<PAGE> 1
AIM INCOME FUND
[AIM LOGO APPEARS HERE] ANNUAL REPORT DECEMBER 31, 1996
<PAGE> 2
[PHOTO APPEARS HERE]
AIM INCOME FUND
For shareholders who seek
a high level of current income consistent with
a reasonable concern for
safety of principal
by investing in a portfolio
consisting primarily of
fixed-rate corporate debt and
U.S. government obligations.
ABOUT FUND PERFORMANCE AND DATA THROUGHOUT THIS REPORT:
o AIM Income Fund's performance figures are historical and reflect all
distributions and changes in net asset value. Unless otherwise indicated,
the Fund's performance is computed without a sales charge.
o When sales charges are included in performance figures, Class A share
performance reflects the maximum 4.75% sales charge, and Class B share
performance reflects the applicable contingent deferred sales charge (CDSC)
for the period involved. The CDSC declines from 5% beginning at the time of
purchase to 0% at the beginning of the seventh year. The performance of the
Fund's Class B shares will differ from that of Class A shares due to
differing fees and expenses.
o In 1996, the Fund paid distributions for Class A and Class B shares of
$0.588 and $0.525 per share, respectively.
o The 30-day yield is calculated on the basis of a formula defined by the
SEC. The formula is based on the portfolio's potential earnings from
dividends, interest, yield-to-maturity or yield-to-call of the bonds in the
portfolio, net of all expenses and expressed on an annualized basis.
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 International investing presents certain risks not associated with
investing solely in the U.S. These include risks relating to fluctuations
in the value of the U.S. dollar relative to the value of other currencies,
the custody arrangements made for the Fund's foreign holdings, differences
in accounting, political risks, and the lesser degree of public information
required to be provided by non-U.S. companies.
o Past performance cannot guarantee comparable future results.
ABOUT INDEXES AND OTHER PERFORMANCE BENCHMARKS CITED IN THIS REPORT:
o The unmanaged Lipper General Bond Fund Index represents an average of the
performance of the 10 largest general bond funds tracked by Lipper
Analytical Services, Inc., an independent mutual fund performance monitor.
o The Lehman Brothers Aggregate Bond Index is an unmanaged index generally
regarded as representative of intermediate- and long-term government and
investment-grade corporate debt securities.
o An investment cannot be made in any index listed. Unless otherwise
indicated, index results include reinvested interest 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:
Financial markets produced another noteworthy year in 1996.
Stocks surged again to enthusiastic levels, but the advance
was marked by dramatic volatility and confined mainly to the
[PHOTO OF performance of a select few large-company stocks. Still, most
Charles T. investors in stock funds were rewarded with double-digit
Bauer, returns for the year. Bonds had a difficult time until
Chairman of encouraging economic reports triggered a fall rally that
the Board of helped restore prices and bring yields back down to near 1995
the Fund, levels.
APPEARS HERE] As we begin 1997, the parallels to last year are striking.
The economy is growing at a moderate rate, corporate
earnings remain healthy, and inflation is modest. Such an
environment is ideal for financial investments.
Still, many suggest, as we do, that 1997 will be marked by continued
uncertainty and short-term volatility. And as the market's performance
continues to exceed historical averages, some advise that a correction is
overdue.
We believe the best way to achieve your investment goals in uncertain
markets is to follow a few basic strategies. First, you should keep a long-term
outlook. If you leave your money invested over the long term, you can help
avoid the results of the volatility that generally accompanies financial
markets over the short term. Those who try to "time the market"--move money in
and out of the market based on some gauge of future market performance--tend to
be less successful than investors using disciplined, long-term investment
strategies. That's because no one, not even expert market watchers, can
consistently predict what the market will do next.
Another strategy, diversification, may help you cushion the effects of a
volatile market and enhance your return potential. A mutual fund is already
diversified because it invests in many securities. You can diversify even
further by placing some of your assets in several different types of domestic
and international funds that may include stocks, bonds, and money market
securities.
Finally, no matter what your investment goals or time horizon, it makes good
sense to review your portfolio regularly with your financial consultant. In
rapidly changing markets, you need an investment professional on your side who
can explain what is happening and how your portfolio may be affected.
Your financial consultant can help you create and follow a regular
investment plan--investing a certain amount of money at regular intervals--that
can help you stay on track regardless of day-to-day market activity.
In 1997, and in the years ahead, we at AIM plan to meet the challenge of
changing financial markets through the consistent application of disciplined
investment strategies that have served our shareholders well for more than 20
years. We are pleased that AIM funds, overall, have turned in attractive, and
often impressive performance when measured against benchmark indexes and peer
group performance.
We appreciate the trust you have placed in us and we look forward to our
continued close association. If you have any questions or comments about this
report, we invite you to call Client Services at 800-959-4246 during normal
business hours. For automated account information 24 hours a day, call the AIM
Investor Line at 800-246-5463.
Sincerely,
/s/ CHARLES T. BAUER
Charles T. Bauer
Chairman
-----------------------------------
In rapidly changing markets,
you need
an investment professional
on your side
who can explain
what is happening and
how your portfolio may be affected.
-----------------------------------
<PAGE> 4
--------------------------
The Fund
rebounded impressively
in the second half of 1996
to post respectable gains
for the year.
--------------------------
The Managers' Overview
AIM INCOME FUND
BENEFITS FROM DIVERSIFICATION
A roundtable discussion with the Fund management team for AIM Income Fund for
the fiscal year ended December 31, 1996.
- --------------------------------------------------------------------------------
Q. HOW DID AIM INCOME FUND PERFORM DURING THE REPORTING PERIOD?
A. Uncertain economic conditions and ongoing inflation concerns created
volatility that tested the financial markets in 1996, particularly for
fixed-income investors. Based on its diversified approach, AIM Income Fund
posted a solid total return of 8.58% and 7.87% for Class A and Class B
shares, respectively. The Fund bested the 3.63% total return for the Lehman
Brothers Aggregate Bond Index and was competitive with the 7.95% total return
for the Lipper General Bond Fund Index.
The Fund rebounded impressively in the second half of 1996 to post
respectable gains for the year. As you may recall, when we reported to you in
the semiannual report for the six-month period ended June 30, 1996, the Fund
had a six-month total return of -0.46% and -0.88% for Class A and Class B
shares, respectively. The Fund's total return for the year just ended was
more reflective of its historic average. During the 10-year period ended
December 31, 1996, the average annual total return for Class A shares was
8.79%.
As of December 31, 1996, the Fund's 30-day yield was 6.07% for Class A
shares and 5.63% for Class B shares, when calculated on maximum offering
price. During the year, net assets in the Fund grew from more than $295
million to more than $371 million.
Q. HOW DID YOU MANAGE THE FUND DURING THE PERIOD?
A. We continued to use the "three-legged stool" approach to investing, holding
securities in three bond-market segments: domestic investment-grade bonds,
non-dollar-denominated foreign bonds, and domestic high-yield bonds. The
three classes of debt securities tend to perform differently because the
factors that influence them are varied. Holding all three types of bonds
diversifies the investment risk associated with any one class, and that may
lower the fund's volatility and enhance its potential return.
At the end of the reporting period, domestic investment-grade bonds and
cash comprised 42% of the portfolio while high-yield bonds and foreign bonds
each comprised about 29%. During the year, the Fund increased its weighting
in foreign bonds, which performed well in the second half of 1996.
Q. WHAT FACTORS AFFECTED THE FIXED-INCOME MARKETS DURING 1996?
A. It was a year of mixed signals for fixed-income markets. Investors in
investment-grade bonds were focused on changing expectations about the
direction of the domestic economy. Indications of surprisingly strong
economic growth in the U.S. sent domestic bond prices tumbling during the
first half of 1996. Domestic investment-grade bonds posted good returns in
the second half when it became apparent that economic growth was moderate and
inflation was subdued, but their performance for the year lagged high-yield
and foreign bonds.
Q. How were high-yield securities affected?
A. The perspective was quite different for high-yield securities. Unlike
investment-grade bonds, high-yield bonds benefit from a burgeoning economy.
Healthy economic growth tends to improve the earnings capacity of the
bond-issuing
================================================================================
AIM INCOME FUND HAS SOLID YEAR
1-year total returns as of 12/31/96
- --------------------------------------------------------------------------------
AIM Fund Class A 8.58%
AIM Fund Class B 7.87%
Lehman Brothers
Aggregate Bond Index 3.63%
================================================================================
See important Fund & Index disclosures inside front cover.
2
<PAGE> 5
================================================================================
PORTFOLIO COMPOSITION
Total Investments as of 12/31/96
- --------------------------------------------------------------------------------
TOP FIVE HOLDINGS
DOLLAR-DENOMINATED COUPON MATURITY
HIGH-YIELD BONDS 29% ------ --------
1. Coca-Cola 7.24% 06/2020
NON-DOLLAR DENOMINATED Enterprises Inc.
FOREIGN BONDS 29%
2. Time Warner, Inc. 9.15% 02/2023
DOLLAR-DENOMINATED
INVESTMENT-GRADE BONDS 42% 3. News America 9.25% 02/2013
Holdings
4. Province of 7.75% 07/2016
Manitoba
5. General 8.80% 03/2021
Motors Corp.
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.
================================================================================
companies and ease credit concerns for lower-quality debt issuers. High-yield
bonds were the top-performing segment of the Fund's portfolio.
Q. HOW DID FOREIGN BONDS PERFORM DURING THE PERIOD?
A. Foreign bonds performed well, particularly during the second half of the
year. The Fund benefited from exposure to such top-performing markets as
Australia, Sweden, the United Kingdom, and Canada. In Australia, debt
securities benefited from falling interest rates and an influx of foreign
investment. In Europe, the drive to comply with the standards established
for entry into the European Monetary Union provided significant political
and economic pressures on many western European countries. These countries
are trying to lower inflation rates, reduce budget deficits, and maintain
stable exchange rates. As a result, many European central banks reduced
short-term interest rates and their bond markets posted good performance
during 1996.
Q. HOW DID DOMESTIC INVESTMENT-GRADE BONDS REACT TO CHANGING GROWTH
EXPECTATIONS IN 1996?
A. During the first half of 1996, the perception that the economy was growing
faster than its long-term growth potential led investors to believe the
Federal Reserve Board would raise short-term interest rates. As a result,
yields on domestic investment-grade bonds increased, taking bond prices
lower. As the year progressed, investors' expectations changed as reported
data revealed a different picture of economic growth. The pace of economic
growth had moderated and inflation remained subdued.
Thus, by the third quarter, the investor consensus called for potential
easing of interest rates by the Fed. Reflecting these changing expectations,
the yield on the 10-year U.S. Treasury note ranged from a low of 5.5% in
January to a high of 7.1% in June, before closing the year at 6.4%. The
advance and then decline in market yields over the course of 1996 led one
market strategist to dub it "a round-trip year." Despite the ups and downs
experienced in the domestic investment-grade market in 1996, the Fund's
diversified approach to bond investing moderated this volatility while
providing enhanced total return.
Q. HOW WAS THE FUND POSITIONED AT THE END OF THE REPORTING PERIOD?
A. There were 158 holdings in the Fund as of December 31, 1996. Weighted average
maturity for the Fund was 11.54 years and duration was 6.79 years. Funds with
shorter duration tend to be less sensitive to market fluctuations. The Fund
had an average portfolio quality rating of BBB/Baa as measured by Standard
and Poor's Corporation (S&P) and Moody's Investor Service (Moody's), two
widely known credit-rating agencies. These ratings are historical and are
based on analysis of the credit quality of the individual securities in the
Fund's portfolio.
Q. WHAT IS YOUR MARKET OUTLOOK?
A. The U.S. economy is growing at a reasonable rate without rising inflation,
and that reduces the probability that interest rates may increase over the
near term. In recent testimony before Congress, Fed Chairman Alan Greenspan
said, "The economy has retained considerable vigor, with few signs of the
imbalances and inflationary tensions that have disrupted past expansions."
Less interest rate volatility generally means less risk--a boost for
fixed-income securities. Low interest rates also have created an abundance of
liquidity worldwide that continues to discount the cost of financial capital
and fuel the flow of new corporate debt. The low cost of capital, moderate
economic expansion, and greater fiscal restraint should stoke global economic
activity in 1997, and that could translate into another positive year for
financial markets.
---------------------------
Less
interest rate volatility
generally means less risk--
a boost for
fixed-income securities.
---------------------------
See important Fund & Index disclosures inside front cover.
3
<PAGE> 6
Long-Term Performance
AIM INCOME FUND VS. BENCHMARK INDEX
The chart below compares your Fund to a benchmark index. It is intended to give
you a general idea of how your Fund performed compared to the bond market over
the period 12/31/86-12/31/96. It is important to understand the difference
between your Fund and an index. Your Fund's total return is shown with a sales
charge and includes Fund expenses and management fees. An index measures the
performance of a hypothetical portfolio, in this case the Lehman Brothers
Aggregate Bond Index. Unlike your Fund, the index is not managed; therefore
there are no sales charges, expenses or fees. You cannot invest in an index. But
if you could buy all the securities that make up a particular index, you would
incur expenses that would affect the return on your investment.
================================================================================
Growth of a $10,000 Investment
12/31/86 - 12/31/96
(In thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AIM INCOME FUND, LEHMAN BROTHERS AGGREGATE
CLASS A BOND INDEX
<S> <C> <C>
12/31/86 $9,524 $10,000
12/87 9,578 10,276
12/88 10,441 11,087
12/89 11,856 12,698
12/90 12,289 13,835
12/91 14,502 16,049
12/92 15,577 17,237
12/93 17,973 18,917
12/94 16,598 18,365
12/95 20,379 21,757
12/96 22,127 22,547
</TABLE>
================================================================================
AVERAGE ANNUAL TOTAL RETURN
As of 12/31/96, including sales charges
- --------------------------------------------------------------------------------
CLASS A SHARES
10 Years 8.27%
5 Years 7.76
1 Year 3.42*
* 8.58% excluding sales charge
CLASS B SHARES
Inception (9/7/93) 4.63%
1 Year 2.87**
**7.87% excluding CDSC
================================================================================
Source: Towers Data Systems HYPO--Registered Trademark-- Your Fund's total
return includes sales charges, expenses, and management fees. The performance of
the Fund's Class B shares will differ from that of Class A shares due to
differing fees and expenses. For Fund performance calculations and descriptions
of indexes cited on this page, please refer to the inside front cover.
4
<PAGE> 7
SCHEDULE OF INVESTMENTS
December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
U.S. DOLLAR DENOMINATED NON-
CONVERTIBLE BONDS & NOTES-61.41%
ADVERTISING/BROADCASTING-5.08%
Echostar Satellite Broadcasting,
Sr. Disc. Notes, 13.125%,
03/15/04(b) $ 3,000,000 $ 2,280,000
- ---------------------------------------------------------------
Katz Media Corp.,
Sr. Sub. Notes, 10.50%, 01/15/07
(acquired 12/13/96; cost
$400,000)(c) 400,000 410,500
- ---------------------------------------------------------------
SFX Broadcasting, Inc.,
Series B Sr. Sub. Notes, 10.75%,
05/15/06 1,000,000 1,057,500
- ---------------------------------------------------------------
Time Warner, Inc.,
Deb., 9.15%, 02/01/23 8,500,000 9,454,805
- ---------------------------------------------------------------
Deb., 6.85%, 01/15/26 4,300,000 4,227,717
- ---------------------------------------------------------------
United International Holdings, Inc.,
Sr. Disc. Notes, 12.78%,
11/15/99(d) 2,000,000 1,442,500
- ---------------------------------------------------------------
18,873,022
- ---------------------------------------------------------------
AIRLINES-2.34%
Airplanes Pass Through Trust,
Sub. Bonds, 10.875%, 03/15/19 1,810,000 2,010,240
- ---------------------------------------------------------------
Delta Air Lines, Inc.,
Equipment Trust Certificates,
10.50%, 04/30/16 5,000,000 6,108,200
- ---------------------------------------------------------------
Greenwich Air Services, Inc.,
Sr. Notes, 10.50%, 06/01/06 530,000 569,750
- ---------------------------------------------------------------
8,688,190
- ---------------------------------------------------------------
AUTOMOBILE (MANUFACTURERS)-2.09%
General Motors Corp.,
Deb., 8.80%, 03/01/21 6,700,000 7,748,081
- ---------------------------------------------------------------
AUTOMOBILE/TRUCK PARTS & TIRES-0.18%
CSK Auto Inc.,
Sr. Sub. Notes, 11.00%, 11/01/06
(acquired 10/23/96; cost
$650,000)(c) 650,000 675,188
- ---------------------------------------------------------------
BANKING-3.50%
Bankers Trust New York Corp.,
Gtd. Notes, 7.75%, 12/01/26
(acquired 11/22/96; cost
$2,932,770)(c) 3,000,000 2,884,245
- ---------------------------------------------------------------
First Union Bancorp,
Sub. Deb., 7.50%, 04/15/35 5,300,000 5,587,207
- ---------------------------------------------------------------
HSBC Americas Inc.,
Sub. Notes, 7.00%, 11/01/06 2,000,000 1,978,400
- ---------------------------------------------------------------
Sovereign Bancorp, Inc.,
Sub. Notes, 8.00%, 03/15/03 2,500,000 2,551,500
- ---------------------------------------------------------------
13,001,352
- ---------------------------------------------------------------
BEVERAGES (SOFT DRINKS)-3.88%
Coca-Cola Enterprises, Inc.,
Putable Notes, 7.24%, 06/20/20(d) 74,000,000 14,405,580
- ---------------------------------------------------------------
CABLE TELEVISION-3.47%
Comcast UK Cable Partners Ltd.,
Sr. Yankee Disc. Deb., 11.20%,
11/15/07(b) 5,000,000 3,550,000
- ---------------------------------------------------------------
Fundy Cable Ltd.,
Sr. Yankee Sec. Second Priority
Notes, 11.00%, 11/15/05 410,000 435,625
- ---------------------------------------------------------------
Heartland Wireless Communications
Inc.,
Sr. Notes, 14.00%, 10/15/04
(acquired 12/17/96; cost
$720,000)(c) 720,000 748,800
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
CABLE TELEVISION-(CONTINUED)
Kabelmedia Holdings GmbH,
Sr. Yankee Disc. Notes, 13.625%,
08/01/06(b) $ 1,400,000 $ 777,000
- ---------------------------------------------------------------
Marcus Cable Operating Co.,
Sr. Disc. Notes, 13.50%,
08/01/04(b) 1,690,000 1,390,025
- ---------------------------------------------------------------
Rifkin Acquisition Partners L.L.P.,
Sr. Sub. Notes, 11.125%, 01/15/06 630,000 655,200
- ---------------------------------------------------------------
TeleWest Communications PLC,
Sr. Yankee Disc. Deb., 11.00%,
10/01/07(b) 1,100,000 765,875
- ---------------------------------------------------------------
Viacom, Inc.,
Sr. Notes, 7.75%, 06/01/05 3,650,000 3,584,300
- ---------------------------------------------------------------
Wireless One, Inc.,
Sr. Notes, 13.00%, 10/15/03 1,000,000 980,000
- ---------------------------------------------------------------
12,886,825
- ---------------------------------------------------------------
CHEMICALS-1.38%
BPC Holding Corp.,
Series B Sr. Notes, 12.50%,
06/15/06 1,000,000 1,056,250
- ---------------------------------------------------------------
Crain Industries, Inc.,
Sr. Sub. Notes, 13.50%, 08/15/05 1,070,000 1,211,775
- ---------------------------------------------------------------
LaRoche Industries, Inc.,
Sr. Sub. Notes, 13.00%, 08/15/04 1,000,000 1,080,000
- ---------------------------------------------------------------
PrintPack Inc.,
Sr. Sub. Notes, 10.625%, 08/15/06
(acquired 08/15/96-09/04/96; cost
$1,035,625)(c) 1,030,000 1,071,200
- ---------------------------------------------------------------
Sterling Chemicals, Inc.,
Sr. Sub. Notes, 11.75%, 08/15/06 680,000 720,800
- ---------------------------------------------------------------
5,140,025
- ---------------------------------------------------------------
CONSUMER NON-DURABLES-0.29%
Hines Horticulture, Inc.,
Sr. Sub. Notes, 11.75%, 10/15/05 1,000,000 1,065,000
- ---------------------------------------------------------------
CONTAINERS-1.01%
Ivex Packaging Corp.,
Sr. Sub. Notes, 12.50%, 12/15/02 1,500,000 1,635,000
- ---------------------------------------------------------------
MVE Inc.,
Sr. Secured Notes, 12.50%,
02/15/02 1,000,000 1,066,250
- ---------------------------------------------------------------
Owens-Illinois, Inc.,
Sr. Sub. Notes, 10.00%, 08/01/02 1,000,000 1,050,000
- ---------------------------------------------------------------
3,751,250
- ---------------------------------------------------------------
ELECTRIC POWER-3.62%
AES China Generating Co.,
Sr. Yankee Notes, 10.125%,
12/15/06 220,000 229,350
- ---------------------------------------------------------------
El Paso Electric Co.,
First Mortgage Bonds, 8.90%,
02/01/06 2,500,000 2,611,325
- ---------------------------------------------------------------
First Mortgage Bonds, 9.40%,
05/01/11 4,000,000 4,255,920
- ---------------------------------------------------------------
Indiana Michigan Power, Secured
Lease
Obligation Bonds, 9.82%, 12/07/22 4,969,949 5,996,343
- ---------------------------------------------------------------
Southern California Edison Co.,
First Mortgage Notes, 8.875%,
05/01/23 357,000 373,036
- ---------------------------------------------------------------
13,465,974
- ---------------------------------------------------------------
ENERGY (ALTERNATE SOURCES)-0.29%
AES Corp.,
Sr. Sub. Notes, 10.25%, 07/15/06 1,000,000 1,075,000
- ---------------------------------------------------------------
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
FINANCE (CONSUMER CREDIT)-2.76%
Associates Corp. of North America,
Series B Sr. Deb., 7.95%, 02/15/10 $ 6,000,000 $ 6,472,860
- ---------------------------------------------------------------
GMAC,
Notes, 9.00%, 10/15/02 3,425,000 3,770,959
- ---------------------------------------------------------------
10,243,819
- ---------------------------------------------------------------
FINANCE (LEASING COMPANIES)-0.55%
Sea Containers, Ltd.,
Series B Sr. Yankee Sub. Deb.,
12.50%, 12/01/04 1,825,000 2,025,750
- ---------------------------------------------------------------
FOOD/PROCESSING-0.85%
Chiquita Brands International, Inc.,
Sr. Notes, 10.25%, 11/01/06 860,000 920,200
- ---------------------------------------------------------------
International Home Foods Inc.,
Sr. Sub. Notes, 10.375%, 11/01/06
(acquired 10/29/96; cost
$520,000)(c) 520,000 543,400
- ---------------------------------------------------------------
Pilgrim's Pride Corp.,
Sr. Sub. Notes, 10.875%, 08/01/03 1,380,000 1,381,725
- ---------------------------------------------------------------
Ralston-Ralston Purina Co.,
Deb., 7.875%, 06/15/25 300,000 307,839
- ---------------------------------------------------------------
3,153,164
- ---------------------------------------------------------------
FOREIGN GOVERNMENT SECURITIES-3.27%
Province Of Manitoba,
Yankee Bonds, 7.75%, 07/17/16 7,500,000 7,842,075
- ---------------------------------------------------------------
Province of Ontario,
Sr. Notes, 8.00%, 03/11/03 5,350,000 4,302,505
- ---------------------------------------------------------------
12,144,580
- ---------------------------------------------------------------
GAMING-1.08%
Coast Hotels & Casinos Inc.,
Series B Secured First Mortgage
Gtd. Notes, 13.00%, 12/15/02 1,160,000 1,284,700
- ---------------------------------------------------------------
Showboat, Inc.,
First Mortgage Notes, 9.25%,
05/01/08 2,000,000 1,977,500
- ---------------------------------------------------------------
Trump Atlantic City Associates,
Secured First Mortgage Gtd. Notes,
11.25%, 05/01/06 760,000 756,200
- ---------------------------------------------------------------
4,018,400
- ---------------------------------------------------------------
GAS DISTRIBUTION-0.58%
Ferrellgas Partners, Sr.
Notes, 9.375%, 06/15/06 2,100,000 2,144,625
- ---------------------------------------------------------------
HOME BUILDING-0.21%
Continental Homes Holdings Corp.,
Sr. Notes, 10.00%, 04/15/06 745,000 771,075
- ---------------------------------------------------------------
HOTELS/MOTELS-1.42%
ITT Corp.,
Gtd. Deb., 7.375%, 11/15/15 3,350,000 3,219,819
- ---------------------------------------------------------------
John Q. Hammons Hotels Inc.,
Gtd. First Mortgage Notes, 9.75%,
10/01/05 2,000,000 2,045,000
- ---------------------------------------------------------------
5,264,819
- ---------------------------------------------------------------
INSURANCE (LIFE & HEALTH)-0.27%
Americo Life Inc.,
Sr. Sub. Notes, 9.25%, 06/01/05 1,000,000 1,000,000
- ---------------------------------------------------------------
LEISURE & RECREATION-0.65%
Cobblestone Golf Group Inc.,
Series B Sr. Notes, 11.50%,
06/01/03 1,000,000 1,046,250
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
LEISURE & RECREATION-(CONTINUED)
Icon Health & Fitness Inc.,
Sr. Sub. Notes, 13.00%, 07/15/02 $ 1,200,000 $ 1,363,500
- ---------------------------------------------------------------
2,409,750
- ---------------------------------------------------------------
MACHINERY (HEAVY)-2.09%
Caterpillar Inc.,
Deb., 9.375%, 08/15/11 5,000,000 5,999,900
- ---------------------------------------------------------------
Fairfield Manufacturing Co., Inc.,
Sr. Sub. Notes, 11.375%, 07/01/01 1,000,000 1,050,000
- ---------------------------------------------------------------
PrimeCo. Inc.,
Sr. Sub. Notes, 12.75%, 03/01/05 627,000 717,915
- ---------------------------------------------------------------
7,767,815
- ---------------------------------------------------------------
MACHINERY (MISCELLANEOUS)-0.57%
AM General Corp.,
Sr. Notes, 12.875%, 05/01/02 1,100,000 1,051,875
- ---------------------------------------------------------------
Interlake Corp.,
Sr. Notes, 12.00%, 11/15/01 1,000,000 1,076,250
- ---------------------------------------------------------------
2,128,125
- ---------------------------------------------------------------
MEDICAL (PATIENT SERVICES)-0.31%
Dynacare Inc.,
Sr. Yankee Notes, 10.75%, 01/15/06 1,140,000 1,157,100
- ---------------------------------------------------------------
MEDICAL INSTRUMENTS/PRODUCTS-0.59%
Dade International Inc.,
Series B Sr. Sub. Notes, 11.125%,
05/01/06 1,000,000 1,087,500
- ---------------------------------------------------------------
Graphic Controls Corp., Series A
Sr. Sub. Notes, 12.00%, 09/15/05 980,000 1,090,250
- ---------------------------------------------------------------
2,177,750
- ---------------------------------------------------------------
METALS-0.65%
Rio Algom Ltd.,
Yankee Deb., 7.05%, 11/01/05 2,500,000 2,430,650
- ---------------------------------------------------------------
NATURAL GAS PIPELINE-1.69%
Transco Energy Co.,
Deb., 9.875%, 06/15/20 5,000,000 6,294,200
- ---------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-3.01%
Abraxas Petroleum Corp.,
Sr. Notes, 11.50%, 11/01/04
(acquired 11/05/96-12/03/96; cost
$1,135,850)(c) 1,130,000 1,211,925
- ---------------------------------------------------------------
Anadarko Petroleum Corp.,
Deb., 7.25%, 03/15/25 5,000,000 5,152,050
- ---------------------------------------------------------------
Mariner Energy Corp.,
Sr. Sub. Notes, 10.50%, 08/01/06
(acquired 08/12/96-09/04/96; cost
$1,043,294)(c) 1,040,000 1,107,600
- ---------------------------------------------------------------
Talisman Energy, Inc.,
Yankee Deb., 7.125%, 06/01/07 3,750,000 3,693,450
- ---------------------------------------------------------------
11,165,025
- ---------------------------------------------------------------
OIL & GAS (INTEGRATED)-0.81%
Husky Oil Ltd.,
Sr. Yankee Notes, 7.125%, 11/15/06 2,000,000 1,984,480
- ---------------------------------------------------------------
Wainoco Oil Corp.,
Sr. Notes, 12.00%, 08/01/02 1,000,000 1,030,000
- ---------------------------------------------------------------
3,014,480
- ---------------------------------------------------------------
OIL & GAS (REFINING/MARKETING)-0.27%
Petroleum Heat & Power Co., Inc.,
Sub. Deb., 12.25%, 02/01/05 890,000 991,238
- ---------------------------------------------------------------
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
OIL & GAS (SERVICES)-1.34%
Falcon Drilling Co., Inc.,
Series B Sr. Notes, 9.75%,
01/15/01 $ 410,000 $ 431,525
- ---------------------------------------------------------------
Sun Co., Inc.,
Deb., 9.00%, 11/01/24 4,000,000 4,536,880
- ---------------------------------------------------------------
4,968,405
- ---------------------------------------------------------------
PAPER & FOREST PRODUCTS-0.93%
RAPP International Finance, Gtd.
Yankee Sec. Notes, 11.50%,
12/15/00 970,000 1,030,625
- ---------------------------------------------------------------
Repap New Brunswick,
Sr. Yankee Second Priority Sec.
Notes, 10.625%, 04/15/05 1,110,000 1,165,500
- ---------------------------------------------------------------
Riverwood International Corp.,
Sr. Gtd. Sub. Notes, 10.875%,
04/01/08 1,360,000 1,264,800
- ---------------------------------------------------------------
3,460,925
- ---------------------------------------------------------------
POLLUTION CONTROL-0.30%
Norcal Waste Systems Inc.,
Series B Sr. Gtd. Notes, 13.00%,
11/15/05 1,000,000 1,115,000
- ---------------------------------------------------------------
PUBLISHING-2.15%
News America Holdings, Inc.,
Sr. Gtd. Deb., 9.25%, 02/01/13 7,100,000 7,983,595
- ---------------------------------------------------------------
RAILROADS-0.26%
Johnstown America Industries, Inc.,
Sr. Sub. Notes, 11.75%, 08/15/05 1,000,000 965,000
- ---------------------------------------------------------------
REAL ESTATE-0.21%
Finova Capital Corp.,
Notes, 7.40%, 05/06/06 750,000 765,428
- ---------------------------------------------------------------
RETAIL (FOOD & DRUG)-1.07%
Great Atlantic & Pacific Tea Co.,
Inc., Yankee Notes, 7.78%, 11/01/00
(acquired 10/18/95; cost
$3,900,000)(c) 3,900,000 3,975,056
- ---------------------------------------------------------------
RETAIL (STORES)-1.14%
Samsonite Corp.,
Sr. Sub. Notes, 11.125%, 07/15/05 900,000 1,018,125
- ---------------------------------------------------------------
Specialty Retailers Inc.,
Sr. Sub. Notes, 11.00%, 08/15/03 2,000,000 2,110,000
- ---------------------------------------------------------------
United Stationer Supply,
Sr. Sub. Notes, 12.75%, 05/01/05 1,000,000 1,115,000
- ---------------------------------------------------------------
4,243,125
- ---------------------------------------------------------------
SCHOOLS-0.48%
Herff Jones Inc.,
Sr. Sub. Notes, 11.00%, 08/15/05 1,000,000 1,081,250
- ---------------------------------------------------------------
Scholastic Brands Inc.,
Sr. Sub. Notes, 11.00%, 01/15/07
(acquired 12/10/96-12/12/96; cost
$710,494)(c) 705,000 720,862
- ---------------------------------------------------------------
1,802,112
- ---------------------------------------------------------------
SEMICONDUCTORS-0.32%
Advanced Micro Devices, Inc.,
Sr. Notes, 11.00%, 08/01/03 1,100,000 1,199,000
- ---------------------------------------------------------------
STEEL-0.71%
Gulf States Steel Corp.,
First Mortgage Notes, 13.50%,
04/15/03 1,650,000 1,575,750
- ---------------------------------------------------------------
GS Industries, Inc.,
Sr. Notes, 12.00%, 09/01/04 1,000,000 1,043,750
- ---------------------------------------------------------------
2,619,500
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
TELECOMMUNICATIONS-2.81%
Arch Communications Group, Inc.,
Sr. Disc. Notes, 10.875%,
03/15/08(b) $ 630,000 $ 363,825
- ---------------------------------------------------------------
Clearnet Communications Inc.,
Sr. Yankee Disc. Notes, 14.75%,
12/15/05(b) 1,780,000 1,114,725
- ---------------------------------------------------------------
PriCellular Wireless Corp.,
Sr. Notes, 10.75%, 11/01/04
(acquired 10/30/96; cost
$430,000)(c) 430,000 449,887
- ---------------------------------------------------------------
ProNet, Inc.,
Sr. Sub. Notes, 11.875%, 06/15/05 1,000,000 950,000
- ---------------------------------------------------------------
Sygnet Wireless Inc.,
Sr. Notes, 11.50%, 10/01/06 580,000 601,750
- ---------------------------------------------------------------
TCI Communications Inc.,
Deb., 8.75%, 08/01/15 6,000,000 5,946,660
- ---------------------------------------------------------------
Teleport Communications Group Inc.,
Sr. Disc. Notes, 11.125%,
07/01/07(b) 1,500,000 1,038,750
- ---------------------------------------------------------------
10,465,597
- ---------------------------------------------------------------
TELEPHONE-0.20%
Phonetel Technologies, Inc.,
Sr. Notes, 12.00%, 12/15/06 740,000 767,750
- ---------------------------------------------------------------
TRANSPORTATION-0.73%
Gearbulk Holdings, Ltd.,
Sr. Notes, 11.25%, 12/01/04 1,000,000 1,105,000
- ---------------------------------------------------------------
Stena A.B.,
Sr. Yankee Notes, 10.50%, 12/15/05 1,500,000 1,627,500
- ---------------------------------------------------------------
2,732,500
- ---------------------------------------------------------------
Total U.S. Dollar Denominated
Non-Convertible Bonds & Notes 228,140,845
- ---------------------------------------------------------------
U.S. DOLLAR DENOMINATED CONVERTIBLE
BONDS & NOTES-2.63%
ADVERTISING/BROADCASTING-0.14%
Omnicom Group, Inc.,
Conv. Sub. Deb., 4.25%, 01/03/07
(acquired 12/11/96; cost
$500,000)(c) 500,000 518,500
- ---------------------------------------------------------------
AIRLINES-0.60%
Continental Airlines, Inc.,
Conv. Sub. Notes, 6.75%, 04/15/06
(acquired 02/27/96; cost
$1,999,275)(c) 2,000,000 2,244,260
- ---------------------------------------------------------------
COMPUTER NETWORKING-0.48%
3Com Corp.,
Conv. Sub. Notes, 10.25%, 11/01/01
(acquired 11/08/94; cost
$800,000)(c) 800,000 1,781,304
- ---------------------------------------------------------------
POLLUTION CONTROL-0.33%
U.S. Filter Corp.,
Conv. Sub. Notes, 4.50%, 12/15/01 1,200,000 1,221,648
- ---------------------------------------------------------------
TRANSPORTATION-1.08%
Laidlaw, Inc.,
Yankee Conv. Deb., 6.00%, 01/15/99
(acquired 08/19/96-08/23/96; Cost
$3,955,000)(c) 3,000,000 4,005,000
- ---------------------------------------------------------------
Total U.S. Dollar Denominated
Convertible Bonds & Notes 9,770,712
- ---------------------------------------------------------------
NON-U.S. DOLLAR DENOMINATED NON-CONVERTIBLE BONDS &
NOTES(e)-8.07%
CANADA-5.82%
Bank of Montreal (Banking),
Sub. Deb., 7.92%, 07/31/12 CAD 4,000,000 3,182,648
- ---------------------------------------------------------------
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
CANADA-(CONTINUED)
Bell Canada (Telecommunications),
Deb., 10.875, 10/11/04 CAD 3,000,000 $ 2,735,996
- ---------------------------------------------------------------
Canadian Oil Debco Inc. (Oil & Gas),
Deb., 11.00%, 10/31/00 4,495,000 3,847,323
- ---------------------------------------------------------------
NAV Canada (Transportation),
Bonds, 7.40%, 06/01/27 2,500,000 1,810,779
- ---------------------------------------------------------------
Rogers Cablesystems (Cable Television),
Sr. Sec. Priority Deb., 9.65%,
01/15/14 1,750,000 1,226,904
- ---------------------------------------------------------------
Teleglobe Canada, Inc.
(Telecommunications),
Deb., 8.35%, 06/20/03 5,000,000 4,030,162
- ---------------------------------------------------------------
Trans-Canada Pipelines (Oil & Gas),
Notes, 8.55%, 02/01/06 3,000,000 2,455,342
- ---------------------------------------------------------------
Series Q Deb., 10.625%, 10/20/09 1,750,000 1,639,323
- ---------------------------------------------------------------
Westcoast Energy Inc.,
(Electric Power), Deb., 6.45%,
12/18/06 (acquired 12/03/96; cost
$739,169)(c) 1,000,000 712,336
- ---------------------------------------------------------------
21,640,813
- ---------------------------------------------------------------
GERMANY-2.25%
International Bank for
Reconstruction & Development
(Supranational Organization),
Unsub. Global Bonds, 7.125%,
04/12/05 DEM 8,800,000 6,204,126
- ---------------------------------------------------------------
LKB Global (Banking),
Gtd. Notes, 6.00%, 01/25/06 3,300,000 2,149,890
- ---------------------------------------------------------------
8,354,016
- ---------------------------------------------------------------
Total Non-U.S. Dollar
Denominated Non-Convertible
Bonds & Notes 29,994,829
- ---------------------------------------------------------------
NON-U.S. DOLLAR DENOMINATED CONVERTIBLE BONDS & NOTES(e)-7.18%
JAPAN-4.52%
JUSCO Co. (Consumer Non-Durables),
Conv. Deb., 1.20%, 02/20/01 JPY 220,000,000 3,424,143
- ---------------------------------------------------------------
Matsushita Electric Industrial Co.
Ltd. (Electronic
Components/Miscellaneous),
Conv. Bonds, 1.30%, 03/29/02 250,000,000 2,558,069
- ---------------------------------------------------------------
Sony Corp. (Electronic Components/
Miscellaneous),
Conv. Bonds, 0.15%, 03/30/01 370,000,000 3,754,952
- ---------------------------------------------------------------
Conv. Bonds, 1.40%, 09/30/03 30,000,000 362,663
- ---------------------------------------------------------------
Toyota Motor Corp. (Automobile-Manufacturers),
Conv. Bonds, 1.20%, 01/28/98 455,000,000 6,677,079
- ---------------------------------------------------------------
16,776,906
- ---------------------------------------------------------------
SWITZERLAND-1.04%
Aderans Co. Ltd. (Cosmetics &
Toiletries),
Conv. Deb., 0.875%, 08/31/98 CHF 2,000,000 1,550,243
- ---------------------------------------------------------------
Yamada Denki Co. Ltd.
(Retail-Stores),
Conv. Notes, 0.25%, 03/31/00 2,700,000 2,309,675
- ---------------------------------------------------------------
3,859,918
- ---------------------------------------------------------------
UNITED KINGDOM-1.62%
LASMO PLC (Oil Equipment &
Supplies),
Conv. Bonds, 7.75%, 10/04/05 GBP 3,700,000 6,021,929
- ---------------------------------------------------------------
Total Non-U.S. Dollar
Denominated Convertible Bonds
& Notes 26,658,753
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
NON-U.S. DOLLAR DENOMINATED
GOVERNMENT BONDS & NOTES(e)-12.29%
AUSTRALIA-3.47%
Australian Government, Bonds, 6.75%,
11/15/06 AUD 4,000,000 $ 3,043,542
- ---------------------------------------------------------------
Bonds, 10.00%, 10/15/07 6,400,000 6,044,442
- ---------------------------------------------------------------
Treasury Corp. of Victoria
Local Government, Gtd. Deb.,
12.00%, 09/22/01 4,000,000 3,803,799
- ---------------------------------------------------------------
12,891,783
- ---------------------------------------------------------------
CANADA-0.62%
Canadian Government,
Gtd. Deb., 7.00%, 12/01/06 CAD 3,000,000 2,290,586
- ---------------------------------------------------------------
DENMARK-0.76%
Kingdom of Denmark,
Gtd. Deb., 8.00%, 11/15/01 DKK 15,000,000 2,826,441
- ---------------------------------------------------------------
GERMANY-2.94%
Bundesrepublik Deutschland Deb.,
6.00%, 09/15/03 DEM 7,000,000 4,727,775
- ---------------------------------------------------------------
Deb., 6.75%, 07/15/04 5,250,000 3,662,854
- ---------------------------------------------------------------
Deb., 6.875%, 05/12/05 3,600,000 2,520,795
- ---------------------------------------------------------------
10,911,424
- ---------------------------------------------------------------
SWEDEN-1.68%
Swedish Government
Bonds, 10.25%, 05/05/03 SEK 19,000,000 3,388,429
- ---------------------------------------------------------------
Bonds, 6.00%, 02/09/05 20,000,000 2,841,244
- ---------------------------------------------------------------
6,229,673
- ---------------------------------------------------------------
UNITED KINGDOM-2.82%
United Kingdom Treasury Notes,
8.00%, 12/07/00 GBP 1,500,000 2,641,511
- ---------------------------------------------------------------
7.00%, 11/06/01 1,500,000 2,543,087
- ---------------------------------------------------------------
7.50%, 12/07/06 3,100,000 5,306,798
- ---------------------------------------------------------------
10,491,396
- ---------------------------------------------------------------
Total Non-U.S. Dollar
Denominated Government Bonds &
Notes 45,641,303
- ---------------------------------------------------------------
U.S. DOLLAR DENOMINATED CONVERTIBLE
PREFERRED STOCKS-4.23%
<CAPTION>
SHARES
<S> <C> <C>
ADVERTISING/BROADCASTING-0.51%
News Corp. Ltd.,-
$5.00 Conv. Pfd.
(acquired 11/04/96; cost
$2,000,000)(c)(f) 20,000 1,887,500
- ---------------------------------------------------------------
Time Warner Inc.-Series M
$102.50 PIK Conv. Pfd. .4 395
- ---------------------------------------------------------------
1,887,895
- ---------------------------------------------------------------
AEROSPACE/DEFENSE-0.31%
Loral Space & Communications-
$3.00 Conv. Pfd.
(acquired 11/01/96; cost
$1,000,000)(c) 20,000 1,137,500
- ---------------------------------------------------------------
COMPUTER SOFTWARE/SERVICES-0.39%
Microsoft Corp.-Series A,
$2.196 Conv. Pfd. 18,000 1,442,250
- ---------------------------------------------------------------
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ELECTRIC POWER-0.58%
Citizens Utilities Co.-
$2.50 Conv. Pfd. 45,000 $ 2,148,750
- ---------------------------------------------------------------
FINANCE (CONSUMER CREDIT)-0.61%
SunAmerica, Inc.-
$3.188 Conv. Pfd. 53,350 2,254,038
- ---------------------------------------------------------------
INSURANCE (LIFE & HEALTH)-1.07%
Conseco Inc.-
$4.278 Conv. PRIDES 35,000 3,981,250
- ---------------------------------------------------------------
OIL & GAS (REFINING/MARKETING)-0.28%
Tosco Financing Trust-
$2.875 Conv. Pfd.
(acquired 12/10/96-12/11/96; cost
$1,006,950)(c) 20,000 1,042,500
- ---------------------------------------------------------------
RETAIL (STORES)-0.48%
Kmart Financing-
$3.875 Conv. Pfd. 37,000 1,803,750
- ---------------------------------------------------------------
Total U.S. Dollar Denominated
Convertible Preferred Stocks 15,697,933
===============================================================
COMMON STOCKS-0.40%
UTILITIES-0.40%
National Power PLC-ADR 24,300 823,162
- ---------------------------------------------------------------
PowerGen PLC-ADR 17,300 683,350
- ---------------------------------------------------------------
Total Common Stocks 1,506,512
- ---------------------------------------------------------------
WARRANTS-0.03%
CABLE TELEVISION-0.00%
Wireless One, Inc.,
expiring 10/19/00(g) 2,670 2,670
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
CONTAINERS-0.01%
MVE Inc.,
expiring 02/15/02(g) 1,000 $ 30,000
- ---------------------------------------------------------------
LEISURE & RECREATION-0.01%
IHF Capital Inc.,
expiring 11/14/99(g) 1,200 48,000
- ---------------------------------------------------------------
STEEL-0.00%
Gulf States Steel Corp.,
expiring 04/15/03(g) 1,650 8,250
- ---------------------------------------------------------------
TELECOMMUNICATIONS-0.01%
Clearnet Communications Inc.,
expiring 09/15/05(g) 5,874 35,244
- ---------------------------------------------------------------
Total Warrants 124,164
===============================================================
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
U.S. TREASURY SECURITIES-0.12%
U.S. Treasury Bonds,
6.75%, 08/15/26 $ 450,000 453,614
- ---------------------------------------------------------------
REPURCHASE AGREEMENTS-1.83%(h)
HSBC Securities, Inc.,
7.05%, 01/02/97(i) 210,059 210,059
- ---------------------------------------------------------------
UBS Securities, Inc.,
7.05%, 01/02/97(j) 6,589,941 6,589,941
- ---------------------------------------------------------------
Total Repurchase Agreements 6,800,000
- ---------------------------------------------------------------
TOTAL INVESTMENTS-98.19% 364,788,665
- ---------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-1.81% 6,737,729
- ---------------------------------------------------------------
NET ASSETS-100.00% $371,526,394
===============================================================
</TABLE>
Notes to Schedule of Investments:
(a) Principal amount is in U.S. Dollars, except as indicated by note (e).
(b) Discounted bond at purchase. Interest rate represents coupon rate at which
the bond will accrue at a specified future date.
(c) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The valuation of these securities has been determined in
accordance with procedures established by the Board of Trustees. The
aggregate market value of these securities at December 31, 1996 was
$28,215,063 which represented 7.59% of the Fund's net assets.
(d) Zero coupon bond issued at a discount. The interest rate shown represents
the rate of original issue discount.
(e) Foreign denominated security. Par value and coupon are denominated in
currency of country indicated.
(f) Issued as a unit. This unit also includes 20,000 warrants to purchase
shares of common stock.
(g) Non-income producing security acquired as part of a unit with or in exchange
for other securities.
(h) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(i) Joint repurchase agreement entered into 12/31/96 with a maturing value of
$300,117,500. Collateralized by $633,913,662 U.S. Treasury obligations, 0%
to 8.00% due 05/01/19 to 11/01/35.
(j) Joint repurchase agreement entered into 12/31/96 with a maturing value of
$550,215,417. Collateralized by $732,485,305 U.S. Government obligations,
0% to 9.50% due 01/01/98 to 12/15/26.
Abbreviations:
<TABLE>
<S> <C> <C>
ADR - American Depository Receipts Gtd. - Guaranteed
AUD - Australian Dollar JPY - Japanese Yen
CAD - Canadian Dollar PIK - Payment in Kind
CHF - Swiss Franc PRIDES - Preferred Redemption Increase
Conv. - Convertible Dividend Equity Security
Deb. - Debentures Sec. - Secured
DEM - German Deutschemark SEK - Swedish Krona
Disc. - Discounted Sr. - Senior
DKK - Danish Krone Sub. - Subordinated
GBP - British Pound Sterling Unsub. - Unsubordinated
</TABLE>
See Notes to Financial Statements.
9
<PAGE> 12
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$349,179,780) $364,788,665
- ---------------------------------------------------------
Foreign currencies, at value (cost
$249,071) 249,969
- ---------------------------------------------------------
Receivables for:
Forward currency contracts 901,610
- ---------------------------------------------------------
Fund shares sold 712,759
- ---------------------------------------------------------
Interest 6,657,133
- ---------------------------------------------------------
Investment for deferred compensation plan 68,881
- ---------------------------------------------------------
Other assets 38,223
- ---------------------------------------------------------
Total assets 373,417,240
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 500,000
- ---------------------------------------------------------
Fund shares reacquired 207,833
- ---------------------------------------------------------
Dividends to shareholders 550,302
- ---------------------------------------------------------
Deferred compensation plan 68,881
- ---------------------------------------------------------
Accrued advisory fees 142,103
- ---------------------------------------------------------
Accrued distribution fees 260,851
- ---------------------------------------------------------
Accrued administrative service fees 7,180
- ---------------------------------------------------------
Accrued transfer agent fees 59,475
- ---------------------------------------------------------
Accrued trustees' fees 1,811
- ---------------------------------------------------------
Accrued operating expenses 92,410
- ---------------------------------------------------------
Total liabilities 1,890,846
- ---------------------------------------------------------
Net assets applicable to shares outstanding $371,526,394
- ---------------------------------------------------------
NET ASSETS:
Class A $286,182,914
=========================================================
Class B $ 85,343,480
- ---------------------------------------------------------
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE
Class A 34,717,454
=========================================================
Class B 10,374,382
=========================================================
CLASS A:
Net asset value and redemption price per
share $ 8.24
- ---------------------------------------------------------
Offering price per share:
(Net asset value of $8.24 divided by
95.25%) $ 8.65
- ---------------------------------------------------------
CLASS B:
Net asset value and offering price per
share $ 8.23
- ---------------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 26,009,436
- ---------------------------------------------------------
Dividends (net of $42,327 foreign
withholding tax) 536,443
- ---------------------------------------------------------
Total investment income 26,545,879
- ---------------------------------------------------------
EXPENSES:
Advisory fees 1,510,254
- ---------------------------------------------------------
Custodian fees 82,806
- ---------------------------------------------------------
Distribution fees -- Class A 656,254
- ---------------------------------------------------------
Distribution fees -- Class B 650,621
- ---------------------------------------------------------
Trustees' fees 7,730
- ---------------------------------------------------------
Transfer agent fees -- Class A 351,979
- ---------------------------------------------------------
Transfer agent fees -- Class B 134,221
- ---------------------------------------------------------
Administrative service fees 75,132
- ---------------------------------------------------------
Other 266,163
- ---------------------------------------------------------
Total expenses 3,735,160
- ---------------------------------------------------------
Less: Expenses paid indirectly (5,398)
- ---------------------------------------------------------
Net expenses 3,729,762
- ---------------------------------------------------------
Net investment income 22,816,117
- ---------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCY AND FORWARD CURRENCY
CONTRACT TRANSACTIONS
Net realized gain (loss) from:
Investment securities 699,083
- ---------------------------------------------------------
Foreign currency transactions (182,290)
- ---------------------------------------------------------
Forward currency contracts 1,599,434
- ---------------------------------------------------------
2,116,227
- ---------------------------------------------------------
Unrealized appreciation (depreciation) of:
Investment securities 3,516,763
- ---------------------------------------------------------
Foreign currency transactions (74,980)
- ---------------------------------------------------------
Forward currency contracts 796,581
- ---------------------------------------------------------
4,238,364
- ---------------------------------------------------------
Net realized and unrealized gain from
investment securities, foreign currency
transactions and forward currency
contracts 6,354,591
- ---------------------------------------------------------
Net increase in net assets resulting from
operations $ 29,170,708
- ---------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
10
<PAGE> 13
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
OPERATIONS:
Net investment income $ 22,816,117 $ 18,156,289
- --------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currency transactions and forward currency contracts 2,116,227 9,871,598
- --------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities,
foreign currency transactions and forward currency
contracts 4,238,364 21,434,843
- --------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 29,170,708 49,462,730
- --------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (19,414,227) (16,600,806)
- --------------------------------------------------------------------------------------------
Class B (4,277,769) (1,555,483)
- --------------------------------------------------------------------------------------------
Distributions in excess of net investment income:
Class A -- (889,987)
- --------------------------------------------------------------------------------------------
Class B -- (95,903)
- --------------------------------------------------------------------------------------------
Share transactions-net:
Class A 31,245,815 22,105,318
- --------------------------------------------------------------------------------------------
Class B 39,218,171 29,160,108
- --------------------------------------------------------------------------------------------
Net increase in net assets 75,942,698 81,585,977
- --------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 295,583,696 213,997,719
- --------------------------------------------------------------------------------------------
End of period $371,526,394 $295,583,696
============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $360,736,285 $290,272,299
- --------------------------------------------------------------------------------------------
Undistributed net investment income 33,129 846,817
- --------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from sales of
investment securities, foreign currencies and forward
contract transactions (5,745,170) (7,799,206)
- --------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies and forward contract transactions 16,502,150 12,263,786
- --------------------------------------------------------------------------------------------
$371,526,394 $295,583,696
============================================================================================
</TABLE>
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Income Fund (the "Fund") is a series portfolio of AIM Funds Group (the
"Trust"). The Trust is a Delaware business trust registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end series
management investment company consisting of nine separate series portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers two different classes of shares: the Class A shares and the
Class B shares. Class A shares are sold with a front-end sales charge. Class B
shares are sold with a contingent deferred sales charge. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. The Fund's investment objective is to seek to achieve
a high level of current income consistent with reasonable concern for safety of
principal by investing primarily in fixed rate corporate debt and U.S.
Government obligations. Information presented in these financial statements
pertains only to the Fund.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. Security Valuations -- Debt obligations are valued on the basis of prices
provided by an independent pricing service. Prices provided by the pricing
service may be determined without exclusive reliance on quoted prices, and
may reflect appropriate factors such as institution-size trading in similar
groups of securities, developments related to special securities, yield,
quality, coupon rate, maturity, type of issue, individual trading
characteristics and other market data. Investment securities for which prices
are not provided by the pricing
11
<PAGE> 14
service and which are listed or traded on an exchange are valued at the last
sales price on the exchange where the security is principally traded or,
lacking any sales on a particular day, at the mean between the closing bid
and asked prices on that day unless the Board of Trustees, or persons
designated by the Board of Trustees, determines that the over-the-counter
quotations more closely reflect the current market value of the security.
Securities traded in the over-the-counter market, except (i) securities
priced by the pricing service, (ii) securities for which representative
exchange prices are available, and (iii) securities reported in the NASDAQ
National Market System, are valued at the mean between representative last
bid and asked prices obtained from an electronic quotation reporting system,
if such prices are available, or from established market makers. Each
security reported in 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. Securities for which market quotations
are either not readily available or are questionable are valued at fair value
as determined in good faith by or under the supervision of the Trust's
officers in a manner specifically authorized by the Board of Trustees.
Short-term obligations having 60 days or less to maturity are valued at
amortized cost which approximates market value. Generally, trading in foreign
securities, as well as corporate bonds and U.S. Government Securities, is
substantially completed each day at various times prior to the close of the
New York Stock Exchange. The values of such securities used in computing the
net asset value of the Fund's shares are determined as of such times. Foreign
currency exchange rates are also generally determined prior to the close of
the New York Stock Exchange. Occasionally, events affecting the values of
such securities and such exchange rates may occur between the times at which
they are determined and the close of the New York Stock Exchange which will
not be reflected in the computation of the Fund's net asset value. If events
materially affecting the value of such securities occur during such period,
then these securities will be valued at their fair value as determined in
good faith by or under the supervision of the Board of Trustees.
B. Foreign Currency Translations -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S. dollar
amounts at date of valuation. Purchases and sales of portfolio securities and
income items denominated in foreign currencies are translated into U.S.
dollar amounts on the respective dates of such transactions.
C. Foreign Currency Contracts -- A forward currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a forward contract to attempt to minimize the
risk to the Fund from adverse changes in the relationship between currencies.
The Fund may also enter into a forward contract for the purchase or sale of a
security denominated in a foreign currency in order to "lock-in" the U.S.
dollar price of that security. The Fund could be exposed to risk if
counterparties to the contracts are unable to meet the terms of their
contracts or if the value of the foreign currency changes unfavorably.
Outstanding contracts at December 31, 1996 were as follows:
<TABLE>
<CAPTION>
CONTRACT TO UNREALIZED
SETTLEMENT ----------------------------- APPRECIATION
DATE DELIVER RECEIVE VALUE (DEPRECIATION)
---------- --------------- ----------- ----------- --------------
<C> <C> <C> <C> <C>
01/30/97 CHF 3,940,000 $ 3,145,709 $ 2,952,970 $192,739
03/10/97 CHF 1,000,000 774,353 752,378 21,975
01/27/97 DEM 11,200,000 7,451,763 7,291,683 160,080
02/19/97 DEM 11,200,000 7,265,179 7,302,086 (36,907)
02/03/97 JPY 630,000,000 5,742,935 5,440,212 302,723
03/05/97 JPY 360,000,000 3,214,286 3,108,817 105,469
03/17/97 JPY 546,000,000 4,870,651 4,715,120 155,531
----------- ----------- --------
$32,464,876 $31,563,266 $901,610
=========== =========== ========
</TABLE>
D. 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 is recorded on the
ex-dividend date. It is the policy of the Fund to declare daily dividends
from net investment income. Such dividends are paid monthly. Distributions
from net realized capital gains, if any, are recorded on ex-dividend date and
are paid annually subject to restrictions noted in section "E" below. On
December 31, 1996, $62,191 was reclassified from undistributed net realized
gain (loss) to undistributed net investment income as a result of permanent
book/tax differences due to the differing book/tax treatment for foreign
currency losses and market discount on securities sold. Net assets of the
Fund were unaffected by the reclassification discussed above.
E. Federal Income Taxes -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements. The Fund has a capital loss
carryforward of $4,771,102 (which may be carried forward to offset future
taxable capital gains, if any) which expires, if not previously utilized,
through the year 2003. The Fund cannot distribute capital gains to
shareholders until the tax loss carryforwards have been utilized.
F. Expenses -- Operating expenses directly attributable to a class of shares are
charged to that class' operations. Expenses which are applicable to both
classes, e.g. advisory fees, are allocated between them.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays AIM an advisory fee at an annual rate of 0.50% of the
first $200 million of the Fund's average daily net assets, plus 0.40% of the
Fund's average daily net assets in excess of $200 million to and including $500
million, plus 0.35% of the Fund's average daily net assets in excess of
12
<PAGE> 15
$500 million to and including $1 billion, plus 0.30% of the Fund's average daily
net assets in excess of $1 billion.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to reimburse AIM for certain administrative costs incurred in providing
accounting services to the Fund. During the year ended December 31, 1996, AIM
was reimbursed $75,132 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended December 31, 1996, the
Fund paid AFS $305,240 for such services.
The Fund received reductions in transfer agency fees payable to AFS of $5,008
from dividends received on balances in cash management bank accounts. In
addition, pricing service expenses in the amount of $390 were paid through
directed brokerage commissions paid by the Fund. The above arrangements resulted
in a reduction in the Fund's total expenses of $5,398 during the year ended
December 31, 1996.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A shares and the Class B shares of the Fund. The Trust has adopted Plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares (the "Class A Plan") and with respect to the Fund's Class B shares (the
"Class B Plan")(collectively, the "Plans"). The Fund, pursuant to the Class A
Plan, pays AIM Distributors compensation at an annual rate of 0.25% of the
average daily net assets attributable to the Class A shares. The Class A Plan is
designed to compensate AIM Distributors for certain promotional and other sales
related costs and provides periodic payments to selected dealers and financial
institutions who furnish continuing personal shareholder services to their
customers who purchase and own Class A shares of the Fund. The Fund, pursuant to
the Class B Plan, pays AIM Distributors compensation at an annual rate of 1.00%
of the average daily net assets attributable to the Class B shares. Of this
amount, the Fund may pay a service fee of 0.25% of the average daily net assets
of the Class B shares to selected dealers and financial institutions who furnish
continuing personal shareholder services to their customers who purchase and own
Class B shares of the Fund. Any amounts not paid as a service fee under such
Plans would constitute an asset-based sales charge. AIM Distributors may, from
time to time, assign, transfer or pledge to one or more assignees, its rights to
all or a portion of (a) compensation received by AIM Distributors from the Fund
pursuant to the Class B Plan (but not AIM Distributors' duties and obligations
pursuant to the Class B Plan) and (b) any contingent deferred sales charges
payable to AIM Distributors related to the Class B shares. 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, 1996, the
Class A shares and the Class B shares paid AIM Distributors $656,254 and
$650,621, respectively, as compensation under the Plans.
AIM Distributors received commissions of $248,078 from sales of the Class A
shares of the Fund during the year ended December 31, 1996. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended December 31, 1996,
AIM Distributors received $65,445 in contingent deferred sales charges imposed
on redemptions of Fund shares. Certain officers and trustees of the Trust are
officers and directors of AIM, AIM Distributors and AFS.
During the year ended December 31, 1996, the Fund paid legal fees of $3,564
for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3-TRUSTEES' FEES
Trustees' fees represent remuneration paid or accrued to each trustee who is not
an "interested person" of AIM. The Trust may invest trustees' fees, if so
elected by a trustee, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 4-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $325,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. Interest on
borrowings under the line of credit is payable on maturity or prepayment date.
Prior to an amendment of the line of credit on July 19, 1996, the Fund was
limited to borrowing $4,000,000. During the year ended December 31, 1996, the
Fund did not borrow under the line of credit agreement. The funds which are
parties to the line of credit are charged a commitment fee of 0.08% on the
unused balance of the committed line. The commitment fee is allocated among such
funds based on their respective average net assets for the period.
NOTE 5-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended December 31, 1996 was
$317,733,500 and $254,732,190, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of December 31, 1996 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $19,028,658
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (3,419,773)
- -----------------------------------------------------------
Net unrealized appreciation of investment
securities $15,608,885
===========================================================
Investments have the same cost for tax and financial
statement purposes.
</TABLE>
13
<PAGE> 16
NOTE 6-SHARE INFORMATION
Changes in shares outstanding during the years ended December 31, 1996 and 1995
were as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------ -----------------------
SHARES VALUE SHARES VALUE
---------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Sold:
Class A 10,956,910 $87,131,342 7,497,108 $58,558,530
- -------------------------------------------------------------------------------------- -----------------------
Class B 7,662,222 60,657,835 4,199,186 32,900,136
- -------------------------------------------------------------------------------------- -----------------------
Issued as
reinvestment of
dividends:
Class A 1,985,876 15,762,291 1,859,312 14,431,705
- -------------------------------------------------------------------------------------- -----------------------
Class B 357,055 2,833,327 131,455 1,024,904
- -------------------------------------------------------------------------------------- -----------------------
Reacquired:
Class A (8,997,073) (71,647,818) (6,603,107) (50,884,917)
- -------------------------------------------------------------------------------------- -----------------------
Class B (3,079,249) (24,272,991) (611,547) (4,764,932)
- -------------------------------------------------------------------------------------- -----------------------
8,885,741 $70,463,986 6,472,407 $51,265,426
====================================================================================== =======================
</TABLE>
NOTE 7-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a Class A share outstanding during
each of the years in the ten-year period ended December 31, 1996 and for a Class
B share outstanding during each of the years in the three-year period ended
December 31, 1996 and the period September 7, 1993 (date sales commenced)
through December 31, 1993.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992(a) 1991 1990
CLASS A: -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.17 $ 7.20 $ 8.45 $ 8.03 $ 8.07 $ 7.41 $ 7.80
- ------------------------------------------- -------- -------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.57 0.58 0.58 0.60 0.60 0.61 0.65
- ------------------------------------------- -------- -------- -------- -------- -------- -------- --------
Net gains (losses) on securities (both
realized and unrealized) 0.09 1.00 (1.22) 0.61 (0.03) 0.66 (0.39)
- ------------------------------------------- -------- -------- -------- -------- -------- -------- --------
Total from investment operations 0.66 1.58 (0.64) 1.21 0.57 1.27 0.26
- ------------------------------------------- -------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.59) (0.61) (0.49) (0.60) (0.61) (0.61) (0.65)
- ------------------------------------------- -------- -------- -------- -------- -------- -------- --------
Distributions from net realized capital
gains -- -- (0.01) (0.19) -- -- --
- ------------------------------------------- -------- -------- -------- -------- -------- -------- --------
Return of capital -- -- (0.11) -- -- -- --
- ------------------------------------------- -------- -------- -------- -------- -------- -------- --------
Total distributions (0.59) (0.61) (0.61) (0.79) (0.61) (0.61) (0.65)
- ------------------------------------------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of period $ 8.24 $ 8.17 $ 7.20 $ 8.45 $ 8.03 $ 8.07 $ 7.41
=========================================== ======== ======== ======== ======== ======== ======== ========
Total return(b) 8.58% 22.77% (7.65)% 15.38% 7.42% 18.00% 3.65%
=========================================== ======== ======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $286,183 $251,280 $201,677 $244,168 $218,848 $231,798 $215,987
=========================================== ======== ======== ======== ======== ======== ======== ========
Ratio of expenses to average net assets 0.98%(c)(d) 0.98% 0.98% 0.98% 0.99%(e) 1.00%(e) 1.00%
=========================================== ======== ======== ======== ======== ======== ======== ========
Ratio of net investment income to average
net assets 7.13%(c) 7.52% 7.53% 7.01% 7.54%(e) 7.97%(e) 8.73%
=========================================== ======== ======== ======== ======== ======== ======== ========
Portfolio turnover rate 80% 227% 185% 99% 82% 67% 106%
=========================================== ======== ======== ======== ======== ======== ======== ========
<CAPTION>
1989 1988 1987
CLASS A: -------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of period $ 7.53 $ 7.55 $ 8.20
- ------------------------------------------- -------- -------- --------
Income from investment operations:
Net investment income 0.66 0.68 0.67
- ------------------------------------------- -------- -------- --------
Net gains (losses) on securities (both
realized and unrealized) 0.32 (0.02) (0.63)
- ------------------------------------------- -------- -------- --------
Total from investment operations 0.98 0.66 0.04
- ------------------------------------------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.71) (0.68) (0.69)
- ------------------------------------------- -------- -------- --------
Distributions from net realized capital
gains -- -- --
- ------------------------------------------- -------- -------- --------
Return of capital -- -- --
- ------------------------------------------- -------- -------- --------
Total distributions (0.71) (0.68) (0.69)
- ------------------------------------------- -------- -------- --------
Net asset value, end of period $ 7.80 $ 7.53 $ 7.55
=========================================== ======== ======== ========
Total return(b) 13.56% 9.01% 0.56%
=========================================== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $229,222 $218,946 $237,466
=========================================== ======== ======== ========
Ratio of expenses to average net assets 0.96% 0.95% 0.84%
=========================================== ======== ======== ========
Ratio of net investment income to average
net assets 8.56% 8.81% 8.64%
=========================================== ======== ======== ========
Portfolio turnover rate 222% 361% 195%
=========================================== ======== ======== ========
</TABLE>
(a) The Fund changed investment advisors on June 30, 1992.
(b) Does not deduct sales charges.
(c) Ratios are based on average net assets of $262,501,383.
(d) Includes indirectly paid expenses. Excluding indirectly paid expenses, the
ratio of expenses to average daily net assets would have been 0.97%.
(e) After waiver of advisory fees and expense reimbursements. Ratios of expenses
to average net assets prior to waiver of advisory fees and expense
reimbursements were 1.00% and 1.03% for 1992-1991, respectively. Ratios of
net investment income to average net assets prior to waiver of advisory fees
and expense reimbursements were 7.53% and 7.94% for 1992-1991, respectively.
14
<PAGE> 17
<TABLE>
<CAPTION>
1996 1995 1994 1993
------- ------- ------- ------
CLASS B:
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.15 $ 7.18 $ 8.43 $ 8.95
- ------------------------------------------------------------ ------- ------- ------- ------
Income from investment operations:
Net investment income 0.50 0.53 0.52 0.19
- ------------------------------------------------------------ ------- ------- ------- ------
Net gains (losses) on securities (both realized and
unrealized) 0.11 0.98 (1.23) (0.34)
- ------------------------------------------------------------ ------- ------- ------- ------
Total from investment operations 0.61 1.51 (0.71) (0.15)
- ------------------------------------------------------------ ------- ------- ------- ------
Less distributions:
Dividends from net investment income (0.53) (0.54) (0.42) (0.18)
- ------------------------------------------------------------ ------- ------- ------- ------
Distributions from net realized capital gains -- -- (0.01) (0.19)
- ------------------------------------------------------------ ------- ------- ------- ------
Return of capital -- -- (0.11) --
- ------------------------------------------------------------ ------- ------- ------- ------
Total distributions (0.53) (0.54) (0.54) (0.37)
- ------------------------------------------------------------ ------- ------- ------- ------
Net asset value, end of period $ 8.23 $ 8.15 $ 7.18 $ 8.43
============================================================ ======= ======= ======= ======
Total return(a) 7.87% 21.72% (8.46)% (0.75)%
============================================================ ======= ======= ======= ======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $85,343 $44,304 $12,321 $3,602
============================================================ ======= ======= ======= ======
Ratio of expenses to average net assets 1.80%(b)(c) 1.79% 1.83%(d) 1.75%(d)(e)
============================================================ ======= ======= ======= ======
Ratio of net investment income to average net assets 6.30%(b) 6.71% 6.69%(d) 6.24%(d)(e)
============================================================ ======= ======= ======= ======
Portfolio turnover rate 80% 227% 185% 99%
============================================================ ======= ======= ======= ======
</TABLE>
(a) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(b) Ratios are based on average net assets of $65,062,096.
(c) Includes indirectly paid expenses. Excluding indirectly paid expenses, the
ratio of expenses to average net assets would have been the same.
(d) After expense reimbursements. Ratios of expenses to average net assets prior
to expense reimbursements were 2.04% and 2.50% (annualized) for 1994 and
1993, respectively. Ratios of net investment income to average net assets
prior to expense reimbursements were 6.48% and 5.49% (annualized) for 1994
and 1993, respectively.
(e) Annualized.
NOTE 8-SUBSEQUENT EVENT
On November 4, 1996, A I M Management Group Inc. ("AIM Management") and INVESCO
plc announced the execution of an agreement and plan of merger pursuant to which
AIM Management will be merged with and into a direct wholly-owned subsidiary of
INVESCO plc. AIM Management is the parent company of the Fund's advisor. The
merger is expected to take place during the first quarter of 1997.
15
<PAGE> 18
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders of
AIM Income Fund:
We have audited the accompanying statement of assets and
liabilities of AIM Income Fund (a portfolio of AIM Funds
Group), including the schedule of investments, as of
December 31, 1996, and the related statement of operations
for the year then ended, the statement of changes in net
assets for each of the years in the two-year period then
ended, and the financial highlights for each of the years
in the four-year period then ended. These financial
statements and financial highlights are the responsibility
of the Fund's management. Our responsibility is to express
an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of December 31, 1996, by correspondence
with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all
material respects, the financial position of AIM Income
Fund as of December 31, 1996, the results of its operations
for the year then ended, the changes in its net assets for
each of the years in the two-year period then ended, and
the financial highlights for each of the years in the
four-year period then ended, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
February 7, 1997
16
<PAGE> 19
Trustees & Officers
<TABLE>
<CAPTION>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
<S> <C> <C>
Charles T. Bauer Charles T. Bauer 11 Greenway Plaza
Chairman and Chief Executive Officer Chairman Suite 1919
A I M Management Group Inc. Houston, TX 77046
Robert H. Graham
Bruce L. Crockett President INVESTMENT ADVISOR
Formerly Director, President, and
Chief Executive Officer John J. Arthur A I M Advisors, Inc.
COMSAT Corporation Senior Vice President and Treasurer 11 Greenway Plaza
Suite 1919
Owen Daly II Carol F. Relihan Houston, TX 77046
Director Senior Vice President and Secretary
Cortland Trust Inc. TRANSFER AGENT
Gary T. Crum
Carl Frischling Senior Vice President A I M Fund Services, Inc.
Partner P.O. Box 4739
Kramer, Levin, Naftalis & Frankel Scott G. Lucas Houston, TX 77210-4739
Senior Vice President
Robert H. Graham CUSTODIAN
President and Chief Operating Officer Dana R. Sutton
A I M Management Group Inc. Vice President and Assistant Treasurer State Street Bank & Trust Company
225 Franklin Street
John F. Kroeger Robert G. Alley Boston, MA 02110
Formerly Consultant Vice President
Wendell & Stockel Associates, Inc. COUNSEL TO THE FUND
Stuart W. Coco
Lewis F. Pennock Vice President Ballard Spahr
Attorney Andrews & Ingersoll
Melville B. Cox 1735 Market Street
Ian W. Robinson Vice President Philadelphia, PA 19103
Consultant; Formerly Executive
Vice President and Karen Dunn Kelley COUNSEL TO THE TRUSTEES
Chief Financial Officer Vice President
Bell Atlantic Management Kramer, Levin, Naftalis & Frankel
Services, Inc. Jonathan C. Schoolar 919 Third Avenue
Vice President New York, NY 10022
Louis S. Sklar
Executive Vice President P. Michelle Grace DISTRIBUTOR
Hines Interests Assistant Secretary
Limited Partnership A I M Distributors, Inc.
David L. Kite 11 Greenway Plaza
Assistant Secretary Suite 1919
Houston, TX 77046
Nancy L. Martin AUDITORS
Assistant Secretary
KPMG Peat Marwick LLP
Ofelia M. Mayo 700 Louisiana
Assistant Secretary NationsBank Bldg.
Houston, TX 77002
Kathleen J. Pflueger
Assistant Secretary
Samuel D. Sirko
Assistant Secretary
Stephen I. Winer
Assistant Secretary
Mary J. Benson
Assistant Treasurer
</TABLE>
REQUIRED FEDERAL INCOME TAX INFORMATION
AIM Income Fund Class A and Class B shares paid ordinary dividends in the amount
of $0.588 and $0.525 per share, respectively, to shareholders during the Fund's
tax year ended December 31, 1996. Of this amount, 1.33% is eligible for the
dividends received deduction for corporations.
STATE INCOME TAX INFORMATION
Of ordinary dividends paid, 2.42% for both Class A and Class B shares was
derived from U.S. Treasury obligations.
<PAGE> 20
<TABLE>
<S> <C>
THE AIM FAMILY OF FUNDS--Registered Trademark--
AGGRESSIVE GROWTH
AIM Aggressive Growth Fund*
AIM Capital Development Fund
AIM Constellation Fund
AIM Global Aggressive Growth Fund
[PHOTO OF GROWTH
11 GREENWAY PLAZA AIM Blue Chip Fund
APPEARS HERE] AIM Global Growth Fund
AIM Growth Fund
AIM International Equity Fund
AIM Value Fund
AIM Weingarten Fund
GROWTH AND INCOME
AIM Balanced Fund
AIM Charter Fund
INCOME AND GROWTH
AIM Global Utilities Fund
HIGH CURRENT INCOME
AIM High Yield Fund
CURRENT INCOME
AIM Global Income Fund
AIM Income Fund
CURRENT TAX-FREE INCOME
AIM Municipal Bond Fund
AIM Tax-Exempt Bond Fund of CT
AIM Tax-Free Intermediate Shares
CURRENT INCOME AND HIGH DEGREE OF SAFETY
AIM Intermediate Government Fund
HIGH DEGREE OF SAFETY AND CURRENT INCOME
AIM Limited Maturity Treasury Shares
A I M Management Group Inc. has provided STABILITY, LIQUIDITY, AND CURRENT INCOME
leadership in the mutual fund industry AIM Money Market Fund
since 1976 and manages approximately $70
billion in assets for more than 3.5 STABILITY, LIQUIDITY, AND CURRENT TAX-FREE INCOME
million shareholders, including AIM Tax-Exempt Cash Fund
individual investors, corporate clients,
and financial institutions as of *AIM Aggressive Growth Fund was closed to new
February 11, 1997. The AIM Family of investors on July 18, 1995. For more complete
Funds--Registered Trademark--is distributed information about any AIM Fund(s), including
nationwide, and AIM today ranks among the sales charges and expenses, ask your financial
nation's top 15 mutual fund companies in consultant or securities dealer for a free
assets under management, according to Lipper prospectus(es). Please read the prospectus(es)
Analytical Services, Inc. carefully before you invest or send money.
---------------
BULK RATE
[AIM LOGO APPEARS HERE] U.S. POSTAGE
PAID
A I M Distributors, Inc. HOUSTON, TX
11 Greenway Plaza, Suite 1919 Permit No. 1919
Houston, TX 77046 ---------------
</TABLE>
