<PAGE> 1
AIM
ADVISOR FLEX FUND
[COVER IMAGE]
[AIM LOGO APPEARS HERE] ANNUAL REPORT DECEMBER 31, 1998
INVEST WITH DISCIPLINE
-- Registratered Trademark --
<PAGE> 2
[ COVER IMAGE ]
------------------------------------------------------------
THE CIRCUS BY GEORGES PIERRE SEURAT, 1859-1891,
FRENCH ONE OF FRENCH ARTIST GEORGES SEURAT'S MOST
FAMOUS PAINTINGS, THE CIRCUS FEATURES A GRACEFUL
RIDER BALANCING ON THE BACK OF A WHITE HORSE. WHILE
THE MOOD OF THE PAINTING IS CAREFREE, THE WORK WAS
PAINSTAKINGLY EXECUTED. SEURAT PIONEERED A TECHNIQUE
CALLED "POINTILLISM" USING TINY BRUSHSTROKES OF
CONTRASTING COLORS. SEURAT PLANNED HIS PAINTINGS TO
THE LAST DETAIL AND CAREFULLY PLACED EACH DOT, MUCH
THE SAME WAY A FUND MANAGER CHOOSES THE STOCKS FOR A
PORTFOLIO. VIEWED AS A WHOLE, THE POINTS FORM A
HARMONIOUS COMPOSITION.
------------------------------------------------------------
AIM Advisor Flex Fund is for shareholders who seek to achieve a high total
return on investment through capital appreciation and current income through
investments in a combination of equity securities and fixed and variable income
securities.
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 During the fiscal year ended 12/31/98 the Fund paid distributions of $2.07
per share for Class B and C shares, $2.23 per share for Class A shares.
o When sales charges are included in performance figures, Class A share
performance reflects the maximum 5.50% sales charge, and Class B and Class C
share performance 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 Fund
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 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 (the Dow) is a price-weighted average of 30
actively traded primarily industrial stocks.
o The unmanaged Lipper Flexible Portfolio Index represents an average of the
performance of the 30 largest funds in the flexible portfolio fund category.
It is compiled by Lipper, Inc., an independent mutual funds performance
monitor. Results shown reflect reinvestment of dividends.
o The Lehman Aggregate Bond Index is an unmanaged index generally considered
to be 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.
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 ADVISOR FLEX FUND
<PAGE> 3
ANNUAL REPORT / CHAIRMAN'S LETTER
Dear Fellow Shareholder:
As the fiscal year opened, markets were recovering from the
concerns produced by financial crises in Asia during 1997,
[PHOTO OF and this optimism early in 1998 led several market indexes
Charles T. to all-time highs in spring and early summer. However, the
Bauer, year was to bring two particularly serious financial shocks,
Chairman of first the debt default by Russia, and later the gathering
the Board of crisis in Brazil, which devalued its currency shortly after
THE FUND the fiscal year closed. The result was another year of
APPEARS HERE] 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
----------------------------------
. . . WE ARE PLEASED
TO NOTE THAT MOST
MUTUAL FUND SHAREHOLDERS
REMAINED COOL HEADED AND
DID NOT PULL OUT OF THE
MARKETS DURING 1998.
----------------------------------
AIM ADVISOR FLEX FUND
<PAGE> 4
ANNUAL REPORT / MANAGERS' OVERVIEW
ALLOCATION STRATEGY HELPS FUND WEATHER
VOLATILE MARKET
THIS YEAR WAS PARTICULARLY TURBULENT FOR BOTH EQUITY AND FIXED-INCOME MARKETS.
HOW DID THE FUND PERFORM?
The Fund reported solid earnings in a year of intense volatility. Its Class C
shares produced a total annual return of 12.41%, while Class A shares had a
total annual return of 13.26%. Class B shares were introduced on March 3, 1998,
and reported a cumulative return of 7.25% since their inception. The Fund's net
assets rose from $628 million a year ago to $720 million as of December 31,
1998.
HOW WOULD YOU CHARACTERIZE MARKET CONDITIONS OVER THE FISCAL YEAR?
We would describe 1998 as a market with three definite phases: bull, decline,
bull. During the first stage, from January to mid-July, the market climbed,
spurred by strong economies in the United States and Europe. But by summer these
good sentiments began to disintegrate. In July the market entered its second
phase, abruptly declining. By August, market indexes such as the Dow plunged. A
convergence of international problems triggered the downturn: Currency
devaluation occurred in Thailand, Malaysia, Indonesia and Korea. A lingering
recession gripped Japan. Crippled by overwhelming debt, Russia suspended
repayment of much of its foreign debt and suffered deep currency devaluation.
Fears of a global credit crunch then spread to Latin America. Markets there
plunged as investors worried that Brazil could not sustain its exchange rate in
light of the country's increasing debt. The down market spurred a "flight to
quality," as investors turned away from riskier securities such as small-cap
stocks and high-yield bonds. Seeking a safe haven, they turned to the liquidity
of large-cap stocks and U.S. Treasuries.
The third phase came in October as markets stabilized and rallied,
encouraged by a series of interest rate cuts. Over the course of seven weeks,
the U.S. Federal Reserve Board lowered the key federal funds rate from 5.50% to
4.75%. The three cuts triggered an astounding market rally. By the end of the
fiscal year, major stock and bond indexes reported impressive total returns: the
S&P 500, up 28.6%; the Lehman Aggregate Bond Index, up 8.7% and 30-year U.S.
Treasuries, up 17.1%.
PORTFOLIO COMPOSITION
As of 12/31/98, based on total net assets
[Pie Chart]
================================================================================
PERCENTAGE OF HOLDINGS
- --------------------------------------------------------------------------------
Cash Equivalents 2.27%
Corporate Notes 6.17%
U.S. Government 12.81%
Common Stocks 78.75%
NUMBER OF HOLDINGS: 134
Please keep in mind the Fund's portfolio is subject to change and there is no
assurance the Fund will continue to hold any particular security.
================================================================================
HOW DID YOU MANAGE THE FUND IN THIS ENVIRONMENT?
We maintained our high weighting in stocks throughout the fiscal year. Our asset
allocation as of December 31, 1998, was 79% stocks, 19% government and corporate
bonds.
Our asset allocation decisions are based on the expected return on stock
investments compared to the expected earnings on bond investments. Historically,
the spread between the expected returns of these investments has averaged about
3%. When that spread widened, we gradually shifted the portfolio to emphasize
stocks. This occurred in October, and we increased our equities to about 80% of
the portfolio. Our model proved beneficial for Fund shareholders as the equity
market had a tremendous rally in the fourth quarter, and the fund was well
positioned to take advantage of it.
----------------------------------
OUR ASSET ALLOCATION DECISIONS
ARE BASED ON THE EXPECTED
RETURN ON STOCK INVESTMENTS
COMPARED TO THE EXPECTED
EARNINGS ON BOND INVESTMENTS.
----------------------------------
See important Fund and index disclosures inside front cover.
AIM ADVISOR FLEX FUND
2
<PAGE> 5
ANNUAL REPORT / MANAGERS' OVERVIEW
The fixed-income portion of the portfolio was dedicated mostly to government
bonds, with a minor position in corporate securities. U.S. Treasuries were the
undisputed fixed-income leaders in 1998 in a classic case of supply and demand.
The investor flight to quality during market upheavals drove up demand for
Treasuries, particularly among foreign investors. At the same time, supply
diminished as the U.S. government, faced with a budget surplus for the first
time in decades, issued fewer Treasury securities. Meanwhile, corporate bonds
were less attractive in 1998 as earnings growth slowed across broad sectors of
the market.
WHAT STOCKS OR SECTOR WEIGHTINGS HELPED THE FUND'S PERFORMANCE?
The Fund's largest sector weighting was in computer hardware manufacturers,
particularly PC market leaders IBM and Compaq. Their respective stock prices
doubled over the course of the fiscal year. Our other top technology position
was EDS, the world's largest data-processing company. A leader in corporate
outsourcing, EDS has benefited from the need for corporations to fix the
so-called "millennium bug." The computer glitch requires older computers and
software to be re-programmed to recognize the year 2000. Technology stocks
powered the stock market rally in the fourth quarter, and the Fund benefited
from the great performance.
Besides technology stocks, our other major holdings include pharmaceutical
companies Merck, Mylan Laboratories, American Home Products and Abbott
Laboratories. Earnings growth for major U.S. drug companies has been strong in
recent years for several reasons, including expedited product approval by the
Federal Drug Administration, growing demand from an aging population, and the
recent success of new drugs.
Because of its value orientation, the Fund bought economically sensitive
stocks during the fourth quarter because their prices were low relative to the
market as a whole. Our purchases included consumer cyclical stocks (retailers,
auto-related companies, household furnishings), capital goods stocks
(manufacturing and machinery) and financial services stocks (banks and insurance
firms).
PORTFOLIO COMPOSITION
As of 12/31/98, based on total net assets
<TABLE>
<CAPTION>
=================================================================================================
TOP 10 HOLDINGS TOP 10 INDUSTRIES
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. International Business 2.05% 1. Computers (Hardware) 4.99%
Machines Corp. 2. Banks (Major Regional) 3.90
2. Compaq Computer Corp. 1.75 3. Oil (International Integrated) 3.76
3. Merck & Co., Inc. 1.54 4. Electric Companies 3.75
4. Nucor Corp. 1.50 5. Telephone 3.62
5. Mylan Laboratories, Inc. 1.42 6. Health Care 3.31
6. American Home Products Corp. 1.41 (Drugs-Major Pharmaceuticals)
7. Electronic Data Systems Corp. 1.40 7. Financial (Diversified) 3.01
8. Anheuser-Busch Companies, Inc. 1.37 8. Machinery (Diversified) 2.96
9. Abbott Laboratories 1.36 9. Health Care (Diversified) 2.77
10. Hanson PLC - ADR (United Kingdom) 1.35 10. Manufacturing (Diversified) 2.73
Please keep in mind the Fund's portfolio is subject to change and there is no
assurance the Fund will continue to hold any particular security.
=================================================================================================
</TABLE>
WHAT IS YOUR OUTLOOK FOR THE FUND AND THE MARKETS IN GENERAL?
We expect continued volatility in the stock markets, perhaps as much as we
experienced in 1998. At the same time, we're optimistic that the United States
will avoid a recession in 1999. The economy is likely to experience annual gross
domestic product growth in the 1.5% to 2% range, so low inflation and low
interest rates should continue. With global markets experiencing weakness and
the U.S. economy expanding more slowly, many companies may find it difficult to
produce earnings growth.
For the fixed-income markets, a slowdown in the U.S. economy could benefit
government bonds, because it could lead to more interest rate cuts. At the same
time, corporate bonds could suffer if the economy slows and earnings falter. As
with stock markets, we expect another year of intense volatility.
Our asset allocation model continues to support a high concentration in
stocks. But should the performance differences between stocks and bonds change
significantly during the year, we remain prepared to adjust the Fund's
allocation as needed.
See important Fund and index disclosures inside front cover.
AIM ADVISOR FLEX FUND
3
<PAGE> 6
ANNUAL REPORT / PERFORMANCE HISTORY
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
AIM ADVISOR FLEX FUND VS. BENCHMARK INDEXES
2/24/88-12/31/98
- --------------------------------------------------------------------------------
AIM S&P 500 LIPPER FLEXIBLE
ADVISOR FLEX, INDEX PORTFOLIO FUND INDEX
CLASS C SHARES
- --------------------------------------------------------------------------------
2/24/88 10,000 10,000 10,000
12/31/88 10,357 10,721 10,324
12/31/89 12,143 14,113 12,104
12/31/90 11,941 13,676 12,217
12/31/91 14,901 17,835 15,510
12/31/92 16,053 19,192 16,388
12/31/93 17,736 21,124 18,474
12/31/94 17,850 21,402 17,980
12/31/95 22,723 29,437 22,223
12/31/96 25,816 36,193 25,357
12/31/97 31,919 48,264 29,983
12/31/98 35,881 62,055 34,935
================================================================================
PAST PERFORMANCE CANNOT GUARANTEE COMPARABLE FUTURE RESULTS.
================================================================================
================================================================================
AVERAGE ANNUAL TOTAL RETURNS
As of 12/31/98, including sales charges
CLASS C SHARES
Inception (2/24/88) 12.49%
10 years 13.23
5 years 15.13
1 year 11.41*
*12.41% excluding sales charges
CLASS A SHARES
Inception (12/31/96) 15.48%
1 year 7.03**
**13.26% excluding sales charges
CLASS B SHARES
Inception (3/3/98) 2.40%***
***cumulative total return since inception, 7.25% excluding sales charges
================================================================================
Source: Towers Data Systems HYPO--Registered Trademark--
================================================================================
Your Fund's total return includes sales charges, expenses, and management fees.
For Fund data performance calculations and descriptions of indexes cited on this
page, please refer to the inside front cover. The performance of the Fund's
Class B and C shares will differ from Class A shares due to differences in sales
charge structure and Fund expenses.
MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE. RESULTS OF
AN INVESTMENT MADE TODAY MAY DIFFER SUBSTANTIALLY FROM THE HISTORICAL
PERFORMANCE SHOWN.
ABOUT THESE CHARTS
The chart compares your Fund's Class C shares to benchmark indexes. It is
intended to give you a general idea of how your Fund performed compared to the
stock market over the period 2/24/88-12/31/98. 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 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. An index of funds such as the Lipper
Flexible Portfolio 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 ADVISOR FLEX FUND
4
<PAGE> 7
ANNUAL REPORT / FOR CONSIDERATION
OF FINANCE AND THE FED
A few words from Federal Reserve Board Chairman Alan Greenspan can send the
markets into a frenzy or calm them down.
Why? In 1998, a year of record volatility in stock and bond markets, when
investors and analysts alike seemed genuinely puzzled as to what to do next, the
Federal Reserve Board became a constant in the midst of the unsettling
environment.
WHAT IS THE FED?
The Federal Reserve Board, or "The Fed," consists of seven presidential
appointees including Chairman Greenspan. In addition to overseeing the country's
Federal Reserve System--the central bank of the United States--members of the
Fed serve on the Federal Open Market Committee (FOMC), which decides monetary
policy. Other FOMC members include the chairman of the New York Federal Reserve
Bank and four other FOMC seats that are rotated among the remaining 11 Federal
Reserve Banks.
The FOMC meets eight times a year. These meetings are preceded by the
release of the so-called "Beige Book" (see sidebar) and are always followed with
a great deal of interest because it is here that decisions on monetary policy
are made. The meetings traditionally feature reports on international and
domestic economic developments, conditions in financial markets, and forecasts
for the future. Policy options are then laid out and discussed, and a vote is
taken on whether the Fed will act, often by adjusting interest rates.
WHY ARE ADJUSTMENTS TO INTEREST RATES SO CLOSELY FOLLOWED?
Interest rate changes by the Fed are important for several reasons: (1) they
frequently reflect economic trends; (2) they immediately affect bond markets;
(3) they usually affect the stock market because when rates are high, people
tend to be less apt to take on the greater risks of stocks; and (4) they often
have a trickle-down effect.
For example, an interest rate hike was considered during the first half of
1998 when the U.S. economy seemed in danger of overheating and sparking
inflation. A rate hike would have helped slow things down by making borrowing
more expensive. Instead, myriad financial difficulties abroad affected markets
and slowed the U.S. economy enough to persuade the Fed to lower the federal
funds rate--the interest rate banks charge each other for overnight credit--in
September. When that rate cut did little to calm markets and loosen credit in
the U.S., the Fed cut both the federal funds rate and the discount rate--the
interest rate at which banks borrow emergency funds from the Federal Reserve--in
October and set off rallies in stock and bond markets. The Fed cut both interest
rates again in November 1998, citing continued strains in financial markets and
spurring another jump in the stock market as a whole.
Consumers feel the effect of interest rate adjustments as they trickle down
through the banking system. Rate cuts by the Fed often prompt rate reductions on
home mortgages, car loans, and variable-rate credit cards. Conversely, rate
hikes
------------
THE
BEIGE
BOOK
------------
WHAT IS THE BEIGE BOOK?
The Beige Book report is published about two weeks before each FOMC meeting. The
report contains anecdotal data on current economic conditions in each Federal
Reserve Bank district, summarizing the information by district and sector.
Interviews with key business people, economists, market experts and other
sources supply the details for the report. You can find out more about the Fed's
Beige Book and other interesting topics by visiting the Fed's Web site at
www.bog.frb.fed.us.
AIM ADVISOR FLEX FUND
5
<PAGE> 8
ANNUAL REPORT / FOR CONSIDERATION
make all forms of loans more expensive.
Although the Fed does not directly control the financial markets, its
influence over short-term interest rates makes it a potent force.
WHAT ELSE DOES THE FED DO?
The Fed is an integral part of the Federal Reserve System (FRS), created by
Congress in 1913. The FRS includes 12 regional Federal Reserve Banks in New
York, Atlanta, Boston, Chicago, Cleveland, Dallas, Kansas City, Minneapolis,
Philadelphia, Richmond, St. Louis, and San Francisco. A Federal Reserve Bank
o clears checks,
o lends money to banks needing emergency reserves,
o issues currency, and
o holds reserve deposits of member banks.
A bank must hold a percentage of its loans as liquid reserves, meaning
readily available. The Fed decides what this percentage will be and can lower it
to inject more money into the economy or raise it to tighten credit.
The Fed also determines the margin requirements for securities investors and
traders and which securities may be purchased on margin. (Margin is the minimum
amount of cash that a customer is required to deposit on the purchase of
securities.) Known as Regulation T, this rule prevents the overextension of
credit in securities transactions.
While these other functions of the Federal Reserve System do not generate as
many headlines as its interest rate moves, they are crucial to the Fed's purpose
of keeping the nation's banking system safe, flexible and stable.
FED RATE CUTS AND THE DOW
WEEKLY CLOSES, DOW JONES INDUSTRIAL AVERAGE*
7/3/98-12/31/98
================================================================================
1998 DJIA DOW Close
- --------------------------------------------------------------------------------
7/10/98 9,105.74
7/17/98 9,337.97
7/24/98 8,937.36
7/31/98 8,883.29
8/7/98 8,598.02
8/14/98 8,425
8/21/98 8,533.66
8/28/98 8,051.68
9/4/98 7,640.25
9/11/98 7,795.5
9/18/98 7,895.66
9/25/98 8,028.77
10/2/98 7,784.69
10/9/98 7,899.52
10/16/98 8,416.76
10/23/98 8,452.29
10/30/98 8,592.1
11/6/98 8,975.46
11/13/98 8,919.59
11/20/98 9,159.55
11/27/98 9,333.08
12/4/98 9,016.14
12/11/98 8,821.76
12/18/98 8,903.63
12/24/98 9,217.99
12/31/98 9,181.43
================================================================================
This graph shows the weekly closing levels for the Dow from July 3 through
December 31, 1998. While the Fed does not control the Dow, which is affected by
innumerable factors, its influence is clearly reflected in the index's behavior.
* The Dow Jones Industrial Average (the Dow) is a price-weighted average of 30
actively traded primarily industrial stocks.
AIM ADVISOR FLEX FUND
6
<PAGE> 9
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-78.75%
AEROSPACE/DEFENSE-2.03%
Boeing Co. (The) 110,000 $ 3,588,751
- --------------------------------------------------------------
Lockheed Martin Corp. 60,000 5,085,000
- --------------------------------------------------------------
Precision Castparts Corp. 135,000 5,973,750
- --------------------------------------------------------------
14,647,501
- --------------------------------------------------------------
AGRICULTURAL PRODUCTS-0.81%
Archer-Daniels-Midland Co. 341,250 5,865,235
- --------------------------------------------------------------
AIRLINES-0.50%
Southwest Airlines Co. 160,000 3,590,001
- --------------------------------------------------------------
AUTO PARTS & EQUIPMENT-2.03%
Cooper Tire & Rubber Co. 160,000 3,270,001
- --------------------------------------------------------------
Genuine Parts Co. 210,000 7,021,875
- --------------------------------------------------------------
Snap-on Inc. 125,000 4,351,562
- --------------------------------------------------------------
14,643,438
- --------------------------------------------------------------
AUTOMOBILES-1.02%
Ford Motor Co. 125,000 7,335,938
- --------------------------------------------------------------
BANKS (MAJOR REGIONAL)-2.96%
Bank One Corp. 121,500 6,204,094
- --------------------------------------------------------------
National City Corp. 100,000 7,250,000
- --------------------------------------------------------------
Wachovia Corp. 90,000 7,869,375
- --------------------------------------------------------------
21,323,469
- --------------------------------------------------------------
BANKS (MONEY CENTER)-0.92%
BankAmerica Corp. 110,000 6,613,751
- --------------------------------------------------------------
BEVERAGES (ALCOHOLIC)-1.37%
Anheuser-Busch Companies, Inc. 150,000 9,843,751
- --------------------------------------------------------------
CHEMICALS-0.95%
Dow Chemical Co. (The) 75,000 6,820,312
- --------------------------------------------------------------
CHEMICALS (SPECIALTY)-1.24%
Great Lakes Chemical Corp. 100,000 4,000,000
- --------------------------------------------------------------
Morton International, Inc. 200,000 4,900,000
- --------------------------------------------------------------
8,900,000
- --------------------------------------------------------------
COMPUTERS (HARDWARE)-4.99%
Compaq Computer Corp. 300,000 12,581,250
- --------------------------------------------------------------
Hewlett-Packard Co. 125,000 8,539,062
- --------------------------------------------------------------
International Business Machines
Corp. 80,000 14,780,000
- --------------------------------------------------------------
35,900,312
- --------------------------------------------------------------
COMPUTERS (SOFTWARE &
SERVICES)-2.14%
Computer Associates International,
Inc. 125,000 5,328,125
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (SOFTWARE & SERVICES)-(CONTINUED)
Electronic Data Systems Corp. 200,000 $ 10,050,000
- --------------------------------------------------------------
15,378,125
- --------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH)-1.17%
SUPERVALU, Inc. 300,000 8,400,000
- --------------------------------------------------------------
ELECTRIC COMPANIES-3.30%
Edison International 200,000 5,575,000
- --------------------------------------------------------------
Entergy Corp. 300,000 9,337,500
- --------------------------------------------------------------
GPU, Inc. 200,000 8,837,500
- --------------------------------------------------------------
23,750,000
- --------------------------------------------------------------
ELECTRICAL EQUIPMENT-1.80%
General Electric Co. 75,000 7,654,687
- --------------------------------------------------------------
Rockwell International Corp. 110,000 5,341,875
- --------------------------------------------------------------
12,996,562
- --------------------------------------------------------------
ELECTRONICS (COMPONENT DISTRIBUTORS)-0.38%
W.W. Grainger, Inc. 65,500 2,726,437
- --------------------------------------------------------------
ELECTRONICS (DEFENSE)-0.72%
Raytheon Co.-Class A 100,000 5,168,750
- --------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-3.01%
American General Corp. 110,000 8,580,000
- --------------------------------------------------------------
MGIC Investment Corp. 150,000 5,971,875
- --------------------------------------------------------------
Morgan Stanley, Dean Witter,
Discover & Co. 100,000 7,100,000
- --------------------------------------------------------------
21,651,875
- --------------------------------------------------------------
FOODS-1.43%
H.J. Heinz Co. 50,000 2,831,250
- --------------------------------------------------------------
Unilever N.V.-ADR-New York Shares
(Netherlands) 90,000 7,464,375
- --------------------------------------------------------------
10,295,625
- --------------------------------------------------------------
FOOTWEAR-0.41%
Reebok International Ltd.(a) 200,000 2,975,000
- --------------------------------------------------------------
HEALTH CARE (DIVERSIFIED)-2.77%
Abbott Laboratories 200,000 9,800,000
- --------------------------------------------------------------
American Home Products Corp. 180,000 10,136,250
- --------------------------------------------------------------
19,936,250
- --------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER)-1.42%
Mylan Laboratories, Inc. 325,000 10,237,500
- --------------------------------------------------------------
HEALTH CARE (DRUGS-MAJOR
PHARMACEUTICALS)-3.31%
Lilly (Eli) & Co. 50,000 4,443,750
- --------------------------------------------------------------
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS)-(CONTINUED)
Merck & Co., Inc. 75,000 $ 11,076,562
- --------------------------------------------------------------
Schering-Plough Corp. 150,000 8,287,500
- --------------------------------------------------------------
23,807,812
- --------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT)-1.03%
Columbia/HCA Healthcare Corp. 300,000 7,425,000
- --------------------------------------------------------------
HOUSEHOLD FURNITURE &
APPLIANCES-0.77%
Whirlpool Corp. 100,000 5,537,500
- --------------------------------------------------------------
HOUSEWARES-0.31%
Fortune Brands, Inc. 70,000 2,213,750
- --------------------------------------------------------------
INSURANCE (MULTI-LINE)-1.09%
Loews Corp. 80,000 7,860,000
- --------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY)-2.38%
Ohio Casualty Corp. 150,000 6,168,750
- --------------------------------------------------------------
Old Republic International Corp. 200,000 4,500,000
- --------------------------------------------------------------
SAFECO Corp. 150,000 6,440,625
- --------------------------------------------------------------
17,109,375
- --------------------------------------------------------------
INSURANCE BROKERS-0.97%
Marsh & McLennan Co. 120,000 7,012,500
- --------------------------------------------------------------
IRON & STEEL-1.50%
Nucor Corp. 250,000 10,812,500
- --------------------------------------------------------------
MACHINERY (DIVERSIFIED)-2.96%
Caterpillar, Inc. 100,000 4,600,000
- --------------------------------------------------------------
Deere & Co. 100,000 3,312,500
- --------------------------------------------------------------
Dover Corp. 100,000 3,662,500
- --------------------------------------------------------------
Hanson PLC-ADR (United Kingdom) 250,000 9,750,000
- --------------------------------------------------------------
21,325,000
- --------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-2.73%
Illinois Tool Works, Inc. 75,000 4,350,000
- --------------------------------------------------------------
Minnesota Mining and Manufacturing
Co. 75,000 5,334,375
- --------------------------------------------------------------
Norsk Hydro A.S.A.-ADR (Norway) 125,000 4,273,437
- --------------------------------------------------------------
Textron, Inc. 75,000 5,695,312
- --------------------------------------------------------------
19,653,124
- --------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-1.17%
Federal Signal Corp. 160,000 4,380,000
- --------------------------------------------------------------
York International Corp. 100,000 4,081,250
- --------------------------------------------------------------
8,461,250
- --------------------------------------------------------------
METALS MINING-0.74%
Phelps Dodge Corp. 105,000 5,341,875
- --------------------------------------------------------------
OIL (INTERNATIONAL INTEGRATED)-3.76%
Exxon Corp. 100,000 7,312,500
- --------------------------------------------------------------
Repsol S.A.-ADR (Spain) 150,000 8,193,750
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
OIL (INTERNATIONAL INTEGRATED)-(CONTINUED)
Royal Dutch Petroleum Co.-ADR-New
York Shares (Netherlands) 125,000 $ 5,984,375
- --------------------------------------------------------------
YPF Sociedad Anonima-ADR
(Argentina) 200,000 5,587,500
- --------------------------------------------------------------
27,078,125
- --------------------------------------------------------------
PAPER & FOREST PRODUCTS-0.56%
Westvaco Corp. 150,000 4,021,875
- --------------------------------------------------------------
PHOTOGRAPHY/IMAGING-0.47%
IKON Office Solutions, Inc. 400,000 3,425,000
- --------------------------------------------------------------
PUBLISHING-0.08%
R.H. Donnelley Corp. 40,000 582,500
- --------------------------------------------------------------
PUBLISHING (NEWSPAPERS)-0.73%
Gannett Co., Inc. 80,000 5,295,000
- --------------------------------------------------------------
RAILROADS-0.72%
CSX Corp. 125,000 5,187,500
- --------------------------------------------------------------
RESTAURANTS-1.06%
McDonald's Corp. 100,000 7,662,500
- --------------------------------------------------------------
RETAIL (BUILDING SUPPLIES)-1.63%
Lowe's Companies, Inc. 100,000 5,118,750
- --------------------------------------------------------------
Sherwin-Williams Co. 225,000 6,609,375
- --------------------------------------------------------------
11,728,125
- --------------------------------------------------------------
RETAIL (DEPARTMENT STORES)-1.24%
Dillards, Inc. 150,000 4,256,250
- --------------------------------------------------------------
J.C. Penney Co., Inc. 100,000 4,687,500
- --------------------------------------------------------------
8,943,750
- --------------------------------------------------------------
RETAIL (DRUG STORES)-0.69%
Rite Aid Corp. 100,000 4,956,250
- --------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE)-0.53%
Kmart Corp.(a) 250,000 3,828,125
- --------------------------------------------------------------
RETAIL (SPECIALTY)-0.29%
Toys "R" Us, Inc.(a) 125,000 2,109,375
- --------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-0.88%
Dun & Bradstreet Corp. 200,000 6,312,500
- --------------------------------------------------------------
SPECIALTY PRINTING-0.89%
Deluxe Corp. 175,000 6,398,437
- --------------------------------------------------------------
TELEPHONE-3.62%
Ameritech Corp. 65,000 4,119,375
- --------------------------------------------------------------
Bell Atlantic Corp. 140,000 7,953,750
- --------------------------------------------------------------
British Telecommunications PLC-ADR
(United Kingdom) 60,000 9,101,250
- --------------------------------------------------------------
Telefonos de Mexico S.A.-ADR
(Mexico) 100,000 4,868,750
- --------------------------------------------------------------
26,043,125
- --------------------------------------------------------------
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TEXTILES (APPAREL)-1.74%
Liz Claiborne, Inc. 175,000 $ 5,523,437
- --------------------------------------------------------------
VF Corp. 150,000 7,031,250
- --------------------------------------------------------------
12,554,687
- --------------------------------------------------------------
TEXTILES (SPECIALTY)-0.48%
Unifi, Inc.(a) 175,000 3,423,437
- --------------------------------------------------------------
TOBACCO-1.75%
Gallaher Group PLC-ADR (United
Kingdom) 110,000 2,990,625
- --------------------------------------------------------------
Philip Morris Companies, Inc. 180,000 9,630,000
- --------------------------------------------------------------
12,620,625
- --------------------------------------------------------------
WASTE MANAGEMENT-1.30%
Browning-Ferris Industries, Inc. 150,000 4,265,625
- --------------------------------------------------------------
Waste Management, Inc. 108,750 5,070,468
- --------------------------------------------------------------
9,336,093
- --------------------------------------------------------------
Total Common Stocks (Cost
$367,668,273) 567,066,547
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
CORPORATE NOTES-6.17%
AUTOMOBILES-0.57%
Ford Motor Co., Notes,
7.50%, 11/15/99 $ 750,000 $ 763,778
- --------------------------------------------------------------
6.50%, 08/01/18 3,250,000 3,341,747
- --------------------------------------------------------------
4,105,525
- --------------------------------------------------------------
BANKS (MAJOR REGIONAL)-0.94%
National City Corp., Sub Notes,
7.20%, 05/15/05 1,000,000 1,070,191
- --------------------------------------------------------------
Nationsbank Corp., Sr. Notes,
5.375%, 04/15/00 1,550,000 1,549,442
- --------------------------------------------------------------
Wachovia Corp., Unsec. Sub. Notes,
6.25%, 08/04/08 4,000,000 4,164,400
- --------------------------------------------------------------
6,784,033
- --------------------------------------------------------------
BANKS (MONEY CENTER)-0.44%
First Union Corp., Unsec. Sub.
Notes, 6.40%, 04/01/08 3,000,000 3,145,320
- --------------------------------------------------------------
BEVERAGES (ALCOHOLIC)-0.51%
Anheuser Busch Co., Unsec. Notes,
5.375%, 09/15/08 3,700,000 3,710,323
- --------------------------------------------------------------
CHEMICALS-0.14%
Eastman Chemical, Notes, 6.375%,
01/15/04 1,000,000 997,400
- --------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-0.44%
Motorola Inc., Notes, 6.50%,
03/01/08 3,000,000 3,174,600
- --------------------------------------------------------------
CONSUMER FINANCE-0.85%
Beneficial Corp., Medium Term
Notes, 6.625%, 09/27/04 3,000,000 3,092,760
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
CONSUMER FINANCE-(CONTINUED)
Commercial Credit Co., Unsec.
Notes, 5.55%, 02/15/01 $3,000,000 $ 3,007,020
- --------------------------------------------------------------
6,099,780
- --------------------------------------------------------------
ELECTRIC COMPANIES-0.45%
Penn Power & Lighting, First
Mortgage Notes,
6.875%, 02/01/03 1,000,000 1,063,350
- --------------------------------------------------------------
6.55%, 03/01/06 1,900,000 2,002,619
- --------------------------------------------------------------
Union Electric, First Mortgage
Notes, 6.75%, 10/15/99 150,000 151,999
- --------------------------------------------------------------
3,217,968
- --------------------------------------------------------------
ELECTRICAL EQUIPMENT-0.22%
Boeing Co., Notes, 6.625%, 06/01/05 1,500,000 1,572,660
- --------------------------------------------------------------
FOODS-0.35%
Campbell Soup Co., Unsec. Notes,
4.75%, 10/01/03 2,600,000 2,555,332
- --------------------------------------------------------------
INSURANCE (MULTI-LINE)-0.41%
CNA Financial Corp., Unsec. Notes,
6.50%, 04/15/05 3,000,000 2,990,760
- --------------------------------------------------------------
RETAIL (BUILDING SUPPLIES)-0.43%
Sherwin-Williams Co., Notes, 6.50%,
02/01/02 3,000,000 3,099,360
- --------------------------------------------------------------
RETAIL (DEPARTMENT STORES)-0.42%
Dillard Dept. Stores, Inc., Unsec.
Notes, 6.30%, 02/15/08 3,000,000 3,015,120
- --------------------------------------------------------------
Total Corporate Notes (Cost
$43,397,815) 44,468,181
- --------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES-2.61%
FEDERAL HOME LOAN MORTGAGE CORP. ("FHLMC")-0.52%
Pass through certificates
6.50%, 07/01/01 2,141,748 2,164,493
- --------------------------------------------------------------
8.00%, 10/01/10 1,530,209 1,577,064
- --------------------------------------------------------------
3,741,557
- --------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION ("FNMA")-1.34%
Pass through certificates
8.50%, 03/01/10 1,449,332 1,509,567
- --------------------------------------------------------------
6.50%, 06/01/11 to 05/01/26 6,152,443 6,238,374
- --------------------------------------------------------------
7.50%, 11/01/26 1,839,198 1,894,943
- --------------------------------------------------------------
9,642,884
- --------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION ("GNMA")-0.75%
Pass through certificates
6.50%, 10/15/08 905,700 927,492
- --------------------------------------------------------------
7.00%, 10/15/08 952,794 984,055
- --------------------------------------------------------------
</TABLE>
9
<PAGE> 12
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
("GNMA")-(CONTINUED)
6.00%, 11/15/08 $1,074,971 $ 1,088,407
- --------------------------------------------------------------
7.50%, 03/15/26 2,331,182 2,414,218
- --------------------------------------------------------------
5,414,172
- --------------------------------------------------------------
Total U.S. Government Agency
Securities (Cost $18,294,842) 18,798,613
- --------------------------------------------------------------
U.S. TREASURY SECURITIES-10.20%
U.S. TREASURY BONDS-0.73%
7.625%, 02/15/25 4,000,000 5,261,561
- --------------------------------------------------------------
U.S. TREASURY NOTES-9.47%
8.75%, 08/15/00 4,000,000 4,255,521
- --------------------------------------------------------------
7.875%, 08/15/01 5,000,000 5,397,601
- --------------------------------------------------------------
7.50%, 05/15/02 3,000,000 3,261,660
- --------------------------------------------------------------
6.25%, 02/15/03 4,000,000 4,232,800
- --------------------------------------------------------------
7.25%, 05/15/04 6,000,000 6,724,980
- --------------------------------------------------------------
7.25%, 08/15/04 2,000,000 2,249,240
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. TREASURY NOTES-(CONTINUED)
6.50%, 08/15/05 $7,000,000 $ 7,694,050
- --------------------------------------------------------------
9.375%, 02/15/06 4,000,000 5,101,240
- --------------------------------------------------------------
6.125%, 08/15/07 6,000,000 6,553,800
- --------------------------------------------------------------
5.50%, 02/15/08 8,000,000 8,474,320
- --------------------------------------------------------------
9.25%, 02/15/16 6,000,000 8,609,940
- --------------------------------------------------------------
7.25%, 08/15/22 4,500,000 5,603,715
- --------------------------------------------------------------
68,158,867
- --------------------------------------------------------------
Total U.S. Treasury Securities
(Cost $68,661,389) 73,420,428
- --------------------------------------------------------------
REPURCHASE AGREEMENT-1.01%(b)
SBC Warburg Dillon Read, Inc.,
4.75%, 01/04/99 (Cost
$7,293,570)(c) 7,293,570 7,293,570
- --------------------------------------------------------------
TOTAL INVESTMENTS-98.74% 711,047,339
- --------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-1.26% 9,086,204
- --------------------------------------------------------------
NET ASSETS-100.00% $720,133,543
==============================================================
</TABLE>
Notes to Schedule of Investments:
(a) Non-income producing securities.
(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 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.
(c) Joint repurchase agreement entered into 12/31/98 with a maturing value of
$1,000,527,778. Collateralized by $2,207,068,000 U.S. Government
obligations, 0% to 6.75% due 06/30/99 to 11/15/21 with an aggregate market
value at 12/31/98 of $1,020,001,079.
Abbreviations:
ADR - American Depositary Receipt
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
See Notes to Financial Statements.
10
<PAGE> 13
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$505,315,889) $711,047,339
- ---------------------------------------------------------
Receivables for:
Investments sold 5,865,395
- ---------------------------------------------------------
Capital stock sold 2,597,804
- ---------------------------------------------------------
Interest and dividends 3,321,795
- ---------------------------------------------------------
Investment for deferred compensation plan 7,757
- ---------------------------------------------------------
Other assets 15,418
- ---------------------------------------------------------
Total assets 722,855,508
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Capital stock reacquired 616,563
- ---------------------------------------------------------
Deferred compensation plan 7,757
- ---------------------------------------------------------
Accrued advisory fees 453,322
- ---------------------------------------------------------
Accrued operating services fees 75,761
- ---------------------------------------------------------
Accrued distribution fees 1,529,511
- ---------------------------------------------------------
Accrued directors' fees and expenses 39,051
- ---------------------------------------------------------
Total liabilities 2,721,965
- ---------------------------------------------------------
Net assets applicable to shares outstanding $720,133,543
- ---------------------------------------------------------
NET ASSETS:
Class A $ 46,286,433
=========================================================
Class B $ 3,591,573
=========================================================
Class C $670,255,537
=========================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Class A:
Authorized 100,000,000
- ---------------------------------------------------------
Outstanding 2,307,756
=========================================================
Class B:
Authorized 100,000,000
- ---------------------------------------------------------
Outstanding 179,008
=========================================================
Class C:
Authorized 100,000,000
- ---------------------------------------------------------
Outstanding 33,407,634
=========================================================
Class A:
Net asset value and redemption price per
share $ 20.06
- ---------------------------------------------------------
Offering price per share:
(Net asset value of $20.06 divided by
94.50%) $ 21.23
=========================================================
Class B:
Net asset value and offering price per
share $ 20.06
=========================================================
Class C:
Net asset value and offering price per
share $ 20.06
=========================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 11,514,476
- ---------------------------------------------------------
Dividends (net of $247,098 foreign
withholding tax) 10,195,106
- ---------------------------------------------------------
Total investment income 21,709,582
- ---------------------------------------------------------
EXPENSES:
Advisory fees 5,051,593
- ---------------------------------------------------------
Operating services fees 2,996,689
- ---------------------------------------------------------
Distribution fees-Class A 126,300
- ---------------------------------------------------------
Distribution fees-Class B 10,941
- ---------------------------------------------------------
Distribution fees-Class C 6,365,011
- ---------------------------------------------------------
Directors' fees and expenses 5,841
- ---------------------------------------------------------
Total expenses 14,556,375
- ---------------------------------------------------------
Less: Fees waived by advisor (1,328,869)
- ---------------------------------------------------------
Net expenses 13,227,506
- ---------------------------------------------------------
Net investment income 8,482,076
- ---------------------------------------------------------
REALIZED AND UNREALIZED GAIN FROM
INVESTMENT SECURITIES:
Net realized gain from investment
securities 59,176,179
- ---------------------------------------------------------
Net unrealized appreciation of investment
securities 11,782,197
- ---------------------------------------------------------
Net gain from investment securities 70,958,376
- ---------------------------------------------------------
Net increase in net assets resulting from
operations $ 79,440,452
=========================================================
</TABLE>
See Notes to Financial Statements.
11
<PAGE> 14
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 $ 8,482,076 $ 9,048,951
- -----------------------------------------------------------------------------------------
Net realized gain from investment securities 59,176,179 23,883,293
- -----------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities 11,782,197 86,058,520
- -----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 79,440,452 118,990,764
- -----------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (693,499) (246,939)
- -----------------------------------------------------------------------------------------
Class B (14,661) --
- -----------------------------------------------------------------------------------------
Class C (7,001,855) (8,674,714)
- -----------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on
investment securities:
Class A (3,877,358) (610,538)
- -----------------------------------------------------------------------------------------
Class B (270,410) --
- -----------------------------------------------------------------------------------------
Class C (56,203,971) (14,999,384)
- -----------------------------------------------------------------------------------------
Share transactions-net:
Class A 21,305,857 24,377,889
- -----------------------------------------------------------------------------------------
Class B 3,715,719 --
- -----------------------------------------------------------------------------------------
Class C 55,402,752 19,575,501
- -----------------------------------------------------------------------------------------
Net increase in net assets 91,803,026 138,412,579
- -----------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 628,330,517 489,917,938
- -----------------------------------------------------------------------------------------
End of period $720,133,543 $628,330,517
=========================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $510,018,210 $426,093,882
- -----------------------------------------------------------------------------------------
Undistributed net investment income 938,111 166,050
- -----------------------------------------------------------------------------------------
Undistributed net realized gain from investment securities 3,445,772 8,121,332
- -----------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 205,731,450 193,949,253
- -----------------------------------------------------------------------------------------
$720,133,543 $628,330,517
=========================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Advisor Flex Fund (the "Fund") is a series portfolio of AIM Advisor Funds,
Inc. (the "Company"). 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 five diversified
portfolios. 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 investment objective is to achieve a high total return on
investment through capital appreciation and current income, without regard to
federal income tax considerations.
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
12
<PAGE> 15
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. Such dividends are
declared and paid quarterly. On December 31, 1998 additional paid-in capital
was increased by $3,500,000 and undistributed net realized gains was
decreased by $3,500,000 as a result of equalization credits and 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.
The Company, pursuant to an operating services agreement with AIM, has agreed
to pay AIM an annual rate of 0.45% of the Fund's average daily net assets 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
year ended December 31, 1998, AIM was paid $1,703,905 for such services. As of
June 1, 1998, AIM has voluntarily agreed to limit the operating services fees to
an annual rate of 0.45% of the first $50 million of the Fund's average daily net
assets and 0.10% of the Fund's average daily net assets in excess of $50
million. During the period June 1, 1998 through December 31, 1998, AIM
voluntarily waived operating services fees in the amount of $1,292,783.
The Company 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 Company has adopted
distribution plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A shares and Class C shares (the "Class A and 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 0.35% of the average daily net assets attributable to the
Class A shares and 1.00% of the average daily net assets attributable to the
Class C shares. AIM Distributors has voluntarily agreed to limit the Class A
shares plan payments to 0.25% for three years beginning August 4, 1997. The
Fund, pursuant to the Class B Plan, pays AIM Distributors compensation at an
annual rate of 1.00% of the average daily net assets attributable to the Class B
shares. Of 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, for the Class A and Class C
shares and the period March 3, 1998 (date sales commenced) through December 31,
1998 for the Class B shares, the Class A, Class B and Class C shares paid AIM
Distributors $90,214, $10,941 and $6,365,011, respectively, as compensation
under the Plans. During the year ended December 31, 1998, AIM Distributors
waived fees of $36,086 for the Class A shares.
AIM Distributors received commissions of $33,479 from sales of Class A shares
of the Fund during the year ended December 31, 1998. 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 year ended December 31, 1998,
AIM Distributors received commissions of $100,172 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.
The combined effect of the advisory agreements, operating services agreement
and the distribution plan for the Fund is to place a cap or ceiling on the total
annual 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 year ended December 31, 1998, the Fund paid legal fees of $4,762
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.
13
<PAGE> 16
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-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 party to the
line of credit are charged a commitment fee of 0.05% on the unused balance of
the committed line. The commitment fee is allocated among the funds based on
their respective average net assets for the period.
NOTE 5-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended December 31, 1998 was
$232,418,225 and $222,893,137, 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 $222,128,397
- --------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (16,396,947)
- --------------------------------------------------------------------------
Net unrealized appreciation of investment securities $205,731,450
==========================================================================
</TABLE>
Investments have the same cost for tax and financial statement purposes.
NOTE 6-CAPITAL STOCK
Changes in the Fund's capital stock 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 1,076,842 $ 22,390,887 1,255,277 $ 24,015,843
- --------------------------------------------------------------------------------------------------------------------
Class B** 175,059 3,648,126 -- --
- --------------------------------------------------------------------------------------------------------------------
Class C 5,318,582 109,967,149 4,707,789 86,294,017
- --------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A 223,596 4,399,200 42,162 821,435
- --------------------------------------------------------------------------------------------------------------------
Class B** 14,140 277,225 -- --
- --------------------------------------------------------------------------------------------------------------------
Class C 3,067,888 60,325,811 1,120,103 21,660,078
- --------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (266,823) (5,484,230) (23,298) (459,389)
- --------------------------------------------------------------------------------------------------------------------
Class B** (10,191) (209,632) -- --
- --------------------------------------------------------------------------------------------------------------------
Class C (5,531,566) (114,890,208) (4,738,134) (88,378,594)
- --------------------------------------------------------------------------------------------------------------------
4,067,527 $ 80,424,328 2,363,899 $ 43,953,390
====================================================================================================================
</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 B shares commenced sales on March 3, 1998.
14
<PAGE> 17
NOTE 7-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A capital stock
outstanding during each of the years in the two-year period ended December 31,
1998, for a share of Class B capital stock outstanding during the period March
3, 1998 (date sales commenced) through December 31, 1998, and for a share of
Class C capital stock outstanding during each of the years in the five-year
period ended December 31, 1998.
<TABLE>
<CAPTION>
CLASS A(a) CLASS B
----------------------- ------------
1998 1997(b) 1998
------- ------------ ------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 19.74 $ 16.63 $ 20.69
- ------------------------------------------------------------ ------- ---------- ----------
Income from investment operations:
Net investment income 0.39 0.41(c) 0.22
- ------------------------------------------------------------ ------- ---------- ----------
Net gains on securities (both realized and unrealized) 2.16 3.63 1.22
- ------------------------------------------------------------ ------- ---------- ----------
Total from investment operations 2.55 4.04 1.44
- ------------------------------------------------------------ ------- ---------- ----------
Less distributions:
Dividends from net investment income (0.39) (0.43) (0.23)
- ------------------------------------------------------------ ------- ---------- ----------
Distributions from net realized gains (1.84) (0.50) (1.84)
- ------------------------------------------------------------ ------- ---------- ----------
Total distributions (2.23) (0.93) (2.07)
- ------------------------------------------------------------ ------- ---------- ----------
Net asset value, end of period $ 20.06 $ 19.74 $ 20.06
- ------------------------------------------------------------ ------- ---------- ----------
Total return(d) 13.26% 24.60% 7.25%
- ------------------------------------------------------------ ------- ---------- ----------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $46,286 $ 25,151 $ 3,592
- ------------------------------------------------------------ ------- ---------- ----------
Ratio of expenses to average net assets(e) 1.23%(f) 1.45% 2.00%(f)(g)
- ------------------------------------------------------------ ------- ---------- ----------
Ratio of net investment income to average net assets(h) 1.99%(f) 2.34% 1.22%(f)(g)
- ------------------------------------------------------------ ------- ---------- ----------
Portfolio turnover rate 34% 17% 34%
- ------------------------------------------------------------ ------- ---------- ----------
</TABLE>
<TABLE>
<S> <C>
(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 and for periods less than one
year is not annualized.
(e) After fee waivers and/or expense reimbursements. Ratio of
expenses to average net assets prior to fee waivers and/or
expense reimbursements were 1.52% and 1.55% for 1998-1997
for Class A and 2.19% (annualized) for 1998 for Class B.
(f) Ratios are based on average net assets of $36,085,767 and
$1,313,596 for Class A and Class B, respectively.
(g) Annualized.
(h) After fee waivers and/or expense reimbursements. Ratio of
net investment income to average net assets prior to fee
waivers and/or expense reimbursements were 1.70% and 2.24%
for 1998-1997 for Class A and 1.03% (annualized) for 1998
for Class B.
</TABLE>
<TABLE>
<CAPTION>
CLASS C(a)
----------------------------------------------------------
1998 1997(b) 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 19.74 $ 16.63 $ 15.66 $ 12.63 $ 13.54
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.25 0.30(c) 0.30 0.32 0.32
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net gains (losses) on securities (both realized and
unrealized) 2.14 3.60 1.81 3.09 (0.23)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total from investment operations 2.39 3.90 2.11 3.41 0.09
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.23) (0.29) (0.29) (0.32) (0.31)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Distributions from net realized gains (1.84) (0.50) (0.85) (0.06) (0.69)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total distributions (2.07) (0.79) (1.14) (0.38) (1.00)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net asset value, end of period $ 20.06 $ 19.74 $ 16.63 $ 15.66 $ 12.63
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total return(d) 12.41% 23.64% 13.61% 27.30% 0.64%
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $670,256 $603,179 $489,918 $399,162 $243,848
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Ratio of expenses to average net assets 2.00%(e)(f) 2.20% 2.26% 2.28% 2.25%
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Ratio of net investment income to average net assets 1.22%(f)(g) 1.59% 1.81% 2.28% 2.32%
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Portfolio turnover rate 34% 17% 26% 5% 36%
- ------------------------------------------------------------ -------- -------- -------- -------- ---------
</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) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
2.19% for 1998.
(f) Ratios are based on average net assets of $636,501,142.
(g) 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 1.03% for 1998.
15
<PAGE> 18
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders of
AIM Advisor Flex Fund:
We have audited the accompanying statement of assets and
liabilities of AIM Advisor Flex Fund (a portfolio of AIM
Advisor Funds, Inc.), including the schedule of
investments, as of December 31, 1998, and the related
statement of operations, the statement of changes in net
assets, and the financial highlights for the year 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 audit. The accompanying statement of changes
in net assets for the year ended December 31, 1997 and
the financial highlights for each of the years in the
four-year period ended December 31, 1997, were audited by
other auditors whose report thereon dated February 5,
1998, expressed an unqualified opinion on such statement
and financial highlights.
We conducted our audit 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 audit provides a reasonable basis for
our opinion.
In our opinion, the 1998 financial statements and
financial highlights referred to above present fairly, in
all material respects, the financial position of AIM
Advisor Flex Fund as of December 31, 1998, the results of
its operations, the changes in its net assets and the
financial highlights for the year then ended, in
conformity with generally accepted accounting principles.
KPMG LLP
Houston, Texas
February 5, 1999
16
<PAGE> 19
<TABLE>
<CAPTION>
BOARD OF DIRECTORS OFFICERS OFFICE OF THE FUND
<S> <C> <C>
Charles T. Bauer Charles T. Bauer 11 Greenway Plaza
Chairman Chairman Suite 100
A I M Management Group Inc. Houston, TX 77046
Robert H. Graham
Bruce L. Crockett President INVESTMENT ADVISOR
Director
ACE Limited; John J. Arthur A I M Advisors, Inc.
Formerly Director, President, and Senior Vice President and Treasurer 11 Greenway Plaza
Chief Executive Officer Suite 100
COMSAT Corporation Carol F. Relihan Houston, TX 77046
Senior Vice President and Secretary
Owen Daly II SUB-ADVISOR
Director Gary T. Crum
Cortland Trust Inc. Senior Vice President INVESCO Capital Management, Inc.
1315 Peachtree Street, N.E.
Edward K. Dunn Jr. Dana R. Sutton Atlanta, GA 30309
Chairman, Mercantile Mortgage Corp.; Vice President and Assistant Treasurer
Formerly Vice Chairman and President, TRANSFER AGENT
Mercantile-Safe Deposit & Trust Co.; and Robert G. Alley
President, Mercantile Bankshares Vice President A I M Fund Services, Inc.
P.O. Box 4739
Jack Fields Stuart W. Coco Houston, TX 77210-4739
Chief Executive Officer Vice President
Texana Global, Inc.; CUSTODIAN
Formerly Member Melville B. Cox
of the U.S. House of Representatives Vice President State Street Bank and Trust Company
225 Franklin Street
Carl Frischling Karen Dunn Kelley Boston, MA 02110
Partner Vice President
Kramer, Levin, Naftalis & Frankel COUNSEL TO THE FUND
Jonathan C. Schoolar
Robert H. Graham Vice President Ballard Spahr
President and Chief Executive Officer Andrews & Ingersoll, LLP
A I M Management Group Inc. Renee A. Friedli 1735 Market Street
Assistant Secretary Philadelphia, PA 19103
Prema Mathai-Davis
Chief Executive Officer, YWCA of the U.S.A.: P. Michelle Grace COUNSEL TO THE DIRECTORS
Commissioner, New York City Dept. for Assistant Secretary
the Aging; and member of the Board of Director Kramer, Levin, Naftalis & Frankel
Metropolitan Transportation Authority of Jeffrey H. Kupor 919 Third Avenue
New York State Assistant Secretary New York, NY 10022
Lewis F. Pennock Nancy L. Martin DISTRIBUTOR
Attorney Assistant Secretary
A I M Distributors, Inc.
Ian W. Robinson Ofelia M. Mayo 11 Greenway Plaza
Consultant; Formerly Executive Assistant Secretary Suite 100
Vice President and Houston, TX 77046
Chief Financial Officer Lisa A. Moss
Bell Atlantic Management Assistant Secretary AUDITORS
Services, Inc.
Kathleen J. Pflueger KPMG LLP
Louis S. Sklar Assistant Secretary 700 Louisiana
Executive Vice President Houston, TX 77002
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 Advisor Flex Fund Class A, Class B and Class C shares paid ordinary
dividends in the amount of $0.4906, $0.3346 and $0.3346 per share, respectively,
during the Fund's tax year ended December 31, 1998. Of these amounts, 74.25% is
eligible for the dividends received deduction for corporations.
The Fund also distributed long-term capital gains of $60,426,809 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 income dividends paid, 32.98% was derived from U.S. Treasury
obligations.
<PAGE> 20
THE AIM FAMILY OF FUNDS--Registered Trademark--
<TABLE>
<S> <C> <C>
GROWTH FUNDS INTERNATIONAL GROWTH FUNDS A I M Management Group Inc. has provided
AIM Aggressive Growth Fund(1) AIM Advisor International Value Fund leadership in the mutual fund industry
AIM Blue Chip Fund AIM Asian Growth Fund since 1976 and managed approximately $109
AIM Capital Development Fund AIM Developing Markets Fund(2) billion in assets for more than 6.2 million
AIM Constellation Fund AIM Europe Growth Fund(2) shareholders, including individual investors,
AIM Mid Cap Equity Fund(2), (A) AIM European Development Fund corporate clients, and financial institutions,
AIM Select Growth Fund(3) AIM International Equity Fund as of December 31, 1998.
AIM Small Cap Growth Fund(2), (B) AIM Japan Growth Fund(2) The AIM Family of Funds--Registered Trademark--
AIM Small Cap Opportunities Fund AIM Latin American Growth Fund(2) is distributed nationwide, and AIM today is the
AIM Value Fund AIM New Pacific Growth Fund(2) 10th-largest mutual fund complex in the U.S. in
AIM Weingarten Fund assets under management, according to Strategic
Insight, an independent mutual fund monitor.
GROWTH & INCOME FUNDS
AIM Advisor Flex Fund GLOBAL GROWTH FUNDS
AIM Advisor Large Cap Value Fund AIM Global Aggressive Growth Fund
AIM Advisor MultiFlex Fund AIM Global Growth Fund
AIM Advisor Real Estate Fund
AIM Balanced Fund GLOBAL GROWTH & INCOME FUNDS
AIM Basic Value Fund(2), (C) AIM Global Growth & Income Fund(2)
AIM Charter Fund AIM Global Utilities Fund
INCOME FUNDS GLOBAL INCOME FUNDS
AIM Floating Rate Fund(2) AIM Emerging Markets Debt Fund(2), (D)
AIM High Yield Fund AIM Global Government Income Fund(2)
AIM High Yield Fund II AIM Global Income Fund
AIM Income Fund AIM Strategic Income Fund(2)
AIM Intermediate Government Fund
AIM Limited Maturity Treasury Fund THEME FUNDS
AIM Global Consumer Products and Services Fund(2)
TAX-FREE INCOME FUNDS AIM Global Financial Services Fund(2)
AIM High Income Municipal Fund AIM Global Health Care Fund(2)
AIM Municipal Bond Fund AIM Global Infrastructure Fund(2)
AIM Tax-Exempt Bond Fund of Connecticut AIM Global Resources Fund(2)
AIM Tax-Free Intermediate Fund AIM Global Telecommunications Fund(2)
AIM Global Trends Fund(2), (E)
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.
