<PAGE> 1
[COVER IMAGE]
AIM
HIGH YIELD FUND
[AIM LOGO APPEARS HERE] ANNUAL REPORT DECEMBER 31 1998
INVEST WITH DISCIPLINE--Registered Trademark--
<PAGE> 2
[ COVER IMAGE ]
------------------------------------
WHEAT FIELD WITH A LARK BY VINCENT VAN GOGH (1853-1890, DUTCH)
GOOD TIMES ARE COMMONLY REPRESENTED BY A WHEAT SHEAF, CONNOTING
NATURE'S BOUNTY AND THE HARVEST THAT IS REAPED AFTER ARDUOUS
LABOR. ALTHOUGH HARDSHIP MAY BE INCURRED ALONG THE WAY, THE
DISCIPLINED INVESTOR KNOWS THAT IN THE LONG TERM PERSEVERANCE SHOULD
RESULT IN REWARD.
------------------------------------
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 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 at net asset value
without a sales charge.
o During the fiscal year ended December 31, 1998, the Fund paid distributions
of $0.91 per share for Class A shares, $0.84 for Class B shares, and $0.84
for Class C shares.
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 differences in sales charge structure and
class expenses.
o The 30-day yield is calculated on the basis of a formula defined by the SEC.
The formula is based on the portfolio's potential earnings from dividends,
interest, yield-to-maturity or yield-to-call of the bonds in the portfolio,
net of all expenses and 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.
ABOUT INDEXES AND OTHER PERFORMANCE BENCHMARKS CITED IN THIS REPORT:
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 The Lehman High Yield Bond Index is an unmanaged composite generally
considered representative of high-yield debt securities. It is compiled by
Lehman Brothers, a well-known global investment bank.
o The unmanaged Lipper High Current Yield Fund Index represents an average of
the performance of the 30 largest high-yield funds charted by Lipper, Inc.,
an independent mutual fund performance monitor. Results shown reflect
reinvestment of dividends.
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.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OF A BANK AND IS
NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. THERE IS A RISK
THAT YOU COULD LOSE A PORTION OR ALL OF YOUR MONEY.
This report may be distributed only to current shareholders or to persons
who have received a current prospectus of the Fund.
AIM HIGH YIELD FUND
<PAGE> 3
ANNUAL REPORT / CHAIRMAN'S LETTER
Dear Fellow Shareholder:
As the fiscal year opened, markets were recovering from the
[PHOTO OF concerns produced by financial crises in Asia during 1997,
Charles T. and this optimism early in 1998 led several equity market
Bauer indexes to all-time highs in spring and early summer.
Chairman of However, the year was to bring two particularly serious
the Board of financial shocks, first the debt default by Russia, and
THE FUND later the gathering crisis in Brazil, which devalued its
APPEARS HERE] currency shortly after the fiscal year closed. The result
was another year of significant volatility in both equity
and fixed-income markets.
MARKET RECAP
Buoyant equity markets and healthy economic growth in Europe
and the U.S. kept bond prices relatively stable early in
1998. But optimism turned to profound pessimism over the
summer as global financial crises caused a worldwide loss of
confidence. Investors flocked to securities perceived as safe and liquid,
especially U.S. Treasuries. Even high-quality corporate bonds went out of favor,
and high-yield corporate bonds plummeted. Beginning in late September, the U.S.
Federal Reserve Board intervened to pump liquidity and confidence into markets.
Numerous interest rate cuts in other countries followed. Investors responded
favorably, and by year end, bond market volatility had generally subsided.
HOW SHOULD INVESTORS RESPOND?
We understood how unnerving 1998's level of volatility could have been. Our
repeated message to you is to keep a long-term outlook on investments rather
than responding to short-term fluctuations. And we are pleased to note that most
mutual fund shareholders remained cool headed and did not pull out of the
markets during 1998. In the end, most were rewarded for their long-term
perspective.
In view of recent volatility and the divergent performance of market
sectors, this may be a very good time to meet with your financial consultant to
review your current asset allocation and the diversification of your portfolio.
Broad portfolio diversification remains one of the most fundamental principles
of investing, along with long-term thinking and realistic expectations.
YOUR FUND MANAGERS' COMMENTS
On the pages that follow, your Fund's managers, experienced professionals who
have weathered previous periods of market turbulence, offer more detailed
discussion of how markets behaved, how they managed the portfolio in light of
recent volatility, and what they foresee for markets and your Fund. We hope you
find their discussion informative.
YEAR 2000 CONCERN
Many of our shareholders have asked us about AIM's year 2000 readiness status.
We appreciate these concerns, and we take the year 2000 issue seriously. AIM has
devoted considerable effort to creating a comprehensive plan for assessing,
correcting and testing our in-house systems. We will also participate in an
industrywide testing effort scheduled to begin in March. But no matter how well
we prepare and test, no one can know for sure what the year 2000 will bring. Our
industry's systems are connected in complex ways to many third parties, and
there may be unforeseen problems when the year 2000 actually arrives. Though we
cannot predict what all those problems might be, we are working with our
business recovery team to develop contingency plans appropriate for a variety of
year 2000 problem scenarios.
We are pleased to send you this report on your Fund's fiscal year. If you
have any questions or comments, please contact our Client Services department at
800-959-4246, or e-mail your inquiry to us at [email protected]. You can
access information about your account through our AIM Investor Line at
800-246-5463 or at our Web site, www.aimfunds.com. We often post market updates
on our Web site.
We thank you for your continued participation in The AIM Family of Funds
- --Registered Trademark--.
Sincerely
/s/ CHARLES T. BAUER
Charles T. Bauer
Chairman
------------------------------------
. . . WE ARE PLEASED
TO NOTE THAT MOST
MUTUAL FUND
SHAREHOLDERS REMAINED COOL HEADED AND
DID NOT PULL OUT OF THE MARKETS DURING 1998.
------------------------------------
AIM HIGH YIELD FUND
<PAGE> 4
ANNUAL REPORT / MANAGERS' OVERVIEW
FUND FOCUSES ON QUALITY IN DIFFICULT MARKET
THE MARKET EXPERIENCED ALL-TIME HIGHS AND ONE OF ITS MOST VICIOUS CORRECTIONS
DURING 1998. HOW DID AIM HIGH YIELD FUND PERFORM IN THIS UNSETTLING ENVIRONMENT?
We have been in a very challenging environment during the past year. The Fund
has suffered from a combination of oversupply and weakened demand, as well as
from the "flight to quality" following a succession of global currency crises.
Total returns for the fiscal year ended December 31, 1998, for Class A, Class B,
and Class C shares were -5.10%, -5.90%, -5.92%, respectively.
Despite the difficult high-yield market conditions in 1998 the Fund
continued to provide attractive current income. As of December 30, 1998, the
Fund's 30-day SEC yields were 10.92%, 10.70%, and 10.70% for Class A, Class B,
and Class C shares, respectively. By comparison, the yield on the benchmark
30-year U.S. Treasury bond was 5.09%.
During the reporting period, net assets under management grew approximately
$150 million for a total of $3.61 billion at the close of the fiscal year.
WHAT WERE THE MAJOR TRENDS IN THE FINANCIAL MARKETS SINCE YOUR JUNE REPORT TO
SHAREHOLDERS?
Beginning in July, markets succumbed to the second wave of "Asian contagion"
when currency troubles in Asia made their way to the United States. A month
later, Russia's bond default and the downturn that ensued involved even the very
large, very liquid stocks that were chiefly responsible for the U.S. markets'
earlier rise. Domestically, the markets were hit by the collapse of several
hedge funds. Investors sought shelter from market volatility in the safest and
most liquid investment classes, particularly large-cap equities and U.S.
Treasury securities.
The Federal Reserve Board (the Fed) announced the first of three interest
rate cuts in September, hoping to shelter the U.S. from a potential global
recession. Boosted by the Fed easing, the U.S. markets rebounded and led the way
for recovery in many foreign markets.
HOW DID HIGH-YIELD BONDS FARE IN THIS MARKET TURBULENCE?
High-yield bonds were hit hard during the summer "flight to quality" when
investors turned to U.S. Treasury securities for their relative safety.
Beginning in August, investor demand did not keep up with record levels of new
high-yield offerings, generating broad-based volatility in the high-yield
market. As market volatility increased, the volume of new high-yield issues
dropped significantly as companies feared weakened demand. Performance of
many high-yield funds deteriorated significantly in the wake of falling
corporate profits and rising default rates. However, AIM High Yield Fund did not
suffer from any defaults during the reporting period.
After a devastating third quarter, the worst in almost eight years, the
high-yield market began to recover, boosted by the Fed's interest rate cuts.
Liquidity slowly returned to the market, as new offerings reappeared. During
November, more than $2.5 billion in new corporate debt entered the market, led
by a group of fast-growing telecommunications companies. The spread between
high-yield
------------------------------------
DESPITE THE DIFFICULT HIGH-YIELD
MARKET CONDITIONS IN 1998 THE FUND
CONTINUED TO PROVIDE ATTRACTIVE CURRENT
INCOME.
------------------------------------
PORTFOLIO COMPOSITION
As of 12/31/98, based on total net assets
<TABLE>
<CAPTION>
===============================================================================================================
Top 10 Holdings Top 10 Industries
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. ICG Services, Inc. 1.52% 1. Telecommunications (Cellular/Wireless) 7.84%
2. Chancellor Media Corp. 1.46 2. Broadcasting (Television, Radio & Cable) 7.60
3. Qwest Communications Int'l 1.46 3. Telecommunications (Long Distance) 7.30
4. Nextel Communications, Inc. 1.34 4. Telephone 6.91
5. HMH Properties 1.33 5. Manufacturing (Specialized) 5.62
6. Airplanes Pass Through Trust 1.25 6. Lodging-Hotels 4.73
7. Logix Communications 1.23 7. Retail (Specialty) 4.17
8. Kabelmedia Holdings GmbH 0.90 8. Gaming, Lottery & Parimutuel Companies 3.62
9. Carr-Gottstein Foods Co. 0.87 9. Airlines 2.79
10. Coinmach Corp. 0.85 10. Oil & Gas (Exploration & Production) 2.50
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>
See important Fund and index disclosures inside front cover.
AIM HIGH YIELD FUND
2
<PAGE> 5
ANNUAL REPORT / MANAGERS' OVERVIEW
bonds and U.S. Treasury securities, which had reached its widest point since the
early 1990s, fell from 750 to 600 basis points as the high-yield market rallied.
GIVEN CURRENT MARKET CONDITIONS, HOW HAVE YOU MANAGED THE PORTFOLIO?
During the fourth quarter, as volatility in the high-yield market continued, we
focused on increasing quality in the Fund's portfolio. Volatility in the
high-yield market created some exceptional values in higher-quality debt. We
added more holdings in the higher-quality BB segment of the market which
accounted for 2.94% of the Fund's net assets in June. BB-rated bonds represented
7.83% of net assets as of December 31, 1998.
Conversely, we reduced the Fund's holdings in CCC and non-rated securities
from 34.22% of net assets in June to 29.75% at the close of the fiscal year.
Overall, we maintained about 60% of the Fund's net assets in the single-B
sector, as rated by Standard & Poor's, a widely known credit-rating agency.
At the close of the fiscal year, the Fund's largest holdings were in the
telecommunications and broadcasting industries. These industries continue to
perform well despite weakening economic conditions. High-yield securities were
90.11% of the Fund's holdings, with approximately 7% of that figure invested in
foreign corporate debt. The Fund remained well diversified across 237 holdings
representing 62 industries. During the reporting period, we trimmed our holdings
in steel, shipping, and energy, as those industries continue to be hit hard by
battered commodity prices.
Our cash position at the close of the fiscal year was 4.40%. We aim to
maintain the Fund's cash weighting around 5% to take advantage of new issues, as
the supply of high-yield issues is expected to increase at the beginning of
1999.
WHAT IS YOUR OUTLOOK FOR 1999?
By and large, we are optimistic that the U.S. market has performed a turnaround,
coming back from its steep declines last summer. Market analysts are optimistic
that the United States will avoid a recession in 1999. Economic growth seems to
be decelerating, so low inflation and low interest rates should continue. These
conditions may bode well for high-yield bonds in the coming year.
Historically, November to February is, on average, the best-performing
period in the high-yield market, adding approximately 15% on an annualized
basis. With the yield spreads between high-yield bonds and 10-year U.S. Treasury
securities at their widest since 1991, many analysts believe that high-yield
bonds represent a good bargain for the near term. Investors may be rewarded by
the appreciation that should occur as yields return to more normal levels.
With a slowing economy expected in 1999, the key to continuing recovery in
the high-yield market will be corporate earnings in the coming months. As the
rate of defaults continues to increase due to more volatile market conditions,
we believe that credit quality will become more of a differentiating factor in
total return performance. We remain focused on providing attractive current
income and on minimizing volatility within the Fund's portfolio as much as
possible.
================================================================================
HIGH-YIELD BONDS-BEST/WORST TIME PERIOD RETURNS 1987-1998
14.96% 9.89% -2.78%
Nov. - Feb. Mar. - June July - Oct.
================================================================================
Returns were calculated by annualizing the average cumulative returns for each
period from 1987 to 1998.
Sources: Lehman High Yield Bond Index, Bear Stearns
See important Fund and index disclosures inside front cover.
AIM HIGH YIELD FUND
3
<PAGE> 6
ANNUAL REPORT / PERFORMANCE HISTORY
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
AIM HIGH YIELD FUND VS. BENCHMARK INDEXES
12/31/88-12/31/98
- --------------------------------------------------------------------------------
AIM HIGH YIELD FUND, LEHMAN HIGH YIELD LIPPER HIGH CURRENT YIELD
CLASS A SHARES BOND INDEX FUNDS INDEX
- --------------------------------------------------------------------------------
In thousands
12/31/88 $9,524 $10,000 $10,000
12/31/89 9,637 10,083 10,039
12/31/90 8,766 9,117 9,398
12/31/91 12,464 13,327 13,511
12/31/92 14,782 15,426 15,762
12/31/93 17,502 18,066 18,742
12/31/94 17,209 17,880 18,559
12/31/95 20,111 21,309 21,785
12/31/96 23,215 23,728 24,491
12/31/97 26,120 26,756 27,584
12/31/98 24,789 27,185 27,744
================================================================================
Past performance is no guarantee of comparable future results.
- --------------------------------------------------------------------------------
AIM HIGH YIELD FUND C.S. FIRST BOSTON LIPPER HIGH CURRENT
CLASS A SHARES HIGH YIELD INDEX YIELD FUNDS INDEX
- --------------------------------------------------------------------------------
In thousands
12/31/88 $9,524 $10,000 $10,000
12/31/89 9,637 9,723 10,039
12/31/90 8,766 8,642 9,398
12/31/91 12,464 12,118 13,511
12/31/92 14,782 14,343 15,762
12/31/93 17,502 17,189 18,742
12/31/94 17,209 16,557 18,559
12/31/95 20,111 19,435 21,785
12/31/96 23,215 21,958 24,491
12/31/97 26,120 24,850 27,584
12/31/98 24,789 24,829 27,744
================================================================================
Past performance is no guarantee of comparable future results.
================================================================================
Average Annual Total Returns
As of 12/31/98, including sales charges
CLASS A SHARES
10 Years 9.50%
5 Years 6.17
1 Year -9.63*
*-5.10%, excluding sales charges
CLASS B SHARES
Since Inception (9/1/93) 6.63%
5 Years 6.11
1 Year -10.22*
*-5.90%, excluding CDSC
CLASS C SHARES
Since Inception (8/4/97) -1.21%
1 Year -6.78*
*-5.92%, excluding CDSC
================================================================================
Source: Towers Data Systems HYPO--Registered Trademark--.
Your Fund's total return includes sales charges, expenses, and management
fees. The performance of the Fund's Class B and Class C shares will differ from
that of Class A shares due to differing fees and expenses. For Fund data
performance calculations and descriptions of indexes cited on this page, please
refer to the inside front cover.
MARKET VOLATILITY CAN SIGNIFICANTLY IMPACT SHORT-TERM PERFORMANCE. RESULTS OF AN
INVESTMENT MADE TODAY MAY DIFFER SUBSTANTIALLY FROM THE HISTORICAL PERFORMANCE
SHOWN.
ABOUT THESE CHARTS
These charts compare your Fund's Class A shares to benchmark indexes. They are
intended to give you a general idea of how your Fund performed compared to these
benchmarks over the period 12/31/88 to 12/31/98. It is important to understand
differences between your Fund and these indexes. An index measures performance
of a hypothetical portfolio. A market index such as the C.S. First Boston Index
is not managed, incurring no sales charges, expenses, or fees. If you could
buy all the securities that make up a market index, you would incur expenses
that would affect your investment's return. An index of funds such as the Lipper
High Current Yield Fund Index includes a number of mutual funds grouped by
investment objective. Each of those funds interprets that objective differently,
and each employs a different management style and investment strategy.
Since the last reporting period, your Fund has elected to use the Lehman
High Yield Bond Index.
This index more closely reflects the performance of securities in which the Fund
invests. The Fund will no longer be measured against the C.S. First Boston High
Yield Index. The Lipper High Current Yield Fund Index remains as one of the
Fund's benchmarks.
Because this is the first reporting period since we have adopted the new
index, SEC guidelines require that we compare the Fund's performance to both the
old and new index.
AIM HIGH YIELD FUND
4
<PAGE> 7
ANNUAL REPORT / FOR CONSIDERATION
WHAT DO BOND RATINGS MEAN?
The preceding discussion of your Fund's performance mentions the quality of the
bonds in the Fund's portfolio. Just what are bond quality ratings?
Two well-known rating agencies, Moody's and Standard & Poor's (S&P), assign
ratings to bond issues. The chart shows a summary of the definitions of these
ratings.
HOW BONDS ARE RATED
Bond ratings are essentially based on the issuer's risk of default, or
nonpayment of principal and/or interest, on the bond. How does a bond rating
come about? Say a company wants to raise $5 million for expansion by issuing a
five-year bond, meaning that in five years' time, the company will repay $5
million plus interest to the investor(s) in the bond issue. The company, or
issuer, pays a fee to have its bond rated by a qualified rating agency. The
selected rating agency sends representatives to the company to meet with
management and evaluate the company's short-and long-term risk profile--the
company's ability and willingness to pay the principal and interest of the bond
issue at its maturity, in this case five years. Other rating factors include:
o the make-up and terms of the particular issue;
o the level and predictability of the issuer's cash flow;
o how well-protected the issue is in the event of bankruptcy, reorganization
or other arrangement;
o possible adverse economic conditions both in general and in the company's
sector; and
o currency risk in the case of foreign issues.
After considering these and any other factors deemed necessary by agency
representatives, the rating agency assigns a rating, such as "A," to the issue.
The rating is made public before the issue is offered to investors so that
investors know the relative quality of the bond. Investors can then decide for
themselves
- --------------------------------------------------------------------------------
MOODY'S DEFINITION S&P
- --------------------------------------------------------------------------------
INVESTMENT GRADE
Aaa Bonds of the highest quality, with the AAA
lowest degree of long-term investment
risk. Issuers' ability to repay is very
high.
Aa Bonds of high quality with slightly AA
greater long-term investment risk.
A Bonds with favorable investment A
attributes but elements making them
more susceptible to adversity.
Baa Medium-grade bonds that are currently BBB
secure but may be unreliable over
time.
NON-INVESTMENT GRADE
(High-Yield or Junk)
Ba Bonds with speculative elements that make BB
them not well safeguarded and
uncertain.
B Bonds with low long-term assurance of B
payment.
Caa Bonds of poor standing that may be in CCC
default or in danger of default.
Ca Bonds of highly speculative quality that CC
are often in default.
C Lowest rated bonds with poor prospects C
of ever being upgraded to investment standing.
- - Bonds in default. Issuer cannot repay. D
================================================================================
Your Fund's prospectus and statement of additional information show the maximum
percentage, if any, that your Fund can invest in non-investment grade bonds.
AIM HIGH YIELD FUND
5
<PAGE> 8
ANNUAL REPORT / FOR CONSIDERATION
if they wish to invest in a particular bond issue.
WHAT BOND RATINGS MEAN
Although the rating systems of the two agencies differ slightly, their hierarchy
is essentially the same: the highest rated bonds, Aaa for Moody's and AAA for
S&P, are those which show the best capacity for repayment of the principal (face
value) plus interest to the bondholder. These high-rated bonds have a lower
return because they are a lower-risk investment. In other words, rating and risk
and return move conversely for bonds--the lower the rating, the higher the
potential risk and return, and vice versa. So although investment grade bonds
such as U.S. Treasury issues are one of the safest investments around, more
speculative junk bonds can yield significantly higher returns if an investor can
tolerate the risk.
Moody's and S&P sometimes use modifiers along with their standard ratings.
Moody's may add a 1, 2 or 3 to a rating (e.g., Aa2), with a 1 denoting an issue
ranking in the higher end of its category, a 2 denoting a mid-range ranking, and
a 3 denoting a lower-end ranking. Similarly, S&P may add a plus (+) or minus (-)
to show an issue's relative standing within a category (e.g., B+).
Once assigned, bond ratings are not often altered. However, if major changes
occur in an issuer's short- or long-term credit outlook, a rating agency may
review the rating for possible modification. Contributing factors may include
shifts in industry demand, new technologies, government intervention, regulatory
changes, or changes in macroeconomic variables such as oil prices. Events such
as these are weighed to determine how much they will affect the issuer's
operations and future direction.
UNRATED BONDS
What about unrated bonds? Just because a bond is unrated does not mean it is a
"bad" bond. Some organizations simply choose not to pay to have their bonds
rated. Often the issuer of an unrated bond is a small entity such as a town or
district that does not have extra money to pay for a rating. In those cases,
independent research is necessary on the part of the investor to put together a
risk profile of the issuer.
[ COVER IMAGE ]
------------------------------------
WHAT TYPES OF BONDS DOES YOUR FUND OWN?
YOUR FUND'S PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION DISCUSS
IN MORE DETAIL THE TYPES OF BONDS CONTAINED IN YOUR FUND'S PORTFOLIO AND RISK
FACTORS THAT MAY BE ASSOCIATED WITH THESE SECURITIES. YOUR FINANCIAL
CONSULTANT IS THE BEST PERSON TO CONTACT IF YOU HAVE ANY QUESTIONS ABOUT
INVESTING IN BONDS OR A BOND FUND.
------------------------------------
AIM HIGH YIELD FUND
6
<PAGE> 9
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
CORPORATE BONDS & NOTES-91.49%
AEROSPACE/DEFENSE-0.32%
Earthwatch Inc., Sr. Notes,
12.50%, 03/01/01(a)(b)
(Acquired 03/14/97; Cost
$15,500,000) $ 15,500,000 $ 11,702,500
- ---------------------------------------------------------------
AIR FREIGHT-0.70%
Atlas Air, Inc., Sr. Unsec.
Notes, 10.75%, 08/01/05 23,947,000 25,264,085
- ---------------------------------------------------------------
AIRLINES-2.79%
Airplanes Pass Through Trust,
Sub. Bonds, 10.875%, 03/15/19 42,860,000 45,030,001
- ---------------------------------------------------------------
Amtran, Inc., Sr. Unsec. Gtd.
Notes, 10.50%, 08/01/04 26,750,000 27,820,000
- ---------------------------------------------------------------
Continental Airlines, Notes,
8.00%, 12/15/05 26,000,000 26,356,200
- ---------------------------------------------------------------
World Airways, Inc., Sr. Conv.
Sub. Deb., 8.00%, 08/26/04(a)
(Acquired 08/21/97; Cost
$5,000,000) 5,000,000 1,475,000
- ---------------------------------------------------------------
100,681,201
- ---------------------------------------------------------------
AUTO PARTS & EQUIPMENT-1.93%
Advance Stores Co., Series B Sr.
Gtd. Sub. Notes, 10.25%,
04/15/08 21,680,000 22,113,600
- ---------------------------------------------------------------
Exide Corp.
Conv. Sr. Sub. Notes, 2.90%,
12/15/05(a) (Acquired
12/19/96-04/07/98; Cost
$12,820,500) 20,700,000 12,238,875
- ---------------------------------------------------------------
Sr. Notes, 10.00%, 04/15/05 14,000,000 14,000,000
- ---------------------------------------------------------------
Magna International, Inc., Conv.
Sub. Deb., 4.875%, 02/15/05 9,000,000 9,258,750
- ---------------------------------------------------------------
Newcor, Inc., Series B Sr. Gtd.
Sub. Notes, 9.875%, 03/01/08 12,880,000 12,042,800
- ---------------------------------------------------------------
69,654,025
- ---------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO
& CABLE)-6.73%
Chancellor Media Corp., Sr. Sub.
Notes, 9.00%, 10/01/08(a)
(Acquired 09/25/98; Cost
$50,000,000) 50,000,000 52,750,000
- ---------------------------------------------------------------
Diamond Cable Communications PLC
(United Kingdom), Sr. Yankee
Disc. Notes, 11.75%,
12/15/05(c) 32,380,000 26,956,350
- ---------------------------------------------------------------
Digital TV Services LLC, Series
B, Sr. Gtd. Sub. Notes,
12.50%, 08/01/07 17,500,000 18,987,500
- ---------------------------------------------------------------
EchoStar DBS Corp., Sr. Sec.
Gtd. Notes, 12.50%, 07/01/02 21,080,000 24,452,800
- ---------------------------------------------------------------
Fox Family Worldwide, Inc., Sr.
Unsec. Disc. Notes, 10.25%,
11/01/07(c) 32,750,000 20,632,500
- ---------------------------------------------------------------
Frontiervision Holdings LP, Sr.
Disc. Notes, 11.875%,
09/15/07(c) 27,480,000 23,151,900
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
BROADCASTING (TELEVISION, RADIO &
CABLE)-(CONTINUED)
Jacor Communications, Inc.,
Unsec. Conv. LYON, 3.99%,
02/09/18(d) $ 20,000,000 $ 9,693,000
- ---------------------------------------------------------------
Kabelmedia Holdings GmbH
(Germany), Sr. Yankee Unsec.
Disc. Notes, 13.625%,
08/01/06(c) 39,000,000 32,370,000
- ---------------------------------------------------------------
Knology Holdings, Inc., Sr.
Disc. Notes, 11.875%
10/15/07(c) 42,250,000 19,540,625
- ---------------------------------------------------------------
Park N View, Inc., Series B, Sr.
Notes, 13.00%, 05/15/08 16,400,000 14,022,000
- ---------------------------------------------------------------
242,556,675
- ---------------------------------------------------------------
BUILDING MATERIALS-1.02%
Congoleum Corp., Sr. Unsec.
Notes, 8.625%, 08/01/08 19,900,000 19,701,000
- ---------------------------------------------------------------
Imperial Home Decor Group,
Series B, Sr. Unsec. Gtd. Sub.
Notes, 11.00%, 03/15/08 19,100,000 17,094,500
- ---------------------------------------------------------------
36,795,500
- ---------------------------------------------------------------
CHEMICALS-0.48%
Sterling Chemicals, Inc., Sr.
Unsec. Sub. Notes, 11.75%,
08/15/06 19,990,000 17,291,350
- ---------------------------------------------------------------
CHEMICALS (SPECIALTY)-1.26%
Key Plastics, Inc., Series B,
Sr. Unsec. Gtd. Sub. Notes,
10.25%, 03/15/07 21,270,000 19,993,800
- ---------------------------------------------------------------
Trans-Resources, Inc.,
Series B, Sr. Unsec. Disc.
Notes, 12.00%, 03/15/08(c) 26,000,000 13,910,000
- ---------------------------------------------------------------
Series B, Sr. Unsec. Notes,
10.75%, 03/15/08 11,700,000 11,700,000
- ---------------------------------------------------------------
45,603,800
- ---------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-1.53%
Comverse Technology, Inc.,
Conv. Sub. Deb., 4.50%,
07/01/05(a) (Acquired
10/27/98; Cost $1,157,963) 1,269,000 1,605,285
- ---------------------------------------------------------------
Unsec. Conv. Sub. Deb., 4.50%,
07/01/05 4,481,000 5,668,465
- ---------------------------------------------------------------
Dialog Corp. PLC (United
Kingdom), Series A, Sr. Sub.
Yankee Notes, 11.00%, 11/15/07 23,000,000 23,000,000
- ---------------------------------------------------------------
ProNet, Inc., Sr. Sub. Notes,
11.875%, 06/15/05 23,640,000 25,176,600
- ---------------------------------------------------------------
55,450,350
- ---------------------------------------------------------------
COMPUTERS (HARDWARE)-0.03%
Candescent Technology Corp., Sr.
Conv. Sub. Deb., 7.00%,
05/01/03(a) (Acquired
11/09/98-11/30/98; Cost
$1,112,500) 1,250,000 1,125,000
- ---------------------------------------------------------------
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
COMPUTERS (NETWORKING)-1.11%
Convergent Communication, Series
B, Sr. Unsec. Notes, 13.00%,
04/01/08 $ 33,500,000 $ 16,247,500
- ---------------------------------------------------------------
Exodus Communications, Sr.
Unsec. Notes, 11.25%, 07/01/08 23,660,000 23,896,600
- ---------------------------------------------------------------
40,144,100
- ---------------------------------------------------------------
COMPUTERS (PERIPHERALS)-0.37%
Metal Management, Inc., Sr.
Unsec. Gtd. Sub. Notes,
10.00%, 05/15/08 21,900,000 13,249,500
- ---------------------------------------------------------------
CONSTRUCTION (CEMENT & AGGREGATES)-0.45%
Schuff Steel Co., Sr. Unsec.
Gtd. Sub. Notes, 10.50%,
06/01/08 18,550,000 16,231,250
- ---------------------------------------------------------------
CONTAINERS & PACKAGING (PAPER)-0.74%
BPC Holding Corp., Series B, Sr.
Sec. Notes, 12.50%, 06/15/06 11,875,000 12,409,375
- ---------------------------------------------------------------
MVE, Inc., Sr. Sec. Notes,
12.50%, 02/15/02 14,570,000 14,351,450
- ---------------------------------------------------------------
26,760,825
- ---------------------------------------------------------------
DISTRIBUTORS (FOOD &
HEALTH)-1.00%
Core-Mark International, Inc.,
Sr. Sub. Notes, 11.375%,
09/15/03 16,340,000 16,666,800
- ---------------------------------------------------------------
Fleming Companies, Inc., Sr.
Unsec. Gtd. Sub. Notes,
10.625%, 07/31/07 20,700,000 19,458,000
- ---------------------------------------------------------------
36,124,800
- ---------------------------------------------------------------
ELECTRICAL EQUIPMENT-0.19%
Electronic Retailing Systems
International, Inc., Sr. Disc.
Notes, 13.25%, 02/01/04(c) 18,342,000 6,694,830
- ---------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS)-0.44%
Panda Funding Corp., Series A-1,
Pooled Project Bonds, 11.625%,
08/20/12 14,950,869 15,773,167
- ---------------------------------------------------------------
ENTERTAINMENT-1.38%
Ascent Entertainment Group, Sr.
Sec. Disc. Notes, 11.875%,
12/15/04(c) 28,812,000 17,431,260
- ---------------------------------------------------------------
Regal Cinemas, Inc., Sr. Unsec.
Sub. Notes, 9.50%, 06/01/08 20,100,000 20,803,500
- ---------------------------------------------------------------
Silver Cinemas, Inc., Sr. Sub.
Notes, 10.50%, 04/15/05 15,880,000 11,513,000
- ---------------------------------------------------------------
49,747,760
- ---------------------------------------------------------------
FOODS-1.60%
Ameriserve Food Distributors,
Sr. Unsec. Gtd. Notes, 8.875%,
10/15/06 15,500,000 14,415,000
- ---------------------------------------------------------------
Del Monte Corp./Foods Co.,
Series B, Sr. Unsec. Sub.
Notes, 12.25%, 04/15/07 14,385,000 16,398,900
- ---------------------------------------------------------------
Nebco Evans Holding Co., Sr.
Unsec. Disc. Notes, 12.375%,
07/15/07(c) 18,760,000 9,098,600
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
FOODS-(CONTINUED)
RAB Enterprise, Inc.,
Sr. Notes, 10.50%, 05/01/05(a)
(Acquired 04/28/98; Cost
$9,350,000) $ 9,350,000 $ 7,059,250
- ---------------------------------------------------------------
Sr. Notes, 13.00%, 05/01/08(a)
(Acquired 04/28/98; Cost
$15,000,000) 15,000,000 10,575,000
- ---------------------------------------------------------------
57,546,750
- ---------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL
COMPANIES-3.62%
Alliance Gaming Corp., Series B,
Sr. Unsec. Gtd. Notes, 10.00%,
08/01/07 18,400,000 16,652,000
- ---------------------------------------------------------------
Circus Circus Enterprises, Sr.
Sub. Notes, 9.25%, 12/01/05 29,000,000 30,080,250
- ---------------------------------------------------------------
Resort at Summerlin/RAS Co., Sr.
Unsec. Sub. PIK Notes, 13.00%,
12/15/07 26,970,000 25,756,350
- ---------------------------------------------------------------
Showboat Marina Casino
Partnership & Showboat Marina
Financial Corp., Series B Sec.
First Mortgage Notes, 13.50%,
03/15/03 21,600,000 24,516,000
- ---------------------------------------------------------------
Venetian Casino Resort LLC,
Sec. Gtd. Mortgage Notes,
12.25%, 11/15/04 18,300,000 17,202,000
- ---------------------------------------------------------------
Sr. Unsec. Gtd. Sub. Notes,
10.00%, 11/15/05(c) 19,100,000 16,139,500
- ---------------------------------------------------------------
130,346,100
- ---------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC &
OTHER)-0.39%
Biovail Corp., Sr. Notes,
10.875%, 11/15/05(a) (Acquired
11/10/98-11/24/98; Cost
$13,962,063) 13,875,000 14,083,125
- ---------------------------------------------------------------
HEALTH CARE (LONG TERM
CARE)-0.96%
Harborside Healthcare, Sr.
Unsec. Gtd. Disc. Sub. Notes,
11.00%, 08/01/08(c) 34,000,000 17,170,000
- ---------------------------------------------------------------
Mariner Post-Acute Network,
Inc.,
Series B, Sr. Unsec. Sub.
Notes, 9.50%, 11/01/07 14,990,000 11,617,250
- ---------------------------------------------------------------
Series B, Sr. Unsec. Disc.
Sub. Notes, 10.50%,
11/01/07(c) 13,730,000 5,972,550
- ---------------------------------------------------------------
34,759,800
- ---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES)-2.38%
Alaris Medical Inc.,
Sr. Disc. Notes, 11.125%,
08/01/08(a)(c) (Acquired
07/23/98; Cost $12,675,392) 21,800,000 11,990,000
- ---------------------------------------------------------------
Sr. Unsec. Gtd. Sub. Notes,
9.75%, 12/01/06 11,545,000 11,775,900
- ---------------------------------------------------------------
Alliance Imaging, Sr. Sub.
Notes, 9.23%, 12/15/05 20,000,000 19,100,000
- ---------------------------------------------------------------
Dade International, Inc., Series
B, Sr. Sub. Notes, 11.125%,
05/01/06 15,710,000 17,477,375
- ---------------------------------------------------------------
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES)-(CONTINUED)
Mediq, Inc.,
Sr. Disc. Deb., 13.00%,
06/01/09(c) $ 13,750,000 $ 6,256,250
- ---------------------------------------------------------------
Sr. Unsec. Gtd. Sub. Notes,
11.00%, 06/01/08 20,020,000 19,319,300
- ---------------------------------------------------------------
85,918,825
- ---------------------------------------------------------------
HOMEBUILDING-1.61%
D.R. Horton, Inc., Unsec. Gtd.
Notes, 10.00%, 04/15/06 16,040,000 17,082,600
- ---------------------------------------------------------------
Engle Homes, Inc., Series C, Sr.
Unsec. Gtd. Notes, 9.25%,
02/01/08 21,850,000 21,959,250
- ---------------------------------------------------------------
Schuler Homes, Sr. Unsec. Gtd.
Notes, 9.00%, 04/15/08 19,400,000 18,915,000
- ---------------------------------------------------------------
57,956,850
- ---------------------------------------------------------------
HOUSEWARES-0.56%
Decora Industries Inc., Series
B, Sr. Sec. Gtd. Notes,
11.00%, 05/01/05 21,350,000 20,175,750
- ---------------------------------------------------------------
INSURANCE (MULTI-LINE)-0.27%
Loews Corp., Unsec. Conv. Sub.
Notes, 3.125%, 09/15/07 12,000,000 9,600,000
- ---------------------------------------------------------------
IRON & STEEL-1.44%
Acme Metal, Inc., Sr. Unsec.
Gtd. Notes, 10.875%,
12/15/07(e) 26,564,000 3,586,140
- ---------------------------------------------------------------
GS Industries, Inc.,
Sr. Gtd. Notes, 12.00%,
09/01/04 15,755,000 10,792,175
- ---------------------------------------------------------------
Sr. Notes, 12.25%, 10/01/05 14,525,000 9,804,375
- ---------------------------------------------------------------
Sheffield Steel Corp., Series B,
First Mortgage Notes, 11.50%,
12/01/05 19,100,000 16,330,500
- ---------------------------------------------------------------
WHX Corp., Sr. Unsec. Notes,
10.50%, 04/15/05 12,360,000 11,433,000
- ---------------------------------------------------------------
51,946,190
- ---------------------------------------------------------------
LODGING-HOTELS-4.73%
American Skiing Co., Series B,
Sr. Sub. Notes, 12.00%,
07/15/06 19,275,000 20,142,375
- ---------------------------------------------------------------
Booth Creek Ski Holdings, Sr.
Unsec. Gtd. Notes, 12.50%,
03/15/07 20,310,000 20,208,450
- ---------------------------------------------------------------
Coast Hotels & Casinos Inc.,
Series B, Sec. First Mortgage
Gtd. Notes, 13.00% 12/15/02 23,530,000 26,588,900
- ---------------------------------------------------------------
Hilton Hotels Corp.,
Sr. Unsec. Notes, 7.95%,
04/15/07 22,000,000 22,911,460
- ---------------------------------------------------------------
Sr. Unsec. Notes, 7.20%,
12/15/09 16,000,000 15,905,760
- ---------------------------------------------------------------
HMH Properties, Series B, Sr.
Sec. Gtd. Notes, 7.875%,
08/01/08 49,000,000 47,775,000
- ---------------------------------------------------------------
Stena Line A.B. (Sweden), Sr.
Unsec. Yankee Notes, 10.625%,
06/01/08 18,680,000 16,905,400
- ---------------------------------------------------------------
170,437,345
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
MACHINERY (DIVERSIFIED)-0.55%
National Equipment Services,
Series B, Sr. Sub. Notes,
10.00%, 11/30/04 $ 20,000,000 $ 19,900,000
- ---------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-1.97%
Anthony Crane Rentals, Sr.
Notes, 10.375%, 08/01/08(a)
(Acquired 07/15/98-09/08/98;
Cost $17,915,075) 17,960,000 17,331,400
- ---------------------------------------------------------------
Elgin National Industries,
Series B, Sr. Unsec. Gtd.
Notes, 11.00%, 11/01/07 17,640,000 17,816,400
- ---------------------------------------------------------------
Generac Portable Products, Sr.
Sub. Notes, 11.25%,
07/01/06(a) (Acquired
07/02/98; Cost $17,100,000) 17,100,000 17,185,500
- ---------------------------------------------------------------
Glenoit Corp., Sr. Unsec. Gtd.
Sub. Notes, 11.00%, 04/15/07 19,915,000 18,620,525
- ---------------------------------------------------------------
70,953,825
- ---------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-5.28%
Berry Plastics Corp., Sr. Sub.
Notes, 12.25%, 04/15/04 9,500,000 10,022,500
- ---------------------------------------------------------------
Brand Scaffold Services, Sr.
Unsec. Notes, 10.25%, 02/15/08 26,800,000 25,594,000
- ---------------------------------------------------------------
Derby Cycle Corp., Sr. Notes,
10.00%, 05/15/08(a) (Acquired
05/07/98-07/07/98; Cost
$18,951,613) 18,955,000 16,396,075
- ---------------------------------------------------------------
First Wave Marine, Inc., Sr.
Unsec. Gtd. Notes, 11.00%,
02/01/08 21,835,000 20,415,725
- ---------------------------------------------------------------
Globe Manufacturing Corp., Sr.
Sub. Notes, 10.00%,
08/01/08(a) (Acquired
07/28/98-09/23/98; Cost
$16,818,250) 17,050,000 15,515,500
- ---------------------------------------------------------------
MMI Products, Inc., Sr. Unsec.
Sub. Notes, 11.25%, 04/15/07 19,140,000 20,766,900
- ---------------------------------------------------------------
Neenah Corp.,
Series B, Sr. Sub. Notes,
11.125%, 05/01/07 4,000,000 4,130,000
- ---------------------------------------------------------------
Series D, Sr. Sub. Notes,
11.125%, 05/01/07 15,000,000 15,487,500
- ---------------------------------------------------------------
Omega Cabinets, Sr. Sub. Notes,
10.50%, 06/15/07 26,990,000 26,585,150
- ---------------------------------------------------------------
Precise Technology, Inc., Series
B, Sr. Unsec. Gtd. Sub. Notes,
11.125%, 06/15/07 15,900,000 15,423,000
- ---------------------------------------------------------------
SF Holdings Group, Inc., Series
B, Sr. Sec. Disc. Notes,
12.75%, 03/15/08(c) 27,000,000 8,775,000
- ---------------------------------------------------------------
Steel Heddle Manufacturing Co.,
Series B, Sr. Unsec. Gtd. Sub.
Notes, 10.625%, 06/01/08 15,700,000 11,068,500
- ---------------------------------------------------------------
190,179,850
- ---------------------------------------------------------------
METALS MINING-1.20%
Centaur Mining & Exploration,
Ltd. (Australia), Sr. Yankee
Gtd. Notes, 11.00%, 12/01/07 27,800,000 25,437,000
- ---------------------------------------------------------------
</TABLE>
9
<PAGE> 12
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
METALS MINING-(CONTINUED)
Doe Run Resources Corp.,
Series B, Sr. Unsec. Gtd. Sub.
Notes, 11.70%, 03/15/03 $ 10,000,000 $ 7,750,000
- ---------------------------------------------------------------
Series B, Sr. Unsec. Gtd. Sub.
Notes, 11.25%, 03/15/05 12,790,000 9,912,250
- ---------------------------------------------------------------
43,099,250
- ---------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES-0.59%
United Stationer Supply Co., Sr.
Sub. Notes, 12.75%, 05/01/05 19,021,000 21,303,520
- ---------------------------------------------------------------
OIL (INTERNATIONAL INTEGRATED)-0.58%
Rutherford-Moran Oil Corp., Sr.
Unsec. Gtd. Sub. Notes,
10.75%, 10/01/04 18,200,000 20,839,000
- ---------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-2.50%
Abraxas Petroleum Corp., Series
D, Sr. Unsec. Gtd. Notes,
11.50%, 11/01/04 18,290,000 13,991,850
- ---------------------------------------------------------------
Canadian Forest Oil Ltd.
(Canada), Sr. Unsec. Yankee
Gtd. Sub. Notes, 8.75%,
09/15/07 21,356,000 19,647,520
- ---------------------------------------------------------------
Chesapeake Energy Corp., Series
B, Sr. Unsec. Gtd. Notes,
9.625%, 05/01/05 19,330,000 15,174,050
- ---------------------------------------------------------------
Kelley Oil & Gas Corp., Series
B, Sr. Gtd. Sub. Notes,
10.375%, 10/15/06 20,150,000 15,011,750
- ---------------------------------------------------------------
Lodestar Holdings, Inc., Sr.
Unsec. Gtd. Notes, 11.50%,
05/15/05 14,235,000 11,459,175
- ---------------------------------------------------------------
Queen Sand Resources, Inc., Sr.
Unsec. Gtd. Notes, 12.50%,
07/01/08 20,950,000 14,769,750
- ---------------------------------------------------------------
90,054,095
- ---------------------------------------------------------------
OIL & GAS (REFINING & MARKETING)-0.75%
Texas Petrochemical Corp.,
Sr. Unsec. Sub. Notes,
11.125%, 07/01/06 13,000,000 12,870,000
- ---------------------------------------------------------------
Sr. Unsec. Sub. Notes,
11.125%, 07/01/06 14,480,000 14,335,200
- ---------------------------------------------------------------
27,205,200
- ---------------------------------------------------------------
POWER PRODUCER (INDEPENDENT)-0.12%
Panda Global Energy Co. (China);
Sr. Yankee Gtd. Sec. Notes,
12.50%, 04/15/04 9,662,000 4,396,210
- ---------------------------------------------------------------
PUBLISHING-0.41%
Liberty Group Publishing Inc.,
Sr. Unsec. Disc. Deb.,
11.625%, 02/01/09(c) 26,350,000 14,624,250
- ---------------------------------------------------------------
RAILROADS-0.84%
TFM SA de CV (Mexico),
Sr. Yankee Gtd. Disc. Notes,
11.75%, 06/15/09(c) 42,000,000 22,470,000
- ---------------------------------------------------------------
Sr. Yankee Gtd. Notes, 10.25%,
06/15/07 9,130,000 7,760,500
- ---------------------------------------------------------------
30,230,500
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
RESTAURANTS-0.53%
AFC Enterprises, Sr. Unsec. Sub.
Notes, 10.25%, 05/15/07 $ 18,240,000 $ 19,152,000
- ---------------------------------------------------------------
RETAIL (FOOD CHAINS)-1.83%
Carr-Gottstein Foods Co., Sr.
Sub. Notes, 12.00%, 11/15/05 27,105,000 31,441,800
- ---------------------------------------------------------------
Cumberland Farms, Inc., Sec.
Notes, 10.50%, 10/01/03 16,972,000 16,717,420
- ---------------------------------------------------------------
Jitney-Jungle Stores of America
Inc., Sr. Gtd. Notes, 12.00%,
03/01/06 15,905,000 17,813,600
- ---------------------------------------------------------------
65,972,820
- ---------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE)-0.55%
Plainwell, Inc., Series B Sr.
Unsec. Sub. Notes, 11.00%,
03/01/08 25,030,000 19,648,550
- ---------------------------------------------------------------
RETAIL (SPECIALTY)-4.17%
Cabot Safety Corp., Sr. Sub.
Notes, 12.50%, 07/15/05 18,975,000 20,777,625
- ---------------------------------------------------------------
CEX Holdings, Inc., Series B,
Sr. Unsec. Gtd. Sub. Notes,
9.625%, 06/01/08 20,155,000 18,240,275
- ---------------------------------------------------------------
CSK Auto Inc., Sr. Gtd. Sub.
Notes, 11.00%, 11/01/06 15,245,000 16,083,475
- ---------------------------------------------------------------
National Vision Associates, Sr.
Notes, 12.75%, 10/15/05(a)
(Acquired 10/05/98; Cost
$19,476,208) 19,700,000 20,980,500
- ---------------------------------------------------------------
Neff Corp, Sr. Sub. Notes,
10.25%, 06/01/08(a) (Acquired
12/02/98; Cost $11,969,694) 12,150,000 11,785,500
- ---------------------------------------------------------------
Sr. Unsec. Gtd. Sub. Notes,
10.25%, 06/01/08 18,500,000 17,945,000
- ---------------------------------------------------------------
Office Depot, Inc., Conv. LYON,
5.00%, 12/11/07(d) 5,000,000 5,493,750
- ---------------------------------------------------------------
Renters Choice, Inc., Sr. Sub.
Notes, 11.00%, 08/15/08(a)
(Acquired 08/13/98-10/01/98;
Cost $22,924,900) 23,060,000 23,521,200
- ---------------------------------------------------------------
Wilsons-The Leather Experts
Inc., Series B, Sr. Unsec.
Gtd. Notes, 11.25%, 08/15/04 15,840,000 15,602,400
- ---------------------------------------------------------------
150,429,725
- ---------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-2.08%
Big 5 Corp., Series B, Sr.
Unsec. Notes, 10.875%,
11/15/07 19,890,000 20,188,350
- ---------------------------------------------------------------
Corporate Express, Inc., Conv.
Notes, 4.50%, 07/01/00 8,000,000 6,782,880
- ---------------------------------------------------------------
GFSI Holdings, Inc., Series B,
Sr. Disc. Notes, 11.375%,
09/15/09(c) 20,000,000 17,100,000
- ---------------------------------------------------------------
J Crew Operating Corp., Sr. Sub.
Notes, 10.375%, 10/15/07 18,245,000 15,781,925
- ---------------------------------------------------------------
Worldwide Fiber, Inc. (Canada),
Sr. Notes, 12.50%, 12/15/05(a)
(Acquired 12/18/98; Cost
$15,000,000) 15,000,000 15,150,000
- ---------------------------------------------------------------
75,003,155
- ---------------------------------------------------------------
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
SERVICES (ADVERTISING/MARKETING)-1.48%
Dimac Corporation, Sr. Sub.
Notes, 12.50%, 10/01/08(a)
(Acquired 10/16/98; Cost
$24,308,250) $ 25,000,000 $ 25,125,000
- ---------------------------------------------------------------
MDC Communications Corp.
(Canada),
Series B, Sr. Sub. Notes,
10.50%, 12/01/06(a)
(Acquired 11/13/98; Cost
$9,801,500) 10,000,000 10,250,000
- ---------------------------------------------------------------
Sr. Yankee Unsec. Sub. Notes,
10.50%, 12/01/06 17,470,000 17,906,750
- ---------------------------------------------------------------
53,281,750
- ---------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-1.42%
Coinmach Corp., Series D, Sr.
Unsec. Notes, 11.75%, 11/15/05 27,750,000 30,733,125
- ---------------------------------------------------------------
Hydrochem Industrial Service,
Series B, Sr. Sec. Gtd. Sub.
Notes, 10.375%, 08/01/07 21,300,000 20,554,500
- ---------------------------------------------------------------
51,287,625
- ---------------------------------------------------------------
SERVICES (DATA PROCESSING)-0.47%
Affiliated Computer Services,
Conv. Sub. Notes, 4.00%,
03/15/05 8,500,000 10,375,313
- ---------------------------------------------------------------
DecisionOne Holdings Corp., Sr.
Disc. Deb., 11.50%,
08/01/08(c)(f) 32,085,000 6,577,425
- ---------------------------------------------------------------
16,952,738
- ---------------------------------------------------------------
SERVICES (EMPLOYMENT)-0.48%
MSX International, Inc., Sr.
Unsec. Gtd. Sub. Notes,
11.375%, 01/15/08 18,130,000 17,359,475
- ---------------------------------------------------------------
SERVICES (FACILITIES & ENVIRONMENTAL)-0.05%
ATC Group Services, Inc., Sr.
Unsec. Gtd. Sub. Notes,
12.00%, 01/15/08(e) 17,850,000 1,695,750
- ---------------------------------------------------------------
SHIPPING-1.94%
American Reefer Co. Ltd., Series
A First Pfd. Ship Mortgage
Notes, 10.25%, 03/01/08 4,700,000 2,843,500
- ---------------------------------------------------------------
Millenium Seacarriers, First
Priority Ship Mortgage Notes,
12.00%, 07/15/05(a) (Acquired
07/20/98; Cost $19,222,007) 19,900,000 16,019,500
- ---------------------------------------------------------------
Navigator Gas Transport PLC
(United Kingdom), Notes,
10.50%, 06/30/07(a) (Acquired
07/31/97-09/04/97; Cost
$17,716,250) 17,520,000 15,505,200
- ---------------------------------------------------------------
Pacific & Atlantic Holdings,
First Pfd. Ship Mortgage
Notes, 11.50%, 05/30/08 20,980,000 16,259,500
- ---------------------------------------------------------------
Pegasus Shipping Hellas Co.
(Bermuda), Series A, Sr. Sec.
Gtd. Mortgage Notes, 11.875%,
11/15/04 22,500,000 19,462,500
- ---------------------------------------------------------------
70,090,200
- ---------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-6.39%
Clearnet Communications, Inc.
(Canada), Sr. Yankee Disc.
Notes, 14.75%, 12/15/05(c) 22,320,000 19,306,800
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
TELECOMMUNICATIONS
(CELLULAR/WIRELESS)-(CONTINUED)
Metrocall Inc., Sr. Sub. Notes,
11.00%, 09/15/08(a) (Acquired
12/17/98; Cost $15,203,442) $ 15,310,000 $ 15,463,100
- ---------------------------------------------------------------
Microcell Telecommunications,
Inc., Series B, Sr. Disc.
Yankee Notes, 14.00%,
06/01/06(c) 29,500,000 21,977,500
- ---------------------------------------------------------------
Nextel Communications, Inc.,
Sr. Disc. Notes, 10.65%,
09/15/07(c) 45,600,000 29,640,000
- ---------------------------------------------------------------
Sr. Notes, 12.00%, 11/01/08(a)
(Acquired 10/28/98-11/02/98;
Cost $43,711,200) 44,000,000 48,400,000
- ---------------------------------------------------------------
Orion Network Systems, Inc.,
Sr. Gtd. Disc. Notes,
12.50%, 01/15/07(c) 23,980,000 15,227,300
- ---------------------------------------------------------------
Sr. Gtd. Notes, 11.25%,
01/15/07 17,750,000 17,661,250
- ---------------------------------------------------------------
PageMart Wireless, Inc., Sr.
Sub. Disc. Notes, 11.25%,
02/01/08(c) 43,640,000 21,165,400
- ---------------------------------------------------------------
Powertel, Inc., Sr. Unsec.
Notes, 11.125%, 06/01/07 26,000,000 25,870,000
- ---------------------------------------------------------------
Spectrasite Holdings, Inc., Sr.
Disc. Notes, 12.00%,
07/15/08(a)(c) (Acquired
06/23/98; Cost $16,815,591) 30,300,000 15,604,500
- ---------------------------------------------------------------
230,315,850
- ---------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-7.12%
Call-Net Enterprises, Inc.
(Canada), Sr. Unsec. Disc.
Yankee Notes, 8.94%,
08/15/08(c) 43,000,000 25,477,500
- ---------------------------------------------------------------
Econophone, Inc., Sr. Unsec.
Notes, 13.50%, 07/15/07 23,250,000 23,656,875
- ---------------------------------------------------------------
ESAT Telecom Group, PLC
(Ireland), Sr. Notes, 11.875%,
12/01/08(a) (Acquired
11/20/98; Cost $11,300,000) 11,300,000 11,356,500
- ---------------------------------------------------------------
Esprit Telecom Group PLC (United
Kingdom), Sr. Unsec. Yankee
Notes, 11.50%, 12/15/07 22,500,000 23,400,000
- ---------------------------------------------------------------
Firstcom Corp., Sr. Notes,
14.00%, 10/27/07(a) (Acquired
10/21/97-12/03/97; Cost
$23,200,600) 22,990,000 15,863,100
- ---------------------------------------------------------------
Global Telesystems Group, Conv.
Sr. Sub. Deb., 5.75%, 07/01/10 10,250,000 11,569,688
- ---------------------------------------------------------------
Long Distance Direct, Inc., Sr.
Notes, 12.25%, 04/15/08(a)
(Acquired 04/07/98-05/05/98;
Cost $25,619,550) 25,610,000 22,088,625
- ---------------------------------------------------------------
Primus Telecommunications Group,
Inc., Sr. Sec. Notes, 11.75%,
08/01/04 20,000,000 20,800,000
- ---------------------------------------------------------------
RSL Communications, Ltd. (United
Kingdom),
Bonds, 12.00%,
11/01/08(a)(Acquired
11/02/98; Cost $13,700,905) 14,500,000 15,007,500
- ---------------------------------------------------------------
Sr. Yankee Gtd. Notes, 12.25%,
11/15/06 20,484,000 21,713,040
- ---------------------------------------------------------------
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
TELECOMMUNICATIONS (LONG DISTANCE)-(CONTINUED)
Versatel Telecom B.V.
(Netherlands),
Sr. Notes, 13.25%, 05/15/08 $ 20,230,000 $ 20,634,600
- ---------------------------------------------------------------
Sr. Notes, 13.25%,
05/15/08(a)(g) (Acquired
11/17/98; Cost $14,208,000) 14,800,000 15,096,000
- ---------------------------------------------------------------
Viatel, Inc., Sr. Notes, 11.25%,
04/15/08 30,000,000 30,150,000
- ---------------------------------------------------------------
256,813,428
- ---------------------------------------------------------------
TELEPHONE-6.52%
Esat Holdings Ltd. (Ireland),
Sr. Yankee Notes, 12.50%,
02/01/07(c) 25,530,000 16,977,450
- ---------------------------------------------------------------
ICG Services, Inc., Sr. Unsec.
Disc. Notes, 10.00%,
02/15/08(c) 101,300,000 54,955,250
- ---------------------------------------------------------------
Logix Communications, Sr. Unsec.
Notes, 12.25%, 06/15/08 47,750,000 44,288,125
- ---------------------------------------------------------------
Nextlink Communications, Inc.,
Sr. Notes, 10.75%, 11/15/08(a)
(Acquired 11/04/98; Cost
$20,000,000) 20,000,000 20,500,000
- ---------------------------------------------------------------
NTL Inc.,
Conv. Sub. Notes, 7.00%,
12/15/08(a) (Acquired
12/11/98; Cost $5,002,650) 5,000,000 5,412,500
- ---------------------------------------------------------------
Sr. Notes, 11.50%, 10/01/08(a)
(Acquired 10/26/98; Cost
$16,035,000) 16,035,000 17,558,325
- ---------------------------------------------------------------
Qwest Communications Int'l, Sr.
Notes, 7.50%, 11/01/08(a)
(Acquired 10/27/98-11/23/98;
Cost $49,870,739) 50,200,000 52,710,000
- ---------------------------------------------------------------
U.S. Xchange LLC, Sr. Unsec.
Notes, 15.00%, 07/01/08 21,400,000 22,523,500
- ---------------------------------------------------------------
234,925,150
- ---------------------------------------------------------------
TRUCKERS-0.49%
Travelcenters of America, Inc.,
Sr. Unsec. Gtd. Sub. Deb.,
10.25%, 04/01/07 17,530,000 17,530,000
- ---------------------------------------------------------------
TRUCKS & PARTS-1.01%
Blue Bird Body Co., Series B,
Sr. Sub. Notes, 10.75%,
11/15/06 15,425,000 15,964,875
- ---------------------------------------------------------------
HDA Parts System, Inc., Sr. Sub.
Notes, 12.00%, 08/01/05(a)
(Acquired 07/28/98-09/08/98;
Cost $22,127,500) 22,400,000 20,272,000
- ---------------------------------------------------------------
36,236,875
- ---------------------------------------------------------------
WASTE MANAGEMENT-0.14%
WMX Technologies, Conv. Sub.
Notes, 2.00%, 01/24/05 5,230,000 5,138,475
- ---------------------------------------------------------------
Total Corporate Bonds &
Notes (Cost
$3,528,028,823) 3,298,240,719
- ---------------------------------------------------------------
SHARES
COMMON STOCKS & OTHER EQUITY
INTERESTS-0.36%
MANUFACTURING (SPECIALIZED)-0.01%
SF Holdings Group-Class C(a)(h)
(Acquired 03/05/98-05/05/98;
Cost $0) 69,540 260,775
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
REAL ESTATE INVESTMENT TRUST-0.04%
Meditrust Companies(h) 89,908 $ 1,359,855
- ---------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-0.29%
Celcaribe S.A., Ordinary Trust
Certificates(a)(h) (Acquired
05/17/94-01/23/97; Cost $0) 2,276,400 9,105,600
- ---------------------------------------------------------------
Nextel Communications,
Inc.-Class A(h) 52,195 1,233,107
- ---------------------------------------------------------------
10,338,707
- ---------------------------------------------------------------
TELEPHONE-0.02%
Intermedia Communications
Inc.(h) 51,515 888,640
- ---------------------------------------------------------------
Total Common Stocks & Other
Equity Interests (Cost
$2,590,294) 12,847,977
- ---------------------------------------------------------------
PREFERRED STOCKS-3.49%
BROADCASTING (TELEVISION, RADIO
& CABLE)-0.83%
Benedek Communications, 11.50%
PIK Pfd.(h) 28,702 23,392,130
- ---------------------------------------------------------------
Mediaone Group Inc., 6.25% Conv.
Pfd. 100,000 6,650,000
- ---------------------------------------------------------------
30,042,130
- ---------------------------------------------------------------
CHEMICALS (DIVERSIFIED)-0.10%
Monsanto Co., 6.50% Conv. Pfd. 75,000 3,675,000
- ---------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-0.16%
Conseco Finance Trust IV-Series
F, 3.50% Conv. Pfd. 150,000 5,793,750
- ---------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-0.33%
Brand Scaffold Services, Inc.,
3.625% Pfd. 330,000 9,900,000
- ---------------------------------------------------------------
SF Holdings Group, Series B,
13.75% PIK Pfd.(h) 420 1,816,500
- ---------------------------------------------------------------
11,716,500
- ---------------------------------------------------------------
OIL & GAS (REFINING & MARKETING)-0.13%
Tosco Financing Trust, 5.75%
Conv. Pfd. 100,000 4,812,500
- ---------------------------------------------------------------
RETAIL (DRUG STORES)-0.31%
CVS Auto Exchange TR, 4.23%
Conv. Pfd. 110,000 11,020,625
- ---------------------------------------------------------------
SHIPPING-0.20%
Pegasus Shipping Ltd. (Bermuda),
12.75% PIK Pfd.(a)(h)
(Acquired 06/24/98; Cost
$7,461,000) 15,000 7,275,000
- ---------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-1.07%
Dobson Communications, 12.25%
Sr. PIK Pfd.(h) 30,059 26,902,927
- ---------------------------------------------------------------
Loral Space & Communications
Ltd., 6.00% Conv. Pfd. 125,000 6,640,625
- ---------------------------------------------------------------
Nextel Communications, Conv.
Pfd.(a)(h) (Acquired 12/17/98;
Cost $4,997,398) 19,700 5,126,925
- ---------------------------------------------------------------
38,670,477
- ---------------------------------------------------------------
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TELECOMMUNICATIONS (LONG DISTANCE)-0.04%
Viatel Inc., Series A, 10.00%
PIK Pfd.(h) 15,252 $ 1,437,543
- ---------------------------------------------------------------
TELEPHONE-0.32%
Intermedia Communications Inc.,
7.00% Series E, Conv. Pfd. 50,000 912,500
- ---------------------------------------------------------------
7.00%, Conv. Pfd.(a) (Acquired
10/24/97-10/23/98; Cost
$13,256,285) 580,000 10,585,000
- ---------------------------------------------------------------
11,497,500
- ---------------------------------------------------------------
Total Preferred Stocks (Cost
$133,704,206) 125,941,025
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
RIGHTS & WARRANTS-0.36%
BROADCASTING (TELEVISION, RADIO
& CABLE)-0.04%
Knology Holdings, Inc., expiring
10/15/07(a)(h)(Acquired
03/12/98, Cost $0) 47,250 106,312
- ---------------------------------------------------------------
Park N View, Inc., expiring
05/15/08 (United Kingdom)(h) 16,400 1,016,800
- ---------------------------------------------------------------
United International Holdings,
expiring 11/15/99(h) 9,250 139,906
- ---------------------------------------------------------------
1,263,018
- ---------------------------------------------------------------
CHEMICALS-0.00%
Sterling Chemicals Holdings,
expiring 08/15/08(h) 7,500 112,500
- ---------------------------------------------------------------
COMPUTERS (NETWORKING)-0.00%
Convergent Communications,
expiring 04/01/08(h) 132,800 1,327
- ---------------------------------------------------------------
CONTAINERS & PACKAGING (PAPER)-0.00%
MVE, Inc., expiring 02/15/02(h) 6,750 67,500
- ---------------------------------------------------------------
ELECTRICAL EQUIPMENT-0.00%
Electronic Retailing Systems
International, Inc., expiring
02/01/04(h) 18,802 94,010
- ---------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL
COMPANIES-0.00%
Resort At Summerlin/RAS Co.,
expiring 12/15/07(h) 23,900 239
- ---------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT)-0.01%
Republic Health Corp., expiring
04/03/00(h) 17,500 315,000
- ---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES)-0.00%
Mediq, Inc., expiring
06/01/09(a)(h) (Acquired
05/21/98; Cost $7,893,001) 13,750 138
- ---------------------------------------------------------------
IRON & STEEL-0.01%
Bar Technologies Inc., expiring
04/01/01(h) 6,000 330,000
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
METAL FABRICATORS-0.00%
Gulf States Steel, Inc.,
expiring 04/15/03(h) 15,990 $ 160
- ---------------------------------------------------------------
PERSONAL CARE-0.00%
IHF Capital Inc.,
Series H, expiring
11/14/99(a)(h) (Acquired
11/04/94, Cost $0) 8,000 80
- ---------------------------------------------------------------
Series I, expiring
11/14/99(a)(h) (Acquired
11/04/94-03/01/95, Cost $0) 7,250 3,625
- ---------------------------------------------------------------
3,705
- ---------------------------------------------------------------
SHIPPING-0.00%
Millenium Seacarriers, expiring
07/15/03(h) 19,900 124,375
- ---------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-0.09%
Cellnet Data System, expiring
10/01/07(a)(h) (Acquired
09/24/97-10/15/97; Cost $0) 10,000 77,500
- ---------------------------------------------------------------
Clearnet Communications, Inc.
(Canada), expiring 09/15/05(h) 100,716 705,012
- ---------------------------------------------------------------
McCaw Intl. Ltd., expiring
04/15/07(h) 39,500 128,375
- ---------------------------------------------------------------
Microcell Telecommunications,
Inc., expiring 06/01/06(a)(h)
(Acquired 12/18/96; Cost $0) 118,000 1,519,840
- ---------------------------------------------------------------
Loral Space & Communications,
Ltd.,
expiring 01/15/07(h) 43,600 436,300
- ---------------------------------------------------------------
Powertel, Inc., expiring
02/01/06(h) 42,656 330,584
- ---------------------------------------------------------------
3,197,611
- ---------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-0.14%
Long Distance Direct, Inc.,
expiring 04/13/08(h) 25,610 64,025
- ---------------------------------------------------------------
Primus Telecommunications Group,
Inc., expiring 08/01/04(h) 20,000 255,000
- ---------------------------------------------------------------
RSL Communications, Ltd. (United
Kingdom), expiring 11/15/06(h) 45,145 4,514,500
- ---------------------------------------------------------------
Versatel Telecom B.V.
(Netherlands), expiring
05/15/08(h) 20,230 204,829
- ---------------------------------------------------------------
5,038,354
- ---------------------------------------------------------------
TELEPHONE-0.07%
ESAT Holdings Ltd., expiring
02/01/07(a)(h) (Acquired
06/16/97; Cost $0) 25,530 1,793,483
- ---------------------------------------------------------------
ICG Communications, Inc.,
expiring 10/15/05(h) 39,600 732,600
- ---------------------------------------------------------------
Intermedia Communications, Inc.,
expiring 06/01/00(h) 1,500 64,110
- ---------------------------------------------------------------
2,590,193
- ---------------------------------------------------------------
Total Rights & Warrants
(Cost $3,790,185) 13,138,130
- ---------------------------------------------------------------
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
REPURCHASE AGREEMENT-2.90%(i)
J.P. Morgan Securities, Inc.,
4.75%, 01/04/99(j) (Cost
$104,260,142) $104,260,142 $ 104,260,142
- ---------------------------------------------------------------
TOTAL INVESTMENTS-98.60% 3,554,427,993
- ---------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-1.40% 50,581,142
- ---------------------------------------------------------------
NET ASSETS-100.00% $3,605,009,135
===============================================================
</TABLE>
Abbreviations:
Conv. - Convertible
Deb. - Debentures
Disc. - Discounted
Gtd. - Guaranteed
LYON - Liquid Yield Option Note
Pfd. - Preferred
PIK - Payment in Kind
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
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 12/31/98 was $640,555,838
which represented 17.77% 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) Step bond issued at a discount. Interest rate shown represents coupon rate
at which the bond will accrue at a specified future date.
(d) Zero coupon bonds. Interest rate shown represents the rate of original issue
discount.
(e) Defaulted security. Currently, the issuer is partially in default with
respect to interest payments.
(f) Issued as a unit. This unit also includes 32,085 warrants to purchase 1.9
shares of common stock per warrant.
(g) Issued as a unit. This unit also includes 14,800 warrants to buy 6.667
shares of common stock per warrant.
(h) Non-income producing security.
(i) Collateral on repurchase agreements, including the Funds 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 is at least 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.
(j) Joint repurchase agreement entered into 12/31/98 with a maturing value of
$500,263,889. Collateralized by U.S. Government agency obligations, 0% to
7.55% due 01/04/99 to 10/03/22 with an aggregate market value at 12/31/98 of
$510,001,764.
See Notes to Financial Statements.
14
<PAGE> 17
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$3,772,373,650) $3,554,427,993
- ----------------------------------------------------------
Receivables for:
Investments sold 7,159,056
- ----------------------------------------------------------
Fund shares sold 14,066,599
- ----------------------------------------------------------
Dividends and interest 70,249,884
- ----------------------------------------------------------
Investment for deferred compensation plan 72,678
- ----------------------------------------------------------
Other assets 109,656
- ----------------------------------------------------------
Total assets 3,646,085,866
- ----------------------------------------------------------
LIABILITIES:
Payables for:
Investment purchased 904,456
- ----------------------------------------------------------
Fund shares reacquired 17,674,577
- ----------------------------------------------------------
Dividends 17,585,211
- ----------------------------------------------------------
Deferred compensation plan 72,678
- ----------------------------------------------------------
Accrued advisory fees 1,464,160
- ----------------------------------------------------------
Accrued distribution fees 3,196,900
- ----------------------------------------------------------
Accrued operating expenses 178,749
- ----------------------------------------------------------
Total liabilities 41,076,731
- ----------------------------------------------------------
Net assets applicable to shares
outstanding $3,605,009,135
- ----------------------------------------------------------
NET ASSETS:
Class A $1,670,863,444
==========================================================
Class B $1,820,899,289
==========================================================
Class C $ 113,246,402
==========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 190,557,692
==========================================================
Class B 207,800,386
==========================================================
Class C 12,950,122
==========================================================
Class A:
Net asset value and redemption price per
share $ 8.77
- ----------------------------------------------------------
Offering price per share:
(Net asset value of $8.77 divided
by 95.25%) $ 9.21
==========================================================
Class B:
Net asset value and offering price per
share $ 8.76
==========================================================
Class C:
Net asset value and offering price per
share $ 8.74
==========================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 380,935,260
- ---------------------------------------------------------
Dividends 1,259,674
- ---------------------------------------------------------
Total investment income 382,194,934
- ---------------------------------------------------------
EXPENSES:
Advisory fees 17,600,312
- ---------------------------------------------------------
Administrative services fees 135,537
- ---------------------------------------------------------
Custodian fees 231,456
- ---------------------------------------------------------
Transfer agent fees -- Class A 2,117,299
- ---------------------------------------------------------
Transfer agent fees -- Class B 2,220,773
- ---------------------------------------------------------
Transfer agent fees -- Class C 99,858
- ---------------------------------------------------------
Trustees' fees 31,422
- ---------------------------------------------------------
Distribution fees -- Class A 4,521,613
- ---------------------------------------------------------
Distribution fees -- Class B 18,264,587
- ---------------------------------------------------------
Distribution fees -- Class C 760,766
- ---------------------------------------------------------
Other 172,153
- ---------------------------------------------------------
Total expenses 46,155,776
- ---------------------------------------------------------
Less: Expenses paid indirectly (217,075)
- ---------------------------------------------------------
Net expenses 45,938,701
- ---------------------------------------------------------
Net investment income 336,256,233
- ---------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities (188,884,753)
- ---------------------------------------------------------
Foreign currencies (2,879)
- ---------------------------------------------------------
(188,887,632)
- ---------------------------------------------------------
Net unrealized appreciation (depreciation)
of investment securities (359,473,146)
- ---------------------------------------------------------
Net gain (loss) from investment
securities and foreign currencies (548,360,778)
- ---------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $(212,104,545)
=========================================================
</TABLE>
See Notes to Financial Statements.
15
<PAGE> 18
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 336,256,233 $ 247,013,864
- ----------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
foreign currencies (188,887,632) 62,942,651
- ----------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities (359,473,146) 18,112,537
- ----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (212,104,545) 328,069,052
- ----------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (170,021,135) (133,510,208)
- ----------------------------------------------------------------------------------------------
Class B (158,792,161) (111,521,456)
- ----------------------------------------------------------------------------------------------
Class C (6,792,770) (357,582)
- ----------------------------------------------------------------------------------------------
Share transactions-net:
Class A 142,435,247 469,620,256
- ----------------------------------------------------------------------------------------------
Class B 448,570,951 540,779,350
- ----------------------------------------------------------------------------------------------
Class C 101,384,122 26,215,648
- ----------------------------------------------------------------------------------------------
Net increase in net assets 144,679,709 1,119,295,060
- ----------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 3,460,329,426 2,341,034,366
- ----------------------------------------------------------------------------------------------
End of period $3,605,009,135 $3,460,329,426
==============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $4,011,736,919 $3,332,603,649
- ----------------------------------------------------------------------------------------------
Undistributed net investment income 5,490,138 4,691,600
- ----------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities and foreign currencies (194,272,265) (18,493,312)
- ----------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities (217,945,657) 141,527,489
- ----------------------------------------------------------------------------------------------
$3,605,009,135 $3,460,329,426
==============================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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: Class A shares, Class B
shares, and Class C shares. Class A shares are sold with a front-end sales
charge. Class B and Class C shares are sold with a contingent deferred sales
charge. Matters affecting each portfolio or class are voted on exclusively by
the shareholders of such portfolio or class. The assets, liabilities and
operations of each portfolio are accounted for separately. Information presented
in these financial statements pertains only to the Fund. The Fund's 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
16
<PAGE> 19
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, 1998 additional paid-in capital was decreased by $13,257,050,
undistributed net investment income was increased by $148,371 and
undistributed net realized gains was increased by $13,108,679 as a result of
differing book/tax treatment of foreign currency transactions, market
discount reclassifications and expirations of capital loss carryforwards 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 $118,664,039 (which may be carried forward to offset future
taxable capital gains, if any) which expires, if not previously utilized,
through the year 2006. The Fund cannot distribute capital gains to
shareholders until the tax loss carryforwards have been utilized.
D. Foreign Currency Translation -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are translated
into U.S. dollar amounts on the respective dates of such transactions. The
Fund does not separately account for that portion of the results of
operations resulting from changes in foreign exchange rates on investments
and the fluctuations arising from changes in market prices of securities
held. Such fluctuations are included with the net realized and unrealized
gain or loss from investments.
E. Foreign Currency Contracts -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract for the purchase
or sale of a security denominated in a foreign currency in order to "lock
in" the U.S. dollar price of that security. The Fund could be exposed to
risk if counterparties to the contracts are unable to meet the terms of
their contracts.
F. 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.
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, 1998, AIM
was reimbursed $135,537 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, 1998, the
Fund paid AFS $2,794,049 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 the 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 of 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 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. During the year ended December 31, 1998, the Class A, Class B and Class
C shares paid AIM Distributors $4,521,613, $18,264,587 and $760,766,
respectively, as compensation under the Plans.
AIM Distributors received commissions of $1,822,464 from sales of the Class A
shares of the Fund during the year ended December 31, 1998. 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
17
<PAGE> 20
December 31, 1998, AIM Distributors received $660,651 in contingent deferred
sales charges imposed on redemptions of Fund shares. Certain officers and
trustees of the Trust are officers and directors of AIM, AIM Distributors and
AFS.
During the year ended December 31, 1998, the Fund paid legal fees of $10,514
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
During the year ended December 31, 1998, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) and reductions in custodian
fees of $41,157 and $175,918, respectively under expense offset arrangements.
The effect of the above arrangements resulted in a reduction of the Fund's total
expenses of $217,075 during the year ended December 31, 1998.
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) $1,000,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. 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 May 1, 1998, the Fund was limited
to borrowing up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. During the year ended December 31, 1998, 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.
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, 1998 was
$3,378,593,550 and $2,715,129,275, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of December 31, 1998 was as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $ 101,120,172
- ---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (322,770,884)
- ---------------------------------------------------------
Net unrealized appreciation (depreciation)
of investment securities $(221,650,712)
=========================================================
Cost of investments for tax purposes is
$3,776,078,705.
</TABLE>
NOTE 7-SHARE INFORMATION
Changes in shares outstanding during the years ended December 31, 1998 and 1997
were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------ -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Sold:
Class A 113,312,954 $ 1,099,027,598 93,715,770 $ 935,998,102
- --------------------- ------------------------------ -----------------------------
Class B 81,983,594 793,346,240 74,428,033 739,555,783
- --------------------- ------------------------------ -----------------------------
Class C* 31,084,188 309,774,327 2,840,747 28,847,843
- --------------------- ------------------------------ -----------------------------
Issued as
reinvestment of
dividends:
Class A 11,706,241 112,173,341 8,409,927 83,983,856
- --------------------- ------------------------------ -----------------------------
Class B 8,418,057 80,427,189 5,178,022 54,019,940
- --------------------- ------------------------------ -----------------------------
Class C* 480,845 4,500,556 19,254 195,246
- --------------------- ------------------------------ -----------------------------
Reacquired:
Class A (110,296,515) (1,068,765,692) (55,082,159) (550,361,702)
- --------------------- ------------------------------ -----------------------------
Class B (44,848,230) (425,202,478) (25,424,400) (252,796,373)
- --------------------- ------------------------------ -----------------------------
Class C* (21,196,339) (212,890,761) (278,573) (2,827,441)
- --------------------- ------------------------------ -----------------------------
70,644,795 $ 692,390,320 103,806,621 $ 1,036,615,254
===================== ============================== =============================
</TABLE>
* Class C shares commenced sales on August 4, 1997.
18
<PAGE> 21
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A and a share of
Class B outstanding during each of the years in the five-year period ended
December 31, 1998; and for a share of Class C outstanding during the year ended
December 31, 1998 and the period August 4, 1997 (date sales commenced) through
December 31, 1997.
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.16 $ 9.88 $ 9.43 $ 8.93 $ 10.05
- ------------------------------------------------------------ ---------- ---------- ---------- -------- --------
Income from investment operations:
Net investment income 0.92 0.90 0.92 0.93 0.96
- ------------------------------------------------------------ ---------- ---------- ---------- -------- --------
Net gains (losses) on securities (both realized and
unrealized) (1.40) 0.28 0.46 0.52 (1.12)
- ------------------------------------------------------------ ---------- ---------- ---------- -------- --------
Total from investment operations (0.48) 1.18 1.38 1.45 (0.16)
- ------------------------------------------------------------ ---------- ---------- ---------- -------- --------
Less distributions:
Dividends from net investment income (0.91) (0.90) (0.93) (0.95) (0.96)
- ------------------------------------------------------------ ---------- ---------- ---------- -------- --------
Net asset value, end of period $ 8.77 $ 10.16 $ 9.88 $ 9.43 $ 8.93
============================================================ ========== ========== ========== ======== ========
Total return(a) (5.10)% 12.52% 15.44% 16.86% (1.67)%
============================================================ ========== ========== ========== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,670,863 $1,786,352 $1,272,974 $886,106 $578,959
============================================================ ========== ========== ========== ======== ========
Ratio of expenses to average net assets 0.85%(b) 0.90% 0.97% 0.96% 1.00%
============================================================ ========== ========== ========== ======== ========
Ratio of net investment income to average net assets 9.45%(b) 9.08% 9.67% 9.95% 10.07%
============================================================ ========== ========== ========== ======== ========
Portfolio turnover rate 76% 80% 77% 61% 53%
============================================================ ========== ========== ========== ======== ========
</TABLE>
(a) Does not deduct sales charges.
(b) Ratios are based on average net assets of $1,808,645,166.
<TABLE>
<CAPTION>
CLASS B CLASS C
----------------------------------------------------------------- ---------------------
1998 1997 1996 1995 1994 1998 1997
---------- ---------- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 10.16 $ 9.88 $ 9.42 $ 8.92 $ 10.04 $ 10.14 $ 10.04
- ----------------------------------- ---------- ---------- ---------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.84 0.83 0.85 0.85 0.87 0.82(a) 0.35
- ----------------------------------- ---------- ---------- ---------- -------- -------- -------- --------
Net gains (losses) on securities
(both realized and unrealized) (1.40) 0.28 0.47 0.52 (1.10) (1.38) 0.10
- ----------------------------------- ---------- ---------- ---------- -------- -------- -------- --------
Total from investment
operations (0.56) 1.11 1.32 1.37 (0.23) (0.56) 0.45
- ----------------------------------- ---------- ---------- ---------- -------- -------- -------- --------
Less distributions:
Dividends from net investment
income (0.84) (0.83) (0.86) (0.87) (0.89) (0.84) (0.35)
- ----------------------------------- ---------- ---------- ---------- -------- -------- -------- --------
Net asset value, end of period $ 8.76 $ 10.16 $ 9.88 $ 9.42 $ 8.92 $ 8.74 $ 10.14
=================================== ========== ========== ========== ======== ======== ======== ========
Total return(b) (5.90)% 11.71% 14.68% 15.91% (2.48)% (5.92)% 4.49%
=================================== ========== ========== ========== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $1,820,899 $1,647,801 $1,068,060 $557,926 $191,338 $113,246 $ 26,177
=================================== ========== ========== ========== ======== ======== ======== ========
Ratio of expenses to average net
assets 1.61%(c) 1.65% 1.68% 1.73% 1.80% 1.61%(c) 1.68%(d)
=================================== ========== ========== ========== ======== ======== ======== ========
Ratio of net investment income to
average net assets 8.69%(c) 8.33% 8.95% 9.18% 9.27% 8.69%(c) 8.30%(d)
=================================== ========== ========== ========== ======== ======== ======== ========
Portfolio turnover rate 76% 80% 77% 61% 53% 76% 80%
=================================== ========== ========== ========== ======== ======== ======== ========
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct contingent deferred sales charges and for periods less than
one year is not annualized.
(c) Ratios are based on average net assets of $1,826,458,676 and $76,076,559,
for Class B and Class C respectively.
(d) Annualized.
19
<PAGE> 22
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, 1998, 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 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. Our procedures included confirmation of
securities owned as of December 31, 1998, 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, 1998, 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 in the five-year period then ended, in conformity
with generally accepted accounting principles.
KPMG LLP
Houston, Texas
February 5, 1999
20
<PAGE> 23
<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 Senior Vice President and Treasurer 11 Greenway Plaza
Chief Executive Officer Suite 100
COMSAT Corporation Carol F. Relihan Houston, TX 77046
Senior Vice President and Secretary
Owen Daly II TRANSFER AGENT
Director Gary T. Crum
Cortland Trust Inc. Senior Vice President A I M Fund Services, Inc.
P.O. Box 4739
Edward K. Dunn Jr. Dana R. Sutton Houston, TX 77210-4739
Chairman, Mercantile Mortgage Corp.; Vice President and Assistant Treasurer
Formerly Vice Chairman and President, CUSTODIAN
Mercantile-Safe Deposit & Trust Co.; and Robert G. Alley
President, Mercantile Bankshares Vice President State Street Bank and Trust Company
225 Franklin Street
Jack Fields Stuart W. Coco Boston, MA 02110
Chief Executive Officer Vice President
Texana Global, Inc.; COUNSEL TO THE FUND
Formerly Member Melville B. Cox
of the U.S. House of Representatives Vice President Ballard Spahr
Andrews & Ingersoll, LLP
Carl Frischling Karen Dunn Kelley 1735 Market Street
Partner Vice President Philadelphia, PA 19103
Kramer, Levin, Naftalis & Frankel
Jonathan C. Schoolar COUNSEL TO THE TRUSTEES
Robert H. Graham Vice President
President and Chief Executive Officer Kramer, Levin, Naftalis & Frankel
A I M Management Group Inc. Renee A. Friedli 919 Third Avenue
Assistant Secretary New York, NY 10022
Prema Mathai-Davis
Chief Executive Officer, YWCA of the U.S.A.; P. Michelle Grace DISTRIBUTOR
Commissioner, New York City Dept. for Assistant Secretary
the Aging; and member of the Board of Directors, A I M Distributors, Inc.
Metropolitan Transportation Authority of Jeffrey H. Kupor 11 Greenway Plaza
New York State Assistant Secretary Suite 100
Houston, TX 77046
Lewis F. Pennock Nancy L. Martin
Attorney Assistant Secretary AUDITORS
Ian W. Robinson Ofelia M. Mayo KPMG LLP
Consultant; Formerly Executive Assistant Secretary 700 Louisiana
Vice President and Houston, TX 77002
Chief Financial Officer Lisa A. Moss
Bell Atlantic Management Assistant Secretary
Services, Inc.
Kathleen J. Pflueger
Louis S. Sklar Assistant Secretary
Executive Vice President
Hines Interests Samuel D. Sirko
Limited Partnership Assistant Secretary
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 $0.91, $0.84, and $0.84 per share, respectively, to
shareholders during its tax year ended December 31, 1998. Of these amounts,
0.33% is eligible for the dividends received deduction for corporations.
Missouri residents: During the Fund's tax year ended December 31, 1998, 1.56% of
the Fund's income was derived from U.S. Treasury obligations.
<PAGE> 24
THE AIM FAMILY OF FUNDS
<TABLE>
<S> <C> <C>
GROWTH FUNDS INTERNATIONAL GROWTH FUNDS A I M Management Group Inc. has provided
AIM Aggressive Growth Fund(1) AIM Advisor International Value Fund leadership in the mutual fund industry
AIM Blue Chip Fund AIM Asian Growth Fund since 1976 and managed approximately $109
AIM Capital Development Fund AIM Developing Markets Fund(2) billion in assets for more than 6.2 million
AIM Constellation Fund AIM Europe Growth Fund(2) shareholders, including individual investors,
AIM Mid Cap Equity Fund(2), (A) AIM European Development Fund corporate clients, and financial institutions,
AIM Select Growth Fund(3) AIM International Equity Fund as of December 31, 1998.
AIM Small Cap Growth Fund(2), (B) AIM Japan Growth Fund(2) The AIM Family of Funds--Registered Trademark--
AIM Small Cap Opportunities Fund AIM Latin American Growth Fund(2) is distributed nationwide, and AIM today is the
AIM Value Fund AIM New Pacific Growth Fund(2) 10th-largest mutual fund complex in the U.S. in
AIM Weingarten Fund assets under management, according to Strategic
GLOBAL GROWTH FUNDS Insight, an independent mutual fund monitor.
GROWTH & INCOME FUNDS AIM Global Aggressive Growth Fund
AIM Advisor Flex Fund AIM Global Growth Fund
AIM Advisor Large Cap Value Fund
AIM Advisor MultiFlex Fund GLOBAL GROWTH & INCOME FUNDS
AIM Advisor Real Estate Fund AIM Global Growth & Income Fund(2)
AIM Balanced Fund AIM Global Utilities Fund
AIM Basic Value Fund(2), (C)
AIM Charter Fund GLOBAL INCOME FUNDS
AIM Emerging Markets Debt Fund(2), (D)
INCOME FUNDS AIM Global Government Income Fund(2)
AIM Floating Rate Fund(2) AIM Global Income Fund
AIM High Yield Fund AIM Strategic Income Fund(2)
AIM High Yield Fund II
AIM Income Fund THEME FUNDS
AIM Intermediate Government Fund AIM Global Consumer Products and Services Fund(2)
AIM Limited Maturity Treasury Fund AIM Global Financial Services Fund(2)
AIM Global Health Care Fund(2)
TAX-FREE INCOME FUNDS AIM Global Infrastructure Fund(2)
AIM High Income Municipal Fund AIM Global Resources Fund(2)
AIM Municipal Bond Fund AIM Global Telecommunications Fund(2)
AIM Tax-Exempt Bond Fund of Connecticut AIM Global Trends Fund(2), (E)
AIM Tax-Free Intermediate Fund
MONEY MARKET FUNDS
AIM Money Market Fund
AIM Tax-Exempt Cash Fund
</TABLE>
(1) AIM Aggressive Growth Fund reopened to new investors November 16, 1998. (2)
Effective May 29, 1998, A I M Advisors, Inc. became advisor to the former GT
Global Funds. (3) On May 1, 1998, AIM Growth Fund was renamed AIM Select Growth
Fund. (A) On September 8, 1998, AIM Mid Cap Growth Fund was renamed AIM Mid Cap
Equity Fund. (B) On September 8, 1998, AIM Small Cap Equity Fund was renamed AIM
Small Cap Growth Fund. (C) On September 8, 1998, AIM America Value Fund was
renamed AIM Basic Value Fund. (D) On September 8, 1998, AIM Global High Income
Fund was renamed AIM Emerging Markets Debt Fund. (E) On September 8, 1998, AIM
New Dimension Fund was renamed AIM Global Trends Fund. For more complete
information about any AIM Fund(s), including sales charges and expenses, ask
your financial consultant or securities dealer for a free prospectus(es). Please
read the prospectus(es) carefully before you invest or send money.
