<PAGE> 1
[COVER IMAGE]
AIM
BALANCED FUND
[AIM LOGO APPEARS HERE] ANNUAL REPORT DECEMBER 31, 1998
INVEST WITH DISCIPLINE--Registered Trademark--
<PAGE> 2
[COVER IMAGE]
-------------------------------------
TWO BLUE DANCERS
BY EDGAR DEGAS (1834-1917, FRENCH)
IN EVERY ART FORM, WHETHER DANCE OR INVESTING, DISCIPLINE
AND DEDICATION ARE PARAMOUNT FOR SUCCESS. AT AIM WE
CONTINUALLY STRIVE FOR PERFECTION BY ADHERING TO A UNIQUELY
DISCIPLINED INVESTMENT STYLE.
-------------------------------------
AIM Balanced Fund is for shareholders who seek a high total return consistent
with preservation of capital by investing in a broadly diversified portfolio
consisting of stocks and bonds.
ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT:
o AIM Balanced Fund 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 During the fiscal year ended December 31, 1998, the Fund paid distributions
of $0.71 per share for Class A shares, $0.50 for Class B shares, and $0.50
for Class C shares.
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 differences in sales charge structure and
class expenses.
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.
ABOUT INDEXES AND OTHER PERFORMANCE BENCHMARKS CITED IN THIS REPORT:
o The Lipper Balanced Fund 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, Inc., an independent mutual fund
performance monitor.
o The Russell 2000 Stock Index is an unmanaged index generally considered
representative of small-capitalization 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 An investment cannot be made in any index listed. Unless otherwise
indicated, index results include reinvested dividends and do not reflect
sales charges.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OF A BANK AND IS NOT INSURED
OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENT AGENCY. THERE IS A RISK THAT YOU COULD
LOSE A PORTION OR ALL OF YOUR MONEY.
This report may be distributed only to current shareholders or to persons
who have received a current prospectus of the Fund.
AIM BALANCED FUND
<PAGE> 3
ANNUAL REPORT / CHAIRMAN'S LETTER
Dear Fellow Shareholder:
As the fiscal year opened, markets were recovering from the
[PHOTO OF concerns produced by financial crises in Asia during 1997,
Charles T. and this optimism early in 1998 led several market indexes
Bauer, to all-time highs in spring and early summer. However, the
Chairman of year was to bring two particularly serious financial shocks,
the Board of first the debt default by Russia, and later the gathering
THE FUND crisis in Brazil, which devalued its currency shortly after
APPEARS HERE] the fiscal year closed. The result was another year of
significant market volatility here and abroad.
Optimism yielded to pessimism over the summer amid
global financial crises and a widespread decline in U.S.
corporate earnings growth. Particularly from July through
October, a major market correction for equities, including
previously high-flying blue chips, bolstered U.S. Treasury
issues, whose safety attracts investors in doubtful times.
Beginning in late September, the U.S. Federal Reserve Board
intervened to pump liquidity and confidence into markets. Investors responded
favorably, and the year closed on a positive note with domestic equities
rallying and bonds displaying much less momentum.
Some stock indexes produced excellent total return for the year, with the
S&P 500 index of large-company stocks up a dramatic 28.60%. But focusing on one
market benchmark may give you an incomplete view. There was wide divergence
among market segments this fiscal year. For example, the Russell 2000 index of
small-company stocks declined 2.55%. Even within the S&P 500, the bigger the
company, the better the performance.
HOW SHOULD INVESTORS RESPOND?
We understood how unnerving 1998's level of volatility could have been. Of
course, our repeated message to you is to keep a long-term outlook on
investments rather than responding to short-term fluctuations. And we are
pleased to note that most mutual fund shareholders remained cool headed and did
not pull out of the markets during 1998. In the end, most were rewarded for
their long-term perspective.
In view of recent volatility and the divergent performance of market
sectors, this may be a very good time to meet with your financial consultant to
review your current asset allocation and the diversification of your portfolio.
Broad portfolio diversification remains one of the most fundamental principles
of investing, along with long-term thinking and realistic expectations.
YOUR FUND MANAGERS' COMMENTS
On the pages that follow, your Fund's managers, experienced professionals who
have weathered previous periods of market turbulence, offer more detailed
discussion of how markets behaved, how they managed the portfolio in light of
recent volatility, and what they foresee for markets and your Fund. We hope you
find their discussion informative.
YEAR 2000 CONCERN
Many of our shareholders have asked us about AIM's year 2000 readiness status.
We appreciate these concerns, and we take the year 2000 issue seriously. AIM has
devoted considerable effort to creating a comprehensive plan for assessing,
correcting and testing our in-house systems. We will also participate in an
industrywide testing effort scheduled to begin in March. But no matter how well
we prepare and test, no one can know for sure what the year 2000 will bring. Our
industry's systems are connected in complex ways to many third parties, and
there may be unforeseen problems when the year 2000 actually arrives. Though we
cannot predict what all those problems might be, we are working with our
business recovery team to develop contingency plans appropriate for a variety of
year 2000 scenarios.
We are pleased to send you this report on your Fund's fiscal year. If you
have any questions or comments, please contact our Client Services department at
800-959-4246, or e-mail your inquiry to us at [email protected]. You can
access information about your account through our AIM Investor Line at
800-246-5463 or at our Web site, www.aimfunds.com. We often post market updates
on our Web site.
We thank you for your continued participation in The AIM Family of Funds
- --Registered Trademark--.
Sincerely,
/s/ CHARLES T. BAUER
Charles T. Bauer
Chairman, A I M Advisors, Inc.
-------------------------------------
. . . WE ARE PLEASED
TO NOTE THAT MOST
MUTUAL FUND
SHAREHOLDERS REMAINED
COOL HEADED AND DID NOT
PULL OUT OF THE
MARKETS DURING 1998.
-------------------------------------
AIM BALANCED FUND
<PAGE> 4
ANNUAL REPORT / MANAGERS' OVERVIEW
FUND'S BALANCED PORTFOLIO BUFFERS
MARKET VOLATILITY
THE MARKET EXPERIENCED ALL-TIME HIGHS AND ONE OF ITS MOST VICIOUS CORRECTIONS
DURING 1998. HOW DID AIM BALANCED FUND PERFORM IN THIS UNSETTLING ENVIRONMENT?
AIM Balanced Fund continued to post solid returns despite weakening market
conditions during the past year. For the fiscal year ended December 31, 1998,
total return was 12.46% for Class A shares, 11.53% for Class B shares, and
11.60% Class C shares. Long-term performance for the Fund remains excellent. The
Fund's Class A share performance for the 5-year and 10-year periods ended
December 31, 1998, placed it in the top 10% and 6%, respectively, of all
balanced mutual funds tracked by Lipper, Inc.
Net assets under management grew from $1.18 billion to $2.33 billion at the
close of the fiscal year.
WHAT WERE THE MAJOR TRENDS IN THE FINANCIAL MARKETS SINCE YOUR JUNE REPORT TO
SHAREHOLDERS?
Beginning in July, markets succumbed to the second wave of "Asian contagion"
when currency troubles in Asia made their way to the United States. A month
later, Russia's bond default and the downturn that ensued involved even the very
large, very liquid stocks that were chiefly responsible for the U.S. markets'
earlier rise. Domestically, the markets were hit by the collapse of several
hedge funds. Investors sought shelter from market volatility in the safest and
most liquid investment classes, particularly large-cap equities and U.S.
Treasury securities.
The Federal Reserve Board (the Fed) announced the first of three interest
rate cuts in September, hoping to shelter the United States from a potential
global recession. Boosted by the Fed easing, the U.S. markets halted their
downturn and rebounded. Many securities that had experienced losses earlier in
the year recovered and posted gains. At the close of the fiscal year, U.S.
markets had once again reached new highs, marking 1998 as the unprecedented
fourth year of double-digit gains for market indexes such as the S&P 500.
HOW DID THE FUND FARE IN THIS VOLATILE PERIOD?
As investors turned to large, well-established companies better able to weather
the market turbulence, mid-sized and small-company stocks were hit hard. The
Fund suffered as a result of this "flight to quality," since almost 40% of its
equity holdings were in these market-capitalization sectors. Conversely, the
fixed-income portion of the Fund's portfolio benefited from this phenomenon and
provided protection from a potentially serious decline during this difficult
period. The 60/40 target allocation of stocks and bonds helped dampen volatility
during an unusual market for both types of securities.
After a difficult third quarter, the Fund began to recover, boosted by a
rally in the equity market, particularly in the small-cap and mid-cap sectors.
Fixed-income holdings continued to enjoy a return of their popularity as
investors continued to seek their relative safety.
GIVEN CURRENT MARKET CONDITIONS, HOW HAVE YOU MANAGED THE PORTFOLIO?
On the fixed-income side, we continued to keep to an intermediate maturity
structure that is moderately sensitive to interest-rate changes. The bond
portion of the portfolio generally has an average quality rating of "A." We
invested mainly in U.S. government issues and investment-grade corporate bonds,
which have benefited from low inflation and falling interest rates during the
past year.
On the equity side, at the close of the fiscal year the Fund's top sector
holdings included: health care, 7.44%; technology, 6.21%; and financials, 3.96%.
We believe
GROWTH OF NET ASSETS
================================================================================
1997 1998
- --------------------------------------------------------------------------------
$ 1.18 $ 2.33
Billion Billion
================================================================================
[BAR CHART]
-------------------------------------
LONG-TERM PERFORMANCE FOR THE FUND
REMAINS EXCELLENT.
-------------------------------------
LIPPER RANKINGS
As of 12/31/98
AIM BALANCED FUND
CLASS A SHARES
================================================================================
RANK VS. PERCENTILE
PERIOD FUND CATEGORY RANK
- --------------------------------------------------------------------------------
10 Years 3 of 56 6%
5 Years 16 of 162 10%
3 Years 53 of 284 19%
================================================================================
Fund percentage rankings are vs. all funds in its category tracked by Lipper,
Inc., excluding sales charges and including fees and expenses.
See important Fund and index disclosures inside front cover.
AIM BALANCED FUND
2
<PAGE> 5
ANNUAL REPORT / MANAGERS' OVERVIEW
these three sectors will continue to produce solid returns despite weakening
economic conditions. During the reporting period, we reduced our financial
holdings significantly while increasing our holdings in the technology sector.
At the end of the reporting period, the Fund remained well diversified with
approximately 200 equity and 200 fixed-income holdings.
FINANCIAL HOLDINGS WERE A PROMINENT PART OF THE FUND'S PORTFOLIO. WHY DID
YOU REDUCE THE FUND'S WEIGHTING IN THIS SECTOR?
Financial holdings, which represented the largest sector weighting a year ago,
were reduced largely because of volatility in the global financial market.
Financial services stocks were among the hardest hit during the market downturn,
and their earnings have been hurt by recent global economic developments. Big
money-center banks, such as Chase Manhattan, also sustained losses due to their
involvement with the much-publicized collapse of several hedge funds.
We follow earnings growth for individual companies, so our model picks up
sectors that are showing relative earnings momentum. These market-sensitive
financial stocks no longer qualified on an earnings-momentum basis. The
financial holdings that are left in the Fund are largely credit-sensitive
companies and regional banks, with less exposure to international woes.
WHAT MAKES TECHNOLOGY STOCKS ATTRACTIVE?
As earnings momentum began to improve for this sector, we increased its
weighting. Strong sales of personal computers in the United States and Western
Europe have helped to offset the economic weakness in other regions. Sales of
personal computers worldwide were up 15% for the third quarter.
As the end of the millennium nears, we also expect the computer software and
services industry to profit from the so-called Y2K problem--the need to
reprogram older computers to recognize the year 2000. In addition, this sector
has benefited from the explosive growth of the Internet and other digital
services and is expected to continue expanding well into the next century.
America Online (AOL), the Fund's top equity holding as a percentage of net
assets, is the world's largest Internet service provider with approximately 15
million subscribers. AOL reported robust earnings in 1998, and its stock soared
in December after it was announced that the company would be added to the S&P
500.
WHAT IS YOUR OUTLOOK FOR 1999?
We are optimistic that U.S. markets have performed a turnaround, coming back
from their steep declines last summer. Economic growth seems to be decelerating,
so low inflation and low interest rates should continue. This is an ideal
climate for the Fund's bond component. Equity performance will depend on
corporate earnings in the coming months. We remain focused on targeting the
60/40 allocation of stocks and bonds, a mix that studies have found to provide
optimal risk/return trade-off over the long run. The Fund's balanced structure
is well-positioned to take advantage of bull markets in stocks and in bonds,
while providing a safety net against potential market turbulence. The Fund also
benefits from the higher growth rate of smaller companies by maintaining
exposure across all market-capitalization sectors.
-------------------------------------
THE FUND'S BALANCED STRUCTURE IS
WELL-POSITIONED TO TAKE ADVANTAGE OF
BULL MARKETS IN STOCKS AND IN BONDS,
WHILE PROVIDING A SAFETY NET AGAINST
POTENTIAL MARKET TURBULENCE.
-------------------------------------
PORTFOLIO COMPOSITION
As of 12/31/98, based on total net assets
<TABLE>
<CAPTION>
============================================================================================
TOP 10 EQUITY HOLDINGS TOP 10 FIXED-INCOME HOLDINGS
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. America Online, Inc. 1.33% 1. U.S. Treasury Securities 12.90%
2. Qwest Communications 0.64 2. U.S. Government Agency 2.75
International, Inc. Securities
3. Sunrise Assisted Living, Inc. 0.58 3. Time Warner, Inc. 0.49
4. Cisco Systems, Inc. 0.57 4. Merrill Lynch & Co. 0.44
5. Lucent Technologies, Inc. 0.52 5. Veritas Software Corp. 0.42
6. Nokia Oyj A.B.-Class A-ADR 0.52 6. Koninklijke Ahold N.V. 0.41
7. Fannie Mae 0.51 7. Enron Corp. 0.41
8. Ascend Communications, Inc. 0.51 8. Network Associates Inc. 0.40
9. Dell Computer Corp. 0.50 9. National Fuel Gas Co. 0.38
10. Warner-Lambert Co. 0.50 10. Comverse Technology Inc. 0.38
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.
============================================================================================
</TABLE>
See important Fund and index disclosures inside front cover.
AIM BALANCED FUND
3
<PAGE> 6
ANNUAL REPORT / PERFORMANCE HISTORY
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
AIM BALANCED FUND VS. BENCHMARK INDEXES
12/31/88-12/31/98
- --------------------------------------------------------------------------------
AIM
BALANCED FUND LIPPER BALANCED S&P 500
CLASS A SHARES FUND INDEX INDEX
- --------------------------------------------------------------------------------
12/31/88 $9,527.00 $10,000.00 $10,000.00
12/31/89 10,941.00 11,970.00 13,164.00
12/31/90 10,504.00 12,048.00 12,756.00
12/31/91 15,015.00 15,160.000 16,635.00
12/31/92 16,462.00 16,291.00 17,901.00
12/31/93 19,020.00 18,238.00 19,703.00
12/31/94 17,984.00 17,865.00 19,962.00
12/31/95 24,274.00 22,311.00 27,457.00
12/31/96 28,947.00 25,223.00 33,758.00
12/31/97 36,014.00 30,342.00 45,018.00
12/31/98 40,500.00 34,920.00 57,881.00
================================================================================
Past performance is no guarantee of comparable future results.
================================================================================
AVERAGE ANNUAL TOTAL RETURNS
As of 12/31/98, including sales charges
CLASS A SHARES
10 Years 15.01%
5 Years 15.20
1 Year 7.10*
CLASS B SHARES
Since Inception (10/18/93) 13.90%
5 Years 15.15
1 Year 6.53**
CLASS C SHARES
Since Inception (8/4/97) 11.67%
1 Year 10.60***
* 12.46%, excluding sales charges
** 11.53%, excluding CDSC
*** 11.60%, excluding CDSC
================================================================================
Source: Towers Data Systems HYPO--Registered Trademark--.
Your Fund's total return includes sales charges, expenses, and management fees.
The performance of the Fund's Class B and Class C shares will differ from Class
A shares due to differing fees and expenses. For Fund data performance
calculations and descriptions of indexes cited on this page, please refer to the
inside front cover.
MARKET VOLATILITY CAN SIGNIFICANTLY IMPACT SHORT-TERM PERFORMANCE. RESULTS OF AN
INVESTMENT MADE TODAY MAY DIFFER SUBSTANTIALLY FROM THE HISTORICAL PERFORMANCE
SHOWN.
ABOUT THIS CHART
The chart compares your Fund's Class A shares to benchmark indexes. It is
intended to give you a general idea of how your Fund performed compared to these
benchmarks over the period 12/31/88 to 12/31/98. It is important to understand
differences between your Fund and these indexes. An index measures performance
of a hypothetical portfolio. A market index such as the S&P 500 is not managed,
incurring no sales charges, expenses, or fees. If you could buy all the
securities that make up a market index, you would incur expenses that would
affect your investment's return. 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 fixed-income securities. An index of funds such as the Lipper
Balanced Fund Index includes a number of mutual funds grouped by investment
objective. Each of those funds interprets that objective differently, and each
employs a different management style and investment strategy.
AIM BALANCED FUND
4
<PAGE> 7
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
DOMESTIC BONDS & NOTES-24.70%
AIRLINES-1.19%
Airplanes Pass Through Trust,
Sub. Bonds, 10.875%, 03/15/19 $ 500,000 $ 525,315
- ---------------------------------------------------------------
America West Airlines, Inc.,
Pass Through Ctfs., 6.86%,
07/02/04 5,867,515 5,854,020
- ---------------------------------------------------------------
American Airlines, Equipment
Trust, 9.90%, 01/15/11 2,955,000 3,817,239
- ---------------------------------------------------------------
Delta Air Lines, Inc.,
Deb., 9.00%, 05/15/16 5,000,000 5,744,950
- ---------------------------------------------------------------
Medium Term Notes, 8.52%,
01/30/04 2,000,000 2,247,440
- ---------------------------------------------------------------
Northwest Airlines Corp., Pass
Through Ctfs., 7.248%,
07/02/14 4,698,876 4,810,638
- ---------------------------------------------------------------
United Air Lines, Inc., Pass
Thru Ctfs., 9.56%, 10/19/18 3,750,000 4,602,375
- ---------------------------------------------------------------
27,601,977
- ---------------------------------------------------------------
AUTOMOBILES-0.24%
General Motors Corp., Deb.,
8.80%, 03/01/21 400,000 505,972
- ---------------------------------------------------------------
Rocs Series CHR-1998-1,
Collateral Trust, 6.50%,
08/01/18(a) (Acquired
05/19/98; Cost $4,949,750) 5,000,000 5,141,650
- ---------------------------------------------------------------
5,647,622
- ---------------------------------------------------------------
BANKS (MAJOR REGIONAL)-0.04%
Wachovia Corp., Sub. Notes,
6.375%, 02/01/09 800,000 838,544
- ---------------------------------------------------------------
BANKS (MONEY CENTER)-0.68%
Bankers Trust New York Corp.,
Unsec. Sub. Notes, 7.50%,
11/15/15 3,000,000 3,157,440
- ---------------------------------------------------------------
Chase Manhattan Corp., Unsec.
Sub Notes, 6.375%, 04/01/08 4,400,000 4,551,228
- ---------------------------------------------------------------
Deutsche Bank Financial, Gtd.
Unsec. Sub. Deb., 6.70%,
12/13/06 3,500,000 3,688,265
- ---------------------------------------------------------------
First Union Bancorp,
Sub. Deb., 7.50%, 04/15/35 3,330,000 3,654,209
- ---------------------------------------------------------------
Sub. Notes, 6.375%, 01/15/09 800,000 832,280
- ---------------------------------------------------------------
15,883,422
- ---------------------------------------------------------------
BANKS (REGIONAL)-1.64%
HSBC Americas Inc., Unsec. Sub.
Notes, 7.00%, 11/01/06 5,430,000 5,663,979
- ---------------------------------------------------------------
Marshall & Ilsley-Series D,
Medium Term Notes, 6.43%,
10/15/02 4,000,000 4,115,800
- ---------------------------------------------------------------
Mercantile Bancorp Inc.,
Sub. Notes, 6.375%, 01/15/04 700,000 716,464
- ---------------------------------------------------------------
Unsec. Sub. Notes, 7.30%,
06/15/07 7,500,000 8,219,250
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
BANKS (REGIONAL)-(CONTINUED)
Signet Banking Corp., Sub.
Notes, 7.80%, 09/15/06 $ 5,000,000 $ 5,631,700
- ---------------------------------------------------------------
Swiss Bank Corp.-NY, Sub. Deb.,
7.375%, 07/15/15 5,000,000 5,348,900
- ---------------------------------------------------------------
US Bancorp, Sub. Deb., 7.50%,
06/01/26 7,500,000 8,379,075
- ---------------------------------------------------------------
38,075,168
- ---------------------------------------------------------------
BEVERAGES (NON-ALCOHOLIC)-0.16%
Coca-Cola Enterprises, Inc.,
Putable Notes, 8.35%,
06/20/20(b) 15,000,000 3,846,600
- ---------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE)-0.97%
Comcast Cable Communications,
Notes, 8.50%, 05/01/27 3,400,000 4,266,796
- ---------------------------------------------------------------
Unsec. Unsub. Notes, 6.20%,
11/15/08 2,750,000 2,804,945
- ---------------------------------------------------------------
CSC Holdings, Inc.,
Sr. Unsec. Deb., 7.625%,
07/15/18 3,100,000 3,174,152
- ---------------------------------------------------------------
Sr. Unsec. Notes, 7.875%,
12/15/07 4,200,000 4,430,160
- ---------------------------------------------------------------
TCI Communications Inc., Sr.
Notes, 8.00%, 08/01/05 2,000,000 2,255,140
- ---------------------------------------------------------------
USA Networks, Inc., Sr. Notes,
6.75%, 11/15/05(a)
(Acquisition 11/30/98; Cost
$5,615,344) 5,600,000 5,614,896
- ---------------------------------------------------------------
22,546,089
- ---------------------------------------------------------------
CHEMICALS-0.90%
Airgas Inc., Medium Term Notes,
7.14%, 03/08/04 6,700,000 6,841,504
- ---------------------------------------------------------------
Solutia Inc., Sr. Unsec. Deb.,
6.72%, 10/15/37 7,480,000 7,599,680
- ---------------------------------------------------------------
Union Carbide Corp., Deb.,
6.79%, 06/01/25 6,500,000 6,593,470
- ---------------------------------------------------------------
21,034,654
- ---------------------------------------------------------------
CHEMICALS (DIVERSIFIED)-0.24%
Monsanto Co., Deb., 6.50%,
12/01/18(a) (Acquired
12/04/98; Cost $5,477,010) 5,500,000 5,538,335
- ---------------------------------------------------------------
CHEMICALS (SPECIALTY)-0.21%
Millennium America Inc., Co.
Guaranty Notes, 7.00%,
11/15/06 5,000,000 4,934,550
- ---------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-0.38%
Comverse Technology Inc., Conv.
Unsec. Sub. Debs, 4.50%,
07/01/05 7,000,000 8,855,000
- ---------------------------------------------------------------
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
COMPUTERS (HARDWARE)-0.37%
Candescent Technology Corp.,
Conv. Sr. Sub. Deb., 7.00%,
05/01/03(a) (Acquisition
04/17/98-11/03/98; Cost
$9,245,000) $ 9,500,000 $ 8,550,000
- ---------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-0.81%
Network Associates Inc., Conv.
Unsec. Sub. Deb., 4.00%,
02/12/18(b) 15,000,000 9,225,000
- ---------------------------------------------------------------
Veritas Software Corp., Conv.
Unsec. Sub. Notes, 5.25%,
11/01/04 6,000,000 9,697,500
- ---------------------------------------------------------------
18,922,500
- ---------------------------------------------------------------
CONSUMER (JEWELRY, NOVELTIES & GIFTS)-0.22%
American Greetings, Unsec.
Notes, 6.10%, 08/01/28 4,930,000 5,099,986
- ---------------------------------------------------------------
CONSUMER FINANCE-0.90%
Beneficial Corp.-Series H,
Medium Term Notes, 6.94%,
12/15/06 4,750,000 5,015,572
- ---------------------------------------------------------------
Commercial Credit Co.,
Putable Notes, 6.625%,
06/01/15 2,000,000 2,066,660
- ---------------------------------------------------------------
Putable Notes, 7.875%,
02/01/25 4,000,000 4,728,080
- ---------------------------------------------------------------
Countrywide Funding Corp., Sub.
Notes, 8.25%, 07/15/02 500,000 530,290
- ---------------------------------------------------------------
Ford Motor Credit, Notes, 6.75%,
08/15/08 800,000 862,208
- ---------------------------------------------------------------
GMAC, Notes, 9.00%, 10/15/02 4,175,000 4,659,216
- ---------------------------------------------------------------
Household Finance Corp., Notes,
7.125%, 09/01/05 3,000,000 3,192,120
- ---------------------------------------------------------------
21,054,146
- ---------------------------------------------------------------
ELECTRIC COMPANIES-2.33%
Arizona Public Service Co.,
Notes, 6.25%, 01/15/05 5,000,000 5,132,200
- ---------------------------------------------------------------
CMS Energy Corp., Sr. Unsec.
Notes, 7.375%, 11/15/00 3,500,000 3,521,980
- ---------------------------------------------------------------
Commonwealth Edison Co., First
Mortgage Notes, 7.50%,
07/01/13 7,000,000 7,915,320
- ---------------------------------------------------------------
El Paso Electric Co.,
Series D Sec. First Mortgage
Bonds, 8.90%, 02/01/06 4,750,000 5,350,875
- ---------------------------------------------------------------
Series E Sec. First Mortgage
Bonds, 9.40%, 05/01/11 4,000,000 4,542,280
- ---------------------------------------------------------------
Niagara Mohawk Power Corp.,
First Mortgage Notes, 9.25%,
10/01/01 3,630,000 3,932,923
- ---------------------------------------------------------------
First Mortgage Notes, 6.625%,
07/01/05 7,200,000 7,443,504
- ---------------------------------------------------------------
Series G Sr. Unsec. Notes,
7.75%, 10/01/08 4,300,000 4,700,330
- ---------------------------------------------------------------
UtiliCorp United, Inc., Sr.
Unsec. Notes, 6.70%, 10/15/06 3,000,000 3,117,090
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
ELECTRIC COMPANIES-(CONTINUED)
Western Resources Inc.,
Sr. Unsec. Notes, 6.25%,
08/15/03 $ 1,925,000 $ 1,963,038
- ---------------------------------------------------------------
Sr. Unsec. Notes, 7.125%,
08/01/09 6,000,000 6,531,600
- ---------------------------------------------------------------
54,151,140
- ---------------------------------------------------------------
ELECTRONICS (DEFENSE)-0.05%
Raytheon Co., Deb., 7.20%,
08/15/27 1,000,000 1,085,900
- ---------------------------------------------------------------
ELECTRONICS
(SEMICONDUCTORS)-0.21%
Amkor Technology, Inc., Conv.
Unsec. Sub. Notes, 5.75%,
05/01/03 5,000,000 4,950,000
- ---------------------------------------------------------------
ENGINEERING & CONSTRUCTION-0.11%
EMCOR Group, Inc., Conv. Unsec.
Sub. Notes, 5.75%, 04/01/05 3,000,000 2,568,750
- ---------------------------------------------------------------
ENTERTAINMENT-0.78%
Time Warner, Inc.,
Deb., 9.125%, 01/15/13 9,070,000 11,406,523
- ---------------------------------------------------------------
Unsec. Deb., 6.85%, 01/15/26 6,400,000 6,733,056
- ---------------------------------------------------------------
18,139,579
- ---------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-1.05%
Associates Corp. of North
America,
Series B Sr. Deb., 7.95%,
02/15/10 5,900,000 6,827,539
- ---------------------------------------------------------------
Sr. Deb., 6.95%, 11/01/18 3,500,000 3,724,910
- ---------------------------------------------------------------
BellSouth Capital Funding, Deb.,
6.04%, 11/15/26 4,000,000 4,124,120
- ---------------------------------------------------------------
Chrysler Financial Corp., Deb.,
8.50%, 02/01/18 150,000 155,466
- ---------------------------------------------------------------
Citigroup, Inc., Deb., 6.625%,
01/15/28 5,000,000 4,936,750
- ---------------------------------------------------------------
Finova Capital Corp., Unsec.
Notes, 7.40%, 05/06/06 3,750,000 3,945,975
- ---------------------------------------------------------------
General Electric Capital Corp.,
Deb., 8.30%, 09/20/09 500,000 609,740
- ---------------------------------------------------------------
24,324,500
- ---------------------------------------------------------------
FOODS-0.85%
ConAgra, Inc.,
Sr. Notes, 6.70%, 08/01/27 7,500,000 7,867,500
- ---------------------------------------------------------------
Sr. Unsec. Notes, 7.125%,
10/01/26 7,000,000 7,479,080
- ---------------------------------------------------------------
Grand Metro Investment, Gtd.
Bonds, 7.45%, 04/15/35 4,000,000 4,422,400
- ---------------------------------------------------------------
19,768,980
- ---------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER)-0.45%
Atrix Labs Inc., Conv. Sub.
Notes, 7.00%, 12/01/04(a)
(Acquired 11/21/97-03/03/98;
Cost $3,055,000) 3,000,000 2,122,500
- ---------------------------------------------------------------
Elan Finance Corp., Conv. Gtd.
Sub. Notes, 3.25%,
12/14/18(a)(b) (Acquired
12/08/98; Cost $7,834,965) 14,930,000 8,398,125
- ---------------------------------------------------------------
10,520,625
- ---------------------------------------------------------------
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
HEALTH CARE (HOSPITAL MANAGEMENT)-0.17%
Tenet Healthcare Corp., Sr.
Unsec. Notes, 8.00%, 01/15/05 $ 3,750,000 $ 3,849,713
- ---------------------------------------------------------------
HEALTH CARE (MANAGED CARE)-0.13%
Alternative Living Services,
Conv. Sub. Deb., 5.25%,
12/15/02 2,500,000 3,090,625
- ---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES)-0.33%
Beckman Coulter, Sr. Unsec. Gtd.
Notes, 7.45%, 03/04/08 5,700,000 5,798,553
- ---------------------------------------------------------------
Boston Scientific, Unsec. Notes,
6.625%, 03/15/05 2,000,000 1,950,260
- ---------------------------------------------------------------
7,748,813
- ---------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES)-0.09%
Res-Care Inc., Conv. Sub. Notes,
6.00%, 12/01/04(a) (Acquired
11/18/97; Cost $1,500,000) 1,500,000 2,075,625
- ---------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-0.28%
Sun Life Canada Capital Trust,
Gtd. Notes, 8.526%,
05/29/49(a) (Acquired
11/05/98; Cost $2,338,097) 2,225,000 2,415,037
- ---------------------------------------------------------------
Torchmark Corp., Notes, 7.875%,
05/15/23 4,000,000 4,158,080
- ---------------------------------------------------------------
6,573,117
- ---------------------------------------------------------------
INSURANCE
(PROPERTY-CASUALTY)-0.58%
Florida Windstorm, Sr. Notes,
6.85%, 08/25/07(a) (Acquired
09/05/97; Cost $7,498,875) 7,500,000 7,899,053
- ---------------------------------------------------------------
USF&G Corp., Gtd. Bonds, 8.47%,
01/10/27 5,000,000 5,615,550
- ---------------------------------------------------------------
13,514,603
- ---------------------------------------------------------------
INVESTMENT
BANKING/BROKERAGE-0.44%
Merrill Lynch & Co., Inc.,
Unsec. Notes, 6.875%, 11/15/18 9,950,000 10,280,141
- ---------------------------------------------------------------
LODGING-HOTELS-0.24%
Hilton Hotels Corp., Sr. Unsec.
Notes, 7.20%, 12/15/09 5,000,000 4,970,550
- ---------------------------------------------------------------
ITT Corp., Unsec. Deb., 7.375%,
11/15/15 750,000 638,100
- ---------------------------------------------------------------
5,608,650
- ---------------------------------------------------------------
NATURAL GAS-1.19%
Enron Corp.,
Notes, 6.75%, 08/01/09 9,080,000 9,441,112
- ---------------------------------------------------------------
Sr. Sub. Deb., 6.75%, 07/01/05 800,000 825,880
- ---------------------------------------------------------------
Ferrellgas Partners, Series B
Sr. Sec. Gtd. Notes, 9.375%,
06/15/06 1,000,000 1,005,000
- ---------------------------------------------------------------
K N Energy, Inc., Unsec. Deb.,
7.35%, 08/01/26 6,350,000 6,700,203
- ---------------------------------------------------------------
National Fuel Gas Co., Series D
Medium Term Notes, 6.303%,
05/27/08 8,600,000 8,886,552
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
NATURAL GAS-(CONTINUED)
PanEnergy Corp., Notes, 7.875%,
08/15/04 $ 750,000 $ 823,478
- ---------------------------------------------------------------
27,682,225
- ---------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT)-0.14%
R & B Falcon Corp.,
Sr. Notes, 9.50%, 12/15/08(a)
(Acquired 12/17/98; Cost
$1,000,000) 1,000,000 1,005,000
- ---------------------------------------------------------------
Series B Sr. Unsec. Notes,
6.95%, 04/15/08 2,500,000 2,171,425
- ---------------------------------------------------------------
3,176,425
- ---------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-0.49%
Louis Dreyfus Natural Gas,
Notes, 6.875%, 12/01/07 5,000,000 4,839,350
- ---------------------------------------------------------------
Tennessee Gas Pipeline Co.,
Bonds, 7.00%, 03/15/27 4,000,000 4,188,480
- ---------------------------------------------------------------
Union Pacific Resources Group
Inc., Deb., 7.50%, 10/15/26 2,500,000 2,413,475
- ---------------------------------------------------------------
11,441,305
- ---------------------------------------------------------------
OIL & GAS (REFINING & MARKETING)-0.33%
Quaker State Corp., Notes,
6.625%, 10/15/05 2,840,000 2,929,971
- ---------------------------------------------------------------
Tosco Corp., Unsec. Deb., 7.80%,
01/01/27 4,450,000 4,708,723
- ---------------------------------------------------------------
7,638,694
- ---------------------------------------------------------------
PERSONAL CARE-0.18%
Alberto-Culver Corp., Unsec.
Deb., 6.375%, 06/15/28 4,000,000 4,191,520
- ---------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT)-0.41%
AES Corp.,
Sr. Sub. Notes, 10.25%,
07/15/06 1,000,000 1,082,500
- ---------------------------------------------------------------
Sr. Sub. Notes, 8.375%,
08/15/07 3,000,000 3,030,000
- ---------------------------------------------------------------
Indiana Michigan Power, Sec.
Lease Obligation Bonds, 9.82%,
12/07/22 1,357,348 1,842,152
- ---------------------------------------------------------------
Kincaid Generation LLC, Sec.
Bonds, 7.33%, 06/15/20(a)
(Acquired 04/30/98; Cost
$3,508,645) 3,500,000 3,495,013
- ---------------------------------------------------------------
9,449,665
- ---------------------------------------------------------------
PUBLISHING (NEWSPAPERS)-0.52%
News America Holdings, Inc.,
Sr. Gtd. Deb., 9.25%, 02/01/13 4,900,000 6,116,033
- ---------------------------------------------------------------
Sr. Gtd. Putable Bonds, 7.43%,
10/01/26 5,450,000 5,924,804
- ---------------------------------------------------------------
12,040,837
- ---------------------------------------------------------------
RAILROADS-0.32%
CSX Corp.-Series C, Medium Term
Notes, 6.80%, 12/01/28 4,000,000 3,990,000
- ---------------------------------------------------------------
Norfolk Southern Corp., Putable
Bonds, 7.05%, 05/01/37 3,000,000 3,387,660
- ---------------------------------------------------------------
7,377,660
- ---------------------------------------------------------------
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
REAL ESTATE INVESTMENT
TRUST-0.30%
Health Care REIT, Inc., Sr.
Unsec. Notes, 7.625%, 03/15/08 $ 2,300,000 $ 2,219,431
- ---------------------------------------------------------------
Spieker Properties LP, Unsec.
Deb., 7.35%, 12/01/17 5,250,000 4,825,537
- ---------------------------------------------------------------
7,044,968
- ---------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS)-0.17%
Ingram Micro Inc., Conv. Deb.,
5.375%, 06/09/18(a)(b)
(Acquired 06/04/98; Cost
$3,981,070) 11,500,000 3,996,250
- ---------------------------------------------------------------
RETAIL (DEPARTMENT STORES)-0.09%
J.C. Penney Co., Inc., Series A
Medium Term Notes, 6.50%,
06/15/02 2,015,000 2,055,219
- ---------------------------------------------------------------
SAVINGS & LOAN COMPANIES-0.24%
Sovereign Bancorp, Inc., Sub.
Notes, 8.00%, 03/15/03 5,330,000 5,607,213
- ---------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-0.53%
Choice Hotels International,
Inc., Sr. Unsec. Gtd. Sub.
Notes, 7.125%, 05/01/08 2,000,000 2,071,654
- ---------------------------------------------------------------
Equity Corp. International
Conv. Unsec. Sub. Deb., 4.50%,
12/31/04 1,500,000 1,798,125
- ---------------------------------------------------------------
Equity Corp. International
Conv. Unsec. Sub. Deb., 4.50%,
12/31/04(a) (Acquired
02/19/98-02/20/98; Cost
$2,501,250) 2,500,000 2,996,875
- ---------------------------------------------------------------
Protection One, Inc., Sr. Notes,
7.375%, 08/15/05(a) (Acquired
08/12/98; Cost $5,487,790) 5,500,000 5,552,470
- ---------------------------------------------------------------
12,419,124
- ---------------------------------------------------------------
SERVICES (DATA PROCESSING)-0.41%
Affiliated Computer Services,
Conv. Sub. Notes, 4.00%,
03/15/05 3,700,000 4,516,313
- ---------------------------------------------------------------
May & Speh, Inc., Sub. Notes,
5.25%, 04/01/03 3,000,000 5,062,500
- ---------------------------------------------------------------
9,578,813
- ---------------------------------------------------------------
SERVICES (EMPLOYMENT)-0.14%
Personnel Group of America,
Inc., Conv. Sub. Notes, 5.75%,
07/01/04(a) (Acquired
06/17/97; Cost $2,750,000) 2,750,000 3,169,375
- ---------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-1.17%
Global Telesystems Group,
Conv. Sr. Sub. Deb., 5.75%,
07/01/10 4,185,000 4,723,819
- ---------------------------------------------------------------
Sr. Sub. Notes, 8.75%,
06/30/00 2,550,000 7,184,625
- ---------------------------------------------------------------
MCI Communications Corp.,
Putable Sr. Unsec. Deb.,
7.125%, 06/15/27 5,280,000 5,615,280
- ---------------------------------------------------------------
Sr. Unsec. 6.50%, 04/15/10 5,000,000 5,257,750
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
TELECOMMUNICATIONS (LONG DISTANCE)-(CONTINUED)
Sprint Capital Corp., Sr. Unsec.
Gtd. Notes, 6.875%, 11/15/28 $ 4,150,000 $ 4,324,964
- ---------------------------------------------------------------
27,106,438
- ---------------------------------------------------------------
TELEPHONE-0.80%
Alltel Corp., Unsec. Deb.,
7.00%, 03/15/16 1,500,000 1,614,585
- ---------------------------------------------------------------
GTE Florida, Inc., Unsec. Deb.,
6.86%, 02/01/28 4,750,000 5,154,842
- ---------------------------------------------------------------
GTE North Inc. Series G Unsec.
Deb., 6.73%, 02/15/28 3,000,000 3,222,930
- ---------------------------------------------------------------
SBC Communications, Inc., Deb.,
7.375%, 07/15/43 7,930,000 8,653,375
- ---------------------------------------------------------------
18,645,732
- ---------------------------------------------------------------
WASTE MANAGEMENT-0.23%
WMX Technologies, Inc., Unsec.
Putable Notes, 7.10%, 08/01/26 5,200,000 5,445,596
- ---------------------------------------------------------------
Total Domestic Bonds & Notes
(Cost $550,095,856) 574,746,413
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
DOMESTIC COMMON STOCKS-42.20%
BANKS (MONEY CENTER)-0.72%
BankAmerica Corp. 88,948 5,347,999
- ---------------------------------------------------------------
Chase Manhattan Corp. (The) 120,000 8,167,500
- ---------------------------------------------------------------
First Union Corp. 53,830 3,273,537
- ---------------------------------------------------------------
16,789,036
- ---------------------------------------------------------------
BANKS (REGIONAL)-0.86%
Bank United Corp.-Class A 110,000 4,317,500
- ---------------------------------------------------------------
CNBT Bancshares, Inc. 170,000 1,678,750
- ---------------------------------------------------------------
Colorado Business Bankshares,
Inc.(c) 150,000 1,631,250
- ---------------------------------------------------------------
Southwest Bancorp. of Texas,
Inc.(c) 270,600 4,836,975
- ---------------------------------------------------------------
Sterling Bancshares, Inc. 300,000 4,462,500
- ---------------------------------------------------------------
TCF Financial Corp. 130,000 3,144,375
- ---------------------------------------------------------------
20,071,350
- ---------------------------------------------------------------
BEVERAGES (NON-ALCOHOLIC)-0.31%
Coca-Cola Co. (The) 60,000 4,012,500
- ---------------------------------------------------------------
PepsiCo, Inc. 80,000 3,275,000
- ---------------------------------------------------------------
7,287,500
- ---------------------------------------------------------------
BIOTECHNOLOGY-0.64%
Biogen, Inc.(c) 75,000 6,225,000
- ---------------------------------------------------------------
Genzyme Corp.(c) 175,000 8,706,250
- ---------------------------------------------------------------
14,931,250
- ---------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE)-1.13%
CBS Corp.(c) 280,000 9,170,000
- ---------------------------------------------------------------
Heftel Broadcasting Corp.(c) 145,000 7,141,250
- ---------------------------------------------------------------
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
BROADCASTING (TELEVISION, RADIO & CABLE)-(CONTINUED)
Univision Communications Inc.(c) 275,000 $ 9,951,562
- ---------------------------------------------------------------
26,262,812
- ---------------------------------------------------------------
BUILDING MATERIALS-0.17%
Group Maintenance America
Corp.(c) 325,000 3,940,625
- ---------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-1.29%
ADC Telecommunications, Inc.(c) 140,000 4,865,000
- ---------------------------------------------------------------
ANTEC Corp.(c) 275,000 5,534,375
- ---------------------------------------------------------------
Brightpoint, Inc.(c) 220,000 3,025,000
- ---------------------------------------------------------------
Lucent Technologies, Inc. 110,000 12,100,000
- ---------------------------------------------------------------
Tellabs, Inc.(c) 65,000 4,456,562
- ---------------------------------------------------------------
29,980,937
- ---------------------------------------------------------------
COMPUTERS (HARDWARE)-1.40%
Compaq Computer Corp. 240,000 10,065,000
- ---------------------------------------------------------------
Dell Computer Corp.(c) 160,000 11,710,000
- ---------------------------------------------------------------
International Business Machines
Corp. 37,000 6,835,750
- ---------------------------------------------------------------
Sun Microsystems, Inc.(c) 46,000 3,938,750
- ---------------------------------------------------------------
32,549,500
- ---------------------------------------------------------------
COMPUTERS (NETWORKING)-1.08%
Ascend Communications, Inc.(c) 180,000 11,835,000
- ---------------------------------------------------------------
Cisco Systems, Inc.(c) 144,000 13,365,000
- ---------------------------------------------------------------
25,200,000
- ---------------------------------------------------------------
COMPUTERS (PERIPHERALS)-0.49%
EMC Corp.(c) 135,000 11,475,000
- ---------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-3.18%
America Online, Inc.(c)(d) 194,000 31,040,000
- ---------------------------------------------------------------
Computer Associates
International, Inc. 75,000 3,196,875
- ---------------------------------------------------------------
Engineering Animation, Inc.(c) 85,000 4,590,000
- ---------------------------------------------------------------
HBO & Co. 200,000 5,737,500
- ---------------------------------------------------------------
HNC Software Inc.(c) 45,000 1,819,687
- ---------------------------------------------------------------
ISS Group, Inc.(c) 100,000 5,500,000
- ---------------------------------------------------------------
Microsoft Corp.(c) 40,000 5,547,500
- ---------------------------------------------------------------
Platinum Technology, Inc.(c) 150,000 2,868,750
- ---------------------------------------------------------------
Sterling Commerce, Inc.(c) 90,000 4,050,000
- ---------------------------------------------------------------
U.S. Web Corp.(c) 369,000 9,732,375
- ---------------------------------------------------------------
74,082,687
- ---------------------------------------------------------------
CONSUMER (JEWELRY, NOVELTIES & GIFTS)-0.12%
Blyth Industries, Inc.(c) 87,500 2,734,375
- ---------------------------------------------------------------
CONSUMER FINANCE-0.32%
SLM Holding Corp. 155,000 7,440,000
- ---------------------------------------------------------------
DISTRIBUTORS (FOOD &
HEALTH)-0.38%
Cardinal Health, Inc. 117,500 8,915,313
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ELECTRICAL EQUIPMENT-0.44%
General Electric Co. 100,000 $ 10,206,250
- ---------------------------------------------------------------
Sensormatic Electronics Corp. 4,392 30,469
- ---------------------------------------------------------------
10,236,719
- ---------------------------------------------------------------
ELECTRONICS
(INSTRUMENTATION)-0.27%
Quanta Services, Inc.(c) 289,500 6,387,094
- ---------------------------------------------------------------
ELECTRONICS
(SEMICONDUCTORS)-0.45%
Applied Materials, Inc.(c) 80,000 3,415,000
- ---------------------------------------------------------------
Intel Corp. 60,000 7,113,750
- ---------------------------------------------------------------
10,528,750
- ---------------------------------------------------------------
ENTERTAINMENT-0.30%
Walt Disney Co. (The) 230,000 6,900,000
- ---------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-2.34%
American Express Co. 53,000 5,419,250
- ---------------------------------------------------------------
CIT Group, Inc. (The) 93,700 2,980,831
- ---------------------------------------------------------------
Citigroup Inc. 161,999 8,018,951
- ---------------------------------------------------------------
FINOVA Group, Inc. 50,000 2,696,875
- ---------------------------------------------------------------
Fannie Mae 160,000 11,840,000
- ---------------------------------------------------------------
Freddie Mac 130,000 8,376,875
- ---------------------------------------------------------------
Heller Financial, Inc. 170,000 4,993,750
- ---------------------------------------------------------------
Medallion Financial Corp. 350,000 5,009,375
- ---------------------------------------------------------------
MGIC Investment Corp. 50,000 1,990,625
- ---------------------------------------------------------------
Morgan Stanley, Dean Witter,
Discover & Co. 45,000 3,195,000
- ---------------------------------------------------------------
54,521,532
- ---------------------------------------------------------------
FOODS-0.73%
Balance Bar Co.(c) 190,000 2,042,500
- ---------------------------------------------------------------
Keebler Foods Co.(c) 207,000 7,788,375
- ---------------------------------------------------------------
Ralston-Ralston Purina Group 220,000 7,122,500
- ---------------------------------------------------------------
16,953,375
- ---------------------------------------------------------------
HEALTH CARE (DIVERSIFIED)-1.47%
Abbott Laboratories 65,000 3,185,000
- ---------------------------------------------------------------
American Home Products Corp. 106,000 5,969,125
- ---------------------------------------------------------------
Bristol-Myers Squibb Co. 56,000 7,493,500
- ---------------------------------------------------------------
Johnson & Johnson 70,000 5,871,250
- ---------------------------------------------------------------
Warner-Lambert Co. 155,000 11,654,062
- ---------------------------------------------------------------
34,172,937
- ---------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER)-0.51%
Barr Laboratories, Inc.(c) 81,100 3,892,800
- ---------------------------------------------------------------
Forest Laboratories, Inc.(c) 150,000 7,978,125
- ---------------------------------------------------------------
11,870,925
- ---------------------------------------------------------------
HEALTH CARE (DRUGS-MAJOR
PHARMACEUTICALS)-1.31%
Lilly (Eli) & Co. 90,000 7,998,750
- ---------------------------------------------------------------
</TABLE>
9
<PAGE> 12
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS)-(CONTINUED)
Merck & Co., Inc. 50,500 $ 7,458,219
- ---------------------------------------------------------------
Pfizer Inc. 70,000 8,780,625
- ---------------------------------------------------------------
Schering-Plough Corp. 112,000 6,188,000
- ---------------------------------------------------------------
30,425,594
- ---------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT)-0.42%
New American Healthcare Corp.(c) 360,000 4,027,500
- ---------------------------------------------------------------
Province Healthcare Co.(c) 110,000 3,946,250
- ---------------------------------------------------------------
Tenet Healthcare Corp.(c) 65,000 1,706,250
- ---------------------------------------------------------------
9,680,000
- ---------------------------------------------------------------
HEALTH CARE (LONG TERM
CARE)-0.78%
Assisted Living Concepts,
Inc.(c) 350,000 4,593,750
- ---------------------------------------------------------------
Sunrise Assisted Living, Inc.(c) 260,000 13,487,500
- ---------------------------------------------------------------
18,081,250
- ---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES)-1.83%
Arterial Vascular Engineering,
Inc.(c) 120,000 6,300,000
- ---------------------------------------------------------------
Baxter International Inc. 105,000 6,752,813
- ---------------------------------------------------------------
Becton, Dickinson & Co. 156,400 6,676,325
- ---------------------------------------------------------------
Guidant Corp. 55,000 6,063,750
- ---------------------------------------------------------------
Medtronic, Inc. 125,000 9,281,250
- ---------------------------------------------------------------
VISX, Inc.(c) 85,000 7,432,187
- ---------------------------------------------------------------
42,506,325
- ---------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES)-0.73%
Boron, LePore & Associates,
Inc.(c) 100,000 3,450,000
- ---------------------------------------------------------------
MAXIMUS, Inc.(c) 160,300 5,931,100
- ---------------------------------------------------------------
Omnicare, Inc. 115,000 3,996,250
- ---------------------------------------------------------------
Pentegra Dental Group, Inc.(c) 17,000 42,500
- ---------------------------------------------------------------
Quintiles Transnational Corp.(c) 68,000 3,629,500
- ---------------------------------------------------------------
17,049,350
- ---------------------------------------------------------------
HOUSEHOLD FURN. &
APPLIANCES-0.27%
Ethan Allen Interiors, Inc. 150,900 6,186,900
- ---------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES)-0.29%
Colgate-Palmolive Co. 29,000 2,693,375
- ---------------------------------------------------------------
Procter & Gamble Co. (The) 45,000 4,109,062
- ---------------------------------------------------------------
6,802,437
- ---------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-0.76%
Conseco, Inc. 50,000 1,528,125
- ---------------------------------------------------------------
Equitable Companies, Inc. 85,000 4,919,375
- ---------------------------------------------------------------
Nationwide Financial Services,
Inc.-Class A 140,000 7,236,250
- ---------------------------------------------------------------
ReliaStar Financial Corp. 85,000 3,920,625
- ---------------------------------------------------------------
17,604,375
- ---------------------------------------------------------------
INSURANCE (MULTI-LINE)-0.69%
American Bankers Insurance
Group, Inc. 50,000 2,418,750
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
INSURANCE (MULTI-LINE)-(CONTINUED)
CIGNA Corp. 54,000 $ 4,174,875
- ---------------------------------------------------------------
Lincoln National Corp. 75,000 6,135,938
- ---------------------------------------------------------------
MONY Group, Inc.(c) 107,400 3,362,962
- ---------------------------------------------------------------
16,092,525
- ---------------------------------------------------------------
INSURANCE
(PROPERTY-CASUALTY)-0.71%
Everest Reinsurance Holdings,
Inc. 135,000 5,256,563
- ---------------------------------------------------------------
Progressive Corp. 48,000 8,130,000
- ---------------------------------------------------------------
Travelers Property Casualty
Corp.-Class A 100,000 3,100,000
- ---------------------------------------------------------------
16,486,563
- ---------------------------------------------------------------
INVESTMENT
BANKING/BROKERAGE-0.23%
Merrill Lynch & Co., Inc. 80,000 5,340,000
- ---------------------------------------------------------------
INVESTMENT MANAGEMENT-0.16%
Federated Investors, Inc.-Class
B 206,400 3,741,000
- ---------------------------------------------------------------
LAND DEVELOPMENT-0.12%
Silverleaf Resorts, Inc.(c) 300,000 2,793,750
- ---------------------------------------------------------------
LEISURE TIME (PRODUCTS)-0.26%
Coach USA, Inc.(c) 174,800 6,063,375
- ---------------------------------------------------------------
LODGING-HOTELS-0.35%
Carnival Corp.-Class A 130,000 6,240,000
- ---------------------------------------------------------------
Crestline Capital Corp.(c) 12,500 182,813
- ---------------------------------------------------------------
Host Marriott Corp.(c) 125,000 1,726,563
- ---------------------------------------------------------------
8,149,376
- ---------------------------------------------------------------
MANUFACTURING
(DIVERSIFIED)-0.27%
Tyco International Ltd. 82,000 6,185,875
- ---------------------------------------------------------------
MANUFACTURING
(SPECIALIZED)-0.71%
Superior TeleCom Inc. 230,000 10,867,500
- ---------------------------------------------------------------
USEC Inc. 400,000 5,550,000
- ---------------------------------------------------------------
16,417,500
- ---------------------------------------------------------------
METAL FABRICATORS-0.10%
Metals USA(c) 229,000 2,232,750
- ---------------------------------------------------------------
NATURAL GAS-0.69%
Columbia Energy Group 37,500 2,165,625
- ---------------------------------------------------------------
Energen Corp. 137,800 2,687,100
- ---------------------------------------------------------------
Enron Corp. 85,000 4,850,313
- ---------------------------------------------------------------
Williams Companies, Inc. (The) 207,000 6,455,812
- ---------------------------------------------------------------
16,158,850
- ---------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT)-0.16%
Halliburton Co. 122,000 3,614,250
- ---------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-0.27%
Conoco Inc.-Class A(c) 300,000 6,262,500
- ---------------------------------------------------------------
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
OIL (INTERNATIONAL
INTEGRATED)-0.31%
Exxon Corp. 65,000 $ 4,753,125
- ---------------------------------------------------------------
Mobil Corp. 27,000 2,352,375
- ---------------------------------------------------------------
7,105,500
- ---------------------------------------------------------------
PERSONAL CARE-0.53%
Avon Products, Inc. 108,000 4,779,000
- ---------------------------------------------------------------
Gillette Co. 154,000 7,440,125
- ---------------------------------------------------------------
12,219,125
- ---------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT)-0.51%
AES Corp.(c) 156,000 7,390,500
- ---------------------------------------------------------------
CalEnergy Co., Inc.(c) 130,000 4,509,375
- ---------------------------------------------------------------
11,899,875
- ---------------------------------------------------------------
PUBLISHING-0.10%
Meredith Corp. 63,100 2,389,912
- ---------------------------------------------------------------
REAL ESTATE INVESTMENT
TRUST-1.46%
Alexandria Real Estate Equities,
Inc. 220,000 6,806,250
- ---------------------------------------------------------------
Boston Properties, Inc. 145,000 4,422,500
- ---------------------------------------------------------------
CCA Prison Realty Trust 270,000 5,535,000
- ---------------------------------------------------------------
Corporate Office Properties
Trust, Inc. 281,100 2,002,838
- ---------------------------------------------------------------
Correctional Properties Trust 51,000 921,188
- ---------------------------------------------------------------
Crescent Real Estate Equities,
Co. 154,000 3,542,000
- ---------------------------------------------------------------
Golf Trust of America, Inc. 106,500 2,955,375
- ---------------------------------------------------------------
Mid-Atlantic Realty Trust 175,900 2,165,769
- ---------------------------------------------------------------
Starwood Hotels & Resorts 100,000 2,268,750
- ---------------------------------------------------------------
Vornado Realty Trust 100,000 3,375,000
- ---------------------------------------------------------------
33,994,670
- ---------------------------------------------------------------
RETAIL (FOOD CHAINS)-0.73%
American Stores Co. 159,000 5,873,063
- ---------------------------------------------------------------
Safeway, Inc.(c) 184,000 11,212,500
- ---------------------------------------------------------------
17,085,563
- ---------------------------------------------------------------
RETAIL (GENERAL
MERCHANDISE)-0.45%
Dayton Hudson Corp. 195,000 10,578,750
- ---------------------------------------------------------------
RETAIL (SPECIALTY)-0.58%
Linens 'N Things, Inc.(c) 219,200 8,685,800
- ---------------------------------------------------------------
Musicland Stores Corp.(c) 320,200 4,782,987
- ---------------------------------------------------------------
13,468,787
- ---------------------------------------------------------------
SAVINGS & LOAN COMPANIES-0.31%
Washington Mutual, Inc. 190,000 7,255,625
- ---------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING)-0.56%
Abacus Direct Corp.(c) 42,400 1,929,200
- ---------------------------------------------------------------
Outdoor Systems, Inc.(c) 262,000 7,860,000
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SERVICES (ADVERTISING/MARKETING)-(CONTINUED)
Young & Rubicam, Inc.(c) 102,300 $ 3,311,962
- ---------------------------------------------------------------
13,101,162
- ---------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-1.66%
Apollo Group, Inc.(c) 222,000 7,520,250
- ---------------------------------------------------------------
Avis Rent A Car, Inc.(c) 148,000 3,579,750
- ---------------------------------------------------------------
Comfort Systems USA, Inc.(c) 149,200 2,666,950
- ---------------------------------------------------------------
Hertz Corp.-Class A 130,000 5,931,250
- ---------------------------------------------------------------
INSpire Insurance Solutions,
Inc.(c) 150,000 2,756,250
- ---------------------------------------------------------------
Metzler Group, Inc.(c) 166,800 8,121,075
- ---------------------------------------------------------------
Service Corp. International 80,000 3,045,000
- ---------------------------------------------------------------
SM&A Corp.(c) 165,000 3,135,000
- ---------------------------------------------------------------
Trammell Crow Co.(c) 70,400 1,971,208
- ---------------------------------------------------------------
38,726,733
- ---------------------------------------------------------------
SERVICES (COMPUTER
SYSTEMS)-0.15%
Ciber, Inc.(c) 125,000 3,492,188
- ---------------------------------------------------------------
SERVICES (DATA PROCESSING)-0.51%
Affiliated Computer Services,
Inc.(c) 28,200 1,269,000
- ---------------------------------------------------------------
Ceridian Corp.(c) 82,100 5,731,606
- ---------------------------------------------------------------
DST Systems, Inc.(c) 86,000 4,907,375
- ---------------------------------------------------------------
11,907,981
- ---------------------------------------------------------------
SERVICES (EMPLOYMENT)-0.39%
Administaff, Inc.(c) 110,000 2,750,000
- ---------------------------------------------------------------
Data Processing Resources
Corp.(c) 131,000 3,831,750
- ---------------------------------------------------------------
Metamor Worldwide, Inc.(c) 100,000 2,500,000
- ---------------------------------------------------------------
9,081,750
- ---------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-1.70%
AT&T Corp. 83,010 6,246,503
- ---------------------------------------------------------------
IXC Communications, Inc.(c) 200,000 6,725,000
- ---------------------------------------------------------------
MCI WorldCom, Inc.(c) 154,923 11,115,725
- ---------------------------------------------------------------
Pacific Gateway Exchange,
Inc.(c) 150,000 7,209,375
- ---------------------------------------------------------------
WinStar Communications, Inc.(c) 210,422 8,206,460
- ---------------------------------------------------------------
39,503,063
- ---------------------------------------------------------------
TELEPHONE-1.38%
Bell Atlantic Corp. 100,000 5,681,250
- ---------------------------------------------------------------
McLeodUSA Inc.-Class A(c) 117,000 3,656,250
- ---------------------------------------------------------------
NEXTLINK Communications,
Inc.-Class A(c) 64,900 1,841,537
- ---------------------------------------------------------------
Qwest Communications
International Inc.(c) 300,000 15,000,000
- ---------------------------------------------------------------
US West, Inc. 90,000 5,816,250
- ---------------------------------------------------------------
31,995,287
- ---------------------------------------------------------------
TOBACCO-0.34%
Philip Morris Companies, Inc. 150,000 8,025,000
- ---------------------------------------------------------------
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TRUCKERS-0.17%
C.H. Robinson Worldwide, Inc. 150,000 $ 3,890,625
- ---------------------------------------------------------------
WASTE MANAGEMENT-0.65%
Allied Waste Industries, Inc.(c) 320,000 7,560,000
- ---------------------------------------------------------------
Denali Inc.(c) 314,000 4,396,000
- ---------------------------------------------------------------
Republic Services, Inc.(c) 173,800 3,204,437
- ---------------------------------------------------------------
15,160,437
- ---------------------------------------------------------------
Total Domestic Common Stocks
(Cost $662,566,106) 981,988,295
- ---------------------------------------------------------------
DOMESTIC CONVERTIBLE PREFERRED STOCKS-2.15%
BANKS (REGIONAL)-0.13%
Westpac Banking Corp. STRYPES
Trust-$3.135 Conv. Pfd. 95,000 2,998,438
- ---------------------------------------------------------------
CHEMICALS (DIVERSIFIED)-0.28%
Monsanto Co.-$2.60 Conv. Pfd. 135,000 6,615,000
- ---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES)-0.10%
McKesson Corp.-$2.50 Conv.
Pfd.(a) (Acquired 02/13/97;
Cost $1,105,000) 22,100 2,406,137
- ---------------------------------------------------------------
HOMEBUILDING-0.18%
Fleetwood Capital Trust-$3.00
Conv. Pfd.(a) (Acquired
02/04/98; Cost $4,500,000) 90,000 4,218,750
- ---------------------------------------------------------------
LODGING-HOTELS-0.40%
Lodgian Capital Trust I-$3.50
Conv. Pfd.(a) (Acquired
06/09/98; Cost $3,500,000) 70,000 1,557,500
- ---------------------------------------------------------------
Royal Caribbean Cruises
Ltd.-$3.63 Conv. Pfd. 64,475 7,640,288
- ---------------------------------------------------------------
9,197,788
- ---------------------------------------------------------------
NATURAL GAS-0.12%
KN Energy, Inc.-$3.548 Conv.
Pfd. 72,000 2,704,500
- ---------------------------------------------------------------
PERSONAL CARE-0.20%
Estee Lauder Co.-$3.805 Conv.
Pfd. 60,000 4,650,000
- ---------------------------------------------------------------
REAL ESTATE INVESTMENT
TRUST-0.16%
Reckson Associates Realty-$1.91
Conv. Pfd. 180,000 3,802,500
- ---------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-0.39%
L&H Capital Trust I, $2.375
Conv. Pfd.(a) (Acquired
05/20/98; Cost $5,000,000) 100,000 3,187,500
- ---------------------------------------------------------------
United Rentals Trust I-$3.25
Conv. Pfd.(a) (Acquired
07/30/98; Cost $6,000,000) 120,000 5,775,000
- ---------------------------------------------------------------
8,962,500
- ---------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-0.15%
IXC Communications, Inc.-$3.375
Conv. Pfd.(a) (Acquired
03/25/98; Cost $3,500,000) 70,000 2,318,750
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TELECOMMUNICATIONS (LONG DISTANCE)-(CONTINUED)
WinStar Communications,
Inc.-$3.50 Conv. Pfd. 26,100 $ 1,200,600
- ---------------------------------------------------------------
3,519,350
- ---------------------------------------------------------------
TELEPHONE-0.04%
NEXTLINK Communications-$3.25
Conv. Pfd.(a) (Acquired
03/26/98-06/02/98; Cost
$975,188) 20,800 847,600
- ---------------------------------------------------------------
Total Domestic Convertible
Preferred Stocks (Cost
$51,842,169) 49,922,563
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
U.S. DOLLAR DENOMINATED FOREIGN
BONDS & NOTES-3.32%
CANADA-2.37%
Bell Canada
(Telecommunications-Long
Distance), Yankee Deb., 9.50%,
10/15/10 $ 1,750,000 2,305,293
- ---------------------------------------------------------------
Great Atlantic & Pacific Tea
Co., Inc. (Retail-Food
Chains), Yankee Gtd. Notes,
7.78%, 11/01/00(a) (Acquired
10/18/95-04/27/98; Cost
$5,131,490) 5,000,000 5,206,800
- ---------------------------------------------------------------
Gulf Canada Resources, Ltd.
(Oil-International
Integrated), Sr. Yankee Unsec.
Notes, 8.35%, 08/01/06 4,500,000 4,532,265
- ---------------------------------------------------------------
Husky Oil Ltd.
(Oil-International
Integrated), Sr. Unsec. Yankee
Notes, 7.125%, 11/15/06 6,300,000 6,338,682
- ---------------------------------------------------------------
Laidlaw, Inc.
(Services-Commercial &
Consumer), Yankee Deb.,
6.72%, 10/1/27 3,000,000 2,978,580
- ---------------------------------------------------------------
Yankee Unsec. Deb., 6.70%,
05/01/08 6,900,000 6,747,993
- ---------------------------------------------------------------
Nova Gas Transmission Ltd.
(Chemicals), Yankee Deb.,
8.50%, 12/15/12 5,015,000 6,087,207
- ---------------------------------------------------------------
Province of Manitoba (Sovereign
Debt),
Yankee Deb., 7.75%, 07/17/16 1,500,000 1,770,690
- ---------------------------------------------------------------
Yankee Unsec. Deb., 5.50%,
10/01/08 2,000,000 2,023,420
- ---------------------------------------------------------------
Province of Quebec (Sovereign
Debt),
Yankee Notes, 5.735%, 03/02/26 2,300,000 2,591,410
- ---------------------------------------------------------------
Yankee Notes, 6.29%, 03/06/26 2,050,000 2,299,034
- ---------------------------------------------------------------
Royal Bank of Canada
(Banks-Major Regional), Yankee
Sub. Notes, 6.75%, 10/24/11 3,000,000 3,135,210
- ---------------------------------------------------------------
Talisman Energy, Inc.
(Oil-International
Integrated), Yankee Deb.,
7.125%, 06/01/07 1,500,000 1,551,060
- ---------------------------------------------------------------
Yankee Deb., 7.25%, 10/15/27 4,150,000 4,072,146
- ---------------------------------------------------------------
Trans-Canada Pipelines (Natural
Gas), Yankee Bonds, 6.49%,
01/21/09 3,400,000 3,475,310
- ---------------------------------------------------------------
55,115,100
- ---------------------------------------------------------------
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
CAYMAN ISLANDS-0.10%
Hutchison Delta Finance
(Shipping), Conv. Unsec.
Notes, 7.00%, 11/08/01 $ 2,250,000 $ 2,418,750
- ---------------------------------------------------------------
GERMANY-0.16%
Dresdner Bank A.G. (Banks-Major
Regional), Sub. Bonds, 6.00%,
11/03/08 4,000,000 3,816,896
- ---------------------------------------------------------------
NORWAY-0.22%
Petroleum Geo-Services A.S.A.
(Oil & Gas-Drilling &
Equipment), Sr. Unsec. Yankee
Notes, 7.125%, 03/30/28 5,400,000 5,097,222
- ---------------------------------------------------------------
UNITED KINGDOM-0.47%
Royal Bank of Scotland PLC
(Banks-Major Regional), Yankee
Sub. Notes, 6.375%, 02/01/11 1,500,000 1,486,695
- ---------------------------------------------------------------
Terra Nova Insurance Holdings,
(Insurance-Property/Casualty),
Sr. Unsec. Yankee Gtd. Notes,
7.20%, 08/15/07 7,000,000 7,227,850
- ---------------------------------------------------------------
Sr. Unsec. Gtd. Notes, 7.00%,
05/15/08 2,100,000 2,139,291
- ---------------------------------------------------------------
10,853,836
- ---------------------------------------------------------------
Total U.S. Dollar
Denominated Foreign Bonds
& Notes (Cost $76,378,792) 77,301,804
- ---------------------------------------------------------------
NON-U.S. DOLLAR DENOMINATED FOREIGN BONDS & NOTES(E)-2.80%
BRITISH POUNDS STERLING-0.60%
Fannie Mae
(Financial-Diversified), Sr.
Unsec. Unsub. Notes, 6.875%,
06/07/02 GBP 2,800,000 4,948,005
- ---------------------------------------------------------------
Province of Ontario (Sovereign
Debt), Notes, 11.125%,
02/14/01 1,600,000 2,923,505
- ---------------------------------------------------------------
Sutton Bridge Financial Ltd.
(Financial-Diversified), Gtd.
Bonds, 8.625%, 06/03/22(a)
(Acquired 05/29/97; Cost
$4,890,565) 3,000,000 6,008,530
- ---------------------------------------------------------------
13,880,040
- ---------------------------------------------------------------
CANADIAN DOLLARS-0.73%
Bank of Montreal (Banks-Money
Center), Sub. Deb., 7.92%,
07/31/12 CAD 1,850,000 1,401,042
- ---------------------------------------------------------------
Bell Mobility Cellular,
(Telecommunications-Cellular/Wireless),
Deb., 6.55%, 06/02/08 2,500,000 1,673,121
- ---------------------------------------------------------------
Canadian Oil Debco Inc. (Oil &
Gas-Exploration & Production),
Deb., 11.00%, 10/31/00 2,500,000 1,777,778
- ---------------------------------------------------------------
NAV Canada (Services-Commercial
& Consumer), Bonds, 7.40%,
06/01/27 3,500,000 2,802,699
- ---------------------------------------------------------------
Poco Petroleums Ltd. (Oil &
Gas-Exploration & Production),
Unsec. Deb., 6.60%, 09/11/07 5,400,000 3,462,212
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
CANADIAN DOLLARS-(CONTINUED)
Province of Ontario (Sovereign
Debt), Sr. Unsub. Notes,
8.00%, 03/11/03 CAD 2,300,000 $ 1,673,375
- ---------------------------------------------------------------
Telegobe Canada, Inc.
(Telephone), Unsec. Deb., 8.35%,
06/20/03 1,000,000 730,634
- ---------------------------------------------------------------
Trans-Canada Pipelines (Natural
Gas), Series Q Deb., 10.625%,
10/20/09 1,500,000 1,351,235
- ---------------------------------------------------------------
Westcoast Energy, Inc. (Natural
Gas), Deb., 6.45%, 12/18/06 3,000,000 2,076,510
- ---------------------------------------------------------------
16,948,606
- ---------------------------------------------------------------
DUTCH GUILDERS-0.41%
Koninklijke Ahold N.V.
(Retail-Food Chains), Conv.
Sub. Notes, 3.00%, 09/30/03NLG 15,000,000 9,583,644
- ---------------------------------------------------------------
FRENCH FRANCS-0.37%
France Telecom (Telephone),
Conv. Bonds, 2.00%,
01/01/04 FRF 45,132,800 8,589,161
- ---------------------------------------------------------------
NEW ZEALAND DOLLARS-0.64%
Canadian Government (Sovereign
Debt), Bonds, 6.625%,
10/03/07 NZD 1,000,000 540,357
- ---------------------------------------------------------------
Fannie Mae (Sovereign Debt),
Notes, 7.25%, 06/20/02 11,600,000 6,334,992
- ---------------------------------------------------------------
International Bank for
Reconstruction and Development
(Banks-Money Center), Sr.
Unsec. Unsub. Notes, 5.50%,
04/15/04 8,500,000 4,368,740
- ---------------------------------------------------------------
New Zealand Government
(Sovereign Debt), Bonds,
8.00%, 11/15/06 2,750,000 1,680,036
- ---------------------------------------------------------------
Province of Ontario (Sovereign
Debt), Unsec. Unsub. Notes,
6.25%, 12/03/08 3,750,000 1,938,971
- ---------------------------------------------------------------
14,863,096
- ---------------------------------------------------------------
SWISS FRANCS-0.05%
Swiss Re (Insurance Brokers),
2.25%, 04/17/08 CHF 2,000,000 1,309,709
- ---------------------------------------------------------------
Total Non-U.S. Dollar
Denominated Foreign Bonds
& Notes (Cost $62,481,034) 65,174,256
- ---------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY INTERESTS-3.83%
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
Australia-0.21%
St. George Bank Ltd.
(Banks-Regional), $4.50 Conv.
Pfd.(a) (Acquired 05/21/98-
05/22/98; Cost $5,007,500) 100,000 4,787,500
- ---------------------------------------------------------------
BERMUDA-0.39%
Annuity and Life Re, Ltd.
(Insurance-Life/ Health) 47,000 1,269,000
- ---------------------------------------------------------------
Global Crossing Ltd.
(Telecommunications-Long
Distance)(c) 175,000 7,896,875
- ---------------------------------------------------------------
9,165,875
- ---------------------------------------------------------------
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
CANADA-0.62%
Cadillac Fairview Corp. (Land
Development)(c) 180,000 $ 3,363,750
- ---------------------------------------------------------------
MetroNet Communications
Corp.-Class B (Communications
Equipment)(c) 120,000 4,020,000
- ---------------------------------------------------------------
Teleglobe, Inc.
(Services-Commercial &
Consumer) 195,000 7,020,000
- ---------------------------------------------------------------
14,403,750
- ---------------------------------------------------------------
CAYMAN ISLANDS-0.21%
Scottish Annuity Life and
Holdings
(Insurance-Life/Health)(c) 350,000 4,812,500
- ---------------------------------------------------------------
FINLAND-0.78%
Fortum Corp. (Electric
Companies)(c) 517,300 3,146,532
- ---------------------------------------------------------------
Nokia Oyj A.B.-Class A-ADR
(Communications Equipment) 100,000 12,043,750
- ---------------------------------------------------------------
Sonera Group Oyj
(Telecommunications-Cellular/Wireless)(c) 169,900 3,000,294
- ---------------------------------------------------------------
18,190,576
- ---------------------------------------------------------------
FRANCE-0.43%
Alstom (Engineering &
Construction)(c) 105,000 2,460,864
- ---------------------------------------------------------------
AXA-ADR (Insurance-Multi-Line) 40,000 2,890,000
- ---------------------------------------------------------------
France Telecom S.A.-ADR
(Communications Equipment) 60,000 4,736,250
- ---------------------------------------------------------------
10,087,114
- ---------------------------------------------------------------
GERMANY-0.31%
DaimlerChrysler A.G.
(Automobiles) 74,820 7,187,396
- ---------------------------------------------------------------
NETHERLANDS-0.18%
Equant N.V.
(Computers-Networking)(c) 61,200 4,150,125
- ---------------------------------------------------------------
NORWAY-0.04%
Petroleum Geo-Services ASA-ADR
(Oil & Gas-Drilling &
Equipment)(c) 60,000 945,000
- ---------------------------------------------------------------
PORTUGAL-0.09%
Telecel-Comunicacaoes Pessoais,
S.A.
(Telecommunications-Cellular/Wireless) 10,300 2,105,527
- ---------------------------------------------------------------
SPAIN-0.13%
Corporacion Bancaria de Espana
S.A.-ADR (Banks-Regional) 56,952 2,933,028
- ---------------------------------------------------------------
UNITED KINGDOM-0.44%
Avis Europe PLC
(Services-Commercial &
Consumer) 765,450 3,192,974
- ---------------------------------------------------------------
ESG Re Limited
(Insurance-Life/Health) 116,300 2,355,075
- ---------------------------------------------------------------
SmithKline Beecham PLC-ADR
(Health Care-Drugs-Major
Pharmaceuticals) 46,000 3,197,000
- ---------------------------------------------------------------
Stolt Comex Seaway, S.A.-ADR
(Oil & Gas-Exploration &
Production)(c) 80,000 450,000
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
UNITED KINGDOM-(CONTINUED)
Stolt Comex Seaway, S.A. (Oil &
Gas-Exploration &
Production)(c) 160,000 $ 1,080,000
- ---------------------------------------------------------------
10,275,049
- ---------------------------------------------------------------
Total Foreign Stocks & Other
Equity Interests (Cost
$60,639,798) 89,043,440
- ---------------------------------------------------------------
OPTIONS PURCHASED-0.03%
COMPUTERS (SOFTWARE & SERVICES)-0.03%
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF EXERCISE EXPIRATION
CONTRACTS PRICE DATE
<S> <C> <C> <C> <C>
America Online, Inc.(c)
(premiums paid
$752,000) 500 140 Feb 99 793,750
- ----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
U.S. TREASURY SECURITIES-12.90%
U.S. TREASURY BILLS-4.03%
Bills, 4.439%, 03/25/99 94,635,000 $ 93,664,071
- ---------------------------------------------------------------
U.S. TREASURY BONDS &
NOTES-8.87%
Notes, 6.50%, 05/31/01 17,000,000 17,734,060
- ---------------------------------------------------------------
Notes, 6.25%, 08/31/02 17,750,000 18,678,325
- ---------------------------------------------------------------
Notes, 5.625%, 12/31/02 10,000,000 10,340,200
- ---------------------------------------------------------------
Notes, 5.75%, 04/30/03 2,900,000 3,019,741
- ---------------------------------------------------------------
Notes, 7.25%, 08/15/04 7,500,000 8,434,650
- ---------------------------------------------------------------
Notes, 7.875%, 11/15/04 15,000,000 17,383,350
- ---------------------------------------------------------------
Notes, 7.50%, 02/15/05 3,000,000 3,435,210
- ---------------------------------------------------------------
Notes, 6.50%, 08/15/05 5,000,000 5,495,750
- ---------------------------------------------------------------
Notes, 6.50%, 10/15/06 12,000,000 13,314,960
- ---------------------------------------------------------------
Notes, 6.25%, 02/15/07 5,000,000 5,483,900
- ---------------------------------------------------------------
Notes, 6.625%, 05/15/07 7,000,000 7,872,480
- ---------------------------------------------------------------
Notes, 5.625%, 05/15/08 4,000,000 4,264,960
- ---------------------------------------------------------------
Bonds, 15.75%, 11/15/01 29,975,000 38,796,942
- ---------------------------------------------------------------
Bonds, 6.75%, 08/15/26 3,000,000 3,595,170
- ---------------------------------------------------------------
Bonds, 6.625%, 02/15/27 11,700,000 13,837,122
- ---------------------------------------------------------------
Bonds, 6.375%, 08/15/27 10,000,000 11,499,100
- ---------------------------------------------------------------
Bonds, 6.125%, 11/15/27 13,500,000 15,118,650
- ---------------------------------------------------------------
Bonds, 5.50%, 08/15/28 7,750,000 8,114,017
- ---------------------------------------------------------------
206,418,587
- ---------------------------------------------------------------
Total U.S. Treasury Securities (Cost
$290,283,459) 300,082,658
- ---------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES-2.75%
Federal National Mortgage Association, Bonds,
7.00%, 05/01/28 23,591,060 24,070,195
- ---------------------------------------------------------------
6.50%, 11/01/28 9,746,500 9,810,437
- ---------------------------------------------------------------
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. GOVERNMENT AGENCY SECURITIES-(CONTINUED)
6.50%, 12/01/28 10,000,000 $ 10,065,600
- ---------------------------------------------------------------
Federal Home Loan Mortgage Corp,
Bonds, 6.50%, 12/01/28 15,000,000 15,112,500
- ---------------------------------------------------------------
Tennessee Valley Authority,
Bonds, 5.98%, 04/01/36 4,600,000 4,830,621
- ---------------------------------------------------------------
Total U.S. Government Agency
Securities (Cost
$63,524,560) 63,889,353
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
REPURCHASE AGREEMENT(f)-4.50%
J.P. Morgan Securities, Inc.,
4.75%, 01/04/99 (Cost
$104,629,612)(g) 104,629,612 $ 104,629,612
- ---------------------------------------------------------------
TOTAL INVESTMENTS-99.18% 2,307,572,144
- ---------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-0.82% 18,985,855
- ---------------------------------------------------------------
NET ASSETS-100.00% $2,326,557,999
===============================================================
</TABLE>
(a) 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 12/31/98 was $104,284,271
which represented 4.48% of the Fund's net assets.
(b) Zero coupon bond issued at a discount. The interest rate shown represents
the rate of original discount.
(c) Non-income producing security.
(d) A portion of this security is subject to call options written. See Note 8.
(e) Foreign denominated security. Par value and coupon are denominated in
currency of country indicated.
(f) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value is at least 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(g) Joint repurchase agreement entered into 12/31/98 with a maturing value
$500,263,889. Collateralized by U.S. Government agency obligations, 0% to
7.55% due 01/04/99 to 10/03/22 with an aggregate market value at 12/31/98 of
$510,001,764.
Investment abbreviations:
ADR - American Depositary Receipts
CAD - Canadian Dollars
CHF - Swiss Francs
Conv. - Convertible
Ctfs. - Certificates
Deb. - Debentures
FRF - French Francs
GBP - British Pounds Sterling
Gtd. - Guaranteed
NLG - Dutch Guilders
NZD - New Zealand Dollars
Pfd. - Preferred
Sr. - Senior
STRYPES - Structured Yield Product Exchangeable for Stock
Sub. - Subordinated
Unsec. - Unsecured
Unsub. - Unsubordinated
See Notes to Financial Statements.
15
<PAGE> 18
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$1,923,193,386) $2,307,572,144
- ---------------------------------------------------------
Receivables for:
Investments sold 8,100,350
- ---------------------------------------------------------
Fund shares sold 6,973,557
- ---------------------------------------------------------
Interest and dividends 16,480,727
- ---------------------------------------------------------
Variation margin 680,000
- ---------------------------------------------------------
Forward currency contracts 319,763
- ---------------------------------------------------------
Investment for deferred compensation plan 28,328
- ---------------------------------------------------------
Other assets 70,388
- ---------------------------------------------------------
Total assets 2,340,225,257
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 4,878,740
- ---------------------------------------------------------
Fund shares reacquired 4,619,491
- ---------------------------------------------------------
Deferred compensation plan 28,328
- ---------------------------------------------------------
Options written (Premiums received
$797,973) 862,500
- ---------------------------------------------------------
Forward currency contracts 60,135
- ---------------------------------------------------------
Accrued advisory fees 975,482
- ---------------------------------------------------------
Accrued distribution fees 1,730,654
- ---------------------------------------------------------
Accrued transfer agent fees 72,708
- ---------------------------------------------------------
Accrued operating expenses 439,220
- ---------------------------------------------------------
Total liabilities 13,667,258
- ---------------------------------------------------------
Net assets applicable to shares
outstanding $2,326,557,999
- ---------------------------------------------------------
NET ASSETS:
Class A $1,318,229,911
=========================================================
Class B $ 894,164,902
=========================================================
Class C $ 114,163,186
=========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 46,698,085
=========================================================
Class B 31,727,364
=========================================================
Class C 4,046,845
=========================================================
Class A:
Net asset value and redemption price
per share $ 28.23
- ---------------------------------------------------------
Offering price per share:
(Net asset value of $28.23
divided by 95.25%) $ 29.64
=========================================================
Class B:
Net asset value and offering price per
share $ 28.18
=========================================================
Class C:
Net asset value and offering price per
share $ 28.21
=========================================================
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 53,301,282
- ---------------------------------------------------------
Dividends (net of $42,654 foreign
withholding tax) 11,932,232
- ---------------------------------------------------------
Total investment income 65,233,514
- ---------------------------------------------------------
EXPENSES:
Advisory fees 9,043,320
- ---------------------------------------------------------
Administrative services fees 104,952
- ---------------------------------------------------------
Custodian fees 181,516
- ---------------------------------------------------------
Distribution fees-Class A 2,440,180
- ---------------------------------------------------------
Distribution fees-Class B 6,948,906
- ---------------------------------------------------------
Distribution fees-Class C 627,014
- ---------------------------------------------------------
Trustees' fees 19,242
- ---------------------------------------------------------
Transfer agent fees-Class A 1,240,251
- ---------------------------------------------------------
Transfer agent fees-Class B 1,255,480
- ---------------------------------------------------------
Transfer agent fees-Class C 95,084
- ---------------------------------------------------------
Other 662,571
- ---------------------------------------------------------
Total expenses 22,618,516
- ---------------------------------------------------------
Less: Expenses paid indirectly (36,748)
- ---------------------------------------------------------
Net expenses 22,581,768
- ---------------------------------------------------------
Net investment income 42,651,746
- ---------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN
CURRENCIES, FORWARD CURRENCY CONTRACTS,
FUTURES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (48,583,504)
- ---------------------------------------------------------
Foreign currencies 162,571
- ---------------------------------------------------------
Forward currency contracts 213,074
- ---------------------------------------------------------
Futures contracts 12,419,792
- ---------------------------------------------------------
Option contracts purchased 148,320
- ---------------------------------------------------------
Option contracts written 678,046
- ---------------------------------------------------------
(34,961,701)
- ---------------------------------------------------------
Net unrealized appreciation (depreciation)
of:
Investment securities 188,156,393
- ---------------------------------------------------------
Foreign currencies 13,023
- ---------------------------------------------------------
Forward currency contracts 259,592
- ---------------------------------------------------------
Future contracts 14,118,475
- ---------------------------------------------------------
Option contracts purchased 41,750
- ---------------------------------------------------------
Option contracts written (75,211)
- ---------------------------------------------------------
202,514,022
- ---------------------------------------------------------
Net gain from investment securities,
foreign currencies, forward currency
contracts, futures and option
contracts 167,552,321
- ---------------------------------------------------------
Net increase in net assets resulting from
operations $210,204,067
=========================================================
</TABLE>
16
<PAGE> 19
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 42,651,746 $ 19,016,014
- ---------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies, futures and option contracts (34,961,701) 34,831,453
- ---------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities,
foreign currencies, forward currency contracts, futures
and option contracts 202,514,022 134,939,011
- ---------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 210,204,067 188,786,478
- ---------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (25,009,619) (12,472,168)
- ---------------------------------------------------------------------------------------------
Class B (12,164,517) (5,631,570)
- ---------------------------------------------------------------------------------------------
Class C (1,261,081) (29,666)
- ---------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on
investment securities:
Class A (2,990,460) (19,245,568)
- ---------------------------------------------------------------------------------------------
Class B (2,026,544) (13,549,718)
- ---------------------------------------------------------------------------------------------
Class C (260,076) (198,011)
- ---------------------------------------------------------------------------------------------
Net equalization credits -- 8,681,162
- ---------------------------------------------------------------------------------------------
Share transactions-net:
Class A 537,064,636 260,376,777
- ---------------------------------------------------------------------------------------------
Class B 344,386,485 192,163,146
- ---------------------------------------------------------------------------------------------
Class C 99,082,872 9,380,380
- ---------------------------------------------------------------------------------------------
Net increase in net assets 1,147,025,763 608,261,242
- ---------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 1,179,532,236 571,270,994
- ---------------------------------------------------------------------------------------------
End of period $2,326,557,999 $1,179,532,236
=============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,957,596,687 $ 958,373,243
- ---------------------------------------------------------------------------------------------
Undistributed net investment income 5,095,292 20,023,353
- ---------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities, foreign currencies, futures and option
contracts (34,826,585) 4,957,057
- ---------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies, forward currency contracts, futures and
option contracts 398,692,605 196,178,583
- ---------------------------------------------------------------------------------------------
$2,326,557,999 $1,179,532,236
=============================================================================================
</TABLE>
See Notes to Financial Statements.
17
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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: Class A shares, Class B
shares and Class C shares. Class A shares are sold with a front-end sales
charge. Class B shares and Class C shares are sold with a contingent deferred
sales charge. Matters affecting each portfolio or class 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, and paid quarterly. On
December 31, 1998 additional paid-in capital was increased by $348,718,
undistributed net investment income was decreased by $803,857 and
undistributed net realized gains was increased by $455,139 as a result of
differing book/tax treatment of foreign currency transactions and
equalization credits in order to comply with the requirements of the American
Institute of Certified Public Accountants Statement of Position 93-2. Net
assets of the Fund were unaffected by the reclassifications discussed above.
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. The Fund has a capital loss
carryforward of $20,440,896 (which may be carried forward to offset future
taxable capital gains, if any) which expires, if not previously utilized,
through the year 2006. The Fund cannot distribute capital gains to
shareholders until the tax loss carryforwards have been utilized.
E. Equalization -- The Fund previously followed the accounting practice known as
equalization by which a portion of the proceeds from sales and 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
net income when the transaction is recorded so that the undistributed net
investment income per share is unaffected by sales or redemptions of Fund
shares. Effective January 1, 1998, the Fund discontinued equalization
accounting and reclassified the cumulative equalization credits of
$18,340,733 from
18
<PAGE> 21
undistributed net investment income to paid-in capital. This change had no
effect on the net assets, the results of operations or the net asset value
per share of the Fund.
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 denominated in foreign currencies are translated into U.S.
dollar amounts on the respective dates of such transactions. The Fund does
not separately account for that portion of the results of operations
resulting from changes in foreign exchange rates on investments and the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
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. Outstanding forward currency contracts at December 31, 1998 were
as follows:
<TABLE>
<CAPTION>
CONTRACT TO UNREALIZED
SETTLEMENT ------------------------ APPRECIATION
DATE DELIVER RECEIVE VALUE (DEPRECIATION)
---------- ---------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
01/13/99 NZD 6,000,000 $ 3,124,500 $ 3,154,584 $(30,084)
01/14/99 GBP 7,200,000 12,137,328 11,950,315 187,013
01/15/99 DEM 1,500,000 919,811 900,836 18,975
02/04/99 CAD 12,500,000 8,203,822 8,169,690 34,132
02/04/99 NZD 12,000,000 6,379,440 6,308,521 70,919
02/26/99 DEM 600,000 353,503 361,094 (7,591)
02/26/99 GBP 700,000 1,154,559 1,157,678 (3,119)
02/26/99 NZD 1,200,000 639,540 630,816 8,724
02/26/99 NZD 7,800,000 4,080,960 4,100,301 (19,341)
----------- ----------- --------
$36,993,463 $36,733,835 $259,628
=========== =========== ========
</TABLE>
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.
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, 1998, AIM
was reimbursed $104,952 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, 1998, AFS
was paid $1,438,687 for such services.
19
<PAGE> 22
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 compensation at an annual
rate of 1.00% of the average daily net assets of the Class B shares. Of these
amounts, the Fund may pay a service fee of 0.25% of the average daily net assets
of the Class A, Class B or 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 under the Plans would constitute an
asset-based sales charge. The Plans also impose a cap on the total sales
charges, including asset-based sales charges that may be paid by the respective
classes. During the year ended December 31, 1998, the Class A, Class B and Class
C shares paid AIM Distributors $2,440,180, $6,948,906 and $627,014,
respectively, as compensation under the Plans.
AIM Distributors received commissions of $1,172,743 from sales of the Class A
shares of the Fund during the year ended December 31, 1998. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended December 31, 1998,
AIM Distributors received $106,255 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, 1998, the Fund paid legal fees of $6,473
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
During the year ended December 31, 1998, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) and reductions in custodian
fees of $19,083 and $17,665, respectively under expense offset arrangements. The
effect of the above arrangements resulted in a reduction of the Fund's total
expenses of $36,748 during the year ended December 31, 1998.
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) $1,000,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. Interest on
borrowings under the line of credit is payable on maturity or prepayment date.
Prior to an amendment of the line of credit on May 1, 1998, the Fund was limited
to borrowing up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. During the year ended December 31, 1998, 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, 1998 was
$1,513,656,427 and $691,078,348, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of December 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $420,949,737
- ---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (36,578,566)
- ---------------------------------------------------------
Net unrealized appreciation of investment
securities $384,371,171
=========================================================
Cost of investments for tax purposes is $1,923,200,973.
</TABLE>
NOTE 7-FUTURES CONTRACTS
On December 31, 1998, $13,503,000 principal amount of U.S. Treasury obligations
were pledged as collateral to cover margin requirements for open futures
contracts.
Open futures contracts at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
UNREALIZED
NO. OF APPRECIATION
CONTRACT CONTRACTS MONTH COMMITMENT (DEPRECIATION)
- -------- --------- ----- ---------- --------------
<S> <C> <C> <C> <C>
S&P 500 Index 800 Mar. Buy $14,118,475
======================================================================
</TABLE>
NOTE 8-CALL OPTION CONTRACTS WRITTEN
Transactions in call options written during the year ended December 31, 1998 are
summarized as follows:
<TABLE>
<CAPTION>
CALL OPTION CONTRACTS
-------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- --------
<S> <C> <C>
Beginning of period 500 $ 101,622
- ----------------------------------------------------------
Written 11,913 3,596,915
- ----------------------------------------------------------
Closed (6,821) (2,140,284)
- ----------------------------------------------------------
Exercised (4,142) (650,659)
- ----------------------------------------------------------
Expired (950) (109,621)
- ----------------------------------------------------------
End of period 500 $ 797,973
==========================================================
</TABLE>
Open call option contracts written at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
NUMBER 1998
CONTRACT STRIKE OF PREMIUMS MARKET UNREALIZED
ISSUE MONTH PRICE CONTRACTS RECEIVED VALUE DEPRECIATION
----- -------- ------ --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
America Online,
Inc................ Feb 99 150 500 $797,973 $862,500 $(64,527)
===================== ======= === === ======== ======== ========
</TABLE>
20
<PAGE> 23
NOTE 9-SHARE INFORMATION
Changes in shares outstanding during the years ended December 31, 1998 and 1997
were as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Sold:
Class A 29,663,763 $ 789,886,049 16,304,170 $ 379,544,296
- ----------------------------------------------------------------------------------------------------------------------
Class B 15,995,669 427,423,474 8,995,999 214,419,729
- ----------------------------------------------------------------------------------------------------------------------
Class C* 4,375,455 117,461,185 363,376 9,356,324
- ----------------------------------------------------------------------------------------------------------------------
Issued as reinvestment
of dividends:
Class A 872,547 23,134,563 1,215,553 29,691,206
- ----------------------------------------------------------------------------------------------------------------------
Class B 492,389 13,073,889 710,951 17,509,949
- ----------------------------------------------------------------------------------------------------------------------
Class C* 54,578 1,446,813 8,636 215,490
- ----------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (10,355,432) (275,955,976) (6,305,229) (148,858,725)
- ----------------------------------------------------------------------------------------------------------------------
Class B (3,657,104) (96,110,878) (1,668,675) (39,766,532)
- ----------------------------------------------------------------------------------------------------------------------
Class C* (747,879) (19,825,126) (7,321) (191,434)
- ----------------------------------------------------------------------------------------------------------------------
36,693,986 $ 980,533,993 19,617,460 $ 461,920,303
======================================================================================================================
* Class C shares commenced sales on August 4, 1997.
</TABLE>
NOTE 10-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A and a share of
Class B outstanding during each of the years in the five-year period ended
December 31, 1998, and for a share of Class C outstanding during the year ended
December 31, 1998 and the period August 4, 1997 (date sales commenced) through
December 31, 1997.
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------
1998 1997 1996 1995 1994
---------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 25.78 $ 21.84 $ 19.22 $ 14.62 $ 16.10
- ------------------------------------------------------------ ---------- -------- -------- ------- -------
Income from investment operations:
Net investment income 0.71(a) 0.60 0.66 0.49 0.44
- ------------------------------------------------------------ ---------- -------- -------- ------- -------
Net gains (losses) on securities (both realized and
unrealized) 2.45 4.66 2.99 4.57 (1.31)
- ------------------------------------------------------------ ---------- -------- -------- ------- -------
Total from investment operations 3.16 5.26 3.65 5.06 (0.87)
- ------------------------------------------------------------ ---------- -------- -------- ------- -------
Less distributions:
Dividends from net investment income (0.65) (0.55) (0.55) (0.46) (0.39)
- ------------------------------------------------------------ ---------- -------- -------- ------- -------
Distributions from net realized gains (0.06) (0.77) (0.48) -- (0.22)
- ------------------------------------------------------------ ---------- -------- -------- ------- -------
Total distributions (0.71) (1.32) (1.03) (0.46) (0.61)
- ------------------------------------------------------------ ---------- -------- -------- ------- -------
Net asset value, end of period $ 28.23 $ 25.78 $ 21.84 $ 19.22 $ 14.62
============================================================ ========== ======== ======== ======= =======
Total return(b) 12.46% 24.41% 19.25% 34.97% (5.44)%
============================================================ ========== ======== ======== ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,318,230 $683,633 $334,189 $92,241 $37,572
============================================================ ========== ======== ======== ======= =======
Ratio of expenses to average net assets 0.95%(c) 0.98% 1.15% 1.43%(d) 1.25%(d)
============================================================ ========== ======== ======== ======= =======
Ratio of net investment income to average net assets 2.81%(c) 2.48% 2.97% 2.81%(e) 3.07%(e)
============================================================ ========== ======== ======== ======= =======
Portfolio turnover rate 43% 66% 72% 77% 76%
============================================================ ========== ======== ======== ======= =======
</TABLE>
<TABLE>
<S> <C>
(a) Calculated using average shares outstanding.
(b) Does not deduct sales charges.
(c) Ratios are based on average net assets of $976,072,030.
(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.
</TABLE>
21
<PAGE> 24
NOTE 10-FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
CLASS B CLASS C
------------------------------------------------------------- ---------------------
1998 1997 1996 1995 1994 1998 1997
-------- -------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 25.75 $ 21.83 $ 19.22 $ 14.62 $ 16.11 $ 25.76 $ 25.55
- -------------------------------------- -------- -------- -------- ------- ------- -------- -------
Income from investment operations:
Net investment income 0.42(a) 0.38 0.48 0.31 0.31 0.42(a) 0.16
- -------------------------------------- -------- -------- -------- ------- ------- -------- -------
Net gains (losses) on securities
(both realized and unrealized) 2.51 4.68 2.99 4.61 (1.31) 2.53 1.01
- -------------------------------------- -------- -------- -------- ------- ------- -------- -------
Total from investment operations 2.93 5.06 3.47 4.92 (1.00) 2.95 1.17
- -------------------------------------- -------- -------- -------- ------- ------- -------- -------
Less distributions:
Dividends from net investment income (0.44) (0.37) (0.38) (0.32) (0.27) (0.44) (0.19)
- -------------------------------------- -------- -------- -------- ------- ------- -------- -------
Distributions from net realized gains (0.06) (0.77) (0.48) -- (0.22) (0.06) (0.77)
- -------------------------------------- -------- -------- -------- ------- ------- -------- -------
Total distributions (0.50) (1.14) (0.86) (0.32) (0.49) (0.50) (0.96)
- -------------------------------------- -------- -------- -------- ------- ------- -------- -------
Net asset value, end of period $ 28.18 $ 25.75 $ 21.83 $ 19.22 $ 14.62 $ 28.21 $ 25.76
====================================== ======== ======== ======== ======= ======= ======== =======
Total return(b) 11.53% 23.42% 18.28% 33.93% (6.23)% 11.60% 4.67%
====================================== ======== ======== ======== ======= ======= ======== =======
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $894,165 $486,506 $237,082 $72,634 $20,245 $114,163 $ 9,394
====================================== ======== ======== ======== ======= ======= ======== =======
Ratio of expenses to average net
assets 1.76%(c) 1.79% 1.97% 2.21%(d) 1.98%(d) 1.73%(c) 1.78%(f)
====================================== ======== ======== ======== ======= ======= ======== =======
Ratio of net investment income to
average net assets 2.00%(c) 1.67% 2.15% 2.03%(e) 2.34%(e) 2.03%(c) 1.68%(f)
====================================== ======== ======== ======== ======= ======= ======== =======
Portfolio turnover rate 43% 66% 72% 77% 76% 43% 66%
====================================== ======== ======== ======== ======= ======= ======== =======
</TABLE>
<TABLE>
<S> <C>
(a) Calculated using average shares outstanding.
(b) Does not deduct contingent deferred sales charges and is not
annualized for periods less than one year.
(c) Ratios are based on average net assets of $694,890,554 and
$62,701,487 for Class B and Class C, respectively.
(d) After fee waivers and/or expense reimbursements. Ratios of
expenses to average net assets prior to fee waivers and/or
expense reimbursements were 2.23% 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.
</TABLE>
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, 1998, and the related statement of
operations for the year then ended, the statement of
changes in net assets for each of the years in the
two-year period then ended, and the financial highlights
for each of the years in the five-year period then ended.
These financial statements and financial highlights are
the responsibility of the Fund's management. Our
responsibility is to express an opinion on these
financial statements and financial highlights based on
our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of December 31, 1998, by
correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all
material respects, the financial position of AIM Balanced
Fund as of December 31, 1998, the results of its
operations for the year then ended, the changes in its
net assets for each of the years in the two-year period
then ended, and the financial highlights for each of the
years in the five-year period then ended, in conformity
with generally accepted accounting principles.
KPMG LLP
Houston, Texas
February 5, 1999
23
<PAGE> 26
<TABLE>
<CAPTION>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
<S> <C> <C>
Charles T. Bauer Charles T. Bauer 11 Greenway Plaza
Chairman Chairman Suite 100
A I M Management Group Inc. Houston, TX 77046
Robert H. Graham
Bruce L. Crockett President INVESTMENT ADVISOR
Director
ACE Limited; John J. Arthur A I M Advisors, Inc.
Formerly Director, President, and Senior Vice President and Treasurer 11 Greenway Plaza
Chief Executive Officer Suite 100
COMSAT Corporation Carol F. Relihan Houston, TX 77046
Senior Vice President and Secretary
Owen Daly II TRANSFER AGENT
Director Gary T. Crum
Cortland Trust Inc. Senior Vice President A I M Fund Services, Inc.
P.O. Box 4739
Edward K. Dunn Jr. Dana R. Sutton Houston, TX 77210-4739
Chairman, Mercantile Mortgage Corp.; Vice President and Assistant Treasurer
Formerly Vice Chairman and President, CUSTODIAN
Mercantile-Safe Deposit & Trust Co.; and Robert G. Alley
President, Mercantile Bankshares Vice President State Street Bank and Trust Company
225 Franklin Street
Jack Fields Stuart W. Coco Boston, MA 02110
Chief Executive Officer Vice President
Texana Global, Inc.; COUNSEL TO THE FUND
Formerly Member Melville B. Cox
of the U.S. House of Representatives Vice President Ballard Spahr
Andrews & Ingersoll, LLP
Carl Frischling Karen Dunn Kelley 1735 Market Street
Partner Vice President Philadelphia, PA 19103
Kramer, Levin, Naftalis & Frankel
Jonathan C. Schoolar COUNSEL TO THE TRUSTEES
Robert H. Graham Vice President
President and Chief Executive Officer Kramer, Levin, Naftalis & Frankel
A I M Management Group Inc. Renee A. Friedli 919 Third Avenue
Assistant Secretary New York, NY 10022
Prema Mathai-Davis
Chief Executive Officer, YWCA of the U.S.A., P. Michelle Grace DISTRIBUTOR
Commissioner, New York City Dept. for Assistant Secretary
the Aging; and member of the Board of Directors, A I M Distributors, Inc.
Metropolitan Transportation Authority of Jeffrey H. Kupor 11 Greenway Plaza
New York State Assistant Secretary Suite 100
Houston, TX 77046
Lewis F. Pennock Nancy L. Martin
Attorney Assistant Secretary AUDITORS
Ian W. Robinson Ofelia M. Mayo KPMG LLP
Consultant; Formerly Executive Assistant Secretary 700 Louisiana
Vice President and
Chief Financial Officer Lisa A. Moss Houston, TX 77002
Bell Atlantic Management Assistant Secretary
Services, Inc.
Kathleen J. Pflueger
Louis S. Sklar Assistant Secretary
Executive Vice President
Hines Interests Samuel D. Sirko
Limited Partnership Assistant Secretary
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 $0.649, $0.443, and $0.443 per share, respectively, to
shareholders during its tax year ended December 31, 1998. Of these amounts
19.18% is eligible for the dividends received deduction for corporations.
The Fund also distributed long-term capital gains of $4,951,677 for the Fund's
tax year ended December 31, 1998. Of long-term capital gains distributed, 100%
is 20% rate gain.
REQUIRED STATE INCOME TAX INFORMATION
Of the total ordinary dividends paid, 14.93% were for Class A, 14.89% for Class
B, and 14.89% for Class C shares were derived from U.S. Treasury obligations.
24
<PAGE> 27
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. Certain restrictions
apply.
o RETIREMENT PLANS. You may purchase shares of an AIM fund for your Individual
Retirement Account (IRA), Roth 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-hour-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.
-------------------------------------
CURRENT SHAREHOLDERS
CAN CALL OUR
AIM INVESTOR LINE AT
800-246-5463
FOR 24-HOUR-A-DAY
ACCOUNT INFORMATION.
-------------------------------------
<PAGE> 28
The AIM Family of Funds--Registered Trademark--
<TABLE>
<S> <C> <C>
GROWTH FUNDS INTERNATIONAL GROWTH FUNDS A I M Management Group Inc. has provided leadership
AIM Aggressive Growth Fund(1) AIM Advisor International Value Fund in the mutual fund industry since 1976 and managed
AIM Blue Chip Fund AIM Asian Growth Fund approximately $109 billion in assets for more than
AIM Capital Development Fund AIM Developing Markets Fund(2) 6.2 million shareholders, including individual
AIM Constellation Fund AIM Europe Growth Fund(2) investors, corporate clients, and financial
AIM Mid Cap Equity Fund(2), (A) AIM European Development Fund institutions, as of December 31, 1998. The AIM
AIM Select Growth Fund(3) AIM International Equity Fund Family of Funds--Registered Trademark-- is
AIM Small Cap Growth Fund(2), (B) AIM Japan Growth Fund(2) distributed nationwide, and AIM today is the
AIM Small Cap Opportunities Fund AIM Latin American Growth Fund(2) 10th-largest mutual fund complex in the U.S. in
AIM Value Fund AIM New Pacific Growth Fund(2) assets under management, according to Strategic
AIM Weingarten Fund Insight, an independent mutual fund monitor.
GLOBAL GROWTH FUNDS
GROWTH & INCOME FUNDS AIM Global Aggressive Growth Fund
AIM Advisor Flex Fund AIM Global Growth Fund
AIM Advisor Large Cap Value Fund
AIM Advisor MultiFlex Fund GLOBAL GROWTH & INCOME FUNDS
AIM Advisor Real Estate Fund AIM Global Growth & Income Fund(2)
AIM Balanced Fund AIM Global Utilities Fund
AIM Basic Value Fund(2), (C)
AIM Charter Fund GLOBAL INCOME FUNDS
AIM Emerging Markets Debt Fund(2), (D)
INCOME FUNDS AIM Global Government Income Fund(2)
AIM Floating Rate Fund(2) AIM Global Income Fund
AIM High Yield Fund AIM Strategic Income Fund(2)
AIM High Yield Fund II
AIM Income Fund THEME FUNDS
AIM Intermediate Government Fund AIM Global Consumer Products and Services Fund(2)
AIM Limited Maturity Treasury Fund AIM Global Financial Services Fund(2)
AIM Global Health Care Fund(2)
TAX-FREE INCOME FUNDS AIM Global Infrastructure Fund(2)
AIM High Income Municipal Fund AIM Global Resources Fund(2)
AIM Municipal Bond Fund AIM Global Telecommunications Fund(2)
AIM Tax-Exempt Bond Fund of Connecticut AIM Global Trends Fund(2), (E)
AIM Tax-Free Intermediate Fund
MONEY MARKET FUNDS
AIM Money Market Fund
AIM Tax-Exempt Cash Fund
</TABLE>
(1) AIM Aggressive Growth Fund reopened to new investors November 16, 1998. (2)
Effective May 29, 1998, A I M Advisors, Inc. became advisor to the former GT
Global Funds. (3) On May 1, 1998, AIM Growth Fund was renamed AIM Select Growth
Fund. (A) On September 8, 1998, AIM Mid Cap Growth Fund was renamed AIM Mid Cap
Equity Fund. (B) On September 8, 1998, AIM Small Cap Equity Fund was renamed AIM
Small Cap Growth Fund. (C) On September 8, 1998, AIM America Value Fund was
renamed AIM Basic Value Fund. (D) On September 8, 1998, AIM Global High Income
Fund was renamed AIM Emerging Markets Debt Fund. (E) On September 8, 1998, AIM
New Dimension Fund was renamed AIM Global Trends Fund. For more complete
information about any AIM Fund(s), including sales charges and expenses, ask
your financial consultant or securities dealer for a free prospectus(es). Please
read the prospectus(es) carefully before you invest or send money.
