<PAGE> 1
[COVER PHOTO]
AIM HIGH
YIELD FUND
[AIM LOGO APPEARS HERE] ANNUAL REPORT DECEMBER 31, 1997
<PAGE> 2
-------------------------------
AIM HIGH YIELD FUND
For shareholders who seek
a high level of current income.
The Fund invests in a
portfolio consisting primarily
of high-yielding, lower-rated
corporate bonds.
-------------------------------
ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT:
o AIM High Yield Fund's performance figures are historical and reflect
reinvestment of all distributions and changes in net asset value. Unless
otherwise indicated, the Fund's performance is computed without a sales
charge.
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 Class A shares due to differing fees and expenses.
o Because Class C shares have been offered for less than one year (since
8/4/97), all total return figures for Class C shares reflect cumulative
total return that has not been annualized.
o During the year ended 12/31/97, the Fund paid distributions on Class A,
Class B, and Class C shares of $0.9005, $0.8285, and $0.3455, respectively.
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 expressed on an annualized basis.
o The Fund invests primarily in higher-yielding, lower-rated corporate bonds,
commonly known as "junk bonds." These bonds have a greater risk of price
fluctuation and loss of principal and income than U.S. government
securities, such as U.S. Treasury bonds and bills, which offer a government
guarantee as to the repayment of principal and interest if held to maturity.
o The Fund's investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
o Past performance cannot guarantee comparable future results.
ABOUT INDEXES AND OTHER PERFORMANCE BENCHMARKS CITED IN THIS REPORT:
o The unmanaged Lipper High Current Yield Funds Index represents an average of
the performance of the 30 largest high-yield funds tracked by Lipper
Analytical Services, Inc., an independent mutual fund performance monitor.
o The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30
actively traded primarily industrial stocks.
o The C.S. First Boston High Yield Index tracks more than 270 segments within
the high-yield universe and includes credit quality, industry, security
type, and maturity.
o Government securities, such as U.S. Treasury bills, notes, and bonds offer a
high degree of safety and are guaranteed as to 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 An investment cannot be made in any index listed. Unless otherwise
indicated, index results include reinvested dividends and do not reflect
sales charges.
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENTS
ARE NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY;
ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY,
ANY BANK OR ANY AFFILIATE; AND ARE SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
This report may be distributed only to current shareholders
or to persons who have received a current prospectus of the Fund.
<PAGE> 3
The Chairman's Letter
Dear Fellow Shareholder:
1997 proved an eventful year in securities markets. The Dow
[PHOTO OF Jones Industrial Average reached its all-time high--and also
Charles T. had its largest one-day point drop ever, though not its
Bauer, largest percentage drop. Volatility was unabated, and we
Chairman of experienced the first 10% stock market correction in the
the Board of U.S. since 1991.
THE FUND Never dull and occasionally unsettling, 1997 was also
APPEARS HERE] a very good year for many investments. For an unprecedented
third year in a row, domestic equities rose more than 20%.
Late in the year, in the uncertainty brought on by events in
Asia, bond markets, especially the U.S. Treasury market,
fulfilled their usual role as relative safe havens, and a
bull market in bonds took hold. Overseas, though Asian
markets plummeted, Europe thrived.
Market expectations performed an about-face during the
year. Worry about the inflationary potential of vigorous economic growth became
concern about the potential negative impact of Asia's financial crisis. At
fiscal year end, there was no consensus about how serious or widespread this
impact would be.
An interview with your Fund's managers appears on the following pages. They
discuss their investment strategies, how your Fund performed in this context,
and their outlook for the future.
In uncertain times like these, your financial consultant remains your best
source for information on market trends and for advice on how to invest
strategically rather than emotionally. We encourage you to visit your financial
consultant regularly to make sure your chosen investments still suit your goals,
risk tolerance, and time horizon.
INVESTOR EDUCATION EVENTS
In addition to professional guidance, every investor needs fundamental
information about the saving and investing choices offered by the marketplace.
AIM has always championed investor education, convinced a more knowledgeable
shareholder is a better customer. A great deal of investment information will be
available during two upcoming events, and we hope our shareholders will
participate in and learn from them to the greatest extent possible.
First, from March 29 through April 4, the Securities and Exchange Commission
(SEC) will sponsor Saving and Investing Education Week. As the SEC points out,
financial markets are more stable when investors are confident in them, and
knowledge is a major confidence builder. The week's theme is "Get the facts.
It's your money. It's your future." The aim is to inform citizens about the
saving and investment possibilities available and to build understanding about
how one's financial needs and goals change throughout one's life. The week's
awareness and education events will culminate with a national investors town
meeting at satellite-linked locations across the nation. You can find out more
from the SEC's Web site at www.sec.gov.
The second event concerns citizens' financial planning for retirement, a
subject of growing urgency as the population ages and the solvency of the Social
Security system is increasingly debatable. In July, the first National Summit on
Retirement Savings will be held at the White House. Under the auspices of the
Department of Labor, working through public-private partnership, the summit's
goal is to advance the public's knowledge of retirement savings through
development of a broad-based education program and to develop recommendations
for public/private action to promote private retirement savings among American
workers.
Look for further information on both of these investor education events in
the national and local press.
We are pleased to send you this report on your Fund. Please contact our
Client Services department at 800-959-4246 if you have questions or comments.
Automated information about your account is available 24 hours a day on the AIM
Investor Line, 800-246-5463. Account information and much more can be found on
our Web site, www.aimfunds.com.
Sincerely,
/s/ CHARLES T. BAUER
Charles T. Bauer
Chairman
-------------------------------
In uncertain times like these,
your financial consultant
remains your best source
for information on market trends
and for advice on
how to invest strategically
rather than emotionally.
-------------------------------
<PAGE> 4
The Managers' Overview
HIGH-YIELD ARE AMONG THE TOP-PERFORMING BOND FUNDS IN 1997
A roundtable discussion with the Fund management team for AIM High Yield Fund
for the fiscal year ended December 31, 1997.
- --------------------------------------------------------------------------------
Q. IT WAS A GOOD YEAR FOR BONDS, AND AN ESPECIALLY GOOD ONE FOR HIGH-YIELD
SECURITIES. HOW DID AIM HIGH YIELD FUND PERFORM DURING THE REPORTING PERIOD?
A. Despite unusual market volatility, the Fund continued to provide the
excellent returns that have earned it a coveted 5-Star Morningstar overall
rating. Your Fund's average annual total return was 12.52% for Class A
shares and 11.71% for Class B shares. Class C shares produced a cumulative
total return of 4.49% from their inception on 8/4/97 through 12/31/97. As of
December 31,1997, the Fund's 30-day SEC yield on Class A, Class B, and Class
C shares was 8.48%, 8.15%, and 8.15%, respectively.
================================================================================
GROWTH OF NET ASSETS
- --------------------------------------------------------------------------------
As of 12/31/97, based on total net assets
$2.341 $3.460
billion billion
12/31/96 12/31/97
================================================================================
The financial environment was good in 1997, fueled by low inflation, low
interest rates, and higher productivity. It was a particularly rewarding
year for high-yield bond investors. High-yield securities outperformed all
other fixed-income sectors except long-term Treasury bonds. High-yield bond
funds produced better return than all other bond fund categories, according
to Lipper Analytical Services, Inc., an independent mutual fund monitor.
Q. WHAT FACTORS AFFECTED THE PERFORMANCE OF FIXED-INCOME MARKETS DURING 1997?
A. Low inflation and low interest rates in the U.S. provided a nearly ideal
climate for bonds.
For the 12-month period ended December 31,1997, consumer prices rose
just 1.7%, the smallest increase in 11 years. After raising interest rates
in March, the Federal Reserve Board (the Fed) left monetary policy unchanged
for the remainder of 1997. As it became increasingly evident that inflation
was not a serious threat, borrowing costs actually declined.
-------------------------------
Throughout 1997,
the Fund was invested in many
of the better-performing
industries including
telecommunications and
cable television.
-------------------------------
================================================================================
FUND EARNS 5 STARS FROM MORNINGSTAR
AIM HIGH YIELD FUND A SHARES
- --------------------------------------------------------------------------------
MORNINGSTAR RATINGS
as of 12/31/97
- --------------------------------------------------------------------------------
FUNDS IN
TAXABLE
FIXED INCOME
PERIOD RATING CATEGORY
Overall ***** N/A
10 years ***** 323
5 years ***** 771
3 years ***** 1,371
- --------------------------------------------------------------------------------
Morningstar proprietary ratings reflect risk-adjusted performance through
12/31/97. The ratings are subject to change every month. Ratings are calculated
from the funds' three-, five, and 10-year returns (with fee adjustments) in
excess of 90-day Treasury bill returns, and a risk factor that reflects fund
performance below 90-day T-bill returns. The top 10% of funds in a rating
category receive five stars, the next 22.5% receive four stars, the middle 33%
receive three stars, the next 22.5% receive two stars, and the bottom 10%
receive one star.
================================================================================
CURRENT YIELD ADVANTAGE
As of 12/31/97
<TABLE>
<CAPTION>
========================================================================================
AIM AIM AIM 10-YEAR 5-YEAR
HIGH YIELD FUND HIGH YIELD FUND HIGH YIELD FUND U.S. TREASURY U.S. TREASURY
CLASS A SHARES CLASS B SHARES CLASS C SHARES NOTE NOTE
30-DAY 30-DAY 30-DAY
SEC YIELD SEC YIELD SEC YIELD
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
8.48% 8.15% 8.15% 5.74% 5.71%
========================================================================================
</TABLE>
See important fund and index disclosures inside front cover.
2
<PAGE> 5
PORTFOLIO COMPOSITION
As of 12/31/97, based on total net assets
<TABLE>
<CAPTION>
=======================================================================================================================
TOP 10 HOLDINGS TOP 10 INDUSTRIES
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Tenet Healthcare Corp 1.61% 1. Telecommunications (Cellular/Wireless) 9.50%
2. PriCellular Wireless Corp 1.12 2. Broadcasting (Television, Radio & Cable) 7.50
3. Jitney-Jungle Stores of America, Inc. 1.10 3. Gaming, Lottery & Parimutuel Companies 4.41
4. Tjiwi Kimia International Global Co., B.V. 0.99 4. Retail (Specialty) 4.08
5. Interlake Corp. 0.96 5. Manufacturing (Specialized) 3.99
6. Carr-Gottstein Foods Co. 0.96 6. Paper & Forest Products 3.85
7. RSL Communications, Ltd. 0.93 7. Services (Commercial & Consumer) 3.83
8. Hermes Europe Railtel BV 0.92 8. Telephone 3.46
9. Nextlink Communications 0.88 9. Telecommunications (Long Distance) 3.31
10. Airplanes Pass Through Trust 0.86 10. Oil & Gas (Exploration & Production) 3.06
Please keep in mind that the Fund's portfolio is subject to change and there is no assurance the Fund will continue to
hold any particular security.
=======================================================================================================================
</TABLE>
Q. HOW WERE HIGH-YIELD SECURITIES AFFECTED?
A. Positive business conditions and favorable cash flow helped improve the
earnings capacity of companies issuing high-yield bonds, while easing credit
concerns and enabling corporate bond issuers to better meet their debt
obligations. Although healthy economic growth can lead to inflation, which
is usually detrimental to most types of bonds, inflation was minimal in
1997.
Corporate treasurers, who relish a robust economy and low interest
rates, issued more than $126 billion in new corporate debt, shattering the
1996 new issuance record of $76 billion. Pension fund insurance accounts
became a more significant part of the domestic high-yield market, which grew
by about 26% in 1997, the fastest growth rate since 1987.
Q. HOW WAS THE FUND POSITIONED IN THIS ENVIRONMENT?
A. Throughout 1997, the Fund was invested in many of the better-performing
industries including telecommunications and cable television. It is worth
noting that while the default rate in the high-yield market rose from 1.6%
during 1996 to 2.84% during 1997, the Fund experienced no defaults for the
fiscal year ended December 31.
At the close of the fiscal year, the Fund's largest holdings were in
telecommunications--including the cellular and wireless industries,
television and radio broadcasting--gaming, lottery and parimutuel companies;
and retail specialty stores. High-yield securities were 87.81% of the Fund's
holdings.
The Fund was well diversified across 198 different holdings representing
58 industries. Most of the Fund's holdings were in the single "B"
credit-quality segment of the high-yield market, as rated by Standard &
Poor's (S&P), a widely known credit rating agency.
We continue to believe this segment, which is known as the middle
"tier," offers the most attractive tradeoff of investment return for the
amount of credit risk taken. In 1997, the middle tier was the
best-performing segment of the high-yield market.
The Fund had an average quality rating of B as evaluated by S&P. S&P's
ratings are historical and are based on an annual analysis of the Fund's
credit quality, composition and management.
Q. WHAT IS YOUR OUTLOOK FOR 1998?
A. Although U.S. economic growth in 1997 reached about 3.5%, far above the 2%
to 2.75% range considered to be non-inflationary and sustainable, inflation
during the year was mild. Consumer spending has slowed in recent months,
which may cause reductions in prices and drive inflation to even lower
levels in 1998.
Forecasts call for the U.S. economic growth rate to drop to about 2.5%
in 1998. If this occurs, it would make the chances of an interest rate
increase by the Fed less likely. Low interest rate volatility generally
means less risk, and less risk benefits high-yield securities.
Issuance of new high-yield securities is expected to remain heavy as
companies take advantage of lower interest rates even though continuing
volatility in U.S. equity markets may make it more difficult for companies
issuing high-yield debt to raise capital. Default rates should remain in
check as long as the U.S. economy does not slow too quickly.
================================================================================
PORTFOLIO DATA
As of 12/31/97, based on total net assets
- --------------------------------------------------------------------------------
NUMBER OF HOLDINGS: 198
Equities 0.74%
Cash/Cash Equivalents 1.23%
Convertible Preferred Stock 0.71%
Other 1.95%
Domestic Convertible
Bonds 0.32%
Domestic Preferred Stock 1.94%
U.S. Government Securities 5.30%
Non-investment
Grade Corporate Bonds 87.81%
================================================================================
See important fund and index disclosures inside front cover.
3
<PAGE> 6
LONG-TERM PERFORMANCE
AIM HIGH YIELD FUND VS. BENCHMARK INDEXES
The chart below compares your Fund's Class A shares to benchmark indexes. It is
intended to give you a general idea of how your Fund performed compared to the
bond market over the 10-year period ended 12/31/97. It is important to
understand the difference between your Fund and an index. Your Fund's total
return is shown with a sales charge and includes fund expenses and management
fees. An index measures the performance of a hypothetical portfolio, in this
case the C.S. First Boston High Yield Index and the Lipper High Current Yield
Funds Index. Unlike your Fund, an index is not managed; therefore, there are no
sales charges, expenses, or fees. You cannot invest in an index. But if you
could buy all the securities that make up a particular index, you would incur
expenses that would affect the return on your investment.
GROWTH OF A $10,000 INVESTMENT
12/31/87 - 12/31/97
(In thousands)
<TABLE>
<CAPTION>
=================================================================================
AIM HIGH YIELD FUND, LIPPER HIGH CURRENT C.S. FIRST BOSTON
CLASS A SHARES YIELD FUNDS INDEX HIGH YIELD INDEX
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
$30,475 $28,079 $31,350
12/87 $09,527 $10,000 $10,000
12/88 11,090 11,357 11,365
12/89 11,221 11,042 11,410
12/90 10,207 9,815 10,682
12/91 14,513 13,762 15,356
12/92 17,213 16,290 17,914
12/93 20,380 19,522 21,301
12/94 20,039 18,804 21,094
12/95 23,417 22,073 24,761
12/96 27,032 24,868 27,836
12/97 30,475 28,079 31,350
Past performance cannot guarantee comparable future results.
=================================================================================
</TABLE>
============================================================================
AVERAGE ANNUAL TOTAL RETURNS
As of 12/31/97, including applicable sales charges
- ----------------------------------------------------------------------------
CLASS A SHARES
1 Year 7.20%*
5 Years 10.97
10 Years 11.77
*12.52% excluding sales charge
CLASS B SHARES
1 Year 6.71%**
Inception (9/1/93) 9.58
**11.71% excluding CDSC
Class C Shares
Inception (8/4/97) 3.49%***
***4.49% excluding sales charges. Total return provided is cumulative total
return that has not been annualized.
============================================================================
Source: Towers Data Systems HYPO --Registered Tradmark--. Your Fund's total
return includes applicable sales charges, expenses, and management fees. The
performance of Class B and Class C shares will differ from that of Class A
shares due to differing fees and expenses. For Fund performance calculations and
descriptions of indexes cited on this page, please refer to the inside front
cover.
4
<PAGE> 7
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
CORPORATE BONDS & NOTES-88.63%
AEROSPACE/DEFENSE-0.46%
Earthwatch Inc., Sr. Notes,
12.50%, 03/01/01(a)(b)
(Acquired 03/14/97; Cost
$15,000,000) $ 15,500,000 $ 15,577,500
- ---------------------------------------------------------------
AGRICULTURAL PRODUCTS-0.68%
Advance Agro Public Co.
(Thailand), Sr. Unsec. Notes,
13.00%, 11/15/07(a)
(Acquired 12/04/97; Cost
$5,252,739) 5,700,000 5,016,000
- ---------------------------------------------------------------
Hines Horticulture, Inc., Series
B Sr. Gtd. Sub. Notes, 11.75%,
10/15/05 16,710,000 18,464,550
- ---------------------------------------------------------------
23,480,550
- ---------------------------------------------------------------
AIR FREIGHT-0.52%
Atlas Air, Inc., Sr. Notes,
10.75%, 08/01/05 16,750,000 17,755,000
- ---------------------------------------------------------------
AIRLINES-1.66%
Airplanes Pass Through Trust,
Sub. Bonds, 10.875%, 03/15/19 26,550,000 29,885,476
- ---------------------------------------------------------------
Amtran, Inc., Sr. Unsec. Notes,
10.50%, 08/01/04(a)
(Acquired 07/17/97-07/30/97;
Cost $21,636,875) 21,500,000 22,576,720
- ---------------------------------------------------------------
World Airways, Inc., Sub. Conv.
Deb., 8.00%, 08/26/04(a)
(Acquired 08/21/97; Cost
$5,000,000) 5,000,000 4,775,000
- ---------------------------------------------------------------
57,237,196
- ---------------------------------------------------------------
AUTOMOBILES-0.82%
Ford Brasil LTDA (Brazil),
Unsec. Eurobonds, 9.125%,
11/08/04 7,840,000 7,565,600
- ---------------------------------------------------------------
Unsec. Eurobonds, 9.25%,
01/22/07 21,710,000 20,733,050
- ---------------------------------------------------------------
28,298,650
- ---------------------------------------------------------------
AUTO PARTS & EQUIPMENT-0.18%
Exide Corp., Conv. Sr. Sub.
Notes, 2.90%, 12/15/05(a)
(Acquired 12/19/96-04/03/97;
Cost $5,643,750) 9,500,000 6,362,340
- ---------------------------------------------------------------
BEVERAGES (NON-ALCOHOLIC)-0.82%
Coca-Cola Enterprises, Inc.,
Putable Notes, 7.24%,
06/20/20(c) 125,000,000 28,316,250
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
BROADCASTING (TELEVISION, RADIO
& CABLE)-6.79%
Capstar Broadcasting Partners,
Sr. Disc. Notes, 12.75%,
02/01/09(d) $ 28,500,000 $ 20,662,500
- ---------------------------------------------------------------
Diamond Cable Communications
PLC, (United Kingdom), Sr.
Yankee Disc. Notes, 11.75%,
12/15/05(d) 35,700,000 27,756,750
- ---------------------------------------------------------------
Digital Television Services, Sr.
Gtd. Sub. Notes, 12.50%,
08/01/07(a)
(Acquired 07/25/97-07/28/97;
Cost $25,571,400) 26,000,000 29,250,000
- ---------------------------------------------------------------
EchoStar Communications Corp.,
Sr. Sec. Gtd. Notes, 12.50%,
07/01/02 11,230,000 12,240,700
- ---------------------------------------------------------------
Fox Kids Worldwide, Inc., Sr.
Disc. Notes, 10.25%,
11/01/07(a)(d)
(Acquired 10/22/97; Cost
$19,851,085) 32,750,000 19,650,000
- ---------------------------------------------------------------
Frontiervision Holdings LP, Sr.
Disc. Notes, 11.875%,
09/15/07(d) 27,480,000 20,335,200
- ---------------------------------------------------------------
Kabelmedia Holdings GmbH
(Germany), Sr. Yankee Unsec.
Disc. Notes, 13.625%,
08/01/06(d) 26,000,000 19,110,000
- ---------------------------------------------------------------
Knology Holdings Inc., Sr. Disc.
Notes, 11.875%, 10/15/07(a)(d)(e)
(Acquired 10/16/97-11/14/97;
Cost $19,638,605) 35,650,000 19,429,250
- ---------------------------------------------------------------
Rifkin Acquisition Partners
L.L.P., Sr. Sub. Notes,
11.125%, 01/15/06 14,495,000 16,089,450
- ---------------------------------------------------------------
TeleWest Communications PLC
(United Kingdom), Sr. Yankee
Disc. Deb., 11.00%, 10/01/07(d) 34,620,000 27,090,150
- ---------------------------------------------------------------
United International Holdings, Inc.,
Series B Sr. Sec. Disc. Notes,
14.00%, 11/15/99(c) 18,790,000 15,501,750
- ---------------------------------------------------------------
Sr. Sec. Disc. Notes, 14.00%,
11/15/99(c)(f) 9,250,000 7,677,500
- ---------------------------------------------------------------
234,793,250
- ---------------------------------------------------------------
CHEMICALS-0.77%
Sterling Chemicals Holdings,
Sr. Unsec. Sub. Notes, 11.75%,
08/15/06 16,020,000 16,420,500
- ---------------------------------------------------------------
Sr. Sec. Disc. Notes, 13.50%,
08/15/08(d) 17,000,000 10,285,000
- ---------------------------------------------------------------
26,705,500
- ---------------------------------------------------------------
CHEMICALS (SPECIALTY)-1.03%
Crain Industries, Inc., Sr. Sub.
Notes, 13.50%, 08/15/05 16,360,000 18,732,200
- ---------------------------------------------------------------
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
CHEMICALS (SPECIALTY)-(CONTINUED)
Key Plastics, Inc.,
Sr. Notes, 14.00%, 11/15/99 $ 1,900,000 $ 2,099,500
- ---------------------------------------------------------------
Sr. Sub. Notes, 10.25%,
03/15/07 14,000,000 14,910,000
- ---------------------------------------------------------------
35,741,700
- ---------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-1.24%
GST Telecommunications, Inc.,
Sr. Sub. Notes, 12.75%, 11/15/07 16,500,000 17,283,750
- ---------------------------------------------------------------
ProNet, Inc., Sr. Sub. Notes,
11.875%, 06/15/05 23,640,000 25,590,300
- ---------------------------------------------------------------
42,874,050
- ---------------------------------------------------------------
CONSUMER (JEWELRY, NOVELTIES & GIFTS)-0.57%
Commemorative Brands, Sr. Sub.
Notes, 11.00%, 01/15/07 19,720,000 19,867,900
- ---------------------------------------------------------------
CONTAINERS & PACKAGING
(PAPER)-1.30%
BPC Holding Corp., Series B Sr.
Notes, 12.50%, 06/15/06 12,220,000 13,380,900
- ---------------------------------------------------------------
MVE Inc., Sr. Sec. Notes,
12.50%, 02/15/02 19,250,000 19,298,126
- ---------------------------------------------------------------
Tekni-Plex Inc., Sr. Sub. Notes,
11.25%, 04/01/07 11,400,000 12,340,500
- ---------------------------------------------------------------
45,019,526
- ---------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH)-1.87%
Core-Mark International, Inc.,
Sr. Sub. Notes, 11.375%,
09/15/03 16,340,000 17,361,250
- ---------------------------------------------------------------
Fleming Companies, Inc., Sr. Sub
Notes, 10.625%, 07/31/07(a)
(Acquired 07/18/97-09/02/97;
Cost $20,635,355) 20,700,000 21,942,000
- ---------------------------------------------------------------
Nebco Evans Holding Co., Sr.
Disc. Notes, 12.375%,
07/15/07(d) 38,760,000 25,387,800
- ---------------------------------------------------------------
64,691,050
- ---------------------------------------------------------------
ELECTRICAL EQUIPMENT-0.55%
Electronic Retailing Systems
International, Inc., Sr. Disc.
Notes, 13.25%, 02/01/04(d) 28,652,000 19,196,840
- ---------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS)-0.96%
Advanced Micro Devices, Inc.,
Sr. Sec. Notes, 11.00%,
08/01/03 18,965,000 20,363,668
- ---------------------------------------------------------------
Panda Funding Corp. (China),
Series A-1 Pooled Project
Bonds, 11.625%, 08/20/12 11,775,869 13,012,335
- ---------------------------------------------------------------
33,376,003
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
ENTERTAINMENT-0.39%
Ascent Entertainment Group, Sr.
Disc. Notes, 11.875%,
12/15/04(a)(d)
(Acquired 12/17/97-12/23/97;
Cost $13,184,531) $ 23,300,000 $ 13,630,500
- ---------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-1.23%
Emergent Group, Inc., Sr. Notes,
10.75%, 09/15/04(a)
(Acquired 09/18/97-09/23/97;
Cost $24,067,575) 23,860,000 23,979,300
- ---------------------------------------------------------------
Trump Castle Funding, Inc.,
Mortgage Notes, 11.75%,
11/15/03 20,000,000 18,600,000
- ---------------------------------------------------------------
42,579,300
- ---------------------------------------------------------------
FOODS-0.68%
Del Monte Corp./Foods Co., Sr.
Unsec. Sub. Notes, 12.25%,
04/15/07 20,720,000 23,517,200
- ---------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL
COMPANIES-4.41%
Alliance Gaming Corp., Sr. Sub.
Notes, 10.00%, 08/01/07(a)
(Acquired 09/12/97-11/13/97;
Cost $17,180,000) 17,500,000 17,675,000
- ---------------------------------------------------------------
Aztar Corp., Sr. Sub. Notes,
13.75%, 10/01/04 19,710,000 22,666,500
- ---------------------------------------------------------------
Coast Hotels & Casinos Inc.,
Series B Sec. First Mortgage
Gtd. Notes, 13.00%, 12/15/02 23,760,000 26,967,600
- ---------------------------------------------------------------
Resort At Summerlin LP, Sr. Sub.
Notes, 13.00%, 12/15/07(a)
(Acquired 12/23/97; Cost
$20,000,000) 20,000,000 20,100,000
- ---------------------------------------------------------------
Showboat Marina Casino
Partnership & Showboat Marina
Financial Corp., Series B Sec.
First Mortgage Notes, 13.50%,
03/15/03 21,600,000 26,244,000
- ---------------------------------------------------------------
Venetian Casino/LV Sands,
Mortgage Notes, 12.25%,
11/15/04(a)
(Acquired 11/06/97;
Cost $10,950,000) 10,950,000 11,018,437
- ---------------------------------------------------------------
Sr. Sub. Notes, 10.00%,
11/15/05(a)(d)
(Acquired 11/06/97-11/19/97;
Cost $28,877,170) 30,900,000 27,964,500
- ---------------------------------------------------------------
152,636,037
- ---------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT)-1.61%
Tenet Healthcare Corp., Sr. Sub.
Notes, 10.125%, 03/01/05 50,790,000 55,615,050
- ---------------------------------------------------------------
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
HEALTH CARE (LONG TERM CARE)-1.16%
Paragon Health Network, Inc.,
Sr. Sub. Notes, 10.50%,
11/01/07(a)(d)
(Acquired 10/30/97-12/19/97;
Cost $21,134,680) $ 35,350,000 $ 22,005,375
- ---------------------------------------------------------------
Sun Healthcare Group, Inc., Sr.
Sub. Notes, 9.50%, 07/01/07(a)
(Acquired 07/01/97; Cost
$17,338,500) 17,430,000 18,040,050
- ---------------------------------------------------------------
40,045,425
- ---------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES)-0.90%
Dynacare Inc. (Canada), Sr.
Yankee Notes, 10.75%, 01/15/06 15,430,000 16,317,225
- ---------------------------------------------------------------
HealthCor Holdings, Inc., Sr.
Notes, 11.00%, 12/01/04(a)
(Acquired 11/24/97; Cost
$14,460,000) 14,460,000 14,857,650
- ---------------------------------------------------------------
31,174,875
- ---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES)-1.79%
Alaris Medical Systems, Sr.
Unsec. Gtd. Sub. Deb., 9.75%,
01/01/06 22,870,000 24,127,850
- ---------------------------------------------------------------
Alliance Imaging Inc., Sr. Sub.
Notes, 10.0963%, 12/15/05 20,000,000 20,300,000
- ---------------------------------------------------------------
Dade International Inc., Series B
Sr. Sub. Notes, 11.125%,
05/01/06 15,710,000 17,438,100
- ---------------------------------------------------------------
61,865,950
- ---------------------------------------------------------------
HOMEBUILDING-0.52%
Continental Homes Holdings
Corp., Sr. Unsec. Gtd. Notes,
10.00%, 04/15/06 16,540,000 17,863,200
- ---------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES)-0.41%
Zeta Consumer Products, Sr.
Notes, 11.25%, 11/30/07(a)
(Acquired 11/20/97; Cost
$14,000,000) 14,000,000 14,315,000
- ---------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY)-0.30%
Superior National Capital Trust
Insurance, Gtd. Notes, 10.75%,
12/01/17(a)
(Acquired 11/26/97; Cost
$10,000,000) 10,000,000 10,275,000
- ---------------------------------------------------------------
IRON & STEEL-2.75%
GS Industries, Inc.,
Sr. Gtd. Notes, 12.00%,
09/01/04 15,755,000 17,310,806
- ---------------------------------------------------------------
Sr. Notes, 12.25%, 10/01/05 14,525,000 16,304,313
- ---------------------------------------------------------------
Gulf States Steel Corp., First
Mortgage Notes, 13.50%,
04/15/03 23,460,000 23,811,900
- ---------------------------------------------------------------
Sheffield Steel Corp., First
Mortgage Notes, 11.50%,
12/01/05(a)
(Acquired 11/26/97-12/12/97;
Cost $16,803,438) 16,750,000 17,168,750
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
IRON & STEEL-(CONTINUED)
Weirton Steel Corp., Sr. Notes,
11.375%, 07/01/04 $ 19,600,000 $ 20,531,000
- ---------------------------------------------------------------
95,126,769
- ---------------------------------------------------------------
LODGING-HOTELS-1.07%
American Skiing Corp., Series B
Sr. Sub. Notes, 12.00%,
07/15/06 18,000,000 19,980,000
- ---------------------------------------------------------------
Booth Creek Ski Holdings, Sr.
Notes, 12.50%, 03/15/07 17,610,000 17,345,850
- ---------------------------------------------------------------
37,325,850
- ---------------------------------------------------------------
MACHINERY (DIVERSIFIED)-0.42%
Fairfield Manufacturing Co.,
Inc., Sr. Sub. Notes, 11.375%,
07/01/01 13,725,000 14,548,500
- ---------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-1.81%
Elgin National Industries, Sr.
Notes, 11.00%, 11/01/07(a)
(Acquired 11/03/97-12/08/97;
Cost $12,857,500) 12,840,000 13,385,700
- ---------------------------------------------------------------
Glenoit Corp., Sr. Sub. Notes,
11.00%, 04/15/07(a)
(Acquired 03/26/97-11/17/97;
Cost $14,717,650) 14,690,000 15,865,200
- ---------------------------------------------------------------
Interlake Corp., Sr. Sub. Deb.,
12.125%, 03/01/02 32,050,000 33,332,000
- ---------------------------------------------------------------
62,582,900
- ---------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-3.98%
Berry Plastics Corp., Sr. Sub.
Notes, 12.25%, 04/15/04 12,500,000 13,687,500
- ---------------------------------------------------------------
EV International Inc., Sr.
Unsec. Gtd. Sub., 11.00%,
03/15/07 16,850,000 17,271,250
- ---------------------------------------------------------------
Glasstech, Inc., Gtd., 12.75%,
07/01/04(a)
(Acquired 06/27/97; Cost
$12,000,000) 12,000,000 12,420,000
- ---------------------------------------------------------------
MMI Products Inc., Sr. Unsec.
Sub. Notes, 11.25%, 04/15/07 17,140,000 18,768,300
- ---------------------------------------------------------------
Neenah Corp., Sr. Sub. Notes,
11.125%, 05/01/07 4,000,000 4,410,000
- ---------------------------------------------------------------
Series C Sr. Sub. Notes,
11.125%, 05/01/07 15,000,000 16,537,500
- ---------------------------------------------------------------
Omega Cabinets, Sr. Sub Notes,
10.50%, 06/15/07(a)
(Acquired 07/18/97-11/11/97;
Cost $21,367,450) 21,140,000 21,985,600
- ---------------------------------------------------------------
Precise Technology Inc., Sr.
Unsec. Gtd. Sub., 11.125%,
06/15/07(a)
(Acquired 06/10/97-07/17/97;
Cost $14,664,250) 14,400,000 14,760,000
- ---------------------------------------------------------------
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
MANUFACTURING (SPECIALIZED)-(CONTINUED)
Simmons Co., Sr. Sub. Notes,
10.75%, 04/15/06 $ 16,800,000 $ 17,850,000
- ---------------------------------------------------------------
137,690,150
- ---------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES-0.63%
United Stationer Supply, Sr.
Sub. Notes, 12.75%, 05/01/05 19,021,000 21,731,493
- ---------------------------------------------------------------
OIL (INTERNATIONAL INTEGRATED)-0.48%
Rutherford-Moran Oil Corp., Sr.
Sub. Notes, 10.75%, 10/01/04(a)
(Acquired 10/06/97-10/08/97;
Cost $17,230,750) 16,400,000 16,769,000
- ---------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT)-0.63%
Tokheim Corp., Series B Sr. Sub.
Notes, 11.50%, 08/01/06 18,975,000 21,631,500
- ---------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-2.82%
Abraxas Petroleum Corp., Series
B Sr. Notes, 11.50%, 11/01/04 19,290,000 21,219,000
- ---------------------------------------------------------------
Centaur Mining & Exploration,
Ltd. (Australia), Sr. Gtd.
Notes, 11.00%, 12/01/07(a)
(Acquired 11/24/97-12/10/97;
Cost $22,817,500) 22,800,000 23,028,000
- ---------------------------------------------------------------
Gerrity Oil & Gas Corp., Sr.
Sub. Notes, 11.75%, 07/15/04 14,750,000 16,151,250
- ---------------------------------------------------------------
Kelley Oil & Gas Corp., Series B
Sr. Gtd. Sub. Notes, 10.375%,
10/15/06 15,450,000 16,570,125
- ---------------------------------------------------------------
Southwest Royalties, Inc., Sr.
Gtd. Notes, 10.50%, 10/15/04(a)
(Acquired 10/08/97-10/21/97;
Cost $20,882,046) 20,780,000 20,676,100
- ---------------------------------------------------------------
97,644,475
- ---------------------------------------------------------------
OIL & GAS (REFINING & MARKETING)-0.41%
Texas Petrochemical Corp., Sr.
Sub. Notes, 11.125%, 07/01/06 13,000,000 14,235,000
- ---------------------------------------------------------------
PAPER & FOREST PRODUCTS-3.85%
American Pad & Paper Co., Series
B Sr. Sub. Notes, 13.00%,
11/15/05 21,820,000 25,202,100
- ---------------------------------------------------------------
Indah Kiat Fin Mauritius
(Indonesia), Sr. Gtd. Unsec.
Notes, 10.00%, 07/01/07(a)
(Acquired 06/26/97-10/24/97;
Cost $33,279,148) 33,890,000 28,298,150
- ---------------------------------------------------------------
National Fiberstok Corp., Series
B Sr. Notes, 11.625%, 06/15/02 20,790,000 21,881,475
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
PAPER & FOREST PRODUCTS-(CONTINUED)
Pindo Deli Pulp & Paper
(Indonesia), Sr. Gtd. Notes,
10.75%, 10/01/07(a)
(Acquired 09/25/97-12/08/97;
Cost $27,366,428) $ 27,290,000 $ 23,605,850
- ---------------------------------------------------------------
Tjiwi Kimia International Global
Co., BV, (Indonesia), Sr. Gtd.
Notes, 13.25%, 08/01/01 36,275,000 34,279,875
- ---------------------------------------------------------------
133,267,450
- ---------------------------------------------------------------
POWER PRODUCER (INDEPENDENT)-0.52%
Panda Global Energy Co. (China),
Sr. Yankee Gtd. Sec. Notes,
12.50%, 04/15/04(a)
(Acquired 04/11/97-08/13/97;
Cost $18,819,945) 19,562,000 17,899,230
- ---------------------------------------------------------------
PUBLISHING (NEWSPAPERS)-0.95%
Affiliated Newspaper
Investments, Sr. Disc. Notes,
13.25%, 07/01/06(d) 20,826,000 19,888,830
- ---------------------------------------------------------------
Garden State Newspapers, Inc.,
Sr. Sub. Sec. Notes, 12.00%,
07/01/04 11,500,000 12,937,500
- ---------------------------------------------------------------
32,826,330
- ---------------------------------------------------------------
RAILROADS-0.55%
TFM S.A. de C.V. (Mexico), Sr.
Gtd. Disc. Notes, 11.75%,
06/15/09(a)(d)
(Acquired 06/11/97-10/27/97;
Cost $17,589,557) 30,250,000 18,906,250
- ---------------------------------------------------------------
RESTAURANTS-0.56%
AFC Enterprises, Sr. Sub. Notes,
10.25%, 05/15/07 18,240,000 19,288,800
- ---------------------------------------------------------------
RETAIL (DISCOUNTERS)-0.58%
Loehmann's Holdings, Inc., Sr.
Unsec. Notes, 11.875%,
05/15/03 19,110,000 19,922,175
- ---------------------------------------------------------------
RETAIL (FOOD CHAINS)-2.55%
Carr-Gottstein Foods Co., Sr.
Sub. Notes, 12.00%, 11/15/05 29,955,000 33,250,050
- ---------------------------------------------------------------
Cumberland Farms, Sec. Notes,
10.50%, 10/01/03 16,977,000 17,019,443
- ---------------------------------------------------------------
Jitney-Jungle Stores of America
Inc., Sr. Gtd. Notes, 12.00%,
03/01/06 33,405,000 37,998,187
- ---------------------------------------------------------------
88,267,680
- ---------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE)-0.50%
Big 5 Corp., Sr. Notes, 10.875%,
11/15/07(a)
(Acquired 11/07/97-12/19/97;
Cost $17,264,563) 17,350,000 17,350,000
- ---------------------------------------------------------------
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
RETAIL (SPECIALTY)-4.08%
Cabot Safety Corp., Sr. Sub.
Notes, 12.50%, 07/15/05 $ 18,975,000 $ 21,346,875
- ---------------------------------------------------------------
CSK Auto Inc., Sr. Gtd. Sub.
Deb., 11.00%, 11/01/06 22,010,000 24,321,050
- ---------------------------------------------------------------
Icon Fitness Corp., Series B Sr.
Disc. Notes, 14.00%, 11/15/06(d) 14,840,000 8,681,400
- ---------------------------------------------------------------
Icon Health & Fitness, Series B
Sr. Sub. Notes, 13.00%,
07/15/02 20,930,000 23,493,925
- ---------------------------------------------------------------
Selmer Co., Inc., Sr. Gtd. Sub.
Notes, 11.00%, 05/15/05 18,920,000 20,906,600
- ---------------------------------------------------------------
United Auto Group, Inc., Sr.
Sub. Notes, 11.00%, 07/15/07(a)
(Acquired 07/18/97-12/08/97;
Cost $24,120,600) 24,500,000 24,193,750
- ---------------------------------------------------------------
Wilsons-The Leather Experts
Inc., Sr. Notes, 11.25%,
08/15/04(a)
(Acquired 08/14/97; Cost
$18,290,000) 18,290,000 18,107,100
- ---------------------------------------------------------------
141,050,700
- ---------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-1.63%
GFSI Holding Inc., Sr. Sub
Notes, 11.375%, 09/15/09(a)
(Acquired 09/12/97; Cost
$20,000,000) 20,000,000 20,750,000
- ---------------------------------------------------------------
J Crew Group, Deb., 13.125%,
10/15/08(a)(d)
(Acquired 10/14/97-12/16/97;
Cost $15,571,120) 30,780,000 14,158,800
- ---------------------------------------------------------------
J Crew Operating Corp., Sr. Sub.
Notes, 10.375%, 10/15/07(a)
(Acquired 10/14/97-12/09/97;
Cost $12,661,000) 12,745,000 11,343,050
- ---------------------------------------------------------------
Specialty Retailers Inc., Series
B Sec. Notes, 12.50%, 12/15/00 10,000,000 10,275,000
- ---------------------------------------------------------------
56,526,850
- ---------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING)-1.19%
MDC Communications Corp.
(Canada), Sr. Yankee Unsec.
Sub. Notes, 10.50%, 12/01/06 17,470,000 18,561,875
- ---------------------------------------------------------------
Neodata Services, Inc., Series B
Sr. Notes, 12.00%, 05/01/03 21,000,000 22,619,310
- ---------------------------------------------------------------
41,181,185
- ---------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-3.83%
Coinmach Corp., Series B Sr.
Notes, 11.75%, 11/15/05 21,850,000 24,362,750
- ---------------------------------------------------------------
Coinmach Laundry Corp., Sr.
Notes, 11.75%, 11/15/05(a)
(Acquired 10/01/97; Cost
$3,845,625) 3,500,000 3,902,500
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
SERVICES (COMMERCIAL & CONSUMER)-(CONTINUED)
Dialog Corp. PLC (United
Kingdom), Sr. Sub. Notes,
11.00%, 11/15/07(a)
(Acquired 11/10/97-12/19/97;
Cost $18,059,375) $ 18,000,000 $ 18,765,000
- ---------------------------------------------------------------
Hydrochem Industrial Service,
Sr. Sec. Gtd. Sub. Notes,
10.375%, 08/01/07 21,300,000 22,152,000
- ---------------------------------------------------------------
Localiza Rent A Car (Brazil),
Sr. Gtd. Notes, 10.25%,
10/01/05(a) (Acquired
09/25/97-10/24/97; Cost
$22,323,438) 22,250,000 19,023,750
- ---------------------------------------------------------------
National Equipment Services, Sr.
Sub. Notes, 10.00%, 11/30/04(a)
(Acquired 12/02/97; Cost
$21,285,000) 22,000,000 21,890,000
- ---------------------------------------------------------------
Pegasus Shipping Hellas
(Bermuda), Sr. Gtd. Mortgage
Notes, 11.875%, 11/15/04(a)
(Acquired 11/19/97-12/19/97;
Cost $21,760,250) 22,500,000 22,387,500
- ---------------------------------------------------------------
132,483,500
- ---------------------------------------------------------------
SERVICES (DATA PROCESSING)-0.42%
DecisionOne Holdings Corp., Sr.
Disc. Deb., 11.50%,
08/01/08(d)(g) 22,085,000 14,631,313
- ---------------------------------------------------------------
SHIPPING-1.71%
Gearbulk Holding Ltd., Sr.
Notes, 11.25%, 12/01/04 17,825,000 19,652,063
- ---------------------------------------------------------------
Navigator Gas Transport PLC
(United Kingdom), Notes,
10.50%, 06/30/07(a)
(Acquired 07/31/97-09/04/97;
cost $18,716,250) 18,520,000 19,723,800
- ---------------------------------------------------------------
Stena A.B. (Sweden), Sr. Yankee
Unsec. Notes, 10.50%, 12/15/05 18,150,000 19,828,875
- ---------------------------------------------------------------
59,204,738
- ---------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-8.23%
CellNet Data Systems, Sr. Disc.
Notes, 14.00%, 10/01/07(a)(d)
(Acquired 09/24/97-10/15/97;
Cost $14,744,250) 29,000,000 14,065,000
- ---------------------------------------------------------------
Clearnet Communications Inc.
(Canada), Sr. Yankee Disc.
Notes, 14.75%, 12/15/05(d) 34,320,000 27,498,900
- ---------------------------------------------------------------
Dobson Communications, Sr.
Notes, 11.75%, 04/15/07 13,500,000 14,310,000
- ---------------------------------------------------------------
GST Telecommunications, Inc.,
Sr. Sec. Notes, 13.25%,
05/01/07 20,950,000 23,935,375
- ---------------------------------------------------------------
HighwayMaster Communications,
Inc., Sr. Notes, 13.75%,
09/15/05(a)
(Acquired 09/18/97-09/24/97;
Cost $18,739,950) 18,310,000 18,721,975
- ---------------------------------------------------------------
</TABLE>
9
<PAGE> 12
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-(CONTINUED)
McCaw Intl., Ltd., Sr. Disc.
Notes, 13.00%, 04/15/07(d) $ 39,500,000 $ 23,107,500
- ---------------------------------------------------------------
Microcell Telecommunications
Inc., Sr. Disc. Notes, 14.00%,
06/01/06(d) 29,500,000 19,986,250
- ---------------------------------------------------------------
Nextel Communications, Inc., Sr.
Disc. Notes, 10.65%,
09/15/07(a)(d)
(Acquired 10/24/97; Cost
$18,712,500) 30,000,000 18,937,500
- ---------------------------------------------------------------
Nextel Communications, Sr. Disc.
Notes, 9.75%, 10/31/07(a)(d)
(Acquired 10/23/97; Cost
$9,770,625) 16,300,000 10,106,000
- ---------------------------------------------------------------
Orion Network Systems, Inc., Sr.
Gtd. Disc. Notes, 12.50%,
01/15/07(d) 36,000,000 26,910,000
- ---------------------------------------------------------------
Powertel, Inc., Sr. Unsec.
Notes, 11.125%, 06/01/07 26,000,000 28,210,000
- ---------------------------------------------------------------
PriCellular Wireless Corp., Sr.
Disc. Notes, 14.00%, 11/15/01 34,620,000 38,687,850
- ---------------------------------------------------------------
Sygnet Wireless Inc., Sr. Unsec.
Notes, 11.50%, 10/01/06 18,800,000 20,398,000
- ---------------------------------------------------------------
284,874,350
- ---------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-3.19%
Esprit Telecom Group PLC (United
Kingdom), Sr. Yankee Notes,
11.50%, 12/15/07 17,500,000 18,112,500
- ---------------------------------------------------------------
Interamericas Communications
Corp., Sr. Notes, 14.00%,
10/27/07(h) 22,990,000 22,990,000
- ---------------------------------------------------------------
PhoneTel Technologies, Inc., Sr.
Gtd. Unsec. Notes, 12.00%,
12/15/06 14,840,000 15,470,700
- ---------------------------------------------------------------
Primus Telecommunications Group,
Inc., Sr. Sec. Notes, 11.75%,
08/01/04 20,000,000 21,800,000
- ---------------------------------------------------------------
RSL Communications, Ltd. (United
Kingdom), Sr. Yankee Gtd.
Notes, 12.25%, 11/15/06 29,620,000 32,137,700
- ---------------------------------------------------------------
110,510,900
- ---------------------------------------------------------------
TELEPHONE-2.98%
Esat Holdings Ltd. (Ireland),
Sr. Yankee Notes, 12.50%,
02/01/07(a)(d)
(Acquired 02/21/97-06/12/97;
cost $15,217,200) 25,530,000 18,381,600
- ---------------------------------------------------------------
Esat Telecom Group PLC
(Ireland), Sr. Yankee Notes ,
12.50%, 02/01/07(d) 4,500,000 3,228,750
- ---------------------------------------------------------------
Hermes Europe Railtel BV
(Netherlands), Sr. Notes,
11.50%, 08/15/07(a)
(Acquired 08/14/97-09/02/97;
Cost $29,303,500) 28,660,000 31,955,900
- ---------------------------------------------------------------
International CableTel, Inc.,
Sr. Notes, 11.50%, 02/01/06(d) 24,200,000 19,118,000
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
TELEPHONE-(CONTINUED)
Nextlink Communications Inc.,
Sr. Notes, 12.50%, 04/15/06 $ 26,620,000 $ 30,479,900
- ---------------------------------------------------------------
103,164,150
- ---------------------------------------------------------------
TRUCKERS-1.10%
AmeriTruck Distribution Corp.,
Series B Sr. Sub. Notes,
12.25%, 11/15/05 19,800,000 19,701,000
- ---------------------------------------------------------------
Travelcenters of America Inc.,
Sr. Gtd. Unsec. Sub. Deb.,
10.25%, 04/01/07 17,530,000 18,494,150
- ---------------------------------------------------------------
38,195,150
- ---------------------------------------------------------------
TRUCKS & PARTS-0.48%
Blue Bird Body Co., Series B Sr.
Sub. Notes, 10.75%, 11/15/06 15,425,000 16,659,000
- ---------------------------------------------------------------
WASTE MANAGEMENT-1.11%
Allied Waste Industries, Inc.,
Sr. Disc. Notes, 11.30%,
06/01/07(a)(d)
(Acquired 05/01/97; cost
$17,920,032) 31,200,000 22,074,000
- ---------------------------------------------------------------
Norcal Waste Systems Inc.,
Series B Sr. Gtd. Notes,
13.50%, 11/15/05 14,280,000 16,493,400
- ---------------------------------------------------------------
38,567,400
- ---------------------------------------------------------------
Total Corporate Bonds &
Notes 3,066,873,630
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
COMMON STOCKS & OTHER EQUITY INTERESTS-0.37%
PUBLISHING (NEWSPAPERS)-0.05%
Affiliated Newspaper Investments(i) 13,826 1,527,773
- ---------------------------------------------------------------
SERVICES (FACILITIES & ENVIRONMENTAL)-0.02%
Cobblestone Holdings Inc.(i) 23,250 813,750
- ---------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-0.30%
Celcaribe S.A. Ordinary Trust
Certificates(i) 2,276,400 9,105,600
- ---------------------------------------------------------------
Nextel Communications, Inc.(i) 52,195 1,357,070
- ---------------------------------------------------------------
10,462,670
- ---------------------------------------------------------------
Total Common Stocks & Other
Equity Interests 12,804,193
- ---------------------------------------------------------------
PREFERRED STOCKS-2.65%
BROADCASTING (TELEVISION, RADIO & CABLE)-0.71%
Cablevision Systems Corp.,
Series M, 11.125% PIK Conv. Pfd.(i) 209,720 24,537,282
- ---------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-0.01%
ICG Holdings, Inc., $14.25 Pfd.(i) 404 481,207
- ---------------------------------------------------------------
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ELECTRICAL EQUIPMENT-0.39%
EchoStar Communications Corp.,
12.1250% PIK Pfd.(i) 13,000 $ 13,422,500
- ---------------------------------------------------------------
ENTERTAINMENT-0.00%
Time Warner Inc.-Series M,
$102.50 PIK Conv. Pfd.(i) 1 1,154
- ---------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-0.24%
Kelley Oil & Gas Corp., $2.625
Conv. Pfd.(i) 370,000 8,140,000
- ---------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-0.83%
Nextel Communications, Inc.,
13.00% PIK Pfd.(i) 24,831 28,555,596
- ---------------------------------------------------------------
TELEPHONE-0.47%
Intermedia Communications Inc.,
7.00% Conv. Pfd.(a)(i)
(Acquired 10/24/97; Cost
$14,500,000) 580,000 16,385,000
- ---------------------------------------------------------------
Total Preferred Stocks 91,522,739
- ---------------------------------------------------------------
RIGHTS & WARRANTS-0.37%
CHEMICALS-0.01%
Sterling Chemicals Holdings,
expiring 08/15/08(i) 7,500 225,000
- ---------------------------------------------------------------
ELECTRICAL EQUIPMENT-0.02%
Electronic Retailing Systems
International, expiring
02/01/04(i) 28,652 573,040
- ---------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT)-0.01%
Republic Health Corp., expiring
04/03/00(i) 17,500 315,000
- ---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-0.01%
Glasstech Inc., expiring
06/30/04(i) 12,000 12,000
- ---------------------------------------------------------------
Highwaymaster Communication Inc.,
expiring 01/20/49(a)(i)
(Acquired 09/18/97-09/24/97;
Cost $0) 18,310 18,310
- ---------------------------------------------------------------
MVE Inc., expiring 02/15/02(i) 6,750 202,500
- ---------------------------------------------------------------
Primus Telecommunications,
expiring 08/01/04(i) 20,000 200,000
- ---------------------------------------------------------------
Resort At Summerlin Corp.,
expiring 12/15/07(i) 20,000 200
- ---------------------------------------------------------------
433,010
- ---------------------------------------------------------------
IRON & STEEL-0.00%
Bar Technologies Inc., expiring
04/01/01(i) 6,000 36,000
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MANUFACTURING (SPECIALIZED)-0.01%
Berry Plastics Corp., expiring
04/15/04(i) 6,000 $ 270,120
- ---------------------------------------------------------------
METAL FABRICATORS-0.00%
Gulf States Steel Corp.,
expiring 04/15/03(i) 15,990 71,955
- ---------------------------------------------------------------
PERSONAL CARE-0.04%
IHF Capital Inc., Series H,
expiring 11/14/99(a)(i)
(Acquired 11/04/94; Cost $0) 8,000 1,280,000
- ---------------------------------------------------------------
Series I, expiring 11/14/99(a)(i)
(Acquired 11/04/94-03/01/95;
Cost $0) 7,250 366,125
- ---------------------------------------------------------------
1,646,125
- ---------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-0.14%
Cellnet Data System, expiring
10/01/07(i) 29,000 580,000
- ---------------------------------------------------------------
Clearnet Communications Inc.
expiring 09/15/05(i) 100,716 956,802
- ---------------------------------------------------------------
ICG Communications, Inc.,
expiring 10/15/05(i) 39,600 574,200
- ---------------------------------------------------------------
McCaw Intl. Ltd., expiring
04/15/07(i) 39,500 98,750
- ---------------------------------------------------------------
Microcell Telecommunications
Inc., expiring 06/01/06(a)(i)
(Acquired 12/18/96; Cost
$992,888) 118,000 1,711,000
- ---------------------------------------------------------------
Orion Network Systems, Inc.,
expiring 01/15/07(i) 43,600 538,400
- ---------------------------------------------------------------
Powertel Inc., expiring
02/01/06(i) 42,656 399,900
- ---------------------------------------------------------------
4,859,052
- ---------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-0.12%
RSL Communications, Ltd. (United
Kingdom), expiring 11/15/06(a)(i)
(Acquired 09/30/96-12/08/97;
Cost $2,023,063) 45,145 4,175,912
- ---------------------------------------------------------------
TELEPHONE-0.01%
ESAT Holdings Ltd., expiring
02/01/07(i)
(Acquired 06/16/97; Cost $0) 25,530 95,738
- ---------------------------------------------------------------
Intermedia Communications Inc.,
expiring 06/01/00(a)(i)
(Acquired 10/25/95; Cost $0) 1,500 165,000
- ---------------------------------------------------------------
260,738
- ---------------------------------------------------------------
Total Rights & Warrants 12,865,952
- ---------------------------------------------------------------
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. TREASURY SECURITIES-5.30%
NOTES-5.30%
11.75%, 02/15/01 $ 25,000,000 $ 29,327,500
- ---------------------------------------------------------------
13.125%, 05/15/01 25,000,000 30,672,500
- ---------------------------------------------------------------
15.75%, 11/15/01 25,000,000 33,610,250
- ---------------------------------------------------------------
13.375%, 08/15/01 30,000,000 37,465,500
- ---------------------------------------------------------------
14.25%, 02/15/02 40,000,000 52,389,200
- ---------------------------------------------------------------
Total U.S. Treasury Securities 183,464,950
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
REPURCHASE AGREEMENT-1.23%(j)
Goldman Sachs & Co., 4.75%,
01/02/98(k) $ 42,498,660 $ 42,498,660
- ---------------------------------------------------------------
TOTAL INVESTMENTS-98.55% 3,410,030,124
- ---------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-1.45% 50,299,302
- ---------------------------------------------------------------
NET ASSETS-100.00% $3,460,329,426
===============================================================
</TABLE>
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 12/31/97 was $953,241,762
which represented 27.55% of the Fund's net assets.
(b) Issued as a unit. This unit also includes 15,500 warrants to purchase 31.12
shares of common stock per warrant.
(c) Zero coupon bonds. Interest rate shown represents the rate of original issue
discount.
(d) Discounted bond at purchase. Interest rate shown represents coupon rate at
which the bond will accrue at a specified future date.
(e) Issued as a unit. This unit also includes 35,650 warrants to purchase
.003734 shares of preferred stock per warrant.
(f) Issued as a unit. This unit also includes 9,250 warrants to buy 4.535
shares of common stock per warrant.
(g) Issued as a unit. This unit also includes 22,085 warrants to buy 1.9 shares
of common stock per warrant.
(h) Issued as a unit. This unit also includes 804,650 warrants to buy 1 share of
common stock per warrant.
(i) Non-income producing security.
(j) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts, and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(k) Joint repurchase agreement entered into 12/31/97 with a maturing value of
$400,105,556. Collateralized by $384,914,000 U.S. Government agency
obligations, 5.625% to 6.625% due 11/30/99 to 02/15/27 with an aggregate
market value at 12/31/97 of $408,401,531.
Abbreviations:
Conv. - Convertible
Deb. - Debentures
Disc. - Discounted
Gtd. - Guarantee
PIK - Payment in Kind
Pfd. - Preferred
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
Wts. - Warrants
See Notes to Financial Statements.
12
<PAGE> 15
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$3,268,502,635) $3,410,030,124
- ----------------------------------------------------------
Receivables for:
Investments sold 1,941,550
- ----------------------------------------------------------
Fund shares sold 16,416,473
- ----------------------------------------------------------
Dividends and interest 69,937,898
- ----------------------------------------------------------
Investment for deferred compensation plan 60,157
- ----------------------------------------------------------
Other assets 97,377
- ----------------------------------------------------------
Total assets 3,498,483,579
- ----------------------------------------------------------
LIABILITIES:
Payables for:
Fund shares reacquired 19,936,494
- ----------------------------------------------------------
Dividends 12,857,399
- ----------------------------------------------------------
Deferred compensation plan 60,157
- ----------------------------------------------------------
Accrued advisory fees 1,383,818
- ----------------------------------------------------------
Accrued administrative service fees 9,059
- ----------------------------------------------------------
Accrued distribution fees 2,855,006
- ----------------------------------------------------------
Accrued trustees' fees 5,147
- ----------------------------------------------------------
Accrued transfer agent fees 350,310
- ----------------------------------------------------------
Accrued operating expenses 696,763
- ----------------------------------------------------------
Total liabilities 38,154,153
- ----------------------------------------------------------
Net assets applicable to shares
outstanding $3,460,329,426
- ----------------------------------------------------------
NET ASSETS:
Class A $1,786,351,699
==========================================================
Class B $1,647,801,094
==========================================================
Class C $ 26,176,633
==========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 175,835,012
==========================================================
Class B 162,246,965
==========================================================
Class C 2,581,428
==========================================================
Class A:
Net asset value and redemption price per
share $ 10.16
==========================================================
Offering price per share:
(Net asset value of $10.16
divided by 95.25%) $ 10.67
==========================================================
Class B:
Net asset value and offering price per
share $ 10.16
==========================================================
Class C:
Net asset value and offering price per
share $ 10.14
==========================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $279,638,436
- ---------------------------------------------------------
Dividends 2,764,016
- ---------------------------------------------------------
Total investment income 282,402,452
- ---------------------------------------------------------
EXPENSES:
Advisory fees 13,632,090
- ---------------------------------------------------------
Administrative service fees 111,767
- ---------------------------------------------------------
Custodian fees 197,027
- ---------------------------------------------------------
Transfer agent fees -- Class A 1,720,365
- ---------------------------------------------------------
Transfer agent fees -- Class B 1,564,093
- ---------------------------------------------------------
Transfer agent fees -- Class C 4,991
- ---------------------------------------------------------
Trustees' fees 23,732
- ---------------------------------------------------------
Distribution fees -- Class A 3,699,344
- ---------------------------------------------------------
Distribution fees -- Class B 13,453,229
- ---------------------------------------------------------
Distribution fees -- Class C 42,927
- ---------------------------------------------------------
Other 1,163,559
- ---------------------------------------------------------
Total expenses 35,613,124
- ---------------------------------------------------------
Less: Expenses paid indirectly (224,536)
- ---------------------------------------------------------
Net expenses 35,388,588
- ---------------------------------------------------------
Net investment income 247,013,864
- ---------------------------------------------------------
REALIZED AND UNREALIZED GAIN FROM
INVESTMENT SECURITIES:
Net realized gain from investment securities 62,942,651
- ---------------------------------------------------------
Net unrealized appreciation of investment
securities 18,112,537
- ---------------------------------------------------------
Net gain on investment securities 81,055,188
- ---------------------------------------------------------
Net increase in net assets resulting from
operations $328,069,052
=========================================================
</TABLE>
See Notes to Financial Statements.
13
<PAGE> 16
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 247,013,864 $ 174,137,830
- ----------------------------------------------------------------------------------------------
Net realized gain on sales of investment securities 62,942,651 17,869,656
- ----------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities 18,112,537 86,550,248
- ----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 328,069,052 278,557,734
- ----------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (133,510,208) (102,842,087)
- ----------------------------------------------------------------------------------------------
Class B (111,521,456) (72,629,856)
- ----------------------------------------------------------------------------------------------
Class C (357,582) --
- ----------------------------------------------------------------------------------------------
Share transactions-net:
Class A 469,620,256 327,466,596
- ----------------------------------------------------------------------------------------------
Class B 540,779,350 466,449,407
- ----------------------------------------------------------------------------------------------
Class C 26,215,648 --
- ----------------------------------------------------------------------------------------------
Net increase in net assets 1,119,295,060 897,001,794
- ----------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 2,341,034,366 1,444,032,572
- ----------------------------------------------------------------------------------------------
End of period $3,460,329,426 $2,341,034,366
==============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $3,332,603,649 $2,295,988,395
- ----------------------------------------------------------------------------------------------
Undistributed net investment income 4,691,600 2,868,653
- ----------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) on sales of
investment securities (18,493,312) (81,237,634)
- ----------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 141,527,489 123,414,952
- ----------------------------------------------------------------------------------------------
$3,460,329,426 $2,341,034,366
==============================================================================================
</TABLE>
See Notes to Financial Statements.
14
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM High Yield Fund (the "Fund") is a series portfolio of AIM Funds Group (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 nine separate series portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers three different classes of shares: the Class A shares, the
Class B shares, and the Class C shares. The new Class C shares commenced sales
on August 4, 1997. 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 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 investment in higher rated debt securities. High yield bonds may
be more susceptible to real or perceived adverse economic and competitive
industry 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 generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
A. Security Valuations -- Debt securities (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
institution-size trading in similar groups of securities, developments
related to special securities, yield, quality, coupon rate, maturity, type
of issue, individual trading characteristics and other market data.
Investment securities for which prices are not provided by the pricing
service and which are listed or traded on an exchange (except convertible
bonds) are valued at the last sales price on the exchange where principally
traded or, lacking any sales on a particular day, at the mean between the
closing bid and asked prices on that day unless the Board of Trustees, or
persons designated by the Board of Trustees, determines that
over-the-counter quotations more closely reflect the current market value of
the security. Securities traded in the over-the-counter market, except (i)
securities priced by the pricing service, (ii) securities for which
representative exchange prices are available, and (iii) securities reported
in the NASDAQ National Market System, are valued at the mean between
representative last bid and asked prices obtained from an electronic
quotation reporting system, if such prices are available, or from
established market makers. Each security reported in the NASDAQ National
Market System is valued at the last sales price on the valuation date or
absent a last sales price, at the mean between the closing bid and asked
prices. Securities for which market quotations either 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.
B. Securities Transactions, Investment Income and Distributions -- Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income is recorded on the
ex-dividend date. It is the policy of the Fund to declare daily dividends
from net investment income. Such dividends are paid monthly. Distributions
from net realized capital gains, if any, are recorded on ex-dividend date
and are paid annually subject to restrictions noted in section "C" below. On
December 31, 1997, undistributed net investment income was increased by
$198,329 and undistributed net realized gains reduced by $198,329 in order
to comply with the requirements of the American Institute of Certified
Public Accountants Statement of Position 93-2. Net assets of the Fund were
unaffected by the reclassifications discussed above.
C. Federal Income Taxes -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements. The Fund has a capital loss
carryforward of $5,680,483 (which may be carried forward to offset future
taxable capital gains, if any) which expires, if not previously utilized,
through the year 2003. The Fund cannot distribute capital gains to
shareholders until the tax loss carryforwards have been utilized.
D. Expenses -- Distribution and transfer agency expenses directly attributable
to a class of shares are charged to that class' operations. All other
expenses which are attributable to more than one class are allocated among
the classes.
15
<PAGE> 18
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% of
the first $200 million of the Fund's average daily net assets, plus 0.55% of the
Fund's average daily net assets in excess of $200 million to and including $500
million, plus 0.50% of the Fund's average daily net assets in excess of $500
million to and including $1 billion, plus 0.45% of 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 reimburse AIM for certain administrative costs incurred in providing
accounting services to the Fund. During the year ended December 31, 1997, AIM
was reimbursed $111,767 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. During the year ended December 31, 1997, the
Fund paid AFS $2,021,415 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
distribution plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A shares and Class C shares (the "Class A and C Plan"), and the
Fund's Class B shares (the "Class B Plan") (collectively, the "Plans"). The
Fund, pursuant to the Class A and C Plan pays AIM Distributors compensation at
an annual rate of 0.25% of the average daily net assets of Class A shares and
1.00% of the average daily net assets of the Class C shares. The Fund pursuant
to the Class B Plan, pays AIM Distributors compensation at an annual rate of
1.00% of the average daily net assets attributable to the Class B 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 by the Class B or Class C shares
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. AIM Distributors may, from time to
time, assign, transfer, or pledge to one or more designees, its rights to all or
a designated portion of (a) compensation received by AIM Distributors from the
Fund pursuant to the Class B Plan (but not AIM Distributors' duties and
obligations pursuant to the Class B Plan) and (b) any contingent deferred sales
charges received by AIM Distributors related to the Class B shares. During the
year ended December 31, 1997, the Class A shares and Class B shares and the
period August 4, 1997 (date sales commenced) through December 31, 1997, the
Class A, Class B and Class C shares paid AIM Distributors $3,699,344,
$13,453,229 and $42,927, respectively, as compensation under the Plans.
AIM Distributors received commissions of $2,043,967 from sales of the Class A
shares of the Fund during the year ended December 31, 1997. 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 December 31, 1997,
for the Class A shares and Class B shares, and the period August 4, 1997 (date
sales commenced) through December 31, 1997, for the Class C shares, the Class A,
Class B and Class C shares paid AIM Distributors $3,699,344, $13,453,209, and
$42,927 respectively, as compensation under the Plans.
During the year ended December 31, 1997, the Fund paid legal fees of $10,687
for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3-INDIRECT EXPENSES
AIM has directed certain portfolio trades to brokers who paid a portion of the
Fund's expenses related to pricing services used by the Fund which reduced Fund
expenses by $11,070 during the year ended December 31, 1997. Also during the
year ended December 31, 1997 the Fund received reductions in transfer agency
fees from AFS (an affiliate of AIM) and reductions in custodian fees of $31,501
and $181,965, respectively, under expense offset arrangements. The effect of the
above arrangements resulted in reductions of the Fund's total expenses of
$224,536 during the year ended December 31, 1997.
NOTE 4-TRUSTEES' FEES
Trustees' fees represent remuneration paid or accrued to each trustee who is not
an "interested person" of AIM. The Trust may invest 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 The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $500,000,000 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. Interest on
borrowings under the line of credit is payable on maturity or prepayment date.
Prior to an amendment of the line of credit on July 15, 1997, the Fund was
limited to borrowing up to the lesser of (i) $325,000,000 or (ii) the limits set
by its prospectus for borrowings. During the year ended December 31, 1997, the
Fund did not borrow under the line of credit agreement. The funds which are
parties to the line of credit are charged a commitment fee of 0.05% on the
unused balance of the committed line. The commitment fee is allocated among such
funds based on their respective average net assets for the period.
16
<PAGE> 19
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 December 31, 1997 was
$3,485,380,448 and $2,193,406,469, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of December 31, 1997 was as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $174,083,384
- ----------------------------------------------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (34,437,108)
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities $139,646,276
======================================================================================================================
</TABLE>
Cost of investments for tax purposes is $3,270,383,848.
NOTE 7-SHARE INFORMATION
Changes in shares outstanding during the years ended December 31, 1997 and 1996
were as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
Sold:
Class A 93,715,770 $ 935,998,102 76,485,479 $ 725,785,892
- --------------------------------------------------------- ----------- --------------- ------------ -------------
Class B 74,428,033 739,555,783 63,383,789 605,130,108
- --------------------------------------------------------- ----------- --------------- ------------ -------------
Class C* 2,840,747 28,847,843 -- --
- --------------------------------------------------------- ----------- --------------- ------------ -------------
Issued as reinvestment of dividends:
Class A 8,409,927 83,983,856 6,674,252 64,083,963
- --------------------------------------------------------- ----------- --------------- ------------ -------------
Class B 5,178,022 54,019,940 3,798,909 36,390,618
- --------------------------------------------------------- ----------- --------------- ------------ -------------
Class C* 19,254 195,246 -- --
- --------------------------------------------------------- ----------- --------------- ------------ -------------
Reacquired:
Class A (55,082,159) (550,361,702) (48,380,296) (462,403,259)
- --------------------------------------------------------- ----------- --------------- ------------ -------------
Class B (25,424,400) (252,796,373) (18,351,224) (175,071,319)
- --------------------------------------------------------- ----------- --------------- ------------ -------------
Class C* (278,573) (2,827,441) -- --
- --------------------------------------------------------- ----------- --------------- ------------ -------------
103,806,621 $ 1,036,615,254 83,610,909 $ 793,916,003
=========== =============== ============ =============
</TABLE>
* Class C shares commenced sales on August 4, 1997.
17
<PAGE> 20
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A outstanding
during each of the years in the five-year period ended December 31, 1997, for a
share of Class B outstanding during each of the years in the four-year period
ended December 31, 1997 and the period September 1, 1993 (date sales commenced)
through December 31, 1993, and for a share of Class C outstanding during the
period August 4, 1997 (date sales commenced) through December 31, 1997.
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.88 $ 9.43 $ 8.93 $ 10.05 $ 9.40
- ------------------------------------------------------------ ---------- ---------- -------- -------- --------
Income from investment operations:
Net investment income 0.90 0.92 0.93 0.96 0.97
- ------------------------------------------------------------ ---------- ---------- -------- -------- --------
Net gains (losses) on securities (both realized and
unrealized) 0.28 0.46 0.52 (1.12) 0.69
- ------------------------------------------------------------ ---------- ---------- -------- -------- --------
Total from investment operations 1.18 1.38 1.45 (0.16) 1.66
- ------------------------------------------------------------ ---------- ---------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.90) (0.93) (0.95) (0.96) (1.01)
- ------------------------------------------------------------ ---------- ---------- -------- -------- --------
Net asset value, end of period $ 10.16 $ 9.88 $ 9.43 $ 8.93 $ 10.05
============================================================ ========== ========== ======== ======== ========
Total return(a) 12.52% 15.44% 16.86% (1.67)% 18.40%
============================================================ ========== ========== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,786,352 $1,272,974 $886,106 $578,959 $50,760
============================================================ ========== ========== ======== ======== ========
Ratio of expenses to average net assets 0.90%(b)(c) 0.97% 0.96% 1.00% 1.12%
============================================================ ========== ========== ======== ======== ========
Ratio of net investment income to average net assets 9.08%(b) 9.67% 9.95% 10.07% 9.82%
============================================================ ========== ========== ======== ======== ========
Portfolio turnover rate 80% 77% 61% 53% 53%
============================================================ ========== ========== ======== ======== ========
</TABLE>
(a) Does not deduct sales charges.
(b) Ratios are based on average net assets of $1,479,737,639.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly
the ratio of expenses to average net assets would have been 0.89%.
<TABLE>
<CAPTION>
CLASS B CLASS C
--------------------------------------------------------------- --------
1997 1996 1995 1994 1993 1997
---------- ---------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.88 $ 9.42 $ 8.92 $ 10.04 $ 9.96 $ 10.04
- -------------------------------------------- ---------- ---------- -------- -------- ------- --------
Income from investment operations:
Net investment income 0.83 0.85 0.85 0.87 0.32 0.35
- -------------------------------------------- ---------- ---------- -------- -------- ------- --------
Net gains (losses) on securities (both
realized and unrealized) 0.28 0.47 0.52 (1.10) 0.07 0.10
- -------------------------------------------- ---------- ---------- -------- -------- ------- --------
Total from investment operations 1.11 1.32 1.37 (0.23) 0.39 0.45
- -------------------------------------------- ---------- ---------- -------- -------- ------- --------
Less distributions:
Dividends from net investment income (0.83) (0.86) (0.87) (0.89) (0.31) (0.35)
- -------------------------------------------- ---------- ---------- -------- -------- ------- --------
Net asset value, end of period $ 10.16 $ 9.88 $ 9.42 $ 8.92 $ 10.04 $ 10.14
============================================ ========== ========== ======== ======== ======= ========
Total return(a) 11.71% 14.68% 15.91% (2.48)% 4.00% 4.49%
============================================ ========== ========== ======== ======== ======= ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,647,801 $1,068,060 $557,926 $191,338 $31,264 $ 26,177
============================================ ========== ========== ======== ======== ======= ========
Ratio of expenses to average net assets 1.65%(b)(c) 1.68% 1.73% 1.80% 1.93%(d) 1.68%(b)(c)(d)
============================================ ========== ========== ======== ======== ======= ========
Ratio of net investment income to average
net assets 8.33%(b) 8.95% 9.18% 9.27% 8.99%(d) 8.30%(b)(d)
============================================ ========== ========== ======== ======== ======= ========
Portfolio turnover rate 80% 77% 61% 53% 53% 80%
============================================ ========== ========== ======== ======== ======= ========
</TABLE>
(a) Does not deduct contingent deferred sales charges and for periods less than
one year are not annualized.
(b) Ratios are based on average net assets of $1,345,322,915 and $10,445,598,
respectively, for Class B and Class C.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly
the ratio of expenses to average net assets would have been the same for
Class B and would have been 1.66% (annualized) for Class C.
(d) Annualized.
18
<PAGE> 21
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders of
AIM High Yield Fund:
We have audited the accompanying statement of assets and
liabilities of AIM High Yield Fund (a portfolio of AIM
Funds Group), including the schedule of investments, as
of December 31, 1997, the related statement of operations
for the year then ended, the statement of changes in its
net assets for each of the years in the two-year period
then ended and the financial highlights for each of the
years or periods in the five-year period then ended.
These financial statements and financial highlights are
the responsibility of the Fund's management. Our
responsibility is to express an opinion on these
financial statements and financial highlights based on
our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
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 and financial highlights. Our procedures
included confirmation of securities owned as of December
31, 1997, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting
principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all
material respects, the financial position of AIM High
Yield Fund as of December 31, 1997, the results of its
operations for the year then ended, the changes in its
net assets for each of the years in the two-year period
then ended and the financial highlights for each of the
years or periods in the five-year period then ended, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
February 6, 1998
19
<PAGE> 22
Trustees & Officers
<TABLE>
<S> <C> <C>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Charles T. Bauer Charles T. Bauer 11 Greenway Plaza
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; John J. Arthur A I M Advisors, Inc.
Formerly Director, President, and Chief Senior Vice President and Treasurer 11 Greenway Plaza
Executive Officer Suite 100
COMSAT Corporation Carol F. Relihan Houston, TX 77046
Senior Vice President
Owen Daly II and Secretary TRANSFER AGENT
Director
Cortland Trust Inc. Gary T. Crum A I M Fund Services, Inc.
Senior Vice President P.O. Box 4739
Jack Fields Houston, TX 77210-4739
Chief Executive Officer Dana R. Sutton
Texanna Global, Inc; Vice President and Assistant Treasurer CUSTODIAN
Formerly Member of the
U.S. House of Representatives Robert G. Alley State Street Bank & Trust Company
Vice President 225 Franklin Street
Carl Frischling Boston, MA 02110
Partner Stuart W. Coco
Kramer, Levin, Naftalis & Frankel Vice President COUNSEL TO THE FUND
Robert H. Graham Melville B. Cox Ballard Spahr
President and Chief Executive Officer Vice President Andrews & Ingersoll
A I M Management Group Inc. 1735 Market Street
Karen Dunn Kelly Philadelphia, PA 19103
John F. Kroeger Vice President
Formerly Consultant COUNSEL TO THE TRUSTEES
Wendell & Stockel Associates, Inc. Jonathan C. Schoolar
Vice President Kramer, Levin, Naftalis & Frankel
Lewis F. Pennock 919 Third Avenue
Attorney P. Michelle Grace New York, NY 10022
Assistant Secretary
Ian W. Robinson DISTRIBUTOR
Consultant; Formerly Executive Nancy L. Martin
Vice President and Assistant Secretary A I M Distributors, Inc.
Chief Financial Officer 11 Greenway Plaza
Bell Atlantic Management Ofelia M. Mayo Suite 100
Services, Inc. Assistant Secretary Houston, TX 77046
Louis S. Sklar Kathleen J. Pflueger AUDITORS
Executive Vice President Assistant Secretary
Hines Interests KPMG Peat Marwick LLP
Limited Partnership Samuel D. Sirko 700 Louisiana
Assistant Secretary Houston, TX 77002
Stephen I. Winer
Assistant Secretary
Mary J. Benson
Assistant Treasurer
</TABLE>
REQUIRED FEDERAL INCOME TAX INFORMATION
AIM High Yield Fund Class A, Class B, and Class C shares paid ordinary dividends
in the amount of $0.9005, $0.8285, and $0.3455 per share, respectively, to
shareholders during its tax year ended December 31, 1997. Of these amounts,
1.12% is eligible for the dividends received deduction for corporations.
Missouri residents: During the Fund's tax year ended December 31, 1997, 0% of
the Fund's income was derived from U.S. Treasury obligations.
20
<PAGE> 23
-------------------------------
Current shareholders
can call our
AIM Investor Line at
800-246-5463
for 24-hour-a-day
account information.
-------------------------------
HOW AIM MAKES INVESTING
EASY FOR YOU
o LOW INITIAL INVESTMENT. You can get your investment program started for as
little as $500. Subsequent investments can be made for only $50.
o AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR CAPITAL GAINS. Distributions may
be received in cash or reinvested in the Fund free of charge. Over time, the
power of compounding can significantly increase the value of your assets.
o AUTOMATIC INVESTMENT PLAN. You may build your investment by regularly
purchasing additional shares. Pre-authorized checks for $50 or more can be
drafted monthly from your personal checking account.
o EASY ACCESS TO YOUR MONEY. Your shares may be redeemed at net asset value
any day the New York Stock Exchange is open. The price of shares sold may be
more or less than their original cost, depending on market conditions.
o SYSTEMATIC WITHDRAWAL PLAN. You may elect to receive checks of at least $50
monthly or quarterly through a systematic withdrawal plan.
o EXCHANGE PRIVILEGE. As your goals change, you may exchange all or part of
your assets for those of other funds within the same share class of The AIM
Family of Funds--Registered Trademark--. The exchange privilege may be
modified or discontinued for any of the AIM funds.
o RETIREMENT PLANS. You may purchase shares of the fund for your Individual
Retirement Account (IRA) or any other type of retirement plan, and earn
tax-deferred dollars for your retirement.
o TOLL-FREE ACCESS. Current shareholders can call our AIM Investor Line at
800-246-5463 for 24-hour-a-day account information. Or, of course, you may
contact your financial consultant for assistance.
o WWW.AIMFUNDS.COM. As a current shareholder, you can check account balances
24 hours a day over the Internet. State-of-the-art encryption lets you send
us questions that include confidential information without the fear of
eavesdropping, tampering, or forgery.
<PAGE> 24
<TABLE>
<S> <C>
THE AIM FAMILY OF FUNDS--Registered Trademark--
AGGRESSIVE GROWTH
AIM Aggressive Growth Fund*
AIM Asian Growth Fund
AIM Capital Development Fund
AIM Constellation Fund
AIM European Development Fund
AIM Global Aggressive Growth Fund
GROWTH OF CAPITAL
AIM Advisor International Value Fund
[PHOTO OF ELEVEN AIM Blue Chip Fund
GREENWAY PLAZA AIM Global Growth Fund
APPEARS HERE] AIM Growth Fund
AIM International Equity Fund
AIM Value Fund
AIM Weingarten Fund
GROWTH AND INCOME OR INCOME WITH CAPITAL GROWTH
AIM Advisor Flex Fund
AIM Advisor Large Cap Value Fund
AIM Advisor MultiFlex Fund
AIM Advisor Real Estate Fund
AIM Balanced Fund
AIM Charter Fund
AIM Global Utilities Fund
HIGH CURRENT INCOME OR CURRENT INCOME
AIM High Yield Fund
AIM Global Income Fund
AIM Income Fund
CURRENT TAX-FREE INCOME
AIM High Income Municipal Fund
AIM Municipal Bond Fund
AIM Tax-Exempt Bond Fund of Connecticut
AIM Tax-Free Intermediate Fund
CURRENT INCOME AND HIGH DEGREE OF SAFETY
AIM Intermediate Government Fund
AIM Limited Maturity Treasury Fund
AIM Money Market Fund
AIM Tax-Exempt Cash Fund
A I M Management Group Inc. has provided leadership in the *AIM Aggressive Growth Fund was closed to new investors on
mutual fund industry since 1976 and managed approximately June 5, 1997. For more complete information about any AIM
$83 billion in assets for more than 3.7 million shareholders, Fund(s), including sales charges and expenses, ask your
including individual investors, corporate clients, and financial financial consultant or securities dealer for a free
institutions as of December 31, 1997. The AIM Family of prospectus(es). Please read the prospectus(es) carefully
Funds--Registered Trademark-- is distributed nationwide, and before you invest or send money.
AIM today ranks among the nation's top 15 mutual fund
companies in assets under management, according to Lipper INVEST WITH DISCIPLINE-SM-
Analytical Services, Inc.
</TABLE>
