PFIC
stock. Under one such election (the "QEF Election"), a Fund generally would be
required to include in its gross income its share of the earnings of a PFIC on
a current basis, regardless of whether any distributions are received from the
PFIC. Because the QEF Election imposes substantial requirements on the PFIC, it
is unlikely that a fund will be able to make the QEF Election. For taxable
years beginning after December 31, 1997, each Fund will alternatively be able
to make an election to mark any shares of PFIC stock that it holds to market
(the "Section 1296 Election"). If the Section 1296 election is made with
respect to any PFIC stock, a Fund will recognize ordinary income to the extent
that the fair market value of such PFIC stock at the close of any taxable year
exceeds its adjusted basis and will also recognize ordinary income in the event
that it disposes of any shares of such PFIC stock at a gain. In each case, such
ordinary income will be treated as dividend income for purposes of the Income
Requirement. A Fund making the Section 1296 Election with respect to any PFIC
stock will similarly recognize a deductible ordinary loss to the extent that
the adjusted basis of such PFIC stock exceeds its fair market value at the
close of any taxable year and will also recognize a deductible ordinary loss in
the event that it disposes of such PFIC stock at a loss. However, the amount of
any ordinary loss recognized by a Fund making a Section 1296 Election with
respect to any PFIC stock may not exceed the amount of ordinary income
previously recognized by such Fund by reason of marking such PFIC stock to
market. If either the QEF Election or the Section 1296 Election is made, the
special rules, discussed above, relating to the taxation of excess
distributions, would not apply. The Funds' intentions to qualify annually as
regulated investment companies may limit their ability to invest and hold PFIC
stock.
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Because the application of the PFIC rules may affect, among other
things, the character of gains, the amount of gain or loss and the timing of
the recognition of income with respect to PFIC stock, as well as subject the
Funds themselves to tax on certain income from PFIC stock, the amount that must
be distributed to shareholders, and which will be taxed to shareholders as
ordinary income or long-term capital gains, may be increased or decreased
substantially as compared to a fund that did not invest in PFIC stock.
REDEMPTION OR EXCHANGE OF SHARES
Upon a redemption or exchange of shares, a shareholder will recognize
a taxable gain or loss depending upon his or her basis in the shares. Unless
the shares are disposed of as part of a conversion transaction, such gain or
loss will be treated as capital gain or loss if the shares are capital assets
in the shareholder's hands and will be long-term or short-term, depending upon
the shareholder's holding period for the shares. Except to the extent otherwise
provided in future Treasury regulations any long-term capital gain recognized
by a non-corporate shareholder will be subject to tax at a maximum rate of 20%.
Any loss recognized by a shareholder on the sale of Fund shares held six months
or less will be treated as a long-term capital loss to the extent of any
distributions of net capital gains received by the shareholder with respect to
such shares.
If a shareholder exercises the exchange privilege within 90 days of
acquiring Class A shares, then the loss such shareholder recognizes on the
exchange will be reduced (or the gain increased) to the extent the sales charge
paid upon the purchase of Class A shares reduces any charge such shareholder
would have owed upon purchase of the new Class A shares in the absence of the
exchange privilege. Instead, such sales charge will be treated as an amount
paid for the new Class A shares. In addition, any loss recognized on a sale or
exchange will be disallowed to the extent that disposed Class A shares, Class B
shares or Class C shares are replaced within the 61-day period beginning 30
days before and ending 30 days after the disposition of such shares. In such a
case, the basis of the shares acquired will be increased to reflect the
disallowed loss. Shareholders should particularly note that this loss
disallowance rule applies even where shares are automatically replaced under
the dividend reinvestment plan.
FOREIGN INCOME TAXES
Investment income received by each Fund from sources within foreign
countries may be subject to foreign income taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle the Funds to a reduced rate of, or exemption from, taxes on such
income. It is impossible to determine the effective rate of foreign tax in
advance since the amount of a Fund's assets to be invested in various countries
is not known.
If more than 50% of the value of a Fund's total assets at the close
of each taxable year consists of the stock or securities of foreign
corporations, the Fund may elect to "pass through" to the Fund's shareholders
the amount of foreign income taxes paid by the Fund (the "Foreign Tax
Election"). Pursuant to the Foreign Tax Election, shareholders will be required
(i) to include in gross income, even though not actually received, their
respective pro-rata shares of the foreign income taxes paid by the Fund that
are attributable to any distributions they receive; and (ii) either to deduct
their pro-rata share of foreign taxes in computing their taxable income, or to
use it (subject to various Code limitations) as a foreign tax credit against
Federal income tax (but not both). No deduction for foreign taxes may be
claimed by a non-corporate shareholder who does not itemize deductions or who
is subject to alternative minimum tax.
Unless certain requirements are met, a credit for foreign taxes is
subject to the limitation that it may not exceed the shareholder's U.S. tax
(determined without regard to the availability of the credit) attributable to
the shareholder's foreign source taxable income. In determining the source and
character of distributions received from a Fund for this purpose, shareholders
will be required to allocate Fund distributions according to the source of the
income realized by the Fund. Each Fund's gains from the sale of stock and
securities and certain currency fluctuation gains and losses will generally be
treated as derived from U.S. sources. In addition,
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the limitation on the foreign tax credit is applied separately to foreign source
"passive" income, such as dividend income. Because of these limitations,
shareholders may be unable to claim a credit for the full amount of their
proportionate shares of the foreign income taxes paid by a Fund.
BACKUP WITHHOLDING
Under certain provisions of the Code, the Funds may be required to
withhold 31% of reportable dividends, capital gains distributions and redemption
payments ("backup withholding"). Generally, shareholders subject to backup
withholding will be those for whom a certified taxpayer identification number is
not on file with the Company or who, to the Company's knowledge, have furnished
an incorrect number, or who have been notified by the Internal Revenue Service
that they are subject to backup withholding. When establishing an account, an
investor must provide his or her taxpayer identification number and certify
under penalty of perjury that such number is correct and that he or she is not
otherwise subject to backup withholding. Corporate shareholders and other
shareholders specified in the Code are exempt from backup withholding. Backup
withholding is not an additional tax. Any amounts withheld may be credited
against a shareholder's U.S. federal income tax liability.
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
reinvestment.
FOREIGN SHAREHOLDERS
Dividends from a Fund's investment company taxable income and
distributions constituting returns of capital paid to a nonresident alien
individual, a foreign trust or estate, foreign corporation, or foreign
partnership (a "foreign shareholder") generally will be subject to U.S.
withholding tax at a rate of 30% (or lower treaty rate) upon the gross amount
of the dividend. Foreign shareholders may be subject to U.S. withholding tax at
a rate of 30% on the income resulting from the Fund's election to treat any
foreign income taxes paid by it as paid by its shareholders, but may not be
able to claim a credit or deduction with respect to the withholding tax for the
foreign taxes treated as having been paid by them.
A foreign shareholder generally will not be subject to U.S. taxation
on gain realized upon the redemption or exchange of shares of a Fund or on
capital gain dividends. In the case of a foreign shareholder who is a
nonresident alien individual, however, gain realized upon the sale or
redemption of shares of a Fund and capital gain dividends ordinarily will be
subject to U.S. income tax if such individual is physically present in the U.S.
for 183 days or more during the taxable year and certain other conditions are
met. In the case of a foreign shareholder who is a nonresident alien
individual, the Funds may be required to withhold U.S. federal income tax at a
rate of 31% unless proper notification of such shareholder's foreign status is
provided.
Notwithstanding the foregoing, if distributions by the Funds are
effectively connected with a U.S. trade or business of a foreign shareholder,
then dividends from such Fund's investment company taxable income, capital
gains, and any gains realized upon the sale of shares of the Fund will be
subject to U.S. income tax at the graduated rates applicable to U.S. citizens
or domestic corporations.
Transfers by gift of shares of a Fund by a foreign shareholder who is
a nonresident alien individual will not be subject to U.S. federal gift tax. An
individual who, at the time of death, is a foreign shareholder will
nevertheless be subject to U.S. federal estate tax with respect to shares at
the graduated rates applicable to U.S. citizens and residents, unless a treaty
exception applies. In the absence of a treaty, there is a $13,000 statutory
estate tax credit.
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<PAGE> 77
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisors with
respect to the particular tax consequences to them of an investment in any of
the Funds.
MISCELLANEOUS CONSIDERATIONS; EFFECT OF FUTURE LEGISLATION
The foregoing general discussion of federal income tax consequences
is based on the Code and the regulations issued thereunder as in effect at the
date of this SAI. Future legislative or administrative changes or court
decisions may significantly change the conclusions expressed herein, and any
such changes or decisions may have a retroactive effect with respect to the
transactions contemplated herein.
Rules of state and local taxation of dividend and capital gain
distributions from regulated investment companies often differ from the rules
for U.S. federal income taxation described above. Shareholders are urged to
consult their tax advisors as to the consequences of these and other U.S. state
and local tax rules affecting investments in the Funds.
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
76
<PAGE> 78
exchanges of shares of the funds, including the condition that any such dealer
or investment advisor enter into an agreement (which contains additional
conditions with respect to exchanges of shares) with AIM Distributors. To
exchange shares by telephone, a shareholder, dealer or investment advisor who
has satisfied the foregoing conditions must call AFS at (800) 959-4246. If a
shareholder is unable to reach AFS by telephone, he may also request exchanges
by telegraph or use overnight courier services to expedite exchanges by mail,
which will be effective on the business day received by the Transfer Agent as
long as such request is received prior to NYSE Close. The Transfer Agent and AIM
Distributors may in certain cases be liable for losses due to unauthorized or
fraudulent transactions if they do not follow reasonable procedures for
verification of telephone transactions. Such reasonable procedures may include
recordings of telephone transactions (maintained for six months), requests for
confirmation of the shareholder's 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. 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
shareholder's Social Security Number and current address, and mailings of
confirmations promptly after the transactions. The Transfer Agent reserves the
right to cease to act as attorney-in-fact subject to this appointment, and AIM
Distributors reserves the right to modify or terminate the telephone redemption
privilege at any time without notice. An investor may elect not to have this
privilege by marking the appropriate box on the application. Then any
redemptions must be effected in writing by the investor.
SIGNATURE GUARANTEES. In addition to those circumstances listed in the
"Shareholder Information" section of each Fund's Prospectus, signature
guarantees are required in the following situations: (1) requests to transfer
the registration of shares to another owner; (2) telephone exchange and
telephone redemption authorization forms; (3) changes in previously designated
wiring or electronic funds transfer instructions; and (4) written redemptions or
exchanges of shares previously reported as lost, whether or not the redemption
amount is under $50,000 or the proceeds are to be sent to the address of record.
The AIM Funds may waive or modify any signature guarantee requirements at any
time.
77
<PAGE> 79
Acceptable guarantors include banks, broker-dealers, credit unions,
national securities exchanges, savings associations and any other organization,
provided that such institution or organization qualifies as an "eligible
guarantor institution" as that term is defined in rules adopted by the SEC, and
further provided that such guarantor institution is listed in one of the
reference guides contained in the Transfer Agent's current Signature Guarantee
Standards and Procedures, such as certain domestic banks, credit unions,
securities dealers, or securities exchanges. The Transfer Agent will also
accept signatures with either: (1) a signature guaranteed with a medallion
stamp of the STAMP Program, or (2) a signature guaranteed with a medallion
stamp of the NYSE Medallion Signature Program, provided that in either event,
the amount of the transaction involved does not exceed the surety coverage
amount indicated on the medallion. For information regarding whether a
particular institution or organization qualifies as an "eligible guarantor
institution," an investor should contact the Client Services Department of AFS.
DIVIDENDS AND DISTRIBUTIONS. In determining the amount of capital
gains, if any, available for distribution, net capital gains are offset against
available net capital losses, if any, carried forward from previous fiscal
periods.
For funds that do not declare a dividend daily, such dividends and
distributions will be reinvested at the net asset value per share determined on
the ex-dividend date. For funds that declare a dividend daily, such dividends
and distributions will be reinvested at the net asset value per share
determined on the payable date.
Dividends on Class B and Class C shares are expected to be lower than
those for Class A shares or AIM Cash Reserve Shares because of higher
distribution fees paid by Class B and Class C shares. Dividends on all shares
may also be affected by other class-specific expenses.
Changes in the form of dividend and distribution payments may be made
by the shareholder at any time by notice to the Transfer Agent and are
effective as to any subsequent payment if such notice is received by the
Transfer Agent prior to the record date of such payment. Any dividend and
distribution election remains in effect until the Transfer Agent receives a
revised written election by the shareholder.
Any dividend or distribution paid by a fund which does not declare
dividends daily has the effect of reducing the net asset value per share on the
ex-dividend date by the amount of the dividend or distribution. Therefore, a
dividend or distribution declared shortly after a purchase of shares by an
investor would represent, in substance, a return of capital to the shareholder
with respect to such shares even though it would be subject to income taxes.
MISCELLANEOUS INFORMATION
CHANGES FOR CERTAIN ACCOUNT INFORMATION
The Transfer Agent may impose certain copying changes for requests for
copies of shareholder account statements and other historical account
information older than the current year and the immediately preceding year.
AUDIT REPORTS
The Board of Directors will issue to shareholders semi-annually the
Funds' financial statements. Financial statements, audited by independent
auditors, will be issued annually. The firm of KPMG LLP, 700 Louisiana, Houston,
Texas 77002, currently serves as the auditors of each Fund.
78
<PAGE> 80
LEGAL MATTERS
Legal matters for the Company are passed upon by Ballard Spahr Andrews
& Ingersoll, LLP, 1735 Market Street, Philadelphia, Pennsylvania.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company (the "Custodian"), 225 Franklin
Street, Boston, Massachusetts 02110, is custodian of all securities and cash of
the Funds. Under its contract with the Company relating to each Fund, the
Custodian is authorized to establish separate accounts in foreign currencies and
to cause foreign securities owned by each Fund to be held in its offices outside
the United States and with certain foreign banks and securities depositories.
The Custodian attends to the collection of principal and income, pays and
collects all monies for securities bought and sold by each Fund, and performs
certain other ministerial duties. AFS, a wholly owned subsidiary of AIM, P.O.
Box 4739, Houston, Texas 77210-4739, is the transfer and dividend disbursing
agent for the Class A, Class B and Class C shares of each of the Funds. Each
Fund pays the Custodian and the Transfer Agent such compensation as may be
agreed upon from time to time.
Chase Bank of Texas, N.A. (formerly, Texas Commerce Bank National
Association), 712 Main, Houston, Texas 77002, serves as Sub-Custodian for retail
purchases of the AIM Funds.
79
<PAGE> 81
PRINCIPAL HOLDERS OF SECURITIES
To the best knowledge of the Company, the names and addresses of the
holders of 5% or more of the outstanding shares of each class of each of the
Company's portfolios as of February 1, 1999, and the amount of outstanding
shares held by such holders are set forth below:
<TABLE>
<CAPTION>
Percent Percent Owned
Name and Address Owned of of Record and
Fund of Record Owner Record Only* Beneficially
- ---- --------------- ------------ ------------
<S> <C> <C> <C>
AIM International Merrill Lynch, Pierce, 36.50%** -0-
Equity Fund - Fenner & Smith
Class A shares FBO The Sole Benefit
of Customers
Fund Administration
4800 Deer Lake Dr. East
3rd Floor
Jacksonville, FL 32246
Class B shares Merrill Lynch, Pierce, 34.96%** -0-
Fenner & Smith
FBO The Sole Benefit
of Customers
Fund Administration
4800 Deer Lake Dr. East
3rd Floor
Jacksonville, FL 32246
Class C shares Merrill Lynch, Pierce, 57.89%** -0-
Fenner & Smith
FBO The Sole Benefit
of Customers
Fund Administration
4800 Deer Lake Dr. East
3rd Floor
Jacksonville, FL 32246
</TABLE>
* The Company has no knowledge as to whether all or any portion of the shares
owned of record only are also owned beneficially.
** A shareholder who holds 25% or more of the outstanding shares of a Fund may
be presumed to be in "control" of such Fund, as defined in the 1940 Act.
80
<PAGE> 82
<TABLE>
<CAPTION>
Percent Percent Owned
Name and Address Owned of of Record and
Fund of Record Owner Record Only* Beneficially
- ---- --------------- ------------ ------------
<S> <C> <C> <C>
AIM Global Aggressive Merrill Lynch, Pierce 13.69% -0-
Growth Fund - Fenner & Smith
Class A shares FBO The Sole Benefit
of Customers
Fund Administration
4800 Deer Lake Dr. East
3rd Floor
Jacksonville, FL 32246
Class B shares Merrill Lynch, Pierce, 24.19%** -0-
Fenner & Smith
FBO The Sole Benefit
of Customers
Fund Administration
4800 Deer Lake Dr. East
3rd Floor
Jacksonville, FL 32246
Class C shares Merrill Lynch, Pierce, 38.59%** -0-
Fenner & Smith
FBO The Sole Benefit
of Customers
Fund Administration
4800 Deer Lake Dr. East
3rd Floor
Jacksonville, FL 32246
AIM Global Growth Merrill Lynch, Pierce, 11.24% -0-
Fund - Fenner & Smith
Class A shares FBO The Sole Benefit
of Customers
Fund Administration
4800 Deer Lake Dr. East
3rd Floor
Jacksonville, FL 32246
</TABLE>
* The Company has no knowledge as to whether all or any portion of the shares
owned of record only are also owned beneficially.
** A shareholder who holds 25% or more of the outstanding shares of a Fund may
be presumed to be in "control" of such Fund, as defined in the 1940 Act.
81
<PAGE> 83
<TABLE>
<CAPTION>
Percent Percent Owned
Name and Address Owned of of Record and
Fund of Record Owner Record Only* Beneficially
- ---- --------------- ------------ ------------
<S> <C> <C> <C>
Class B shares Merrill Lynch, Pierce, 20.40% -0-
Fenner & Smith
FBO The Sole Benefit
of Customers
Fund Administration
4800 Deer Lake Dr. East
3rd Floor
Jacksonville, FL 32246
Class C shares Merrill Lynch, Pierce 29.42%** -0-
Fenner & Smith
FBO The Sole Benefit
of Customers
Fund Administration
4800 Deer Lake Dr. East
3rd Floor
Jacksonville, FL 32246
AIM Global Income Fund -
Class B shares Merrill Lynch Pierce 7.95% -0-
Fenner & Smith
FBO The Sole Benefit of
Customers
Attn: Fund Administration
4800 Deer Lake Dr. East
3rd Floor
Jacksonville, FL 32246
Class C shares Merrill Lynch Pierce 8.64% -0-
Fenner & Smith
FBO The Sole Benefit of
Customers
Attn: Fund Administration
4800 Deer Lake Dr. East
3rd Floor
Jacksonville, FL 32246
Dain Rauscher Incorporated -0- 6.14%
FBO Guarantee & Trust Co.
Cust. J. Stuart Johnson IRA
3000 Penn Avenue W. Ext.
Warren, PA 16365
</TABLE>
* The Company has no knowledge as to whether all or any portion of the shares
owned of record only are also owned beneficially.
** A shareholder who holds 25% or more of the outstanding shares of a Fund may
be presumed to be in "control" of such Fund, as defined in the 1940 Act.
82
<PAGE> 84
<TABLE>
<CAPTION>
Percent Percent Owned
Name and Address Owned of of Record and
Fund of Record Owner Record Only* Beneficially
- ---- --------------- ------------ ------------
<S> <C> <C> <C>
AIM European Merrill Lynch, Pierce, 7.03% -0-
Development Fund - Fenner & Smith
Class A shares FBO The Sole Benefit
of Customers
Fund Administration
4800 Deer Lake Dr. East
3rd Floor
Jacksonville, FL 32246
Class B shares Merrill Lynch Pierce 10.64% -0-
Fenner & Smith
FBO The Sole Benefit of
Customers
Attn: Fund Administration
4800 Deer Lake Dr. East
3rd Floor
Jacksonville, FL 32246
Class C shares Merrill Lynch, Pierce, 15.00% -0-
Fenner & Smith
FBO The Sole Benefit
of Customers
Fund Administration
4800 Deer Lake Dr. East
3rd Floor
Jacksonville, FL 32246
AIM Asian Growth Fund - INVESCO Trust Company 8.46% -0-
Class A shares Attn: Sheila Wendland
7800 E Union Ave.
Denver, CO 80237-0000
Class B shares Merrill Lynch Pierce 5.78% -0-
Fenner & Smith
FBO The Sole Benefit
of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East
3rd Floor
Jacksonville, FL 32246
</TABLE>
* The Company has no knowledge as to whether all or any portion of the shares
owned of record only are also owned beneficially.
83
<PAGE> 85
<TABLE>
<CAPTION>
Percent Percent Owned
Name and Address Owned of of Record and
Fund of Record Owner Record Only* Beneficially
- ---- --------------- ------------ ------------
<S> <C> <C> <C>
Class C shares David B. Foerch and -0- 15.03%
Barbara L. Foerch JTWROS
1708 Live Oak
Irving, TX 75061-0000
Carol J. Rodgers and -0- 7.50%
Glenn A. Rodger JTWROS
1008 Opal Dr.
Desoto, TX 75115-0000
Robert G. Rockett and -0- 7.47%
Linda L. Rockett JTWROS
2208 Timber Creek TR
Flower Mound, TX 75028-0000
Stacy A. Stewart Ttee -0- 7.05%
Ronald Darby Non Except Lifetime
TRDTD 9/1/94
1630 Falcon, Suite 107
De Soto, TX 75115-0000
PainWebber for the Benefit of -0- 6.04%
Gary E. Goscha
Stephanie P. Goscha JTWROS
11590 W 175th
Olathe, KS 66062-9469
</TABLE>
As of February 1, 1999, the directors and officers of the Company as a
group owned less than 1% of the outstanding shares of each class of Aggressive
Growth Fund, Growth Fund, Equity Fund, Income Fund, Asian Fund and European
Fund.
OTHER INFORMATION
The Prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement which the
portfolios of the Company have filed with the SEC under the 1933 Act and the
1940 Act, and reference is hereby made to the Registration Statement for
further information with respect to each portfolio of the Company and the
securities offered hereby. The Registration Statement is available for
inspection by the public at the Securities and Exchange Commission in
Washington, D.C.
84
<PAGE> 86
APPENDIX A
- --------------------------------------------------------------------------------
DESCRIPTION OF MONEY MARKET OBLIGATIONS
The following list does not purport to be an exhaustive list of all
Money Market Obligations, and the Funds reserve the right to invest in Money
Market Obligations other than those listed below:
1. GOVERNMENT OBLIGATIONS.
U.S. GOVERNMENT DIRECT OBLIGATIONS -- Bills, notes, and bonds issued
by the U.S. Treasury.
U.S. GOVERNMENT AGENCIES SECURITIES -- Certain federal agencies such
as the Government National Mortgage Association have been established as
instrumentalities of the U. S. Government to supervise and finance certain types
of activities. Issues of these agencies, while not direct obligations of the U.
S. Government, are either backed by the full faith and credit of the United
States or are guaranteed by the Treasury or supported by the issuing agencies'
right to borrow from the Treasury.
FOREIGN GOVERNMENT OBLIGATIONS -- These are U.S. dollar denominated
obligations issued or guaranteed by one or more foreign governments or any of
their political subdivisions, agencies or instrumentalities that are determined
by the Fund's investment advisor to be of comparable quality to the other
obligations in which the Fund may invest. Such securities also include debt
obligations of supranational entities. Supranational entities include
international organizations designated or supported by governmental entities to
promote economic reconstruction or development and international banking
institutions and related government agencies. Examples include the International
Bank for Reconstruction and Development (the World Bank), the European Coal and
Steel Community, the Asian Development Bank and the InterAmerican Development
Bank. The percentage of the Fund's assets invested in securities issued by
foreign governments will vary depending on the relative yields of such
securities, the economic and financial markets of the countries in which the
investments are made and the interest rate climate of such countries.
2. BANK INSTRUMENTS.
BANKERS' ACCEPTANCES -- A bill of exchange or time draft drawn on and
accepted by a commercial bank. It is used by corporations to finance the
shipment and storage of goods and to furnish dollar exchange. Maturities are
generally six months or less.
CERTIFICATES OF DEPOSIT -- A negotiable interest-bearing instrument
with a specific maturity. Certificates of deposit are issued by banks and
savings and loan institutions in exchange for the deposit of funds and normally
can be traded in the secondary market, prior to maturity.
TIME DEPOSITS -- A non-negotiable receipt issued by a bank in exchange
for the deposit of funds. Like a certificate of deposit, it earns a specified
rate of interest over a definite period of time; however, it cannot be traded in
the secondary market.
EURODOLLAR OBLIGATIONS -- A Eurodollar obligation is a U.S.
dollar-denominated obligation issued by a foreign branch of a domestic bank.
YANKEE DOLLAR OBLIGATIONS -- A Yankee dollar obligation is a U.S.
dollar-denominated obligation issued by a domestic branch of a foreign bank.
A-1
<PAGE> 87
3. COMMERCIAL INSTRUMENTS.
COMMERCIAL PAPER -- The term used to designate unsecured short-term
promissory notes issued by corporations and other entities. Maturities on these
issues vary from a few days to nine months.
MASTER DEMAND NOTES -- Master demand notes are demand notes that
permit investment of fluctuating amounts of money at variable rates of interest
pursuant to arrangements with the issuers. The interest rate on a master demand
note is periodically redetermined according to a prescribed formula. Although
there is no secondary market in master demand notes, the payee may demand
payment of the principal amount of the note on relatively short notice. Master
demand notes may be secured or unsecured.
4. REPURCHASE AGREEMENTS -- A repurchase agreement is a contractual
undertaking whereby the seller of securities (limited to U.S. Government
securities, including securities issued or guaranteed by the U.S. Treasury or
the various agencies and instrumentalities of the U.S. Government) agrees to
repurchase the securities at a specified price on a future date determined by
negotiations.
A-2
<PAGE> 88
APPENDIX B
- --------------------------------------------------------------------------------
DESCRIPTION OF CORPORATE BOND RATINGS
Investment grade debt securities are those rating categories indicated
by an asterisk ( * ).
MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS ARE AS FOLLOWS:
*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-edge." 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. These 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 sometime 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.
B-1
<PAGE> 89
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.
Note: Moody's applies numerical modifiers 1, 2, and 3 in the Aa and A
groups when assigning ratings to industrial development bonds and bonds secured
by either a letter of credit or bond insurance. The modifier 1 indicates that
the security 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
issue ranks in the lower end of its generic rating category.
STANDARD AND POOR'S RATINGS SERVICES CLASSIFICATIONS ARE AS FOLLOWS:
*AAA
Debt rated 'AAA' has the highest rating assigned by Standard & Poor's
("S&P"). Capacity to pay interest and repay principal is extremely strong.
*AA
Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in a small degree.
*A
Debt rated 'A' has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
*BBB
Debt rated 'BBB' regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher categories.
BB, B, CCC, CC, C
Debt rated 'BB', 'B', 'CCC', 'CC' and 'C' is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. 'BB' indicates the
lowest degree of speculation and 'C' the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
B-2
<PAGE> 90
BB
Debt rated 'BB' has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The 'BB'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'BBB-' rating.
B
Debt rated 'B' has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The 'B' rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
'BB' or 'BB-' rating.
CCC
Debt rated 'CCC' has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The 'CCC' rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied 'B' or 'B-' rating.
CC
The rating 'CC' is typically applied to debt subordinated to senior
debt that is assigned an actual or implied 'CCC' rating.
C
The rating 'C' is typically applied to debt subordinated to senior
debt which is assigned an actual or implied 'CCC-' debt rating. The 'C' rating
may be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
C1
The rating 'C1' is reserved for income bonds on which no interest is
being paid.
D
Debt rated 'D' is in payment default. The 'D' rating category is used
when interest payments or principal or principal payments 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 if debt
service payments are jeopardized.
PLUS (+) OR MINUS (-)
The rating from 'AA' to 'CCC' may be modified by the addition of a
plus or minus sign to show relative standing within the major categories.
B-3
<PAGE> 91
DUFF & PHELPS FIXED-INCOME RATINGS ARE AS FOLLOWS:
*AAA
Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
*AA+, AA AND AA-
High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.
*A+, A AND A-
Protection factors are average but adequate. However, risk factors are
more variable and greater in periods of economic stress.
*BBB+, BBB AND BBB-
Below average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic cycles.
BB+, BB AND BB-
Below investment grade but deemed likely to meet obligations when due.
Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within this category.
B+, B AND B-
Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in quality rating within this category or into a higher or
lower quality rating grade.
CCC
Well below investment grade securities. May be in default or have
considerable uncertainty as to timely payment of interest, preferred dividends
and/or principal. Protection factors are narrow and risk can be substantial with
unfavorable economic/industry conditions, and/or with unfavorable company
developments.
DD
Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
DP
Preferred stock with dividend arrearages.
B-4
<PAGE> 92
FITCH IBCA, INC.'S BOND RATINGS ARE AS FOLLOWS:
*AAA
Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
*AA
Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated 'AAA.' Because bonds rated
in the 'AAA' and 'AA' categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated 'F-1+.'
*A
Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
*BBB
Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
BB
Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements.
B
Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC
Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC
Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
B-5
<PAGE> 93
C
Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D
Bonds are in default on interest and/or principal payments. Such bonds
are extremely speculative and should be valued on the basis of their ultimate
recovery value in liquidation or reorganization of the obligor. 'DDD' represents
the highest potential for recovery on these bonds, and 'D' represents the lowest
potential for recovery.
PLUS (+) MINUS (-)
Plus and minus signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus signs,
however, are not used in the 'AAA', 'DDD', 'DD', or 'D' categories.
B-6
<PAGE> 94
APPENDIX C
- --------------------------------------------------------------------------------
DESCRIPTION OF OBLIGATIONS ISSUED OR GUARANTEED BY
U.S. GOVERNMENT AGENCIES OR INSTRUMENTALITIES
The following list includes certain common securities, issued or
guaranteed by U.S. Government Agencies or Instrumentalities and does not purport
to be exhaustive.
EXPORT-IMPORT BANK CERTIFICATES--are certificates of beneficial interest and
participation certificates issued and guaranteed by the Export-Import Bank of
the United States.
FEDERAL FARM CREDIT SYSTEM NOTES AND BONDS--are bonds issued by a cooperatively
owned, nationwide system of banks and associations supervised by the Farm Credit
Administration, and independent agency of the U.S. Government.
FEDERAL HOME LOAN BANK NOTES AND BONDS--are notes and bonds issued by the
Federal Home Loan Bank System.
FHA DEBENTURES--are debentures issued by the Federal Housing Authority of the
U.S. Government.
FHA INSURED NOTES--are bonds issued by the Farmers Home Administration of the
U.S. Government.
FEDERAL HOME LOAN MORTGAGE CORPORATION ("FHLMC") BONDS--are bonds issued and
guaranteed by FHLMC, a corporate instrumentality of the U.S. Government. The
Federal Home Loan Banks own all the capital stock of FHLMC, which obtains its
funds by selling mortgages (as well as participation interests in the mortgages)
and by borrowing funds through the issuance of debentures and otherwise.
FHLMC PARTICIPATION CERTIFICATES OF "FREDDIE MACS"--represent undivided
interests in specified groups of conventional mortgage loans (and/or
participation interests in those loans) underwritten and owned by FHLMC. At
least 95% of the aggregate principal balance of the whole mortgage loans and/or
participations in a group formed by FHLMC typically consists of single-family
mortgage loans, and not more than 5% consists of multi-family loans. FHLMC
Participation Certificates are not guaranteed by, and do not constitute a debt
or obligation of, the U.S. Government or any Federal Home Loan Bank. FHLMC
Participation Certificates are issued in fully registered form only, in original
unpaid principal balances of $25,000, $100,000, $200,00, $500,000, $1 million
and $5 million. FHLMC guarantees to each registered holder of a Participation
Certificate, to the extent of such holder's pro rata share (i) the timely
payment of interest accruing at the applicable certificate rate on the unpaid
principal balance outstanding on the mortgage loans, and (ii) collection of all
principal on the mortgage loans without any offset or deductions. Pursuant to
these guaranties, FHLMC indemnifies holders of Participation Certificates
against any reduction in principal by reason of charges for property repairs,
maintenance, and foreclosure.
FEDERAL NATIONAL MORTGAGE ASSOCIATION ("FNMA") BONDS--are bonds issued and
guaranteed by FNMA, a federally chartered and privately-owned corporation.
FNMA PASS-THROUGH CERTIFICATES OR "FANNIE-MAES"--are mortgage pass-through
certificates issued and guaranteed by FNMA. FNMA Certificates represent a
fractional undivided ownership interest in a pool of mortgage loans either
provided from FNMA's own portfolio or purchased from primary lenders. The
mortgage loans included in the pool are conventional, insured by the Federal
Housing Administration or guaranteed by the Veterans Administration. FNMA
Certificates are not backed by, nor entitled to, the full faith and credit of
the U.S. Government.
C-1
<PAGE> 95
Loans not provided from FNMA's own portfolio are purchased only from
primary lenders that satisfy certain criteria developed by FNMA, including depth
of mortgage origination experience, servicing experience and financial capacity.
FNMA may purchase an entire loan pool from a single lender, and issue
Certificates backed by that loan pool alone, or may package a pool made up of
loans purchased from various lenders.
Various types of mortgage loans, and loans with varying interest
rates, may be included in a single pool, although each pool will consist of
mortgage loans related to one-family or two-to-four family residential
properties. Substantially all FNMA mortgage pools currently consist of fixed
interest rate and growing equity mortgage loans, although FNMA mortgage pools
may also consist of adjustable interest rate mortgage loans or other types of
mortgage loans. Each mortgage loan must conform to FNMA's published requirements
or guidelines with respect to maximum principal amount, loan-to-loan value
ratio, loan term, underwriting standards and insurance coverage.
All mortgage loans are held by FNMA as trustee pursuant to a trust
indenture for the benefit of Certificate holders. The trust indenture gives FNMA
responsibility for servicing and administering the loans in a pool. FNMA
contracts with the lenders or other servicing institutions to perform all
services and duties customary to the servicing of mortgages, as well as duties
specifically prescribed by FNMA, all under FNMA supervision. FMNA may remove
service providers for cause.
The pass-through rate on FNMA Certificates is the lowest annual
interest rate borne y an underlying mortgage loan in the pool, less a fee to
FNMA as compensation for servicing and for FNMA's guarantee. Lenders servicing
the underlying mortgage loans receive as compensation a portion of the fee paid
to FNMA, the excess yields on pooled loans with coupon rates above the lowest
rate borne by any mortgage loan and certain other amounts collected, such as
late charges.
The minimum size of a FNMA pool is $1 million of mortgage loans.
Registered holders purchase Certificates in amounts not less than $25,000.
FNMA Certificates are marketed by the servicing lender banks, usually
through securities dealers. The lender of a single lender pool typically markets
all Certificates based on that pool, and lenders of multiple lender pools market
Certificates based on a pro rata interest in the aggregate pool. The amount of
FNMA Certificates currently outstanding is limited.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION ("GNMA") CERTIFICATES OR "GINNIE
MAES"--are mortgage-backed securities which represent a partial ownership
interest in a pool of mortgage loans issued by lenders such as mortgage bankers,
commercial banks and savings and loan associations. Each mortgage loan included
in the pool is either insured by the Federal Housing Administration or
guaranteed by the Veterans Administration. A "pool" or group of such mortgages
is assembled, and, after being approved by GNMA, is offered to investors through
securities dealers. GNMA is a U.S. Government corporation within the Department
of Housing and Urban Development.
GNMA Certificates differ from bonds in that the principal is paid back
monthly by the borrower over the term of the loan rather than returned in a lump
sum at maturity. GNMA Certificates are called "modified pass-through" securities
because they entitle the holder to receive its proportionate share of all
interest and principal payments owed on the mortgage pool, net of fees paid to
the issuer and GNMA, regardless of whether or not the mortgagor actually makes
the payment. Payment of principal of and interest on GNMA Certificates of the
"modified pass-through" type is guaranteed by GNMA and backed by the full faith
and credit of the U.S. Government.
The average life of a GNMA Certificate is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return on the greater part of principal invested far in advance of
the
C-2
<PAGE> 96
maturity of the mortgages in the pool. Foreclosures impose little risk to
principal investment because of the GNMA guarantee.
As the prepayment rates of individual mortgage pools will vary widely,
it is not possible to accurately predict the average lie of a particular issue
of GNMA Certificates. However, statistics published by the Federal Housing
Authority indicate that the average life of a single-family dwelling mortgage
with 25- to 30-year maturity, the type of mortgage which backs the vast majority
of GNMA Certificates, is approximately 12 years. It is therefore customary
practice to treat GNMA Certificates as 30-year mortgage-backed securities which
prepay fully in the twelfth year.
As a consequence of the fees paid to GNMA and the issuer of GNMA
Certificates, the coupon rate of interest rate of interest of GNMA Certificates
is lower than the interest paid on the VA-guaranteed or FHA-insured mortgages
underlying the Certificates.
The yield which will be earned on GNMA Certificates may vary from
their coupon rates for the following reasons: (i) Certificates may be issued at
a premium or discount, rather than at par; (ii) Certificates may trade in the
secondary market at a premium or discount after issuance; (iii) interest is
earned and compounded monthly which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by prepayment of mortgages included in the mortgage pool underlying
the Certificates and the rate at which principal so prepaid is reinvested. In
addition, prepayment of mortgages included in the mortgage pool underlying a
GNMA Certificate purchased at a premium may result in a loss to the Fund.
Due to the large amount of GNMA Certificates outstanding and active
participation in the secondary market by securities dealers and investors, GNMA
Certificates are highly liquid instruments. Prices of GNMA Certificates are
readily available from securities dealers and depend on, among other things, the
level of market rates, the Certificate's coupon rate and the prepayment
experience of the pool of mortgages backing each Certificate.
GENERAL SERVICES ADMINISTRATION ("GSA") PARTICIPATION CERTIFICATES--are
participation certificates issued by the General Services Administration of the
U.S. Government.
MARITIME ADMINISTRATION BONDS--are bonds issued and provided by the Department
of Transportation of the U.S. Government.
NEW COMMUNITIES DEBENTURES--are debentures issued in accordance with the
provisions of Title IV of the Housing and Urban Development Act of 1968, as
supplemented and extended by Title VII of the Housing and Urban Development Act
of 1970, the payment of which guaranteed by the U.S. Government.
PUBLIC HOUSING NOTES AND BONDS--are short-term project notes and long-term bonds
issued by public housing and urban renewal agencies in connection with programs
administered by the Department of Housing and Urban Development of the U.S.
Government, the payment of which is secured by the U.S. Government.
SBA DEBENTURES--are debentures fully guaranteed as to principal and interest by
the Small Business Administration of the U.S. Government.
SLMA DEBENTURES--are debentures backed by the Student Loan Marketing
Association.
TITLE XI BONDS--are bonds issued in accordance with the provisions of Title XI
of the Merchant Marine Act of 1936, as amended, the payment of which is
guaranteed by the U.S. Government.
C-3
<PAGE> 97
WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY BOND--are bonds issued by
Washington Metropolitan Area Transit Authority and are guaranteed by the
Secretary of Transportation of the U.S. Government.
C-4
<PAGE> 98
FINANCIAL STATEMENTS
FS
<PAGE> 99
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
AIM International Funds, Inc.:
We have audited the accompanying statement of assets and
liabilities of the AIM Asian Growth Fund (a portfolio of
AIM International Funds, Inc.) including the schedule of
investments, as of October 31, 1998, and the related
statement of operations, changes in net assets, and
financial highlights for the period November 3, 1997 (date
operations commenced) through October 31, 1998. These
financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of October 31, 1998, by correspondence
with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all
material respects, the financial position of the AIM Asian
Growth Fund as of October 31, 1998, the results of its
operations, changes in its net assets and financial
highlights for the period November 3, 1997 (date operations
commenced) through October 31, 1998, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
December 4, 1998
Houston, Texas
FS-1
<PAGE> 100
SCHEDULE OF INVESTMENTS
October 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FOREIGN STOCKS & OTHER EQUITY INTERESTS-90.43%
AUSTRALIA-15.32%
AMP Ltd. (Insurance-Life/Health)(a) 22,200 $ 264,083
- --------------------------------------------------------------
Brambles Industries Ltd. (Air
Freight) 11,000 241,244
- --------------------------------------------------------------
BRL Hardy Ltd. (Beverages-Alcoholic) 80,000 265,000
- --------------------------------------------------------------
James Hardie Industries Ltd.
(Building Materials) 114,380 223,470
- --------------------------------------------------------------
Novus Petroleum Ltd. (Oil &
Gas-Exploration & Production) 61,501 74,186
- --------------------------------------------------------------
St. George Bank Ltd.
(Banks-Regional) 34,214 228,206
- --------------------------------------------------------------
TABCORP Holdings Ltd. (Leisure Time
Products) 42,858 285,113
- --------------------------------------------------------------
Village Roadshow Ltd., 6.50% Pfd.
(Entertainment)(b) (Acquired
04/23/98; Cost $200,000) 4,000 170,000
- --------------------------------------------------------------
1,751,302
- --------------------------------------------------------------
HONG KONG-30.79%
China Telecom Ltd.
(Telecommunications-Cellular/Wireless)(a) 144,000 270,540
- --------------------------------------------------------------
Cosco Pacific Ltd.
(Financial-Diversified) 728,000 357,208
- --------------------------------------------------------------
Guangdong Kelon Electrical Holdings
Co. Ltd. (Household Furniture &
Appliances) 331,000 282,084
- --------------------------------------------------------------
HKR International Ltd. (Land
Development) 507,600 286,752
- --------------------------------------------------------------
Hutchison Whampoa Ltd. (Retail-Food
Chains) 47,000 336,820
- --------------------------------------------------------------
IDT International Ltd.
(Electronics-Component
Distributors) 2,452,000 319,778
- --------------------------------------------------------------
Johnson Electric Holdings Ltd.
(Electrical Equipment) 127,000 295,177
- --------------------------------------------------------------
Li & Fung Ltd. (Distributors-Food &
Health) 156,000 243,734
- --------------------------------------------------------------
Ng Fung Hong Ltd. (Foods) 334,000 295,423
- --------------------------------------------------------------
Shenzhen Expressway Co. Ltd.
(Services-Commercial & Consumer) 1,360,000 307,315
- --------------------------------------------------------------
Varitronix International Ltd.
(Electronic
Components/Miscellaneous) 117,000 222,080
- --------------------------------------------------------------
Zhehuang Expressway Co. Ltd.
(Services-Commercial & Consumer) 1,546,000 303,431
- --------------------------------------------------------------
3,520,342
- --------------------------------------------------------------
INDIA-6.16%
Bajaj Auto Ltd. (Automobiles) 14,700 249,900
- --------------------------------------------------------------
ITC Ltd. (Tobacco) 12,100 242,000
- --------------------------------------------------------------
Videsh Sanchar Nigam Ltd.
(Telecommunications-Cellular/Wireless) 20,300 212,643
- --------------------------------------------------------------
704,543
- --------------------------------------------------------------
INDONESIA-2.28%
Gulf Indonesia Resources Ltd.
(Oil-International Integrated)(a) 26,400 260,700
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
NEW ZEALAND-1.87%
Sky Network Television Ltd.
(Broadcasting-Television, Radio &
Cable)(a) 33,400 $ 42,422
- --------------------------------------------------------------
Sky Network Television Ltd.-ADR
(Broadcasting-Television, Radio &
Cable)(a) 13,400 170,850
- --------------------------------------------------------------
213,272
- --------------------------------------------------------------
PHILIPPINES-10.11%
Bank of the Philippine Islands
(Banks-Major Regional) 155,310 301,348
- --------------------------------------------------------------
International Container Terminal
Services, Inc. (Air Freight)(a) 735,000 49,366
- --------------------------------------------------------------
Manila Electric Co. (Electric Power) 119,000 352,264
- --------------------------------------------------------------
Philippine Long Distance Telephone
Co. (Telephone) 9,530 228,767
- --------------------------------------------------------------
SM Prime Holdings Inc. (Land
Development) 1,322,900 223,774
- --------------------------------------------------------------
1,155,519
- --------------------------------------------------------------
SINGAPORE-8.77%
Datacraft Asia Ltd. (Communications
Equipment) 78,700 253,414
- --------------------------------------------------------------
Elec & Eltek International Co. Ltd.
(Computers-Hardware) 43,900 219,500
- --------------------------------------------------------------
Natsteel Electronics Ltd.
(Computers-Hardware) 143,000 293,920
- --------------------------------------------------------------
Venture Manufacturing Ltd.
(Electronics-Component
Distributors) 71,000 235,938
- --------------------------------------------------------------
1,002,772
- --------------------------------------------------------------
TAIWAN-10.54%
ASE Test Ltd.-ADR
(Electronics-Semiconductors)(a) 7,600 208,050
- --------------------------------------------------------------
Compal Electronics Inc.
(Computers-Hardware)(a) 79,000 246,456
- --------------------------------------------------------------
Hon Hai Precision Industry
(Electronics-Component
Distributors)(a) 52,000 250,564
- --------------------------------------------------------------
Lee Chi Enterprises Co., Ltd.
(Manufacturing-Specialized)(a) 85,000 207,412
- --------------------------------------------------------------
Taiwan Semiconductor Manufacturing
Co. Ltd.-ADR
(Electronics-Semiconductors) 19,600 292,775
- --------------------------------------------------------------
1,205,257
- --------------------------------------------------------------
THAILAND-4.59%
BEC World Public Co. Ltd.
(Broadcasting-Television, Radio &
Cable) 32,300 197,091
- --------------------------------------------------------------
PTT Exploration and Production
Public Co. Ltd. (Oil &
Gas-Exploration & Production) 34,000 327,867
- --------------------------------------------------------------
524,958
- --------------------------------------------------------------
Total Foreign Stocks & Other
Equity Interests (Cost
$10,050,433) 10,338,665
- --------------------------------------------------------------
</TABLE>
FS-2
<PAGE> 101
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
REPURCHASE AGREEMENT-10.12%(C)
SBC Warburg Dillion Read Inc.,
5.40%, 11/02/98(d)(Cost
$1,156,875) $1,156,875 $ 1,156,875
- --------------------------------------------------------------
TOTAL INVESTMENTS (Cost
$11,207,308)-100.55% 11,495,540
- --------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES
(0.55)% (63,420)
- --------------------------------------------------------------
NET ASSETS-100.00% $11,432,120
==============================================================
</TABLE>
Abbreviations:
ADR - American Depositary Receipt
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Restricted security. May be resold to qualified institutional buyers in
accordance with provisions of Rule 144A under the Securities Act of 1933 as
amended. The valuation of this security has been determined in accordance
with procedures established by the Board of Directors. The market value of
this security at 10/31/98 was $170,000 which represented 1.49% of the Fund's
net assets.
(c) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value 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.
(d) Joint repurchase agreement entered into 10/30/98 with a maturing value of
$1,300,585,000. Collateralized by $2,856,569,000 U.S. Government
obligations, 0% to 5.50% due 11/15/98 to 02/15/25 with an aggregate market
value at 10/31/98 of $1,326,231,109.
See Notes to Financial Statements
FS-3
<PAGE> 102
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$10,050,433) $ 10,338,665
- -----------------------------------------------------------
Repurchase agreement (cost $1,156,875) 1,156,875
- -----------------------------------------------------------
Foreign currencies, at value (cost $9,133) 9,394
- -----------------------------------------------------------
Receivables for:
Capital stock sold 234,866
- -----------------------------------------------------------
Dividends and interest 6,885
- -----------------------------------------------------------
Investment for deferred compensation plan 2,688
- -----------------------------------------------------------
Other assets 28,608
- -----------------------------------------------------------
Total assets 11,777,981
- -----------------------------------------------------------
LIABILITIES:
Payables for:
Capital stock reacquired 317,361
- -----------------------------------------------------------
Deferred compensation 2,688
- -----------------------------------------------------------
Accrued administrative services fees 6,728
- -----------------------------------------------------------
Accrued directors' fees 746
- -----------------------------------------------------------
Accrued distribution fees 5,007
- -----------------------------------------------------------
Accrued transfer agent fees 314
- -----------------------------------------------------------
Accrued operating expenses 13,017
- -----------------------------------------------------------
Total liabilities 345,861
- -----------------------------------------------------------
Net assets applicable to shares outstanding $ 11,432,120
===========================================================
NET ASSETS:
Class A $ 7,716,057
===========================================================
Class B $ 3,030,419
===========================================================
Class C $ 685,644
===========================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Class A:
Authorized 200,000,000
- -----------------------------------------------------------
Outstanding 1,003,928
===========================================================
Class B:
Authorized 200,000,000
- -----------------------------------------------------------
Outstanding 397,014
===========================================================
Class C:
Authorized 200,000,000
- -----------------------------------------------------------
Outstanding 90,049
===========================================================
Class A:
Net asset value and redemption price per
share $ 7.69
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $7.69 / 94.50%) $ 8.14
===========================================================
Class B:
Net asset value and offering price per
share $ 7.63
===========================================================
Class C:
Net asset value and offering price per
share $ 7.61
===========================================================
</TABLE>
STATEMENT OF OPERATIONS
For the period November 3, 1997 (date operations commenced) through October 31,
1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $8,794 foreign withholding
tax) $ 139,052
- -----------------------------------------------------------
Interest 32,802
- -----------------------------------------------------------
Total investment income 171,854
- -----------------------------------------------------------
EXPENSES:
Advisory fees 62,428
- -----------------------------------------------------------
Administrative services fees 74,604
- -----------------------------------------------------------
Custodian fees 40,059
- -----------------------------------------------------------
Directors' fees 6,974
- -----------------------------------------------------------
Distribution fees-Class A 16,790
- -----------------------------------------------------------
Distribution fees-Class B 14,685
- -----------------------------------------------------------
Distribution fees-Class C 3,057
- -----------------------------------------------------------
Transfer agent fees-Class A 21,729
- -----------------------------------------------------------
Transfer agent fees-Class B 9,970
- -----------------------------------------------------------
Transfer agent fees-Class C 1,757
- -----------------------------------------------------------
Registration and filing fees 56,276
- -----------------------------------------------------------
Other 30,292
- -----------------------------------------------------------
Total expenses 338,621
- -----------------------------------------------------------
Less: Fees waived and reimbursed by advisor (196,230)
- -----------------------------------------------------------
Expenses paid indirectly (781)
- -----------------------------------------------------------
Net expenses 141,610
- -----------------------------------------------------------
Net investment income 30,244
- -----------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND
FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities (1,683,405)
- -----------------------------------------------------------
Foreign currencies (3,671)
- -----------------------------------------------------------
(1,687,076)
- -----------------------------------------------------------
Net unrealized appreciation of:
Investment securities 288,232
- -----------------------------------------------------------
Foreign currencies 441
- -----------------------------------------------------------
288,673
- -----------------------------------------------------------
Net gain (loss) from investment
securities and foreign
currencies (1,398,403)
- -----------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 1,368,159
===========================================================
</TABLE>
See Notes to Financial Statements.
FS-4
<PAGE> 103
STATEMENT OF CHANGES IN NET ASSETS
For the period November 3, 1997 (date operations commenced) through October 31,
1998
<TABLE>
<CAPTION>
<S> <C>
OPERATIONS:
Net investment income $ 30,244
- -------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
foreign currencies (1,687,076)
- -------------------------------------------------------------------------
Net unrealized appreciation of investment securities and
foreign currencies 288,673
- -------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (1,368,159)
- -------------------------------------------------------------------------
Share transactions-net:
Class A 8,755,042
- -------------------------------------------------------------------------
Class B 3,340,169
- -------------------------------------------------------------------------
Class C 705,068
- -------------------------------------------------------------------------
Net increase in net assets 11,432,120
- -------------------------------------------------------------------------
NET ASSETS:
Beginning of period 0
- -------------------------------------------------------------------------
End of period $11,432,120
=========================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $12,781,818
- -------------------------------------------------------------------------
Undistributed net investment income 45,035
- -------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities and foreign currencies (1,683,406)
- -------------------------------------------------------------------------
Unrealized appreciation of investment securities and
foreign currencies 288,673
- -------------------------------------------------------------------------
$11,432,120
=========================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Asian Growth Fund (the "Fund") is a series portfolio of AIM International
Funds, Inc. (the "Company"). The Company is a Maryland corporation registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end series management investment company consisting of six separate
portfolios: AIM Asian Growth Fund, AIM European Development Fund, AIM Global
Aggressive Growth Fund, AIM Global Growth Fund, AIM Global Income Fund and AIM
International Equity Fund. The Fund commenced operations on November 3, 1997.
The Fund currently offers three different classes of shares: Class A shares,
Class B shares and Class C shares. Class A shares are sold with a front-end
sales charge. Class B shares and Class C shares are sold with a contingent
deferred sales charge. Matters affecting each portfolio or class are voted on
exclusively by the shareholders of such portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to provide long-term growth of capital.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
A. Security Valuations-A security listed or traded on an exchange (except
convertible bonds) is valued at the last sales price on the exchange where
the security is principally traded or, lacking any sales on a particular day,
at the mean between the closing bid and asked prices on that day. If a mean
is not available, as is the case in some foreign markets, the closing bid
will be used absent a last sales price. Securities traded in the over-the-
counter market (but not including securities reported on the NASDAQ National
Market System) are valued at the mean between the last bid and asked prices
based upon quotes furnished by market makers for such securities. Securities
reported on the NASDAQ National Market System are valued at the last sales
price on the valuation date or absent a last sales price, at the mean of the
closing bid and asked prices. Debt obligations (including convertible bonds)
are valued on the basis of prices provided by an independent pricing service.
Prices provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors, such as
yield, type of issue, coupon rate and maturity date. Securities for which
market quotations are either not readily available or are questionable are
valued at fair value as determined in good faith by or under the supervision
of the Company's officers in a manner specifically authorized by the Board of
Directors. Investments with maturities of 60 days or less are valued on the
basis of amortized cost which approximates market value. Generally, trading
in foreign securities is substantially completed each day at various times
FS-5
<PAGE> 104
prior to the close of the New York Stock Exchange. The values of such
securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the New York Stock Exchange.
Occasionally, events affecting the values of such securities and such
exchange rates may occur between the times at which they are determined and
the close of the New York Stock Exchange which would not be reflected in the
computation of the Fund's net asset value. If events materially affecting the
value of such securities occur during such period, then these securities will
be valued at their fair value as determined in good faith by or under the
supervision of the Board of Directors.
B. Foreign Currency Translations--Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S. dollar
amounts at the date of valuation. Purchases and sales of portfolio securities
and income items denominated in foreign currencies are translated into U.S.
dollar amounts on the respective dates of such transactions.
C. Foreign Currency Contracts--A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
D. Securities Transactions, Investment Income and Distributions--Securities
transactions are accounted for on a trade date basis. Realized gains or
losses are computed on the basis of specific identification of the securities
sold. Interest income is recorded as earned from settlement date and is
recorded on an accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. On October 31, 1998,
undistributed net investment income was increased by $14,791, undistributed
net realized gains increased by $3,670 and paid-in capital decreased by
$18,461 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.
E. Federal Income Taxes--The Fund intends to comply with the requirements of the
Internal Revenue Code necessary to qualify as a regulated investment company
and, as such, will not be subject to federal income taxes on otherwise
taxable income (including net realized capital gains) which is distributed to
shareholders. Therefore, no provision for federal income taxes is recorded in
the financial statements. The Fund has a capital loss carryforward of
$1,630,826 (which may be carried forward to offset future taxable gains, if
any) which expires, if not previously utilized, in the year 2006.
F. Expenses--Distribution and transfer agency expenses directly attributable to
a class of shares are charged to that class' operations. All other expenses
which are attributable to more than one class are allocated among the
classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.95% of
the first $500 million of the Fund's average daily net assets, plus 0.90% of the
Fund's average daily net assets in excess of $500 million. Under the terms of a
sub-advisory agreement between AIM and INVESCO Global Asset Management Limited
("IGAM"), AIM pays IGAM a fee at an annual rate of 0.20% of the first $500
million of the Fund's average daily net assets and 0.175% of the Fund's average
daily net assets over $500 million. During the period November 3, 1997 (date
operations commenced) through October 31, 1998, AIM waived advisory fees of
$51,040 and reimbursed expenses of $145,190.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to reimburse AIM for certain administrative costs incurred in providing
accounting services to the Fund. During the period November 3, 1997 (date
operations commenced) through October 31, 1998, AIM was reimbursed $74,604 for
such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") for certain costs incurred in providing
transfer agency services to the Fund. During the period November 3, 1997 (date
operations commenced) through October 31, 1998, AFS was paid $24,092 for such
services.
The Company has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor of the Class
A, Class B and Class C shares of the Fund. The Company has adopted distribution
plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class
A shares and Class C shares (the "Class A and Class C Plan"), and the Fund's
Class B shares (the "Class B Plan") (collectively, the "Plans"). The Fund,
pursuant to the Class A and Class C Plan, pays AIM Distributors compensation at
the annual rate of 0.35% of the average daily net assets of Class A shares and
1.00% of the average daily net assets of Class C shares. The Fund, pursuant to
the Class B Plan, pays AIM Distributors compensation at an annual rate of 1.00%
of the average daily net assets of the Class B shares. Of these amounts, the
Fund may pay a service fee of 0.25% of the average net assets of the Class A,
Class B or C shares to selected dealers and financial institutions who furnish
continuing personal shareholder services to their customers who purchase and own
the appropriate class of shares of the Fund. Any amounts not paid as a service
fee under the Plans would constitute an asset-based sales charge. The Plans also
impose a cap on the total sales charges, including asset-based sales charges
that may be paid by the respective classes. During the period November 3, 1997
(date operations commenced) through October 31, 1998, the Class A and Class B
and Class C shares paid AIM Distributors $16,790, $14,685 and $3,057,
respectively, as compensation under the Plans.
AIM Distributors received commissions of $27,913 from sales of the Class A
shares of the Fund during the period November 3, 1997 (date operations
commenced) through October 31, 1998. Such commissions are not an expense of the
Fund. They are deducted from, and are not included in, the proceeds from sales
of Class A
FS-6
<PAGE> 105
shares. During the period November 3, 1997 (date operations commenced) through
October 31, 1998, AIM Distributors received commissions of $496 in contingent
deferred sales charges imposed on redemptions of Fund shares. Certain officers
and directors of the Company are officers and directors of AIM, AFS and AIM
Distributors.
During the period November 3, 1997 (date operations commenced) through October
31, 1998, the Fund incurred legal fees of $3,146 for services rendered by the
law firm of Kramer, Levin, Naftalis & Frankel as counsel to the Company's
directors. A member of that firm is a director of the Company.
NOTE 3-INDIRECT EXPENSES
During the period November 3, 1997 (date operations commenced) through October
31, 1998, the Fund received reductions in transfer agency fees from AFS (an
affiliate of AIM) and reductions in custodian fees of $66 and $715,
respectively, under an expense offset arrangement. The effect of the above
arrangements resulted in a reduction of the Fund's total expenses of $781 during
the period November 3, 1997 (date operations commenced) through October 31,
1998.
NOTE 4-DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if so
elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $1,000,000,000 or (ii) 10% of total assets. The Fund and other
funds advised by AIM which are parties to the line of credit may borrow on a
first come, first served basis. Interest on borrowings under the line of credit
is payable on maturity or prepayment date. During the period November 3, 1997
(date operations commenced) through October 31, 1998, the Fund did not borrow
under the line of credit agreement. The funds which are party to the line of
credit are charged a commitment fee of 0.05% on the unused balance of the
committed line. The commitment fee is allocated among the funds based on their
respective average net assets for the period.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the period November 3, 1997 (date
operations commenced) through October 31, 1998 was $16,189,012 and $4,455,173,
respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of October 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $ 856,529
- --------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (620,876)
- --------------------------------------------------------
Net unrealized appreciation of investment
securities $ 235,653
========================================================
</TABLE>
Costs of investments for tax purposes is $10,103,012.
NOTE 7-CAPITAL STOCK
Changes in the Fund's capital stock outstanding during the period November 3,
1997 (date operations commenced) through October 31, 1998 were as follows:
<TABLE>
<CAPTION>
OCTOBER 31,
1998
-------------------------
SHARES AMOUNT
---------- -----------
<S> <C> <C> <C>
Sold:
Class A 2,150,231 $17,226,640
- -----------------------------------------------------------------
Class B 516,509 4,177,886
- -----------------------------------------------------------------
Class C 268,694 2,084,897
- -----------------------------------------------------------------
Reacquired:
Class A (1,146,303) (8,471,598)
- -----------------------------------------------------------------
Class B (119,495) (837,717)
- -----------------------------------------------------------------
Class C (178,645) (1,379,829)
- -----------------------------------------------------------------
1,490,991 $12,800,279
=================================================================
</TABLE>
FS-7
<PAGE> 106
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A, Class B and
Class C capital stock outstanding during the period November 3, 1997 (date
operations commenced) through October 31, 1998.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.00 $ 10.00 $ 10.00
- ------------------------------------------------------------ ------- ------- -------
Income from investment operations:
Net investment income 0.05 (0.01) (0.01)
- ------------------------------------------------------------ ------- ------- -------
Net gains (losses) on securities (both realized and
unrealized) (2.36) (2.36) (2.38)
- ------------------------------------------------------------ ------- ------- -------
Total from investment operations (2.31) (2.37) (2.39)
- ------------------------------------------------------------ ------- ------- -------
Net asset value, end of period $ 7.69 $ 7.63 $ 7.61
============================================================ ======= ======= =======
Total return(a) (23.10)% (23.70)% (23.90)%
============================================================ ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 7,716 $ 3,030 $ 686
============================================================ ======= ======= =======
Ratio of expenses to average net assets(b)(c) 1.92% 2.80% 2.80%
============================================================ ======= ======= =======
Ratio of net investment income (loss) to average net
assets(c)(d) 0.70% (0.18)% (0.18)%
============================================================ ======= ======= =======
Portfolio turnover rate 79% 79% 79%
============================================================ ======= ======= =======
</TABLE>
(a) Does not deduct sales charges and is not annualized for periods less than
one year.
(b) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
4.88% (annualized), 5.75% (annualized) and 5.75% (annualized) for Class A,
Class B and Class C, respectively.
(c) Ratios are annualized and based on average net assets of $4,797,215,
$1,468,486 and $305,653 for Class A, Class B and Class C, respectively.
(d) After fee waivers and/or expense reimbursements. Ratios of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursements were (2.27)% (annualized), (3.15)% (annualized) and (3.15)%
(annualized), for Class A, Class B and Class C, respectively.
FS-8
<PAGE> 107
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
AIM International Funds, Inc.
We have audited the accompanying statement of assets and
liabilities of the AIM European Development Fund (a
portfolio of AIM International Funds, Inc.), including the
schedule of investments, as of October 31, 1998, and the
related statement of operations, changes in net assets, and
financial highlights for the period November 3, 1997 (date
operations commenced) through October 31, 1998. These
financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of October 31, 1998, by correspondence
with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all
material respects, the financial position of the AIM
European Development Fund as of October 31, 1998, the
results of its operations, changes in its net assets and
financial highlights for the period November 3, 1997 (date
operations commenced) through October 31, 1998, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
December 4, 1998
Houston, Texas
FS-9
<PAGE> 108
SCHEDULE OF INVESTMENTS
October 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-88.56%
AUSTRIA-1.75%
Semperit A.G. (Textiles-Specialty) 9,600 $ 1,038,908
- --------------------------------------------------------------
Topcall International A.G.
(Computers-Software & Services) 4,200 1,349,137
- --------------------------------------------------------------
2,388,045
- --------------------------------------------------------------
BELGIUM-2.43%
Colruyt N.V. (Retail-Food Chains) 900 752,854
- --------------------------------------------------------------
Creyf's N.V. (Services-Commercial
& Consumer) 3,500 1,198,770
- --------------------------------------------------------------
Delhaize-Le Lion, S.A.
(Retail-Food & Drug)(a) 15,900 1,359,133
- --------------------------------------------------------------
3,310,757
- --------------------------------------------------------------
CROATIA-0.39%
Pliva DD (Health Care-Drugs-Major
Pharmaceutical) (acquired
11/14/97-06/04/98; cost
$631,540)(b) 36,000 529,200
- --------------------------------------------------------------
FINLAND-2.15%
Helsingin Puhelin Oyj
(Telecommunications-
Cellular/Wireless) 13,600 746,412
- --------------------------------------------------------------
Nokia Oyj A.B.-Class A
(Communications Equipment) 15,400 1,404,590
- --------------------------------------------------------------
Tieto Corp.-Class B
(Computers-Software & Services) 25,500 775,261
- --------------------------------------------------------------
2,926,263
- --------------------------------------------------------------
FRANCE-18.93%
Accor S.A. (Lodging-Hotels) 4,200 882,547
- --------------------------------------------------------------
Altran Technologies, S.A.
(Services-Commercial & Consumer) 7,300 1,428,795
- --------------------------------------------------------------
AXA S.A. (Insurance-Multi-Line) 9,750 1,102,508
- --------------------------------------------------------------
Banque Nationale de Paris
(Banks-Major Regional) 7,400 468,887
- --------------------------------------------------------------
Cap Gemini Sogeti S.A.
(Computers-Software & Services) 8,000 1,202,802
- --------------------------------------------------------------
Danone (Foods) 4,040 1,068,614
- --------------------------------------------------------------
Elf Aquitaine S.A. (Oil &
Gas-Refining & Marketing) 13,700 1,586,168
- --------------------------------------------------------------
Etablissements Economiques du
Casino Guichard-Perrachon
(Retail-Food Chains)(a) 11,800 1,174,965
- --------------------------------------------------------------
Galeries Lafayette
(Retail-Department Stores) 960 1,064,804
- --------------------------------------------------------------
GFI Informatique
(Computers-Software & Services)(a) 4,300 529,593
- --------------------------------------------------------------
Leon de Bruxelles (Restaurants) 12,000 972,325
- --------------------------------------------------------------
Montupet (Auto Parts & Equipment) 40,400 1,795,329
- --------------------------------------------------------------
Pinault-Printemps-Redoute S.A.
(Retail-General Merchandise) 6,800 1,138,700
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FRANCE-(CONTINUED)
Promodes (Retail-Food Chains) 2,100 $ 1,323,064
- --------------------------------------------------------------
Publicis S.A.
(Services-Advertising/Marketing)(a) 7,600 1,204,242
- --------------------------------------------------------------
Renault S.A. (Automobiles) 17,700 756,928
- --------------------------------------------------------------
Rexal S.A. (Distributors-Food &
Health) 8,000 734,645
- --------------------------------------------------------------
Rhone-Poulenc-Class A
(Chemicals-Diversified) 13,600 622,000
- --------------------------------------------------------------
Societe Generale (Banks-Major
Regional) 2,960 391,739
- --------------------------------------------------------------
Societe Television Francaise 1
(Broadcasting-Television, Radio
& Cable) 7,900 1,305,832
- --------------------------------------------------------------
Sopra S.A. (Services-Commercial &
Consumer) 4,610 1,494,139
- --------------------------------------------------------------
Suez Lyonnaise des Eaux
(Manufacturing-Diversified) 5,500 985,379
- --------------------------------------------------------------
Total S.A.-Class B (Oil &
Gas-Refining & Marketing) 15,700 1,812,071
- --------------------------------------------------------------
Unilog S.A. (Services-Commercial &
Consumer) 2,220 787,475
- --------------------------------------------------------------
25,833,551
- --------------------------------------------------------------
GERMANY-11.20%
Allianz A.G.
(Insurance-Multi-Line) 3,020 1,036,409
- --------------------------------------------------------------
Bayerische Vereinsbank A.G.
(Banks-Major Regional) 14,500 1,152,045
- --------------------------------------------------------------
BHF-Bank A.G. (Banks-Major
Regional) 31,700 1,220,999
- --------------------------------------------------------------
Dresdner Bank A.G. (Banks-Major
Regional) 23,000 896,321
- --------------------------------------------------------------
Henkel KGaA
(Chemicals-Diversified) 11,600 991,723
- --------------------------------------------------------------
Hugo Boss A.G.-Pfd.
(Textiles-Apparel) 250 389,705
- --------------------------------------------------------------
Karstadt A.G. (Retail-Department
Stores) 2,400 1,225,304
- --------------------------------------------------------------
Krones A.G.
(Machinery-Diversified) 5,100 120,174
- --------------------------------------------------------------
Krones A.G.-Pfd.
(Machinery-Diversified) 11,900 298,381
- --------------------------------------------------------------
Marschollek, Lautenschlaeger &
Partner A.G.
(Insurance-Life/Health) 1,210 617,757
- --------------------------------------------------------------
MobilCom A.G.
(Telecommunications-Cellular/
Wireless) 2,300 669,947
- --------------------------------------------------------------
Porsche A.G. (Automobiles) 425 752,371
- --------------------------------------------------------------
Sartorius A.G.
(Electronics-Instrumentation) 85 25,678
- --------------------------------------------------------------
Sartorius A.G.-Pfd.
(Electronics-Instrumentation) 2,800 768,050
- --------------------------------------------------------------
SER Systems A.G.
(Computers-Software & Services) 4,160 1,271,802
- --------------------------------------------------------------
Sixt A.G. (Financial-Diversified) 6,500 1,343,121
- --------------------------------------------------------------
Teldafax (Telecommunications-Long
Distance)(a) 31,000 1,086,339
- --------------------------------------------------------------
Teles A.G. (Electrical Equipment)(a) 12,500 1,412,301
- --------------------------------------------------------------
15,278,427
- --------------------------------------------------------------
</TABLE>
FS-10
<PAGE> 109
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
GREECE-0.77%
STET Hellas Telecommunications
S.A.-ADR
(Telecommunications-
Cellular/Wireless)(a) 39,800 $ 1,044,750
- --------------------------------------------------------------
HUNGARY-0.68%
Magyar Tavkozlesi ADR
(Telecommunications- Long
Distance) 34,500 927,188
- --------------------------------------------------------------
IRELAND-2.42%
Allied Irish Banks PLC
(Banks-Regional) 124,000 1,780,023
- --------------------------------------------------------------
Bank of Ireland (Banks-Major
Regional) 53,000 973,632
- --------------------------------------------------------------
Kingspan Group PLC (Engineering &
Construction) 187,100 547,808
- --------------------------------------------------------------
3,301,463
- --------------------------------------------------------------
ITALY-6.73%
AEM S.p.A. (Electric Companies)(a) 1,000,000 1,356,532
- --------------------------------------------------------------
Assicurazioni Generali
(Insurance-Multi-Line) 27,600 984,434
- --------------------------------------------------------------
Autogrill S.p.A (Restaurants) 114,300 856,762
- --------------------------------------------------------------
Banca Commerciale Italiana
(Banks-Major Regional) 80,000 494,652
- --------------------------------------------------------------
Banca di Roma (Banks-Major
Regional)(a) 390,000 680,238
- --------------------------------------------------------------
Ciga S.p.A. (Lodging-Hotels)(a) 967,000 731,449
- --------------------------------------------------------------
Credito Italiano S.p.A.
(Banks-Major Regional) 227,600 1,225,816
- --------------------------------------------------------------
Ericsson S.p.A. (Communications
Equipment) 18,500 755,428
- --------------------------------------------------------------
Telecom Italia Mobile S.p.A.
(Telephone) 157,000 912,383
- --------------------------------------------------------------
Telecom Italia S.p.A. (Telephone) 164,500 1,189,662
- --------------------------------------------------------------
9,187,356
- --------------------------------------------------------------
NETHERLANDS-7.22%
Athlon Groep N.V. (Retail-General
Merchandise) 22,000 624,264
- --------------------------------------------------------------
Getronics N.V. (Computers-Software
& Services) 18,600 771,764
- --------------------------------------------------------------
Heineken N.V.
(Beverages-Alcoholic) 26,400 1,406,360
- --------------------------------------------------------------
Koninklijke Ahold N.V.
(Retail-Food Chains) 42,000 1,396,402
- --------------------------------------------------------------
Koninklijke Numico N.V. (Foods) 20,400 802,763
- --------------------------------------------------------------
Ordina Beheer N.V.-W.I.
(Services-Commercial &
Consumer)(a) 59,000 1,535,175
- --------------------------------------------------------------
Unit 4 (Computers-Software &
Services)(a) 27,700 562,068
- --------------------------------------------------------------
Verenigde Nederlandse
Uitgeversbedrijven Verenigd
Bezit (Publishing) 31,000 1,072,170
- --------------------------------------------------------------
Wolters Kluwer N.V. (Specialty
Printing)(a) 8,700 1,686,155
- --------------------------------------------------------------
9,857,121
- --------------------------------------------------------------
NORWAY-1.84%
Ekornes A.S.A. (Household
Furniture & Appliances)(a) 91,000 834,919
- --------------------------------------------------------------
Merkantildata A.S.A
(Services-Commercial & Consumer) 98,600 991,763
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
NORWAY-(CONTINUED)
Tomra Systems A.S.A.
(Manufacturing-Specialized) 24,500 $ 689,343
- --------------------------------------------------------------
2,516,025
- --------------------------------------------------------------
PORTUGAL-4.24%
Banco Comercial Portugues, S.A.
(Banks-Major Regional) 39,010 1,221,704
- --------------------------------------------------------------
Electricidade de Portugal, S.A.
(Water Utilities) 50,000 1,257,360
- --------------------------------------------------------------
Ibersol SGPS S.A. (Retail-Food
Chains) 10,500 964,437
- --------------------------------------------------------------
Portugal Telecom S.A. (Telephone) 24,730 1,172,142
- --------------------------------------------------------------
Telecel-Comunicacaoes Pessoais,
S.A.
(Telecommunications-Cellular/Wireless) 6,350 1,170,248
- --------------------------------------------------------------
5,785,891
- --------------------------------------------------------------
SPAIN-4.94%
Baron de Ley, S.A.
(Beverages-Alcoholic)(a) 38,300 1,279,749
- --------------------------------------------------------------
Corp. Financiera Reunida, S.A.
(Investment Management)(a) 156,200 1,874,711
- --------------------------------------------------------------
Cortefiel S.A. (Retail-Department
Stores)(a) 26,000 642,568
- --------------------------------------------------------------
Iberdrola S.A. (Electric
Companies) 82,500 1,332,913
- --------------------------------------------------------------
Telefonica de Espana (Telephone) 23,800 1,074,981
- --------------------------------------------------------------
TelePizza, S.A. (Restaurants)(a) 65,000 530,857
- --------------------------------------------------------------
6,735,779
- --------------------------------------------------------------
SWEDEN-3.97%
ADB-Gruppen Mandator A.B.
(Services-Computer Systems) 11,450 367,034
- --------------------------------------------------------------
Entra Data A.B.
(Computers-Software & Services) 32,500 625,080
- --------------------------------------------------------------
Europolitan Holdings A.B.
(Telecommunications-Cellular &
Wireless) 13,600 1,177,074
- --------------------------------------------------------------
Hennes & Mauritz A.B.-Class B
(Retail-Specialty-Apparel) 14,000 987,306
- --------------------------------------------------------------
IBS A.B. (Computers-Software &
Services)(a) 52,250 790,550
- --------------------------------------------------------------
Modul 1 Data A.B.
(Services-Computer Systems) 25,300 819,112
- --------------------------------------------------------------
WM-Data A.B.-Class B
(Computers-Software & Services) 17,800 648,186
- --------------------------------------------------------------
5,414,342
- --------------------------------------------------------------
SWITZERLAND-4.84%
Adecco S.A. (Services-Commercial &
Consumer)(a) 2,100 837,147
- --------------------------------------------------------------
Julius Baer Holding A.G.
(Banks-Major Regional)(a) 400 1,225,454
- --------------------------------------------------------------
Nestle S.A. (Foods) 520 1,105,566
- --------------------------------------------------------------
Novartis A.G. (Health
Care-Diversified) 800 1,441,016
- --------------------------------------------------------------
UBS A.G. (Banks-Major Regional)(a) 2,900 795,327
- --------------------------------------------------------------
Zurich Allied A.G.
(Insurance-Multi-Line)(a) 1,980 1,202,968
- --------------------------------------------------------------
6,607,478
- --------------------------------------------------------------
</TABLE>
FS-11
<PAGE> 110
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
UNITED KINGDOM-14.06%
Admiral PLC (Services-Computer
Systems) 40,300 $ 654,024
- --------------------------------------------------------------
British Petroleum Co. PLC (Oil &
Gas-Refining & Marketing) 88,000 1,291,216
- --------------------------------------------------------------
Cable & Wireless Communications
PLC (Broadcasting-Television,
Radio, & Cable)(a) 110,000 828,175
- --------------------------------------------------------------
Cattles PLC (Consumer Finance) 145,000 1,460,432
- --------------------------------------------------------------
DIAGONAL PLC (Services-Computer
Systems) 32,200 474,084
- --------------------------------------------------------------
Druid Group PLC
(Computers-Software & Services) 10,300 168,450
- --------------------------------------------------------------
Firth Rixson PLC (Metal
Fabricators) 487,000 839,234
- --------------------------------------------------------------
Hays PLC (Services-Commercial &
Consumer) 93,000 1,370,027
- --------------------------------------------------------------
Jarvis PLC (Engineering &
Construction) 165,000 1,739,167
- --------------------------------------------------------------
Kingfisher PLC (Retail-Department
Stores) 139,000 1,219,767
- --------------------------------------------------------------
Kwik-Fit Holdings PLC
(Services-Commercial & Consumer) 166,500 1,381,696
- --------------------------------------------------------------
Logica PLC (Computer
Software/Services) 10,700 361,172
- --------------------------------------------------------------
Misys PLC (Services-Commercial &
Consumer) 15,700 110,060
- --------------------------------------------------------------
Nestor Healthcare Group PLC
(Services-Commercial & Consumer) 177,000 1,101,623
- --------------------------------------------------------------
Orange PLC (Telecommunications)(a) 83,000 771,399
- --------------------------------------------------------------
Parity PLC (Services-Commercial &
Consumer) 73,800 558,099
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
UNITED KINGDOM-(CONTINUED)
Pearson PLC (Specialty Printing) 35,000 $ 610,172
- --------------------------------------------------------------
Select Appointments Holdings PLC
(Services-Commercial & Consumer) 78,000 687,736
- --------------------------------------------------------------
Somerfield PLC (Retail-Food
Chains) 170,000 1,092,187
- --------------------------------------------------------------
Unilever PLC (Foods) 106,000 1,064,079
- --------------------------------------------------------------
Vodafone Group PLC
(Telecommunications-
Cellular/Wireless) 105,000 1,405,387
- --------------------------------------------------------------
19,188,186
- --------------------------------------------------------------
Total Foreign Stocks & Other
Equity Interests (cost
$125,897,613) 120,831,822
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
REPURCHASE AGREEMENTS-9.71%(C)
Dean Witter Reynolds, Inc. 5.55%,
11/02/98(d) $10,000,000 $ 10,000,000
- --------------------------------------------------------------
SBC Warburg Dillion Read Inc.
5.40%, 11/02/98(e) 3,257,518 3,257,518
- --------------------------------------------------------------
Total Repurchase Agreements
(cost $13,257,518) 13,257,518
- --------------------------------------------------------------
TOTAL INVESTMENTS-98.27% 134,089,340
- --------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-1.73% 2,357,011
- --------------------------------------------------------------
NET ASSETS-100.00% $136,446,351
==============================================================
</TABLE>
Investment Abbreviations:
ADR - American Depositary Receipt
Pfd. - Preferred
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Restricted security. May be resold to qualified institutional buyers in
accordance with provisions of Rule 144A under the Securities Act of 1933 as
amended. The valuation of this security has been determined in accordance
with procedures established by the Board of Directors. The market value of
this security at 10/31/98 was $529,200 which represented 0.39% of the Fund's
net assets.
(c) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value 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.
(d) Joint repurchase agreement entered into 10/30/98 with a maturing value of
$300,138,750. Collateralized by $307,841,000 U.S. Government obligations, 0%
to 10.35% due 11/06/98 to 01/21/28 with an aggregate market value at
10/31/98 of $306,000,942.
(e) Joint repurchase agreement entered into 10/30/98 with a maturing value of
$1,300,585,000. Collateralized by $2,856,569,000 U.S. Government
obligations, 0% to 5.50% due 11/15/98 to 02/15/25 with an aggregate market
value at 10/31/98 of $1,326,231,109.
See Notes to Financial Statements.
FS-12
<PAGE> 111
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$139,155,131) $134,089,340
- -----------------------------------------------------------
Foreign currencies, at value (cost
$2,862,619) 2,886,110
- -----------------------------------------------------------
Receivables for:
Investments sold 2,615,467
- -----------------------------------------------------------
Capital stock sold 1,917,359
- -----------------------------------------------------------
Dividends and interest 145,502
- -----------------------------------------------------------
Investment for deferred compensation plan 2,762
- -----------------------------------------------------------
Other assets 85,307
- -----------------------------------------------------------
Total assets 141,741,847
- -----------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 4,143,494
- -----------------------------------------------------------
Capital stock reacquired 772,184
- -----------------------------------------------------------
Deferred compensation 2,762
- -----------------------------------------------------------
Accrued advisory fees 198,655
- -----------------------------------------------------------
Accrued administrative services fees 6,831
- -----------------------------------------------------------
Accrued directors' fees 600
- -----------------------------------------------------------
Accrued distribution fees 70,853
- -----------------------------------------------------------
Accrued transfer agent fees 53,023
- -----------------------------------------------------------
Accrued operating expenses 47,094
- -----------------------------------------------------------
Total liabilities 5,295,496
- -----------------------------------------------------------
Net assets applicable to shares outstanding $136,446,351
- -----------------------------------------------------------
NET ASSETS:
Class A $ 76,686,007
===========================================================
Class B $ 50,121,362
===========================================================
Class C $ 9,638,982
===========================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Class A:
Authorized 200,000,000
- -----------------------------------------------------------
Outstanding 5,916,086
===========================================================
Class B:
Authorized 200,000,000
- -----------------------------------------------------------
Outstanding 3,893,529
===========================================================
Class C:
Authorized 200,000,000
- -----------------------------------------------------------
Outstanding 748,267
===========================================================
Class A:
Net asset value and redemption price per
share $ 12.96
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $12.96 / 94.50%) $ 13.71
===========================================================
Class B:
Net asset value and offering price per
share $ 12.87
===========================================================
Class C:
Net asset value and offering price per
share $ 12.88
===========================================================
</TABLE>
STATEMENT OF OPERATIONS
For the period November 3, 1997 (date operations commenced) through October 31,
1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $67,274 foreign withholding
tax) $ 404,466
- ------------------------------------------------------------
Interest 366,446
- ------------------------------------------------------------
Total investment income 770,912
- ------------------------------------------------------------
EXPENSES:
Advisory fees 524,657
- ------------------------------------------------------------
Administrative services fees 69,060
- ------------------------------------------------------------
Custodian fees 153,804
- ------------------------------------------------------------
Directors' fees 7,006
- ------------------------------------------------------------
Distribution fees-Class A 117,376
- ------------------------------------------------------------
Distribution fees-Class B 184,287
- ------------------------------------------------------------
Distribution fees-Class C 32,622
- ------------------------------------------------------------
Transfer agent fees-Class A 106,237
- ------------------------------------------------------------
Transfer agent fees-Class B 72,292
- ------------------------------------------------------------
Transfer agent fees-Class C 10,241
- ------------------------------------------------------------
Other 91,330
- ------------------------------------------------------------
Total expenses 1,368,912
- ------------------------------------------------------------
Less: Fees waived and reimbursed by advisor (114,120)
- ------------------------------------------------------------
Expenses paid indirectly (2,373)
- ------------------------------------------------------------
Net expenses 1,252,419
- ------------------------------------------------------------
Net investment income (loss) (481,507)
- ------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND
FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities (6,487,566)
- ------------------------------------------------------------
Foreign currencies 482,355
- ------------------------------------------------------------
(6,005,211)
- ------------------------------------------------------------
Net unrealized appreciation (depreciation) of:
Investment securities (5,065,791)
- ------------------------------------------------------------
Foreign currencies (14,426)
- ------------------------------------------------------------
(5,080,217)
- ------------------------------------------------------------
Net gain (loss) from investment securities
and foreign
currencies (11,085,428)
- ------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $(11,566,935)
============================================================
</TABLE>
See Notes to Financial Statements.
FS-13
<PAGE> 112
STATEMENT OF CHANGES IN NET ASSETS
For the period November 3, 1997 (date operations commenced) through October 31,
1998
<TABLE>
<S> <C>
OPERATIONS:
Net investment income (loss) $ (481,507)
- --------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
foreign currencies (6,005,211)
- --------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities and foreign currencies (5,080,217)
- --------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (11,566,935)
- --------------------------------------------------------------------------
Share transactions-net:
Class A 82,027,769
- --------------------------------------------------------------------------
Class B 55,436,905
- --------------------------------------------------------------------------
Class C 10,548,612
- --------------------------------------------------------------------------
Net increase in net assets 136,446,351
- --------------------------------------------------------------------------
NET ASSETS:
Beginning of period --
- --------------------------------------------------------------------------
End of period $136,446,351
==========================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $147,994,681
- --------------------------------------------------------------------------
Undistributed net investment income (loss) 19,453
- --------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities and foreign currencies (6,487,566)
- --------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities and foreign currencies (5,080,217)
- --------------------------------------------------------------------------
$136,446,351
==========================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM European Development Fund (the "Fund") is a series portfolio of AIM
International Funds, Inc. (the "Company"). The Company is a Maryland corporation
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of six
separate portfolios: AIM European Development Fund, AIM Asian Growth Fund, AIM
Global Aggressive Growth Fund, AIM Global Growth Fund, AIM Global Income Fund
and AIM International Equity Fund. The Fund commenced operations on November 3,
1997. The Fund currently offers three different classes of shares: Class A
shares, Class B shares and Class C shares. Class A shares are sold with a
front-end sales charge. Class B shares and Class C shares are sold with a
contingent deferred sales charge. Matters affecting each portfolio or class are
voted on exclusively by the shareholders of such portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to provide long-term growth of capital.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
A. Security Valuations-A security listed or traded on an exchange (except
convertible bonds) is valued at the last sales price on the exchange where
the security is principally traded or, lacking any sales on a particular day,
at the mean between the closing bid and asked prices on that day. If a mean
is not available, as is the case in some foreign markets, the closing bid
will be used absent a last sales price. Securities traded in the over-the-
counter market (but not including securities reported on the NASDAQ National
Market System) are valued at the mean between the last bid and asked prices
based upon quotes furnished by market makers for such securities. Securities
reported on the NASDAQ National Market System are valued at the last sales
price on the valuation date or absent a last sales price, at the mean of the
closing bid and asked prices. Debt obligations (including convertible bonds)
are valued on the basis of prices provided by an independent pricing service.
Prices provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors, such as
yield, type of issue, coupon rate and maturity date. Securities for which
market quotations are either not readily available or are questionable are
valued at fair value as determined in good faith by or under the supervision
of the Company's officers in a manner specifically authorized by the Board of
Directors. Investments with maturities of 60 days or less are valued on the
basis of amortized cost which approximates market value. Generally, trading
in foreign securities is substantially completed each day at various times
prior to the close of the New York Stock Exchange. The values of such
securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates are also
generally determined prior to
FS-14
<PAGE> 113
the close of the New York Stock Exchange. Occasionally, events affecting the
values of such securities and such exchange rates may occur between the times
at which they are determined and the close of the New York Stock Exchange
which would not be reflected in the computation of the Fund's net asset
value. If events materially affecting the value of such securities occur
during such period, then these securities will be valued at their fair value
as determined in good faith by or under the supervision of the Board of
Directors.
B. Foreign Currency Translations--Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S. dollar
amounts at the date of valuation. Purchases and sales of portfolio securities
and income items denominated in foreign currencies are translated into U.S.
dollar amounts on the respective dates of such transactions.
C. Foreign Currency Contracts--A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
D. Securities Transactions, Investment Income and Distributions--Securities
transactions are accounted for on a trade date basis. Realized gains or
losses are computed on the basis of specific identification of the securities
sold. Interest income is recorded as earned from settlement date and is
recorded on an accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. On October 31, 1998,
undistributed net investment income was increased by $500,960, undistributed
net realized gains decreased by $482,355 and paid-in capital decreased by
$18,605 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.
E. Federal Income Taxes--The Fund intends to comply with the requirements of the
Internal Revenue Code necessary to qualify as a regulated investment company
and, as such, will not be subject to federal income taxes on otherwise
taxable income (including net realized capital gains) which is distributed to
shareholders. Therefore, no provision for federal income taxes is recorded in
the financial statements. The Fund has a capital loss carryforward of
$5,858,927 (which may be carried forward to offset future taxable gains, if
any) which expires, if not previously utilized, in the year 2006.
F. Expenses--Distribution and transfer agency expenses directly attributable to
a class of shares are charged to that class' operations. All other expenses
which are attributable to more than one class are allocated among the
classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.95% of
the first $500 million of the Fund's average daily net assets, plus 0.90% of the
Fund's average daily net assets in excess of $500 million. Under the terms of a
sub-advisory agreement between AIM and INVESCO Global Asset Management Limited
("IGAM"), AIM pays IGAM a fee at an annual rate of 0.20% of the first $500
million of the Fund's average daily net assets and 0.175% of the Fund's average
daily net assets over $500 million. During the period November 3, 1997 (date
operations commenced) through October 31, 1998, AIM waived fees of $114,120.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to reimburse AIM for certain administrative costs incurred in providing
accounting services to the Fund. During the period November 3, 1997 (date
operations commenced) through October 31, 1998, AIM was reimbursed $69,060 for
such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") for certain costs incurred in providing
transfer agency services to the Fund. During the period November 3, 1997 (date
operations commenced) through October 31, 1998, AFS was paid $113,409 for such
services.
The Company has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor of the Class
A, Class B and Class C shares of the Fund. The Company has adopted distribution
plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class
A shares and Class C shares (the "Class A and Class C Plan"), and the Fund's
Class B shares (the "Class B Plan") (collectively, the "Plans"). The Fund,
pursuant to the Class A and Class C Plan, pays AIM Distributors compensation at
the annual rate of 0.35% of the average daily net assets of Class A shares and
1.00% of the average daily net assets of Class C shares. The Fund, pursuant to
the Class B Plan, pays AIM Distributors compensation at an annual rate of 1.00%
of the average daily net assets of the Class B shares. Of these amounts, the
Fund may pay a service fee of 0.25% of the average daily net assets of the Class
A, Class B or C shares to selected dealers and financial institutions who
furnish continuing personal shareholder services to their customers who purchase
and own the appropriate class of shares of the Fund. Any amounts not paid as a
service fee under the Plans would constitute an asset-based sales charge. The
Plans also impose a cap on the total sales charges, including asset-based sales
charges that may be paid by the respective classes. During the period November
3, 1997 (date operations commenced) through October 31, 1998, the Class A, Class
B, and Class C shares paid AIM Distributors $117,376, $184,287 and $32,622,
respectively, as compensation under the Plans.
AIM Distributors received commissions of $207,603 from sales of the Class A
shares of the Fund during the period November 3, 1997 (date operations
commenced) through October 31, 1998. Such commissions are not an expense of the
Fund. They are deducted from, and are not included in, the proceeds from sales
of Class A shares. During the period November 3, 1997 (date operations
commenced) through October 31, 1998, AIM Distributors received commissions of
$7,299 in contingent deferred sales charges imposed on redemptions of Fund
shares. Certain officers and directors of the Company are officers and directors
of AIM, AFS and AIM Distributors.
During the period November 3, 1997 (date operations commenced) through October
31, 1998, the Fund incurred legal
FS-15
<PAGE> 114
fees of $2,662 for services rendered by the law firm of Kramer, Levin, Naftalis
& Frankel as counsel to the Company's directors. A member of that firm is a
director of the Company.
NOTE 3-INDIRECT EXPENSES
During the period November 3, 1997 (date operations commenced) through October
31, 1998, the Fund received reductions in transfer agency fees from AFS (an
affiliate of AIM) and reductions in custodian fees of $533 and $1,840,
respectively, under expense offset arrangements. The effect of the above
arrangements resulted in a reduction of the Fund's total expenses of $2,373
during the period November 3, 1997 (date operations commenced) through October
31, 1998.
NOTE 4-DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if so
elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $1,000,000,000 or (ii) 10% of total assets. The Fund and other
funds advised by AIM which are parties to the line of credit may borrow on a
first come, first served basis. Interest on borrowings under the line of credit
is payable on maturity or prepayment date. During the period November 3, 1997
(date operations commenced) through October 31, 1998, the Fund did not borrow
under the line of credit agreement. The funds which are party to the line of
credit are charged a commitment fee of 0.05% on the unused balance of the
committed line. The commitment fee is allocated among the funds based on their
respective average net assets for the period.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the period November 3, 1997 (date
operations commenced) through October 31, 1998 was $178,761,660 and $46,376,480,
respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of October 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $ 4,903,217
- ---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (10,654,907)
- ---------------------------------------------------------
Net unrealized appreciation of investment
securities $ (5,751,690)
- ---------------------------------------------------------
</TABLE>
Cost of investments for tax purposes is $139,841,030.
NOTE 7-CAPITAL STOCK
Changes in the Fund's capital stock outstanding during the period November 3,
1997 (date operations commenced) through October 31, 1998 were as follows:
<TABLE>
<CAPTION>
OCTOBER 31, 1998
--------------------------
SHARES AMOUNT
---------- ------------
<S> <C> <C>
Sold:
Class A 11,368,616 $156,555,432
- -------------------------------------------------------------
Class B 4,734,982 66,433,513
- -------------------------------------------------------------
Class C 1,685,991 23,251,599
- -------------------------------------------------------------
Reacquired:
Class A (5,452,530) (74,527,663)
- -------------------------------------------------------------
Class B (841,453) (10,996,608)
- -------------------------------------------------------------
Class C (937,724) (12,702,987)
- -------------------------------------------------------------
10,557,882 $148,013,286
=============================================================
</TABLE>
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A, Class B and
Class C capital stock outstanding during the period November 3, 1997 (date
operations commenced) through October 31, 1998.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.00 $ 10.00 $ 10.00
- ------------------------------------------------------------ ------- ------- -------
Income from investment operations:
Net investment income (loss) (0.08)(a) (0.18)(a) (0.18)(a)
- ------------------------------------------------------------ ------- ------- -------
Net gains on securities (both realized and unrealized) 3.04 3.05 3.06
- ------------------------------------------------------------ ------- ------- -------
Total from investment operations 2.96 2.87 2.88
- ------------------------------------------------------------ ------- ------- -------
Net asset value, end of period $ 12.96 $ 12.87 $ 12.88
============================================================ ======= ======= =======
Total return(b) 29.60% 28.70% 28.80%
============================================================ ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $76,686 $50,121 $ 9,639
============================================================ ======= ======= =======
Ratio of expenses to average net assets(c)(d) 1.98% 2.72% 2.72%
============================================================ ======= ======= =======
Ratio of net investment income (loss) to average net
assets(d)(e) (0.58)% (1.32)% (1.32)%
============================================================ ======= ======= =======
Portfolio turnover rate 93% 93% 93%
============================================================ ======= ======= =======
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct sales charges and is not annualized for periods less than
one year.
(c) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
2.15% (annualized) and 2.89% (annualized) and 2.89% (annualized) for Class
A, Class B and Class C, respectively.
(d) Ratios are annualized and based on average net assets of $33,536,138,
$18,428,720 and $3,262,215, for Class A, Class B and Class C shares,
respectively.
(e) After fee waivers and/or expense reimbursements. Ratios of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursements were (0.75)% (annualized), (1.49)% (annualized) and (1.49)%
(annualized) for Class A, Class B and Class C, respectively.
FS-16
<PAGE> 115
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
AIM International Funds, Inc.:
We have audited the accompanying statement of assets and
liabilities of the AIM Global Aggressive Growth Fund (a
portfolio of AIM International Funds, Inc.), including the
schedule of investments, as of October 31, 1998, and the
related statement of operations for the year then ended,
the statement of changes in net assets for each of the
years in the two-year period then ended and the financial
highlights for each of the years in the four-year period
then ended and the period September 15, 1994 (date
operations commenced) through October 31, 1994. These
financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of October 31, 1998, by correspondence
with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all
material respects, the financial position of AIM Global
Aggressive Growth Fund as of October 31, 1998, the results
of its operations for the year then ended, the changes in
its net assets for each of the years in the two-year period
then ended, the financial highlights for each of the years
in the four-year period then ended and the period September
15, 1994 (date operations commenced) through October 31,
1994, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Houston, Texas
December 4, 1998
FS-17
<PAGE> 116
SCHEDULE OF INVESTMENTS
October 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS-30.21%
AIRLINES-0.15%
ASA Holdings, Inc. 78,900 $ 2,830,538
- ---------------------------------------------------------------
BANKS (REGIONAL)-0.38%
Bank United Corp.-Class A 150,000 5,976,563
- ---------------------------------------------------------------
First Washington Bancorp, Inc. 55,000 1,210,000
- ---------------------------------------------------------------
7,186,563
- ---------------------------------------------------------------
BIOTECHNOLOGY-0.50%
Curative Health Services, Inc.(a) 150,000 4,087,500
- ---------------------------------------------------------------
IDEXX Laboratories, Inc.(a) 235,600 5,374,625
- ---------------------------------------------------------------
9,462,125
- ---------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE)-0.56%
Heftel Broadcasting Corp.(a) 260,000 10,692,500
- ---------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-0.78%
Brightpoint, Inc.(a) 437,500 5,359,375
- ---------------------------------------------------------------
Comverse Technology, Inc.(a) 100,000 4,600,000
- ---------------------------------------------------------------
Dycom Industries, Inc.(a) 136,600 4,789,538
- ---------------------------------------------------------------
14,748,913
- ---------------------------------------------------------------
COMPUTERS (HARDWARE)-0.98%
Dell Computer Corp.(a) 200,000 13,125,000
- ---------------------------------------------------------------
IDX Systems Corp.(a) 127,200 5,390,100
- ---------------------------------------------------------------
18,515,100
- ---------------------------------------------------------------
COMPUTERS (NETWORKING)-0.22%
International Network Services(a) 99,400 4,224,500
- ---------------------------------------------------------------
COMPUTERS (PERIPHERALS)-0.58%
Jabil Circuit, Inc.(a) 87,000 4,029,188
- ---------------------------------------------------------------
MICROS Systems, Inc.(a) 70,000 1,544,375
- ---------------------------------------------------------------
Network Appliance, Inc.(a) 100,000 5,475,000
- ---------------------------------------------------------------
11,048,563
- ---------------------------------------------------------------
COMPUTERS (SOFTWARE &
SERVICES)-3.40%
Business Objects S.A.-ADR(a) 100,000 1,681,250
- ---------------------------------------------------------------
Citrix Systems, Inc.(a) 150,000 10,631,250
- ---------------------------------------------------------------
Computer Management Sciences,
Inc.(a) 282,000 5,217,000
- ---------------------------------------------------------------
Concord Communications, Inc.(a) 50,000 1,856,250
- ---------------------------------------------------------------
Concord EFS, Inc.(a) 299,605 8,538,742
- ---------------------------------------------------------------
Electronic Arts, Inc.(a) 77,200 3,174,850
- ---------------------------------------------------------------
Engineering Animation, Inc.(a) 182,700 8,004,544
- ---------------------------------------------------------------
HBO & Co. 84,800 2,226,000
- ---------------------------------------------------------------
Secure Computing Corp.(a) 250,000 3,031,250
- ---------------------------------------------------------------
Sterling Commerce, Inc.(a) 104,200 3,673,050
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (SOFTWARE & SERVICES)-(CONTINUED)
USWeb Corp.(a) 100,000 $ 1,437,500
- ---------------------------------------------------------------
Veritas Software Corp.(a) 168,750 8,458,594
- ---------------------------------------------------------------
Whittman-Hart, Inc.(a) 43,200 858,600
- ---------------------------------------------------------------
Wind River Systems(a) 129,350 5,667,146
- ---------------------------------------------------------------
64,456,026
- ---------------------------------------------------------------
CONSUMER (JEWELRY, NOVELTIES & GIFTS)-0.48%
Action Performance Companies,
Inc.(a) 100,000 2,987,500
- ---------------------------------------------------------------
Blyth Industries, Inc.(a) 222,800 6,154,850
- ---------------------------------------------------------------
9,142,350
- ---------------------------------------------------------------
CONSUMER FINANCE-0.18%
SLM Holding Corp. 87,500 3,505,469
- ---------------------------------------------------------------
DISTRIBUTORS (FOOD &
HEALTH)-0.25%
Patterson Dental Co.(a) 115,350 4,758,188
- ---------------------------------------------------------------
ELECTRICAL EQUIPMENT-1.14%
Oak Industries, Inc.(a) 101,300 2,741,430
- ---------------------------------------------------------------
Sanmina Corp.(a) 222,000 9,102,000
- ---------------------------------------------------------------
Solectron Corp.(a) 51,000 2,919,750
- ---------------------------------------------------------------
Uniphase Corp.(a) 100,000 4,950,000
- ---------------------------------------------------------------
Watsco, Inc. 112,500 1,905,469
- ---------------------------------------------------------------
21,618,649
- ---------------------------------------------------------------
ELECTRONICS
(SEMICONDUCTORS)-2.54%
Altera Corp.(a) 75,000 3,121,874
- ---------------------------------------------------------------
Dallas Semiconductor Corp. 115,000 4,255,000
- ---------------------------------------------------------------
Linear Technology Corp. 82,500 4,919,063
- ---------------------------------------------------------------
Micrel, Inc.(a) 74,900 2,462,338
- ---------------------------------------------------------------
Microchip Technology, Inc.(a) 200,000 5,412,500
- ---------------------------------------------------------------
PMC-Sierra, Inc.(a) 100,000 4,487,500
- ---------------------------------------------------------------
Semtech Corp.(a) 100,000 2,381,250
- ---------------------------------------------------------------
Sipex Corp.(a) 328,200 9,107,550
- ---------------------------------------------------------------
Vitesse Semiconductor Corp.(a) 375,000 12,093,750
- ---------------------------------------------------------------
48,240,825
- ---------------------------------------------------------------
FOODS-0.10%
American Italian Pasta Co.-Class
A(a) 78,300 1,800,900
- ---------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER)-0.56%
Dura Pharmaceuticals, Inc.(a) 250,000 3,015,624
- ---------------------------------------------------------------
Medicis Pharmaceutical
Corp.-Class A(a) 150,000 7,518,750
- ---------------------------------------------------------------
10,534,374
- ---------------------------------------------------------------
</TABLE>
FS-18
<PAGE> 117
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (HOSPITAL MANAGEMENT)-0.89%
Health Management Associates,
Inc.-Class A(a) 451,050 $ 8,034,327
- ---------------------------------------------------------------
New American Healthcare Corp.(a) 150,000 1,593,750
- ---------------------------------------------------------------
Province Healthcare Co.(a) 101,800 2,659,525
- ---------------------------------------------------------------
Universal Health Services,
Inc.-Class B(a) 89,800 4,607,863
- ---------------------------------------------------------------
16,895,465
- ---------------------------------------------------------------
HEALTH CARE (LONG TERM
CARE)-0.24%
HEALTHSOUTH Corp.(a) 150,000 1,818,750
- ---------------------------------------------------------------
Sunrise Assisted Living, Inc.(a) 63,200 2,721,550
- ---------------------------------------------------------------
4,540,300
- ---------------------------------------------------------------
HEALTH CARE (MANAGED CARE)-0.21%
Express Scripts, Inc.-Class A(a) 40,000 3,907,500
- ---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES)-1.43%
Henry Schein, Inc.(a) 200,000 7,737,500
- ---------------------------------------------------------------
ResMed, Inc.(a) 40,000 2,040,000
- ---------------------------------------------------------------
Sybron International Corp.(a) 500,000 12,375,000
- ---------------------------------------------------------------
VISX, Inc.(a) 100,000 5,012,500
- ---------------------------------------------------------------
27,165,000
- ---------------------------------------------------------------
HEALTH CARE (SPECIALIZED
SERVICES)-1.44%
NCS HealthCare, Inc.-Class A(a) 110,000 1,938,750
- ---------------------------------------------------------------
Omnicare, Inc. 173,300 5,989,681
- ---------------------------------------------------------------
Orthodontic Centers of America,
Inc.(a) 123,000 2,329,313
- ---------------------------------------------------------------
Quintiles Transnational Corp.(a) 140,000 6,335,000
- ---------------------------------------------------------------
Superior Consultant Holdings
Corp.(a) 160,900 5,953,300
- ---------------------------------------------------------------
Total Renal Care Holdings,
Inc.(a) 77,666 1,902,816
- ---------------------------------------------------------------
Veterinary Centers of America,
Inc.(a) 164,800 2,925,200
- ---------------------------------------------------------------
27,374,060
- ---------------------------------------------------------------
HOUSEWARES-0.49%
Helen of Troy Ltd.(a) 625,000 9,296,875
- ---------------------------------------------------------------
INSURANCE
(PROPERTY-CASUALTY)-0.05%
CMAC Investment Corp. 24,400 1,021,750
- ---------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-0.32%
US Filter Corp.(a) 120,150 2,545,678
- ---------------------------------------------------------------
Zebra Technologies Corp.(a) 109,500 3,586,125
- ---------------------------------------------------------------
6,131,803
- ---------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES-0.52%
Daisytek International Corp.(a) 400,000 6,025,000
- ---------------------------------------------------------------
Herman Miller, Inc. 175,000 3,860,938
- ---------------------------------------------------------------
9,885,938
- ---------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT)-0.31%
Cooper Cameron Corp.(a) 100,000 3,475,000
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
OIL & GAS (DRILLING & EQUIPMENT)-(CONTINUED)
Global Industries Ltd.(a) 250,000 $ 2,406,250
- ---------------------------------------------------------------
5,881,250
- ---------------------------------------------------------------
PERSONAL CARE-0.30%
Rexall Sundown, Inc.(a) 321,000 5,757,938
- ---------------------------------------------------------------
PUBLISHING-0.12%
IDG Books Worldwide, Inc.(a) 150,000 2,325,000
- ---------------------------------------------------------------
RESTAURANTS-0.63%
CEC Entertainment Inc.(a) 146,600 4,141,450
- ---------------------------------------------------------------
Papa John's International,
Inc.(a) 150,000 5,695,313
- ---------------------------------------------------------------
Starbucks Corp.(a) 50,000 2,168,750
- ---------------------------------------------------------------
12,005,513
- ---------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS)-1.38%
CDW Computer Centers, Inc.(a) 260,800 19,543,700
- ---------------------------------------------------------------
Tech Data Corp.(a) 166,600 6,559,875
- ---------------------------------------------------------------
26,103,575
- ---------------------------------------------------------------
RETAIL (HOME SHOPPING)-0.11%
DM Management Company(a) 200,000 2,175,000
- ---------------------------------------------------------------
RETAIL (SPECIALTY)-1.75%
Inacom Corp.(a) 166,600 3,227,875
- ---------------------------------------------------------------
Michaels Stores, Inc.(a) 100,000 2,000,000
- ---------------------------------------------------------------
O'Reilly Automotive, Inc.(a) 200,000 7,825,000
- ---------------------------------------------------------------
Renters Choice, Inc.(a) 250,000 6,203,125
- ---------------------------------------------------------------
Staples, Inc.(a) 280,000 9,135,000
- ---------------------------------------------------------------
Williams-Sonoma, Inc.(a) 150,000 4,087,500
- ---------------------------------------------------------------
Zale Corp.(a) 34,000 805,375
- ---------------------------------------------------------------
33,283,875
- ---------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-1.26%
AnnTaylor Stores Corp.(a) 128,900 3,738,100
- ---------------------------------------------------------------
Gap, Inc. 87,600 5,266,950
- ---------------------------------------------------------------
Men's Wearhouse, Inc.(a) 131,100 3,179,175
- ---------------------------------------------------------------
Pacific Sunwear of California(a) 300,000 6,487,500
- ---------------------------------------------------------------
TJX Companies, Inc. 281,000 5,321,438
- ---------------------------------------------------------------
23,993,163
- ---------------------------------------------------------------
SAVINGS & LOAN COMPANIES-0.13%
Dime Bancorp, Inc. 100,000 2,381,250
- ---------------------------------------------------------------
SERVICES
(ADVERTISING/MARKETING)-0.44%
Acxiom Corp.(a) 225,000 5,653,125
- ---------------------------------------------------------------
ADVO, Inc.(a) 75,000 1,907,813
- ---------------------------------------------------------------
Professional Detailing, Inc.(a) 33,700 787,737
- ---------------------------------------------------------------
8,348,675
- ---------------------------------------------------------------
</TABLE>
FS-19
<PAGE> 118
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SERVICES (COMMERCIAL & CONSUMER)-0.63%
Cerner Corp.(a) 200,000 $ 4,475,000
- ---------------------------------------------------------------
Equity Corp. International (a) 104,700 2,597,869
- ---------------------------------------------------------------
MSC Industrial Direct Co.,
Inc.-Class A (a) 80,000 1,700,000
- ---------------------------------------------------------------
Strayer Education, Inc. 94,400 3,209,600
- ---------------------------------------------------------------
11,982,469
- ---------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS)-1.21%
Analysts International Corp. 179,900 3,159,494
- ---------------------------------------------------------------
Computer Task Group, Inc. 325,000 9,953,125
- ---------------------------------------------------------------
Insight Enterprises, Inc.(a) 225,000 6,525,000
- ---------------------------------------------------------------
SunGard Data Systems Inc.(a) 100,000 3,375,000
- ---------------------------------------------------------------
23,012,619
- ---------------------------------------------------------------
SERVICES (DATA PROCESSING)-1.56%
Affiliated Computer Services,
Inc.(a) 128,400 4,750,800
- ---------------------------------------------------------------
Billing Concepts Corp.(a) 359,200 5,073,700
- ---------------------------------------------------------------
CSG Systems International,
Inc.(a) 200,000 10,900,000
- ---------------------------------------------------------------
National Data Corp. 75,000 2,540,625
- ---------------------------------------------------------------
NOVA Corp.(a) 221,500 6,395,813
- ---------------------------------------------------------------
29,660,938
- ---------------------------------------------------------------
SERVICES (EMPLOYMENT)-0.42%
On Assignment, Inc.(a) 50,000 1,700,000
- ---------------------------------------------------------------
Robert Half International,
Inc.(a) 111,000 4,453,875
- ---------------------------------------------------------------
Romac International, Inc.(a) 100,000 1,750,000
- ---------------------------------------------------------------
7,903,875
- ---------------------------------------------------------------
TEXTILES (APPAREL)-0.96%
Jones Apparel Group, Inc.(a) 200,000 3,450,000
- ---------------------------------------------------------------
Nautica Enterprises, Inc.(a) 146,000 3,020,375
- ---------------------------------------------------------------
Quicksilver, Inc.(a) 261,400 5,407,713
- ---------------------------------------------------------------
Russell Corp. 88,500 2,173,781
- ---------------------------------------------------------------
Tommy Hilfiger Corp.(a) 87,900 4,081,856
- ---------------------------------------------------------------
18,133,725
- ---------------------------------------------------------------
TEXTILES (HOME FURNISHINGS)-0.18%
Mohawk Industries, Inc.(a) 112,500 3,396,094
- ---------------------------------------------------------------
TRUCKERS-0.09%
Swift Transportation Co., Inc.(a) 75,000 1,657,030
- ---------------------------------------------------------------
TRUCKS & PARTS-0.34%
Wabash National Corp. 366,600 6,507,150
- ---------------------------------------------------------------
Total Domestic Common Stocks
(Cost $429,384,176) 573,493,413
- ---------------------------------------------------------------
FOREIGN STOCK & OTHER EQUITY INTERESTS-53.96%
ARGENTINA-1.83%
Banco de Galicia y Buenos Aires
S.A. de C.V.-ADR
(Banks-Regional) 392,985 6,705,307
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ARGENTINA-(CONTINUED)
Telefonica de Argentina S.A.-ADR
(Telephone) 288,500 $ 9,538,531
- ---------------------------------------------------------------
YPF Sociedad Anonima-ADR
(Oil-International Integrated) 642,300 18,586,556
- ---------------------------------------------------------------
34,830,394
- ---------------------------------------------------------------
AUSTRIA-0.12%
Topcall International A.G.
(Computers-Software & Services) 7,100 2,280,684
- ---------------------------------------------------------------
BELGIUM-1.47%
Barco N.V.
(Manufacturing-Diversified) 41,000 10,934,133
- ---------------------------------------------------------------
Colruyt N.V. (Retail-Food Chains) 8,800 7,361,241
- ---------------------------------------------------------------
UCB S.A.
(Manufacturing-Diversified) 1,650 9,638,686
- ---------------------------------------------------------------
27,934,060
- ---------------------------------------------------------------
BRAZIL-2.53%
Cia. Riograndense de
Telecomunicacoes-Pfd
(Telephone) 1 21
- ---------------------------------------------------------------
Companhia Brasileira de
Distribuicao Grupo Pao de
Acucar (Retail-Food Chain) 120,519 1,943,369
- ---------------------------------------------------------------
Companhia Brasileira de
Distribuicao Grupo Pao de
Acucar-Pfd. (Retail-Food Chain) 326,500 5,474,514
- ---------------------------------------------------------------
Companhia de Saneamento Basico do
Estado de Sao Paulo (Water
Utilities) 0 10
- ---------------------------------------------------------------
Companhia Energetica de Minas
Gerais (Electric Companies) 175,644 3,416,287
- ---------------------------------------------------------------
Companhia Paranaense de
Energia-Copel (Electric
Companies) 1,027,000 7,959,250
- ---------------------------------------------------------------
Petroleo Brasileiro
S.A.-Petrobras-Pfd. (Oil &
Gas-Exploration & Production) 46,200 5,809,859
- ---------------------------------------------------------------
Telecomunicacoes Brasileiras S.A.
ADR (Telephone) 128,500 9,757,969
- ---------------------------------------------------------------
Telecomunicacoes de Sao Paulo
S.A.-TELESP-Pfd. (Telephone) 50,200 8,417,170
- ---------------------------------------------------------------
Telerj Celular S.A.
(Telecommunications-Cellular/
Wireless)(a) 92,398 2,866,135
- ---------------------------------------------------------------
Telesp Celular S.A.
(Telecommunications-Cellular/
Wireless)(a) 50,200 2,483,065
- ---------------------------------------------------------------
48,127,649
- ---------------------------------------------------------------
CANADA-4.20%
ATI Technologies, Inc.
(Computers-Hardware)(a) 1,127,200 9,134,522
- ---------------------------------------------------------------
ATS Automation Tooling Systems,
Inc. (Machinery-Diversified)
(Acquired 09/22/97-10/03/97;
Cost $6,636,485)(a)(b) 360,000 4,667,747
- ---------------------------------------------------------------
BCE Mobile Communications Inc.
(Telephone) 91,200 2,223,092
- ---------------------------------------------------------------
Biovail Corp. International
(Health Care-Drugs-Generic &
Other)(a) 65,700 2,049,019
- ---------------------------------------------------------------
</TABLE>
FS-20
<PAGE> 119
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
CANADA-(CONTINUED)
CanWest Global Communications
Corp. (Broadcasting-Television,
Radio & Cable) 355,998 $ 4,154,272
- ---------------------------------------------------------------
CGI Group, Inc.
(Services-Computer Systems)(a) 683,000 9,387,099
- ---------------------------------------------------------------
CHUM Ltd.
(Broadcasting-Television,
Radio, & Cable) 75,000 1,604,538
- ---------------------------------------------------------------
C-MAC Industries Inc.
(Electronics-Component
Distributors)(a) 200,000 2,599,676
- ---------------------------------------------------------------
Dorel Industries Inc. (Household
Furnishing & Appliances)(a) 151,400 2,026,846
- ---------------------------------------------------------------
Geac Computer Corp. Ltd.
(Services-Computer Systems)(a) 445,000 9,924,149
- ---------------------------------------------------------------
Gulf Canada Resources, Ltd.
(Oil-International
Integrated)(a) 250,000 937,500
- ---------------------------------------------------------------
Imax Corp. (Communications
Equipment)(a) 200,000 5,125,000
- ---------------------------------------------------------------
Intertape Polymer Group Inc.
(Chemicals-Specialty) 100,000 1,961,102
- ---------------------------------------------------------------
JDS Fitel Inc.
(Manufacturing-Specialized)(a) 600,000 8,927,066
- ---------------------------------------------------------------
Mitel Corp. (Communications
Equipment)(a) 245,900 1,984,736
- ---------------------------------------------------------------
Saputo Group Inc.(Foods) 97,200 2,079,481
- ---------------------------------------------------------------
Sears Canada, Inc.
(Retail-Department Stores) 300,000 4,337,115
- ---------------------------------------------------------------
Suncor Energy, Inc.
(Oil-International Integrated) 210,000 6,670,989
- ---------------------------------------------------------------
79,793,949
- ---------------------------------------------------------------
CHILE-0.49%
Cia. de Telecomunicaciones de
Chile S.A.-ADR (Telephone) 176,800 3,878,550
- ---------------------------------------------------------------
Distribucion y Servicio D&S S.A.
(Retail-Food Chains) 338,100 4,395,300
- ---------------------------------------------------------------
Madeco S.A. (Metal Fabricators) 129,000 999,750
- ---------------------------------------------------------------
9,273,600
- ---------------------------------------------------------------
CROATIA-0.58%
Pliva DD (Health Care-Drugs-Major
Pharmaceutical) (Acquired
05/13/98-05/20/98; Cost
$12,630,308)(b) 751,700 11,049,990
- ---------------------------------------------------------------
FINLAND-0.82%
Helsingin Puhelin Oyj
(Telecommunications-Cellular/
Wireless) 38,500 2,113,005
- ---------------------------------------------------------------
Tieto Corp. (Computers-Software &
Services) 444,000 13,498,659
- ---------------------------------------------------------------
15,611,664
- ---------------------------------------------------------------
FRANCE-2.70%
Altran Technologies, S.A.
(Services-Commercial &
Consumer) 53,800 10,530,025
- ---------------------------------------------------------------
Christian Dalloz
(Manufacturing-Diversified) 11,400 977,078
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FRANCE-(CONTINUED)
Dassault Systemes S.A.-ADR
(Computer-Software & Services) 100,000 $ 3,837,500
- ---------------------------------------------------------------
Etablissements Economiques du
Casino Guichard-Perrachon
(Retail-Food Chains)(a) 88,000 8,762,447
- ---------------------------------------------------------------
Galeries Lafayette
(Retail-Department Stores) 7,000 7,764,193
- ---------------------------------------------------------------
Labinal S.A. (Aerospace/Defense) 17,300 4,420,242
- ---------------------------------------------------------------
Montupet (Auto Parts & Equipment) 86,000 3,821,740
- ---------------------------------------------------------------
Publicis S.A.
(Services-Advertising/
Marketing)(a) 11,200 1,774,673
- ---------------------------------------------------------------
Societe Television Francaise 1
(Broadcasting-Television, Radio
& Cable) 56,500 9,339,179
- ---------------------------------------------------------------
51,227,077
- ---------------------------------------------------------------
GERMANY-3.98%
BHF-Bank A.G. (Banks-Major
Regional) 310,000 11,940,366
- ---------------------------------------------------------------
Boewe Systec A.G. (Office
Equipment & Supplies) 75,000 2,968,099
- ---------------------------------------------------------------
Continental A.G. (Auto Parts &
Equipment) 140,550 3,736,451
- ---------------------------------------------------------------
Fielmann A.G.-Pfd.
(Retail-General Merchandise) 67,250 3,027,083
- ---------------------------------------------------------------
Hugo Boss A.G.-Pfd.
(Textiles-Apparel) 1,000 1,558,818
- ---------------------------------------------------------------
Krones A.G.
(Machinery-Diversified) 31,500 742,251
- ---------------------------------------------------------------
Krones A.G.-Pfd.
(Machinery-Diversified) 73,500 1,842,940
- ---------------------------------------------------------------
Marschollek, Lautenschlaeger &
Partner A.G.
(Insurance-Life/Health) 10,000 5,105,432
- ---------------------------------------------------------------
MobilCom A.G.
(Telecommunications-Cellular/
Wireless) 34,400 10,020,083
- ---------------------------------------------------------------
Porsche A.G. (Automobiles) 3,870 6,851,006
- ---------------------------------------------------------------
Schwarz Pharma A.G. (Health
Care-Drugs-Generic & Other) 85,000 5,957,344
- ---------------------------------------------------------------
SER Systeme A.G.
(Computers-Software & Services) 14,500 4,432,965
- ---------------------------------------------------------------
Sixt A.G. (Financial-Diversified) 27,500 5,682,436
- ---------------------------------------------------------------
Teldafax (Telecommunications-Long
Distance)(a) 251,000 8,795,843
- ---------------------------------------------------------------
Vossloh A.G.
(Manufacturing-Specialized) 100,400 2,875,331
- ---------------------------------------------------------------
75,536,448
- ---------------------------------------------------------------
GREECE-0.40%
STET Hellas Telecommunications
S.A.(a)
(Telecommunications-Cellular/
Wireless) 145,500 3,819,375
- ---------------------------------------------------------------
Titan Cement Co. S.A.
(Construction-Cement &
Aggregates) 60,000 3,711,340
- ---------------------------------------------------------------
7,530,715
- ---------------------------------------------------------------
HONG KONG-1.33%
Cosco Pacific Ltd.
(Financial-Diversified) 9,100,000 4,465,104
- ---------------------------------------------------------------
Hutchison Whampoa Ltd.
(Retail-Food Chains) 2,255,000 16,160,178
- ---------------------------------------------------------------
</TABLE>
FS-21
<PAGE> 120
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HONG KONG-(CONTINUED)
Ng Fung Hong Ltd. (Foods) 5,220,000 $ 4,617,083
- ---------------------------------------------------------------
25,242,365
- ---------------------------------------------------------------
HUNGARY-0.88%
Magyar Tavkozlesi ADR
(Telecommunications-Long
Distance) 618,000 16,608,750
- ---------------------------------------------------------------
INDONESIA-0.47%
Gulf Indonesia Resources Ltd.
(Oil-International
Integrated)(a) 907,300 8,959,588
- ---------------------------------------------------------------
IRELAND-0.37%
Elan Corp. PLC-ADR (Health
Care-Drugs-Generic & Other)(a) 100,000 7,006,250
- ---------------------------------------------------------------
ISRAEL-0.37%
Blue Square-Israel Ltd.-ADR
(Retail-Food Chains) 550,000 7,081,250
- ---------------------------------------------------------------
ITALY-1.34%
AEM S.p.A. (Electric
Companies)(a) 2,800,000 3,798,291
- ---------------------------------------------------------------
Autogrill S.p.A. (Restaurants) 1,205,000 9,032,350
- ---------------------------------------------------------------
Ciga S.p.A. (Lodging-Hotels)(a) 4,100,000 3,101,282
- ---------------------------------------------------------------
Ericsson S.p.A. (Communications
Equipment) 100,000 4,083,394
- ---------------------------------------------------------------
Gruppo Editoriale L'Espresso
(Publishing) 600,000 5,331,868
- ---------------------------------------------------------------
25,347,185
- ---------------------------------------------------------------
JAPAN-2.45%
Aderans Co. Ltd. (Personal Care) 394,000 11,173,943
- ---------------------------------------------------------------
Bellsystem 24, Inc.
(Services-Commercial &
Consumer) 68,000 13,090,409
- ---------------------------------------------------------------
Capcom Co., Ltd.
(Computers-Software & Services) 201,000 1,917,411
- ---------------------------------------------------------------
Circle K Japan Co. Ltd.
(Retail-Food Chains) 244,200 9,632,846
- ---------------------------------------------------------------
Hokuto Corp. (Agricultural
Products) 240,825 4,346,274
- ---------------------------------------------------------------
Shohkoh Fund & Co.
(Financial-Diversified) 20,600 6,275,954
- ---------------------------------------------------------------
46,436,837
- ---------------------------------------------------------------
MEXICO-3.30%
Coca-Cola Femsa S.A.-ADR
(Beverages-Non-Alcoholic) 566,300 9,343,950
- ---------------------------------------------------------------
Corporacion Interamericana de
Entretenimiento S.A.
(Entertainment)(a) 1,652,860 3,329,279
- ---------------------------------------------------------------
Fomento Economico Mexicano, S.A.
de C.V.-Class B
(Beverages-Alcoholic) 538,480 14,034,135
- ---------------------------------------------------------------
Grupo Financiero Banamex Accival,
S.A. de C.V.
(Financial-Diversified)(a) 5,850,000 6,137,781
- ---------------------------------------------------------------
Grupo Modelo S.A. de C.V.-Series
C (Beverages-Alcoholic) 4,061,000 8,561,744
- ---------------------------------------------------------------
Grupo Televisa S.A.-GDR
(Entertainment)(a) 267,400 7,253,225
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MEXICO-(CONTINUED)
Organizacion Soriana S.A. de C.V.
(Retail-Department Stores) 2,544,000 $ 7,566,782
- ---------------------------------------------------------------
Tubos de Acero de Mexico S.A.
(Oil & Gas-Drilling &
Equipment) 541,800 4,605,300
- ---------------------------------------------------------------
Vitro S.A. (Containers-Metal &
Glass) 391,400 1,761,300
- ---------------------------------------------------------------
62,593,496
- ---------------------------------------------------------------
NETHERLANDS-4.33%
Aalberts Industries N.V.
(Manufacturing-Diversified) 115,000 2,752,168
- ---------------------------------------------------------------
Beter Bed Holding N.V. (Household
Furnishings & Appliances) 115,000 3,078,488
- ---------------------------------------------------------------
Cap Gemini N.V.
(Services-Computer Systems) 148,000 9,151,943
- ---------------------------------------------------------------
Getronics N.V.
(Computers-Software & Services) 300,000 12,447,800
- ---------------------------------------------------------------
IHC Caland N.V.
(Manufacturing-Specialized) 114,000 5,157,404
- ---------------------------------------------------------------
Internatio-Muller N.V.
(Manufacturing-Diversified) 288,000 6,938,644
- ---------------------------------------------------------------
Koninklijke Ahrend Groep N.V.
(Household Furnishings &
Appliances) 210,000 4,261,163
- ---------------------------------------------------------------
Nutreco Holding N.V.
(Agricultural Products) 235,000 7,989,346
- ---------------------------------------------------------------
Ordina Beheer
N.V.-(Services-Commercial &
Consumer)(a) 560,000 14,571,153
- ---------------------------------------------------------------
Randstad Holdings N.V.
(Services-Commercial &
Consumer) 152,000 8,137,916
- ---------------------------------------------------------------
Unique International N.V.
(Services-Commercial &
Consumer) 150,325 4,209,229
- ---------------------------------------------------------------
Vedior N.V.
(Services-Employment)(a) 140,000 3,567,834
- ---------------------------------------------------------------
82,263,088
- ---------------------------------------------------------------
NORWAY-1.49%
Ekornes A.S.A. (Household
Furnishings & Appliances)(a) 400,000 3,669,974
- ---------------------------------------------------------------
Merkantildata A.S.A
(Services-Commercial &
Consumer) 1,080,000 10,863,124
- ---------------------------------------------------------------
Tomra Systems A.S.A.
(Manufacturing-Specialized) 486,000 13,674,324
- ---------------------------------------------------------------
28,207,422
- ---------------------------------------------------------------
PHILIPPINES-0.76%
International Container Terminal
Services, Inc. (Air Freight)(a) 6,112,500 410,541
- ---------------------------------------------------------------
Philippine Long Distance
Telephone Co. (Telephone) 194,920 4,679,050
- ---------------------------------------------------------------
Philippine Long Distance
Telephone Co.-ADR (Telephone) 159,400 3,885,375
- ---------------------------------------------------------------
SM Prime Holdings Inc. (Land
Development) 32,000,000 5,412,935
- ---------------------------------------------------------------
14,387,901
- ---------------------------------------------------------------
</TABLE>
FS-22
<PAGE> 121
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
PORTUGAL-2.72%
Banco Comercial Portugues, S.A.
(Banks-Major Regional) 450,000 $ 14,092,970
- ---------------------------------------------------------------
Electricidade de Portugal,
S.A.-ADR (Electric Companies) 158,500 7,925,000
- ---------------------------------------------------------------
Jeronimo Martins & Filho, S.A.
(Retail-General Merchandise) 134,000 5,806,877
- ---------------------------------------------------------------
Portugal Telecom S.A. (Telephone) 132,500 6,280,175
- ---------------------------------------------------------------
Telecel-Comunicacaoes Pessoais,
S.A.
(Telecommunications-Cellular/
Wireless) 95,400 17,581,371
- ---------------------------------------------------------------
51,686,393
- ---------------------------------------------------------------
SOUTH AFRICA-0.88%
Dimension Data Holdings Ltd.
(Computers-Software &
Services)(a) 1,509,000 6,937,621
- ---------------------------------------------------------------
Persetel Holdings Ltd.
(Computers-Software & Services) 760,000 7,545,617
- ---------------------------------------------------------------
Protea Furnishers Ltd. (Household
Furnishings & Appliances) 4,700,000 2,144,007
- ---------------------------------------------------------------
16,627,245
- ---------------------------------------------------------------
SPAIN-1.90%
Corp. Financiera Reunida, S.A.
(Investment Management)(a) 1,287,000 15,446,559
- ---------------------------------------------------------------
Mapfre Vida
(Insurance-Life/Health) 108,000 4,287,480
- ---------------------------------------------------------------
Tele Pizza, S.A. (Restaurants)(a) 2,000,000 16,334,067
- ---------------------------------------------------------------
36,068,106
- ---------------------------------------------------------------
SWEDEN-1.93%
ADB-Gruppen Mandator A.B.
(Services-Computer Systems) 67,664 2,168,996
- ---------------------------------------------------------------
Assa Abloy A.B.-Class B (Metal
Fabricators) 230,000 9,171,689
- ---------------------------------------------------------------
Europolitan Holdings A.B.
(Telecommunications-Cellular &
Wireless) 147,400 12,757,405
- ---------------------------------------------------------------
Scandic Hotels A.B.
(Lodging-Hotels) 104,500 3,416,784
- ---------------------------------------------------------------
WM-Data A.B. (Computers-Software
& Services) 252,000 9,176,561
- ---------------------------------------------------------------
36,691,435
- ---------------------------------------------------------------
SWITZERLAND-1.08%
Georg Fischer A.G. (Auto Parts &
Equipment) 9,000 3,102,761
- ---------------------------------------------------------------
Julius Baer Holding A.G.
(Banks-Major Regional)(a) 4,500 13,786,358
- ---------------------------------------------------------------
Mikron Holding A.G.
(Machinery-Diversified) 17,000 3,539,052
- ---------------------------------------------------------------
20,428,171
- ---------------------------------------------------------------
TAIWAN-0.65%
Compal Electronics Inc.
(Computers-Hardware)(a) 1,620,000 5,053,900
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TAIWAN-(CONTINUED)
Taiwan Semiconductor
Manufacturing Co.-ADR
(Electronics-Semiconductors) 482,850 $ 7,212,572
- ---------------------------------------------------------------
12,266,472
- ---------------------------------------------------------------
UNITED KINGDOM-8.59%
Admiral PLC (Services-Computer
Systems) 106,000 1,720,261
- ---------------------------------------------------------------
Airtours PLC (Services-Commercial
& Consumer) 2,445,000 13,703,781
- ---------------------------------------------------------------
Avis Europe PLC
(Services-Commercial &
Consumer) (Acquired
03/26/97;Cost $2,977,263)(b) 1,484,550 6,482,642
- ---------------------------------------------------------------
Cable & Wireless Communications
PLC (Broadcasting-Television,
Radio, & Cable)(a) 2,000,000 15,057,721
- ---------------------------------------------------------------
Cattles PLC (Consumer Finance) 510,000 5,136,691
- ---------------------------------------------------------------
Compass Group PLC
(Services-Commercial &
Consumer) 670,000 6,781,830
- ---------------------------------------------------------------
Druid Group PLC
(Computers-Software & Services) 167,000 2,731,178
- ---------------------------------------------------------------
FirstBus PLC (Shipping) 1,350,000 9,531,537
- ---------------------------------------------------------------
Jarvis PLC (Engineering &
Construction) 900,000 9,486,364
- ---------------------------------------------------------------
Kwik-Fit Holdings PLC
(Services-Commercial &
Consumer) 1,400,500 11,622,017
- ---------------------------------------------------------------
Logica PLC (Computer
Software/Services) 155,000 5,231,931
- ---------------------------------------------------------------
Mayflower Corp. PLC (The) (Auto
Parts & Equipment) 2,240,000 4,928,225
- ---------------------------------------------------------------
Millennium & Copthorne Hotels PLC
(Lodging-Hotels) 350,000 2,160,783
- ---------------------------------------------------------------
Misys PLC (Services-Commercial &
Consumer) 1,181,500 8,282,558
- ---------------------------------------------------------------
Parity PLC (Services-Commercial &
Consumer) 350,000 2,646,813
- ---------------------------------------------------------------
PizzaExpress PLC (Restaurants) 387,000 4,933,813
- ---------------------------------------------------------------
Provident Financial PLC (Consumer
Finance) 964,912 14,480,944
- ---------------------------------------------------------------
Select Appointments Holdings PLC
(Services-Commercial &
Consumer) 622,000 5,484,256
- ---------------------------------------------------------------
Somerfield PLC (Retail-Food
Chains) 1,215,000 7,805,923
- ---------------------------------------------------------------
Stagecoach Holdings PLC
(Shipping) 3,950,000 15,332,107
- ---------------------------------------------------------------
Stakis PLC (Lodging-Hotels) 4,300,000 7,014,389
- ---------------------------------------------------------------
TBI PLC (Land Development) 1,590,000 2,527,187
- ---------------------------------------------------------------
163,082,951
- ---------------------------------------------------------------
Total Foreign Stocks & Other
Equity Interests (Cost
$858,507,714) 1,024,181,135
- ---------------------------------------------------------------
DOMESTIC PREFERRED STOCKS-0.37%
LODGING (HOTELS)-0.37%
Royal Caribbean Cruises
Ltd.-$3.63 Conv. Pfd (Cost
$5,011,060) 76,000 6,954,000
- ---------------------------------------------------------------
</TABLE>
FS-23
<PAGE> 122
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
FOREIGN CONVERTIBLE BONDS-0.20%
UNITED KINGDOM-0.20%
Shanghai Industrial Investment
Trust Co.
(Manufacturing-Diversified),
Gtd. Bonds, 1.00%, 02/24/03
(Acquired 03/05/98-03/09/98;
Cost $5,218,750)(b) $ 5,000,000 $ 3,887,500
- ---------------------------------------------------------------
Total Investments Excluding
Repurchase Agreements
(Cost $1,298,121,700) 1,608,516,048
- ---------------------------------------------------------------
REPURCHASE AGREEMENTS(C)-14.45%
SBC Warburg Dillon Read Inc.,
5.40%, 11/02/98(d) 99,191,112 $ 99,191,112
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
REPURCHASE AGREEMENTS-(CONTINUED)
Deutsche Morgan Greenfell Inc.,
5.55%(e) $175,000,000 $ 175,000,000
- ---------------------------------------------------------------
Total Repurchase Agreements
(Cost $274,191,112) 274,191,112
- ---------------------------------------------------------------
TOTAL INVESTMENTS-99.19% 1,882,707,160
- ---------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-0.81% 15,358,630
- ---------------------------------------------------------------
NET ASSETS-100.00% $1,898,065,790
===============================================================
</TABLE>
Investment Abbreviations:
ADR - American Depositary Receipt
Conv. - Convertible
GDR - Global Depositary Receipt
Gtd. - Guaranteed
Pfd. - Preferred
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The valuation of these securities has been determined in
accordance with procedures established by the Board of Directors. The
aggregate market value of these securities at 10/31/98 was $26,087,879 which
represented 1.37% of the Fund's net assets.
(c) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value is at least 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts, private accounts and certain
non-registered investment companies managed by the investment advisor or its
affiliates.
(d) Joint repurchase agreement entered into 10/30/98 with a maturing value of
$1,300,585,000. Collateralized by $2,856,569,000 U.S. Government
obligations, 0% to 5.50% due 11/15/98 to 02/15/25 with an aggregate market
value at 10/31/98 of $1,326,231,109.
(e) Open joint repurchase agreement. Either party may terminate the agreement
upon demand. Interest rates, par and collateral are determined daily.
Collateralized by $189,108,000 U.S. Government obligations, 6.00% to 6.21%
due 05/15/08 to 08/06/38 with an aggregate market value at 10/31/98 of
$204,000,108.
See Notes to Financial Statements.
FS-24
<PAGE> 123
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, excluding repurchase
agreements, at market value (cost
$1,298,121,700) $ 1,608,516,048
- ------------------------------------------------------------
Repurchase agreements (cost $274,191,112) 274,191,112
- ------------------------------------------------------------
Foreign currencies, at value (cost
$8,543,069) 8,546,540
- ------------------------------------------------------------
Receivables for:
Investments sold 14,259,575
- ------------------------------------------------------------
Capital stock sold 11,000,364
- ------------------------------------------------------------
Dividends and interest 1,398,916
- ------------------------------------------------------------
Investment for deferred compensation plan 27,396
- ------------------------------------------------------------
Other assets 45,665
- ------------------------------------------------------------
Total assets 1,917,985,616
- ------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 6,504,843
- ------------------------------------------------------------
Capital stock reacquired 9,768,639
- ------------------------------------------------------------
Deferred compensation 27,396
- ------------------------------------------------------------
Accrued advisory fees 1,306,117
- ------------------------------------------------------------
Accrued administrative services fees 14,037
- ------------------------------------------------------------
Accrued directors' fees 1,667
- ------------------------------------------------------------
Accrued distribution fees 1,504,563
- ------------------------------------------------------------
Accrued transfer agent fees 525,606
- ------------------------------------------------------------
Accrued operating expenses 266,958
- ------------------------------------------------------------
Total liabilities 19,919,826
- ------------------------------------------------------------
Net assets applicable to shares outstanding $ 1,898,065,790
- ------------------------------------------------------------
NET ASSETS:
Class A $ 937,587,188
============================================================
Class B $ 947,293,055
============================================================
Class C $ 13,185,547
============================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Class A:
Authorized 200,000,000
- ------------------------------------------------------------
Outstanding 59,074,819
============================================================
Class B:
Authorized 200,000,000
- ------------------------------------------------------------
Outstanding 61,037,960
============================================================
Class C:
Authorized 200,000,000
- ------------------------------------------------------------
Outstanding 849,420
============================================================
Class A:
Net asset value and redemption price per
share $ 15.87
- ------------------------------------------------------------
Offering price per share:
(Net asset value $15.87 / 95.25%) $ 16.66
============================================================
Class B:
Net asset value and offering price per
share $ 15.52
============================================================
Class C:
Net asset value and offering price per
share $ 15.52
============================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $2,183,512 foreign
withholding tax) $ 18,760,780
- -------------------------------------------------------------
Interest 9,083,744
- -------------------------------------------------------------
Total investment income 27,844,524
- -------------------------------------------------------------
EXPENSES:
Advisory fees 20,126,609
- -------------------------------------------------------------
Administrative services fees 116,964
- -------------------------------------------------------------
Custodian fees 1,622,763
- -------------------------------------------------------------
Directors' fees 22,638
- -------------------------------------------------------------
Distribution fees-Class A 5,666,115
- -------------------------------------------------------------
Distribution fees-Class B 11,650,938
- -------------------------------------------------------------
Distribution fees-Class C 106,960
- -------------------------------------------------------------
Transfer agent fees-Class A 2,937,083
- -------------------------------------------------------------
Transfer agent fees-Class B 3,797,721
- -------------------------------------------------------------
Transfer agent fees-Class C 50,038
- -------------------------------------------------------------
Other 1,047,591
- -------------------------------------------------------------
Total expenses 47,145,420
- -------------------------------------------------------------
Less: Expenses paid indirectly (50,158)
- -------------------------------------------------------------
Net expenses 47,095,262
- -------------------------------------------------------------
Net investment income (loss) (19,250,738)
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN
CURRENCIES:
Net realized gain from:
Investment securities 7,476,990
- -------------------------------------------------------------
Foreign currencies 810,572
- -------------------------------------------------------------
8,287,562
- -------------------------------------------------------------
Net unrealized appreciation (depreciation) of:
Investment securities (163,421,477)
- -------------------------------------------------------------
Foreign currencies (343,551)
- -------------------------------------------------------------
(163,765,028)
- -------------------------------------------------------------
Net gain (loss) from investment securities
and foreign
currencies (155,477,466)
- -------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $(174,728,204)
=============================================================
</TABLE>
See Notes to Financial Statements.
FS-25
<PAGE> 124
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ (19,250,738) $ (26,427,661)
- ----------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
foreign currencies 8,287,562 (61,191,114)
- ----------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities and foreign currencies (163,765,028) 272,401,591
- ----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (174,728,204) 184,782,816
- ----------------------------------------------------------------------------------------------
Share transactions-net:
Class A (230,924,075) 221,978,537
- ----------------------------------------------------------------------------------------------
Class B (195,608,768) 350,877,196
- ----------------------------------------------------------------------------------------------
Class C 10,146,858 5,007,454
- ----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (591,114,189) 762,646,003
==============================================================================================
NET ASSETS:
Beginning of period 2,489,179,979 1,726,533,976
- ----------------------------------------------------------------------------------------------
End of period $1,898,065,790 $2,489,179,979
- ----------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $1,684,292,210 $2,116,538,293
- ----------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (10,598,077) (36,158)
- ----------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities and foreign currencies (85,955,828) (101,414,669)
- ----------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities and
foreign currencies 310,327,485 474,092,513
- ----------------------------------------------------------------------------------------------
$1,898,065,790 $2,489,179,979
==============================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Global Aggressive Growth Fund (the "Fund") is a series portfolio of AIM
International Funds, Inc. (the "Company"). The Company is a Maryland corporation
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of six
separate portfolios: AIM Global Aggressive Growth Fund, AIM Asian Growth Fund,
AIM European Development Fund, AIM Global Growth Fund, AIM Global Income Fund
and AIM International Equity Fund. The Fund currently offers three different
classes of shares: Class A shares, Class B shares and Class C shares. Class A
shares are sold with a front-end sales charge. Class B shares and Class C shares
are sold with a contingent deferred sales charge. Matters affecting each
portfolio or class are voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund. The Fund's investment objective is to provide above-
average long-term growth of capital appreciation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
A. Security Valuations -- A security listed or traded on an exchange (except
convertible bonds) is valued at the last sales price on the exchange where
the security is principally traded or, lacking any sales, at the mean between
the closing bid and asked prices on the day of valuation. If a mean is not
available, as is the case in some foreign markets, the closing bid will be
used absent a last sales price. Securities traded in the over-the-counter
market (but not including securities reported on the NASDAQ National Market
System) are valued at the mean between the closing bid and asked prices based
upon quotes furnished by market makers for such securities. Securities
reported on the NASDAQ National Market System are valued at the last sales
price on the valuation date or, absent a last sales price, at the mean of the
closing bid and asked prices. Debt obligations (including convertible bonds)
are valued on the basis of prices provided by an independent pricing service.
Prices provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as yield,
type of issue, coupon rate and maturity date. Securities for which market
quotations are either not readily available or are questionable are valued at
fair value as determined in good faith by or under the supervision of the
FS-26
<PAGE> 125
Company's officers in a manner specifically authorized by the Board of
Directors. Investments with maturities of 60 days or less are valued on the
basis of amortized cost which approximates market value. Generally, trading
in foreign securities is substantially completed each day at various times
prior to the close of the New York Stock Exchange. The values of such
securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the New York Stock Exchange.
Occasionally, events affecting the values of such securities and such
exchange rates may occur between the times at which they are determined and
the close of the New York Stock Exchange which would not be reflected in the
computation of the Fund's net asset value. If events materially affecting the
value of such securities occur during such period, then these securities will
be valued at their fair value as determined in good faith by or under the
supervision of the Board of Directors.
B. Foreign Currency Translations -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S. dollar
amounts at date of valuation. Purchases and sales of portfolio securities and
income items denominated in foreign currencies are translated into U.S.
dollar amounts on the respective dates of such transactions.
C. Foreign Currency Contracts -- A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
D. Securities Transactions, Investment Income and Distributions -- Securities
transactions are accounted for on a trade date basis. Realized gains or
losses are computed on the basis of specific identification of the securities
sold. Interest income is recorded as earned from settlement date and is
recorded on an accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. On October 31, 1998,
undistributed net investment income was increased by $8,688,819,
undistributed net realized gains increased by $7,171,279 and paid-in capital
decreased by $15,860,098 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.
E. Federal Income Taxes -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements. The Fund has a capital loss
carryforward of $85,299,787 (which may be carried forward to offset future
taxable capital gains, if any) which expires, if not previously utilized,
through the year 2006.
F. Expenses -- Distribution and transfer agency expenses directly attributable
to a class of shares are charged to that class' operations. All other
expenses which are attributable to more than one class are allocated among
the classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.90% of
the first $1 billion of the Fund's average daily net assets, plus 0.85% of the
Fund's average daily net assets in excess of $1 billion.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to reimburse AIM for administrative costs incurred in providing
accounting services to the Fund. During the year ended October 31, 1998, AIM was
reimbursed $116,964 for such services.
The Fund, pursuant to a transfer agency and services agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") for certain costs incurred in providing
transfer agency services to the Fund. During the year ended October 31, 1998,
AFS was paid $3,823,186 for such services.
The Company has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Company has adopted
distribution plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A shares and Class C shares (the "Class A and C Plan"), and the
Fund's Class B shares (the "Class B Plan")(collectively, the "Plans"). The Fund,
pursuant to the Class A and C Plan, pays AIM Distributors compensation at an
annual rate of 0.50% of the average daily net assets of the Class A shares and
1.00% of the average daily net assets of Class C shares. The Fund, pursuant to
the Class B Plan, pays AIM Distributors compensation at an annual rate of 1.00%
of the average daily net assets of the Class B shares. Of these amounts, the
Fund may pay a service fee of 0.25% of the average daily net assets of the Class
A, Class B or C shares to selected dealers and financial institutions who
furnish continuing personal shareholder services to their customers who purchase
and own the appropriate class of shares of the Fund. Any amounts not paid as a
service fee under the Plans would constitute an asset-based sales charge. The
Plans also impose a cap on the total sales charges, including asset-based sales
charges that may be paid by the respective classes. During the year ended
October 31, 1998, the Class A, Class B and Class C shares paid AIM Distributors
$5,666,115, $11,650,938 and $106,960, respectively, as compensation under the
Plans.
AIM Distributors received commissions of $622,054 from the sales of the Class
A shares of the Fund during the year ended October 31, 1998. Such commissions
are not an expense of the Fund. They are deducted from, and are not included in,
the proceeds from sales of Class A shares. During the year ended October 31,
1998, AIM Distributors received commissions of
FS-27
<PAGE> 126
$200,802 in contingent deferred sales charges imposed on redemptions of Fund
shares. Certain officers and directors of the Company are officers and directors
of AIM, AFS and AIM Distributors.
During the year ended October 31, 1998, the Fund paid legal fees of $8,243 for
services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the
Company's directors. A member of that firm is a director of the Company.
NOTE 3-INDIRECT EXPENSES
During the year ended October 31, 1998, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) and reductions in custodian fees of
$24,226 and $25,932, respectively, under expense offset arrangements. The effect
of the above arrangements resulted in a reduction of the Fund's total expenses
of $50,158 during the year ended October 31, 1998.
NOTE 4-DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if so
elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $1,000,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. Interest on
borrowings under the line of credit is payable on maturity or prepayment date.
Prior to an amendment of the line of credit on May 1, 1998, the Fund was limited
to borrowing up to the lesser of (1) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. During the year ended October 31, 1998, the Fund did
not borrow under the line of credit agreement. The funds which are party to the
line of credit are charged a commitment fee of 0.05% on the unused balance of
the committed line. The commitment fee is allocated among the funds based on
their respective average net assets for the period.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended October 31, 1998 was
$1,059,551,550 and $1,621,665,722, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
as of October 31, 1998, on a tax basis, is as follows.
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $ 437,375,649
- ------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (138,167,690)
- ------------------------------------------------------------
Net unrealized appreciation of investment
securities $ 299,207,959
============================================================
Cost of investments for tax purposes is $1,583,499,201.
</TABLE>
NOTE 7-CAPITAL STOCK
Changes in the Fund's capital stock outstanding during the years ended October
31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------ ---------------------------
SHARES AMOUNT SHARES AMOUNT
------------ --------------- ----------- -------------
<S> <C> <C> <C> <C>
Sold:
Class A 98,887,924 $ 1,735,509,689 41,562,019 $ 712,389,030
- -----------------------------------------------------------------------------------
Class B 8,273,209 143,682,325 31,043,322 516,329,374
- -----------------------------------------------------------------------------------
Class C* 839,541 14,593,832 281,009 5,113,170
- -----------------------------------------------------------------------------------
Reacquired:
Class A (111,697,312) (1,966,433,764) (28,025,133) (490,410,493)
- -----------------------------------------------------------------------------------
Class B (20,304,373) (339,291,093) (9,784,297) (165,452,178)
- -----------------------------------------------------------------------------------
Class C* (265,144) (4,446,974) (5,986) (105,716)
- -----------------------------------------------------------------------------------
(24,266,155) $ (416,385,985) 35,070,934 $ 577,863,187
===================================================================================
</TABLE>
* Class C commenced sales on August 4, 1997.
FS-28
<PAGE> 127
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A and Class B
capital stock outstanding during each of the years in the four-year period ended
October 31, 1998 and the period September 15, 1994 (date sales commenced)
through October 31, 1994, and for a share of Class C capital stock outstanding
during the year ended October 31, 1998 and the period August 4, 1997 (date sales
commenced) through October 31, 1997.
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 17.28 $ 15.76 $ 13.09 $ 10.22 $ 10.00
- ------------------------------------------------------------ ---------- ---------- -------- -------- --------
Income from investment operations:
Net investment income (loss) (0.10)(a) (0.15)(a) (0.09)(a) (0.09)(a) --
- ------------------------------------------------------------ ---------- ---------- -------- -------- --------
Net gains (losses) on securities (both realized and
unrealized) (1.31) 1.67 2.81 2.96 0.22
- ------------------------------------------------------------ ---------- ---------- -------- -------- --------
Total from investment operations (1.41) 1.52 2.72 2.87 0.22
- ------------------------------------------------------------ ---------- ---------- -------- -------- --------
Less distributions:
Distributions from net realized gains -- -- (0.05) -- --
- ------------------------------------------------------------ ---------- ---------- -------- -------- --------
Net asset value, end of period $ 15.87 $ 17.28 $ 15.76 $ 13.09 $ 10.22
============================================================ ========== ========== ======== ======== ========
Total return(b) (8.16)% 9.65% 20.83% 28.08% 2.20%
============================================================ ========== ========== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 937,587 $1,242,505 $919,319 $186,029 $ 18,410
============================================================ ========== ========== ======== ======== ========
Ratio of expenses to average net assets 1.75%(c) 1.75% 1.83% 2.11% 2.02%(d)(e)
============================================================ ========== ========== ======== ======== ========
Ratio of net investment income (loss) to average net assets (0.55)%(c) (0.88)% (0.62)% (0.68)% 0.27%(e)(f)
============================================================ ========== ========== ======== ======== ========
Portfolio turnover rate 50% 57% 44% 64% 2%
============================================================ ========== ========== ======== ======== ========
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct sales charges and is not annualized for periods less than
one year.
(c) Ratios are based on average net assets of $1,133,222,992.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
4.03% (annualized).
(e) Annualized.
(f) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursements was (1.74)% (annualized).
<TABLE>
<CAPTION>
CLASS B CLASS C
-------------------------------------------------------- --------------------
1998 1997 1996 1995 1994 1998 1997
---------- ---------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 17.00 $ 15.58 $ 13.02 $ 10.21 $ 10.00 $ 17.00 $ 18.39
- ------------------------------------------- ---------- ---------- -------- -------- ------- -------- --------
Income from investment operations:
Net investment income (loss) (0.19)(a) (0.24)(a) (0.17)(a) (0.14)(a) -- (0.19)(a) (0.04)(a)
- ------------------------------------------- ---------- ---------- -------- -------- ------- -------- --------
Net gains (losses) on securities (both
realized and unrealized) (1.29) 1.66 2.78 2.95 0.21 (1.29) (1.35)
- ------------------------------------------- ---------- ---------- -------- -------- ------- -------- --------
Total from investment operations (1.48) 1.42 2.61 2.81 0.21 (1.48) (1.39)
- ------------------------------------------- ---------- ---------- -------- -------- ------- -------- --------
Less distributions:
Distributions from net realized gains -- -- (0.05) -- -- -- --
- ------------------------------------------- ---------- ---------- -------- -------- ------- -------- --------
Net asset value, end of period $ 15.52 $ 17.00 $ 15.58 $ 13.02 $ 10.21 $ 15.52 $ 17.00
=========================================== ========== ========== ======== ======== ======= ======== =========
Total return(b) (8.71)% 9.11% 20.09% 27.52% 2.10% (8.71)% (7.56)%
=========================================== ========== ========== ======== ======== ======= ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 947,293 $1,241,999 $807,215 $118,199 $ 6,201 $ 13,186 $ 4,676
=========================================== ========== ========== ======== ======== ======= ======== ========
Ratio of expenses to average net assets 2.32%(c) 2.30% 2.37% 2.62% 2.54%(d)(e) 2.34%(c) 2.36%(e)
=========================================== ========== ========== ======== ======== ======= ======== ========
Ratio of net investment income (loss) to
average net assets (1.11)%(c) (1.44)% (1.16)% (1.19)% (0.25)%(e)(f) (1.13)%(c) (1.50)%(e)
=========================================== ========== ========== ======== ======== ======= ======== ========
Portfolio turnover rate 50% 57% 44% 64% 2% 50% 57%
=========================================== ========== ========== ======== ======== ======= ======== ========
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(c) Ratios are based on average net assets of $1,165,093,820 and $10,696,025 for
Class B and Class C, respectively.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
4.43% (annualized).
(e) Annualized.
(f) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursements was (2.14)% (annualized).
FS-29
<PAGE> 128
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
AIM International Funds, Inc.:
We have audited the accompanying statement of assets and
liabilities of AIM Global Growth Fund (a portfolio of AIM
International Funds, Inc.), including the schedule of
investments, as of October 31, 1998, and the related
statement of operations for the year then ended, the
statement of changes in net assets for the two-year
period then ended and the financial highlights for the
four-year period then ended and the period September 15,
1994 (date operations commenced) through October 31,
1994. These financial statements and financial highlights
are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these
financial statements and financial highlights based on
our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of October 31, 1998, by
correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all
material respects, the financial position of AIM Global
Growth Fund as of October 31, 1998, the results of its
operations for the year then ended, the changes in its
net assets for the two-year period then ended and the
financial highlights for the four-year period then ended
and the period September 15, 1994 (date operations
commenced) through October 31, 1994, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Houston, Texas
December 4, 1998
FS-30
<PAGE> 129
SCHEDULE OF INVESTMENTS
October 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS-35.08%
BIOTECHNOLOGY-0.49%
Amgen, Inc.(a) 32,000 $ 2,514,000
- --------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE)-0.59%
Comcast Corp.-Class A 61,000 3,011,875
- --------------------------------------------------------------
CHEMICALS (DIVERSIFIED)-0.38%
Monsanto Co. 47,500 1,929,687
- --------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-0.50%
Lucent Technologies, Inc. 32,000 2,566,000
- --------------------------------------------------------------
COMPUTERS (HARDWARE)-2.77%
Compaq Computer Corp. 100,000 3,162,500
- --------------------------------------------------------------
Dell Computer Corp.(a) 60,000 3,937,500
- --------------------------------------------------------------
International Business Machines
Corp. 48,000 7,125,000
- --------------------------------------------------------------
14,225,000
- --------------------------------------------------------------
COMPUTERS (NETWORKING)-1.04%
Ascend Communications, Inc.(a) 51,000 2,460,750
- --------------------------------------------------------------
Cisco Systems, Inc.(a) 45,000 2,835,000
- --------------------------------------------------------------
5,295,750
- --------------------------------------------------------------
COMPUTERS (PERIPHERALS)-1.07%
EMC Corp.(a) 85,000 5,471,875
- --------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-3.40%
America Online, Inc.(a) 27,000 3,430,688
- --------------------------------------------------------------
BMC Software, Inc.(a) 115,000 5,527,187
- --------------------------------------------------------------
Computer Sciences Corp.(a) 43,000 2,268,250
- --------------------------------------------------------------
Compuware Corp.(a) 42,000 2,275,875
- --------------------------------------------------------------
Microsoft Corp.(a) 37,000 3,917,375
- --------------------------------------------------------------
17,419,375
- --------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH)-1.23%
AmeriSource Health Corp.-Class A(a) 41,500 2,176,156
- --------------------------------------------------------------
Cardinal Health, Inc. 20,250 1,914,891
- --------------------------------------------------------------
McKesson Corp. 29,000 2,233,000
- --------------------------------------------------------------
6,324,047
- --------------------------------------------------------------
ELECTRICAL EQUIPMENT-0.51%
General Electric Co. 30,200 2,642,500
- --------------------------------------------------------------
ENTERTAINMENT-0.18%
Viacom, Inc.-Class B(a) 15,800 946,025
- --------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-2.82%
American Express Co. 24,500 2,165,188
- --------------------------------------------------------------
Citigroup, Inc. 40,000 1,882,500
- --------------------------------------------------------------
Fannie Mae 27,200 1,926,100
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FINANCIAL (DIVERSIFIED)-(CONTINUED)
Freddie Mac 39,000 $ 2,242,500
- --------------------------------------------------------------
Morgan Stanley, Dean Witter,
Discover & Co. 25,900 1,677,025
- --------------------------------------------------------------
SunAmerica, Inc. 65,000 4,582,500
- --------------------------------------------------------------
14,475,813
- --------------------------------------------------------------
HEALTH CARE (DIVERSIFIED)-2.02%
Abbott Laboratories 64,000 3,004,000
- --------------------------------------------------------------
Bristol-Myers Squibb Co. 45,600 5,041,650
- --------------------------------------------------------------
Warner-Lambert Co. 33,000 2,586,375
- --------------------------------------------------------------
10,632,025
- --------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER)-0.39%
Watson Pharmaceuticals, Inc.(a) 35,800 1,991,375
- --------------------------------------------------------------
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS)-2.47%
Lilly (Eli) & Co. 31,500 2,549,531
- --------------------------------------------------------------
Merck & Co., Inc. 33,500 4,530,875
- --------------------------------------------------------------
Pfizer, Inc. 24,200 2,596,962
- --------------------------------------------------------------
Schering-Plough Corp. 28,000 2,880,500
- --------------------------------------------------------------
12,557,868
- --------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-1.47%
Becton, Dickinson & Co. 74,000 3,117,250
- --------------------------------------------------------------
Biomet, Inc. 51,700 1,754,569
- --------------------------------------------------------------
Guidant Corp. 35,000 2,677,500
- --------------------------------------------------------------
7,549,319
- --------------------------------------------------------------
INSURANCE (MULTI-LINE)-0.51%
American International Group, Inc. 31,000 2,642,750
- --------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE-0.35%
Merrill Lynch & Co., Inc. 30,000 1,777,500
- --------------------------------------------------------------
INVESTMENT MANAGEMENT-0.25%
T. Rowe Price Associates, Inc. 35,600 1,266,025
- --------------------------------------------------------------
LODGING-HOTELS-0.64%
Carnival Corp. 100,000 3,237,500
- --------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-0.64%
Tyco International Ltd. 53,000 3,282,688
- --------------------------------------------------------------
NATURAL GAS-0.46%
Enron Corp. 45,000 2,373,750
- --------------------------------------------------------------
OIL (INTERNATIONAL INTEGRATED)-0.50%
Texaco, Inc. 43,500 2,580,094
- --------------------------------------------------------------
</TABLE>
FS-31
<PAGE> 130
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (BUILDING SUPPLIES)-0.86%
Home Depot, Inc. (The) 62,000 $ 2,697,000
- --------------------------------------------------------------
Lowe's Companies, Inc. 51,000 1,718,062
- --------------------------------------------------------------
4,415,062
- --------------------------------------------------------------
RETAIL (DRUG STORES)-0.36%
CVS Corp. 42,000 1,918,875
- --------------------------------------------------------------
RETAIL (FOOD CHAINS)-1.08%
Kroger Co.(a) 60,000 3,330,000
- --------------------------------------------------------------
Safeway, Inc.(a) 46,000 2,199,375
- --------------------------------------------------------------
5,529,375
- --------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE)-0.61%
Wal-Mart Stores, Inc. 45,000 3,105,000
- --------------------------------------------------------------
RETAIL (SPECIALTY)-1.01%
Office Depot, Inc.(a) 105,000 2,625,000
- --------------------------------------------------------------
Staples, Inc.(a) 78,500 2,561,062
- --------------------------------------------------------------
5,186,062
- --------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-0.30%
Gap, Inc. (The) 25,000 1,503,125
- --------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING)-0.54%
Outdoor Systems, Inc.(a) 125,000 2,757,813
- --------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-0.47%
IMS Health, Inc. 36,500 2,427,250
- --------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS)-0.72%
SunGard Data Systems, Inc.(a) 110,000 3,712,500
- --------------------------------------------------------------
SERVICES (DATA PROCESSING)-1.27%
Ceridian Corp.(a) 87,000 4,991,625
- --------------------------------------------------------------
Fiserv, Inc.(a) 32,400 1,506,600
- --------------------------------------------------------------
6,498,225
- --------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-0.50%
AirTouch Communications, Inc.(a) 45,000 2,520,000
- --------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-2.68%
MCI WorldCom, Inc.(a) 248,780 13,745,095
- --------------------------------------------------------------
Total Domestic Common Stock
(Cost $142,884,069) 180,031,223
- --------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY INTERESTS-53.27%
ARGENTINA-0.98%
Telefonica de Argentina S.A.-ADR
(Telephone) 57,400 1,897,788
- --------------------------------------------------------------
YPF Sociedad Anonima-ADR
(Oil-International Integrated) 108,300 3,133,931
- --------------------------------------------------------------
5,031,719
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
AUSTRALIA-0.40%
AMP Ltd. (Insurance-Life/Health)(a) 174,000 $ 2,069,839
- --------------------------------------------------------------
BELGIUM-1.83%
Barco N.V. (Manufacturing-Diversified) 5,700 1,520,111
- --------------------------------------------------------------
Colruyt N.V. (Retail-Food Chains) 2,700 2,258,563
- --------------------------------------------------------------
Delhaize-Le Lion, S.A.
(Retail-Food & Drug) 30,000 2,564,403
- --------------------------------------------------------------
UCB S.A. (Manufacturing-Diversified) 520 3,037,646
- --------------------------------------------------------------
9,380,723
- --------------------------------------------------------------
BRAZIL-1.17%
Companhia Energetica de Minas
Gerais (Electric Companies) 37,937 737,873
- --------------------------------------------------------------
Petroleo Brasileiro S.A.-Petrobras-Pfd.
(Oil & Gas-Exploration & Production) 5,416 681,024
- --------------------------------------------------------------
Telecomunicacoes Brasileiras
S.A.-ADR (Telephone) 31,900 2,422,406
- --------------------------------------------------------------
Telecomunicacoes de Sao Paulo
S.A.-TELESP-Pfd. (Telephone) 8,600 1,441,985
- --------------------------------------------------------------
Telerj Celular S.A. (Telecommunications-
Cellular/Wireless)(a) 8,689 269,528
- --------------------------------------------------------------
Telesp Celular S.A. (Telecommunications-
Cellular/Wireless)(a) 8,600 425,386
- --------------------------------------------------------------
5,978,202
- --------------------------------------------------------------
CANADA-3.34%
ATI Technologies, Inc.
(Computers-Hardware)(a) 90,200 730,956
- --------------------------------------------------------------
Bank of Montreal (Banks-Major Regional) 30,300 1,239,501
- --------------------------------------------------------------
BCE Inc. (Telephone) 33,300 1,129,070
- --------------------------------------------------------------
Bombardier Inc. (Aerospace/Defense) 96,000 1,135,818
- --------------------------------------------------------------
Canadian National Railway Co. (Railroads) 8,800 443,850
- --------------------------------------------------------------
Imasco Ltd.
(Manufacturing-Diversified) 163,500 3,073,906
- --------------------------------------------------------------
Mitel Corp. (Communications
Equipment)(a) 45,900 370,473
- --------------------------------------------------------------
Northern Telecom Ltd.-ADR
(Communications Equipment) 13,146 562,813
- --------------------------------------------------------------
Royal Bank of Canada (Banks-Major
Regional) 46,000 2,120,324
- --------------------------------------------------------------
Suncor Energy, Inc.
(Oil-International Integrated) 56,000 1,778,930
- --------------------------------------------------------------
Teleglobe, Inc. (Communications
Equipment) 108,000 2,954,684
- --------------------------------------------------------------
Toronto-Dominion Bank (Banks-Regional) 54,500 1,621,750
- --------------------------------------------------------------
17,162,075
- --------------------------------------------------------------
CROATIA-0.22%
Pliva DD GDR (Health Care-Drugs-Major
Pharmaceutical) (Acquired
05/13/98-05/20/98; Cost $1,243,362)(b) 4,000 1,087,800
- --------------------------------------------------------------
FINLAND-1.04%
Nokia Oyj A.B.-Class A
(Communications Equipment) 58,600 5,344,739
- --------------------------------------------------------------
</TABLE>
FS-32
<PAGE> 131
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FRANCE-8.03%
Accor S.A. (Lodging-Hotels) 11,200 $ 2,353,458
- --------------------------------------------------------------
Altran Technologies, S.A.
(Services-Commercial & Consumer) 11,500 2,250,842
- --------------------------------------------------------------
AXA S.A. (Insurance-Multi-Line) 34,650 3,918,145
- --------------------------------------------------------------
Banque Nationale de Paris
(Banks-Major Regional) 13,000 823,721
- --------------------------------------------------------------
Cap Gemini Sogeti S.A.
(Computers-Software & Services) 27,000 4,059,456
- --------------------------------------------------------------
Danone (Foods) 5,400 1,428,345
- --------------------------------------------------------------
Elf Aquitaine S.A. (Oil &
Gas-Refining & Marketing) 17,500 2,026,127
- --------------------------------------------------------------
Essilor International S.A.
(Manufacturing-Specialized) 3,500 1,417,974
- --------------------------------------------------------------
Legrand S.A. (Housewares) 5,300 1,351,315
- --------------------------------------------------------------
Pinault-Printemps-Redoute S.A.
(Retail-General Merchandise) 14,500 2,428,111
- --------------------------------------------------------------
Promodes (Retail-Food Chains) 4,800 3,024,146
- --------------------------------------------------------------
PSA Peugeot Citreon (Automobiles) 7,000 1,168,410
- --------------------------------------------------------------
Renault S.A. (Automobiles) 40,000 1,710,571
- --------------------------------------------------------------
Rexal S.A. (Distributors-Food &
Health) 14,900 1,368,277
- --------------------------------------------------------------
Rhone-Poulenc-Class A
(Chemicals-Diversified) 55,600 2,542,881
- --------------------------------------------------------------
Societe Generale (Banks-Major
Regional) 4,000 529,377
- --------------------------------------------------------------
Societe Television Francaise 1
(Broadcasting-Television, Radio
& Cable) 14,800 2,446,369
- --------------------------------------------------------------
Suez Lyonnaise des Eaux
(Manufacturing-Diversified) 17,750 3,180,087
- --------------------------------------------------------------
Total S.A.-Class B (Oil &
Gas-Refining & Marketing) 13,100 1,511,983
- --------------------------------------------------------------
Valeo S.A. (Auto Parts & Equipment) 19,400 1,680,213
- --------------------------------------------------------------
41,219,808
- --------------------------------------------------------------
GERMANY-3.53%
Allianz A.G. (Insurance-Multi-Line) 6,600 2,264,999
- --------------------------------------------------------------
Bayerische Vereinsbank A.G.
(Banks-Major Regional) 17,000 1,350,674
- --------------------------------------------------------------
BHF-Bank A.G. (Banks-Major
Regional) 30,800 1,186,333
- --------------------------------------------------------------
Continental A.G. (Auto Parts &
Equipment) 36,350 966,346
- --------------------------------------------------------------
Daimler-Benz A.G. (Automobiles) 25,000 1,970,313
- --------------------------------------------------------------
Dresdner Bank A.G. (Banks-Major
Regional) 36,000 1,402,936
- --------------------------------------------------------------
Henkel KGaA (Chemicals-Diversified) 30,600 2,616,096
- --------------------------------------------------------------
Karstadt A.G. (Retail-Department
Stores) 10,400 5,309,649
- --------------------------------------------------------------
Porsche A.G. (Automobiles) 600 1,062,171
- --------------------------------------------------------------
18,129,517
- --------------------------------------------------------------
HONG KONG-0.75%
Cosco Pacific Ltd.
(Financial-Diversified) 1,294,000 634,928
- --------------------------------------------------------------
Hutchison Whampoa Ltd.
(Retail-Food Chains) 338,000 2,422,235
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HONG KONG-(CONTINUED)
Ng Fung Hong Ltd. (Foods) 898,000 $ 794,280
- --------------------------------------------------------------
3,851,443
- --------------------------------------------------------------
INDONESIA-0.33%
Gulf Indonesia Resources Ltd.
(Oil-International Integrated)(a) 170,700 1,685,663
- --------------------------------------------------------------
IRELAND-1.08%
Allied Irish Banks PLC
(Banks-Regional) 180,000 2,583,905
- --------------------------------------------------------------
Bank of Ireland (Banks-Major
Regional) 75,000 1,377,781
- --------------------------------------------------------------
Elan Corp. PLC-ADR (Health
Care-Drugs-Generic & Other)(a) 22,700 1,590,419
- --------------------------------------------------------------
5,552,105
- --------------------------------------------------------------
ITALY-4.17%
Assicurazioni Generali
(Insurance-Multi-Line) 92,200 3,288,579
- --------------------------------------------------------------
Banca Commerciale Italiana
(Banks-Major Regional)(a) 238,800 1,476,536
- --------------------------------------------------------------
Banca di Roma (Banks-Major
Regional)(a) 1,499,000 2,614,556
- --------------------------------------------------------------
Credito Italiano S.p.A.
(Banks-Major Regional) 595,000 3,204,573
- --------------------------------------------------------------
Ente Nazionale Idrocarburi S.p.A.
(Oil & Gas-Refining & Marketing) 290,000 1,729,554
- --------------------------------------------------------------
Istituto Mobiliare Italiano S.p.A.
(Banks-Major Regional) 186,000 2,858,359
- --------------------------------------------------------------
Telecom Italia Mobile S.p.A.
(Telephone) 460,000 2,673,223
- --------------------------------------------------------------
Telecom Italia S.p.A. (Telephone) 488,888 3,535,633
- --------------------------------------------------------------
21,381,013
- --------------------------------------------------------------
JAPAN-2.88%
Bridgestone Corp. (Auto Parts &
Equipment) 144,000 3,174,287
- --------------------------------------------------------------
Fuji Photo Film Co.
(Photography/Imaging) 40,000 1,467,858
- --------------------------------------------------------------
Nippon Telegraph & Telephone Corp.
(Telephone) 2,500 1,959,436
- --------------------------------------------------------------
NTT Data Corp. (Computers-Software
& Services) 590 2,499,742
- --------------------------------------------------------------
Okuma Corp. (Machine Tools) 29,000 149,536
- --------------------------------------------------------------
Rohm Co. (Electronics-Component
Distributors) 31,000 2,744,070
- --------------------------------------------------------------
SMC Corp. (Machinery-Diversified) 19,000 1,435,287
- --------------------------------------------------------------
Sony Corp. (Electronics-Component
Distributors) 21,400 1,360,949
- --------------------------------------------------------------
14,791,165
- --------------------------------------------------------------
MEXICO-1.59%
Coca-Cola Femsa S.A.-ADR
(Beverages-Non-Alcoholic) 123,700 2,041,050
- --------------------------------------------------------------
Formento Economico Mexicano, S.A.
de C.V. (Beverages-Alcoholic) 96,190 2,506,952
- --------------------------------------------------------------
Grupo Financiero Banamex Accival,
S.A. de C.V.
(Financial-Diversified)(a) 746,000 782,698
- --------------------------------------------------------------
Grupo Modelo S.A. de C.V.-Series C
(Beverages-Alcoholic) 384,000 809,581
- --------------------------------------------------------------
</TABLE>
FS-33
<PAGE> 132
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MEXICO-(CONTINUED)
Grupo Televisa S.A.-GDR
(Entertainment)(a) 74,400 $ 2,018,100
- --------------------------------------------------------------
8,158,381
- --------------------------------------------------------------
NETHERLANDS-3.99%
De Boer Unigro (Retail-Food & Drug)(a) 26,600 669,344
- --------------------------------------------------------------
Getronics N.V. (Computers-Software
& Services) 41,000 1,701,199
- --------------------------------------------------------------
Heineken N.V. (Beverages-Alcoholic) 53,000 2,823,375
- --------------------------------------------------------------
IHC Caland N.V.
(Manufacturing-Specialized) 14,000 633,365
- --------------------------------------------------------------
Koninklijke Ahold N.V.
(Retail-Food Chains) 83,000 2,759,557
- --------------------------------------------------------------
Koninklijke Numico N.V. (Foods) 32,400 1,274,976
- --------------------------------------------------------------
Randstad Holdings N.V.
(Services-Commercial & Consumer) 25,000 1,338,473
- --------------------------------------------------------------
Vedior N.V.
(Services-Employment)(a) 37,498 955,619
- --------------------------------------------------------------
Vendex N.V. (Retail-General
Merchandise) 38,000 966,378
- --------------------------------------------------------------
Verenigde Nederlandse Uitgeversbedrijven
Verenigd Bezit (Publishing) 110,800 3,832,145
- --------------------------------------------------------------
Wolters Kluwer N.V. (Specialty
Printing) 18,000 3,488,596
- --------------------------------------------------------------
20,443,027
- --------------------------------------------------------------
NORWAY-0.18%
Merkantildata ASA
(Services-Commercial & Consumer) 92,000 925,377
- --------------------------------------------------------------
PHILIPPINES-0.27%
Philippine Long Distance Telephone
Co. (Telephone) 42,260 1,014,450
- --------------------------------------------------------------
Philippine Long Distance Telephone
Co.-ADR (Telephone) 17,800 433,875
- --------------------------------------------------------------
1,448,325
- --------------------------------------------------------------
PORTUGAL-1.75%
Banco Comercial Portugues, S.A.
(Banks-Major Regional) 100,500 3,147,430
- --------------------------------------------------------------
Electricidade de Portugal, S.A.
(Electric Companies) 50,000 1,257,360
- --------------------------------------------------------------
Electricidade de Portugal,
S.A.-ADR (Electric Companies) 24,200 1,210,000
- --------------------------------------------------------------
Portugal Telecom S.A. (Telephone) 21,000 995,349
- --------------------------------------------------------------
Telecel-Comunicacaoes Pessoais, S.A.
(Telecommunications-Cellular/Wireless) 13,000 2,395,784
- --------------------------------------------------------------
9,005,923
- --------------------------------------------------------------
SPAIN-1.91%
Corp. Financiera Reunida, S.A.
(Investment Management)(a) 103,000 1,236,205
- --------------------------------------------------------------
Endesa S.A. (Electric Companies) 104,200 2,627,015
- --------------------------------------------------------------
Iberdrola S.A. (Electric Companies) 195,000 3,150,522
- --------------------------------------------------------------
Telefonica de Espana (Telephone) 62,000 2,800,369
- --------------------------------------------------------------
9,814,111
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SWEDEN-0.92%
Hennes & Mauritz A.B.-Class B
(Retail-Specialty-Apparel) 45,400 $ 3,201,693
- --------------------------------------------------------------
WM-Data A.B. (Computers-Software &
Services) 42,000 1,529,427
- --------------------------------------------------------------
4,731,120
- --------------------------------------------------------------
SWITZERLAND-2.96%
Adecco S.A. (Services-Commercial &
Consumer) 5,500 2,192,530
- --------------------------------------------------------------
Julius Baer Holding A.G.
(Banks-Major Regional) 470 1,439,909
- --------------------------------------------------------------
Nestle S.A. (Foods) 1,200 2,551,307
- --------------------------------------------------------------
Novartis A.G. (Health Care-Diversified) 3,100 5,583,936
- --------------------------------------------------------------
UBS A.G. (Banks-Major Regional)(a) 6,999 1,919,481
- --------------------------------------------------------------
Zurich Allied A.G. (Insurance-Multi-Line) 2,500 1,518,900
- --------------------------------------------------------------
15,206,063
- --------------------------------------------------------------
TAIWAN-0.25%
Taiwan Semiconductor Manufacturing
Co. Ltd.-ADR
(Electronics-Semiconductors)(a) 84,825 1,267,073
- --------------------------------------------------------------
UNITED KINGDOM-9.70%
Airtours PLC (Services-Commercial
& Consumer) 215,700 1,208,959
- --------------------------------------------------------------
Bodycote International PLC
(Chemicals-Specialty) 71,000 1,015,643
- --------------------------------------------------------------
British Aerospace PLC
(Aerospace/Defense) 256,000 1,903,831
- --------------------------------------------------------------
British Petroleum Co. PLC (Oil &
Gas-Refining & Marketing) 137,000 2,010,189
- --------------------------------------------------------------
Cable & Wireless PLC
(Telecommunications-
Cellular/Wireless) 226,000 2,533,378
- --------------------------------------------------------------
Compass Group PLC
(Services-Commercial & Consumer) 118,400 1,198,460
- --------------------------------------------------------------
EMAP PLC (Publishing) 102,000 1,740,673
- --------------------------------------------------------------
General Electric Co. PLC
(Manufacturing-Diversified) 316,500 2,528,505
- --------------------------------------------------------------
GKN PLC (Manufacturing-Diversified) 78,000 947,432
- --------------------------------------------------------------
Hays PLC (Services-Commercial &
Consumer) 178,000 2,622,202
- --------------------------------------------------------------
Kingfisher PLC (Retail-Department
Stores) 330,000 2,895,851
- --------------------------------------------------------------
Ladbroke Group PLC (Leisure
Time-Products) 382,000 1,398,068
- --------------------------------------------------------------
Logica PLC (Computers Software &
Services) 40,000 1,350,176
- --------------------------------------------------------------
Misys PLC (Services-Commercial &
Consumer) 225,000 1,577,296
- --------------------------------------------------------------
Orange PLC (Telecommunications
Cellular/Wireless)(a) 377,500 3,508,470
- --------------------------------------------------------------
Pearson PLC (Specialty Printing) 250,000 4,358,374
- --------------------------------------------------------------
Provident Financial PLC (Consumer
Finance) 174,578 2,619,984
- --------------------------------------------------------------
Railtrack Group PLC (Shipping) 121,789 3,270,392
- --------------------------------------------------------------
Rentokil Initial PLC
(Services-Commercial & Consumer) 240,000 1,501,757
- --------------------------------------------------------------
Somerfield PLC (Retail-Food Chains) 160,000 1,027,940
- --------------------------------------------------------------
Stagecoach Holdings PLC (Shipping) 185,000 718,086
- --------------------------------------------------------------
</TABLE>
FS-34
<PAGE> 133
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
UNITED KINGDOM-(CONTINUED)
Unilever PLC (Foods) 224,000 $ 2,248,620
- --------------------------------------------------------------
Vodafone Group PLC (Telecommunications-
Cellular/Wireless) 300,000 4,015,392
- --------------------------------------------------------------
WPP Group PLC
(Services-Advertising/Marketing) 316,000 1,570,219
- --------------------------------------------------------------
49,769,897
- --------------------------------------------------------------
Total Foreign Stocks & Other Interests
(Cost $231,110,475) 273,435,108
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
NON-U.S. DOLLAR DENOMINATED
FOREIGN BONDS & NOTES-0.24%
FRANCE-0.24%
AXA-UAP (Insurance-Multi-Line),
Conv. Sr. Deb., 4.50%,
01/01/99(c) (Cost $732,700) FRF $ 2,835,000 1,266,707
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. TREASURY BILLS(d)-2.84%
3.998%, 12/24/98 (Cost
$14,580,152) $14,680,000(e) $14,580,152
- --------------------------------------------------------------
REPURCHASE AGREEMENT(f)-7.84%
Chase Securities Inc., 5.55%;
11/02/98(g) (Cost $40,234,373) 40,234,373 40,234,373
- --------------------------------------------------------------
TOTAL INVESTMENTS-99.27% 509,547,563
- --------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-0.73% 3,724,605
- --------------------------------------------------------------
NET ASSETS-100.00% $513,272,168
==============================================================
</TABLE>
Abbreviations:
ADR - American Depositary Receipt
Conv. - Convertible
Deb. - Debenture
FRF - French Franc
GDR - Global Depositary Receipt
Pfd. - Preferred
Sr. - Senior
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Restricted security. May be resold to qualified institutional buyers in
accordance with provisions of Rule144A under the Securities Act of 1933, as
amended. The valuation of this security has been determined in accordance
with procedures established by the Board of Directors. The market value at
10/31/98 represented 0.21% of the Fund's net assets.
(c) Foreign denominated security. Par value and coupon are denominated in
currency of country indicated.
(d) 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.
(e) A portion of the principal balance was pledged as collateral to cover margin
requirements for open future contracts. See Note 7.
(f) 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, private accounts, and certain
non-registered investment companies managed by the investment advisor or its
affiliates.
(g) Joint repurchase agreement entered into 10/30/98 with a maturing value of
$200,092,500. Collateralized by $254,478,951 U.S. obligations, 5.00% to
16.00% due 05/20/02 to 10/15/28 with an aggregate market value at 10/31/98
of $204,000,718.
See Notes to Financial Statements.
FS-35
<PAGE> 134
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$429,541,768) $509,547,563
- -------------------------------------------------------
Foreign currencies, at value (cost
$2,908,750) 2,867,324
- -------------------------------------------------------
Receivables for:
Investments sold 5,283,599
- -------------------------------------------------------
Capital stock sold 902,877
- -------------------------------------------------------
Dividends and interest 669,236
- -------------------------------------------------------
Variation margin 121,800
- -------------------------------------------------------
Investment for deferred compensation plan 16,751
- -------------------------------------------------------
Other assets 32,592
- -------------------------------------------------------
Total assets 519,441,742
- -------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 2,266,486
- -------------------------------------------------------
Capital stock reacquired 2,943,063
- -------------------------------------------------------
Deferred compensation 16,751
- -------------------------------------------------------
Accrued advisory fees 342,852
- -------------------------------------------------------
Accrued administrative services fees 6,794
- -------------------------------------------------------
Accrued directors' fees 950
- -------------------------------------------------------
Accrued distribution fees 381,884
- -------------------------------------------------------
Accrued transfer agent fees 102,404
- -------------------------------------------------------
Accrued operating expenses 108,390
- -------------------------------------------------------
Total liabilities 6,169,574
- -------------------------------------------------------
Net assets applicable to shares
outstanding $513,272,168
=======================================================
NET ASSETS:
Class A $219,050,319
=======================================================
Class B $282,456,392
=======================================================
Class C $ 11,765,457
=======================================================
CAPITAL STOCK, $0.001 PAR VALUE PER
SHARE:
Class A:
Authorized 200,000,000
- -------------------------------------------------------
Outstanding 12,232,346
=======================================================
Class B:
Authorized 200,000,000
- -------------------------------------------------------
Outstanding 16,123,542
=======================================================
Class C:
Authorized 200,000,000
- -------------------------------------------------------
Outstanding 671,426
=======================================================
Class A:
Net asset value and redemption price
per share $ 17.91
- -------------------------------------------------------
Offering price per share:
(Net asset value $17.91 divided
by 95.25%) $ 18.80
=======================================================
Class B:
Net asset value and offering price per
share $ 17.52
=======================================================
Class C:
Net asset value and offering price per
share $ 17.52
=======================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $543,674 foreign
withholding tax) $ 4,922,111
- --------------------------------------------------------
Interest 1,881,399
- --------------------------------------------------------
Total investment income 6,803,510
- --------------------------------------------------------
EXPENSES:
Advisory fees 4,042,472
- --------------------------------------------------------
Administrative services fees 80,267
- --------------------------------------------------------
Custodian fees 343,515
- --------------------------------------------------------
Directors' fees 9,946
- --------------------------------------------------------
Distribution fees -- Class A 1,029,313
- --------------------------------------------------------
Distribution fees -- Class B 2,638,894
- --------------------------------------------------------
Distribution fees -- Class C 58,329
- --------------------------------------------------------
Transfer agent fees -- Class A 432,449
- --------------------------------------------------------
Transfer agent fees -- Class B 714,330
- --------------------------------------------------------
Transfer agent fees -- Class C 19,415
- --------------------------------------------------------
Other 251,098
- --------------------------------------------------------
Total expenses 9,620,028
- --------------------------------------------------------
Less:
Expenses paid indirectly (6,702)
- --------------------------------------------------------
Net expenses 9,613,326
- --------------------------------------------------------
Net investment income (loss) (2,809,816)
========================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN
CURRENCIES, FUTURES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities 17,151,393
- --------------------------------------------------------
Foreign currencies 1,067,864
- --------------------------------------------------------
Futures contracts 727,924
- --------------------------------------------------------
Option contracts purchased (27,489)
- --------------------------------------------------------
18,919,692
- --------------------------------------------------------
Net unrealized appreciation of:
Investment securities 19,910,267
- --------------------------------------------------------
Foreign currencies 77,911
- --------------------------------------------------------
Futures contracts 746,175
- --------------------------------------------------------
20,734,353
- --------------------------------------------------------
Net gain from investment securities,
foreign currencies, futures and
option contracts 39,654,045
- --------------------------------------------------------
Net increase in net assets resulting from
operations $36,844,229
========================================================
</TABLE>
See Notes to Financial Statements.
FS-36
<PAGE> 135
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ -------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ (2,809,816) $ (2,013,735)
- -------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies, futures and option contracts 18,919,692 11,895,254
- -------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities,
foreign currencies, futures and option contracts 20,734,353 37,072,703
- -------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 36,844,229 46,954,222
- -------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A (4,566,706) -
- -------------------------------------------------------------------------------------------
Class B (5,964,749) -
- -------------------------------------------------------------------------------------------
Class C (47,034) -
- -------------------------------------------------------------------------------------------
Share transactions-net:
Class A 27,194,800 41,376,928
- -------------------------------------------------------------------------------------------
Class B 44,408,521 77,933,131
- -------------------------------------------------------------------------------------------
Class C 11,162,365 1,157,289
- -------------------------------------------------------------------------------------------
Net increase in net assets 109,031,426 167,421,570
- -------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 404,240,742 236,819,172
- -------------------------------------------------------------------------------------------
End of period $513,272,168 $ 404,240,742
===========================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $416,466,146 $ 334,919,809
- -------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (1,238,947) (14,582)
- -------------------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, foreign currencies, futures and option
contracts 17,216,533 9,241,432
- -------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies, futures and option contracts 80,828,436 60,094,083
- -------------------------------------------------------------------------------------------
$513,272,168 $ 404,240,742
===========================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1998
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Global Growth Fund (the "Fund") is an investment portfolio of AIM
International Funds, Inc. (the "Company"). The Company is a Maryland corporation
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of six
separate portfolios: AIM Global Growth Fund, AIM Asian Growth Fund, AIM European
Development Fund, AIM Global Aggressive Growth Fund, AIM Global Income Fund and
AIM International Equity Fund. The Fund currently offers three different classes
of shares: Class A shares, Class B shares and Class C shares. Class A shares are
sold with a front-end sales charge. Class B shares and Class C shares are sold
with a contingent deferred sales charge. Matters affecting each portfolio or
class are voted on exclusively by the shareholders of such portfolio or class.
The assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund. The Fund's investment objective is to provide long-term growth of
capital.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
A. Security Valuations-A security listed or traded on an exchange (except
convertible bonds) is valued at the last sales price on the exchange where
the security is principally traded or, lacking any sales, at the mean between
the closing bid and asked prices on the day of valuation. If a mean is not
available, as is the case in some foreign markets, the closing bid will be
used absent a last sales price. Securities traded in the over-the-counter
market (but not including securities reported on the NASDAQ National Market
System) are valued at the mean
FS-37
<PAGE> 136
between the closing bid and asked prices based upon quotes furnished by
market makers for such securities. Securities reported on the NASDAQ National
Market System are valued at the last sales price on the valuation date or,
absent a last sales price, at the mean of the closing bid and asked prices.
Debt obligations (including convertible bonds) are valued on the basis of
prices provided by an independent pricing service. Prices provided by an
independent pricing service may be determined without exclusive reliance on
quoted prices, and may reflect appropriate factors such as yield, type of
issue, coupon rate and maturity date. Securities for which market quotations
are either not readily available or are questionable are valued at fair value
as determined in good faith by or under the supervision of the Company's
officers in a manner specifically authorized by the Board of Directors.
Investments with maturities of 60 days or less are valued on the basis of
amortized cost which approximates market value. Generally, trading in foreign
securities is substantially completed each day at various times prior to the
close of the New York Stock Exchange. The values of such securities used in
computing the net asset value of the Fund's shares are determined as of such
times. Foreign currency exchange rates are also generally determined prior to
the close of the New York Stock Exchange. Occasionally, events affecting the
values of such securities and such exchange rates may occur between the times
at which they are determined and the close of the New York Stock Exchange
which would not be reflected in the computation of the Fund's net asset
value. If events materially affecting the value of such securities occur
during such period, then these securities will be valued at their fair value
as determined in good faith by or under the supervision of the Board of
Directors.
B. Foreign Currency Translations-Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S. dollar
amounts at date of valuation. Purchases and sales of portfolio securities and
income items denominated in foreign currencies are translated into U.S.
dollar amounts on the respective dates of such transactions.
C. Foreign Currency Contracts-A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
D. Securities Transactions, Investment Income and Distribu-
tions-Securities transactions are accounted for on a trade date basis.
Realized gains or losses are computed on the basis of specific identification
of the securities sold. Interest income is recorded as earned from settlement
date and is recorded on an accrual basis. Dividend income and distributions
to shareholders are recorded on the ex-dividend date. On October 31, 1998,
undistributed net investment income was increased by $1,585,451,
undistributed net realized gains decreased by $366,102 and paid-in capital
decreased by $1,219,349 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.
E. Federal Income Taxes-The Fund intends to comply with the requirements of the
Internal Revenue Code necessary to qualify as a regulated investment company
and, as such, will not be subject to federal income taxes on otherwise
taxable income (including net realized capital gains) which is distributed to
shareholders. Therefore, no provision for federal income taxes is recorded in
the financial statements.
F. Stock Index Futures Contracts-The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities as collateral for the account of
the broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the contracts
are recognized as unrealized gains or losses by "marking to market" on a
daily basis to reflect the market value of the contracts at the end of each
day's trading. Variation margin payments are made or received depending upon
whether unrealized gains or losses are incurred. When the contracts are
closed, the Fund recognizes a realized gain or loss equal to the difference
between the proceeds from, or cost of, the closing transaction and the Fund's
basis in the contract. Risks include the possibility of an illiquid market
and that a change in the value of contracts may not correlate with changes in
the value of the securities being hedged.
G. Covered Call Options-The Fund may write call options, but only on a covered
basis; that is, the Fund will own the underlying security. Options written by
the Fund normally will have expiration dates between three and nine months
from the date written. The exercise price of a call option may be below,
equal to, or above the current market value of the underlying security at the
time the option is written. When the Fund writes a covered call option, an
amount equal to the premium received by the Fund is recorded as an asset and
an equivalent liability. The amount of the liability is subsequently
"marked-to-market" to reflect the current market value of the option written.
The current market value of a written option is the mean between the last bid
and asked prices on that day. If a written call option expires on the
stipulated expiration date, or if the Fund enters into a closing purchase
transaction, the Fund realizes a gain (or a loss if the closing purchase
transaction exceeds the premium received when the option was written) without
regard to any unrealized gain or loss on the underlying security, and the
liability related to such option is extinguished. If a written option is
exercised, the Fund realizes a gain or a loss from the sale of the underlying
security and the proceeds of the sale are increased by the premium originally
received.
A call option gives the purchaser of such option the right to buy, and the
writer (the Fund) the obligation to sell, the underlying security at the
stated exercise price during the
FS-38
<PAGE> 137
option period. The purchaser of a call option has the right to acquire the
security which is the subject of the call option at any time during the
option period. During the option period, in return for the premium paid by
the purchaser of the option, the Fund has given up the opportunity for
capital appreciation above the exercise price should the market price of the
underlying security increase, but has retained the risk of loss should the
price of the underlying security decline. During the option period, the Fund
may be required at any time to deliver the underlying security against
payment of the exercise price. This obligation is terminated upon the
expiration of the option period or at such earlier time at which the Fund
effects a closing purchase transaction by purchasing (at a price which may be
higher than that received when the call option was written) a call option
identical to the one originally written.
H. Put options-The Fund may purchase put options. By purchasing a put option,
the Fund obtains the right (but not the obligation) to sell the option's
underlying instrument at a fixed strike price. In return for this right, a
Fund pays an option premium. The option's underlying instrument may be a
security, or a futures contract. Put options may be used by a Fund to hedge
securities it owns by locking in a minimum price at which the Fund can sell.
If security prices fall, the put option could be exercised to offset all or a
portion of the Fund's resulting losses. At the same time, because the maximum
the Fund has at risk is the cost of the option, purchasing put options does
not eliminate the potential for the Fund to profit from an increase in the
value of the securities hedged.
I. Expenses-Distribution and transfer agency expenses directly attributable to a
class of shares are charged to that class' operations. All other expenses
which are attributable to more than one class are allocated among the
classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.85% of
the first $1 billion of the Fund's average daily net assets, plus 0.80% of the
Fund's average daily net assets in excess of $1 billion.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to reimburse AIM for administrative costs incurred in providing
accounting services to the Fund. During the year ended October 31, 1998, AIM was
reimbursed $80,267 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency
services to the Fund. During the year ended October 31, 1998, AFS was paid
$679,390 for such services.
The Company has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Company has adopted
distribution plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A shares and Class C shares (the "Class A and C Plan"), and the
Fund's Class B shares (the "Class B Plan") (collectively, the "Plans"). The
Fund, pursuant to the Class A and C Plan, pays AIM Distributors compensation at
an annual rate of 0.50% of the average daily net assets of the Class A shares
and 1.00% of the average daily net assets of Class C shares. The Fund, pursuant
to the Class B Plan, pays AIM Distributors compensation at an annual rate of
1.00% of the average daily net assets of the Class B shares. Of these amounts,
the Fund may pay a service fee of 0.25% of the average daily net assets of the
Class A, Class B or C shares to selected dealers and financial institutions who
furnish continuing personal shareholder services to their customers who purchase
and own the appropriate class of shares of the Fund. Any amounts not paid as a
service fee under the Plans would constitute an asset-based sales charge. The
Plans also impose a cap on the total sales charges, including asset-based sales
charges that may be paid by the respective classes. During the year ended
October 31, 1998, the Class A, Class B and Class C shares, paid AIM Distributors
$1,029,313, $2,638,894 and $58,329, respectively as compensation under the
Plans.
AIM Distributors received commissions of $208,115 from the sales of the Class
A shares of the Fund during the year ended October 31, 1998. Such commissions
are not an expense of the Fund. They are deducted from, and are not included in,
the proceeds from sales of Class A shares. During the year ended October 31,
1998, AIM Distributors received commissions of $29,133 in contingent deferred
sales charges imposed on redemptions of Fund shares. Certain officers and
directors of the Company are officers and directors of AIM, AFS and AIM
Distributors.
During the year ended October 31, 1998, the Fund incurred legal fees of $4,344
for services rendered by the law firm of Kramer, Levin, Naftalis & Frankel as
counsel to the Company's directors. A member of that firm is a director of the
Company.
NOTE 3-INDIRECT EXPENSES
During the year ended October 31, 1998, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) and reductions in custodian fees of
$4,953 and $1,749, respectively, under expense offset arrangements. The effect
of the above arrangements resulted in a reduction of the Fund's total expenses
of $6,702 during the year ended October 31, 1998.
NOTE 4-DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if so
elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $1,000,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. Interest on
borrowings
FS-39
<PAGE> 138
under the line of credit is payable on maturity or prepayment date. Prior to an
amendment of the line of credit on May 1, 1998, the Fund was limited to
borrowing up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. During the year ended October 31, 1998, the Fund did
not borrow under the line of credit agreement. The funds which are party to the
line of credit are charged a commitment fee of 0.05% on the unused balance of
the committed line. The commitment fee is allocated among the funds based on
their respective average net assets for the period.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended October 31, 1998 was
$465,660,107 and $423,173,713, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of October 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $ 95,730,649
- ---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (17,977,343)
- ---------------------------------------------------------
Net unrealized appreciation of investment
securities $ 77,753,306
=========================================================
</TABLE>
Cost of investments for tax purposes is $431,794,257.
NOTE 7-FUTURES CONTRACTS
On October 31, 1998, $840,000 principal amount of U.S. Treasury obligations were
pledged as collateral to cover margin requirements for open futures contracts.
Open futures contracts were as follows:
<TABLE>
<CAPTION>
UNREALIZED
NO. OF APPRECIATION
CONTRACTS CONTRACTS MONTH/COMMITMENT (DEPRECIATION)
- ------------- --------- ----------------- --------------
<S> <C> <C> <C>
S&P 500 Index 56 December 98/Buy $ 797,175
</TABLE>
NOTE 8-OPTION CONTRACTS WRITTEN
Transactions in call options written during the year ended October 31, 1998 are
summarized as follows:
<TABLE>
<CAPTION>
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- --------
<S> <C> <C>
Beginning of period - $ -
- --------------------------------------------------------
Written 51 27,335
- --------------------------------------------------------
Exercised (51) (27,335)
- --------------------------------------------------------
End of period - $ -
========================================================
</TABLE>
NOTE 9-CAPITAL STOCK
Changes in the Fund's capital stock outstanding during the years ended October
31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Sold:
Class A 14,601,141 $ 264,657,310 6,399,974 $103,567,757
- ------------------------------------------------------------------------------
Class B 4,603,864 82,487,081 6,303,261 98,414,198
- ------------------------------------------------------------------------------
Class C* 731,595 13,444,846 67,094 1,157,289
- ------------------------------------------------------------------------------
Issued as reinvestment of
distributions:
Class A 265,883 4,315,756 - -
- ------------------------------------------------------------------------------
Class B 348,564 5,562,820 - -
- ------------------------------------------------------------------------------
Class C* 2,787 44,837 - -
- ------------------------------------------------------------------------------
Reacquired:
Class A (13,382,242) (241,778,266) (3,750,438) (62,190,829)
- ------------------------------------------------------------------------------
Class B (2,513,498) (43,641,380) (1,291,769) (20,481,067)
- ------------------------------------------------------------------------------
Class C* (130,050) (2,327,318) - -
- ------------------------------------------------------------------------------
4,528,044 $ 82,765,686 7,728,122 $120,467,348
==============================================================================
</TABLE>
* Class C shares commenced sales on August 4, 1997.
FS-40
<PAGE> 139
NOTE 10-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A and Class B
capital stock outstanding during each of the years in the four-year period ended
October 31, 1998 and the period September 15, 1994 (date operations commenced)
through October 31, 1994 and for a share of Class C capital stock outstanding
during the year ended October 31, 1998 and the period August 4, 1997 (date sales
commenced) through October 31, 1997.
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------
1998 1997 1996 1995 1994
--------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 16.65 $ 14.20 $ 12.32 $ 10.23 $ 10.00
- ------------------------------------------------------------ -------- -------- --------- -------- --------
Income from investment operations:
Net investment income (loss) (0.05) (0.04) (0.01) (0.02) -
- ------------------------------------------------------------ -------- -------- --------- -------- --------
Net gains on securities (both realized and unrealized) 1.74 2.49 2.11 2.11 0.23
- ------------------------------------------------------------ -------- -------- --------- -------- --------
Total from investment operations 1.69 2.45 2.10 2.09 0.23
- ------------------------------------------------------------ -------- -------- --------- -------- --------
Less distributions:
Dividends from net investment income - - - (0.004) -
- ------------------------------------------------------------ -------- -------- --------- -------- --------
Distributions from net realized gains (0.43) - (0.22) - -
- ------------------------------------------------------------ -------- -------- --------- -------- --------
Total distributions (0.43) - (0.22) (0.004) -
- ------------------------------------------------------------ -------- -------- --------- -------- --------
Net asset value, end of period $ 17.91 $ 16.65 $ 14.20 $ 12.32 $ 10.23
============================================================ ======== ======== ========= ======== ========
Total return(a) 10.43% 17.25% 17.26% 20.48% 2.30%
============================================================ ======== ======== ========= ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $219,050 $178,917 $ 114,971 $ 23,754 $ 3,093
============================================================ ======== ======== ========= ======== ========
Ratio of expenses to average net assets(b) 1.70%(c) 1.76% 1.93% 2.12% 1.95%(d)
============================================================ ======== ======== ========= ======== ========
Ratio of net investment income (loss) to average net
assets(e) (0.27)%(c) (0.30)% (0.13)% (0.28)% 0.10%(d)
============================================================ ======== ======== ========= ======== ========
Portfolio turnover rate 97% 96% 82% 79% 6%
============================================================ ======== ======== ========= ======== ========
</TABLE>
(a) Does not deduct sales charges and is not annualized for periods less than
one year.
(b) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.94%, 2.98% and 5.67% (annualized) for 1996-1994.
(c) Ratios are based on average net assets of $205,862,638.
(d) Annualized.
(e) After fee waivers and/or expense reimbursements. Ratios of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursements were (0.14)%, (1.14)% and (3.63)% (annualized) for
1996-1994.
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------------------
1998 1997 1996 1995
--------------- ---------- --------------- ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 16.39 $ 14.05 $ 12.26 $ 10.22
- -------------------------------------------------- --------------- ---------- --------------- ---------------
Income from investment operations:
Net investment income (loss) (0.15)(a) (0.11) (0.05) (0.04)
- -------------------------------------------------- --------------- ---------- --------------- ---------------
Net gains (losses) on securities (both realized
and unrealized) 1.71 2.45 2.06 2.08
- -------------------------------------------------- --------------- ---------- --------------- ---------------
Total from investment operations 1.56 2.34 2.01 2.04
- -------------------------------------------------- --------------- ---------- --------------- ---------------
Less distributions:
Distributions from net realized gains (0.43) - (0.22) -
- -------------------------------------------------- --------------- ---------- --------------- ---------------
Total distributions (0.43) - (0.22) -
- -------------------------------------------------- --------------- ---------- --------------- ---------------
Net asset value, end of period $ 17.52 $ 16.39 $ 14.05 $ 12.26
================================================== =============== ========== =============== ===============
Total return(b) 9.78% 16.65% 16.60% 19.96%
================================================== =============== ========== =============== ===============
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 282,456 $ 224,225 $ 121,848 $ 17,157
================================================== =============== ========== =============== ===============
Ratio of expenses to average net assets 2.26%(c) 2.29% 2.48%(d) 2.64%(d)
================================================== =============== ========== =============== ===============
Ratio of net investment income (loss) to average
net assets (0.83)%(c) 0.83)% (0.69)%(f) (0.79)%(f)
================================================== =============== ========== =============== ===============
Portfolio turnover rate 97% 96% 82% 79%
================================================== =============== ========== =============== ===============
<CAPTION>
CLASS B CLASS C
----------- ----------------------
1994 1998 1997
----------- ----------- -------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.00 $ 16.39 $ 17.39
- -------------------------------------------------- ----------- ----------- -------
Income from investment operations:
Net investment income (loss) - (0.15)(a) (0.03)
- -------------------------------------------------- ----------- ----------- -------
Net gains (losses) on securities (both realized
and unrealized) 0.22 1.71 (0.97)
- -------------------------------------------------- ----------- ----------- -------
Total from investment operations 0.22 1.56 (1.00)
- -------------------------------------------------- ----------- ----------- -------
Less distributions:
Distributions from net realized gains - (0.43) -
- -------------------------------------------------- ----------- ----------- -------
Total distributions - (0.43) -
- -------------------------------------------------- ----------- ----------- -------
Net asset value, end of period $ 10.22 $ 17.52 $ 16.39
================================================== =========== =========== =======
Total return(b) 2.20% 9.78% (5.75)%
================================================== =========== =========== =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 1,277 $ 11,765 $ 1,100
================================================== =========== =========== =======
Ratio of expenses to average net assets 2.51%(d)(e) 2.26%(c) 2.29%(e)
================================================== =========== =========== =======
Ratio of net investment income (loss) to average
net assets (0.47)%(e)(f) (0.83)%(c) (0.83)%(e)
================================================== =========== =========== =======
Portfolio turnover rate 6% 97% 96%
================================================== =========== =========== =======
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(c) Ratios are based on average net assets of $263,889,352 and $5,832,914 for
Class B and Class C, respectively.
(d) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
2.49%, 3.38% and 6.20% (annualized) for 1996-1994.
(e) Annualized.
(f) After fee waivers and/or expense reimbursements. Ratios of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursements were (0.69)%, (1.54)% and (4.16)% (annualized) for
1996-1994.
FS-41
<PAGE> 140
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
AIM International Funds, Inc.:
We have audited the accompanying statement of assets and
liabilities of the AIM Global Income Fund (a portfolio of
AIM International Funds, Inc.), including the schedule of
investments, as of October 31, 1998, and the related
statement of operations for the year then ended, the
statement of changes in net assets for each of the years
in the two-year period then ended and the financial
highlights for each of the years in the four-year period
then ended, and for the period September 15, 1994 (date
operations commenced) through October 31, 1994. These
financial statements and financial highlights are the
responsibility of the Fund's management. Our
responsibility is to express an opinion on these
financial statements and financial highlights based on
our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of October 31, 1998, by
correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all
material respects, the financial position of AIM Global
Income Fund as of October 31, 1998, the results of its
operations for the year then ended, the changes in its
net assets for each of the years in the two-year period
then ended and the financial highlights for each of the
years in the four-year period then ended and for the
period September 15, 1994 (date operations commenced)
through October 31, 1994, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
December 4, 1998
FS-42
<PAGE> 141
SCHEDULE OF INVESTMENTS
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL(a) MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. DOLLAR DENOMINATED
NON-CONVERTIBLE BONDS & NOTES-52.79%
AEROSPACE/DEFENSE-0.29%
Pacific Aerospace & Electronics,
Sr. Sub. Notes, 11.25%, 08/01/05
(Acquired 07/24/98; Cost
$350,000)(b) $ 350,000 $ 278,250
- ---------------------------------------------------------------
AIR FREIGHT-0.37%
Atlas Air, Inc., Sr. Notes, 10.75%,
08/01/05 350,000 351,750
- ---------------------------------------------------------------
AIRLINES-1.87%
Airplanes Pass Through Trust, Sub.
Bonds, 10.875%, 03/15/19 230,000 239,345
- ---------------------------------------------------------------
America West Airlines, Inc., Pass
Through Ctfs., 6.86%, 07/02/04 575,999 578,753
- ---------------------------------------------------------------
Delta Air Lines, Inc., Deb., 9.00%,
05/15/16 550,000 622,199
- ---------------------------------------------------------------
United Air Lines, Inc., Pass
Through Ctfs., 9.56%, 10/19/18 300,000 366,051
- ---------------------------------------------------------------
1,806,348
- ---------------------------------------------------------------
AUTO PARTS & EQUIPMENT-0.31%
Advance Stores Co., Sr. Sub. Notes,
10.25%, 04/15/08 (Acquired
04/07/98; Cost $310,000)(b) 310,000 296,050
- ---------------------------------------------------------------
BANKS (MAJOR REGIONAL)-1.10%
Regions Financial Corp., Sub.
Notes, 7.75%, 09/15/24 500,000 556,345
- ---------------------------------------------------------------
Royal Bank of Scotland PLC (United
Kingdom), Yankee Sub. Notes,
6.375%, 02/01/11 500,000 505,825
- ---------------------------------------------------------------
1,062,170
- ---------------------------------------------------------------
BANKS (MONEY CENTER)-1.01%
Deutsche Bank Financial, Gtd.
Unsec. Sub. Deb., 6.70%, 12/13/06 750,000 754,800
- ---------------------------------------------------------------
First Union Bancorp, Sub. Deb.,
7.50%, 04/15/35 200,000 218,858
- ---------------------------------------------------------------
973,658
- ---------------------------------------------------------------
BANKS (REGIONAL)-1.66%
HSBC Americas Inc., Sub. Notes,
7.00%, 11/01/06 500,000 515,530
- ---------------------------------------------------------------
Mercantile Bancorp Inc., Unsec.
Sub. Notes, 7.30%, 06/15/07 1,000,000 1,083,050
- ---------------------------------------------------------------
1,598,580
- ---------------------------------------------------------------
BEVERAGES (NON-ALCOHOLIC)-0.77%
Coca-Cola Enterprises, Inc.,
Putable Notes, 8.35%, 06/20/20(c) 3,113,000 743,042
- ---------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE)-2.02%
Comcast Cable Communications,
Notes, 8.50%, 05/01/27 500,000 600,665
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL(a) MARKET
AMOUNT VALUE
<S> <C> <C>
BROADCASTING (TELEVISION, RADIO &
CABLE)-(CONTINUED)
CSC Holdings Inc., Sr. Unsec. Deb.,
7.625%, 07/15/18 $ 400,000 $ 372,144
- ---------------------------------------------------------------
EchoStar DBS Corp., Sr. Gtd. Notes,
12.50%, 07/01/02 320,000 328,000
- ---------------------------------------------------------------
Kabelmedia Holdings GmbH (Germany),
Sr. Unsec. Disc. Yankee Notes,
13.625%, 08/01/06(d) 200,000 153,000
- ---------------------------------------------------------------
Knology Holdings, Inc., Sr. Disc.
Notes, 11.875% 10/15/07(d) 700,000 323,750
- ---------------------------------------------------------------
TCI Communications Inc., Sr. Notes,
8.00%, 08/01/05 150,000 170,283
- ---------------------------------------------------------------
1,947,842
- ---------------------------------------------------------------
CHEMICALS-2.90%
Agrium, Inc. (Canada), Unsec.
Yankee Notes, 7.00%, 02/01/04 350,000 359,772
- ---------------------------------------------------------------
Airgas Inc., Medium Term Notes,
7.14%, 03/08/04 500,000 519,375
- ---------------------------------------------------------------
Nova Chemicals Ltd. (Canada),
Yankee Deb., 7.00%, 08/15/26 600,000 623,292
- ---------------------------------------------------------------
Nova Gas Transmission Ltd.
(Canada), Yankee Deb., 8.50%,
12/15/12 450,000 549,153
- ---------------------------------------------------------------
Solutia Inc., Bonds, 6.72%,
10/15/37 500,000 512,990
- ---------------------------------------------------------------
Sterling Chemicals, Inc., Sr.
Unsec. Sub. Notes, 11.75%,
08/15/06 300,000 232,500
- ---------------------------------------------------------------
2,797,082
- ---------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-0.26%
ProNet, Inc., Sr. Sub. Notes,
11.875%, 06/15/05 250,000 253,750
- ---------------------------------------------------------------
COMPUTERS (NETWORKING)-0.33%
Exodus Communications, Inc., Sr.
Notes, 11.25%, 07/01/08 (Acquired
06/26/98; Cost $360,000)(b) 360,000 322,200
- ---------------------------------------------------------------
CONSTRUCTION (CEMENT & AGGREGATES)-0.29%
Schuff Steel Co., Sr. Unsec. Gtd.
Sub. Notes, 10.50%, 06/01/08 350,000 281,750
- ---------------------------------------------------------------
CONSUMER FINANCE-1.13%
Countrywide Capital III, Gtd.
Notes, 8.05%, 06/15/27 350,000 349,465
- ---------------------------------------------------------------
Household Finance Corp., Notes,
7.125%, 09/01/05 700,000 737,751
- ---------------------------------------------------------------
1,087,216
- ---------------------------------------------------------------
</TABLE>
FS-43
<PAGE> 142
<TABLE>
<CAPTION>
PRINCIPAL(a) MARKET
AMOUNT VALUE
<S> <C> <C>
CONTAINERS & PACKAGING
(PAPER)-0.18%
BPC Holding Corp., Series B, Sr.
Sec. Notes, 12.50%, 06/15/06 $ 100,000 $ 101,500
- ---------------------------------------------------------------
MVE Inc., Sr. Sec. Notes, 12.50%,
02/15/02 75,000 71,625
- ---------------------------------------------------------------
173,125
- ---------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH)-0.21%
AmeriServ Food Co., Gtd. Notes,
10.125%, 07/15/07 240,000 200,400
- ---------------------------------------------------------------
ELECTRIC COMPANIES-2.94%
Cleveland Electric Illumination,
Series D Sr. Notes, 7.88%,
11/01/17 500,000 508,590
- ---------------------------------------------------------------
El Paso Electric Co.
Series D Sec. First Mortgage
Bonds, 8.90%, 02/01/06 250,000 277,600
- ---------------------------------------------------------------
Series E Sec. First Mortgage
Bonds, 9.40%, 05/01/11 250,000 285,083
- ---------------------------------------------------------------
Niagara Mohawk Power Corp.
First Mortgage Notes, 9.25%,
10/01/01 650,000 706,901
- ---------------------------------------------------------------
Sr. Unsec. Notes, 7.75%, 10/01/08 1,000,000 1,056,740
- ---------------------------------------------------------------
2,834,914
- ---------------------------------------------------------------
ELECTRICAL EQUIPMENT-0.11%
Electronic Retailing Systems
International, Inc., Sr. Disc.
Notes, 13.25%, 02/01/04(d) 290,000 102,950
- ---------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS)-0.23%
Panda Funding Corp., Series A-1
Pooled Project Bonds, 11.625%,
08/20/12 199,591 218,552
- ---------------------------------------------------------------
ENTERTAINMENT-1.89%
Ascent Entertainment Group, Sr.
Sec. Disc. Notes, 11.875%,
12/15/04(d) 150,000 83,250
- ---------------------------------------------------------------
Silver Cinemas Inc., Sr. Sub.
Notes, 10.50%, 04/15/05 350,000 309,750
- ---------------------------------------------------------------
Time Warner, Inc.
Deb., 9.125%, 01/15/13 500,000 618,815
- ---------------------------------------------------------------
Notes, 8.18%, 08/15/07 200,000 229,670
- ---------------------------------------------------------------
Unsec. Deb., 6.85%, 01/15/26 250,000 264,860
- ---------------------------------------------------------------
Viacom, Inc., Sr. Unsec. Gtd. Deb.,
7.625%, 01/15/16 300,000 317,034
- ---------------------------------------------------------------
1,823,379
- ---------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-1.18%
Associates Corp. of North America,
Bonds, 6.95%, 11/01/18 500,000 504,425
- ---------------------------------------------------------------
Associates Corp. of North America,
Series B Sr. Deb., 7.95%,
02/15/10 100,000 112,789
- ---------------------------------------------------------------
Finova Capital Corp., Unsec. Notes,
7.40%, 05/06/06 500,000 520,545
- ---------------------------------------------------------------
1,137,759
- ---------------------------------------------------------------
FOODS-1.62%
ConAgra Inc., Sr. Unsec. Notes,
7.125%, 10/01/26 900,000 955,314
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL(a) MARKET
AMOUNT VALUE
<S> <C> <C>
FOODS-(CONTINUED)
Del Monte Corp./Foods Co., Sr.
Unsec. Sub. Notes, 12.25%,
04/15/07 $ 260,000 $ 279,500
- ---------------------------------------------------------------
RAB Enterprise, Inc., Sr. Notes,
10.50%, 05/01/05 (Acquired
04/28/98; Cost $350,000)(b) 350,000 322,000
- ---------------------------------------------------------------
1,556,814
- ---------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL COMPANIES-0.12%
Showboat Marina Casino Partnership
& Showboat Marina Financial
Corp., Series B Sec. First
Mortgage Notes, 13.50%, 03/15/03 100,000 113,500
- ---------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER)-0.79%
Global Health Sciences, Sr. Notes,
11.00%, 05/01/08 270,000 238,950
- ---------------------------------------------------------------
Watson Pharmaceuticals Inc., Sr.
Notes, 7.125%, 05/15/08 500,000 525,155
- ---------------------------------------------------------------
764,105
- ---------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT)-0.53%
Tenet Healthcare Corp., Sr. Notes,
8.00%, 01/15/05 500,000 508,720
- ---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-1.08%
Alaris Medical Systems, Sr. Unsec.
Gtd. Sub. Deb., 9.75%, 12/01/06 200,000 187,000
- ---------------------------------------------------------------
Beckman Coulter, Sr. Unsec. Gtd.
Notes, 7.45%, 03/04/08 500,000 493,710
- ---------------------------------------------------------------
Dade International Inc., Series B
Sr. Sub. Notes, 11.125%, 05/01/06 100,000 107,500
- ---------------------------------------------------------------
Mediq, Inc., Sr. Unsec. Sub. Notes,
11.00%, 06/01/08 (Acquired
05/21/98; Cost $280,000)(b) 280,000 253,400
- ---------------------------------------------------------------
1,041,610
- ---------------------------------------------------------------
HOMEBUILDING-0.75%
D.R. Horton, Inc., Unsec. Gtd.
Notes, 10.00%, 04/15/06 55,000 56,375
- ---------------------------------------------------------------
Engle Homes Inc., Sr. Unsec. Gtd.
Sub. Notes, 9.25%, 02/01/08 350,000 335,125
- ---------------------------------------------------------------
Schuler Homes, Sr. Unsec. Gtd. Sub.
Notes, 9.00%, 04/15/08 370,000 334,850
- ---------------------------------------------------------------
726,350
- ---------------------------------------------------------------
HOUSEWARES-0.31%
Decora Industries, Inc., Sr. Sec.
Notes, 11.00%, 05/01/05 (Acquired
04/24/98; Cost $341,730)(b) 350,000 302,750
- ---------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-0.78%
Torchmark Corp., Notes, 7.875%,
05/15/23 750,000 751,028
- ---------------------------------------------------------------
</TABLE>
FS-44
<PAGE> 143
<TABLE>
<CAPTION>
PRINCIPAL(a) MARKET
AMOUNT VALUE
<S> <C> <C>
INSURANCE (PROPERTY-CASUALTY)-1.07%
Terra Nova Holdings (United
Kingdom), Sr. Sec. Gtd. Notes,
7.20%, 08/15/07 $ 500,000 $ 517,054
- ---------------------------------------------------------------
Sr. Unsec. Gtd. Notes, 7.00%,
05/15/08 (Acquired 05/12/98; Cost
$499,495)(b) 500,000 511,135
- ---------------------------------------------------------------
1,028,189
- ---------------------------------------------------------------
IRON & STEEL-0.46%
Acme Metal Inc., Sr. Unsec. Gtd.
Deb., 10.875%, 12/15/07(e) 438,000 89,790
- ---------------------------------------------------------------
GS Industries, Inc., Sr. Gtd.
Notes, 12.00%, 09/01/04 200,000 151,000
- ---------------------------------------------------------------
Sheffield Steel Corp., First
Mortgage Notes, 11.50%, 12/01/05 250,000 203,750
- ---------------------------------------------------------------
444,540
- ---------------------------------------------------------------
LODGING-HOTELS-0.59%
Coast Hotels & Casinos Inc., Series
B Sec. First Mortgage Gtd. Notes,
13.00%, 12/15/02 70,000 78,750
- ---------------------------------------------------------------
ITT Corp., Unsec. Gtd. Deb.,
7.375%, 11/15/15 150,000 129,302
- ---------------------------------------------------------------
John Q. Hammons Hotels Inc., Sec.
First Mortgage Notes, 9.75%,
10/01/05 100,000 89,750
- ---------------------------------------------------------------
Stena Line A.B. (Sweden), Sr.
Yankee Notes, 10.625%, 06/01/08 310,000 271,250
- ---------------------------------------------------------------
569,052
- ---------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-1.25%
First Wave Marine, Inc., Sr. Unsec.
Gtd. Notes, 11.00%, 02/01/08 250,000 238,750
- ---------------------------------------------------------------
MMI Products Inc., Sr. Unsec. Sub.
Notes, 11.25%, 04/15/07 260,000 271,700
- ---------------------------------------------------------------
Owens Corning, Unsec. Bonds, 7.50%,
08/01/18 750,000 692,504
- ---------------------------------------------------------------
1,202,954
- ---------------------------------------------------------------
METALS MINING-0.28%
Rio Algom Ltd. (Canada), Yankee
Unsec. Deb., 7.05%, 11/01/05 250,000 273,865
- ---------------------------------------------------------------
NATURAL GAS-1.42%
Dynegy Inc., Sr. Unsec. Deb.,
7.125%, 05/15/18 500,000 511,935
- ---------------------------------------------------------------
Enron Corp., Sr. Sub. Deb., 8.25%,
09/15/12 500,000 567,909
- ---------------------------------------------------------------
Ferrellgas Partners, Series B Sr.
Sec. Gtd. Notes, 9.375%, 06/15/06 300,000 292,500
- ---------------------------------------------------------------
1,372,344
- ---------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES-0.21%
United Stationer Supply, Sr. Sub.
Notes, 12.75%, 05/01/05 180,000 200,700
- ---------------------------------------------------------------
OIL (INTERNATIONAL INTEGRATED)-0.59%
Gulf Canada Resources, Ltd.
(Canada), Sr. Yankee Unsec.
Notes, 8.35%, 08/01/06 550,000 571,093
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL(a) MARKET
AMOUNT VALUE
<S> <C> <C>
OIL & GAS (DRILLING & EQUIPMENT)-1.25%
Petro Geo-Services ASA (Norway),
Sr. Notes, 7.125%, 03/30/28 $ 500,000 $ 486,295
- ---------------------------------------------------------------
R&B Falcon Corp., Sr. Unsec. Notes,
7.375%, 04/15/18 750,000 722,205
- ---------------------------------------------------------------
1,208,500
- ---------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-2.34%
Abraxas Petroleum Corp., Series D
Sr. Unsec. Gtd. Notes, 11.50%,
11/01/04 95,000 71,725
- ---------------------------------------------------------------
Canadian Forest Oil Ltd. (Canada)
Sr. Yankee Unsec. Sub. Notes,
8.75%, 09/15/07 250,000 223,750
- ---------------------------------------------------------------
Chesapeake Energy Corp., Sr. Unsec.
Gtd. Notes, 9.625%, 05/01/05 160,000 137,600
- ---------------------------------------------------------------
Kelley Oil & Gas Corp.,
Series B Sr. Gtd. Sub. Notes,
10.375%, 10/15/06 250,000 188,750
- ---------------------------------------------------------------
Series C Sr. Sub. Notes, 10.375%,
10/15/06 (Acquired 05/26/98; Cost
$101,500)(b) 100,000 75,500
- ---------------------------------------------------------------
Louis Dreyfus Natural Gas, Sr. Sub.
Notes, 9.25%, 06/15/04 500,000 545,935
- ---------------------------------------------------------------
Queens Sand Resources, Sr. Notes,
12.50%, 07/01/08 (Acquired
06/30/98; Cost $350,000)(b) 350,000 281,750
- ---------------------------------------------------------------
Talisman Energy Inc. (Canada)
Yankee Deb.,
7.125%, 06/01/07 250,000 254,760
- ---------------------------------------------------------------
7.25%, 10/15/27 500,000 476,725
- ---------------------------------------------------------------
2,256,495
- ---------------------------------------------------------------
OIL & GAS (REFINING & MARKETING)-0.31%
Texas Petrochemical Corp., Sr.
Unsec. Sub. Notes, 11.125%,
07/01/06 320,000 299,200
- ---------------------------------------------------------------
PERSONAL CARE-0.54%
Alberto-Culver Corp., Notes,
6.375%, 06/15/28 500,000 523,915
- ---------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT)-0.51%
Kincaid Generation LLC, Sec. Bonds,
7.33%, 06/15/20 (Acquired
04/30/98; Cost $501,235)(b) 500,000 492,425
- ---------------------------------------------------------------
PUBLISHING (NEWSPAPERS)-0.32%
News America Holdings, Inc., Sr.
Gtd. Deb., 9.25%, 02/01/13 250,000 307,110
- ---------------------------------------------------------------
RAILROADS-0.51%
Norfolk Southern Corp., Putable
Bonds, 7.05%, 05/01/37 450,000 495,108
- ---------------------------------------------------------------
</TABLE>
FS-45
<PAGE> 144
<TABLE>
<CAPTION>
PRINCIPAL(a) MARKET
AMOUNT VALUE
<S> <C> <C>
REAL ESTATE INVESTMENT TRUST-1.38%
Glenborough Realty Trust, Sr.
Notes, 7.625%, 03/15/05 (Acquired
03/18/98; Cost $499,185)(b) $ 500,000 $ 493,516
- ---------------------------------------------------------------
Health Care REIT, Inc., Sr. Unsec.
Notes, 7.625%, 03/15/08 400,000 386,980
- ---------------------------------------------------------------
Spieker Properties LP, Unsec. Deb.,
7.35%, 12/01/17 500,000 448,645
- ---------------------------------------------------------------
1,329,141
- ---------------------------------------------------------------
RETAIL (FOOD CHAINS)-0.30%
Carr-Gottstein Foods Co., Sr. Sub.
Notes, 12.00%, 11/15/05 250,000 286,875
- ---------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE)-0.18%
Plainwell, Inc., Sr. Sub. Notes,
11.00%, 03/01/08 (Acquired
03/03/98-03/04/98; Cost
$231,025)(b) 230,000 173,650
- ---------------------------------------------------------------
RETAIL (SPECIALTY)-1.16%
CEX Holdings, Inc., Sr. Sub. Notes,
9.625%, 06/01/08 (Acquired
05/20/98; Cost $350,000)(b) 350,000 332,500
- ---------------------------------------------------------------
CSK Auto Inc., Sr. Gtd. Sub. Deb.,
11.00%, 11/01/06 130,000 130,650
- ---------------------------------------------------------------
Renters Choice Inc., Sr. Sub.
Notes, 11.00%, 08/15/08 (Acquired
08/13/98; Cost $350,000)(b) 350,000 339,500
- ---------------------------------------------------------------
US Office Products Co., Sr. Sub.
Notes, 9.75%, 06/15/08 (Acquired
06/05/98; Cost $348,383)(b) 350,000 276,500
- ---------------------------------------------------------------
Wilson's-The Leather Experts, Inc.,
Sr. Notes, 11.25%, 08/15/04 40,000 40,200
- ---------------------------------------------------------------
1,119,350
- ---------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-0.12%
J Crew Operating Corp., Sr. Sub.
Notes, 10.375%, 10/15/07 150,000 113,250
- ---------------------------------------------------------------
SAVINGS & LOAN COMPANIES-0.65%
Sovereign Bancorp, Inc., Sub.
Notes, 8.00%, 03/15/03 600,000 626,058
- ---------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING)-0.21%
MDC Communications Corp. (Canada),
Sr. Yankee Unsec. Sub. Notes,
10.50%, 12/01/06 200,000 199,000
- ---------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-0.54%
Choice Hotels International, Inc.,
Notes, 7.125%, 05/01/08 (Acquired
04/28/98; Cost $496,770)(b) 500,000 515,545
- ---------------------------------------------------------------
SERVICES (EMPLOYMENT)-0.25%
MSX International Inc., Unsec. Sr.
Sub. Notes, 11.375%, 01/15/08 260,000 236,600
- ---------------------------------------------------------------
SERVICES (FACILITIES & ENVIRONMENTAL)-0.18%
ATC Group Services Inc., Sr. Unsec.
Gtd. Sub. Notes, 12.00%, 01/15/08 250,000 176,250
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL(a) MARKET
AMOUNT VALUE
<S> <C> <C>
SHIPPING-0.52%
Alpha Shipping PLC (United
Kingdom), Series A Sr. Notes,
9.50%, 02/15/08 $ 320,000 $ 174,400
- ---------------------------------------------------------------
Holt Group, Sr. Notes, 9.75%,
01/15/06 (Acquired 01/15/98; Cost
$25,188)(b) 25,000 16,625
- ---------------------------------------------------------------
Pacific & Atlantic Holdings, First Mortgage
Notes, 11.50%, 05/30/08 (Acquired
05/21/98; Cost $384,345)(b) 390,000 312,000
- ---------------------------------------------------------------
503,025
- ---------------------------------------------------------------
SOVEREIGN DEBT-1.44%
Province of Manitoba (Canada),
Yankee Bonds, 7.75%, 07/17/16 300,000 348,828
- ---------------------------------------------------------------
Province of Quebec (Canada), Notes,
6.29%, 03/06/26 500,000 517,120
- ---------------------------------------------------------------
Province of Quebec (Canada), Yankee
Notes, 5.735%, 03/02/26 500,000 525,895
- ---------------------------------------------------------------
1,391,843
- ---------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-1.07%
KMC Telecom Holdings Inc., Sr.
Unsec. Disc. Notes, 12.50%,
02/15/08(d) 360,000 166,500
- ---------------------------------------------------------------
Nextel Communications, Series AI
Sr. Notes, 12.00%, 11/01/08
(Acquired 10/28/98; Cost
$522,463)(b) 530,000 551,200
- ---------------------------------------------------------------
PageMart Wireless, Inc., Sr. Sub.
Disc. Notes, 11.25%, 02/01/08(d) 600,000 312,000
- ---------------------------------------------------------------
1,029,700
- ---------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-2.06%
Cable & Wireless Communications PLC
(United Kingdom), Yankee Notes,
6.75%, 03/06/08 500,000 505,510
- ---------------------------------------------------------------
Centel Capital, Deb., 9.00%,
10/15/19 300,000 376,425
- ---------------------------------------------------------------
Esprit Telecom Group PLC (United
Kingdom), Sr. Unsec. Yankee
Notes, 11.50%, 12/15/07 250,000 226,250
- ---------------------------------------------------------------
MCI Communications Corp., Putable
Sr. Unsec. Deb., 7.125%, 06/15/27 650,000 701,272
- ---------------------------------------------------------------
Versatel Telecom B.V.
(Netherlands), Sr. Notes, 13.25%,
5/15/08 (Acquired 05/20/98; Cost
$190,000)(b) 190,000 177,650
- ---------------------------------------------------------------
1,987,107
- ---------------------------------------------------------------
TELEPHONE-1.96%
Dobson Wireline Co., Sr. Notes,
12.25%, 06/15/08 (Acquired
06/10/98; Cost $350,000)(b) 350,000 308,875
- ---------------------------------------------------------------
Esat Holdings Ltd. (Ireland), Sr.
Yankee Notes, 12.50%, 02/01/07(d) 350,000 211,750
- ---------------------------------------------------------------
ICG Services Inc., Sr. Unsec. Disc.
Notes, 10.00%, 02/15/08(d) 600,000 295,500
- ---------------------------------------------------------------
</TABLE>
FS-46
<PAGE> 145
<TABLE>
<CAPTION>
PRINCIPAL(a) MARKET
AMOUNT VALUE
<S> <C> <C>
TELEPHONE-(CONTINUED)
NTL Inc., Sr. Notes, 11.50%,
10/01/08 (Acquired 10/26/98; Cost
$520,000)(b) $ 520,000 $ 538,200
- ---------------------------------------------------------------
SBC Communications Inc., Deb.,
7.375%, 07/15/43 500,000 536,185
- ---------------------------------------------------------------
1,890,510
- ---------------------------------------------------------------
TEXTILES (APPAREL)-0.52%
Fruit of the Loom, Notes, 6.50%,
11/15/03 500,000 503,190
- ---------------------------------------------------------------
TRUCKERS-0.29%
Travelcenters of America Inc., Sr.
Unsec. Gtd. Sub. Deb., 10.25%,
04/01/07 290,000 283,475
- ---------------------------------------------------------------
WASTE MANAGEMENT-1.28%
Allied Waste Industries, Sr. Unsec.
Disc. Notes, 11.30%, 06/01/07(d) 540,000 407,700
- ---------------------------------------------------------------
Norcal Waste Systems Inc., Series B
Sr. Gtd. Notes, 13.50%, 11/15/05 125,000 135,625
- ---------------------------------------------------------------
WMX Technologies, Inc., Unsec.
Notes, 7.10%, 08/01/26 650,000 695,071
- ---------------------------------------------------------------
1,238,396
- ---------------------------------------------------------------
Total U.S. Dollar Denominated
Non-Convertible Bonds & Notes
(Cost $52,167,765) 50,904,099
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
NON-U.S. DOLLAR DENOMINATED
NON-CONVERTIBLE BONDS & NOTES(F)-13.48%
CANADA-6.45%
Bank of Montreal (Banks-Money
Center), Sub. Deb., 7.92%,
07/31/12 CAD 300,000 $ 221,506
- --------------------------------------------------------------
Bell Canada (Telephone), Unsec.
Deb., 10.875%, 10/11/04 250,000 205,820
- --------------------------------------------------------------
Bell Mobility Cellular
(Telecommunications-
Cellular/Wireless), Deb., 6.55%,
06/02/08 750,000 489,943
- --------------------------------------------------------------
Canadian Oil Debco Inc. (Oil &
Gas-Exploration & Production),
Deb., 11.00%, 10/31/00 250,000 177,877
- --------------------------------------------------------------
Clearnet Communications
(Telecommunications-Cellular/Wireless),
Sr. Disc. Notes,(d) 10.40%,
05/15/08 1,200,000 348,136
- --------------------------------------------------------------
Sr. Disc. Notes, 11.75%, 08/13/07
(Acquired 07/31/97-11/04/97; Cost
$517,483)(b)(d) 1,100,000 369,044
- --------------------------------------------------------------
Molson Breweries Co. Ltd.
(Beverages-Alcoholic), Unsub.
Notes, 6.00%, 06/02/08 (Acquired
01/27/98; Cost $480,552)(b) 700,000 453,811
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL(a) MARKET
AMOUNT VALUE
<S> <C> <C>
CANADA-(CONTINUED)
NAV Canada (Services-Commercial &
Consumer), Bonds, 7.40%,
06/01/27 CAD 1,000,000 $ 758,697
- ---------------------------------------------------------------
Ontario Hydro (Electric Companies),
Deb., 9.00%, 06/24/02 1,000,000 737,597
- ---------------------------------------------------------------
Ontario Hydro Residual (Electric
Companies), Deb., 10.00%,
02/06/20(c) 2,750,000 491,060
- ---------------------------------------------------------------
Poco Petroleums Ltd. (Oil &
Gas-Exploration & Production),
Unsec. Deb., 6.60%, 09/11/07 750,000 467,492
- ---------------------------------------------------------------
Telegobe Canada, Inc. (Telephone),
Unsec. Deb., 8.35%, 06/20/03 650,000 466,437
- ---------------------------------------------------------------
Trans-Canada Pipelines (Natural
Gas), Series Q Deb., 10.625%,
10/20/09 375,000 327,389
- ---------------------------------------------------------------
Unsec. Notes, 8.55%, 02/01/06 500,000 369,754
- ---------------------------------------------------------------
Westcoast Energy, Inc. (Oil &
Gas-Exploration & Production),
Deb., 6.45%,12/18/06 (Acquired
12/03/96; Cost $369,682)(b) 500,000 334,989
- ---------------------------------------------------------------
6,219,552
- ---------------------------------------------------------------
GERMANY-1.86%
International Bank for
Reconstruction & Development
(Banks-Money Center), Unsec.
Global Bonds, 7.125%, 04/12/05DEM 1,400,000 999,701
- ---------------------------------------------------------------
LKB Global (Financial-Diversified),
Gtd. Notes, 6.00%, 01/25/06 1,200,000 794,923
- ---------------------------------------------------------------
1,794,624
- ---------------------------------------------------------------
NEW ZEALAND-2.98%
International Bank for
Reconstruction & Development
(Banks-Money Centers), Sr. Unsec.
Notes, 7.25%, 01/16/02 NZD 500,000 271,883
- ---------------------------------------------------------------
Sr. Unsec. Sub. Notes, 7.25%.
05/27/03 2,200,000 1,214,913
- ---------------------------------------------------------------
Sr. Notes, 6.77%, 08/20/07(c) 750,000 230,009
- ---------------------------------------------------------------
Sr. Unsec. Sub. Notes, 5.50%,
11/03/08 2,250,000 1,152,029
- ---------------------------------------------------------------
2,868,834
- ---------------------------------------------------------------
UNITED KINGDOM-2.19%
International Bank for
Reconstruction & Development
(Banks-Money Center), Sr. Unsec.
Sub. Notes, 6.875%, 07/14/00 GBP 750,000 1,272,189
- ---------------------------------------------------------------
</TABLE>
FS-47
<PAGE> 146
<TABLE>
<CAPTION>
PRINCIPAL(a) MARKET
AMOUNT VALUE
<S> <C> <C>
UNITED KINGDOM-(CONTINUED)
Sutton Bridge Financial
Ltd.(Financial-Diversified), Gtd.
Bonds, 8.625%, 06/30/22 (Acquired
05/29/97; Cost $733,642)(b) GBP 450,000 $ 843,232
- ---------------------------------------------------------------
2,115,421
- ---------------------------------------------------------------
Total Non-U.S. Dollar
Denominated Non-Convertible
Bonds & Notes (Cost
$13,252,025) 12,998,431
- ---------------------------------------------------------------
NON-U.S. DOLLAR DENOMINATED
CONVERTIBLE BONDS & NOTES(F)-0.89%
GERMANY-0.40%
Daimler-Benz A.G. (Automobiles),
Conv. Gtd. Unsub. Eurobonds,
4.125%, 07/05/03 DEM 430,000 388,406
- ---------------------------------------------------------------
UNITED KINGDOM-0.49%
National Grid Co. PLC (Electric
Companies), Conv. Bonds, 4.25%,
02/17/08 GBP 250,000 467,417
- ---------------------------------------------------------------
Total Non-U.S. Dollar
Denominated Convertible Bonds
& Notes (Cost $765,956) 855,823
- ---------------------------------------------------------------
NON-U.S. DOLLAR DENOMINATED
GOVERNMENT BONDS & NOTES(F)-13.33%
CANADA-3.58%
B.C. Generic Residual, Deb.,
13.88%, 06/21/04(c) CAD 150,000 72,371
- ---------------------------------------------------------------
Municipal Finance Authority of
British Columbia, Bonds, 7.75%,
12/01/05 500,000 367,138
- ---------------------------------------------------------------
Canada Government,
Bonds, 7.00%, 12/01/06 1,000,000 731,384
- ---------------------------------------------------------------
Bonds, 6.625%, 10/03/07 NZD 1,200,000 650,614
- ---------------------------------------------------------------
Ontario Province, Deb.,
11.125%, 02/14/01 GBP 650,000 1,192,910
- ---------------------------------------------------------------
Sr. Unsub. Notes, 8.00%,
03/11/03 CAD 600,000 435,343
- ---------------------------------------------------------------
3,449,760
- ---------------------------------------------------------------
GERMANY-1.84%
Bundesrepublik Deutschland, Bonds,
6.75%, 07/15/04 DEM 750,000 519,835
- ---------------------------------------------------------------
Bonds, 6.875%, 05/12/05 400,000 281,322
- ---------------------------------------------------------------
Bonds, 5.25%, 01/04/08 1,500,000 978,933
- ---------------------------------------------------------------
1,780,090
- ---------------------------------------------------------------
NEW ZEALAND-2.17%
Federal National Mortgage
Association, Notes, 7.25%,
06/20/02 NZD 1,250,000 684,999
- ---------------------------------------------------------------
New Zealand Government,
Bonds, 8.00%, 02/15/01 1,000,000 560,537
- ---------------------------------------------------------------
Bonds, 8.00%, 11/15/06 500,000 309,522
- ---------------------------------------------------------------
Bonds, 7.00%, 07/15/09 900,000 538,799
- ---------------------------------------------------------------
2,093,857
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL(a) MARKET
AMOUNT VALUE
<S> <C> <C>
SWEDEN-2.74%
Swedish Government,
Bonds, 6.00%, 02/09/05 SEK 4,000,000 $ 557,609
- ---------------------------------------------------------------
Bonds, 6.50%, 10/25/06 4,000,000 579,828
- ---------------------------------------------------------------
Bonds, 5.00%, 01/28/09 11,500,000 1,507,025
- ---------------------------------------------------------------
2,644,462
- ---------------------------------------------------------------
UNITED KINGDOM-3.00%
United Kingdom Treasury,
Bonds, 8.00%, 12/07/00 GBP 350,000 616,148
- ---------------------------------------------------------------
Bonds, 7.50%, 12/07/06 450,000 871,418
- ---------------------------------------------------------------
Gtd. Notes, 7.00%, 11/06/01 800,000 1,405,209
- ---------------------------------------------------------------
2,892,775
- ---------------------------------------------------------------
Total Non-U.S. Dollar
Denominated Government Bonds
& Notes (Cost $12,535,884) 12,860,944
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
DOMESTIC COMMON STOCKS-0.01%
TELECOMMUNICATIONS (CELLULAR/
WIRELESS)-0.01%
Nextel Communications, Inc.-Class
A(e) (Cost $9,000) 557 $ 10,096
- --------------------------------------------------------------
DOMESTIC CONVERTIBLE PREFERRED STOCKS-0.97%
BANKS (REGIONAL)-0.48%
Westpac Banking Corp. STRYPES
Trust-$3.135 Conv. Pfd. 16,000 459,000
- --------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-0.49%
Conseco Inc.-$4.278 Conv. PRIDES 4,000 476,000
- --------------------------------------------------------------
Total Domestic Convertible
Preferred Stocks (Cost
$746,100) 935,000
- --------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY INTERESTS-0.13%
FRANCE-0.05%
Societe Generale (Banks-Major
Regional) 350 46,320
- --------------------------------------------------------------
UNITED KINGDOM-0.08%
Glaxo Wellcome PLC (Health
Care-Drugs-Generic & Other) 2,607 80,954
- --------------------------------------------------------------
Total Foreign Stocks & Other
Equity Interests (Cost
$84,949) 127,274
- --------------------------------------------------------------
WARRANTS-0.04%
ELECTRICAL EQUIPMENT-0.00%
Electronic Retailing Systems
International, Inc., expiring
02/01/04(g) 290 1,450
- --------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT)-0.00%
KMC Telecom Holdings Inc., expiring
04/15/08 (Acquired
01/26/98-03/03/98; Cost $0)(b)(g) 360 1,170
- --------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-0.00%
MVE Inc., expiring 02/15/02(g) 100 1,000
- --------------------------------------------------------------
</TABLE>
FS-48
<PAGE> 147
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES)-(CONTINUED)
Versatel, expiring 01/15/07
(Acquired 05/20/98; Cost
$0)(b)(g) 190 $ 1,924
- --------------------------------------------------------------
2,924
- --------------------------------------------------------------
PERSONAL CARE-0.00%
IHF Capital Inc., Series I,
expiring 11/14/99(g) 70 35
- --------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-0.01%
Clearnet Communications Inc.,
expiring 09/15/05(g) 330 2,310
- --------------------------------------------------------------
Orion Network Systems, Inc.,
expiring 01/15/07(g) 420 4,830
- --------------------------------------------------------------
7,140
- --------------------------------------------------------------
TELEPHONE-0.03%
ESAT Holdings Ltd., expiring
02/01/07 (Acquired 06/16/97; Cost
$0)(b)(g) 350 14,875
- --------------------------------------------------------------
Intermedia Communications Inc.,
expiring 06/01/00(g) 150 8,235
- --------------------------------------------------------------
Knology Holdings, Inc., expiring
10/15/07 (Acquired 03/12/98; Cost
$0)(b)(g) 700 1,575
- --------------------------------------------------------------
24,685
- --------------------------------------------------------------
Total Warrants (Cost $2,812) 37,404
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL(a) MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. TREASURY SECURITIES-13.71%
Bonds, 6.875%, 05/15/06 $ 1,500,000 $ 1,717,050
- ---------------------------------------------------------------
Bonds, 6.375%, 08/15/27 1,000,000 1,152,260
- ---------------------------------------------------------------
Bonds, 6.125%, 11/15/27 4,500,000 5,059,170
- ---------------------------------------------------------------
Bonds, 5.50%, 08/15/28 3,000,000 3,155,160
- ---------------------------------------------------------------
Notes, 5.75%, 04/30/03 1,000,000 1,056,350
- ---------------------------------------------------------------
Notes, 5.625%, 05/15/08 1,000,000 1,077,500
- ---------------------------------------------------------------
Total U.S. Treasury Securities
(Cost $12,796,171) 13,217,490
- ---------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES-1.09%
Fannie Mae, Unsec. Sr. Notes,
6.875%, 06/07/02(f) GBP 350,000 613,921
- ---------------------------------------------------------------
Tennessee Valley Authority, Bonds,
5.98%, 04/01/36 400,000 430,664
- ---------------------------------------------------------------
Total U.S. Government Agency
Securities (Cost $981,642) 1,044,585
- ---------------------------------------------------------------
REPURCHASE AGREEMENT(H)-3.39%
SBC Warburg Dillion Read Inc.,
5.40%, 11/02/98(i) (Cost
$3,269,626) 3,269,626 3,269,626
- ---------------------------------------------------------------
TOTAL INVESTMENTS-99.83% 96,260,772
- ---------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-0.17% 164,933
- ---------------------------------------------------------------
NET ASSETS-100.00% $96,425,705
===============================================================
</TABLE>
Notes to Schedule of Investments:
(a) Principal amount is in U.S. Dollars, except as indicated by note(f).
(b) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144 under the Securities Act of 1933,
as amended. The valuation of these securities has been determined in
accordance with procedures established by the Board of Directors. The
aggregate market value of these securities at 10/31/98 was $9,191,841 which
represented 9.53% of the Fund's net assets.
(c) Zero coupon bond issued at a discount. The interest rate shown represents
the rate of original issue discount.
(d) Discounted bond at purchase. Interest rate shown represents the coupon rate
at which the bond will accrue at a specified future date.
(e) Non-income producing security.
(f) Foreign denominated security. Par value and coupon are denominated in
currency of country indicated.
(g) Non-income producing security acquired as part of a unit with or in exchange
for other securities.
(h) 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.
(i) Joint repurchase agreement entered into 10/30/98 with a maturing value of
$1,300,585,000. Collateralized by $2,856,569,000, U.S. Government
obligations, 0% to 5.50% due 11/15/98 to 02/15/25 with an aggregate market
value at 10/31/98 of $1,326,231,109.
Abbreviations:
AUD - Australian Dollar
CAD - Canadian Dollar
Conv. - Convertible
Ctfs. - Certificates
Deb. - Debentures
DEM - German Deutschmark
Disc. - Discounted
FRF - French Franc
GBP - British Pound Sterling
Gtd. - Guaranteed
JPY - Japanese Yen
NZD - New Zealand Dollar
Pfd. - Preferred
PIK - Payment in Kind
PRIDES - Preferred Redemption Increased Dividend Equity Securities
Sec. - Secured
SEK - Swedish Krona
Sr. - Senior
STRYPES - Structured Yield Product Exchangeable for Stock
Sub. - Subordinated
Unsec. - Unsecured
Unsub. - Unsubordinated
See Notes to Financial Statements.
FS-49
<PAGE> 148
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$96,611,930) $96,260,772
- -----------------------------------------------------------
Foreign currencies, at value (cost $102,681) 101,056
- -----------------------------------------------------------
Receivables for:
Investments sold 1,454,678
- -----------------------------------------------------------
Capital stock sold 608,272
- -----------------------------------------------------------
Dividends and interest 2,188,276
- -----------------------------------------------------------
Investment for deferred compensation plan 15,013
- -----------------------------------------------------------
Other assets 14,249
- -----------------------------------------------------------
Total assets 100,642,316
- -----------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 3,290,537
- -----------------------------------------------------------
Capital stock reacquired 425,030
- -----------------------------------------------------------
Dividends 90,387
- -----------------------------------------------------------
Deferred compensation plan 15,013
- -----------------------------------------------------------
Forward contracts 263,269
- -----------------------------------------------------------
Accrued advisory fees 19,371
- -----------------------------------------------------------
Accrued administrative services fees 6,500
- -----------------------------------------------------------
Accrued directors' fees 710
- -----------------------------------------------------------
Accrued distribution fees 58,901
- -----------------------------------------------------------
Accrued transfer agent fees 35,268
- -----------------------------------------------------------
Accrued operating expenses 11,625
- -----------------------------------------------------------
Total liabilities 4,216,611
- -----------------------------------------------------------
Net assets applicable to shares outstanding $96,425,705
- -----------------------------------------------------------
NET ASSETS:
Class A $58,115,163
===========================================================
Class B $36,525,102
===========================================================
Class C $ 1,785,440
===========================================================
Capital stock, $0.001 par value per share:
Class A:
Authorized 200,000,000
- -----------------------------------------------------------
Outstanding 5,485,113
===========================================================
Class B:
Authorized 200,000,000
- -----------------------------------------------------------
Outstanding 3,449,368
===========================================================
Class C:
Authorized 200,000,000
- -----------------------------------------------------------
Outstanding 168,672
===========================================================
Class A:
Net asset value and redemption price per
share $ 10.60
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $10.60 divided by
95.25%) $ 11.13
- -----------------------------------------------------------
===========================================================
Class B:
Net asset value and offering price per share $ 10.59
===========================================================
Class C:
Net asset value and offering price per share $ 10.59
===========================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended October 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 5,562,739
- -----------------------------------------------------------
Dividends (net of $1,316 foreign withholding
tax) 76,224
- -----------------------------------------------------------
Total investment income 5,638,963
- -----------------------------------------------------------
EXPENSES:
Advisory fees 518,363
- -----------------------------------------------------------
Administrative services fees 81,456
- -----------------------------------------------------------
Custodian fees 25,580
- -----------------------------------------------------------
Directors' fees 9,626
- -----------------------------------------------------------
Distribution fees-Class A 213,249
- -----------------------------------------------------------
Distribution fees-Class B 304,834
- -----------------------------------------------------------
Distribution fees-Class C 9,186
- -----------------------------------------------------------
Transfer agent fees-Class A 98,614
- -----------------------------------------------------------
Transfer agent fees-Class B 77,632
- -----------------------------------------------------------
Transfer agent fees-Class C 2,340
- -----------------------------------------------------------
Other 101,251
- -----------------------------------------------------------
Total expenses 1,442,131
- -----------------------------------------------------------
Less:
Fees waived by advisor (365,730)
- -----------------------------------------------------------
Expenses paid indirectly (2,411)
- -----------------------------------------------------------
Net expenses 1,073,990
- -----------------------------------------------------------
Net investment income 4,564,973
- -----------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES
AND FORWARD CURRENCY CONTRACTS:
Net realized gain (loss) from:
Investment securities (736,111)
- -----------------------------------------------------------
Foreign currencies (7,238)
- -----------------------------------------------------------
Forward currency contracts 450,204
- -----------------------------------------------------------
(293,145)
- -----------------------------------------------------------
Net unrealized appreciation (depreciation) of:
Investment securities (2,167,780)
- -----------------------------------------------------------
Foreign currencies 3,285
- -----------------------------------------------------------
Forward currency contracts (215,660)
- -----------------------------------------------------------
(2,380,155)
- -----------------------------------------------------------
Net gain (loss) from investment securities,
foreign currencies and forward currency
contracts (2,673,300)
- -----------------------------------------------------------
Net increase in net assets resulting from
operations $ 1,891,673
===========================================================
</TABLE>
See Notes to Financial Statements.
FS-50
<PAGE> 149
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
OPERATIONS:
Net investment income $ 4,564,973 $ 3,129,370
- -----------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and forward currency contracts (293,145) 397,245
- -----------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities, foreign currencies and forward currency
contracts (2,380,155) 794,339
- -----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,891,673 4,320,954
- -----------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (2,295,926) (1,835,866)
- -----------------------------------------------------------------------------------------
Class B (1,495,827) (1,337,369)
- -----------------------------------------------------------------------------------------
Class C (42,707) (767)
- -----------------------------------------------------------------------------------------
Return of capital distribution:
Class A (354,717) --
- -----------------------------------------------------------------------------------------
Class B (250,576) --
- -----------------------------------------------------------------------------------------
Class C (8,211) --
- -----------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A (258,088) (311,081)
- -----------------------------------------------------------------------------------------
Class B (181,448) (242,850)
- -----------------------------------------------------------------------------------------
Class C (5,682) (605)
- -----------------------------------------------------------------------------------------
Share transactions-net:
Class A 29,014,691 8,692,165
- -----------------------------------------------------------------------------------------
Class B 12,527,487 8,049,066
- -----------------------------------------------------------------------------------------
Class C 1,597,917 239,702
- -----------------------------------------------------------------------------------------
Net increase in net assets 40,138,586 17,573,349
=========================================================================================
NET ASSETS:
Beginning of period 56,287,119 38,713,770
- -----------------------------------------------------------------------------------------
End of period $ 96,425,705 $56,287,119
=========================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $ 96,795,220 $54,262,086
- -----------------------------------------------------------------------------------------
Undistributed net investment income (loss) 222,498 (10,921)
- -----------------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, foreign currencies and forward currency
contracts 15,255 263,067
- -----------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities, foreign currencies and forward currency
contracts (607,268) 1,772,887
- -----------------------------------------------------------------------------------------
$ 96,425,705 $56,287,119
=========================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Global Income Fund (the "Fund") is an investment portfolio of AIM
International Funds, Inc. (the "Company"). The Company is a Maryland corporation
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of six
separate portfolios: AIM Global Income Fund, AIM Asian Growth Fund, AIM European
Development Fund, AIM Global Aggressive Growth Fund, AIM Global Growth Fund and
AIM International Equity Fund. The Fund currently offers three different classes
of shares: Class A shares, Class B shares and Class C shares. Class A shares are
sold with a front-end sales charge. Class B shares and Class C shares are sold
with a contingent deferred sales charge. Matters affecting each portfolio or
class are voted on exclusively by the shareholders of such portfolio or class.
The assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in the financial statements pertains only to
the Fund. The Fund's investment objective is to provide high current income.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
FS-51
<PAGE> 150
A. Security Valuations-Debt obligations (including convertible bonds) are valued
on the basis of prices provided by an independent pricing service. Prices
provided by the pricing service may be determined without exclusive reliance
on quoted prices, and may reflect appropriate factors such as 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. Investment securities for
which prices are not provided by the pricing service and which are listed or
traded on an exchange (except convertible bonds) are valued at the last sales
price on the exchange where the security is principally traded or, lacking
any sales on a particular day, at the mean between the closing bid and asked
prices on that day unless the Board of Directors, or persons designated by
the Board of Directors, determines that the over-the-counter quotations more
closely reflect the current market value of the security. Securities traded
in the over-the-counter market, except (i) securities priced by the pricing
service, (ii) securities for which representative exchange prices are
available, and (iii) securities reported in the NASDAQ National Market
System, are valued at the mean between representative last bid and asked
prices obtained from an electronic quotation reporting system, if such prices
are available, or from established market makers. Each security reported in
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. 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 Company's officers in accordance
with methods which are specifically authorized by the Board of Directors.
Short-term obligations having 60 days or less to maturity are valued at
amortized cost which approximates market value. Generally, trading in foreign
securities, as well as corporate bonds and U.S. Government securities, is
substantially completed each day at various times prior to the close of the
New York Stock Exchange. The values of such securities used in computing the
net asset value of a Fund's shares are determined as of such times. Foreign
currency exchange rates are also generally determined prior to the close of
the New York Stock Exchange. Occasionally, events affecting the values of
such securities and such exchange rates may occur between the times at which
they are determined and the close of the New York Stock Exchange which would
not be reflected in the computation of a Fund's net asset value. If events
materially affecting the value of such securities and exchange rates occur
during such period, then these securities and exchange rates will be valued
at their fair value as determined in good faith by or under the supervision
of the Board of Directors.
B. Foreign Currency Translations-Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S. dollar
amounts at date of valuation. Purchases and sales of portfolio securities and
income items denominated in foreign currencies are translated into U.S.
dollar amounts on the respective dates of such transactions.
C. Foreign Currency Contracts-A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
Outstanding contracts at October 31, 1998 were as follows:
<TABLE>
<CAPTION>
UNREALIZED
SETTLEMENT CONTRACT TO APPRECIATION
DATE DELIVER VALUE RECEIVE (DEPRECIATION)
- ---------- ---------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
11/04/98 CAD 5,500,000 $ 3,565,633 $ 3,650,786 $ 85,153
11/04/98 NZD 2,200,000 1,164,217 1,119,140 (45,077)
11/04/98 NZD 800,000 423,352 399,480 (23,872)
11/09/98 CAD 2,750,000 1,782,812 1,806,003 23,191
11/10/98 CAD 2,250,000 1,458,664 1,486,012 27,348
11/30/98 DEM 3,100,000 1,875,845 1,725,971 (149,874)
11/30/98 GBP 2,000,000 3,330,145 3,260,000 (70,145)
11/30/98 NZD 1,900,000 1,005,231 924,730 (80,501)
11/30/98 NZD 1,150,000 608,430 550,016 (58,414)
12/01/98 CAD 300,000 194,489 192,530 (1,959)
01/13/99 NZD 4,500,000 2,380,127 2,343,375 (36,752)
01/14/99 GBP 1,900,000 3,145,286 3,202,906 57,620
01/15/99 DEM 3,000,000 1,819,170 1,839,622 20,452
01/29/99 SEK 20,000,000 2,572,734 2,562,295 (10,439)
----------- ----------- ---------
$25,326,135 $25,062,866 $(263,269)
----------- ----------- ---------
</TABLE>
D. Securities Transactions, Investment Income and Distributions-Securities
transactions are accounted for on a trade date basis. Realized gains or
losses are computed on the basis of specific identification of the securities
sold. Interest income is recorded as earned from settlement date and is
recorded on an accrual basis. Dividend income is recorded on the ex-dividend
date. It is the policy of the Fund to declare daily dividends from net
investment income. Such dividends are paid monthly. On October 31, 1998,
undistributed net investment income was increased by $116,410, undistributed
net realized gains increased by $490,551 and paid-in capital decreased by
$606,961 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.
E. Federal Income Taxes-The Fund intends to comply with the requirements of the
Internal Revenue Code necessary to qualify as a regulated investment company
and, as such, will not be subject to federal income taxes on otherwise
taxable income (including net realized capital gains) which is distributed to
shareholders. Therefore, no provision for federal income taxes is recorded in
the financial statements.
F. Expenses-Distribution and transfer agency expenses directly attributable to a
class of shares are charged to that class' operations. All other expenses
which are attributable to more than one class are allocated among the
classes.
FS-52
<PAGE> 151
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.70% of
the first $1 billion of the Fund's average daily net assets, plus 0.65% of the
Fund's average daily net assets in excess of $1 billion. During the year ended
October 31, 1998, AIM waived fees of $365,730.
The Fund, pursuant to a master administrative services agreement, has agreed
to reimburse AIM for administrative costs incurred in providing accounting
services to the Fund. During the year ended October 31, 1998, AIM was reimbursed
$81,456 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency
services to the Fund. During the year ended October 31, 1998, the Fund paid AFS
$97,772 for such services.
The Company has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Company has adopted
distribution plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A shares and Class C shares (the "Class A and C Plan"), and the
Fund's Class B shares (the "Class B Plan") (collectively, the "Plans"). The
Fund, pursuant to the Class A and C Plan, pays AIM Distributors compensation at
an annual rate of 0.50% of the average daily net assets of the Class A shares
and 1.00% of the average daily net assets of Class C shares. The Fund, pursuant
to the Class B Plan, pays AIM Distributors compensation at an annual rate of
1.00% of the average daily net assets of the Class B shares. Of these amounts,
the Fund may pay a service fee of 0.25% of the average daily net assets of the
Class A, Class B or C shares to selected dealers and financial institutions who
furnish continuing personal shareholder services to their customers who purchase
and own the appropriate class of shares of the Fund. Any amounts not paid as a
service fee under the Plans would constitute an asset-based sales charge. The
Plans also impose a cap on the total sales charges, including asset-based sales
charges that may be paid by the respective classes. During the year ended
October 31, 1998, the Class A, Class B and Class C shares paid AIM Distributors
$213,249, $304,834 and $9,186, respectively, as compensation under the Plans.
AIM Distributors received commissions of $50,768 from sales of the Class A
shares of the Fund during the year ended October 31, 1998. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in the
proceeds from sales of Class A shares. During the year ended October 31, 1998,
AIM Distributors received commissions of $9,510 in contingent deferred sales
charges imposed on redemptions of Fund shares. Certain officers and directors of
the Company are officers and directors of AIM, AFS and AIM Distributors.
During the year ended October 31, 1998, the Fund incurred legal fees of
$3,576 for services rendered by the law firm of Kramer, Levin, Naftalis, &
Frankel as counsel to the Company's directors. A member of that firm is a
director of the Company.
NOTE 3-INDIRECT EXPENSES
During the year ended October 31, 1998, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) and reductions in custodian fees of
$766 and $1,645, respectively, under expense offset arrangements. The effect of
the above arrangements resulted in a reduction of the Fund's total expenses of
$2,411 during the year ended October 31, 1998.
NOTE 4-DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if so
elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $1,000,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. Interest on
borrowings under the line of credit is payable on maturity or prepayment date.
Prior to an amendment of the line of credit on May 1, 1998, the Fund was limited
to borrowing up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. During the year ended October 31, 1998, the Fund did
not borrow under the line of credit agreement. The funds which are party to the
line of credit are charged a commitment fee of 0.05% on the unused balance of
the committed line. The commitment fee is allocated among the funds based on
their respective average net assets for the period.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended October 31, 1998 was
$75,209,715, and $33,486,994, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
as of October 31, 1998, is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment
securities $ 3,377,406
- -------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (3,728,564)
- -------------------------------------------------------------
Net unrealized appreciation of investment
securities $ (351,158)
=============================================================
</TABLE>
Investments have the same cost for tax and financial statement purposes.
FS-53
<PAGE> 152
NOTE 7-CAPITAL STOCK
Changes in the Fund's capital stock outstanding during the years ended October
31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Sold:
Class A 3,840,125 $41,970,650 1,677,097 $17,985,938
- --------------------------------------------------------------------------------------------------------------------
Class B 1,818,456 19,865,377 1,244,806 13,337,043
- --------------------------------------------------------------------------------------------------------------------
Class C* 155,501 1,696,174 23,915 258,631
- --------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A 221,486 2,412,254 168,472 1,809,673
- --------------------------------------------------------------------------------------------------------------------
Class B 144,487 1,573,639 118,888 1,275,952
- --------------------------------------------------------------------------------------------------------------------
Class C* 4,387 47,595 71 779
- --------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (1,406,526) (15,368,213) (1,035,690) (11,103,446)
- --------------------------------------------------------------------------------------------------------------------
Class B (814,522) (8,911,529) (610,857) (6,563,929)
- --------------------------------------------------------------------------------------------------------------------
Class C* (13,394) (145,852) (1,808) (19,708)
- --------------------------------------------------------------------------------------------------------------------
3,950,000 $43,140,095 1,584,894 $16,980,933
====================================================================================================================
</TABLE>
* Class C Shares commenced sales on August 4, 1997.
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A and Class B
capital stock outstanding during each of the years in the four-year period ended
October 31, 1998 and the period September 15, 1994 (dates operations commenced)
through October 31, 1994 and for a share of Class C capital stock outstanding
during the year ended October 31, 1998 and the period August 4, 1997 (date sales
commenced) through October 31, 1997.
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.93 $ 10.85 $10.74 $10.02 $10.00
- ------------------------------------------------------------ ------- ------- ------- ------- ------
Income from investment operations:
Net investment income 0.71 0.72 0.79(a) 0.79 0.08
- ------------------------------------------------------------ ------- ------- ------- ------- ------
Net gains (losses) on securities (both realized and
unrealized) (0.27) 0.21 0.25 0.75 0.01
- ------------------------------------------------------------ ------- ------- ------- ------- ------
Total from investment operations 0.44 0.93 1.04 1.54 0.09
- ------------------------------------------------------------ ------- ------- ------- ------- ------
Less distributions:
Dividends from investment income (0.61) (0.72) (0.81) (0.82) (0.07)
- ------------------------------------------------------------ ------- ------- ------- ------- ------
Distributions from net realized gains (0.07) (0.13) (0.12) -- --
- ------------------------------------------------------------ ------- ------- ------- ------- ------
Return of capital (0.09) -- -- -- --
- ------------------------------------------------------------ ------- ------- ------- ------- ------
Total distributions (0.77) (0.85) (0.93) (0.82) (0.07)
- ------------------------------------------------------------ ------- ------- ------- ------- ------
Net asset value, end of period $ 10.60 $ 10.93 $10.85 $10.74 $10.02
============================================================ ======= ======= ======= ======= ======
Total return(b) 3.95% 9.05% 10.22% 16.07% 0.93%
============================================================ ======= ======= ======= ======= ======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $58,115 $30,924 $21,926 $10,004 $2,661
============================================================ ======= ======= ======= ======= ======
Ratio of expenses to average net assets(c) 1.23%(d) 1.25% 1.25% 1.25% 1.25%(e)
============================================================ ======= ======= ======= ======= ======
Ratio of net investment income to average net assets(f) 6.38%(d) 6.54% 7.27% 7.38% 6.01%(e)
============================================================ ======= ======= ======= ======= ======
Portfolio turnover rate 47% 61% 83% 128% 6%
============================================================ ======= ======= ======= ======= ======
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct sales charges.
(c) After fee waivers and/or expense reimbursements. The ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.73%, 1.86%, 2.02%, 3.03% and 5.61% (annualized) for the periods 1998-1994.
(d) Ratios are based on average net assets of $42,649,812.
(e) Annualized.
(f) After fee waivers and/or expense reimbursements. The ratios of net
investment income to average net assets prior to fee waivers and/or expense
reimbursements were 5.89%, 5.93%, 6.51%, 5.59% and 1.65% (annualized) for
the periods 1998-1994.
FS-54
<PAGE> 153
NOTE 8-FINANCIAL HIGHLIGHTS-continued
<TABLE>
<CAPTION>
CLASS B CLASS C
------------------------------------------------- ----------------
1998 1997 1996 1995 1994 1998 1997
------- ------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.92 $ 10.84 $ 10.73 $10.01 $10.00 $10.92 $10.76
- ------------------------------------------------------- ------- ------- ------- ------ ------ ------ ------
Income from investment operations:
Net investment income 0.65 0.67 0.74(a) 0.74 0.07 0.66 0.15(a)
- ------------------------------------------------------- ------- ------- ------- ------ ------ ------ ------
Net gains (losses) on securities (both realized and
unrealized) (0.27) 0.21 0.24 0.75 0.01 (0.28) 0.17
- ------------------------------------------------------- ------- ------- ------- ------ ------ ------ ------
Total from investment operations 0.38 0.88 0.98 1.49 0.08 0.38 0.32
- ------------------------------------------------------- ------- ------- ------- ------ ------ ------ ------
Less distributions:
Dividends from investment income (0.55) (0.67) (0.75) (0.77) (0.07) (0.55) (0.13)
- ------------------------------------------------------- ------- ------- ------- ------ ------ ------ ------
Distributions from net realized gains (0.07) (0.13) (0.12) -- -- (0.07) (0.03)
- ------------------------------------------------------- ------- ------- ------- ------ ------ ------ ------
Return of capital (0.09) -- -- -- -- (0.09) --
- ------------------------------------------------------- ------- ------- ------- ------ ------ ------ ------
Total distributions (0.71) (0.80) (0.87) (0.77) (0.07) (0.71) (0.16)
- ------------------------------------------------------- ------- ------- ------- ------ ------ ------ ------
Net asset value, end of period $ 10.59 $ 10.92 $ 10.84 $10.73 $10.01 $10.59 $10.92
======================================================= ======= ======= ======= ====== ====== ====== ======
Total return(b) 3.38% 8.48% 9.66% 15.56% 0.79% 3.39% 2.99%
======================================================= ======= ======= ======= ====== ====== ====== ======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $36,525 $25,121 $16,787 $4,207 $ 362 $1,785 $ 242
======================================================= ======= ======= ======= ====== ====== ====== ======
Ratio of expenses to average net assets(c) 1.75%(d) 1.76% 1.75% 1.74% 1.73%(e) 1.73%(d) 1.76%(e)
======================================================= ======= ======= ======= ====== ====== ====== ======
Ratio of net investment income to average net assets(f) 5.87%(d) 6.03% 6.77% 6.88% 3.59%(e) 5.88%(d) 6.03%(e)
======================================================= ======= ======= ======= ====== ====== ====== ======
Portfolio turnover rate 47% 61% 83% 128% 6% 47% 61%
======================================================= ======= ======= ======= ====== ====== ====== ======
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(c) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
2.25%, 2.37%, 2.53%, 3.57% and 22.09% (annualized) for 1998-1994 for Class B
and 2.22% and 2.37% (annualized) for 1998-1997 for Class C.
(d) Ratios are based on average net assets of $30,483,393 and $918,640 for Class
B and Class C, respectively.
(e) Annualized.
(f) After fee waivers and/or expense reimbursements. Ratios of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursements were 5.37%, 5.42%, 6.00%, 5.05% and (16.77)% (annualized) for
1998-1994 for Class B and 5.40% and 5.42% (annualized) for 1998-1997 for
Class C.
FS-55
<PAGE> 154
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
AIM International Funds, Inc.:
We have audited the accompanying statement of assets and
liabilities of AIM International Equity Fund (a portfolio
of AIM International Funds, Inc.), including the schedule
of investments, as of October 31, 1998, the related
statement of operations for the year then ended, the
statement of changes in net assets for each of the years
in the two-year period then ended and financial
highlights for each of the years in the five-year period
then ended. These financial statements and financial
highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion
on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of October 31, 1998, by
correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all
material respects, the financial position of AIM
International Equity Fund as of October 31, 1998, the
results of its operations for the year then ended, the
changes in its net assets for each of the years in the
two-year period then ended, and the financial highlights
for each of the years in the five-year period then ended,
in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Houston, Texas
December 4, 1998
FS-56
<PAGE> 155
SCHEDULE OF INVESTMENTS
October 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-89.07%
ARGENTINA-1.24%
Telefonica de Argentina S.A.-ADR
(Telephone) 317,500 $ 10,497,344
- ---------------------------------------------------------------
YPF Sociedad Anonima-ADR
(Oil-International Integrated) 718,400 20,788,700
- ---------------------------------------------------------------
31,286,044
- ---------------------------------------------------------------
AUSTRALIA-0.60%
AMP Ltd.
(Insurance-Life/Health)(a) 1,275,500 15,172,869
- ---------------------------------------------------------------
BELGIUM-3.22%
Barco N.V.
(Manufacturing-Diversified) 41,000 10,934,133
- ---------------------------------------------------------------
Colruyt N.V. (Retail-Food
Chains) 29,200 24,425,937
- ---------------------------------------------------------------
Delhaize-Le Lion, S.A.
(Retail-Food & Drug)(a) 326,000 27,866,510
- ---------------------------------------------------------------
UCB S.A.
(Manufacturing-Diversified) 3,100 18,109,046
- ---------------------------------------------------------------
81,335,626
- ---------------------------------------------------------------
BRAZIL-1.52%
Companhia Brasileira de
Distribuicao Grupo Pao de
Acucar-Pfd. (Retail-Food
Chain) 294,900 4,755,263
- ---------------------------------------------------------------
Companhia Energetica de Minas
Gerais (Electric Companies) 211,712 4,117,809
- ---------------------------------------------------------------
Petroleo Brasileiro
S.A.-Petrobras-Pfd. (Oil &
Gas-Exploration & Production) 30,271 3,806,765
- ---------------------------------------------------------------
Telecomunicacoes Brasileiras
S.A.-ADR
(Telecommunications-Cellular/
Wireless) 150,200 11,405,813
- ---------------------------------------------------------------
Telecomunicacoes de Sao Paulo
S.A.-TELESP-Pfd. (Telephone) 59,100 9,909,457
- ---------------------------------------------------------------
Telerj Celular S.A.
(Telecommunications-
Cellular/Wireless)(a) 44,988 1,395,503
- ---------------------------------------------------------------
Telesp Celular S.A.
(Telecommunications-
Cellular/Wireless)(a) 59,100 2,923,290
- ---------------------------------------------------------------
38,313,900
- ---------------------------------------------------------------
CANADA-4.65%
ATI Technologies, Inc.
(Computers-Hardware)(a) 471,400 3,820,097
- ---------------------------------------------------------------
Bank of Montreal (Banks-Major
Regional) 126,000 5,154,360
- ---------------------------------------------------------------
BCE Inc.
(Telecommunications-Cellular/
Wireless) 353,600 11,989,161
- ---------------------------------------------------------------
Bombardier Inc.
(Aerospace/Defense) 1,510,000 17,865,478
- ---------------------------------------------------------------
Canadian National Railway Co.
(Railroads) 50,000 2,521,875
- ---------------------------------------------------------------
Imasco Ltd.
(Manufacturing-Diversified) 1,038,200 19,518,833
- ---------------------------------------------------------------
Mitel Corp. (Communications
Equipment)(a) 253,100 2,042,849
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
CANADA-(CONTINUED)
Northern Telecom Ltd.-ADR
(Communications Equipment) 179,557 $ 7,687,284
- ---------------------------------------------------------------
Royal Bank of Canada
(Banks-Major Regional) 355,000 16,363,372
- ---------------------------------------------------------------
Suncor Energy, Inc.
(Oil-International Integrated) 380,000 12,071,311
- ---------------------------------------------------------------
Teleglobe, Inc.
(Telecommunications) 532,000 14,554,554
- ---------------------------------------------------------------
Toronto-Dominion Bank
(Banks-Regional) 136,000 4,046,937
- ---------------------------------------------------------------
117,636,111
- ---------------------------------------------------------------
CROATIA-0.22%
Pliva DD-GDR 144A (Health
Care-Drugs-Major
Pharmaceutical), (Acquired
05/13/98-05/20/98; Cost
$6,368,075)(b) 379,000 5,571,300
- ---------------------------------------------------------------
FINLAND-1.05%
Nokia Oyj A.B.-Class A
(Communications Equipment) 291,600 26,596,006
- ---------------------------------------------------------------
FRANCE-15.23%
Accor S.A. (Lodging-Hotels) 91,000 19,121,847
- ---------------------------------------------------------------
Altran Technologies, S.A.
(Services-Commercial &
Consumer) 41,000 8,024,740
- ---------------------------------------------------------------
AXA S.A. (Insurance-Multi-Line) 132,000 14,926,265
- ---------------------------------------------------------------
Banque Nationale de Paris
(Banks-Major Regional) 147,200 9,327,058
- ---------------------------------------------------------------
Cap Gemini Sogeti S.A.
(Computers-Software &
Services) 213,500 32,099,771
- ---------------------------------------------------------------
Danone (Foods) 89,000 23,541,243
- ---------------------------------------------------------------
Elf Aquitaine S.A. (Oil &
Gas-Refining & Marketing) 205,500 23,792,517
- ---------------------------------------------------------------
Essilor International S.A.
(Manufacturing-Specialized) 24,940 10,104,075
- ---------------------------------------------------------------
Etablissements Economiques du
Casino Guichard-Perrachon
(Retail-Food Chains)(a) 232,400 23,140,825
- ---------------------------------------------------------------
Legrand S.A. (Housewares) 75,000 19,122,387
- ---------------------------------------------------------------
Pinault-Printemps-Redoute S.A.
(Retail-General Merchandise) 174,000 29,137,332
- ---------------------------------------------------------------
Promodes (Retail-Food Chains) 41,100 25,894,251
- ---------------------------------------------------------------
PSA Peugeot Citreon
(Automobiles) 73,000 12,184,850
- ---------------------------------------------------------------
Renault S.A. (Automobiles) 522,000 22,322,956
- ---------------------------------------------------------------
Rexal S.A. (Distributors-Food &
Health) 148,000 13,590,938
- ---------------------------------------------------------------
Rhone-Poulenc-Class A
(Chemicals-Diversified) 264,500 12,096,980
- ---------------------------------------------------------------
Societe Generale (Banks-Major
Regional) 107,800 14,266,705
- ---------------------------------------------------------------
</TABLE>
FS-57
<PAGE> 156
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FRANCE-(CONTINUED)
Societe Television Francaise 1
(Broadcasting-Television,
Radio & Cable) 70,000 $ 11,570,665
- ---------------------------------------------------------------
Suez Lyonnaise des Eaux
(Manufacturing-Diversified) 125,000 22,394,980
- ---------------------------------------------------------------
Total S.A.-Class B (Oil &
Gas-Refining & Marketing) 213,000 24,584,151
- ---------------------------------------------------------------
Valeo S.A. (Auto Parts &
Equipment) 161,000 13,944,037
- ---------------------------------------------------------------
385,188,573
- ---------------------------------------------------------------
GERMANY-6.86%
Allianz A.G.
(Insurance-Multi-Line) 83,600 28,689,989
- ---------------------------------------------------------------
Bayerische Vereinsbank A.G.
(Banks-Major Regional) 355,000 28,205,244
- ---------------------------------------------------------------
BHF-Bank A.G. (Banks-Major
Regional) 158,000 6,085,736
- ---------------------------------------------------------------
Continental A.G. (Auto Parts &
Equipment) 311,450 8,279,741
- ---------------------------------------------------------------
Daimler-Benz A.G. (Automobiles) 139,900 10,861,670
- ---------------------------------------------------------------
Dresdner Bank A.G. (Banks-Major
Regional) 641,100 24,983,959
- ---------------------------------------------------------------
Henkel KGaA
(Chemicals-Diversified) 323,500 27,657,090
- ---------------------------------------------------------------
Karstadt A.G. (Retail-Department
Stores) 64,450 32,904,507
- ---------------------------------------------------------------
Porsche A.G. (Automobiles) 3,300 5,841,943
- ---------------------------------------------------------------
173,509,879
- ---------------------------------------------------------------
HONG KONG-1.92%
China Telecom Ltd.
(Telecommunications-
Cellular/Wireless)(a) 6,564,000 12,332,132
- ---------------------------------------------------------------
Cosco Pacific Ltd.
(Financial-Diversified) 27,852,000 13,666,163
- ---------------------------------------------------------------
Hutchison Whampoa Ltd.
(Retail-Food Chains) 2,552,000 18,288,592
- ---------------------------------------------------------------
Ng Fung Hong Ltd. (Foods) 4,986,000 4,410,111
- ---------------------------------------------------------------
48,696,998
- ---------------------------------------------------------------
INDONESIA-0.53%
Gulf Indonesia Resources Ltd.
(Oil-International
Integrated)(a) 1,353,700 13,367,788
- ---------------------------------------------------------------
IRELAND-2.04%
Allied Irish Banks PLC
(Banks-Regional) 1,865,000 26,772,125
- ---------------------------------------------------------------
Bank of Ireland (Banks-Major
Regional) 1,103,400 20,269,920
- ---------------------------------------------------------------
Elan Corp. PLC-ADR (Health
Care-Drugs-Generic & Other)(a) 63,800 4,469,989
- ---------------------------------------------------------------
51,512,034
- ---------------------------------------------------------------
ITALY-6.42%
Assicurazioni Generali
(Insurance- Multi-Line) 508,500 18,137,121
- ---------------------------------------------------------------
Banca Commerciale Italiana
(Banks-Major Regional) 1,168,000 7,221,919
- ---------------------------------------------------------------
Banca di Roma (Banks-Major
Regional)(a) 10,797,000 18,832,130
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ITALY-(CONTINUED)
Credito Italiano S.p.A.
(Banks-Major Regional) 3,596,300 $ 19,369,083
- ---------------------------------------------------------------
Ente Nazionale Idrocarburi
S.p.A. (Oil & Gas-Refining &
Marketing) 3,003,000 17,909,833
- ---------------------------------------------------------------
Istituto Mobiliare Italiano
S.p.A. (Banks-Major
Regional)(a) 1,220,700 18,759,133
- ---------------------------------------------------------------
Telecom Italia Mobile S.p.A.
(Telephone) 5,100,000 29,637,913
- ---------------------------------------------------------------
Telecom Italia S.p.A.
(Telephone) 4,494,000 32,500,565
- ---------------------------------------------------------------
162,367,697
- ---------------------------------------------------------------
JAPAN-5.72%
Advantest Corp. (Electronics-
Instrumentation)(a) 186,000 11,748,883
- ---------------------------------------------------------------
Bridgestone Corp. (Auto Parts &
Equipment) 968,000 21,338,261
- ---------------------------------------------------------------
Fuji Photo Film
Co.(Photography/Imaging) 278,000 10,201,616
- ---------------------------------------------------------------
Nippon Telegraph & Telephone
Corp. (Telephone) 15,790 12,375,799
- ---------------------------------------------------------------
Nippon Television Network Corp.
(Broadcasting-Television,
Radio & Cable) 26,530 8,287,775
- ---------------------------------------------------------------
NTT Data Corp.
(Computers-Software &
Services)(a) 4,163 17,638,011
- ---------------------------------------------------------------
Okuma Corp. (Machine Tools)(a) 191,000 984,875
- ---------------------------------------------------------------
Rohm Co. (Electronics-Component
Distributors) 176,000 15,579,237
- ---------------------------------------------------------------
SMC Corp.
(Machinery-Diversified) 171,000 12,917,583
- ---------------------------------------------------------------
Sony Corp.
(Electronics-Component
Distributors) 149,600 9,513,922
- ---------------------------------------------------------------
Takeda Chemical Industries
(Health Care-Drugs-Generic &
Other) 378,000 12,311,963
- ---------------------------------------------------------------
Tokyo Electron Ltd.
(Electronics-Semiconductors)(a) 359,000 11,693,107
- ---------------------------------------------------------------
144,591,032
- ---------------------------------------------------------------
MEXICO-1.99%
Coca-Cola Femsa S.A.-ADR
(Beverages- Non-Alcoholic) 428,400 7,068,600
- ---------------------------------------------------------------
Fomento Economico Mexicano, S.A.
de C.V. ADR
(Beverages-Alcoholic) 711,670 18,547,899
- ---------------------------------------------------------------
Grupo Financiero Banamex
Accival, S.A. de C.V.
(Financial-Diversified)(a) 4,317,000 4,529,368
- ---------------------------------------------------------------
Grupo Modelo S.A. de C.V.-Series
C (Beverages-Alcoholic) 4,850,000 10,225,180
- ---------------------------------------------------------------
Grupo Televisa S.A.-GDR
(Entertainment)(a) 371,500 10,076,938
- ---------------------------------------------------------------
50,447,985
- ---------------------------------------------------------------
NETHERLANDS-6.96%
DE Boer Unigro (Retail-General
Merchandise)(a) 256,970 6,466,211
- ---------------------------------------------------------------
</TABLE>
FS-58
<PAGE> 157
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
NETHERLANDS-(CONTINUED)
Getronics N.V.
(Computers-Software &
Services) 417,000 $ 17,302,442
- ---------------------------------------------------------------
Heineken N.V.
(Beverages-Alcoholic) 528,000 28,127,208
- ---------------------------------------------------------------
IHC Caland N.V.
(Manufacturing-Specialized) 121,000 5,474,087
- ---------------------------------------------------------------
Koninklijke Ahold N.V.
(Retail-Food Chains) 796,000 26,465,146
- ---------------------------------------------------------------
Koninklijke Numico N.V. (Foods) 277,000 10,900,257
- ---------------------------------------------------------------
Randstad Holdings N.V.
(Services-Commercial &
Consumer) 137,000 7,334,833
- ---------------------------------------------------------------
Vedior N.V.
(Services-Employment)(a) 212,162 5,406,848
- ---------------------------------------------------------------
Vendex N.V. (Retail-General
Merchandise) 367,100 9,335,717
- ---------------------------------------------------------------
Verenigde Nederlandse
Uitgeversbedrijven Verenigd
Bezit (Publishing) 955,300 33,040,143
- ---------------------------------------------------------------
Wolters Kluwer N.V. (Specialty
Printing)(a) 134,500 26,067,566
- ---------------------------------------------------------------
175,920,458
- ---------------------------------------------------------------
NORWAY-0.19%
Merkantildata A.S.A
(Services-Commercial &
Consumer) 480,000 4,828,055
- ---------------------------------------------------------------
PHILIPPINES-0.28%
Philippine Long Distance
Telephone Co. (Telephone) 168,960 4,055,881
- ---------------------------------------------------------------
Philippine Long Distance
Telephone Co.-ADR (Telephone) 119,200 2,905,500
- ---------------------------------------------------------------
6,961,381
- ---------------------------------------------------------------
PORTUGAL-2.78%
Banco Comercial Portugues, S.A.
(Banks-Major Regional) 720,000 22,548,752
- ---------------------------------------------------------------
Electricidade de Portugal, S.A.
(Electric Companies) 480,000 12,070,655
- ---------------------------------------------------------------
Electricidade de Portugal,
S.A.-ADR (Electric Companies) 140,800 7,040,000
- ---------------------------------------------------------------
Portugal Telecom S.A.
(Telephone) 390,600 18,513,483
- ---------------------------------------------------------------
Telecel-Comunicacaoes Pessoais,
S.A.
(Telecommunications-Cellular/
Wireless) 55,000 10,136,010
- ---------------------------------------------------------------
70,308,900
- ---------------------------------------------------------------
SPAIN-3.69%
Corp. Financiera Reunida, S.A.
(Investment Management)(a) 525,000 6,301,044
- ---------------------------------------------------------------
Endesa S.A. (Electric Companies) 1,171,000 29,522,406
- ---------------------------------------------------------------
Iberdrola S.A. (Electric
Companies) 1,566,000 25,301,115
- ---------------------------------------------------------------
Telefonica de Espana (Telephone) 710,000 32,068,745
- ---------------------------------------------------------------
93,193,310
- ---------------------------------------------------------------
SWEDEN-0.96%
Hennes & Mauritz A.B.-Class B
(Retail-Specialty-Apparel) 228,992 16,148,942
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SWEDEN-(CONTINUED)
WM-Data A.B. (Computers-Software
& Services) 220,000 $ 8,011,284
- ---------------------------------------------------------------
24,160,226
- ---------------------------------------------------------------
SWITZERLAND-4.76%
Adecco S.A. (Services-Commercial
& Consumer)(a) 27,500 10,962,646
- ---------------------------------------------------------------
Julius Baer Holding A.G.
(Banks-Major Regional)(a) 2,500 7,659,088
- ---------------------------------------------------------------
Nestle S.A. (Foods) 15,000 31,891,333
- ---------------------------------------------------------------
Novartis A.G. (Health
Care-Diversified) 15,300 27,559,427
- ---------------------------------------------------------------
UBS A.G. (Banks-Major
Regional)(a) 76,461 20,969,483
- ---------------------------------------------------------------
Zurich Allied A.G.
(Insurance-Multi-Line) 35,000 21,264,580
- ---------------------------------------------------------------
120,306,557
- ---------------------------------------------------------------
TAIWAN-0.11%
Taiwan Semiconductor
Manufacturing Co.-ADR
(Electronics-Semiconductors) 190,385 2,843,876
- ---------------------------------------------------------------
UNITED KINGDOM-16.13%
Airtours PLC
(Services-Commercial &
Consumer) 1,399,350 7,843,103
- ---------------------------------------------------------------
Bodycote International PLC
(Chemicals-Specialty) 410,000 5,864,982
- ---------------------------------------------------------------
British Aerospace PLC
(Aerospace/Defense) 2,503,000 18,614,413
- ---------------------------------------------------------------
British Petroleum Co. PLC (Oil &
Gas-Refining & Marketing) 1,265,200 18,564,169
- ---------------------------------------------------------------
Cable & Wireless PLC
(Telecommunications-Cellular/
Wireless) 1,128,850 12,653,998
- ---------------------------------------------------------------
Compass Group PLC
(Services-Commercial &
Consumer) 1,940,000 19,636,941
- ---------------------------------------------------------------
EMAP PLC (Publishing) 1,360,000 23,208,967
- ---------------------------------------------------------------
General Electric Co. PLC
(Manufacturing-Diversified) 2,984,800 23,845,440
- ---------------------------------------------------------------
GKN PLC
(Manufacturing-Diversified) 1,060,000 12,875,355
- ---------------------------------------------------------------
Hays PLC (Services-Commercial &
Consumer) 1,885,000 27,768,821
- ---------------------------------------------------------------
Kingfisher PLC
(Retail-Department Stores) 2,859,600 25,093,863
- ---------------------------------------------------------------
Ladbroke Group PLC (Leisure
Time-Products) 2,500,000 9,149,657
- ---------------------------------------------------------------
Logica PLC (Computer
Software/Services) 195,000 6,582,106
- ---------------------------------------------------------------
Misys PLC (Services-Commercial &
Consumer) 1,375,000 9,639,033
- ---------------------------------------------------------------
Orange PLC
(Telecommunications)(a) 2,977,000 27,668,119
- ---------------------------------------------------------------
Pearson PLC (Specialty Printing) 1,165,000 20,310,021
- ---------------------------------------------------------------
Provident Financial PLC
(Consumer Finance) 909,333 13,646,841
- ---------------------------------------------------------------
Railtrack Group PLC (Shipping) 874,448 23,481,496
- ---------------------------------------------------------------
Rentokil Initial PLC
(Services-Commercial &
Consumer) 4,240,000 26,531,035
- ---------------------------------------------------------------
</TABLE>
FS-59
<PAGE> 158
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
UNITED KINGDOM-(CONTINUED)
Somerfield PLC (Retail-Food
Chains) 1,565,000 $ 10,054,542
- ---------------------------------------------------------------
Stagecoach Holdings PLC
(Shipping) 1,600,000 6,210,473
- ---------------------------------------------------------------
Unilever PLC (Foods) 2,064,000 20,719,424
- ---------------------------------------------------------------
Vodafone Group PLC
(Telecommunications-Cellular/
Wireless) 1,865,000 24,962,356
- ---------------------------------------------------------------
WPP Group PLC
(Services-Advertising/
Marketing) 2,575,000 12,795,298
- ---------------------------------------------------------------
407,720,453
- ---------------------------------------------------------------
Total Foreign Stocks & Other
Equity Interests
(Cost $1,842,926,995) 2,251,837,058
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
FOREIGN CONVERTIBLE BONDS-0.68%
FRANCE-0.60%
AXA-UAP (Insurance-Multi-Line),
Conv. Sr. Deb., 4.50%,
01/01/99(c) FRF 33,885,000 $ 15,140,165
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
GERMANY-0.08%
Cosco Treasury Co. Ltd.
(Financial - Diversified),
Conv. Bond, 1.00%, 03/13/03 $ 2,754,000 $ 1,920,915
- ---------------------------------------------------------------
Total Foreign Convertible
Bonds (Cost $10,626,776) 17,061,080
- ---------------------------------------------------------------
REPURCHASE AGREEMENTS-8.95%(D)
Credit Suisse First Boston Corp.,
5.55%, 11/02/98(e) 96,315,287 96,315,287
- ---------------------------------------------------------------
Salomon Smith Barney, Inc.,
5.55%(f) 130,000,000 130,000,000
- ---------------------------------------------------------------
Total Repurchase Agreements
(Cost $226,315,287) 226,315,287
- ---------------------------------------------------------------
TOTAL INVESTMENTS-98.70% 2,495,213,425
- ---------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-1.30% 32,987,628
- ---------------------------------------------------------------
NET ASSETS-100.00% $2,528,201,053
===============================================================
</TABLE>
Abbreviations:
ADR - American Depositary Receipt
Conv.- Convertible
Deb. - Debenture
FRF - French Franc
GDR - Global Depositary Receipt
Pfd. - Preferred
Sr. - Senior
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Restricted security. May be resold to qualified institutional buyers in
accordance with provisions of Rule 144A under the Securities Act of 1933, as
amended. The valuation of these securities has been determined in accordance
with procedures established by the Board of Directors. The aggregate market
value of these securities at 10/31/98 represented 0.22% of the Fund's net
assets.
(c) Foreign denominated security. Par value and coupon are denominated in
currency indicated.
(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 agreements. 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 investment 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 advisors or its affiliates.
(e) Joint repurchase agreement entered into 10/30/98 with a maturing value of
$430,198,875. Collateralized by $401,863,000 U.S. Government obligations, 0%
to 8.75% due 05/14/99 to 08/15/21 with an aggregate market value at 10/31/98
of $443,969,550.
(f) Open joint repurchase agreement. Either party may terminate the agreement
upon demand. Interest rates are redetermined daily. Collateralized by
$1,159,504,000 U.S. Government obligations, 0% to 10.70% due 11/01/98 to
07/15/45 with an aggregate market value at 10/31/98 of $1,020,000,062.
See Notes to Financial Statements.
FS-60
<PAGE> 159
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$2,079,869,058) $2,495,213,425
- ------------------------------------------------------------
Foreign currencies, at value (cost
$32,786,516) 32,398,133
- ------------------------------------------------------------
Receivables for:
Investments sold 36,987,068
- ------------------------------------------------------------
Capital stock sold 21,209,509
- ------------------------------------------------------------
Dividends and interest 5,974,580
- ------------------------------------------------------------
Investment for deferred compensation plan 37,882
- ------------------------------------------------------------
Other assets 83,182
- ------------------------------------------------------------
Total assets 2,591,903,779
- ------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 35,523,592
- ------------------------------------------------------------
Capital stock reacquired 24,005,546
- ------------------------------------------------------------
Deferred compensation 37,882
- ------------------------------------------------------------
Accrued advisory fees 1,748,863
- ------------------------------------------------------------
Accrued administrative services fees 10,255
- ------------------------------------------------------------
Accrued custodian fees 293,268
- ------------------------------------------------------------
Accrued directors' fees 2,202
- ------------------------------------------------------------
Accrued distribution fees 1,542,267
- ------------------------------------------------------------
Accrued transfer agent fees 379,635
- ------------------------------------------------------------
Accrued operating expenses 159,216
- ------------------------------------------------------------
Total liabilities 63,702,726
- ------------------------------------------------------------
Net assets applicable to shares outstanding $2,528,201,053
- ------------------------------------------------------------
NET ASSETS:
Class A $1,724,635,296
============================================================
Class B $ 744,987,253
============================================================
Class C $ 58,578,504
============================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Class A:
Authorized 200,000,000
- ------------------------------------------------------------
Outstanding 98,040,506
============================================================
Class B:
Authorized 200,000,000
- ------------------------------------------------------------
Outstanding 43,489,979
============================================================
Class C:
Authorized 200,000,000
- ------------------------------------------------------------
Outstanding 3,417,727
============================================================
Class A:
Net asset value and redemption price per
share $ 17.59
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $17.59
divided by 94.50%) $ 18.61
============================================================
Class B:
Net asset value and offering price per
share $ 17.13
============================================================
Class C:
Net asset value and offering price per
share $ 17.14
============================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended October 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $4,618,535 foreign
withholding tax) $ 33,187,086
- -----------------------------------------------------------
Interest 9,416,642
- -----------------------------------------------------------
Total investment income 42,603,728
- -----------------------------------------------------------
EXPENSES:
Advisory fees 22,606,968
- -----------------------------------------------------------
Administrative services fees 115,146
- -----------------------------------------------------------
Custodian fees 1,835,260
- -----------------------------------------------------------
Directors' fees 23,005
- -----------------------------------------------------------
Distribution fees-Class A 4,979,983
- -----------------------------------------------------------
Distribution fees-Class B 7,603,662
- -----------------------------------------------------------
Distribution fees-Class C 359,693
- -----------------------------------------------------------
Transfer agent fees-Class A 2,671,327
- -----------------------------------------------------------
Transfer agent fees-Class B 1,808,765
- -----------------------------------------------------------
Transfer agent fees-Class C 84,236
- -----------------------------------------------------------
Other 726,409
- -----------------------------------------------------------
Total expenses 42,814,454
- -----------------------------------------------------------
Less: Fees waived by advisor (978,165)
- -----------------------------------------------------------
Expenses paid indirectly (28,939)
- -----------------------------------------------------------
Net expenses 41,807,350
- -----------------------------------------------------------
Net investment income 796,378
============================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES AND
FOREIGN CURRENCIES:
Net realized gain from:
Investment securities 126,350,199
- -----------------------------------------------------------
Foreign currencies 6,376,716
- -----------------------------------------------------------
132,726,915
- -----------------------------------------------------------
Net unrealized appreciation of:
Investment securities 27,656,071
- -----------------------------------------------------------
Foreign currencies 444,889
- -----------------------------------------------------------
28,100,960
- -----------------------------------------------------------
Net gain from investment securities and
foreign
currencies 160,827,875
- -----------------------------------------------------------
Net increase in net assets resulting from
operations $161,624,253
============================================================
</TABLE>
See Notes to Financial Statements.
FS-61
<PAGE> 160
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 796,378 $ 328,254
- -----------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
foreign currencies 132,726,915 (16,556,015)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities and
foreign currencies 28,100,960 193,195,060
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 161,624,253 176,967,299
- -----------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (5,803,939) (1,250,230)
- -----------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A -- (31,812,536)
- -----------------------------------------------------------------------------------------------
Class B -- (11,361,858)
- -----------------------------------------------------------------------------------------------
Share transactions-net:
Class A 22,585,920 363,888,653
- -----------------------------------------------------------------------------------------------
Class B 35,370,772 282,384,176
- -----------------------------------------------------------------------------------------------
Class C 45,396,283 13,462,792
- -----------------------------------------------------------------------------------------------
Net increase in net assets 259,173,289 792,278,296
- -----------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 2,269,027,764 1,476,749,468
- -----------------------------------------------------------------------------------------------
End of period $2,528,201,053 $2,269,027,764
===============================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $2,001,298,592 $1,897,861,942
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (315,829) 5,863,515
- -----------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities and foreign currencies 111,361,504 (22,453,519)
- -----------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities and
foreign currencies 415,856,786 387,755,826
- -----------------------------------------------------------------------------------------------
$2,528,201,053 $2,269,027,764
===============================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM International Equity Fund (the "Fund") is a series portfolio of AIM
International Funds, Inc. (the "Company"). The Company is a Maryland corporation
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of six
separate portfolios: AIM International Equity Fund, AIM Asian Growth Fund, AIM
European Development Fund, AIM Global Aggressive Growth Fund, AIM Global Growth
Fund and AIM Global Income Fund. The Fund currently offers three different
classes of shares: Class A shares, Class B shares and Class C shares. Class A
shares are sold with a front-end sales charge. Class B and Class C shares are
sold with a contingent deferred sales charge. Matters affecting each portfolio
or class are voted on exclusively by the shareholders of such portfolio or
class. The assets, liabilities and operations of each portfolio are accounted
for separately. Information presented in these financial statements pertains
only to the Fund. The Fund's investment objective is to provide long-term growth
of capital.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
A. Security Valuations-A security listed or traded on an exchange (except
convertible bonds) is valued at the last sales price on the exchange where
the security is principally traded or, lacking any sales on a particular day,
at the mean between the closing bid and asked prices on that day. If a mean
is not available, as is the case in some foreign markets, the closing bid
will be used absent a last sales price. Securities traded in the over-the-
counter market (but not including securities reported on the NASDAQ National
Market System) are valued at the mean between the last bid and asked prices
based upon quotes furnished by market makers for such securities. Securities
reported on the NASDAQ National Market System are valued at the last sales
price on the valuation date or absent a last sales price, at the mean of the
closing bid and asked prices. Debt obligations (including convertible bonds)
are valued on the
FS-62
<PAGE> 161
basis of prices provided by an independent pricing service. Prices provided
by the pricing service may be determined without exclusive reliance on quoted
prices, and may reflect appropriate factors, such as yield, type of issue,
coupon rate and maturity date. Securities for which market quotations are
either not readily available or are questionable are valued at fair value as
determined in good faith by or under the supervision of the Company's
officers in a manner specifically authorized by the Board of Directors.
Investments with maturities of 60 days or less are valued on the basis of
amortized cost which approximates market value. Generally, trading in foreign
securities is substantially completed each day at various times prior to the
close of the New York Stock Exchange. The values of such securities used in
computing the net asset value of the Fund's shares are determined as of such
times. Foreign currency exchange rates are also generally determined prior to
the close of the New York Stock Exchange. Occasionally, events affecting the
values of such securities and such exchange rates may occur between the times
at which they are determined and the close of the New York Stock Exchange
which would not be reflected in the computation of the Fund's net asset
value. If events materially affecting the value of such securities occur
during such period, then these securities will be valued at their fair value
as determined in good faith by or under the supervision of the Board of
Directors.
B. Foreign Currency Translations--Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S. dollar
amounts at the date of valuation. Purchases and sales of portfolio securities
and income items denominated in foreign currencies are translated into U.S.
dollar amounts on the respective dates of such transactions.
C. Foreign Currency Contracts--A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
D. Securities Transactions, Investment Income and Distributions--Securities
transactions are accounted for on a trade date basis. Realized gains or
losses are computed on the basis of specific identification of the securities
sold. Interest income is recorded as earned from settlement date and is
recorded on an accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. On October 31, 1998,
undistributed net investment income was decreased by $1,171,783,
undistributed net realized gains increased by $1,088,108 and paid-in capital
increased by $83,675 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.
E. Federal Income Taxes--The Fund intends to comply with the requirements of the
Internal Revenue Code necessary to qualify as a regulated investment company
and, as such, will not be subject to federal income taxes on otherwise
taxable income (including net realized capital gains) which is distributed to
shareholders. Therefore, no provision for federal income taxes is recorded in
the financial statements.
F. Expenses--Distribution and transfer agency expenses directly attributable to
a class of shares are charged to that class' operations. All other expenses
which are attributable to more than one class are allocated among the
classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.95% of
the first $1 billion of the Fund's average daily net assets, plus 0.90% of the
Fund's average daily net assets in excess of $1 billion. AIM is currently
voluntarily waiving a portion of its advisory fees paid by the Fund to AIM to
the extent necessary to reduce the fees paid by the Fund at net asset levels
higher than those currently incorporated in the present advisory fee schedule.
Under the voluntary waiver, AIM will receive a fee calculated at the annual rate
of 0.95% of the first $500 million of the Fund's average daily net assets, plus
0.90% of the Fund's average daily net assets in excess of $500 million to and
including $1 billion, plus 0.85% of the Fund's average daily net assets in
excess of $1 billion. The waiver of fees is voluntary and the Board of Directors
of the Company would be advised of any decision by AIM to discontinue the
waiver. During the year ended October 31, 1998, AIM waived fees of $978,165.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to reimburse AIM for certain administrative costs incurred in providing
accounting services to the Fund. During the year ended October 31, 1998, AIM was
reimbursed $115,146 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") for certain costs incurred in providing
transfer agency services to the Fund. During the year ended October 31, 1998,
AFS was paid $2,126,489 for such services.
The Company has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor of the Class
A, Class B and Class C shares of the Fund. The Company has adopted distribution
plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class
A shares and Class C shares (the "Class A and Class C Plan"), and the Fund's
Class B shares (the "Class B Plan") (collectively, the "Plans"). The Fund,
pursuant to the Class A and C Plan, pays AIM Distributors compensation at the
annual rate of 0.30% of the average daily net assets of Class A shares and 1.00%
of the average daily net assets of Class C shares. The Fund, pursuant to the
Class B Plan, pays AIM Distributors compensation at an annual rate of 1.00% of
the average daily net assets of the Class B shares. Of these amounts, the Fund
may pay a service fee of 0.25% of the average daily net assets of the Class A,
Class B or C shares to selected dealers and financial institutions who furnish
continuing personal shareholder services to their customers who purchase and own
the appropriate class of shares of the Fund. Any amounts not paid as a
FS-63
<PAGE> 162
service fee under the Plans would constitute an asset-based sales charge. The
Plans also impose a cap on the total sales charges, including asset-based sales
charges that may be paid by the respective classes. During the year ended
October 31, 1998, the Class A and Class B and Class C shares paid AIM
Distributors $4,979,983, $7,603,662 and $359,693, respectively, as compensation
under the Plans.
AIM Distributors received commissions of $592,247 from sales of the Class A
shares of the Fund during the year ended October 31, 1998. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended October 31, 1998,
AIM Distributors received commissions of $208,603 in contingent deferred sales
charges imposed on redemptions of Fund shares. Certain officers and directors of
the Company are officers and directors of AIM, AFS and AIM Distributors.
During the year ended October 31, 1998, the Fund incurred legal fees of $8,119
for services rendered by the law firm of Kramer, Levin, Naftalis & Frankel as
counsel to the Company's directors. A member of that firm is a director of the
Company.
NOTE 3-INDIRECT EXPENSES
During the year ended October 31, 1998, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) and reductions in custodian fees of
$25,598 and $3,341, respectively, under expense offset arrangements. The effect
of the above arrangements resulted in a reduction of the Fund's total expenses
of $28,939 during the year ended October 31, 1998.
NOTE 4-DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if so
elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $1,000,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. Interest on
borrowings under the line of credit is payable on maturity or prepayment date.
Prior to an amendment of the line of credit on May 1, 1998, the Fund was limited
to borrowing up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. During the year ended October 31, 1998, the Fund did
not borrow under the line of credit agreement. The funds which are party to the
line of credit are charged a commitment fee of 0.05% on the unused balance of
the committed line. The commitment fee is allocated among the funds based on
their respective average net assets for the period.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended October 31, 1998 was
$1,769,749,615 and $1,766,689,469, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of October 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $485,440,811
- ---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (83,541,494)
- ---------------------------------------------------------
Net unrealized appreciation of investment
securities $401,899,317
=========================================================
Cost of investments for tax purposes is $2,093,314,108.
</TABLE>
NOTE 7-CAPITAL STOCK
Changes in the Fund's capital stock outstanding during the years ended October
31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------ --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Sold:
Class A 255,642,183 $ 4,635,171,469 105,291,824 $ 1,764,668,535
- ----------------------------------------------------------------------------------------
Class B 12,193,983 217,550,365 21,599,075 352,871,134
- ----------------------------------------------------------------------------------------
Class C* 25,679,581 472,331,833 1,372,281 23,795,456
- ----------------------------------------------------------------------------------------
Issued as reinvestment
of dividends:
Class A 332,423 5,441,633 2,035,986 31,231,975
- ----------------------------------------------------------------------------------------
Class B -- -- 707,879 10,688,975
- ----------------------------------------------------------------------------------------
Reacquired:
Class A (252,737,021) (4,618,027,182) (84,633,652) (1,432,011,857)
- ----------------------------------------------------------------------------------------
Class B (10,435,828) (182,179,593) (4,913,096) (81,175,933)
- ----------------------------------------------------------------------------------------
Class C* (23,050,474) (426,935,550) (583,661) (10,332,664)
- ----------------------------------------------------------------------------------------
7,624,847 $ 103,352,975 40,876,636 $ 659,735,621
========================================================================================
</TABLE>
* Class C commenced sales on August 4, 1997.
FS-64
<PAGE> 163
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A capital stock
outstanding during each of the years in the five-year period ended October 31,
1998, for a share of Class B capital stock outstanding during each of the years
in the four-year period ended October 31, 1998 and the period September 15, 1994
(date sales commenced) through October 31, 1994, and for a share of Class C
capital stock outstanding during the year ended October 31, 1998 and the period
August 4, 1997 (date sales commenced) through October 31, 1997.
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 16.64 $ 15.37 $ 13.65 $ 13.50 $ 12.18
- ------------------------------------------------------------ ---------- ---------- ----------- --------- ---------
Income from investment operations:
Net investment income (loss) 0.05(a) 0.04(a) 0.04(a) 0.01 0.02
- ------------------------------------------------------------ ---------- ---------- ----------- --------- ---------
Net gains on securities (both realized and unrealized) 0.96 1.68 2.07 0.62 1.31
- ------------------------------------------------------------ ---------- ---------- ----------- --------- ---------
Total from investment operations 1.01 1.72 2.11 0.63 1.33
- ------------------------------------------------------------ ---------- ---------- ----------- --------- ---------
Less distributions:
Dividends from net investment income (0.06) (0.02) (0.01) (0.04) (0.01)
- ------------------------------------------------------------ ---------- ---------- ----------- --------- ---------
Distributions from net realized gains -- (0.43) (0.38) (0.44) --
- ------------------------------------------------------------ ---------- ---------- ----------- --------- ---------
Total distributions (0.06) (0.45) (0.39) (0.48) (0.01)
- ------------------------------------------------------------ ---------- ---------- ----------- --------- ---------
Net asset value, end of period $ 17.59 $ 16.64 $ 15.37 $ 13.65 $ 13.50
============================================================ ========== ========== =========== ========= =========
Total return(b) 6.11% 11.43% 15.79% 5.24% 10.94%
============================================================ ========== ========== =========== ========= =========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,724,635 $1,577,390 $ 1,108,395 $ 654,764 $ 708,159
============================================================ ========== ========== =========== ========= =========
Ratio of expenses to average net assets(c) 1.45%(d) 1.47% 1.58% 1.67% 1.64%
============================================================ ========== ========== =========== ========= =========
Ratio of net investment income (loss) to average net
assets(e) 0.28%(d) 0.24% 0.25% 0.10% 0.22%
============================================================ ========== ========== =========== ========= =========
Portfolio turnover rate 78% 50% 66% 68% 67%
============================================================ ========== ========== =========== ========= =========
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct sales charges.
(c) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.49%, 1.51%, 1.60% and 1.68% for 1998-1995.
(d) Ratios are based on average net assets of $1,659,994,249.
(e) After fee waivers and/or expense reimbursements. Ratios of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursements were 0.24%, 0.20%, 0.22% and 0.09% for 1998-1995.
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- ------- ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 16.27 $ 15.13 $ 13.54 $ 13.49 $13.42
- --------------------------------------------- -------- -------- -------- ------- ------
Income from investment operations:
Net investment income (loss) (0.09)(a) (0.09)(a) (0.07)(a) (0.09) (0.01)
- --------------------------------------------- -------- -------- -------- ------- ------
Net gains (losses) on securities
(both realized and unrealized) 0.95 1.66 2.04 0.61 0.08
- --------------------------------------------- -------- -------- -------- ------- ------
Total from investment operations 0.86 1.57 1.97 0.52 0.07
- --------------------------------------------- -------- -------- -------- ------- ------
Less distributions:
Dividends from net investment income -- -- -- (0.03) --
- --------------------------------------------- -------- -------- -------- ------- ------
Distributions from net realized gains -- (0.43) (0.38) (0.44) --
- --------------------------------------------- -------- -------- -------- ------- ------
Total distributions -- (0.43) (0.38) (0.47) --
- --------------------------------------------- -------- -------- -------- ------- ------
Net asset value, end of period $ 17.13 $ 16.27 $ 15.13 $ 13.54 $13.49
============================================= ======== ======== ======== ======= ======
Total return(b) 5.29% 10.61% 14.88% 4.35% 0.52%
============================================= ======== ======== ======== ======= ======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $744,987 $678,809 $368,355 $51,964 $4,833
============================================= ======== ======== ======== ======= ======
Ratio of expenses to average net assets(c) 2.22%(d) 2.25% 2.35% 2.55% 2.53%(e)
============================================= ======== ======== ======== ======= ======
Ratio of net investment income (loss) to
average net assets(f) (0.49)%(d) (0.53)% (0.53)% (0.78)% (0.67)%(e)
============================================= ======== ======== ======== ======= ======
Portfolio turnover rate 78% 50% 66% 68% 67%
============================================= ======== ======== ======== ======= ======
<CAPTION>
CLASS C
----------------------
1998 1997
------- -------
<S> <C> <C>
Net asset value, beginning of period $ 16.27 $ 17.64
- --------------------------------------------- ------- -------
Income from investment operations:
Net investment income (loss) (0.09)(a) (0.02)(a)
- --------------------------------------------- ------- -------
Net gains (losses) on securities
(both realized and unrealized) 0.96 (1.35)
- --------------------------------------------- ------- -------
Total from investment operations 0.87 (1.37)
- --------------------------------------------- ------- -------
Less distributions:
Dividends from net investment income -- --
- --------------------------------------------- ------- -------
Distributions from net realized gains -- --
- --------------------------------------------- ------- -------
Total distributions -- --
- --------------------------------------------- ------- -------
Net asset value, end of period $ 17.14 $ 16.27
============================================= ======= =======
Total return(b) 5.35% (7.77)%
============================================= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $58,579 $12,829
============================================= ======= =======
Ratio of expenses to average net assets(c) 2.22%(d) 2.27%(e)
============================================= ======= =======
Ratio of net investment income (loss) to
average net assets(f) (0.49)%(d) (0.55)%(e)
============================================= ======= =======
Portfolio turnover rate 78% 50%
============================================= ======= =======
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(c) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
2.26%, 2.28%, 2.37% and 2.56% for 1998-1995 for Class B and 2.26% and 2.30%
(annualized) for 1998-1997 for Class C.
(d) Ratios are based on average net assets of $760,366,177 and $35,969,348 for
Class B and Class C, respectively.
(e) Annualized.
(f) After fee waivers and/or expense reimbursements. Ratios of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursements were (0.53)%, (0.57)%, (0.55)% and (0.79)%, for 1998-1995
for Class B and (0.53)% and (0.57)% (annualized) for 1998-1997 for Class C.
FS-65
