<PAGE> 1
(Cover Photo)
AIM BALANCED FUND
[AIM LOGO APPEARS HERE] ANNUAL REPORT DECEMBER 31, 1997
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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.
--------------------------------------
[COVER PHOTO APPEARS HERE]
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 and Class
C 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 CDSC on Class C shares is 1% for the first year after
purchase. The performance of the Fund's Class B and Class C shares will
differ from that of Class A shares due to differing fees and expenses.
o Because Class C shares have been offered for less than one year (since
8/4/97), all total return figures for Class C shares reflect cumulative
total return that has not been annualized.
o During the year ended 12/31/97, the Fund paid distributions on Class A,
Class B, and Class C shares of $1.322, $1.142, and $0.962, 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 Dow Jones Industrial Average (DJIA) is a price-weighted average of 30
actively traded primarily industrial stocks.
o The Standard & Poor's Composite Index of 500 Stocks (S&P 500) is a group of
unmanaged securities widely regarded by investors to be representative of
the stock market in general.
o The NASDAQ (National Association of Securities Dealers Automated Quotation
system) Composite Index is a group of more than 4,500 unmanaged
over-the-counter securities widely regarded by investors to be
representative of the small- and medium-sized company stock universe.
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 Shareholder:
1997 proved an eventful year in securities markets. The Dow
[PHOTO OF Jones Industrial Average reached its all-time high--and
Charles T. also had its largest one-day point drop ever, though not
Bauer, its largest percentage drop. Volatility was unabated, and
Chairman of we experienced the first 10% stock market correction in the
the Board of U.S. since 1991.
THE FUND Never dull and occasionally unsettling, 1997 was also
APPEARS HERE] a very good year for many investments. For an unprecedented
third year in a row, domestic equities rose more than 20%.
Late in the year, in the uncertainty brought on by events
in Asia, bond markets, especially the U.S. Treasury market,
fulfilled their usual role as relative safe havens, and a
bull market in bonds took hold. Overseas, though Asian
markets plummeted, Europe thrived.
Market expectations performed an about-face during the year. Worry about
the inflationary potential of vigorous economic growth became concern about the
potential negative impact of Asia's financial crisis. At fiscal year end, there
was no consensus about how serious or widespread this impact would be.
An interview with your Fund's managers appears on the following pages. They
discuss their investment strategies, how your Fund performed in this context,
and their outlook for the future.
In uncertain times like these, your financial consultant remains your best
source for information on market trends and for advice on how to invest
strategically rather than emotionally. We encourage you to visit your financial
consultant regularly to make sure your chosen investments still suit your
goals, risk tolerance, and time horizon.
INVESTOR EDUCATION EVENTS
In addition to professional guidance, every investor needs fundamental
information about the saving and investing choices offered by the marketplace.
AIM has always championed investor education, convinced a more knowledgeable
shareholder is a better customer. A great deal of investment information will
be available during two upcoming events, and we hope our shareholders will
participate in and learn from them to the greatest extent possible.
First, from March 29 through April 4, the Securities and Exchange
Commission (SEC) will sponsor Saving and Investing Education Week. As the SEC
points out, financial markets are more stable when investors are confident in
them, and knowledge is a major confidence builder. The week's theme is "Get the
facts. It's your money. It's your future." The aim is to inform citizens about
the saving and investment possibilities available and to build understanding
about how one's financial needs and goals change throughout one's life. The
week's awareness and education events will culminate with a national investors
town meeting at satellite-linked locations across the nation. You can find out
more from the SEC's Web site at www.sec.gov.
The second event concerns citizens' financial planning for retirement, a
subject of growing urgency as the population ages and the solvency of the
Social Security system is increasingly debatable. In July, the first National
Summit on Retirement Savings will be held at the White House. Under the
auspices of the Department of Labor, working through public-private
partnership, the summit's goal is to advance the public's knowledge of
retirement savings through development of a broad-based education program and
to develop recommendations for public/private action to promote private
retirement savings among American workers.
Look for further information on both of these investor education events in
the national and local press.
We are pleased to send you this report on your Fund. Please contact our
Client Services department at 800-959-4246 if you have questions or comments.
Automated information about your account is available 24 hours a day on the AIM
Investor Line, 800-246-5463. Account information and much more can be found on
our Web site, www.aimfunds.com.
Sincerely,
/s/ CHARLES T. BAUER
Charles T. Bauer
Chairman
-----------------------------------------
In uncertain times like these,
your financial consultant remains
your best source for information
on market trends and for advice on
how to invest strategically rather
than emotionally.
-----------------------------------------
<PAGE> 4
The Managers' Overview
ONCE AGAIN, DISCIPLINED APPROACH SERVES FUND WELL IN VOLATILE YEAR
A roundtable discussion with the Fund management team for AIM Balanced Fund for
the fiscal year ended December 31, 1997.
- --------------------------------------------------------------------------------
Q. SECURITIES MARKETS WERE TURBULENT IN 1997. HOW DID THE FUND PERFORM?
A. The Fund turned in excellent performance, outdoing the Lipper Balanced
Funds Index of comparable funds, despite unusual volatility and a major
correction in the equity markets. Average annual total return for the year
was 24.41% for Class A shares and 23.42% for Class B shares. Class C shares
produced a cumulative total return of 4.67% from their inception on 8/4/97
through 12/31/97.
The Fund's excellent long-term performance gathered extensive media
attention. According to Lipper Analytical Services, Inc., AIM Balanced Fund
Class A shares are in the top 10% of all balanced funds for the 10-, five-,
and one-year periods ended December 31.
Q. HOW WAS THIS IMPRESSIVE LONG-TERM PERFORMANCE ACHIEVED?
A. Through strict investment discipline. The Fund's portfolio strategy
involves a target asset allocation of 60% stocks and 40% fixed-income
securities, a mix that classic academic studies have found to be squarely
among those that can produce optimal risk/return trade-off over the long
run. We rebalance the portfolio regularly, selecting individual securities
that meet our investment criteria while maintaining the 60/40 balance.
Within this broad strategy, the portfolio is very well diversified. For
example, in equities, we own small-, medium-, and large-capitalization
stocks, so the Fund is able to shift among the various market
capitalizations as market sentiment changes. In fixed-income securities, we
maintain an intermediate duration so our bond holdings do not fluctuate too
widely as interest rates change. And finally, our convertible stock and
bond holdings are less volatile than the market as a whole and so act as
yet another buffer against the kind of fluctuation we saw in 1997.
Q. HOW WOULD YOU DESCRIBE MARKET CONDITIONS DURING THE FISCAL YEAR?
A. As the year opened, many expected the Federal Reserve Board (the Fed) to
raise interest rates to slow a possibly inflationary economic expansion. By
fiscal year end, potential deflation was a topic of discussion and the Fed
was expected to do nothing or lower rates at its next meeting. The Asian
financial crisis, caused by debt default worries in that region, accounted
for much of this change in sentiment because of the uncertainty it caused
in markets worldwide.
As a result, for the year as a whole, large-capitalization stocks
again dominated the markets. For a while during the summer and early fall,
investors began to look beyond these stocks, but in the wake of events in
Asia, they retreated to more liquid blue chips. During the last quarter of
1997, the S&P 500 stocks rose almost 3% while NASDAQ small-company stocks
declined almost 7%.
Market turmoil also increased the attractiveness of less risky
investments such as Treasury bonds. A bond rally late in the year pushed
the yield on the 30-year U.S. Treasury bond below 6%, its lowest level in
more than four years.
Q. HOW DID THESE TRENDS AFFECT THE FUND?
A. The Fund's broad diversification in its equity holdings was a drawback at
times. The portfolio includes a sizable number of small- and
mid-capitalization holdings. As we mentioned in our June 30 semiannual
report, these small- and mid-cap holdings were somewhat disadvantageous
early in 1997. Then they performed beautifully during the second and third
quarters. After Asia's market crisis, markets again began to favor large
company stocks with more predictable earnings, and our small- and mid-cap
holdings kept the Fund from participating fully in this large-cap rally
late in the year. On the other hand, the portfolio's fixed-income holdings
helped dampen volatility and provide some protection from a potentially
serious decline during the last months of the fiscal year. That's the
benefit of the balanced portfolio design.
Q. WHAT WERE SOME WINNING STOCK HOLDINGS FOR THE FUND?
A. We have had very good results from real estate investment trusts, or REITs.
Because these instruments produce income as well as potential capital
appreciation, they can help moderate volatility in the same way
fixed-income investments do.
REITs in the portfolio include Starwood Lodging Trust, which
purchased the prestigious Westin Hotels & Resorts in the fall. We increased
our REIT holdings from 1.1% to 3.1% of the portfolio during the fiscal
year.
Q. IN YOUR LAST SHAREHOLDER REPORT, YOU DISCUSSED INCREASING HOLDINGS
===============================================================================
LIPPER RANKINGS
As of 12/31/97
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CLASS A SHARES
FUNDS IN
AIM FUND BALANCED
PERIOD RANK CATEGORY TOP %
1 Year 21 350 6%
3 Years 3 236 2%
5 Years 4 109 4%
10 Years 2 48 5%
CLASS B SHARES (Inception 10/18/93)
1 Year 42 350 12%
3 Years 4 236 2%
===============================================================================
Fund percentage rankings are vs. all balanced mutual funds tracked by Lipper,
excluding sales charges and including fees and expenses.
===============================================================================
See important Fund & index disclosures inside front cover.
<PAGE> 5
OF FINANCIAL COMPANIES. DO YOU CONTINUE TO LIKE THIS SECTOR?
A. Our holdings in the financial sector, including banks, insurers, and
brokerage houses, were increased again during the last six months. This is
still our largest sector weighting, almost one-fourth of the portfolio.
With a growing economy and stable interest rates, financial institutions
have prospered. Earnings growth for big money center banks such as Citicorp
outdid analysts' expectations.
The sector also is experiencing a wave of mergers and acquisitions.
Through careful securities selection, we want to focus on the companies
initiating this consolidation--the franchise companies that will be around
five years from now. Though doubts were voiced about the exposure of some
multinational banks to the Asian loan situation, the financial sector was
the year's best performer among the Dow Jones U.S. industry groups.
Q. ARE THERE OTHER SECTORS IN WHICH YOU HAVE SIZABLE HOLDINGS?
A. Our second largest sector, 13.9% of the portfolio, is technology. Although
tech stocks were hard hit during the market downturn late in 1997,
technology remains a rapidly growing sector of the economy. Other major
holdings are in health care, which was 12.6% of the portfolio at fiscal
year end. These included stocks of pharmaceutical companies, which we
expect will benefit as the FDA enacts a more rapid drug-approval process.
Finally, we still have quite a few holdings in the energy sector, which
turned in very good performance for 1997.
Q. DO YOU CONTINUE TO HOLD CONVERTIBLE BONDS AND PREFERRED STOCKS?
A. Convertible securities were more than 10% of the portfolio at the fiscal
mid year. At fiscal year end, they were approximately 6% of the portfolio.
Some of our convertible holdings were called, and we also have converted
some because the common stocks they were tied to were more attractive.
Q. DO YOUR FIXED-INCOME HOLDINGS REMAIN FOCUSED ON MEDIUM-MATURITY,
HIGH-QUALITY ISSUES?
A. To temper the volatility of the stock market with our fixed-income
holdings, we keep to an intermediate maturity structure that is not too
sensitive to interest rate changes. The bond portion of the portfolio
generally has an average quality rating of "A."
The low-inflation and falling-interest rates in the U.S. in 1997
provided nearly an ideal climate for both the U.S. government issues and
the investment-grade corporate bonds in which we mainly invest. These bond
markets were given a boost by the agreement to balance the federal budget
and by the turmoil that hit world stock markets in the fall.
Q. WHAT DO YOU FORESEE IN THE MARKETS AND FOR THE FUND?
A. In the U.S., the economic fundamentals are sound: inflation is low,
corporate profits are strong, and the economy is growing at a healthy pace.
However, we have had three years of unprecedented 20%-plus returns on
equity investments. History shows that the long-term average annual total
return for stocks is about 10% to 12%. It is reasonable to think that
eventually we will gravitate toward this norm. As we said, the U.S.
environment is excellent for bonds.
Continuing problems in Asia could slow economic growth worldwide. We
still haven't sorted out the true magnitude of Asia's troubles and of their
impact on the rest of the world.
The Fund's fixed-income holdings will enable it to take advantage of
the bull market in bonds while cushioning the Fund in case the Asian crisis
has more serious consequences for the domestic stock market than currently
predicted. We remain very confident about our long-term 60/40 strategy.
PORTFOLIO COMPOSITION
As of 12/31/97, based on total net assets
===============================================================================
TOP TEN COMMON STOCK HOLDINGS
- -------------------------------------------------------------------------------
1. Qwest Communications
International Inc. 0.59%
2. Lilly (Eli) & Co. 0.53
3. CCA Prison Realty Trust 0.52
4. Medtronic, Inc. 0.49
5. Gillette Co. 0.47
6. Bristol-Myers Squibb Co. 0.45
7. America Online Inc. 0.44
8. CBS Corp. 0.44
9. Cendant Corp. 0.43
10. Washington Mutual Inc. 0.43
===============================================================================
===============================================================================
TOP TEN FIXED-INCOME HOLDINGS
1. U.S. Treasury Securities 5.87%
2. Florida Windstorm-MBIA 0.66
3. Time Warner, Inc. 0.64
4. ConAgra Inc. 0.63
5. Associates Corp.
of North America 0.56
6. Husky Oil Ltd. 0.55
7. US West Cap Funding, Inc. 0.53
8. Western Resources, Inc. 0.52
9. Enron Corp. 0.51
10. America West Airlines 0.51
===============================================================================
===============================================================================
STOCK/BOND ALLOCATION
Number of Holdings: 399
Common Stocks 54.34%
Convertible Bonds 2.94%
Convertible Preferred Stocks 3.17%
Corporate Bonds & Notes 28.79%
Government Bonds & Notes 7.90%
Preferred Stocks 0.07%
Cash/Cash Equivalents 1.91%
Other Assets - Liabilities 0.88%
===============================================================================
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.
See important Fund & index disclosures inside front cover.
3
<PAGE> 6
Fund Performance
AIM BALANCED FUND VS. BENCHMARK INDEX
The charts compare your Fund's Class A shares 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
fixed-income securities. 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.
===============================================================================
AVERAGE ANNUAL TOTAL RETURNS
As of 12/31/97, including sales charges
CLASS A SHARES
1 Year 18.50%
5 Years 15.81
10 Years 14.79
CLASS B SHARES
1 Year 18.42%
Inception (10/18/93) 14.30
CLASS C SHARES
Inception (8/4/97) 3.67*
*Total return provided is cumulative total return that has not been annualized.
===============================================================================
GROWTH OF A 10,000 INVESTMENT
- -----------------------------
(In thousands)
12/31/92-12/31/97
- -------------------------------------------------------------------------------
DATE FUND LIPPER S&P 500
- -------------------------------------------------------------------------------
[C] [C] [C] [C]
12/92 $ 9,524.00 $10,000.00 $10,000.00
12/93 $11,004.00 $11,195.00 $11,003.00
12/94 $10,405.00 $10,966.00 $11,153.00
12/95 $14,044.00 $13,695.00 $15,329.00
12/96 $16,747.00 $15,477.00 $18,839.00
12/97 $20,835.00 $18,580.00 $25,116.00
===============================================================================
(In thousands)
12/31/87-12/31/97
- -------------------------------------------------------------------------------
DATE FUND S&P LIPPER
- -------------------------------------------------------------------------------
[C] [C] [C] [C]
12/87 $ 9,525.00 $10,000.00 $10,000.00
12/88 $10,505.00 $11,650.00 $11,113.00
12/89 $12,064.00 $15,330.00 $13,308.00
12/90 $11,582.00 $14,852.00 $13,395.00
12/91 $16,556.00 $19,358.00 $16,855.00
12/92 $18,151.00 $22,931.00 $18,112.00
12/93 $20,971.00 $22,921.00 $20,277.00
12/94 $19,830.00 $23,232.00 $19,862.00
12/95 $26,765.00 $31,931.00 $24,805.00
12/96 $31,917.00 $39,243.00 $28,032.00
12/97 $39,709.00 $52,317.00 $33,652.00
===============================================================================
Source: Towers Data Systems HYPO--Registered Trademark--; FundStation; Lipper
Analytical Services, Inc. Your Fund's total return includes sales charges,
expenses, and management fees. The performance of the Fund's Class B and Class C
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.
===============================================================================
Past performance cannot guarantee comparable future results.
4
<PAGE> 7
For Consideration
THE ROTH IRA: THE POWER TO KEEP MORE
Contribute After-Tax Dollars Now .. . So You Can Get Federally Tax-Free Savings
Later
A new and potentially more powerful type of IRA--the Roth IRA--became available
on January 1, 1998. What makes it more powerful? The Roth IRA gives you the
opportunity to keep more of what you earn.
Are you eligible to open a Roth IRA? The answer is yes if you or your
spouse has earned income for the tax year for which you want to make the
contribution, and your adjusted gross income is below $110,000 if you are a
single tax filer, $160,000 if you file jointly.
TWO KEY ROTH IRA BENEFITS:
TAX-FREE AND PENALTY-FREE WITHDRAWALS
o Of earnings after five years. Earnings on your Roth IRA are federally
tax-free if your Roth IRA account has been open for five years and you are
at least 59 1/2 years old, or in the case of death or disability. You may
also use up to $10,000 of your earnings to buy a first home (after five
years).
o Of contributions at any time. For instance, if you make annual
contributions of $2,000 for the next three years, you may take out up to
$6,000 and use that money for any purpose.
HOW YOU MIGHT PUT BOTH BENEFITS TO WORK FOR YOU
Here's an example of how you may take full advantage of a Roth IRA. You are 39
1/2 years old. You contribute $2,000 after-tax annually in your Roth IRA every
year for 20 years, earning an average annual return of 10%. After 20 years,
your account has grown to $126,005. Now at age 59 1/2 you can begin taking
withdrawals and pay no federal income tax or penalty on any of your $126,005.
Or you can keep your money invested and take it out whenever you need it.
THE ROTH IRA: TO CONVERT OR NOT TO CONVERT
Can you convert your Traditional IRA to a Roth IRA? The answer is yes if you
meet these requirements:
You must pay taxes on the amount you convert. If you convert in 1998, you
can spread your tax payments over the next four years. This four-year allowance
will not be available after December 31, 1998.
You cannot convert to a Roth IRA if you are married and file your tax
return separately, or if your annual gross income is over $100,000.
SOME ROTH IRA CONVERSION
GUIDELINES
If you can check most of these boxes, converting your Traditional IRA to a Roth
IRA may make sense for you.
[ ] You have assets outside your retirement savings with which you can easily
afford to pay the taxes due when you convert.
[ ] You have 10 years or more before you retire. The longer you invest
tax-free, the more you benefit.
[ ] Your tax rate will probably be higher in retirement than it is now. If
so, you'll pay less taxes now to convert than you would pay at retirement
if you withdrew from a traditional IRA.
[ ] You plan to convert in 1998. On January 1, 1999, the ability to spread
tax payments over four years disappears.
[ ] You want to keep making contributions after age 70 1/2 and may wish to
pass your IRA assets on to your heirs after your death.
ROTH IRA [Graphic]
CALCULATOR & ANALYZER
The Roth IRA Analyzer & Calculator at AIM's Internet Web site--
www.aimfunds.com-- can help you determine your IRA eligibility status and
whether it makes sense for you to convert an existing IRA into a Roth IRA.
MAKE YOUR IRA CONVERSION DECISION A TRULY
INFORMED ONE
Talk to your financial consultant, who knows your specific needs and goals. You
may also wish to talk with a tax adviser.
This discussion does not constitute tax advice. Your tax adviser can provide
guidance concerning your particular situation.
5
<PAGE> 8
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
DOMESTIC BONDS & NOTES-25.68%
AIRLINES-2.38%
Airplanes Pass Through Trust,
Sub. Bonds, 10.875%, 03/15/19 $ 500,000 $ 562,815
- ---------------------------------------------------------------
America West Airlines, Pass
Through Ctfs., 6.86%, 07/02/04 5,989,758 6,034,801
- ---------------------------------------------------------------
American Airlines, Equipment
Trust, 9.90%, 01/15/11 2,955,000 3,726,344
- ---------------------------------------------------------------
Delta Air Lines, Inc.,
Deb., 9.00%, 05/15/16 5,000,000 5,912,050
- ---------------------------------------------------------------
Medium Term Notes, 8.52%,
01/30/04 2,000,000 2,179,580
- ---------------------------------------------------------------
Northwest Airlines Corp., Pass
Through Ctfs., 7.248%, 07/02/14 5,000,000 5,056,250
- ---------------------------------------------------------------
United Air Lines, Inc., Pass
Through Ctfs., 9.56%, 10/19/18 3,750,000 4,611,525
- ---------------------------------------------------------------
28,083,365
- ---------------------------------------------------------------
AUTOMOBILES-0.04%
General Motors Corp., Deb.,
8.80%, 03/01/21 400,000 491,084
- ---------------------------------------------------------------
BANKS (MAJOR REGIONAL)-0.42%
First Union Corp,
Sub. Deb., 7.50%, 04/15/35 3,000,000 3,427,290
- ---------------------------------------------------------------
Sub. Notes, 6.375%, 01/15/09 800,000 785,288
- ---------------------------------------------------------------
Wachovia Corp., Sub. Notes,
6.375%, 02/01/09 800,000 789,624
- ---------------------------------------------------------------
5,002,202
- ---------------------------------------------------------------
BANKS (MONEY CENTER)-1.17%
Bankers Trust New York Corp.,
Gtd. Notes, 7.875%, 02/25/27 3,000,000 3,092,895
- ---------------------------------------------------------------
Sub. Notes, 7.50%, 11/15/15 3,000,000 3,128,310
- ---------------------------------------------------------------
Deutsche Bank Financial, Gtd.
Unsec. Sub. Deb., 6.70%,
12/13/06 3,500,000 3,575,985
- ---------------------------------------------------------------
Marshall & Ilsley-Series D,
Medium Term Notes, 6.43%,
10/15/02 4,000,000 4,046,960
- ---------------------------------------------------------------
13,844,150
- ---------------------------------------------------------------
BANKS (REGIONAL)-1.59%
HSBC Americas Inc., Sub. Notes,
7.00%, 11/01/06 4,000,000 4,082,080
- ---------------------------------------------------------------
Mercantile Bancorp Inc.,
Sub. Notes, 6.375%, 01/15/04 700,000 697,914
- ---------------------------------------------------------------
Unsec. Sub. Notes, 7.30%,
06/15/07 3,000,000 3,158,790
- ---------------------------------------------------------------
Signet Banking Corp., Sub. Notes,
7.80%, 09/15/06 5,000,000 5,444,100
- ---------------------------------------------------------------
BANKS (REGIONAL)-(CONTINUED)
Swiss Bank Corp.-NY, Sub. Deb.,
7.375%, 07/15/15 $ 5,000,000 $ 5,340,400
- ---------------------------------------------------------------
18,723,284
- ---------------------------------------------------------------
BEVERAGES (NON-ALCOHOLIC)-0.29%
Coca-Cola Enterprises, Inc.,
Putable Notes, 7.24%,
06/20/20(a) 15,000,000 3,397,950
- ---------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO &
CABLE)-0.79%
Cablevision Systems Corp., Sr.
Notes, 7.875%, 12/15/07 4,200,000 4,310,250
- ---------------------------------------------------------------
Comcast Cable Communications,
Notes, 8.50%, 05/01/27 3,400,000 3,969,500
- ---------------------------------------------------------------
TCI Communications Inc., Sr.
Notes, 8.00%, 08/01/05 1,000,000 1,071,860
- ---------------------------------------------------------------
9,351,610
- ---------------------------------------------------------------
CHEMICALS-0.79%
Solutia Inc., Bonds, 6.72%,
10/15/37 4,150,000 4,222,750
- ---------------------------------------------------------------
Union Carbide Corp., Deb., 6.79%,
06/01/25 5,000,000 5,136,000
- ---------------------------------------------------------------
9,358,750
- ---------------------------------------------------------------
CHEMICALS (SPECIALTY)-0.43%
Millennium America Inc., Sr.
Unsec. Notes, 7.00%, 11/15/06 5,000,000 5,079,300
- ---------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-0.27%
Platinum Technology, Inc., Conv.
Sub. Notes, 6.25%, 12/15/02
(acquired 12/11/97; cost
$3,000,000)(b) 3,000,000 3,221,250
- ---------------------------------------------------------------
CONSUMER FINANCE-1.46%
Commercial Credit Co.,
Notes, 6.625%, 06/01/15 2,000,000 2,037,140
- ---------------------------------------------------------------
Putable Notes, 7.875%, 02/01/25 4,000,000 4,606,720
- ---------------------------------------------------------------
Countrywide Funding Corp., Sub.
Notes, 8.25%, 07/15/02 500,000 536,105
- ---------------------------------------------------------------
Ford Motor Credit Co.,
Notes, 6.125%, 01/09/06 1,500,000 1,472,910
- ---------------------------------------------------------------
Notes, 6.75%, 08/15/08 800,000 816,896
- ---------------------------------------------------------------
GMAC, Notes, 9.00%, 10/15/02 4,175,000 4,645,439
- ---------------------------------------------------------------
Household Finance Corp., Notes,
7.125%, 09/01/05 3,000,000 3,116,880
- ---------------------------------------------------------------
17,232,090
- ---------------------------------------------------------------
ELECTRIC COMPANIES-1.91%
CMS Energy Corp., Sr. Notes,
7.375%, 11/15/00 (acquired
11/04/97; cost $3,497,095)(b) 3,500,000 3,518,690
- ---------------------------------------------------------------
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
ELECTRIC COMPANIES-(CONTINUED)
El Paso Electric Co.,
Series D Sec. First Mortgage
Bonds, 8.90%, 02/01/06 $ 4,750,000 $ 5,258,962
- ---------------------------------------------------------------
Series E Sec. First Mortgage
Bonds, 9.40%, 05/01/11 4,000,000 4,523,200
- ---------------------------------------------------------------
UtiliCorp United, Inc., Sr.
Notes, 6.70%, 10/15/06 3,000,000 3,057,510
- ---------------------------------------------------------------
Western Resources Inc., Sr.
Notes, 7.125%, 08/01/09 6,000,000 6,179,040
- ---------------------------------------------------------------
22,537,402
- ---------------------------------------------------------------
ELECTRONICS (DEFENSE)-0.09%
Raytheon Co., Deb., 7.20%,
08/15/27 1,000,000 1,049,630
- ---------------------------------------------------------------
ENTERTAINMENT-1.26%
Time Warner, Inc.,
Notes, 8.18%, 08/15/07 925,000 1,015,853
- ---------------------------------------------------------------
Deb., 9.125%, 01/15/13 6,290,000 7,513,657
- ---------------------------------------------------------------
Unsec. Deb., 6.85%, 01/15/26 2,500,000 2,534,625
- ---------------------------------------------------------------
Viacom, Inc., Sr. Notes, 7.75%,
06/01/05 3,750,000 3,853,912
- ---------------------------------------------------------------
14,918,047
- ---------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-1.83%
Associates Corp. of North
America, Series B Sr. Deb.,
7.95%, 02/15/10 5,900,000 6,601,510
- ---------------------------------------------------------------
BellSouth Capital Funding, Deb.,
6.04%, 11/15/26 4,000,000 4,110,320
- ---------------------------------------------------------------
Chrysler Financial Corp., Deb.,
8.50%, 02/01/18 150,000 156,225
- ---------------------------------------------------------------
Finova Capital Corp., Unsec.
Notes, 7.40%, 05/06/06 3,750,000 3,952,463
- ---------------------------------------------------------------
General Electric Capital Corp.,
Deb., 8.30%, 09/20/09 500,000 579,100
- ---------------------------------------------------------------
US West Cap Funding Inc., Unsec.
Bonds, 6.95%, 01/15/37 6,000,000 6,203,220
- ---------------------------------------------------------------
21,602,838
- ---------------------------------------------------------------
FOODS-1.00%
ConAgra Inc., Sr. Unsec. Notes,
7.125%, 10/01/26 7,000,000 7,459,480
- ---------------------------------------------------------------
Grand Metro Investment, Gtd.
Bonds, 7.45%, 04/15/35 4,000,000 4,387,720
- ---------------------------------------------------------------
11,847,200
- ---------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER)-0.36%
Atrix Labs Inc., Conv. Sub.
Notes, 7.00%, 12/01/04
(acquired 11/21/97; cost
$2,000,000)(b) 2,000,000 1,910,000
- ---------------------------------------------------------------
Nexstar Pharmaceuticals, Conv.
Sub. Deb., 6.25%, 08/01/04
(acquired 07/28/97; cost
$2,500,000)(b) 2,500,000 2,375,000
- ---------------------------------------------------------------
4,285,000
- ---------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT)-0.32%
Tenet Healthcare Corp., Sr.
Notes, 8.00%, 01/15/05 $ 3,750,000 $ 3,825,000
- ---------------------------------------------------------------
HEALTH CARE (LONG TERM CARE)-0.97%
Alternative Living Services,
Conv. Sub. Deb., 5.25%,
12/15/02 5,000,000 5,762,500
- ---------------------------------------------------------------
Assisted Living Concepts, Inc.,
Conv. Sub. Deb., 6.00%,
11/01/02 3,000,000 3,067,500
- ---------------------------------------------------------------
Sunrise Assisted Living, Inc.,
Conv. Sub. Notes, 5.50%,
06/15/02 (acquired 06/03/97;
cost $2,000,000)(b) 2,000,000 2,582,500
- ---------------------------------------------------------------
11,412,500
- ---------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES)-0.50%
Omnicare, Inc., Sub. Deb., 5.00%,
12/01/07 (acquired 12/04/97;
cost $3,500,000)(b) 3,500,000 3,552,500
- ---------------------------------------------------------------
Res-Care Inc., Conv. Sub. Notes,
6.00%, 12/01/04 (acquired
11/18/97; cost $2,000,000)(b) 2,000,000 2,300,000
- ---------------------------------------------------------------
5,852,500
- ---------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-0.37%
Torchmark Corp., Notes, 7.875%,
05/15/23 4,000,000 4,309,360
- ---------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY)-0.66%
Florida Windstorm-MBIA, Sr.
Notes, 6.85%, 08/25/07
(acquired 09/05/07; cost
$7,500,000)(b) 7,500,000 7,743,750
- ---------------------------------------------------------------
INVESTMENT MANAGEMENT-0.27%
JPM Capital Trust II, Bonds,
7.95%, 02/01/27 3,000,000 3,199,170
- ---------------------------------------------------------------
LODGING-HOTELS-0.49%
Hilton Hotels Corp., Notes,
7.20%, 12/15/09 5,000,000 5,040,500
- ---------------------------------------------------------------
ITT Corp., Unsec. Gtd. Deb.,
7.375%, 11/15/15 750,000 770,663
- ---------------------------------------------------------------
5,811,163
- ---------------------------------------------------------------
NATURAL GAS-0.74%
Enron Corp.,
Notes, 6.75%, 08/01/09 6,000,000 6,072,420
- ---------------------------------------------------------------
Sr. Sub. Deb., 6.75%, 07/01/05 800,000 806,360
- ---------------------------------------------------------------
Ferrellgas Partners, Series B Sr.
Sec. Gtd. Notes, 9.375%,
06/15/06 1,000,000 1,065,000
- ---------------------------------------------------------------
PanEnergy Corp., Notes, 7.875%,
08/15/04 750,000 815,257
- ---------------------------------------------------------------
8,759,037
- ---------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT)-0.36%
Pride Petroleum Services, Inc.,
Conv. Sub. Deb., 6.25%,
02/15/06 2,000,000 4,232,060
- ---------------------------------------------------------------
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
OIL & GAS (EXPLORATION & PRODUCTION)-1.01%
Louis Dreyfus Natural Gas Corp.,
Notes, 6.875%, 12/01/07
(acquired 12/04/97; cost
$4,969,600)(b) $ 5,000,000 $ 4,987,550
- ---------------------------------------------------------------
Tennessee Gas Pipeline Co.,
Bonds, 7.00%, 03/15/27 4,000,000 4,217,600
- ---------------------------------------------------------------
Union Pacific Resources Group
Inc., Deb., 7.50%, 10/15/26 2,500,000 2,674,075
- ---------------------------------------------------------------
11,879,225
- ---------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT)-0.50%
AES Corp.,
Sr. Sub. Notes, 10.25%,
07/15/06 1,000,000 1,087,500
- ---------------------------------------------------------------
Sr. Sub. Notes, 8.375%,
08/15/07 3,000,000 3,007,500
- ---------------------------------------------------------------
Indiana Michigan Power, Sec.
Lease Obligation Bonds, 9.82%,
12/07/22 1,357,579 1,776,406
- ---------------------------------------------------------------
5,871,406
- ---------------------------------------------------------------
PUBLISHING (NEWSPAPERS)-0.98%
News America Holdings, Inc.,
Sr. Gtd. Deb., 9.25%, 02/01/13 4,900,000 5,829,579
- ---------------------------------------------------------------
Sr. Gtd. Putable Bonds, 7.43%,
10/01/26 5,450,000 5,713,071
- ---------------------------------------------------------------
11,542,650
- ---------------------------------------------------------------
RAILROADS-0.54%
Norfolk Southern Corp., Putable
Bonds, 7.05%, 05/01/37 3,000,000 3,180,030
- ---------------------------------------------------------------
Union Pacific Corp., Notes,
7.25%, 11/01/08 3,000,000 3,145,590
- ---------------------------------------------------------------
6,325,620
- ---------------------------------------------------------------
RETAIL (DEPARTMENT STORES)-0.17%
J.C. Penney Co., Inc., Notes,
6.50%, 06/15/02 2,015,000 2,030,777
- ---------------------------------------------------------------
SAVINGS & LOAN COMPANIES-0.30%
Sovereign Bancorp, Inc., Sub.
Notes, 8.00%, 03/15/03 3,325,000 3,503,619
- ---------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-0.22%
Atria Communities Inc., Conv.
Sub. Notes, 5.00%, 10/15/02
(acquired 10/10/97; cost
$2,500,000)(b) 2,500,000 2,565,625
- ---------------------------------------------------------------
SERVICES (EMPLOYMENT)-0.26%
Personnel Group of America, Inc.,
Conv. Sub. Notes, 5.75%,
07/01/04 (acquired 06/17/97;
cost $2,750,000)(b) 2,750,000 3,028,300
- ---------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-0.36%
360 Communications Co.,
Sr. Notes, 7.60%, 04/01/09 2,000,000 2,116,200
- ---------------------------------------------------------------
Sr. Unsec. Notes, 7.50%,
03/01/06 2,000,000 2,096,820
- ---------------------------------------------------------------
4,213,020
- ---------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-0.27%
MCI Communications Corp., Putable
Deb., 7.125%, 06/15/27 $ 3,000,000 $ 3,139,620
- ---------------------------------------------------------------
WASTE MANAGEMENT-0.31%
WMX Technologies, Inc., Unsec.
Notes, 7.10%, 08/01/26 3,500,000 3,622,395
- ---------------------------------------------------------------
Total Domestic Bonds & Notes 302,891,949
- ---------------------------------------------------------------
DOMESTIC COMMON STOCKS-50.19%
AIR FREIGHT-0.15%
AirNet Systems, Inc.(c) 80,100 $ 1,722,150
- ---------------------------------------------------------------
BANKS (MAJOR REGIONAL)-0.23%
NationsBank Corp. 45,000 2,736,563
- ---------------------------------------------------------------
BANKS (MONEY CENTER)-0.92%
BankAmerica Corp. 30,000 2,190,000
- ---------------------------------------------------------------
Chase Manhattan Corp. 45,000 4,927,500
- ---------------------------------------------------------------
Citicorp 30,000 3,793,125
- ---------------------------------------------------------------
10,910,625
- ---------------------------------------------------------------
BANKS (REGIONAL)-0.72%
Citizens National Bank of Texas 125,500 1,568,750
- ---------------------------------------------------------------
Southwest Bancorp of Texas,
Inc.(c) 80,300 2,499,338
- ---------------------------------------------------------------
TCF Financial Corp. 130,000 4,411,875
- ---------------------------------------------------------------
8,479,963
- ---------------------------------------------------------------
BEVERAGES (NON-ALCOHOLIC)-0.17%
PepsiCo, Inc. 56,000 2,040,500
- ---------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE)-1.14%
CBS Corp. 175,000 5,151,562
- ---------------------------------------------------------------
Heftel Broadcasting Corp.(c) 80,000 3,740,000
- ---------------------------------------------------------------
Univision Communications Inc.(c) 65,000 4,537,813
- ---------------------------------------------------------------
13,429,375
- ---------------------------------------------------------------
BUILDING MATERIALS-0.35%
Group Maintenance America
Corp.(c) 200,000 3,362,500
- ---------------------------------------------------------------
White Cap Industries, Inc.(c) 43,700 813,913
- ---------------------------------------------------------------
4,176,413
- ---------------------------------------------------------------
CHEMICALS-0.26%
IMC Global, Inc. 95,000 3,111,250
- ---------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-2.21%
ADC Telecommunications, Inc.(c) 105,000 4,383,750
- ---------------------------------------------------------------
Brightpoint, Inc.(c) 90,000 1,248,750
- ---------------------------------------------------------------
Comverse Technology, Inc.(c) 60,000 2,340,000
- ---------------------------------------------------------------
Corsair Communications, Inc.(c) 26,800 435,500
- ---------------------------------------------------------------
Excel Switching Corp.(c) 20,900 373,588
- ---------------------------------------------------------------
Lucent Technologies, Inc. 43,200 3,450,600
- ---------------------------------------------------------------
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMUNICATIONS EQUIPMENT-(CONTINUED)
Motorola, Inc. 50,000 $ 2,853,125
- ---------------------------------------------------------------
NEXTLINK Communications,
Inc.-Class A(c) 64,900 1,383,181
- ---------------------------------------------------------------
Qwest Communications
International Inc.(c) 116,200 6,913,900
- ---------------------------------------------------------------
Tellabs, Inc.(c) 50,000 2,643,750
- ---------------------------------------------------------------
26,026,144
- ---------------------------------------------------------------
COMPUTERS (HARDWARE)-1.18%
Compaq Computer Corp. 85,000 4,797,187
- ---------------------------------------------------------------
Dell Computer Corp.(c) 40,000 3,360,000
- ---------------------------------------------------------------
International Business Machines
Corp. 37,000 3,868,813
- ---------------------------------------------------------------
Sun Microsystems, Inc.(c) 46,000 1,834,250
- ---------------------------------------------------------------
13,860,250
- ---------------------------------------------------------------
COMPUTERS (NETWORKING)-0.35%
Cisco Systems, Inc.(c)(d) 75,000 4,181,250
- ---------------------------------------------------------------
COMPUTERS (PERIPHERALS)-0.40%
Adaptec, Inc.(c) 41,000 1,522,125
- ---------------------------------------------------------------
EMC Corp.(c) 120,000 3,292,500
- ---------------------------------------------------------------
4,814,625
- ---------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-2.15%
America Online, Inc.(c)(d) 58,000 5,172,875
- ---------------------------------------------------------------
Computer Associates
International, Inc. 49,500 2,617,313
- ---------------------------------------------------------------
HBO & Co. 100,000 4,800,000
- ---------------------------------------------------------------
J.D. Edwards & Co.(c) 52,900 1,560,550
- ---------------------------------------------------------------
Microsoft Corp.(c) 20,000 2,585,000
- ---------------------------------------------------------------
Midway Games Inc.(c) 71,900 1,307,681
- ---------------------------------------------------------------
Sterling Commerce, Inc.(c) 35,000 1,345,313
- ---------------------------------------------------------------
USWeb Corp.(c) 250,000 2,343,750
- ---------------------------------------------------------------
Veritas Software Corp.(c) 50,000 2,550,000
- ---------------------------------------------------------------
Vestcom International, Inc.(c) 50,000 1,118,750
- ---------------------------------------------------------------
25,401,232
- ---------------------------------------------------------------
CONSUMER (JEWELRY, NOVELTIES & GIFTS)-0.13%
Blyth Industries, Inc.(c) 52,500 1,571,719
- ---------------------------------------------------------------
CONSUMER FINANCE-0.79%
First Alliance Corp.(c) 90,000 1,653,750
- ---------------------------------------------------------------
Green Tree Financial Corp. 65,000 1,702,188
- ---------------------------------------------------------------
MBNA Corp. 71,250 1,946,016
- ---------------------------------------------------------------
SLM Holding Corp. 29,000 4,034,625
- ---------------------------------------------------------------
9,336,579
- ---------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH)-0.45%
Cardinal Health, Inc. 40,000 3,005,000
- ---------------------------------------------------------------
Fine Host Corp.(c) 75,000 759,375
- ---------------------------------------------------------------
Weider Nutrition International,
Inc. 128,000 1,592,000
- ---------------------------------------------------------------
5,356,375
- ---------------------------------------------------------------
ELECTRICAL EQUIPMENT-0.40%
General Electric Co. 29,710 $ 2,179,971
- ---------------------------------------------------------------
SCI Systems, Inc.(c) 58,000 2,526,625
- ---------------------------------------------------------------
4,706,596
- ---------------------------------------------------------------
ELECTRONICS (COMPONENT DISTRIBUTORS)-0.27%
Kent Electronics Corp.(c) 55,000 1,381,875
- ---------------------------------------------------------------
OSI Systems, Inc.(c) 150,000 1,837,500
- ---------------------------------------------------------------
3,219,375
- ---------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS)-0.70%
Analog Devices, Inc.(c) 70,000 1,938,125
- ---------------------------------------------------------------
General Scanning, Inc.(c) 120,000 2,070,000
- ---------------------------------------------------------------
Intel Corp. 60,000 4,215,000
- ---------------------------------------------------------------
8,223,125
- ---------------------------------------------------------------
EQUIPMENT (SEMICONDUCTORS)-0.20%
Applied Materials, Inc.(c) 80,000 2,410,000
- ---------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-1.95%
American Express Co. 35,000 3,123,750
- ---------------------------------------------------------------
CIT Group, Inc. (The)(c) 93,700 3,021,825
- ---------------------------------------------------------------
Fannie Mae 55,000 3,138,438
- ---------------------------------------------------------------
Finova Group, Inc. 50,000 2,484,375
- ---------------------------------------------------------------
Franchise Mortgage Acceptance Co.
LLC(c) 155,000 2,848,125
- ---------------------------------------------------------------
Freddie Mac 68,000 2,851,750
- ---------------------------------------------------------------
Medallion Financial Corp. 67,900 1,493,800
- ---------------------------------------------------------------
MGIC Investment Corp. 60,000 3,990,000
- ---------------------------------------------------------------
22,952,063
- ---------------------------------------------------------------
FOODS-0.41%
American Italian Pasta Co.-Class
A(c) 57,600 1,440,000
- ---------------------------------------------------------------
Ralston-Ralston Purina Group 36,000 3,345,750
- ---------------------------------------------------------------
4,785,750
- ---------------------------------------------------------------
HEALTH CARE (DIVERSIFIED)-1.58%
Abbott Laboratories 32,500 2,130,781
- ---------------------------------------------------------------
American Home Products Corp. 53,000 4,054,500
- ---------------------------------------------------------------
Bristol-Myers Squibb Co. 56,000 5,299,000
- ---------------------------------------------------------------
Johnson & Johnson 43,000 2,832,625
- ---------------------------------------------------------------
Warner-Lambert Co. 35,000 4,340,000
- ---------------------------------------------------------------
18,656,906
- ---------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER)-0.80%
Dura Pharmaceuticals, Inc.(c) 100,000 4,587,500
- ---------------------------------------------------------------
Forest Laboratories, Inc.(c) 50,000 2,465,625
- ---------------------------------------------------------------
Spiros Development Corp. II(c) 137,000 2,346,125
- ---------------------------------------------------------------
9,399,250
- ---------------------------------------------------------------
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS)-1.59%
Lilly (Eli) & Co. 90,000 6,266,250
- ---------------------------------------------------------------
</TABLE>
9
<PAGE> 12
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS)-(CONTINUED)
Merck & Co., Inc. 43,000 $ 4,568,750
- ---------------------------------------------------------------
Pfizer Inc. 60,000 4,473,750
- ---------------------------------------------------------------
Schering-Plough Corp. 56,000 3,479,000
- ---------------------------------------------------------------
18,787,750
- ---------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT)-0.18%
Tenet Healthcare Corp.(c) 65,000 2,153,125
- ---------------------------------------------------------------
HEALTH CARE (LONG TERM CARE)-0.40%
Sunrise Assisted Living, Inc.(c) 110,000 4,743,750
- ---------------------------------------------------------------
HEALTH CARE (MANAGED CARE)-0.18%
United Healthcare Corp. 43,000 2,136,562
- ---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-1.67%
Arterial Vascular Engineering,
Inc.(c) 60,000 3,900,000
- ---------------------------------------------------------------
Baxter International Inc. 41,500 2,093,156
- ---------------------------------------------------------------
Becton, Dickinson & Co. 30,000 1,500,000
- ---------------------------------------------------------------
Boston Scientific Corp.(c) 40,000 1,835,000
- ---------------------------------------------------------------
Guidant Corp. 40,000 2,490,000
- ---------------------------------------------------------------
Medtronic, Inc. 110,000 5,754,375
- ---------------------------------------------------------------
Quintiles Transnational Corp.(c) 56,000 2,142,000
- ---------------------------------------------------------------
19,714,531
- ---------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES)-0.44%
AmeriPath, Inc.(c) 68,400 1,162,800
- ---------------------------------------------------------------
Boron, LePore & Associates,
Inc.(c) 18,300 503,250
- ---------------------------------------------------------------
MAXIMUS, Inc.(c) 90,000 2,176,875
- ---------------------------------------------------------------
Omnicare, Inc. 43,000 1,333,000
- ---------------------------------------------------------------
5,175,925
- ---------------------------------------------------------------
HOUSEHOLD FURNITURE & APPLIANCES-0.36%
Ethan Allen Interiors, Inc. 110,000 4,241,875
- ---------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES)-0.59%
Colgate-Palmolive Co. 30,000 2,205,000
- ---------------------------------------------------------------
Kimberly-Clark Corp. 55,000 2,712,187
- ---------------------------------------------------------------
Procter & Gamble Co. 25,000 1,995,312
- ---------------------------------------------------------------
6,912,499
- ---------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-1.67%
AmerUs Life Holdings, Inc.-Class A 66,700 2,459,563
- ---------------------------------------------------------------
Equitable Companies, Inc. 85,000 4,228,750
- ---------------------------------------------------------------
Hartford Life, Inc.-Class A 80,000 3,625,000
- ---------------------------------------------------------------
Nationwide Financial Services,
Inc.-Class A 140,000 5,057,500
- ---------------------------------------------------------------
PAULA Financial(c) 36,300 834,900
- ---------------------------------------------------------------
ReliaStar Financial Corp. 85,000 3,500,937
- ---------------------------------------------------------------
19,706,650
- ---------------------------------------------------------------
INSURANCE (MULTI-LINE)-0.55%
CIGNA Corp. 18,000 $ 3,115,125
- ---------------------------------------------------------------
Travelers Group, Inc. 61,999 3,340,196
- ---------------------------------------------------------------
6,455,321
- ---------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY)-0.73%
Chubb Corp. 32,000 2,420,000
- ---------------------------------------------------------------
Everest Reinsurance Holdings,
Inc. 92,000 3,795,000
- ---------------------------------------------------------------
Travelers Property Casualty
Corp.-Class A 55,000 2,420,000
- ---------------------------------------------------------------
8,635,000
- ---------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE-0.25%
Merrill Lynch & Co., Inc. 40,000 2,917,500
- ---------------------------------------------------------------
INVESTMENT MANAGEMENT-0.04%
Conning Corp.(c) 27,200 455,600
- ---------------------------------------------------------------
INVESTMENTS-0.15%
Security Capital Group Inc.-Class
B(c) 55,700 1,810,250
- ---------------------------------------------------------------
LAND DEVELOPMENT-0.56%
Parkway Properties, Inc. 60,000 2,058,750
- ---------------------------------------------------------------
Silverleaf Resorts, Inc.(c) 65,800 1,612,100
- ---------------------------------------------------------------
Trendwest Resorts, Inc.(c) 130,000 2,973,750
- ---------------------------------------------------------------
6,644,600
- ---------------------------------------------------------------
LEISURE TIME (PRODUCTS)-0.63%
Coach USA, Inc.(c) 120,000 4,020,000
- ---------------------------------------------------------------
Florida Panthers Holdings,
Inc.(c) 100,000 1,725,000
- ---------------------------------------------------------------
Steinway Musical Instruments(c) 75,000 1,734,375
- ---------------------------------------------------------------
7,479,375
- ---------------------------------------------------------------
LODGING-HOTELS-0.18%
Marriott International, Inc. 30,000 2,077,500
- ---------------------------------------------------------------
MACHINERY (DIVERSIFIED)-0.53%
Case Corp. 26,000 1,571,375
- ---------------------------------------------------------------
Caterpillar Inc. 55,000 2,670,937
- ---------------------------------------------------------------
Deere & Co. 34,000 1,982,625
- ---------------------------------------------------------------
6,224,937
- ---------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-0.54%
Diebold, Inc. 30,000 1,518,750
- ---------------------------------------------------------------
Superior TeleCom Inc.(c) 76,000 2,626,750
- ---------------------------------------------------------------
US Filter Corp.(c) 75,000 2,245,313
- ---------------------------------------------------------------
6,390,813
- ---------------------------------------------------------------
METAL FABRICATORS-0.30%
Metals USA(c) 229,000 3,492,250
- ---------------------------------------------------------------
NATURAL GAS-1.93%
Coastal Corp. 42,000 2,601,375
- ---------------------------------------------------------------
Columbia Gas System, Inc. 25,000 1,964,062
- ---------------------------------------------------------------
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
NATURAL GAS-(CONTINUED)
Consolidated Natural Gas Co. 25,000 $ 1,512,500
- ---------------------------------------------------------------
El Paso Natural Gas Co. 37,000 2,460,500
- ---------------------------------------------------------------
Energen Corp. 68,900 2,738,775
- ---------------------------------------------------------------
KN Energy, Inc. 48,000 2,592,000
- ---------------------------------------------------------------
MCN Corp. 45,000 1,816,875
- ---------------------------------------------------------------
Sonat, Inc. 72,000 3,294,000
- ---------------------------------------------------------------
Williams Companies, Inc. (The) 132,000 3,745,500
- ---------------------------------------------------------------
22,725,587
- ---------------------------------------------------------------
OIL (INTERNATIONAL INTEGRATED)-0.35%
Exxon Corp. 35,000 2,141,562
- ---------------------------------------------------------------
Mobil Corp. 27,000 1,949,062
- ---------------------------------------------------------------
4,090,624
- ---------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT)-2.63%
Bayard Drilling Technologies,
Inc.(c) 69,600 1,131,000
- ---------------------------------------------------------------
Cooper Cameron Corp.(c) 48,000 2,928,000
- ---------------------------------------------------------------
Diamond Offshore Drilling, Inc. 60,000 2,887,500
- ---------------------------------------------------------------
EVI, Inc.(c) 45,000 2,328,750
- ---------------------------------------------------------------
Halliburton Co. 60,000 3,116,250
- ---------------------------------------------------------------
Hanover Compressor Co.(c) 105,000 2,145,938
- ---------------------------------------------------------------
Nabors Industries, Inc.(c) 102,000 3,206,625
- ---------------------------------------------------------------
Newpark Resources, Inc.(c) 187,000 3,272,500
- ---------------------------------------------------------------
Patterson Energy, Inc.(c) 97,800 3,783,637
- ---------------------------------------------------------------
Pride International, Inc.(c) 50,000 1,262,500
- ---------------------------------------------------------------
Santa Fe International Corp. 25,100 1,021,256
- ---------------------------------------------------------------
SEACOR Holdings Inc.(c) 28,000 1,687,000
- ---------------------------------------------------------------
Willbros Group, Inc.(c) 150,000 2,250,000
- ---------------------------------------------------------------
31,020,956
- ---------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-0.74%
Burlington Resources, Inc. 45,750 2,050,172
- ---------------------------------------------------------------
Carrizo Oil & Gas, Inc.(c) 115,000 905,625
- ---------------------------------------------------------------
Nuevo Energy Co.(c) 60,000 2,445,000
- ---------------------------------------------------------------
Swift Energy Co.(c) 44,000 926,750
- ---------------------------------------------------------------
Vintage Petroleum, Inc. 124,000 2,356,000
- ---------------------------------------------------------------
8,683,547
- ---------------------------------------------------------------
OIL & GAS (REFINING & MARKETING)-0.13%
Tosco Corp. 40,000 1,512,500
- ---------------------------------------------------------------
PERSONAL CARE-0.86%
Avon Products, Inc. 54,000 3,314,250
- ---------------------------------------------------------------
Estee Lauder Cos.-Class A 25,000 1,285,938
- ---------------------------------------------------------------
Gillette Co. 55,000 5,524,063
- ---------------------------------------------------------------
10,124,251
- ---------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT)-0.50%
AES Corp.(c) 46,000 $ 2,144,750
- ---------------------------------------------------------------
Calenergy, Inc.(c) 130,000 3,737,500
- ---------------------------------------------------------------
5,882,250
- ---------------------------------------------------------------
PUBLISHING-0.27%
Meredith Corp. 50,000 1,784,375
- ---------------------------------------------------------------
Petersen Companies, Inc.
(The)-Class A(c) 58,900 1,354,700
- ---------------------------------------------------------------
3,139,075
- ---------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST-3.13%
Alexandria Real Estate Equities,
Inc. 90,800 2,865,875
- ---------------------------------------------------------------
Bay Apartment Communities, Inc. 40,000 1,560,000
- ---------------------------------------------------------------
Boston Properties, Inc. 115,000 3,802,187
- ---------------------------------------------------------------
Cali Realty Corp. 80,000 3,280,000
- ---------------------------------------------------------------
Captec Net Lease Realty, Inc.(c) 90,000 1,546,875
- ---------------------------------------------------------------
CCA Prison Realty Trust 136,200 6,077,925
- ---------------------------------------------------------------
Crescent Real Estate Equities,
Co. 40,000 1,575,000
- ---------------------------------------------------------------
Entertainment Properties Trust 166,700 3,229,812
- ---------------------------------------------------------------
Golf Trust of America, Inc. 37,700 1,093,300
- ---------------------------------------------------------------
Imperial Credit Commercial
Mortgage Investment Corp. 131,100 1,917,338
- ---------------------------------------------------------------
Mid-Atlantic Realty Trust 175,900 2,583,531
- ---------------------------------------------------------------
Patriot American Hospitality,
Inc. 120,000 3,457,500
- ---------------------------------------------------------------
Starwood Lodging 67,000 3,877,625
- ---------------------------------------------------------------
36,866,968
- ---------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS)-0.32%
CompUSA, Inc.(c) 85,000 2,635,000
- ---------------------------------------------------------------
Ingram Micro, Inc.-Class A(c) 40,000 1,165,000
- ---------------------------------------------------------------
3,800,000
- ---------------------------------------------------------------
RETAIL (DISCOUNTERS)-0.19%
Ross Stores, Inc. 60,000 2,182,500
- ---------------------------------------------------------------
RETAIL (FOOD CHAINS)-0.60%
American Stores Co. 100,000 2,056,250
- ---------------------------------------------------------------
Safeway, Inc.(c) 80,000 5,060,000
- ---------------------------------------------------------------
7,116,250
- ---------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE)-0.31%
Dayton-Hudson Corp. 55,000 3,712,500
- ---------------------------------------------------------------
RETAIL (SPECIALTY)-1.13%
Audio Book Club, Inc.(c) 185,000 901,875
- ---------------------------------------------------------------
Inacom Corp.(c) 75,000 2,104,688
- ---------------------------------------------------------------
Linens 'N Things, Inc.(c) 70,000 3,053,750
- ---------------------------------------------------------------
Polo Ralph Lauren Corp.(c) 120,000 2,917,500
- ---------------------------------------------------------------
Toys "R" Us, Inc.(c) 75,000 2,357,812
- ---------------------------------------------------------------
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (SPECIALTY)-(CONTINUED)
U.S. Office Products Co.(c) 102,000 $ 2,001,750
- ---------------------------------------------------------------
13,337,375
- ---------------------------------------------------------------
SAVINGS & LOAN COMPANIES-0.43%
Washington Mutual, Inc. 80,000 5,105,000
- ---------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING)-0.59%
Abacus Direct Corp.(c) 42,400 1,738,400
- ---------------------------------------------------------------
JLK Direct Distribution
Inc.-Class A(c) 25,800 722,400
- ---------------------------------------------------------------
Outdoor Systems, Inc.(c) 116,100 4,455,337
- ---------------------------------------------------------------
6,916,137
- ---------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-2.10%
American Residential Services,
Inc.(c) 130,000 2,031,250
- ---------------------------------------------------------------
Avis Rent A Car, Inc.(c) 118,300 3,778,206
- ---------------------------------------------------------------
Cendant Corp.(c) 148,992 5,121,607
- ---------------------------------------------------------------
Comfort Systems USA, Inc.(c) 149,200 2,946,700
- ---------------------------------------------------------------
Hertz Corp.-Class A 50,500 2,032,625
- ---------------------------------------------------------------
INSpire Insurance Solutions,
Inc.(c) 85,000 1,774,375
- ---------------------------------------------------------------
Metzler Group, Inc.(c) 55,000 2,206,875
- ---------------------------------------------------------------
Pegasus Systems, Inc.(c) 45,600 678,300
- ---------------------------------------------------------------
Service Corp. International 33,222 1,227,138
- ---------------------------------------------------------------
Trammell Crow Co.(c) 35,400 911,550
- ---------------------------------------------------------------
U.S. Rentals, Inc.(c) 87,700 2,060,950
- ---------------------------------------------------------------
24,769,576
- ---------------------------------------------------------------
SERVICES (DATA PROCESSING)-0.61%
DST Systems, Inc.(c) 65,000 2,774,687
- ---------------------------------------------------------------
Equifax, Inc. 52,000 1,842,750
- ---------------------------------------------------------------
Learning Tree International,
Inc.(c) 90,000 2,598,750
- ---------------------------------------------------------------
7,216,187
- ---------------------------------------------------------------
SERVICES (EMPLOYMENT)-0.56%
AccuStaff, Inc.(c) 120,000 2,760,000
- ---------------------------------------------------------------
Administaff, Inc.(c) 63,000 1,630,125
- ---------------------------------------------------------------
Hall, Kinion & Associates,
Inc.(c) 100,000 2,187,500
- ---------------------------------------------------------------
6,577,625
- ---------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-0.06%
LCC International, Inc.-Class
A(c) 45,000 652,500
- ---------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-0.84%
IXC Communications, Inc.(c) 110,000 3,451,250
- ---------------------------------------------------------------
Tel-Save Holdings, Inc.(c) 125,000 2,484,375
- ---------------------------------------------------------------
WinStar Communications, Inc.(c) 160,000 3,990,000
- ---------------------------------------------------------------
9,925,625
- ---------------------------------------------------------------
TELEPHONE-0.98%
Cincinnati Bell, Inc. 82,000 2,542,000
- ---------------------------------------------------------------
TELEPHONE-(CONTINUED)
Electric Lightwave, Inc.-Class
A(c) 250,000 $ 3,718,750
- ---------------------------------------------------------------
McLeodUSA Inc.-Class A(c) 45,000 1,440,000
- ---------------------------------------------------------------
Teleport Communications Group
Inc.-Class A(c) 70,000 3,841,250
- ---------------------------------------------------------------
11,542,000
- ---------------------------------------------------------------
TEXTILES (APPAREL)-0.10%
Liz Claiborne, Inc. 27,000 1,128,938
- ---------------------------------------------------------------
TOBACCO-0.42%
Philip Morris Companies, Inc. 110,000 4,984,375
- ---------------------------------------------------------------
TRUCKERS-0.28%
C.H. Robinson Worldwide, Inc. 105,900 2,369,512
- ---------------------------------------------------------------
Jevic Transportation, Inc.(c) 56,700 914,288
- ---------------------------------------------------------------
3,283,800
- ---------------------------------------------------------------
WASTE MANAGEMENT-0.68%
Denali Inc.(c) 150,000 1,987,500
- ---------------------------------------------------------------
Thermo Instrument Systems,
Inc.(c) 62,500 2,152,344
- ---------------------------------------------------------------
USA Waste Services, Inc.(c) 55,000 2,158,750
- ---------------------------------------------------------------
Waterlink, Inc.(c) 107,200 1,768,800
- ---------------------------------------------------------------
8,067,394
- ---------------------------------------------------------------
Total Domestic Common Stocks 592,027,431
- ---------------------------------------------------------------
DOMESTIC CONVERTIBLE PREFERRED STOCKS-3.24%
AIR FREIGHT-0.22%
CNF Trust I-$2.50 Conv. Pfd. 45,000 2,632,500
- ---------------------------------------------------------------
BANKS (REGIONAL)-0.27%
WBK Trust-$3.135 Conv. Pfd. 95,000 3,182,500
- ---------------------------------------------------------------
CONSUMER FINANCE-0.19%
Money Store, Inc. (The)-$1.72
Conv. Pfd. 100,000 2,206,250
- ---------------------------------------------------------------
ENTERTAINMENT-0.07%
Time Warner Inc.-Series M,
$102.50 PIK Conv. Pfd. 712 801,907
- ---------------------------------------------------------------
HEALTH CARE (MANAGED CARE)-0.30%
Medpartners Inc.-$1.442 Conv.
Pfd. TAPS 158,000 3,476,000
- ---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-0.14%
McKesson Corp.-$2.50 Conv. Pfd.
(acquired 02/13/97; cost
$1,105,000)(b) 22,100 1,675,047
- ---------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-0.38%
Conseco Inc.-$4.279 Conv. PRIDES 14,000 2,184,000
- ---------------------------------------------------------------
Penncorp Financial Group,
Inc.-$3.50 Conv. Pfd. (acquired
08/02/96-11/15/96; cost
$2,072,500)(b) 40,000 2,326,600
- ---------------------------------------------------------------
4,510,600
- ---------------------------------------------------------------
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
INSURANCE (MULTI-LINE)-0.16%
American Bankers Insurance
Group-$3.125 Conv. Pfd. 20,000 $ 1,873,750
- ---------------------------------------------------------------
INSURANCE BROKERS-0.25%
Frontier Financing Trust-$3.125
Conv. Pfd. (acquired 10/09/96;
cost $2,500,000)(b) 50,000 2,918,750
- ---------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE-0.07%
Salomon Inc.-$3.484 Conv. Pfd. 14,600 865,050
- ---------------------------------------------------------------
LODGING-HOTELS-0.31%
Host Marriott Corp.-$3.375 Conv.
Pfd. 30,000 1,843,140
- ---------------------------------------------------------------
Royal Caribbean Cruises
Ltd.-$3.63 Conv. Pfd. 20,750 1,765,047
- ---------------------------------------------------------------
3,608,187
- ---------------------------------------------------------------
NATURAL GAS-0.13%
MCN Corp.-$2.013 Conv. PRIDES 46,000 1,575,500
- ---------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT)-0.43%
AES Trust I-$2.69 Conv. Pfd. 70,500 5,058,375
- ---------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-0.32%
WorldCom, Inc.-$2.68 Conv. Dep.
Pfd. 36,000 3,780,000
- ---------------------------------------------------------------
Total Domestic Convertible Preferred
Stocks 38,164,416
- ---------------------------------------------------------------
U.S. DOLLAR DENOMINATED FOREIGN
BONDS & NOTES-4.76%
CANADA-2.67%
Bell Canada
(Telecommunications-Long
Distance), Deb., 9.50%,
10/15/10 $ 1,750,000 $ 2,204,107
- ---------------------------------------------------------------
Great Atlantic & Pacific Tea Co.,
Inc. (Retail-Food Chains),
Yankee Gtd. Notes, 7.78%,
11/01/00 (acquired 10/18/95;
cost $500,000)(b) 500,000 516,453
- ---------------------------------------------------------------
Gulf Canada Resources, Ltd.
(Oil-International Integrated),
Sr. Yankee Unsec. Notes, 8.35%,
08/01/06 4,500,000 4,904,190
- ---------------------------------------------------------------
Husky Oil Ltd. (Oil-International
Integrated), Sr. Yankee Notes,
7.125%, 11/15/06 6,300,000 6,472,746
- ---------------------------------------------------------------
Laidlaw Inc. (Services-Commercial
& Consumer),
Deb., 6.65%, 10/01/04 4,000,000 4,028,360
- ---------------------------------------------------------------
Deb, 6.72%, 10/01/27 3,000,000 3,047,550
- ---------------------------------------------------------------
Nova Chemicals Ltd. (Chemicals),
Yankee Deb., 7.00%, 08/15/26 4,000,000 4,111,600
- ---------------------------------------------------------------
Province of Manitoba (Sovereign
Debt), Yankee Bonds, 7.75%,
07/17/16 1,500,000 1,717,050
- ---------------------------------------------------------------
Royal Bank of Canada (Banks-Major
Regional), Yankee Sub. Notes,
6.75%, 10/24/11 3,000,000 2,994,810
- ---------------------------------------------------------------
CANADA-(CONTINUED)
Talisman Energy (Oil &
Gas-Exploration & Production),
Yankee Deb., 7.125%, 06/01/07 $ 1,500,000 $ 1,549,140
- ---------------------------------------------------------------
31,546,006
- ---------------------------------------------------------------
CAYMAN ISLANDS-0.48%
Hutchison Whampoa Ltd.
(Shipping), Series D Sr. Gtd.
Unsec. Unsub. Deb., 6.988%,
08/01/37 (acquired 10/02/97;
cost $6,027,460)(b) 6,000,000 5,606,640
- ---------------------------------------------------------------
GERMANY-0.60%
Deutsche Bank Finance BV
(Financial-Diversified), Conv.
Gtd. Bonds, 3.80%, 02/12/17
(acquired 01/16/97; cost
$1,642,600)(a)(b) 4,000,000 1,790,000
- ---------------------------------------------------------------
Dresdner Bank A.G. (Banks-Major
Regional), Sub. Bonds, 6.00%,
11/03/08 4,000,000 3,840,000
- ---------------------------------------------------------------
Tarkett International (Household
Furniture & Appliances), Yankee
Sr. Sub. Notes, 9.00%, 03/01/02 1,500,000 1,477,500
- ---------------------------------------------------------------
7,107,500
- ---------------------------------------------------------------
NORWAY-0.22%
Petroleum Geo-Services A.S.A.
(Oil & Gas-Services), Yankee
Notes, 7.50%, 03/31/07 2,500,000 2,633,550
- ---------------------------------------------------------------
UNITED KINGDOM-0.79%
Royal Bank of Scotland PLC
(Banks-Major Regional), Yankee
Sub. Notes, 6.375%, 02/01/11 1,500,000 1,452,165
- ---------------------------------------------------------------
Terra Nova (U.K.) Holdings, Co.
(Insurance-Property), Gtd. Sr.
Secured Notes, 7.20%, 08/15/07 3,000,000 3,102,600
- ---------------------------------------------------------------
Videotron Holdings PLC
(Broadcasting-Television,
Radio, & Cable), Sr. Discount
Notes, 11.125%, 07/01/04(e) 5,000,000 4,725,000
- ---------------------------------------------------------------
9,279,765
- ---------------------------------------------------------------
Total U.S. Dollar Denominated
Foreign Bonds & Notes 56,173,461
- ---------------------------------------------------------------
NON-U.S. DOLLAR DENOMINATED FOREIGN
BONDS & NOTES-2.97%(f)
AUSTRALIA-0.53%
Australian Government (Sovereign
Debt), Bonds, 10.00%,
10/15/07 AUD 5,000,000 4,197,433
- ---------------------------------------------------------------
Queensland Treasury Corp.
(Sovereign Debt), Gtd. Bonds,
6.50%, 06/14/05 3,000,000 2,000,299
- ---------------------------------------------------------------
6,197,732
- ---------------------------------------------------------------
CANADA-1.13%
Bank of Montreal (Banks-Money
Center), Sub. Deb., 7.92%,
07/31/12 CAD 1,850,000 1,458,937
- ---------------------------------------------------------------
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
CANADA-(CONTINUED)
Bell Mobility Cellular Inc.
(Telecommunications-Cellular/Wireless),
Deb., 6.55%, 06/02/08 CAD 2,500,000 $ 1,761,065
- ---------------------------------------------------------------
Canadian Oil Debco Inc. (Oil &
Gas-Exploration & Production),
Deb., 11.00%, 10/31/00 1,500,000 1,176,551
- ---------------------------------------------------------------
NAV Canada (Services-Commercial &
Consumer), Bonds, 7.40%,
06/01/27 3,500,000 2,795,249
- ---------------------------------------------------------------
Province of Ontario (Sovereign
Debt), Sr. Unsec. Unsub. Global
Bonds, 8.00%, 03/11/03 2,300,000 1,783,331
- ---------------------------------------------------------------
Telegobe Canada, Inc.
(Telephone), Unsec. Deb.,
8.35%, 06/20/03 1,000,000 776,572
- ---------------------------------------------------------------
Trans-Canada Pipelines (Natural
Gas), Series Q Deb., 10.625%,
10/20/09 1,500,000 1,427,858
- ---------------------------------------------------------------
Westcoast Energy, Inc. (Oil &
Gas-Exploration & Production),
Deb., 6.45%, 12/18/06 3,000,000 2,152,619
- ---------------------------------------------------------------
13,332,182
- ---------------------------------------------------------------
NEW ZEALAND-0.47%
Fannie Mae
(Financial-Diversified), Notes,
7.25%, 06/20/02 NZD 9,850,000 5,595,978
- ---------------------------------------------------------------
UNITED KINGDOM-0.84%
Fannie Mae
(Financial-Diversified), Sr.
Unsec. Notes, 6.875%,
06/07/02 GBP 2,800,000 4,612,605
- ---------------------------------------------------------------
Sutton Bridge Financial Ltd.,
(Financial-Diversified), Gtd.
Bonds 8.625%, 06/30/22
(acquired 05/29/97; cost
$4,890,565)(b) 3,000,000 5,327,372
- ---------------------------------------------------------------
9,939,977
- ---------------------------------------------------------------
Total Non-U.S. Dollar
Denominated Foreign Bonds &
Notes 35,065,869
- ---------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY INTERESTS-4.15%
ARGENTINA-0.07%
Banco Rio de La Plata S.A.
(Banks-Money Center)(c) 62,900 $ 880,600
- ---------------------------------------------------------------
BRAZIL-0.19%
Uniao de Bancos Brasileiros
S.A.-GDR (Banks-Regional)(c) 68,300 2,198,406
- ---------------------------------------------------------------
CANADA-0.65%
Cadillac Fairview Corp. (Land
Development)(c) 144,800 3,402,800
- ---------------------------------------------------------------
MetroNet Communications
Corp.-Class B (Communications
Equipment)(c) 99,800 1,734,025
- ---------------------------------------------------------------
Newcourt Credit Group, Inc.
Warrants
(Financial-Diversified) 21,700 713,388
- ---------------------------------------------------------------
CANADA-(CONTINUED)
Philip Services Corp. (Waste
Management)(c) 125,000 $ 1,796,875
- ---------------------------------------------------------------
7,647,088
- ---------------------------------------------------------------
CHINA-0.08%
China Southern Airlines Co.
Ltd.-ADR (Airlines)(c) 75,200 991,700
- ---------------------------------------------------------------
FINLAND-0.14%
Nokia Oyj A.B.-Class A-ADR
(Communications Equipment) 23,500 1,645,000
- ---------------------------------------------------------------
FRANCE-0.13%
AXA S.A.-ADR (Insurance-Life &
Health)(c) 40,000 1,560,000
- ---------------------------------------------------------------
IRELAND-0.16%
Warner Chilcott
Laboratories-SP-ADR (Health
Care-Drugs-Generic & Other)(c) 150,600 1,863,675
- ---------------------------------------------------------------
ISRAEL-0.49%
ECI Telecommunications Ltd.
(Communications Equipment) 24,000 612,000
- ---------------------------------------------------------------
Gilat Communications Ltd.
(Telecommunications-Cellular
/Wireless)(c) 200,000 1,475,000
- ---------------------------------------------------------------
Teva Pharmaceutical Industries
Ltd.-ADR (Health
Care-Drugs-Generic & Other) 45,000 2,129,063
- ---------------------------------------------------------------
Zag Industries Ltd.
(Chemicals-Speciality)(c) 180,000 1,597,500
- ---------------------------------------------------------------
5,813,563
- ---------------------------------------------------------------
NETHERLANDS-0.17%
New Holland N.V.
(Machinery-Diversified)() 75,000 1,982,812
- ---------------------------------------------------------------
NEW ZEALAND-0.12%
Sky Network Television Ltd.
(Broadcasting-Television, Radio
& Cable)(c) 93,700 1,405,500
- ---------------------------------------------------------------
NORWAY-0.17%
Petroleum Geo-Services ASA-ADR
(Oil & Gas-Drilling &
Equipment)(c) 30,000 1,942,500
- ---------------------------------------------------------------
PORTUGAL-0.09%
Telecel-Comunicacaoes Pessoais,
S.A.
(Telecommunications-Cellular
/Wireless)(c) 10,300 1,102,100
- ---------------------------------------------------------------
SWEDEN-0.17%
Telefonaktiebolaget LM
Ericsson-ADR (Communications
Equipment) 55,000 2,052,188
- ---------------------------------------------------------------
UNITED KINGDOM-1.52%
Avis Europe PLC
(Services-Commercial &
Consumer) (acquired
03/26/97;cost $1,535,109)(b)(c) 765,450 2,187,418
- ---------------------------------------------------------------
Bass PLC (Beverages-Alcoholic)() 64,350 998,197
- ---------------------------------------------------------------
Danka Business Systems PLC-ADR
(Office Equipment & Supplies) 60,000 956,250
- ---------------------------------------------------------------
ESG Re Limited
(Insurance-Life/Health)(c) 70,300 1,652,050
- ---------------------------------------------------------------
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
UNITED KINGDOM-(CONTINUED)
Railtrack Group PLC (Shipping)() 3,000,000 $ 4,764,457
- ---------------------------------------------------------------
SmithKline Beecham PLC-ADR
(Health Care-Drugs-Major
Pharmaceuticals) 46,000 2,366,125
- ---------------------------------------------------------------
Stirling Cooke Brown Holdings
Ltd. (Insurance-Life/Health)(c) 39,400 965,300
- ---------------------------------------------------------------
Stolt Comex Seaway, S.A. (Oil &
Gas-Exploration &
Production)(c) 80,000 4,000,000
- ---------------------------------------------------------------
17,889,797
- ---------------------------------------------------------------
Total Foreign Stocks & Other Equity
Interests 48,974,929
===============================================================
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
U.S. TREASURY SECURITIES-5.87%
U.S. TREASURY NOTES & BONDS-5.87%
Notes, 6.50%, 05/31/01 $17,000,000 $ 17,413,950
- ---------------------------------------------------------------
Notes, 7.25%, 08/15/04 2,500,000 2,703,400
- ---------------------------------------------------------------
Notes, 7.50%, 02/15/05 3,000,000 3,298,200
- ---------------------------------------------------------------
Notes, 6.50%, 10/15/06 $12,000,000 $ 12,570,480
- ---------------------------------------------------------------
Notes, 6.25%, 02/15/07 10,000,000 10,322,900
- ---------------------------------------------------------------
Bonds, 6.75%, 08/15/26 3,000,000 3,305,430
- ---------------------------------------------------------------
Bonds, 6.625%, 02/15/27 11,700,000 12,707,955
- ---------------------------------------------------------------
Bonds, 6.375%, 08/15/27 6,500,000 6,859,710
- ---------------------------------------------------------------
Total U.S. Treasury
Securities 69,182,025
- ---------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES-0.35%
Tennessee Valley Authority,
Bonds, 5.98%, 04/01/36 4,000,000 4,093,880
- ---------------------------------------------------------------
REPURCHASE AGREEMENT-1.91%(g)
Smith Barney, Inc., 6.75%,
01/02/98(h) 22,553,820 22,553,820
- ---------------------------------------------------------------
TOTAL INVESTMENTS-99.12% 1,169,127,780
- ---------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-0.88% 10,404,456
- ---------------------------------------------------------------
NET ASSETS-100.00% $1,179,532,236
===============================================================
</TABLE>
Notes to Schedule of investments:
(a) Zero coupon bond issued at a discount. The interest rate shown represents
the rate of original issue discount.
(b) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The valuation of these securities has been determined in
accordance with procedures established by the Board of Trustees. The
aggregate market value of these securities at 12/31/97 was $60,133,445
which represented 5.10% of the Fund's net assets.
(c) Non-income producing security.
(d) A portion of this security is subject to call options written. See Note 7.
(e) Discounted bond at purchase. The interest rate represents the coupon rate
at which the bond will accrue at a specified future date.
(f) Foreign denominated security. Par value and coupon are denominated in
currency of country indicated.
(g) 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.
(h) Joint repurchase agreement entered into 12/31/97 with a maturing value of
$400,150,000. Collateralized by $395,097,000 U.S. Government obligations,
0% to 13.875%, due 01/07/98 to 12/15/43 with an aggregate market value at
12/31/97 of $408,000,323.
Investment abbreviations:
ADR - American Depositary Receipts
AUD - Australian Dollar
CAD - Canadian Dollar
Conv. - Convertible
Ctfs. - Certificates
Deb. - Debenture
Dep. - Depository
GDR - Global Depositary Receipt
GBP - British Pounds
Gtd. - Guaranteed
NZD - New Zealand Dollar
Pfd. - Preferred
PIK - Payment in Kind
PRIDES- Preferred Redeemable Increased Dividend Equity Security
Sr. - Senior
Sub. - Subordinated
TAPS - Threshold Appreciation Price Securities
Unsec.- Unsecured
Unsub.- Unsubordinated
See Notes to Financial Statements.
15
<PAGE> 18
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$972,947,165) $1,169,127,780
- ---------------------------------------------------------
Foreign currencies, at market value (cost
$92,811) 93,198
- ---------------------------------------------------------
Receivables for:
Investments sold 163,269
- ---------------------------------------------------------
Fund shares sold 6,660,956
- ---------------------------------------------------------
Interest and dividends 8,935,089
- ---------------------------------------------------------
Investment for deferred compensation plan 19,822
- ---------------------------------------------------------
Other assets 35,115
- ---------------------------------------------------------
Total assets 1,185,035,229
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 1,147,975
- ---------------------------------------------------------
Fund shares reacquired 2,491,186
- ---------------------------------------------------------
Options written 90,938
- ---------------------------------------------------------
Deferred compensation plan 19,822
- ---------------------------------------------------------
Accrued advisory fees 514,118
- ---------------------------------------------------------
Accrued administrative service fees 6,906
- ---------------------------------------------------------
Accrued distribution fees 914,189
- ---------------------------------------------------------
Accrued transfer agent fees 97,479
- ---------------------------------------------------------
Accrued trustees' fees 3,660
- ---------------------------------------------------------
Accrued operating expenses 216,720
- ---------------------------------------------------------
Total liabilities 5,502,993
- ---------------------------------------------------------
Net assets applicable to shares
outstanding $1,179,532,236
=========================================================
NET ASSETS:
Class A $ 683,632,584
=========================================================
Class B $ 486,505,816
=========================================================
Class C $ 9,393,836
=========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 26,517,207
=========================================================
Class B 18,896,410
=========================================================
Class C 364,691
=========================================================
Class A:
Net asset value and redemption price
per share $ 25.78
=========================================================
Offering price per share:
(Net asset value of $25.78 divided by
95.25%) $ 27.07
=========================================================
Class B:
Net asset value and offering price per
share $ 25.75
=========================================================
Class C:
Net asset value and offering price per
share $ 25.76
=========================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 23,898,243
- ---------------------------------------------------------
Dividends (net of $63,548 foreign
withholding tax) 6,646,446
- ---------------------------------------------------------
Total investment income 30,544,689
- ---------------------------------------------------------
EXPENSES:
Advisory fees 4,789,939
- ---------------------------------------------------------
Administrative service fees 87,375
- ---------------------------------------------------------
Custodian fees 90,832
- ---------------------------------------------------------
Distribution fees-Class A 1,325,895
- ---------------------------------------------------------
Distribution fees-Class B 3,517,227
- ---------------------------------------------------------
Distribution fees-Class C 13,018
- ---------------------------------------------------------
Trustees' fees 12,799
- ---------------------------------------------------------
Transfer agent fees-Class A 637,946
- ---------------------------------------------------------
Transfer agent fees-Class B 642,019
- ---------------------------------------------------------
Transfer agent fees-Class C 3,692
- ---------------------------------------------------------
Other 435,860
- ---------------------------------------------------------
Total expenses 11,556,602
- ---------------------------------------------------------
Less: Expenses paid indirectly (27,927)
- ---------------------------------------------------------
Net expenses 11,528,675
- ---------------------------------------------------------
Net investment income 19,016,014
- ---------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN
CURRENCIES, FUTURES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities 30,048,747
- ---------------------------------------------------------
Foreign currencies (79,358)
- ---------------------------------------------------------
Futures contracts 4,307,606
- ---------------------------------------------------------
Option contracts 554,458
- ---------------------------------------------------------
34,831,453
- ---------------------------------------------------------
Net unrealized appreciation (depreciation)
of:
Investment securities 134,971,145
- ---------------------------------------------------------
Foreign currencies (42,818)
- ---------------------------------------------------------
Option contracts 10,684
- ---------------------------------------------------------
134,939,011
- ---------------------------------------------------------
Net gain from investment securities,
foreign currencies, futures and
option contracts 169,770,464
- ---------------------------------------------------------
Net increase in net assets resulting from
operations $188,786,478
=========================================================
</TABLE>
See Notes to Financial Statements.
16
<PAGE> 19
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 19,016,014 $ 9,321,617
- ---------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies, futures and option contracts 34,831,453 12,716,582
- ---------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities,
foreign currencies, futures and option contracts 134,939,011 41,965,393
- ---------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 188,786,478 64,003,592
- ---------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (12,472,168) (6,033,635)
- ---------------------------------------------------------------------------------------------
Class B (5,631,570) (3,100,998)
- ---------------------------------------------------------------------------------------------
Class C (29,666) --
- ---------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on
investment securities:
Class A (19,245,568) (6,912,890)
- ---------------------------------------------------------------------------------------------
Class B (13,549,718) (4,888,186)
- ---------------------------------------------------------------------------------------------
Class C (198,011) --
- ---------------------------------------------------------------------------------------------
Net equalization credits 8,681,162 7,707,610
- ---------------------------------------------------------------------------------------------
Share transactions-net:
Class A 260,376,777 212,483,093
- ---------------------------------------------------------------------------------------------
Class B 192,163,146 143,138,052
- ---------------------------------------------------------------------------------------------
Class C 9,380,380 --
- ---------------------------------------------------------------------------------------------
Net increase in net assets 608,261,242 406,396,638
- ---------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 571,270,994 164,874,356
- ---------------------------------------------------------------------------------------------
End of period $1,179,532,236 $ 571,270,994
=============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 958,373,243 $ 496,452,940
- ---------------------------------------------------------------------------------------------
Undistributed net investment income 19,641,775 10,459,581
- ---------------------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities,
foreign currencies, futures and option contracts 5,338,635 3,118,901
- ---------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities,
foreign currencies, futures and option contracts 196,178,583 61,239,572
- ---------------------------------------------------------------------------------------------
$1,179,532,236 $ 571,270,994
=============================================================================================
</TABLE>
See Notes to Financial Statements.
17
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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 three different classes of shares: the Class A shares, the
Class B shares and the Class C shares. The new Class C shares commenced sales on
August 4, 1997. Class A shares are sold with a front-end sales charge. Class B
shares and Class C shares are sold with a contingent deferred sales charge.
Matters affecting each portfolio or class 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 preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
A. Security Valuations -- A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular day,
the security is valued at the mean between the closing bid and asked 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. 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. 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 of the closing bid and asked prices. Debt obligations
(including convertible bonds) are valued on the basis of prices provided by
an independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices and may reflect
appropriate factors such as yield, type of issue, coupon rate and maturity
date. Securities for which market prices are not provided by any of the above
methods are valued at the mean between last bid and asked prices based upon
quotes furnished by independent sources. 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 -- Distribution and transfer agency expenses directly attributable
to a class of shares are charged to that class' operations. All other
expenses which are attributable to more than one class are allocated among
the classes.
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
18
<PAGE> 21
denominated in foreign currencies are translated into U.S. dollar amounts on
the respective dates of such transactions.
H. Foreign Currency Contracts -- A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
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.
J. Covered Call Options -- The Fund may write call options, but only on a
covered basis; that is, the Fund will own the underlying security. Options
written by the Fund normally will have expiration dates between three and
nine months from the date written. The exercise price of a call option may
be below, equal to, or above the current market value of the underlying
security at the time the option is written. When the Fund writes a covered
call option, an amount equal to the premium received by the Fund is recorded
as an asset and an equivalent liability. The amount of the liability is
subsequently "marked-to-market" to reflect the current market value of the
option written. The current market value of a written option is the mean
between the last bid and asked prices on that day. If a written call option
expires on the stipulated expiration date, or if the Fund enters into a
closing purchase transaction, the Fund realizes a gain (or a loss if the
closing purchase transaction exceeds the premium received when the option
was written) without regard to any unrealized gain or loss on the underlying
security, and the liability related to such option is extinguished. If a
written option is exercised, the Fund realizes a gain or a loss from the
sale of the underlying security and the proceeds of the sale are increased
by the premium originally received.
A call option gives the purchaser of such option the right to buy, and the
writer (the Fund) the obligation to sell, the underlying security at the
stated exercise price during the option period. The purchaser of a call
option has the right to acquire the security which is the subject of the
call option at any time during the option period. During the option period,
in return for the premium paid by the purchaser of the option, the Fund has
given up the opportunity for capital appreciation above the exercise price
should the market price of the underlying security increase, but has
retained the risk of loss should the price of the underlying security
decline. During the option period, the Fund may be required at any time to
deliver the underlying security against payment of the exercise price. This
obligation is terminated upon the expiration of the option period or at such
earlier time at which the Fund effects a closing purchase transaction by
purchasing (at a price which may be higher than that received when the call
option was written) a call option identical to the one originally written.
The Fund will not write a covered call option if, immediately thereafter,
the aggregate value of the securities underlying all such options,
determined as of the dates such options were written, would exceed 5% of the
net assets of the Fund.
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.
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, 1997, AIM
was reimbursed $87,375 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, 1997, AFS
was paid $653,940 for such services.
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, Class B and Class C shares of the Fund. The Trust has adopted
distribution plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A shares and Class C shares (the "Class A and C Plan"), and the
Fund's Class B shares (the "Class B Plan") (collectively, the "Plans"). The
Fund, pursuant to the Class A and C Plan, pays AIM Distributors compensation at
an annual rate of 0.25% of the average daily net assets of the Class A shares
and 1.00% of the average daily net assets of the Class C shares. The Fund
pursuant to the Class B Plan, pays AIM Distributors an annual rate of 1.00% of
the average daily net assets attributable to the Class B shares. Of these
amounts, the Fund may pay a service fee of 0.25% of the average daily net assets
of the Class A, Class B or Class C shares to selected dealers and financial
institutions who furnish continuing personal shareholder services to their
customers who purchase and own the appropriate class of shares of the Fund. Any
amounts not paid as a service fee by the Class B or Class C shares under the
Plans would constitute an asset-based sales charge. The Plans also impose a cap
on the total sales charges, including asset-based sales charges, that may be
paid by the respective classes. AIM Distributors may, from time
19
<PAGE> 22
to time, assign, transfer, or pledge to one or more designees, 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) any contingent deferred sales
charges received by AIM Distributors related to the Class B shares. During the
year ended December 31, 1997, for the Class A shares and Class B shares, and the
period August 4, 1997 (date sales commenced) through December 31, 1997, for the
Class C shares, the Class A, Class B, and Class C shares paid AIM Distributors
$1,325,895, $3,517,227 and $13,018, respectively, as compensation under the
Plans.
AIM Distributors received commissions of $672,146 from sales of the Class A
shares of the Fund during the year ended December 31, 1997. 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, 1997,
AIM Distributors received $99,075 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, 1997, the Fund paid legal fees of $5,966
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-INDIRECT EXPENSES
AIM has directed certain portfolio trades to brokers who paid a portion of the
Fund's expenses related to pricing services used by the Fund which reduced Fund
expenses by $3,714 during the year ended December 31, 1997. Also during the year
ended December 31, 1997 the Fund received reductions in transfer agency fees
from AFS (an affiliate of AIM) and reductions in custodian fees of $9,699 and
$14,514, respectively, under expense offset arrangements. The effect of the
above arrangements resulted in reductions of the Fund's total expenses of
$27,927 during the year ended December 31, 1997.
NOTE 4-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 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $500,000,000 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 15, 1997, the Fund was
limited to borrowing up to the lesser of (i) $325,000,000 or (ii) the limits set
by its prospectus for borrowings. During the year ended December 31, 1997, 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 0.05% 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 6-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, 1997 was
$999,679,075 and $562,878,959, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of December 31, 1997 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $210,448,136
- ---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (14,427,520)
- ---------------------------------------------------------
Net unrealized appreciation of investment
securities $196,020,616
=========================================================
</TABLE>
Cost of investments for tax purposes is $973,107,164.
NOTE 7-OPTION CONTRACTS WRITTEN
Transactions in call options written during the year ended December 31, 1997 are
summarized as follows:
<TABLE>
<CAPTION>
OPTION CONTRACTS
-----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- --------
<S> <C> <C>
Beginning of year -- --
- -------------------------------------------------------------------------------------
Written 2,585 $ 978,417
- -------------------------------------------------------------------------------------
Closed (1,700) (794,778)
- -------------------------------------------------------------------------------------
Exercised (135) (46,843)
- -------------------------------------------------------------------------------------
Expired (150) (35,174)
- -------------------------------------------------------------------------------------
End of year 600 $ 101,622
- -------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 23
Open call option contracts written at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUM 1997 APPRECIATION
ISSUE MONTH PRICE CONTRACTS RECEIVED MARKET VALUE (DEPRECIATION)
- ----------------------------------------------- -------- ------ --------- -------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
America Online, Inc. Jan. 98 95 300 $53,474 $41,251 $12,223
Cisco Systems, Inc. Jan. 98 56.67 300 48,148 49,687 (1,539)
--- -------- ------- -------
600 $101,622 $90,938 $10,684
=== ======== ======= =======
</TABLE>
NOTE 8-SHARE INFORMATION
Changes in shares outstanding during the years ended December 31, 1997 and 1996
were as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Sold:
Class A 16,304,170 $ 379,544,296 11,936,333 $241,163,392
- ---------------------------------------------------------------------------------------------------------------------------
Class B 8,995,999 214,419,729 7,608,028 153,665,571
- ---------------------------------------------------------------------------------------------------------------------------
Class C* 363,376 9,356,324 -- --
- ---------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A 1,215,553 29,691,206 571,269 11,884,617
- ---------------------------------------------------------------------------------------------------------------------------
Class B 710,951 17,509,949 347,628 7,257,995
- ---------------------------------------------------------------------------------------------------------------------------
Class C* 8,636 215,490 -- --
- ---------------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (6,305,229) (148,858,725) (2,004,527) (40,564,916)
- ---------------------------------------------------------------------------------------------------------------------------
Class B (1,668,675) (39,766,532) (876,383) (17,785,514)
- ---------------------------------------------------------------------------------------------------------------------------
Class C* (7,321) (191,434) -- --
- ---------------------------------------------------------------------------------------------------------------------------
19,617,460 $ 461,920,303 17,582,348 $355,621,145
===========================================================================================================================
</TABLE>
* Class C shares commenced sales on August 4, 1997.
NOTE 9-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A outstanding
during each of the years in the four-year period ended December 31, 1997, the
four months ended December 31, 1993 and the year ended August 31, 1993, for a
share of Class B outstanding during each of the years in the four-year period
ended December 31, 1997 and the period October 18, 1993 (date sales commenced)
through December 31, 1993, and for a share of Class C outstanding during the
period August 4, 1997 (date sales commenced) through December 31, 1997. Prior to
October 15, 1993, the Fund was known as AIM Convertible Securities, Inc. and had
a different investment objective.
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------
DECEMBER 31, AUGUST 31,
----------------------------------------------------- ----------
1997 1996 1995 1994 1993 1993
-------- -------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 21.84 $ 19.22 $ 14.62 $ 16.10 $ 15.97 $ 12.77
- ------------------------------------------------------------ -------- -------- ------- ------- ------- -------
Income from investment operations:
Net investment income 0.60 0.66 0.49 0.44 0.10 0.32
- ------------------------------------------------------------ -------- -------- ------- ------- ------- -------
Net gains (losses) on securities (both realized and
unrealized) 4.66 2.99 4.57 (1.31) 0.18 3.18
- ------------------------------------------------------------ -------- -------- ------- ------- ------- -------
Total from investment operations 5.26 3.65 5.06 (0.87) 0.28 3.50
- ------------------------------------------------------------ -------- -------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income (0.55) (0.55) (0.46) (0.39) (0.15) (0.30)
- ------------------------------------------------------------ -------- -------- ------- ------- ------- -------
Distributions from net realized gains (0.77) (0.48) -- (0.22) -- --
- ------------------------------------------------------------ -------- -------- ------- ------- ------- -------
Total distributions (1.32) (1.03) (0.46) (0.61) (0.15) (0.30)
- ------------------------------------------------------------ -------- -------- ------- ------- ------- -------
Net asset value, end of period $ 25.78 $ 21.84 $ 19.22 $ 14.62 $ 16.10 $ 15.97
============================================================ ======== ======== ======= ======= ======= =======
Total return(a) 24.41% 19.25% 34.97% (5.44)% 1.76% 27.75%
============================================================ ======== ======== ======= ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $683,633 $334,189 $92,241 $37,572 $23,520 $19,497
============================================================ ======== ======== ======= ======= ======= =======
Ratio of expenses to average net assets 0.98%(b)(c) 1.15% 1.43%(d) 1.25%(d) 2.17%(f) 2.07%
============================================================ ======== ======== ======= ======= ======= =======
Ratio of net investment income to average net assets 2.48%(b) 2.97% 2.81%(e) 3.07%(e) 1.81%(f) 2.23%
============================================================ ======== ======== ======= ======= ======= =======
Portfolio turnover rate 66% 72% 77% 76% 233% 154%
============================================================ ======== ======== ======= ======= ======= =======
Average brokerage commission rate paid(g) $ 0.0570 $ 0.0558 N/A N/A N/A N/A
============================================================ ======== ======== ======= ======= ======= =======
</TABLE>
(a) Does not deduct sales charges and are not annualized for
periods less than one year.
(b) Ratios are based on average net assets of $530,358,031.
(c) Includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets
would have remained the same.
(d) After fee waivers and/or expense reimbursements. Ratios of
expenses to average net assets prior to fee waivers and/or
expense reimbursements were 1.46% and 1.68% for 1995 and
1994, respectively.
(e) After fee waivers and/or expense reimbursements. Ratios of
net investment income to average net assets prior to fee
waivers and/or expense reimbursements were 2.78% and 2.64%
for 1995 and 1994, respectively.
(f) Annualized.
(g) The average commission rate paid is the total brokerage
commissions paid on applicable purchases and sales of
securities for the period divided by the total number of
related shares purchased and sold, which is required to be
disclosed for fiscal years beginning September 1, 1995 and
thereafter.
21
<PAGE> 24
NOTE 9-FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
CLASS B CLASS C
-------------------------------------------------------------- -------
1997 1996 1995 1994 1993 1997
-------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 21.83 $ 19.22 $ 14.62 $ 16.11 $ 16.69 $ 25.55
- ----------------------------------------------- -------- -------- ------- ------- ------- -------
Income from investment operations:
Net investment income 0.38 0.48 0.31 0.31 0.04 0.16
- ----------------------------------------------- -------- -------- ------- ------- ------- -------
Net gains (losses) on securities (both
realized and unrealized) 4.68 2.99 4.61 (1.31) (0.58) 1.01
- ----------------------------------------------- -------- -------- ------- ------- ------- -------
Total from investment operations 5.06 3.47 4.92 (1.00) (0.54) 1.17
- ----------------------------------------------- -------- -------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income (0.37) (0.38) (0.32) (0.27) (0.04) (0.19)
- ----------------------------------------------- -------- -------- ------- ------- ------- -------
Distributions from net realized gains (0.77) (0.48) -- (0.22) -- (0.77)
- ----------------------------------------------- -------- -------- ------- ------- ------- -------
Total distributions (1.14) (0.86) (0.32) (0.49) (0.04) (0.96)
- ----------------------------------------------- -------- -------- ------- ------- ------- -------
Net asset value, end of period $ 25.75 $ 21.83 $ 19.22 $ 14.62 $ 16.11 $ 25.76
=============================================== ======== ======== ======= ======= ======= =======
Total return(a) 23.42% 18.28% 33.93% (6.23)% (3.23)% 4.67%
=============================================== ======== ======== ======= ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $486,506 $237,082 $72,634 $20,245 $ 2,754 $ 9,394
=============================================== ======== ======== ======= ======= ======= =======
Ratio of expenses to average net assets 1.79%(b)(c) 1.97% 2.21%(d) 1.98%(d) 2.83%(f) 1.78%(c)(g)
=============================================== ======== ======== ======= ======= ======= =======
Ratio of net investment income to average net
assets 1.67%(b) 2.15% 2.03%(e) 2.34%(e) 1.15%(f) 1.68%(g)
=============================================== ======== ======== ======= ======= ======= =======
Portfolio turnover rate 66% 72% 77% 76% 233% 66%
=============================================== ======== ======== ======= ======= ======= =======
Average brokerage commission rate paid(h) $ 0.0570 $ 0.0558 N/A N/A N/A $0.0570
=============================================== ======== ======== ======= ======= ======= =======
</TABLE>
(a) Does 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 $351,722,707.
(c) Includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets
would have remained the same.
(d) After fee waivers and/or expense reimbursements. Ratios of
expenses to average net assets prior to fee waivers and/or
expense reimbursements were 2.23% and 2.45% for 1995 and
1994, respectively.
(e) After fee waivers and/or expense reimbursements. Ratios of
net investment income to average net assets prior to fee
waivers and/or expense reimbursements were 2.01% and 1.87%
for 1995 and 1994, respectively.
(f) Annualized.
(g) Ratios are annualized and based on average net assets of
$3,167,605.
(h) The average commission rate paid is the total brokerage
commissions paid on applicable purchases and sales of
securities for the period divided by the total number of
related shares purchased and sold, which is required to be
disclosed for fiscal years beginning September 1, 1995 and
thereafter.
22
<PAGE> 25
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, 1997, and the related statement of
operations for the year then ended, the statement of
changes in net assets for each of the years in the
two-year period then ended, and the financial highlights
for each of the years in the four-year period then ended,
the four-month period ended December 31, 1993, and the
year 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 and financial highlights. Our procedures
included confirmation of securities owned as of December
31, 1997, 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, 1997, the results of its
operations for the year then ended, the changes in its
net assets for each of the years in the two-year period
then ended, and the financial highlights for each of the
years in the four-year period then ended, the four-month
period ended December 31, 1993, and the year ended August
31, 1993, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
February 6, 1998
23
<PAGE> 26
Trustees & Officers
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<S> <C>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Charles T. Bauer Charles T. Bauer 11 Greenway Plaza
Chairman Chairman Suite 100
A I M Management Group Inc. Houston, TX 77046
Robert H. Graham
Bruce L. Crockett President INVESTMENT ADVISOR
Director
Ace Limited; John J. Arthur A I M Advisors, Inc.
Formerly Director, President, and Chief Senior Vice President and Treasurer 11 Greenway Plaza
Executive Officer Suite 100
COMSAT Corporation Carol F. Relihan Houston, TX 77046
Senior Vice President
Owen Daly II and Secretary TRANSFER AGENT
Director
Cortland Trust Inc. Gary T. Crum A I M Fund Services, Inc.
Senior Vice President P.O. Box 4739
Jack Fields Houston, TX 77210-4739
Chief Executive Officer Dana R. Sutton
Texana Global, Inc.; Vice President and Assistant Treasurer CUSTODIAN
Formerly Member of the
U.S. House of Representatives Robert G. Alley State Street Bank & Trust Company
Vice President 225 Franklin Street
Carl Frischling Boston, MA 02110
Partner Stuart W. Coco
Kramer, Levin, Naftalis & Frankel Vice President COUNSEL TO THE FUND
Robert H. Graham Melville B. Cox Ballard Spahr
President and Chief Executive Officer Vice President Andrews & Ingersoll
A I M Management Group Inc. 1735 Market Street
Karen Dunn Kelly Philadelphia, PA 19103
John F. Kroeger Vice President
Formerly Consultant COUNSEL TO THE TRUSTEES
Wendell & Stockel Associates, Inc. Jonathan C. Schoolar
Vice President Kramer, Levin, Naftalis & Frankel
Lewis F. Pennock 919 Third Avenue
Attorney P. Michelle Grace New York, NY 10022
Assistant Secretary
Ian W. Robinson DISTRIBUTOR
Consultant; Formerly Executive Nancy L. Martin
Vice President and Assistant Secretary A I M Distributors, Inc.
Chief Financial Officer 11 Greenway Plaza
Bell Atlantic Management Ofelia M. Mayo Suite 100
Services, Inc. Assistant Secretary Houston, TX 77046
Louis S. Sklar Kathleen J. Pflueger AUDITORS
Executive Vice President Assistant Secretary
Hines Interests KPMG Peat Marwick LLP
Limited Partnership Samuel D. Sirko 700 Louisiana
Assistant Secretary Houston, TX 77002
Stephen I. Winer
Assistant Secretary
Mary J. Benson
Assistant Treasurer
</TABLE>
REQUIRED FEDERAL INCOME TAX INFORMATION
AIM Balanced Fund Class A, Class B, and Class C shares paid ordinary dividends
in the amount of $0.97, $0.79, and $0.61 per share, respectively, to
shareholders during its tax year ended December 31, 1997. Of these amounts
14.51% is eligible for the dividends received deduction for corporations. The
Fund also distributed long-term capital gains of $0.352 per share during its
tax year ended December 31, 1997. Of long-term capital gains distributed,
42.21% is 20% rate gain.
REQUIRED STATE INCOME TAX INFORMATION
Of the total ordinary dividends paid, 12.48% for Class A, 11.77% for Class B,
and 10.78% for Class C shares were derived from U.S. Treasury obligations.
24
<PAGE> 27
---------------------------
Current shareholders
can call our
AIM Investor Line at
800-246-5463
for 24-hour-a-day
account information.
---------------------------
HOW AIM MAKES INVESTING
EASY FOR YOU
o LOW INITIAL INVESTMENT. You can get your investment program started for as
little as $500. Subsequent investments can be made for only $50.
o AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR CAPITAL GAINS. Distributions may
be received in cash or reinvested in the Fund free of charge. Over time,
the power of compounding can significantly increase the value of your
assets.
o AUTOMATIC INVESTMENT PLAN. You may build your investment by regularly
purchasing additional shares. Pre-authorized checks for $50 or more can be
drafted monthly from your personal checking account.
o EASY ACCESS TO YOUR MONEY. Your shares may be redeemed at net asset value
any day the New York Stock Exchange is open. The price of shares sold may
be more or less than their original cost, depending on market conditions.
o SYSTEMATIC WITHDRAWAL PLAN. You may elect to receive checks of at least $50
monthly or quarterly through a systematic withdrawal plan.
o EXCHANGE PRIVILEGE. As your goals change, you may exchange all or part of
your assets for those of other funds within the same share class of The AIM
Family of Funds--Registered Trademark--. The exchange privilege may be
modified or discontinued for any of the AIM funds.
o RETIREMENT PLANS. You may purchase shares of the fund for your Individual
Retirement Account (IRA) or any other type of retirement plan, and earn
tax-deferred dollars for your retirement.
o TOLL-FREE ACCESS. Current shareholders can call our AIM Investor Line at
800-246-5463 for 24-hours-a-day account information. Or, of course, you may
contact your financial consultant for assistance.
o www.aimfunds.com. As a current shareholder, you can check account balances
24-hours-a-day over the Internet. State-of-the-art encryption lets you send
us questions that include confidential information without the fear of
eavesdropping, tampering, or forgery.
<PAGE> 28
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THE AIM FAMILY OF FUNDS--Registered Trademark--
AGGRESSIVE GROWTH
AIM Aggressive Growth Fund*
AIM Asian Growth Fund
AIM Capital Development Fund
AIM Constellation Fund
AIM European Development Fund
AIM Global Aggressive Growth Fund
GROWTH OF CAPITAL
AIM Advisor International Value Fund
[PHOTO OF AIM Blue Chip Fund
11 GREENWAY PLAZA AIM Global Growth Fund
APPEARS HERE] AIM Growth Fund
AIM International Equity Fund
AIM Value Fund
AIM Weingarten Fund
GROWTH AND INCOME OF INCOME WITH CAPITAL GROWTH
AIM Advisor Flex Fund
AIM Advisor Large Cap Value Fund
AIM Advisor MultiFlex Fund
AIM Advisor Real Estate Fund
AIM Balanced Fund
AIM Charter Fund
AIM Global Utilities Fund
HIGH CURRENT INCOME OR CURRENT INCOME
AIM High Yield Fund
AIM Global Income Fund
AIM Income Fund
CURRENT TAX-FREE INCOME
AIM High Income Municipal Fund
AIM Municipal Bond Fund
AIM Tax-Exempt Bond Fund of Connecticut
AIM Tax-Free Intermediate Fund
CURRENT INCOME AND HIGH DEGREE OF SAFETY
AIM Intermediate Government Fund
AIM Limited Maturity Treasury Fund
AIM Money Market Fund
AIM Tax-Exempt Cash Fund
A I M Management Group Inc. has provided leadership in the *AIM Aggressive Growth Fund was closed to new investors on
mutual fund industry since 1976 and manages approximately June 5, 1997. For more complete information about any AIM
$83 billion in assets for more than 3.7 million shareholders, Fund(s), including sales charges and expenses, ask your
including individual investors, corporate clients, and financial financial consultant or securities dealer for a free
institutions as of December 31, 1997. The AIM Family of prospectus(es). Please read the prospectus(es) carefully
Funds--Registered Trademark-- is distributed nationwide, and before you invest or send money.
AIM today ranks among the nation's top 15 mutual fund
companies in assets under management, according to Lipper INVEST WITH DISCIPLINE-SM-
Analytical Services, Inc.
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