<PAGE> 1
AIM INCOME FUND
[AIM LOGO APPEARS HERE] SEMIANNUAL REPORT JUNE 30, 1998
<PAGE> 2
-------------------------------------
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.
-------------------------------------
photo
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 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 C shares will differ from that of
Class A shares due to differing fees and expenses.
o Because Class C shares have been offered for less than one year (since
8/4/97) all total return figures for Class C shares reflect cumulative total
return that has not been annualized.
o 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 annualized distribution rate reflects the Fund's most recent
monthly dividend distribution multiplied by 12 and divided by the most
recent month-end net asset value.
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:
When we last reported to you, for the fiscal year ended
December 31, 1997, equity markets worldwide were still
[PHOTO OF shaken by the financial crisis in Asia. By June 30, 1998,
Charles T. the end of this six-month reporting period, most markets had
Bauer, recovered nicely, with domestic equities producing generous
Chairman of returns and European markets outpacing the U.S. Only Asian
the Board of markets remained in the doldrums. High-quality bonds have
THE FUND turned in a solid performance with generous real returns.
APPEARS HERE] Good economic news has been arriving almost daily.
Inflation and joblessness in the U.S. have been at their
lowest levels in decades, consumer confidence at its highest.
The economic fundamentals in the U.S. appear sound, and we at
AIM remain cautiously optimistic that the current economic
expansion may continue for the foreseeable future although
market valuations are high compared to historical standards.
By the close of this reporting period, markets had become
less ebullient. Equities had declined slightly from the heights reached earlier
in the period. Many participants in the U.S. equity markets voiced concern about
prices that continued rising despite slowing earnings growth, especially for
larger companies. The performance of European markets had exceeded everyone's
expectations. Asia's economic woes, especially the continuing recession in
Japan, which markets had shrugged off for a while, seemed more troublesome as
the reporting period closed.
In the face of such uncertainty, the best course for investors is to remain
realistic. We are now in the fourth year of unprecedented market advances. Even
accounting for the steep drop in equities in early August, after the close of
this reporting period, equities still have the potential to produce returns
above 30% again for the full year. We have never experienced this before, and it
may have fostered unrealistic expectations among investors, who would do well to
remember that the long-term average return for equities is closer to 10% per
year.
A well-diversified portfolio is still one of the most effective tools for
coping with market shifts because different asset classes and different national
markets tend to move independently of one another. Your financial consultant
remains your best source of information about how to allocate your investments
based on your goals and situation.
AIM FURTHER DIVERSIFIES ITS OFFERINGS
Shortly before the close of the reporting period, AIM broadened its offerings
to shareholders through the addition of the GT Global group of mutual funds.
During the next few months you will be receiving more details about this
transaction and the products it adds to The AIM Family of Funds(R).
This transaction gives you, our shareholders, access to a greater variety of
investment choices. A complete list of the funds now included in The AIM Family
of Funds(R) appears on the back cover of this report. We encourage you to
discuss with your financial consultant how these funds may fit into your
portfolio.
The transaction also helps strengthen AIM's position as a major participant
in the money-management industry worldwide. Such strength will enable us to
continue enlarging both the scope of our fund offerings and our menu of services
for our shareholders. AIM continuously reviews its products and services with a
view to enhancing our ability to help shareholders meet their investment goals.
YOUR FUND MANAGERS COMMENT On the pages that follow, the managers of your
AIM Fund discuss how the Fund performed during the six months covered by this
report and give their near-term market outlook. We hope you will find their
discussion informative. We are pleased to send you this report on your Fund. If
you have any questions or comments, please contact our Client Services
department at 800-959-4246 or visit our Web site at www.aimfunds.com. You can
access information about your account on our Web site and also on our automated
AIM Investor Line, 800-246-5463. Thank you for your continued participation in
The AIM Family of Funds--Registered Trademark--.
Sincerely,
/s/ CHARLES T. BAUER
Charles T. Bauer
Chairman
---------------------------------
A well-diversified portfolio
is still one of the most
effective tools for coping with
market shifts because
different asset classes and
different national markets tend
to move independently
of one another.
---------------------------------
<PAGE> 4
The Managers' Overview
DISCIPLINED INVESTMENT STRATEGY BENEFITS FUND
A roundtable discussion with the Fund management team for AIM Income Fund for
the six months ended June 30, 1998.
- --------------------------------------------------------------------------------
Q. IT WAS A CHALLENGING PERIOD FOR BOND INVESTORS. HOW DID AIM INCOME FUND
PERFORM?
A. Your Fund's diversified, three-pronged investment approach enabled it to
post respectable gains, despite weakness in some segments of the bond
market. For the six months ended June 30, 1998, cumulative total return was
4.43% for Class A shares and 4.01% for both Class B and C shares. That beat
the 3.93% total return for the Lehman Brothers Aggregate Bond Index and was
in line with the 4.02% total return for the Lipper General Fund Bond Index.
The Fund continued to provide a high level of current income. As of
June 30, 1998, the Fund's 30-day distribution rate at net asset value was
6.37% for Class A shares, 5.55% for Class B shares and 5.56% for Class C
shares. The Fund's 30-day yield at maximum offering price was 6.07% for
Class A shares and 5.55% for Class B and 5.56 for Class C shares.
================================================================================
SIX-MONTH TOTAL RETURNS
As of 6/30/98, based on total net assets
- --------------------------------------------------------------------------------
AIM INCOME FUND A SHARES 4.43%
AIM INCOME FUND B SHARES 4.01%
AIM INCOME FUND C SHARES 4.01%
LEHMAN BROTHERS AGGREGATE BOND INDEX 3.93%
================================================================================
Q. WHAT WAS YOUR INVESTMENT STRATEGY, GIVEN THE CHALLENGING MARKET?
A. We maintained our disciplined strategy of investing in the three major bond
classes: domestic investment-grade bonds, high-yield securities, and global
bonds. These three bond classes often react differently to various market
trends. Structuring the portfolio in this way can reduce the risk
================================================================================
LIPPER RANKINGS
As of 6/30/98
- --------------------------------------------------------------------------------
AIM GENERAL
INCOME BOND
FUND FUNDS TOP %
CLASS A SHARES
1 Year 4 28 15%
3 Years 2 21 10
5 Years 3 10 30
10 Years 3 5 60
CLASS B SHARES
1 Year 9 28 33%
3 Years 5 21 24
*Fund percentage rankings are vs all funds in its category tracked by Lipper
Analytical Services, Inc., excluding sales charges and including fees and
expenses. Class C shares commenced sales August 4, 1997.
================================================================================
associated with investing in a single bond class. Additionally, it can
enhance total return by positioning the Fund to take advantage of a rally in
one or more segments of the bond market. At the end of the reporting period,
the Fund's total assets were divided as follows: domestic investment grade
bonds, 40.30%; domestic high-yield bonds, 27.35%; foreign bonds, 28.76%;
convertible preferred stocks, 2.43%; common stocks and warrants, 0.20%; and
cash/cash equivalents, 0.96%.
Q. HOW DID DOMESTIC INVESTMENT-GRADE BONDS FARE?
A. Domestic investment-grade bonds were the top-performing segment of the
portfolio. This sector benefited from renewed concerns that the economic
problems in Asia would put pressure on global growth. That caused financial
markets to be volatile toward the end of the reporting period. Investors,
seeking relatively safe havens for their money, shifted more of their assets
into domestic investment-grade bonds, particularly U.S. Treasury issues and
high-quality corporate securities. The late rally in the domestic
investment-grade bond market was reflected in the yield on the benchmark
30-year U.S. Treasury bond, which fell from 5.95% on April 30, 1998 to 5.63%
at the end of the reporting period
Early in the reporting period, investors had feared that the Federal
Reserve Board (the Fed) would raise interest rates to slow the fervent pace
of the economy and thereby alleviate any mounting inflation pressures.
However, the Asian crisis continued to weigh on the global economic outlook
and inflation remained contained, so the Fed left interest rates unchanged.
Q. WHAT ABOUT HIGH-YIELD BONDS?
A. High-yield bonds produced respectable gains, particularly during the first
half of the reporting period, when economic growth was strong and corporate
cash flows were
See important fund and index disclosures inside front cover.
----------------------------------------
Your Fund's diversified,
three-pronged investment approach
enabled it to post respectable gains,
despite weakness in some segments
of the bond market.
----------------------------------------
2
<PAGE> 5
PORTFOLIO COMPOSITION
As of 6/30/98, based on total assets
<TABLE>
<CAPTION>
=======================================================================================================================
TOP FIVE BOND HOLDINGS COUPON MATURITY % TYPE OF HOLDINGS
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1. Coca-Cola Enterprises, Inc. 7.24% 06/2020 3.28%
Convertible Preferred Cash/Cash Equivalents
2. Time Warner, Inc. 9.15 02/2023 1.97 Stocks 2.43% 0.96%
3. Province of Manitoba 7.75 07/2016 1.61
Domestic Common Stocks & Warrants
4. News America Holdings, Inc. 9.25 02/2013 1.59 High-Yield Bonds 27.35% 0.20%
5. General Motors Corp. 8.80 03/2021 1.54 Foreign Bonds DomesticInvestment-Grade
28.76% Bonds
40.30%
Please keep in mind that the Fund's portfolio is subject to change and there is
no assurance the Fund will continue to hold any particular security.
=======================================================================================================================
</TABLE>
generally favorable. However, this bond class was hurt when concerns about
Asia resurfaced, causing investors to shift their attention to domestic
investment-grade bonds. In May and June, high-yield bonds also were
negatively affected by some disappointing corporate earnings reports which
raised concerns about the ability of the issuers of high-yield securities to
meet their debt obligations.
Q. WHAT WERE SOME OF THE TRENDS IN THE GLOBAL-BOND MARKET?
A. Global bonds benefited from the low-inflation, low-interest-rate environment
in most developed countries. Corporate restructuring overseas and global
competition helped keep retail prices from rising significantly. The efforts
of foreign governments to balance their budgets and reduce their deficits
also helped to curtail inflation.
The lingering effects of the Asian currency crisis most adversely
affected emerging-market debt. Since we invest primarily in developed
countries and had little exposure to Asian markets, the ongoing problems in
the Far East had little impact on the Fund's performance.
Bond markets we liked included Australia, the United Kingdom, and
Sweden. In local currency terms, most of the foreign markets where the Fund
invests per formed well during the reporting period. However, the strength
of the U.S. dollar relative to most other major currencies diminished
returns for U.S. investors. We continued to mitigate the effect of a strong
dollar by selectively hedging some of the Fund's currency exposure.
Q. HOW WAS THE FUND POSITIONED AT THE END OF THE REPORTING PERIOD?
A. There were 189 holdings in the Fund as of June 30, 1998. The weighted
average maturity of the portfolio was 13.16 years and its duration was 7.62
years. The Fund had an average portfolio quality rating of BBB as measured
by Standard & Poor's (S&P) and Moody's Investors 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 OUTLOOK FOR THE IMMEDIATE FUTURE?
A. The fundamentals for the domestic bond market appear to be sound. The
inflation rate remains low. And rapid economic growth, a potential source of
inflation, has shown signs of slowing. The Fed has left interest rates
unchanged for more than a year. Should inflation remain contained, the Fed
will be less inclined to change monetary policy. Such an environment would
be favorable for domestic investment-grade and high-yield bonds. However, in
testimony to Congress in July, Fed Chairman Alan Greenspan warned that a
tight labor market could accelerate inflation.
Outside the U.S., there are several factors working to restrain
inflation and thus benefit the global bond market. These include corporate
restructuring, international competition, and the efforts of governments to
balance budgets and reduce deficits. Additionally, with the coming of
economic and monetary union in Europe in 1999, 11 small bond markets will be
replaced with one large bond market. We believe this will encourage the
expansion of the corporate bond market in Europe, which is not as highly
developed as it is in the U.S., and create more investment opportunities for
the Fund.
Whatever the trends in the market, we will maintain our three-pronged
approach of investing in domestic investment-grade, high-yield, and global bonds
in an effort to reduce risk and enhance potential return.
------------------------------------
Whatever the trends in the market,
we will maintain our
three-pronged approach of investing
in domestic investment-grade,
high-yield, and global bonds
in an effort to reduce risk
and enhance potential return.
------------------------------------
See important fund and index disclosures inside front cover.
3
<PAGE> 6
Long-Term Performance
AIM INCOME FUND VS. BENCHMARK INDEX
The chart below compares the Fund's Class A shares 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 6/30/88-6/30/98. 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, an 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
6/30/88 - 6/30/98
- --------------------------------------------------------------------------------
AIM Income Fund, Lehman Aggregate
Class A Shares Bond Index
(In thousands)
6/30/88 9,528 10,000
6/30/89 10,708 11,222
6/30/90 11,222 12,103
6/30/91 12,097 13,398
6/30/92 13,961 15,279
6/30/93 16,211 17,079
6/30/94 15,483 16,857
6/30/95 17,621 18,972
6/30/96 19,080 19,925
6/30/97 21,544 21,549
6/30/98 24,296 23,820
================================================================================
Past performance cannot guarantee comparable future results.
================================================================================
AVERAGE ANNUAL TOTAL RETURNS
For periods ended 6/30/98, including sales charges
- --------------------------------------------------------------------------------
CLASS A SHARES
1 Year 7.56%*
5 Years 7.40
10 Years 9.28
*12.91% excluding sales charge
CLASS B SHARES
1 Year 7.00%**
Inception (9/7/93) 6.52
**12.00% excluding sales charges
CLASS C SHARES
Inception (8/4/97) 8.17%***
***9.17% excluding sales charges. Sales commenced 8/4/97.
Total return provided is cumulative total return that has not
been annualized.
================================================================================
Source: Towers Data Systems HYPO--Registered Trademark--. The performance of the
Fund's Class B and Class C shares will differ from that of Class A shares due to
differing fees and expenses. Your Fund's total return includes sales charges,
expenses, and management fees. 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
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
U.S. DOLLAR DENOMINATED NON-CONVERTIBLE
BONDS & NOTES-74.72%
AIR FREIGHT-0.32%
Atlas Air, Inc., Sr. Notes, 9.25%,
04/15/08 (Acquired 04/07/98;
Cost
$1,717,712)(b) $ 1,720,000 $ 1,728,600
- --------------------------------------------------------------
AIRLINES-2.21%
Airplanes Pass Through Trust, Sub.
Bonds, 10.875%, 03/15/19 1,810,000 1,996,665
- --------------------------------------------------------------
Delta Air Lines, Inc., Deb.,
9.00%, 05/15/16 500,000 613,300
- --------------------------------------------------------------
Equipment Trust Certificates,
10.50%, 04/30/16 5,000,000 6,565,550
- --------------------------------------------------------------
United Air Lines, Inc., Pass
Through Certificates, 9.56%,
10/19/18 2,325,000 2,939,009
- --------------------------------------------------------------
12,114,524
- --------------------------------------------------------------
AUTO PARTS & EQUIPMENT-0.38%
Advance Stores Co., Sr. Sub.
Notes, 10.25%, 04/15/08
(Acquired 04/07/98;
Cost $2,000,000)(b) 2,000,000 2,090,000
- --------------------------------------------------------------
AUTOMOBILES-1.54%
General Motors Corp., Deb., 8.80%,
03/01/21 6,700,000 8,425,384
- --------------------------------------------------------------
BANKS (MONEY CENTER)-1.70%
Bankers Trust New York Corp., Gtd.
Notes, 7.875%, 02/25/27 3,000,000 3,166,530
- --------------------------------------------------------------
First Union Bancorp, Sub. Deb.,
7.50%, 04/15/35 5,300,000 6,136,075
- --------------------------------------------------------------
9,302,605
- --------------------------------------------------------------
BANKS (REGIONAL)-1.42%
Mercantile Bancorp Inc., Unsec.
Sub. Notes, 7.30%, 06/15/07 5,000,000 5,322,300
- --------------------------------------------------------------
US Bancorp, Sub. Deb., 7.50%,
06/01/26 2,200,000 2,461,888
- --------------------------------------------------------------
7,784,188
- --------------------------------------------------------------
BEVERAGES (NON-ALCOHOLIC)-3.28%
Coca-Cola Enterprises, Inc.,
Putable Notes, 7.24%,
06/20/20(c) 74,000,000 17,939,820
- --------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE)-3.06%
Diamond Cable Communications PLC
(United Kingdom), Sr. Yankee
Disc. Notes, 11.75%, 12/15/05(d) 4,000,000 3,330,000
- --------------------------------------------------------------
EchoStar DBS Corp., Sr. Sec. Gtd.
Notes, 12.50%, 07/01/02 2,340,000 2,638,350
- --------------------------------------------------------------
Kabelmedia Holdings GmbH
(Germany), Sr. Yankee Unsec.
Disc. Notes, 13.625%,
08/01/06(d) 1,400,000 1,092,000
- --------------------------------------------------------------
Knology Holdings, Inc., Sr. Disc.
Notes, 11.875%, 10/15/07(d) 4,100,000 2,388,250
- --------------------------------------------------------------
TCI Communications Inc., Deb.,
8.75%, 08/01/15 6,000,000 7,281,600
- --------------------------------------------------------------
16,730,200
- --------------------------------------------------------------
CHEMICALS-2.24%
Nova Chemicals Ltd. (Canada),
Yankee Deb., 7.00%, 08/15/26 2,000,000 2,083,480
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
CHEMICALS-(CONTINUED)
Nova Gas Transmission Ltd.
(Canada), Yankee Deb., 8.50%,
12/15/12 $ 3,000,000 $ 3,582,270
- --------------------------------------------------------------
Solutia Inc., Bonds, 6.72%,
10/15/37 3,500,000 3,575,145
- --------------------------------------------------------------
Sterling Chemicals, Inc., Sr.
Unsec. Sub. Notes, 11.75%,
08/15/06 3,000,000 3,015,000
- --------------------------------------------------------------
12,255,895
- --------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-0.50%
Dialog Corp. PLC (United Kingdom),
Series A Sr. Sub. Notes, 11.00%,
11/15/07 1,500,000 1,650,000
- --------------------------------------------------------------
ProNet, Inc., Sr. Sub. Notes,
11.875%, 06/15/05 1,000,000 1,085,000
- --------------------------------------------------------------
2,735,000
- --------------------------------------------------------------
CONSUMER (JEWELRY, NOVELTIES & GIFTS)-0.05%
Commemorative Brands, Sr. Sub.
Notes, 11.00%, 01/15/07 290,000 296,525
- --------------------------------------------------------------
CONSUMER FINANCE-0.31%
Commercial Credit Co., Putable
Notes, 7.875%, 02/01/25 1,400,000 1,675,422
- --------------------------------------------------------------
CONTAINERS & PACKAGING (PAPER)-0.38%
BPC Holding Corp., Series B Sr.
Sec. Notes, 12.50%, 06/15/06 1,000,000 1,080,000
- --------------------------------------------------------------
MVE Inc., Sr. Sec. Notes, 12.50%,
02/15/02 1,000,000 1,015,000
- --------------------------------------------------------------
2,095,000
- --------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH)-0.33%
AmeriServ Food Co., Gtd. Sr. Sub.
Notes, 10.125%, 07/15/07 1,750,000 1,809,063
- --------------------------------------------------------------
ELECTRIC COMPANIES-5.19%
Commonwealth Edison Co., First
Mortgage Notes, 7.50%, 07/01/13 3,000,000 3,307,500
- --------------------------------------------------------------
El Paso Electric Co.,
Series D Sec. First Mortgage
Bonds, 8.90%, 02/01/06 2,500,000 2,819,825
- --------------------------------------------------------------
Series E Sec. First Mortgage
Bonds, 9.40%, 05/01/11 4,600,000 5,318,842
- --------------------------------------------------------------
Niagara Mohawk Power Corp., First
Mortgage Notes, 7.75%, 05/15/06 4,300,000 4,592,959
- --------------------------------------------------------------
Sr. Unsec. Notes, 7.75%,
10/01/08 5,000,000 5,156,400
- --------------------------------------------------------------
SBC Communications Inc., Deb.,
7.375%, 07/15/43 3,000,000 3,178,140
- --------------------------------------------------------------
Western Resources Inc., Sr. Notes,
7.125%, 08/01/09 4,000,000 4,183,600
- --------------------------------------------------------------
28,557,266
- --------------------------------------------------------------
ELECTRICAL EQUIPMENT-0.30%
Electronic Retailing Systems
International, Inc., Sr. Disc.
Notes, 13.25%, 02/01/04(d) 3,630,000 1,615,350
- --------------------------------------------------------------
ENTERTAINMENT-3.84%
Ascent Entertainment Group, Sr.
Sec. Disc. Notes, 11.875%,
12/15/04(d) 3,000,000 1,935,000
- --------------------------------------------------------------
Time Warner, Inc.,
Deb., 9.15%, 02/01/23 8,500,000 10,801,545
- --------------------------------------------------------------
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
ENTERTAINMENT-(CONTINUED)
Unsec. Deb., 6.85%, 01/15/26 $ 4,300,000 $ 4,383,463
- --------------------------------------------------------------
Viacom, Inc., Sr. Notes, 7.75%,
06/01/05 3,650,000 3,897,434
- --------------------------------------------------------------
21,017,442
- --------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-1.23%
Associates Corp. of North America,
Series B Sr. Deb., 7.95%,
02/15/10 6,000,000 6,742,620
- --------------------------------------------------------------
FOODS-2.63%
ConAgra Inc., Sr. Unsec. Notes,
7.125%, 10/01/26 6,100,000 6,517,423
- --------------------------------------------------------------
Del Monte Corp./Foods Co., Sr.
Unsec. Sub. Notes, 12.25%,
04/15/07 2,080,000 2,340,000
- --------------------------------------------------------------
Grand Metro Investment, Gtd.
Bonds, 7.45%, 04/15/35 5,000,000 5,533,200
- --------------------------------------------------------------
14,390,623
- --------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL
COMPANIES-0.57%
Venetian Casino Resort LLC, Gtd.
Mortgage Notes, 12.25%, 11/15/04 3,000,000 3,112,500
- --------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER)-0.55%
Global Health Sciences, Sr. Notes,
11.00%, 05/01/08 (Acquired
04/17/98; Cost
$1,941,260)(b) 2,000,000 1,990,000
- --------------------------------------------------------------
Watson Pharmaceuticals Inc., Sr.
Notes, 7.125%, 05/15/08 1,000,000 1,011,750
- --------------------------------------------------------------
3,001,750
- --------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT)-0.75%
Tenet Healthcare Corp., Sr. Notes,
8.00%, 01/15/05 4,000,000 4,119,080
- --------------------------------------------------------------
HEALTH CARE (LONG TERM CARE)-0.43%
Paragon Health Networks, Inc., Sr.
Unsec. Disc. Sub. Notes, 10.50%,
11/01/07(d) 3,500,000 2,327,500
- --------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES)-0.60%
Dade International Inc., Series B
Sr. Sub. Notes, 11.125%,
05/01/06 1,000,000 1,130,000
- --------------------------------------------------------------
Mediq, Inc., Sr. Unsec. Sub.
Notes, 11.00%, 06/01/08
(Acquired 05/21/98; Cost
$2,060,000)(b) 2,060,000 2,132,100
- --------------------------------------------------------------
3,262,100
- --------------------------------------------------------------
HEALTH CARE (SPECIALIZED
SERVICES)-0.08%
Dynacare Inc. (Canada), Sr. Yankee
Notes, 10.75% 01/15/06 398,000 422,875
- --------------------------------------------------------------
HOMEBUILDING-0.15%
D.R. Horton, Inc., Unsec. Gtd.
Notes, 10.00%, 04/15/06 745,000 800,875
- --------------------------------------------------------------
HOUSEWARES-0.68%
Decora Industries, Inc., Sr. Sec.
Notes, 11.00%, 05/01/05
(Acquired 04/24/98;
Cost $2,440,925)(b) 2,500,000 2,437,500
- --------------------------------------------------------------
Zeta Consumer Products, Sr. Notes,
11.25%, 11/30/07 (Acquired
11/20/97; Cost
$1,799,000)(b) 1,799,000 1,268,295
- --------------------------------------------------------------
3,705,795
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
INSURANCE (LIFE/HEALTH)-1.06%
Americo Life Inc., Sr. Sub. Notes,
9.25%, 06/01/05 $ 1,000,000 $ 1,037,500
- --------------------------------------------------------------
Torchmark Corp., Notes, 7.875%,
05/15/23 4,350,000 4,739,629
- --------------------------------------------------------------
5,777,129
- --------------------------------------------------------------
INSURANCE
(PROPERTY-CASUALTY)-1.76%
Orion Capital Trust II, Gtd.
Notes, 7.701%, 04/15/28 1,800,000 1,844,586
- --------------------------------------------------------------
Terra Nova Holdings, Co. (United
Kingdom), Yankee Gtd. Notes,
7.20%, 08/15/07 (Acquired
05/12/98; Cost
$1,997,980)(b) 2,000,000 2,048,760
- --------------------------------------------------------------
USF&G Corp., Gtd. Bonds, 8.47%,
01/10/27 5,000,000 5,728,850
- --------------------------------------------------------------
9,622,196
- --------------------------------------------------------------
IRON & STEEL-0.57%
Acme Metals Inc., Sr. Unsec. Gtd.
Deb., 10.875%, 12/15/07 2,400,000 2,052,000
- --------------------------------------------------------------
GS Industries, Inc., Sr. Gtd.
Notes, 12.00%, 09/01/04 1,000,000 1,087,500
- --------------------------------------------------------------
3,139,500
- --------------------------------------------------------------
LODGING-HOTELS-2.10%
Coast Hotels & Casinos Inc.,
Series B Sec. First Mortgage
Gtd. Notes, 13.00%, 12/15/02 1,160,000 1,339,800
- --------------------------------------------------------------
Hilton Hotels Corp., Notes, 7.20%,
12/15/09 5,000,000 4,870,250
- --------------------------------------------------------------
ITT Corp., Unsec. Gtd. Deb.,
7.375%, 11/15/15 3,350,000 3,160,926
- --------------------------------------------------------------
John Q. Hammons Hotels Inc., Sec.
First Mortgage Notes, 9.75%,
10/01/05 2,000,000 2,090,000
- --------------------------------------------------------------
11,460,976
- --------------------------------------------------------------
MACHINERY (DIVERSIFIED)-1.17%
Caterpillar Inc., Deb., 9.375%,
08/15/11 5,000,000 6,374,650
- --------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-0.33%
Elgin National Industries, Sr.
Unsec. Gtd. Sub. Notes, 11.00%,
11/01/07 1,690,000 1,799,850
- --------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-0.42%
MMI Products Inc., Sr. Unsec. Sub.
Notes, 11.25%, 04/15/07 2,070,000 2,277,000
- --------------------------------------------------------------
METAL FABRICATORS-0.29%
Gulf States Steel Corp., First
Mortgage Notes, 13.50%, 04/15/03 1,650,000 1,608,750
- --------------------------------------------------------------
METALS MINING-0.66%
Rio Algom Ltd. (Canada), Yankee
Unsec. Deb., 7.05%, 11/01/05 3,500,000 3,629,045
- --------------------------------------------------------------
NATURAL GAS-0.40%
Ferrellgas Partners, Series B Sr.
Sec. Gtd. Notes, 9.375%,
06/15/06 2,100,000 2,173,500
- --------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES-0.24%
United Stationer Supply, Sr. Sub.
Notes, 12.75%, 05/01/05 1,170,000 1,339,650
- --------------------------------------------------------------
OIL (INTERNATIONAL
INTEGRATED)-1.40%
Gulf Canada Resources, Ltd.
(Canada), Sr. Yankee Unsec.
Notes, 8.35%, 08/01/06 5,100,000 5,619,435
- --------------------------------------------------------------
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
OIL (INTERNATIONAL INTEGRATED)-(CONTINUED)
Husky Oil Ltd., Sr. Yankee Notes,
7.125%, 11/15/06 $ 2,000,000 $ 2,066,000
- --------------------------------------------------------------
7,685,435
- --------------------------------------------------------------
OIL & GAS (DRILLING &
EQUIPMENT)-1.61%
Petroleum Geo-Services A.S.A.
(Norway), Yankee Notes, 7.50%,
03/31/07 3,370,000 3,625,042
- --------------------------------------------------------------
R&B Falcon Corp., Sr. Notes,
7.375%, 04/15/18 (Acquired
04/08/98-06/04/98;
Cost $5,021,550)(b) 5,000,000 5,184,400
- --------------------------------------------------------------
8,809,442
- --------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-3.02%
Abraxas Petroleum Corp., Series D
Sr. Unsec. Gtd. Notes, 11.50%,
11/01/04 900,000 931,500
- --------------------------------------------------------------
Anadarko Petroleum Corp., Deb.,
7.25%, 03/15/25 5,395,000 5,710,554
- --------------------------------------------------------------
Centaur Mining & Exploration Ltd.
(Australia), Sr. Gtd. Notes,
11.00%, 12/01/07 (Acquired
11/24/97; Cost $2,500,000)(b) 2,500,000 2,556,250
- --------------------------------------------------------------
Chesapeake Energy Corp., Sr.
Notes, 9.625%, 05/01/05
(Acquired 04/17/98;
Cost $1,600,000)(b) 1,600,000 1,608,000
- --------------------------------------------------------------
Kelley Oil & Gas Corp., Series B
Sr. Gtd. Sub. Notes, 10.375%,
10/15/06 1,500,000 1,522,500
- --------------------------------------------------------------
Southwest Royalties, Inc., Sr.
Gtd. Notes, 10.50%, 10/15/04 352,000 283,360
- --------------------------------------------------------------
Talisman Energy, Inc. (Canada),
Yankee Deb., 7.125%, 06/01/07 3,750,000 3,915,187
- --------------------------------------------------------------
16,527,351
- --------------------------------------------------------------
OIL & GAS (REFINING &
MARKETING)-2.05%
Sun Co., Inc., Deb., 9.00%,
11/01/24 4,000,000 5,096,680
- --------------------------------------------------------------
Tosco Corp., Deb., 7.80%, 01/01/27 5,550,000 6,143,961
- --------------------------------------------------------------
11,240,641
- --------------------------------------------------------------
PERSONAL CARE-0.73%
Alberto-Culver Corp., Notes,
6.375%, 06/15/28 4,000,000 4,009,080
- --------------------------------------------------------------
POWER PRODUCERS
(INDEPENDENT)-1.96%
AES Corp., Sr. Sub. Notes, 10.25%,
07/15/06 1,000,000 1,090,000
- --------------------------------------------------------------
Indiana Michigan Power, Sec. Lease
Obligation Bonds, 9.82%,
12/07/22 4,969,574 6,557,353
- --------------------------------------------------------------
Kincaid Generation LLC, Sec.
Bonds, 7.33%, 06/15/20 (Acquired
04/30/98; Cost
$2,004,940)(b) 2,000,000 2,031,250
- --------------------------------------------------------------
Panda Global Energy Co. (China),
Sr. Yankee Sec. Gtd. Notes,
12.50%, 04/15/04 1,165,000 1,065,975
- --------------------------------------------------------------
10,744,578
- --------------------------------------------------------------
PUBLISHING (NEWSPAPERS)-1.79%
News America Holdings, Inc.,
Sr. Gtd. Deb., 9.25%, 02/01/13 7,100,000 8,708,150
- --------------------------------------------------------------
Sr. Gtd. Putable Bonds, 7.43%,
10/01/26 1,000,000 1,051,040
- --------------------------------------------------------------
9,759,190
- --------------------------------------------------------------
RAILROADS-0.54%
Norfolk Southern Corp., Putable
Bonds, 7.05%, 05/01/37 2,750,000 2,964,692
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
REAL ESTATE INVESTMENT
TRUSTS-1.84%
Glenborough Realty Trust, Sr.
Notes, 7.625%, 03/15/05
(Acquired 03/18/98;
Cost $3,394,458)(b) $ 3,400,000 $ 3,416,252
- --------------------------------------------------------------
Health Care REIT, Inc., Sr. Unsec.
Notes, 7.625%, 03/15/08 3,000,000 3,023,850
- --------------------------------------------------------------
Spieker Properties LP, Unsec.
Deb., 7.35%, 12/01/17 3,500,000 3,614,800
- --------------------------------------------------------------
10,054,902
- --------------------------------------------------------------
RESTAURANTS-0.28%
Planet Hollywood International,
Inc., Sr. Unsec. Sub. Notes,
12.00%, 04/01/05 1,695,000 1,533,975
- --------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE)-0.72%
Fred Meyer, Inc., Sr. Notes,
7.45%, 03/01/08 2,200,000 2,216,500
- --------------------------------------------------------------
Plainwell, Inc., Sr. Sub. Notes,
11.00%, 03/01/08 (Acquired
03/03/98-03/04/98;
Cost $1,717,263)(b) 1,710,000 1,727,100
- --------------------------------------------------------------
3,943,600
- --------------------------------------------------------------
RETAIL (SPECIALTY)-0.91%
CEX Holdings, Inc., Sr. Sub.
Notes, 9.625%, 06/01/08
(Acquired 05/20/98;
Cost $2,140,000)(b) 2,140,000 2,180,125
- --------------------------------------------------------------
CSK Auto Inc., Sr. Gtd. Sub. Deb.,
11.00%, 11/01/06 715,000 788,288
- --------------------------------------------------------------
Icon Health & Fitness, Series B
Sr. Sub. Notes, 13.00%, 07/15/02 1,200,000 1,206,000
- --------------------------------------------------------------
Wilson's-The Leather Experts,
Inc., Sr. Notes, 11.25%,
08/15/04 760,000 801,800
- --------------------------------------------------------------
4,976,213
- --------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-0.60%
Big 5 Corp., Sr. Unsec. Notes,
10.875%, 11/15/07 2,000,000 2,065,000
- --------------------------------------------------------------
J Crew Operating Corp., Sr. Sub.
Notes, 10.375%, 10/15/07 1,255,000 1,211,075
- --------------------------------------------------------------
3,276,075
- --------------------------------------------------------------
SAVINGS & LOAN COMPANIES-0.97%
Sovereign Bancorp, Inc., Sub.
Notes, 8.00%, 03/15/03 5,050,000 5,299,773
- --------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-1.33%
Choice Hotels International, Inc.,
Notes, 7.125%, 05/01/08
(Acquired 04/28/98;
Cost $2,235,465)(b) 2,250,000 2,285,078
- --------------------------------------------------------------
Laidlaw Inc. (Canada), Yankee Deb,
6.72%, 10/01/27 2,000,000 2,078,620
- --------------------------------------------------------------
Pegasus Shipping Hellas Co.
(Bermuda), Sr. Sec. Gtd.
Mortgage Notes, 11.875%,
11/15/04 (Acquired 11/19/97;
Cost
$2,753,956)(b) 2,850,000 2,899,875
- --------------------------------------------------------------
7,263,573
- --------------------------------------------------------------
SERVICES (EMPLOYMENT)-0.38%
MSX International, Inc., Sr. Sub.
Notes, 11.375%, 01/15/08
(Acquired 01/16/98;
Cost $1,981,050)(b) 1,980,000 2,049,300
- --------------------------------------------------------------
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
SERVICES (FACILITIES & ENVIRONMENTAL)-0.20%
ATC Group Services, Inc., Sr. Sub.
Notes, 12.00%, 01/15/08
(Acquired 01/22/98; Cost
$1,150,000)(b) $ 1,150,000 $ 1,063,750
- --------------------------------------------------------------
SHIPPING-2.32%
Alpha Shipping PLC (United
Kingdom), Sr. Notes, 9.50%,
02/15/08 (Acquired 02/25/98;
Cost
$1,937,500)(b) 2,000,000 1,895,000
- --------------------------------------------------------------
Holt Group, Sr. Notes, 9.75%,
01/15/06 (Acquired
01/14/98-01/15/98;
Cost $1,502,625)(b) 1,500,000 1,477,500
- --------------------------------------------------------------
Hutchison Whampoa Ltd. (Cayman
Islands), Series D Sr. Gtd.
Unsec. Unsub. Deb., 6.988%,
08/01/37 (Acquired 12/15/97;
Cost $4,689,900)(b) 5,000,000 4,240,750
- --------------------------------------------------------------
Pacific & Atlantic Holdings, First
Mortgage Notes, 11.50%, 05/30/08
(Acquired
05/21/98; Cost $2,759,400)(b) 2,800,000 2,716,000
- --------------------------------------------------------------
Stena Line A.B. (Sweden), Sr.
Yankee Notes, 10.625%, 06/01/08 2,300,000 2,343,125
- --------------------------------------------------------------
12,672,375
- --------------------------------------------------------------
SOVEREIGN DEBT-3.00%
Province of Manitoba (Canada), Yankee Bonds,
7.75%, 07/17/16 7,500,000 8,813,775
- --------------------------------------------------------------
5.735%, 03/02/26 3,500,000 3,829,350
- --------------------------------------------------------------
Province of Quebec (Canada),
Yankee Deb., 6.29%, 03/06/26 3,500,000 3,773,420
- --------------------------------------------------------------
16,416,545
- --------------------------------------------------------------
TELECOMMUNICATIONS-0.37%
KMC Telecom Holdings, Inc., Sr.
Disc. Notes, 12.50%, 02/15/08
(Acquired 01/26/98-03/03/98;
Cost
$1,871,238)(b)(d) 3,400,000 2,023,000
- --------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-0.99%
Cable & Wireless Communications
PLC (United Kingdom), Yankee
Notes, 6.75%, 03/06/08 1,250,000 1,267,925
- --------------------------------------------------------------
Clearnet Communications Inc.
(Canada), Sr. Yankee Unsec.
Disc. Notes, 14.75%, 12/15/05(d) 920,000 777,400
- --------------------------------------------------------------
PageMart Wireless, Inc., Sr. Sub.
Disc. Notes, 11.25%, 02/01/08(d) 3,110,000 1,897,100
- --------------------------------------------------------------
Sygnet Wireless Inc., Sr. Unsec.
Notes, 11.50%, 10/01/06 1,320,000 1,452,000
- --------------------------------------------------------------
5,394,425
- --------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-2.00%
Esprit Telecom Group PLC (United
Kingdom), Sr. Yankee Notes,
11.50%, 12/15/07 1,500,000 1,550,625
- --------------------------------------------------------------
Exodus Communications, Inc., Sr.
Notes, 11.25%, 07/01/08
(Acquired 06/26/98;
Cost $2,600,000)(b) 2,600,000 2,622,750
- --------------------------------------------------------------
MCI Communications Corp., Putable
Sr. Unsec. Deb., 7.125%,
06/15/27 5,000,000 5,289,500
- --------------------------------------------------------------
Versatel Telecom BV (Netherlands),
Sr. Notes, 13.25%, 05/15/08
(Acquired 05/20/98;
Cost $1,370,000)(b)(e) 1,370,000 1,445,350
- --------------------------------------------------------------
10,908,225
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
TEXTILES (APPAREL)-0.61%
Fruit of the Loom, Notes, 6.50%,
11/15/03 $ 3,450,000 $ 3,342,049
- --------------------------------------------------------------
TRUCKERS-0.50%
AmeriTruck Distribution Corp.,
Series B Sr. Sub. Notes, 12.25%,
11/15/05 769,000 449,865
- --------------------------------------------------------------
Travelcenters of America Inc., Sr.
Unsec. Gtd. Sub. Deb., 10.25%,
04/01/07 2,180,000 2,289,000
- --------------------------------------------------------------
2,738,865
- --------------------------------------------------------------
WASTE MANAGEMENT-0.88%
Allied Waste Industries, Sr.
Unsec. Disc. Notes, 11.30%,
06/01/08(d) 4,930,000 3,635,875
- --------------------------------------------------------------
Norcal Waste Systems Inc., Series
B Sr. Gtd. Notes, 13.50%,
11/15/05 1,000,000 1,150,000
- --------------------------------------------------------------
4,785,875
- --------------------------------------------------------------
Total U.S. Dollar Denominated
Non-Convertible Bonds &
Notes (Cost $389,092,525) 408,743,177
- --------------------------------------------------------------
U.S. DOLLAR DENOMINATED
CONVERTIBLE BONDS & NOTES-1.78%
COMPUTERS (HARDWARE)-0.37%
Candescent Technology Corp., Conv.
Sr. Sub. Deb., 7.00%, 05/01/03
(Acquired 04/20/98;
Cost $2,000,000)(b) 2,000,000 2,000,000
- --------------------------------------------------------------
COMPUTERS (PERIPHERALS)-0.38%
EMC Corp., Conv. Sub. Notes,
3.25%, 03/15/02 (Acquired
03/06/97;
Cost $1,000,000)(b) 1,000,000 2,056,040
- --------------------------------------------------------------
HEALTH CARE (SPECIALIZED
SERVICES)-0.43%
Omnicare, Inc., Conv. Sub. Deb.,
5.00%, 12/01/07 (Acquired
12/04/97;
Cost $2,000,000)(b) 2,000,000 2,337,500
- --------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-0.22%
U.S. Filter Corp., Conv. Sub.
Notes, 6.00%, 09/15/05 800,000 1,233,000
- --------------------------------------------------------------
SHIPPING-0.38%
Hutchison Delta Finance (Cayman
Islands), Conv. Unsec. Notes,
7.00%, 11/08/02 2,000,000 2,080,000
- --------------------------------------------------------------
Total U.S. Dollar Denominated
Convertible Bonds & Notes
(Cost $8,501,064) 9,706,540
- --------------------------------------------------------------
NON-U.S. DOLLAR DENOMINATED NON-
CONVERTIBLE BONDS & NOTES(f)-6.86%
CANADA-5.39%
Bank of Montreal (Banks-Money
Center), Sub. Deb., 7.92%,
07/31/12 CAD 4,000,000 $ 3,112,525
- --------------------------------------------------------------
Bell Canada
(Telecommunications-Cellular/
Wireless), Unsec. Deb., 10.875%,
10/11/04 3,000,000 2,562,614
- --------------------------------------------------------------
Bell Mobility Cellular Inc.
(Telecommunications-Cellular/Wireless),
Deb., 6.55%, 06/02/08 2,250,000 1,557,357
- --------------------------------------------------------------
Clearnet Communications
(Telecommunications-Cellular/Wireless),
Sr. Disc. Notes, 11.75%,
08/13/07 (Acquired 11/04/97;
Cost
$3,364,828)(b)(d) 8,200,000 3,673,542
- --------------------------------------------------------------
Sr. Disc. Notes, 10.40%,
05/15/08(d) 9,050,000 3,637,410
- --------------------------------------------------------------
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
CANADA-(CONTINUED)
Microcell Telecommunications Inc.
(Telecommunications-Cellular/Wireless),
Sr. Disc. Notes, 11.125%,
10/15/07(d) CAD 3,500,000 $ 1,504,877
- --------------------------------------------------------------
NAV Canada (Services-Commercial &
Consumer), Bonds, 7.40%,
06/01/27 2,500,000 2,057,187
- --------------------------------------------------------------
Poco Petroleums Ltd. (Oil &
Gas-Exploration & Production),
Unsec. Deb., 6.60%, 09/11/07 4,150,000 2,853,458
- --------------------------------------------------------------
Telegobe Canada, Inc. (Telephone),
Unsec. Deb., 8.35%, 06/20/03 5,000,000 3,777,710
- --------------------------------------------------------------
Trans-Canada Pipelines (Natural
Gas),
Series Q Deb., 10.625%, 10/20/09 1,750,000 1,648,406
- --------------------------------------------------------------
Unsec. Notes, 8.55%, 02/01/06 3,000,000 2,381,748
- --------------------------------------------------------------
Westcoast Energy, Inc. (Oil &
Gas-Exploration & Production),
Deb., 6.45%, 12/18/07
(Acquired 12/03/96; Cost
$739,169)(b) 1,000,000 710,486
- --------------------------------------------------------------
29,477,320
- --------------------------------------------------------------
GERMANY-0.36%
LKB Global
(Financial-Diversified), Gtd.
Notes, 6.00%, 01/25/06 DEM 3,300,000 1,984,418
- --------------------------------------------------------------
NEW ZEALAND-0.42%
International Bank for
Reconstruction & Development
(Banks-Money Center), Sr. Notes,
6.77%, 08/20/07(c) NZD 8,000,000 2,270,807
- --------------------------------------------------------------
UNITED KINGDOM-0.69%
Sutton Bridge Financial Ltd.
(Financial-Diversified), Gtd.
Eurobonds, 8.625%, 06/03/23
(Acquired 05/29/97;
Cost $3,260,377)(b) GBP 2,000,000 3,771,605
- --------------------------------------------------------------
Total Non-U.S. Dollar
Denominated Non-Convertible
Bonds & Notes (Cost
$37,473,548) 37,504,150
- --------------------------------------------------------------
NON-U.S. DOLLAR DENOMINATED CONVERTIBLE
BONDS & NOTES(f)-4.20%
GERMANY-1.25%
Daimler-Benz A.G. (Automobiles),
Conv. Gtd. Unsub. Eurobonds,
4.125%, 07/05/03 DEM 6,440,000 6,838,906
- --------------------------------------------------------------
JAPAN-1.41%
Matsushita Electric Industrial Co.
Ltd. (Electrical Equipment),
Conv. Bonds, 1.30%, 03/29/02 JPY 250,000,000 2,557,394
- --------------------------------------------------------------
Sony Corp. (Electrical Equipment),
Conv. Deb., 1.40%, 03/31/05 465,000,000 5,177,705
- --------------------------------------------------------------
7,735,099
- --------------------------------------------------------------
UNITED KINGDOM-1.54%
British Airport Authority PLC
(Airlines), Conv. Bonds, 5.75%,
03/29/06 GBP 2,000,000 4,172,573
- --------------------------------------------------------------
National Grid Co. PLC (Electric
Companies), Conv. Bonds, 4.25%,
02/17/08 (Acquired 02/05/98;
Cost $3,729,375)(b) 2,250,000 4,238,357
- --------------------------------------------------------------
8,410,930
- --------------------------------------------------------------
Total Non-U.S. Dollar
Denominated Convertible
Bonds & Notes (Cost
$19,527,720) 22,984,935
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
NON-U.S. DOLLAR DENOMINATED
GOVERNMENT BONDS & NOTES(f)-6.60%
BRITISH POUND STERLING-3.37%
Federal National Mortgage
Association, Sr. Unsec. Notes,
6.875%, 06/07/02 GBP 2,400,000 $ 4,036,569
- --------------------------------------------------------------
Ontario Province
Deb., 11.125%, 02/14/01 2,000,000 3,611,987
- --------------------------------------------------------------
United Kingdom Treasury,
Bonds, 8.00%, 12/07/00 1,500,000 2,568,258
- --------------------------------------------------------------
Bonds, 7.50%, 12/07/06 3,100,000 5,705,514
- --------------------------------------------------------------
Gtd. Notes, 7.00%, 11/06/01 1,500,000 2,533,386
- --------------------------------------------------------------
18,455,714
- --------------------------------------------------------------
CANADIAN DOLLARS-0.73%
Ontario Province,
Sr. Unsec. Unsub. Global Bonds,
8.00%, 03/11/03 CAD 5,350,000 4,012,956
- --------------------------------------------------------------
NEW ZEALAND DOLLARS-0.96%
Federal National Mortgage
Association, Notes, 7.25%,
06/20/02 NZD 2,900,000 1,496,188
- --------------------------------------------------------------
New Zealand Government, Bonds,
10.00%, 03/15/02 6,500,000 3,718,030
- --------------------------------------------------------------
5,214,218
- --------------------------------------------------------------
SWEDISH KRONAS-1.54%
Swedish Government,
Bonds, 10.25%, 05/05/03 SEK 19,000,000 2,956,760
- --------------------------------------------------------------
Bonds, 6.00%, 02/09/05 20,000,000 2,679,105
- --------------------------------------------------------------
Bonds, 6.50%, 10/25/06 20,000,000 2,779,403
- --------------------------------------------------------------
8,415,268
- --------------------------------------------------------------
Total Non-U.S. Dollar
Denominated Government Bonds
& Notes (Cost $36,636,645) 36,098,156
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
DOMESTIC COMMON STOCK-0.02%
TELECOMMUNICATIONS (CELLULAR/
WIRELESS)-0.02%
Nextel Communications, Inc.-Class
A(g) (Cost $74,250) 4,601 114,450
- --------------------------------------------------------------
DOMESTIC CONVERTIBLE PREFERRED
STOCKS-2.42%
BANKS (REGIONAL)-0.52%
Westpac Banking Corp. STRYPES
Trust-$3.135 Conv. Pfd. 95,000 2,867,813
- --------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-0.28%
Loral Space & Communications-$3.00
Conv. Pfd. (Acquired 11/01/96;
Cost
$1,000,000)(b) 20,000 1,540,320
- --------------------------------------------------------------
COMPUTERS (SOFTWARE &
SERVICES)-0.31%
Microsoft Corp., Series A-$2.196
Conv. Pfd. 18,000 1,710,000
- --------------------------------------------------------------
ELECTRIC COMPANIES-0.30%
Houston Industries Inc.-$3.22 Conv.
Pfd. 22,000 1,639,000
- --------------------------------------------------------------
FOODS-0.27%
Ralston Purina Co.-$4.34 Conv. Pfd. 23,000 1,460,500
- --------------------------------------------------------------
</TABLE>
9
<PAGE> 12
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
OIL & GAS (REFINING &
MARKETING)-0.20%
Tosco Financing Trust-$2.875 Conv.
Pfd. (Acquired 12/10/96-12/11/96;
Cost $1,006,950)(b) 20,000 $ 1,095,500
- --------------------------------------------------------------
SERVICES (COMMERCIAL &
CONSUMER)-0.54%
Cendant Corp.-$3.75 Conv. PRIDES 78,000 2,920,125
- --------------------------------------------------------------
Total Domestic Convertible
Preferred Stocks (Cost
$12,290,538) 13,233,258
- --------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-0.15%
CANADA-0.15%
PowerGen PLC-ADR (Electric
Companies) 14,000 789,250
- --------------------------------------------------------------
Total Foreign Stocks & Other
Equity Interests (Cost
$467,674) 789,250
- --------------------------------------------------------------
WARRANTS-0.02%
BROADCASTING (TELEVISION, RADIO & CABLE)-0.00%
Knology Holdings, Inc., expiring
10/15/07
(Acquired 03/12/98; Cost
$0)(b)(h) 4,100 21,525
- --------------------------------------------------------------
ELECTRICAL EQUIPMENT-0.00%
Electronic Retailing Systems
International, expiring
02/01/04(h) 3,630 36,300
- --------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES)-0.00%
MVE Inc., expiring 02/15/02(h) 1,000 20,000
- --------------------------------------------------------------
METAL FABRICATORS-0.00%
Gulf States Steel Corp., expiring
04/15/03(h) 1,650 4,125
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
PERSONAL CARE-0.00%
IHF Capital Inc., Series I,
expiring 11/14/99
(Acquired 11/04/94; Cost
$0)(b)(h) 1,200 $ 6,000
- --------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/
WIRELESS)-0.02%
Clearnet Communications Inc.
(Canada), expiring 09/15/05(h) 5,874 57,272
- --------------------------------------------------------------
Orion Network Systems, Inc.,
expiring 01/15/07(h) 3,400 54,400
- --------------------------------------------------------------
111,672
- --------------------------------------------------------------
Total Warrants (Cost $50,050) 199,622
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
U.S. TREASURY SECURITIES-1.74%
Bonds, 6.125%, 11/15/27 $5,100,000 5,468,169
- --------------------------------------------------------------
Notes, 5.75%, 04/30/03 4,000,000 4,039,560
- --------------------------------------------------------------
Total U.S. Treasury Securities
(Cost $9,417,922) 9,507,729
- --------------------------------------------------------------
REPURCHASE AGREEMENT(I)-0.95%
Dean Witter Reynolds, Inc., 6.10%,
07/01/98 (Cost $5,208,450)(j) 5,208,450 5,208,450
- --------------------------------------------------------------
TOTAL INVESTMENTS-99.46% 544,089,717
- --------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-0.54% 2,967,175
- --------------------------------------------------------------
NET ASSETS-100.00% $547,056,892
==============================================================
</TABLE>
Abbreviations:
ADR - American Depositary Receipts
AUD - Australian Dollar
CAD - Canadian Dollar
CHF - Swiss Franc
Conv. - Convertible
Deb. - Debentures
DEM - German Deutsche Mark
Disc. - Discounted
Pfd. - Preferred
GBP - British Pound Sterling
Gtd. - Guaranteed
PRIDES - Preferred Redemption Increase Dividend Equity Security
JPY - Japanese Yen
NZD - New Zealand Dollar
REIT - Real Estate Investment Trust
Sec. - Secured
SEK - Swedish Krona
Sr. - Senior
STRYPES - Structured Yield Product Exchangeable Per Stock
Sub. - Subordinated
Unsec. - Unsecured
Unsub. - Unsubordinated
(a) Principal amount is in U.S. Dollars, except as indicated by note (g).
(b) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The valuation of these securities has been determined in
accordance with procedures established by the Board of Trustees. The
aggregate market value of these securities at 06/30/98 was $78,567,860 which
represented 14.36% of the Fund's net assets.
(c) Zero coupon bond issued at a discount. The interest rate shown represents
the rate of original issue discount.
(d) Discounted bond at purchase. The interest rate represents the coupon rate at
which the bond will accrue at a specified future date.
(e) Issued as a unit. This unit includes 1 Sr. Note plus one warrant to purchase
6.667 shares of common stock.
(f) Foreign denominated security. Par value and coupon are denominated in
currency of country indicated.
(g) Non-income producing security.
(h) Non-income producing security acquired as part of a unit with or in exchange
for other securities.
(i) 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.
(j) Joint repurchase agreement entered into 06/30/98 with a maturing value of
$200,033,889. Collateralized by $203,366,000 U.S. Government obligations, 0%
to 9.375% due 07/01/98 to 09/21/04 with an aggregate market value at
06/30/98 of $209,153,696.
See Notes to Financial Statements.
10
<PAGE> 13
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$518,740,386) $544,089,717
- ---------------------------------------------------------
Foreign currencies, at value (cost $2,200) 2,141
- ---------------------------------------------------------
Cash 389,961
- ---------------------------------------------------------
Receivables for:
Forward currency contracts 370,672
- ---------------------------------------------------------
Investments sold 74,235
- ---------------------------------------------------------
Fund shares sold 2,696,571
- ---------------------------------------------------------
Interest and dividends 8,941,955
- ---------------------------------------------------------
Investment for deferred compensation plan 66,831
- ---------------------------------------------------------
Other assets 44,758
- ---------------------------------------------------------
Total assets 556,676,841
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 5,874,521
- ---------------------------------------------------------
Fund shares reacquired 2,284,672
- ---------------------------------------------------------
Dividends 654,430
- ---------------------------------------------------------
Deferred compensation plan 66,831
- ---------------------------------------------------------
Accrued advisory fees 192,499
- ---------------------------------------------------------
Accrued distribution fees 410,764
- ---------------------------------------------------------
Accrued administrative services fees 6,758
- ---------------------------------------------------------
Accrued transfer agent fees 86,347
- ---------------------------------------------------------
Accrued trustees' fees 2,785
- ---------------------------------------------------------
Accrued operating expenses 40,342
- ---------------------------------------------------------
Total liabilities 9,619,949
- ---------------------------------------------------------
Net assets applicable to shares outstanding $547,056,892
=========================================================
NET ASSETS:
Class A $374,140,103
=========================================================
Class B $163,190,706
=========================================================
Class C $ 9,726,083
=========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 43,173,372
=========================================================
Class B 18,864,862
=========================================================
Class C 1,126,032
=========================================================
Class A:
Net asset value and redemption price per
share $ 8.67
=========================================================
Offering price per share:
(Net asset value of $8.67 divided
by 95.25%) $ 9.10
=========================================================
Class B:
Net asset value and offering price per
share $ 8.65
=========================================================
Class C:
Net asset value and offering price per
share $ 8.64
=========================================================
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 18,960,449
- ---------------------------------------------------------
Dividends (net of $3,272, foreign
withholding tax) 451,340
- ---------------------------------------------------------
Total investment income 19,411,789
- ---------------------------------------------------------
EXPENSES:
Advisory fees 1,112,947
- ---------------------------------------------------------
Administrative services fees 40,717
- ---------------------------------------------------------
Custodian fees 44,665
- ---------------------------------------------------------
Trustees' fees 4,319
- ---------------------------------------------------------
Distribution fees -- Class A 448,795
- ---------------------------------------------------------
Distribution fees -- Class B 719,068
- ---------------------------------------------------------
Distribution fees -- Class C 28,027
- ---------------------------------------------------------
Transfer agent fees -- Class A 271,926
- ---------------------------------------------------------
Transfer agent fees -- Class B 114,107
- ---------------------------------------------------------
Transfer agent fees -- Class C 4,448
- ---------------------------------------------------------
Other 79,283
- ---------------------------------------------------------
Total expenses 2,868,302
- ---------------------------------------------------------
Less: Expenses paid indirectly (4,817)
- ---------------------------------------------------------
Net expenses 2,863,485
- ---------------------------------------------------------
Net investment income 16,548,304
- ---------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND FORWARD CURRENCY
CONTRACTS:
Net realized gain (loss) from:
Investment securities 1,465,693
- ---------------------------------------------------------
Foreign currencies (353,165)
- ---------------------------------------------------------
Forward currency contracts 2,966,000
- ---------------------------------------------------------
4,078,528
- ---------------------------------------------------------
Net unrealized appreciation (depreciation)
of:
Investment securities 2,576,978
- ---------------------------------------------------------
Foreign currencies 22,563
- ---------------------------------------------------------
Forward currency contracts (2,132,034)
- ---------------------------------------------------------
467,507
- ---------------------------------------------------------
Net gain from investment securities,
foreign currencies and forward currency
contracts 4,546,035
- ---------------------------------------------------------
Net increase in net assets resulting from
operations $ 21,094,339
=========================================================
</TABLE>
11
<PAGE> 14
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 16,548,304 $ 25,483,371
- --------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies, forward currency contracts and futures
contracts 4,078,528 10,912,543
- --------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities,
foreign currencies and forward currency contracts 467,507 8,736,614
- --------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 21,094,339 45,132,528
- --------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (11,524,311) (18,740,017)
- --------------------------------------------------------------------------------------------
Class B (4,014,094) (5,379,787)
- --------------------------------------------------------------------------------------------
Class C (156,141) (8,381)
- --------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A -- (3,481,635)
- --------------------------------------------------------------------------------------------
Class B -- (1,280,178)
- --------------------------------------------------------------------------------------------
Class C -- (19,105)
- --------------------------------------------------------------------------------------------
Share transactions-net:
Class A 29,636,440 42,455,896
- --------------------------------------------------------------------------------------------
Class B 35,849,626 36,284,875
- --------------------------------------------------------------------------------------------
Class C 7,141,202 2,539,241
- --------------------------------------------------------------------------------------------
Net increase in net assets 78,027,061 97,503,437
- --------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 469,029,831 371,526,394
- --------------------------------------------------------------------------------------------
End of period $547,056,892 $469,029,831
============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $514,566,712 $441,939,444
- --------------------------------------------------------------------------------------------
Undistributed net investment income 796,519 (57,239)
- --------------------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, foreign currencies, forward currency
contracts and futures contracts 5,987,390 1,908,862
- --------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies and forward currency contracts 25,706,271 25,238,764
- --------------------------------------------------------------------------------------------
$547,056,892 $469,029,831
============================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
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 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 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 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.
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.
12
<PAGE> 15
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
A. Security Valuations-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
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
service and which are listed or traded on an exchange (except convertible
bonds) 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 foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock-in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably. Outstanding forward currency contracts at June 30, 1998 were as
follows:
<TABLE>
<CAPTION>
Contract to Unrealized
Settlement --------------------------- Appreciation
Date Deliver Receive Value (Depreciation)
- ---------- ------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
7/13/98 JPY 74,000,000 $ 576,325 $ 537,001 $ 39,324
7/21/98 JPY 300,000,000 2,306,096 2,179,731 126,365
7/27/98 GBP 2,220,000 3,679,428 3,703,360 (23,932)
7/29/98 SEK 61,000,000 7,932,380 7,658,093 274,287
7/31/98 GBP 4,300,000 7,138,000 7,171,565 (33,565)
8/6/98 JPY 602,500,000 4,581,749 4,388,157 193,592
8/17/98 NZD 10,200,000 5,406,000 5,290,679 115,321
8/28/98 GBP 11,000,000 17,877,750 18,316,861 (439,111)
8/31/98 DEM 10,900,000 6,203,050 6,067,392 135,658
9/21/98 NZD 3,500,000 1,794,100 1,811,367 (17,267)
----------- ----------- ---------
$57,494,878 $57,124,206 $ 370,672
=========== =========== =========
</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.
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.
F. Expenses -- Distribution and transfer agency expenses directly attributable
to a class of shares are charged to that class' operations. All other
expenses which are attributable to more than one class are allocated among
the classes.
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
13
<PAGE> 16
$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 six months ended June 30, 1998, AIM
was reimbursed $40,717 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 six months ended June 30, 1998, the
Fund paid AFS $219,891 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted
distribution plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A shares and Class C shares (the "Class A and C Plan"), and the
Fund's Class B shares (the "Class B Plan") (collectively, the "Plans"). The
Fund, pursuant to the Class A and C Plan, pays AIM Distributors compensation at
an annual rate of 0.25% of the average daily net assets of the Class A shares
and 1.00% of the average daily net assets of the Class C shares. The Fund,
pursuant to the Class B Plan, pays AIM Distributors compensation at an annual
rate of 1.00% of the average daily net assets of the Class B shares. Of these
amounts, the Fund may pay a service fee of 0.25% of the average daily net assets
of the Class A, Class B or Class C shares to selected dealers and financial
institutions who furnish continuing personal shareholder services to their
customers who purchase and own the appropriate class of shares of the Fund. Any
amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. The Plans also impose a cap on the total sales
charges, including asset-based sales charges that may be paid by the respective
classes. During the six months ended June 30, 1998, the Class A, Class B and
Class C shares paid AIM Distributors $448,795, $719,068 and $28,027,
respectively, as compensation under the Plans.
AIM Distributors received commissions of $166,611 from sales of the Class A
shares of the Fund during the six months ended June 30, 1998. Such commissions
are not an expense of the Fund. They are deducted from, and are not included in,
the proceeds from sales of Class A shares. During the six months ended June 30,
1998, AIM Distributors received $65,064 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 six months ended June 30, 1998, the Fund paid legal fees of $1,663
for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3-INDIRECT EXPENSES
During the six months ended June 30, 1998, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) and reductions in custodian
fees of $3,077 and $1,740, respectively, under expense offset arrangements. The
effect of the above arrangements resulted in a reduction of the Fund's total
expenses of $4,817 during the six months ended June 30, 1998.
NOTE 4-TRUSTEES' FEES
Trustees' fees represent remuneration paid or accrued to each trustee who is not
an "interested person" of AIM. The Trust may invest trustees' fees, if so
elected by a trustee, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $1,000,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. Interest on
borrowings under the line of credit is payable on maturity or prepayment date.
Prior to an amendment of the line of credit on May 1, 1998, the Fund was limited
to borrowing up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. During the six months ended June 30, 1998, the Fund
did not borrow under the line of credit agreement. The funds which are parties
to the line of credit are charged a commitment fee of 0.05% on the unused
balance of the committed line. The commitment fee is allocated among such funds
based on their respective average net assets for the period.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the six months ended June 30, 1998 was
$171,982,776 and $92,094,456, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of June 30, 1998 was as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $33,628,278
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (8,278,947)
- -----------------------------------------------------------
Net unrealized appreciation of investment
securities $25,349,331
===========================================================
Investments have the same cost for tax and financial
statement purposes.
</TABLE>
14
<PAGE> 17
NOTE 7-SHARE INFORMATION
Changes in shares outstanding during the six months ended June 30, 1998 and the
year ended December 31, 1997 were as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- ------------
<S> <C> <C> <C> <C>
Sold:
Class A 7,984,005 $69,142,253 12,161,983 $101,688,372
- ------------------------------------------------------------ -------------------------------------------------
Class B 5,540,896 47,916,260 6,428,479 53,514,758
- ------------------------------------------------------------ -------------------------------------------------
Class C* 1,011,148 8,731,369 309,134 2,628,227
- ------------------------------------------------------------ -------------------------------------------------
Issued as reinvestment of dividends:
Class A 1,087,227 9,424,620 1,967,802 16,363,229
- ------------------------------------------------------------ -------------------------------------------------
Class B 336,571 2,912,636 490,120 4,073,672
- ------------------------------------------------------------ -------------------------------------------------
Class C* 13,751 118,838 1,676 14,278
- ------------------------------------------------------------ -------------------------------------------------
Reacquired:
Class A (5,646,003) (48,930,433) (9,099,096) (75,595,705)
- ------------------------------------------------------------ -------------------------------------------------
Class B (1,732,120) (14,979,270) (2,573,466) (21,303,555)
- ------------------------------------------------------------ -------------------------------------------------
Class C* (197,567) (1,709,005) (12,110) (103,264)
- ------------------------------------------------------------ -------------------------------------------------
8,397,908 $72,627,268 9,674,522 $81,280,012
============================================================ =================================================
</TABLE>
* Class C shares commenced sales on August 4, 1997.
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A outstanding
during the six months ended June 30, 1998 and each of the years in the five-year
period ended December 31, 1997; for a share of Class B outstanding during the
six months ended June 30, 1998, each of the years in the four-year period ended
December 31, 1997 and the period September 7, 1993 (date sales commenced)
through December 31, 1993; and for a share of Class C outstanding during the six
months ended June 30, 1998 and the period August 4, 1997 (date sales commenced)
through December 31, 1997.
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------
DECEMBER 31,
JUNE 30, ----------------------------------------------------
1998 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.57 $ 8.24 $ 8.17 $ 7.20 $ 8.45 $ 8.03
- ------------------------------------------------------------ -------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.29(a) 0.55 0.57 0.58 0.58 0.60
- ------------------------------------------------------------ -------- -------- -------- -------- -------- --------
Net gains (losses) on securities (both realized and
unrealized) 0.09 0.39 0.09 1.00 (1.22) 0.61
- ------------------------------------------------------------ -------- -------- -------- -------- -------- --------
Total from investment operations 0.38 0.94 0.66 1.58 (0.64) 1.21
- ------------------------------------------------------------ -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.28) (0.52) (0.59) (0.61) (0.49) (0.60)
- ------------------------------------------------------------ -------- -------- -------- -------- -------- --------
Distributions from net realized gains -- (0.09) -- -- (0.01) (0.19)
- ------------------------------------------------------------ -------- -------- -------- -------- -------- --------
Return of capital -- -- -- -- (0.11) --
- ------------------------------------------------------------ -------- -------- -------- -------- -------- --------
Total distributions (0.28) (0.61) (0.59) (0.61) (0.61) (0.79)
- ------------------------------------------------------------ -------- -------- -------- -------- -------- --------
Net asset value, end of period $ 8.67 $ 8.57 $ 8.24 $ 8.17 $ 7.20 $ 8.45
============================================================ ======== ======== ======== ======== ======== ========
Total return(b) 4.43% 11.92% 8.58% 22.77% (7.65)% 15.38%
============================================================ ======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $374,140 $340,608 $286,183 $251,280 $201,677 $244,168
============================================================ ======== ======== ======== ======== ======== ========
Ratio of expenses to average net assets 0.91%(c) 0.94% 0.98% 0.98% 0.98% 0.98%
============================================================ ======== ======== ======== ======== ======== ========
Ratio of net investment income to average net assets 6.73%(c) 6.55% 7.13% 7.52% 7.53% 7.01%
============================================================ ======== ======== ======== ======== ======== ========
Portfolio turnover rate 18% 54% 80% 227% 185% 99%
============================================================ ======== ======== ======== ======== ======== ========
</TABLE>
(a) Calculated using average shares outstanding
(b) Does not deduct sales charges and is not annualized for periods less than
one year.
(c) Ratios are annualized and based on average net assets of $362,011,602.
15
<PAGE> 18
NOTE 8-FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
CLASS B CLASS C
------------------------------------------------------------------ ------------------------
DECEMBER 31,
JUNE 30, ---------------------------------------------------- JUNE 30, DECEMBER 31,
1998 1997 1996 1995 1994 1993 1998 1997
-------- -------- ------- ------- ------- ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 8.55 $ 8.23 $ 8.15 $ 7.18 $ 8.43 $ 8.95 $ 8.54 $ 8.38
- -------------------------------- -------- -------- ------- ------- ------- ------- ------ -------
Income from investment
operations:
Net investment income 0.26(a) 0.48 0.50 0.53 0.52 0.19 0.26(a) 0.19
- -------------------------------- -------- -------- ------- ------- ------- ------- ------ -------
Net gains (losses) on
securities (both realized and
unrealized) 0.08 0.38 0.11 0.98 (1.23) (0.34) 0.08 0.22
- -------------------------------- -------- -------- ------- ------- ------- ------- ------ -------
Total from investment
operations 0.34 0.86 0.61 1.51 (0.71) (0.15) 0.34 0.41
- -------------------------------- -------- -------- ------- ------- ------- ------- ------ -------
Less distributions:
Dividends from net investment
income (0.24) (0.45) (0.53) (0.54) (0.42) (0.18) (0.24) (0.16)
- -------------------------------- -------- -------- ------- ------- ------- ------- ------ -------
Distributions from net realized
gains -- (0.09) -- -- (0.01) (0.19) -- (0.09)
- -------------------------------- -------- -------- ------- ------- ------- ------- ------ -------
Return of capital -- -- -- -- (0.11) -- -- --
- -------------------------------- -------- -------- ------- ------- ------- ------- ------ -------
Total distributions (0.24) (0.54) (0.53) (0.54) (0.54) (0.37) (0.24) (0.25)
- -------------------------------- -------- -------- ------- ------- ------- ------- ------ -------
Net asset value, end of period $ 8.65 $ 8.55 $ 8.23 $ 8.15 $ 7.18 $ 8.43 $ 8.64 $ 8.54
================================ ======== ======== ======= ======= ======= ======= ====== =======
Total return(b) 4.01% 10.89% 7.87% 21.72% (8.46)% (0.75)% 4.01% 4.96%
================================ ======== ======== ======= ======= ======= ======= ====== =======
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $163,191 $125,871 $85,343 $44,304 $12,321 $ 3,602 $9,726 $ 2,552
================================ ======== ======== ======= ======= ======= ======= ====== =======
Ratio of expenses to average net
assets 1.66%(c) 1.69% 1.80% 1.79% 1.83%(d) 1.75%(d)(e) 1.66%(c) 1.69%(e)
================================ ======== ======== ======= ======= ======= ======= ====== =======
Ratio of net investment income
to average net assets 5.97%(c) 5.80% 6.30% 6.71% 6.69%(d) 6.24%(e)(f) 5.97%(c) 5.80%(e)
================================ ======== ======== ======= ======= ======= ======= ====== =======
Portfolio turnover rate 18% 54% 80% 227% 185% 99% 18% 54%
================================ ======== ======== ======= ======= ======= ======= ====== =======
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(c) Ratios are annualized and based on average net assets of $145,005,371 and
$5,651,781 for Class B and Class C, respectively.
(d) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
2.04% and 2.50% (annualized) for 1994 and 1993, respectively.
(e) Annualized.
(f) 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 6.48% and 5.49% (annualized) for 1994 and 1993,
respectively.
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 Chairman Suite 100
A I M Management Group Inc. Houston, TX 77046
Robert H. Graham
Bruce L. Crockett President INVESTMENT ADVISOR
Director
ACE Limited; John J. Arthur A I M Advisors, Inc.
Formerly Director, President, and Senior Vice President and Treasurer 11 Greenway Plaza
Chief Executive Officer Suite 100
COMSAT Corporation Carol F. Relihan Houston, TX 77046
Senior Vice President and Secretary
Owen Daly II TRANSFER AGENT
Director Gary T. Crum
Cortland Trust Inc. Senior Vice President A I M Fund Services, Inc.
P.O. Box 4739
Edward K. Dunn Jr. Dana R. Sutton Houston, TX 77210-4739
Chairman, Mercantile Mortgage Corp.; Vice President and Assistant Treasurer
Formerly Vice Chairman and President, CUSTODIAN
Mercantile-Safe Deposit & Trust Co.; and Robert G. Alley
President, Mercantile Bankshares Vice President State Street Bank and Trust Company
225 Franklin Street
Jack Fields Stuart W. Coco Boston, MA 02110
Chief Executive Officer Vice President
Texana Global, Inc.; COUNSEL TO THE FUND
Formerly Member Melville B. Cox
of the U.S. House of Representatives Vice President Ballard Spahr
Andrews & Ingersoll, LLP
Carl Frischling Karen Dunn Kelley 1735 Market Street
Partner Vice President Philadelphia, PA 19103
Kramer, Levin, Naftalis & Frankel
Jonathan C. Schoolar COUNSEL TO THE TRUSTEES
Robert H. Graham Vice President
President and Chief Executive Officer Kramer, Levin, Naftalis & Frankel
A I M Management Group Inc. Renee A. Friedli 919 Third Avenue
Assistant Secretary New York, NY 10022
Lewis F. Pennock
Attorney P. Michelle Grace DISTRIBUTOR
Assistant Secretary
Ian W. Robinson A I M Distributors, Inc.
Consultant; Formerly Executive Jeffrey H. Kupor 11 Greenway Plaza
Vice President and Assistant Secretary Suite 100
Chief Financial Officer Houston, TX 77046
Bell Atlantic Management Nancy L. Martin
Services, Inc. Assistant Secretary
Louis S. Sklar Ofelia M. Mayo
Executive Vice President Assistant Secretary
Hines Interests
Limited Partnership Lisa A. Moss
Assistant Secretary
Kathleen J. Pflueger
Assistant Secretary
Samuel D. Sirko
Assistant Secretary
Stephen I. Winer
Assistant Secretary
Mary J. Benson
Assistant Treasurer
</TABLE>
<PAGE> 20
THE AIM FAMILY OF FUNDS--Registered Trademark--
<TABLE>
<S> <C> <C>
Growth Funds International Growth Funds
AIM Aggressive Growth Fund1 AIM Advisor International Value Fund
AIM Blue Chip Fund AIM Asian Growth Fund
AIM Capital Development Fund AIM Developing Markets Fund2
AIM Constellation Fund AIM Emerging Markets Fund2
AIM Mid Cap Growth Fund2 AIM Europe Growth Fund2
AIM Select Growth Fund3 AIM European Development Fund
[PHOTO OF AIM Small Cap Equity Fund2 AIM International Equity Fund
11 GREENWAY PLAZA AIM Small Cap Opportunities Fund AIM International Growth Fund2
APPEARS HERE] AIM Value Fund AIM Weingarten Fund AIM Japan Growth Fund2
AIM Latin American Growth Fund2
Growth & Income Funds AIM New Pacific Growth Fund2
AIM Advisor Flex Fund Global Growth Funds
AIM Advisor Large Cap Value Fund
AIM Advisor MultiFlex Fund AIM Global Aggressive Growth Fund
AIM Advisor Real Estate Fund AIM Global Growth Fund
AIM America Value Fund2 AIM Worldwide Growth Fund2
AIM Balanced Fund
AIM Charter Fund Global Growth & Income Funds
Income Funds AIM Global Growth & Income Fund2
AIM Global Utilities Fund
AIM Floating Rate Fund2
AIM High Yield Fund Global Income Funds
AIM Income Fund
AIM Intermediate Government Fund AIM Global Government Income Fund2
AIM Limited Maturity Treasury Fund AIM Global High Income Fund2
AIM Global Income Fund
Tax-Free Income Funds AIM Strategic Income Fund2
AIM High Income Municipal Fund Theme Funds
AIM Municipal Bond Fund
AIM Tax-Exempt Bond Fund of Connecticut AIM Global Consumer Products and Services Fund2
AIM Tax-Free Intermediate Fund AIM Global Financial Services Fund2
AIM Global Health Care Fund2
Money Market Funds AIM Global Infrastructure Fund2
AIM Global Resources Fund2
AIM Dollar Fund2 AIM Global Telecommunications Fund2
AIM Money Market Fund AIM New Dimension Fund2
AIM Tax-Exempt Cash Fund
</TABLE>
(1) AIM Aggressive Growth Fund was closed to new investors on June 5, 1997.
(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. 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.
A I M Management Group Inc. has provided leadership in the mutual fund industry
since 1976 and managed approximately $101 billion in assets for more than 5.2
million shareholders, including individual investors, corporate clients, and
financial institutions, as of June 30, 1998. The AIM Family of Funds--Registered
Trademark-- is distributed nationwide, and AIM today is the ninth-largest mutual
fund complex in the U.S. in assets under management, according to Strategic
Insight, an independent mutual fund monitor.
INVEST WITH DISCIPLINE(SM)
