<PAGE> 1
ANNUAL REPORT / OCTOBER 31, 1998
AIM EUROPEAN DEVELOPMENT FUND
[COVER IMAGE]
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE--Registered Trademark--
<PAGE> 2
-------------------------------------
HOMMAGE A BLERIOT, NO. 2, FRAGMENT BY ROBERT DELAUNAY
LOUIS BLERIOT, A FRENCH ENGINEER AND INVENTOR, WAS THE FIRST
[COVER PERSON TO FLY ACROSS THE ENGLISH CHANNEL FROM FRANCE, TRANS-
IMAGE]
PORTED BY A 28-HORSEPOWER MONOPLANE OF HIS OWN DESIGN. NEARLY
100 YEARS LATER, THE SAME SPIRIT OF ENTREPRENEURSHIP AND
COURAGE THAT LAUNCHED BLERIOT'S FLIGHT HAS SENT EUROPE'S MAR-
KETS SOARING.
-------------------------------------
AIM European Development Fund is for shareholders who seek long-term growth of
capital. The Fund invests in a diversified portfolio of equity securities of
companies located in Europe with strong earnings momentum.
ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT:
o AIM European Development Fund's performance figures are historical and
reflect reinvestment of all distributions and changes in net asset value.
Unless otherwise indicated, the Fund's performance is computed at net asset
value without a sales charge.
o When sales charges are included in performance figures, Class A share
performance reflects the maximum 5.50% sales charge, and Class B and Class C
share performance reflect the applicable contingent deferred sales charge
(CDSC) for the period involved. The CDSC on Class B shares declines from 5%
beginning at the time of purchase to 0% at the beginning of the seventh
year. The CDSC on Class C shares is 1% for the first year after purchase.
The performance of the Fund's Class B and Class C shares will differ from
that of Class A shares due to differences in sales charge structure and
expenses.
o Since inception on 11/3/97, cumulative total return including sales charges
was 22.50% for Class A shares; 23.70% for Class B shares; and 27.80% for
Class C shares. Because Class A, B, and C shares have been offered for less
than one year, total return provided is cumulative total return that has not
been annualized.
o Market volatility can significantly impact short-term performance. Results
of an investment made today may differ substantially from the historical
performance shown.
o The Fund's investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
o International investing presents certain risks not associated with investing
solely in the United States. These include risks relating to fluctuations in
the value of the U.S. dollar relative to the values of other currencies, the
custody arrangements made for the Fund's foreign holdings, differences in
accounting, political risks, and the lesser degree of public information
required to be provided by non-U.S. companies.
ABOUT INDEXES AND OTHER PERFORMANCE BENCHMARKS CITED IN THIS REPORT:
o The MSCI Europe Index is a group of unmanaged European securities tracked by
Morgan Stanley Capital International.
o The MSCI World Index is a group of unmanaged securities listed on major
world stock exchanges and tracked by Morgan Stanley Capital International.
o The Standard & Poor's Composite Index of 500 stocks (S&P 500) is a group of
unmanaged securities widely regarded by investors to be representative of
the stock market in general. Results shown assume the reinvestment of
dividends.
o The unmanaged Lipper European Fund Index represents an average of the
performance of the 30 largest European-region mutual funds. It is compiled
by Lipper Analytical Services, Inc., and independent mutual funds
performance monitor. Results shown reflect reinvestment of dividends.
o An investment cannot be made in any index listed. Unless otherwise
indicated, index results include reinvested dividends. They do not include
sales charges.
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENTS ARE NOT INSURED BY THE FDIC OR
ANY OTHER GOVERNMENT AGENCY; ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR
GUARANTEED BY, ANY BANK OR ANY AFFILIATE; AND ARE SUBJECT TO INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
This report may be distributed only to current shareholders or to persons who
have received a current prospectus of the Fund.
AIM EUROPEAN DEVELOPMENT FUND
<PAGE> 3
ANNUAL REPORT / CHAIRMAN'S LETTER
Dear Fellow Shareholder:
Throughout the period covered by this report, markets
[PHOTO OF worldwide vacillated between optimism that the woes in Asia
Charles T. would be contained and worry that they would become a major
Bauer, economic drag on the U.S. and the rest of the world. As a
Chairman of result, markets worldwide were especially volatile.
the Board of The abrupt reversals of market sentiment during this
THE FUND reporting period reinforce our conviction that markets are
APPEARS HERE] unpredictable in the short term. Since even the best money
managers cannot know exactly when to enter and exit a
market, we believe that the wisest strategy is to stay fully
invested.
MARKET RECAP
In August, a variety of events converged to produce harsh
market conditions around the globe: the seemingly
intractable downturn in Japan, Russia's default on much of
its foreign debt, and fear that Latin America could be engulfed by the world's
difficulties. Even European stocks, which had been world market leaders, were
shaken. In a global display of lost confidence, investors flocked to investments
perceived as safe and liquid. Even blue-chip stocks and high-quality corporate
bonds went out of favor.
Fortunately, the U.S. Federal Reserve Board (the Fed) intervened. For most
of the reporting period, the Fed had focused on the potential for inflation in
the U.S. economy. Shortly before the period ended, it shifted direction,
lowering interest rates twice, on September 29 and October 15, to pump liquidity
and confidence into the markets and demonstrate that it would intervene to
forestall a recession. Numerous interest rate cuts in other countries followed.
(After the close of the reporting period, as this report was being written, the
Fed lowered rates a third time.)
Investors responded favorably. The reporting period closed with
international equities rallying and bonds losing some of their momentum. Between
the Fed's second interest rate move on October 15 and the close of the reporting
period, the EAFE Index gained more than 5%.
However difficult this reporting period has been, the fundamental principles
of investing remain unchanged: long-term thinking, broad portfolio
diversification, and realistic expectations, recognizing that the potential for
downturns is always present. Your financial consultant is your best resource for
helping you construct a diversified portfolio, and also for helping you to
weather turbulent markets and keep your eye on your long-term goals.
YOUR FUND MANAGERS' COMMENTS
We are pleased to send you this report on your Fund's performance. On the pages
that follow, your Fund's management team offers more detailed discussion of how
markets behaved, how they managed the portfolio, and what they foresee for your
Fund and the markets where it invests. We hope you find their discussion
informative.
If you have any questions or comments, please contact our Client Services
department at 800-959-4246 or e-mail your inquiry to us at [email protected].
You can access information about your account through our AIM Investor Line at
800-246-5463 or on our Web site, www.aimfunds.com. We often post market updates
on our Web site.
We thank you for your continued participation in The AIM Family of
Funds--Registered Trademark--.
Sincerely,
/s/ CHARLES T. BAUER
Charles T. Bauer
Chairman
-------------------------------------
THE REPORTING PERIOD
CLOSED WITH INTERNA-
TIONAL EQUITIES RALLYING
AND BONDS LOSING SOME
OF THEIR MOMENTUM.
-------------------------------------
AIM EUROPEAN DEVELOPMENT FUND
<PAGE> 4
ANNUAL REPORT / MANAGERS' OVERVIEW
FUND WITHSTANDS GLOBAL TURMOIL, REPORTS
SUPERIOR PERFORMANCE
GLOBAL MARKET VOLATILITY DOMINATED FINANCIAL NEWS IN 1998. HOW DID THE FUND
PERFORM IN THIS ENVIRONMENT?
At the end of the reporting period, the Fund was just days away from its first
anniversary celebration--and there was good reason to celebrate. The Fund has
enjoyed outstanding performance since its debut.
Cumulative total return from inception on November 3, 1997 to the end of the
reporting period was 29.60% for Class A shares, 28.70% for Class B shares, and
28.80% for Class C shares. The Fund's results were nearly double those achieved
by its peer group: the Lipper European Fund Index produced a total return of
15.33% for the period October 31, 1997 to October 31, 1998. During that same
period, the Fund also outperformed its broader market index--the MSCI Europe
Index--which brought in a return of 23.06%. Please see inside the front cover
for Fund performance results that include sales charges.
We're pleased to report that net assets in the Fund grew to $136.4 million
as of October 31, 1998.
WITH MOST OF THE WORLD FACING ECONOMIC DIFFICULTY, WHY HAVE EUROPE'S MARKETS
STAYED STRONG?
It was a fairly stormy period for much of the world, and while the waters did
get a little choppy in Europe at times, overall the region was spared from
catastrophe. European companies have continued to show superior earnings
growth--stronger than their U.S. counterparts and available at a cheaper price.
Even though Europe was affected by summer's global downturn, the major long-term
themes driving growth in the region have sheltered it somewhat from the extreme
losses felt in other parts of the world.
The expected introduction of Europe's Economic and Monetary Union (EMU) has
forced countries to adopt strict budgetary and financial standards. Investors
have benefited from a decrease in interest rates, lower inflation, and an
increase in privatization. With the introduction of a single currency (the
euro), European companies are becoming more competitive--trimming costs and
developing new products for the unified marketplace. (Please see page 4.)
HOW HAVE YOU MANAGED THE PORTFOLIO IN THIS ENVIRONMENT?
The management team has stayed true to its focus on earnings growth. We've built
the portfolio on a stock-by-stock basis, rather than following a rigid
country-allocation model. We also seek to maintain a diversified portfolio to
help buffer the Fund from volatility. At the end of the reporting period, the
Fund was invested in 121 holdings, representing companies found in 17 different
countries.
As an all-cap fund, we may invest in companies of any size. However, when
Europe felt a few shock waves of volatility during the last months of the
reporting period, the Fund migrated to larger cap names. Though they may not
grow as aggressively as smaller companies, these stronger, more established
companies are often better able to maintain their earnings during difficult
times.
As of October 31, 1998, stocks of companies with over $7.4 billion in market
capitalization constituted 40% of the portfolio, up from 31% as of April 30,
1998. Despite this shift, we still found good earnings growth in many small and
medium-sized companies.
COULD YOU DESCRIBE A FEW OF YOUR TOP HOLDINGS?
Many of the holdings in our top 10 list are there because their earnings have
directly benefited from Europe's entrepreneurial renaissance. For instance,
Ordina Beheer of the Netherlands is helping Europe become more efficient and
competitive by providing business automation services. The company creates
custom information systems, supplies and installs packaged software, and
provides training to a global list of clients. Similarly, French
computer-services company Sopra has benefited from increased demand for
-------------------------------------
EUROPEAN COMPANIES HAVE CONTINUED TO
SHOW SUPERIOR EARNINGS GROWTH-
STRONGER THAN THEIR U.S. COUNTERPARTS
AND AVAILABLE AT A CHEAPER PRICE.
-------------------------------------
CUMULATIVE TOTAL RETURNS
===================================================
29.60%* 23.06%** 15.33%**
- ---------------------------------------------------
AIM European MSCI Europe Lipper European
Development Index Fund Index
Fund, A shares
===================================================
* 11/3/97-10/31/98
** 10/31/97-10/31/98
See important Fund and index disclosures inside front cover.
AIM EUROPEAN DEVELOPMENT FUND
2
<PAGE> 5
ANNUAL REPORT / MANAGERS' OVERVIEW
PORTFOLIO COMPOSITION
As of October 31, 1998, based on total net assets
========================================================
TOP 10 EQUITY HOLDINGS
- --------------------------------------------------------
1. Corp. Financiera Reunida, S.A. (Spain) 1.37%
2. Total S.A.-Class B (France) 1.33
3. Montupet (France) 1.32
4. Allied Irish Banks PLC (Ireland) 1.30
5. Jarvis PLC (UK) 1.27
6. Wolters Kluwer N.V. (Netherlands) 1.24
7. ELF Aquitaine S.A. (France) 1.16
8. Ordina Beheer N.V.-W.I. (Netherlands) 1.13
9. Sopra S.A. (France) 1.10
10. Cattles PLC (UK) 1.07
========================================================
<TABLE>
<CAPTION>
==========================================================================================================
TOP 10 INDUSTRIES TOP 10 COUNTRIES
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Services (Commercial & Consumer) 10.33 1. France 18.93%
2. Banks (Major Regional) 7.88 2. United Kingdom 14.06
3. Computers (Software & Services) 6.64 3. Germany 11.20
4. Telecommunications (Cellular/Wireless) 5.37 4. Netherlands 7.22
5. Retail (Food Chains) 4.91 5. Italy 6.73
6. Foods 3.96 6. Spain 4.94
7. Telephone 3.55 7. Switzerland 4.84
8. Oil & Gas (Refining & Marketing) 3.44 8. Portugal 4.24
9. Insurance (Multi-Line) 3.17 9. Sweden 3.97
10. Retail (Department Stores) 3.04 10. Belgium 2.43
Please keep in mind the Fund's portfolio is subject to change and there is no
assurance the Fund will continue to hold any particular security.
==========================================================================================================
</TABLE>
computer upgrades and from the trend toward outsourcing.
As Europe grows and its businesses modernize, the workforce requires better
training and access to information. Dutch publisher Wolters Kluwer fills this
need for a whole range of professions. The company's electronic products for the
legal and tax professions and its computer-based training programs have been in
extremely high demand.
WERE THERE ANY MAJOR DISAPPOINTMENTS?
Early in 1998, some of the best-performing stocks in Europe were banks and
financial services companies. But during the third quarter, many of these stocks
bore the heaviest weight of Europe's market correction, mostly because of loans
made to Asia, Russia, or Latin America.
While some of our bank holdings performed worse than expected, we also held
some strong financial stocks--companies with great restructuring stories and
notable earnings growth. For instance, one of our top 10 holdings was U.K.-based
Cattles, a fast-growing consumer finance and corporate services company.
Despite the setback banks suffered over the summer, we still believe there is
long-term potential in the industry. With the coming of EMU, we are watching for
continued merger and acquisition activity.
WHAT IS YOUR OUTLOOK FOR THE NEAR TERM?
The global nature of 1998's financial turmoil made Europe and its investors
pause to consider the region's relationship to the rest of the world. After
enjoying months of enthusiastic growth, we expect Europe to end 1998 on a more
muted note. But we expect continued strong earnings from French companies, and
we believe the fourth quarter will bring better than expected earnings from many
U.K. companies. Though 1999 may open with a certain degree of volatility
inspired by the changeover to euro, we do feel that the change will probably be
for the better, especially in the long term. What makes Europe so exciting right
now is the change in attitude toward entrepreneurship and investing. With more
people bringing their ideas to the marketplace and more citizens becoming
shareholders, Europe is on its way to becoming one of the economic powerhouses
of the 21st century.
-------------------------------------
MANY OF THE HOLDINGS IN OUR TOP 10
LIST ARE THERE BECAUSE THEIR EARNINGS
HAVE DIRECTLY BENEFITED FROM EUROPE'S
ENTREPRENEURIAL RENAISSANCE.
-------------------------------------
See important Fund and index disclosures inside front cover.
AIM EUROPEAN DEVELOPMENT FUND
3
<PAGE> 6
ANNUAL REPORT / MANAGERS' OVERVIEW
WELCOME THE EURO
Starting January 1, 1999, Europe will launch a brand new currency--the euro. At
first, only 11 countries will adopt it: Austria, Belgium, Finland, France,
Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain. These
countries have met the financial and economic criteria required for membership
in the European Economic and Monetary Union (EMU), and they have agreed to
follow certain monetary, exchange rate, and budgetary policies.
The changeover to euro will take place gradually. New coins and paper
currency will not be introduced until January 2002. Until then, Spanish shoppers
will still use pesetas and the French will still use francs, but these will be
thought of simply as denominations of the euro, the same way that a quarter is a
denomination of a dollar.
A NEW BUSINESS ENVIRONMENT
The euro is expected to bring greater unity to the European business world:
price comparison of goods, services, and labor across Europe may be much easier.
Because of this "price transparency," European companies may be forced to
become more competitive. An increase in merger and acquisition activity is
expected.
The equity markets are likely to become broader and more liquid, since
European companies may find it easier to attract capital across borders.
Europe's fixed-income markets could also be transformed. Since currency risk
may be reduced, Europe's investors can focus on credit risk. Eventually, the
euro-denominated debt market could be as large and liquid as that of the U.S.
The introduction of a new currency can present unique risks and
uncertainties for investors. Please see your prospectus for more information
about these risk factors.
[EURO SYMBOL]
The new euro symbol,
designed to suggest stability
and a unified Europe.
AIM EUROPEAN DEVELOPMENT FUND AND THE EURO
The chart below left shows where the portfolio was invested as of 10/31/98. The
second chart translates that into "euro," showing what percentage of the
portfolio was invested in the 11 Euroland countries. Keep in mind that the fund
selects stocks on the basis of earnings. We do not rely on pre-determined
allocations to particular countries. Also remember that the portfolio's
composition is subject to change.
===============================================================================
PIE CHART PIE CHART
- -------------------------------------------------------------------------------
IRELAND 2.42% OTHER 11.44% OTHER 11.44%,
BELGIUM 2.43% GERMANY 11.20% UK 14.06%,
PORTUGAL 4.24% FINLAND 2.15% OTHER NON-UK EUROPE 12.49%
SPAIN 4.94% AUSTRIA 1.75% EUROLAND 62.01%
ITALY 6.73% FRANCE 18.93%
NETHERLANDS 7.22% OTHER NON-UK
EUROPE 12.49%
UK 14.06%
===============================================================================
AIM EUROPEAN DEVELOPMENT FUND
4
<PAGE> 7
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>
5
<PAGE> 8
<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>
6
<PAGE> 9
<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.
7
<PAGE> 10
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.
8
<PAGE> 11
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
9
<PAGE> 12
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
10
<PAGE> 13
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.
11
<PAGE> 14
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
12
<PAGE> 15
Directors & Officers
<TABLE>
<CAPTION>
BOARD OF DIRECTORS OFFICERS OFFICE OF THE FUND
<S> <C> <C>
Charles T. Bauer Charles T. Bauer 11 Greenway Plaza
Chairman Chairman Suite 100
A I M Management Group Inc. Houston, TX 77046
Robert H. Graham
Bruce L. Crockett President INVESTMENT ADVISOR
Director
ACE Limited; John J. Arthur A I M Advisors, Inc.
Formerly Director, President, and Senior Vice President and Treasurer 11 Greenway Plaza
Chief Executive Officer Suite 100
COMSAT Corporation Carol F. Relihan Houston, TX 77046
Senior Vice President and Secretary
Owen Daly II SUB-ADVISOR
Director Gary T. Crum
Cortland Trust Inc. Senior Vice President INVESCO Global Asset Management Limited
Cedar House
Edward K. Dunn Jr. Dana R. Sutton 41 Cedar Ave.
Chairman, Mercantile Mortgage Corp.; Vice President and Assistant Treasurer Hamilton, HM12 Bermuda
Formerly Vice Chairman and President,
Mercantile-Safe Deposit & Trust Co.; and Robert G. Alley TRANSFER AGENT
President, Mercantile Bankshares Vice President
A I M Fund Services, Inc.
Jack Fields Melville B. Cox P.O. Box 4739
Chief Executive Officer Vice President Houston, TX 77210-4739
Texana Global, Inc.;
Formerly Member Jonathan C. Schoolar CUSTODIAN
of the U.S. House of Representatives Vice President
State Street Bank and Trust Company
Carl Frischling Renee A. Friedli 225 Franklin Street
Partner Assistant Secretary Boston MA 02110
Kramer, Levin, Naftalis & Frankel
P. Michelle Grace COUNSEL TO THE FUND
Robert H. Graham Assistant Secretary
President and Chief Executive Officer Ballard Spahr
A I M Management Group Inc. Jeffrey H. Kupor Andrews & Ingersoll, LLP
Assistant Secretary 1735 Market Street
Prema Mathai-Davis Philadelphia, PA 19103
Chief Executive Officer, YWCA of the U.S.A.; Nancy L. Martin
Commissioner, New York City Dept. for the Assistant Secretary COUNSEL TO THE DIRECTORS
Aging; and member of the Board of Directors,
Metropolitan Transportation Authority of Ofelia M. Mayo Kramer, Levin, Naftalis & Frankel
New York State Assistant Secretary 919 Third Avenue
New York, NY 10022
Lewis F. Pennock Lisa A. Moss
Attorney Assistant Secretary DISTRIBUTOR
Ian W. Robinson Kathleen J. Pflueger A I M Distributors, Inc.
Consultant; Formerly Executive Assistant Secretary 11 Greenway Plaza
Vice President and Suite 100
Chief Financial Officer Samuel D. Sirko Houston, TX 77046
Bell Atlantic Management Assistant Secretary
Services, Inc. AUDITORS
Stephen I. Winer
Louis S. Sklar Assistant Secretary KPMG Peat Marwick LLP
Executive Vice President 700 Louisiana
Hines Interests Mary J. Benson Houston, TX 77002
Limited Partnership Assistant Treasurer
</TABLE>
<PAGE> 16
THE AIM FAMILY OF FUNDS--Registered Trademark--
<TABLE>
<S> <C> <C>
GROWTH FUNDS INTERNATIONAL GROWTH FUNDS A I M Management Group Inc. has provided
AIM Aggressive Growth Fund(1) AIM Advisor International Value Fund leadership in the mutual fund industry
AIM Blue Chip Fund AIM Asian Growth Fund since 1976 and managed approximately $91
AIM Capital Development Fund AIM Developing Markets Fund(2) billion in assets for more than 5.5 million
AIM Constellation Fund AIM Emerging Markets Fund(2) shareholders, including individual investors,
AIM Mid Cap Equity Fund(2), (A) AIM Europe Growth Fund(2) corporate clients, and financial institutions
AIM Select Growth Fund(3) AIM European Development Fund as of September 30, 1998.
AIM Small Cap Growth Fund(2), (B) AIM International Equity Fund The AIM Family of Funds--Registered
AIM Small Cap Opportunities Fund AIM International Growth Fund(2) Trademark-- is distributed nationwide, and AIM
AIM Value Fund AIM Japan Growth Fund(2) today is the 11th-largest mutual fund complex
AIM Weingarten Fund AIM Latin American Growth Fund(2) in the U.S. in assets under management,
AIM New Pacific Growth Fund(2) according to Strategic Insight, an independent
GROWTH & INCOME FUNDS mutual fund monitor.
AIM Advisor Flex Fund GLOBAL GROWTH FUNDS
AIM Advisor Large Cap Value Fund AIM Global Aggressive Growth Fund
AIM Advisor MultiFlex Fund AIM Global Growth Fund
AIM Advisor Real Estate Fund AIM Worldwide Growth Fund(2)
AIM Balanced Fund
AIM Basic Value Fund(2), (C) GLOBAL GROWTH & INCOME FUNDS
AIM Charter Fund AIM Global Growth & Income Fund(2)
AIM Global Utilities Fund
INCOME FUNDS
AIM Floating Rate Fund(2) GLOBAL INCOME FUNDS
AIM High Yield Fund AIM Emerging Markets Debt Fund(2), (D)
AIM High Yield Fund II AIM Global Government Income Fund(2)
AIM Income Fund AIM Global Income Fund
AIM Intermediate Government Fund AIM Strategic Income Fund(2)
AIM Limited Maturity Treasury Fund
THEME FUNDS
TAX-FREE INCOME FUNDS AIM Global Consumer Products and Services Fund(2)
AIM High Income Municipal Fund AIM Global Financial Services Fund(2)
AIM Municipal Bond Fund AIM Global Health Care Fund(2)
AIM Tax-Exempt Bond Fund of Connecticut AIM Global Infrastructure Fund(2)
AIM Tax-Free Intermediate Fund AIM Global Resources Fund(2)
AIM Global Telecommunications Fund(2)
MONEY MARKET FUNDS AIM Global Trends Fund(2), (E)
AIM Dollar Fund(2)
AIM Money Market Fund
AIM Tax-Exempt Cash Fund
</TABLE>
(1) AIM Aggressive Growth Fund reopened to new investors November 16, 1998.
(2)Effective May 29, 1998, A I M Advisors, Inc. became advisor to the former GT
Global Funds. (3) On May 1, 1998, AIM Growth Fund was renamed AIM Select Growth
Fund. (A) On September 8, 1998, AIM Mid Cap Growth Fund was renamed AIM Mid Cap
Equity Fund. (B) On September 8, 1998, AIM Small Cap Equity Fund was renamed AIM
Small Cap Growth Fund. (C) On September 8, 1998, AIM America Value Fund was
renamed AIM Basic Value Fund. (D) On September 8, 1998, AIM Global High Income
Fund was renamed AIM Emerging Markets Debt Fund. (E) On September 8, 1998, AIM
New Dimension Fund was renamed AIM Global Trends Fund. For more complete
information about any AIM Fund(s), including sales charges and expenses, ask
your financial consultant or securities dealer for a free prospectus(es). Please
read the prospectus(es) carefully before you invest or send money.
EDF-AR-1
