<PAGE> 1
AIM ADVISOR FLEX FUND
[AIM LOGO APPEARS HERE] ANNUAL REPORT DECEMBER 31, 1997
<PAGE> 2
---------------------------------------
AIM ADVISOR FLEX FUND
For shareholders who seek
to achieve a high total return
on investment through
investments in a combination
of equity securities and fixed and
variable income securities.
---------------------------------------
[COVER PHOTO
APPEARS HERE]
ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT:
o AIM Advisor Flex Fund's performance figures are historical and reflect
reinvestment of all distributions and changes in net asset value. Unless
otherwise indicated, the fund's performance is computed at net asset value
without a sales charge.
o When sales charges are included in performance figures, Class A share
performance reflects the maximum 5.50% sales charge, and Class C share
performance reflects the 1% contingent deferred sales charge, which is
applicable for 12 months following the date of each purchase. The
performance of the Fund's Class A and Class C shares will differ due to
differing fees and expenses.
o During 1997, the Fund paid distributions of $0.93 and $0.79 per share to
Class A and Class C shares, respectively.
o The Fund's investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
o Past performance cannot guarantee comparable future results.
ABOUT INDEXES AND OTHER PERFORMANCE BENCHMARKS CITED IN THIS REPORT:
o The Standard & Poor's Composite Index of 500 Stocks (S&P 500) is a group of
unmanaged securities widely regarded by investors to be representative of
the stock market in general.
o The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30
actively traded primarily industrial stocks.
o The unmanaged Lipper Flexible Portfolio Fund Index represents an average of
the performance of the 30 largest funds in the flexible portfolio fund
category. It is compiled by Lipper Analytical Services, Inc., an independent
mutual funds performance monitor. Results shown reflect reinvestment of
dividends.
o The Lehman Brothers Aggregate Bond Index is an unmanaged index generally
considered representative of corporate debt securities.
o The NASDAQ (National Association of Securities Dealers Automated Quotation
system) Composite Index is a group of more than 4,500 unmanaged
over-the-counter securities widely regarded by investors to be
representative of the small- and medium-sized company stock universe.
o An investment cannot be made in any index listed. Unless otherwise
indicated, index results include reinvested dividends and do not reflect
sales charges.
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENTS
ARE NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY;
ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY,
ANY BANK OR ANY AFFILIATE; AND ARE SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
This report may be distributed only to current shareholders
or to persons who have received a current prospectus of the Fund.
<PAGE> 3
The Chairman's Letter
Dear Fellow Shareholder:
1997 proved an eventful year in securities markets. The Dow
[PHOTO OF Jones Industrial Average reached its all-time high--and also
Charles T. had its largest one-day point drop ever, though not its
Bauer, largest percentage drop. Volatility was unabated, and we
Chairman of experienced the first 10% stock market correction in the
the Board of U.S. since 1991.
THE FUND Never dull and occasionally unsettling, 1997 was also a
APPEARS HERE] very good year for many investments. For an unprecedented
third year in a row, domestic equities rose more than 20%.
Late in the year, in the uncertainty brought on by events in
Asia, bond markets, especially the U.S. Treasury market,
fulfilled their usual role as relative safe havens, and a
bull market in bonds took hold. Overseas, though Asian
markets plummeted, Europe thrived.
Market expectations performed an about-face during the
year. Worry about the inflationary potential of vigorous economic growth became
concern about the potential negative impact of Asia's financial crisis. At
fiscal year end, there was no consensus about how serious or widespread this
impact would be.
An interview with your Fund's managers appears on the following pages. They
discuss their investment strategies, how your Fund performed in this context,
and their outlook for the future.
In uncertain times like these, your financial consultant remains your best
source for information on market trends and for advice on how to invest
strategically rather than emotionally. We encourage you to visit your financial
consultant regularly to make sure your chosen investments still suit your goals,
risk tolerance, and time horizon.
INVESTOR EDUCATION EVENTS
In addition to professional guidance, every investor needs fundamental
information about the saving and investing choices offered by the marketplace.
AIM has always championed investor education, convinced a more knowledgeable
shareholder is a better customer. A great deal of investment information will be
available during two upcoming events, and we hope our shareholders will
participate in and learn from them to the greatest extent possible.
First, from March 29 through April 4, the Securities and Exchange Commission
(SEC) will sponsor Saving and Investing Education Week. As the SEC points out,
financial markets are more stable when investors are confident in them, and
knowledge is a major confidence builder. The week's theme is "Get the facts.
It's your money. It's your future." The aim is to inform citizens about the
saving and investment possibilities available and to build understanding about
how one's financial needs and goals change throughout one's life. The week's
awareness and education events will culminate with a national investors town
meeting at satellite-linked locations across the nation. You can find out more
from the SEC's Web site at www.sec.gov.
The second event concerns citizens' financial planning for retirement, a
subject of growing urgency as the population ages and the solvency of the Social
Security system is increasingly debatable. In July, the first National Summit on
Retirement Savings will be held at the White House. Under the auspices of the
Department of Labor, working through public-private partnership, the summit's
goal is to advance the public's knowledge of retirement savings through
development of a broad-based education program and to develop recommendations
for public/private action to promote private retirement savings among American
workers.
Look for further information on both of these investor education events in
the national and local press.
We are pleased to send you this report on your Fund. Please contact our
Client Services department at 800-959-4246 if you have questions or comments.
Automated information about your account is available 24 hours a day on the AIM
Investor Line, 800-246-5463. Account information and much more can be found on
our Web site, www.aimfunds.com.
Sincerely,
/s/ CHARLES T. BAUER
Charles T. Bauer
Chairman
-------------------------------------
In uncertain times like these,
your financial consultant
remains your best source
for information on market trends
and for advice on
how to invest strategically
rather than emotionally.
-------------------------------------
2
<PAGE> 4
The Managers' Overview
ASSET ALLOCATION DISCIPLINE PRODUCES
IMPRESSIVE RETURNS IN CHANGING MARKET
A roundtable discussion with the portfolio management team for AIM Advisor Flex
Fund for the fiscal year ended December 31, 1997.
- --------------------------------------------------------------------------------
Q. 1997 WAS A TURBULENT YEAR IN THE SECURITIES MARKETS. HOW DID THE FUND
PERFORM IN THIS ENVIRONMENT?
A. The Fund turned in excellent performance despite unusual volatility and a
major correction in the equity markets. It considerably outperformed the
Lipper Flexible Portfolio Funds Index of comparable funds. For the year,
total return at net asset value was 24.60% for Class A shares and 23.64% for
Class C shares. By contrast, the Lipper Flexible Portfolio Funds Index
reported total return of 18.77% for the same period.
================================================================================
Year ended 12/31/97
FUND CLASS A SHARES 24.60%
FUND CLASS C SHARES 23.64%
LIPPER FLEXIBLE PORTFOLIO INDEX 18.77%
================================================================================
Q. HOW WOULD YOU DESCRIBE MARKET CONDITIONS DURING THE FISCAL YEAR?
A. Market expectations shifted 180 degrees during the year. As the year opened,
many expected the Federal Reserve Board (the Fed) to raise interest rates to
slow a robust and possibly inflationary economic expansion. By fiscal year
end, potential deflation had emerged as a topic of public deliberation and
the consensus was that the Fed would either do nothing or lower rates at its
next meeting. The Asian financial crisis, caused by debt default worries in
that region, accounted for much of this change in sentiment because of the
pronounced uncertainty it caused in markets worldwide.
Q. WHAT EFFECT DID THIS CHANGE AND UNCERTAINTY HAVE ON SECURITIES MARKETS?
A. The net result was that for the year as a whole, large-capitalization stocks
again dominated the markets. For a while during the summer and early fall,
investors began to look beyond these stocks, but in the wake of events in
Asia, they retreated to more familiar, more liquid large-capitalization
stocks late in the year. During the last quarter of 1997, the S&P 500 stocks
rose almost 3% in value while NASDAQ small-company stocks declined almost
7%. Overall, it was a very good year for stocks. Total return for the S&P
500 was 33.35%.
In addition to leading investors back into the large-cap universe,
market turmoil also increased the attractiveness of less risky investments
such as Treasury bonds. A bond rally late in the year pushed the yield on
the 30-year U.S. Treasury bond below 6%, its lowest level in more than four
years. Bond performance was quite good for the fiscal year; the Lehman
Brothers Aggregate Bond Index's total return was 9.65%, a respectable
showing for bonds. In the course of the year, the yield curve flattened
dramatically. The spread between a two-year Treasury and a 30-year Treasury
narrowed from 77 to 28 basis points (a basis point is one one-hundredth of a
percentage point).
Q. HOW DID YOU MANAGE THE PORTFOLIO IN THIS ENVIRONMENT?
A. When the fiscal year opened, approximately 66% of the portfolio consisted of
stocks. By fiscal year end, that figure was up to a fairly high 76.7%, which
was largely due to a dramatic decline in interest rates and somewhat soft
stock prices during the fourth quarter.
Our asset allocation decisions are based upon the expected return on
stock investments compared to the expected earnings on bond investments.
Historically, the spread between the expected return on stocks and the
expected return on longer-term bonds has averaged about 3%. When that spread
widens, the Fund gradually shifts the portfolio to emphasize stocks. This
larger exposure to the equity market contributed greatly to the Fund's
excellent total return for the year.
Once the asset allocation has been settled, we use a value-driven
individual stock-selection process on the equity side and a
quality-oriented, volatility-averse bond selection method for the
fixed-income side.
Q. WERE THERE PARTICULAR STOCKS OR SECTOR WEIGHTINGS THAT HELPED PERFORMANCE?
A. The Fund benefited from large exposure to financial stocks, including banks,
brokerage houses, and insurance firms. The financial sector was the year's
best performer among the Dow Jones U.S. industry
------------------------------------
Once the asset allocation has been
settled, we use a value-driven
individual stock-selection process
on the equity side and a
quality-oriented, volatility-averse
bond selection method
for the fixed-income side.
------------------------------------
See important Fund and index disclosures inside front cover.
2
<PAGE> 5
TOP HOLDINGS
As of 12/31/97, based on total net assets
<TABLE>
<CAPTION>
==========================================================================================================================
TOP 10 HOLDINGS TOP 10 INDUSTRIES
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Morgan Stanley, Dean Witter, Discover & Co. 1.71% 1. Oil (International Integrated) 4.39%
2. Merck & Co., Inc. 1.69 2. Telephone 4.35
3. International Business Machines Corp. 1.67 3. Electric Companies 4.18
4. First Chicago NBD Corp. 1.66 4. Manufacturing (Diversified) 4.14
5. First of America Bank Corp. 1.66 5. Computers (Hardware) 4.01
6. Entergy Corp. 1.43 6. Health Care (Drugs-Major Pharmaceuticals) 3.79
7. Electronic Data Systems Corp. 1.40 7. Banks (Major Regional) 3.16
8. Unilever N.V. 1.39 8. Computers (Software & Services) 2.66
9. Royal Dutch Petroleum Co. 1.38 9. Financial (Diversified) 2.65
10. Ford Motor Co. 1.36 10. Foods 2.40
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>
groups. Our financial holdings constituted close to 10% of the portfolio at
fiscal year end.
The growing economy and stable interest rates have helped financial
firms to prosper, and demographic trends are pushing more and more people
into retirement-oriented financial planning. The financial sector also is
experiencing a wave of mergers and acquisitions such as the ones that
produced portfolio holding Morgan Stanley, Dean Witter, Discover & Co.
Financial firms want to be capable of offering the broadest possible range
of services to clients and of competing in a global environment.
Our technology stocks were superb performers. In fact, this is an area
where our stock selections significantly outperformed the tech stocks
included in the S&P 500 index. Among the good performers were Computer
Associates International, Inc., a leading vendor of software that is used to
solve the so-called "millennium problem" of reprogramming older computers to
recognize the year 2000; and International Business Machines Corp., whose
stock price was up significantly during 1997.
Q. YOUR BOND HOLDINGS ARE DOMINATED BY U.S. TREASURY NOTES. WHY IS THAT?
A. Largely, this reflects our quality strategy. Late in 1997, we would have
picked up a mere 50 basis points or so in yield by moving into
mortgage-backed securities, corporate bonds, or other alternative
fixed-income investments. It wasn't worth the sacrifice in quality. This is
a rather conservatively managed portfolio that aims at protecting
shareholders' capital; we try to manage volatility in the bond holdings by
keeping an intermediate duration.
PORTFOLIO COMPOSITION
As of 12/31/97, based on total net assets
================================================================================
Number of Holdings: 111
- --------------------------------------------------------------------------------
Non-Convertible bonds, cash/cash equivalents, & other 3.64%
U. S. Government Securities 19.64%
Common Stock 76.72%
================================================================================
Q. DID THE MARKET DECLINE IN ASIA HAVE A NEGATIVE IMPACT ON THE FUND?
A. No. For example, Compaq Computer Corp. was the portfolio holding most
negatively affected by the market turmoil in Asia, and we had already pared
our holdings of it because of portfolio composition considerations--we
adjust our holdings to assure sufficient diversification in the portfolio, a
key strategy for managing volatility. In addition, the foreign securities in
the portfolio tend to be more mature global concerns domiciled in Europe
such as Unilever N.V. and Royal Dutch Petroleum Co.
In fact, we used the October downturn in the equity markets to add to
our stock holdings.
Q. WHAT IS YOUR OUTLOOK FOR THE NEXT FEW MONTHS?
A. In the U.S., the economic fundamentals are sound: inflation is low,
corporate profits are strong, and the economy is growing at a healthy pace.
These are just about ideal conditions for both stocks and bonds.
For now, our model supports a high allocation to equities. But we have
had three years of unprecedented returns on equity investments, and we doubt
that this can persist. Continuing problems in Asia could slow economic
growth worldwide, reducing corporate profits and stock returns. The same
conditions could add fuel to the ongoing strong rally in the U.S. bond
market. Should the performance differential between these two asset classes
change significantly, we are always prepared to adjust the Fund's
allocations.
See important Fund and index disclosures inside front cover.
3
<PAGE> 6
Long-Term Performance
AIM ADVISOR FLEX FUND VS. BENCHMARK INDEXES
The charts compare your Fund's Class C shares to benchmark indexes. An index
measures the performance of a hypothetical portfolio. In compliance with
Securities and Exchange Commission regulations we compare your Fund to a broad
market index, the S&P 500, which is not managed and therefore involves no sales
charges, expenses, or fees. If you could buy all of the securities that make up
a particular market index, you would incur expenses that would affect the return
on your investment. It is important to note that the S&P 500 is representative
of the stock market only while a portion of AIM Advisor Flex Fund is invested in
the bond market. The second chart compares your Fund's Class C shares to a group
of comparable funds included in the Lipper Flexible Portfolio Fund Index. We
believe this comparison is more representative of the performance you can
realistically expect of your Fund. Keep in mind that an index of funds includes
a number of mutual funds grouped by investment objective. Each of these funds
interprets that objective differently, and each employs a different management
style and investment strategy. Use of these indexes is intended to give you a
general idea of how your Fund performed compared to these indexes. Taken by
itself, this information cannot determine whether a Fund is suitable for any
investor's particular circumstances.
GROWTH OF A $10,000 INVESTMENT
2/24/88 - 12/31/97
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
AIM ADVISOR FLEX FUND, CLASS C SHARES S&P'S 500 STOCK INDEX LIPPER FLEXIBLE PORTFOLIO FUND INDEX
$31,919 $48,885 $30,101
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2/24/88 $10,000 $10,000 $10,000
12/31/88 10,357 10,885 10,324
12/31/89 12,143 14,324 12,104
12/31/90 11,941 13,878 12,217
12/31/91 14,901 18,088 15,510
12/31/92 16,053 19,464 16,388
12/31/93 17,736 21,417 18,474
12/31/94 17,850 21,708 17,980
12/31/95 22,723 29,836 22,223
12/31/96 25,816 36,668 25,344
12/31/97 31,919 48,885 30,101
======================================================================================================================
</TABLE>
Past performance cannot guarantee comparable future results.
================================================================================
Average Annual Total Returns
For periods ended 12/31/97, including applicable sales charges
- --------------------------------------------------------------------------------
CLASS C SHARES
1 Year 22.64%
5 Years 14.74
Inception (2/24/88) 12.50
CLASS A SHARES
1 Year 17.73%
================================================================================
Sources: Towers Data Systems HYPO--Registered Trademark--. Your Fund's total
return includes applicable sales charges, expenses, and management fees. The
performance of the Fund's Class A shares will differ from that of Class C shares
due to differing fees and expenses. For Fund performance calculations and
descriptions of indexes cited on this page, please refer to the inside front
cover.
4
<PAGE> 7
For Consideration
THE ROTH IRA: THE POWER TO KEEP MORE
Contribute After-Tax Dollars Now . . . So You Can Get Federally Tax-Free Savings
Later
A new and potentially more powerful type of IRA--the Roth IRA--became available
on January 1, 1998. What makes it more powerful? The Roth IRA gives you the
opportunity to keep more of what you earn.
Are you eligible to open a Roth IRA? The answer is yes if you or your spouse
has earned income for the tax year for which you want to make the contribution,
and your adjusted gross income is below $110,000 if you are a single tax filer,
$160,000 if you file jointly.
TWO KEY ROTH IRA BENEFITS:
TAX-FREE AND PENALTY-FREE WITHDRAWALS
o Of earnings after five years. Earnings on your Roth IRA are federally
tax-free if your Roth IRA account has been open for five years and you are at
least 59 1/2 years old, or in the case of death or disability. You may also use
up to $10,000 of your earnings to buy a first home (after five years).
o Of contributions at any time. For instance, if you make annual contributions
of $2,000 for the next three years, you may take out up to $6,000 and use that
money for any purpose.
HOW YOU MIGHT PUT BOTH BENEFITS TO WORK FOR YOU
Here's an example of how you may take full advantage of a Roth IRA. You are
39-1/2 years old. You contribute $2,000 after-tax annually in your Roth IRA
every year for 20 years, earning an average annual return of 10%. After 20
years, your account has grown to $126,005. Now at age 59-1/2 you can begin
taking withdrawals and pay no federal income tax or penalty on any of your
$126,005. Or you can keep your money invested and take it out whenever you need
it.
THE ROTH IRA: TO CONVERT OR NOT TO CONVERT
Can you convert your Traditional IRA to a Roth IRA? The answer is yes if you
meet these requirements:
You must pay taxes on the amount you convert. If you convert in 1998, you
can spread your tax payments over the next four years. This four-year allowance
will not be available after December 31, 1998.
You cannot convert to a Roth IRA if you are married and file your tax return
separately, or if your annual gross income is over $100,000.
SOME ROTH IRA CONVERSION GUIDELINES
If you can check most of these boxes, converting your Traditional IRA to a Roth
IRA may make sense for you.
[ ] You have assets outside your retirement savings with which you can easily
afford to pay the taxes due when you convert.
[ ] You have 10 years or more before you retire. The longer you invest tax-free,
the more you benefit.
[ ] Your tax rate will probably be higher in retirement than it is now. If so,
you'll pay less taxes now to convert than you would pay at retirement if you
withdrew from a traditional IRA.
[ ] You plan to convert in 1998. On January 1, 1999, the ability to spread tax
payments over four years disappears.
[ ] You want to keep making contributions after age 70-1/2 and may wish to pass
your IRA assets on to your heirs after your death.
The Roth IRA Analyzer & Calculator
at AIM's Internet Web site--www.aimfunds.com--
[Graphic] can help you determine your IRA eligibility
status and whether it makes sense for you to
convert an existing IRA into a Roth IRA.
MAKE YOUR IRA CONVERSION DECISION A TRULY INFORMED ONE
Talk to your financial consultant, who knows your specific needs and goals. You
may also wish to talk with a tax adviser.
This discussion does not constitute tax advice. Your tax adviser can provide
guidance concerning your particular situation.
5
<PAGE> 8
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-76.72%
AEROSPACE/DEFENSE-1.95%
Boeing Co. (The) 110,000 $ 5,383,125
- --------------------------------------------------------------
Lockheed Martin Corp. 70,000 6,895,000
- --------------------------------------------------------------
12,278,125
- --------------------------------------------------------------
AGRICULTURAL PRODUCTS-1.09%
Archer-Daniels-Midland Co. 315,000 6,831,563
- --------------------------------------------------------------
AUTO PARTS & EQUIPMENT-1.84%
Genuine Parts Co. 200,000 6,787,500
- --------------------------------------------------------------
Snap-on Inc. 110,000 4,798,750
- --------------------------------------------------------------
11,586,250
- --------------------------------------------------------------
AUTOMOBILES-1.36%
Ford Motor Co. 175,000 8,520,313
- --------------------------------------------------------------
BANKS (MAJOR REGIONAL)-2.75%
First Union Corp. 60,000 3,075,000
- --------------------------------------------------------------
NationsBank Corp. 100,000 6,081,250
- --------------------------------------------------------------
Wachovia Corp. 100,000 8,112,500
- --------------------------------------------------------------
17,268,750
- --------------------------------------------------------------
BANKS (MONEY CENTER)-1.66%
First Chicago N.B.D. Corp. 125,000 10,437,500
- --------------------------------------------------------------
BANKS (REGIONAL)-1.66%
First of America Bank Corp. 135,000 10,411,875
- --------------------------------------------------------------
BEVERAGES (ALCOHOLIC)-1.05%
Anheuser-Busch Companies, Inc. 150,000 6,600,000
- --------------------------------------------------------------
CHEMICALS-1.21%
Dow Chemical Co. (The) 75,000 7,612,500
- --------------------------------------------------------------
COMPUTERS (HARDWARE)-4.01%
Compaq Computer Corp. 150,000 8,465,625
- --------------------------------------------------------------
Hewlett-Packard Co. 100,000 6,250,000
- --------------------------------------------------------------
International Business Machines
Corp. 100,000 10,456,250
- --------------------------------------------------------------
25,171,875
- --------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-2.66%
Computer Associates International,
Inc. 150,000 7,931,250
- --------------------------------------------------------------
Electronic Data Systems Corp. 200,000 8,787,500
- --------------------------------------------------------------
16,718,750
- --------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH)-1.21%
Fleming Companies Inc. 100,000 1,343,750
- --------------------------------------------------------------
SUPERVALU, Inc. 150,000 6,281,250
- --------------------------------------------------------------
7,625,000
- --------------------------------------------------------------
ELECTRIC COMPANIES-3.69%
Edison International 250,000 $ 6,796,875
- --------------------------------------------------------------
Entergy Corp. 300,000 8,981,250
- --------------------------------------------------------------
GPU, Inc. 175,000 7,371,875
- --------------------------------------------------------------
23,150,000
- --------------------------------------------------------------
ELECTRICAL EQUIPMENT-2.08%
General Electric Co. 100,000 7,337,500
- --------------------------------------------------------------
Rockwell International Corp. 110,000 5,747,500
- --------------------------------------------------------------
13,085,000
- --------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-2.65%
American General Corp. 110,000 5,946,875
- --------------------------------------------------------------
Morgan Stanley, Dean Witter,
Discover & Co. 181,500 10,731,188
- --------------------------------------------------------------
16,678,063
- --------------------------------------------------------------
FOODS-2.40%
H.J. Heinz Co. 125,000 6,351,562
- --------------------------------------------------------------
Unilever N.V.-New York Shares
(Netherlands) 140,000 8,741,250
- --------------------------------------------------------------
15,092,812
- --------------------------------------------------------------
FOOTWEAR-0.46%
Reebok International Ltd.(a) 100,000 2,881,250
- --------------------------------------------------------------
HEALTH CARE (DIVERSIFIED)-2.26%
Abbott Laboratories 100,000 6,556,250
- --------------------------------------------------------------
American Home Products Corp. 100,000 7,650,000
- --------------------------------------------------------------
14,206,250
- --------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER)-1.17%
Mylan Laboratories, Inc. 350,000 7,328,125
- --------------------------------------------------------------
HEALTH CARE (DRUGS-MAJOR
PHARMACEUTICALS)-3.79%
Lilly (Eli) & Co. 100,000 6,962,500
- --------------------------------------------------------------
Merck & Co., Inc. 100,000 10,625,000
- --------------------------------------------------------------
Schering-Plough Corp. 100,000 6,212,500
- --------------------------------------------------------------
23,800,000
- --------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT)-0.94%
Columbia/HCA Healthcare Corp. 200,000 5,925,000
- --------------------------------------------------------------
HOUSEHOLD FURNITURE & APPLIANCES-0.66%
Whirlpool Corp. 75,000 4,125,000
- --------------------------------------------------------------
HOUSEWARES-0.65%
Fortune Brands, Inc. 110,000 4,076,875
- --------------------------------------------------------------
INSURANCE (MULTI-LINE)-1.01%
Loews Corp. 60,000 6,367,500
- --------------------------------------------------------------
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
INSURANCE (PROPERTY-CASUALTY)-2.23%
Ohio Casualty Corp. 150,000 $ 6,693,750
- --------------------------------------------------------------
SAFECO Corp. 150,000 7,312,500
- --------------------------------------------------------------
14,006,250
- --------------------------------------------------------------
INSURANCE BROKERS-1.19%
Marsh & McLennan Co. 100,000 7,456,250
- --------------------------------------------------------------
IRON & STEEL-1.15%
Nucor Corp. 150,000 7,246,875
- --------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-4.14%
Hanson PLC-ADR (United Kingdom) 225,000 5,189,062
- --------------------------------------------------------------
Minnesota Mining and Manufacturing
Co. 70,000 5,744,375
- --------------------------------------------------------------
National Service Industries, Inc. 75,000 3,717,187
- --------------------------------------------------------------
Norsk Hydro A.S.A.-ADR (Norway) 100,000 5,100,000
- --------------------------------------------------------------
Textron, Inc. 100,000 6,250,000
- --------------------------------------------------------------
26,000,624
- --------------------------------------------------------------
METALS MINING-0.79%
Phelps Dodge Corp. 80,000 4,980,000
- --------------------------------------------------------------
OIL (INTERNATIONAL INTEGRATED)-4.39%
Amoco Corp. 50,000 4,256,250
- --------------------------------------------------------------
Exxon Corp. 100,000 6,118,750
- --------------------------------------------------------------
Repsol S.A.-ADR (Spain) 200,000 8,512,499
- --------------------------------------------------------------
Royal Dutch Petroleum Co.-ADR-New
York Shares (Netherlands) 160,000 8,670,000
- --------------------------------------------------------------
27,557,499
- --------------------------------------------------------------
PAPER & FOREST PRODUCTS-0.68%
Westvaco Corp. 135,000 4,244,063
- --------------------------------------------------------------
PUBLISHING (NEWSPAPERS)-0.98%
Gannett Co., Inc. 100,000 6,181,250
- --------------------------------------------------------------
RAILROADS-0.81%
Illinois Central Corp. 150,000 5,109,375
- --------------------------------------------------------------
RESTAURANTS-0.95%
McDonald's Corp. 125,000 5,968,750
- --------------------------------------------------------------
RETAIL (BUILDING SUPPLIES)-0.82%
Sherwin-Williams Co. 185,000 5,133,750
- --------------------------------------------------------------
RETAIL (DEPARTMENT STORES)-1.52%
Dillards Inc. 100,000 3,525,000
- --------------------------------------------------------------
J.C. Penney Co., Inc. 100,000 6,031,250
- --------------------------------------------------------------
9,556,250
- --------------------------------------------------------------
RETAIL (DRUG STORES)-0.70%
Rite Aid Corp. 75,000 4,401,563
- --------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE)-0.46%
Kmart Corp. 250,000 2,890,625
- --------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-0.98%
Dun & Bradstreet Corp. 200,000 $ 6,187,500
- --------------------------------------------------------------
SPECIALTY PRINTING-0.96%
Deluxe Corp. 175,000 6,037,500
- --------------------------------------------------------------
TELEPHONE-4.35%
Bell Atlantic Corp. 70,000 6,370,000
- --------------------------------------------------------------
British Telecommunications PLC-ADR
(United Kingdom) 88,000 7,067,500
- --------------------------------------------------------------
Telefonica de Espana-ADR (Spain) 60,000 5,463,750
- --------------------------------------------------------------
Telefonos de Mexico S.A.-ADR
(Mexico) 150,000 8,409,375
- --------------------------------------------------------------
27,310,625
- --------------------------------------------------------------
TEXTILES (APPAREL)-1.98%
Liz Claiborne, Inc. 100,000 4,181,250
- --------------------------------------------------------------
VF Corp. 180,000 8,268,750
- --------------------------------------------------------------
12,450,000
- --------------------------------------------------------------
TOBACCO-1.67%
Gallaher Group PLC-ADR (United
Kingdom) 110,000 2,351,250
- --------------------------------------------------------------
Philip Morris Companies, Inc. 180,000 8,156,250
- --------------------------------------------------------------
10,507,500
- --------------------------------------------------------------
WASTE MANAGEMENT-1.76%
Browning-Ferris Industries, Inc. 150,000 5,550,000
- --------------------------------------------------------------
Waste Management, Inc. 200,000 5,500,000
- --------------------------------------------------------------
11,050,000
- --------------------------------------------------------------
Total Common Stocks 482,054,625
- --------------------------------------------------------------
CORPORATE BONDS & NOTES-2.82%
AUTOMOBILES-0.12%
Ford Motor Co., Notes, 7.50%,
11/15/99 $ 750,000 $ 770,100
- --------------------------------------------------------------
BANKS (MAJOR REGIONAL)-0.41%
National City Corp., Sub Notes,
7.20%, 05/15/05 1,000,000 1,040,840
- --------------------------------------------------------------
NationsBank Corp., Sr. Notes,
5.375%, 04/15/00 1,550,000 1,527,758
- --------------------------------------------------------------
2,568,598
- --------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-0.48%
Motorola Inc., Notes, 6.50%,
03/01/08 3,000,000 3,034,620
- --------------------------------------------------------------
CONSUMER FINANCE-0.47%
Commercial Credit Co., Notes,
5.55%, 02/15/01 3,000,000 2,946,540
- --------------------------------------------------------------
ELECTRIC COMPANIES-0.49%
Penn Power & Lighting, First
Mortgage Notes, 6.875%, 02/01/03 1,000,000 1,026,870
- --------------------------------------------------------------
6.55%, 03/01/06 1,900,000 1,921,717
- --------------------------------------------------------------
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
ELECTRIC COMPANIES-(CONTINUED)
Union Electric, First Mortgage
Notes, 6.75%, 10/15/99 $ 150,000 $ 151,940
- --------------------------------------------------------------
3,100,527
- --------------------------------------------------------------
ELECTRICAL EQUIPMENT-0.24%
Boeing Co., Notes, 6.625%,
06/01/05 1,500,000 1,530,960
- --------------------------------------------------------------
RETAIL (BUILDING SUPPLIES)-0.49%
Sherwin-Williams Co., Notes,
6.50%, 02/01/02 3,000,000 3,044,880
- --------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE)-0.12%
Wal-Mart Stores, Notes, 5.50%,
03/01/98 750,000 750,188
- --------------------------------------------------------------
Total Corporate Bonds & Notes 17,746,413
- --------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES-4.01%
Government National Mortgage
Association ("GNMA")-1.08%
Pass through certificates
6.50%, 10/15/08 1,215,910 1,228,446
- --------------------------------------------------------------
7.00%, 10/15/08 1,137,865 1,164,525
- --------------------------------------------------------------
6.00%, 11/15/08 1,300,666 1,297,414
- --------------------------------------------------------------
7.50%, 03/15/26 3,029,768 3,114,965
- --------------------------------------------------------------
6,805,350
- --------------------------------------------------------------
Federal Home Loan Mortgage Corp.
("FHLMC")-0.93%
Pass through certificates
6.50%, 07/01/01 3,389,645 3,409,745
- --------------------------------------------------------------
8.00%, 10/01/10 2,366,659 2,445,777
- --------------------------------------------------------------
5,855,522
- --------------------------------------------------------------
Federal National Mortgage
Association ("FNMA")-2.00%
Pass through certificates
8.50%, 03/01/10 2,356,062 2,448,090
- --------------------------------------------------------------
6.50%, 06/01/11 to 05/01/26 7,251,640 7,209,879
- --------------------------------------------------------------
7.50%, 10/01/96 to 11/01/26 2,807,244 2,874,786
- --------------------------------------------------------------
12,532,755
- --------------------------------------------------------------
Total U.S. Government Agency
Securities 25,193,627
- --------------------------------------------------------------
U.S. TREASURY SECURITIES-15.63%
U.S. Treasury Bonds-4.09%
7.25%, 08/15/22 $ 9,000,000 $ 10,399,680
- --------------------------------------------------------------
9.375%, 02/15/06 8,000,000 9,845,920
- --------------------------------------------------------------
9.25%, 02/15/16 4,000,000 5,428,360
- --------------------------------------------------------------
25,673,960
- --------------------------------------------------------------
U.S. Treasury Notes-11.54%
6.125%, 03/31/98 10,000,000 10,019,300
- --------------------------------------------------------------
7.125%, 10/15/98 5,000,000 5,057,700
- --------------------------------------------------------------
8.875%, 02/15/99 6,250,000 6,467,687
- --------------------------------------------------------------
6.75%, 06/30/99 5,000,000 5,080,400
- --------------------------------------------------------------
6.375%, 07/15/99 5,000,000 5,053,850
- --------------------------------------------------------------
8.75%, 08/15/00 9,000,000 9,663,120
- --------------------------------------------------------------
7.875%, 08/15/01 7,000,000 7,487,620
- --------------------------------------------------------------
7.50%, 05/15/02 4,500,000 4,806,405
- --------------------------------------------------------------
6.25%, 02/15/03 5,000,000 5,115,750
- --------------------------------------------------------------
7.25%, 05/15/04 6,000,000 6,478,440
- --------------------------------------------------------------
6.50%, 08/15/05 7,000,000 7,306,670
- --------------------------------------------------------------
72,536,942
- --------------------------------------------------------------
Total U.S. Treasury Securities 98,210,902
- --------------------------------------------------------------
REPURCHASE AGREEMENT-0.56%(b)
Smith Barney Inc., 6.75%,
01/02/98(c) 3,519,858 3,519,858
- --------------------------------------------------------------
TOTAL INVESTMENTS-99.74% 626,725,425
- --------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-0.26% 1,605,092
- --------------------------------------------------------------
NET ASSETS-100.00% $628,330,517
==============================================================
</TABLE>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) 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 insure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(c) Joint repurchase agreement entered into 12/31/97 with a maturing value of
$400,150,000. Collateralized by $395,097,000 U.S. Government obligations, 0%
to 13.875% due 01/07/98 to 12/15/43 with an aggregate market value at
12/31/97 of $408,000,323.
Abbreviations:
Sr. - Senior
Sub. - Subordinated
See Notes to Financial Statements.
8
<PAGE> 11
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$432,776,171) $626,725,425
- ---------------------------------------------------------
Receivables for:
Capital stock sold 1,053,096
- ---------------------------------------------------------
Interest and dividends 3,500,542
- ---------------------------------------------------------
Investment for deferred compensation plan 2,561
- ---------------------------------------------------------
Other assets 14,718
- ---------------------------------------------------------
Total assets 631,296,342
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Capital stock reacquired 779,071
- ---------------------------------------------------------
Deferred compensation plan 2,561
- ---------------------------------------------------------
Accrued advisory fees 397,296
- ---------------------------------------------------------
Accrued operating services fees 233,315
- ---------------------------------------------------------
Accrued distribution fees 1,511,312
- ---------------------------------------------------------
Accrued directors' fees and expenses 42,270
- ---------------------------------------------------------
Total liabilities 2,965,825
- ---------------------------------------------------------
Net assets applicable to shares outstanding $628,330,517
=========================================================
NET ASSETS:
Class A $ 25,151,388
=========================================================
Class C $603,179,129
=========================================================
CAPITAL STOCK, $.001, PAR VALUE PER SHARE:
Class A:
Authorized 100,000,000
- ---------------------------------------------------------
Outstanding 1,274,141
=========================================================
Class C:
Authorized 100,000,000
- ---------------------------------------------------------
Outstanding 30,552,730
=========================================================
Class A:
Net asset value and redemption price per
share $ 19.74
=========================================================
Offering price per share:
(Net asset value of $19.74 divided by
94.50%) $ 20.89
=========================================================
Class C:
Net asset value and offering price per
share $ 19.74
=========================================================
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 11,975,969
- ---------------------------------------------------------
Dividends 9,478,210
- ---------------------------------------------------------
Total investment income 21,454,179
- ---------------------------------------------------------
EXPENSES:
Advisory fees 4,244,780
- ---------------------------------------------------------
Operating services fees 2,513,883
- ---------------------------------------------------------
Distribution fees-Class A 34,863
- ---------------------------------------------------------
Distribution fees-Class C 5,560,293
- ---------------------------------------------------------
Directors' fees and expenses 61,419
- ---------------------------------------------------------
Total expenses 12,415,238
- ---------------------------------------------------------
Less: Fees waived by distributors (10,010)
- ---------------------------------------------------------
Net expenses 12,405,228
- ---------------------------------------------------------
Net investment income 9,048,951
- ---------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENT
SECURITIES:
Net realized gain from investment
securities 23,883,293
- ---------------------------------------------------------
Net unrealized appreciation of investment
securities 86,058,520
- ---------------------------------------------------------
Net gain from investment securities 109,941,813
- ---------------------------------------------------------
Net increase in net assets resulting from
operations $118,990,764
=========================================================
</TABLE>
9
<PAGE> 12
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 9,048,951 $ 8,108,449
- -----------------------------------------------------------------------------------------
Net realized gain from investment securities 23,883,293 23,531,236
- -----------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 86,058,520 26,214,708
- -----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 118,990,764 57,854,393
- -----------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (246,939) --
- -----------------------------------------------------------------------------------------
Class C (8,674,714) (8,041,627)
- -----------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on
investment securities:
Class A (610,538) --
- -----------------------------------------------------------------------------------------
Class C (14,999,384) (23,712,747)
- -----------------------------------------------------------------------------------------
Share transactions-net:
Class A 24,377,889 --
- -----------------------------------------------------------------------------------------
Class C 19,575,501 64,656,241
- -----------------------------------------------------------------------------------------
Net increase in net assets 138,412,579 90,756,260
- -----------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 489,917,938 399,161,678
- -----------------------------------------------------------------------------------------
End of period $628,330,517 $489,917,938
=========================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $426,093,882 $382,140,492
- -----------------------------------------------------------------------------------------
Undistributed net investment income 166,050 69,809
- -----------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities 8,121,332 (183,096)
- -----------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 193,949,253 107,890,733
- -----------------------------------------------------------------------------------------
$628,330,517 $489,917,938
=========================================================================================
</TABLE>
See Notes to Financial Statements.
10
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Advisor Flex Fund (the "Fund", formerly INVESCO Advisor Flex Portfolio) is a
series portfolio of AIM Advisor Funds, Inc. (the "Company" formerly, INVESCO
Advisor Funds, Inc.). The Company is a Maryland corporation and is registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end series management investment company consisting of seven diversified
portfolios. The Fund currently offers two different classes of shares: Class A
shares and Class C shares. Class A shares are sold with a front-end sales
charge. 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. The Fund's investment objective
is to achieve a high total return on investment through capital appreciation and
current income, without regard to federal income tax considerations. Information
presented in these financial statements pertains only to the Fund.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities at the date of the
financial statements and the reported amounts of income 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. 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 are not readily available or are
questionable are valued at fair value as determined in good faith by or
under the supervision of the Company's Board of Directors. Investments with
maturities of 60 days or less are valued on the basis of amortized cost
which approximates market value.
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. On December 31, 1997,
undistributed net investment income was reduced by $31,057 and undistributed
net realized gains increased by $31,057 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.
E. Expenses-Distribution expenses directly attributable to a class of shares
are charged to that class' operations. All other expenses which are
attributable to more than one class are allocated among the classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.75% of
the Fund's average daily net assets. AIM has entered into a sub-advisory
agreement with INVESCO Capital Management, Inc. ("ICM") whereby AIM pays ICM an
annual rate of 0.20% of the Fund's average daily net assets. Prior to August 4,
1997, the Company had an investment advisory agreement with INVESCO Services,
Inc. ("ISI") to serve as the Fund's investment advisor. Under the terms of the
prior investment agreement, the Fund paid ISI an advisory fee equal to an annual
rate of 0.75% of the average daily net assets of the Fund. Under the terms of
the prior sub-advisory agreement between ISI and ICM, ISI paid ICM a
sub-advisory fee equal to an annual rate of 0.20% of the Fund's average daily
net assets.
The Company, pursuant to an operating services agreement with AIM, has agreed
to pay AIM an annual rate of 0.45% of average daily net assets of the Fund for
providing or arranging to provide accounting, legal (except litigation),
dividend disbursing, transfer agency, registrar, custodial, shareholder
reporting, sub-accounting and recordkeeping services and functions. This
agreement provides that AIM pays all fees and expenses associated with these and
other functions, including, but not limited to, registration fees, shareholder
meeting fees, and proxy statement and shareholder report expenses. During the
period August 4, 1997 to December 31, 1997, AIM was paid $1,106,526 for such
services. Prior to August 4, 1997, the Company had an operating services
11
<PAGE> 14
agreement with ISI whereby the Fund paid ISI an annual rate of 0.45% of average
daily net assets of the Fund. During the period January 1, 1997 through August
3, 1997, the Fund paid ISI $1,407,357.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A shares and Class C shares of the Fund. The Company has adopted a
distribution plan pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A shares and the Fund's Class C shares (the "Plan"). The Fund,
pursuant to the Plan, pays AIM Distributors compensation at a maximum annual
rate of 0.35% of the average daily net assets attributable to the Class A
shares. AIM has voluntarily agreed to limit the Plan payments to 0.25% for three
years beginning August 4, 1997. The Fund, pursuant to the Plan, pays AIM
Distributors a maximum annual rate of 1.00% of the Fund's average daily net
assets attributable to the Class C shares. Of these amounts, the Fund may pay a
service fee of 0.25% of the average daily net assets of the Class A and Class C
shares to selected dealers and financial institutions who furnish continuing
personal shareholder services to their customers who purchase and own shares of
the Fund. Any amounts not paid as a service fee under the Plan would constitute
an asset-based sales charge. The Plan also imposes a cap on the total sales
charges, including asset-based sales charges, that may be paid by the respective
classes. During the period August 4, 1997 to December 31, 1997, the Class A and
Class C shares paid AIM Distributors $19,781 and $2,430,068, respectively, as
compensation under the Plan. During the year ended December 31, 1997, AIM
Distributors and ISI waived fees of $10,010 for the Class A shares. Prior to
August 4, 1997, the Fund entered into a distribution plan with ISI in accordance
with Rule 12b-1 of the 1940 Act under substantially identical terms as described
for AIM Distributors above. During the period January 1, 1997 to August 3, 1997,
the Class A and Class C shares paid ISI $5,072 and $3,130,225, respectively, as
compensation under the Plan.
AIM Distributors received commissions of $11,729 from sales of Class A shares
of the Fund during the period August 4, 1997 to December 31, 1997. ISI received
commissions of $6,860 from sales of Class A shares of the Fund during the period
January 1, 1997 through August 3, 1997. Such commissions are not an expense to
the Fund. They are deducted from, and are not included in, the proceeds from
sales of Class A shares. During the period August 4, 1997 to December 31, 1997,
AIM Distributors received commissions of $18,422 in contingent deferred sales
charges imposed on redemptions of shares. Certain officers and directors of the
Company are officers and directors of AIM, A I M Fund Services, Inc. and AIM
Distributors. During the period January 1, 1997 through August 3, 1997, ISI
received commissions of $18,877 in contingent deferred sales charges imposed on
redemptions of shares.
The combined effect of the advisory master investment agreements, operating
services agreement and the distribution Plan for the Fund is to place a cap or
ceiling on the total expenses of the Fund, other than brokerage commissions,
interest, taxes, litigation, directors' fees and expenses, and other
extraordinary expenses. AIM has voluntarily agreed to adhere to maximum expense
ratios for the Fund. To the extent that the Fund exceeds the amounts, AIM or its
affiliates will waive its fees to reimburse the Fund to assure that the Fund's
expenses do not exceed the designated maximum amounts except for those items
specifically identified above. If, in any calendar quarter, the average daily
net assets of the Fund are less than $500 million, the Fund's expenses shall not
exceed 1.55% for Class A and 2.20% for Class C; on the next $500 million of net
assets, expenses shall not exceed 1.50% for Class A and 2.15% for Class C; on
the next $1 billion of net assets, expenses shall not exceed 1.45% for Class A
and 2.10% for Class C; and on all assets over $2 billion, expenses shall not
exceed 1.40% for Class A and 2.05% for Class C.
During the period August 4, 1997 to December 31, 1997, the Fund paid legal
fees of $765 for services rendered by Kramer, Levin, Naftalis & Frankel as
counsel to the Company's directors. A member of that firm is a director of the
Company.
NOTE 3-DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if so
elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 4-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended December 31, 1997 was
$126,040,604 and $88,262,748, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of December 31, 1997 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $199,182,995
- ----------------------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (5,233,741)
- ----------------------------------------------------------------------------
Net unrealized appreciation of investment
securities $193,949,254
============================================================================
</TABLE>
Investments have the same cost for tax and financial statement purposes.
12
<PAGE> 15
NOTE 5-CAPITAL STOCK*
Changes in the Fund's capital stock outstanding during the years ended December
31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Sold:
Class A** 1,255,277 $ 24,015,843 -- $ --
- --------------------------------------------------------------------------------------------------------------------
Class C 4,707,789 86,294,017 6,596,988 107,726,947
- --------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A** 42,162 821,435 -- --
- --------------------------------------------------------------------------------------------------------------------
Class C 1,120,103 21,660,078 1,659,332 27,317,233
- --------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A** (23,298) (459,389) -- --
- --------------------------------------------------------------------------------------------------------------------
Class C (4,738,134) (88,378,594) (4,281,464) (70,387,939)
- --------------------------------------------------------------------------------------------------------------------
2,363,899 $ 43,953,390 3,974,856 $ 64,656,241
====================================================================================================================
</TABLE>
* Shares have been restated to reflect a 4 for 1 stock split, effected in the
form of a 300% stock dividend, on November 7, 1997.
** Class A shares commenced operations on January 1, 1997.
NOTE 6-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A capital stock
outstanding during the year ended December 31, 1997 and for a share of Class C
capital stock outstanding during each of the years in the five-year period ended
December 31, 1997.(a)
CLASS A:
<TABLE>
<CAPTION>
1997(b)
----------
<S> <C>
Net asset value, beginning of period $ 16.63
- ------------------------------------------------------------ ----------
Income from investment operations:
Net investment income 0.41(c)
- ------------------------------------------------------------ ----------
Net gains on securities (both realized and unrealized) 3.63
- ------------------------------------------------------------ ----------
Total from investment operations 4.04
- ------------------------------------------------------------ ----------
Less distributions:
Dividends from net investment income (0.43)
- ------------------------------------------------------------ ----------
Distributions from capital gains (0.50)
- ------------------------------------------------------------ ----------
Total distributions (0.93)
- ------------------------------------------------------------ ----------
Net asset value, end of period $ 19.74
============================================================ ==========
Total return(d) 24.60%
============================================================ ==========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 25,151
============================================================ ==========
Ratio of expenses to average net assets(e) 1.45%(f)
============================================================ ==========
Ratio of net investment income to average net assets(g) 2.34%(f)
============================================================ ==========
Portfolio turnover rate 17%
============================================================ ==========
Average brokerage commission rate(h) $ 0.0537
============================================================ ==========
</TABLE>
(a) Per share information and shares have been restated to reflect a 4 for 1
stock split, effected in the form of a 300% stock dividend, on November 7,
1997.
(b) The Fund changed investment advisors on August 4, 1997.
(c) Calculated using average shares outstanding.
(d) Does not deduct sales charges.
(e) After fee waivers. The ratio of expenses to average net assets prior to fee
waivers was 1.55%.
(f) Ratios are based on average net assets of $10,010,061.
(g) After fee waivers. The ratio of net investment income to average net assets
prior to fee waivers was 2.24%.
(h) The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the
total number of related shares purchased and sold.
13
<PAGE> 16
NOTE 6-FINANCIAL HIGHLIGHTS-continued
CLASS C:(a)
<TABLE>
<CAPTION>
1997(b) 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 16.63 $ 15.66 $ 12.63 $ 13.54 $ 12.76
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.30(c) 0.30 0.32 0.32 0.28
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net gains (losses) on securities (both realized and
unrealized) 3.60 1.81 3.09 (0.23) 1.05
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total from investment operations 3.90 2.11 3.41 0.09 1.33
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.29) (0.29) (0.32) (0.31) (0.27)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Distributions from capital gains (0.50) (0.85) (0.06) (0.69) (0.28)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total distributions (0.79) (1.14) (0.38) (1.00) (0.55)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net asset value, end of period $ 19.74 $ 16.63 $ 15.66 $ 12.63 $ 13.54
============================================================ ======== ======== ======== ======== ========
Total return(d) 23.64% 13.61% 27.30% 0.64% 10.48%
============================================================ ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $603,179 $489,918 $399,162 $243,848 $274,349
============================================================ ======== ======== ======== ======== ========
Ratio of expenses to average net assets 2.20%(e) 2.26% 2.28% 2.25% 2.25%(f)
============================================================ ======== ======== ======== ======== ========
Ratio of net investment income to average net assets 1.59%(e) 1.81% 2.28% 2.32% 2.10%(f)
============================================================ ======== ======== ======== ======== ========
Portfolio turnover rate 17% 26% 5% 36% 27%
============================================================ ======== ======== ======== ======== ========
Average brokerage commission rate(g) $ 0.0537 $ 0.0549 N/A N/A N/A
============================================================ ======== ======== ======== ======== ========
</TABLE>
(a) Per share information and shares have been restated to reflect a 4 for 1
stock split, effected in the form of a 300% stock dividend, on November 7,
1997.
(b) The Fund changed investment advisors on August 4, 1997.
(c) Calculated using average shares outstanding.
(d) Does not deduct contingent deferred sales charges.
(e) Ratios are based on average net assets of $556,338,988.
(f) After fee waivers and/or expense reimbursements. Ratios of expenses and net
investment income to average net assets prior to fee waivers and/or expense
reimbursements are 2.26% and 2.09%, respectively, for 1993.
(g) The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the
total number of related shares purchased and sold, which is required to be
disclosed for fiscal years beginning September 1, 1995 and thereafter.
14
<PAGE> 17
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of the AIM Advisor Funds, Inc.
In our opinion, the accompanying statement of assets and
liabilities, including the schedule of investments, and
the related statements of operations and of changes in
net assets and the financial highlights present fairly,
in all material respects, the financial position of the
AIM Advisor Flex Fund, one of the portfolios of the AIM
Advisor Funds, Inc. (hereafter referred to as the "Fund")
at December 31, 1997, the results of its operations for
the year then ended, the changes in its net assets for
each of the two years in the period then ended and the
financial highlights for the periods indicated, in
conformity with generally accepted accounting principles.
These financial statements and financial highlights
(hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our
responsibility is to express an opinion on these
financial statements based on our audits. We conducted
our audits of these financial statements in accordance
with generally accepted auditing standards which require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made
by management, and evaluating the overall financial
statement presentation. We believe that our audits, which
included confirmation of securities at December 31, 1997
by correspondence with the custodian and the application
of alternative auditing procedures where securities
purchased had not been received, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Denver, Colorado
February 5, 1998
15
<PAGE> 18
Directors & Officers
<TABLE>
<S> <C> <C>
BOARD OF DIRECTORS OFFICERS OFFICE OF THE FUND
Charles T. Bauer Charles T. Bauer 11 Greenway Plaza
Chairman Chairman Suite 100
A I M Management Group Inc. Houston, TX 77046
Robert H. Graham
Bruce L. Crockett President INVESTMENT ADVISOR
Director
ACE Limited; John J. Arthur A I M Advisors, Inc.
Formerly Director, President, and Senior Vice President and Treasurer 11 Greenway Plaza
Chief Executive Officer Suite 100
COMSAT Corporation Carol F. Relihan Houston, TX 77046
Senior Vice President and Secretary
Owen Daly II SUB-ADVISOR
Director Gary T. Crum
Cortland Trust Inc. Senior Vice President INVESCO Capital Management, Inc.
1315 Peachtree Street, N.E.
Jack Fields Dana R. Sutton Atlanta, GA 30309
Chief Executive Officer Vice President and Assistant Treasurer
Texana Global, Inc.; TRANSFER AGENT
Formerly Member of the Robert G. Alley
U.S. House of Representatives Vice President A I M Fund Services, Inc.
P.O. Box 4739
Carl Frischling Stuart W. Coco Houston, TX 77210-4739
Partner Vice President
Kramer, Levin, Naftalis & Frankel CUSTODIAN
Melville B. Cox
Robert H. Graham Vice President State Street Bank and Trust Company
President and Chief Executive Officer 225 Franklin Street
A I M Management Group Inc. Karen Dunn Kelley Boston, MA 02110
Vice President
John F. Kroeger COUNSEL TO THE FUND
Formerly Consultant Jonathan C. Schoolar
Wendell & Stockel Associates, Inc. Vice President Ballard Spahr
Andrews & Ingersoll
Lewis F. Pennock P. Michelle Grace 1735 Market Street
Attorney Assistant Secretary Philadelphia, PA 19103
Ian W. Robinson Nancy L. Martin COUNSEL TO THE DIRECTORS
Consultant; Formerly Executive Assistant Secretary
Vice President and Kramer, Levin, Naftalis & Frankel
Chief Financial Officer Ofelia M. Mayo 919 Third Avenue
Bell Atlantic Management Assistant Secretary New York, NY 10022
Services, Inc.
Lisa A. Moss DISTRIBUTOR
Louis S. Sklar Assistant Secretary
Executive Vice President A I M Distributors, Inc.
Hines Interests Kathleen J. Pflueger 11 Greenway Plaza
Limited Partnership Assistant Secretary Suite 100
Houston, TX 77046
Samuel D. Sirko
Assistant Secretary AUDITORS
Stephen I. Winer Price Waterhouse LLP
Assistant Secretary 950 Seventeenth Street
Denver, CO 80202
Mary J. Benson
Assistant Treasurer
</TABLE>
REQUIRED FEDERAL INCOME TAX INFORMATION
AIM Advisor Flex Fund Class A and Class C shares paid ordinary dividends in the
amount of $0.48 and $0.33 per share, respectively, during the Fund's tax year
ended December 31, 1997. Of these amounts, 79.36% is eligible for the dividends
received deduction for corporations. The Fund also distributed long-term capital
gains of $0.46 per share during the Fund's tax year ended December 31, 1997. Of
this amount, 31.61% is 20% rate gain.
REQUIRED STATE INCOME TAX INFORMATION
Of the total income dividends paid, 38.55% was derived from U.S. Treasury
obligations.
<PAGE> 19
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 may be
more or less than their original cost, depending on market conditions.
o SYSTEMATIC WITHDRAWAL PLAN. You may elect to receive checks of at least $50
monthly or quarterly through a systematic withdrawal plan.
o EXCHANGE PRIVILEGE. As your goals change, you may exchange all or part of
your assets for those of other funds within the same share class of The AIM
Family of Funds--Registered Trademark--. The exchange privilege may be
modified or discontinued for any of the AIM funds.
o RETIREMENT PLANS. You may purchase shares of the fund for your Individual
Retirement Account (IRA) or any other type of retirement plan, and earn
tax-deferred dollars for your retirement.
o TOLL-FREE ACCESS. Current shareholders can call our AIM Investor Line at
800-246-5463 for 24-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> 20
<TABLE>
<S> <C>
THE AIM FAMILY OF FUNDS--REGISTERED TRADEMARK--
AGGRESSIVE GROWTH
AIM Aggressive Growth Fund*
AIM Asian Growth Fund
AIM Capital Development Fund
AIM Constellation Fund
AIM European Development Fund
AIM Global Aggressive Growth Fund
[BUILDING PHOTO]
GROWTH OF CAPITAL
AIM Advisor International Value Fund
AIM Blue Chip Fund
AIM Global Growth Fund
AIM Growth Fund
AIM International Equity Fund
AIM Value Fund
AIM Weingarten Fund
GROWTH AND INCOME OR INCOME WITH CAPITAL GROWTH
AIM Advisor Flex Fund
AIM Advisor Large Cap Value Fund
AIM Advisor MultiFlex Fund
AIM Advisor Real Estate Fund
AIM Balanced Fund
AIM Charter Fund
AIM Global Utilities Fund
HIGH CURRENT INCOME OR CURRENT INCOME
AIM High Yield Fund
AIM Global Income Fund
AIM Income Fund
CURRENT TAX-FREE INCOME
AIM High Income Municipal Fund
AIM Municipal Bond Fund
AIM Tax-Exempt Bond Fund of Connecticut
AIM Tax-Free Intermediate Fund
CURRENT INCOME AND HIGH DEGREE OF SAFETY
AIM Intermediate Government Fund
AIM Limited Maturity Treasury Fund
AIM Money Market Fund
AIM Tax-Exempt Cash Fund
A I M Management Group Inc. has provided leadership in the mutual
fund industry since 1976 and managed approximately $83 billion in
assets for more than 3.7 million shareholders, including *AIM Aggressive Growth Fund was closed to new investors
individual investors, corporate clients, and financial on June 5, 1997. For more complete information about any
institutions as of December 31, 1997. The AIM Family of AIM Fund(s), including sales charges and expenses, ask
Funds--Registered Trademark-- is distributed nationwide, and AIM your financial consultant or securities dealer for a free
today ranks among the nation's top 15 mutual fund companies in prospectus(es). Please read the prospectus(es) carefully
assets under management, according to Lipper Analytical Services, before you invest or send money.
Inc.
Invest with DISCIPLINE(SM)
</TABLE>
