Expert: Doug Ingram - 12/24/2002

Question
Hello, first of all thank you very much for taking my question.

I am an individual investor and have been puzzled by the performance of a certain bond mutual fund in my portfolio.

The bond mutual fund i have is called AIM Income Fund-B shares (symbol :abifx) and it has decreased in value by about 20 percent in the last two years.  It is rated BBB, which i think is considered "investment grade" or "quality".

The reason i am puzzled about this particular fund is becouse most bond funds have skyrocketed in the last two years because of remarkably low interest rates, however my bond funds has dropped in value drastically within this same fund.

I am trying to make sense of this and was wondering if you could possibly help me with a general or possible explanation.

Thank you very much.  

Answer
I'm not familiar with that fund, but it is possible.

Only Treasury and AAA funds got the full benefit of the rally (especially Treasuries).  

Consider the funds that owned Worldcom and other corporate bonds.  I saw where a number of bond funds had negative returns.  I also remember Ford bonds trading from just over 100 basis points to 600 wide of Treasuries in the past 2 years.  (That's a huge percentage decline in a 10-year bond - about 25% down.  Worldcom lost almost everything!)

Look at the returns by category under www.morningstar.com