<PAGE> 1
[COVER IMAGE]
AIM
STRATEGIC INCOME FUND
[AIM LOGO APPEARS HERE] SEMIANNUAL REPORT APRIL 30 1999
<PAGE> 2
[COVER IMAGE]
-------------------------------------
THE CHESS GAME BY ALICE KENT STODDARD
CHESS IS LARGELY VIEWED AS A GAME OF STRATEGY, WHERE PLANNING
THE MOVES OF EACH PIECE ON THE BOARD LEADS TO THE ULTIMATE
GOAL OF WINNING THE GAME. LIKE A THOUGHTFUL CHESS PLAYER, THIS
FUND'S MANAGEMENT TEAM CAREFULLY WEIGHS ITS OPTIONS AND
CHOOSES SECURITIES FOR THE PORTFOLIO THAT WILL HELP THE FUND
REACH ITS OBJECTIVE.
-------------------------------------
AIM Strategic Income Fund is for shareholders who seek high current income and,
secondarily, growth of capital by investing mainly in debt securities of issuers
in the United States, developed foreign countries and emerging markets.
ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT:
o AIM Strategic Income Fund (formerly GT Global Strategic Income Fund)
performance figures are historical and reflect reinvestment of all
distributions and changes in net asset value.
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, Class C and Advisor Class shares will
differ from that of Class A shares due to differences in sales charge
structure and expenses.
o Because Class C shares have been offered for less than one year (since
3/1/99), all total return figures for Class C shares reflect cumulative
total return that has not been annualized.
o Beginning March 1, 1999, Advisor Class shares were closed to new investors.
o The Fund's average annual total returns, including sales charges, for
periods ended 3/31/99 (the most recent calendar quarter end), are as
follows: For Class A shares, one year, -10.41%; five years, 6.30%; 10 years,
8.59%; since inception (3/29/88), 7.71%. For Class B shares, one year,
-10.98%; five years, 6.35%; since inception (10/22/92), 7.59%. Class C
shares produced a cumulative total return of -0.03% from their inception
(3/1/99) through 3/31/99. For Advisor Class shares, one year, -5.44%; since
inception (6/1/95), 9.08%.
o The Fund's investment return and principal value will fluctuate, so an
investor's shares, when redeemed, may be worth more or less than their
original cost.
o The 30-day yield is calculated on the basis of a formula defined by the
Securities and Exchange Commission (SEC). The formula is based on the
portfolio's potential earnings from dividends, interest, yield-to-maturity
or annualized basis.
o International investing presents certain risks not associated with investing
solely in the United States. These include risks relating to fluctuations in
the value of the U.S. dollar relative to the values 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 Higher-yielding, lower-rated corporate bonds, commonly known as "junk
bonds," have a greater risk of price fluctuation and loss of principal and
income than U.S. Treasury securities, which offer a government guarantee as
to the repayment of principal and interest if held to maturity. Purchasers
should carefully assess the risks associated with an investment in this
Fund.
o Government securities, such as U.S. Treasury bills, notes, and bonds, offer
a high degree of safety and are guaranteed as to the timely payment of
principal and interest if held to maturity. Fund shares are not insured and
their value and yield will vary with market conditions.
ABOUT INDEXES AND OTHER PERFORMANCE BENCHMARKS CITED IN THIS REPORT:
o The J.P. Morgan Global Government Bond Index is a market value-weighted
average of government bonds from 13 major bond markets. It includes the
effect of reinvested coupons and is measured in U.S. dollars.
o An investment cannot be made in any index listed. Unless otherwise
indicated, index results include reinvested dividends and do not reflect
sales charges.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OF A BANK AND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENT AGENCY. THERE IS A RISK THAT YOU COULD
LOSE SOME OR ALL OF YOUR MONEY.
This report may be distributed only to current shareholders or to persons
who have received a current prospectus of the Fund.
AIM STRATEGIC INCOME FUND
<PAGE> 3
SEMIANNUAL REPORT / CHAIRMAN'S LETTER
Dear Fellow Shareholder:
With only several months remaining in 1999, the question on
[PHOTO OF many of your minds may be, "How will the year 2000 computer
Charles T. issue affect AIM and my investments?" We would like you to
Bauer, feel comfortable.
Chairman of During March and April, AIM participated in an
the Board of industrywide test that gave us a chance to see how our
THE FUND technology systems might be affected by the changeover to
APPEARS HERE] the year 2000 (Y2K). Everything went as well as we had
hoped; in general, the industry sailed through the testing
process with flying colors. The financial industry has been
seen as a leader in planning for year 2000 concerns. Thus,
it was no surprise to most participants that the test was an
overwhelming success.
The general purpose of the process was to test
electronic interfaces among financial industry members in
the United States and to follow transactions through a
typical trading cycle--from order entry to the settlement process. Investment
banks, broker-dealers, custodian banks and mutual fund companies all worked
together to make this possible. Approximately 400 firms were involved in the
testing; AIM was one of 70 asset managers.
TEST RESULTS EXCELLENT
During the testing process, thousands of transactions were submitted and
approximately 260,000 steps were tested. Of those, only a handful experienced
minor glitches--just 0.02% of the total number of transactions. All problems
were worked through quickly before the hypothetical trades were settled. Of
course, AIM will keep testing and planning throughout 1999 as a precaution.
AIM'S INTERNAL EFFORTS CONTINUE
As you know from our previous communications to you, AIM has been addressing the
year 2000 issue for several years. During 1998, we made substantial progress on
our preparations. We are now in the final phases of the project, continually
testing internal applications and our interfaces with outside parties. On the
investment side, our portfolio management staff is evaluating the Y2K
preparedness of the companies in which we invest.
We feel that our preparations for 2000 are very comprehensive, and the
industrywide testing showed that our colleagues in the financial industry are
also working hard to be ready for the new year. We do not think shareholders
need to take any extraordinary measures with their investments to prepare for
2000. However, if you have any lingering concerns, it may reassure you to know
that AIM is finalizing contingency plans that will be ready if there are
unexpected problems. Our plans will give AIM employees guidelines to follow for
a wide variety of situations.
For a more comprehensive discussion of our Y2K efforts and for periodic
updates, please visit our Web site, www.aimfunds.com.
We are pleased to send you this report covering your fund's performance over
the last six months. If you have any questions or comments, please contact our
Client Services department at 800-959-4246, or e-mail your inquiry to us at
[email protected]. You can access information about your account through our
AIM Investor Line at 800-246-5463 or at our Web site.
Thank you for your continued participation in The AIM Family of Funds
- --Registered Trademark--. We appreciate your business.
Sincerely,
/s/ CHARLES T. BAUER
Charles T. Bauer
Chairman
A I M Advisors, Inc.
PLEASE NOTE THAT THE INFORMATION ABOUT THE YEAR 2000 IN THIS LETTER IS DEEMED
AIM'S YEAR 2000 READINESS DISCLOSURE.
-------------------------------------
THE FINANCIAL INDUSTRY
HAS BEEN SEEN AS A
LEADER IN PLANNING FOR
YEAR 2000 CONCERNS.
-------------------------------------
AIM STRATEGIC INCOME FUND
<PAGE> 4
SEMIANNUAL REPORT / MANAGERS' OVERVIEW
BOND MARKETS TAKE AN UPWARD TURN
PORTFOLIO COMPOSITION
As of 4/30/99, based on total net assets
================================================================================
GEOGRAPHIC ALLOCATION
- --------------------------------------------------------------------------------
Africa 1.69%
Europe 8.76%
Latin America 11.61%
Asia-Pacific 1.69%
Middle East 0.73%
North America & Other 75.52%
The Fund's portfolio is subject to change, and there is no assurance that the
Fund will continue to hold any particular security.
================================================================================
BOND MARKETS HAVE SHIFTED SIGNIFICANTLY SINCE YOUR LAST REPORT. HOW DID AIM
STRATEGIC INCOME FUND PERFORM?
Last year's record market volatility has receded, allowing non-investment grade
and corporate bonds to make a bit of a comeback, which has helped the Fund.
For the six months ended April 30, 1999, Class A shares of the Fund had a
total return of 3.63% and Class B shares had a total return of 3.27%, excluding
sales charges. Advisor Class shares finished the reporting period with a return
of 3.91%. Comparatively, the J.P. Morgan Global Government Bond Index had a
return of -3.22% for the reporting period.
Class C shares of the Fund, which commenced sales on March 1, 1999, had a
cumulative total return of 2.42% since that date, excluding sales charges.
The Fund's 30-day SEC yield at net asset value was 5.37% for Class A shares,
5.00% for Class B and Class C shares, and 5.95% for Advisor Class shares.
HOW HAS THE MARKET ENVIRONMENT CHANGED SINCE YOUR LAST REPORT?
Global markets rebounded in late 1998 largely due to a global credit easing
initiated by the Federal Reserve Board's (the Fed) rate cuts in the United
States. The Fed's moves helped buoy financial markets and halt the downward
spiral that started in Asia and gave emerging markets-and the global financial
system-a big scare last summer.
The United States continues to see strong economic growth, stable prices for
goods and services, record low unemployment and stable lending rates. The U.S.
economy grew at a rate of 4.5% during the first quarter of 1999, with inflation
below 1%. In his semiannual report on monetary policy and the economy, Fed
Chairman Alan Greenspan said the Fed would need to re-evaluate the interest-rate
situation now that some stability has returned to world financial markets.
WHAT HAS BEEN HAPPENING IN BOND MARKETS?
High-yield bond funds ended 1998 as one of the worst-performing bond categories
for the year, finishing up 3.70%, while 30-year U.S. Treasuries were up 20.10%,
their best performance since 1995. This difference can largely be attributed to
last year's "flight to quality" environment. During the first quarter of 1999,
however, high-yield bonds outperformed Treasury securities.
The U.S. corporate bond market has been flooded with new issues so far in
1999, a big change from last year when demand fell sharply during the markets'
decline. From January 1 through March 25, approximately $105 billion in new
investment-grade issues entered the market, drawing some investors away from
Treasuries.
The booming U.S. economy and fears of an eventual Fed rate hike sent
Treasury yields soaring in February-the worst month for Treasury securities
since 1980. Two- to 30-year Treasury securities posted their
largest monthly losses since that time, based on indications that the
economic slowdown analysts have been predicting is not imminent, along with
fears of impending inflation.
WHAT ABOUT MARKETS OVERSEAS?
In recent weeks, investors have been migrating back to emerging-markets and
corporate bonds in search of higher yields. Emerging markets debt securities
enjoyed a strong rally from early March to the end of April. The relative calm
in Brazil was largely responsible for driving the market higher when it appeared
that country would not be heading into a debt crisis, at least for the
foreseeable future.
Elsewhere in Latin America, Mexico has continued to perform well, partly
because of its tight commercial and investment ties with the strong U.S. econ-
See important Fund and index disclosures inside front cover.
-------------------------------------
THE UNITED STATES CONTINUES TO SEE
STRONG ECONOMIC GROWTH, STABLE
PRICES FOR GOODS AND SERVICES,
RECORD LOW UNEMPLOYMENT AND STABLE
LENDING RATES.
-------------------------------------
AIM STRATEGIC INCOME FUND
2
<PAGE> 5
SEMIANNUAL REPORT / MANAGERS' OVERVIEW
RESULTS OF A $10,000 INVESTMENT
3/29/88-4/30/99, based on average annual total returns
- --------------------------------------------------------------------------------
AIM Strategic Income Class A Shares
- --------------------------------------------------------------------------------
3/29/88 $10,000
4/88 9,542
4/89 9,630
4/90 10,103
4/91 11,597
4/92 12,401
4/93 15,096
4/94 15,603
4/95 15,743
4/96 18,579
4/97 21,717
4/98 24,219
4/99 22,887
================================================================================
Past performance cannot guarantee future results.
================================================================================
AVERAGE ANNUAL TOTAL RETURNS
As of 4/30/99, including sales charges
CLASS A SHARES
Inception (3/29/88) 7.75%
10 years 8.51
5 years 6.93
1 year -9.97
CLASS B SHARES
Inception (10/22/92) 7.66%
5 years 6.95
1 year -10.54
CLASS C SHARES
Inception (3/1/99) 1.42%*
ADVISOR CLASS SHARES**
Inception (6/1/95) 9.19%
1 year -4.97
*Total return provided is cumulative total return that has not been annualized.
**Beginning March 1, 1999, Advisor Class shares were closed to new investors.
================================================================================
omy. Argentina has been helped by Brazil's steps toward recovery but still needs
to deal with its own deepening recession. A commodities rebound fueled by
oil-production cutbacks has also helped the economies of such oil republics as
Venezuela and Ecuador.
The International Monetary Fund (IMF) believes the world financial crisis
may be over and is discussing ways to relieve the crushing debt burdens being
carried by some of the world's poorest countries. Asian markets have rallied in
recent weeks, buoyed by continued good economic news and signs that interest in
buying Asian stocks could be spreading. However, Russia continues to struggle
with its financial difficulties and is currently working with the IMF to
finalize its next loan package.
WHAT HAS BEEN HAPPENING IN EUROPE?
The debut of Europe's new common currency, the euro, at the beginning of 1999
went smoothly. However, the euro has not gained much ground since its issuance
and continues to trail the U.S. dollar. The conflict in Kosovo has certainly not
helped. Europe has been enveloped in an economic malaise-the European Central
Bank (ECB) seems to be divided on the cause of and cure for Europe's slump. The
ECB cut the euro-zone discount interest rate on April 8, and inflation is low in
the region, which has been a good environment for corporate bonds. But
economists are concerned about Europe's economic outlook because of widely
varying growth rates among the euro-zone countries.
WHAT HAVE YOU BEEN DOING TO IMPROVE THE FUND'S PERFORMANCE?
The Fund's performance continues to be dragged down by last year's large
emerging-markets component. We have been decreasing the Fund's
emerging-markets-debt exposure and have kept the weighting down around 15%, an
all-time low for the Fund. Since our last report, we have greatly increased our
corporate debt holdings because of greater demand for and improved performance
of those securities.
Also since our last report, we have increased the Fund's high-yield holdings
from 16% to 25% of the portfolio because of improved market sentiment and
attractive valuations for those bonds. This increase was largely responsible for
the Fund's improved performance for the first quarter of 1999 and changed the
Fund's average quality rating from A+ to A-. We have also increased the
allowable weighting of high-yield holdings from 50% to 65% and added a
capability to invest up to 35% of the Fund in equities.
WHAT IS YOUR OUTLOOK FOR THE SHORT TERM?
If inflation and interest rates remain low, high-yield and emerging-markets debt
should continue to benefit. But there is still worry among some analysts that
last year's interest rate cuts will inevitably lead to rising inflation in the
United States, which might prompt the Fed to raise interest rates. Bond traders
are also worried that rising crude-oil prices, up nearly 40% since mid-February,
could spark inflation.
We believe the U.S. economy will remain robust but slow from its recent
exceptional performance. Inflation should be kept at bay, and therefore the Fed
will likely hold its course on interest rates. This should be beneficial for
both high-yield and emerging-markets bonds, and as opportunities present
themselves, we will increase the portfolio's holdings in these two bond sectors.
Your Fund's total return includes sales charges, expenses and management fees.
The performance of the Fund's Class B, Class C and Advisor Class shares will
differ from Class A shares due to differing fees and expenses. For Fund data
performance calculations, please refer to the inside front cover.
MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE. RESULTS OF AN
INVESTMENT MADE TODAY MAY DIFFER SUBSTANTIALLY FROM THE HISTORICAL PERFORMANCE
SHOWN.
See important Fund and index disclosures inside front cover.
AIM STRATEGIC INCOME FUND
3
<PAGE> 6
SCHEDULE OF INVESTMENTS
April 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT(a) VALUE
<S> <C> <C>
U.S. DOLLAR DENOMINATED
NON-CONVERTIBLE BONDS & NOTES-53.93%
AIRLINES-0.51%
Northwest Airlines Corp., Unsec.
Gtd. Notes, 8.70%, 03/15/07 $ 1,250,000 $ 1,220,525
- --------------------------------------------------------------
AUTO PARTS & EQUIPMENT-1.03%
American Axle & Manufacturing
Inc., Sr. Sub. Notes, 9.75%,
03/01/09(b) 1,750,000 1,824,375
- --------------------------------------------------------------
Delco Remy International Inc., Sr.
Notes, 8.625%, 12/15/07 650,000 666,250
- --------------------------------------------------------------
2,490,625
- --------------------------------------------------------------
BANKS (MONEY CENTER)-4.21%
Bank Nationale de Paris, Range
Notes, 3.00%, 02/28/00(k) 4,900,000 4,856,390
- --------------------------------------------------------------
Bayerische Landesbank
Girozentrale, Unsec. Sub. Notes,
5.875%, 12/01/08 2,080,000 2,012,856
- --------------------------------------------------------------
Chase Manhattan Corp., Unsec. Sub.
Notes, 6.25%, 01/15/06 2,835,000 2,800,353
- --------------------------------------------------------------
Korea Development Bank (Korea),
Bonds, 7.125%, 04/22/04 522,000 515,467
- --------------------------------------------------------------
10,185,066
- --------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE)-5.63%
Allbritton Communication, Sr. Sub.
Notes, 8.875%, 02/01/08 885,000 911,550
- --------------------------------------------------------------
Chancellor Media Corp., Sr. Unsec.
Sub. Notes, 8.125%, 12/15/07 1,300,000 1,322,750
- --------------------------------------------------------------
Charter Communications Holdings
LLC, Sr. Notes, 8.625%,
04/01/09(b) 2,075,000 2,137,250
- --------------------------------------------------------------
Comcast Cable Communications,
Unsec. Unsub. Notes, 6.20%,
11/15/08 4,200,000 4,102,938
- --------------------------------------------------------------
Comcast Cellular Holdings, Sr.
Unsec. Notes, 9.50%, 05/01/07 1,500,000 1,698,750
- --------------------------------------------------------------
Lenfest Communications, Sr. Sub.
Unsec. Notes, 8.25%, 02/15/08 1,850,000 1,947,125
- --------------------------------------------------------------
Lin Television Corp., Sr. Unsec.
Gtd. Notes, 8.375%, 03/01/08 1,500,000 1,492,500
- --------------------------------------------------------------
13,612,863
- --------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-1.41%
Unisys Corp., Sr. Notes, 7.875%,
04/01/08 2,350,000 2,479,250
- --------------------------------------------------------------
Viasystems Inc., Sr. Sub Unsec.
Notes, 9.75%, 06/01/07 1,000,000 935,000
- --------------------------------------------------------------
3,414,250
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT(a) VALUE
<S> <C> <C>
CONSUMER FINANCE-1.56%
Americredit Corp., Sr. Notes,
9.875%, 04/15/06(b) $ 1,000,000 $ 1,020,000
- --------------------------------------------------------------
General Motors Acceptance Corp.,
Unsec. Notes, 6.625%, 10/15/05 2,700,000 2,757,321
- --------------------------------------------------------------
3,777,321
- --------------------------------------------------------------
CONTAINERS & PACKAGING-1.11%
Graham Packaging, Sr. Unsec. Gtd.
Sub., 8.75%, 01/15/08 1,725,000 1,755,188
- --------------------------------------------------------------
Norampac Inc., Sr. Notes, 9.50%,
02/01/08 885,000 940,313
- --------------------------------------------------------------
2,695,501
- --------------------------------------------------------------
COSMETICS & TOILETRIES-0.48%
Drypers Corp., Sr. Notes, 10.25%,
06/15/07 1,300,000 1,150,500
- --------------------------------------------------------------
ENTERTAINMENT-0.42%
Lowes Cineplex Entertainment, Sr.
Unsec. Sub Notes, 8.875%,
08/01/08 1,000,000 1,007,500
- --------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH)-0.12%
Grupo Azucarero Mexico (Mexico),
Sr. Unsec. Notes, 11.50%,
01/15/05 650,000 281,125
- --------------------------------------------------------------
FOODS-1.75%
Eagle Family Foods, Unsec. Gtd.
Notes, 8.75%, 01/15/08 1,875,000 1,762,500
- --------------------------------------------------------------
International Home Foods, Inc.,
Sr. Gtd. Sub. Notes, 10.375%,
11/01/06 750,000 818,438
- --------------------------------------------------------------
Smithfield Foods Inc., Sr. Unsec.
Sub Notes, 7.625%, 02/15/08 1,725,000 1,664,625
- --------------------------------------------------------------
4,245,563
- --------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL COMPANIES-3.17%
Circus Circus Enterprises, Sr.
Sub. Notes, 9.25%, 12/01/05 1,250,000 1,310,650
- --------------------------------------------------------------
Hollywood Casino Corp., Sr. Sec.
Gtd. Notes, 12.75%, 11/01/03(b) 1,700,000 1,870,000
- --------------------------------------------------------------
Hollywood Park Inc., Sr. Sub.
Notes, 9.25%, 02/15/07(b) 750,000 778,125
- --------------------------------------------------------------
Isle of Capri Casinos, Sr. Sub.
Notes, 8.75%, 04/15/09(b) 2,075,000 2,080,188
- --------------------------------------------------------------
Park Place Entertainment, Sr.
Unsec. Sub. Notes, 7.875%,
12/15/05 725,000 715,938
- --------------------------------------------------------------
Penn National Gaming Inc., Sr.
Unsec. Gtd. Notes, 10.625%,
12/15/04 875,000 914,375
- --------------------------------------------------------------
7,669,276
- --------------------------------------------------------------
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT(a) VALUE
<S> <C> <C>
HEALTH CARE (HOSPITAL MANAGEMENT)-1.16%
Chattem Inc., Sr. Unsec. Gtd. Sub.
Notes, 8.875%, 04/01/08 $ 1,500,000 $ 1,526,250
- --------------------------------------------------------------
Magellan Health Services, Sr.
Unsec. Sub. Notes, 9.00%,
02/15/08 1,500,000 1,275,000
- --------------------------------------------------------------
2,801,250
- --------------------------------------------------------------
HOMEBUILDING-1.41%
Engle Homes Inc., Sr. Unsec. Gtd.
Sub. Notes, 9.25%, 02/01/08 2,350,000 2,344,125
- --------------------------------------------------------------
Psinet Inc., Sr. Unsec. Notes,
10.00%, 02/15/05 1,000,000 1,060,000
- --------------------------------------------------------------
3,404,125
- --------------------------------------------------------------
HOUSEWARES-0.55%
Salton Inc., Sr. Unsec. Gtd. Sub.
Notes, 10.75%, 12/15/05 725,000 765,781
- --------------------------------------------------------------
Syratech Corp., Sr. Unsec. Gtd.
Notes, 11.00%, 04/15/07 880,000 567,600
- --------------------------------------------------------------
1,333,381
- --------------------------------------------------------------
INDUSTRIAL-0.77%
Telecorp PCS Inc., Sr. Disc.
Notes, 11.625%, 04/15/09(b)(c) 3,250,000 1,852,500
- --------------------------------------------------------------
IRON & STEEL-0.04%
Acme Metal Inc., Sr. Unsec. Gtd.
Deb., 10.875%, 12/15/07(d) 825,000 103,125
- --------------------------------------------------------------
LEISURE TIME (PRODUCTS)-0.85%
Florida Panthers Holdings, Sr.
Sub. Notes, 9.875%, 04/15/09(b) 2,050,000 2,065,375
- --------------------------------------------------------------
LODGING-HOTELS-0.61%
Trump Atlantic City Associates,
Sec. First Mortgage Gtd. Notes,
11.25%, 05/01/06 1,700,000 1,487,500
- --------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-0.07%
Mechala Group (Jamaica), Series B
(Jamaica), Sr. Sec. Gtd. Bonds,
12.75%, 12/30/99 719,000 179,750
- --------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-1.66%
Fairchild Corp., Sr. Unsec. Sub.
Gtd. Notes, 10.75%, 04/15/09(b) 2,000,000 2,010,000
- --------------------------------------------------------------
Fairchild Semiconductor, Sr. Sub.
Notes, 10.375%, 10/01/07(b) 975,000 1,001,813
- --------------------------------------------------------------
Fisher Scientific International,
Sr. Unsec. Sub. Note, 9.00%,
02/01/08 1,000,000 1,005,000
- --------------------------------------------------------------
4,016,813
- --------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES-0.41%
United Stationers Supply, Sr. Gtd.
Sub. Notes, 8.375%, 04/15/08 1,000,000 1,002,500
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT(a) VALUE
<S> <C> <C>
OIL & GAS (EXPLORATION & PRODUCTION)-0.33%
Vintage Petroleum, Sr. Sub. Notes,
9.75%, 06/30/09(b) $ 750,000 $ 789,375
- --------------------------------------------------------------
OTHER-MISCELLANEOUS-0.20%
Allied Waste North America Inc.,
Sr. Unsec. Gtd. Series B. Notes,
7.875%, 01/01/09 500,000 490,000
- --------------------------------------------------------------
PHOTOGRAPHY/IMAGING-2.08%
Polariod Corp., Sr. Unsec. Notes,
11.50%, 02/15/06 850,000 892,500
- --------------------------------------------------------------
Xerox Corp., Notes, 5.50%,
11/15/03 4,200,000 4,138,932
- --------------------------------------------------------------
5,031,432
- --------------------------------------------------------------
RETAIL (DISCOUNTERS)-0.90%
Ames Department Stores, Sr. Notes,
10.00%, 04/15/06(b) 2,200,000 2,183,500
- --------------------------------------------------------------
RETAIL (DRUG STORES)-0.51%
Duane Reade Inc., Sr. Unsec. Gtd.
Sub. Notes, 9.25%, 02/15/08 1,185,000 1,241,288
- --------------------------------------------------------------
RETAIL (SPECIALTY APPAREL)-0.64%
Riddell Sports Inc., Sr. Unsec.
Gtd. Notes, 10.50%, 07/15/07 1,700,000 1,555,500
- --------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-1.58%
Aircraft Finance Trust, Sub. Bonds
Series 1999-1X, 8.00%, 05/15/24 1,500,000 1,499,063
- --------------------------------------------------------------
Iron Mountain Inc., Sr. Sub.
Bonds, 8.25%, 07/01/11 1,500,000 1,518,750
- --------------------------------------------------------------
Willis Corroon Corp., Sr. Sub.
Notes, 9.00%, 02/01/09(b) 800,000 814,000
- --------------------------------------------------------------
3,831,813
- --------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS)-0.65%
Rhythms Netconnections, Sr. Notes,
12.75%, 04/15/09 1,575,000 1,578,938
- --------------------------------------------------------------
SHIPPING-0.72%
Oglebay Norton Co., Sr. Sub.
Notes, 10.00% 02/01/09 1,750,000 1,732,500
- --------------------------------------------------------------
SOVEREIGN DEBT-14.92%
Algeria Tranche 1 Loan Assignment
(Algeria), Bonds, 6.00%,
09/04/06(b) 3,900,000 2,106,000
- --------------------------------------------------------------
Bank of Foreign Economic Affairs
(Vneshconombank) (Russia)
Interest in Arrears Notes,
5.968%, 12/15/15(e) 278,770 20,908
- --------------------------------------------------------------
Principal Loan 2.984%,
12/15/20(d)(e) 16,555,492 1,220,968
- --------------------------------------------------------------
Croatia (Croatia), Series A
Floating Rate Bonds, 5.812%,
07/31/10(e) 1,821,000 1,420,324
- --------------------------------------------------------------
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT(a) VALUE
<S> <C> <C>
SOVEREIGN DEBT-(CONTINUED)
Ecuador-Global Bearer (Equador),
PDI Bonds, 6.00%, 02/27/15(e) $ 612,316 $ 253,346
- --------------------------------------------------------------
Jordan (Jordan), Sec. Gtd Bonds,
5.50, 12/23/23(c) 1,436,000 883,854
- --------------------------------------------------------------
Republic of Argentina (Argentina)
Notes, 11.75%, 04/07/09 2,000,000 2,055,000
- --------------------------------------------------------------
Series L Sec. Gtd. Bonds, 6.00%,
03/31/23(c) 1,091,000 778,982
- --------------------------------------------------------------
Sr. Notes, 11.447%, 04/10/05 4,867,000 4,635,818
- --------------------------------------------------------------
Republic of Brazil
Bonds, 11.625%, 04/15/04 3,074,000 2,997,150
- --------------------------------------------------------------
Floating Rate Disc. Notes,
5.875%, 04/15/24(e) 7,237,000 4,822,635
- --------------------------------------------------------------
Series C Bonds, 8.00%, 04/15/14 5,391,287 3,766,224
- --------------------------------------------------------------
Republic of Bulgaria (Bulgaria),
Series A Sec. Disc. Bonds,
5.875%, 07/28/24 (e) 2,578,000 1,772,112
- --------------------------------------------------------------
Republic of Columbia (Columbia),
Bonds, 9.75%, 04/23/09 524,000 509,590
- --------------------------------------------------------------
Republic of Panama (Panama),
Bonds 8.875%, 09/30/27 613,000 582,343
- --------------------------------------------------------------
Bonds 9.375%, 04/01/29 630,000 650,475
- --------------------------------------------------------------
Republic of Peru (Peru), PDI
Bonds, 4.50%, 03/07/17(c) 371,000 250,497
- --------------------------------------------------------------
Republic of Turkey (Turkey),
Bonds, 12.00%, 12/15/08 858,000 872,475
- --------------------------------------------------------------
United Mexican States (Mexico),
Bonds, 10.375%, 02/17/09 2,963,000 3,181,521
- --------------------------------------------------------------
Venezuela (Venezuela)
FLIRB Series A. Deb., 6.00%
03/31/07(e) 1,333,326 1,045,265
- --------------------------------------------------------------
FLIRB Unsec.. Bonds, 9.25%,
09/15/27 3,210,000 2,272,593
- --------------------------------------------------------------
36,098,080
- --------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-1.33%
Level 3 Communications, Sr. Unsec.
Notes, 9.125%, 05/01/08 1,500,000 1,537,500
- --------------------------------------------------------------
Primus Telecom Group, Sr. Notes,
11.25%, 01/15/09(b) 1,600,000 1,672,000
- --------------------------------------------------------------
3,209,500
- --------------------------------------------------------------
TELEPHONE-0.82%
Intermedia Communication Inc., Sr.
Notes, 9.50%, 03/01/09(b) 1,900,000 1,985,500
- --------------------------------------------------------------
TEXTILES (HOME FURNISHINGS)-0.32%
Pillowtex Corp., Sr. Gtd. Sub.
Notes, 10.00%, 11/15/06 725,000 761,250
- --------------------------------------------------------------
Total U.S. Dollar Denominated
Non-Convertible Bonds & Notes
(cost $138,210,777) 130,485,110
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT(a) VALUE
<S> <C> <C>
U.S. DOLLAR DENOMINATED
CONVERTIBLE BONDS & NOTES-3.48%
MANUFACTURING (SPECIALIZED)-0.73%
U.S. Filter Corp., Conv. Sub.
Notes, 4.50%, 12/15/01 $ 1,799,000 $ 1,769,766
- --------------------------------------------------------------
RETAIL (DRUG STORES)-1.37%
Rite Aid Corp., Conv. Sub. Notes,
5.25%, 09/15/02 3,320,000 3,324,150
- --------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-0.71%
CUC International, Inc., Conv.
Sub. Notes, 3.00%, 02/15/02 1,799,000 1,706,801
- --------------------------------------------------------------
WASTE MANAGEMENT-0.67%
WMX Technologies, Conv. Sub.
Notes, 2.00%, 01/24/05 1,445,000 1,614,788
- --------------------------------------------------------------
Total U.S. Dollar Denominated
Convertible Bonds & Notes
(cost $8,376,806) 8,415,505
- --------------------------------------------------------------
NON-U.S. DOLLAR DENOMINATED
GOVERNMENT BONDS & NOTES-9.25%(F)
CANADA-1.62%
Canadian Government, Bonds, 6.00%,
06/01/08 CAD 5,370,000 3,924,350
- --------------------------------------------------------------
GERMANY-3.15%
Bundesrepublic Deutschland, Bonds,
6.50%, 07/04/27 EUR 5,800,000 7,614,199
- --------------------------------------------------------------
GREECE-1.23%
Hellenic Republic, Bonds, 9.2%,
03/21/02 GRD 650,000,000 2,228,128
- --------------------------------------------------------------
Bonds, 8.8%, 06/19/07 GRD 200,000,000 760,953
- --------------------------------------------------------------
2,989,081
- --------------------------------------------------------------
ITALY-0.74%
Buoni Poliennali del Tesoro, Deb.,
8.50%, 01/01/04 EUR 1,400,000 1,796,733
- --------------------------------------------------------------
IVORY COAST-0.82%
Ivory Coast, Past Due Interest
Bonds, 1.90%, 03/29/18(c) FRF 43,446,000 1,976,790
- --------------------------------------------------------------
NEW ZEALAND-1.69%
New Zealand Fannie Mae
7.25% 06/20/02 NZD 7,000,000 4,085,848
- --------------------------------------------------------------
Total non-U.S. Dollar Denominated
Government Bonds & Notes
(Cost $23,998,131) 22,387,001
- --------------------------------------------------------------
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT(a) VALUE
<S> <C> <C>
NON-U.S. DOLLAR DENOMINATED
NON-CONVERTIBLE BONDS & NOTES-1.81%
UNITED KINGDOM-1.81%
Colt Telecom Group PLC
(Telephone), Sr. Notes, 7.625%,
07/31/08 DEM $ 1,600,000 $ 887,426
- --------------------------------------------------------------
London International Exhibit
Center (Entertainment), Sec.
Bonds, 7.71%, 11/25/16 GBP 1,730,000 2,347,358
- --------------------------------------------------------------
Orange PLC
(Telecommunications-Cellular/
Wireless), Sr. Notes, 7.625%,
08/01/08 GBP 1,000,000 1,136,715
- --------------------------------------------------------------
Total Non-U.S. Dollar Denominated
Non-Convertible Bonds & Notes
(cost $4,348,863) 4,371,499
- --------------------------------------------------------------
SHARES
DOMESTIC COMMON STOCKS-0.74%
SERVICES (COMMERCIAL & CONSUMER)-0.74%
Cendant Corp. (cost $1,918,500) 100,000 1,800,000
- --------------------------------------------------------------
WARRANTS-0.12%
SOVEREIGN DEBT-0.06%
Republic of Argentina (Argentina),
expiring 12/03/99(g) 2,510 75,614
- --------------------------------------------------------------
Republic of Argentina (Argentina),
expiring 02/25/00(g) 2,370 71,396
- --------------------------------------------------------------
147,010
- --------------------------------------------------------------
MEXICO-0.06%
United Mexican States (Sovereign
Debt), expiring 02/18/00(g) 2,662 136,095
- --------------------------------------------------------------
Total Warrants (cost $0) 283,105
- --------------------------------------------------------------
U.S. GOVERNMENT & AGENCY SECURITIES-32.06%
Government National Mortgage
Association TBA, 6%, 05/15/29(h) 14,000,000 13,571,250
- --------------------------------------------------------------
U.S. Treasury Notes, 5.625%,
05/15/08 39,890,000 40,458,433
- --------------------------------------------------------------
U.S. Treasury Notes, 4.75%,
11/15/08 6,780,000 6,473,815
- --------------------------------------------------------------
U.S. Treasury Bonds, 6.375%,
08/15/27 16,000,000 17,057,440
- --------------------------------------------------------------
Total U.S. Government & Agency
Securities (cost $81,286,509) 77,560,938
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT(a) VALUE
<S> <C> <C>
ASSET BACKED SECURITIES-2.71%
REAL ESTATE INVESTMENT TRUST-0.88%
Contimortgage Home Equity Loan
Trust, Sub. Series 1999-2 B,
8.50%, 04/25/29 $ 2,400,000 $ 2,121,750
- --------------------------------------------------------------
RETAIL (HOME SHOPPING)-1.83%
Fingerhut Master Trust, Sub.
Floating Notes, 5.73%,
02/15/07(e) 4,500,000 4,432,500
- --------------------------------------------------------------
Total U.S. Dollar Denominated
Asset Backed Securities (cost
$6,610,594) 6,554,250
- --------------------------------------------------------------
SENIOR SECURED FLOATING RATE INTEREST
LOANS-1.45%
Pacifica Papers, effective yield
10.75%, 03/12/06 1,500,000 1,507,500
- --------------------------------------------------------------
Packaging Corp of America,
effective yield
8.25%, 04/15/07 500,000 503,438
- --------------------------------------------------------------
8.500%, 04/15/08 500,000 503,438
- --------------------------------------------------------------
Starwood Hotels & Resorts,
effective yield 8.66%, 02/23/03 1,000,000 999,375
- --------------------------------------------------------------
Total Senior Secured Floating
Rate Interest Loans (cost
$3,497,166) 3,513,751
- --------------------------------------------------------------
REPURCHASE AGREEMENT(I)-0.21%
State Street Bank & Trust Co.,
4.85%, 05/03/99 (Cost
$513,000)(j) 513,000 513,000
- --------------------------------------------------------------
TOTAL INVESTMENTS-105.76% 255,884,159
- --------------------------------------------------------------
OTHER LIABILITIES LESS
ASSETS-(5.76%) (13,934,110)
- --------------------------------------------------------------
NET ASSETS-100.00% $241,950,049
==============================================================
</TABLE>
7
<PAGE> 10
Notes to Schedule of Investments:
(a) Principal amount is in U.S. Dollars, except as indicated by note (f).
(b) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144 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 04/30/99 was $26,724,561 which
represented 11.05% of the Fund's net assets.
<TABLE>
<CAPTION>
ACQUISITION
DATE COST
----------- ----------
<S> <C> <C>
Algeria Tranche............................................. 7/29/98 $3,102,099
American Axle & Manufacturing Inc........................... 3/2/99 1,736,350
Americredit Corp............................................ 4/15/99 1,000,000
Ames Department Stores...................................... 4/20/99 2,200,000
Charter Communications Holding LLC.......................... 3/12/99 2,068,671
Fairchild Corp.............................................. 4/15/99 2,000,000
Fairchild Semiconductor..................................... 3/31/99 975,000
Florida Panthers Holdings................................... 4/15/99 2,050,000
Hollywood Casino Corp....................................... 1/5/98 1,840,250
Hollywood Park Inc.......................................... 2/12/99 750,000
Intermedia Communications................................... 2/19/99 1,891,469
Isle of Capri Casino........................................ 4/20/99 2,075,000
Primus Telecom Group........................................ 1/22/99 1,600,000
Telecorp PCS Inc............................................ 4/20/99 1,853,847
Vintage Petroleum........................................... 4/8/99 781,875
Willis Corroon Corp......................................... 1/28/99 800,000
</TABLE>
(c) The rate shown on step up coupon bonds represents the rate at period end.
(d) Defaulted Security. Currently, the issuer is in default with respect to
interest payments.
(e) The coupon rate shown on floating rate note represents rate at the period
end.
(f) Foreign denominated security. Par value and coupon are denominated in
currency indicated.
(g) Non-income producing security acquired as part of a unit with or in exchange
for other securities.
(h) Security purchased on a forward commitment basis.
(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 is at least 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts, and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(j) Repurchase agreement entered into 04/30/99 with a maturing value of
$513,000. Collateralized by $535,000, U.S. Treasury Note, 4.00% due 10/31/00
with a market value at 04/30/99 of $527,226.
(k) 1 year note indexed to the Japanese Yen/US$ exchange rate; if the Yen is in
the range, the investor accrues a 7% coupon for that day, otherwise the
investor receives 3% minimum coupon for that day.
Abbreviations:
<TABLE>
<S> <C>
CAD - Canadian Dollar
DEM - German Deutschmark
EUR - Euro
FLIRB - Front Loaded interest Reduction Bond
FRF - French Franc
GBP - British Pound Sterling
GRD - Greek Drachma
NZD - New Zealand Dollar
Conv. - Convertible
Deb. - Debentures
Disc. - Discounted
Gtd. - Guaranteed
PDI - Past Due Interest
Pfd. - Preferred
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
Unsub. - Unsubordinated
</TABLE>
See Notes to Financial Statements.
8
<PAGE> 11
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1999
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $268,760,346) $255,884,159
- ------------------------------------------------------------
Cash 922,177
- ------------------------------------------------------------
Foreign currencies, at value (cost $6,741,171) 6,584,920
- ------------------------------------------------------------
Receivables for:
Investments sold 1,767,935
- ------------------------------------------------------------
Fund shares sold 71,107
- ------------------------------------------------------------
Interest 4,786,757
- ------------------------------------------------------------
Forward contracts 703,814
- ------------------------------------------------------------
Other assets 45,829
- ------------------------------------------------------------
Total assets 270,766,698
- ------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 17,853,120
- ------------------------------------------------------------
Fund shares reacquired 2,275,558
- ------------------------------------------------------------
Interest 11,895
- ------------------------------------------------------------
Forward contracts 180,987
- ------------------------------------------------------------
Loan 8,000,000
- ------------------------------------------------------------
Interest Rate Swaps 57,350
- ------------------------------------------------------------
Accrued advisory fees 148,093
- ------------------------------------------------------------
Accrued distribution fees 179,135
- ------------------------------------------------------------
Accrued administrative services fees 5,654
- ------------------------------------------------------------
Accrued transfer agent fees 28,511
- ------------------------------------------------------------
Accrued trustees' fees 930
- ------------------------------------------------------------
Accrued operating expenses 75,416
- ------------------------------------------------------------
Total liabilities 28,816,649
- ------------------------------------------------------------
Net assets applicable to shares outstanding $241,950,049
- ------------------------------------------------------------
NET ASSETS:
Class A $ 85,770,811
============================================================
Class B $156,011,522
============================================================
Class C $ 16,895
============================================================
Advisor Class $ 150,821
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 7,922,074
============================================================
Class B 14,393,435
============================================================
Class C 1,560
============================================================
Advisor Class 13,881
============================================================
Class A:
Net asset value and redemption price per
share $ 10.83
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $10.83
divided by 95.25%) $ 11.37
============================================================
Class B:
Net asset value and offering price per share $ 10.84
============================================================
Class C:
Net asset value and offering price per share $ 10.83
============================================================
Advisor Class:
Net asset value, redemption and offering
price per share $ 10.87
============================================================
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended April 30, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $10,261,194
- ------------------------------------------------------------
Securities lending 30,053
- ------------------------------------------------------------
Total investment income 10,291,247
- ------------------------------------------------------------
EXPENSES:
Advisory fees 950,469
- ------------------------------------------------------------
Administrative services fees 38,682
- ------------------------------------------------------------
Interest expense 37,930
- ------------------------------------------------------------
Distribution fees -- Class A 168,193
- ------------------------------------------------------------
Distribution fees -- Class B 870,791
- ------------------------------------------------------------
Distribution fees -- Class C 9
- ------------------------------------------------------------
Trustees' fees 5,588
- ------------------------------------------------------------
Transfer agent fees -- Class A 46,068
- ------------------------------------------------------------
Transfer agent fees -- Class B & C 82,967
- ------------------------------------------------------------
Transfer agent fees -- Advisor Class 80
- ------------------------------------------------------------
Printing fees 184,537
- ------------------------------------------------------------
Other 28,134
- ------------------------------------------------------------
Total expenses 2,413,448
- ------------------------------------------------------------
Less: Expenses paid indirectly (8,110)
- ------------------------------------------------------------
Net Expense 2,405,338
- ------------------------------------------------------------
Net investment income 7,885,909
- ------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES,
AND FORWARD CURRENCY CONTRACTS:
Net realized gain (loss) from:
Investment securities (6,405,770)
- ------------------------------------------------------------
Foreign currencies (789,821)
- ------------------------------------------------------------
Forward contracts 941,597
- ------------------------------------------------------------
(6,253,994)
- ------------------------------------------------------------
Net unrealized appreciation (depreciation) of:
Investment securities 7,798,540
- ------------------------------------------------------------
Foreign currencies (310,581)
- ------------------------------------------------------------
Forward contracts 589,621
- ------------------------------------------------------------
Swap agreements (55,586)
- ------------------------------------------------------------
8,021,994
- ------------------------------------------------------------
Net gain from investment securities, foreign
currencies, forward currency contracts 1,768,000
- ------------------------------------------------------------
Net increase in net assets resulting from
operations $ 9,653,909
============================================================
</TABLE>
See Notes to Financial Statements.
9
<PAGE> 12
STATEMENTS OF CHANGES IN NET ASSETS
For the six months ended April 30, 1999 and the year ended October 31, 1998
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1999 1998
------------ -------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 7,885,909 $ 27,101,409
- -------------------------------------------------------------------------------------------
Net realized (loss) from investment securities, foreign
currencies, and forward currency contracts (6,253,994) (9,817,521)
- -------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities, foreign currencies, and forward currency
contracts 8,021,994 (28,381,099)
- -------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 9,653,909 (11,097,211)
- -------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (3,200,128) (7,063,735)
- -------------------------------------------------------------------------------------------
Class B (5,182,034) (12,380,012)
- -------------------------------------------------------------------------------------------
Class C (59) --
- -------------------------------------------------------------------------------------------
Advisor Class (10,745) (44,834)
- -------------------------------------------------------------------------------------------
Return of capital distribution:
Class A -- (1,864,318)
- -------------------------------------------------------------------------------------------
Class B -- (3,267,432)
- -------------------------------------------------------------------------------------------
Class C -- (11,833)
- -------------------------------------------------------------------------------------------
Share transactions-net:
Class A (16,938,296) (23,886,355)
- -------------------------------------------------------------------------------------------
Class B (33,473,801) (69,589,947)
- -------------------------------------------------------------------------------------------
Class C 16,940 --
- -------------------------------------------------------------------------------------------
Advisor Class (703,068) 369,213
- -------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (49,837,282) (128,836,464)
===========================================================================================
NET ASSETS:
Beginning of period 291,787,331 420,623,795
- -------------------------------------------------------------------------------------------
End of period $241,950,049 $ 291,787,331
- -------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $336,003,527 $ 387,101,752
- -------------------------------------------------------------------------------------------
Undistributed net investment income (507,179) (122)
- -------------------------------------------------------------------------------------------
Undistributed net realized (loss) from investment
securities, foreign currencies, and forward currency
contracts (80,947,107) (74,693,113)
- -------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities, foreign currencies, and forward currency
contracts (12,599,192) (20,621,186)
- -------------------------------------------------------------------------------------------
$241,950,049 $ 291,787,331
===========================================================================================
</TABLE>
See Notes to Financial Statements.
10
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS
April 30, 1999
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Strategic Income Fund (the "Fund") is a separate series of AIM Investment
Funds (the "Trust"). The Trust is organized as a Delaware business trust and is
registered under the Investment Company Act of 1940, as amended ("1940 Act"), as
an open-end series management investment company consisting of twelve separate
series portfolios, each having an unlimited number of shares of beneficial
interest. The Fund currently offers four different classes of shares: Class A
shares, Class B shares, Class C shares and Advisor Class shares. Class A shares
are sold with a front-end sales charge. Class B shares and Class C shares are
sold with a contingent deferred sales charge. Advisor Class shares are sold
without a 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 high current income, and its secondary
investment objective is growth of capital.
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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates. The following is a
summary of significant accounting policies in conformity with generally accepted
accounting principles consistently followed by the Fund in the preparation of
the financial statements.
A. Security Valuations-Each equity security is valued at its last sales price
on the exchange where the security is principally traded or, lacking any
sales on a particular day, the security is valued at the last available bid.
Each security traded in the over-the-counter market (but not including
securities reported on the NASDAQ National Market System) is valued at the
mean between the last bid and asked prices based upon quotes furnished by
market makers for such securities. Each security reported on the NASDAQ
National Market System is valued at the last sales price on the valuation
date or absent a last sales price, at the closing bid price on that day.
Debt securities 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. Securities for which market quotations are not readily available or
are questionable are valued at fair value as determined in good faith by or
under the supervision of the 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 on the basis of amortized cost. For purposes
of determining net asset value per share, futures and options contracts
generally will be valued 15 minutes after the close of trading of the New
York Stock Exchange ("NYSE").
Generally, trading in foreign securities, corporate bonds, U.S.
Government securities and money market instruments is substantially
completed each day at various times prior to the close of the NYSE. The
values of such securities used in computing the net asset value of the
Fund's shares are determined at such times. Foreign currency exchange rates
are also generally determined prior to the close of the NYSE. Occasionally,
events affecting the values of such securities and such exchange rates may
occur between the times at which such values are determined and the close of
the NYSE, 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 of the Trust.
B. Securities Transactions, Investment Income and Distributions-Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. Such distributions are
declared and paid monthly.
C. Federal Income Taxes-The Fund intends to comply with the requirements of the
Internal Revenue Code necessary to qualify as a regulated investment company
and, as such, will not be subject to federal income taxes on otherwise
taxable income (including net realized capital gains) which is distributed
to shareholders. Therefore, no provision for federal income taxes is
recorded in the financial statements. The Fund has a capital loss
carryforward of $72,184,684 as of October 31, 1998 (which may be carried
forward to offset future taxable gains, if any) which expires, if not
previously utilized, in the year 2006.
D. Expenses-Distribution and transfer agency expenses directly attributable to
a class of shares are charged to that class' operations. All other expenses
are allocated among the classes.
E. Foreign Currency Translations-Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are translated
into U.S. dollar amounts on the respective dates of such transactions. The
Fund does not separately account for that portion of the results of
operations resulting from changes in foreign exchange rates on investments
and the fluctuations arising from changes in market prices of securities
held. Such fluctuations
11
<PAGE> 14
are included with the net realized and unrealized gain or loss from
investments.
F. Forward Foreign Currency Contracts-A forward 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 forward 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 forward
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 foreign
currency contracts at April 30, 1999 were as follows:
<TABLE>
<CAPTION>
CONTRACT TO UNREALIZED
SETTLEMENT ------------------------ APPRECIATION
DATE CURRENCY DELIVER RECEIVE VALUE (DEPRECIATION)
- ---------- -------- ---------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
6/18/99 CAD 5,700,000 $ 3,729,450 $ 3,910,437 $(180,987)
----------- ----------- ---------
6/18/99 EUR 2,320,000 2,551,350 2,459,284 92,066
----------- ----------- ---------
6/18/99 EUR 15,300,000 16,830,306 16,218,558 611,748
----------- ----------- ---------
$23,111,106 $22,588,279 $ 522,827
=========== =========== =========
</TABLE>
G. Futures Contracts-A futures contract is an agreement between two parties to
buy and sell a security at a set price on a future date. Upon entering into
such a contract the Fund is required to pledge to the broker an amount of
cash or securities equal to the minimum "initial margin" requirements of the
exchange on which the contract is traded. Pursuant to the contract, the Fund
agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or payments are
known as "variation margin" and are recorded by the Fund as unrealized gains
or losses. When the contract is closed, the Fund records a realized gain or
loss equal to the difference between the value of the contract at the time
it was opened and the value at the time it was closed. The potential risk to
the Fund is that the change in value of the underlying securities may not
correlate to the change in value of the contracts. The Fund may use futures
contracts to manage its exposure to the stock market and to fluctuations in
currency values or interest rates.
H. Foreign Securities-There are certain additional considerations and risks
associated with investing in foreign securities and currency transactions
that are not inherent in investments of domestic origin. The Fund's
investment in emerging market countries may involve greater risks than
investments in more developed markets and the price of such investments may
be volatile. These risks of investing in foreign and emerging markets may
include foreign currency exchange rate fluctuations, perceived credit risk,
adverse political and economic developments and possible adverse foreign
government intervention.
I. Indexed Securities-The Fund may invest in indexed securities whose value is
linked either directly or indirectly to changes in foreign currencies,
interest rates, equities, indices, or other reference instruments. Indexed
securities may be more volatile than the reference instrument itself, but
any loss is limited to the amount of the original investment.
J. Swap Agreements-The Fund may enter into interest rate swap agreements to
preserve a return or spread on a particular investment or portion of its
portfolio, to protect against currency fluctuations, as a technique for
managing their respective portfolios' duration (i.e., price sensitivity to
changes in interest rates) or to protect against any increase in the price
of securities the Fund anticipates purchasing at a later date. Interest rate
swap agreements involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments with respect to a notional
amount of principal. Swaps are marked to market daily based upon quotations
from market makers and the change, if any, is recorded as unrealized gain or
loss in the Statement of Operations. Payments received or made at the end of
the measurement period are recorded as realized gain or loss in the
Statement of Operations. Net payments of interest rate swap agreements are
recorded as interest income. Entering into these agreements involves, to
varying degrees, elements of credit and market risk in excess of the amounts
recognized on the Statement of Assets and Liabilities. Such risks involve
the possibility that there will be no liquid market for these agreements,
that the counterparty to the agreements may default on its obligations to
perform and that there may be unfavorable changes in the fluctuation of
interest rates.
K. Restricted Securities-The Fund is permitted to invest in privately placed
restricted securities. These securities may be resold in transactions exempt
from registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations and
expense, and prompt sale at an acceptable price may be difficult. At the end
of the year, restricted securities, if any, (excluding 144A issues), are
shown at the end of the Fund's Schedule of Investments.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
A I M Advisors, Inc. ("AIM") is the Fund's investment manager and administrator.
INVESCO (NY), Inc. is the Fund's subadvisor. The Fund pays AIM investment
management and administration fees at an annual rate of 0.725% on the first $500
million of the Fund's average daily net assets, plus 0.70% on the next $1
billion of the Fund's average daily net assets, plus 0.675% on the next $1
billion of the Fund's average daily net assets, plus 0.65% on the Fund's average
daily net assets exceeding $1.5 billion. AIM has contractually agreed to limit
the Fund's expenses (exclusive of brokerage commissions, taxes, interest, and
extraordinary expense) to the maximum annual rate of 1.75%, 2.40%, 2.40%, and
1.40% of the average daily net assets of the Fund's Class A, Class B, Class C,
and Advisor Class shares, respectively.
A I M Fund Services, Inc. ("AFS") is the transfer agent of the Fund. The
Fund, pursuant to a transfer agency and service agreement, has agreed to pay AFS
a fee for providing transfer agency and shareholder services to the Fund. During
the six months ended April 30, 1999, AFS was paid $89,735 for such services.
12
<PAGE> 15
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, Class C and Advisor Class 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 0.35% 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 April 30, 1999, the Class A, Class B and
Class C shares paid AIM Distributors $168,193, $870,791 and $9, respectively, as
compensation under the Plans.
AIM Distributors received commissions of $3,544 from sales of the Class A
shares of the Fund during the six months ended April 30, 1999. 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 April 30,
1999, AIM Distributors received $662 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.
AIM is the pricing and accounting agent for the Fund. The monthly fee for
these services paid to AIM is a percentage, not to exceed 0.03% annually, of a
Fund's average daily net assets. The annual fee rate is derived based on the
aggregate net assets of the funds which comprise the following investment
companies: AIM Growth Series, AIM Investment Funds, AIM Series Trust, G.T.
Global Variable Investment Series and G.T. Global Variable Investment Trust. The
fee is calculated at the rate of 0.03% of the first $5 billion of assets and
0.02% to the assets in excess of $5 billion. An amount is allocated to and paid
by each such fund based on its relative average daily net assets.
NOTE 3-INDIRECT EXPENSES
During the six months ended April 30, 1999, the Fund received reductions in
custodian fees of $8,110 under an expense offset arrangement. The effect of the
above arrangement resulted in a reduction of the Fund's total expenses of $8,110
during the six months ended April 30, 1999.
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, along with certain other funds advised and/or administered by AIM, has
a line of credit with BankBoston and State Street Bank & Trust Company. The
arrangements with the banks allow the Fund and certain other funds to borrow, on
a first come, first served basis, an aggregate maximum amount of $250,000,000.
The Fund is limited to borrowing up to 33 1/3% of the Fund's total assets.
For the six months ended April 30, 1999, the average outstanding daily balance
of bank loans for the Fund was $856,353 with a weighted average interest rate of
5.57%. Interest expense for the Fund for the six months ended April 30, 1999 was
$37,930.
Effective May 28, 1999, the above line of credit was superseded by the Fund's
participation 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) $975,000,000 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. The funds which are party to the
line of credit are charged a commitment fee of 0.09% on the unused balance of
the committed line. The commitment fee is allocated among the funds based on
their respective average net assets for the period.
NOTE 6-PORTFOLIO SECURITIES LOANED
At April 30, 1999, securities with an aggregate value of $2,895,755 were on loan
to brokers. The loans were secured by cash collateral of $3,031,314 received by
the Fund. For the six months ended April 30, 1999, the Fund received fees of
$30,053 for securities lending.
For international securities, cash collateral is received by the Fund against
loaned securities in an amount at least equal to 105% of the market value of the
loaned securities at the inception of each loan. This collateral must be
maintained at not less than 103% of the market value of the loaned securities
during the period of the loan. For domestic securities, cash collateral is
received by the Fund against loaned securities in the amount at least equal to
102% of the market value of the loaned securities at the inception of each loan.
This collateral must be maintained at not less than 100% of the market value of
the loaned securities during the period of the loan. The cash collateral is
invested in a securities lending trust which consists of a portfolio of high
quality short duration securities whose average effective duration is restricted
to 120 days or less.
13
<PAGE> 16
NOTE 7-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the six months ended April 30, 1999 was
$362,010,885 and $393,279,210, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, on a tax basis, as of April 30, 1999 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $ 4,343,742
- --------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (18,918,222)
- --------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities $(14,574,480)
==========================================================================
</TABLE>
Cost of investments for tax purposes is $270,458,639.
NOTE 8-INTEREST RATE SWAP AGREEMENTS
The following are open interest rate swap agreements on April 30, 1999:
<TABLE>
<CAPTION>
NET UNREALIZED
EXPIRATION NOTIONAL AMOUNT APPRECIATION/
DESCRIPTION OF AGREEMENT DATE FUND/COUNTERPARTY (DEPRECIATION)
- ------------------------ ---------- ----------------- --------------
<S> <C> <C> <C>
Agreement with Citibank N.A. dated 4/27/99 to pay the 04/25/00 43,883,900 MXN $(34,825)
notional amount multiplied by 24.00% and to receive the Citibank N.A.
notional amount multiplied by 22.10% at initiation of the
swap contract. The receive amount is to equal the notional
amount multiplied by the 28-day "TIIE"-Tasa de Interas
Interbancaria de Equilibrio on subsequent monthly reset
dates
Agreement with Goldman Sachs Capital Markets dated 4/21/99 04/21/00 9,340,000 NZD $ 2,683
to pay the notional amount multiplied by 4.92% and to Goldman Sachs
receive the notional amount multiplied by the 3 month Capital Markets
Floating Rate NZD Bank Bills.
Agreement with Goldman Sachs Capital Markets dated 4/21/99 04/21/02 9,340,000 NZD $(23,444)
to receive the notional amount multiplied by 5.51% and to Goldman Sachs
pay to notional amount multiplied by the 3 month Floating Capital Markets
Rate NZD Bank Bills.
--------
$(55,586)
========
</TABLE>
NOTE 9-SHARE INFORMATION
Changes in shares outstanding during the six months ended April 30, 1999 and the
year ended October 31, 1998 were as follows:
<TABLE>
<CAPTION>
APRIL 30, 1999 OCTOBER 31, 1998
------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Sold:
Class A 2,039,237 $ 22,337,379 11,087,862 $ 132,840,707
- ---------------------------------------------------------------------------------------------------------------------
Class B 316,088 3,466,505 2,712,341 32,431,379
- ---------------------------------------------------------------------------------------------------------------------
Class C* 1,556 16,895 -- --
- ---------------------------------------------------------------------------------------------------------------------
Advisor 18,921 210,738 396,726 4,766,864
- ---------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A 251,037 2,741,286 520,006 6,103,698
- ---------------------------------------------------------------------------------------------------------------------
Class B 334,739 3,655,283 752,045 8,848,630
- ---------------------------------------------------------------------------------------------------------------------
Class C* 4 45 -- --
- ---------------------------------------------------------------------------------------------------------------------
Advisor 981 10,741 4,186 50,201
- ---------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (3,842,711) (42,016,961) (13,690,399) (162,830,760)
- ---------------------------------------------------------------------------------------------------------------------
Class B (3,716,339) (40,595,589) (9,428,771) (110,869,956)
- ---------------------------------------------------------------------------------------------------------------------
Advisor (84,258) (924,547) (367,030) (4,447,852)
- ---------------------------------------------------------------------------------------------------------------------
(4,680,745) $(51,098,225) (8,013,034) $ (93,107,089)
=====================================================================================================================
</TABLE>
* Class C shares commenced on March 1, 1999.
14
<PAGE> 17
NOTE 10-FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
APRIL 30, --------------------------------------------------------
1999(a) 1998(a) 1997 1996(a) 1995(a) 1994
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.80 $ 12.00 $ 11.76 $ 10.32 $ 10.88 $ 13.61
- --------------------------------------------------------- ------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.34 0.91(b) 0.74 0.89 0.97 0.79
- --------------------------------------------------------- ------- -------- -------- -------- -------- --------
Net realized and unrealized gain (loss) on investments
and foreign currencies 0.05 (1.27) 0.34 1.44 (0.69) (2.14)
- --------------------------------------------------------- ------- -------- -------- -------- -------- --------
Net increase (decrease) from investment operations 0.39 (0.36) 1.08 2.33 0.28 (1.35)
- --------------------------------------------------------- ------- -------- -------- -------- -------- --------
Distributions to shareholders:
From net investment income (0.36) (0.65) (0.78) (0.82) (0.80) (0.79)
- --------------------------------------------------------- ------- -------- -------- -------- -------- --------
From net realized gain on investments -- -- -- -- -- (0.38)
- --------------------------------------------------------- ------- -------- -------- -------- -------- --------
In excess of net investment income -- -- (0.06) (0.07) -- --
- --------------------------------------------------------- ------- -------- -------- -------- -------- --------
Return of capital -- (0.19) -- -- (0.04) (0.21)
- --------------------------------------------------------- ------- -------- -------- -------- -------- --------
Total distributions (0.36) (0.84) (0.84) (0.89) (0.84) (1.38)
- --------------------------------------------------------- ------- -------- -------- -------- -------- --------
Net asset value, end of period $ 10.83 $ 10.80 $ 12.00 $ 11.76 $ 10.32 $ 10.88
========================================================= ======= ======== ======== ======== ======== ========
Total return(c) 3.63% (3.41)% 9.40% 23.00% 3.06% (10.44)%
========================================================= ======= ======== ======== ======== ======== ========
Ratios and supplemental data:
Net assets, end of period (in 000's) $85,771 $102,280 $138,715 $185,216 $188,126 $275,241
========================================================= ======= ======== ======== ======== ======== ========
Ratio of net investment income to average net assets 6.26%(d) 7.73% 6.18% 8.09% 9.64% 6.74%
========================================================= ======= ======== ======== ======== ======== ========
Ratio of expenses to average net assets excluding interest
expense: 1.35%(d) 1.56% 1.44% 1.40% 1.45% N/A
========================================================= ======= ======== ======== ======== ======== ========
Ratio of interest expenses to average net assets 0.02% N/A N/A N/A N/A 0.10%
========================================================= ======= ======== ======== ======== ======== ========
Portfolio turnover rate 137% 306% 149% 177% 238% 583%
========================================================= ======= ======== ======== ======== ======== ========
</TABLE>
(a) These selected per share data were calculated based upon average shares
outstanding during the period.
(b) Net investment income per share reflects an interest payment received from
the conversion of Vnesheconombank loan agreements of $0.11 per share.
(c) Total return does not include sales charges and is not annualized for
periods less than one year.
(d) Ratios are annualized and based on average net assets of $96,906,535.
N/A Not Applicable.
15
<PAGE> 18
NOTE 10-FINANCIAL HIGHLIGHTS (CONTINUED)
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
APRIL 30, --------------------------------------------------------
1999(a) 1998(a) 1997 1996(a) 1995(a) 1994
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.81 $ 12.01 $ 11.77 $ 10.33 $ 10.88 $ 13.60
- --------------------------------------------------------- -------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.30 0.84(b) 0.67 0.82 0.91 0.73
- --------------------------------------------------------- -------- -------- -------- -------- -------- --------
Net realized and unrealized gain (loss) on investments
and foreign currencies 0.05 (1.28) 0.33 1.44 (0.69) (2.14)
- --------------------------------------------------------- -------- -------- -------- -------- -------- --------
Net increase (decrease) from investment operations 0.35 (0.44) 1.00 2.26 0.22 (1.41)
- --------------------------------------------------------- -------- -------- -------- -------- -------- --------
Distributions to shareholders:
From net investment income (0.32) (0.57) (0.71) (0.75) (0.73) (0.72)
- --------------------------------------------------------- -------- -------- -------- -------- -------- --------
From net realized gain on investments -- -- -- -- -- (0.38)
- --------------------------------------------------------- -------- -------- -------- -------- -------- --------
In excess of net investment income -- -- (0.05) (0.07) -- --
- --------------------------------------------------------- -------- -------- -------- -------- -------- --------
Return of capital -- (0.19) -- -- (0.04) (0.21)
- --------------------------------------------------------- -------- -------- -------- -------- -------- --------
Total distributions (0.32) (0.76) (0.76) (0.82) (0.77) (1.31)
- --------------------------------------------------------- -------- -------- -------- -------- -------- --------
Net asset value, end of period $ 10.84 $ 10.81 $ 12.01 $ 11.77 $ 10.33 $ 10.88
========================================================= ======== ======== ======== ======== ======== ========
Total return(c) 3.27% (4.04)% 8.70% 22.15% 2.48% (11.02)%
========================================================= ======== ======== ======== ======== ======== ========
Ratios and supplemental data:
Net assets, end of period (in 000's) $156,012 $188,660 $281,376 $333,178 $357,852 $458,550
========================================================= ======== ======== ======== ======== ======== ========
Ratio of net investment income to average net assets 5.60%(d) 7.08% 5.53% 7.44% 8.99% 6.09%
========================================================= ======== ======== ======== ======== ======== ========
Ratio of expenses to average net assets excluding interest
expense: 2.01%(d) 2.21% 2.09% 2.05% 2.10% N/A
========================================================= ======== ======== ======== ======== ======== ========
Ratio of interest expense to average net assets 0.02 N/A N/A N/A N/A 0.10%
========================================================= ======== ======== ======== ======== ======== ========
Portfolio turnover rate 137% 306% 149% 177% 238% 583%
========================================================= ======== ======== ======== ======== ======== ========
</TABLE>
(a) These selected per share data were calculated based upon average shares
outstanding during the period.
(b) Net investment income per share reflects an interest payment received from
the conversion of Vnesheconombank loan agreements of $0.11 per share.
(c) Total investment return does not include sales charges and is not annualized
for periods less than one year.
(d) Ratios are annualized and based on average net assets of $175,601,462.
N/A Not Applicable.
16
<PAGE> 19
NOTE 10-FINANCIAL HIGHLIGHTS (CONTINUED)
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS C ADVISOR CLASS
----------------- ---------------------------------------------------------
JUNE 1, 1995
MARCH 1, 1999 YEAR ENDED OCTOBER 31, TO
TO APRIL 30, ---------------------------- OCTOBER 31,
APRIL 30, 1999(a) 1999(a) 1998(a) 1997 1996(a) 1995(a)
----------------- --------- ------- ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.78 $10.83 $12.02 $11.77 $10.33 $10.32
- ---------------------------------------------------- ------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income 0.09 0.39 0.95(b) 0.79 0.93 0.41
- ---------------------------------------------------- ------ ------ ------ ------ ------ ------
Net realized and unrealized gain (loss) on
investments and foreign currencies 0.01 0.03 (1.26) 0.34 1.44 (0.04)
- ---------------------------------------------------- ------ ------ ------ ------ ------ ------
Net increase (decrease) from investment
operations 0.10 0.42 (0.31) 1.13 2.37 0.37
- ---------------------------------------------------- ------ ------ ------ ------ ------ ------
Distributions to shareholders:
From net investment income (0.05) (0.38) (0.69) (0.82) (0.86) (0.34)
- ---------------------------------------------------- ------ ------ ------ ------ ------ ------
From net realized gain on investments -- -- -- -- --
- ---------------------------------------------------- ------ ------ ------ ------ ------ ------
In excess of net investment income -- -- -- (0.06) (0.07) --
- ---------------------------------------------------- ------ ------ ------ ------ ------ ------
Return of capital -- -- (0.19) -- -- (0.02)
- ---------------------------------------------------- ------ ------ ------ ------ ------ ------
Total distributions (0.05) (0.38) (0.88) (0.88) (0.93) (0.36)
- ---------------------------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of period $10.83 $10.87 $10.83 $12.02 $11.77 $10.33
==================================================== ====== ====== ====== ====== ====== ======
Total return(c) 2.42% 3.91% (2.97)% 9.86% 23.39% 3.72%
==================================================== ====== ====== ====== ====== ====== ======
Ratios and supplemental data:
Net assets, end of period (in 000's) $ 17 $ 151 $ 847 $ 533 $ 479 $ 443
==================================================== ====== ====== ====== ====== ====== ======
Ratio of net investment income to average net
assets 5.60%(d) 6.60%(d) 8.08% 6.53% 8.44% 9.99%(e)
==================================================== ====== ====== ====== ====== ====== ======
Ratio of expenses to average net assets excluding
interest expense: 2.01%(d) 1.01%(d) 1.21% 1.09% 1.05% 1.10%(e)
==================================================== ====== ====== ====== ====== ====== ======
Ratio of interest expense to average net assets 0.02% 0.02% N/A N/A N/A N/A
==================================================== ====== ====== ====== ====== ====== ======
Portfolio turnover rate 137% 137% 306% 149% 177% 238%
==================================================== ====== ====== ====== ====== ====== ======
</TABLE>
(a) These selected per share data were calculated based upon the average shares
outstanding during the period.
(b) Net investment income per share reflects an interest payment received from
the conversion of Vnesheconombank loan agreements of $0.11 per share.
(c) Total investment return does not include sales charges and is not annualized
for periods less than one year.
(d) Ratios are annualized and based on average net assets of $1,903 and $339,996
for Class C and Advisor Class, respectively.
(e) Annualized.
N/A Not Applicable.
17
<PAGE> 20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of AIM Strategic Income Fund
and Board of Trustees of AIM Investment Funds:
In our opinion, the accompanying statement of assets and
liabilities, including the portfolio of investments, and
the related statements of operations and of changes in
net assets and the financial highlights present fairly,
in all material respects, the financial position of the
AIM Strategic Income Fund at April 30, 1999, and the
results of its operations, the changes in its net assets
and the financial highlights for the periods indicated
therein, in conformity with generally accepted accounting
principles. These financial statements and financial
highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion
on these financial statements based on our audits. We
conducted our audits of these financial statements in
accordance with generally accepted auditing standards
which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our
audits, which included confirmation of securities at
April 30, 1999 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion
expressed above.
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
June 28, 1999
18
<PAGE> 21
<TABLE>
<CAPTION>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
<S> <C> <C>
C. Derek Anderson Robert H. Graham 11 Greenway Plaza
President, Plantagenet Capital Chairman and President Suite 100
Management, LLC (an investment Houston, TX 77046
partnership); Chief Executive Officer, Dana R. Sutton
Plantagenet Holdings, Ltd. Vice President and Treasurer INVESTMENT MANAGER
(an investment banking firm)
Samuel D. Sirko A I M Advisors, Inc.
Frank S. Bayley Vice President and Secretary 11 Greenway Plaza
Partner, law firm of Suite 100
Baker & McKenzie Melville B. Cox Houston, TX 77046
Vice President
Robert H. Graham SUB-ADVISOR
President and Chief Executive Officer, Gary T. Crum
A I M Management Group Inc. Vice President INVESCO (NY), Inc.
1166 Avenue of the Americas
Arthur C. Patterson Carol F. Relihan New York, NY 10036
Managing Partner, Accel Partners Vice President
(a venture capital firm) TRANSFER AGENT
Mary J. Benson
Ruth H. Quigley Assistant Vice President and A I M Fund Services, Inc.
Private Investor Assistant Treasurer P.O. Box 4739
Houston, TX 77210-4739
Sheri Morris
Assistant Vice President and CUSTODIAN
Assistant Treasurer
State Street Bank and Trust Company
Nancy L. Martin 225 Franklin Street
Assistant Secretary Boston, MA 02110
Ofelia M. Mayo COUNSEL TO THE FUND
Assistant Secretary
Kirkpatrick & Lockhart LLP
Kathleen J. Pflueger 1800 Massachusetts Avenue, N.W.
Assistant Secretary Washington, D.C. 20036-1800
COUNSEL TO THE TRUSTEES
Paul, Hastings, Janofsky & Walker LLP
Twenty Third Floor
555 South Flower Street
Los Angeles, CA 90071
DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046
AUDITORS
PricewaterhouseCoopers LLP
160 Federal St.
Boston, MA 02110
</TABLE>
<PAGE> 22
THE AIM FAMILY OF FUNDS--Registered Trademark--
<TABLE>
<S> <C> <C>
GROWTH FUNDS MONEY MARKET FUNDS A I M Management Group Inc. has provided
AIM Aggressive Growth Fund(1) AIM Money Market Fund leadership in the mutual-fund industry
AIM Blue Chip Fund AIM Tax-Exempt Cash Fund since 1976 and managed approximately
AIM Capital Development Fund $112 billion in assets for more than 6.3
AIM Constellation Fund INTERNATIONAL GROWTH FUNDS million shareholders, including individual
AIM Dent Demographic Trends Fund AIM Advisor International Value Fund investors, corporate clients and financial
AIM Large Cap Growth Fund AIM Asian Growth Fund institutions, as of March 31, 1999.
AIM Mid Cap Equity Fund(2), (A) AIM Developing Markets Fund(2) The AIM Family of Funds--Registered Trademark--
AIM Select Growth Fund(3) AIM Europe Growth Fund(2) is distributed nationwide, and AIM today is the
AIM Small Cap Growth Fund(2), (B) AIM European Development Fund 10th-largest mutual-fund complex in the U.S. in
AIM Small Cap Opportunities Fund AIM International Equity Fund assets under management, according to Strategic
AIM Value Fund AIM Japan Growth Fund(2) Insight, an independent mutual-fund monitor.
AIM Weingarten Fund AIM Latin American Growth Fund(2)
AIM New Pacific Growth Fund(2)
GROWTH & INCOME FUNDS
AIM Advisor Flex Fund GLOBAL GROWTH FUNDS
AIM Advisor Large Cap Value Fund AIM Global Aggressive Growth Fund
AIM Advisor Real Estate Fund AIM Global Growth Fund
AIM Balanced Fund
AIM Basic Value Fund(2), (C) GLOBAL GROWTH & INCOME FUNDS
AIM Charter Fund AIM Global Growth & Income Fund(2)
AIM Global Utilities Fund
INCOME FUNDS
AIM Floating Rate Fund(2) GLOBAL INCOME FUNDS
AIM High Yield Fund AIM Emerging Markets Debt Fund(2), (D)
AIM High Yield Fund II AIM Global Government Income Fund(2)
AIM Income Fund AIM Global Income Fund
AIM Intermediate Government Fund AIM Strategic Income Fund(2)
AIM Limited Maturity Treasury Fund
THEME FUNDS
TAX-FREE INCOME FUNDS AIM Global Consumer Products and Services Fund(2)
AIM High Income Municipal Fund AIM Global Financial Services Fund(2)
AIM Municipal Bond Fund AIM Global Health Care Fund(2)
AIM Tax-Exempt Bond Fund of Connecticut AIM Global Infrastructure Fund(2)
AIM Tax-Free Intermediate Fund AIM Global Resources Fund(2)
AIM Global Telecommunications and Technology Fund(2), (E)
AIM Global Trends Fund(2), (F)
</TABLE>
(1) AIM Aggressive Growth Fund reopened to new investors November 16, 1998. (2)
Effective May 29, 1998, A I M Advisors, Inc. became advisor to the former GT
Global Funds. (3) On May 1, 1998, AIM Growth Fund was renamed AIM Select Growth
Fund. (A) On September 8, 1998, AIM Mid Cap Growth Fund was renamed AIM Mid Cap
Equity Fund. (B) On September 8, 1998, AIM Small Cap Equity Fund was renamed AIM
Small Cap Growth Fund. (C) On September 8, 1998, AIM America Value Fund was
renamed AIM Basic Value Fund. (D) On September 8, 1998, AIM Global High Income
Fund was renamed AIM Emerging Markets Debt Fund. (E) On June 1, 1999, AIM Global
Telecommunications Fund was renamed AIM Global Telecommunications and Technology
Fund. (F) On September 8, 1998, AIM New Dimension Fund was renamed AIM Global
Trends Fund. For more complete information about any AIM Fund(s), including
sales charges and expenses, ask your financial consultant or securities dealer
for a free prospectus(es). Please read the prospectus(es) carefully before you
invest or send money.
[AIM LOGO APPEARS HERE]
INVEST WITH DISCIPLINE--Registered Trademark--
