<PAGE> 1
[AIM LOGO APPEARS HERE]
[GRAPHIC COLLAGE APPEARS HERE]
AIM STRATEGIC INCOME FUND, INC.
ANNUAL REPORT
DECEMBER 31, 1995
<PAGE> 2
AIM STRATEGIC INCOME FUND, INC.
For shareholders who seek high current income consistent with stability of
principal. The Fund invests primarily in convertible securities and employs
short-selling to enhance income and hedge against market risk.
ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT:
o AIM Strategic Income Fund, Inc. performance figures are historical and
reflect reinvestment of all distributions and changes in net asset value.
o In 1995, the Fund paid distributions of $0.60 per share.
o The Fund's investment return and principal value will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than their
original cost.
o The Fund's portfolio composition is subject to change and there is no
assurance the Fund will continue to hold any one particular security.
o Past performance cannot guarantee comparable future results.
ABOUT INDEXES AND OTHER PERFORMANCE BENCHMARKS CITED IN THIS REPORT:
o The unmanaged Standard & Poor's Composite Index of 500 stocks (S&P 500)
is considered by investors to be most representative of the stock market
in general.
o The Dow Jones Industrial Average (DJIA) is an unmanaged composite of
the performance of 30 large-company stocks.
o Government securities, such as U.S. Treasury bills and bonds, offer a
high degree of safety and are guaranteed as to the timely payment of
principal and interest. Fund shares are not insured and their value will
vary with market conditions.
o Barron's Best-Grade Corporate Bond index is an unmanaged composite of
the performance of 10 high-grade corporate bonds. Barron's Interim-Grade
Corporate Bond index is an unmanaged composite of the performance of 10
medium-grade corporate bonds.
o An investment cannot be made in any indexes listed. Unless otherwise
indicated, index results include reinvested dividends and do not reflect
sales charges.
This report may be distributed only to current shareholders or to persons
who have received a current prospectus of the Fund.
<PAGE> 3
-------------
AIM Strategic
Income Fund, Inc.
delivered one of
the strongest
performances in its
six-year history
-------------
A Message from the Chairman
Dear Fellow Shareholder:
In one of the best years for financial markets on record,
[PHOTO OF AIM Strategic Income Fund, Inc. delivered one of the
Charles T. Bauer, strongest performances in its six-year history. The Fund
Chairman of logged a total return of 13.51% for the year ended
the Board of December 31, 1995, based on reinvestment of all
the Fund, distributions and changes in net asset value.
APPEARS HERE] The Fund managed its strong showing in a record-breaking
market that, for much of 1995, was favored by declining
interest rates, strong corporate profits, and mild
inflation. A complete discussion of market conditions during the reporting
period and the Fund's investment strategy appears on page 2 of this report.
The Fund also provided an annualized ratio of net portfolio income to average
net assets of 5.98%, which compares favorably to the 5.08% yield posted by the
90-day U.S. Treasury bill as of December 31, 1995.
Net assets in the Fund increased during the year to $67.7 million as of
December 31, 1995. Net asset value per share increased to $9.70 from $9.18.
Market value per share increased to $8.38 from $8.00. As a closed-end fund, AIM
Strategic Income Fund, Inc. has a limited number of shares that trade on the
American Stock Exchange under the symbol AST.
Although it has been a good year for AIM Strategic Income Fund, Inc., it is
but one year. From a historic perspective, a repeat of 1995's strong
performance in financial markets is unlikely. Therefore, even as we relish the
success of a good year, we are already looking ahead.
On a personal level, the year to come has important investment implications
for all of us. Clouds on the horizon in the form of the budget debate over
retirement benefits such as Medicare and Social Security programs accentuate the
need to build your own retirement nest egg, independent of any benefits which
may--or may not--be available to you when the time comes. For many in the baby
boomer generation, that's just 10 years away.
Thank you for continuing to rely on AIM Strategic Income Fund, Inc. to help
build your financial future. We are ready to respond to any questions or
comments you may have about this report. Please call the Investor Relations
Department at 800-426-5523 during normal business hours, 7:30 am-5:00 pm EST.
Respectfully submitted,
/s/ CHARLES T. BAUER
Charles T. Bauer
Chairman
<PAGE> 4
===============================================================================
TOP 10 INDUSTRIES (As of 12/31/95)
===============================================================================
1. Semiconductors
2. Medical (Drugs)
3. Computer Software &
Services
4. Telecommunications
5. Tobacco
6. Computer MINIs/PCs
7. Finance (Consumer Credit)
8. Computer Peripherals
9. Computer Networking
10. Medical (Patient Services)
===============================================================================
Management's
Discussion & Analysis
MARKETS STAGE A DRAMATIC RECOVERY IN 1995
Sharply declining interest rates, mild inflation, and healthy corporate profits
mixed the powerful recipe that launched one of the strongest rallies for
stocks and bonds on record. The strength of the rally surprised many investors,
coming on the heels of the disappointing performance of financial markets in
1994.
The strength in stock markets was broad-based, resuscitating large-
capitalization stocks that had been out of favor for three years. The
popular Dow Jones Industrial Average (DJIA) breached two milestones--sailing
past 4000 in February and 5000 in November--shattering 69 record levels in its
wake by year-end. Not to be outdone, the S&P 500 sprinted ahead of the DJIA to
deliver its best one-year performance since 1958.
The record advance also netted only modest relative volatility--the largest
correction in the DJIA has been no more than 3.3% since its trough in 1990--
thanks to more frequent group rotations within the market. Evolving market
leadership carried various sectors into and out of favor, yet left the major
averages virtually unscathed.
The bond market's rally was paced by a sharp drop in long-term yields, which
saw the benchmark 30-year U.S. Treasury fall to 5.95% by year-end, from 7.88%
at the close of 1994. Yields on one-year and five-year U.S. Treasury securities
followed suit by declining more than 200 basis points to 5.132% and 5.150%,
respectively. (A basis point is 1/100 of a percentage point.) The yield on the
90-day U.S. Treasury bill ended the year at 5.08%, and the 30-year U.S.
Treasury bond yield was pushed below 6% for the first time since late 1993.
As the year drew to a close, economic conditions continued to favor bonds.
However, end-of-year profit taking and seasonal tax selling slowed the stock
market's remarkable advance, and most major averages peaked for the year. On
the whole, 1995 ended triumphantly for investors with stocks at historic highs,
bond yields the lowest since 1993, and the U.S. dollar on solid ground.
YOUR INVESTMENT PORTFOLIO
AIM Strategic Income Fund, Inc. delivered a solid performance during 1995
thanks to its unique investment strategy. The Fund invests primarily in
convertible securities, which tend to participate in the appreciation of the
underlying common stocks while providing a higher level of current income.
Convertible securities also tend to decline less in falling markets than the
underlying common stocks. The Fund seeks to generate income from the interest
and dividends paid on the convertible securities, and from the proceeds
generated on "short sales."
In a short sale, the investor first sells the stock at the current market
value, and later repurchases the stock. As a result of short
===============================================================================
THE PASSING OF MILLENIA ON THE DOW
===============================================================================
It took 15 years, from 1972 to 1987, for
the DJIA to climb to its next 1000
mark. It took only nine months in 1995.
After breaking 5000, the DJIA sailed past [LINE CHART]
5100 and then 5200 before year-end DJIA Rise
logging its largest one-year point 11/14/72 1000
gain ever: 1282.68 1/8/87 2000
4/17/91 3000
2/23/95 4000
11/21/95 5000
Source: Barron's
===============================================================================
See important Fund disclosure on inside front cover.
2
<PAGE> 5
Management's
Discussion & Analysis
sales, the Fund creates a credit balance in the portfolio--and may earn
additional income for the shareholder. Short selling also helps the Fund to
cushion the portfolio against market risk.
Remember to keep in mind, the Fund's portfolio composition is subject to
change and there is no guarantee the Fund will continue to hold any particular
security mentioned in this report.
1995 was the strongest year in recent memory for the technology sector.
Semiconductor stocks led the group for much of the year, thanks to surging
demand for PCs from consumer and business systems markets. The Fund benefited
from its positions in such market leaders as LAM Research Corp. and LSI Logic
Corp., which reported record revenues during the year. While the group
retreated late in the year, the Fund maintained a core position in a number of
issues which appeared to offer solid value over the longer term. Worldwide
revenues from the semiconductor market are expected to grow by approximately
20% in 1996.
The phenomenal rise in Internet-related companies later in the year boosted
prices for computer networking stocks, including Bay Networks and 3Com Corp.
Software publishers also reported record profits in 1995.
Approximately 18% of the Fund's portfolio was invested in the health-care
sector. The continuing profit drivers for the health-care sector are three: an
aging baby-boomer population, improving cost containment, and anticipation of
universal coverage for all. Health maintenance organizations, hospitals, and
medical services distributors are beginning to reap benefits from ongoing
cost-containment campaigns. The Fund chose to address these themes by
emphasizing those companies most likely to benefit, including Genesis Health
Ventures and Multicare Companies, which posted strong gains during 1995.
The Fund increased its weighting in selected specialty retailers,
particularly "super-stores" which have attracted significant business away from
community malls, and the emerging niche retailers which target mail order
customers by offering attractive pricing, better selection, superior
distribution systems, and the convenience of catalogue shopping.
OUTLOOK FOR THE FUTURE
Most analysts and market watchers agree: 1995 will be a hard act to follow. Yet
some maintain that this aging bull market--the Dow has gone more than five years
without experiencing a 10% correction--may have plenty of steam left. Barron's
recently reported analysts' estimates that projected the Dow well past 5500
during the coming year. Of course, a significant complement of market
strategists also believe a correction is due.
At this writing, the bond market appears to be extending its rally into the
new year. The central bank recently lowered short-term interest rates by 0.25%,
a move apparently anticipated by investors given current slope of the U.S.
Treasury yield curve. Lower interest rates could help extend the positive
growth cycle for corporate earnings, a boost for stocks.
Rather than make any projections of future market performance, AIM Strategic
Income Fund, Inc. remains focused on a disciplined investment strategy which
endeavors to reduce volatility and generate above-average income. The Fund
selects convertible securities on a company-by-company basis to determine which
issues to own and which to sell--without the guesswork of market timing. We
believe our commitment to this time-tested strategy will provide the best
opportunity for growth for our shareholders over the long term.
PORTFOLIO COMPOSITION
(As of 12/31/95)
[PIE CHART]
Convertible Bonds 85.27%
Convertible Preferred Stocks 12.82%
Common Stocks .0082%
===============================================================================
BOND MARKETS AT A GLANCE
===============================================================================
Comparison of yields at year-end
12/95 12/94
U.S. Treasury Securities
90-Day 5.072% 5.682%
1-Year 5.132 7.162
5-Year 5.374 7.827
10-Year 5.570 7.827
Barron's Corporate Bond Indexes
Best Grade* 6.70% 8.34%
Interim Grade** 6.85 8.97
*Barron's index of 10 high-grade corporate bonds. **Barron's Index of 10
medium-grade corporate bonds.
===============================================================================
Source: Barron's
See important Fund disclosure on inside front cover.
3
<PAGE> 6
Long-term
Performance
GROWTH OF A $10,000 INVESTMENT
AVERAGE ANNUAL TOTAL RETURNS
Based on net asset value as of December 31, 1995
1 Year 13.51%
5 Years 10.44
Inception (3/23/89) 9.76
AIM STRATEGIC INCOME FUND 3-MONTH U.S. TREASURY BILLS
3/89 $10,000 $10,000
12/89 10,720 10,843
12/90 11,430 11,657
12/91 13,360 12,259
12/92 14,777 12,680
12/93 16,451 13,064
12/94 16,549 13,664
12/95 18,784 14,397
Source: Towers Data Systems HYPO(R)
An investment cannot be made in any indexes listed. Unless otherwise indicated,
index results include reinvested dividends and do not reflect sales charges.
For Fund performance calculations and a description of any indexes cited on
this page, please refer to the inside front cover of this report.
4
<PAGE> 7
----------------
Your financial
consultant can
assist you in
developing an asset
allocation strategy
and select the
appropriate invest-
ments to help you
meet your
long-term
investment goals.
----------------
ASSET ALLOCATION HELPS YOU MANAGE
YOUR INVESTMENTS IN CHANGING MARKETS
Every mutual fund investor would like to invest in a market that only goes up--a
tide that floats all ships. The truth is, markets also decline. But market
changes do not affect all investments the same way--some investments may benefit
from a market trend when others do not.
And market changes are not the only factors an investor must manage. There
are a number of important considerations with every investment including
investment risk, and investment risk takes many forms:
o MARKET RISK. The prices of some investments will fluctuate according to
changes in the market.
o INTEREST RATE RISK. The value of some investments, such as fixed-income
securities, will rise and fall as interest rates change.
o REINVESTMENT RISK. When interest rates fall, investors face the
possibility that investment income cannot be reinvested at higher rates
previously available.
o INFLATION RISK. Inflation can cause the value of some investments to
erode as the cost of living increases.
o CURRENCY RATE RISK. Investments valued in U.S. dollars will rise and fall
according to the dollar's value against other world currencies.
To manage these changing conditions, investors have learned to diversify
their assets across a wide variety of investments. For most investors, mutual
funds offer convenient and affordable methods to diversify their assets. For as
little as $500, an investor has access to a portfolio of hundreds of
professionally selected securities.
When you invest in more than one fund, you increase the level of
diversification. You also gain another important benefit. Since mutual funds are
managed according to specific investment objectives, such as growth or income,
you can invest in mutual funds with different investment objectives to create a
personalized investment plan which suits your unique financial objectives. This
investment strategy is called asset allocation.
Mutual fund investors tend to seek growth, or current income, or some
combination of both. Generally, investors who choose to assume more investment
risk get the potential for a higher return. With asset allocation, you can
fine-tune your investment plan to be more conservative, or more aggressive,
depending on your personal financial goals and risk tolerances.
Your financial consultant can assist you in developing an asset allocation
strategy and select the appropriate investments to help you meet your long-term
investment goals.
5
<PAGE> 8
<TABLE>
<CAPTION>
RELATIVELY
AGGRESSIVE OBJECTIVE FUND
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
Aggressive Growth AIM Aggressive Growth Fund*
AIM Constellation Fund
AIM Global Aggressive Growth Fund
- -----------------------------------------------------------------------------------------------
Growth AIM Global Growth Fund
AIM Growth Fund
AIM International Equity Fund
AIM Value Fund
AIM Weingarten Fund
- -----------------------------------------------------------------------------------------------
Growth and Income AIM Balanced Fund
AIM Charter Fund
- -----------------------------------------------------------------------------------------------
Income and Growth AIM Global Utilities Fund**
- -----------------------------------------------------------------------------------------------
High Current Income AIM High Yield Fund
- -----------------------------------------------------------------------------------------------
Current Income AIM Global Income Fund
AIM Income Fund
- -----------------------------------------------------------------------------------------------
Current Tax-Free Income AIM Municipal Bond Fund
AIM Tax-Exempt Bond Fund of CT
AIM Tax-Free Intermediate Shares
- -----------------------------------------------------------------------------------------------
Current Income AIM Intermediate Government Fund***
and High Degree of Safety
- -----------------------------------------------------------------------------------------------
High Degree of Safety AIM Limited Maturity Treasury Shares
and Current Income
- -----------------------------------------------------------------------------------------------
Stability, Liquidity AIM Money Market Fund
and Current Income
- -----------------------------------------------------------------------------------------------
Stability, Liquidity AIM Tax-Exempt Cash Fund
and Current Tax-Free Income
- -----------------------------------------------------------------------------------------------
RELATIVELY
CONSERVATIVE
</TABLE>
*AIM Aggressive Growth Fund was closed to new investors on
July 18, 1995. **May 1, 1995, AIM Utilities Fund broadened
its investment strategy to permit up to 80% of its total assets
to be invested in foreign securities, and was renamed AIM Global
Utilities Fund. ***On September 25, 1995 AIM Government Securities
Fund was renamed AIM Intermediate Government 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.
6
<PAGE> 9
Financials
SCHEDULE OF INVESTMENTS
December 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MARKET VALUE
<S> <C> <C>
CONVERTIBLE BONDS & NOTES-85.27%(a)
AIRLINES-0.73%
$ 500,000 Alaska Air Group Inc., Conv. Sub. Deb., ($258,001) 6.50%,
06/15/05 $ 493,750
- -------------------------------------------------------------------------------------------
BEVERAGES (ALCOHOLIC)-2.83%
3,000,000 J Seagram & Sons, Inc., Liquid Yield Option Notes,
($2,060,738) 4.45%(b), 03/05/06 1,916,250
- -------------------------------------------------------------------------------------------
BIOTECHNOLOGY-2.15%
1,200,000 Genzyme Corp., Sub. Deb., ($559,545) 6.75%, 10/01/01 1,454,400
- -------------------------------------------------------------------------------------------
BUSINESS SERVICES-0.88%
500,000 Olsten Corp., Conv. Sub. Deb., ($278,401) 4.875%, 05/15/03 594,850
- -------------------------------------------------------------------------------------------
COMPUTER MAINFRAMES-1.12%
850,000 Unisys Corp., Conv. Sub. Notes, ($716,625) 8.25%, 08/01/00 760,750
- -------------------------------------------------------------------------------------------
COMPUTER NETWORKING-9.01%
1,000,000 Aspect Telecommunications Corp., Conv. Sub. Deb., ($622,001)
5.00%, 10/15/03(c) (acquired 07/18/95-07/20/95; cost
$1,234,672) 1,755,000
- -------------------------------------------------------------------------------------------
1,500,000 Bay Networks, Inc., Conv. Sub. Deb., ($681,760) 5.25%,
05/15/03(c)
(acquired 10/03/95-11/15/95; cost $1,611,250) 1,627,500
- -------------------------------------------------------------------------------------------
612,000 Network Equipment Technologies, Inc., Conv. Deb., ($365,401)
7.25%, 05/15/14 626,810
- -------------------------------------------------------------------------------------------
1,300,000 3Com Corp., Conv. Sub. Notes, ($725,815) 10.25%, 11/01/01(c)
(acquired 11/08/94-01/04/95; cost $1,314,250) 2,086,500
- -------------------------------------------------------------------------------------------
6,095,810
- -------------------------------------------------------------------------------------------
COMPUTER PERIPHERALS-5.29%
1,000,000 EMC Corp., Conv. Deb., ($555,512) 4.25%, 01/01/01 1,010,000
- -------------------------------------------------------------------------------------------
1,000,000 Sanmina Corporation, Conv. Sub. Notes, ($608,966) 5.50%,
08/15/02(c)
(acquired 08/10/95; cost $1,000,000) 1,105,000
- -------------------------------------------------------------------------------------------
1,500,000 Storage Technology Corp., Conv. Sub. Deb., ($775,500) 8.00%,
05/31/15 1,462,500
- -------------------------------------------------------------------------------------------
3,577,500
- -------------------------------------------------------------------------------------------
COMPUTER SOFTWARE/SERVICES-0.72%
650,000 SoftKey International, Inc., Conv. Sr. Notes, ($318,001)
5.50%, 11/01/00(c)
(acquired 10/18/95-10/30/95; cost $644,875) 490,750
- -------------------------------------------------------------------------------------------
ELECTRONIC COMPONENTS/MISCELLANEOUS-5.31%
1,000,000 Altera Corp., Conv. Sub. Notes, ($716,381) 5.75%, 06/15/02(c)
(acquired 06/16/95; cost $1,000,000) 1,165,000
- -------------------------------------------------------------------------------------------
1,000,000 Dovatron International, Conv. Sub. Notes, ($525,000) 6.00%,
10/15/02(c)
(acquired 10/05/95-10/10/95; cost $998,750) 1,075,000
- -------------------------------------------------------------------------------------------
1,000,000 Integrated Device Technology Inc., Conv. Sub. Notes,
($744,253) 5.50%, 06/01/02 825,000
- -------------------------------------------------------------------------------------------
500,000 Telxon Corp., Conv. Deb., ($247,501) 5.75%, 01/01/03(c)
(acquired 12/07/95; cost $513,125) 530,000
- -------------------------------------------------------------------------------------------
3,595,000
- -------------------------------------------------------------------------------------------
HOTELS/MOTELS-4.43%
750,000 Hospitality Franchise Systems, Inc., Conv. Sr. Notes,
($616,993) 4.50%, 10/01/99 1,743,750
- -------------------------------------------------------------------------------------------
1,200,000 Prime Hospitality Corp., Conv. Sub. Notes, ($660,001) 7.00%,
04/15/02 1,254,000
- -------------------------------------------------------------------------------------------
2,997,750
- -------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 10
Financials
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MARKET VALUE
<S> <C> <C>
MACHINERY-3.75%
$ 1,500,000 Thermo Electron Corp., Conv. Deb., ($1,102,502) 5.00%,
04/15/01(c)
(acquired 04/07/94; cost $1,508,000) $ 2,536,800
- -------------------------------------------------------------------------------------------
MEDICAL (INSTRUMENTS/PRODUCTS)-4.62%
1,000,000 Omnicare, Inc., Conv. Sub. Notes, ($742,088) 5.75%, 10/01/03 3,125,000
- -------------------------------------------------------------------------------------------
MEDICAL (PATIENT SERVICES)-12.00%
1,750,000 Beverly Enterprises, Inc., Conv. Sub. Deb., ($1,419,660)
5.50%, 08/01/18 1,680,000
- -------------------------------------------------------------------------------------------
1,300,000 Genesis Health Ventures, Inc., Conv. Sr. Sub. Deb.,
($951,553) 6.00%, 11/30/03 2,143,375
- -------------------------------------------------------------------------------------------
1,700,000 Healthsouth Rehabilitation Corp., Conv. Sub. Deb.,
($1,109,939) 5.00%, 04/01/01 2,747,710
- -------------------------------------------------------------------------------------------
1,000,000 Integrated Health Services, Inc., Conv. Sub. Deb., ($481,882)
6.00%, 01/01/03 995,500
- -------------------------------------------------------------------------------------------
500,000 Multicare Companies, Inc., Conv. Sub. Deb., ($260,001) 7.00%,
03/15/03(c)
(acquired 03/09/95; cost $500,000) 550,900
- -------------------------------------------------------------------------------------------
8,117,485
- -------------------------------------------------------------------------------------------
METALS-2.91%
1,500,000 Inco Ltd., Sub. Deb., ($1,200,002) 5.75%, 07/01/04 1,972,500
- -------------------------------------------------------------------------------------------
OFFICE AUTOMATION-3.10%
1,500,000 Danka Business Systems PLC, Yankee Conv. Sub. Notes,
($757,250) 6.75%, 04/01/02 2,096,250
- -------------------------------------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-2.46%
1,200,000 Pogo Producing Co., Conv. Sub. Notes, ($931,897) 5.50%,
03/15/04 1,662,000
- -------------------------------------------------------------------------------------------
POLLUTION CONTROL-1.49%
1,000,000 Browning-Ferris Industries, Conv. Sub. Deb. ($779,008) 6.25%,
08/15/12 1,005,000
- -------------------------------------------------------------------------------------------
RESTAURANTS-2.83%
Starbucks Corp., Conv. Sub. Deb., ($480,005)
500,000 4.25%, 11/01/02 530,000
- -------------------------------------------------------------------------------------------
1,000,000 4.50%, 08/01/03 1,385,000
- -------------------------------------------------------------------------------------------
1,915,000
- -------------------------------------------------------------------------------------------
RETAIL STORES-7.68%
1,300,000 Baby Superstore, Inc., Conv. Sub. Notes, ($646,500) 4.875%,
10/01/00 1,534,000
- -------------------------------------------------------------------------------------------
4,000,000 Office Depot, Inc., Liquid Yield Option Notes, ($2,597,092)
5.00%(b), 12/11/07 2,670,000
- -------------------------------------------------------------------------------------------
1,000,000 Staples, Inc., Conv. Notes, ($495,001) 4.50%, 10/01/00(c)
(acquired 09/12/95; cost $1,000,000) 990,000
- -------------------------------------------------------------------------------------------
5,194,000
- -------------------------------------------------------------------------------------------
SEMICONDUCTORS-10.91%
1,000,000 LAM Research Corp., Conv. Sub. Deb., ($650,000) 6.00%,
05/01/03 1,855,000
- -------------------------------------------------------------------------------------------
1,000,000 LSI Logic Corp., Conv. Sub. Notes, ($735,001) 5.50%,
03/15/01(c)
(acquired 03/18/94 - 05/04/94; cost $1,075,000) 2,755,000
- -------------------------------------------------------------------------------------------
3,000,000 Solectron Corp., Liquid Yield Option Notes, ($2,020,008)
7.00%(b), 05/05/12 2,775,000
- -------------------------------------------------------------------------------------------
7,385,000
- -------------------------------------------------------------------------------------------
TRANSPORTATION (MISCELLANEOUS)-1.05%
700,000 Varlen Corp., Conv. Sub. Deb., ($481,059) 6.50%, 06/01/03 710,500
- -------------------------------------------------------------------------------------------
Total Convertible Bonds & Notes 57,696,345
- -------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 11
Financials
<TABLE>
<CAPTION>
SHARES MARKET VALUE
<S> <C> <C>
CONVERTIBLE PREFERRED STOCKS-12.82%(a)
AUTOMOBILE (MANUFACTURERS)-4.33%
40,000 General Motors Corp., $3.25 Series C Conv. Pfd.,
(28,414 shares) $ 2,930,000
- -------------------------------------------------------------------------------------------
FINANCE (ASSET MANAGEMENT)-2.19%
20,000 SCI Finance LLC, $3.125 Series A Conv. Pfd. (13,120 shares) 1,480,000
- -------------------------------------------------------------------------------------------
FINANCE (CONSUMER CREDIT)-1.06%
10,000 Penncorp Financial Group, $3.375 Conv. Pfd. (6,328 shares) 713,750
- -------------------------------------------------------------------------------------------
OIL & GAS (DRILLING)-1.66%
25,000 Reading & Bates Corp., $1.625 Conv. Pfd. (14,833 shares) 1,125,000
- -------------------------------------------------------------------------------------------
OIL & GAS (SERVICES)-1.06%
30,000 Enron Corp., $1.36 Conv. Pfd. (9,681 shares) 720,000
- -------------------------------------------------------------------------------------------
TELECOMMUNICATIONS-2.52%
35,000 MFS Communications, Inc., $2.68 Conv. Pfd. (18,300 shares) 1,704,063
- -------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks 8,672,813
- -------------------------------------------------------------------------------------------
COMMON STOCKS-0.82%
COMPUTER NETWORKING-0.82%
20,254 Network Equipment Technologies, Inc. 554,454
- -------------------------------------------------------------------------------------------
HOTELS/MOTELS-0.00%
13 Prime Hospitality Corp. 130
- -------------------------------------------------------------------------------------------
Total Common Stocks 554,584
- -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
REPURCHASE AGREEMENT-5.70%(d)
$ 3,854,052 Daiwa Securities America, Inc., 5.92%, 01/02/96(e) 3,854,052
- -------------------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES-104.61% 70,777,794
- -------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(4.61)% (3,116,830)
- -------------------------------------------------------------------------------------------
NET ASSETS-100.00% $67,660,964
===========================================================================================
</TABLE>
(a) Amount in parentheses represents principal amount or number of shares
deposited in escrow with custodian as collateral for securities sold
short.
(b) Zero-coupon bond issued at a discount. The interest rate shown represents
the rate of original issue discount.
(c) Restricted securities. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The valuation of these securities has been determined in
accordance with procedures established by the Board of Directors. The
aggregate market value of these securities at December 31, 1995 was
$16,667,450 which represents 24.63% of the net assets.
(d) Collateral on repurchase agreements, including the Fund's pro-rata
interest in joint repurchase agreements, is taken into possession by the
Fund upon entering into the repurchase agreement. The collateral is
marked-to-market daily to ensure its market value as being 102% of the
sales price of the repurchase agreement. The investments in some
repurchase agreements are through participation in joint accounts with
other mutual funds managed by the investment advisor.
(e) Joint repurchase agreement entered into 12/29/95 with a maturing value of
$646,679,181. Collateralized by $537,995,000 U.S. Treasury obligations,
7.875% to 11.25% due 11/15/07 to 02/15/15.
Abbreviations:
Conv. - Convertible
Deb. - Debenture
Pfd. - Preferred
Sr. - Senior
Sub. - Subordinated
See Notes to Financial Statements
9
<PAGE> 12
Financials
SECURITIES SOLD SHORT
December 31, 1995
<TABLE>
<CAPTION>
COMMON SHARES
(OR
EQUIVALENT SHARES MARKET
IN ESCROW) SOLD SHORT SECURITIES SOLD SHORT VALUE
<S> <C> <C> <C>
12,000 12,000 Alaska Air Group Inc. $ 195,000
- -------------------------------------------------------------------------------------------------------
14,000 14,000 Altera Corp. 696,500
- -------------------------------------------------------------------------------------------------------
32,000 32,000 Aspect Telecommunications Corp. 1,072,000
- -------------------------------------------------------------------------------------------------------
12,000 12,000 Baby Superstore, Inc. 684,000
- -------------------------------------------------------------------------------------------------------
16,000 16,000 Bay Networks, Inc. 658,000
- -------------------------------------------------------------------------------------------------------
106,500 106,500 Beverly Enterprises, Inc. 1,131,563
- -------------------------------------------------------------------------------------------------------
19,000 19,000 Browning-Ferris Industries 560,500
- -------------------------------------------------------------------------------------------------------
26,000 26,000 Danka Business Systems PLC 962,000
- -------------------------------------------------------------------------------------------------------
14,000 14,000 Dovatron International 472,500
- -------------------------------------------------------------------------------------------------------
28,000 28,000 EMC Corp. 430,500
- -------------------------------------------------------------------------------------------------------
8,000 8,000 Enron Corp. 192,000
- -------------------------------------------------------------------------------------------------------
40,001 40,000 General Motors Corp. 2,080,000
- -------------------------------------------------------------------------------------------------------
42,000 42,000 Genesis Health Ventures, Inc. 1,533,000
- -------------------------------------------------------------------------------------------------------
12,000 12,000 Genzyme Corp. 748,500
- -------------------------------------------------------------------------------------------------------
59,000 59,000 Healthsouth Rehabilitation Corp. 1,718,375
- -------------------------------------------------------------------------------------------------------
17,000 17,000 Hospitality Franchise Systems, Inc. 1,389,750
- -------------------------------------------------------------------------------------------------------
40,000 40,000 Inco Ltd. 1,330,000
- -------------------------------------------------------------------------------------------------------
26,000 26,000 Integrated Device Technology, Inc. 334,750
- -------------------------------------------------------------------------------------------------------
15,000 15,000 Integrated Health Services, Inc. 375,000
- -------------------------------------------------------------------------------------------------------
26,000 26,000 LAM Research Corp. 1,189,500
- -------------------------------------------------------------------------------------------------------
60,000 60,000 LSI Logic Corp. 1,965,000
- -------------------------------------------------------------------------------------------------------
17,000 17,000 MFS Communications, Inc. 905,250
- -------------------------------------------------------------------------------------------------------
10,000 10,000 Multicare Companies, Inc. 240,000
- -------------------------------------------------------------------------------------------------------
11,600 11,600 Network Equipment Technology, Inc. 317,550
- -------------------------------------------------------------------------------------------------------
76,000 76,000 Office Depot, Inc. 1,501,000
- -------------------------------------------------------------------------------------------------------
8,000 8,000 Olsten Corp. 316,000
- -------------------------------------------------------------------------------------------------------
51,400 51,400 Omnicare, Inc. 2,300,150
- -------------------------------------------------------------------------------------------------------
14,000 14,000 Penncorp Financial Group 411,250
- -------------------------------------------------------------------------------------------------------
42,000 42,000 Pogo Producing Co. 1,186,500
- -------------------------------------------------------------------------------------------------------
55,000 55,000 Prime Hospitality Corp. 550,000
- -------------------------------------------------------------------------------------------------------
43,001 43,000 Reading & Bates Corp. 645,000
- -------------------------------------------------------------------------------------------------------
10,800 10,800 Sanmina Corporation 560,250
- -------------------------------------------------------------------------------------------------------
38,000 38,000 J Seagram & Sons, Inc. 1,315,750
- -------------------------------------------------------------------------------------------------------
21,802 21,800 Service Corp. International 959,200
- -------------------------------------------------------------------------------------------------------
6,000 6,000 SoftKey International, Inc. 138,750
- -------------------------------------------------------------------------------------------------------
42,000 42,000 Solectron Corp. 1,853,250
- -------------------------------------------------------------------------------------------------------
15,000 15,000 Staples, Inc. 365,625
- -------------------------------------------------------------------------------------------------------
32,000 32,000 Starbucks Corp. 672,000
- -------------------------------------------------------------------------------------------------------
22,000 22,000 Storage Technology Corp. 525,250
- -------------------------------------------------------------------------------------------------------
9,000 9,000 Telxon Corp. 203,625
- -------------------------------------------------------------------------------------------------------
35,000 35,000 Thermo Electron Corp. 1,820,000
- -------------------------------------------------------------------------------------------------------
21,000 21,000 3Com Corp. 979,125
- -------------------------------------------------------------------------------------------------------
70,000 70,000 Unisys Corp. 393,750
- -------------------------------------------------------------------------------------------------------
17,600 17,600 Varlen Corp. 378,400
- -------------------------------------------------------------------------------------------------------
$38,256,113
- -------------------------------------------------------------------------------------------------------
</TABLE>
As indicated in the Schedule of Investments, securities which are convertible
into at least the number of shares sold short have been deposited in escrow with
the custodian.
See Notes to Financial Statements.
10
<PAGE> 13
Financials
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investment securities, at market value (cost $56,405,981) $ 70,777,794
- -----------------------------------------------------------------------------------------
Cash 5,738,211
- -----------------------------------------------------------------------------------------
Receivables for:
Investments sold short 28,991,655
- -----------------------------------------------------------------------------------------
Interest and dividends 594,175
- -----------------------------------------------------------------------------------------
Other assets 9,147
- -----------------------------------------------------------------------------------------
Total assets 106,110,982
- -----------------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Dividends to shareholders 60,871
- -----------------------------------------------------------------------------------------
Dividends on short sales 5,748
- -----------------------------------------------------------------------------------------
Short positions covered 24,199
- -----------------------------------------------------------------------------------------
Market value of securities sold short (proceeds from sales $28,991,655) 38,256,113
- -----------------------------------------------------------------------------------------
Accrued advisory fees 45,661
- -----------------------------------------------------------------------------------------
Accrued accounting service fees 5,325
- -----------------------------------------------------------------------------------------
Accrued operating expenses 52,101
- -----------------------------------------------------------------------------------------
Total liabilities 38,450,018
- -----------------------------------------------------------------------------------------
Net assets applicable to shares outstanding $ 67,660,964
=========================================================================================
CAPITAL STOCK, $.001 PAR VALUE PER SHARE:
Authorized 200,000,000
- -----------------------------------------------------------------------------------------
Outstanding 6,976,644
=========================================================================================
Net asset value per share $ 9.70
=========================================================================================
</TABLE>
See Notes to Financial Statements.
11
<PAGE> 14
Financials
STATEMENT OF OPERATIONS
For the year ended December 31, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 4,224,085
- ----------------------------------------------------------------------------------------
Dividends 609,051
- ----------------------------------------------------------------------------------------
Total investment income 4,833,136
- ----------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 529,080
- ----------------------------------------------------------------------------------------
Custodian fees 28,156
- ----------------------------------------------------------------------------------------
Transfer agent fees 22,849
- ----------------------------------------------------------------------------------------
Accounting service fees 52,934
- ----------------------------------------------------------------------------------------
Printing fees 54,535
- ----------------------------------------------------------------------------------------
Directors' fees and expenses 2,362
- ----------------------------------------------------------------------------------------
Dividends on short sales (net of $2,721 foreign withholding tax) 131,068
- ----------------------------------------------------------------------------------------
Other 52,849
- ----------------------------------------------------------------------------------------
Total expenses 873,833
- ----------------------------------------------------------------------------------------
Net investment income 3,959,303
- ----------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES AND OPTIONS
TRANSACTIONS:
Net realized gain on sales of investment securities 1,086,491
- ----------------------------------------------------------------------------------------
Net realized gain (loss) on options contracts (110,905)
- ----------------------------------------------------------------------------------------
Net realized gain (loss) on securities sold short (1,545,287)
- ----------------------------------------------------------------------------------------
Net realized gain (loss) on investment securities and options
transactions (569,701)
- ----------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 4,434,483
- ----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 7,824,085
========================================================================================
</TABLE>
See Notes to Financial Statements.
12
<PAGE> 15
Financials
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
OPERATIONS:
Net investment income $ 3,959,303 $ 3,559,322
- ------------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investment
securities and options transactions (569,701) (521,935)
- ------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities 4,434,483 (3,118,038)
- ------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 7,824,085 (80,651)
- ------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income (4,185,673 ) (3,191,511)
- ------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains
(losses) on investment securities -- (771,455)
- ------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 3,638,412 (4,043,617)
- ------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period $64,022,552 $68,066,169
- ------------------------------------------------------------------------------------------
End of period $67,660,964 $64,022,552
==========================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $64,411,350 $64,411,350
- ------------------------------------------------------------------------------------------
Undistributed net investment income 141,441 367,811
- ------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) on sales of
investment securities and options transactions (1,999,182) (1,429,481)
- ------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 5,107,355 672,872
- ------------------------------------------------------------------------------------------
$67,660,964 $64,022,552
==========================================================================================
</TABLE>
See Notes to Financial Statements.
13
<PAGE> 16
Financials
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Strategic Income Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as a diversified, closed-end
management investment company. The Fund was incorporated under the laws of the
State of Maryland on December 22, 1988 and commenced trading on the American
Stock Exchange on March 23, 1989 under the symbol "AST". The Fund's investment
objective is to seek high current income consistent with stability of principal.
The Fund will seek to achieve its objective primarily by pursuing a strategy of
investing in convertible securities and by employing short selling to enhance
income and hedge against market risk. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. The following is a summary of the significant accounting
policies followed by the Fund in the preparation of its financial statements.
A. Security Valuations - Investments in securities, including options and
securities sold short (but excluding convertible bonds), that are traded on a
national securities exchange or on the NASDAQ National Market System are
valued at market using the last reported sales price. Exchange listed
convertible bonds are valued at the mean between the closing bid and asked
prices obtained from a broker-dealer. Securities traded in the
over-the-counter market and listed securities for which no sales were
reported are valued at the mean of the most recently quoted bid and asked
prices. When market quotations are not readily available from the above
sources for the Fund's debt securities, such securities are valued based upon
appraisals received from a pricing service using a computerized matrix
system, or based upon appraisals derived from information concerning the
securities or similar securities received from recognized dealers in those
securities. Securities for which market quotations are either not readily
available or are questionable are valued at fair value as determined in good
faith by or under the supervision of the Fund's officers in accordance with
methods which are specifically authorized by the Board of Directors of the
Fund. Short-term obligations with maturities of 60 days or less are valued at
amortized cost which approximates market value.
B. Securities Transactions, Investment Income and Distributions - Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income, dividend expense on
short sales and distributions to shareholders are recorded on the ex-dividend
date.
C. Accounting for Securities Sold Short - When the Fund sells common stock
short, an amount equal to the proceeds of the sale is recorded as an asset.
This asset is offset by a liability (representing the borrowed security)
recorded on the books of the Fund at the market value of the common stock
determined each day in accordance with the procedures for security valuations
discussed in "A" above. The Fund's risk is that the value of the security
will increase rather than decline and thus an unrealized loss will be
recorded. When the Fund closes out a short position by delivering the stock
sold short, the Fund will realize a gain or loss and the liability related to
such short position will be eliminated. The Fund will attempt to hedge
against market risk by entering into short sales of securities that it
currently owns or has the right to acquire through the conversion or exchange
of other securities that it owns. Such short sales may protect the Fund
against the risk of losses in the value of its portfolio securities because
any unrealized losses with respect to such securities may be wholly or
partially offset by a corresponding gain in the short position. However, any
potential gains in such portfolio securities may be wholly or partially
offset by a corresponding loss in the short position. The Fund will attempt
to enhance income by entering into arrangements with the broker-dealers,
through which securities are sold short, to receive income with respect to
the proceeds of short sales during the period the Fund's short positions
remain open. During the year ended December 31, 1995, the Fund accrued
$1,527,804 of interest income with respect to such arrangements.
D. Covered Call Options - The Fund may write call options, but only on a covered
basis; that is, the Fund will own the underlying security or has the
immediate right to acquire, without additional consideration, through
conversion or exchange of other securities. Options written by the Fund
normally will have expiration dates between three and nine months from the
date written. The Fund may write only call options listed on national
14
<PAGE> 17
Financials
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued)
securities exchanges. The exercise price of a call option may be below, equal
to, or above the current market value of the underlying security at the time
the option is written. When the Fund writes a covered call option, an amount
equal to the premium received by the Fund is recorded as an asset and an
equivalent liability. The amount of the liability is subsequently
"marked-to-market" to reflect the current market value of the option written.
The current market value of a written option is the last sale price, or in
the absence of a sale, the mean between the last bid and asked prices on that
day. If a written call option expires on the stipulated expiration date, or
if the Fund enters into a closing purchase transaction, the Fund realizes a
gain (or a loss if the closing purchase transaction exceeds the premium
received when the option was written) without regard to any unrealized gain
or loss on the underlying security, and the liability related to such option
is extinguished. If a written option is exercised, the Fund realizes a gain
or a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received.
A call option gives the purchaser of such option the right to buy, and the
writer (the Fund) the obligation to sell, the underlying security at the
stated exercise price during the option period. The purchaser of a call
option has the right to acquire the security which is the subject of the call
option at any time during the option period. During the option period, in
return for the premium paid by the purchaser of the option, the Fund has
given up the opportunity for capital appreciation above the exercise price
should the market price of the underlying security increase, but has retained
the risk of loss should the price of the underlying security decline. During
the option period, the Fund may be required at any time to deliver the
underlying security against payment of the exercise price. This obligation is
terminated upon the expiration of the option period or at such earlier time
at which the Fund effects a closing purchase transaction by purchasing (at a
price which may be higher than that received when the call option was
written) a call option identical to the one originally written. The Fund will
not write a covered call option if, immediately thereafter, the aggregate
value of the securities underlying all such options, determined as of the
dates such options were written, would exceed 5% of the net assets of the
Fund.
E. Bond Premiums and Discounts - It is the policy of the Fund not to amortize
market premiums and discounts on bonds for financial reporting purposes.
Original issue discounts are amortized to interest income over the life of
the security.
F. 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 $1,281,552 (which may be carried forward to offset future
taxable capital gains, if any) which expires, if not previously utilized,
through the year 2003. The Fund cannot distribute capital gains to
shareholders until the tax loss carryforwards have been utilized.
NOTE 2 - ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund has entered into an investment advisory agreement with A I M Advisors,
Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund
will pay AIM a fee, calculated and paid monthly, in an amount equal to an
annualized rate of 0.80% of the Fund's average weekly net assets.
The Fund, pursuant to its investment advisory agreement with AIM, has agreed
to reimburse AIM for certain costs incurred in providing accounting services to
the Fund. During the year ended December 31, 1995, the Fund reimbursed AIM
$52,934 for such services.
Certain officers and directors of the Fund are officers of AIM.
Shareholders' Meeting
An annual meeting of shareholders of the Fund was held on April 25, 1995 (the
"Meeting"). The following two items were approved by the 3,918,466 shares
represented at the Meeting, with the following vote totals cast with respect to
each item:
(1) Election of Directors - At the Meeting, Messrs. Gary T. Crum and Owen Daly
II were reelected as Directors of the Fund. 3,849,757 shares voted for the
election of Messrs. Crum and Daly, respectively, while 68,709 shares
withheld authority, respectively. The other members of the Board, Messrs.
Charles T. Bauer, John F. Kroeger, Robert H. Graham, and Lewis F. Pennock,
continued in office.
15
<PAGE> 18
Financials
(2) Ratification of Appointment of Independent Auditors -- 3,764,921 shares
voted for ratification of the appointment of KPMG Peat Marwick LLP as
independent auditors for the Fund for the Fund's fiscal year ending
December 31, 1995. 108,815 shares voted against such ratification, and
44,730 shares abstained.
Rule 144A Securities
At its February 1996 meeting, the Board of Directors of the Fund clarified
the investment policies of the Fund regarding investments in securities that are
subject to restrictions on resale because they have not been registered under
the Securities Act of 1933 (the "1933 Act"). These securities are sometimes
referred to as private placements. Although securities which may be resold only
to "qualified institutional buyers" in accordance with the provisions of Rule
144A under the 1933 Act are unregistered securities, the Fund may purchase Rule
144A securities without regard to the limitation on investments in illiquid
securities, provided that a determination is made that such securities have a
readily available trading market. AIM will determine the liquidity of Rule 144A
securities under the supervision of the Fund's Board of Directors, and will
consider whether securities purchased under Rule 144A are illiquid and thus
subject to the Fund's restriction of investing no more than 33-1/3 of its assets
in illiquid securities. Determination of whether a Rule 144A security is liquid
or not is a question of fact. In making this determination AIM will consider the
trading markets for the specific security taking into account the unregistered
nature of a Rule 144A security. In addition, AIM will consider the (i) frequency
of trades and quotes, (ii) number of dealers and potential purchasers, (iii)
dealer undertakings to make a market, and (iv) nature of the security and or
market place trades (for example, the time needed to dispose of the security,
the method of soliciting offers and the mechanics of transfer). The liquidity of
Rule 144A securities will also be monitored by AIM and if it is determined that
a Rule 144A security is no longer liquid as a result of changed conditions, the
Fund's holdings of illiquid securities will be reviewed to determine what, if
any, action is required to assure that the Fund does not invest more than 33-1/3
of its assets in illiquid securities. Investing in Rule 144A securities could
have the effect of increasing the amount of the Fund's investments in illiquid
securities if qualified institutional buyers are unwilling to purchase such
securities.
NOTE 3 - DIVIDENDS
On December 27, 1995, the Board of Directors of the Fund declared a dividend of
$.05 per share of net investment income payable January 23, 1996 to shareholders
of record on January 12, 1996. On January 26, 1996 the Board of Directors
declared a dividend of $.05 per share of net investment income payable February
23, 1996 to shareholders of record on February 12, 1996.
NOTE 4 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold during the year ended December 31, 1995, was $67,911,597 and
$71,396,334, respectively.
The amount of unrealized appreciation (depreciation) of investments on a tax
basis as of December 31, 1995, is as follow:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of:
Investment securities $15,640,586
- ----------------------------------------------------------------------------------------------------------------
Securities sold short 1,325,069
- ----------------------------------------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of:
Investment securities (1,268,773)
- ----------------------------------------------------------------------------------------------------------------
Securities sold short (10,358,064)
- ----------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities $ 5,338,818
================================================================================================================
</TABLE>
Cost of investment securities for tax purposes is $56,405,981. Proceeds from
securities sold short for tax purposes is $29,223,118.
NOTE 5 - OPTION CONTRACTS WRITTEN
Transactions in call options written during the year ended December 31, 1995 are
summarized as follows:
<TABLE>
<CAPTION>
OPTION CONTRACTS
----------------------
NUMBER
OF PREMIUMS
CONTRACTS RECEIVED
-------- -------
<S> <C> <C>
Beginning of year -- --
- ------------------------------------------------------------------------------------------------------------------
Written 390 $66,382
- ------------------------------------------------------------------------------------------------------------------
Closed (340) (59,974)
- ------------------------------------------------------------------------------------------------------------------
Exercised -- --
- ------------------------------------------------------------------------------------------------------------------
Expired (50) (6,408)
- ------------------------------------------------------------------------------------------------------------------
End of year -- $ --
==================================================================================================================
</TABLE>
16
<PAGE> 19
Financials
NOTE 6 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued in each director who is
not an "interested person" of AIM. The Fund may invest directors' fees, if so
elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 7 - QUARTERLY DATA
The following is a summary of quarterly results of operations for the year ended
December 31, 1995.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------
3/31/95 6/30/95 9/30/95 12/31/95
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net realized and unrealized gain (loss) on investments $ 535,525 $1,877,126 $2,205,653 $(753,522)
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments per share 0.08 0.27 0.32 (0.11)
- -------------------------------------------------------------------------------------------------------------------------
Net investment income 1,004,880 1,020,763 968,548 965,112
- -------------------------------------------------------------------------------------------------------------------------
Net investment income per share 0.14 0.15 0.14 0.14
=========================================================================================================================
</TABLE>
Pursuant to Section 23 of the Investment Company Act of 1940, notice is hereby
given that the Fund may in the future purchase shares of A I M Strategic Income
Fund, Inc. common stock from time to time, at such times, and in such amounts as
may be deemed advantageous to the Fund. Nothing herein shall be considered a
commitment to purchase such shares.
NOTE 8 - FINANCIAL HIGHLIGHTS
Shown below are the condensed financial highlights for a share outstanding
during each of the years in the six-year period ended December 31, 1995 and the
period March 23, 1989 (date operations commenced) through December 31, 1989.
<TABLE>
<CAPTION>
1995 1994 1993 1992
------- -------- ------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.18 $ 9.76 $ 9.29 $ 9.15
- -------------------------------------------------------------------- ------- -------- ------- --------
Income from investment operations:
Net investment income 0.57 0.51 0.50 0.60
- -------------------------------------------------------------------- ------- -------- ------- --------
Net gains (losses) on investment securities (both realized and
unrealized) 0.55 (0.52) 0.51 0.32
- -------------------------------------------------------------------- ------- -------- ------- --------
Total from investment operations 1.12 (0.01) 1.01 0.92
- -------------------------------------------------------------------- ------- -------- ------- --------
Less distributions:
Dividends from net investment income (0.60) (0.46) (0.50) (0.60)
- -------------------------------------------------------------------- ------- -------- ------- --------
Distributions from net realized capital gains -- (0.11) (0.04) (0.18)
- -------------------------------------------------------------------- ------- -------- ------- --------
Total distributions (0.60) (0.57) (0.54) (0.78)
- -------------------------------------------------------------------- ------- -------- ------- --------
Net asset value, end of period $ 9.70 $ 9.18 $ 9.76 $ 9.29
==================================================================== ======= ======== ======= ========
Per share market value, end of period $ 8.38 $ 8.00 $ 9.00 $ 9.13
==================================================================== ======= ======== ======= ========
Total investment return, based on market value(a) 12.46% (4.94)% 4.47% 17.03%
==================================================================== ======= ======== ======= ========
Total investment return, based on net asset value(b) 13.51% 0.59% 11.34% 10.62%
==================================================================== ======= ======== ======= ========
Net assets, end of period (000s omitted) $67,661 $ 64,023 $68,066 $ 64,700
==================================================================== ======= ======== ======= ========
Significant ratios for the period:
Investment income 7.30%(d) 6.80% 6.68% 8.16%
- -------------------------------------------------------------------- ------- -------- ------- --------
Operating expenses (1.12)(d) (1.15) (1.16) (1.15)
- -------------------------------------------------------------------- ------- -------- ------- --------
Dividends on short sales (0.20)(d) (0.27) (0.34) (0.51)
- -------------------------------------------------------------------- ------- -------- ------- --------
Tax expense -- -- (0.01) --
- -------------------------------------------------------------------- ------- -------- ------- --------
Net investment income 5.98%(d) 5.38% 5.17% 6.50%
==================================================================== ======= ======== ======= ========
Portfolio turnover rate 99.97% 89.96% 117.45% 89.70%
==================================================================== ======= ======== ======= ========
<CAPTION>
1991 1990 1989
------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of period $ 8.64 $ 9.12 $ 9.23
- -------------------------------------------------------------------- ------- -------- --------
Income from investment operations:
Net investment income 0.80 0.98 0.77
- -------------------------------------------------------------------- ------- -------- --------
Net gains (losses) on investment securities (both realized and
unrealized) 0.56 (0.44) (0.11)
- -------------------------------------------------------------------- ------- -------- --------
Total from investment operations 1.36 0.54 0.66
- -------------------------------------------------------------------- ------- -------- --------
Less distributions:
Dividends from net investment income (0.80) (0.98) (0.77)
- -------------------------------------------------------------------- ------- -------- --------
Distributions from net realized capital gains (0.05) (0.04) --
- -------------------------------------------------------------------- ------- -------- --------
Total distributions (0.85) (1.02) (0.77)
- -------------------------------------------------------------------- ------- -------- --------
Net asset value, end of period $ 9.15 $ 8.64 $ 9.12
==================================================================== ======= ======== ========
Per share market value, end of period $ 8.50 $ 7.88 $ 9.75
==================================================================== ======= ======== ========
Total investment return, based on market value(a) 19.05% (9.04)% 5.78%
==================================================================== ======= ======== ========
Total investment return, based on net asset value(b) 16.89% 6.62% 7.20%
==================================================================== ======= ======== ========
Net assets, end of period (000s omitted) $63,068 $ 59,585 $ 62,141
==================================================================== ======= ======== ========
Significant ratios for the period:
Investment income 10.64% 12.54% 12.26%(c)
- -------------------------------------------------------------------- ------- -------- --------
Operating expenses (1.17) (1.16)(e) (0.97)(c)(e)
- -------------------------------------------------------------------- ------- -------- --------
Dividends on short sales (0.40) (0.40) (0.43)(c)
- -------------------------------------------------------------------- ------- -------- --------
Tax expense (0.03) (0.02) --
- -------------------------------------------------------------------- ------- -------- --------
Net investment income 9.04% 10.96%(e) 10.86%(c)(e)
==================================================================== ======= ======== ========
Portfolio turnover rate 89.40% 91.73% 161.82%
==================================================================== ======= ======== ========
</TABLE>
(a) Assumes shares purchased at market value at the beginning of the year,
dividends reinvested at market value on payable date, and all shares sold at
market value at the end of the period.
(b) Assumes shares purchased at net asset value at the beginning of the year,
dividends reinvested at market value and all shares sold at net asset value
at the end of the period.
(c) Annualized.
(d) Based on average weekly net assets of $66,176,041.
(e) After partial waiver of advisory and administrative fees.
17
<PAGE> 20
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
AIM Strategic Income Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of AIM
Strategic Income Fund, Inc., including the schedule of investments, as of
December 31, 1995, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the years in the
two-year period then ended and the financial highlights for each of the years in
the six-year period then ended and for the period March 23, 1989 (date
operations commenced) through December 31, 1989. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Strategic Income Fund, Inc. as of December 31, 1995, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended, and the financial highlights for
each of the years in the six-year period then ended and the period March 23,
1989 (date operations commenced) through December 31, 1989, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
February 7, 1996
Houston, Texas
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<PAGE> 21
DIVIDEND REINVESTMENT PLAN
The following information provides a detailed summary of the Dividend
Reinvestment Plan of AIM Strategic Income Fund, Inc.
Pursuant to AIM Strategic Income Fund, Inc.'s (the "Fund") Dividend Reinvestment
Plan (the "Plan"), shareholders whose shares are registered in their own names
will have their dividends and capital gain distributions reinvested in
additional shares of the Fund unless they elect to receive such distributions in
cash. State Street Bank and Trust Company (the "Plan Agent") will act as agent
for participants under the Plan. Shareholders whose shares are held in the name
of a broker or nominee should contact such broker or nominee to determine
whether or how they may participate in the Plan.
Shareholders who elect not to participate in the Plan will receive all
distributions in cash paid by check mailed directly to the shareholder of record
(or, if the shares are held in street or other nominee name, then to the
nominee) by State Street Bank and Trust Company as dividend disbursing agent.
Such election must be made by written notification to State Street Bank and
Trust Company.
A shareholder may withdraw from the Plan at any time. There will be no penalty
for withdrawal from the Plan, and shareholders who have previously withdrawn
from the Plan may rejoin it at any time. Changes in elections must be in
writing, addressed to State Street Bank and Trust Company, P.O. Box 8200,
Boston, Massachusetts 02266-8200, and should include the shareholder's name and
address as they appear on the share certificate. An election to withdraw from
the Plan will, until such election is changed, be deemed to be an election by a
shareholder to take all subsequent distributions in cash. An election will be
effective only for a distribution declared and having a record date of at least
10 days after the date on which the election is received by the Plan Agent.
The Plan Agent serves as agent for the shareholders in administering the Plan.
Shareholders may receive more detailed instructions on the Plan from the Fund by
calling the Fund at (800) 959-4246. Shareholders whose shares are held in the
name of a broker or nominee other than the selling agent should contact such
broker or nominee to determine their rights with respect to the Plan.
If the Board of Directors of the Fund declares an income dividend or capital
gain distribution payable to shareholders either in the Fund's shares or in cash
(as such shareholders may have elected), nonparticipants in the Plan will
receive cash and participants in the Plan will receive the equivalent in shares
valued on the valuation date at the lower of the market price or the net asset
value of such shares, as specified below. The valuation date will generally be
the dividend or distribution payment date, or, if that date is not a trading day
on the American Stock Exchange, the next preceding trading day. If the market
price per share on the valuation date equals or exceeds the net asset value per
share on that date (i.e., the shares are trading at a premium to net asset
value), the Fund will issue new shares to participants valued at the higher of
net asset value or 95% of their market price on the valuation date. If net asset
value per share on the valuation date exceeds the market price per share on that
date (i.e., the shares are trading at a discount from net asset value), or if
the Board of Directors, should declare a dividend or capital gain distribution
payable to shareholders only in cash, participants in the Plan will be deemed to
have elected to receive shares of the Fund valued at the market price on that
date. The Fund will not issue shares under the Plan below net asset value.
Accordingly, in this circumstance, the Plan Agent, as agent for the
participants, will use the amount of the distribution to buy the Fund's shares
in the open market, on the American Stock Exchange or elsewhere, for the
participants; accounts on or shortly after the payment date. If, before the Plan
Agent has completed its purchases, the market price exceeds the net asset value
per share, the average per share purchase price paid by the Plan Agent may
exceed the net asset value per share, resulting in the acquisition of fewer
shares than if the dividend or distribution had been paid in shares issued by
the Fund.
The Plan Agent will maintain all shareholders' accounts in the Plan and
furnish written confirmation of all transactions in the account, including
information needed by shareholders for tax records. Shares in the account of
each Plan participant will be held by the Plan Agent in non-certificated form in
the name of the participant, and each shareholder's proxy will include those
shares purchased or received pursuant to the Plan.
In the case of shareholders such as banks, broker-dealers or nominees which
hold shares for others who are the beneficial owners, the Plan Agent will
administer the Plan on the basis of the number of shares certified from time to
time by the record shareholders as representing the total amount registered in
the record shareholder's
19
<PAGE> 22
name and held for the account of beneficial owners who are participating in the
Plan. Beneficial owners of shares who participate in the Plan and who change
brokers should have their new broker instruct the Plan Agent to transfer shares
held by the Plan Agent to the name of the new broker.
There will be no brokerage charges with respect to shares issued directly by
the Fund to satisfy the dividend reinvestment requirements of the Plan. However,
each participant will pay a pro rata share of brokerage commissions incurred
with respect to the Plan Agent's open market purchases of shares. In each cash,
the cost per share of shares purchased for each shareholder's account will be
the average cost, including brokerage commissions, of any shares purchased in
the open market plus the cost of any shares issued by the Fund. Shares will be
purchased through various broker-dealers.
The automatic reinvestment of dividends and distributions will not relieve
participants of any income taxes that may be payable (or required to be
withheld) on dividends and distributions.
In the case of foreign participants whose dividends are subject to U.S. income
tax withholding and in the case of any participants subject to 20% federal
backup withholding, the Plan Agent will reinvest dividends after deduction of
the amount required to be withheld.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any voluntary cash payments made and any dividend or distribution
paid subsequent to written notice of the change sent to participants in the Plan
at least 90 days before the record date for such dividend or distribution. Also
the Plan Agent may terminate its agency status under the Plan on at least 90
days' prior written notice to the Fund and to shareholder participants in the
Plan.
20
<PAGE> 23
Directors &
Officers
<TABLE>
<S> <C> <C>
BOARD OF DIRECTORS OFFICERS OFFICE OF THE FUND
Charles T. Bauer Charles T. Bauer 11 Greenway Plaza
Chairman and Chief Executive Officer Chairman Suite 1919
A I M Management Group Inc. Houston, TX 77046
Robert H. Graham
Gary T. Crum President INVESTMENT ADVISOR
President
A I M Capital Management, Inc. John J. Arthur A I M Advisors, Inc.
Senior Vice President and Treasurer 11 Greenway Plaza
Owen Daly II Suite 1919
Director Gary T. Crum Houston, TX 77046
Cortland Trust Inc. Senior Vice President
CUSTODIAN/TRANSFER AGENT
Robert H. Graham Carol F. Relihan
President and Chief Operating Vice President and Secretary State Street Bank and Trust Co.
Officer P.O. Box 8200
A I M Management Group Inc. Dana R. Sutton Boston, MA 02266-8200
Vice President
John F. Kroeger and Assistant Treasurer COUNSEL TO THE FUND
Formerly, Consultant
Wendell & Stockel Associates, Inc. Melville B. Cox Ballard Spahr
Vice President Andrews & Ingersoll
Lewis F. Pennock 1735 Market Street
Attorney P. Michelle Grace Philadelphia, PA 19103
Assistant Secretary
COUNSEL TO THE DIRECTORS
David L. Kite
Assistant Secretary Kramer, Levin, Naftalis,
Nessen, Kamin & Frankel
Nancy L. Martin 919 Third Avenue
Assistant Secretary New York, NY 10022
Ofelia M. Mayo AUDITORS
Assistant Secretary
KPMG Peat Marwick LLP
Kathleen J. Pflueger 700 Louisiana
Assistant Secretary NationsBank Bldg.
Houston, TX 77002
Samuel D. Sirko
Assistant Secretary
Stephen I. Winer
Assistant Secretary
Mary J. Benson
Assistant Treasurer
</TABLE>
REQUIRED FEDERAL INCOME TAX INFORMATION
AIM Strategic Income Fund, Inc. paid ordinary dividends in the amount of $0.60
per share to shareholders during the Fund's tax year ended December 31, 1995. Of
this amount, 16% is eligible for the dividends received deduction for
corporations.
<PAGE> 24
<TABLE>
<S> <C>
[PHOTO OF 11 GREENWAY PLAZA] THE AIM FAMILY OF FUNDS(R)
AGGRESSIVE GROWTH
AIM Aggressive Growth Fund*
AIM Constellation Fund
AIM Global Aggressive Growth Fund
GROWTH
AIM Global Growth Fund
AIM Growth Fund
AIM International Equity Fund
AIM Value Fund
AIM Weingarten Fund
GROWTH AND INCOME
AIM Balanced Fund
AIM Charter Fund
INCOME AND GROWTH
AIM Global Utilities Fund**
HIGH CURRENT INCOME
AIM High Yield Fund
CURRENT INCOME
AIM Global Income Fund
AIM Income Fund
CURRENT TAX-FREE INCOME
AIM Municipal Bond Fund
AIM Tax-Exempt Bond Fund of CT
AIM Tax-Free Intermediate Shares
CURRENT INCOME AND HIGH DEGREE
OF SAFETY
AIM Intermediate Government Fund***
HIGH DEGREE OF SAFETY AND
CURRENT INCOME
AIM Limited Maturity Treasury Shares
STABILITY, LIQUIDITY, AND
CURRENT INCOME
AIM Money Market Fund
STABILITY, LIQUIDITY, AND
CURRENT TAX-FREE INCOME
AIM Tax-Exempt Cash Fund
*AIM Aggressive Growth Fund was closed to new investors
on July 18, 1995. **On May 1, 1995, AIM Utilities Fund
broadened its investment strategy to permit up to 80%
AIM Management Group has provided leadership in the of its total assets to be invested in foreign
mutual fund industry since 1976 and currently manages securities, and was renamed AIM Global Utilities Fund.
approximately $42 billion in assets for more than 2 ***On September 25, 1995, AIM Government Securities
million shareholders, including individual investors, Fund was renamed AIM Intermediate Government Fund. For
corporate clients, and financial institutions. The AIM more complete information about any AIM Fund(s),
Family of Funds(R) is distributed nationwide, and AIM including sales charges and expenses, ask your
today ranks among the nation's top 20 mutual fund financial consultant or securities dealer for a free
companies in assets under management, according to prospectus(es). Please read the prospectus(es)
Lipper Analytical Services, Inc. carefully before you invest or send money.
</TABLE>
[AIM LOGO APPEARS HERE]
A I M Distributors, Inc.
11 Greenway Plaza, Suite 1919
Houston, TX 77046
