<PAGE> 1
ANNUAL REPORT / OCTOBER 31 2000
AIM STRATEGIC INCOME FUND
[COVER IMAGE]
[AIM LOGO APPEARS HERE]
--Registered Trademark--
<PAGE> 2
[ COVER IMAGE ]
-------------------------------------
THE CHESS GAME BY ALICE KENT STODDARD
CHESS IS LARGELY VIEWED AS A GAME OF STRATEGY, IN WHICH
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's performance figures are historical, and they
reflect the reinvestment of distributions and changes in net asset value.
o Had the advisor not waived fees and expenses during the reporting period,
returns would have been lower.
o When sales charges are included in performance figures, Class A share
performance reflects the maximum 4.75% sales charge, and Class B and Class C
share performance reflects the applicable contingent deferred sales charge
(CDSC) for the period involved. The CDSC on Class B shares declines from 5%
beginning at the time of purchase to 0% at the beginning of the seventh
year. The CDSC on Class C shares is 1% for the first year after purchase.
The performance of the fund's Class B and Class C shares will differ from
that of its Class A shares due to different sales-charge structure and class
expenses.
o The fund's average annual total returns (including sales charges) for the
period ended 9/30/00 (the most recent calendar quarter-end) are as follows.
Class A shares, one year, -4.34%; five years, 4.72%; 10 years, 7.10%. Class
B shares, one year, -4.91%; five years, 4.75%; inception (10/22/92), 5.76%.
Class C shares, one year, -1.08%; inception (3/1/99), -1.04%.
o The 30-day yield is calculated using a formula defined by the Securities and
Exchange Commission. The formula is based on the portfolio's potential
earnings from dividends, interest, yield-to-maturity or yield-to-call of the
bonds in the portfolio, net of all expenses and annualized.
o The fund's annualized distribution rate reflects its most recent monthly
dividend distribution multiplied by 12 and divided by the most recent
month-end net asset value.
o Investing in emerging markets may involve greater risk and potential reward
than investing in more established markets.
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 information required to
be provided by non-U.S. companies.
o The fund invests in higher-yielding, lower-rated corporate bonds, commonly
known as junk bonds, which have a greater risk of price fluctuation and loss
of principal and income than do U.S. government securities (such as U.S.
Treasury bills and bonds, the repayment of principal and interest of which
is guaranteed by the government if held to maturity).
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.
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 developed bond markets; it is
measured in U.S. dollars, and it reflects the results of reinvested coupons.
o The unmanaged Lehman Aggregate Bond Index, which represents the U.S.
investment-grade fixed-rate bond market (including government and corporate
securities, mortgage pass-through securities and asset-backed securities),
is compiled by Lehman Brothers, a well-known global investment bank.
o The unmanaged Lipper Multi-Sector Income Fund Index represents an average
of the performance of the 30 largest multi-sector funds tracked by Lipper,
Inc., an independent mutual fund performance monitor.
o The unmanaged Standard & Poor's Composite Index of 500 Stocks (the S&P 500)
represents the performance of the U.S. stock market.
o An investment cannot be made in an index. Unless otherwise indicated, index
results include reinvested dividends, and they 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
ANNUAL REPORT / CHAIRMAN'S LETTER
Dear Fellow Shareholder:
It's an honor to address you as the AIM Funds' new chairman.
[PHOTO OF I feel privileged to succeed Ted Bauer, who recently retired
Robert H. from the funds' board and will soon retire as A I M
Graham Management Group's chairman after a long, successful career
Chairman of in the investment industry. Ted has always shown the highest
the Board of degree of integrity and commitment to excellence, and I have
THE FUND always admired him. I'm also proud to be part of the team
APPEARS HERE] that launched AIM almost 25 years ago. From the beginning,
AIM has been a very people-oriented, service-minded company,
and I plan to carry on the tradition for our shareholders,
financial advisors and employees.
UNCERTAIN MARKETS
The markets this year have been particularly volatile and
confusing for many investors, especially for those who have
only experienced the bull market of the 1990s. After almost
a decade of double-digit returns, the S&P 500 was down 1.81% year-to-date as of
October 31, 2000. But market returns in the 20% to 30% range, such as we have
seen in recent years, are not typical. If you expect these kinds of returns
every year, you'll be disappointed. Historically, markets decline in one out of
every four years. What we're seeing now is a normal downturn.
This appears to be a worldwide trend. Throughout 2000, overseas markets
generally have been more turbulent than their U.S. counterpart.
REASONS FOR OPTIMISM
While investors may need to temper their expectations, there are plenty of
reasons to be optimistic. Economic fundamentals remain strong, and many believe
that the Federal Reserve Board may have succeeded in bringing the economy to a
"soft landing." Gross domestic product growth slowed to 2.4% in the third
quarter from the rapid pace of about 7% a year ago. With this slowdown, it seems
unlikely that the Fed will raise interest rates in the near future, and stable
interest rates provide a solid environment for both stocks and bonds.
In Europe, the region's economic and investment future continues to look
bright despite the weak euro. Restructuring, merger activity and tax reform bode
well for European economies. In Asia, most analysts think the continuing
strength of the U.S. economy will help boost Asian stock markets.
THE VALUE OF ADVICE
The current environment illustrates the value of professional money management.
Knowing when to buy and sell takes expertise and discipline even in the best of
markets. During downturns, many investors may be tempted to make decisions based
on emotions instead of strategy. The wisest choice is to rely on a professional
money manager to make these decisions for you.
In these uncertain times, it's important to keep market volatility in
perspective. Mutual fund investing should be a long-term endeavor. Remember why
you're investing, whether it's for your retirement or your child's education,
and think about your time frame. If you're unsure about whether your investments
can meet your goals, visit your financial advisor for help.
In the following pages, your fund's portfolio managers discuss market
activity, how they managed your fund during the fiscal year and their near-term
outlook. If you have any questions or comments, please contact us through our
Web site, www.aimfunds.com, or call our Client Services Department at
800-959-4246 during normal business hours. Information about your account is
available at our Web site and on our automated AIM Investor Line, 800-246-5463.
Thank you for your continued participation in The AIM Family of Funds
--Registered Trademark--.
Sincerely,
/s/ ROBERT H. GRAHAM
Robert H. Graham
Chairman
-------------------------------------
THE CURRENT
ENVIRONMENT
ILLUSTRATES THE VALUE
OF PROFESSIONAL
MONEY MANAGEMENT.
KNOWING WHEN TO BUY
AND SELL TAKES
EXPERTISE AND
DISCIPLINE EVEN IN THE
BEST OF MARKETS.
-------------------------------------
AIM STRATEGIC INCOME FUND
<PAGE> 4
ANNUAL REPORT / MANAGERS' OVERVIEW
AIM STRATEGIC INCOME FUND STRUGGLES WITH VOLATILE MARKET
I HEAR IT'S BEEN A DIFFICULT YEAR FOR BONDS. HOW DID THE FUND FARE?
The fund continued to provide dependable monthly income all year. As of the end
of the fiscal year on October 31, 2000, the fund's 30-day distribution rates at
net asset value were 8.38% for Class A shares, 7.65% for Class B shares and
7.66% for Class C shares. The 30-day SEC yield at maximum offering price was
7.97% for Class A shares and 7.66% for both Class B and Class C shares. The
total returns for the fiscal year, excluding sales charges, were -2.35% for
Class A shares, -3.11% for Class B shares and -3.12% for Class C shares. For the
same period, the return of the Lehman Aggregate Bond Index was 7.30%, while the
more comparable group of holdings in the Lipper Multi-Sector Income Fund Index
had a return of -0.18%.
WHAT TRENDS HAVE AFFECTED BONDS THIS FISCAL YEAR?
A slowing economy, weakness in corporate earnings and a strong dollar produced
mixed results. The best-performing sectors were U.S. government issues,
especially Treasuries, and bonds in emerging markets. The investment-grade
market, both domestic and foreign, did less well, and credit rated
below-investment-grade performed the worst. Foreign markets lost investment
capital to the United States because of the strong dollar. This left bond
markets in Europe and Japan struggling even though those countries' economies
were fairly healthy. As investor sentiment shifted toward risk aversion, the
high-yield market experienced one of the worst years since the early `90s.
WHAT HAS BEEN HAPPENING WITH DOMESTIC BONDS?
Toward the close of the reporting period, prices of corporate bonds and
especially high-yield issues lagged, while prices were rising on Treasuries,
government agency bonds and mortgage securities. Since yields decline as prices
rise, this value divergence pushed government yields down and corporate yields
up, widening yield spreads and hampering most corporate sectors' performance.
High-yield bonds exhibited some of the widest spreads in a decade.
During the first quarter of 2000, the U.S. Treasury Department began buying
back its own bonds, using the federal surplus to reduce the public debt. Its
"most wanted" were its higher-rate, longer-term bonds (15+ years). The declining
supply of these boosted their prices, creating an inverted yield curve
(short-term yields higher than long-term yields) that persisted all summer. By
the end of September, only yields on bonds of a year or less remained elevated;
yields from one year to 30 years were nearly flat.
As the Federal Reserve Board (the Fed) continued raising interest rates
during the winter and spring to prevent the rapid U.S. economic growth from
sparking runaway inflation, investors' interest-rate anxiety kept the stock
market jittery. In March and April, many investors jettisoned high-priced
technology stocks and fled to bonds as a safer haven, boosting bond values.
Prices rose the most for short-term bonds, which were in greater demand because
they are less sensitive to interest-rate changes than longer-term issues. This
turn toward risk aversion intensified the demand for Treasuries and worsened the
climate for high-yield bonds.
The Fed raised short-term interest rates by 0.50% in May to 6.50%,
culminating a year of rate hikes. As key economic indicators finally began
showing signs of a declining growth rate, the Fed stood pat at its June, August
and October meetings. By the close of the fiscal year, market yields for
Treasuries had been declining for several months. Corporate-bond performance
slipped in September and October because of profit concerns. High-yield bonds
managed to post a positive total return on the third quarter, but fell in
October and remained in the red on the year.
HOW HAVE FOREIGN BONDS FARED?
Results were mixed. In general, hedged positions gave positive results while
unhedged ones lost value, as hedging mitigated the slippage of foreign
currencies' value against the rising dollar. We expect upward pressure to
continue on interest rates in Western Europe, which has been doing well
economically.
Among emerging markets, some have done extremely well. Russian debt has
returned nearly 50% since January, as the
-------------------------------------
READ THIS REPORT ONLINE!
Early in 2001, a new service will be
available--electronic delivery of
fund reports and prospectuses. Soon,
you can read the same AIM report
you are reading now--online. Once
you sign up for the service, we will
send you a link to the report via
e-mail. If you choose to receive your
reports online, you will not receive a
paper copy by mail. You may cancel
the service at any time by visiting
our Web site.
Please visit our Web site at
www.aimfunds.com and go to "Your
AIM Account." Log into your account
and then click on the "View Other
Account Options" dropdown menu
and select "eDelivery."
-------------------------------------
A SLOWING ECONOMY, WEAKNESS IN
CORPORATE EARNINGS AND A STRONG DOLLAR
PRODUCED MIXED RESULTS THIS FISCAL YEAR.
-------------------------------------
See important fund and index disclosures inside front cover.
AIM STRATEGIC INCOME FUND
2
<PAGE> 5
ANNUAL REPORT / MANAGERS' OVERVIEW
================================================================================
PORTFOLIO COMPOSITION
As of 10/31/00, based on total net assets
<TABLE>
<CAPTION>
===================================================================================================================
% OF % OF
TOP HOLDINGS COUPON MATURITY PORTFOLIO TOP COUNTRIES PORTFOLIO
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1. Republic of Brazil, Unsub. Notes 14.50% 10/09 2.04% 1. United States 77.65%
2. SEI Trust I - Series A, $3.13 Conv. Pfd. -- -- 1.81 2. Brazil 5.72
3. News America Hldgs Putable Notes 8.45% 8/34 1.74 3. Netherlands 3.02
4. News America Hldgs. Sr. Gtd. Deb. Putable Notes 9.25% 2/13 1.58 4. Argentina 2.91
5. Waste Management, Inc., Unsec. Putable Notes 7.10% 8/26 1.53 5. United Kingdom 2.06
<CAPTION>
===================================================================================================================
PORTFOLIO STATISTICS
-------------------------------------------------------------------------------------------------------------------
<S> <C>
Total # of Holdings 162
Average Quality Rating BB
Investment-Grade 52.27
High-Yield 47.02
The fund's portfolio is subject to change, and there is no assurance that the
fund will continue to hold any particular security.
===================================================================================================================
</TABLE>
GEOGRAPHIC ALLOCATION
<TABLE>
<S> <C>
================================================================================
NORTH AMERICA 78.86%
SOUTH AMERICA 10.14%
EUROPE 7.72%
ASIA AND OTHER 3.28%
===================================================================================================================
</TABLE>
country's international reserves have doubled. Mexico's sovereign government
debt was upgraded to investment-grade for the first time ever by Moody's, an
independent rating agency. Brazil, which narrowly avoided recession in 1999,
recovered remarkably and produced 3.8% growth in the first half of this year,
enabling its central bank to reduce the interest rate to 16.5%. Some of Brazil's
corporate sectors, such as Internet and wireless, are burgeoning.
HOW DID THE FUND ADDRESS THESE CHALLENGES?
By maintaining a multi-sector allocation, the fund's managers did much to
moderate the effects of the portfolio's exposure to U.S. high-yield bonds, which
faced a highly adverse market this year. Our holdings in emerging-markets debt
made an important contribution to the bottom line, as this sector was among the
year's best performers in the bond market as a whole. Also among strong
contributors to the fund's results were mortgages and convertible bonds.
WHAT WERE NOTEWORTHY HOLDINGS?
We saw good possibilities in utility companies such as Southern Energy, which is
a leading U.S. power producer and does business on four continents; Texas-New
Mexico Power, which provides electric service to more than 233,000 customers in
those two states; and AES Trust, which buys, builds and operates electricity
generation plants, some in emerging or under-served markets. We also liked News
America Holdings, which is in both newspaper publishing and the entertainment
industry. In emerging markets, we liked the outlook for Brazilian sovereign
debt. The government appeared to have gotten the country's economy onto sound
footing and had been able to reduce interest rates three times, but bonds
continued to pay very attractive rates.
WHAT DO YOU EXPECT TO SEE IN THE NEXT REPORTING PERIOD?
As of the close of the fiscal year, the prospects look encouraging. In the
United States, interest rates have stabilized as the Fed has taken at least a
temporary respite from its monetary tightening policy, which has periodically
roiled markets for more than a year. The nation's unemployment rate is at its
lowest level in three decades, productivity is high and inflation is moderate,
except for oil prices. It appears that the Fed's hoped-for "soft landing" may be
taking place, and that the economy is likely to continue growing at a healthy
but more moderate rate, which would be a favorable environment for bonds.
The global economy continues to expand, even though the pace of growth has
slowed. Several developing nations have achieved a level of economic
restructuring that makes their bonds attractive. We also foresee the dollar
remaining strong relative to the euro, which suggests we continue hedging the
majority of the fund's non-dollar allocation. However, because of a degree of
uncertainty surrounding near-term economic, political and international trends
and developments, markets may continue to be volatile.
See important fund and index disclosures inside front cover.
AIM STRATEGIC INCOME FUND
3
<PAGE> 6
ANNUAL REPORT / PERFORMANCE HISTORY
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
AIM STRATEGIC INCOME FUND VS. BENCHMARK INDEXES
10/31/90-10/31/00
in thousands
================================================================================
AIM Strategic Income Fund, Lehman Aggregate JP Morgan Global Government
Class A Shares Bond Index Bond Index
--------------------------------------------------------------------------------
10/90 $9,524 $10,000 $10,000
10/91 10,259 11,581 11,124
10/92 11,399 12,720 12,523
10/93 15,615 14,230 13,901
10/94 13,985 13,708 14,266
10/95 14,413 15,853 16,455
10/96 17,727 16,780 17,460
10/97 19,394 18,272 18,069
10/98 18,733 19,978 20,414
10/99 18,744 20,084 19,811
10/00 $18,304 $21,551 $18,890
Source: Lipper, Inc., Bloomberg
Past performance cannot guarantee comparable future results.
================================================================================
MARKET VOLATILITY CAN SIGNIFICANTLY IMPACT SHORT-TERM PERFORMANCE. RESULTS
OF AN INVESTMENT MADE TODAY MAY DIFFER SUBSTANTIALLY FROM THE HISTORICAL
PERFORMANCE SHOWN.
ABOUT THIS CHART
This chart compares your fund's Class A shares to benchmark indexes. It is
intended to give you an idea of how your fund performed compared to those
indexes over the period 10/31/90-10/31/00. It is important to understand the
differences between your fund and an index. An index measures the performance of
a hypothetical portfolio. A market index such as the J.P. Morgan Global
Government Bond Index or the Lehman Aggregate Bond Index is unmanaged, incurring
no sales charges, expenses or fees. If you could buy all the securities that
make up a market index, you would incur expenses that would affect the return on
your investment.
AVERAGE ANNUAL TOTAL RETURNS
As of 10/31/00, including sales charges
================================================================================
CLASS A SHARES
10 Years 6.71%
5 Years 3.89
1 Year -7.03*
* -2.35%, excluding sales charges
CLASS B SHARES
Inception (10/22/92) 5.27%
5 Years 3.89
1 Year -7.63*
* -3.11%, excluding CDSC
CLASS C SHARES
Inception (3/1/99) -2.94%
1 Year -4.03*
* -3.12%, excluding CDSC
================================================================================
Your fund's total return includes sales charges, expenses and management fees.
The performance of the fund's Class B and Class C shares will differ from that
of its Class A shares due to different sales-charge structure and expenses. For
fund performance calculations and descriptions of the indexes cited on this
page, please see the inside front cover.
AIM STRATEGIC INCOME FUND
4
<PAGE> 7
SCHEDULE OF INVESTMENTS
October 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. DOLLAR DENOMINATED NON-
CONVERTIBLE BONDS & NOTES-71.97%
AIR FREIGHT-0.56%
Atlas Air, Inc., Sr. Unsec. Notes,
10.75%, 08/01/05 $ 680,000 $ 707,200
==============================================================
AIRLINES-1.47%
Delta Air Lines, Inc. Deb., 10.38%,
12/15/22 1,300,000 1,382,654
--------------------------------------------------------------
Unsec. Notes, 7.90%, 12/15/09 500,000 464,200
==============================================================
1,846,854
==============================================================
BANKS (MAJOR REGIONAL)-3.09%
BB&T Corp., Putable Sub. Notes,
6.38%, 06/30/05 900,000 852,885
--------------------------------------------------------------
Regions Financial Corp., Putable
Sub. Notes, 7.75%, 09/15/24 1,500,000 1,527,405
--------------------------------------------------------------
Republic New York Corp., Sub.
Notes, 9.70%, 02/01/09 750,000 830,887
--------------------------------------------------------------
UBS Preferred Funding Trust I, Gtd.
Bonds, 8.62%, 10/29/49 680,000 688,522
==============================================================
3,899,699
==============================================================
BANKS (MONEY CENTER)-1.64%
First Union Corp., Putable Sub.
Deb.,
6.55%, 10/15/35 900,000 865,665
--------------------------------------------------------------
7.50%, 04/15/35 1,200,000 1,199,868
==============================================================
2,065,533
==============================================================
BANKS (REGIONAL)-2.73%
Banponce Trust I-Series A, Gtd.
Notes, 8.33%, 02/01/27 900,000 807,714
--------------------------------------------------------------
Mercantile Bancorp., Inc., Unsec.
Sub. Notes, 7.30%, 06/15/07 850,000 836,111
--------------------------------------------------------------
NBD Bank N.A. Michigan, Putable
Sub. Deb., 8.25%, 11/01/24 725,000 762,308
--------------------------------------------------------------
Union Planters Bank N.A., Unsec.
Sub. Notes, 6.50%, 03/15/08 760,000 681,112
--------------------------------------------------------------
Union Planters Capital Trust, Gtd.
Bonds, 8.20%, 12/15/26 400,000 347,792
==============================================================
3,435,037
==============================================================
BROADCASTING (TELEVISION, RADIO & CABLE)-7.08%
Adelphia Communications Corp., Sr.
Unsec. Notes, 10.88%, 10/01/10 550,000 519,750
--------------------------------------------------------------
AT&T Corp.-Liberty Media Corp.
Bonds, 7.88%, 07/15/09 680,000 657,363
--------------------------------------------------------------
Sr. Unsec. Deb., 8.25%, 02/01/30 820,000 732,326
--------------------------------------------------------------
British Sky Broadcasting Group PLC
(United Kingdom), Sr. Unsec. Gtd.
Yankee Notes, 8.20%, 07/15/09 1,750,000 1,619,747
--------------------------------------------------------------
Charter Communications Holdings
LLC, Sr. Unsec. Notes, 10.25%,
01/15/10 900,000 888,750
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
BROADCASTING (TELEVISION, RADIO & CABLE)-(CONTINUED)
Cox Enterprises, Inc., Notes,
8.00%, 02/15/07 (Acquired
02/16/00; Cost $992,530)(a) $1,000,000 $ 1,004,210
--------------------------------------------------------------
CSC Holdings Inc.
Sr. Unsec. Deb., 7.88%, 02/15/18 1,250,000 1,146,012
--------------------------------------------------------------
Sr. Unsec. Notes, 7.88%, 12/15/07 775,000 751,641
--------------------------------------------------------------
Series B, Sr. Notes, 8.13%,
07/15/09 400,000 391,840
--------------------------------------------------------------
Diamond Cable Communications PLC
(United Kingdom), Sr. Disc.
Yankee Notes, 10.75%, 02/15/07(b) 500,000 362,500
--------------------------------------------------------------
TCI Communications, Inc., Sr. Deb.,
8.75%, 08/01/15 500,000 518,410
--------------------------------------------------------------
United Pan-Europe Communications
N.V. (Netherlands)-Series B, Sr.
Unsec. Disc. Yankee Notes,
13.75%, 02/01/10(b) 850,000 327,250
==============================================================
8,919,799
==============================================================
BUILDING MATERIALS-0.67%
Blount Inc., Sr. Unsec. Gtd. Sub.
Notes, 13.00%, 08/01/09 1,000,000 845,000
==============================================================
COMPUTERS (NETWORKING)-0.29%
Exodus Communications, Inc., Sr.
Unsec. Notes, 11.25%, 07/01/08 400,000 366,000
==============================================================
COMPUTERS (SOFTWARE &
SERVICES)-0.97%
Globix Corp., Sr. Unsec. Notes,
12.50%, 02/01/10 1,250,000 715,625
--------------------------------------------------------------
PSINet Inc., Sr. Notes, 11.00%,
08/01/09 1,000,000 505,000
==============================================================
1,220,625
==============================================================
CONSUMER FINANCE-1.99%
Capital One Financial Corp., Unsec.
Notes, 7.25%, 05/01/06 1,500,000 1,418,025
--------------------------------------------------------------
MBNA Capital I-Series A, Gtd.
Bonds, 8.28%, 12/01/26 1,300,000 1,086,085
==============================================================
2,504,110
==============================================================
ELECTRIC COMPANIES-4.46%
CILCORP, Inc., Bonds, 9.38%,
10/15/29 500,000 553,910
--------------------------------------------------------------
Cleveland Electric Illuminating Co.
(The) 1st Mortgage, 6.86%,
10/01/08 400,000 379,944
--------------------------------------------------------------
Series D, Sr. Sec. Notes, 7.88%,
11/01/17 1,000,000 982,710
--------------------------------------------------------------
Niagara Mohawk Holdings Inc.-Series
H, Sr. Unsec. Disc. Notes, 8.50%,
07/01/10(b) 2,000,000 1,618,660
--------------------------------------------------------------
Public Service Company of New
Mexico-Series A, Sr. Unsec.
Notes, 7.10%, 08/01/05 300,000 295,884
--------------------------------------------------------------
Texas-New Mexico Power Co., Sr.
Sec. Notes, 6.25%, 01/15/09 2,000,000 1,790,380
==============================================================
5,621,488
==============================================================
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
ELECTRICAL EQUIPMENT-0.40%
GE Global Insurance Holdings Corp.,
Notes, 7.75%, 06/15/30 $ 500,000 $ 508,465
==============================================================
ELECTRONICS (COMPONENT DISTRIBUTORS)-0.72%
Israel Electric Corp. Ltd. (Israel)
Sr. Sec. Medium Term Yankee
Notes, 7.75%, 03/01/09 (Acquired
04/13/00; Cost $524,815)(a) 540,000 507,249
--------------------------------------------------------------
Yankee Deb., 7.75%, 12/15/27
(Acquired 06/09/00; Cost
$403,871)(a) 460,000 396,506
==============================================================
903,755
==============================================================
ELECTRONICS (SEMICONDUCTORS)-0.51%
SCG Holding Corp./Semiconductor
Components Industries LLC, Gtd.
Notes, 12.00%, 08/01/09 650,000 648,375
==============================================================
ENGINEERING & CONSTRUCTION-0.37%
Washington Group International,
Inc., Sr. Unsec. Gtd. Notes,
11.00%, 07/01/10(c) 550,000 468,875
==============================================================
ENTERTAINMENT-1.20%
Callahan Nordrhein Westfalen
(Denmark), Sr. Unsec. Yankee
Notes, 14.00%, 07/15/10 (Acquired
06/29/00-08/11/00; Cost
$398,750)(a) 400,000 388,000
--------------------------------------------------------------
Time Warner Inc., Deb., 9.15%,
02/01/23 1,000,000 1,121,020
==============================================================
1,509,020
==============================================================
FINANCIAL (DIVERSIFIED)-1.63%
AIG SunAmerica Global Financing II,
Sr. Sec. Notes, 7.60%, 06/15/05
(Acquired 06/08/00; Cost
$600,000)(a) 600,000 616,230
--------------------------------------------------------------
General Motors Acceptance Corp.,
Notes, 6.85%, 06/17/04 600,000 594,636
--------------------------------------------------------------
ONO Finance PLC (United Kingdom),
Sr. Unsec. Gtd. Sub. Euro Notes,
13.00%, 05/01/09 300,000 232,500
--------------------------------------------------------------
Pinnacle Partners, Sr. Notes,
8.83%, 08/15/04 (Acquired
08/02/00; Cost $600,000)(a) 600,000 609,606
==============================================================
2,052,972
==============================================================
GAMING, LOTTERY & PARIMUTUEL COMPANIES-1.93%
Hollywood Casino Corp., Sr. Sec.
Gtd. Sub. Notes, 11.25%, 05/01/07 1,575,000 1,657,688
--------------------------------------------------------------
MGM Mirage, Inc., Sr. Unsec. Gtd.
Sub. Notes, 9.75%, 06/01/07 350,000 364,438
--------------------------------------------------------------
Park Place Entertainment Corp., Sr.
Unsec. Sub. Notes, 8.88%,
09/15/08 420,000 413,700
==============================================================
2,435,826
==============================================================
HEALTH CARE (DRUGS-GENERIC & OTHER)-0.81%
Warner Chilcott, Inc., Sr. Unsec.
Gtd. Sub. Notes, 12.63%,
02/15/08(c) 1,000,000 1,025,000
==============================================================
HEALTH CARE (HOSPITAL MANAGEMENT)-0.38%
Triad Hospitals, Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 11.00%,
05/15/09 460,000 481,850
==============================================================
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
HOMEBUILDING-0.30%
K. Hovanian Enterprises Inc., Sr.
Unsec. Gtd. Notes, 10.50%,
10/01/07(c) $ 400,000 $ 378,000
==============================================================
HOUSEHOLD FURNISHING & APPLIANCES-0.95%
O'Sullivan Industries, Inc.-Series
B, Sr. Unsec. Gtd. Sub. Notes,
13.38%, 10/15/09 960,000 561,600
--------------------------------------------------------------
Winsloew Furniture, Inc.-Series B,
Sr. Gtd. Sub. Notes, 12.75%,
08/15/07 690,000 638,250
==============================================================
1,199,850
==============================================================
INSURANCE (LIFE/HEALTH)-0.24%
Torchmark Corp., Notes, 7.88%,
05/15/23 335,000 299,698
==============================================================
INVESTMENT BANKING/BROKERAGE-2.58%
Lehman Brothers Holdings Inc.
Putable Sr. Notes, 8.80%,
03/01/15 900,000 959,634
--------------------------------------------------------------
Notes, 8.50%, 08/01/15 1,000,000 1,036,340
--------------------------------------------------------------
Sr. Sub. Notes, 7.38%, 01/15/07 1,100,000 1,079,023
--------------------------------------------------------------
Series E, Medium Term Notes,
9.20%, 02/10/28(d) 2,200,000 181,522
==============================================================
3,256,519
==============================================================
IRON & STEEL-0.08%
Acme Metals Inc., Sr. Unsec. Gtd.
Notes, 10.88%, 12/15/07(e) 780,000 105,300
==============================================================
MACHINERY (DIVERSIFIED)-0.22%
Actuant Corp., Sr. Unsec. Gtd. Sub.
Notes, 13.00%, 05/01/09 (Acquired
07/21/00; Cost $281,224)(a) 285,000 277,875
==============================================================
MANUFACTURING (SPECIALIZED)-0.20%
Tekni-Plex, Inc., Sr. Sub. Notes,
12.75%, 06/15/10(c) 280,000 256,200
==============================================================
NATURAL GAS-1.02%
Coastal Corp. (The), Sr. Unsec.
Deb., 6.70%, 02/15/27 400,000 380,640
--------------------------------------------------------------
Dynegy Inc., Sr. Unsec. Deb.,
7.13%, 05/15/18 1,000,000 899,520
==============================================================
1,280,160
==============================================================
OIL & GAS (DRILLING & EQUIPMENT)-0.62%
Petroleum Geo-Services A.S.A.
(Norway), Yankee Notes, 7.50%,
03/31/07 800,000 781,544
==============================================================
OIL & GAS (EXPLORATION & PRODUCTION)-3.04%
Anadarko Petroleum Corp., Deb.,
7.73%, 09/15/2096 1,000,000 999,150
--------------------------------------------------------------
Den Norske Stats Oljeselskap A.S.
(Norway), Yankee Unsec. Deb.,
7.38%, 05/01/16 (Acquired
06/01/00; Cost $469,245)(a) 500,000 476,420
--------------------------------------------------------------
Parker & Parsley Petroleum Co., Sr.
Unsec. Notes, 8.25%, 08/15/07 500,000 490,265
--------------------------------------------------------------
Pioneer Natural Resources Co., Sr.
Unsec. Gtd. Notes, 9.63%,
04/01/10 750,000 785,625
--------------------------------------------------------------
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
OIL & GAS (EXPLORATION & PRODUCTION)-(CONTINUED)
Triton Energy Ltd. (Cayman
Islands), Sr. Yankee Notes,
8.88%, 10/01/07 (Acquired
09/27/00; Cost $255,000)(a) $ 255,000 $ 255,000
--------------------------------------------------------------
Union Pacific Resources Group Inc.,
Unsec. Deb., 7.50%, 10/15/26 850,000 827,662
==============================================================
3,834,122
==============================================================
OIL (DOMESTIC INTEGRATED)-0.22%
Amerada Hess Corp., Bonds, 7.88%,
10/01/29 275,000 281,185
==============================================================
OIL (INTERNATIONAL INTEGRATED)-1.86%
YPF Sociedad Anonima (Argentina), Yankee Bonds,
8.00%, 02/15/04 1,350,000 1,331,181
--------------------------------------------------------------
9.13%, 02/24/09 1,000,000 1,014,620
==============================================================
2,345,801
==============================================================
PHOTOGRAPHY/IMAGING-0.67%
Polaroid Corp., Sr. Unsec. Notes,
11.50%, 02/15/06 1,050,000 845,250
==============================================================
POWER PRODUCERS (INDEPENDENT)-0.81%
AES Corp. (The), Sr. Unsec. Notes,
9.50%, 06/01/09 1,000,000 1,020,000
==============================================================
PUBLISHING (NEWSPAPERS)-3.32%
News America Holdings, Inc. Putable
Notes, 8.45%, 08/01/34 2,200,000 2,195,556
--------------------------------------------------------------
Sr. Gtd. Deb., 9.25%, 02/01/13 1,850,000 1,992,783
==============================================================
4,188,339
==============================================================
RAILROADS-0.44%
CSX Corp., Sr. Unsec. Putable Deb.,
7.25%, 05/01/27 250,000 248,695
--------------------------------------------------------------
Railamerica Transportation Corp.,
Sr. Unsec. Gtd. Sub. Notes,
12.88%, 08/15/10(c) 325,000 303,875
==============================================================
552,570
==============================================================
REAL ESTATE INVESTMENT TRUSTS-0.41%
ERP Operating L.P., Unsec. Notes,
7.13%, 10/15/17 600,000 520,848
==============================================================
RETAIL (DRUG STORES)-0.24%
Duane Reade, Inc., Sr. Unsec. Gtd.
Sub. Notes, 9.25%, 02/15/08 350,000 299,250
==============================================================
SAVINGS & LOAN COMPANIES-0.48%
Washington Mutual, Inc., Sub.
Notes, 8.25%, 04/01/10 600,000 607,620
==============================================================
SERVICES (COMMERCIAL & CONSUMER)-0.43%
Avis Group Holdings, Inc., Sr.
Unsec. Gtd. Sub. Notes, 11.00%,
05/01/09 500,000 537,500
==============================================================
SOVEREIGN DEBT-9.16%
Republic of Argentina (Argentina),
Unsec. Unsub. Notes, 11.75%,
04/07/09 1,500,000 1,312,500
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
SOVEREIGN DEBT-(CONTINUED)
Republic of Brazil (Brazil) Bonds,
11.63%, 04/15/04 $1,228,000 $ 1,252,560
--------------------------------------------------------------
Floating Rate Gtd. Bonds, 7.63%,
04/15/24(f) 2,000,000 1,538,200
--------------------------------------------------------------
Series C, Bonds, 8.00%, 04/15/14 2,462,816 1,852,484
--------------------------------------------------------------
Unsub. Notes, 14.50%, 10/15/09 2,415,000 2,569,560
--------------------------------------------------------------
Republic of Bulgaria (Bulgaria)
Series PDI, Floating Rate Deb.,
7.75%, 07/28/11(f) 190,000 142,251
--------------------------------------------------------------
Series A, Gtd. Bonds, 3.00%,
07/28/12(g) 205,000 147,514
--------------------------------------------------------------
Series A, Gtd. Floating Rate Sec.
Bonds, 7.75%, 07/28/24(f) 198,000 149,172
--------------------------------------------------------------
Republic of Panama (Panama), Bonds,
8.88%, 09/30/27 304,000 254,586
--------------------------------------------------------------
Republic of Turkey (Turkey) Bonds,
11.88%, 11/05/04 115,000 118,306
--------------------------------------------------------------
Sr. Unsec. Unsub. Notes, 12.38%,
06/15/09 115,000 115,863
--------------------------------------------------------------
Republic of Venezuela (Venezuela)
Unsec. Bonds, 9.25%, 09/15/27 1,683,000 1,114,988
--------------------------------------------------------------
Unsec. Bonds, 9.25%, 09/15/27 817,000 535,282
--------------------------------------------------------------
United Mexican States (Mexico),
Notes, 9.88%, 02/01/10 420,000 437,850
==============================================================
11,541,116
==============================================================
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-1.47%
Crown Castle International Corp.
Sr. Disc. Notes, 10.38%,
05/15/11(b) 785,000 498,475
--------------------------------------------------------------
Sr. Unsec. Notes, 10.75%,
08/01/11 270,000 278,775
--------------------------------------------------------------
KMC Telecom Holdings, Inc., Sr.
Unsec. Notes, 13.50%, 05/15/09 400,000 130,000
--------------------------------------------------------------
Nextel International, Inc., Sr.
Notes, 12.75%, 08/01/10(c) 320,000 292,800
--------------------------------------------------------------
TeleCorp PCS, Inc., Sr. Unsec. Gtd.
Sub. Notes, 11.63%, 04/15/09(b) 1,000,000 650,000
==============================================================
1,850,050
==============================================================
TELECOMMUNICATIONS (LONG DISTANCE)-3.07%
360networks Inc. (Canada) Sr.
Unsec. Yankee Notes, 12.00%,
08/01/09 500,000 397,500
--------------------------------------------------------------
Sr. Yankee Notes, 12.50%,
12/15/05 500,000 440,000
--------------------------------------------------------------
MCI Communications Corp., Sr.
Unsec. Putable Deb., 7.13%,
06/15/27 500,000 493,380
--------------------------------------------------------------
Primus Telecommunications Group,
Inc., Sr. Unsec. Notes, 11.25%,
01/15/09 1,600,000 824,000
--------------------------------------------------------------
Tele1 Europe B.V. (Netherlands),
Sr. Unsec. Yankee Notes, 13.00%,
05/15/09 1,000,000 865,000
--------------------------------------------------------------
Williams Communications Group,
Inc., Sr. Unsec. Notes, 10.88%,
10/01/09 1,000,000 847,500
==============================================================
3,867,380
==============================================================
TELEPHONE-3.09%
CFW Communications Co., Sr. Notes,
13.00%, 08/15/10(c)(h) 425,000 376,125
--------------------------------------------------------------
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
TELEPHONE-(CONTINUED)
Intermedia Communications Inc
Series B, Sr. Disc. Notes,
11.25%, 07/15/07(b) $ 550,000 $ 459,250
--------------------------------------------------------------
Series B, Sr. Unsec. Notes,
9.50%, 03/01/09 900,000 875,250
--------------------------------------------------------------
Koninklijke (Royal) KPN N.V.
(Netherlands), Sr. Unsec. Unsub.
Yankee Notes, 7.50%, 10/01/05
(Acquired 09/27/00; Cost
$699,552)(a) 700,000 695,842
--------------------------------------------------------------
NTL Inc.-Series B, Sr. Disc. Notes,
11.50%, 02/01/06(b) 350,000 327,250
--------------------------------------------------------------
Qwest Capital Funding, Unsec. Gtd.
Notes, 7.90%, 08/15/10 (Acquired
08/24/00; Cost $702,254)(a) 700,000 713,958
--------------------------------------------------------------
XO Communications, Inc., Sr. Unsec.
Notes, 10.75%, 11/15/08 500,000 440,000
==============================================================
3,887,675
==============================================================
TRUCKERS-0.89%
North American Van Lines Inc., Sr.
Sub. Notes, 13.38%, 12/01/09(c) 1,250,000 1,118,750
==============================================================
WASTE MANAGEMENT-3.26%
Allied Waste North America Inc.
Series B, Sr. Unsec. Gtd. Sub.
Notes, 10.00%, 08/01/09 1,600,000 1,392,000
--------------------------------------------------------------
Waste Management, Inc.
Sr. Unsec. Notes, 7.13%, 12/15/17 900,000 773,973
--------------------------------------------------------------
Unsec. Putable Notes, 7.10%,
08/01/26 2,000,000 1,937,120
==============================================================
4,103,093
==============================================================
Total U.S. Dollar Denominated
Non-Convertible Bonds & Notes
(Cost $95,003,386) 90,701,178
==============================================================
U.S. DOLLAR DENOMINATED CONVERTIBLE BONDS & NOTES-12.97%
BROADCASTING (TELEVISION, RADIO & CABLE)-1.27%
Charter Communications, Inc., Conv.
Bonds, 5.75%, 10/15/05 (Acquired
10/25/00; Cost $1,500,000)(a) 1,500,000 1,599,375
==============================================================
COMMUNICATIONS EQUIPMENT-2.65%
Cyras Systems, Inc., Conv. Sub.
Notes, 4.50%, 08/15/05 (Acquired
08/15/00; Cost $750,000)(a) 750,000 870,000
--------------------------------------------------------------
Juniper Networks, Inc., Unsec.
Conv. Notes, 4.75%, 03/15/07 1,200,000 1,674,000
--------------------------------------------------------------
Kestrel Solutions, Conv. Sub.
Notes, 5.50%, 07/15/05 (Acquired
07/20/00; Cost $750,000)(a) 750,000 795,000
==============================================================
3,339,000
==============================================================
COMPUTERS (HARDWARE)-0.34%
Candescent Technologies Corp., Sr.
Conv. Gtd. Sub. Debs., 8.00%,
05/01/03 (Acquired 03/07/00; Cost
$480,000)(a) 600,000 426,000
==============================================================
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
COMPUTERS (SOFTWARE & SERVICES)-1.10%
Aether Systems, Inc., Conv. Unsec.
Sub. Notes, 6.00%, 03/22/05 $2,000,000 $ 1,385,000
==============================================================
ELECTRONICS (COMPONENT DISTRIBUTORS)-1.01%
ASM Lithography Holding N.V.
(Netherlands), Conv. Yankee
Notes, 4.25%, 11/30/04 (Acquired
04/05/00; Cost $1,507,813)(a) 1,250,000 1,268,750
==============================================================
ELECTRONICS (SEMICONDUCTORS)-1.13%
TranSwitch Corp., Conv. Unsec.
Unsub. Notes, 4.50%, 09/12/05
(Acquired 09/06/00; Cost
$1,250,000)(a) 1,250,000 1,428,125
==============================================================
FINANCIAL (DIVERSIFIED)-0.88%
Verizon Global Funding
Corp.,-Series REGS, Conv. Euro
Bonds, 4.25%, 09/15/05 1,000,000 1,107,405
==============================================================
FOODS-1.26%
Nestle Holding Inc.-Series WW,
Conv. Sr. Unsub. Euro Notes,
3.00%, 05/09/05 1,500,000 1,586,250
==============================================================
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS)-0.46%
Roche Holding A.G., Conv. Notes,
0.00%, 01/19/15 (Acquired
03/10/00; Cost $624,812)(a)(d) 650,000 586,625
==============================================================
OIL & GAS (EXPLORATION & PRODUCTION)-0.98%
Kerr-McGee Corp., Conv. Notes,
5.25%, 02/15/10 1,000,000 1,233,750
==============================================================
SERVICES (ADVERTISING/MARKETING)-1.22%
Lamar Advertising Co., Conv. Unsec.
Notes, 5.25%, 09/15/06 1,300,000 1,542,125
==============================================================
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-0.67%
Nextel Communications, Inc., Sr.
Conv. Notes, 5.25%, 01/15/10
(Acquired 02/15/00; Cost
$1,055,000)(a) 1,000,000 845,000
==============================================================
Total U.S. Dollar Denominated
Convertible Bonds & Notes
(Cost $16,441,504) 16,347,405
==============================================================
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT(i)
<S> <C> <C>
NON-U.S. DOLLAR DENOMINATED NON-CONVERTIBLE BONDS &
NOTES-1.77%
NETHERLANDS-0.40%
Grapes Communications N.V.
(Telecommunications-Cellular/Wireless),
Sr. Notes, 13.50%, 05/15/10
(Acquired 05/03/00; Cost
$997,480)(a)(h) EUR 1,100,000 508,766
==============================================================
NORWAY-0.28%
Enitel ASA (Telecommunications-Long
Distance), Sr. Unsec. Unsub. Euro
Notes, 12.50%, 04/15/10 EUR 630,000 347,522
==============================================================
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(i) VALUE
<S> <C> <C>
UNITED STATES OF AMERICA-0.79%
Fannie Mae (Sovereign Debt), Notes,
7.25%, 06/20/02 NZD 2,000,000 790,652
--------------------------------------------------------------
John Hancock Global Fund
(Insurance-Life/Health), Sr. Sec.
Sub Medium Term Notes, 6.75%,
02/15/06 AUD 400,000 203,846
==============================================================
994,498
==============================================================
UNITED KINGDOM-0.30%
Jazztel PLC (Telephone), Sr. Unsec.
Euro Notes, 14.00%, 04/01/09 EUR 300,000 183,692
--------------------------------------------------------------
ONO Finance PLC
(Financial-Diversified), Sr.
Unsec. Gtd. Euro Notes, 13.00%,
05/01/09 EUR 300,000 192,649
==============================================================
376,341
==============================================================
Total Non-U.S. Dollar
Denominated Non-Convertible
Bonds & Notes (Cost
$3,845,859) 2,227,127
==============================================================
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT(i)
<S> <C> <C>
NON-U.S. DOLLAR DENOMINATED
CONVERTIBLE BONDS & NOTES-0.51%
FRANCE-0.51%
Vivendi Environment (Waste
Management), Sr. Conv. Gtd.
Bonds, 1.50%, 01/01/05 (Cost
$862,755) EUR 250,000 642,151
==============================================================
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
COMMON STOCKS & OTHER EQUITY INTERESTS-8.35%
CHEMICALS (DIVERSIFIED)-1.03%
Pharmacia Corp.-$2.60 Conv. Pfd.
ACES 27,000 $ 1,301,062
==============================================================
ELECTRIC COMPANIES-2.83%
Reliant Energy, Inc., $1.35 Conv.
Pfd 17,000 1,280,321
--------------------------------------------------------------
SEI Trust I-Series A, $3.13 Conv.
Pfd 37,500 2,280,469
==============================================================
3,560,790
==============================================================
ELECTRONICS (SEMICONDUCTORS)-0.57%
Intersil Holding Corp.-Wts.,
expiring 08/15/09 (Acquired
12/08/99; Cost $0)(a)(j) 800 720,200
==============================================================
FINANCIAL (DIVERSIFIED)-0.00%
ONO Finance PLC (United
Kingdom)-Wts., expiring
05/31/09(j) 300 0
==============================================================
HOUSEHOLD FURNISHING & APPLIANCES-0.02%
O'Sullivan Industries, Inc.
Wts., expiring 11/15/09(j) 960 $ 9,840
--------------------------------------------------------------
Series B, Wts., expiring
11/15/09(c)(j) 960 9,840
--------------------------------------------------------------
Winsloew Furniture, Inc.-Wts.,
expiring 08/15/07(c)(j) 690 6,986
==============================================================
26,666
==============================================================
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
OIL & GAS (REFINING & MARKETING)-1.11%
Valero Energy Corp.-$1.94 Conv.
Pfd. 50,000 1,400,000
==============================================================
POWER PRODUCERS (INDEPENDENT)-2.66%
AES Trust VII-$3.00 Conv. Pfd.
(Acquired 05/15/00; Cost
$1,268,352)(a) 24,000 1,689,000
--------------------------------------------------------------
Calpine Capital Trust III-$2.50
Conv. Pfd. (Acquired 10/26/00;
Cost $1,713,750)(a) 30,000 1,665,000
==============================================================
3,354,000
==============================================================
RAILROADS-0.00%
Railamerica Transportation Corp.-
Wts., expiring 08/15/10 (Acquired
10/05/00; Cost $0)(a)(j) 325 3,331
==============================================================
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-0.01%
Carrier 1 International S.A.
(Switzerland)-Wts., expiring
02/15/09 (Acquired 09/03/99; Cost
$0)(a)(j) 150 15,912
==============================================================
TELECOMMUNICATIONS (LONG DISTANCE)-0.12%
Enitel ASA (Norway)-Wts., expiring
04/03/05(j) 630 4,010
--------------------------------------------------------------
Tele1 Europe B.V.-ADR
(Netherlands)(k) 17,612 138,695
==============================================================
142,705
==============================================================
Total Common Stocks & Other
Equity Interests (Cost
$9,448,728) 10,524,666
==============================================================
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
U.S. TREASURY SECURITIES-0.82%
U.S. TREASURY NOTE-0.82%
6.75%, 05/15/05 (Cost $1,030,313) $1,000,000 1,036,880
==============================================================
ASSET-BACKED SECURITIES-0.73%
FINANCIAL (DIVERSIFIED)-0.73%
Beaver Valley II Funding Corp.,
Sec. Lease Obligations Deb.,
9.00%, 06/01/17 400,000 421,608
--------------------------------------------------------------
Citicorp Lease-Class A2, Series
1999-1, Pass Through Ctfs.,
8.04%, 12/13/19 (Acquired
06/01/00; Cost $493,835)(a) 500,000 497,965
==============================================================
919,573
==============================================================
Total Asset-Backed Securities
(Cost $887,719) 919,573
==============================================================
TOTAL INVESTMENTS -- 97.12% (Cost
$127,520,264) 122,398,980
==============================================================
OTHER ASSETS LESS
LIABILITIES -- 2.88% 3,629,319
==============================================================
NET ASSETS -- 100.00% $126,028,299
______________________________________________________________
==============================================================
</TABLE>
9
<PAGE> 12
Investment Abbreviations:
ACES - Automatic Common Exchange Securities
ADR - American Depositary Receipt
AUD - Australian Dollar
Conv. - Convertible
Ctfs. - Certificates
Deb. - Debentures
Disc. - Discounted
EUR - Euro
Gtd. - Guaranteed
NZD - New Zealand Dollar
Pfd. - Preferred
PDI - Past Due Interest
REGS - Regulation S
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
Unsub. - Unsubordinated
Wts. - Warrants
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The aggregate market value of these securities at 10/31/00
was $18,859,945 which represented 14.96% of the Fund's net assets.
(b) Discounted bond at purchase. The interest rate represents the coupon rate at
which the bond will accrue at a specified future date.
(c) Represents a security sold under Rule 144A, which is exempt from
registration and may be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1993, as amended.
(d) Zero coupon bond issued at a discount. The interest rate represents the
coupon rate at which the bond will accrue at a specified future date.
(e) Defaulted security. Currently, the issuer is in default with respect to
interest payments.
(f) The coupon rate shown on floating rate notes represents the rate at period
end.
(g) The coupon rate show on step up coupon bond represents the rate at period
end.
(h) Consists of more than one class of securities traded together as a unit. In
addition to the security listed, each unit includes common or preferred
shares of the issuer.
(i) Foreign denominated security. Par value is denominated in currency
indicated.
(j) Acquired as part of a unit with or in exchange for other securities.
(k) Non-income producing security.
See Notes to Financial Statements.
10
<PAGE> 13
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2000
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$127,520,264) $122,398,980
------------------------------------------------------------
Foreign currencies, at value (cost $53,291) 52,753
------------------------------------------------------------
Receivables for:
Investments sold 21,755,580
------------------------------------------------------------
Fund shares sold 57,356
------------------------------------------------------------
Dividends and interest 2,482,433
------------------------------------------------------------
Foreign currency contracts outstanding 44,547
------------------------------------------------------------
Other assets 12,411
============================================================
Total assets $146,804,060
============================================================
LIABILITIES:
Payables for:
Investments purchased 14,030,625
------------------------------------------------------------
Fund shares reacquired 1,427,160
------------------------------------------------------------
Amount due to custodian 5,024,969
------------------------------------------------------------
Accrued advisory fees 56,483
------------------------------------------------------------
Accrued administrative services fees 4,238
------------------------------------------------------------
Accrued distribution fees 98,712
------------------------------------------------------------
Accrued trustees' fees 2,676
------------------------------------------------------------
Accrued transfer agent fees 35,850
------------------------------------------------------------
Accrued operating expenses 95,048
============================================================
Total liabilities 20,775,761
============================================================
Net assets applicable to shares outstanding $126,028,299
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 48,864,876
____________________________________________________________
============================================================
Class B $ 76,679,680
____________________________________________________________
============================================================
Class C $ 483,743
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 5,330,186
____________________________________________________________
============================================================
Class B 8,349,234
____________________________________________________________
============================================================
Class C 52,728
____________________________________________________________
============================================================
Class A:
Net asset value and redemption price per
share $ 9.17
------------------------------------------------------------
Offering price per share:
(Net asset value of $9.17 divided by
95.25%) $ 9.63
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per share $ 9.18
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per share $ 9.17
____________________________________________________________
============================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended October 31, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 13,369,681
------------------------------------------------------------
Dividends 154,919
------------------------------------------------------------
Dividends from affiliated money market funds 414,357
------------------------------------------------------------
Security lending income 816
============================================================
Total investment income 13,939,773
============================================================
EXPENSES:
Advisory fees 1,118,206
------------------------------------------------------------
Administrative services fees 50,000
------------------------------------------------------------
Custodian fees 43,933
------------------------------------------------------------
Distribution fees -- Class A 205,274
------------------------------------------------------------
Distribution fees -- Class B 951,451
------------------------------------------------------------
Distribution fees -- Class C 4,107
------------------------------------------------------------
Transfer agent fees 428,114
------------------------------------------------------------
Trustees' fees 10,664
------------------------------------------------------------
Other 233,884
============================================================
Total expenses 3,045,633
============================================================
Less: Fees waived (548,051)
------------------------------------------------------------
Expenses paid indirectly (16,757)
============================================================
Net expenses 2,480,825
============================================================
Net investment income 11,458,948
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES,
FOREIGN CURRENCY CONTRACTS, FUTURES
CONTRACTS AND SWAP AGREEMENTS:
Net realized gain (loss) from:
Investment securities (27,654,369)
------------------------------------------------------------
Foreign currencies (167,199)
------------------------------------------------------------
Foreign currency contracts 32,005
------------------------------------------------------------
Futures contracts (151,502)
------------------------------------------------------------
Swap agreements 316,535
============================================================
(27,624,530)
============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities 12,470,240
------------------------------------------------------------
Foreign currencies (4,022)
------------------------------------------------------------
Foreign currency contracts 51,775
------------------------------------------------------------
Futures contracts 65,179
============================================================
12,583,172
============================================================
Net gain (loss) from investment securities,
foreign currencies, foreign currency
contracts, futures contracts and swap
agreements (15,041,358)
============================================================
Net increase (decrease) in net assets
resulting from operations $ (3,582,410)
____________________________________________________________
============================================================
</TABLE>
See Notes to Financial Statements.
11
<PAGE> 14
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 11,458,948 $ 14,565,127
--------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies, foreign currency contracts, futures
contracts and swap agreements (27,624,530) (16,216,754)
--------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities, foreign currencies, foreign currency
contracts, futures contracts and swap agreements 12,583,172 2,953,192
============================================================================================
Net increase (decrease) in net assets resulting from
operations (3,582,410) 1,301,565
============================================================================================
Distributions to shareholders from net investment income:
Class A (3,110,833) (5,310,549)
--------------------------------------------------------------------------------------------
Class B (4,335,943) (8,423,847)
--------------------------------------------------------------------------------------------
Class C (20,220) (2,176)
--------------------------------------------------------------------------------------------
Advisor Class* (1,231) (14,345)
--------------------------------------------------------------------------------------------
Return of Capital:
Class A (1,297,698) (313,916)
--------------------------------------------------------------------------------------------
Class B (2,088,596) (557,789)
--------------------------------------------------------------------------------------------
Class C (9,264) (193)
--------------------------------------------------------------------------------------------
Advisor Class* (2,240) (640)
--------------------------------------------------------------------------------------------
Share transactions-net:
Class A (14,226,418) (28,748,300)
--------------------------------------------------------------------------------------------
Class B (33,405,587) (61,297,148)
--------------------------------------------------------------------------------------------
Class C 279,127 254,116
--------------------------------------------------------------------------------------------
Advisor Class* (104,641) (739,856)
============================================================================================
Net increase (decrease) in net assets (61,905,954) (103,853,078)
============================================================================================
NET ASSETS:
Beginning of year 187,934,253 291,787,331
============================================================================================
End of year $ 126,028,299 $ 187,934,253
____________________________________________________________________________________________
============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 244,842,709 $ 295,698,026
--------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (3,518) (809,500)
--------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities, foreign currencies, foreign currency
contracts, futures contracts and swap agreements (113,726,070) (89,286,279)
--------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities, foreign currencies and foreign currency
contracts (5,084,822) (17,667,994)
============================================================================================
$ 126,028,299 $ 187,934,253
____________________________________________________________________________________________
============================================================================================
</TABLE>
* Advisor Class shares were converted to Class A shares effective as of the
close of business on February 11, 2000.
See Notes to Financial Statements.
12
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
October 31, 2000
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 (the "1940
Act"), as an open-end series management investment company consisting of nine
separate series portfolios, each having an unlimited number of shares of
beneficial interest. The Fund currently offers three different classes of
shares: Class A shares, Class B shares and Class C shares. The Fund formerly
offered Advisor Class shares; however, as of the close of business on February
11, 2000 the Advisor Class shares were converted to Class A 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 were 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 accounting
principles generally accepted in the United States of America 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 -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the security
is principally traded, or lacking any sales on a particular day, the security
is valued at the closing bid price on that day. Each security reported on the
NASDAQ National Market System is valued at the last sales price as of the
close of the customary trading session on the valuation date or absent a last
sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as yield, type of issue, coupon rate and maturity
date. Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and are
valued at the last bid price in the case of equity securities and in the case
of debt obligations, the mean between the last bid and asked prices.
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 at amortized cost which approximates market value. For
purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Generally, trading in foreign securities 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 as of 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 they are determined and the close of the customary
trading session of the NYSE which would not be reflected in the computation
of the Fund's net asset value. If events materially affecting the value of
such securities occur during such period, then these securities will be
valued at their fair value as determined in good faith by or under the
supervision of the Board of Trustees.
B. Securities Transactions and Investment Income -- 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 on the accrual basis from settlement date.
Dividend income is recorded on the ex-dividend date.
On October 31, 2000, undistributed net investment income increased by
$213,059, undistributed net realized gains were increased by $3,184,739 and
paid-in capital decreased by $3,397,798 as a result of differing book/tax
treatment of foreign currency transactions and net operating loss
reclassifications.
C. Distributions -- Distributions from income are declared and paid monthly and
are recorded on ex-dividend date. Distributions from net realized capital
gains, if any, are generally paid annually and recorded on ex-dividend date.
The Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. Federal Income Taxes -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements.
The Fund has a capital loss carryforward of $113,632,495 as of October 31,
2000 which may be carried forward to offset
13
<PAGE> 16
future taxable gains, if any, which expires, if not previously utilized, in
the year 2007.
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 the 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
are included with the net realized and unrealized gain or loss from
investments.
F. Foreign Currency Contracts -- A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
Outstanding foreign currency contracts at October 31, 2000 were as follows:
<TABLE>
<CAPTION>
SETTLEMENT CONTRACT TO CONTRACT TO UNREALIZED
DATE DELIVER RECEIVE VALUE APPRECIATION
---------- ----------- ----------- ------- ------------
<S> <C> <C> <C> <C> <C>
12/11/00 AUD (250,000) $139,290 129,644 $ 9,646
-------------------------------------------------------------------------------
12/29/00 AUD (130,000) 71,391 67,431 3,960
-------------------------------------------------------------------------------
12/29/00 NZD (1,900,000) 784,795 753,854 30,941
===============================================================================
(2,280,000) $995,476 950,929 $44,547
______________________________________________________________________________
===============================================================================
</TABLE>
G. Mortgage Dollar Rolls -- The Fund may engage in dollar roll transactions with
respect to mortgage backed securities issued by GNMA, FNMA and FHLMC. In a
dollar roll transaction, the Fund sells a mortgage backed security held in
the Fund to a financial institution such as a bank or broker-dealer, and
simultaneously agrees to repurchase a substantially similar security (same
type, coupon and maturity) from the institution at a later date at an agreed
upon price. The mortgage backed securities that are repurchased will bear the
same interest rate as those sold, but generally will be collateralized by
different pools of mortgages with prepayment histories. During the period
between the sale and repurchase, the Fund will not be entitled to receive
interest and principal payments on securities sold. Proceeds of the sale will
be invested in short-term instruments, and the income from these investments,
together with any additional fee income received on the sale, could generate
income for the Fund exceeding the yield on the security sold.
Dollar roll transactions involve the risk that the market value of the
securities retained by the Fund may decline below the price of the securities
that the Fund has sold but is obligated to repurchase under the agreement. In
the event the buyer of securities in a dollar roll transaction files for
bankruptcy or becomes insolvent, the Fund's use of the proceeds from the sale
of the securities may be restricted pending a determination by the other
party, or its trustee or receiver, whether to enforce the Fund's obligation
to repurchase the securities.
H. Future Contracts -- A future 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 is 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.
I. 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 portfolio's 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.
J. Bond Premiums -- It has been the policy of the Fund not to amortize market
premiums on bonds for financial reporting purposes. In November 2000, a
revised AICPA Audit and Accounting Guide, Audits of Investment Companies, was
issued and is effective for fiscal years beginning after December 15, 2000.
The revised Guide will require the Fund to
14
<PAGE> 17
amortize premium and discount on all fixed-income securities. Upon initial
adoption, the Fund will be required to adjust the cost of its fixed-income
securities by the cumulative amount of amortization that would have been
recognized had amortization been in effect from the purchase date of each
holding. Adopting this accounting principle will not affect the Fund's net
asset value, but will change the classification of certain amounts between
interest income and realized and unrealized gain/loss in the Statement of
Operations. The Fund expects that the impact of the adoption of this
principle will not be material to the financial statements.
K. Expenses -- Distribution expenses directly attributable to a class of shares
are charged to that class' operations. All other expenses which are
attributable to more than one class are allocated among the classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
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 $2.5 billion. AIM has contractually agreed to limit
total annual operating expenses (excluding interest, taxes, dividend expense on
short sales, extraordinary items and increases in expenses due to offset
arrangements, if any) for Class A, Class B and Class C shares to 1.05%, 1.70%
and 1.70%, respectively. Prior to January 12, 2000, AIM had agreed to limit
total annual operating expenses (excluding interest, taxes, dividend expense on
short sales, extraordinary items and increases in expenses due to offset
arrangements, if any) for Class A, Class B and Class C shares to 1.75%, 2.40%
and 2.40%, respectively. During the year ended October 31, 2000, AIM waived fees
of $548,051.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended October 31, 2000, AIM was
paid $50,000 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. For the year ended October 31, 2000, AFS was
paid $266,405 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.35% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and C 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. For the year ended October 31, 2000,
the Class A, Class B and Class C shares paid AIM Distributors $205,274, $951,451
and $4,107, respectively, as compensation under the Plans.
AIM Distributors received commissions of $12,841 from sales of the Class A
shares of the Fund during the year ended October 31, 2000. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended October 31, 2000,
AIM Distributors received $17,039 in contingent deferred sales charges imposed
on redemptions of Fund shares.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
NOTE 3-INDIRECT EXPENSES
For the year ended October 31, 2000, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $2,013 and reductions in custodian
fees of $14,744 under expense offset arrangements which resulted in a reduction
of the Fund's total expenses of $16,757.
NOTE 4-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $1,000,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the year ended October 31,
2000, the Fund did not borrow under the line of credit agreement. The funds
which are party to the line of credit are charged a commitment fee of 0.09% 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 5-PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities to the extent of one-third of the Fund's
total assets. Such loans are secured by collateral equal to no less than the
market value, determined daily, of the loaned securities. Such collateral will
be cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral pursuant to these loans is invested in short-term
money market instruments or affiliated money market funds. Lending securities
entails a risk of loss to the Fund if and to the extent that the market value of
the securities loaned were to increase and the borrower did not increase the
collateral accordingly, and the borrower fails to return the securities.
At October 31, 2000, there were no securities on loan to brokers. For the year
ended October 31, 2000, the Fund received fees of $816 for securities lending.
15
<PAGE> 18
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended October 31, 2000 was
$485,416,577 and $524,436,963, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of October 31, 2000 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $ 4,173,615
-------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (9,343,930)
=========================================================================
Net unrealized appreciation (depreciation) of investment
securities $(5,170,315)
_________________________________________________________________________
=========================================================================
</TABLE>
Cost of investments for tax purposes is $127,569,295.
NOTE 7-SHARE INFORMATION
Changes in shares outstanding during the years ended October 31, 2000 and 1999
were as follows:
<TABLE>
<CAPTION>
2000 1999
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold:
Class A 1,203,928 $ 11,556,535 3,735,185 $ 40,211,400
----------------------------------------------------------------------------------------------------------------------
Class B 727,886 7,090,652 570,671 6,113,002
----------------------------------------------------------------------------------------------------------------------
Class C* 51,395 500,167 25,089 258,028
----------------------------------------------------------------------------------------------------------------------
Advisor Class** 25 256 18,917 210,688
======================================================================================================================
Issued as reinvestment of dividends:
Class A 324,043 3,148,620 412,050 4,409,344
----------------------------------------------------------------------------------------------------------------------
Class B 380,663 3,710,538 544,054 5,826,667
----------------------------------------------------------------------------------------------------------------------
Class C* 2,405 23,176 196 2,004
----------------------------------------------------------------------------------------------------------------------
Advisor Class** 70 715 1,153 12,565
======================================================================================================================
Conversion of Advisor Class shares to Class A shares***:
Class A 10,457 105,612 -- --
----------------------------------------------------------------------------------------------------------------------
Advisor Class** (10,415) (105,612) -- --
======================================================================================================================
Reacquired:
Class A (2,984,827) (29,037,185) (6,845,161) (73,369,044)
----------------------------------------------------------------------------------------------------------------------
Class B (4,475,397) (44,206,777) (6,857,590) (73,236,817)
----------------------------------------------------------------------------------------------------------------------
Class C* (25,784) (244,216) (573) (5,916)
----------------------------------------------------------------------------------------------------------------------
Advisor Class** -- -- (87,987) (963,109)
======================================================================================================================
(4,795,551) $(47,457,519) (8,483,996) $(90,531,188)
______________________________________________________________________________________________________________________
======================================================================================================================
</TABLE>
* Class C shares commenced sales on March 1, 1999.
** Advisor Class share activity for the period November 1, 1999 through
February 11, 2000 (date of conversion).
*** Effective as of the close of business February 11, 2000, pursuant to
approval by the Board of Trustees on November 3, 1999, all outstanding
shares of Advisor Class shares were converted to Class A shares of the fund.
16
<PAGE> 19
NOTE 8-FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------
2000(a) 1999 1998(a) 1997 1996(a)
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.13 $ 10.80 $ 12.00 $ 11.76 $ 10.32
--------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.77 0.68 0.91(b) 0.74 0.89
--------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.99) (0.66) (1.27) 0.34 1.44
====================================================================================================================
Total from investment operations (0.22) 0.02 (0.36) 1.08 2.33
====================================================================================================================
Less distributions:
Dividends from net investment income (0.52) (0.65) (0.65) (0.78) (0.82)
--------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.06) (0.07)
--------------------------------------------------------------------------------------------------------------------
Returns of capital (0.22) (0.04) (0.19) -- --
====================================================================================================================
Total distributions (0.74) (0.69) (0.84) (0.84) (0.89)
====================================================================================================================
Net asset value, end of period $ 9.17 $ 10.13 $ 10.80 $ 12.00 $ 11.76
____________________________________________________________________________________________________________________
====================================================================================================================
Total return(c) (2.35)% 0.06% (3.41)% 9.40% 23.00%
____________________________________________________________________________________________________________________
====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $48,865 $68,675 $102,280 $138,715 $185,126
____________________________________________________________________________________________________________________
====================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.21%(d) 1.41% 1.56% 1.44% 1.40%
--------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.57%(d) 1.41% 1.56% 1.44% 1.40%
====================================================================================================================
Ratio of net investment income to average net assets 7.84%(d) 6.44% 7.73% 6.18% 8.09%
____________________________________________________________________________________________________________________
====================================================================================================================
Portfolio turnover rate 309% 235% 306% 149% 177%
____________________________________________________________________________________________________________________
====================================================================================================================
</TABLE>
(a) Calculated using average shares outstanding.
(b) Net investment income per share reflects an interest payment received from
the conversion of Vnesheconombank loan agreements of $0.11 per share.
(c) Does not include sales charges.
(d) Ratios are based on average daily net assets of $58,649,641.
17
<PAGE> 20
NOTE 8-FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------------
2000(a) 1999 1998(a) 1997 1996(a)
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.15 $ 10.81 $ 12.01 $ 11.77 $ 10.33
---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.71 0.62 0.84(b) 0.67 0.82
---------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.01) (0.66) (1.28) 0.33 1.44
=====================================================================================================================
Total from investment operations (0.30) (0.04) (0.44) 1.00 2.26
=====================================================================================================================
Less distributions:
Dividends from net investment income (0.45) (0.58) (0.57) (0.71) (0.75)
---------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.05) (0.07)
---------------------------------------------------------------------------------------------------------------------
Returns of capital (0.22) (0.04) (0.19) -- --
=====================================================================================================================
Total distributions (0.67) (0.62) (0.76) (0.76) (0.82)
=====================================================================================================================
Net asset value, end of period $ 9.18 $ 10.15 $ 10.81 $ 12.01 $ 11.77
_____________________________________________________________________________________________________________________
=====================================================================================================================
Total return(c) (3.11)% (0.52)% (4.04)% 8.70% 22.15%
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $76,680 $118,904 $188,660 $281,376 $333,178
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.86%(d) 2.07% 2.21% 2.09% 2.05%
---------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.22%(d) 2.07% 2.21% 2.09% 2.05%
=====================================================================================================================
Ratio of net investment income to average net assets 7.18%(d) 5.78% 7.08% 5.53% 7.44%
_____________________________________________________________________________________________________________________
======================================================================================================================
Portfolio turnover rate 309% 235% 306% 149% 177%
_____________________________________________________________________________________________________________________
======================================================================================================================
</TABLE>
(a) Calculated using average shares outstanding.
(b) Net investment income per share reflects an interest payment received from
the conversion of Vnesheconombank loan agreements of $0.11 per share.
(c) Does not include contingent deferred sales charges.
(d) Ratios are based on average daily net assets of $95,145,091.
18
<PAGE> 21
NOTE 8-FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
CLASS C
----------------------------
MARCH 1, 1999
(DATE SALES
YEAR ENDED COMMENCED) TO
OCTOBER 31, OCTOBER 31,
2000(a) 1999
----------- -------------
<S> <C> <C>
Net asset value, beginning of period $10.14 $10.78
--------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.70 0.33
--------------------------------------------------------------------------------------
Net losses on securities (both realized and unrealized) (1.00) (0.63)
======================================================================================
Total from investment operations (0.30) (0.30)
======================================================================================
Less distributions:
Dividends from net investment income (0.45) (0.31)
--------------------------------------------------------------------------------------
Returns of capital (0.22) (0.03)
======================================================================================
Total distributions (0.67) (0.34)
======================================================================================
Net asset value, end of period $ 9.17 $10.14
______________________________________________________________________________________
======================================================================================
Total return(b) (3.12)% (1.80)%
______________________________________________________________________________________
======================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 484 $ 251
______________________________________________________________________________________
======================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.86%(c) 2.07%(d)
--------------------------------------------------------------------------------------
Without fee waivers 2.22%(c) 2.07%(d)
======================================================================================
Ratio of net investment income to average net assets 7.18%(c) 5.78%(d)
______________________________________________________________________________________
======================================================================================
Portfolio turnover rate 309% 235%
______________________________________________________________________________________
======================================================================================
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not include contingent deferred sales charges and is not annualized for
periods less than one year.
(c) Ratios are based on average daily net assets of $410,715.
(d) Annualized.
19
<PAGE> 22
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 schedule 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 October 31, 2000, and the
results of its operations, the changes in its net assets
and the financial highlights for the periods indicated,
in conformity with accounting principles generally
accepted in the United States of America. 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 auditing standards
generally accepted in the United States of America, 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
October 31, 2000 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
December 18, 2000
20
<PAGE> 23
<TABLE>
<CAPTION>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
<S> <C> <C>
C. Derek Anderson Robert H. Graham 11 Greenway Plaza
Senior Managing Partner, 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)
Melville B. Cox A I M Advisors, Inc.
Frank S. Bayley Vice President 11 Greenway Plaza
Partner, law firm of Suite 100
Baker & McKenzie Gary T. Crum Houston, TX 77046
Vice President
Robert H. Graham TRANSFER AGENT
President and Chief Executive Officer, Carol F. Relihan
A I M Management Group Inc. Vice President and Secretary A I M Fund Services, Inc.
P.O. Box 4739
Ruth H. Quigley Mary J. Benson Houston, TX 77210-4739
Private Investor Assistant Vice President and
Assistant Treasurer CUSTODIAN
Sheri Morris State Street Bank and Trust Company
Assistant Vice President and 225 Franklin Street
Assistant Treasurer Boston, MA 02110
Nancy L. Martin COUNSEL TO THE FUND
Assistant Secretary
Kirkpatrick & Lockhart LLP
Ofelia M. Mayo 1800 Massachusetts Avenue, N.W.
Assistant Secretary Washington, D.C. 20036-1800
Kathleen J. Pflueger COUNSEL TO THE TRUSTEES
Assistant Secretary
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 Street
Boston, MA 02110
</TABLE>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
October 31, 2000, 1.83% is eligible for the dividends received deduction for
corporations.
<PAGE> 24
THE AIM FAMILY OF FUNDS--Registered Trademark--
<TABLE>
<S> <C> <C>
EQUITY FUNDS
DOMESTIC EQUITY FUNDS INTERNATIONAL/GLOBAL FUNDS A I M Management Group Inc. has provided
leadership in the mutual fund industry
MORE AGGRESSIVE MORE AGGRESSIVE since 1976 and managed approximately
$183 billion in assets for more than
AIM Small Cap Opportunities(1) AIM Latin American Growth eight million shareholders, including
AIM Mid Cap Opportunities(2) AIM Developing Markets individual investors, corporate clients
AIM Large Cap Opportunities(3) AIM European Small Company and financial institutions, as of
AIM Emerging Growth AIM Asian Growth September 30, 2000.
AIM Small Cap Growth(4) AIM Japan Growth The AIM Family of Funds--Registered
AIM Aggressive Growth AIM International Emerging Growth Trademark-- is distributed nationwide,
AIM Mid Cap Growth AIM European Development and AIM today is the eighth-largest
AIM Small Cap Equity AIM Euroland Growth mutual fund complex in the United States
AIM Capital Development AIM Global Aggressive Growth in assets under management, according to
AIM Constellation AIM International Equity Strategic Insight, an independent mutual
AIM Dent Demographic Trends AIM Advisor International Value fund monitor.
AIM Select Growth AIM Global Trends AIM is a subsidiary of AMVESCAP PLC,
AIM Large Cap Growth AIM Global Growth one of the world's largest independent
AIM Weingarten financial services companies with $414
AIM Mid Cap Equity MORE CONSERVATIVE billion in assets under management as of
AIM Value II September 30, 2000.
AIM Charter SECTION EQUITY FUNDS
AIM Value
AIM Blue Chip MORE AGGRESSIVE
AIM Basic Value
AIM Large Cap Basic Value AIM New Technology
AIM Balanced AIM Global Telecommunications and Technology
AIM Advisor Flex AIM Global Resources
AIM Global Financial Services
MORE CONSERVATIVE AIM Global Health Care
AIM Global Consumer Products and Services
AIM Global Infrastructure
AIM Advisor Real Estate
AIM Global Utilities
MORE CONSERVATIVE
FIXED-INCOME FUNDS
TAXABLE FIXED-INCOME FUNDS TAX-FREE INCOME FUNDS
MORE AGGRESSIVE MORE AGGRESSIVE
AIM Strategic Income AIM High Income Municipal
AIM High Yield II AIM Tax-Exempt Bond of Connecticut
AIM High Yield AIM Municipal Bond
AIM Income AIM Tax-Free Intermediate
AIM Global Income AIM Tax-Exempt Cash
AIM Floating Rate(5)
AIM Intermediate Government MORE CONSERVATIVE
AIM Limited Maturity Treasury
AIM Money Market
MORE CONSERVATIVE
</TABLE>
The AIM Risk Spectrum illustrates equity and fixed-income funds from more
aggressive to more conservative. When assessing the degree of risk, three
factors were considered: the funds' portfolio holdings, volatility patterns over
time and diversification permitted within the fund. Fund rankings are relative
to one another within The AIM Family of Funds--Registered Trademark-- and should
not be compared with other investments. There is no guarantee that any one AIM
fund will be less volatile than any other. (1) AIM Small Cap Opportunities Fund
closed to new investors Nov. 4, 1999. (2) AIM Mid Cap Opportunities Fund closed
to new investors March 21, 2000. (3) AIM Large Cap Opportunities Fund closed to
new investors Sept. 29, 2000. (4) AIM Small Cap Growth Fund closed to new
investors Nov. 8, 1999. (5) AIM Floating Rate Fund was restructured to offer
multiple share classes April 3, 2000. Existing shares were converted to Class B
shares, and Class C shares commenced offering.
FOR MORE COMPLETE INFORMATION ABOUT ANY AIM FUND, INCLUDING SALES CHARGES
AND EXPENSES, OBTAIN THE APPROPRIATE PROSPECTUS(ES) FROM YOUR FINANCIAL ADVISOR.
PLEASE READ THE PROSPECTUS(ES) CAREFULLY BEFORE YOU INVEST OR SEND MONEY. This
report is not authorized for distribution to prospective investors unless
preceded or accompanied by a currently effective fund prospectus. If used as
sales material after Jan. 20, 2001, this report must be accompanied by a fund
Performance & Commentary or by an AIM Quarterly Review of Performance for the
most recent quarter end.
[DALBAR LOGO APPEARS HERE] [AIM LOGO APPEARS HERE]
--Registered Trademark--
INVEST WITH DISCIPLINE
--Registered Trademark--
A I M Distributors, Inc. SINC-AR-1
