<PAGE> 1
ANNUAL REPORT / JULY 31 2000
AIM HIGH YIELD FUND II
[COVER IMAGE]
[AIM LOGO APPEARS HERE]
--Registered Trademark--
<PAGE> 2
[ COVER IMAGE ]
------------------------------------
LANDSCAPE AT AUVERS AFTER THE RAIN
BY VINCENT VAN GOGH
VAN GOGH SPENT ONLY THREE MONTHS IN AUVERS-SUR-OISE, A
SMALL VILLAGE NORTH OF PARIS, WHERE HE PRODUCED THE LAST OF
HIS BELOVED PAINTINGS. THIS LANDSCAPE, AMONG HIS TRIBUTES TO
THE HEALTH AND RESTORATIVE FORCES OF THE FRENCH COUNTRYSIDE,
IS A FITTING EMBLEM FOR THE GROWTH POTENTIAL OF AIM'S
NEWEST HIGH-YIELD FUND.
------------------------------------
AIM High Yield Fund II is for shareholders who seek a high level of current
income. The fund invests in a portfolio consisting primarily of high-yielding,
lower-rated bonds.
ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THE REPORT:
o AIM High Yield Fund II's performance figures are historical, and they
reflect the reinvestment of distributions and changes in net asset value.
o Had the advisor not absorbed fund expenses, performance figures would have
been lower.
o When sales charges are included in performance figures, Class A share
performance reflects the maximum 4.75% sales charge, and Class B and Class C
share performance reflects the applicable contingent deferred sales charge
(CDSC) for the period involved. The CDSC on Class B shares declines from 5%
beginning at the time of purchase to 0% at the beginning of the seventh
year. The CDSC on Class C shares is 1% for the first year after purchase.
The performance of the fund's Class B and Class C shares will differ from
that of its Class A shares due to different sales-charge structure and class
expenses.
o The 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 During the fiscal year ended 7/31/00, the fund paid distributions of $1.3441
per Class A share and $1.2579 per Class B and Class C share.
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 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 High Yield Bond Index, which represents the performance
of non-investment-grade debt securities, is compiled by Lehman Brothers, a
well-known global investment firm.
o The unmanaged Lipper High Current Yield Fund Index represents an average of
the performance of the 30 largest high-yield funds tracked by Lipper, Inc.,
an independent mutual fund performance monitor.
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 HIGH YIELD FUND II
<PAGE> 3
ANNUAL REPORT / CHAIRMAN'S LETTER
Dear Fellow Shareholder:
[PHOTO OF When we started AIM in 1976, we had only a table, two chairs
Charles T. and a telephone. At the time, Bob Graham, Gary Crum and I
Bauer, had the idea of creating a mutual fund company that put
Chairman of people first. Our slogan, "people are the product," means
the Board of that people--our employees and our investors-- are our
THE FUND company.
APPEARS HERE] Almost a quarter-century later, we've grown to more than
eight million investors with $176 billion in assets under
[PHOTO OF management. Over that time, the industry as a whole has
Robert H. grown from $51 billion in assets to more than $7 trillion
Graham today. I never dreamed we would see such phenomenal growth.
APPEARS HERE] You are the main reason for our success, and I want you to
know how 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 HIGH YIELD FUND II
<PAGE> 4
ANNUAL REPORT / MANAGERS' OVERVIEW
HIGH-YIELD MARKET CONTINUES TO STRUGGLE, BUT DEMAND STARTING TO INCREASE
HOW DID AIM HIGH YIELD FUND II PERFORM DURING THE FISCAL YEAR?
Stock-market volatility, rising interest rates and large cash outflows from
high-yield mutual funds weighed heavily on the high-yield bond sector. AIM High
Yield Fund II was not immune to this trend. The fund posted returns of 0.77% for
Class A shares, 0.07% for Class B shares and -0.03% for Class C shares for the
fiscal year ended July 31, 2000. These returns are computed at net asset value,
that is, without sales charges.
While the high-yield market struggled through much of the reporting period,
the fund's annual return belies an improving high-yield picture. For instance,
for the month of June, the fund posted returns of 2.96% for Class A shares,
2.79% for Class B shares and 2.90% for Class C shares, respectively.
And despite difficult market conditions, the fund continued to provide
extremely attractive current income. As of July 31, 2000, the fund's 30-day SEC
yield was 11.76% for Class A shares and 11.58% for Class B and Class C shares.
By comparison, the yield on the 30-year U.S. Treasury bond was 5.79%.
The fund's total net assets grew from $100.5 million on January 31, 2000 to
$138.5 million on July 31, 2000.
HOW DID FIXED-INCOME MARKETS REACT TO THESE CONDITIONS?
1999 proved to be one of the worst calendar years for bonds since 1994. A
variety of economic conditions coupled with a strong equity market kept
investors in stocks and largely out of fixed-income investments for most of
1999. The turn of the year, however, brought some investor interest back to
fixed-income securities. Stock-market sell-offs and increased market volatility
led some to the safer fixed-income sectors.
The 30-year Treasury bond in particular has had a stellar year thus far,
providing one of the strongest total returns of any security. 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, a graph of Treasury security yields from three months to 30 years,
which 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.
While the Treasury market rallied, corporate bonds struggled at the
beginning of the year but returned to life near the end of the reporting period.
In June and July, the corporate bond sector recorded some of the best returns of
any fixed-income sector.
HOW DID HIGH-YIELD BONDS FARE IN THIS DIFFICULT MARKET?
Although the high-yield market posted some of the best annual returns of any
fixed-income sector in 1999, those gains haven't translated into investor
confidence. Until about June of this year, the high-yield sector has suffered
from what could be considered a difficult technical situation--more cash
outflows than inflows, poor liquidity and rising default rates. In fact, cash
outflows from high-yield mutual funds thus far this year have been higher than
all cash inflows into high-yield funds for all
FUND PROVIDES HIGH INCOME
30-day SEC yield as of 7/31/00
=================================================
FUND CLASS A SHARES.................... 11.76%
FUND CLASS B AND CLASS C SHARES........ 11.58%
30-YEAR U.S. TREASURY.................. 5.79%*
*Source: Lehman Brothers
=================================================
GROWTH OF NET ASSETS
=================================================
1/31/00........................ $100.5 MILLION
7/31/00........................ $138.5 MILLION
=================================================
See important fund and index disclosures inside front cover.
AIM HIGH YIELD FUND II
2
<PAGE> 5
ANNUAL REPORT / MANAGERS' OVERVIEW
1999. Fortunately, a reversal of this trend began in June, as cash inflows
started averaging $145 million per week.
More outflows than inflows into a market is significant, as it means you
have more sellers than buyers. In most cases, this does not mean there is a
fundamental problem with the company issuing the debt. But when a market
experiences more sellers than buyers, securities' prices generally go down. In
the high-yield 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 high-yield bonds were at some of their highest levels in years
during the first half of 2000, 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. Once again, that's probably not due to credit-quality
concerns as much as to comparatively rich prices in the Treasury market and
rather low demand for corporate bonds. But as investors return to the high-yield
market, those spreads have narrowed a bit.
HOW DID YOU MANAGE THE FUND?
In the fourth quarter of 1999, we nearly doubled our equity allocation to 8% to
take advantage of sector returns. As stock-market volatility increased in the
second quarter of 2000, however, we decreased our equity position to around 5%.
(Up to 15% of the fund's assets may be invested in stocks of companies in which
the fund holds high-yield debt.) Purchasing these stocks allows us to leverage
our research capabilities, having researched a company already from a debt
perspective.
The fund struggled a bit in the second quarter of 2000 as bonds rated CCC
largely underperformed in the second quarter, a quality sector in which we were
overweight. Also, the fund's limited exposure to the best-performing high-yield
sectors for the quarter--energy and electric-utility companies--dampened
returns.
WHAT IS YOUR OUTLOOK FOR THE BOND MARKET?
The near-term outlook for the fixed-income investor depends largely on what the
economy does in the 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.
For the high-yield investor, June provided a reversal of sorts. Attractive
yields enticed investors back into the high-yield sector. Although the past year
has been challenging for the high-yield market, increased demand is encouraging.
Although we cannot predict to what extent or for how long these increased cash
inflows will continue, we believe that high-yield bonds remain an attractive
option for investors looking for high income with some potential appreciation.
PORTFOLIO COMPOSITION
As of 7/31/00, based on total net assets
<TABLE>
<CAPTION>
================================================================================================
TOP 10 HOLDINGS TOP 10 INDUSTRIES
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. U.S. Treasury Notes 6.75%, 2.22% 1. Telecommunications 15.57%
05/15/05 (Cellular/Wireless)
2. Intermedia Communications, Inc. 1.89 2. Telephone 13.29
3. Allied Waste North America Inc. 1.89 3. Telecommunications (Long Distance) 6.92
4. Venetian Casino Resort LLC 1.83 4. Broadcasting 6.02
5. Metrocall, Inc. 1.81 (Television, Radio & Cable)
6. U.S. Xchange LLC 1.79 5. Oil & Gas (Exploration & Production) 4.43
7. United Pan-Europe 1.68 6. Gaming, Lottery & Parimutuel Cos. 3.40
Communications N.V. (Netherlands) 7. Manufacturing (Specialized) 3.29
8. FirstCom Corp. 1.62 8. Computers (Software & Services) 2.88
9. King Pharmaceuticals, Inc. 1.55 9. Health Care (Drugs-Generic & Other) 2.87
10. Frontier Oil Corp. 1.50 10. U.S. Treasury Notes 2.74
The fund's portfolio is subject to change, and there is no assurance that the
fund will continue to hold any particular security.
================================================================================================
</TABLE>
See important fund and index disclosures inside front cover.
AIM HIGH YIELD FUND II
3
<PAGE> 6
ANNUAL REPORT / PERFORMANCE HISTORY
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
AIM HIGH YIELD FUND II VS. BENCHMARK INDEXES
9/30/98-7/31/00
in thousands
================================================================================
AIM High Yield Fund Lehman High Lipper High Current
II, Class A Shares Yield Bond Index Yield Fund Index
--------------------------------------------------------------------------------
9/30/98 10000 10000 10000
1/31/99 10474 10364 10501
4/30/99 11369 10603 10919
7/31/99 11656 10479 10716
10/31/99 11390 10220 10495
1/31/00 12275 10412 10755
4/30/00 11902 10229 10597
7/31/00 11746 10409 10620
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
The chart compares your fund's Class A shares to benchmark indexes. It is
important to understand the differences between your fund and these indexes. An
index measures the performance of a hypothetical portfolio. A market index such
as the Lehman High Yield 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. An
index of funds such as the Lipper High Current Yield Fund Index includes a
number of mutual funds grouped by investment objective. Each of those funds
interprets that objective differently, and each employs a different management
style and investment strategy. Use of these indexes is intended to give you a
general idea of how your fund performed compared to these benchmarks.
AVERAGE ANNUAL TOTAL RETURNS
As of 7/31/00, including sales charges
================================================================================
CLASS A SHARES
Inception (9/30/98) 9.18%
1 Year (4.00)*
*0.77% excluding sales charges
CLASS B SHARES
Inception (11/20/98) 5.41%
1 Year (4.38)*
*0.07% excluding CDSC
CLASS C SHARES
Inception (11/20/98) 7.43%
1 Year (0.92)*
*(0.03)% 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,
-1.70%; inception (9/30/98), 10.40%. Class B shares, one year, -2.17%; inception
(11/20/98), 6.47%. Class C shares, one year, 1.49%; inception (11/20/98), 8.70%.
Your fund's total return includes sales charges, expenses and management fees.
The performance of the fund's Class B and Class C shares will differ from that
of its Class A shares due to different sales-charge structures and expenses. For
fund performance calculations and a description of the indexes cited on this
page, please see the inside front cover.
AIM HIGH YIELD FUND II
4
<PAGE> 7
ANNUAL REPORT / FOR CONSIDERATION
WHAT DO BOND RATINGS MEAN?
The preceding discussion of your fund's performance mentions the quality of the
bonds in the fund's portfolio. Just what are bond quality ratings?
Two well-known rating agencies, Moody's and Standard & Poor's (S&P), assign
ratings to bond issues. The chart shows a summary of the definitions of these
ratings.
HOW BONDS ARE RATED
Bond ratings are essentially based on the issuer's risk of default (nonpayment
of principal and/or interest) on the bond. How does a bond rating come about?
Say a company wants to raise $5 million for expansion by issuing a five-year
bond, meaning that in five years, the company will repay $5 million plus
interest to the investor(s) in the bond issue. The company, or issuer, pays a
fee to have its bond rated by a qualified rating agency. The selected rating
agency sends representatives to the company to meet with management and evaluate
the company's short- and long-term risk profile--the company's ability and
willingness to pay the principal and interest of the bond issue at its maturity,
in this case five years. Other rating factors include:
o the make-up and terms of the particular issue;
o the level and predictability of the issuer's cash flow;
o how well-protected the issue is in the event of bankruptcy, reorganization
or other arrangement;
o possible adverse economic conditions, both in general and in the company's
sector; and
o currency risk in the case of foreign issues.
After considering these and other factors deemed necessary by agency
representatives, the rating agency assigns a rating, such as "A," to the issue.
The rating is made public before the issue is offered to investors so they know
the relative quality of the bond. Investors can then decide for themselves if
they wish to invest in a particular bond issue.
================================================================================
MOODY'S DEFINITION S&P
--------------------------------------------------------------------------------
INVESTMENT GRADE
Aaa Bonds of the highest quality, with the lowest AAA
degree of long-term investment risk. Issuers'
ability to repay is very high.
Aa Bonds of high quality with slightly greater AA
long-term investment risk.
A Bonds with favorable investment attributes A
but elements making them more susceptible
to adversity.
Baa Medium-grade bonds that are currently secure BBB
but possibly unreliable over time.
NON-INVESTMENT-GRADE
(High-Yield or Junk)
Ba Bonds with speculative elements that make them BB
not well-safeguarded and uncertain.
B Bonds with low long-term assurance of payment. B
Caa Bonds of poor standing that may be in default CCC
or in danger of default.
Ca Bonds of highly speculative quality that are often CC
in default.
C Lowest-rated bonds, with poor prospects C
of ever being upgraded to investment standing.
- Bonds in default. Issuer cannot repay. D
================================================================================
AIM HIGH YIELD FUND II
5
<PAGE> 8
ANNUAL REPORT / FOR CONSIDERATION
WHAT BOND RATINGS MEAN
Although the rating systems of the two agencies differ slightly, their hierarchy
is essentially the same: the highest-rated bonds, Aaa for Moody's and AAA for
S&P, are those which show the best capacity for repayment of the principal (face
value) plus interest to the bondholder. These high-rated bonds have a lower
return because they are a lower-risk investment. In other words, rating and
risk/return move inversely for bonds--the lower the rating, the higher the
potential risk and return, and vice versa. So although investment-grade bonds
such as U.S. Treasury issues are some of the safest investments around, more
speculative junk bonds can yield significantly higher returns if an investor can
tolerate the risk.
Moody's and S&P sometimes use modifiers with their standard ratings. Moody's
may add a 1, 2 or 3 to a rating (e.g., Aa2), with a 1 denoting an issue ranking
in the higher end of its category, a 2 denoting a mid-range ranking and a 3
denoting a lower-end ranking. Similarly, S&P may add a plus (+) or minus (-) to
show an issue's relative standing within a category (e.g., B+).
Once assigned, bond ratings are not often altered. However, if major changes
occur in an issuer's short- or long-term credit outlook, a rating agency may
review the rating for possible modification. Contributing factors may include
shifts in industry demand, new technologies, government intervention, regulatory
changes or changes in macroeconomic variables such as oil prices. Events such as
these are weighed to determine how much they will affect the issuer's operations
and direction.
UNRATED BONDS
What about unrated bonds? The fact that a bond is unrated does not make it a
"bad" bond. Some organizations simply choose not to pay to have their bonds
rated. Often the issuer of an unrated bond is a small entity such as a town or
district that does not have extra money to pay for a rating. In those cases,
independent research is necessary on the part of the investor to put together a
risk profile of the issuer.
------------------------------------
WHAT TYPES OF BONDS DOES YOUR FUND OWN?
YOUR FUND'S PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION DISCUSS IN
MORE DETAIL THE TYPES OF BONDS CONTAINED IN YOUR FUND'S PORTFOLIO AND THE
RISK FACTORS THAT MAY BE ASSOCIATED WITH THESE SECURITIES. YOUR FINANCIAL
CONSULTANT IS THE BEST PERSON TO CONTACT IF YOU HAVE ANY QUESTIONS ABOUT
INVESTING IN BONDS OR IN A BOND FUND.
------------------------------------
[ BONDS PHOTO ]
AIM HIGH YIELD FUND II
6
<PAGE> 9
SCHEDULE OF INVESTMENTS
July 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. DOLLAR DENOMINATED BONDS &
NOTES-87.50%
AIR FREIGHT-0.73%
Atlas Air, Inc., Sr. Unsec. Notes,
10.75%, 08/01/05 $ 980,000 $ 1,009,400
--------------------------------------------------------------
AIRLINES-1.87%
Airplanes Pass Through Trust-Series
D, Gtd. Sub. Bonds, 10.88%,
03/15/19 1,975,400 1,587,540
--------------------------------------------------------------
Dunlop Standard Aerospace Holdings
PLC (United Kingdom), Sr. Unsec.
Yankee Sub. Notes, 11.88%,
05/15/09 1,000,000 997,500
--------------------------------------------------------------
2,585,040
--------------------------------------------------------------
AUTO PARTS & EQUIPMENT-2.19%
Advance Stores Co., Inc.-Series B,
Sr. Unsec. Gtd. Sub. Notes,
10.25%, 04/15/08 2,000,000 1,645,000
--------------------------------------------------------------
Exide Corp., Sr. Notes, 10.00%,
04/15/05 1,500,000 1,387,500
--------------------------------------------------------------
3,032,500
--------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO &
CABLE)-6.02%
Charter Communications Holdings
LLC,
Sr. Unsec. Notes, 10.25%,
01/15/10 1,750,000 1,710,625
--------------------------------------------------------------
Sr. Unsec. Disc. Notes, 9.92%,
04/01/11(a) 1,750,000 1,006,250
--------------------------------------------------------------
Diamond Cable Communications PLC
(United Kingdom), Sr. Unsec.
Disc. Yankee Notes, 11.75%,
12/15/05(a) 1,250,000 1,193,750
--------------------------------------------------------------
Fox Family Worldwide, Inc., Sr.
Unsec. Disc. Notes, 10.25%,
11/01/07(a) 1,500,000 1,042,500
--------------------------------------------------------------
Knology Holdings, Inc., Sr. Disc.
Notes, 11.88%, 10/15/07(a) 2,000,000 1,065,000
--------------------------------------------------------------
United Pan-Europe Communications
N.V. (Netherlands)-Series B, Sr.
Unsec. Disc. Yankee Notes,
13.38%, 11/01/09(a) 5,000,000 2,325,000
--------------------------------------------------------------
8,343,125
--------------------------------------------------------------
BUILDING MATERIALS-1.78%
Blount Inc., Sr. Unsec. Gtd. Sub.
Notes, 13.00%, 08/01/09 1,250,000 1,268,750
--------------------------------------------------------------
Dayton Superior Corp., Sr. Sub.
Notes, 13.00%, 06/15/09(b)(e) 1,200,000 1,197,000
--------------------------------------------------------------
2,465,750
--------------------------------------------------------------
CHEMICALS (DIVERSIFIED)-1.51%
Sterling Chemicals, Inc.-Series B,
Sr. Gtd. Sec. Sub. Notes, 12.38%,
07/15/06 2,000,000 2,085,000
--------------------------------------------------------------
CHEMICALS (SPECIALTY)-0.19%
Key Plastics Holdings, Inc.-Series
B, Sr. Unsec. Gtd. Sub. Notes,
10.25%, 03/15/07(c) 2,540,000 266,700
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
COMMUNICATIONS EQUIPMENT-1.10%
Dictaphone Corp., Sr. Sub. Gtd.
Notes, 11.75%, 08/01/05 $1,500,000 $ 1,522,500
--------------------------------------------------------------
COMPUTERS (HARDWARE)-0.31%
Candescent Technology Corp., Sr.
Conv. Sub. Deb., 8.00%, 05/01/03
(Acquired 03/07/00; Cost
$480,000)(d) 600,000 435,000
--------------------------------------------------------------
COMPUTERS (SOFTWARE &
SERVICES)-2.64%
Earthwatch Inc., Sr. Disc. Notes,
13.00%, 07/15/07 (Acquired
07/07/99; Cost
$1,711,525)(a)(b)(d) 2,500,000 1,743,750
--------------------------------------------------------------
Globix Corp., Sr. Unsec. Notes,
12.50%, 02/01/10 2,420,000 1,917,850
--------------------------------------------------------------
3,661,600
--------------------------------------------------------------
CONSTRUCTION (CEMENT &
AGGREGATES)-0.78%
Schuff Steel Co., Sr. Unsec. Gtd.
Sub. Notes, 10.50%, 06/01/08 1,550,000 1,073,375
--------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH)-1.25%
Fleming Cos., Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 10.63%,
07/31/07 2,000,000 1,735,000
--------------------------------------------------------------
ENGINEERING & CONSTRUCTION-0.80%
Morrison Knudsen Corp., Sr. Notes,
11.00%, 07/01/10(e) 1,100,000 1,105,500
--------------------------------------------------------------
ENTERTAINMENT-0.92%
Callahan Nordrhein Westfalen
(Denmark), Sr. Yankee Notes,
14.00%, 07/15/10 (Acquired
06/29/00; Cost $1,300,000)(d) 1,300,000 1,277,250
--------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-2.37%
Madison River Capital, Sr. Notes,
13.25%, 03/01/10(e) 2,000,000 1,810,000
--------------------------------------------------------------
ONO Finance PLC (United Kingdom),
Sr. Gtd. Sub. Euro Notes, 13.00%,
05/01/09 1,500,000 1,477,500
--------------------------------------------------------------
3,287,500
--------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL
COMPANIES-3.40%
Hollywood Casino Corp., Sr. Sec.
Gtd. Sub. Notes, 11.25%, 05/01/07 1,000,000 1,025,000
--------------------------------------------------------------
MGM Grand, Inc., Sr. Unsec. Gtd.
Sub. Notes, 9.75%, 06/01/07 1,110,000 1,140,525
--------------------------------------------------------------
Venetian Casino Resort LLC, Sec.
Gtd. Mortgage Notes, 12.25%,
11/15/04 2,500,000 2,537,500
--------------------------------------------------------------
4,703,025
--------------------------------------------------------------
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
HEALTH CARE (DRUGS-GENERIC &
OTHER)-2.67%
King Pharmaceuticals, Inc., Sr.
Unsec. Gtd. Sub. Notes, 10.75%,
02/15/09 $2,000,000 $ 2,150,000
--------------------------------------------------------------
Warner Chilcott, Inc., Sr. Unsec.
Gtd. Notes, 12.63%, 02/15/08(e) 1,500,000 1,552,500
--------------------------------------------------------------
3,702,500
--------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES)-1.10%
DJ Orthopedics, LLC, Sr. Unsec.
Gtd. Sub. Notes, 12.63%, 06/15/09 1,600,000 1,528,000
--------------------------------------------------------------
HEALTH CARE (SPECIALIZED
SERVICES)-0.17%
Team Health Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 12.00%,
03/15/09 275,000 234,437
--------------------------------------------------------------
HOMEBUILDING-0.73%
Lennar Corp., Sr. Notes, 9.95%,
05/01/10(e) 1,000,000 1,010,000
--------------------------------------------------------------
HOUSEHOLD FURNISHING &
APPLIANCES-2.11%
Falcon Products, Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 11.38%,
06/15/09 1,085,000 1,049,737
--------------------------------------------------------------
O'Sullivan Industries, Inc.-Series
B, Sr. Unsec. Gtd. Sub. Notes,
13.38%, 10/15/09(b) 1,000,000 940,000
--------------------------------------------------------------
Winsloew Furniture, Inc.-Series B,
Sr. Gtd. Sub. Notes, 12.75%,
08/15/07 1,000,000 935,000
--------------------------------------------------------------
2,924,737
--------------------------------------------------------------
LEISURE TIME (PRODUCTS)-1.11%
Marvel Enterprises, Inc., Sr.
Unsec. Gtd. Sub. Notes, 12.00%,
06/15/09 1,910,000 1,532,775
--------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-2.02%
Actuant Corp., Sr. Unsec. Gtd. Sub.
Notes, 13.00%, 05/01/09 (Acquired
07/21/00; Cost $986,750)(d) 1,000,000 1,005,000
--------------------------------------------------------------
Anthony Crane Rentals LP-Series B,
Sr. Unsec. Gtd. Sub. Notes,
10.38%, 08/01/08 3,250,000 1,795,625
--------------------------------------------------------------
2,800,625
--------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-3.29%
Brand Scaffold Services, Inc., Sr.
Unsec. Notes, 10.25%, 02/15/08 1,850,000 1,651,125
--------------------------------------------------------------
Flextronics International Ltd.
(Singapore), Sr. Sub Yankee
Notes, 9.88%, 07/01/10 (Acquired
06/26/00; Cost $654,852)(d) 660,000 678,975
--------------------------------------------------------------
MMI Products, Inc.-Series B, Sr.
Unsec. Sub. Notes, 11.25%,
04/15/07 1,225,000 1,206,625
--------------------------------------------------------------
Tekni-Plex Inc., Sr. Sub. Notes,
12.75%, 06/15/10 (Acquired
06/15/00; Cost $986,300)(d) 1,000,000 1,025,000
--------------------------------------------------------------
4,561,725
--------------------------------------------------------------
OIL & GAS (EXPLORATION &
PRODUCTION)-4.23%
Chesapeake Energy Corp., Series B,
Sr. Unsec. Gtd. Sub. Notes,
9.63%, 05/01/05 1,500,000 1,492,500
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
OIL & GAS (EXPLORATION &
PRODUCTION)-4.23%-(CONTINUED)
Comstock Resources, Inc., Sr.
Unsec. Gtd. Sub. Notes, 11.25%,
05/01/07 $1,250,000 $ 1,281,250
--------------------------------------------------------------
Frontier Oil Corp., Sr. Unsec.
Notes, 11.75%, 11/15/09 2,000,000 2,085,000
--------------------------------------------------------------
Pioneer Natural Resources Co., Sr.
Unsec. Gtd. Notes, 9.63%,
04/01/10 955,000 1,000,362
--------------------------------------------------------------
5,859,112
--------------------------------------------------------------
PHOTOGRAPHY/IMAGING-0.76%
Polaroid Corp., Sr. Unsec. Notes,
11.50%, 02/15/06 1,000,000 1,055,000
--------------------------------------------------------------
PUBLISHING-0.74%
Ziff Davis Media, Inc., Sr. Sub.
Notes, 12.00%, 07/15/10(e) 1,000,000 1,020,000
--------------------------------------------------------------
RAILROADS-1.74%
RailWorks Corp., Sr. Unsec. Gtd.
Sub. Notes, 11.50%, 04/15/09 1,350,000 1,248,750
--------------------------------------------------------------
TFM S.A. de C.V. (Mexico), Sr.
Yankee Gtd. Disc. Notes, 11.75%,
06/15/09(a) 1,500,000 1,162,500
--------------------------------------------------------------
2,411,250
--------------------------------------------------------------
RETAIL (SPECIALTY)-0.83%
CSK Auto Inc.-Series A, Sr. Gtd.
Sub. Deb, 11.00%, 11/01/06 800,000 626,000
--------------------------------------------------------------
Neff Corp., Sr. Unsec. Gtd. Sub.
Notes, 10.25%, 06/01/08 890,000 520,650
--------------------------------------------------------------
1,146,650
--------------------------------------------------------------
SERVICES (COMMERCIAL &
CONSUMER)-1.18%
Avis Group Holdings, Inc., Sr.
Unsec. Gtd. Sub. Notes, 11.00%,
05/01/09 1,550,000 1,639,125
--------------------------------------------------------------
SERVICES (EMPLOYMENT)-0.67%
MSX International, Inc., Sr. Unsec.
Gtd. Sub. Notes, 11.38%, 01/15/08 975,000 921,375
--------------------------------------------------------------
SHIPPING-1.09%
Transportacion Maritima Mexicana
S.A. de C.V. (Mexico),
Sr. Yankee Unsec. Notes, 10.00%,
11/15/06 1,000,000 765,000
--------------------------------------------------------------
Yankee Notes, 8.50%, 10/15/00 750,000 744,375
--------------------------------------------------------------
1,509,375
--------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/
WIRELESS)-12.94%
AirGate PCS, Inc., Sr. Disc. Sub.
Notes, 13.50%, 10/01/09(a)(b) 1,400,000 815,500
--------------------------------------------------------------
Alamosa PCS Holdings, Inc., Sr.
Unsec. Gtd. Disc. Notes, 12.88%,
02/15/10(a) 3,300,000 1,732,500
--------------------------------------------------------------
Crown Castle International Corp.,
Sr. Notes, 10.75%, 08/01/11 500,000 515,000
--------------------------------------------------------------
Sr. Unsec. Disc. Notes, 10.63%,
11/15/07(a) 1,500,000 1,151,250
--------------------------------------------------------------
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
TELECOMMUNICATIONS (CELLULAR/
WIRELESS)-12.94%-(CONTINUED)
IPCS, Inc., Sr. Disc. Notes,
14.00%, 07/15/10(a)(b)(e) $1,000,000 $ 557,500
--------------------------------------------------------------
KMC Telecom Holdings, Inc., Sr.
Unsec. Notes, 13.50%, 05/15/09 1,500,000 1,342,500
--------------------------------------------------------------
Metrocall, Inc., Sr. Sub. Notes,
11.88%, 06/15/05 3,000,000 2,505,000
--------------------------------------------------------------
Nextel International, Inc.,
Sr. Notes, 12.75%, 08/01/10
(Acquired 07/26/00; Cost
$986,220)(d) 1,000,000 997,500
--------------------------------------------------------------
Sr. Unsec. Disc. Notes, 12.13%,
04/15/08(a) 2,500,000 1,658,150
--------------------------------------------------------------
Orion Network Systems, Inc., Sr.
Gtd. Sub. Notes, 11.25%, 01/15/07 1,700,000 1,045,500
--------------------------------------------------------------
Powertel, Inc., Sr. Unsec. Disc.
Notes, 12.00%, 05/01/06(a) 2,000,000 1,879,960
--------------------------------------------------------------
Spectrasite Holdings, Inc., Sr.
Unsec. Disc. Notes, 11.25%,
04/15/09(a) 1,900,000 1,168,500
--------------------------------------------------------------
TeleCorp PCS, Inc., Sr. Sub. Notes,
10.63%, 07/15/10(e) 1,350,000 1,377,000
--------------------------------------------------------------
UbiquiTel Operating Co., Sr. Gtd.
Disc. Notes, 14.00%,
04/15/10(a)(b)(e) 2,000,000 1,180,000
--------------------------------------------------------------
17,925,860
--------------------------------------------------------------
TELECOMMUNICATIONS (LONG
DISTANCE)-5.51%
360networks Inc. (Canada), Sr.
Unsec. Yankee Notes, 12.00%,
08/01/09 1,060,000 991,100
--------------------------------------------------------------
Destia Communications, Inc., Sr.
Unsec. Notes, 13.50%, 07/15/07 200,000 175,000
--------------------------------------------------------------
FirstCom Corp., Sr. Notes, 14.00%,
10/27/07 2,000,000 2,245,000
--------------------------------------------------------------
Primus Telecommunications Group,
Inc., Sr. Unsec. Notes, 12.75%,
10/15/09 2,100,000 1,291,500
--------------------------------------------------------------
Versatel Telecom International N.V.
(Netherlands), Sr. Yankee Notes,
13.25%, 05/15/08 1,000,000 1,030,000
--------------------------------------------------------------
Viatel, Inc., Sr. Unsec. Notes,
11.50%, 03/15/09(e) 2,744,000 1,907,080
--------------------------------------------------------------
7,639,680
--------------------------------------------------------------
TELEPHONE-12.82%
Alestra S.A. (Mexico), Sr. Yankee
Notes, 12.63%, 05/15/09(e) 1,585,000 1,541,413
--------------------------------------------------------------
CFW Communications Co., Sr. Notes,
13.00%, 08/15/10 (Acquired
07/21/00; Cost $1,380,540)(d) 1,400,000 1,400,000
--------------------------------------------------------------
GT Group Telecom Inc. (Canada), Sr.
Disc. Yankee Notes, 13.25%,
02/01/10(a)(b)(e) 3,000,000 1,575,000
--------------------------------------------------------------
ICG Services, Inc., Sr. Unsec.
Disc. Notes, 10.00%, 02/15/08(a) 3,000,000 1,686,720
--------------------------------------------------------------
IMPSAT Fiber Networks, Inc.,
Sr. Gtd. Notes, 12.13%, 07/15/03 575,000 508,875
--------------------------------------------------------------
Sr. Yankee Notes, 13.75%,
02/15/05 (Acquired 02/11/00;
Cost $1,725,000)(d) 1,725,000 1,569,750
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
TELEPHONE-12.82%-(CONTINUED)
Intermedia Communications,
Inc.-Series B, Sr. Disc. Notes,
11.25%, 07/15/07(a) $3,875,000 $ 2,615,625
--------------------------------------------------------------
Jazztel PLC (United Kingdom), Sr.
Unsec. Yankee Notes, 14.00%,
04/01/09 500,000 472,500
--------------------------------------------------------------
Logix Communications Enterprises,
Sr. Unsec. Notes, 12.25%,
06/15/08 2,295,000 579,488
--------------------------------------------------------------
NTL Communications Corp.-Series B,
Sr. Unsec. Notes, 12.38%,
10/01/08 1,900,000 1,249,250
--------------------------------------------------------------
NTL Inc.-Series B, Sr. Disc. Notes,
11.50%, 02/01/06(a) 1,000,000 940,000
--------------------------------------------------------------
PF.Net Communications Inc., Sr.
Notes, 13.75%, 05/15/10(b)(e) 1,500,000 1,147,500
--------------------------------------------------------------
U.S. Xchange LLC, Sr. Unsec. Notes,
15.00%, 07/01/08 2,270,000 2,479,975
--------------------------------------------------------------
17,766,096
--------------------------------------------------------------
TRUCKERS-1.36%
North American Van Lines Inc., Sr.
Sub. Notes, 13.38%, 12/01/09(e) 2,000,000 1,890,000
--------------------------------------------------------------
TRUCKS & PARTS-0.68%
FleetPride Inc., Sr. Unsec. Gtd.
Sub. Notes, 12.00%, 08/01/05 1,410,000 948,225
--------------------------------------------------------------
WASTE MANAGEMENT-1.89%
Allied Waste North America
Inc.-Series B, Sr. Unsec. Gtd.
Sub. Notes, 10.00%, 08/01/09 2,980,000 2,614,950
--------------------------------------------------------------
Total U.S. Dollar Denominated
Bonds & Notes (Cost
$129,737,189) 121,229,762
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
STOCKS & OTHER EQUITY
INTERESTS-5.41%
AIR FREIGHT-0.06%
Atlas Air, Inc.(f) 2,000 88,750
--------------------------------------------------------------
COMPUTERS (SOFTWARE &
SERVICES)-0.24%
Cybernet Internet Services
International, Inc.(f) 5,000 23,125
--------------------------------------------------------------
Cybernet Internet Services
International, Inc.-Wts.,
expiring 07/01/09(g) 1,000 10,250
--------------------------------------------------------------
GT Group Telecom Inc.-Class B
(Canada)(f) 18,000 293,625
--------------------------------------------------------------
327,000
--------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC &
OTHER)-0.20%
King Pharmaceuticals, Inc.(f) 9,000 271,125
--------------------------------------------------------------
HOUSEHOLD FURNISHING &
APPLIANCES-0.03%
O'Sullivan Industries, Inc.-Wts.,
expiring 11/05/09 (Acquired
06/13/00; Cost $0)(d)(g) 2,000 30,000
--------------------------------------------------------------
Winsloew Furniture, Inc.-Wts.,
expiring 08/15/07(e)(g) 1,000 10,000
--------------------------------------------------------------
40,000
--------------------------------------------------------------
OIL & GAS (DRILLING &
EQUIPMENT)-0.15%
Pride International, Inc.(f) 10,000 208,125
--------------------------------------------------------------
</TABLE>
9
<PAGE> 12
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
OIL & GAS (EXPLORATION &
PRODUCTION)-0.20%
Comstock Resources, Inc.(f) 20,000 $ 138,750
--------------------------------------------------------------
Pogo Producing Co. 7,000 139,125
--------------------------------------------------------------
277,875
--------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS)-0.01%
Convergent Communications, Inc.(f) 1,620 8,302
--------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/
WIRELESS)-2.63%
AirGate PCS, Inc.(f) 923 46,381
--------------------------------------------------------------
Alamosa PCS Holdings, Inc.(f) 7,000 140,000
--------------------------------------------------------------
Clearnet Communications Inc.-Class
A-ADR (Canada)(f) 6,500 182,812
--------------------------------------------------------------
Crown Castle International Corp.(f) 3,000 102,000
--------------------------------------------------------------
Dobson Communications Corp.,(f) 5,000 109,375
--------------------------------------------------------------
Microcell Telecommunications
Inc.-Class B-ADR (Canada)(f) 12,000 381,750
--------------------------------------------------------------
Nextel Communications, Inc.-Class
A(f) 8,000 447,500
--------------------------------------------------------------
WebLink Wireless, Inc.(f) 100,500 1,011,281
--------------------------------------------------------------
World Access, Inc.-Series D, Conv.
Pfd. (Acquired 03/03/00; Cost
$1,900,625)(d) 1,998 1,223,775
--------------------------------------------------------------
3,644,874
--------------------------------------------------------------
TELECOMMUNICATIONS (LONG
DISTANCE)-1.41%
Call-Net Enterprises, Inc.(f) 15,000 30,000
--------------------------------------------------------------
FirstCom Corp.(f) 100,000 1,387,500
--------------------------------------------------------------
Long Distance International,
Inc.-Wts., expiring 04/13/08(g) 670 0
--------------------------------------------------------------
Primus Telecommunications Group,
Inc.(f) 8,000 130,500
--------------------------------------------------------------
Versatel Telecom International
N.V.-ADR (Netherlands)(f) 8,000 256,000
--------------------------------------------------------------
Viatel, Inc.(f) 11,270 157,083
--------------------------------------------------------------
1,961,083
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TELEPHONE-0.47%
ICG Communications, Inc.(f) 8,300 $ 126,575
--------------------------------------------------------------
Intermedia Communications Inc.(f) 4,500 79,312
--------------------------------------------------------------
NEXTLINK Communications, Inc.-Class
A(f) 3,000 99,188
--------------------------------------------------------------
PF.Net Communications Inc.-Wts,
expiring 05/15/10 (Acquired
07/19/00; Cost $0)(d)(g) 1,500 352,500
--------------------------------------------------------------
657,575
--------------------------------------------------------------
WASTE MANAGEMENT-0.01%
Allied Waste North America Inc.(f) 1,000 9,313
--------------------------------------------------------------
Total Stocks & Other Equity
Interests (Cost $5,865,712) 7,494,022
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
U.S. TREASURY NOTES-2.74%
6.75%, 05/15/05 $3,000,000 3,074,520
--------------------------------------------------------------
6.50%, 02/15/10 700,000 723,296
--------------------------------------------------------------
Total U.S. Treasury Notes (Cost
$3,773,133) 3,797,816
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
MONEY MARKET FUNDS-3.40%
STIC Liquid Assets Portfolio(h) 2,351,478 2,351,478
--------------------------------------------------------------
STIC Prime Portfolio(h) 2,351,478 2,351,478
--------------------------------------------------------------
Total Money Market Funds (Cost
$4,702,956) 4,702,956
--------------------------------------------------------------
TOTAL INVESTMENTS-99.05% (Cost
$144,078,990) 137,224,556
--------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-0.95% 1,319,756
--------------------------------------------------------------
NET ASSETS-100.00% $138,544,312
==============================================================
</TABLE>
Investment Abbreviations:
ADR - American Depositary Receipt
Conv. - Convertible
Deb. - Debentures
Disc. - Discounted
Gtd. - Guaranteed
Pfd. - Preferred
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
Wts. - Warrants
Notes to Schedule of Investments:
(a)Discounted bond at purchase. The interest rate represents the coupon rate at
which the bond will accrue at a specified future date.
(b)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.
(c)Defaulted security. Currently, the issuer is in default with respect to
interest payments.
(d)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 $11,738,500 which
represented 8.47% of the Fund's net assets.
(e)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.
(f)Non-income producing security.
(g)Acquired as part of a unit with or in exchange for other securities.
(h)The money market fund has the same investment advisor as the Fund.
See Notes to Financial Statements.
10
<PAGE> 13
STATEMENT OF ASSETS AND LIABILITIES
July 31, 2000
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$144,078,990) $137,224,556
------------------------------------------------------------
Receivables for:
Investments sold 744,445
------------------------------------------------------------
Fund shares sold 1,286,945
------------------------------------------------------------
Dividends and interest 3,023,829
------------------------------------------------------------
Principal paydowns 15,996
------------------------------------------------------------
Investment for deferred compensation plan 9,552
------------------------------------------------------------
Other assets 687
------------------------------------------------------------
Total assets 142,306,010
------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 1,972,970
------------------------------------------------------------
Fund shares reacquired 1,058,157
------------------------------------------------------------
Dividends 557,763
------------------------------------------------------------
Deferred compensation plan 9,552
------------------------------------------------------------
Accrued advisory fees 43,714
------------------------------------------------------------
Accrued administrative services fees 4,235
------------------------------------------------------------
Accrued distribution fees 83,466
------------------------------------------------------------
Accrued trustees' fees 1,329
------------------------------------------------------------
Accrued transfer agent fees 10,381
------------------------------------------------------------
Accrued operating expenses 20,131
------------------------------------------------------------
Total liabilities 3,761,698
------------------------------------------------------------
Net assets applicable to shares outstanding $138,544,312
============================================================
NET ASSETS:
Class A $ 59,932,447
============================================================
Class B $ 67,140,371
============================================================
Class C $ 11,471,494
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 5,980,900
============================================================
Class B 6,710,694
============================================================
Class C 1,147,715
============================================================
Class A:
Net asset value and redemption price per
share $ 10.02
------------------------------------------------------------
Offering price per share:
(Net asset value of $10.02 divided
by 95.25%) $ 10.52
============================================================
Class B:
Net asset value and offering price per share $ 10.00
============================================================
Class C:
Net asset value and offering price per share $ 10.00
============================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended July 31, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 11,052,412
------------------------------------------------------------
Dividends -- affiliated issuers 322,436
------------------------------------------------------------
Dividends 1,946
------------------------------------------------------------
Total investment income 11,376,794
------------------------------------------------------------
EXPENSES:
Advisory fees 618,330
------------------------------------------------------------
Administrative services fee 45,890
------------------------------------------------------------
Custodian fees 29,597
------------------------------------------------------------
Distribution fees -- Class A 116,793
------------------------------------------------------------
Distribution fees -- Class B 451,249
------------------------------------------------------------
Distribution fees -- Class C 70,906
------------------------------------------------------------
Transfer agent fees -- Class A 55,409
------------------------------------------------------------
Transfer agent fees -- Class B 52,957
------------------------------------------------------------
Transfer agent fees -- Class C 8,320
------------------------------------------------------------
Trustee's fees 7,516
------------------------------------------------------------
Registration and filing fees 87,264
------------------------------------------------------------
Other 89,252
------------------------------------------------------------
Total expenses 1,633,483
------------------------------------------------------------
Less: Fees waived (251,914)
------------------------------------------------------------
Expenses paid indirectly (12,769)
------------------------------------------------------------
Net expenses 1,368,800
------------------------------------------------------------
Net investment income 10,007,994
------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES
Net realized gain (loss) from investment
securities (4,184,754)
------------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of investment securities (8,210,697)
------------------------------------------------------------
Net gain (loss) on investment securities (12,395,451)
------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ (2,387,457)
============================================================
</TABLE>
See Notes to Financial Statements.
11
<PAGE> 14
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
JULY 31, JULY 31,
2000 1999
------------ -----------
<S> <C> <C>
OPERATIONS:
Net investment income $ 10,007,994 $ 2,231,058
-----------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities (4,184,754) 1,689,995
-----------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (8,210,697) 1,356,263
-----------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (2,387,457) 5,277,316
-----------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (4,862,629) (1,710,595)
-----------------------------------------------------------------------------------------
Class B (4,371,506) (446,277)
-----------------------------------------------------------------------------------------
Class C (688,979) (70,876)
-----------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A (812,826) (22,467)
-----------------------------------------------------------------------------------------
Class B (819,787) (421)
-----------------------------------------------------------------------------------------
Class C (117,753) (64)
-----------------------------------------------------------------------------------------
Share transactions-net:
Class A 31,472,427 32,499,124
-----------------------------------------------------------------------------------------
Class B 52,638,735 20,530,581
-----------------------------------------------------------------------------------------
Class C 9,369,182 3,068,584
-----------------------------------------------------------------------------------------
Net increase in net assets 79,419,407 59,124,905
-----------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 59,124,905 --
-----------------------------------------------------------------------------------------
End of year $138,544,312 $59,124,905
=========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $149,564,881 $56,080,847
-----------------------------------------------------------------------------------------
Undistributed net investment income 100,666 20,746
-----------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities (4,266,801) 1,667,049
-----------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities (6,854,434) 1,356,263
-----------------------------------------------------------------------------------------
$138,544,312 $59,124,905
=========================================================================================
</TABLE>
See Notes to Financial Statements.
12
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
July 31, 2000
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM High Yield Fund II (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 company consisting of seven separate
portfolios each having unlimited number of shares of beneficial interests. The
Fund currently offers three different classes of shares: Class A shares, Class B
shares and Class C shares. Class A shares are sold with a front-end sales
charge. Class B and Class C shares are sold with a contingent deferred sales
charge. Matters affecting each portfolio or class are 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 by investing primarily in
publicly traded, non-investment grade debt securities. The Fund will also
consider the possibility of capital growth when it purchases and sells
securities. Debt securities of less than investment grade are considered
"high-risk" securities (commonly referred to as junk bonds). These bonds may
involve special risks in addition to the risks associated with higher rated debt
securities. High yield bonds may be more susceptible to real or perceived
adverse economic conditions than higher grade bonds. Also, the secondary market
in which high yield bonds are traded may be less liquid than the market for
higher grade bonds.
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, adjusted for amortization of discounts on investments, is
recorded on the accrual basis from settlement date. It is the policy of the
Fund not to amortize bond premiums for financial reporting purposes. On July
31, 2000, undistributed net investment income was decreased by $4,960,
undistributed net realized gains increased by $1,270 and paid-in capital was
increased by $3,690 a result of differing book/tax treatment
reclassifications. Net assets of the Fund were unaffected by the
reclassifications.
C. Distributions -- It is the policy of the Fund to declare daily dividends from
net investment income. Such distributions are paid 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 (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements.
13
<PAGE> 16
E. 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 master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.625% on
the first $500 million of the Fund's average daily net assets, plus 0.55% on the
next $500 million of Fund's average daily net assets, plus 0.50% on the Fund's
average daily net assets in excess of $1 billion. During the year ended July 31,
2000, AIM waived fees of $251,914.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended July 31, 2000, AIM was paid
$45,890 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. For the year ended July 31, 2000, AFS was paid
$56,527 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 personal shareholder services to their customers who purchase and own
the appropriate class of shares of the Fund. Any amounts not paid as a service
fee under the Plans would constitute an asset-based sales charge. The Plans also
impose a cap on the total sales charges, including asset-based sales charges
that may be paid by the respective classes. For the year ended July 31, 2000,
the Class A, Class B and Class C shares paid AIM Distributors $116,793, $451,249
and $70,906, respectively, as compensation under the Plans.
AIM Distributors received commissions of $177,396 from sales of the Class A
shares of the Fund during the year ended July 31, 2000. Such commissions are not
an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended July 31, 2000, AIM
Distributors received $15,557 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 year ended July 31, 2000, the Fund paid legal fees of $2,949 for
services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Trustees. A member of that firm is a trustee of the Trust.
NOTE 3-INDIRECT EXPENSES
For the year ended July 31, 2000, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $1,076 and reductions in custodian
fees of $11,693 under expense offset arrangements which resulted in a reduction
of the Fund's total expenses of $12,769.
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 year 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. 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 year ended July 31, 2000 was
$173,269,358 and $86,523,800, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of July 31, 2000 was as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $ 6,549,816
---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (13,411,863)
---------------------------------------------------------
Net unrealized appreciation (depreciation)
of investment securities $ (6,862,047)
=========================================================
Cost of investments for tax purposes is $144,086,603.
</TABLE>
14
<PAGE> 17
NOTE 7-SHARE INFORMATION
Changes in shares outstanding during the years ended July 31, 2000 and 1999 were
as follows:
<TABLE>
<CAPTION>
2000 1999
-------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Sold:
Class A 6,219,653 $ 67,705,096 3,879,343 $40,951,231
--------------------------------------------------------------------------------------------------------------------
Class B 6,916,159 75,069,344 2,156,519 23,713,819
--------------------------------------------------------------------------------------------------------------------
Class C 1,071,505 11,566,013 322,660 3,551,731
--------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A 340,326 3,674,382 99,704 1,082,276
--------------------------------------------------------------------------------------------------------------------
Class B 294,647 3,168,494 23,551 261,935
--------------------------------------------------------------------------------------------------------------------
Class C 45,665 488,435 3,953 43,955
--------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (3,689,603) (39,907,051) (868,523) (9,534,383)
--------------------------------------------------------------------------------------------------------------------
Class B (2,369,468) (25,599,103) (310,714) (3,445,173)
--------------------------------------------------------------------------------------------------------------------
Class C (249,183) (2,685,266) (46,885) (527,102)
--------------------------------------------------------------------------------------------------------------------
8,579,701 $ 93,480,344 5,259,608 $56,098,289
====================================================================================================================
</TABLE>
NOTES 8-FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------------------- ------------------------------ ------------------------------
SEPTEMBER 30, 1998 NOVEMBER 20, 1998 NOVEMBER 20, 1998
(DATE OPERATIONS (DATE SALES (DATE SALES
YEAR ENDED COMMENCED) YEAR ENDED COMMENCED) YEAR ENDED COMMENCED)
JULY 31, TO JULY 31, JULY 31, TO JULY 31, JULY 31, TO JULY 31,
2000 1999 2000 1999 2000 1999
---------- ------------------ ---------- ----------------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $ 11.25 $ 10.00 $ 11.23 $ 10.59 $ 11.22 $10.59
------------------------------ ------- ------- ------- ------- ------- ------
Income from investment
operations:
Net investment income 1.12 0.90 1.03 0.68 1.03 0.68
------------------------------ ------- ------- ------- ------- ------- ------
Net gains on securities
(both realized and
unrealized) (1.00) 1.26 (1.00) 0.65 (0.99) 0.64
------------------------------ ------- ------- ------- ------- ------- ------
Total from investment
operations 0.12 2.16 0.03 1.33 0.04 1.32
------------------------------ ------- ------- ------- ------- ------- ------
Less distributions:
Dividends from net
investment income (1.12) (0.90) (1.03) (0.68) (1.03) (0.68)
------------------------------ ------- ------- ------- ------- ------- ------
Distributions from net
realized gains (0.23) (0.01) (0.23) (0.01) (0.23) (0.01)
------------------------------ ------- ------- ------- ------- ------- ------
Total distributions (1.35) (0.91) (1.26) (0.69) (1.26) (0.69)
------------------------------ ------- ------- ------- ------- ------- ------
Net asset value, end of year $ 10.02 $ 11.25 $ 10.00 $ 11.23 $ 10.00 $11.22
============================== ======= ======= ======= ======= ======= ======
Total return(a) 0.77% 22.39% (0.03)% 13.03% 0.08% 12.93%
============================== ======= ======= ======= ======= ======= ======
Ratios/supplemental data:
Net assets, end of year (000s
omitted) $59,932 $34,992 $67,140 $20,994 $11,471 $3,139
============================== ======= ======= ======= ======= ======= ======
Ratio of expenses to average
net assets:
With fee waivers 1.00%(b) 1.00%(c) 1.75%(b) 1.75%(c) 1.75%(b) 1.75%(c)
------------------------------ ------- ------- ------- ------- ------- ------
Without fee waivers 1.25%(b) 1.58%(c) 2.00%(b) 2.33%(c) 2.00%(b) 2.33%(c)
============================== ======= ======= ======= ======= ======= ======
Ratio of net investment income
to average net assets 10.51%(b) 9.74%(c) 9.76%(b) 8.99%(c) 9.76%(b) 8.99%(c)
============================== ======= ======= ======= ======= ======= ======
Portfolio turnover rate 94% 223% 94% 223% 94% 223%
============================== ======= ======= ======= ======= ======= ======
</TABLE>
(a) Does not deduct sales charges and is not annualized for periods less than
one year.
(b) Ratios are based on average net assets of $46,717,368, $45,124,885, and
$7,090,552, for Class A, Class B and Class C, respectively.
(c) Annualized.
15
<PAGE> 18
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders of
AIM Investment Securities Funds:
We have audited the accompanying statement of assets and
liabilities of the AIM High Yield Fund II (a series of AIM
Investment Securities Funds) including the schedule of
investments, as of July 31, 2000, and the related statement of
operations for the year then ended, the statement of changes
in net assets, and the financial highlights for the year then
ended and for the period September 30, 1998 (date operations
commenced) through July 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 audit 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, 1999, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management,
as well as evaluating the overall financial statement
presentation. We believe that our audit provides 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 High Yield Fund II as
of July 31, 2000, the results of its operations for the year
then ended, the changes in its net assets, and the financial
highlights for the year then ended and for the period
September 30, 1998 (date operations commenced) through July
31, 1999, in conformity with accounting principles generally
accepted in the United States of America.
KPMG LLP
September 1, 2000
Houston, Texas
16
<PAGE> 19
<TABLE>
<CAPTION>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
<S> <C> <C>
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
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 Sheri Morris Ballard Spahr
Century Group, Inc.; Assistant Vice President and Andrews & Ingersoll, LLP
Formerly Member Assistant Treasurer 1735 Market Street
of the U.S. House of Representatives Philadelphia, PA 19103
Renee A. Friedli
Carl Frischling Assistant Secretary COUNSEL TO THE TRUSTEES
Partner
Kramer, Levin, Naftalis & Frankel LLP P. Michelle Grace Kramer, Levin, Naftalis & Frankel LLP
Assistant Secretary 919 Third Avenue
Robert H. Graham New York, NY 10022
Director, President and 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 during the Fund's tax year ended July 31, 2000, 1.73%
is eligible for the dividends received deduction for corporations.
REQUIRED STATE INCOME TAX INFORMATION
Of the ordinary dividends paid, 0.29% was derived from U.S. Treasury
Obligations.
<PAGE> 20
THE AIM FAMILY OF FUNDS--Registered Trademark--
<TABLE>
<S> <C> <C>
EQUITY FUNDS
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 8
AIM Large Cap Opportunities(6) AIM European Small Company million shareholders, including
AIM Emerging Growth AIM Asian Growth individual investors, corporate clients
AIM Small Cap Growth(3) AIM Japan Growth and financial institutions, as of
AIM Aggressive Growth AIM International Emerging Growth June 30, 2000.
AIM Mid Cap Growth AIM European Development The AIM Family of Funds--Registered
AIM Small Cap Equity AIM Euroland Growth Trademark-- is distributed nationwide,
AIM Capital Development AIM Global Aggressive Growth and AIM today is the eighth-largest
AIM Constellation(4) AIM International Equity mutual fund complex in the United States
AIM Dent Demographic Trends AIM Advisor International Value in assets under management, according to
AIM Select Growth AIM Global Trends Strategic Insight, an independent mutual
AIM Large Cap Growth AIM Global Growth fund monitor.
AIM Weingarten MORE CONSERVATIVE AIM is a subsidiary of AMVESCAP PLC,
AIM Mid Cap Equity one of the world's largest independent
AIM Value II SECTOR EQUITY FUNDS financial services companies with $389
AIM Charter MORE AGGRESSIVE billion in assets under management as of
AIM Value AIM New Technology June 30, 2000.
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
FIXED-INCOME FUNDS
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. HYI2-AR-1
