<PAGE> 1
ANNUAL REPORT / JULY 31 2000
AIM INCOME FUND
[COVER IMAGE]
[AIM LOGO APPEARS HERE]
--Registered Trademark--
<PAGE> 2
[ COVER IMAGE ]
-------------------------------------
THE BOAT AT GIVERNY BY CLAUDE MONET
IN MONET'S CAPTIVATING PAINTING, THREE WOMEN GENTLY GUIDE A SMALL BOAT OVER
A TRANQUIL BODY OF WATER. SIMILARLY, AIM INCOME FUND RELIES PRIMARILY ON
THREE ASSET CLASSES--DOMESTIC INVESTMENT-GRADE BONDS, HIGH-YIELD BONDS AND
FOREIGN BONDS--TO STEER IT TO ITS FINANCIAL DESTINATION.
-------------------------------------
AIM Income Fund is for shareholders who seek a high level of current income
consistent with a reasonable concern for safety of principal by investing in a
portfolio consisting primarily of fixed-rate corporate debt and U.S. government
obligations.
ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THE REPORT:
o AIM Income Fund's performance figures are historical, and they reflect the
reinvestment of distributions and changes in net asset value.
o When sales charges are included in performance figures, Class A share
performance reflects the maximum 4.75% sales charge, and Class B and Class C
share performance reflects the applicable contingent deferred sales charge
(CDSC) for the period involved. The CDSC on Class B shares declines from 5%
beginning at the time of purchase to 0% at the beginning of the seventh
year. The CDSC on Class C shares is 1% for the first year after purchase.
The performance of the fund's Class B and Class C shares will differ from
that of its Class A shares due to different sales-charge structure and class
expenses.
o Since our last report to you, the fund's fiscal year end was changed from
December 31 to July 31. Certain information in the financial pages of this
report and information concerning fund distributions are for the period
12/31/99-7/31/00. The portfolio managers' discussion and the performance
information presented are for the period 7/31/99-7/31/00.
o For the seven-month period ended 7/31/00, the fund paid distributions of
$0.322 per Class A share and $0.2835 per Class B and Class C share.
o The fund's cumulative total returns at net asset value for the seven-month
period ended 7/31/00 were as follows: Class A shares, -1.70%, Class B
shares, -2.09%; Class C shares, -2.09%.
o The 30-day yield is calculated on the basis of a formula defined by the SEC.
The formula is based on the portfolio's potential earnings from dividends,
interest, yield-to-maturity or yield-to-call of the bonds in the portfolio,
net of all expenses and 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 Government securities (such as U.S. Treasury bills, notes and bonds) offer a
high degree of safety, and they guarantee the timely payment of principal
and interest if held to maturity. Fund shares are not insured, and their
value will vary with market conditions.
o International investing presents certain risks not associated with investing
solely in the United States. These include risks relating to fluctuations in
the value of the U.S. dollar relative to the values of other currencies, the
custody arrangements made for the fund's foreign holdings, differences in
accounting, political risks and the lesser degree of public information
required to be provided by non-U.S. countries.
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 than do U.S. government securities (such as U.S. Treasury
bills, notes and bonds), for which the government guarantees the repayment
of principal and interest 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 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 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 INCOME FUND
<PAGE> 3
ANNUAL REPORT / CHAIRMAN'S LETTER
Dear Fellow Shareholder:
When we started AIM in 1976, we had only a table, two
[PHOTO OF chairs and a telephone. At the time, Bob Graham, Gary Crum
Charles T. and I had the idea of creating a mutual fund company that put
Bauer, people first. Our slogan, "people are the product," means
Chairman of that people--our employees and our investors--are our
the Board of company.
THE FUND Almost a quarter-century later, we've grown to more than
APPEARS HERE] eight million investors, with $176 billion in assets under
management. Over that time, the industry as a whole has grown
[PHOTO OF from $51 billion in assets to more than $7 trillion today. I
Robert H. never dreamed we would see such phenomenal growth. You are
Graham the main reason for our success, and I want you to know how
APPEARS HERE] much I appreciate your loyalty and trust over the past 24
years.
Usually in this letter I review market activity during
the period covered by the report. This time, I'd just like to
say thank you. I am retiring as chairman of the AIM Funds effective September
30, and as chairman of AIM effective December 31, 2000. Bob Graham, whose
picture appears under mine, will succeed me as AIM's chairman and chairman of
the AIM Funds. Gary Crum will remain president of A I M Capital Management,
Inc., leading our investment division. I am enormously proud to leave AIM in
such capable hands.
I'm also very proud of our team of employees, now more than 2,500 strong.
Because of their collective commitment to excellence and ethical business
practices, AIM has earned the trust of investors and financial advisors alike.
And every employee, from portfolio managers to client services representatives,
is dedicated to serving our shareholders.
Rest assured that nothing at AIM will change because of my retirement. You
can still depend on this company to manage your money responsibly and provide
you with top-notch service. As chairman of AIM and chairman of the AIM Funds,
Bob is committed to preserving the things that have made AIM great in the past
and positioning it to succeed in the future. And Gary is dedicated to
maintaining the quality and long-term performance you've come to expect from
AIM.
In the pages that follow, the managers of your fund comment on recent market
activity, how they have managed your fund over the past year and their outlook
for the coming months. We trust you will find their comments helpful.
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 again for the support and trust you've shown us. I feel privileged
to have helped you with your financial goals, and I wish you success in all your
endeavors.
Sincerely,
/s/ CHARLES T. BAUER
Charles T. Bauer
Chairman,
A I M Advisors, Inc.
AIM INCOME FUND
<PAGE> 4
ANNUAL REPORT / MANAGERS' OVERVIEW
RISING INTEREST RATES, MARKET GYRATIONS CHALLENGE BOND MARKETS
STOCK-MARKET VOLATILITY AND HIGHER INTEREST RATES CHALLENGED MANY BOND SECTORS
THIS YEAR. HOW DID AIM INCOME FUND PERFORM IN THIS ENVIRONMENT?
Throughout much of the year, a tight labor market, signs of rising inflation and
persistently robust growth applied downward pressure on bond prices in many
fixed-income sectors. These economic conditions led the Federal Reserve Board
(the Fed) to raise interest rates six times since last summer. Rate hikes
coupled with little demand for fixed-income securities weighed heavily on credit
markets. AIM Income Fund was not immune to this trend. The general drop in bond
prices hurt the fund's total returns for the year ended July 31, 2000. Total
returns at net asset value were -2.20% for Class A shares and -2.93% for Class B
and Class C shares. While much of the year proved difficult for bonds with
credit exposure, the fund's annual return belies an upturn in the bond market in
June. The fund posted returns of 2.64%, 2.56% and 2.71% for Class A, Class B and
Class C shares, respectively, for the month of June.
PORTFOLIO COMPOSITION
As of 7/31/00, based on total net assets
TOP FIVE BOND HOLDINGS
<TABLE>
<CAPTION>
=============================================================================
COUPON MATURITY % NET
ASSETS
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Niagara Mohawk 8.50 07/01/10 1.31
Holdings, Inc.
Time Warner Inc. 9.15 02/01/23 1.23
News America 8.45 08/01/34 1.22
Holdings, Inc.
CSX Corp. 7.25 05/01/27 1.21
CSC Holdings, 7.88 12/15/07 1.14
Inc.
The fund's portfolio is subject to change, and there is no assurance that the
fund will continue to hold any particular security.
=============================================================================
</TABLE>
FUND PROVIDES SOLID INCOME
As of 7/31/00
CLASS A SHARES VS.
30-YEAR U.S. TREASURY BOND
[BAR CHART]
================================================================================
Distribution Rate 7.73%
SEC Yield 8.23%
30-Year Treasury Yield 5.79%*
*Source: Lehman Brothers
================================================================================
And despite difficult market conditions, the fund continued to provide
attractive monthly income. As of July 31, 2000, the fund's 30-day distribution
rate at net asset value was 7.73%, 6.81% and 6.82% for Class A, Class B and
Class C shares, respectively. The fund's 30-day yield at maximum offering was
8.23% for Class A shares and 7.89% for both Class B and Class C shares. That
compares with the 5.79% yield on the 30-year U.S. Treasury bond.
[PIE CHART]
================================================================================
Investment-grade bonds 60.90%
Foreign Bonds 9.00%
High-Yield Bonds 23.86%
Other 6.24%
================================================================================
WHAT WERE THE MAJOR TRENDS IN THE DOMESTIC INVESTMENT-GRADE BOND MARKET?
What a difference a year makes! U.S. Treasury issues endured one of their worst
12-month periods in 1999 with yields at nearly two-year highs. Thus far,
however, 2000 has has been unique in that many bond sectors have outperformed
most equity sectors.
Beyond investor flight from a volatile stock market, the government bond
market was buoyed by a unique situation. In January, the Treasury announced its
intention to buy back $30 billion in Treasury securities and perhaps to cease
issuing 30-year Treasury bonds in the not-too-distant future. This (among other
factors) literally turned the Treasury market upside down, or in bond parlance,
inverted the Treasury yield curve. The curve--a graph of Treasury security
yields from three months to 30 years--under normal conditions slopes upward,
with short-term yields lower than longer-term yields. With an inverted curve,
however, short-term Treasuries actually yield more than longer-term ones.
As the Treasury rally slowed near the end of the year, credit sectors began
to pick up steam. With less-risky government securities offering a better return
at the beginning of the year, corporate bonds were a tough sell. But a shot in
the arm came after several economic reports suggested that the economy was
heading for a soft landing and that additional interest-rate increases may not
be needed. In June and July, the corporate bond sector recorded some of the best
returns of any fixed-income sector, up slightly more than 2.0% and 1.19%,
respectively.
See important fund and index disclosures inside front cover.
AIM INCOME FUND
2
<PAGE> 5
ANNUAL REPORT / MANAGERS' OVERVIEW
HOW DID CORPORATE BONDS, PARTICULARLY HIGH-YIELD BONDS, FARE IN THIS DIFFICULT
MARKET?
Corporate bonds, both high-yield and investment-grade, have had a tough year,
but both sectors appear to be turning around. Until nearly June, corporate bond
markets suffered from what could be considered a difficult technical
situation--poor liquidity and more cash outflows than inflows. In fact, cash
outflows from high-yield mutual funds for the first five months of the year were
higher than all cash inflows into high-yield funds for all 1999. Fortunately, a
reversal of this trend began in June, as cash inflows averaged $145 million per
week.
When a market experiences more sellers than buyers, prices on securities
generally go down. In the corporate market, for instance, to get new issues into
the market, they must be priced attractively. This effectively reprices the rest
of the market, sending existing bond prices down and pushing their yields up.
And yields on corporate bonds were at some of their highest levels in years.
In fact, high-yield bonds were yielding over 13% in May. One has to go back to
the 1990-91 period to find higher yields. Spreads (the difference between yields
on high-yield bonds and comparable maturity Treasuries) were also wide at well
over 600 basis points. That's probably not due to credit-quality concerns so
much as to comparatively rich prices in the Treasury market and rather low
demand for corporate bonds. But as investors have returned to the corporate
market, those spreads have narrowed a bit.
HOW DID FOREIGN BONDS FARE?
The strength of the dollar relative to most other major currencies potentially
hurt returns for U.S. investors in foreign bonds. We continue to mitigate the
effect of a strong dollar by selectively hedging our currency exposure.
Nonetheless, as U.S. bond yields rose relative to most foreign bond yields, we
favored domestic over foreign bonds.
Even without taking currency factors into consideration, the performance of
most foreign bonds (emerging markets are a notable exception) has been
lackluster. Rising interest rates around the world hampered foreign bonds during
the reporting period.
GIVEN THE DIFFICULT BOND MARKET, WHAT STRATEGIES DID YOU EMPLOY?
As corporate bonds lagged government bonds for most of 2000, the fund's
overweighting in spread products had a negative effect on the fund. And within
the corporate-bond spectrum, we moved the fund to its maximum weighting in the
high-yield sector during the first quarter. While the underperformance of the
high-yield sector initially diminished fund performance, we view this segment of
the market as undervalued, and we used it as a buying opportunity.
At the beginning of the year, our non-dollar exposure hurt the fund's
performance as the euro continued to weaken against the dollar. Later, we
reallocated a portion of fund assets out of foreign bonds and into U.S. dollar
bonds. We feel that this has improved our yield and reduced our exposure to the
euro.
WHAT IS YOUR OUTLOOK FOR THE BOND MARKET?
For the fixed-income investor, June provided a reversal of sorts. Attractive
yields and an improving interest-rate outlook enticed investors back to credit
sectors.
The near-term outlook for bond investors depends largely on what the economy
does in coming months. Has the Fed with its string of rate hikes orchestrated
the proverbial "soft landing"--a gradual slowing of the economy, which would
prevent inflation and avoid economic distress? A string of recent statistical
releases (including data reported in the Federal Reserve's latest survey of
business activity) suggests that the pace of economic activity is indeed
slowing. If this continues, and if the Fed does not feel the need to raise rates
again in the coming months, that could bring about a recovery in the bond
market.
[ COVER IMAGE ]
IMPORTANT NEWS ABOUT YOUR FUND
Since our last report to you, your fund's fiscal year-end was changed from
December 31 to July 31. Going forward, you will receive an annual report dated
July 31 and a semiannual report dated January 31 each year.
In addition, several proposals made in a proxy solicitation to shareholders
were voted on at a shareholder meeting. Details concerning these proxy votes
will be found near the end of this report.
See important fund and index disclosures inside front cover.
AIM INCOME FUND
3
<PAGE> 6
ANNUAL REPORT / PERFORMANCE HISTORY
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
AIM INCOME FUND VS. BENCHMARK INDEX
7/31/90-7/31/00
[HYPO CHART]
================================================================================
AIM Income Fund, Class A Shares Lehman Aggregate Bond Index
--------------------------------------------------------------------------------
7/31/90 $10,000.00 $10,000.00
7/91 $10,279.00 $11,070.00
7/92 $12,103.00 $12,706.00
7/93 $13,715.00 $13,998.00
7/94 $13,070.00 $14,011.00
7/95 $14,774.00 $15,428.00
7/96 $15,932.00 $16,282.00
7/97 $18,664.00 $18,035.00
7/98 $20,334.00 $19,454.00
7/99 $19,947.00 $19,938.00
7/00 $19,509.00 $21,127.00
Source: Lipper, Inc.
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 the performance of your fund's Class A shares to a benchmark
index over the period 7/31/90-7/31/00. It is important to understand the
differences between your fund and an index. Your fund's total return is shown
with a sales charge, and it includes fund expenses and management fees. An index
measures the performance of a hypothetical portfolio. A market index such as the
Lehman Aggregate Bond Index is not managed, 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 your investment's return.
AVERAGE ANNUAL TOTAL RETURNS
As of 7/31/00, including sales charges
================================================================================
CLASS A SHARES
10 Years 6.91%
5 Years 4.69
1 Year -6.82*
*-2.20% excluding sales charges
CLASS B SHARES
Inception (9/7/93) 3.63%
5 Years 4.59
1 Year -7.47*
*-2.93% excluding CDSC
CLASS C SHARES
Inception (8/4/97) 1.03%
1 year -3.84*
*-2.93% excluding CDSC
================================================================================
The fund's average annual total returns as of the close of the reporting period
are shown in the table above. In addition, industry regulations require us to
provide average annual total returns (including sales charges) as of 6/30/00,
the most recent calendar quarter-end, which were: Class A shares, one year,
-7.12%; five years, 4.76%; 10 years, 7.06%. Class B shares, one year, -7.70%;
five years, 4.66%; inception (9/1/93), 3.70%. Class C shares, one year, -3.95%;
inception (8/4/97), 1.11%.
The fund's average annual 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 differing fees and expenses. For
performance calculations and a description of the index cited on this page,
please see the inside front cover.
AIM INCOME FUND
4
<PAGE> 7
SCHEDULE OF INVESTMENTS
July 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. DOLLAR DENOMINATED BONDS &
NOTES-84.76%
AIR FREIGHT-0.70%
Atlas Air, Inc., Sr. Unsec. Notes,
10.75%, 08/01/05 $ 3,970,000 $ 4,089,100
--------------------------------------------------------------
AIRLINES-3.64%
Air 2 US-Series C, Equipment Trust
Ctfs., 10.13%, 10/01/20
(Acquired 10/28/99; Cost
$3,750,000)(a) 3,750,000 3,853,350
--------------------------------------------------------------
Airplanes Pass Through
Trust-Series D, Gtd. Sub. Bonds,
10.88%, 03/15/19 1,787,737 1,436,724
--------------------------------------------------------------
Delta Air Lines, Inc., Deb.,
9.00%, 05/15/16 700,000 696,038
--------------------------------------------------------------
10.38%, 12/15/22 4,000,000 4,399,560
--------------------------------------------------------------
Equipment Trust Ctfs., 10.50%,
04/30/16 5,000,000 5,713,650
--------------------------------------------------------------
Dunlop Standard Aerospace Holdings
PLC (United Kingdom), Sr. Unsec.
Yankee Sub. Notes, 11.88%,
05/15/09 2,700,000 2,693,250
--------------------------------------------------------------
United Air Lines, Inc.-Series
95A2, Pass Through Ctfs., 9.56%,
10/19/18 2,325,000 2,594,793
--------------------------------------------------------------
21,387,365
--------------------------------------------------------------
AUTO PARTS & EQUIPMENT-0.78%
Advance Stores Co., Inc.-Series B,
Sr. Unsec. Gtd. Sub. Notes,
10.25%, 04/15/08 2,585,000 2,126,162
--------------------------------------------------------------
Exide Corp., Sr. Notes, 10.00%,
04/15/05 2,640,000 2,442,000
--------------------------------------------------------------
4,568,162
--------------------------------------------------------------
AUTOMOBILES-0.40%
DaimlerChrysler N.A. Holding
Corp., Gtd. Notes, 8.00%,
06/15/10 2,300,000 2,341,492
--------------------------------------------------------------
BANKS (MAJOR REGIONAL)-2.39%
BB&T Corp., Putable Sub. Notes,
6.38%, 06/30/05 1,000,000 937,240
--------------------------------------------------------------
Crestar Financial Corp., Sub.
Notes, 8.75%, 11/15/04 645,000 670,503
--------------------------------------------------------------
Midland Bank PLC (United Kingdom),
Yankee Sub. Notes, 7.65%,
05/01/25 1,870,000 1,869,177
--------------------------------------------------------------
Regions Financial Corp., Putable
Sub. Notes, 7.75%, 09/15/24 3,650,000 3,674,163
--------------------------------------------------------------
Republic New York Corp.,
Sub. Deb., 9.50%, 04/15/14 2,750,000 3,044,882
--------------------------------------------------------------
Sub. Notes, 9.70%, 02/01/09 2,500,000 2,751,850
--------------------------------------------------------------
Union Planters Bank N.A., Unsec.
Sub. Notes, 6.50%, 03/15/08 1,240,000 1,092,353
--------------------------------------------------------------
14,040,168
--------------------------------------------------------------
BANKS (MONEY CENTER)-1.55%
First Union Corp., Putable Sub.
Deb.,
6.55%, 10/15/35 660,000 624,842
--------------------------------------------------------------
7.50%, 04/15/35 5,000,000 4,940,750
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
BANKS (MONEY CENTER)-(CONTINUED)
NCNB Corp., Sub. Notes, 9.38%,
09/15/09 $ 3,200,000 $ 3,525,856
--------------------------------------------------------------
9,091,448
--------------------------------------------------------------
BANKS (REGIONAL)-2.10%
Banponce Trust I-Series A, Gtd.
Notes, 8.33%, 02/01/27 3,000,000 2,705,550
--------------------------------------------------------------
Mercantile Bancorp., Inc., Unsec.
Sub. Notes, 7.30%, 06/15/07 3,585,000 3,496,952
--------------------------------------------------------------
NBD Bank N.A. Michigan, Putable
Sub. Deb., 8.25%, 11/01/24 2,800,000 2,934,512
--------------------------------------------------------------
Riggs Capital Trust II-Series C,
Gtd. Sec. Bonds, 8.88%, 03/15/27 3,800,000 3,216,358
--------------------------------------------------------------
12,353,372
--------------------------------------------------------------
BEVERAGES (ALCOHOLIC)-0.70%
J Seagram & Sons, Gtd. Deb.,
9.65%, 08/15/18 3,500,000 4,122,615
--------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO &
CABLE)-8.33%
AT&T Corp.-Liberty Media Group,
Bonds, 7.88%, 07/15/09 1,500,000 1,464,870
--------------------------------------------------------------
Sr. Unsec. Deb., 8.25%, 02/01/30 3,400,000 3,264,748
--------------------------------------------------------------
British Sky Broadcasting Group PLC
(United Kingdom), Sr. Unsec.
Gtd. Yankee Notes, 8.20%,
07/15/09 5,400,000 4,983,984
--------------------------------------------------------------
CF Cable TV Inc. (Canada), Sr.
Sec. Priority Yankee Notes,
9.13%, 07/15/07 2,000,000 2,117,460
--------------------------------------------------------------
Charter Communications Holdings,
LLC/Charter Communications
Holdings Capital Corp., Sr.
Unsec. Disc. Notes, 9.92%,
04/01/11(b) 2,500,000 1,437,500
--------------------------------------------------------------
Comcast Cable Communications,
Notes, 8.88%, 05/01/17 5,000,000 5,412,400
--------------------------------------------------------------
Sr. Unsec. Notes, 8.50%,
05/01/27 3,000,000 3,164,640
--------------------------------------------------------------
Cox Enterprises, Inc., Notes,
8.00%, 02/15/07 (Acquired
02/16/00; Cost $3,771,614)(a) 3,800,000 3,818,810
--------------------------------------------------------------
CSC Holdings Inc., Sr. Unsec.
Deb.,
7.63%, 07/15/18 3,250,000 2,951,357
--------------------------------------------------------------
7.88%, 02/15/18 1,000,000 931,380
--------------------------------------------------------------
Sr. Unsec. Notes, 7.88%,
12/15/07 6,850,000 6,666,831
--------------------------------------------------------------
Fox Family Worldwide, Inc., Sr.
Unsec. Disc. Notes, 10.25%,
11/01/07(b) 3,930,000 2,731,350
--------------------------------------------------------------
Knology Holdings, Inc., Sr. Disc.
Notes, 11.88%, 10/15/07(b) 4,100,000 2,183,250
--------------------------------------------------------------
Lenfest Communications, Inc., Sr.
Unsec. Sub. Notes, 8.25%,
02/15/08 5,000,000 4,989,050
--------------------------------------------------------------
United Pan-Europe Communications
N.V. (Netherlands)-Series B, Sr.
Unsec. Disc. Yankee Notes,
13.38%, 11/01/09(b) 6,000,000 2,790,000
--------------------------------------------------------------
48,907,630
--------------------------------------------------------------
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
BUILDING MATERIALS-0.48%
Blount Inc., Sr. Unsec. Gtd. Sub.
Notes, 13.00%, 08/01/09 $ 2,750,000 $ 2,791,250
--------------------------------------------------------------
CHEMICALS-0.49%
Sterling Chemicals, Inc.-Series B,
Sr. Gtd. Sec. Sub. Notes,
12.38%, 07/15/06 2,750,000 2,866,875
--------------------------------------------------------------
CHEMICALS (SPECIALTY)-0.02%
Key Plastics Holdings, Inc.-Series
B, Sr. Unsec. Gtd. Sub. Notes,
10.25%, 03/15/07(c) 1,325,000 139,125
--------------------------------------------------------------
COMPUTERS (HARDWARE)-0.25%
Candescent Technology Corp., Sr.
Conv. Sub. Deb., 8.00%, 05/01/03
(Acquired 04/20/98; Cost
$2,000,000)(a) 2,000,000 1,450,000
--------------------------------------------------------------
COMPUTERS (NETWORKING)-0.35%
Exodus Communications, Inc., Sr.
Unsec. Notes, 11.25%, 07/01/08 2,025,000 2,025,000
--------------------------------------------------------------
COMPUTERS (PERIPHERALS)-0.51%
Equinix Inc., Sr. Unsec. Notes,
13.00%, 12/01/07 3,540,000 3,009,000
--------------------------------------------------------------
CONSUMER FINANCE-2.76%
Capital One Bank,
Sr. Notes, 6.65%, 03/15/04 1,600,000 1,520,176
--------------------------------------------------------------
Unsec. Notes, 7.25%, 05/01/06 2,500,000 2,313,850
--------------------------------------------------------------
CitiFinancial Credit Co., Putable
Notes, 7.88%, 02/01/25 1,400,000 1,415,162
--------------------------------------------------------------
Countrywide Home Loans,
Inc.-Series H, Unsec. Gtd.
Medium Term Sub Notes, 6.25%,
04/15/09 1,600,000 1,411,296
--------------------------------------------------------------
General Motors Acceptance Corp.,
Notes, 5.75%, 11/10/03 2,500,000 2,392,575
--------------------------------------------------------------
Household Finance Corp., Unsec.
Notes, 8.00%, 07/15/10 2,000,000 1,996,940
--------------------------------------------------------------
MBNA Capital I-Series A, Gtd.
Bonds, 8.28%, 12/01/26 6,065,000 5,165,560
--------------------------------------------------------------
16,215,559
--------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH)-0.24%
Fleming Cos., Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 10.63%,
07/31/07 1,600,000 1,388,000
--------------------------------------------------------------
ELECTRIC COMPANIES-7.16%
Cilcorp Inc., Bonds, 9.38%,
10/15/29 2,100,000 2,254,266
--------------------------------------------------------------
Cleveland Electric Illuminating
Co. (The)- Series D, Sr. Sec.
Notes, 7.88%, 11/01/17 3,800,000 3,709,777
--------------------------------------------------------------
CMS Energy Corp., Sr. Unsec.
Notes, 8.13%, 05/15/02 850,000 846,158
--------------------------------------------------------------
El Paso Electric Co.-Series E,
Sec. First Mortgage Bonds,
9.40%, 05/01/11 3,000,000 3,170,760
--------------------------------------------------------------
Indiana Michigan Power Co.-Series
F, Sec. Lease Obligation Bonds,
9.82%, 12/07/22 4,967,714 5,434,977
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
ELECTRIC COMPANIES-(CONTINUED)
Niagara Mohawk Holdings Inc.,
First Mortgage Notes, 7.75%,
05/15/06 $ 4,300,000 $ 4,273,082
--------------------------------------------------------------
Series H, Sr. Unsec. Disc.
Notes, 8.50%, 07/01/10(b) 10,000,000 7,678,800
--------------------------------------------------------------
Public Service Company of New
Mexico- Series A, Sr. Unsec.
Notes, 7.10%, 08/01/05 1,200,000 1,168,872
--------------------------------------------------------------
Southern Energy, Inc., Sr. Notes,
7.90%, 07/15/09 (Acquired
07/21/99-12/03/99; Cost
$5,978,820)(a) 6,000,000 5,566,380
--------------------------------------------------------------
Texas-New Mexico Power Co., Sr.
Sec. Notes, 6.25%, 01/15/09 4,050,000 3,476,965
--------------------------------------------------------------
Western Resources, Inc., Sr.
Unsec. Notes, 7.13%, 08/01/09 5,352,000 4,468,706
--------------------------------------------------------------
42,048,743
--------------------------------------------------------------
ELECTRONICS (COMPONENT
DISTRIBUTORS)-0.56%
Israel Electric Corp. Ltd.
(Israel),
Series E, Sr. Sec. Medium Term
Yankee Notes, 7.75%, 03/01/09
(Acquired 04/13/00; Cost
$2,138,136)(a) 2,200,000 2,130,634
--------------------------------------------------------------
Yankee Deb., 7.75%, 12/15/27
(Acquired 06/09/00; Cost
$1,141,374)(a) 1,300,000 1,178,541
--------------------------------------------------------------
3,309,175
--------------------------------------------------------------
ENGINEERING & CONSTRUCTION-0.39%
Morrison Knudsen Corp., Sr. Notes,
11.00%, 07/01/10 (Acquired
06/28/00; Cost $2,233,395)(a) 2,250,000 2,261,250
--------------------------------------------------------------
ENTERTAINMENT-2.34%
Callahan Nordrhein Westfalen
(Denmark), Sr. Yankee Notes,
14.00%, 07/15/10 (Acquired
06/29/00; Cost $1,100,000)(a) 1,100,000 1,080,750
--------------------------------------------------------------
Time Warner Inc., Deb.,
9.13%, 01/15/13 5,000,000 5,460,900
--------------------------------------------------------------
9.15%, 02/01/23 6,500,000 7,218,055
--------------------------------------------------------------
13,759,705
--------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-3.46%
Associates Corp. of North America,
Sr. Deb., 6.95%, 11/01/18 1,000,000 903,540
--------------------------------------------------------------
Beaver Valley Funding Corp., Sec.
Lease Obligations Deb., 9.00%,
06/01/17 1,500,000 1,503,045
--------------------------------------------------------------
Citicorp Lease-Class A2, Series
1999-1, Pass Through Ctfs.,
8.04%, 12/15/19 (Acquired
06/01/00-07/14/00; Cost
$2,974,186)(a) 3,000,000 3,037,380
--------------------------------------------------------------
Citigroup Inc., Deb., 6.63%,
01/15/28 1,150,000 998,844
--------------------------------------------------------------
General Electric Capital
Corp.-Series A, Medium Term
Notes, 7.38%, 01/19/10 5,600,000 5,660,032
--------------------------------------------------------------
Heller Financial, Inc., Sr. Unsec.
Notes,
7.38%, 11/01/09 1,750,000 1,661,765
--------------------------------------------------------------
8.00%, 06/15/05 2,300,000 2,308,694
--------------------------------------------------------------
Hutchison Delta Finance
Ltd.-Series REGS (Cayman
Islands), Conv. Unsec. Euro
Notes, 7.00%, 11/08/02 2,000,000 2,380,000
--------------------------------------------------------------
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
FINANCIAL (DIVERSIFIED)-(CONTINUED)
Source One Mortgage Services
Corp., Deb., 9.00%, 06/01/12 $ 1,130,000 $ 1,199,570
--------------------------------------------------------------
Sun Canada Financial Co., Gtd.
Sub. Notes, 6.63%, 12/15/07
(Acquired 10/14/99; Cost
$654,311)(a) 700,000 667,169
--------------------------------------------------------------
20,320,039
--------------------------------------------------------------
FOODS-0.85%
Grand Metropolitan Investment
Corp, Gtd. Bonds, 7.45%,
04/15/35 5,000,000 4,990,900
--------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL
COMPANIES-0.81%
Hollywood Casino Corp., Sr. Sec.
Gtd. Sub. Notes, 11.25%,
05/01/07 1,200,000 1,230,000
--------------------------------------------------------------
Venetian Casino Resort LLC, Sec.
Gtd. Mortgage Notes, 12.25%,
11/15/04 3,500,000 3,552,500
--------------------------------------------------------------
4,782,500
--------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC &
OTHER)-0.35%
Warner Chilcott, Inc., Sr. Unsec.
Gtd. Notes, 12.63%, 02/15/08(d) 2,000,000 2,070,000
--------------------------------------------------------------
HOUSEHOLD FURNISHING &
APPLIANCES-0.48%
O'Sullivan Industries, Inc.-Series
B, Sr. Unsec. Gtd. Sub. Notes,
13.38%, 10/15/09 3,000,000 2,820,000
--------------------------------------------------------------
HOUSEHOLD PRODUCTS
(NON-DURABLES)-0.45%
Procter & Gamble Co. (The),
Putable Deb., 8.00%, 09/01/24 2,500,000 2,665,875
--------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-1.07%
American General Finance Corp.,
Sr. Notes, 8.45%, 10/15/09 2,100,000 2,157,414
--------------------------------------------------------------
Americo Life, Inc., Sr. Sub.
Notes, 9.25%, 06/01/05 1,000,000 945,000
--------------------------------------------------------------
John Hancock Global Funding II,
Sec. Medium Term Notes, 7.90%,
07/02/10 (Acquired 06/23/00;
Cost $1,995,220)(a) 2,000,000 2,011,820
--------------------------------------------------------------
Torchmark Corp., Notes, 7.88%,
05/15/23 1,325,000 1,142,799
--------------------------------------------------------------
6,257,033
--------------------------------------------------------------
INSURANCE (MULTI-LINE)-0.43%
AIG SunAmerica Global Financing
II, Sr. Sec. Notes, 7.60%,
06/15/05 (Acquired 06/08/00;
Cost $2,500,000)(a) 2,500,000 2,526,875
--------------------------------------------------------------
INSURANCE (PROPERTY &
CASUALTY)-1.50%
GE Global Insurance Holdings
Corp., Notes, 7.75%, 06/15/30 4,800,000 4,864,320
--------------------------------------------------------------
Terra Nova Insurance PLC (United
Kingdom), Sr. Unsec. Gtd. Yankee
Notes,
7.00%, 05/15/08 2,000,000 1,872,940
--------------------------------------------------------------
7.20%, 08/15/07 2,200,000 2,094,070
--------------------------------------------------------------
8,831,330
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
INVESTMENT BANKING/BROKERAGE-1.92%
Lehman Brothers Holdings Inc.,
Notes, 8.50%, 08/01/15 $ 4,490,000 $ 4,546,484
--------------------------------------------------------------
Sr. Sub. Notes, 7.38%, 01/15/07 3,585,000 3,450,312
--------------------------------------------------------------
Series E, Medium Term Notes,
9.34%, 02/10/28(e) 8,700,000 707,745
--------------------------------------------------------------
Putable Sr. Notes, 8.80%,
03/01/15 1,640,000 1,687,265
--------------------------------------------------------------
Merrill Lynch & Co., Unsec. Notes,
6.88%, 11/15/18 1,000,000 904,270
--------------------------------------------------------------
11,296,076
--------------------------------------------------------------
IRON & STEEL-0.07%
Acme Metals Inc., Sr. Unsec. Gtd.
Notes, 10.88%, 12/15/07(c) 3,240,000 437,400
--------------------------------------------------------------
LEISURE TIME (PRODUCTS)-0.28%
Marvel Enterprises, Inc., Sr.
Unsec. Gtd. Sub. Notes, 12.00%,
06/15/09 2,075,000 1,665,187
--------------------------------------------------------------
LODGING-HOTELS-0.31%
John Q. Hammons Hotels, Inc., Sec.
First Mortgage Notes, 9.75%,
10/01/05 2,000,000 1,800,000
--------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-0.41%
Actuant Corp., Sr. Unsec. Gtd.
Sub. Notes, 13.00%, 05/01/09
(Acquired 07/21/00; Cost
$1,164,365)(a) 1,180,000 1,185,900
--------------------------------------------------------------
Anthony Crane Rentals LP-Series B,
Sr. Unsec. Gtd. Sub. Notes,
10.38%, 08/01/08 1,500,000 828,750
--------------------------------------------------------------
Glenoit Corp., Sr. Unsec. Gtd.
Sub. Notes, 11.00%, 04/15/07(c) 2,310,000 392,700
--------------------------------------------------------------
2,407,350
--------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-0.55%
MMI Products, Inc.-Series B, Sr.
Unsec. Sub. Notes, 11.25%,
04/15/07 2,070,000 2,038,950
--------------------------------------------------------------
Tekni-Plex Inc., Sr. Sub. Notes,
12.75%, 06/15/10 (Acquired
06/15/00; Cost $1,163,834)(a) 1,180,000 1,209,500
--------------------------------------------------------------
3,248,450
--------------------------------------------------------------
METALS MINING-0.90%
Centaur Mining and Exploration
Ltd. (Australia), Sr. Gtd.
Yankee Notes, 11.00%, 12/01/07 2,500,000 1,937,500
--------------------------------------------------------------
Rio Algom Ltd. (Canada), Unsec.
Yankee Deb., 7.05%, 11/01/05 3,500,000 3,332,945
--------------------------------------------------------------
5,270,445
--------------------------------------------------------------
NATURAL GAS-3.15%
Dynegy Inc., Sr. Unsec. Deb.,
7.13%, 05/15/18 3,550,000 3,166,280
--------------------------------------------------------------
Enron Corp.,
Sr. Sub. Deb., 8.25%, 09/15/12 4,100,000 4,196,637
--------------------------------------------------------------
Series A, Medium Term Notes,
8.38%, 05/23/05 1,750,000 1,812,877
--------------------------------------------------------------
KN Capital Trust III, Gtd. Sub.
Bonds, 7.63%, 04/15/28 2,500,000 2,204,650
--------------------------------------------------------------
Nova Gas Transmission Ltd.
(Canada), Yankee Deb., 8.50%,
12/15/12 3,000,000 3,166,920
--------------------------------------------------------------
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
NATURAL GAS-(CONTINUED)
Sonat Inc., Unsec. Notes, 7.63%,
07/15/11 $ 4,000,000 $ 3,933,040
--------------------------------------------------------------
18,480,404
--------------------------------------------------------------
OIL & GAS (DRILLING &
EQUIPMENT)-0.55%
NRG Energy, Inc., Sr. Unsec.
Notes, 7.50%, 06/01/09 3,400,000 3,242,138
--------------------------------------------------------------
OIL & GAS (EXPLORATION &
PRODUCTION)-2.11%
Den Norske Stats Oljeselskap A.S.
(Norway), Yankee Deb., 7.38%,
05/01/16 (Acquired 06/01/00;
Cost $2,064,678)(a) 2,200,000 2,108,194
--------------------------------------------------------------
ONEOK, Inc., Unsec. Notes, 7.75%,
08/15/06 3,500,000 3,489,325
--------------------------------------------------------------
Talisman Energy Inc. (Canada),
Yankee Deb., 7.13%, 06/01/07 3,750,000 3,581,212
--------------------------------------------------------------
Union Pacific Resources Group
Inc., Unsec. Deb., 7.50%,
10/15/26 3,350,000 3,196,737
--------------------------------------------------------------
12,375,468
--------------------------------------------------------------
OIL & GAS (REFINING &
MARKETING)-1.32%
Petroleos Mexicanos-Series P
(Mexico), Unsub. Yankee Notes,
9.50%, 09/15/27 2,600,000 2,697,110
--------------------------------------------------------------
Texas Petrochemical Corp., Sr.
Unsec. Sub. Notes, 11.13%,
07/01/06 2,010,000 1,778,850
--------------------------------------------------------------
Tosco Corp., Unsec. Deb., 7.80%,
01/01/27 3,400,000 3,301,706
--------------------------------------------------------------
7,777,666
--------------------------------------------------------------
OIL (DOMESTIC INTEGRATED)-1.27%
Amerada Hess Corp., Bonds, 7.88%,
10/01/29 3,000,000 2,929,170
--------------------------------------------------------------
Occidental Petroleum Corp., Sr.
Deb., 9.25%, 08/01/19 4,100,000 4,496,716
--------------------------------------------------------------
7,425,886
--------------------------------------------------------------
OIL (INTERNATIONAL
INTEGRATED)-0.60%
YPF Sociedad Anonima (Argentina),
Yankee Bonds, 9.13%, 02/24/09 3,500,000 3,546,620
--------------------------------------------------------------
PAPER & FOREST PRODUCTS-0.67%
Domtar, Inc. (Canada), Unsec.
Yankee Deb., 9.50%, 08/01/16 3,750,000 3,914,063
--------------------------------------------------------------
PHOTOGRAPHY/IMAGING-0.40%
Polaroid Corp., Sr. Unsec. Notes,
11.50%, 02/15/06 2,220,000 2,342,100
--------------------------------------------------------------
POWER PRODUCERS
(INDEPENDENT)-0.48%
Kincaid Generation LLC, Sec.
Bonds, 7.33%, 06/15/20 (Acquired
04/30/98; Cost $2,004,940)(a) 1,977,000 1,823,980
--------------------------------------------------------------
Panda Funding Corp., Series A-1,
Pooled Project Bonds, 11.63%,
08/20/12 985,892 971,103
--------------------------------------------------------------
2,795,083
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
PUBLISHING (NEWSPAPERS)-2.33%
News America Holdings, Inc.,
Putable Notes, 8.45%, 08/01/34 $ 7,000,000 $ 7,144,270
--------------------------------------------------------------
Sr. Gtd. Deb., 9.25%, 02/01/13 5,250,000 5,585,895
--------------------------------------------------------------
Sr. Unsec. Gtd. Putable Bonds,
7.43%, 10/01/26 1,000,000 973,470
--------------------------------------------------------------
13,703,635
--------------------------------------------------------------
RAILROADS-1.21%
CSX Corp., Sr. Unsec. Putable
Deb., 7.25%, 05/01/27 7,250,000 7,090,573
--------------------------------------------------------------
REAL ESTATE INVESTMENT
TRUSTS-0.88%
ERP Operating L.P., Unsec. Notes,
7.13%, 10/15/17 2,400,000 2,084,784
--------------------------------------------------------------
Health Care REIT, Inc., Sr. Unsec.
Notes, 7.63%, 03/15/08 1,500,000 1,244,160
--------------------------------------------------------------
Spieker Properties, Inc., Unsec.
Deb., 7.35%, 12/01/17 2,000,000 1,807,080
--------------------------------------------------------------
5,136,024
--------------------------------------------------------------
RETAIL (SPECIALTY)-0.98%
Amazon.com, Inc., Conv. Deb.,
4.75%, 02/01/09 (Acquired
01/29/99; Cost $2,507,500)(a) 2,500,000 1,368,750
--------------------------------------------------------------
CSK Auto Inc.-Series A, Sr. Gtd.
Sub. Deb, 11.00%, 11/01/06 715,000 559,488
--------------------------------------------------------------
Neff Corp., Sr. Unsec. Gtd. Sub.
Notes, 10.25%, 06/01/08 5,190,000 3,036,150
--------------------------------------------------------------
Rent-A-Center, Inc., Sr. Unsec.
Gtd. Sub. Notes, 11.00%,
08/15/08 820,000 795,400
--------------------------------------------------------------
5,759,788
--------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-0.25%
Big 5 Corp.-Series B, Sr. Unsec.
Notes, 10.88%, 11/15/07 1,625,000 1,482,813
--------------------------------------------------------------
SAVINGS & LOAN COMPANIES-2.04%
Dime Capital Trust I-Series A,
Gtd. Bonds, 9.33%, 05/06/27 2,020,000 1,876,035
--------------------------------------------------------------
Sovereign Bancorp, Inc., Medium
Term Sub. Notes, 8.00%, 03/15/03 5,050,000 4,827,245
--------------------------------------------------------------
St. Paul Bancorp, Inc., Sr. Unsec.
Notes, 7.13%, 02/15/04 1,500,000 1,449,915
--------------------------------------------------------------
Washington Mutual Cap I,
Sec. Gtd. Bonds, 8.38%, 06/01/27 1,485,000 1,340,703
--------------------------------------------------------------
Sub. Notes, 8.25%, 04/01/10 2,500,000 2,491,125
--------------------------------------------------------------
11,985,023
--------------------------------------------------------------
SERVICES (COMMERCIAL &
CONSUMER)-0.33%
Avis Group Holdings, Inc., Sr.
Unsec. Gtd. Sub. Notes, 11.00%,
05/01/09 1,850,000 1,956,375
--------------------------------------------------------------
SERVICES (EMPLOYMENT)-0.32%
MSX International, Inc., Sr.
Unsec. Gtd. Sub. Notes, 11.38%,
01/15/08 1,980,000 1,871,100
--------------------------------------------------------------
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
SOVEREIGN DEBT-1.58%
Newfoundland (Province of)
(Canada), Unsec. Yankee Deb.,
9.00%, 06/01/19 $ 4,000,000 $ 4,569,160
--------------------------------------------------------------
Quebec (Province of)
(Canada)-Series A, Medium Term
Putable Yankee Notes, 6.29%,
03/06/26(g) 4,800,000 4,693,824
--------------------------------------------------------------
9,262,984
--------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/
WIRELESS)-1.47%
Crown Castle International Corp.,
Sr. Notes, 10.75%, 08/01/11 1,100,000 1,133,000
--------------------------------------------------------------
Metrocall, Inc., Sr. Sub. Notes,
11.88%, 06/15/05 1,940,000 1,619,900
--------------------------------------------------------------
Nextel Communications, Inc.,
Sr. Notes, 12.00%, 11/01/08 3,375,000 3,645,000
--------------------------------------------------------------
Sr. Notes, 12.75%, 08/01/10
(Acquired 07/26/00; Cost
$986,220)(a) 1,000,000 997,500
--------------------------------------------------------------
Orion Network Systems, Inc., Sr.
Gtd. Sub. Notes, 11.25%,
01/15/07 2,000,000 1,230,000
--------------------------------------------------------------
8,625,400
--------------------------------------------------------------
TELECOMMUNICATIONS (LONG
DISTANCE)-3.50%
360networks Inc. (Canada),
Sr. Unsec. Yankee Notes, 12.00%,
08/01/09 1,000,000 935,000
--------------------------------------------------------------
Sr. Yankee Notes, 12.50%,
12/15/05 1,430,000 1,426,425
--------------------------------------------------------------
Destia Communications, Inc., Sr.
Unsec. Notes, 13.50%, 07/15/07 3,500,000 3,062,500
--------------------------------------------------------------
Esprit Telecom Group PLC (United
Kingdom), Sr. Unsec. Yankee
Notes, 11.50%, 12/15/07 1,500,000 1,087,500
--------------------------------------------------------------
Primus Telecommunications Group,
Inc., Sr. Unsec. Notes,
11.25%, 01/15/09 3,500,000 2,152,500
--------------------------------------------------------------
12.75%, 10/15/09 1,560,000 959,400
--------------------------------------------------------------
Sprint Corp., Putable Deb., 9.00%,
10/15/19 2,500,000 2,873,125
--------------------------------------------------------------
Versatel Telecom International
N.V. (Netherlands), Sr. Yankee
Notes, 13.25%, 05/15/08 1,370,000 1,411,100
--------------------------------------------------------------
Williams Communications Group,
Inc., Sr. Unsec. Notes, 10.70%,
10/01/07 3,000,000 2,910,000
--------------------------------------------------------------
WorldCom, Inc., Notes, 8.00%,
05/15/06 3,650,000 3,720,701
--------------------------------------------------------------
20,538,251
--------------------------------------------------------------
TELEPHONE-5.19%
Alestra S.A. (Mexico), Sr. Yankee
Notes, 12.63%, 05/15/09 2,380,000 2,314,550
--------------------------------------------------------------
AT&T Canada Inc. (Canada), Sr.
Unsec. Yankee Notes 7.65%,
09/15/06 2,800,000 2,792,871
--------------------------------------------------------------
Bell Atlantic Financial Services,
Inc.- Series REGS, Conv. Bonds,
4.25%, 09/15/05 2,700,000 3,170,100
--------------------------------------------------------------
CFW Communications Co., Sr. Notes,
13.00%, 08/15/10 (Acquired
07/21/00; Cost $1,750,328)(a)(f) 1,775,000 1,775,000
--------------------------------------------------------------
Deutsche Telekom International
Finance B.V. (Netherlands),
Unsec. Unsub. Yankee Bonds,
8.00%, 06/15/10 2,700,000 2,725,299
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
TELEPHONE-(CONTINUED)
ICG Services, Inc., Sr. Unsec.
Disc. Notes, 10.00%, 02/15/08(b) $ 4,000,000 $ 2,248,960
--------------------------------------------------------------
Intermedia Communications,
Inc.-Series B, Sr. Disc. Notes,
11.25%, 07/15/07(b) 2,300,000 1,552,500
--------------------------------------------------------------
Logix Communications Enterprises,
Sr. Unsec. Notes, 12.25%,
06/15/08 1,000,000 252,500
--------------------------------------------------------------
NTL Inc.-Series B, Sr. Disc.
Notes, 11.50%, 02/01/06(b) 1,475,000 1,386,500
--------------------------------------------------------------
Qwest Communications International
Inc., Sr. Unsec. Notes, 7.50%,
11/01/08 3,050,000 2,984,212
--------------------------------------------------------------
Telefonos de Mexico S.A. de C.V.
(Mexico), Conv. Yankee Notes,
4.25%, 06/15/04 3,000,000 3,817,500
--------------------------------------------------------------
U.S. Xchange LLC, Sr. Unsec.
Notes, 15.00%, 07/01/08 5,000,000 5,462,500
--------------------------------------------------------------
30,482,492
--------------------------------------------------------------
TRUCKERS-1.18%
North American Van Lines Inc., Sr.
Sub. Notes, 13.38%, 12/01/09(d) 5,000,000 4,725,000
--------------------------------------------------------------
Travelcenters of America, Inc.,
Sr. Unsec. Gtd. Sub. Notes,
10.25%, 04/01/07 2,180,000 2,207,250
--------------------------------------------------------------
6,932,250
--------------------------------------------------------------
WASTE MANAGEMENT-2.97%
Allied Waste North America
Inc.-Series B, Sr. Unsec. Gtd.
Sub. Notes, 10.00%, 08/01/09(d) 4,920,000 4,317,300
--------------------------------------------------------------
Browning-Ferris Industries, Inc.,
Deb.,
7.40%, 09/15/35 1,200,000 774,000
--------------------------------------------------------------
9.25%, 05/01/21 2,570,000 2,197,350
--------------------------------------------------------------
Waste Management, Inc., Sr. Unsec.
Notes,
7.13%, 10/01/07 3,710,000 3,388,158
--------------------------------------------------------------
7.13%, 12/15/17 935,000 796,583
--------------------------------------------------------------
Unsec. Putable Notes, 7.10%,
08/01/26 6,270,000 5,984,339
--------------------------------------------------------------
17,457,730
--------------------------------------------------------------
Total U.S. Dollar Denominated
Bonds & Notes (Cost
$526,526,492) 497,738,360
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT(h)
<S> <C> <C>
NON-U.S. DOLLAR DENOMINATED BONDS
& NOTES-9.00%
AUSTRALIA-0.36%
State Bank New South Wales-Series
E (Banks-Major Regional), Sr.
Unsec. Gtd. Medium Term Notes,
8.63%, 08/20/01 AUD 3,600,000 2,126,493
--------------------------------------------------------------
CANADA-3.39%
AT&T Canada Inc. (Telephone), Sr.
Unsec. Notes, 7.15%, 09/23/04CAD 1,150,000 780,007
--------------------------------------------------------------
Bell Mobility Cellular Inc.
(Telecommunications-Cellular/Wireless),
Deb., 6.55%, 06/02/08 CAD 2,250,000 1,478,020
--------------------------------------------------------------
</TABLE>
9
<PAGE> 12
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(h) VALUE
<S> <C> <C>
CANADA-(CONTINUED)
Canadian Pacific Ltd.-Series D
(Manufacturing-Diversified),
Unsec. Medium Term Notes, 5.85%,
03/30/09 (Acquired 03/24/99;
Cost $2,149,150)(a) CAD 3,250,000 $ 2,029,397
--------------------------------------------------------------
Clearnet Communications Inc.
(Telecommunications-Cellular/Wireless),
Sr. Disc. Notes,
10.40%, 05/15/08(b) CAD 9,050,000 3,698,039
--------------------------------------------------------------
11.75%, 08/13/07(b) CAD 8,200,000 3,847,111
--------------------------------------------------------------
Export Development Corp.
(Sovereign Debt), Sr. Unsec.
Unsub. Notes, 6.50%, 12/21/04NZD 2,150,000 933,761
--------------------------------------------------------------
Microcell Telecommunications Inc.
(Telecommunications-Cellular/Wireless),
Sr. Disc. Notes, 11.13%,
10/15/07(b) CAD 3,500,000 1,653,831
--------------------------------------------------------------
Ontario (Province of) (Sovereign
Debt), Unsec. Unsub. Notes,
6.25%, 12/03/08 NZD 2,500,000 1,019,756
--------------------------------------------------------------
Rogers Cablesystems
(Broadcasting-Television, Radio
& Cable), Sr. Sec. Second
Priority Deb., 9.65%,
01/15/14 CAD 3,300,000 2,352,862
--------------------------------------------------------------
TransCanada Pipelines-Series Q
(Natural Gas), Deb., 10.63%,
10/20/09 CAD 1,750,000 1,449,438
--------------------------------------------------------------
Westcoast Energy Inc.-Series V
(Natural Gas), Unsec. Deb.,
6.45%, 12/18/06 (Acquired
12/03/96; Cost $739,169)(a) CAD 1,000,000 664,721
--------------------------------------------------------------
19,906,943
--------------------------------------------------------------
CAYMAN ISLANDS-0.52%
Sutton Bridge Financial Ltd.
(Power Producers-Independent),
Gtd. Euro Bonds, 8.63%,
06/30/22(d) GBP 2,000,000 3,079,298
--------------------------------------------------------------
FRANCE-0.51%
Vivendi Environment (Waste
Management), Conv. Bonds, 1.50%,
01/01/05 EUR 1,050,000 2,973,891
--------------------------------------------------------------
NETHERLANDS-1.23%
Grapes Communications N.V.
(Telecommunications-Cellular/Wireless),
Sr. Notes, 13.50%, 05/15/10
(Acquired 05/03/00; Cost
$12,085,640)(a)(f) 2,300,000 1,919,822
--------------------------------------------------------------
Tecnost International
N.V.-(Telephone) Series E, Gtd.
Medium Term Notes, 6.13%,
07/30/09 EUR 2,050,000 1,769,144
--------------------------------------------------------------
Tele1 Europe B.V.
(Telecommunications-Long
Distance), Sr. Notes, 11.88%,
12/01/09 EUR 3,750,000 3,504,022
--------------------------------------------------------------
7,192,988
--------------------------------------------------------------
NEW ZEALAND-0.35%
Inter-American Development Bank
(Banks- Money Center), Unsec.
Bonds, 5.75%, 04/15/04 NZD 4,750,000 2,029,258
--------------------------------------------------------------
NORWAY-0.39%
Enitel ASA
(Telecommunications-Long
Distance), Sr. Notes, 12.50%,
04/15/10 EUR 2,500,000 2,272,253
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(h) VALUE
<S> <C> <C>
UNITED KINGDOM-2.25%
Airtours PLC (Services-Commercial
& Consumer), Conv. Sub. Notes,
5.75%, 01/05/04 (Acquired
12/09/98; Cost $3,091,887)(a)GBP 1,869,000 $ 2,566,138
--------------------------------------------------------------
British Sky Broadcasting Group PLC
(Broadcasting-Television, Radio
& Cable), Sr. Gtd. Unsec. Unsub.
Notes, 7.75%, 07/09/09 GBP 1,750,000 2,528,772
--------------------------------------------------------------
Energis PLC (Telephone), Sr.
Notes, 9.13%, 03/15/10 GBP 3,000,000 4,320,176
--------------------------------------------------------------
Jazztel PLC (Telephone), Sr.
Unsec. Notes, 13.25%,
12/15/09 EUR 2,260,000 1,907,394
--------------------------------------------------------------
Scotia Holdings PLC (Health
Care-Drugs- Generic & Other),
Conv. Unsec. Notes, 8.50%,
03/26/02 GBP 1,500,000 1,915,604
--------------------------------------------------------------
13,238,084
--------------------------------------------------------------
Total Non-U.S. Dollar
Denominated Bonds & Notes
(Cost $60,180,822) 52,819,208
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
STOCKS & OTHER EQUITY
INTERESTS-2.72%
BANKS (REGIONAL)-1.06%
First Republic Capital
Corp.-Series A-Pfd. (Acquired
05/26/99; Cost $3,500,000)(a) 3,500 3,141,250
--------------------------------------------------------------
Westpac Banking Corp., STRYPES
Trust-$3.14 Conv. Pfd. 95,000 3,069,688
--------------------------------------------------------------
6,210,938
--------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO &
CABLE)-0.00%
Knology Inc.-Wts., expiring
10/22/07 (Acquired 03/12/98;
Cost $0)(a)(i) 4,100 10,250
--------------------------------------------------------------
COMPUTERS (PERIPHERALS)-0.04%
Equinix Inc.-Wts., expiring
12/01/07 (Acquired 05/30/00;
Cost $0)(a)(i) 3,540 247,800
--------------------------------------------------------------
COMPUTERS (SOFTWARE &
SERVICES)-0.24%
Microsoft Corp.(j) 20,291 1,416,582
--------------------------------------------------------------
ELECTRICAL EQUIPMENT-0.00%
Electronic Retailing Systems
International, Inc.-Wts.,
expiring 02/01/04(i) 3,630 3,630
--------------------------------------------------------------
FOODS-0.13%
Ralston Purina Group.-$4.34 Conv.
Pfd. 23,000 764,750
--------------------------------------------------------------
HOUSEHOLD FURNISHING &
APPLIANCES-0.02%
O'Sullivan Industries, Inc.-Wts.,
expiring 11/05/09 (Acquired
06/13/00; Cost $0)(a)(i) 6,000 90,000
--------------------------------------------------------------
METAL FABRICATORS-0.00%
Gulf States Steel, Inc.-Wts.,
expiring 04/15/03(i) 1,650 --
--------------------------------------------------------------
SERVICES (COMMERCIAL &
CONSUMER)-0.33%
Cendant Corp.-$3.75 Conv. PRIDES 78,000 1,579,500
--------------------------------------------------------------
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SERVICES (COMMERCIAL & CONSUMER)-(CONTINUED)
Cendant Corp.-Rts., expiring
02/14/01(i) 50,000 $ 375,000
--------------------------------------------------------------
1,954,500
--------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/
WIRELESS)-0.38%
Clearnet Communications Inc.-Class
A-ADR (Canada)(j) 5,874 165,206
--------------------------------------------------------------
Loral Space & Communications
Ltd.(j) 2,059 10,681
--------------------------------------------------------------
WebLink Wireless, Inc.(j) 204,685 2,059,643
--------------------------------------------------------------
2,235,530
--------------------------------------------------------------
TELECOMMUNICATIONS (LONG
DISTANCE)-0.52%
Enitel ASA (Norway)-Wts., expiring
04/05/05(i) 2,500 23,186
--------------------------------------------------------------
Versatel Telecom International
N.V.-ADR (Netherlands)(j) 17,663 565,216
--------------------------------------------------------------
Viatel, Inc., $3.88 Conv. Pfd.
(Acquired 04/07/00; Cost
$5,000,000)(a) 100,000 2,462,500
--------------------------------------------------------------
3,050,902
--------------------------------------------------------------
Total Stocks & Other Equity
Interests (Cost $21,633,642) 15,984,882
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. TREASURY NOTES-1.47%
6.63%, 05/31/02 $ 3,000,000 $ 3,013,710
--------------------------------------------------------------
6.75%, 05/15/05 5,500,000 5,636,620
--------------------------------------------------------------
8,650,330
--------------------------------------------------------------
Total U.S. Treasury Notes
(Cost $8,629,961) 8,650,330
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
MONEY MARKET FUNDS-0.48%
STIC Liquid Assets Portfolio(k) 1,416,926 1,416,926
--------------------------------------------------------------
STIC Prime Portfolio(k) 1,416,926 1,416,926
--------------------------------------------------------------
Total Money Market Funds (Cost
$2,833,852) 2,833,852
--------------------------------------------------------------
TOTAL INVESTMENTS-98.43% (Cost
$619,804,769) 578,026,632
--------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-1.57% 9,202,630
--------------------------------------------------------------
NET ASSETS-100.00% $587,229,262
==============================================================
</TABLE>
Investment Abbreviations:
ADR - American Depositary Receipt
AUD - Australian Dollar
CAD - Canadian Dollar
Conv. - Convertible
Ctfs. - Certificates
Deb. - Debentures
Disc. - Discounted
EUR - Euro
GBP - British Pound Sterling
Gtd. - Guaranteed
NZD - New Zealand Dollar
Pfd. - Preferred
PRIDES - Preferred Redemption Increase Dividend Equity Security
REIT - Real Estate Investment Trust
REGS - Regulation S
Rts. - Rights
Sec. - Secured
Sr. - Senior
STRYPES - Structured Yield Product Exchangeable for Stock
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 valuation of these securities has been determined in
accordance with procedures established by the Board of Trustees. The
aggregate market value of these securities at 07/31/00 was $53,183,661 which
represented 9.06% 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)Defaulted security. Currently, the issuer is in default with respect to
interest payments.
(d)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.
(e)Zero coupon bond issued at a discount. The interest rate shown represents the
rate of original issue discount.
(f)Consists of more than one class of securities traded together as a unit. In
addition to the security listed, each unit contains warrants that enable the
holder to purchase shares of the issuer at a predetermined price.
(g)Step-up bond. The interest rate represents the coupon rate at which the bond
will accrue at a specified future date.
(h)Foreign denominated security. Par value is denominated in currency indicated.
(i)Non-income producing security acquired as part of a unit with or in exchange
for other securities.
(j)Non-income producing security.
(k)The money market fund has the same investment advisor as the Fund.
See Notes to Financial Statements.
11
<PAGE> 14
SCHEDULE OF INVESTMENTS
June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. DOLLAR DENOMINATED BONDS &
NOTES-83.31%
AIR FREIGHT-0.69%
Atlas Air, Inc., Sr. Unsec. Notes,
10.75%, 08/01/05 $ 3,970,000 $ 4,089,100
--------------------------------------------------------------
AIRLINES-4.21%
Air 2 US-Series C, Equipment Trust
Ctfs., 10.13%, 10/01/20
(Acquired 10/28/99; Cost
$3,750,000)(a) 3,750,000 3,898,200
--------------------------------------------------------------
Airplanes Pass Through
Trust-Series D, Gtd. Sub. Bonds,
10.88%, 03/15/19 1,787,737 1,453,457
--------------------------------------------------------------
Delta Air Lines, Inc., Deb.,
9.00%, 05/15/16 700,000 674,170
--------------------------------------------------------------
10.38%, 12/15/22 4,000,000 4,287,040
--------------------------------------------------------------
Equipment Trust Ctfs., 10.50%,
04/30/16 5,000,000 5,721,450
--------------------------------------------------------------
Dunlop Standard Aerospace Holdings
PLC (United Kingdom), Sr. Unsec.
Yankee Sub. Notes, 11.88%,
05/15/09 2,700,000 2,659,500
--------------------------------------------------------------
United Air Lines, Inc.,
Deb., 9.75%, 08/15/21 (Acquired
09/23/99; Cost $4,205,475)(a) 3,750,000 3,618,562
--------------------------------------------------------------
Series 95A2, Pass Through Ctfs.,
9.56%, 10/19/18 2,325,000 2,565,823
--------------------------------------------------------------
24,878,202
--------------------------------------------------------------
AUTO PARTS & EQUIPMENT-0.76%
Advance Stores Co., Inc.-Series B,
Sr. Unsec. Gtd. Sub. Notes,
10.25%, 04/15/08 2,585,000 2,106,775
--------------------------------------------------------------
Exide Corp., Sr. Notes, 10.00%,
04/15/05 2,640,000 2,376,000
--------------------------------------------------------------
4,482,775
--------------------------------------------------------------
AUTOMOBILES-0.40%
DaimlerChrysler N.A. Holding
Corp., Gtd. Notes, 8.00%,
06/15/10 2,300,000 2,340,710
--------------------------------------------------------------
BANKS (MAJOR REGIONAL)-2.37%
BB&T Corp., Putable Sub. Notes,
6.38%, 06/30/05 1,000,000 935,650
--------------------------------------------------------------
Crestar Financial Corp., Sub.
Notes, 8.75%, 11/15/04 645,000 669,097
--------------------------------------------------------------
Midland Bank PLC (United Kingdom),
Yankee Sub. Notes, 7.65%,
05/01/25 1,870,000 1,864,222
--------------------------------------------------------------
Regions Financial Corp., Putable
Sub. Notes, 7.75%, 09/15/24 3,650,000 3,667,666
--------------------------------------------------------------
Republic New York Corp.,
Sub. Deb., 9.50%, 04/15/14 2,750,000 3,044,002
--------------------------------------------------------------
Sub. Notes, 9.70%, 02/01/09 2,500,000 2,735,775
--------------------------------------------------------------
Union Planters Bank N.A., Unsec.
Sub. Notes, 6.50%, 03/15/08 1,240,000 1,085,769
--------------------------------------------------------------
14,002,181
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
BANKS (MONEY CENTER)-1.53%
First Union Corp., Putable Sub.
Deb.,
6.55%, 10/15/35 $ 660,000 $ 622,783
--------------------------------------------------------------
7.50%, 04/15/35 5,000,000 4,931,650
--------------------------------------------------------------
NCNB Corp., Sub. Notes, 9.38%,
09/15/09 3,200,000 3,493,056
--------------------------------------------------------------
9,047,489
--------------------------------------------------------------
BANKS (REGIONAL)-2.06%
Banponce Trust I-Series A, Gtd.
Notes, 8.33%, 02/01/27 3,000,000 2,660,760
--------------------------------------------------------------
Mercantile Bancorp., Inc., Unsec.
Sub. Notes, 7.30%, 06/15/07 3,585,000 3,461,748
--------------------------------------------------------------
NBD Bank N.A. Michigan, Putable
Sub. Deb., 8.25%, 11/01/24 2,800,000 2,885,792
--------------------------------------------------------------
Riggs Capital Trust II-Series C,
Gtd. Sec. Bonds, 8.88%, 03/15/27 3,800,000 3,121,662
--------------------------------------------------------------
12,129,962
--------------------------------------------------------------
BEVERAGES (ALCOHOLIC)-0.67%
J Seagram & Sons, Gtd. Deb.,
9.65%, 08/15/18 3,500,000 3,976,805
--------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO &
CABLE)-7.74%
AT&T Corp.-Liberty Media Group,
Bonds, 7.88%, 07/15/09 1,500,000 1,447,530
--------------------------------------------------------------
Sr. Unsec. Deb., 8.25%, 02/01/30 3,400,000 3,140,750
--------------------------------------------------------------
British Sky Broadcasting Group PLC
(United Kingdom), Sr. Unsec.
Gtd. Yankee Notes, 8.20%,
07/15/09 5,400,000 5,094,198
--------------------------------------------------------------
CF Cable TV Inc. (Canada), Sr.
Sec. Priority Yankee Notes,
9.13%, 07/15/07 2,000,000 2,116,360
--------------------------------------------------------------
Charter Communications Holdings,
LLC/Charter Communications
Holdings Capital Corp., Sr.
Unsec. Disc. Notes, 9.92%,
04/01/11(b) 2,500,000 1,431,250
--------------------------------------------------------------
Comcast Cable Communications,
Notes, 8.88%, 05/01/17 5,000,000 5,371,000
--------------------------------------------------------------
Sr. Unsec. Notes, 8.50%,
05/01/27 3,000,000 3,145,080
--------------------------------------------------------------
Cox Enterprises, Inc., Notes,
8.00%, 02/15/07 (Acquired
02/16/00; Cost $3,771,614)(a) 3,800,000 3,781,418
--------------------------------------------------------------
CSC Holdings Inc., Sr. Unsec.
Deb.,
Sr. Unsec. Deb., 7.88%, 02/15/18 1,000,000 922,940
--------------------------------------------------------------
Sr. Unsec. Notes, 7.88%,
12/15/07 6,850,000 6,641,280
--------------------------------------------------------------
Fox Family Worldwide, Inc., Sr.
Unsec. Disc. Notes, 10.25%,
11/01/07(b) 3,930,000 2,456,250
--------------------------------------------------------------
Knology Holdings, Inc., Sr. Disc.
Notes, 11.88%, 10/15/07(b) 4,100,000 2,224,250
--------------------------------------------------------------
Lenfest Communications, Inc., Sr.
Unsec. Sub. Notes, 8.25%,
02/15/08 5,000,000 4,953,350
--------------------------------------------------------------
United Pan-Europe Communications
N.V. (Netherlands)-Series B, Sr.
Unsec. Disc. Yankee Notes,
13.38%, 11/01/09(b) 6,000,000 2,940,000
--------------------------------------------------------------
45,665,656
--------------------------------------------------------------
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
BUILDING MATERIALS-0.48%
Blount Inc., Sr. Unsec. Gtd. Sub.
Notes, 13.00%, 08/01/09 $ 2,750,000 $ 2,818,750
--------------------------------------------------------------
CHEMICALS-0.48%
Sterling Chemicals, Inc.-Series B,
Sr. Gtd. Sec. Sub. Notes,
12.38%, 07/15/06 2,750,000 2,846,250
--------------------------------------------------------------
CHEMICALS (SPECIALTY)-0.02%
Key Plastics Holdings, Inc.-Series
B, Sr. Unsec. Gtd. Sub. Notes,
10.25%, 03/15/07(c) 1,325,000 139,125
--------------------------------------------------------------
COMPUTERS (HARDWARE)-0.37%
Candescent Technology Corp., Sr.
Conv. Sub. Deb., 8.00%, 05/01/03
(Acquired 04/20/98; Cost
$2,000,000)(a) 2,000,000 1,450,000
--------------------------------------------------------------
Lattice Semiconductor Corp., Conv.
Notes, 4.75%, 11/01/06 (Acquired
12/03/99; Cost $538,200)(a) 390,000 705,412
--------------------------------------------------------------
2,155,412
--------------------------------------------------------------
COMPUTERS (NETWORKING)-0.34%
Exodus Communications, Inc., Sr.
Unsec. Notes, 11.25%, 07/01/08 2,025,000 2,014,875
--------------------------------------------------------------
COMPUTERS (PERIPHERALS)-0.62%
Equinix Inc., Sr. Notes, 13.00%,
12/01/07(d)(e) 3,540,000 3,655,050
--------------------------------------------------------------
CONSUMER FINANCE-2.56%
Capital One Financial Corp.,
Unsec. Notes, 7.25%, 05/01/06 2,500,000 2,306,150
--------------------------------------------------------------
CitiFinancial Credit Co., Putable
Notes, 7.88%, 02/01/25 1,400,000 1,410,738
--------------------------------------------------------------
Countrywide Home Loans,
Inc.-Series H, Unsec. Gtd.
Medium Term Sub Notes, 6.25%,
04/15/09 1,600,000 1,397,712
--------------------------------------------------------------
General Motors Acceptance Corp.,
Notes, 5.75%, 11/10/03 2,500,000 2,386,100
--------------------------------------------------------------
Household Finance Corp., Sr.
Unsec. Notes, 8.00%, 05/09/05 2,500,000 2,519,125
--------------------------------------------------------------
MBNA Capital I-Series A, Gtd.
Bonds, 8.28%, 12/01/26 6,065,000 5,084,047
--------------------------------------------------------------
15,103,872
--------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH)-0.23%
Fleming Companies, Inc.-Series B,
Sr. Unsec. Gtd. Sub. Notes,
10.63%, 07/31/07 1,600,000 1,352,000
--------------------------------------------------------------
ELECTRIC COMPANIES-6.69%
Cleveland Electric Illuminating
Co. (The)- Series D, Sr. Sec.
Notes, 7.88%, 11/01/17 3,800,000 3,638,895
--------------------------------------------------------------
CMS Energy Corp., Sr. Unsec.
Notes, 8.13%, 05/15/02 850,000 847,033
--------------------------------------------------------------
El Paso Electric Co.-Series E,
Sec. First Mortgage Bonds,
9.40%, 05/01/11 3,000,000 3,163,560
--------------------------------------------------------------
Indiana Michigan Power Co.-Series
F, Sec. Lease Obligation Bonds,
9.82%, 12/07/22 4,967,714 5,374,371
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
ELECTRIC COMPANIES-(CONTINUED)
Niagara Mohawk Holdings Inc.,
First Mortgage Notes, 7.75%,
05/15/06 $ 4,300,000 $ 4,262,031
--------------------------------------------------------------
Series H, Sr. Unsec. Disc.
Notes, 8.50%, 07/01/10(b) 10,000,000 7,649,300
--------------------------------------------------------------
Public Service Company of New
Mexico- Series A, Sr. Unsec.
Notes, 7.10%, 08/01/05 1,200,000 1,166,412
--------------------------------------------------------------
Southern Energy, Inc., Sr. Notes,
7.90%, 07/15/09 (Acquired
07/21/99-12/03/99; Cost
$5,978,820)(a) 6,000,000 5,551,320
--------------------------------------------------------------
Texas-New Mexico Power Co., Sr.
Sec. Notes, 6.25%, 01/15/09 4,050,000 3,476,317
--------------------------------------------------------------
Western Resources, Inc., Sr.
Unsec. Notes, 7.13%, 08/01/09 5,352,000 4,384,572
--------------------------------------------------------------
39,513,811
--------------------------------------------------------------
ELECTRONICS (COMPONENT
DISTRIBUTORS)-0.55%
Israel Electric Corp. Ltd.
(Israel),
Series E, Sr. Sec. Medium Term
Yankee Notes, 7.75%, 03/01/09
(Acquired 04/13/00; Cost
$2,138,136)(a) 2,200,000 2,125,200
--------------------------------------------------------------
Yankee Deb., 7.75%, 12/15/27
(Acquired 06/09/00; Cost
$1,141,374)(a) 1,300,000 1,138,878
--------------------------------------------------------------
3,264,078
--------------------------------------------------------------
ENGINEERING & CONSTRUCTION-0.38%
Morrison Knudsen Corp., Sr. Notes,
11.00%, 07/01/10 (Acquired
06/28/00; Cost $2,233,395)(a) 2,250,000 2,244,375
--------------------------------------------------------------
ENTERTAINMENT-2.32%
Callahan Nordrhein Westfalen
(Denmark), Sr. Yankee Notes,
14.00%, 07/15/10 (Acquired
06/29/00; Cost $1,100,000)(a) 1,100,000 1,101,375
--------------------------------------------------------------
Time Warner Inc., Deb.,
9.13%, 01/15/13 5,000,000 5,434,900
--------------------------------------------------------------
9.15%, 02/01/23 6,500,000 7,133,620
--------------------------------------------------------------
13,669,895
--------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-3.86%
Associates Corp. of North America,
Sr. Deb., 6.95%, 11/01/18 1,000,000 884,380
--------------------------------------------------------------
Beaver Valley Funding Corp., Sec.
Lease Obligations Deb., 9.00%,
06/01/17 1,500,000 1,483,665
--------------------------------------------------------------
Citicorp Lease-Class A2, Series
1999-1, Pass Through Ctfs.,
8.04%, 12/15/19 (Acquired
06/01/00; Cost $2,172,874)(a) 2,200,000 2,193,576
--------------------------------------------------------------
General Electric Capital
Corp.-Series A, Medium Term
Notes, 7.38%, 01/19/10 5,600,000 5,650,064
--------------------------------------------------------------
Heller Financial, Inc., Sr. Unsec.
Notes,
7.38%, 11/01/09 1,750,000 1,647,520
--------------------------------------------------------------
8.00%, 06/15/05 2,300,000 2,295,009
--------------------------------------------------------------
Hutchison Delta Finance
Ltd.-Series REGS (Cayman
Islands), Conv. Unsec. Euro
Notes, 7.00%, 11/08/02 2,000,000 2,350,000
--------------------------------------------------------------
Source One Mortgage Services
Corp., Deb., 9.00%, 06/01/12 1,130,000 1,200,627
--------------------------------------------------------------
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
FINANCIAL (DIVERSIFIED)-(CONTINUED)
Sumitomo Bank International
Finance N.V. (Japan), Gtd. Sub.
Yankee Notes, 8.50%, 06/15/09 $ 4,350,000 $ 4,407,289
--------------------------------------------------------------
Sun Canada Financial Co., Gtd.
Sub. Notes, 6.63%, 12/15/07
(Acquired 10/14/99; Cost
$654,311)(a) 700,000 667,533
--------------------------------------------------------------
22,779,663
--------------------------------------------------------------
FOODS-0.85%
Grand Metropolitan Investment,
Gtd. Bonds, 7.45%, 04/15/35 5,000,000 5,006,000
--------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL
COMPANIES-0.60%
Venetian Casino Resort LLC, Sec.
Gtd. Mortgage Notes, 12.25%,
11/15/04 3,500,000 3,552,500
--------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC &
OTHER)-0.35%
Warner Chilcott, Inc., Sr. Unsec.
Gtd. Notes, 12.63%, 02/15/08(d) 2,000,000 2,050,000
--------------------------------------------------------------
HOUSEHOLD FURNISHING &
APPLIANCES-0.49%
O'Sullivan Industries, Inc., Sr.
Sub. Notes, 13.38%, 10/15/09 3,000,000 2,902,500
--------------------------------------------------------------
HOUSEHOLD PRODUCTS
(NON-DURABLES)-0.45%
Procter & Gamble Co. (The),
Putable Deb., 8.00%, 09/01/24 2,500,000 2,646,125
--------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-1.06%
American General Finance Corp.,
Sr. Notes, 8.45%, 10/15/09 2,100,000 2,159,472
--------------------------------------------------------------
Americo Life, Inc., Sr. Sub.
Notes, 9.25%, 06/01/05 1,000,000 945,000
--------------------------------------------------------------
John Hancock Global Funding II,
Sec. Medium Term Notes, 7.90%,
07/02/10 (Acquired 06/23/00;
Cost $1,995,220)(a) 2,000,000 2,013,800
--------------------------------------------------------------
Torchmark Corp., Notes, 7.88%,
05/15/23 1,325,000 1,127,668
--------------------------------------------------------------
6,245,940
--------------------------------------------------------------
INSURANCE (MULTI-LINE)-0.43%
AIG SunAmerica Global Financing
II, Sr. Sec. Notes, 7.60%,
06/15/05 (Acquired 06/08/00;
Cost $2,500,000)(a) 2,500,000 2,518,025
--------------------------------------------------------------
INSURANCE (PROPERTY &
CASUALTY)-1.48%
GE Global Insurance Holdings
Corp., Notes, 7.75%, 06/15/30 4,800,000 4,760,112
--------------------------------------------------------------
Terra Nova Insurance PLC (United
Kingdom), Sr. Unsec. Gtd. Yankee
Notes,
7.00%, 05/15/08 2,000,000 1,873,480
--------------------------------------------------------------
7.20%, 08/15/07 2,200,000 2,094,466
--------------------------------------------------------------
8,728,058
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
INVESTMENT BANKING/BROKERAGE-1.72%
Lehman Brothers Holdings Inc.,
Notes, 8.50%, 08/01/15 $ 4,490,000 $ 4,426,691
--------------------------------------------------------------
Sr. Sub. Notes, 7.38%, 01/15/07 3,585,000 3,403,025
--------------------------------------------------------------
Series E, Medium Term Notes,
9.09%, 02/10/28(f) 8,700,000 679,557
--------------------------------------------------------------
Putable Sr. Notes, 8.80%,
03/01/15 1,640,000 1,657,417
--------------------------------------------------------------
10,166,690
--------------------------------------------------------------
IRON & STEEL-0.15%
Acme Metals Inc., Sr. Unsec. Gtd.
Notes, 10.88%, 12/15/07(c) 3,240,000 502,200
--------------------------------------------------------------
GS Technologies Operating Co.,
Inc., Sr. Gtd. Notes, 12.00%,
09/01/04 1,585,000 404,175
--------------------------------------------------------------
906,375
--------------------------------------------------------------
LEISURE TIME (PRODUCTS)-0.27%
Marvel Enterprises, Inc., Sr.
Unsec. Gtd. Sub. Notes, 12.00%,
06/15/09 2,075,000 1,602,937
--------------------------------------------------------------
LODGING-HOTELS-0.30%
John Q. Hammons Hotels, Inc., Sec.
First Mortgage Notes, 9.75%,
10/01/05 2,000,000 1,760,000
--------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-0.22%
Anthony Crane Rentals LP-Series B,
Sr. Unsec. Gtd. Sub. Notes,
10.38%, 08/01/08 1,500,000 982,500
--------------------------------------------------------------
Glenoit Corp., Sr. Unsec. Gtd.
Sub. Notes, 11.00%, 04/15/07(c) 2,310,000 334,950
--------------------------------------------------------------
1,317,450
--------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-0.79%
Brand Scaffold Services, Inc., Sr.
Unsec. Notes, 10.25%, 02/15/08 1,600,000 1,416,000
--------------------------------------------------------------
MMI Products, Inc.-Series B, Sr.
Unsec. Sub. Notes, 11.25%,
04/15/07 2,070,000 2,038,950
--------------------------------------------------------------
Tekni-Plex Inc., Sr. Sub. Notes,
12.75%, 06/15/10 (Acquired
06/15/00; Cost $1,163,834)(a) 1,180,000 1,182,950
--------------------------------------------------------------
4,637,900
--------------------------------------------------------------
METALS MINING-0.90%
Centaur Mining and Exploration
Ltd. (Australia), Sr. Gtd.
Yankee Notes, 11.00%, 12/01/07 2,500,000 2,012,500
--------------------------------------------------------------
Rio Algom Ltd. (Canada), Unsec.
Yankee Deb., 7.05%, 11/01/05 3,500,000 3,325,280
--------------------------------------------------------------
5,337,780
--------------------------------------------------------------
NATURAL GAS-3.10%
Dynegy Inc., Sr. Unsec. Deb.,
7.13%, 05/15/18 3,550,000 3,121,764
--------------------------------------------------------------
Enron Corp.,
Series A, Medium Term Notes,
8.38%, 05/23/05 1,750,000 1,797,198
--------------------------------------------------------------
Sr. Sub. Deb., 8.25%, 09/15/12 4,100,000 4,184,870
--------------------------------------------------------------
KN Capital Trust III, Gtd. Sub.
Bonds, 7.63%, 04/15/28 2,500,000 2,150,475
--------------------------------------------------------------
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
NATURAL GAS-(CONTINUED)
Nova Gas Transmission Ltd.
(Canada), Yankee Deb., 8.50%,
12/15/12 $ 3,000,000 $ 3,134,430
--------------------------------------------------------------
Sonat Inc., Unsec. Notes, 7.63%,
07/15/11 4,000,000 3,921,440
--------------------------------------------------------------
18,310,177
--------------------------------------------------------------
OIL & GAS (DRILLING &
EQUIPMENT)-0.54%
NRG Energy, Inc., Sr. Unsec.
Notes, 7.50%, 06/01/09 3,400,000 3,203,344
--------------------------------------------------------------
OIL & GAS (EXPLORATION &
PRODUCTION)-2.08%
Den Norske Stats Oljeselskap
(Norway), Yankee Deb., 7.38%,
05/01/16 (Acquired 06/01/00;
Cost $2,064,678)(a) 2,200,000 2,081,860
--------------------------------------------------------------
ONEOK, Inc., Unsec. Notes, 7.75%,
08/15/06 3,500,000 3,491,040
--------------------------------------------------------------
Talisman Energy Inc. (Canada),
Yankee Deb., 7.13%, 06/01/07 3,750,000 3,582,338
--------------------------------------------------------------
Union Pacific Resources Group
Inc., Unsec. Deb., 7.50%,
10/15/26 3,350,000 3,148,565
--------------------------------------------------------------
12,303,803
--------------------------------------------------------------
OIL & GAS (REFINING &
MARKETING)-0.85%
Texas Petrochemical Corp., Sr.
Unsec. Sub. Notes, 11.13%,
07/01/06 2,010,000 1,718,550
--------------------------------------------------------------
Tosco Corp., Unsec. Deb., 7.80%,
01/01/27 3,400,000 3,291,914
--------------------------------------------------------------
5,010,464
--------------------------------------------------------------
OIL (DOMESTIC INTEGRATED)-1.26%
Amerada Hess Corp., Bonds, 7.88%,
10/01/29 3,000,000 2,933,220
--------------------------------------------------------------
Occidental Petroleum Corp., Sr.
Deb., 9.25%, 08/01/19 4,100,000 4,472,854
--------------------------------------------------------------
7,406,074
--------------------------------------------------------------
OIL (INTERNATIONAL
INTEGRATED)-0.60%
YPF Sociedad Anonima (Argentina),
Yankee Bonds, 9.13%, 02/24/09 3,500,000 3,559,675
--------------------------------------------------------------
PAPER & FOREST PRODUCTS-0.66%
Domtar, Inc. (Canada), Unsec.
Yankee Deb., 9.50%, 08/01/16 3,750,000 3,914,063
--------------------------------------------------------------
PHOTOGRAPHY/IMAGING-0.40%
Polaroid Corp., Sr. Unsec. Notes,
11.50%, 02/15/06 2,220,000 2,328,225
--------------------------------------------------------------
POWER PRODUCERS
(INDEPENDENT)-0.47%
Kincaid Generation LLC, Sec.
Bonds, 7.33%, 06/15/20 (Acquired
04/30/98; Cost $1,981,883)(a) 1,977,000 1,799,129
--------------------------------------------------------------
Panda Funding Corp., Series A-1,
Pooled Project Bonds, 11.63%,
08/20/12 985,892 971,103
--------------------------------------------------------------
2,770,232
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
PUBLISHING (NEWSPAPERS)-2.32%
News America Holdings, Inc.,
Putable Notes, 8.45%, 08/01/34 $ 7,000,000 $ 7,121,310
--------------------------------------------------------------
Sr. Gtd. Deb., 9.25%, 02/01/13 5,250,000 5,621,175
--------------------------------------------------------------
Sr. Unsec. Gtd. Putable Bonds,
7.43%, 10/01/26 1,000,000 961,540
--------------------------------------------------------------
13,704,025
--------------------------------------------------------------
RAILROADS-1.19%
CSX Corp., Sr. Unsec. Putable
Deb., 7.25%, 05/01/27 7,250,000 7,045,623
--------------------------------------------------------------
REAL ESTATE INVESTMENT
TRUSTS-0.84%
ERP Operating L.P., Unsec. Notes,
7.13%, 10/15/17 2,400,000 1,987,872
--------------------------------------------------------------
Health Care REIT, Inc., Sr. Unsec.
Notes, 7.63%, 03/15/08 1,500,000 1,243,290
--------------------------------------------------------------
Spieker Properties, Inc., Unsec.
Deb., 7.35%, 12/01/17 2,000,000 1,751,580
--------------------------------------------------------------
4,982,742
--------------------------------------------------------------
RETAIL (SPECIALTY)-1.07%
Amazon.com, Inc., Conv. Deb.,
4.75%, 02/01/09 (Acquired
01/29/99; Cost $2,507,500)(a) 2,500,000 1,584,375
--------------------------------------------------------------
CSK Auto Inc.-Series A, Sr. Gtd.
Sub. Deb, 11.00%, 11/01/06 715,000 661,375
--------------------------------------------------------------
Neff Corp., Sr. Unsec. Gtd. Sub.
Notes, 10.25%, 06/01/08 5,190,000 3,243,750
--------------------------------------------------------------
Rent-A-Center, Inc., Sr. Unsec.
Gtd. Sub. Notes, 11.00%,
08/15/08 820,000 799,500
--------------------------------------------------------------
6,289,000
--------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-0.26%
Big 5 Corp.-Series B, Sr. Unsec.
Notes, 10.88%, 11/15/07 1,625,000 1,511,250
--------------------------------------------------------------
SAVINGS & LOAN COMPANIES-2.07%
Dime Capital Trust I-Series A,
Gtd. Bonds, 9.33%, 05/06/27 2,380,000 2,176,629
--------------------------------------------------------------
Sovereign Bancorp, Inc., Medium
Term Sub. Notes, 8.00%, 03/15/03 5,050,000 4,789,925
--------------------------------------------------------------
St. Paul Bancorp, Inc., Sr. Unsec.
Notes, 7.13%, 02/15/04 1,500,000 1,446,345
--------------------------------------------------------------
Washington Mutual Cap I,
Sec. Gtd. Bonds, 8.38%, 06/01/27 1,485,000 1,331,778
--------------------------------------------------------------
Sub. Notes, 8.25%, 04/01/10 2,500,000 2,484,900
--------------------------------------------------------------
12,229,577
--------------------------------------------------------------
SERVICES (COMMERCIAL &
CONSUMER)-0.33%
Avis Group Holdings, Inc., Sr.
Unsec. Gtd. Sub. Notes, 11.00%,
05/01/09 1,850,000 1,937,875
--------------------------------------------------------------
SERVICES (EMPLOYMENT)-0.32%
MSX International, Inc., Sr.
Unsec. Gtd. Sub. Notes, 11.38%,
01/15/08 1,980,000 1,881,000
--------------------------------------------------------------
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
SOVEREIGN DEBT-1.56%
Newfoundland (Province of)
(Canada), Unsec. Yankee Deb.,
9.00%, 06/01/19 $ 4,000,000 $ 4,511,080
--------------------------------------------------------------
Quebec (Province of)
(Canada)-Series A, Medium Term
Putable Yankee Notes, 6.29%,
03/06/26(g) 4,800,000 4,684,368
--------------------------------------------------------------
9,195,448
--------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/
WIRELESS)-1.24%
Crown Castle International Corp.,
Sr. Notes, 10.75%, 08/01/11 1,100,000 1,122,000
--------------------------------------------------------------
Metrocall, Inc., Sr. Sub. Notes,
11.88%, 06/15/05 1,940,000 1,387,100
--------------------------------------------------------------
Nextel Communications, Inc., Sr.
Notes, 12.00%, 11/01/08 3,375,000 3,645,000
--------------------------------------------------------------
Orion Network Systems, Inc., Sr.
Gtd. Sub. Notes, 11.25%,
01/15/07 2,000,000 1,170,000
--------------------------------------------------------------
7,324,100
--------------------------------------------------------------
TELECOMMUNICATIONS (LONG
DISTANCE)-4.31%
360networks Inc. (Canada),
Sr. Unsec. Yankee Notes, 12.00%,
08/01/09 1,000,000 955,000
--------------------------------------------------------------
Sr. Yankee Notes, 12.50%,
12/15/05 1,430,000 1,472,900
--------------------------------------------------------------
Destia Communications, Inc., Sr.
Unsec. Notes, 13.50%, 07/15/07 3,500,000 3,132,500
--------------------------------------------------------------
Esprit Telecom Group PLC (United
Kingdom), Sr. Unsec. Yankee
Notes, 11.50%, 12/15/07 1,500,000 1,177,500
--------------------------------------------------------------
Primus Telecommunications Group,
Inc., Sr. Unsec. Notes,
11.25%, 01/15/09 3,500,000 2,747,500
--------------------------------------------------------------
12.75%, 10/15/09 1,560,000 1,255,800
--------------------------------------------------------------
RSL Communications PLC (United
Kingdom), Sr. Unsec. Gtd. Yankee
Notes, 12.88%, 03/01/10
(Acquired 02/14/00; Cost
$4,965,000)(a) 5,000,000 3,725,000
--------------------------------------------------------------
Sprint Corp., Putable Deb., 9.00%,
10/15/19 2,500,000 2,841,150
--------------------------------------------------------------
Versatel Telecom International
N.V. (Netherlands), Sr. Yankee
Notes, 13.25%, 05/15/08 1,370,000 1,404,250
--------------------------------------------------------------
Williams Communications Group,
Inc., Sr. Unsec. Notes, 10.70%,
10/01/07 3,000,000 2,985,000
--------------------------------------------------------------
WorldCom, Inc., Notes, 8.00%,
05/15/06 3,650,000 3,703,546
--------------------------------------------------------------
25,400,146
--------------------------------------------------------------
TELEPHONE-4.39%
Alestra S.A. (Mexico), Sr. Yankee
Notes, 12.63%, 05/15/09 2,380,000 2,142,000
--------------------------------------------------------------
AT&T Canada Inc. (Canada), Sr.
Unsec. Yankee Notes 7.65%,
09/15/06 2,800,000 2,775,962
--------------------------------------------------------------
Bell Atlantic Financial Services,
Inc.- Series REGS, Conv. Bonds,
4.25%, 09/15/05 2,700,000 3,268,480
--------------------------------------------------------------
Deutsche Telekom International
Finance B.V. (Netherlands),
Unsec. Unsub. Yankee Bonds,
8.00%, 06/15/10 2,700,000 2,729,889
--------------------------------------------------------------
ICG Services, Inc., Sr. Unsec.
Disc. Notes, 10.00%, 02/15/08(b) 4,000,000 2,224,160
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
TELEPHONE-(CONTINUED)
Logix Communications Enterprises,
Sr. Unsec. Notes, 12.25%,
06/15/08 $ 1,000,000 $ 352,500
--------------------------------------------------------------
Qwest Communications International
Inc., Sr. Unsec. Notes, 7.50%,
11/01/08 3,050,000 2,947,062
--------------------------------------------------------------
Telefonos de Mexico S.A. de C.V.
(Mexico), Conv. Yankee Notes,
4.25%, 06/15/04 3,000,000 4,035,000
--------------------------------------------------------------
U.S. Xchange LLC, Sr. Unsec.
Notes, 15.00%, 07/01/08 5,000,000 5,462,500
--------------------------------------------------------------
25,937,553
--------------------------------------------------------------
TRUCKERS-1.17%
North American Van Lines Inc., Sr.
Sub. Notes, 13.38%, 12/01/09(d) 5,000,000 4,725,000
--------------------------------------------------------------
Travelcenters of America, Inc.,
Sr. Unsec. Gtd. Sub. Notes,
10.25%, 04/01/07 2,180,000 2,207,250
--------------------------------------------------------------
6,932,250
--------------------------------------------------------------
WASTE MANAGEMENT-2.89%
Allied Waste North America
Inc.-Series B, Sr. Unsec. Gtd.
Sub. Notes, 10.00%, 08/01/09(d) 4,920,000 4,132,800
--------------------------------------------------------------
Browning-Ferris Industries, Inc.,
Deb.,
7.40%, 09/15/35 1,200,000 750,000
--------------------------------------------------------------
9.25%, 05/01/21 2,570,000 2,068,850
--------------------------------------------------------------
Waste Management, Inc., Sr. Unsec.
Notes,
7.13%, 10/01/07 3,710,000 3,395,318
--------------------------------------------------------------
7.13%, 12/15/17 935,000 772,974
--------------------------------------------------------------
Unsec. Putable Notes, 7.10%,
08/01/26 6,270,000 5,967,284
--------------------------------------------------------------
17,087,226
--------------------------------------------------------------
Total U.S. Dollar Denominated
Bonds & Notes (Cost
$523,626,173) 491,812,188
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT(h)
<S> <C> <C>
NON-U.S. DOLLAR DENOMINATED BONDS
& NOTES-9.08%
AUSTRALIA-0.37%
State Bank New South Wales-Series
E (Banks-Major Regional), Sr.
Unsec. Gtd. Medium Term Notes,
8.63%, 08/20/01 AUD 3,600,000 2,200,827
--------------------------------------------------------------
CANADA-3.38%
AT&T Canada Inc. (Telephone), Sr.
Unsec. Notes, 7.15%, 09/23/04CAD 1,150,000 785,929
--------------------------------------------------------------
Bell Mobility Cellular Inc.
(Telecommunications-Cellular/Wireless),
Deb., 6.55%, 06/02/08 CAD 2,250,000 1,491,097
--------------------------------------------------------------
Canadian Pacific Ltd.-Series D
(Manufacturing-Diversified),
Unsec. Medium Term Notes, 5.85%,
03/30/09 (Acquired 03/24/99;
Cost $2,149,250)(a) CAD 3,250,000 2,037,336
--------------------------------------------------------------
Clearnet Communications Inc.
(Telecommunications-Cellular/Wireless),
Sr. Disc. Notes,
10.40%, 05/15/08(b) CAD 9,050,000 3,716,789
--------------------------------------------------------------
11.75%, 08/13/07(b) CAD 8,200,000 3,852,758
--------------------------------------------------------------
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(h) VALUE
<S> <C> <C>
CANADA-(CONTINUED)
Export Development Corp.
(Sovereign Debt), Sr. Unsec.
Unsub. Notes, 6.50%, 12/21/04NZD 2,150,000 $ 960,413
--------------------------------------------------------------
Microcell Telecommunications Inc.
(Telecommunications-Cellular/Wireless),
Sr. Disc. Notes, 11.13%,
10/15/07(b) CAD 3,500,000 1,567,570
--------------------------------------------------------------
Ontario (Province of) (Sovereign
Debt), Unsec. Unsub. Notes,
6.25%, 12/03/08 NZD 2,500,000 1,044,765
--------------------------------------------------------------
Rogers Cablesystems
(Broadcasting-Television, Radio
& Cable), Sr. Sec. Second
Priority Deb., 9.65%,
01/15/14 CAD 3,300,000 2,348,060
--------------------------------------------------------------
TransCanada Pipelines-Series Q
(Natural Gas), Deb., 10.63%,
10/20/09 CAD 1,750,000 1,458,077
--------------------------------------------------------------
Westcoast Energy Inc.-Series V
(Natural Gas), Unsec. Deb.,
6.45%, 12/18/06 (Acquired
12/03/96; Cost $739,169)(a) CAD 1,000,000 670,072
--------------------------------------------------------------
19,932,866
--------------------------------------------------------------
CAYMAN ISLANDS-0.53%
Sutton Bridge Financial Ltd.
(Power Producers-Independent),
Gtd. Euro Bonds, 8.63%,
06/30/22(d) GBP 2,000,000 3,106,341
--------------------------------------------------------------
FRANCE-0.54%
Vivendi Environment (Waste
Management), Conv. Bonds, 1.50%,
01/01/05 EUR 1,050,000 3,194,010
--------------------------------------------------------------
NETHERLANDS-1.24%
Grapes Communications N.V.
(Telecommunications-Cellular/Wireless),
Sr. Notes, 13.50%, 05/15/10
(Acquired 05/03/00; Cost
$2,085,640)(a)(e) EUR 2,300,000 2,049,104
--------------------------------------------------------------
Tecnost International
N.V.-(Telephone) Series E, Gtd.
Medium Term Notes, 6.13%,
07/30/09 EUR 2,050,000 1,753,828
--------------------------------------------------------------
Tele1 Europe B.V.
(Telecommunications-Long
Distance), Sr. Notes, 11.88%,
12/01/09 (Acquired 12/08/99;
Cost $3,834,750)(a) EUR 3,750,000 3,519,590
--------------------------------------------------------------
7,322,522
--------------------------------------------------------------
NEW ZEALAND-0.35%
Inter-American Development Bank
(Banks- Money Center), Unsec.
Bonds, 5.75%, 04/15/04 NZD 4,750,000 2,086,729
--------------------------------------------------------------
NORWAY-0.39%
Enitel ASA
(Telecommunications-Long
Distance), Sr. Notes, 12.50%,
04/15/10 (Acquired 03/30/00;
Cost $2,380,375)(a)(e) EUR 2,500,000 2,334,482
--------------------------------------------------------------
UNITED KINGDOM-2.28%
Airtours PLC (Services-Commercial
& Consumer), Conv. Sub. Notes,
5.75%, 01/05/04 (Acquired
12/09/98; Cost $3,091,887)(a)GBP 1,869,000 2,703,902
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(h) VALUE
<S> <C> <C>
UNITED KINGDOM-(CONTINUED)
British Sky Broadcasting Group PLC
(Broadcasting-Television, Radio
& Cable), Sr. Gtd. Unsec. Unsub.
Notes, 7.75%, 07/09/09 GBP 1,750,000 $ 2,552,268
--------------------------------------------------------------
Energis PLC (Telephone), Sr.
Notes, 9.13%, 03/15/10 (Acquired
02/07/00; Cost $4,767,300)(a)GBP 3,000,000 4,316,054
--------------------------------------------------------------
Jazztel PLC (Telephone), Sr.
Unsec. Notes, 13.25%,
12/15/09 EUR 2,260,000 1,948,864
--------------------------------------------------------------
Scotia Holdings PLC (Health
Care-Drugs- Generic & Other),
Conv. Unsec. Notes, 8.50%,
03/26/02 GBP 1,500,000 1,921,273
--------------------------------------------------------------
13,442,361
--------------------------------------------------------------
Total Non-U.S. Dollar
Denominated Bonds & Notes
(Cost $60,059,331) 53,620,138
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
STOCKS & OTHER EQUITY
INTERESTS-3.09%
BANKS (REGIONAL)-1.05%
First Republic Capital
Corp.-Series A-Pfd. (Acquired
05/26/99; Cost $3,500,000)(a) 3,500 3,081,750
--------------------------------------------------------------
Westpac Banking Corp., STRYPES
Trust-$3.14 Conv. Pfd. 95,000 3,135,000
--------------------------------------------------------------
6,216,750
--------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO &
CABLE)-0.00%
Knology Inc.-Wts., expiring
10/22/07 (Acquired 03/12/98;
Cost $0)(a)(i) 4,100 10,250
--------------------------------------------------------------
COMPUTERS (PERIPHERALS)-0.00%
Equinix Inc.-Wts., expiring
12/01/07 (Acquired 05/30/00;
Cost $0)(a)(i) 3,540 36
--------------------------------------------------------------
COMPUTERS (SOFTWARE &
SERVICES)-0.28%
Microsoft Corp.(i) 20,291 1,623,280
--------------------------------------------------------------
ELECTRICAL EQUIPMENT-0.00%
Electronic Retailing Systems
International, Inc.-Wts.,
expiring 02/01/04(i) 3,630 3,630
--------------------------------------------------------------
FOODS-0.11%
Ralston Purina Group.-$4.34 Conv.
Pfd. 23,000 652,625
--------------------------------------------------------------
HOUSEHOLD FURNISHING &
APPLIANCES-0.02%
O'Sullivan Industries, Inc.-Wts.,
expiring 11/05/09 (Acquired
06/13/00; Cost $0)(a)(i) 6,000 135,000
--------------------------------------------------------------
METAL FABRICATORS-0.00%
Gulf States Steel, Inc.-Wts.,
expiring 04/15/03(i) 1,650 17
--------------------------------------------------------------
SERVICES (COMMERCIAL &
CONSUMER)-0.36%
Cendant Corp.-$3.75 Conv. PRIDES 78,000 1,696,500
--------------------------------------------------------------
Cendant Corp.-Rts., expiring
02/14/01(i) 50,000 421,875
--------------------------------------------------------------
2,118,375
--------------------------------------------------------------
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TELECOMMUNICATIONS (CELLULAR/
WIRELESS)-0.49%
Clearnet Communications Inc.-Class
A-ADR (Canada)(j) 5,874 $ 163,095
--------------------------------------------------------------
Loral Space & Communications
Ltd.(j) 2,059 14,284
--------------------------------------------------------------
WebLink Wireless, Inc.(j) 204,685 2,712,076
--------------------------------------------------------------
2,889,455
--------------------------------------------------------------
TELECOMMUNICATIONS (LONG
DISTANCE)-0.78%
Versatel Telecom International
N.V.-ADR (Netherlands)(j) 17,663 761,717
--------------------------------------------------------------
Viatel, Inc., $3.88 Conv. Pfd.
(Acquired 04/07/00; Cost
$5,000,000)(a) 100,000 3,825,000
--------------------------------------------------------------
4,586,717
--------------------------------------------------------------
Total Stocks & Other Equity
Interests (Cost $21,633,642) 18,236,135
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. TREASURY NOTES-1.38%
6.63%, 05/31/02 $ 3,000,000 $ 3,013,290
--------------------------------------------------------------
6.75%, 05/15/05 3,000,000 3,071,730
--------------------------------------------------------------
6.50%, 02/15/10 2,000,000 2,068,760
--------------------------------------------------------------
Total U.S. Treasury Notes
(Cost $8,113,242) 8,153,780
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
MONEY MARKET FUNDS-2.14%
STIC Liquid Assets Portfolio(k) 6,316,692 6,316,692
--------------------------------------------------------------
STIC Prime Portfolio(k) 6,316,692 6,316,692
--------------------------------------------------------------
Total Money Market Funds (Cost
$12,633,384) 12,633,384
--------------------------------------------------------------
TOTAL INVESTMENTS-99.00% (Cost
$626,065,772) 584,455,625
--------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-1.00% 5,920,060
--------------------------------------------------------------
NET ASSETS-100.00% $590,375,685
==============================================================
</TABLE>
Investment Abbreviations:
ADR - American Depositary Receipt
AUD - Australian Dollar
CAD - Canadian Dollar
Conv. - Convertible
Ctfs. - Certificates
Deb. - Debentures
Disc. - Discounted
EUR - Euro
GBP - British Pound Sterling
Gtd. - Guaranteed
NZD - New Zealand Dollar
Pfd. - Preferred
PRIDES - Preferred Redemption Increase Dividend Equity Security
REIT - Real Estate Investment Trust
REGS - Regulation S
Rts. - Rights
Sec. - Secured
Sr. - Senior
STRYPES - Structured Yield Product Exchangeable for Stock
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 valuation of these securities has been determined in
accordance with procedures established by the Board of Trustees. The
aggregate market value of these securities at 06/30/00 was $75,712,864 which
represented 12.83% 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)Defaulted security. Currently, the issuer is in default with respect to
interest payments.
(d)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.
(e)Consists of more than one class of securities traded together as a unit. In
addition to the security listed, each unit contains warrants that enable the
holder to purchase shares of the issuer at a predetermined price.
(f)Zero coupon bond issued at a discount. The interest rate shown represents the
rate of original issue discount.
(g)Step-up bond. The interest rate represents the coupon rate at which the bond
will accrue at a specified future date.
(h)Foreign denominated security. Par value is denominated in currency indicated.
(i)Non-income producing security acquired as part of a unit with or in exchange
for other securities.
(j)Non-income producing security.
(k)The money market fund has the same investment advisor as the Fund.
See Notes to Financial Statements.
18
<PAGE> 21
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
JUNE 30,
JULY 31, 2000
2000 (UNAUDITED)
------------ ------------
<S> <C> <C>
ASSETS:
Investments, at market value (cost $619,804,769 and
$626,065,772, respectively) $578,026,632 $584,455,625
-----------------------------------------------------------------------------------------
Foreign currencies, at value (cost $83 and $160,926,
respectively) 82 163,675
-----------------------------------------------------------------------------------------
Receivables for:
Investments sold 1,733,489 1,437,500
-----------------------------------------------------------------------------------------
Fund shares sold 1,154,862 1,062,228
-----------------------------------------------------------------------------------------
Dividends and interest 12,236,502 12,367,451
-----------------------------------------------------------------------------------------
Foreign currency contracts outstanding 110,436 --
-----------------------------------------------------------------------------------------
Investment for deferred compensation plan 72,796 71,144
-----------------------------------------------------------------------------------------
Other assets 83,246 47,748
-----------------------------------------------------------------------------------------
Total assets 593,418,045 599,605,371
-----------------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 3,173,618 6,024,134
-----------------------------------------------------------------------------------------
Fund shares reacquired 1,410,536 1,461,242
-----------------------------------------------------------------------------------------
Dividends 787,035 747,496
-----------------------------------------------------------------------------------------
Foreign currency contracts outstanding 13,281 160,217
-----------------------------------------------------------------------------------------
Deferred compensation plan 72,796 71,144
-----------------------------------------------------------------------------------------
Accrued advisory fees 208,724 205,649
-----------------------------------------------------------------------------------------
Accrued administrative services fees 10,386 10,048
-----------------------------------------------------------------------------------------
Accrued distribution fees 297,122 508,206
-----------------------------------------------------------------------------------------
Accrued transfer agent fees 126,597 25,226
-----------------------------------------------------------------------------------------
Accrued trustees' fees 2,940 1,975
-----------------------------------------------------------------------------------------
Accrued operating expenses 85,748 14,349
-----------------------------------------------------------------------------------------
Total liabilities 6,188,783 9,229,686
-----------------------------------------------------------------------------------------
Net assets applicable to shares outstanding $587,229,262 $590,375,685
=========================================================================================
NET ASSETS:
Class A $346,482,284 $348,151,991
=========================================================================================
Class B $213,926,095 $215,588,680
=========================================================================================
Class C $ 26,820,883 $ 26,635,014
=========================================================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 48,538,788 48,430,694
=========================================================================================
Class B 29,967,838 29,992,412
=========================================================================================
Class C 3,764,038 3,712,180
=========================================================================================
Class A:
Net asset value and redemption price per share $ 7.14 $ 7.19
-----------------------------------------------------------------------------------------
Offering price per share:
(Net asset value / 95.25%) $ 7.50 $ 7.55
=========================================================================================
Class B:
Net asset value and offering price per share $ 7.14 $ 7.19
=========================================================================================
Class C:
Net asset value and offering price per share $ 7.13 $ 7.18
=========================================================================================
</TABLE>
See Notes to Financial Statements.
19
<PAGE> 22
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS
SEVEN MONTHS ENDED YEAR
ENDED JUNE 30, ENDED
JULY 31, 2000 DECEMBER 31,
2000 (UNAUDITED) 1999
------------ ------------ ------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $30,576,443 $ 26,203,763 $ 52,455,832
---------------------------------------------------------------------------------------------------------
Dividends 911,287 715,119 838,880
---------------------------------------------------------------------------------------------------------
Dividends -- affiliated issuers 694,358 653,607 185,198
---------------------------------------------------------------------------------------------------------
Total investment income 32,182,088 27,572,489 53,479,910
---------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 1,512,830 1,304,106 2,785,338
---------------------------------------------------------------------------------------------------------
Administrative services fee 72,169 61,783 111,839
---------------------------------------------------------------------------------------------------------
Custodian fees 65,213 46,970 102,279
---------------------------------------------------------------------------------------------------------
Distribution fees -- Class A 529,667 456,012 1,006,620
---------------------------------------------------------------------------------------------------------
Distribution fees -- Class B 1,299,325 1,116,968 2,401,345
---------------------------------------------------------------------------------------------------------
Distribution fees -- Class C 156,134 133,454 244,571
---------------------------------------------------------------------------------------------------------
Transfer agent fees -- Class A 432,953 320,021 649,179
---------------------------------------------------------------------------------------------------------
Transfer agent fees -- Class B 275,244 205,547 405,725
---------------------------------------------------------------------------------------------------------
Transfer agent fees -- Class C 33,074 24,561 41,321
---------------------------------------------------------------------------------------------------------
Trustees' fees 5,541 2,636 10,727
---------------------------------------------------------------------------------------------------------
Other 186,723 130,067 306,728
---------------------------------------------------------------------------------------------------------
Total expenses 4,568,873 3,802,125 8,065,672
---------------------------------------------------------------------------------------------------------
Less: Expenses paid indirectly (15,928) (13,190) (12,978)
---------------------------------------------------------------------------------------------------------
Net expenses 4,552,945 3,788,935 8,052,694
---------------------------------------------------------------------------------------------------------
Net investment income 27,629,143 23,783,554 45,427,216
---------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
SECURITIES, FOREIGN CURRENCIES, FOREIGN CURRENCY CONTRACTS
AND FUTURES CONTRACTS
Net realized gain (loss) from:
Investment securities (28,885,502) (24,377,258) (21,513,111)
---------------------------------------------------------------------------------------------------------
Foreign currencies (584,731) (566,812) (246,991)
---------------------------------------------------------------------------------------------------------
Foreign currency contracts 1,402,270 1,331,070 1,947,070
---------------------------------------------------------------------------------------------------------
Futures contracts (854,156) (854,156) (76,650)
---------------------------------------------------------------------------------------------------------
(28,922,119) (24,467,156) (19,889,682)
---------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities (10,459,347) (10,291,356) (47,772,599)
---------------------------------------------------------------------------------------------------------
Foreign currencies (48,107) (48,243) (1,694)
---------------------------------------------------------------------------------------------------------
Foreign currency contracts (238,061) (495,433) (36,322)
---------------------------------------------------------------------------------------------------------
(10,745,515) (10,835,032) (47,810,615)
---------------------------------------------------------------------------------------------------------
Net gain (loss) on investment securities, foreign
currencies, foreign currency contracts and futures
contracts (39,667,634) (35,302,188) (67,700,297)
---------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations $(12,038,491) $(11,518,634) $(22,273,081)
=========================================================================================================
</TABLE>
See Notes to Financial Statements.
20
<PAGE> 23
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
SEVEN MONTHS ENDED YEAR YEAR
ENDED JUNE 30, ENDED ENDED
JULY 31, 2000 DECEMBER 31, DECEMBER 31,
2000 (UNAUDITED) 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $27,629,143 $ 23,783,554 $45,427,216 $ 35,484,095
-----------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies, foreign currency contracts and
futures contracts (28,922,119) (24,467,156) (19,889,682) (2,670,536)
-----------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies, foreign
currency contracts and futures contracts (10,745,515) (10,835,032) (47,810,615) (8,393,729)
-----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (12,038,491) (11,518,634) (22,273,081) 24,419,830
-----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (12,352,865) (9,986,195) (27,905,932) (24,056,371)
-----------------------------------------------------------------------------------------------------------------------
Class B (6,412,480) (5,114,084) (14,665,005) (9,376,348)
-----------------------------------------------------------------------------------------------------------------------
Class C (772,178) (612,189) (1,497,538) (561,222)
-----------------------------------------------------------------------------------------------------------------------
Return of capital distributions:
Class A (3,591,530) -- -- --
-----------------------------------------------------------------------------------------------------------------------
Class B (2,203,866) -- -- --
-----------------------------------------------------------------------------------------------------------------------
Class C (265,128) -- -- --
-----------------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income:
Class A -- (3,737,159) -- (2,510,957)
-----------------------------------------------------------------------------------------------------------------------
Class B -- (2,290,070) -- (1,354,867)
-----------------------------------------------------------------------------------------------------------------------
Class C -- (273,821) -- (120,997)
-----------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A (24,315,697) (25,082,235) 33,756,872 67,975,662
-----------------------------------------------------------------------------------------------------------------------
Class B (17,373,034) (17,193,094) 49,567,754 97,469,590
-----------------------------------------------------------------------------------------------------------------------
Class C 225,211 (146,154) 11,280,738 17,151,361
-----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (79,100,058) (75,953,635) 28,263,808 169,035,681
-----------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 666,329,320 666,329,320 638,065,512 469,029,831
-----------------------------------------------------------------------------------------------------------------------
End of period $587,229,262 $590,375,685 $666,329,320 $638,065,512
=======================================================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $671,562,117 $676,664,678 $719,086,161 $624,536,057
-----------------------------------------------------------------------------------------------------------------------
Undistributed net investment income (405,470) 422,211 (1,347,825) 68,804
-----------------------------------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities, foreign currencies, foreign currency
contracts and futures contracts (42,216,290) (44,910,592) (20,443,436) (3,384,384)
-----------------------------------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities, foreign currencies, foreign currency
contracts and futures contracts (41,711,095) (41,800,612) (30,965,580) 16,845,035
-----------------------------------------------------------------------------------------------------------------------
$587,229,262 $590,375,685 $666,329,320 $638,065,512
=======================================================================================================================
</TABLE>
See Notes to Financial Statements.
21
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Income Fund (the "Fund") is a series portfolio of AIM Investment Securities
Funds (the "Trust"). The Trust is a Delaware business trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of seven separate portfolios,
each having an unlimited number of shares of beneficial interest. Prior to June
1, 2000 the Fund was organized as a series portfolio of AIM Funds Group. At a
meeting held on February 3, 2000, the Board of Trustees of AIM Funds Group
approved an Agreement and Plan of Reorganization (the "Reorganization") which
reorganized the Fund as a series portfolio of the Trust. Shareholders of the
Fund approved the Reorganization at a meeting held on May 31, 2000. Pursuant to
the Reorganization, the Fund's fiscal year-end was changed from December 31 to
July 31. This report includes financial information for the period ended July
31, 2000 (seven months), the six months ended June 30, 2000 and the year ended
December 31, 1999. Financial information for the six months ended June 30, 2000
is unaudited. The Fund currently offers three different classes of shares: Class
A shares, Class B shares and Class C shares. Class A shares are sold with a
front-end sales charge. Class B shares and Class C shares are sold with a
contingent deferred sales charge. Matters affecting each portfolio or class will
be voted on exclusively by the shareholders of such portfolio or class. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund. The Fund's investment objective is to achieve a high level of current
income consistent with reasonable concern for safety of principal.
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 -- 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 July 31, 2000, undistributed net investment income was decreased by
$1,088,741, undistributed net realized gains increased by $7,149,265 and
paid-in capital decreased by $6,060,524 as a result of differing book/tax
treatment of foreign currency transactions and other reclassifications. Net
assets of the Fund were unaffected by the reclassifications.
C. Distributions -- It is the policy of the Fund to declare dividends from net
investment income daily and pay monthly. 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
22
<PAGE> 25
(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 $42,072,428 which may be
carried forward to offset future taxable gains, if any, which expires in
varying increments, if not previously utilized, in the year 2008.
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 July 31, 2000 were as follows:
<TABLE>
<CAPTION>
CONTRACT TO UNREALIZED
SETTLEMENT ------------------------ APPRECIATION
DATE CURRENCY DELIVER RECEIVE VALUE (DEPRECIATION)
--------------------- -------- ---------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
08/04/00 CAD 14,000,000 $ 9,410,898 $ 9,417,720 $ (6,822)
-----------------------------------------------------------------------------------------
10/26/00 EUR 6,000,000 5,629,319 5,593,092 36,227
-----------------------------------------------------------------------------------------
10/24/00 GBP 6,000,000 9,071,200 9,003,450 67,750
-----------------------------------------------------------------------------------------
26,000,000 $24,111,417 $24,014,262 $ 97,155
-----------------------------------------------------------------------------------------
</TABLE>
Outstanding foreign currency contracts at June 30, 2000 were as follows:
<TABLE>
<CAPTION>
CONTRACT TO UNREALIZED
SETTLEMENT ------------------------ APPRECIATION
DATE CURRENCY DELIVER RECEIVE VALUE (DEPRECIATION)
--------------------- -------- ---------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
07/26/00 EUR 8,000,000 $ 7,538,400 $ 7,636,320 $ (97,920)
-----------------------------------------------------------------------------------------
08/04/00 CAD 14,000,000 9,410,898 9,473,195 (62,297)
-----------------------------------------------------------------------------------------
22,000,000 $16,949,298 $17,109,515 $(160,217)
-----------------------------------------------------------------------------------------
</TABLE>
G. Futures Contracts -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits required
upon entering into futures contracts are satisfied by the segregation of
specific securities as collateral for the account of the broker (the Fund's
agent in acquiring the futures position). During the period the futures
contracts are open, changes in the value of the contracts are recognized as
unrealized gains or losses by "marking to market" on a daily basis to reflect
the market value of the contracts at the end of each day's trading. Variation
margin payments are made or received depending upon whether unrealized gains
or losses are incurred. When the contracts are closed, the Fund recognizes a
realized gain or loss equal to the difference between the proceeds from, or
cost of, the closing transaction and the Fund's basis in the contract. Risks
include the possibility of an illiquid market and that a change in value of
the contracts may not correlate with changes in the value of the securities
being hedged.
H. Bond Premiums -- It is the policy of the Fund not to amortize market premiums
on bonds for financial reporting purposes.
I. Expenses -- Distribution expenses and certain transfer agency expenses
directly attributable to a class of shares are charged to those classes'
operations. All other expenses which are attributable to more than one class
are allocated among the classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at an annual rate of 0.50% on the first
$200 million of the Fund's average daily net assets, plus 0.40% on the next $300
million of the Fund's average daily net assets, plus 0.35% on the next $500
million of the Fund's average daily net assets, plus 0.30% on the Fund's average
daily net assets in excess of $1 billion.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the seven-month period ended July 31, 2000,
the six months ended June 30, 2000 and the year ended December 31, 1999, AIM was
paid $72,169, $61,783 and $111,839, respectively, 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 seven-month period ended July 31,
2000, the six months ended June 30, 2000 and the year ended December 31, 1999,
AFS was paid $383,909, $331,354 and $668,106, respectively, 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
0.25% 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
23
<PAGE> 26
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 seven-month period ended
July 31, 2000, the Class A, Class B and Class C shares paid AIM Distributors
$529,667, $1,299,325 and $156,134, respectively, as compensation under the
Plans. For the six months ended June 30, 2000, the Class A, Class B and Class C
shares paid AIM Distributors $456,012, $1,116,968 and $133,454, respectively, as
compensation under the Plans. For the year ended December 31, 1999, the Class A,
Class B and Class C shares paid AIM Distributors $1,006,620, $2,401,345, and
$244,571, respectively, as compensation under the Plans.
AIM Distributors received commissions of $133,679, $122,603 and $358,051 from
sales of the Class A shares of the Fund during the seven-month period ended July
31, 2000, the six months ended June 30, 2000 and the year ended December 31,
1999, respectively. 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 seven-month period ended July 31, 2000, the six months ended
June 30, 2000 and the year ended December 31, 1999, AIM Distributors received
$23,462, $24,692 and $48,455, respectively, 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.
During the seven-month period ended July 31, 2000, the six months ended June
30, 2000 and the year ended December 31, 1999, the Fund paid legal fees of
$2,820, $2,181 and $4,426, respectively, for services rendered by Kramer, Levin,
Naftalis & Frankel LLP as counsel to the Trust's trustees. A member of that firm
is a trustee of the Trust.
NOTE 3-INDIRECT EXPENSES
For the seven-month period ended July 31, 2000, the six months ended June 30,
2000 and the year ended December 31, 1999, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) of $4,165, $3,387 and
$7,504, respectively, and reductions in custodian fees of $11,763, $9,803 and
$5,474, respectively, under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $15,928, $13,190 and $12,978 for the
seven-month period ended July 31, 2000, the six months ended June 30, 2000 and
the year ended December 31, 1999, respectively.
NOTE 4-TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. The Trust invests trustees' fees, if so elected by a
trustee, in mutual fund shares in accordance with a deferred compensation plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by 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 seven months ended July
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. Prior to May 28, 1999, the commitment
fee rate was 0.05%. The commitment fee is allocated among the funds based on
their respective average net assets for the period.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the seven-month period ended July 31, 2000
was $292,979,835 and $327,575,067, respectively, and during the six months ended
June 30, 2000 was $263,297,463 and $305,548,063, respectively. The amount of
unrealized appreciation (depreciation) of investment securities, for tax
purposes, is as follows:
<TABLE>
<CAPTION>
JUNE 30,
JULY 31, 2000
2000 (UNAUDITED)
------------ ------------
<S> <C> <C>
Aggregate unrealized
appreciation of investment
securities $ 7,751,605 $ 7,681,015
-------------------------------------------------------------
Aggregate unrealized
(depreciation) of investment
securities (49,576,450) (49,292,204)
-------------------------------------------------------------
Net unrealized appreciation
(depreciation) of investment
securities $(41,824,845) $(41,611,189)
=============================================================
Cost of investments for tax purposes at July 31, 2000 and
June 30, 2000 were $619,851,477 and $626,066,814,
respectively.
</TABLE>
24
<PAGE> 27
NOTE 7-SHARE INFORMATION
Changes in shares outstanding during the seven-month period ended July 31, 2000,
the six months ended June 30, 2000 and the years ended December 31, 1999 and
1998 were as follows:
<TABLE>
<CAPTION>
JUNE 30, 2000
JULY 31, 2000 (UNAUDITED) DECEMBER 31, 1999
--------------------------- --------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sold:
Class A 7,718,634 $ 56,674,366 6,815,059 $ 50,176,822 19,309,632 $ 154,855,498
------------------------------------------------------------------------------------------------------------------
Class B 4,326,094 31,759,218 3,836,635 28,237,367 14,308,868 114,665,985
------------------------------------------------------------------------------------------------------------------
Class C 1,046,350 7,655,971 915,255 6,715,122 2,744,473 21,843,332
------------------------------------------------------------------------------------------------------------------
Issued as reinvestment
of dividends:
Class A 1,780,355 13,014,300 1,531,606 11,237,603 2,892,178 22,930,219
------------------------------------------------------------------------------------------------------------------
Class B 880,732 6,435,623 756,406 5,547,494 1,404,212 11,107,962
------------------------------------------------------------------------------------------------------------------
Class C 113,060 824,514 96,588 706,920 150,804 1,188,183
------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (12,794,917) (94,004,363) (11,750,687) (86,496,660) (18,052,165) (144,028,845)
------------------------------------------------------------------------------------------------------------------
Class B (7,508,184) (55,567,875) (6,869,825) (50,977,955) (9,612,004) (76,206,193)
------------------------------------------------------------------------------------------------------------------
Class C (1,120,567) (8,255,274) (1,024,858) (7,568,196) (1,483,247) (11,750,777)
------------------------------------------------------------------------------------------------------------------
(5,558,443) $(41,463,520) (5,693,821) $(42,421,483) 11,662,751 $ 94,605,364
------------------------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31, 1998
----------------------------
SHARES AMOUNT
----------- -------------
<S> <C> <C>
Sold:
Class A 18,358,462 $ 156,866,536
----------------------------------------------------
Class B 15,156,529 128,945,810
----------------------------------------------------
Class C 2,530,069 21,507,916
----------------------------------------------------
Issued as reinvestment
of dividends:
Class A 2,575,274 21,978,433
----------------------------------------------------
Class B 956,975 8,134,643
----------------------------------------------------
Class C 65,508 553,356
----------------------------------------------------
Reacquired:
Class A (12,996,807) (110,869,307)
----------------------------------------------------
Class B (4,664,899) (39,610,863)
----------------------------------------------------
Class C (581,112) (4,909,911)
----------------------------------------------------
21,399,999 $ 182,596,613
----------------------------------------------------
</TABLE>
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
--------------------------------------------------------------------------------------------
SIX MONTHS ENDED
SEVEN MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
JULY 31, 2000 ----------------------------------------------------
2000 (UNAUDITED) 1999 1998 1997 1996 1995
------------------ ---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 7.59 $ 7.59 $ 8.38 $ 8.57 $ 8.24 $ 8.17 $ 7.20
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.34 0.29 0.57 0.57 0.55 0.57 0.58
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Net gains (losses) on securities
(both realized and unrealized) (0.47) (0.41) (0.81) (0.16) 0.39 0.09 1.00
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations (0.13) (0.12) (0.24) 0.41 0.94 0.66 1.58
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment
income (0.25) (0.28) (0.55) (0.55) (0.52) (0.59) (0.61)
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Distributions from net realized
gains -- -- -- (0.05) (0.09) -- --
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Return of capital (0.07) -- -- -- -- -- --
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Total distributions (0.32) (0.28) (0.55) (0.60) (0.61) (0.59) (0.61)
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of period $ 7.14 $ 7.19 $ 7.59 $ 8.38 $ 8.57 $ 8.24 $ 8.17
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Total return(a) (1.70)% (1.65)% (2.92)% 4.94% 11.92% 8.58% 22.77%
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $346,482 $348,152 $393,414 $399,701 $340,608 $286,183 $251,280
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Ratio of expenses to average net
assets 0.97%(b) 0.93%(b) 0.91% 0.91% 0.94% 0.98% 0.98%
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Ratio of net investment income to
average net assets 8.03%(b) 8.04%(b) 7.11% 6.69% 6.55% 7.13% 7.52%
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Portfolio turnover rate 43% 45% 78% 41% 54% 80% 227%
----------------------------------- -------- -------- -------- -------- -------- -------- --------
</TABLE>
(a) Does not deduct sales charges and is not annualized for periods less than
one year.
(b) Ratios are annualized and based on average net assets of $364,052,981 and
$366,814,168 for July 31, 2000 and June 30, 2000, respectively.
25
<PAGE> 28
NOTE 8-FINANCIAL HIGHLIGHTS - (CONTINUED)
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------------------------------------------
SIX MONTHS ENDED
SEVEN MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
JULY 31, 2000 --------------------------------------------------
2000 (UNAUDITED) 1999 1998 1997 1996 1995
------------------ ---------------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 7.58 $ 7.58 $ 8.37 $ 8.55 $ 8.23 $ 8.15 $ 7.18
------------------------------------- -------- -------- -------- -------- -------- ------- -------
Income from investment operations:
Net investment income 0.31 0.27 0.50 0.50 0.48 0.50 0.53
------------------------------------- -------- -------- -------- -------- -------- ------- -------
Net gains (losses) on securities
(both realized and unrealized) (0.47) (0.42) (0.80) (0.15) 0.38 0.11 0.98
------------------------------------- -------- -------- -------- -------- -------- ------- -------
Total from investment operations (0.16) (0.15) (0.30) 0.35 0.86 0.61 1.51
------------------------------------- -------- -------- -------- -------- -------- ------- -------
Less distributions:
Dividends from net investment
income (0.21) (0.24) (0.49) (0.48) (0.45) (0.53) (0.54)
------------------------------------- -------- -------- -------- -------- -------- ------- -------
Distributions from net realized
gains -- -- -- (0.05) (0.09) -- --
------------------------------------- -------- -------- -------- -------- -------- ------- -------
Return of capital (0.07) -- -- -- -- -- --
------------------------------------- -------- -------- -------- -------- -------- ------- -------
Total distributions (0.28) (0.24) (0.49) (0.53) (0.54) (0.53) (0.54)
------------------------------------- -------- -------- -------- -------- -------- ------- -------
Net asset value, end of period $ 7.14 $ 7.19 $ 7.58 $ 8.37 $ 8.55 $ 8.23 $ 8.15
------------------------------------- -------- -------- -------- -------- -------- ------- -------
Total return(a) (2.09)% (1.96)% (3.72)% 4.20% 10.89% 7.87% 21.72%
------------------------------------- -------- -------- -------- -------- -------- ------- -------
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $213,926 $215,589 $244,713 $219,033 $125,871 $85,343 $44,304
------------------------------------- -------- -------- -------- -------- -------- ------- -------
Ratio of expenses to average net
assets 1.73%(b) 1.69%(b) 1.66% 1.66% 1.69% 1.80% 1.79%
------------------------------------- -------- -------- -------- -------- -------- ------- -------
Ratio of net investment income to
average net assets 7.28%(b) 7.29%(b) 6.36% 5.94% 5.80% 6.30% 6.71%
------------------------------------- -------- -------- -------- -------- -------- ------- -------
Portfolio turnover rate 43% 45% 78% 41% 54% 80% 227%
------------------------------------- -------- -------- -------- -------- -------- ------- -------
</TABLE>
(a) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(b) Ratios are annualized and based on average net assets of $223,264,239 and
$224,621,090 for July 31, 2000 and June 30, 2000, respectively.
<TABLE>
<CAPTION>
CLASS C
----------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED AUGUST 4, 1997
SEVEN MONTHS ENDED JUNE 30, DECEMBER 31, (DATE SALES COMMENCED)
JULY 31, 2000 ----------------- TO DECEMBER 31,
2000 (UNAUDITED) 1999 1998 1997
------------------ ---------------- ------- ------- ----------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 7.57 $ 7.57 $ 8.36 $ 8.54 $ 8.38
--------------------------------------------- ------- ------- ------- ------- ------
Income from investment operations:
Net investment income 0.31 0.27 0.50 0.50 0.19
--------------------------------------------- ------- ------- ------- ------- ------
Net gains (losses) on securities (both
realized and unrealized) (0.47) (0.42) (0.80) (0.15) 0.22
--------------------------------------------- ------- ------- ------- ------- ------
Total from investment operations (0.16) (0.15) (0.30) 0.35 0.41
--------------------------------------------- ------- ------- ------- ------- ------
Less distributions:
Dividends from net investment income (0.21) (0.24) (0.49) (0.48) (0.16)
--------------------------------------------- ------- ------- ------- ------- ------
Distributions from net realized gains -- -- -- (0.05) (0.09)
--------------------------------------------- ------- ------- ------- ------- ------
Return of capital (0.07) -- -- -- --
--------------------------------------------- ------- ------- ------- ------- ------
Total distributions (0.28) (0.24) (0.49) (0.53) (0.25)
--------------------------------------------- ------- ------- ------- ------- ------
Net asset value, end of period $ 7.13 $ 7.18 $ 7.57 $ 8.36 $ 8.54
--------------------------------------------- ------- ------- ------- ------- ------
Total return(a) (2.09)% (1.96)% (3.71)% 4.21% 4.96%
--------------------------------------------- ------- ------- ------- ------- ------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $26,821 $26,635 $28,202 $19,332 $2,552
--------------------------------------------- ------- ------- ------- ------- ------
Ratio of expenses to average net assets 1.73%(b) 1.69%(b) 1.66% 1.66% 1.69%(c)
--------------------------------------------- ------- ------- ------- ------- ------
Ratio of net investment income to average net
assets 7.28%(b) 7.29%(b) 6.36% 5.94% 5.80%(c)
--------------------------------------------- ------- ------- ------- ------- ------
Portfolio turnover rate 43% 45% 78% 41% 54%
--------------------------------------------- ------- ------- ------- ------- ------
</TABLE>
(a) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(b) Ratios are annualized and based on average net assets of $26,828,719 and
$26,837,492 for July 31, 2000 and June 30, 2000, respectively.
(c) Annualized.
26
<PAGE> 29
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
AIM Income Fund:
We have audited the accompanying statement of assets and liabilities of AIM
Income Fund (a portfolio of AIM Investment Securities Funds), including the
schedule of investments, as of July 31, 2000, and the related statement of
operations for the seven months ended July 31, 2000 and the year ended December
31, 1999, the statement of changes in net assets for the seven months ended July
31, 2000 and the two-years ended December 31, 1999, and the financial highlights
for the seven months ended July 31, 2000 and for each of the years in the
five-year period ended December 31, 1999. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of July 31, 2000, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Income Fund as of July 31, 2000, the results of its operations for the seven
months ended July 31, 2000 and the year ended December 31, 1999, the changes in
its net assets for the seven months ended July 31, 2000 and the two-years ended
December 31, 1999, and the financial highlights for the seven months ended July
31, 2000 and for each of the years in the five-year period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States of America.
/s/ KPMG LLP
September 1, 2000
Houston, Texas
27
<PAGE> 30
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM Income Fund, a portfolio of AIM Funds
Group, a Delaware business trust (the "Trust"), reorganized as AIM Income Fund a
new series portfolio of AIM Investment Securities Fund, was held on May 3, 2000.
The meeting was held for the following purposes:
(1) To elect Trustees as follows: Charles T. Bauer, Bruce L. Crockett, Owen Daly
II, Edward K. Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham,
Prema Mathai-Davis, Lewis F. Pennock and Louis S. Sklar.
(2) Adjournment of approval of an Agreement and Plan of Reorganization which
provided for the reorganization of the Fund into a new series portfolio of
AIM Investment Securities Funds having the same investment objective and
policies.
(3) To approve a new Master Investment Advisory Agreement for AIM Income Fund
(the "Fund").
(4) To approve changing the fundamental investment restrictions of the Fund.
(5) To approve changing the investment objective of the Fund and making it
non-fundamental.
(6) To ratify the selection of KPMG LLP as independent accountants of the Fund
for the fiscal year ending in 2000.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
WITHHELD/
TRUSTEES/MATTER VOTES FOR ABSTENTIONS
--------------- ------------- -----------
<S> <C> <C> <C> <C>
(1) Charles T. Bauer............................................ 1,514,464,534 46,493,668
Bruce L. Crockett........................................... 1,516,486,806 44,471,396
Owen Daly II................................................ 1,515,115,325 45,842,877
Edward K. Dunn, Jr. ........................................ 1,516,300,879 44,657,323
Jack M. Fields.............................................. 1,516,328,985 44,629,217
Carl Frischling............................................. 1,515,733,560 45,224,642
Robert H. Graham............................................ 1,516,470,809 44,487,393
Prema Mathai-Davis.......................................... 1,515,583,756 45,374,446
Lewis F. Pennock............................................ 1,516,458,889 44,499,313
Louis S. Sklar.............................................. 1,516,220,167 44,738,035
</TABLE>
<TABLE>
<CAPTION>
VOTES WITHHELD/
VOTES FOR AGAINST ABSTENTIONS
------------- ---------- -----------
<S> <C> <C> <C> <C>
(2) Adjournment of approval of an Agreement and Plan of
Reorganization which provided for the reorganization of the
Fund into a new series portfolio of AIM Investment
Securities Funds having the same investment objective and
policies.................................................... 40,552,348 954,563 10,403,854*
(3) Approval of a new Investment Advisory Agreement............. 40,586,343 892,785 10,431,637*
(4)(a) Change to Fundamental Restriction on Issuer
Diversification............................................. 40,221,936 1,071,866 10,616,963*
(4)(b) Change to Fundamental Restriction on Borrowing Money and
Issuing Senior Securities................................... 39,931,925 1,387,589 10,591,251*
(4)(c) Change to or Addition of Fundamental Restriction on
Underwriting Securities..................................... 40,059,634 1,248,467 10,602,664*
(4)(d) Change to or Addition of Fundamental Restriction on Industry
Concentration............................................... 40,128,309 1,091,382 10,691,074*
(4)(e) Change to Fundamental Restriction on Purchasing or Selling
Real Estate................................................. 39,957,095 1,378,774 10,574,896*
(4)(f) Change to Fundamental Restriction on Purchasing or Selling
Commodities and Elimination of Fundamental Restriction on
Puts and Calls.............................................. 39,712,352 1,561,680 10,636,733*
(4)(g) Change to Fundamental Restriction on Making Loans........... 39,642,404 1,464,795 10,803,566*
(4)(h) A new Fundamental Investment Restriction on Investing all of
the Fund's assets in an Open-End Fund....................... 39,804,112 1,294,137 10,812,516*
(4)(i) Elimination of Fundamental Restriction on Margin
Transactions................................................ 39,261,650 1,843,226 10,805,889*
(4)(j) Elimination of Fundamental Restriction on Short Sales of
Securities.................................................. 39,383,780 1,736,976 10,790,009*
(4)(k) Elimination of Fundamental Restriction on Investing in
Securities with unlimited liability......................... 39,151,211 1,915,548 10,844,006*
(5) Approval of changing the Investment Objective and Making it
Non-Fundamental............................................. 39,471,651 1,474,002 10,965,112*
(6) Ratification of the selection of KPMG LLP as Independent
Accountants of the Fund..................................... 49,423,996 296,082 2,190,687
</TABLE>
The Special Meeting of Shareholders of the Trust was reconvened on May 31,
2000. The following matters were then considered:
<TABLE>
<CAPTION>
VOTES WITHHELD/
MATTER VOTES FOR AGAINST ABSTENTIONS
------ ------------- ---------- -----------
<S> <C> <C> <C> <C>
(2) Approval of an Agreement and Plan of Reorganization which
provides for the reorganization of the Fund into a new
series portfolio of AIM Investment Securities Funds having
the same investment objective and policies.................. 47,685,292 1,107,758 7,393,872*
</TABLE>
---------------
* Includes Broker Non-Votes
28
<PAGE> 31
<TABLE>
<S> <C> <C>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Charles T. Bauer Charles T. Bauer 11 Greenway Plaza
Director and Chairman Chairman Suite 100
A I M Management Group Inc. Houston, TX 77046
Robert H. Graham
Bruce L. Crockett President INVESTMENT ADVISOR
Director
ACE Limited; Carol F. Relihan A I M Advisors, Inc.
Formerly Director, President, and Senior Vice President and Secretary 11 Greenway Plaza
Chief Executive Officer Suite 100
COMSAT Corporation Gary T. Crum Houston, TX 77046
Senior Vice President
Owen Daly II TRANSFER AGENT
Formerly, Director Dana R. Sutton
Cortland Trust Inc. Vice President and Treasurer A I M Fund Services, Inc.
P.O. Box 4739
Edward K. Dunn Jr. Melville B. Cox Houston, TX 77210-4739
Chairman, Mercantile Mortgage Corp.; Vice President
Formerly Vice Chairman, President CUSTODIAN
and Chief Operating Officer, Karen Dunn Kelley
Mercantile-Safe Deposit & Trust Co.; and Vice President State Street Bank and Trust Company
President, Mercantile Bankshares 225 Franklin Street
Mary J. Benson Boston, MA 02110
Jack Fields Assistant Vice President and
Chief Executive Officer Assistant Treasurer COUNSEL TO THE FUND
Texana Global, Inc. and
Twenty First Century Group, Inc.; Sheri Morris Ballard Spahr
Formerly Member Assistant Vice President and Andrews & Ingersoll, LLP
of the U.S. House of Representatives Assistant Treasurer 1735 Market Street
Philadelphia, PA 19103
Carl Frischling Renee A. Friedli
Partner Assistant Secretary COUNSEL TO THE TRUSTEES
Kramer, Levin, Naftalis & Frankel LLP
P. Michelle Grace Kramer, Levin, Naftalis & Frankel LLP
Robert H. Graham Assistant Secretary 919 Third Avenue
Director, President and New York, NY 10022
Chief Executive Officer Nancy L. Martin
A I M Management Group Inc. Assistant Secretary DISTRIBUTOR
Prema Mathai-Davis Ofelia M. Mayo A I M Distributors, Inc.
Formerly, Chief Executive Officer Assistant Secretary 11 Greenway Plaza
YWCA of the U.S.A. Suite 100
Lisa A. Moss Houston, TX 77046
Lewis F. Pennock Assistant Secretary
Attorney AUDITORS
Kathleen J. Pflueger
Louis S. Sklar Assistant Secretary KPMG LLP
Executive Vice President, 700 Louisiana
Development and Operations, Houston, TX 77002
Hines Interests
Limited Partnership
</TABLE>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended July
31, 2000, 4.67% is eligible for the dividends received deduction for
corporations.
REQUIRED STATE INCOME TAX INFORMATION
Of the ordinary dividends paid, 0.37% was derived from U.S. Treasury
Obligations.
<PAGE> 32
THE AIM FAMILY OF FUNDS--Registered Trademark--
EQUITY FUNDS
<TABLE>
<S> <C> <C>
DOMESTIC EQUITY FUNDS INTERNATIONAL/GLOBAL EQUITY FUNDS A I M Management Group Inc. has provided
MORE AGGRESSIVE MORE AGGRESSIVE leadership in the mutual fund industry
AIM Small Cap Opportunities(1) AIM Latin American Growth since 1976 and managed approximately
AIM Mid Cap Opportunities(2) AIM Developing Markets $176 billion in assets for more than
AIM Large Cap Opportunities(6) AIM European Small Company 8 million shareholders, including
AIM Emerging Growth AIM Asian Growth individual investors, corporate clients and
AIM Small Cap Growth(3) AIM Japan Growth financial institutions, as of June 30, 2000.
AIM Aggressive Growth AIM International Emerging Growth The AIM Family of Funds--Registered
AIM Mid Cap Growth AIM European Development Trademark-- is distributed nationwide,
AIM Small Cap Equity AIM Euroland Growth and AIM today is the eighth-largest
AIM Capital Development AIM Global Aggressive Growth mutual fund complex in the United States
AIM Constellation(4) AIM International Equity in assets under management, according to
AIM Dent Demographic Trends AIM Advisor International Value Strategic Insight, an independent mutual
AIM Select Growth AIM Global Trends fund monitor.
AIM Large Cap Growth AIM Global Growth AIM is a subsidiary of AMVESCAP PLC,
AIM Weingarten MORE CONSERVATIVE one of the world's largest independent
AIM Mid Cap Equity financial services companies with $389
AIM Value II SECTOR EQUITY FUNDS billion in assets under management as of
AIM Charter MORE AGGRESSIVE June 30, 2000.
AIM Value AIM New Technology
AIM Blue Chip AIM Global Telecommunications and Technology
AIM Basic Value AIM Global Resources
AIM Large Cap Basic Value AIM Global Financial Services
AIM Balanced AIM Global Health Care
AIM Advisor Flex AIM Global Consumer Products and Services
MORE CONSERVATIVE AIM Global Infrastructure
AIM Advisor Real Estate
AIM Global Utilities
MORE CONSERVATIVE
</TABLE>
FIXED-INCOME FUNDS
<TABLE>
<S> <C>
TAXABLE FIXED-INCOME FUNDS TAX-FREE FIXED-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) MORE CONSERVATIVE
AIM Intermediate Government
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 Small Cap Growth Fund closed to new
investors Nov. 8, 1999. (4) AIM Constellation Fund's investment strategy
broadened to allow investments across all market capitalizations Dec. 1, 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. (6) AIM Large Cap Opportunities Fund will close to
new investors Sept. 29, 2000, or when the fund reaches a total net asset value
of $750 million, whichever occurs first.
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 Oct. 20, 2000, 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. INC-AR-1
