<PAGE> 1
[PHOTO APPEARS HERE]
AIM BALANCED FUND
[AIM LOGO APPEARS HERE] ANNUAL REPORT DECEMBER 31, 1996
<PAGE> 2
-------------------------------
AIM BALANCED FUND
For shareholders who
seek a high total return
consistent with
preservation of capital
by investing in
a broadly diversified portfolio
consisting of
stocks and bonds.
-------------------------------
ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT:
o AIM Balanced 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 4.75% sales charge, and Class B share
performance reflects the applicable contingent deferred sales charge (CDSC)
for the period involved. The CDSC on Class B shares declines from 5%
beginning at the time of purchase to 0% at the beginning of the seventh
year. The performance of the Fund's Class B shares will differ from that of
Class A shares due to differing fees and expenses.
o During the year ended 12/31/96, the Fund paid distributions on Class A and
Class B shares of $1.027 and $0.8645, respectively.
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 Past performance cannot guarantee comparable future results.
ABOUT INDEXES AND OTHER PERFORMANCE BENCHMARKS CITED IN THIS REPORT:
o The Standard & Poor's 500 (S&P 500) is a group of unmanaged securities
widely regarded by investors to be representative of the stock market in
general.
o The Lipper Balanced Funds Index is a net asset value weighted index of the
30 largest funds within the balanced fund investment objective. It is
calculated daily with adjustments for distributions as of the ex-dividend
dates. It is compiled by Lipper Analytical Services, Inc., an independent
mutual fund performance monitor.
o An investment cannot be made in any index listed. Unless otherwise
indicated, index results include reinvested dividends and do not reflect
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.
<PAGE> 3
The Chairman's Letter
Dear Fellow Shareholders:
Financial markets produced another noteworthy year in 1996.
[PHOTO OF Stocks surged again to enthusiastic levels, but the advance
Charles T. was marked by dramatic volatility and confined mainly to the
Bauer, performance of a select few large-company stocks. Still,
Chairman of most investors in stock funds were rewarded with
the Board of double-digit returns for the year. Bonds had a difficult
The Fund time until encouraging economic reports triggered a fall
APPEARS HERE] rally that helped restore prices and bring yields back down
to near 1995 levels.
As we begin 1997, the parallels to last year are striking.
The economy is growing at a moderate rate, corporate
earnings remain healthy, and inflation is modest. Such an
environment is ideal for financial investments.
Still, many suggest, as we do, that 1997 will be marked by continued
uncertainty and short-term volatility. And as the market's performance
continues to exceed historical averages, some advise that a correction is
overdue.
We believe the best way to achieve your investment goals in uncertain
markets is to follow a few basic strategies. First, you should keep a long-term
outlook. If you leave your money invested over the long term, you can help
avoid the results of the volatility that generally accompanies financial
markets over the short term. Those who try to "time the market"--move money in
and out of the market based on some gauge of future market performance--tend to
be less successful than investors using disciplined, long-term investment
strategies. That's because no one, not even expert market watchers, can
consistently predict what the market will do next.
Another strategy, diversification, may help you cushion the effects of a
volatile market and enhance your return potential. A mutual fund is already
diversified because it invests in many securities. You can diversify even
further by placing some of your assets in several different types of domestic
and international funds that may include stocks, bonds, and money market
securities.
Finally, no matter what your investment goals or time horizon, it makes good
sense to review your portfolio regularly with your financial consultant. In
rapidly changing markets, you need an investment professional on your side who
can explain what is happening and how your portfolio may be affected.
Your financial consultant can help you create and follow a regular
investment plan--investing a certain amount of money at regular intervals--that
can help you stay on track regardless of day-to-day market activity.
In 1997, and in the years ahead, we at AIM plan to meet the challenge of
changing financial markets through the consistent application of disciplined
investment strategies that have served our shareholders well for more than 20
years. We are pleased that AIM funds, overall, have turned in attractive, and
often impressive performance when measured against benchmark indexes and peer
group performance.
We appreciate the trust you have placed in us and we look forward to our
continued close association. If you have any questions or comments about this
report, we invite you to call Client Services at 800-959-4246 during normal
business hours. For automated account information 24 hours a day, call the AIM
Investor Line at 800-246-5463.
Sincerely,
/s/ CHARLES T. BAUER
Charles T. Bauer
Chairman
----------------------------
In rapidly changing markets,
you need
an investment professional
on your side
who can explain
what is happening
and how your portfolio
may be affected.
----------------------------
<PAGE> 4
The Managers' Overview
Flexible Strategy Produces Solid Gains
A roundtable discussion with the Fund management team for AIM Balanced Fund for
the fiscal year ended December 31, 1996.
- --------------------------------------------------------------------------------
Q. HOW DID AIM BALANCED FUND PERFORM DURING FISCAL YEAR 1996?
A. It was a very good year. The Fund produced a total return of 19.25% for
Class A shares and 18.28% for Class B shares. This considerably outpaced the
13.01% total return of the Lipper Balanced Funds Index over the same period.
Throughout the year, the press repeatedly cited AIM Balanced Fund for its
outstanding performance.
In addition, the Fund, which aims for income as well as capital growth,
raised its quarterly dividend effective the second quarter of the fiscal
year. Net assets in the Fund grew considerably during the year, from $164.9
million to $571.3 million.
Q. HOW WOULD YOU DESCRIBE STOCK MARKET CONDITIONS DURING THE REPORTING PERIOD?
A. Volatility accompanied the double-digit gains the market provided for the
second consecutive year. The S&P 500 gained 22.95% during 1996. However, the
ascent was far from smooth. During the first half of July, for example, that
benchmark index lost almost 7% of its value when the market declined, led by
a steep drop in technology stocks.
In the face of such volatility, market participants became more cautious.
Especially during the second half of the year, there was what is known as a
"flight to quality," in which investors favor well-known, steady-growing
blue-chip stocks over more volatile small-company stocks.
Q. HOW DOES THIS RELATIVELY CON-SERVATIVE FUND DEAL WITH STOCK MARKET
VOLATILITY?
A. As a rule, we maintain approximately 40% of assets in bonds, which helps
reduce the volatility of the Fund overall. In addition, we purchase
convertible securities, especially convertibles issued by small companies.
Small companies can provide exceptional growth, but they tend to be
volatile.
For example, Pride Petroleum Services, Inc. has been a winning holding.
Pride is an oil equipment and supply provider that services rigs in the U.S.
and abroad. Its common stock, like that of many small companies, does not
pay a dividend. Owning its convertible bonds produces income for the Fund
and therefore some predictable return; it also has enabled the Fund to
participate in market advances by the firm's stock.
Along with the bond portion of the portfolio, convertibles help us reduce
the overall volatility of the Fund.
Q. WHAT WAS THE BOND MARKET LIKE DURING 1996?
A. Interest rates fluctuated considerably during the year as economic signals
shifted and markets attempted to predict Federal Reserve Board policy.
Early in the year, there was concern the Federal Reserve Board would
raise interest rates to slow rapid economic growth and forestall inflation.
That created uncertainty in the bond market. However, growth of gross
domestic product slowed in the second half of the year, from a robust 4.7%
annual rate during the second quarter to a more sustainable 2.1% annual rate
in the third quarter.
Moreover, inflation remained modest. For all of 1996, the core rate of
inflation for producer prices was a mere 0.6%. As such data changed market
expectations, investor concerns were calmed and bond prices, down for much
of the year, began to rise. The second-half rally made up for
================================================================================
GROWTH OF NET ASSETS
- --------------------------------------------------------------------------------
12/31/95 $164.9 million
12/31/96 $571.3 million
================================================================================
================================================================================
FUND VS. LIPPER INDEX
- --------------------------------------------------------------------------------
Total Return: 12/31/95-12/31/96
AIM Fund Class A Shares 19.25%
AIM Fund Class B Shares 18.28%
Lipper Balanced Funds Index 13.01%
================================================================================
================================================================================
Lipper Rankings
- --------------------------------------------------------------------------------
As of 12/31/96
CLASS A SHARES
FUNDS IN
AIM FUND BALANCED
PERIOD RANK CATEGORY TOP %
- ------------------------------------
1 Year 13 272 5%
3 Years 9 154 6
5 Years 4 72 6
10 Years 15 34 45
CLASS B SHARES
(Inception date 10/18/93)
1 Year 19 272 7%
================================================================================
Fund total performance rankings are vs. all balanced funds tracked by Lipper,
excluding all sales charges and including fees and expenses.
See important Fund & index disclosures inside front cover.
2
<PAGE> 5
================================================================================
Portfolio Composition
As of 12/31/96
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOP 10 COMMON STOCK HOLDINGS TOP 10 FIXED-INCOME HOLDINGS
<S> <C> <C>
1. Intel Corp. FIXED INCOME 38% 1. U.S. Treasury Securities
2. Philip Morris Companies, Inc. EQUITIES 62% 2. Treasury Corp. of Victoria
3. Procter & Gamble Co. 3. BellSouth Capital Funding
4. Chase Manhattan Corp. 4. Associates Corp. of North America
5. Coach USA, Inc. 5. Dresdner Bank A.G.
6. Dura Pharmaceuticals, Inc. 6. WMX Technologies, Inc.
7. Safeway, Inc. 7. Deutsche Bank Financial
8. Lilly (Eli) & Co. 8. Sovereign Bancorp, Inc.
9. American Medical Response, Inc. 9. Grand Metro Investment
10. Gucci Group N.V. 10. First Union Bancorp
===========================================================================================
</TABLE>
Please keep in mind that the Fund's portfolio is subject to change and
there is no assurance the Fund will continue to hold any particular security.
lackluster bond performance during the year's first half. The year ended up
producing positive returns for bond holders.
Q. HOW DID YOU MANAGE THE EQUITY PORTION OF THE FUND DURING THE FISCAL YEAR?
A. We took advantage of the Fund's ability to move among capitalization
segments of the market as opportunities arise. Thus, we were able to benefit
from the market's preference for small companies early in the year and from
its later shift toward larger companies in the "flight to quality" we
mentioned earlier.
Our portfolio-building strategy selects individual companies and
securities rather than economic sectors. Nevertheless, patterns emerge when
you step back and look at the portfolio as a whole. For example, financial
stocks, especially consumer credit providers, were helped by strong loan
demand and by falling interest rates during the latter part of 1996. Asset
managers such as Merrill Lynch and Morgan Stanley also did very well as a
result of record trading volumes on the nation's biggest stock exchanges and
a wave of merger and acquisition activity. Securities of financial companies
became our largest group of holdings by the close of the fiscal year.
The Fund also benefited from increasing exposure to such industries as oil
and gas drilling, exploration and production, and the booming oil and gas
services industry. Firms in these areas did well as oil and gas prices rose
throughout the year because of supply changes and weather conditions.
Q. HOW DID YOU MANAGE THE BOND PORTION OF THE PORTFOLIO?
A. We look to our equity investments to produce capital appreciation. The bonds
in the portfolio are managed conservatively to produce income and to temper
volatility for the Fund overall. Thus, the bulk of the bond portion is in
investment-grade corporate and U.S. Treasury issues. As a whole, the Fund's
bond portfolio was yielding about 7% at the close of the fiscal year.
The bond portion of the portfolio has an intermediate maturity, which
helps moderate the portfolio's sensitivity to fluctuations in interest rates.
The duration of this portion of the portfolio is about 5 1/2 years. This
means the Fund is not hit hard by bond market downturns such as the one in
early 1996. The bonds add attractive income to the Fund's total return
without unduly increasing risk. This year, this approach produced very good
results.
Q. WHAT DO YOU FORESEE IN THE MARKETS AND THE FUND FOR THE NEAR TERM?
A. The bull market for stocks marked its sixth year in October 1996, making it
the longest in history. Can this continue? Analysts disagree. Predictions
concerning stock market performance during 1997 vary widely.
Predictions about the bond market are likewise mixed. The recent record
of low inflation and steady economic growth has some persuaded that Federal
Reserve policy will remain unchanged. Others point to continued strong
employment data, and the potential for wage inflation, to argue that
interest rates will have to rise during the first half of 1997.
We are cautionary. The odds of the stock market producing yet another
year of superb results are slim, but corporate earnings remain positive,
though with some slowing of earnings momentum. And the economy appears to be
growing reasonably. There is no evidence of excesses that could trigger a
dramatic change in interest rates.
Because we cannot predict the direction in which markets will move, we
intend to continue managing the Fund by choosing one investment at a time
and building a broad, diversified portfolio. Earnings performance remains
the chief criterion for selecting equity investments with a view toward
capital appreciation; fixed-income investments will be managed to temper
volatility and to produce the potential for steady income.
See important Fund & index disclosures inside front cover.
3
<PAGE> 6
Long-Term Performance
AIM BALANCED FUND VS. BENCHMARK INDEXES
The charts compare your Fund to benchmark indexes. An index measures the
performance of a hypothetical portfolio. A market index, such as the S&P 500,
is not managed; therefore there are no sales charges, expenses, or fees. If you
could buy all the securities that make up a particular index, you would incur
expenses that would affect the return on your investment. In addition, it is
worth noting that the S&P 500 represents stocks only; approximately 40% of AIM
Balanced Fund's portfolio is invested in the bond market. An index of funds,
such as the Lipper Balanced Funds Index, includes a number of mutual funds
grouped by investment objective. Each of these funds interprets that objective
differently, and each employs a different management style and investment
strategy. Use of these indexes is intended to give you a general idea of how
your Fund performed compared to these benchmarks.
================================================================================
Growth of $10,000 Investment
As of 12/31/96
- --------------------------------------------------------------------------------
AIM Balanced Fund, S&P 500 Stock Lipper Balanced
Class A Index Funds Index
(In thousands)
- --------------------------------------------------------------------------------
12/91 $ 9,526 $10,000 $10,000
12/92 10,444 10,761 10,746
12/93 12,067 11,841 12,030
12/94 11,410 12,001 11,784
12/95 15,400 16,495 14,717
12/96 18,365 20,273 16,631
================================================================================
Past performance cannot guarantee comparable future results.
================================================================================
AIM Balanced Fund, S&P 500 Stock Lipper Balanced
Class A Index Funds Index
(In thousands)
- --------------------------------------------------------------------------------
12/86 $9,529 $10,000 $10,000
12/87 8,358 10,518 10,413
12/88 9,218 12,253 11,577
12/89 10,586 16,124 13,857
12/90 10,163 15,622 13,948
12/91 14,528 20,360 17,550
12/92 15,928 21,909 18,860
12/93 18,403 24,108 21,114
12/94 17,401 24,435 20,682
12/95 23,487 33,585 25,829
12/96 28,008 41,276 29,189
================================================================================
Past performance cannot guarantee comparable future results.
================================================================================
AVERAGE ANNUAL TOTAL RETURN
As of 12/31/96, including sales charges
- --------------------------------------------------------------------------------
CLASS A SHARES
1 Year 13.58%*
5 Years 12.93
10 Years 10.84
CLASS B SHARES
1 Year 13.28%**
Inception (10/18/93) 11.26
* 19.25% excluding sales charge
**18.28% excluding CDSC
================================================================================
Source: Towers Data Systems HYPO--Registered Trademark--. Your Fund's total
return includes sales charges, expenses, and management fees. The performance
of the Fund's Class B shares will differ from that of Class A shares due to
differing fees and expenses. For Fund performance calculations and descriptions
of indexes cited on this page, please refer to the inside front cover.
4
<PAGE> 7
SCHEDULE OF INVESTMENTS
December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
DOMESTIC BONDS & NOTES-21.52%
ADVERTISING/BROADCASTING-0.60%
Omnicom Group, Inc., Conv. Sub.
Deb., 4.25%, 01/03/07(a)
(Acquired 12/11/96; Cost
$1,000,000) $ 1,000,000 $ 1,037,000
- ---------------------------------------------------------------
Time Warner, Inc.,
Deb., 8.18%, 08/15/07 925,000 964,405
- ---------------------------------------------------------------
Deb., 6.85%, 01/15/26 1,500,000 1,474,785
- ---------------------------------------------------------------
3,476,190
- ---------------------------------------------------------------
AIRLINES-1.41%
Airplanes Pass Through Trust, Sub.
Bonds, 10.875%, 03/15/19 500,000 555,315
- ---------------------------------------------------------------
America West Airlines Inc., Pass
Through Ctf.,
6.93%, 01/02/08 3,000,000 2,981,220
- ---------------------------------------------------------------
Continental Airlines, Inc., Conv.
Sub. Notes, 6.75%, 04/15/06(a)
(Acquired 02/27/96; Cost
$499,825) 500,000 561,065
- ---------------------------------------------------------------
Delta Air Lines, Inc.
Medium Term Notes, 8.52%,
01/30/04 2,000,000 2,143,620
- ---------------------------------------------------------------
Series 92-E Equipment Trust
Ctf., 8.54%, 01/02/07 677,749 716,367
- ---------------------------------------------------------------
Greenwich Air Services, Inc., Sr.
Notes, 10.50%, 06/01/06 1,000,000 1,075,000
- ---------------------------------------------------------------
8,032,587
- ---------------------------------------------------------------
AUTOMOBILE (MANUFACTURERS)-0.11%
Chrysler Financial Corp., Deb.,
8.50%, 02/01/18 150,000 155,217
- ---------------------------------------------------------------
General Motors Corp., Deb., 8.80%,
03/01/21 400,000 462,572
- ---------------------------------------------------------------
617,789
- ---------------------------------------------------------------
BANKING-3.67%
Bankers Trust New York Corp., Sub.
Notes, 7.50%, 11/15/15 3,000,000 2,971,650
- ---------------------------------------------------------------
Bankers Trust New York Corp., Gtd.
Notes, 7.75%, 12/01/26(a)
(Acquired 11/22/96; Cost
$2,932,770) 3,000,000 2,884,245
- ---------------------------------------------------------------
Deutsche Bank Financial, Gtd.
Notes, 6.70%, 12/13/06 3,500,000 3,439,590
- ---------------------------------------------------------------
First Union Bancorp, Sub. Deb.,
7.50%, 04/15/35 3,000,000 3,162,570
- ---------------------------------------------------------------
First Union Corp., Sub. Notes,
6.375%, 01/15/09 800,000 748,240
- ---------------------------------------------------------------
HSBC Americas Inc., Sub. Notes,
7.00%, 11/01/06 3,000,000 2,967,600
- ---------------------------------------------------------------
Mercantile Bank, Sub. Notes,
6.375%, 01/15/04 700,000 676,186
- ---------------------------------------------------------------
Sovereign Bancorp, Inc., Sub.
Notes, 8.00%, 03/15/03 3,325,000 3,393,495
- ---------------------------------------------------------------
Wachovia Corp., Sub. Notes,
6.375%, 02/01/09 800,000 756,792
- ---------------------------------------------------------------
21,000,368
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
BEVERAGES (SOFT DRINKS)-0.51%
Coca-Cola Enterprises, Inc.,
Putable Notes, 7.24%,
06/20/20(b) $15,000,000 $ 2,920,050
- ---------------------------------------------------------------
BUSINESS SERVICES-0.09%
Career Horizons, Inc., Conv.
Bonds, 7.00%, 11/01/02 250,000 494,412
- ---------------------------------------------------------------
CABLE TELEVISION-0.13%
Viacom, Inc., Sr. Notes,
7.75%, 06/01/05 750,000 736,500
- ---------------------------------------------------------------
CHEMICALS (SPECIALTY)-0.13%
Hexcel Corp., Conv. Sub. Notes,
7.00%, 08/01/03 600,000 744,000
- ---------------------------------------------------------------
COMPUTER MINI/PCS-0.26%
Apple Computer, Inc., Conv. Sub.
Notes, 6.00%, 06/01/01 1,500,000 1,514,925
- ---------------------------------------------------------------
COMPUTER NETWORKING-0.31%
3Com Corp., Conv. Sub. Notes,
10.25%, 11/01/01(a)
(Acquired 11/08/94-09/25/96;
Cost $1,235,438) 800,000 1,781,304
- ---------------------------------------------------------------
COMPUTER SOFTWARE/SERVICES-0.18%
First Financial Management Corp.,
Conv. Deb., 5.00%, 12/15/99 600,000 1,038,342
- ---------------------------------------------------------------
CONGLOMERATES-0.10%
General Electric Capital Corp.,
Notes, 8.30%, 09/20/09 500,000 558,230
- ---------------------------------------------------------------
ELECTRIC POWER-1.09%
El Paso Electric Co., First
Mortgage Bonds, 8.90%, 02/01/06 1,500,000 1,566,795
- ---------------------------------------------------------------
Indiana Michigan Power, Secured
Lease Obligation Bonds,
9.82%, 12/07/22 1,357,789 1,638,200
- ---------------------------------------------------------------
UtiliCorp United, Inc., Sr. Notes,
6.70%, 10/15/06 3,000,000 3,005,040
- ---------------------------------------------------------------
6,210,035
- ---------------------------------------------------------------
ELECTRONIC COMPONENTS/MISCELLANEOUS-0.30%
Checkpoint Systems, Inc., Conv.
Sub. Deb., 5.25%, 11/01/05(a)
(Acquired 10/07/96-10/31/96;
Cost $1,054,250) 700,000 1,003,625
- ---------------------------------------------------------------
SCI Systems, Inc., Conv. Sub.
Notes, 5.00%, 05/01/06(a)
(Acquired 04/17/96; Cost
$600,000) 600,000 700,722
- ---------------------------------------------------------------
1,704,347
- ---------------------------------------------------------------
ENERGY (ALTERNATE SOURCES)-0.19%
AES Corp., Sr. Sub. Notes,
10.25%, 07/15/06 1,000,000 1,075,000
- ---------------------------------------------------------------
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
FINANCE (CONSUMER CREDIT)-2.78%
Associates Corp. of North America,
Series B Sr. Deb., 7.95%,
02/15/10 $ 3,650,000 $ 3,937,656
- ---------------------------------------------------------------
Cityscape Financial Corp., Conv.
Sub. Deb., 6.00%, 05/01/06(a)
(Acquired 04/26/96-09/27/96;
Cost $805,250) 800,000 814,000
- ---------------------------------------------------------------
Countrywide Funding Corp., Sub.
Notes, 8.25%, 07/15/02 500,000 530,970
- ---------------------------------------------------------------
Ford Motor Credit,
Notes, 6.125%, 01/09/06 1,500,000 1,408,560
- ---------------------------------------------------------------
Notes, 6.75%, 08/15/08 800,000 776,952
- ---------------------------------------------------------------
GMAC, Notes, 9.00%, 10/15/02 750,000 825,758
- ---------------------------------------------------------------
Grand Metro Investment, Gtd.
Bonds, 7.45%, 04/15/35 3,000,000 3,198,060
- ---------------------------------------------------------------
Household Finance Corp., Notes,
7.125%, 09/01/05 3,000,000 3,033,150
- ---------------------------------------------------------------
Southern Pacific Funding Corp.,
Conv. Sub. Notes, 6.75%,
10/15/06 1,250,000 1,343,750
- ---------------------------------------------------------------
15,868,856
- ---------------------------------------------------------------
GAS DISTRIBUTION-0.18%
Ferrellgas Partners, Sr. Notes,
9.375%, 06/15/06 1,000,000 1,021,250
- ---------------------------------------------------------------
HOTELS/MOTELS-0.40%
ITT Corp., Gtd. Deb., 7.375%,
11/15/15 750,000 720,855
- ---------------------------------------------------------------
Marriott International, Inc.,
Conv. Notes, 4.25%,
03/25/11(a)(b)
(Acquired 03/19/96; Cost
$931,263) 1,750,000 983,710
- ---------------------------------------------------------------
Prime Hospitality Corp., Conv.
Sub. Notes, 7.00%, 04/15/02 400,000 594,832
- ---------------------------------------------------------------
2,299,397
- ---------------------------------------------------------------
MEDICAL (DRUGS)-0.36%
North American Vaccine, Inc.,
Conv. Sub.
Notes, 6.50%, 05/01/03(a)
(Acquired 07/31/96-10/30/96;
Cost $1,881,250) 2,000,000 2,070,000
- ---------------------------------------------------------------
MEDICAL (INSTRUMENTS/PRODUCTS)-0.70%
Uromed Corp., Conv. Sub. Notes,
6.00%, 10/15/03(a)
(Acquired 10/08/96-12/04/96;
Cost $2,594,000) 2,600,000 2,446,262
- ---------------------------------------------------------------
Ventritex, Inc., Conv. Sub. Notes,
5.75%, 08/15/01 1,000,000 1,551,250
- ---------------------------------------------------------------
3,997,512
- ---------------------------------------------------------------
MEDICAL (PATIENT SERVICES)-0.37%
ARV Assisted Living, Inc., Conv.
Sub. Notes, 6.75%, 04/01/06(a)
(Acquired 03/28/96-03/29/96;
Cost $500,400) 500,000 436,560
- ---------------------------------------------------------------
HEALTHSOUTH Rehabilitation Corp.,
Conv. Sub. Deb., 5.00%, 04/01/01 300,000 604,005
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
MEDICAL (PATIENT SERVICES)-(CONTINUED)
Physicians Resource Group, Inc.,
Conv. Sub. Deb., 6.00%,
12/01/01(a)
(Acquired 12/06/96; Cost
$1,100,000) $ 1,100,000 $ 1,078,242
- ---------------------------------------------------------------
2,118,807
- ---------------------------------------------------------------
NATURAL GAS PIPELINE-0.28%
Enron Corp., Sr. Sub. Deb.,
6.75%, 07/01/05 800,000 792,096
- ---------------------------------------------------------------
PanEnergy Corp., Deb.,
7.875%, 08/15/04 750,000 792,308
- ---------------------------------------------------------------
1,584,404
- ---------------------------------------------------------------
OFFICE PRODUCTS-0.18%
U.S. Office Products Co., Conv.
Sub. Notes, 5.50%, 02/01/01 800,000 1,032,632
- ---------------------------------------------------------------
OIL & GAS (DRILLING)-0.46%
Nabors Industries, Inc., Conv.
Sub. Notes, 5.00%, 05/15/06 1,500,000 1,910,775
- ---------------------------------------------------------------
Swift Energy Co., Conv. Sub.
Notes, 6.25%, 11/15/06 650,000 710,125
- ---------------------------------------------------------------
2,620,900
- ---------------------------------------------------------------
OIL & GAS (EQUIPMENT & SUPPLIES)-0.45%
Pride Petroleum Services, Inc.,
Conv. Sub. Deb., 6.25%, 02/15/06 1,400,000 2,569,000
- ---------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-0.18%
Pogo Producing Co., Conv. Sub.
Notes, 5.50%, 06/15/06 800,000 1,006,768
- ---------------------------------------------------------------
POLLUTION CONTROL-1.33%
Thermo Instrument Systems, Inc.,
Conv. Deb., 4.50%, 10/15/03(a)
(Acquired 10/10/96-12/16/96;
Cost $1,210,750) 1,200,000 1,248,948
- ---------------------------------------------------------------
U.S. Filter Corp., Conv. Sub.
Notes, 4.50%, 12/15/01 1,500,000 1,527,060
- ---------------------------------------------------------------
United Waste Systems, Inc., Conv.
Sub. Notes, 4.50%, 06/01/01(a)
(Acquired 05/31/96-08/07/96;
Cost $1,013,000) 1,000,000 1,191,300
- ---------------------------------------------------------------
WMX Technologies, Inc., Notes,
7.10%, 08/01/26 3,500,000 3,617,320
- ---------------------------------------------------------------
7,584,628
- ---------------------------------------------------------------
PUBLISHING-0.18%
News America Holdings, Inc., Sr.
Gtd. Deb., 9.25%, 02/01/13 900,000 1,012,005
- ---------------------------------------------------------------
RAILROADS-0.98%
Union Pacific Corp., Notes, 7.25%,
11/01/08 3,000,000 3,024,840
- ---------------------------------------------------------------
Union Pacific Resources Group
Inc., Deb., 7.50%, 10/15/26 2,500,000 2,548,150
- ---------------------------------------------------------------
5,572,990
- ---------------------------------------------------------------
REAL ESTATE-0.53%
Finova Capital Corp., Notes,
7.40%, 05/06/06 3,000,000 3,061,710
- ---------------------------------------------------------------
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
RETAIL (STORES)-0.76%
Federated Department Stores, Conv.
Notes, 5.00%, 10/01/03 $ 1,000,000 $ 1,168,750
- ---------------------------------------------------------------
J.C. Penney Co., Inc., Notes,
6.50%, 06/15/02 2,015,000 2,004,683
- ---------------------------------------------------------------
Pier 1 Imports, Inc., Conv. Sub.
Notes, 5.75%, 10/01/03 1,000,000 1,152,500
- ---------------------------------------------------------------
4,325,933
- ---------------------------------------------------------------
SEMICONDUCTORS-0.50%
Cirrus Logic, Inc., Conv. Sub.
Notes, 6.00%, 12/15/03(a)
(Acquired 12/12/96; Cost
$2,000,000) 2,000,000 1,830,000
- ---------------------------------------------------------------
Sanmina Corp., Conv. Sub. Notes,
5.50%, 08/15/02(a)
(Acquired 08/10/95-04/16/96;
Cost $560,525) 500,000 1,024,745
- ---------------------------------------------------------------
2,854,745
- ---------------------------------------------------------------
SHOES & RELATED APPAREL-0.35%
Nine West Group, Inc., Conv. Sub.
Notes, 5.50%, 07/15/03(a)
(Acquired 06/20/96-10/22/96;
Cost $2,048,750) 2,000,000 1,992,440
- ---------------------------------------------------------------
TELECOMMUNICATIONS-0.52%
TCI Communications Inc., Sr.
Notes, 8.00%, 08/01/05 1,000,000 980,440
- ---------------------------------------------------------------
360 Communications Co., Sr. Notes,
7.50%, 03/01/06 2,000,000 1,985,180
- ---------------------------------------------------------------
2,965,620
- ---------------------------------------------------------------
TELEPHONE-0.70%
BellSouth Capital Funding, Deb.,
6.04%, 11/15/26 4,000,000 3,980,760
- ---------------------------------------------------------------
TRANSPORTATION-0.25%
Seacor Holdings Inc., Conv. Sub.
Notes, 5.375%, 11/15/06 1,250,000 1,456,788
- ---------------------------------------------------------------
Total Domestic Bonds & Notes 122,901,224
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
DOMESTIC COMMON STOCKS-42.22%
ADVERTISING/BROADCASTING-1.20%
Lamar Advertising Co.(c) 42,000 1,018,500
- ---------------------------------------------------------------
Leap Group, Inc. (The)(c) 90,000 618,750
- ---------------------------------------------------------------
Meredith Corp. 13,000 685,750
- ---------------------------------------------------------------
Metro Networks, Inc.(c) 43,100 1,088,275
- ---------------------------------------------------------------
Outdoor Systems, Inc.(c) 77,400 2,176,875
- ---------------------------------------------------------------
Univision Communications, Inc.(c) 34,900 1,291,300
- ---------------------------------------------------------------
6,879,450
- ---------------------------------------------------------------
AEROSPACE/DEFENSE-0.77%
Boeing Co. (The) 15,000 1,595,625
- ---------------------------------------------------------------
Gulfstream Aerospace Corp.(c) 60,300 1,462,275
- ---------------------------------------------------------------
United Technologies Corp. 20,000 1,320,000
- ---------------------------------------------------------------
4,377,900
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION> MARKET
SHARES VALUE
<S> <C> <C>
AIRLINES-0.19%
Greenwich Air Services, Inc.-Class B 50,000 $ 1,112,500
- ---------------------------------------------------------------
AUTOMOBILE (MANUFACTURERS)-0.42%
Chrysler Corp. 48,000 1,584,000
- ---------------------------------------------------------------
United Auto Group, Inc.(c) 31,000 798,250
- ---------------------------------------------------------------
2,382,250
- ---------------------------------------------------------------
BANKING-0.17%
Commercial Federal Corp. 20,000 960,000
- ---------------------------------------------------------------
BANKING (MONEY CENTER)-0.78%
Chase Manhattan Corp. 30,000 2,677,500
- ---------------------------------------------------------------
Citicorp 17,500 1,802,500
- ---------------------------------------------------------------
4,480,000
- ---------------------------------------------------------------
BEVERAGES (SOFT DRINKS)-0.34%
PepsiCo, Inc. 66,000 1,930,500
- ---------------------------------------------------------------
BIOTECHNOLOGY-0.14%
AMGEN, Inc.(c) 15,000 815,625
- ---------------------------------------------------------------
BUSINESS SERVICES-1.69%
Abacus Direct Corp.(c) 42,400 795,000
- ---------------------------------------------------------------
Advanced Health Corp.(c) 85,000 1,062,500
- ---------------------------------------------------------------
Corestaff, Inc.(c) 43,875 1,039,289
- ---------------------------------------------------------------
Diebold, Inc. 17,000 1,068,875
- ---------------------------------------------------------------
Equifax, Inc. 27,000 826,875
- ---------------------------------------------------------------
International Telecommunication
Data Systems, Inc.(c) 30,000 727,500
- ---------------------------------------------------------------
Learning Tree International,
Inc.(c) 49,050 1,446,975
- ---------------------------------------------------------------
Metzler Group, Inc.(c) 46,100 1,463,675
- ---------------------------------------------------------------
Sitel Corp.(c) 86,800 1,226,050
- ---------------------------------------------------------------
9,656,739
- ---------------------------------------------------------------
CHEMICALS-0.25%
Pioneer Hi-Bred International,
Inc. 20,000 1,400,000
- ---------------------------------------------------------------
CHEMICALS (SPECIALTY)-0.30%
IMC Global, Inc. 18,500 723,812
- ---------------------------------------------------------------
Praxair, Inc. 22,000 1,014,750
- ---------------------------------------------------------------
1,738,562
- ---------------------------------------------------------------
COMPUTER MAINFRAMES-0.14%
ViaSat, Inc.(c) 90,000 810,000
- ---------------------------------------------------------------
COMPUTER MINI/PCS-0.36%
COMPAQ Computer Corp.(c) 15,000 1,113,750
- ---------------------------------------------------------------
Sun Microsystems, Inc.(c) 36,000 924,750
- ---------------------------------------------------------------
2,038,500
- ---------------------------------------------------------------
COMPUTER NETWORKING-0.93%
Ascend Communications, Inc.(c) 28,000 1,739,500
- ---------------------------------------------------------------
Cabletron Systems, Inc.(c) 24,000 798,000
- ---------------------------------------------------------------
Cisco Systems, Inc.(c) 14,000 890,750
- ---------------------------------------------------------------
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTER NETWORKING-(CONTINUED)
Comverse Technology, Inc.(c) 50,000 $ 1,890,625
- ---------------------------------------------------------------
5,318,875
- ---------------------------------------------------------------
COMPUTER PERIPHERALS-0.33%
Accent Color Sciences, Inc.(c) 80,000 680,000
- ---------------------------------------------------------------
U.S. Robotics Corp.(c) 17,000 1,224,000
- ---------------------------------------------------------------
1,904,000
- ---------------------------------------------------------------
COMPUTER SOFTWARE/SERVICES-2.09%
Computer Associates International, Inc. 8,500 422,875
- ---------------------------------------------------------------
DST Systems, Inc.(c) 45,000 1,411,875
- ---------------------------------------------------------------
Electronic Data Systems Corp. 25,000 1,081,250
- ---------------------------------------------------------------
FactSet Research Systems, Inc.(c) 40,400 848,400
- ---------------------------------------------------------------
Forrester Research, Inc.(c) 20,200 520,150
- ---------------------------------------------------------------
Intelligroup, Inc.(c) 50,000 550,000
- ---------------------------------------------------------------
Mechanical Dynamics, Inc.(c) 18,200 252,525
- ---------------------------------------------------------------
Microsoft Corp.(c) 20,000 1,652,500
- ---------------------------------------------------------------
Midway Games Inc.(c) 71,900 1,455,975
- ---------------------------------------------------------------
National Data Corp. 16,900 735,150
- ---------------------------------------------------------------
Oracle Corp.(c) 18,750 782,813
- ---------------------------------------------------------------
S3 Inc.(c) 50,000 812,500
- ---------------------------------------------------------------
Viisage Technology, Inc.(c) 73,500 1,065,750
- ---------------------------------------------------------------
White Pine Software, Inc.(c) 50,000 362,500
- ---------------------------------------------------------------
11,954,263
- ---------------------------------------------------------------
CONGLOMERATES-0.39%
Allied-Signal Inc. 12,000 804,000
- ---------------------------------------------------------------
Olin Corp. 16,000 602,000
- ---------------------------------------------------------------
Textron, Inc. 9,000 848,250
- ---------------------------------------------------------------
2,254,250
- ---------------------------------------------------------------
COSMETICS & TOILETRIES-2.35%
Avon Products, Inc. 20,000 1,142,500
- ---------------------------------------------------------------
Carson, Inc.(c) 60,000 832,500
- ---------------------------------------------------------------
Colgate-Palmolive Co. 17,000 1,568,250
- ---------------------------------------------------------------
Estee Lauder Co. 25,000 1,271,875
- ---------------------------------------------------------------
French Fragrances, Inc.(c) 100,000 775,000
- ---------------------------------------------------------------
Gillette Co. 20,000 1,555,000
- ---------------------------------------------------------------
Nature's Sunshine Products, Inc. 50,000 900,000
- ---------------------------------------------------------------
Procter & Gamble Co. 25,000 2,687,500
- ---------------------------------------------------------------
Rexall Sundown, Inc.(c) 29,100 791,156
- ---------------------------------------------------------------
Warner-Lambert Co. 25,000 1,875,000
- ---------------------------------------------------------------
13,398,781
- ---------------------------------------------------------------
ELECTRIC POWER-0.46%
AES Corp.(c) 23,000 1,069,500
- ---------------------------------------------------------------
Destec Energy, Inc.(c) 100,000 1,562,500
- ---------------------------------------------------------------
2,632,000
- ---------------------------------------------------------------
ELECTRONIC COMPONENTS/MISCELLANEOUS-0.27%
SBS Technologies, Inc.(c) 35,000 1,295,000
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ELECTRONIC COMPONENTS/MISCELLANEOUS-(CONTINUED)
SCI Systems, Inc.(c) 5,000 $ 223,125
- ---------------------------------------------------------------
1,518,125
- ---------------------------------------------------------------
ENERGY (ALTERNATIVE SOURCES)-0.16%
Calenergy, Inc.(c) 28,000 941,500
- ---------------------------------------------------------------
FINANCE (ASSET MANAGEMENT)-0.53%
Hambrecht & Quist Group(c) 50,000 1,081,250
- ---------------------------------------------------------------
Merrill Lynch & Co., Inc. 15,000 1,222,500
- ---------------------------------------------------------------
Morgan Stanley Group, Inc. 13,000 742,625
- ---------------------------------------------------------------
3,046,375
- ---------------------------------------------------------------
FINANCE (CONSUMER CREDIT)-2.18%
AAMES Financial Corp. 55,000 1,973,125
- ---------------------------------------------------------------
American Express Co. 20,000 1,130,000
- ---------------------------------------------------------------
Federal Home Loan Mortgage Corp. 17,000 1,872,125
- ---------------------------------------------------------------
Federal National Mortgage
Association 40,000 1,490,000
- ---------------------------------------------------------------
Finova Group, Inc. 25,000 1,606,250
- ---------------------------------------------------------------
Green Tree Financial Corp. 31,000 1,197,375
- ---------------------------------------------------------------
MBNA Corp. 25,000 1,037,500
- ---------------------------------------------------------------
Medallion Financial Corp. 50,400 768,600
- ---------------------------------------------------------------
Student Loan Marketing Association 15,000 1,396,875
- ---------------------------------------------------------------
12,471,850
- ---------------------------------------------------------------
FINANCE (SAVINGS & LOANS)-0.30%
Washington Mutual, Inc. 39,000 1,689,188
- ---------------------------------------------------------------
FOOD/PROCESSING-0.61%
ConAgra, Inc. 22,500 1,119,375
- ---------------------------------------------------------------
Dean Foods Co. 39,000 1,257,750
- ---------------------------------------------------------------
Ralston-Ralston Purina Group 15,000 1,100,625
- ---------------------------------------------------------------
3,477,750
- ---------------------------------------------------------------
FURNITURE-0.25%
Ethan Allen Interiors, Inc. 37,000 1,424,500
- ---------------------------------------------------------------
GAS DISTRIBUTION-0.50%
Consolidated Natural Gas Co. 25,000 1,381,250
- ---------------------------------------------------------------
KN Energy, Inc. 18,000 706,500
- ---------------------------------------------------------------
MarkWest Hydrocarbon, Inc.(c) 50,000 775,000
- ---------------------------------------------------------------
2,862,750
- ---------------------------------------------------------------
HOTELS/MOTELS-0.52%
HFS, Inc.(c) 24,000 1,434,000
- ---------------------------------------------------------------
Hilton Hotels Corp. 44,000 1,149,500
- ---------------------------------------------------------------
U.S. Franchise Systems, Inc.(c) 40,000 405,000
- ---------------------------------------------------------------
2,988,500
- ---------------------------------------------------------------
INSURANCE (MULTI-LINE PROPERTY)-2.11%
Aetna Inc. 18,000 1,440,000
- ---------------------------------------------------------------
Capital Re Corp. 15,500 722,687
- ---------------------------------------------------------------
Capmac Holdings Inc. 51,500 1,705,938
- ---------------------------------------------------------------
Chubb Corp. 20,300 1,091,125
- ---------------------------------------------------------------
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
INSURANCE (MULTI-LINE PROPERTY)-(CONTINUED)
CIGNA Corp. 15,500 $ 2,117,687
- ---------------------------------------------------------------
Everest Re Holdings, Inc. 40,000 1,150,000
- ---------------------------------------------------------------
Travelers Group, Inc. 41,333 1,875,485
- ---------------------------------------------------------------
Travelers/Aetna Property Casualty
Corp. 55,000 1,945,625
- ---------------------------------------------------------------
12,048,547
- ---------------------------------------------------------------
LEISURE & RECREATION-0.70%
Eastman Kodak Co. 13,000 1,043,250
- ---------------------------------------------------------------
Galoob Toys, Inc.(c) 60,000 840,000
- ---------------------------------------------------------------
Steinway Musical Instruments(c) 60,000 1,042,500
- ---------------------------------------------------------------
Ticketmaster Group, Inc.(c) 90,000 1,091,250
- ---------------------------------------------------------------
4,017,000
- ---------------------------------------------------------------
MACHINERY (HEAVY)-1.03%
Briggs & Stratton Corp. 32,500 1,430,000
- ---------------------------------------------------------------
Case Corp. 26,000 1,417,000
- ---------------------------------------------------------------
Caterpillar Inc. 25,000 1,881,250
- ---------------------------------------------------------------
Deere & Co. 29,000 1,178,125
- ---------------------------------------------------------------
5,906,375
- ---------------------------------------------------------------
MACHINERY (MISCELLANEOUS)-0.22%
Thermo Electron Corp.(c) 30,000 1,237,500
- ---------------------------------------------------------------
MEDICAL (DRUGS)-2.89%
Abbott Laboratories 18,500 938,875
- ---------------------------------------------------------------
American Home Products Corp. 26,000 1,524,250
- ---------------------------------------------------------------
Bristol-Myers Squibb Co. 14,000 1,522,500
- ---------------------------------------------------------------
Cardinal Health, Inc. 24,000 1,398,000
- ---------------------------------------------------------------
Dura Pharmaceuticals, Inc.(c) 50,000 2,387,500
- ---------------------------------------------------------------
Johnson & Johnson 35,000 1,741,250
- ---------------------------------------------------------------
Lilly (Eli) & Co. 32,000 2,336,000
- ---------------------------------------------------------------
Merck & Co., Inc. 19,000 1,505,750
- ---------------------------------------------------------------
Pfizer, Inc. 24,000 1,989,000
- ---------------------------------------------------------------
Schering-Plough Corp. 18,000 1,165,500
- ---------------------------------------------------------------
16,508,625
- ---------------------------------------------------------------
MEDICAL (INSTRUMENTS/PRODUCTS)-1.21%
Baxter International Inc. 30,000 1,230,000
- ---------------------------------------------------------------
Becton, Dickinson & Co. 20,000 867,500
- ---------------------------------------------------------------
Medtronic, Inc. 27,000 1,836,000
- ---------------------------------------------------------------
Omnicare Inc. 38,000 1,220,750
- ---------------------------------------------------------------
Quintiles Transnational Corp.(c) 20,000 1,325,000
- ---------------------------------------------------------------
Xomed Surgical Products, Inc.(c) 20,900 418,000
- ---------------------------------------------------------------
6,897,250
- ---------------------------------------------------------------
MEDICAL (PATIENT SERVICES)-1.34%
American Medical Response, Inc.(c) 70,000 2,275,000
- ---------------------------------------------------------------
Columbia/HCA Healthcare Corp. 25,500 1,039,125
- ---------------------------------------------------------------
PhyCor, Inc.(c) 25,000 709,375
- ---------------------------------------------------------------
RoTech Medical Corp.(c) 60,000 1,260,000
- ---------------------------------------------------------------
Sunrise Assisted Living, Inc.(c) 49,000 1,365,875
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MEDICAL (PATIENT SERVICES)-(CONTINUED)
Tenet Healthcare Corp.(c) 45,000 $ 984,375
- ---------------------------------------------------------------
7,633,750
- ---------------------------------------------------------------
METALS-0.12%
Titanium Metals Corp.(c) 20,000 657,500
- ---------------------------------------------------------------
NATURAL GAS PIPELINE-1.39%
Columbia Gas System, Inc. 9,000 572,625
- ---------------------------------------------------------------
El Paso Natural Gas Co. 28,500 1,439,250
- ---------------------------------------------------------------
Enron Corp. 28,000 1,207,500
- ---------------------------------------------------------------
PanEnergy Corp. 23,000 1,035,000
- ---------------------------------------------------------------
Sonat, Inc. 32,000 1,648,000
- ---------------------------------------------------------------
Williams Companies, Inc. (The) 54,000 2,025,000
- ---------------------------------------------------------------
7,927,375
- ---------------------------------------------------------------
OFFICE PRODUCTS-0.16%
Avery-Dennison Corp. 20,000 707,500
- ---------------------------------------------------------------
Ingram Micro, Inc.-Class A(c) 9,800 225,400
- ---------------------------------------------------------------
932,900
- ---------------------------------------------------------------
OIL & GAS (DRILLING)-0.35%
Costilla Energy, Inc.(c) 102,000 1,389,750
- ---------------------------------------------------------------
TransOcean Offshore 10,000 626,250
- ---------------------------------------------------------------
2,016,000
- ---------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-0.41%
Houston Exploration Co. (The)(c) 33,200 581,000
- ---------------------------------------------------------------
Titan Exploration, Inc.(c) 145,400 1,744,800
- ---------------------------------------------------------------
2,325,800
- ---------------------------------------------------------------
OIL & GAS (SERVICES)-0.99%
Chesapeake Energy Corp.(c) 12,000 667,500
- ---------------------------------------------------------------
Exxon Corp. 8,000 784,000
- ---------------------------------------------------------------
Louisiana Land & Exploration Co. 27,000 1,447,875
- ---------------------------------------------------------------
Mobil Corp. 13,500 1,650,375
- ---------------------------------------------------------------
TPC Corp.(c) 125,000 1,125,000
- ---------------------------------------------------------------
5,674,750
- ---------------------------------------------------------------
OIL EQUIPMENT & SUPPLIES-0.21%
Coastal Corp. 25,000 1,221,875
- ---------------------------------------------------------------
PAPER & FOREST PRODUCTS-0.38%
American Pad & Paper Co.(c) 45,000 1,018,125
- ---------------------------------------------------------------
Kimberly-Clark Corp. 12,000 1,143,000
- ---------------------------------------------------------------
2,161,125
- ---------------------------------------------------------------
REAL ESTATE-0.27%
Cali Realty Corp. 50,000 1,543,750
- ---------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS-1.13%
Bay Apartment Communities, Inc. 40,000 1,440,000
- ---------------------------------------------------------------
Crescent Real Estate Equities, Inc. 20,000 1,055,000
- ---------------------------------------------------------------
FelCor Suite Hotels, Inc. 18,000 636,750
- ---------------------------------------------------------------
Omega Healthcare Investors, Inc. 29,000 964,250
- ---------------------------------------------------------------
</TABLE>
9
<PAGE> 12
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
REAL ESTATE INVESTMENT TRUSTS-(CONTINUED)
Patriot American Hospitality, Inc. 29,000 $ 1,250,625
- ---------------------------------------------------------------
Starwood Lodging Trust 20,000 1,102,500
- ---------------------------------------------------------------
6,449,125
- ---------------------------------------------------------------
RETAIL (FOOD & DRUG)-1.15%
American Stores Co. 33,500 1,369,312
- ---------------------------------------------------------------
Dominick's Supermarkets, Inc.(c) 84,000 1,827,000
- ---------------------------------------------------------------
Safeway, Inc.(c) 55,000 2,351,250
- ---------------------------------------------------------------
Twinlab Corp.(c) 82,800 1,003,950
- ---------------------------------------------------------------
6,551,512
- ---------------------------------------------------------------
RETAIL (STORES)-1.90%
Blyth Industries, Inc.(c) 30,000 1,368,750
- ---------------------------------------------------------------
Consolidated Stores Corp.(c) 31,250 1,003,906
- ---------------------------------------------------------------
Gap, Inc. (The) 47,000 1,415,875
- ---------------------------------------------------------------
Hibbett Sporting Goods, Inc.(c) 41,200 597,400
- ---------------------------------------------------------------
Linens 'N Things, Inc.(c) 70,000 1,373,750
- ---------------------------------------------------------------
Neiman Marcus Group, Inc. (The)(c) 32,500 828,750
- ---------------------------------------------------------------
Pier 1 Imports, Inc. 40,000 705,000
- ---------------------------------------------------------------
Saks Holdings, Inc.(c) 60,500 1,633,500
- ---------------------------------------------------------------
Sears, Roebuck & Co. 27,000 1,245,375
- ---------------------------------------------------------------
Staples, Inc.(c) 10,500 189,656
- ---------------------------------------------------------------
Stein Mart, Inc.(c) 25,000 506,250
- ---------------------------------------------------------------
10,868,212
- ---------------------------------------------------------------
SECURITY & SAFETY SERVICES-0.19%
Cornell Corrections, Inc.(c) 70,000 621,250
- ---------------------------------------------------------------
O'Gara Co. (The)(c) 50,000 487,500
- ---------------------------------------------------------------
1,108,750
- ---------------------------------------------------------------
SEMICONDUCTORS-0.66%
Analog Devices, Inc.(c) 25,000 846,875
- ---------------------------------------------------------------
Intel Corp. 22,000 2,880,625
- ---------------------------------------------------------------
3,727,500
- ---------------------------------------------------------------
SHOES & RELATED APPAREL-0.35%
Nike, Inc.-Class B 33,000 1,971,750
- ---------------------------------------------------------------
TELECOMMUNICATIONS-2.12%
ADC Telecommunications, Inc.(c) 53,500 1,665,187
- ---------------------------------------------------------------
CellNet Data Systems Inc.(c) 36,100 527,962
- ---------------------------------------------------------------
Frontier Corp. 30,000 678,750
- ---------------------------------------------------------------
LCC International, Inc.-Class A(c) 45,000 832,500
- ---------------------------------------------------------------
Lucent Technologies, Inc. 41,102 1,900,968
- ---------------------------------------------------------------
McLeod, Inc.(c) 45,000 1,147,500
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TELECOMMUNICATIONS-(CONTINUED)
Superior Telecom Inc.(c) 76,000 $ 1,548,500
- ---------------------------------------------------------------
Teleport Communications Group
Inc.- Class A(c) 30,000 915,000
- ---------------------------------------------------------------
360 Communications Co.(c) 35,000 809,375
- ---------------------------------------------------------------
West TeleServices Corp.(c) 60,000 1,365,000
- ---------------------------------------------------------------
WorldCom, Inc.(c) 26,267 684,584
- ---------------------------------------------------------------
12,075,326
- ---------------------------------------------------------------
TELEPHONE-0.87%
Ameritech Corp. 21,500 1,303,437
- ---------------------------------------------------------------
Cincinnati Bell, Inc. 25,300 1,559,113
- ---------------------------------------------------------------
GTE Corp. 23,000 1,046,500
- ---------------------------------------------------------------
SBC Communications, Inc. 20,000 1,035,000
- ---------------------------------------------------------------
4,944,050
- ---------------------------------------------------------------
TEXTILES-0.32%
Guess, Inc.(c) 55,000 790,625
- ---------------------------------------------------------------
Liz Claiborne, Inc. 27,000 1,042,875
- ---------------------------------------------------------------
1,833,500
- ---------------------------------------------------------------
TOBACCO-0.49%
Philip Morris Companies, Inc. 25,000 2,815,625
- ---------------------------------------------------------------
TRANSPORTATION-0.64%
AirNet Systems, Inc.(c) 80,100 1,181,475
- ---------------------------------------------------------------
Coach USA, Inc.(c) 85,200 2,470,800
- ---------------------------------------------------------------
3,652,275
- ---------------------------------------------------------------
Total Domestic Common Stocks 241,172,480
- ---------------------------------------------------------------
DOMESTIC PREFERRED STOCKS-5.72%
ADVERTISING/BROADCASTING-0.12%
Time Warner Inc.-Series M $102.50
Conv. PIK Pfd. 629 673,112
- ---------------------------------------------------------------
AEROSPACE/DEFENSE-0.22%
Loral Space & Communications-$3.00
Conv. Pfd.(a)
(Acquired 11/01/96; Cost
$1,117,500) 22,350 1,271,156
- ---------------------------------------------------------------
COMPUTER SOFTWARE/SERVICES-0.58%
Microsoft Corp.-$2.196 Conv. Pfd. 25,000 2,003,125
- ---------------------------------------------------------------
Vanstar Financing Trust-$3.375
Conv. Pfd.(a)
(Acquired 09/27/96; Cost
$1,240,000) 24,800 1,320,377
- ---------------------------------------------------------------
3,323,502
- ---------------------------------------------------------------
ELECTRIC POWER-0.13%
Citizens Utilities Co.-$2.50 Conv. Pfd. 15,000 716,250
- ---------------------------------------------------------------
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FINANCE (CONSUMER CREDIT)-0.99%
First USA, Inc.-$1.9925 Conv.
PRIDES 10,500 $ 619,500
- ---------------------------------------------------------------
Money Store, Inc. (The)-$1.72
Conv. Pfd. 55,000 1,505,625
- ---------------------------------------------------------------
Penncorp Financial Group,
Inc.-$3.50 Conv. Pfd.(a)
(Acquired 08/02/96-11/15/96;
Cost $2,072,500) 40,000 2,380,000
- ---------------------------------------------------------------
SunAmerica, Inc.-Series E $3.10
Conv. Dep. Pfd. 12,000 1,167,000
- ---------------------------------------------------------------
5,672,125
- ---------------------------------------------------------------
FUNERAL SERVICES-0.16%
SCI Financial LLC-Series A, $3.125
Conv. Pfd. 10,000 941,250
- ---------------------------------------------------------------
GAS UTILITY-0.22%
MCN Corp.-$2.013 Conv. PRIDES 46,000 1,270,750
- ---------------------------------------------------------------
HOTELS/MOTELS-0.29%
Host Marriott Financial
Trust-$3.375 Conv. Pfd.(a)
(Acquired 11/25/96; Cost
$1,500,000) 30,000 1,634,910
- ---------------------------------------------------------------
INSURANCE (BROKER)-0.21%
American Bankers Insurance
Group-$3.125 Conv. Pfd. 20,000 1,195,000
- ---------------------------------------------------------------
INSURANCE (LIFE & HEALTH)-0.32%
Conseco Inc.-$4.278 Conv. Pfd. 16,000 1,820,000
- ---------------------------------------------------------------
INSURANCE (MULTI-LINE PROPERTY)-0.59%
Allstate Inc.-$2.299 Conv. PRIDES 16,000 756,000
- ---------------------------------------------------------------
Frontier Financing Trust-$3.125
Conv. Pfd.(a)
(Acquired 10/09/96; Cost
$2,500,000) 50,000 2,588,600
- ---------------------------------------------------------------
3,344,600
- ---------------------------------------------------------------
MEDICAL (INSTRUMENTS/PRODUCTS)-0.23%
US Surgical Corp.-$2.20 Conv. Pfd. 35,000 1,338,750
- ---------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-0.40%
Nuevo Financing I-$2.875 Series A
Conv. Pfd. 42,500 2,279,063
- ---------------------------------------------------------------
OIL & GAS (REFINING/MARKETING)-0.18%
Tosco Financing Trust-$2.875 Conv.
Pfd.(a)
(Acquired 12/10/96-12/11/96;
Cost $1,003,625) 20,000 1,042,500
- ---------------------------------------------------------------
PUBLISHING-0.20%
Golden Books Financial
Trust-$4.375 Conv. Pfd.(a)
(Acquired 08/14/96; Cost
$1,000,000) 20,000 1,137,260
- ---------------------------------------------------------------
RETAIL (STORES)-0.31%
Ann Taylor Finance Trust-$4.25
Conv. Pfd.(a)
(Acquired 04/18/96-04/29/96;
Cost $999,000) 20,000 1,069,240
- ---------------------------------------------------------------
Kmart Financing, Inc.-$3.875 Conv.
Pfd. 14,000 682,500
- ---------------------------------------------------------------
1,751,740
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TELECOMMUNICATIONS-0.30%
MFS Communications Co.,
Inc.,-$2.68 Conv. Dep. Pfd. 19,000 $ 1,733,750
- ---------------------------------------------------------------
TELEPHONE-0.15%
Salomon Inc.-$3.48 Conv. Pfd. 14,600 879,650
- ---------------------------------------------------------------
TRANSPORTATION-0.12%
Continental Airlines Finance
Trust-$4.25 Conv. Pfd.(a)
(Acquired 11/21/95-11/22/95;
Cost $500,350) 10,000 666,250
- ---------------------------------------------------------------
Total Domestic Preferred
Stocks 32,691,618
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
U.S. DOLLAR DENOMINATED FOREIGN
BONDS & NOTES-4.38%
CANADA-2.38%
Bell Canada (Telecommunications),
Yankee Deb., 9.50%, 10/15/10 $ 1,750,000 2,111,095
- ---------------------------------------------------------------
Great Atlantic & Pacific Tea Co.,
Inc. (Retail-Food & Drug),
Yankee Notes, 7.78%, 11/01/00(a)
(Acquired 10/18/95; Cost
$500,000) 500,000 509,622
- ---------------------------------------------------------------
Husky Oil Ltd. (Oil &
Gas-Integrated), Yankee Sr.
Notes, 7.125%, 11/15/06 3,000,000 2,976,720
- ---------------------------------------------------------------
Nova Chemicals Ltd. (Oil &
Gas-Specialty), Deb., 7.00%,
08/15/26(a)
(Acquired 08/13/96; Cost
$2,000,000) 2,000,000 2,016,400
- ---------------------------------------------------------------
Province of Manitoba (Foreign
Governments), Yankee Bonds,
7.75%, 07/17/16 1,500,000 1,568,415
- ---------------------------------------------------------------
Royal Bank of Canada (Banking),
Yankee Sub. Notes,
6.75%, 10/24/11 3,000,000 2,935,500
- ---------------------------------------------------------------
Talisman Energy, Inc. (Oil &
Gas-Exploration & Production),
Yankee Deb.,
7.125%, 06/01/07 1,500,000 1,477,380
- ---------------------------------------------------------------
13,595,132
- ---------------------------------------------------------------
GERMANY-0.92%
Dresdner Bank A.G. (Banking), Sub.
Bonds,
6.00%, 11/03/08 4,000,000 3,717,480
- ---------------------------------------------------------------
Tarkett Pegulan AG (Textiles),
Yankee Sr. Sub. Notes, 9.00%,
03/01/02 1,500,000 1,548,750
- ---------------------------------------------------------------
5,266,230
- ---------------------------------------------------------------
MALAYSIA-0.18%
Sungei Way Holdings Berhad
(Building Materials), Conv.
Bonds,
1.25%, 12/11/01 1,000,000 1,020,000
- ---------------------------------------------------------------
NETHERLANDS-0.35%
Baan Co., N.V. (Computer
Software/Services), Conv. Sub.
Notes,
4.50%, 12/15/01(a)
(Acquired 12/12/96; Cost
$2,000,000) 2,000,000 2,008,920
- ---------------------------------------------------------------
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
SWITZERLAND-0.24%
Sandoz Capital BVI Ltd.
(Chemicals), Yankee Sr. Conv.
Deb.,
2.00%, 10/06/02(a)
(Acquired 03/07/96-06/05/96;
Cost $1,306,500) $ 1,250,000 $ 1,343,750
- ---------------------------------------------------------------
UNITED KINGDOM-0.31%
Danka Business Systems PLC (Office
Automation), Yankee Conv. Sub.
Deb., 6.75%, 04/01/02 300,000 406,320
- ---------------------------------------------------------------
Royal Bank of Scotland Group PLC
(Banking), Yankee Sub. Notes,
6.375%, 02/01/11 1,500,000 1,381,635
- ---------------------------------------------------------------
1,787,955
- ---------------------------------------------------------------
Total U.S. Dollar
Denominated Foreign Bonds
& Notes 25,021,987
- ---------------------------------------------------------------
NON-U.S. DOLLAR DENOMINATED
FOREIGN BONDS & NOTES(d)-3.22%
AUSTRALIA-1.21%
Australian Government (Foreign
Governments), Bonds,
10.00%, 10/15/07 AUD 2,500,000 2,361,110
- ---------------------------------------------------------------
Treasury Corp. of Victoria
(Foreign Governments) Gtd. Deb.,
12.00%, 09/22/01 4,800,000 4,564,559
- ---------------------------------------------------------------
6,925,669
- ---------------------------------------------------------------
CANADA-2.01%
Bank of Montreal (Banking), Sub.
Deb.
7.92%, 07/31/12 CAD 1,850,000 1,471,975
- ---------------------------------------------------------------
Canadian Oil Debco Inc. (Oil &
Gas-Services), Deb.,
11.00%, 10/31/00 1,500,000 1,283,868
- ---------------------------------------------------------------
NAV Canada (Transportation),
Bonds, 7.40%, 06/01/27 3,500,000 2,535,091
- ---------------------------------------------------------------
Ontario (Province of) (Foreign
Governments), Sr. Unsubordinated
Notes,
8.00%, 03/11/03 2,300,000 1,849,675
- ---------------------------------------------------------------
Teleglobe Inc.
(Telecommunications), Deb.,
8.35%, 06/20/03 1,000,000 806,032
- ---------------------------------------------------------------
Trans Canada Pipeline (Oil &
Gas-Services), Notes, 10.625%,
10/20/09 1,500,000 1,405,134
- ---------------------------------------------------------------
Westcoast Energy, Inc. (Electric
Power), Deb., 6.45%, 12/18/06(a)
(Acquired 12/03/96; Cost
$2,217,508) 3,000,000 2,137,004
- ---------------------------------------------------------------
11,488,779
- ---------------------------------------------------------------
Total Non-U.S. Dollar
Denominated Foreign Bonds
& Notes 18,414,448
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-5.10%
AUSTRALIA-0.16%
News Corp. Ltd.-$5.00 Conv.
Pfd.(a)
(Advertising/Broadcasting)
(Acquired 11/04/96; Cost
$1,000,000) 10,000 943,750
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
BERMUDA-0.19%
Terra Nova Holdings Ltd.-Class A
(Insurance-Multi-Line Property) 50,200 $ 1,079,300
- ---------------------------------------------------------------
BRAZIL-0.14%
Telecomunicacoes Brasileiras S.A.
Telebras-ADR
(Telecommunications) 10,500 803,250
- ---------------------------------------------------------------
FRANCE-0.49%
AXA-ADR (Insurance-Life &
Health)(c) 40,000 1,260,000
- ---------------------------------------------------------------
Scor S.A.-ADR
(Insurance-Multi-Line
Property)(c) 45,000 1,546,875
- ---------------------------------------------------------------
2,806,875
- ---------------------------------------------------------------
GERMANY-0.11%
Veba A.G. (Electric Power) 10,750 621,751
- ---------------------------------------------------------------
ISRAEL-0.95%
ECI Telecommunications Ltd.
Designs (Computer Networking) 24,000 510,000
- ---------------------------------------------------------------
Tadiran Telecommunications Ltd.
(Telecommunications) 48,000 1,074,000
- ---------------------------------------------------------------
Teva Pharmaceutical Industries
Ltd.-ADR (Medical-Drugs) 30,000 1,507,500
- ---------------------------------------------------------------
TTI Team Telecom International
Ltd. (Telecommunications)(c) 109,000 681,250
- ---------------------------------------------------------------
Zag Industries Ltd. (Consumer Non-
Durables)(c) 100,000 1,650,000
- ---------------------------------------------------------------
5,422,750
- ---------------------------------------------------------------
ITALY-0.20%
Fila Holding S.p.A.-ADR
(Retail-Stores) 20,000 1,162,500
- ---------------------------------------------------------------
NETHERLANDS-1.03%
Gucci Group N.V. (Textiles) 34,200 2,184,525
- ---------------------------------------------------------------
Koninklijke Ahold N.V.-ADR
(Retail-Food & Drug) 20,200 1,247,350
- ---------------------------------------------------------------
New Holland N.V.
(Machinery-Heavy)(c) 75,000 1,565,625
- ---------------------------------------------------------------
Unilever N.V.-New York shares
(Food/Processing) 5,000 876,250
- ---------------------------------------------------------------
5,873,750
- ---------------------------------------------------------------
NORWAY-0.14%
Petroleum Geo-Services ASA-ADR
(Oil & Gas-Services)(c) 20,000 780,000
- ---------------------------------------------------------------
PORTUGAL-0.11%
Telecel-Comunicacaoes Pessoais,
S.A. (Telecommunications)(c) 10,300 641,175
- ---------------------------------------------------------------
SPAIN-0.20%
Autopistas, Concesionaria
Espanola, S.A. (Engineering &
Construction) 82,000 1,130,599
- ---------------------------------------------------------------
SWEDEN-0.08%
Telefonaktiebolaget LM
Ericsson-ADR
(Telecommunications) 15,000 452,813
- ---------------------------------------------------------------
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
UNITED KINGDOM-1.30%
Bass PLC (Beverages-Alcoholic) 64,350 $ 905,111
- ---------------------------------------------------------------
British Sky Broadcasting Group
PLC-ADR
(Advertising/Broadcasting) 6,500 341,250
- ---------------------------------------------------------------
Dr. Solomon's Group PLC-ADR
(Computer Software/Services)(c) 31,900 546,288
- ---------------------------------------------------------------
GCR Holdings, Ltd.
(Insurance-Multi-Line Property) 35,000 778,750
- ---------------------------------------------------------------
National Power PLC-ADR (Electric
Power) 8,000 271,000
- ---------------------------------------------------------------
Nynex CableComms Group PLC-ADR
(Telecommunications)(c) 17,300 313,563
- ---------------------------------------------------------------
PowerGen PLC-ADR (Electric Power) 11,000 434,500
- ---------------------------------------------------------------
Railtrack Group PLC (Railroads) 300,000 1,991,605
- ---------------------------------------------------------------
SELECT Software Tools-ADR
(Computer Software/Services)(c) 38,000 693,500
- ---------------------------------------------------------------
SmithKline Beecham PLC-ADR
(Medical-Drugs) 17,000 1,156,000
- ---------------------------------------------------------------
7,431,567
- ---------------------------------------------------------------
Total Foreign Stocks & Other
Equity Interests 29,150,080
- ---------------------------------------------------------------
PRINCIPAL
AMOUNT
U.S. TREASURY SECURITIES-12.47%
U.S. TREASURY NOTES & BONDS-12.47%
7.125%, 02/29/00 $ 2,500,000 2,575,250
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
</TABLE>
U.S. TREASURY NOTES & BONDS-(CONTINUED)
6.25%, 08/31/00 $ 3,000,000 $ 3,013,470
- ---------------------------------------------------------------
6.125%, 09/30/00 5,000,000 5,001,550
- ---------------------------------------------------------------
6.375%, 03/31/01 5,000,000 5,037,950
- ---------------------------------------------------------------
6.50%, 05/31/01 17,000,000 17,201,960
- ---------------------------------------------------------------
6.625%, 06/30/01 10,000,000 10,167,100
- ---------------------------------------------------------------
7.25%, 08/15/04 2,500,000 2,629,225
- ---------------------------------------------------------------
7.50%, 02/15/05 3,000,000 3,207,000
- ---------------------------------------------------------------
6.50%, 10/15/06 5,000,000 5,029,650
- ---------------------------------------------------------------
6.75%, 08/15/26 8,000,000 8,064,240
- ---------------------------------------------------------------
6.50%, 11/15/26 9,500,000 9,326,530
- ---------------------------------------------------------------
Total U.S. Treasury Securities 71,253,925
- ---------------------------------------------------------------
U.S. GOVERNMENT AGENCY-0.71%
Tennessee Valley Authority, Bonds,
5.98%, 04/01/36 4,000,000 4,054,200
- ---------------------------------------------------------------
REPURCHASE AGREEMENT-2.59%(e)
UBS Securities Inc., 7.05%,
01/02/97(f) 14,800,000 14,800,000
- ---------------------------------------------------------------
TOTAL INVESTMENTS-97.93% 559,459,962
- ---------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-2.07% 11,811,032
- ---------------------------------------------------------------
NET ASSETS-100.00% $ 571,270,994
===============================================================
Notes to Schedule of Investments:
(a) Restricted security. May be sold to qualified institutional buyers under
Rule 144A of the Securities Act of 1933, as amended. The valuation of these
securities has been determined in accordance with procedures established by
the Board of Trustees. The aggregate market value of these securities at
December 31, 1996 was $45,153,907, which represented 7.90% of the Fund's net
assets.
(b) Zero coupon bonds issued at a discount. The interest rate shown represents
the rate of original issue discount.
(c) Non-income producing security.
(d) Foreign denominated security. Par value and coupon are denominated in
currency of country indicated.
(e) 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 as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(f) Joint repurchase agreement entered into 12/31/96 with a maturing value of
$550,215,417. Collateralized by $732,485,305 U.S. Government agency
obligations, 0% to 9.50% due 01/01/98 to 12/15/26.
Abbreviations:
ADR American Depository Receipt
AUD Australian Dollar
CAD Canadian Dollar
Conv. Convertible
Ctf. Certificates
Deb. Debentures
Dep. Depository
Gtd. Guaranteed
Pfd. Preferred
PIK Payment in kind
PRIDES Preferred Redeemable Increased Dividend Equity Securities
Sr. Senior
Sub. Subordinated
See Notes to Financial Statements.
13
<PAGE> 16
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$498,250,491) $559,459,962
- ---------------------------------------------------------
Cash 2,999,866
- ---------------------------------------------------------
Foreign currencies, at value (cost
$1,315,940) 1,346,533
- ---------------------------------------------------------
Receivables for:
Investments sold 3,607,046
- ---------------------------------------------------------
Fund shares sold 3,452,526
- ---------------------------------------------------------
Interest and dividends 4,093,040
- ---------------------------------------------------------
Investment for deferred compensation plan 12,568
- ---------------------------------------------------------
Other assets 30,358
- ---------------------------------------------------------
Total assets 575,001,899
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 2,424,827
- ---------------------------------------------------------
Fund shares reacquired 268,531
- ---------------------------------------------------------
Deferred compensation plan 12,568
- ---------------------------------------------------------
Accrued advisory fees 267,735
- ---------------------------------------------------------
Accrued administrative service fees 7,360
- ---------------------------------------------------------
Accrued distribution fees 407,435
- ---------------------------------------------------------
Accrued transfer agent fees 135,599
- ---------------------------------------------------------
Accrued trustees' fees 2,326
- ---------------------------------------------------------
Accrued operating expenses 204,524
- ---------------------------------------------------------
Total liabilities 3,730,905
- ---------------------------------------------------------
Net assets applicable to shares outstanding $571,270,994
- ---------------------------------------------------------
NET ASSETS:
Class A $334,188,942
- ---------------------------------------------------------
Class B $237,082,052
- ---------------------------------------------------------
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 15,302,713
- ---------------------------------------------------------
Class B 10,858,135
- ---------------------------------------------------------
Class A:
Net asset value and redemption price per
share $ 21.84
- ---------------------------------------------------------
Offering price per share:
(Net asset value of $21.84 divided
by 95.25%) $ 22.93
- ---------------------------------------------------------
Class B:
Net asset value and offering price per
share $ 21.83
- ---------------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $11,408,100
- --------------------------------------------------------
Dividends (net of $80,119 foreign
withholding tax) 3,218,786
- --------------------------------------------------------
Total investment income 14,626,886
- --------------------------------------------------------
EXPENSES:
Advisory fees 2,151,655
- --------------------------------------------------------
Custodian fees 87,018
- --------------------------------------------------------
Distribution fees-Class A 513,190
- --------------------------------------------------------
Distribution fees-Class B 1,496,606
- --------------------------------------------------------
Administrative service fees 72,493
- --------------------------------------------------------
Trustees' fees 7,695
- --------------------------------------------------------
Transfer agent fees-Class A 346,494
- --------------------------------------------------------
Transfer agent fees-Class B 345,863
- --------------------------------------------------------
Other 290,311
- --------------------------------------------------------
Total expenses 5,311,325
- --------------------------------------------------------
Less: Expenses paid indirectly (6,056)
- --------------------------------------------------------
Net expenses 5,305,269
- --------------------------------------------------------
Net investment income 9,321,617
- --------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCY
TRANSACTIONS AND FUTURES CONTRACTS:
Net realized gain (loss) from:
Investment securities 10,964,707
- --------------------------------------------------------
Foreign currency transactions (48,145)
- --------------------------------------------------------
Futures contracts 1,800,020
- --------------------------------------------------------
12,716,582
- --------------------------------------------------------
Unrealized appreciation (depreciation) of:
Investment securities 41,945,636
- --------------------------------------------------------
Foreign currencies 35,607
- --------------------------------------------------------
Futures contracts (15,850)
- --------------------------------------------------------
41,965,393
- --------------------------------------------------------
Net gain from investment securities,
foreign currencies and futures contracts 54,681,975
- --------------------------------------------------------
Net increase in net assets resulting from
operations $64,003,592
========================================================
</TABLE>
See Notes to Financial Statements.
14
<PAGE> 17
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 9,321,617 $ 2,293,374
- -----------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currency transactions and futures contracts 12,716,582 3,819,964
- -----------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies and futures contracts 41,965,393 20,162,424
- -----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 64,003,592 26,275,762
- -----------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (6,033,635) (1,509,535)
- -----------------------------------------------------------------------------------------
Class B (3,100,998) (772,889)
- -----------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on
investment securities:
Class A (6,912,890) --
- -----------------------------------------------------------------------------------------
Class B (4,888,186) --
- -----------------------------------------------------------------------------------------
Net equalization credits 7,707,610 1,435,649
- -----------------------------------------------------------------------------------------
Share transactions-net:
Class A 212,483,093 39,846,397
- -----------------------------------------------------------------------------------------
Class B 143,138,052 41,781,556
- -----------------------------------------------------------------------------------------
Net increase in net assets 406,396,638 107,056,940
- -----------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 164,874,356 57,817,416
- -----------------------------------------------------------------------------------------
End of period $571,270,994 $164,874,356
- -----------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $496,452,940 $140,831,795
- -----------------------------------------------------------------------------------------
Undistributed net investment income 10,459,581 2,564,987
- -----------------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, foreign currency transactions and futures
contracts 3,118,901 2,203,395
- -----------------------------------------------------------------------------------------
Unrealized appreciation of investment securities,
foreign currencies and futures contracts 61,239,572 19,274,179
- -----------------------------------------------------------------------------------------
$571,270,994 $164,874,356
=========================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Balanced Fund (the "Fund") is a series portfolio of AIM Funds Group (the
"Trust"). The trust is a Delaware business trust registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end series
management investment company consisting of nine separate series portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers two different classes of shares: the Class A shares and the
Class B shares. Class A shares are sold with a front-end sales charge. Class B
shares are sold with a contingent deferred sales charge. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund. The Fund's objective is to achieve as high a total
return to investors as possible, consistent with preservation of capital, by
investing in a broadly diversified portfolio of high-yielding securities,
including common stocks, preferred stocks, convertible securities and bonds.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. 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.
A. Security Valuations -- A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales
15
<PAGE> 18
price on the exchange where the security is principally traded, or lacking
any sales on a particular day, the security is valued at the mean between the
closing bid and asked prices on that day. Each security traded in the
over-the-counter market (but not including securities reported on the NASDAQ
National Market System) is valued at the mean between the last bid and asked
prices based upon quotes furnished by market makers for such securities. Each
security reported on the NASDAQ National Market System is valued at the last
sales price on the valuation date or absent a last sales price, at the mean
between the closing bid and asked prices. 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. 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. Securities for which market quotations
either are not readily available or are questionable are valued at fair value
as determined in good faith by or under the supervision of the Trust's
officers in a manner specifically authorized by the Board of Trustees.
Short-term obligations having 60 days or less to maturity are valued at
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 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
Trustees.
B. Securities Transactions, Investment Income and Distributions -- Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date.
C. Bond Premiums -- It is the policy of the Fund not to amortize market premiums
on bonds for financial reporting purposes.
D. 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.
E. Equalization -- The Fund follows the accounting practice known as
equalization by which a portion of the proceeds from sales and the costs of
repurchases of Fund shares, equivalent on a per share basis to the amount of
undistributed net investment income, is credited or charged to undistributed
income when the transaction is recorded so the undistributed net investment
income per share is unaffected by sales or redemptions of Fund shares.
F. Expenses -- Operating expenses directly attributable to a class of shares are
charged to that class' operations. Expenses which are applicable to both
classes, e.g. advisory fees, are allocated between them.
G. 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.
H. Foreign Currency Contracts -- A forward 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 forward 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 forward 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.
I. 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 the change in the value of the contracts may not correlate with
changes in the value of the Fund's portfolio being hedged.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays AIM an advisory fee at an annual rate of 0.75% of the
first $150 million of the Fund's average daily net assets, plus 0.50% of the
Fund's average daily net assets in excess of $150 million.
16
<PAGE> 19
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to reimburse AIM for certain administrative costs incurred in providing
accounting services to the Fund. During the year ended December 31, 1996, AIM
was reimbursed $72,493 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended December 31, 1996, AFS
was paid $385,524 for such services.
The Fund received reductions in transfer agency fees payable to AFS of $5,514
from dividends received on balances in cash management bank accounts. In
addition, pricing service expenses in the amount of $542 were paid through
directed brokerage commissions paid by the Fund. The above arrangements resulted
in a reduction in the Fund's total expenses of $6,056 during the year ended
December 31, 1996.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A shares and the Class B shares of the Fund. The Trust has adopted Plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares (the "Class A Plan") and with respect to the Fund's Class B shares (the
"Class B Plan")(collectively, the "Plans"). The Fund, pursuant to the Class A
Plan, pays AIM Distributors compensation at an annual rate of 0.25% of the
average daily net assets attributable to the Class A shares. The Class A Plan is
designed to compensate AIM Distributors for certain promotional and other sales
related costs and provides periodic payments to selected dealers and financial
institutions who furnish continuing personal shareholder services to their
customers who purchase and own Class A shares of the Fund. 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 attributable to the Class B shares. Of this
amount, the Fund may pay a service fee of 0.25% of the average daily net assets
of the Class B shares to selected dealers and financial institutions who furnish
continuing personal shareholder services to their customers who purchase and own
Class B shares of the Fund. Any amounts not paid as a service fee under such
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. AIM Distributors may, from time to time, assign,
transfer or pledge to one or more assignees, its rights to all or a designated
portion of (a) compensation received by AIM Distributors from the Fund pursuant
to the Class B Plan (but not AIM Distributors' duties and obligations pursuant
to the Class B Plan) and (b) contingent deferred sales charges payable to AIM
Distributors related to the Class B shares. During the year ended December 31,
1996, the Class A shares and the Class B shares paid AIM Distributors $513,190
and $1,496,606, respectively, as compensation under the Plans.
AIM Distributors received commissions of $611,603 from sales of the Class A
shares of the Fund during the year ended December 31, 1996. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended December 31, 1996,
AIM Distributors received $50,028 in contingent deferred sales charges imposed
on redemptions of Fund shares. Certain officers and trustees of the Trust are
officers and directors of AIM, AIM Distributors and AFS.
During the year ended December 31, 1996, the Fund paid legal fees of $3,320
for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3-TRUSTEES' FEES
Trustees' fees represent remuneration paid or accrued to each trustee who is not
an "interested person" of AIM. The Trust may invest trustees' fees, if so
elected by a trustee, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 4-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) $325,000,000 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 July 19, 1996, the Fund was
limited to borrowing $1,100,000. During the year ended December 31, 1996, the
Fund did not borrow under the line of credit agreement. The funds which are
parties to the line of credit are charged a commitment fee of 0.08% on the
unused balance of the committed line. The commitment fee is allocated among such
funds based on their respective average net assets for the period.
NOTE 5-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended December 31, 1996 was
$573,899,491 and $232,187,528, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of December 31, 1996 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $67,286,915
- ---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (6,085,031)
- ---------------------------------------------------------
Net unrealized appreciation of investment
securities $61,201,884
=========================================================
Cost of investments for tax purposes is $498,258,078.
</TABLE>
17
<PAGE> 20
NOTE 6-SHARE INFORMATION
Changes in shares outstanding during the years ended December 31, 1996 and 1995
were as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------------- ---------------------------
SHARES VALUE SHARES VALUE
---------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Sold:
Class A 11,936,333 $241,163,392 2,972,256 $ 52,107,491
- ---------------------------------------------------------------------------------------------------------------------------
Class B 7,608,028 153,665,571 2,739,743 47,601,025
- ---------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A 571,269 11,884,617 76,297 1,334,447
- ---------------------------------------------------------------------------------------------------------------------------
Class B 347,628 7,257,995 38,541 678,897
- ---------------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (2,004,527) (40,564,916) (819,551) (13,595,541)
- ---------------------------------------------------------------------------------------------------------------------------
Class B (876,383) (17,785,514) (384,332) (6,498,366)
- ---------------------------------------------------------------------------------------------------------------------------
17,582,348 $355,621,145 4,622,954 $ 81,627,953
===========================================================================================================================
</TABLE>
NOTE 7-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a Class A share outstanding during
each of the years in the three-year period ended December 31, 1996, the four
months ended December 31, 1993 and each of the years in the six-year period
ended August 31, 1993 and for a Class B share outstanding during each of the
years in the three-year period ended December 31, 1996 and the period October
18, 1993 (date sales commenced) through December 31, 1993. Prior to October 15,
1993, the Fund was known as AIM Convertible Securities, Inc. and had a different
investment objective.
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
---------------------------------------------- -----------------------------------------
1996 1995 1994 1993 1993 1992 1991 1990
CLASS A: -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 19.22 $ 14.62 $ 16.10 $ 15.97 $ 12.77 $ 12.04 $ 9.73 $ 10.67
- ----------------------------------- -------- -------- -------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.66 0.49 0.44 0.10 0.32 0.29 0.28 0.32
- ----------------------------------- -------- -------- -------- -------- -------- -------- -------- --------
Net gains (losses) on securities
(both realized and unrealized) 2.99 4.57 (1.31) 0.18 3.18 0.74 2.33 (0.91)
- ----------------------------------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment operations 3.65 5.06 (0.87) 0.28 3.50 1.03 2.61 (0.59)
- ----------------------------------- -------- -------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment
income (0.55) (0.46) (0.39) (0.15) (0.30) (0.30) (0.30) (0.35)
- ----------------------------------- -------- -------- -------- -------- -------- -------- -------- --------
Distributions from net realized
capital gains (0.48) -- (0.22) -- -- -- -- --
- ----------------------------------- -------- -------- -------- -------- -------- -------- -------- --------
Total distributions (1.03) (0.46) (0.61) (0.15) (0.30) (0.30) (0.30) (0.35)
- ----------------------------------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of period $ 21.84 $ 19.22 $ 14.62 $ 16.10 $ 15.97 $ 12.77 $ 12.04 $ 9.73
=================================== ======== ======== ======== ======== ======== ======== ======== ========
Total return(a) 19.25% 34.97% (5.44)% 1.76% 27.75% 8.66% 27.41% (5.67)%
=================================== ======== ======== ======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $334,189 $ 92,241 $ 37,572 $ 23,520 $ 19,497 $ 11,796 $ 11,750 $ 10,965
=================================== ======== ======== ======== ======== ======== ======== ======== ========
Ratio of expenses to average net
assets 1.15%(b)(c) 1.43%(d) 1.25%(e) 2.17%(f) 2.07% 2.12% 2.39% 2.15%
=================================== ======== ======== ======== ======== ======== ======== ======== ========
Ratio of net investment income to
average net assets 2.97%(b) 2.81%(d) 3.07%(e) 1.81%(f) 2.23% 2.32% 2.74% 3.18%
=================================== ======== ======== ======== ======== ======== ======== ======== ========
Portfolio turnover rate 71.90% 76.63% 76.18% 233.10% 154.47% 165.53% 208.11% 307.08%
=================================== ======== ======== ======== ======== ======== ======== ======== ========
Average broker commission rate(g) $ 0.0558 N/A N/A N/A N/A N/A N/A N/A
=================================== ======== ======== ======== ======== ======== ======== ======== ========
Borrowings for the period:
Amount of debt outstanding at end
of period -- -- -- -- -- -- -- --
=================================== ======== ======== ======== ======== ======== ======== ======== ========
Average amount of debt outstanding
during the period(h) -- -- -- -- -- -- -- $138,181
=================================== ======== ======== ======== ======== ======== ======== ======== ========
Average number of shares
outstanding during the period
(000s omitted)(h) 9,778 3,173 2,061 1,305 1,046 939 1,051 1,238
=================================== ======== ======== ======== ======== ======== ======== ======== ========
Average amount of debt per share
during the period -- -- -- -- -- -- -- $ 0.110
=================================== ======== ======== ======== ======== ======== ======== ======== ========
<CAPTION>
AUGUST 31,
-------------------
1989 1988
CLASS A: -------- --------
<S> <C> <C>
Net asset value, beginning of
period $ 9.08 $ 11.89
- ----------------------------------- -------- --------
Income from investment operations:
Net investment income 0.39 0.42
- ----------------------------------- -------- --------
Net gains (losses) on securities
(both realized and unrealized) 1.63 (2.65)
- ----------------------------------- -------- --------
Total from investment operations 2.02 (2.23)
- ----------------------------------- -------- --------
Less distributions:
Dividends from net investment
income (0.43) (0.50)
- ----------------------------------- -------- --------
Distributions from net realized
capital gains -- (0.08)
- ----------------------------------- -------- --------
Total distributions (0.43) (0.58)
- ----------------------------------- -------- --------
Net asset value, end of period $ 10.67 $ 9.08
=================================== ======== ========
Total return(a) 22.96% (18.57)%
=================================== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $ 14,405 $ 16,789
=================================== ======== ========
Ratio of expenses to average net
assets 1.94% 2.31%
=================================== ======== ========
Ratio of net investment income to
average net assets 3.99% 4.50%
=================================== ======== ========
Portfolio turnover rate 149.42% 117.73%
=================================== ======== ========
Average broker commission rate(g) N/A N/A
=================================== ======== ========
Borrowings for the period:
Amount of debt outstanding at end
of period $260,000 --
=================================== ======== ========
Average amount of debt outstanding
during the period(h) $ 83,195 --
=================================== ======== ========
Average number of shares
outstanding during the period
(000s omitted)(h) 1,589 2,131
=================================== ======== ========
Average amount of debt per share
during the period $ 0.052 --
=================================== ======== ========
</TABLE>
(a) Total returns do not deduct sales charges and are not annualized for periods
less than one year.
(b) Ratios are based on average net assets of $205,275,849.
(c) Includes expenses paid indirectly. Excluding expenses paid indirectly, the
ratio of expenses to average net assets would have remained the same.
(d) After waiver of advisory fees. Ratios of expenses and net investment income
to average net assets prior to waiver of advisory fees are 1.46% and 2.78%,
respectively.
(e) After waiver of advisory fees. Ratios of expenses and net investment income
to average net assets prior to waiver of advisory fees are 1.68% and 2.64%,
respectively.
(f) Annualized.
(g) Disclosure requirement beginning with the Fund's fiscal year ended December
31, 1996.
(h) Averages computed on a daily basis.
18
<PAGE> 21
NOTE 7-FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1996 1995 1994 1993
CLASS B: -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 19.22 $ 14.62 $ 16.11 $ 16.69
- ------------------------------------------------------------ -------- -------- -------- --------
Income from investment operations:
Net investment income 0.48 0.31 0.31 0.04
- ------------------------------------------------------------ -------- -------- -------- --------
Net gains (losses) on securities (both realized and
unrealized) 2.99 4.61 (1.31) (0.58)
- ------------------------------------------------------------ -------- -------- -------- --------
Total from investment operations 3.47 4.92 (1.00) (0.54)
- ------------------------------------------------------------ -------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.38) (0.32) (0.27) (0.04)
- ------------------------------------------------------------ -------- -------- -------- --------
Distributions from net realized capital gains (0.48) -- (0.22) --
- ------------------------------------------------------------ -------- -------- -------- --------
Total distributions (0.86) (0.32) (0.49) (0.04)
- ------------------------------------------------------------ -------- -------- -------- --------
Net asset value, end of period $ 21.83 $ 19.22 $ 14.62 $ 16.11
============================================================ ======== ======== ======== ========
Total return(a) 18.28% 33.93% (6.23)% (3.23)%
============================================================ ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $237,082 $ 72,634 $ 20,245 $ 2,754
============================================================ ======== ======== ======== ========
Ratio of expenses to average net assets 1.97%(b)(c) 2.21%(d) 1.98%(e) 2.83%(f)
============================================================ ======== ======== ======== ========
Ratio of net investment income to average net assets 2.15%(b) 2.03%(d) 2.34%(e) 1.15%(f)
============================================================ ======== ======== ======== ========
Portfolio turnover rate 71.90% 76.63% 76.18% 233.10%
============================================================ ======== ======== ======== ========
Average broker commission rate(g) $ 0.0558 N/A N/A N/A
============================================================ ======== ======== ======== ========
</TABLE>
(a) Total returns do not deduct contingent deferred sales charges and are not
annualized for periods less than one year.
(b) Ratios are based on average net assets of $149,660,567.
(c) Includes expenses paid indirectly. Excluding expenses paid indirectly, the
ratio of expenses to average net assets would have remained the same.
(d) After waiver of advisory fees. Ratios of expenses and net investment income
to average net assets prior to waiver of advisory fees are 2.23% and 2.01%,
respectively.
(e) After waiver of advisory fees. Ratios of expenses and net investment income
to average net assets prior to waiver of advisory fees are 2.45% and 1.87%,
respectively.
(f) Annualized.
(g) Disclosure requirement beginning with the Fund's fiscal year ended December
31, 1996.
NOTE 8 - SUBSEQUENT EVENT
On November 4, 1996, A I M Management Group Inc. ("AIM Management") and INVESCO
plc announced the execution of an agreement and plan of merger pursuant to which
AIM Management will be merged with and into a direct wholly-owned subsidiary of
INVESCO plc. AIM Management is the parent company of the Fund's advisor. The
merger is expected to take place during the first quarter of 1997.
19
<PAGE> 22
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders of
AIM Balanced Fund:
We have audited the accompanying statement of assets and
liabilities of AIM Balanced Fund (a portfolio of AIM Funds
Group), including the schedule of investments, as of
December 31, 1996, 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 three-year period then ended, the four-month period
ended December 31, 1993, and each of the years in the six-
year period ended August 31, 1993. These financial
statements and financial highlights are the responsibility
of the Fund's management. Our responsibility is to express
an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of December 31, 1996, 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 Balanced
Fund as of December 31, 1996, 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
three-year period then ended, the four-month period ended
December 31, 1993, and each of the years in the six-year
period ended August 31, 1993, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
February 7, 1997
20
<PAGE> 23
Trustees & Officers
<TABLE>
<S> <C> <C>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Charles T. Bauer Charles T. Bauer 11 Greenway Plaza
Chairman and Chief Executive Officer Chairman Suite 1919
A I M Management Group Inc. Houston, TX 77046
Robert H. Graham
Bruce L. Crockett President INVESTMENT ADVISOR
Formerly Director, President, and
Chief Executive Officer John J. Arthur A I M Advisors, Inc.
COMSAT Corporation Senior Vice President and Treasurer 11 Greenway Plaza
Suite 1919
Owen Daly II Carol F. Relihan Houston, TX 77046
Director Senior Vice President and Secretary
Cortland Trust Inc. TRANSFER AGENT
Gary T. Crum
Carl Frischling Senior Vice President A I M Fund Services, Inc.
Partner P.O. Box 4739
Kramer, Levin, Naftalis & Frankel Scott G. Lucas Houston, TX 77210-4739
Senior Vice President
Robert H. Graham CUSTODIAN
President and Chief Operating Officer Dana R. Sutton
A I M Management Group Inc. Vice President and Assistant Treasurer State Street Bank & Trust Company
225 Franklin Street
John F. Kroeger Robert G. Alley Boston, MA 02110
Formerly Consultant Vice President
Wendell & Stockel Associates, Inc. COUNSEL TO THE FUND
Stuart W. Coco
Lewis F. Pennock Vice President Ballard Spahr
Attorney Andrews & Ingersoll
Melville B. Cox 1735 Market Street
Ian W. Robinson Vice President Philadelphia, PA 19103
Consultant; Formerly Executive
Vice President and Karen Dunn Kelley COUNSEL TO THE TRUSTEES
Chief Financial Officer Vice President
Bell Atlantic Management Kramer, Levin, Naftalis & Frankel
Services, Inc. Jonathan C. Schoolar 919 Third Avenue
Vice President New York, NY 10022
Louis S. Sklar
Executive Vice President P. Michelle Grace DISTRIBUTOR
Hines Interests Assistant Secretary
Limited Partnership A I M Distributors, Inc.
David L. Kite 11 Greenway Plaza
Assistant Secretary Suite 1919
Houston, TX 77046
Nancy L. Martin
Assistant Secretary AUDITORS
Ofelia M. Mayo KPMG Peat Marwick LLP
Assistant Secretary 700 Louisiana
NationsBank Bldg.
Kathleen J. Pflueger Houston, TX 77002
Assistant Secretary
Samuel D. Sirko
Assistant Secretary
Stephen I. Winer
Assistant Secretary
Mary J. Benson
Assistant Treasurer
</TABLE>
REQUIRED FEDERAL INCOME TAX INFORMATION
AIM Balanced Fund Class A and Class B shares paid ordinary dividends in the
amount of $0.772 and $0.6095 per share, respectively, to shareholders during
its tax year ended December 31, 1996. Of these amounts 15.81% is eligible for
the dividends received deduction for corporations. The Fund also distributed
long-term capital gains of $0.255 per share during its tax year ended December
31, 1996.
REQUIRED STATE INCOME TAX INFORMATION
Of the total ordinary dividends paid, 16.04% for Class A and 14.31% for Class B
shares were derived from U.S. Treasury obligations.
<PAGE> 24
<TABLE>
<S> <C>
THE AIM FAMILY OF FUNDS--Registered Trademark--
AGGRESSIVE GROWTH
AIM Aggressive Growth Fund*
AIM Capital Development Fund
AIM Constellation Fund
AIM Global Aggressive Growth Fund
[PHOTO OF
11 Greenway Plaza GROWTH
APPEARS HERE] AIM Blue Chip Fund
AIM Global Growth Fund
AIM Growth Fund
AIM International Equity Fund
AIM Value Fund
AIM Weingarten Fund
GROWTH AND INCOME
AIM Balanced Fund
AIM Charter Fund
INCOME AND GROWTH
AIM Global Utilities Fund
HIGH CURRENT INCOME
AIM High Yield Fund
CURRENT INCOME
AIM Global Income Fund
AIM Income Fund
CURRENT TAX-FREE INCOME
AIM Municipal Bond Fund
AIM Tax-Exempt Bond Fund of CT
AIM Tax-Free Intermediate Shares
CURRENT INCOME AND HIGH DEGREE OF SAFETY
AIM Intermediate Government Fund
HIGH DEGREE OF SAFETY AND CURRENT INCOME
AIM Limited Maturity Treasury Shares
STABILITY, LIQUIDITY, AND CURRENT INCOME
AIM Money Market Fund
STABILITY, LIQUIDITY, AND CURRENT TAX-FREE INCOME
AIM Tax-Exempt Cash Fund
A I M Management Group Inc. has provided leadership in the
mutual fund industry since 1976 and manages approximately
$70 billion in assets for more than 3.5 million
shareholders, including individual investors, corporate *AIM Aggressive Growth Fund was closed to new investors on
clients, and financial institutions as of February 11, 1997. July 18, 1995. For more complete information about any AIM
The AIM Family of Funds --Registered Trademark-- is Fund(s), including sales charges and expenses, ask your
distributed nationwide, and AIM today ranks among the financial consultant or securities dealer for a free
nation's top 15 mutual fund companies in assets under prospectus(es). Please read the prospectus(es) carefully
management, according to Lipper Analytical Services, Inc. before you invest or send money.
[AIM LOGO APPEARS HERE] ---------------
BULK RATE
A I M Distributors, Inc. U.S. POSTAGE
11 Greenway Plaza, Suite 1919 PAID
Houston, TX 77046 HOUSTON, TX
Permit No. 1919
---------------
</TABLE>
