<PAGE> 1
[COVER PHOTO]
AIM MUNICIPAL
BOND FUND
[AIM LOGO APPEARS HERE] ANNUAL REPORT DECEMBER 31, 1997
<PAGE> 2
[COVER PHOTO]
------------------------------------------
AIM MUNICIPAL BOND FUND
For shareholders
who seek a high level
of current income exempt from
federal income taxes
by investing in
a diversified portfolio
of municipal bonds.
------------------------------------------
ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT:
o AIM Municipal Bond Fund's performance figures are historical and reflect
reinvestment of all distributions and changes in net asset value. Unless
otherwise indicated, the Fund's performance is computed at net asset value
without a sales charge.
o When sales charges are included in performance figures, Class A share
performance reflects the maximum 4.75% sales charge, and Class B and Class C
share performance reflects the applicable contingent deferred sales charge
(CDSC) for the period involved. The CDSC on Class B shares declines from 5%
beginning at the time of purchase to 0% at the beginning of the seventh
year. The CDSC on Class C shares is 1% for the first year after purchase.
The performance of the Fund's Class B and Class C shares will differ from
that of Class A shares due to differing fees and expenses.
o Because Class C shares have been offered for less than one year (since
8/4/97), all total return figures for Class C shares reflect cumulative
total return that has not been annualized.
o In 1997, the Fund paid distributions for Class A, Class B, and Class C
shares of $0.429, $0.357, and $0.144 per share, respectively.
o The taxable-equivalent yield is calculated in the same manner as the 30-day
yield with an adjustment for a stated, assumed tax rate.
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's annualized distribution rate reflects the Fund's most recent
monthly dividend distribution multiplied by 12 and divided by the most
recent month-end net asset value.
o The Fund's investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
o Past performance cannot guarantee comparable future results.
ABOUT INDEXES AND OTHER PERFORMANCE BENCHMARKS CITED IN THIS REPORT:
o The Lehman Brothers Municipal Bond Index is an unmanaged composite
representing an approximation of the performance of investment-grade
municipal bonds.
o The Dow Jones Industrial Average is a price-weighted average of 30 actively
traded primarily industrial stocks.
o An investment cannot be made in any index listed. Unless otherwise
indicated, bond market index results include reinvested interest and do not
reflect sales charges.
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 and yield will vary with market conditions.
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENTS
ARE NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY;
ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY,
ANY BANK OR ANY AFFILIATE; AND ARE SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
This report may be distributed only to current shareholders or to persons
who have received a current prospectus of the Fund.
<PAGE> 3
The Chairman's Letter
Dear Fellow Shareholder:
1997 proved an eventful year in securities markets. The Dow
Jones Industrial Average reached its all-time high--and also
had its largest one-day point drop ever, though not its
[PHOTO OF largest percentage drop. Volatility was unabated, and we
Charles T. experienced the first 10% stock market correction in the U.S.
Bauer, since 1991.
Chairman of Never dull and occasionally unsettling, 1997 was also a
the Board of very good year for many investments. For an unprecedented
THE FUND third year in a row, domestic equities rose more than 20%.
APPEARS HERE] Late in the year, in the uncertainty brought on by events in
Asia, bond markets, especially the U.S. Treasury market,
fulfilled their usual role as relative safe havens, and a
bull market in bonds took hold. Overseas, though Asian
markets plummeted, Europe thrived.
Market expectations performed an about-face during the
year. Worry about the inflationary potential of vigorous economic growth became
concern about the potential negative impact of Asia's financial crisis. At
fiscal year end, there was no consensus about how serious or widespread this
impact would be.
An interview with your Fund's managers appears on the following pages. They
discuss their investment strategies, how your Fund performed in this context,
and their outlook for the future.
In uncertain times like these, your financial consultant remains your best
source for information on market trends and for advice on how to invest
strategically rather than emotionally. We encourage you to visit your financial
consultant regularly to make sure your chosen investments still suit your goals,
risk tolerance, and time horizon.
INVESTOR EDUCATION EVENTS
In addition to professional guidance, every investor needs fundamental
information about the saving and investing choices offered by the marketplace.
AIM has always championed investor education, convinced a more knowledgeable
shareholder is a better customer. A great deal of investment information will be
available during two upcoming events, and we hope our shareholders will
participate in and learn from them to the greatest extent possible.
First, from March 29 through April 4, the Securities and Exchange Commission
(SEC) will sponsor Saving and Investing Education Week. As the SEC points out,
financial markets are more stable when investors are confident in them, and
knowledge is a major confidence builder. The week's theme is "Get the facts.
It's your money. It's your future." The aim is to inform citizens about the
saving and investment possibilities available and to build understanding about
how one's financial needs and goals change throughout one's life. The week's
awareness and education events will culminate with a national investors town
meeting at satellite-linked locations across the nation. You can find out more
from the SEC's Web site at www.sec.gov.
The second event concerns citizens' financial planning for retirement, a
subject of growing urgency as the population ages and the solvency of the Social
Security system is increasingly debatable. In July, the first National Summit on
Retirement Savings will be held at the White House. Under the auspices of the
Department of Labor, working through public-private partnership, the summit's
goal is to advance the public's knowledge of retirement savings through
development of a broad-based education program and to develop recommendations
for public/private action to promote private retirement savings among American
workers.
Look for further information on both of these investor education events in
the national and local press.
We are pleased to send you this report on your Fund. Please contact our
Client Services department at 800-959-4246 if you have questions or comments.
Automated information about your account is available 24 hours a day on the AIM
Investor Line, 800-246-5463. Account information and much more can be found on
our Web site, www.aimfunds.com.
Sincerely,
/s/ CHARLES T. BAUER
Charles T. Bauer
Chairman
---------------------------------
In uncertain times like these,
your financial consultant
remains your best source
for information on market trends
and for advice on
how to invest strategically
rather than emotionally.
---------------------------------
<PAGE> 4
The Managers' Overview
FUND PROVIDES SOLID INCOME,
SHARE-PRICE STABILITY
A roundtable discussion with the Fund management team for AIM Municipal Bond
Fund for the fiscal year ended December 31, 1997.
- --------------------------------------------------------------------------------
Q. IT WAS GENERALLY A GOOD YEAR FOR BONDS. HOW DID THE FUND PERFORM?
A. It was a good year for most types of bonds, and municipal issues were no
exception. In line with this trend, your Fund once again provided
attractive current income (see chart below), exempt from federal income
taxes, while preserving relative stability of net asset value.
For the year, average annual total return was 7.27% for Class A shares
and 6.59% for Class B shares. Class C shares produced a cumulative total
return of 2.36% from their inception on August 4, 1997, through December 31,
1997. During the reporting period, net asset value per share remained within
a relatively narrow range of $8.07 to $8.36 for Class A, B, and C shares,
continuing the Fund's history of relative price stability as illustrated by
the chart in this report.
================================================================================
FUND PROVIDES ATTRACTIVE INCOME
- --------------------------------------------------------------------------------
As of 12/31/97
- --------------------------------------------------------------------------------
30-DAY TAXABLE 30-DAY TAXABLE
DISTRIBUTION EQUIVALENT SEC YIELD EQUIVALENT
RATE DISTRIBUTION AT MAXIMUM 30-DAY
AT NAV RATE* OFFERING PRICE SEC YIELD*
- --------------------------------------------------------------------------------
Class A 5.04% 8.34% 3.89% 6.44%
Class B 4.16 6.89 3.29 5.45
Class C 4.17 6.90 3.29 5.45
================================================================================
================================================================================
FUND VS. 30-YEAR TREASURY
- --------------------------------------------------------------------------------
As of 12/31/97
Class A Taxable Equivalent
Distribution Rate* 8.34%
Class A Taxable
Equivalent Yield* 6.44%
30-Year Treasury Bond
SEC Yield 5.92%
================================================================================
*Assumes highest marginal federal tax rate of 39.6%.
Q. WHAT WAS THE IMPACT OF THE LOW-INFLATION ENVIRONMENT ON FIXED-INCOME
SECURITIES?
A. The low-inflation, falling interest-rate environment in 1997 provided nearly
an ideal climate for bonds. For the 12-month period ended December 31,
consumer prices rose just 1.7%, the smallest increase in 11 years. After
raising interest rates in March, the Federal Reserve Board (the Fed) left
monetary policy unchanged for the remainder of 1997. Borrowing costs
actually declined as the year progressed as it became increasingly evident
that inflation was not a serious threat.
Bonds also were given a boost by the agreement last summer to balance
the federal budget and the turmoil that hit world stock markets in the fall.
Investors began shifting more assets into bonds, in particular U.S. Treasury
securities, after global stock markets plunged in October following the
Asian currency devaluations.
Q. WHAT WERE THE MAJOR TRENDS IN THE MUNICIPAL BOND MARKET?
A. For the year, municipal bonds fared about the same as taxable U.S. Treasury
securities. The municipal bond market tended to reflect trends in the U.S.
Treasury market. Consequently, when the U.S. Treasury market rallied
strongly in the second half of the year, municipal bonds also appreciated
in value, although not quite as dramatically as federal government issues.
1997 also witnessed the issuance of $267 billion in new municipal bonds,
the largest amount since 1994. However, demand kept pace with supply so
municipal bond prices were not adversely affected by the influx of new
issues. More over, we believe the increase in supply could improve liquidity
within the municipal bond market.
Q. HOW DID YOU MANAGE THE FUND?
A. We maintained our emphasis on revenue bonds, whose creditworthiness tends to
be less affected by the political environment than that of general
obligation bonds. Revenue bonds are paid with money generated by various
projects while general obligation bonds are paid with tax dollars. State
and local governments are finding it more difficult to raise taxes to
support general obligation bond issues because of public opposition to tax
increases.
At year end, the Fund was 75% invested in revenue bonds and 25% invested
in general obligation bonds. The portfolio had a weighted average maturity
of 13.8 years and a duration of 5.0 years. Funds with shorter duration and
weighted average maturity tend to be less sensitive to interest-rate
fluctuations.
--------------------
Your Fund once again
provided attractive current income,
exempt from federal income taxes,
while preserving relative stability
of net asset value.
--------------------
See important fund and index disclosures inside front cover.
2
<PAGE> 5
PORTFOLIO COMPOSITION
As of 12/31/97
================================================================================
Total Number of Holdings: 260
Average Maturity: 13.8 Years
Duration: 5.0 Years
General Obligation 25%
Revenue 75%
================================================================================
================================================================================
TOP 5 BOND HOLDINGS
- --------------------------------------------------------------------------------
ISSUER COUPON MATURITY % OF NET ASSETS
================================================================================
1. New York State Urban
Development Corp. 7.375% 01/01/02 2.43%
2. Connecticut (State of) 6.50% 03/15/02 1.65
3. Mississippi Higher
Education Assistance Corp. 7.50% 09/01/09 1.49
4. Alaska (State of)
Housing Finance Corp. 6.75% 12/01/24 1.39
5. New York (City of) 7.65% 02/01/02 1.34
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.
================================================================================
Q. DID YOU CONTINUE TO EMPHASIZE HIGHER-QUALITY MUNICIPAL BONDS IN THE
PORTFOLIO?
A. Yes, there was little advantage in holding lower-rated bonds because their
yields were not substantially greater than higher-rated issues during the
reporting period.
As of December 31, 1997, the Fund had an average portfolio quality
rating of AA/Aa as measured by Standard & Poor's Corporation (S&P) and
Moody's Investors Service, Inc. (Moody's), two widely known credit-rating
agencies. S&P and Moody's ratings are historical and are based on analysis
of the credit quality of the individual municipal securities in the Fund's
portfolio.
Approximately 59% of the portfolio's holdings were securities rated AAA,
and 89% of the portfolio was rated A or better. Credit-enhanced
securities--those backed by insurance or escrowed with U.S. Treasury
securities--composed about 54% of the portfolio.
Q. ISN'T THE FUND ALSO MANAGED FOR TAX EFFICIENCY?
A. Yes, we make every effort to avoid transactions that would result in capital
gains that are not offset by capital losses. For the past four years, the
Fund has paid no taxable capital gains distributions or federally taxable
ordinary income distributions.
Q. WHAT IMPACT DO YOU EXPECT THE TAXPAYERS' RELIEF ACT OF 1997 TO HAVE ON THE
MUNICIPAL BOND MARKET?
A. We don't expect this act to diminish the popularity of municipal bonds as an
attractive tax-free investment. While the act creates the new Roth
Individual Retirement Account, which will also pay tax-free distributions,
only individuals with adjusted gross income of less than $110,000 or
couples with adjusted gross income of less than $160,000 will be eligible
to invest in Roth IRAs. Moreover, the maximum yearly contribution to a Roth
IRA will be $2,000 for individuals and $4,000 for couples. Finally, you
can't withdraw Roth IRA earnings tax free until you are 59 1/2 years old
and the account has been open at least five years.
Q. DO YOU THINK A FLAT TAX OR A NATIONAL SALES TAX WILL BE ADOPTED?
A. Although a flat tax and a national sales tax--two plans that could eliminate
the tax-advantaged status of municipal bonds--are likely to be hot campaign
issues in 1998, we don't believe either will be adopted in their current
forms. For one, a flat tax could mean higher taxes for most citizens.
Secondly, no flat tax or national sales tax legislation has been formally
drafted. Finally, we don't believe the federal government would eliminate
the tax-exempt status of municipal bonds at a time when more spending
burdens are being shifted to state and local level.
Q. WHAT IS YOUR MARKET OUTLOOK?
A. We continue to be optimistic about fixed-income investments, including
municipal bonds. In the U.S., the economy is growing at a reasonable pace
without significant inflation. If such conditions persist, the Fed will be
less likely to raise interest rates. Moreover, the continuing problems in
Asia could slow economic growth and add fuel to the strong rally in the
bond market. Municipal bonds could also gain in popularity as the income of
many Americans becomes subject to higher tax brackets.
1997 was one of the more volatile years in recent decades in the
financial markets, and that trend could persist over the coming months. In
such an environment, investors would be well advised to focus on their
long-term financial goals rather than transitory fluctuations in the
markets.
See important fund and index disclosures inside front cover.
3
<PAGE> 6
FUND PERFORMANCE
AIM MUNICIPAL BOND FUND VS. BENCHMARK INDEX
The chart below compares your Fund's Class A shares to a benchmark index. It is
intended to give you a general idea of how your Fund performed compared to the
bond market over the period 12/31/87-12/31/97. It is important to understand the
difference between your Fund and an index. An index measures the performance of
a hypothetical portfolio, in this case the Lehman Brothers Municipal Bond Index.
Unlike your Fund, an index is not managed; therefore, there are no sales
charges, expenses or fees. You cannot invest in an index. But if you could buy
all the securities that make up a particular index, you would incur expenses
that would affect the return on your investment.
================================================================================
AVERAGE ANNUAL TOTAL RETURNS
As of 12/31/97
CLASS A SHARES
10 Years 7.53%
5 Years 5.22
1 Year 2.16*
*7.27% excluding sales charge
CLASS B SHARES
Inception (9/1/93) 3.86
1 Year 1.59**
**6.59% excluding sales charge
CLASS C SHARES
Inception (8/4/97) 1.36***
***2.36% excluding sales charges. Total return provided is cumulative total
return that has not been annualized.
================================================================================
Source: Towers Data Systems HYPO--Registered Trademark--; Lehman Brothers. 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 performance
calculations and descriptions of the index cited on this page, please refer to
the inside front cover.
Growth of a $10,000 Investment
12/31/87-12/31/97
- --------------------------------------------------------------------------------
AIM Municipal Bond Fund, Lehman Brothers Municipal
Class A Shares Bond Index
- --------------------------------------------------------------------------------
12/87 $9,519 $10,000
12/88 10,692 11,014
12/89 11,730 12,203
12/90 12,348 13,093
12/91 13,990 14,683
12/92 15,263 15,979
12/93 17,043 17,941
12/94 16,396 17,013
12/95 18,536 19,984
12/96 19,258 20,869
12/97 20,767 22,791
Past performance cannot guarantee comparable future results.
================================================================================
A HISTORY OF NET ASSET VALUE STABILITY
================================================================================
Class A Shares Net Asset Value
6/30/92-12/31/97
- --------------------------------------------------------------------------------
6/92 8.58 12/94 7.78 12/96 8.19
8.54 7.91 8.18
8.69 8.02 8.2
8.74 8.04 8.1
8.74 8.03 8.11
8.62 8.17 8.17
12/93 8.61 8.11 8.2
8.68 8.12 8.31
8.46 8.16 8.23
8.13 8.16 8.27
8.12 8.21 8.28
8.16 8.28 8.28
8.09 12/95 8.31 8.34
8.17 8.32
8.15 8.26
8.01 8.167
7.86 8.11
7.7 8.08
8.1
8.12
8.1
8.14
8.17
8.24
================================================================================
Source: Towers Data Systems HYPO--Registered Trademark--; This chart has no
calculations, it only shows observation and tracking of net asset value. There
is no guarantee that the Fund will maintain a constant NAV. Figures are
historical and reflect reinvestment of all distributions, changes in net asset
value, and exclude the effect of the Fund's maximum sales charge. Class B shares
commenced sales 9/1/93 and Class C shares commenced sales 8/4/97. NAV per share
for Class A, Class B, and Class C shares has not differed by more than $0.01 per
share.
4
<PAGE> 7
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
ALABAMA-0.68%
Courtland Industrial
Development Board
(Champion International
Corp. Project); Refunding
PCR
6.40%, 11/01/26(b) - Baa1 $2,315 $ 2,500,617
- ------------------------------------------------------------------
ALASKA-1.78%
Alaska (State of) Housing
Finance Corp.;
Collateralized First
Veterans' Home Mortgage
Series A-2 RB
6.75%, 12/01/24(b) AAA Aaa 4,800 5,107,055
- ------------------------------------------------------------------
Alaska (State of) Housing
Finance Corp.;
Collateralized Mortgage
Program First Series RB
6.875%, 06/01/33 AAA Aaa 1,330 1,411,901
- ------------------------------------------------------------------
6,518,956
- ------------------------------------------------------------------
ARKANSAS-1.43%
Fayetteville (City of);
Water and Sewer Refunding
and Improvement Series
1992 RB
6.15%, 08/15/12 A A 2,000 2,095,820
- ------------------------------------------------------------------
Independence (County of)
(Mississippi Power & Light
Project); PCR
9.50%, 07/01/14 - Baa2 1,000 1,073,330
- ------------------------------------------------------------------
Little Rock (City of); Sewer
Improvement Series B RB
5.75%, 02/01/06 AA+ Aa 2,000 2,055,620
- ------------------------------------------------------------------
5,224,770
- ------------------------------------------------------------------
ARIZONA-2.09%
Arizona (State of)
Educational Loan Marketing
Corp.; RB
6.125%, 09/01/02(b) - Aa 1,900 2,024,070
- ------------------------------------------------------------------
Gila (County of) Industrial
Development Authority
(ASARCO Inc.); Refunding
PCR
8.90%, 07/01/06 BBB Baa2 1,000 1,035,960
- ------------------------------------------------------------------
Mohave (County of) Unified
School District #1 (Lake
Havasu); Series 1996 A GO
5.90%, 07/01/15(c) AAA Aaa 1,000 1,083,340
- ------------------------------------------------------------------
Pima (County of) Unified
School District #10
(Amphitheater); School
Improvement
Series 1992 E GO
6.50%, 07/01/05 A+ A3 3,100 3,521,940
- ------------------------------------------------------------------
7,665,310
- ------------------------------------------------------------------
CALIFORNIA-1.55%
Foothill/Eastern Corridor
Agency (California Toll
Road Project); Senior Lien
Series A RB
6.00%, 01/01/16 BBB- Baa 400 427,536
- ------------------------------------------------------------------
Irvine Ranch Water District
Joint Powers Agency; Issue
II Series RB
8.25%, 08/15/23 A+ - 500 512,365
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
CALIFORNIA-(CONTINUED)
Los Angeles Unified School
District (Multiple
Properties Project);
Refunding Certificates of
Participation
5.625%, 11/01/13(c) AAA Aaa $3,000 $ 3,003,600
- ------------------------------------------------------------------
Sacramento (City of)
California Cogeneration
Authority (Procter &
Gamble Project); Series
1995 RB
7.00%, 07/01/04 BBB- - 500 566,035
- ------------------------------------------------------------------
San Francisco (City and
County of) Parking
Authority; Parking Meter
Series 1994 RB
7.00%, 06/01/13(c) AAA Aaa 1,000 1,167,490
- ------------------------------------------------------------------
5,677,026
- ------------------------------------------------------------------
COLORADO-1.00%
Adams County School District
Number 1; Unlimited Tax
Building Series 1992 A GO
6.625%, 12/01/02(d)(e) AAA Aaa 500 557,270
- ------------------------------------------------------------------
Colorado (State of) Housing
Finance Authority (Single
Family Residential
Housing); Series 1987 B RB
9.00%, 09/01/17 AA Aa1 360 368,212
- ------------------------------------------------------------------
Highlands Ranch Metro
District No. 1; Refunding
& Improvement Unlimited
Tax Series A GO
7.30%, 09/01/02(d)(e) NRR NRR 500 576,060
- ------------------------------------------------------------------
Mesa County School District
#51; 1989 Series B
Certificates of
Participation
6.875%, 12/01/05(c) AAA Aaa 1,465 1,619,323
- ------------------------------------------------------------------
Mountain Village Metro
District (San Miguel
County); Unlimited Tax
Refunding Series GO
7.95%, 12/01/03(f) - - 500 559,005
- ------------------------------------------------------------------
3,679,870
- ------------------------------------------------------------------
CONNECTICUT-3.42%
Bridgeport (City of);
Unlimited Tax Series A GO
6.00%, 09/01/06 AAA Aaa 1,000 1,117,850
- ------------------------------------------------------------------
Connecticut (State of);
General Purpose Public
Improvement Series 1992-A
GO
6.50%, 03/15/02(d)(e) NRR NRR 5,500 6,062,320
- ------------------------------------------------------------------
Connecticut (State of)
Health and Education
Facility Authority;
Special Care Hospital
Series B RB
5.375%, 07/01/17 BBB Baa2 500 496,120
- ------------------------------------------------------------------
Connecticut (State of)
Housing Finance Authority;
Housing Mortgage Financing
Program
Sub-Series C-2 RB
5.85%, 11/15/28(b) AA Aa3 1,000 1,028,350
- ------------------------------------------------------------------
Connecticut Resource
Recovery Authority
(American Ref-Fuel Co.)
(Southeastern Connecticut
Project); Corporate Credit
Series 1988 RB
8.10%, 11/15/15(b) A A2 925 981,555
- ------------------------------------------------------------------
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
CONNECTICUT-(CONTINUED)
Connecticut Resource
Recovery Authority
(American Ref-Fuel Co.)
(Southeastern Connecticut
Project); Series 1988 A RB
7.875%, 11/15/06(b) AA- Baa1 $1,700 $ 1,800,742
- ------------------------------------------------------------------
8.00%, 11/15/15(b) AA- Baa1 1,000 1,060,300
- ------------------------------------------------------------------
12,547,237
- ------------------------------------------------------------------
DELAWARE-0.08%
Delaware Economic
Development Authority
(Osteopathic Hospital
Association); Series A RB
6.75%, 01/01/13(d) - Aaa 250 291,015
- ------------------------------------------------------------------
FLORIDA-1.00%
Dade (County of) (Courthouse
Center Project); RB
5.90%, 04/01/10 - A3 500 532,535
- ------------------------------------------------------------------
Escambia (County of)
(Champion International
Corp. Project); PCR
6.90%, 08/01/22(b) BBB Baa1 1,125 1,260,990
- ------------------------------------------------------------------
Leon (County of);
Certificates of
Participation Series A RB
5.875%, 01/01/98 - Baa1 355 355,000
- ------------------------------------------------------------------
Miami (City of) Parking
System; Series 1992 A RB
6.70%, 10/01/06 A A 1,120 1,227,610
- ------------------------------------------------------------------
Plantation (City of) Health
Facilities Authority
(Covenant Retirement
Communities Inc.); RB
7.75%, 12/01/22 A- - 250 276,787
- ------------------------------------------------------------------
3,652,922
- ------------------------------------------------------------------
GEORGIA-0.59%
Georgia (State of) Housing and
Finance
Authority (Home Ownership
Opportunity Program);
Series C RB
6.50%, 12/01/11 AA+ Aa 975 1,050,485
- ------------------------------------------------------------------
Savannah (City of) Economic
Development Authority
(Hershey Foods Corp.
Project); IDR
6.60%, 06/01/12 A+ - 1,000 1,103,640
- ------------------------------------------------------------------
2,154,125
- ------------------------------------------------------------------
ILLINOIS-10.78%
Berwyn (City of) (Macneal
Memorial Hospital
Association); Hospital
Series 1991 RB
7.00%, 06/01/01(d)(e) AAA Aaa 3,250 3,608,443
- ------------------------------------------------------------------
Chicago Emergency Telephone
System; Unlimited Tax
Series GO
5.60%, 01/01/10(c) AAA Aaa 400 432,315
- ------------------------------------------------------------------
Chicago Midway Airport;
Series A RB
5.625%, 01/01/22(c) AAA Aaa 1,000 1,038,610
- ------------------------------------------------------------------
Chicago Wastewater
Transmission; Second Lien
Series RB
5.25%, 01/01/17(c) AAA Aaa 2,500 2,508,800
- ------------------------------------------------------------------
Cook (County of); Series
1992 B GO
5.75%, 11/15/02(d)(e) AAA Aaa 2,000 2,162,920
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
ILLINOIS-(CONTINUED)
Crestwood (City of); Revenue
Refunding Non-Qualified
Tax Increment Notes
7.25%, 12/01/08(f) - - $ 100 $ 106,936
- ------------------------------------------------------------------
Illinois (State of); Sales
Tax Series 1993 B RB
6.50%, 06/15/13 AAA Aa3 1,500 1,626,360
- ------------------------------------------------------------------
Illinois (State of);
Unlimited Tax Series GO
5.25%, 07/01/22(c) AAA Aaa 4,475 4,517,244
- ------------------------------------------------------------------
Illinois (State of)
Development Finance
Authority (CPC
International Project); PCR
6.75%, 05/01/16 - A2 2,500 2,703,150
- ------------------------------------------------------------------
Illinois Educational
Facilities Authority
(Northwestern University);
Adjustable Medium Term
Series RB
5.25%, 11/01/14(e) AA+ Aa1 1,000 1,013,330
- ------------------------------------------------------------------
Illinois Educational
Facilities Authority
(Shedd Aquarium Society);
RB
5.60%, 07/01/27(c) AAA Aaa 3,500 3,604,615
- ------------------------------------------------------------------
Illinois Health Facilities
Authority (Evangelical
Hospital Corp.); RB
6.25%, Series A
04/15/22(d) NRR NRR 1,000 1,137,430
- ------------------------------------------------------------------
6.25%, Series 1992-C
04/15/22(d) NRR NRR 1,150 1,308,045
- ------------------------------------------------------------------
Illinois Health Facilities
Authority (Franciscan
Sisters Health Care);
Refunding Series 1992 RB
6.40%, 09/01/04(c) AAA Aaa 2,475 2,725,866
- ------------------------------------------------------------------
Illinois Health Facilities
Authority (Memorial
Hospital); RB
7.25%, 05/01/22 BBB - 200 215,234
- ------------------------------------------------------------------
Illinois Health Facilities
Authority
(Ravenswood Hospital Medical
Center);
Refunding Series 1987 A RB
8.80%, 06/01/06 - Baa1 1,000 1,018,100
- ------------------------------------------------------------------
Kane (County of) School
District No. 131 (Aurora
East Side); Limited GO
5.35%, 01/01/04(c) AAA Aaa 1,000 1,057,050
- ------------------------------------------------------------------
Lake County Community
Consolidated School
District #73 (Hawthorn);
Unlimited Tax Series 1997
GO
5.45%, 01/01/12(c) - Aaa 1,950 2,092,448
- ------------------------------------------------------------------
Peoria and Pekin and
Waukegan (Cities of); GNMA
Collateralized Mortgage
Series 1990 RB
7.875%, 08/01/22(b) AAA - 130 137,912
- ------------------------------------------------------------------
Saint Charles (City of)
(Tri-City Center
Associates Limited
Project); IDR
7.50%, 11/01/13(f) - - 100 107,138
- ------------------------------------------------------------------
Tazewell County Community
High School District #303
(Pekin); Unlimited Tax
Series 1996 GO
5.625%, 01/01/14(c) AAA Aaa 1,435 1,510,940
- ------------------------------------------------------------------
University of Illinois
Auxiliary Facilities
System; Series 1991 RB
5.75%, 04/01/22 AA- Aa 4,750 4,881,100
- ------------------------------------------------------------------
39,513,986
- ------------------------------------------------------------------
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
INDIANA-0.67%
Carmel Retirement Rental
Housing (Beverly
Enterprises Project);
Refunding Series RB
8.75%, 12/01/08(f) - - $ 95 $ 106,523
- ------------------------------------------------------------------
Columbus (City of) Four Star
School Building; First
Mortgage Series RB
6.00%, 01/15/06(b) AAA Aaa 1,000 1,113,610
- ------------------------------------------------------------------
Indiana (State of) Housing
Finance Authority; Series
B-1 RB
6.15%, 07/01/17 - Aaa 185 196,461
- ------------------------------------------------------------------
Indiana Municipal Power
Agency Power Supply;
Refunding Series A RB
5.75%, 01/01/18 A A1 500 501,195
- ------------------------------------------------------------------
Indiana Transportation
Finance Authority (Airport
Lease Facility); Series A
RB
6.25%, 11/01/02(d)(e) NRR Aaa 395 435,518
- ------------------------------------------------------------------
6.25%, 11/01/16 NRR A2 105 112,112
- ------------------------------------------------------------------
2,465,419
- ------------------------------------------------------------------
IOWA-0.33%
Iowa Finance Authority (Park
West Project); Refunding
Multifamily Series RB
8.00%, 10/01/23(f) - - 100 102,203
- ------------------------------------------------------------------
Iowa Finance Authority
(Trinity Regional Hospital
Project); Hospital
Facilities Refunding
Series 1997 RB
6.00%, 07/01/12(c) AAA Aaa 1,000 1,105,460
- ------------------------------------------------------------------
1,207,663
- ------------------------------------------------------------------
KANSAS-0.08%
Newton (City of) (Newton
Healthcare Corp.);
Hospital Series A RB
7.375%, 11/15/14 BBB- - 250 277,928
- ------------------------------------------------------------------
KENTUCKY-1.15%
Kentucky Economic
Development Finance
Authority (Appalachian
Regional Healthcare);
Refunding & Improvement
Hospital Systems Series RB
5.875%, 10/01/22 BBB - 1,000 1,027,590
- ------------------------------------------------------------------
Mount Sterling (City of);
Lease Funding Series 1993
A RB
6.15%, 03/01/13 - Aa 3,000 3,184,710
- ------------------------------------------------------------------
4,212,300
- ------------------------------------------------------------------
LOUISIANA-3.52%
Louisiana Public Facilities
Authority (Medical Center
at New Orleans Project);
RB
6.125%, 10/15/07(c) AAA - 2,775 2,971,498
- ------------------------------------------------------------------
Louisiana Public Facilities
Authority (Our Lady of
Lake Regional Hospital);
Hospital Refunding Series
C RB
6.00%, 12/01/07(c) AAA Aaa 2,500 2,678,475
- ------------------------------------------------------------------
Louisiana Public Facilities
Authority (Tulane
University of Louisiana);
RB
6.00%, 10/01/16(c) AAA Aaa 2,500 2,735,425
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
LOUISIANA-(CONTINUED)
New Orleans Levee District;
Series 1995 A RB
5.95%, 11/01/07(c) AAA Aaa $1,000 $ 1,108,960
- ------------------------------------------------------------------
Ouachita Parish Hospital
Service District No 1
(Glenwood Regional Medical
Center); Refunding Series
1996 RB
5.70%, 05/15/16(c) AAA Aaa 1,000 1,047,880
- ------------------------------------------------------------------
St. John Baptist Parish
(Sales Tax Distribution);
Public Improvement Series
1987 RB
7.60%, 01/01/08(d)(e) - NRR 500 614,505
- ------------------------------------------------------------------
7.60%, 01/01/09(d)(e) - NRR 500 624,780
- ------------------------------------------------------------------
West Feliciana Parish (Gulf
States Utility Co.);
Series A PCR
7.50%, 05/01/15 BB+ Ba1 1,000 1,135,710
- ------------------------------------------------------------------
12,917,233
- ------------------------------------------------------------------
MAINE-0.28%
Maine (State of) Education
Loan Authority; Education
Loan Series A-2 RB
6.95%, 12/01/07(b) - A 955 1,039,126
- ------------------------------------------------------------------
MARYLAND-0.54%
Maryland Health and Higher
Education Facilities
Authority (Doctors
Community Hospital Inc.);
Series 1990 RB
8.75%, 07/01/00(d)(e) AAA Aaa 1,000 1,129,460
- ------------------------------------------------------------------
Maryland State Community
Development Administration
(Department of Economic
and Community
Development); Single
Family Housing Refunding
Series 5 RB
7.70%, 04/01/15(b) - Aa2 790 837,075
- ------------------------------------------------------------------
1,966,535
- ------------------------------------------------------------------
MASSACHUSETTS-4.54%
Massachusetts (State of);
Consolidated Loan Series
1991 C GO
7.00%, 08/01/01(d)(e) NRR NRR 2,450 2,721,656
- ------------------------------------------------------------------
Massachusetts Health and
Education Facilities
Authority (Lowell General
Hospital); Series 1991 A
RB
8.40%, 06/01/01(d)(e) NRR NRR 3,550 4,091,837
- ------------------------------------------------------------------
Massachusetts Health and
Education Facilities
Authority (Valley Regional
Health System Issue);
Series 1990 B RB
8.00%, 07/01/00(d)(e) NRR Aaa 3,000 3,335,640
- ------------------------------------------------------------------
Massachusetts Health and
Education Facilities
Authority (Winchester
Hospital); Series D RB
5.80%, 07/01/09(c) AAA - 1,000 1,068,300
- ------------------------------------------------------------------
Massachusetts Housing
Finance Authority; Single
Family
Series 13 RB
7.95%, 06/01/23(b) A+ Aa 1,675 1,791,932
- ------------------------------------------------------------------
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
MASSACHUSETTS-(CONTINUED)
Massachusetts Industrial
Finance Agency (Beverly
Enterprises); Refunding
Series RB
8.00%, 05/01/02(f) - - $ 250 $ 271,213
- ------------------------------------------------------------------
Massachusetts Municipal
Wholesale Electric
Cooperative Power Supply;
System Series 1992 A RB
6.75%, 07/01/08(c) AAA Aaa 3,000 3,374,040
- ------------------------------------------------------------------
16,654,618
- ------------------------------------------------------------------
MICHIGAN-3.94%
Detroit (City of) School
District; School Building
and Site Unlimited Tax
Series 1992 GO
6.00%, 05/01/05 AA Aa2 1,000 1,069,070
- ------------------------------------------------------------------
6.15%, 05/01/07 AA Aa2 1,300 1,392,001
- ------------------------------------------------------------------
Lake Orion Community School
District; School Building
and Site Unlimited Tax
Refunding Series 1994 GO
7.00%, 05/01/05(d)(e) AAA Aaa 2,500 2,938,125
- ------------------------------------------------------------------
Lakeview Community School
District; Unlimited Tax
Series 1996 GO
5.75%, 05/01/16(c) AAA Aaa 1,000 1,060,600
- ------------------------------------------------------------------
Lincoln Park (City of)
School District; Unlimited
Tax Series 1996 GO
6.00%, 05/01/12(c) AAA Aaa 1,210 1,320,158
- ------------------------------------------------------------------
Michigan (State of) Housing
Development Authority;
Refunding Series A RB
6.60%, 04/01/12 A+ - 1,000 1,062,830
- ------------------------------------------------------------------
Michigan (State of)
Underground Storage Tank
Financial Assurance
Authority; Refunding
Series I RB
6.00%, 05/01/05(c) AAA Aaa 1,000 1,105,050
- ------------------------------------------------------------------
Ypsilanti (City of) School
District; Refunding
Unlimited Tax Series 1996
GO
5.75%, 05/01/15(b) AAA Aaa 2,100 2,232,090
- ------------------------------------------------------------------
5.75%, 05/01/16(b) AAA Aaa 2,175 2,303,456
- ------------------------------------------------------------------
14,483,380
- ------------------------------------------------------------------
MINNESOTA-0.32%
Centennial Independent
School District No. 12;
Unlimited Tax Series A GO
5.60%, 02/01/05(c) AAA Aaa 1,000 1,081,650
- ------------------------------------------------------------------
Minneapolis Health Care
Facilities (Ebenezer
Society Project); Series A
RB
7.00%, 07/01/12(f) - - 100 102,012
- ------------------------------------------------------------------
1,183,662
- ------------------------------------------------------------------
MISSISSIPPI-1.57%
Mississippi Higher Education
Assistance Corp.; Student
Loan Series 1994 C RB
7.50%, 09/01/09(b) - A 5,000 5,463,100
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
MISSISSIPPI-(CONTINUED)
Ridgeland Urban Renewal (The
Orchard Limited Project);
Refunding Series A RB
7.75%, 12/01/15(f) - - $ 250 $ 273,468
- ------------------------------------------------------------------
5,736,568
- ------------------------------------------------------------------
MISSOURI-1.25%
Joplin Industrial
Development Authority
(Catholic Health
Initiatives); Refunding
Series A RB
5.125%, 12/01/15 AA Aa2 1,350 1,347,570
- ------------------------------------------------------------------
Kansas City Industrial
Development Authority
(General Motors Corp.
Project); PCR
6.05%, 04/01/06 A- A3 1,435 1,480,690
- ------------------------------------------------------------------
Kansas City Municipal
Assistance Corp.(Truman
Medical Center Charitable
Foundation); Leasehold
Improvement Series 1991 A
RB
7.00%, 11/01/08 A A3 605 659,033
- ------------------------------------------------------------------
Missouri (State of)
Environmental Improvement
and Energy Resources;
Series 1995 C PCR
5.85%, 01/01/10 - Aa1 1,000 1,079,990
- ------------------------------------------------------------------
4,567,283
- ------------------------------------------------------------------
NEVADA-1.54%
Humboldt (County of) (Sierra
Pacific Project); Series
1987 PCR
6.55%, 10/01/13(c) AAA Aaa 3,000 3,284,520
- ------------------------------------------------------------------
Las Vegas (City of);
Refunding 1992 Limited Tax
GO
6.50%, 04/01/02(d)(e) AAA Aaa 1,000 1,103,040
- ------------------------------------------------------------------
Reno Redevelopment Agency;
Refunding Sub-Series A Tax
Allocation Notes
6.00%, 06/01/10 - Baa 1,185 1,242,591
- ------------------------------------------------------------------
5,630,151
- ------------------------------------------------------------------
NEW HAMPSHIRE-1.17%
New Hampshire Higher
Educational & Health
Facilities Authority
(Daniel Webster College);
RB
7.625%, 07/01/16(f) - - 100 104,740
- ------------------------------------------------------------------
New Hampshire State Turnpike
System; Series 1990 RB
7.40%, 04/01/00(d)(e) AAA Aaa 3,850 4,194,845
- ------------------------------------------------------------------
4,299,585
- ------------------------------------------------------------------
NEW JERSEY-1.40%
Hudson County Correctional
Facility; Certificates of
Participation Series 1992
RB
6.60%, 12/01/21(c) AAA Aaa 1,250 1,356,075
- ------------------------------------------------------------------
Lacey School District;
Unlimited Tax Series 1996
GO
5.30%, 11/01/06(c) AAA Aaa 1,000 1,074,970
- ------------------------------------------------------------------
New Jersey City Economic
Development Authority
(Atlantic City Sewer Co.);
Sewer Facility Series 1991
RB
7.25%, 12/01/11(b)(f) - - 1,795 1,986,311
- ------------------------------------------------------------------
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
NEW JERSEY-(CONTINUED)
New Jersey City Economic
Development Authority
(Franciscan Oaks Project);
First Mortgage Series RB
5.70%, 10/01/17(f) - - $ 500 $ 504,335
- ------------------------------------------------------------------
New Jersey Health Care
Facility Financing
Authority (St. Peters
Medical Center); Series
1987 C RB
8.60%, 07/01/17(c) AAA Aaa 200 204,500
- ------------------------------------------------------------------
5,126,191
- ------------------------------------------------------------------
NEW MEXICO-1.65%
Albuquerque (City of)
(Albuquerque Academy
Project); Educational
Facilities Series 1995 RB
5.75%, 10/15/15 AA- Aa2 915 960,192
- ------------------------------------------------------------------
Las Cruces South Central Solid Waste
Authority; Environmental
Services RB
5.65%, 06/01/09 - A 575 598,219
- ------------------------------------------------------------------
Los Alamos (County of);
Utility Series A RB
6.00%, 07/01/15(c) AAA Aaa 2,000 2,144,060
- ------------------------------------------------------------------
Santa Fe (City of); Series
1994 A RB
6.25%, 06/01/04(d)(e) AAA Aaa 2,100 2,326,968
- ------------------------------------------------------------------
6,029,439
- ------------------------------------------------------------------
NEW YORK-10.39%
New York (City of); GO
8.25%, Unlimited Tax
Series 1991 F
11/15/01(d)(e) AAA Aaa 1,840 2,133,388
- ------------------------------------------------------------------
7.00%, Unlimited Tax
Series C, Sub-Series C-1
08/01/02(d)(e) NRR Aaa 55 62,022
- ------------------------------------------------------------------
7.00%, Unlimited Tax
Series H 02/01/02(d)(e) NRR NRR 175 195,015
- ------------------------------------------------------------------
7.20%, Unlimited Tax
Series H 02/01/02(d)(e) NRR NRR 335 375,793
- ------------------------------------------------------------------
7.70%, Series D
02/01/02(d)(e) NRR Aaa 1,840 2,101,814
- ------------------------------------------------------------------
7.65%, Series 1992 F
02/01/02(d)(e) NRR NRR 4,295 4,898,190
- ------------------------------------------------------------------
7.375%, Unlimited Tax
Series B, Sub-Series B-1
08/15/04(d)(e) NRR Aaa 60 70,964
- ------------------------------------------------------------------
7.65%, Series 1992 F
02/01/06 BBB+ Baa1 480 540,874
- ------------------------------------------------------------------
7.70%, Series D 02/01/09 BBB+ Baa1 160 180,331
- ------------------------------------------------------------------
7.375%, Unlimited Tax
Series B, Sub-Series B-1
08/15/13 BBB+ Baa1 440 507,778
- ------------------------------------------------------------------
7.20%, Unlimited Tax
Series H 02/01/15 BBB+ Baa1 165 182,741
- ------------------------------------------------------------------
8.25%, Unlimited Tax
Series 1991 F 11/15/15 BBB+ Baa1 160 182,981
- ------------------------------------------------------------------
6.25%, Unlimited Tax
Series A 08/01/17 BBB+ Baa1 3,035 3,260,440
- ------------------------------------------------------------------
7.00%, Unlimited Tax
Series C, Sub-Series C-1
08/01/17 BBB+ Baa1 1,945 2,153,912
- ------------------------------------------------------------------
7.00%, Series B
02/01/18(c) AAA Aaa 1,000 1,112,390
- ------------------------------------------------------------------
7.00%, Unlimited Tax
Series H 02/01/20 BBB+ Baa1 175 192,189
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
NEW YORK-(CONTINUED)
New York City Industrial
Development Agency
(Brooklyn Navy Yard Cogen
Partners); RB
5.65%, 10/01/28(b) BBB- Baa3 $ 500 $ 502,205
- ------------------------------------------------------------------
New York City Industrial
Development Agency (The
Lighthouse Inc. Project);
Series 1992 RB
6.50%, 07/01/22(g) AA Aa2 1,500 1,607,175
- ------------------------------------------------------------------
New York City Industrial
Development Agency
(Marymount Manhattan
College Project); RB
7.00%, 07/01/23(f) - - 150 161,162
- ------------------------------------------------------------------
New York City Municipal
Water Finance Authority;
Water & Sewer Systems
Series A RB
5.00%, 06/15/17 A- A2 1,350 1,333,422
- ------------------------------------------------------------------
New York State Dorm
Authority (City University
System); Series C RB
6.00%, 07/01/16 BBB+ Baa1 500 508,860
- ------------------------------------------------------------------
New York State Dorm
Authority (State
University Educational
Facilities); Refunding
Series A RB
6.50%, 05/15/06 A- A3 1,000 1,136,480
- ------------------------------------------------------------------
New York State Environmental
Facility Corp.; Water
Revenue Series E PCR
6.875%, 06/15/01(d)(e) NRR NRR 2,300 2,542,857
- ------------------------------------------------------------------
6.875%, 06/15/10 A Aa 1,100 1,211,287
- ------------------------------------------------------------------
New York & New Jersey Port
Authority; Consolidated
One Hundred & Ninth Series
RB
5.375%, 07/15/22 AA- A1 2,000 2,042,520
- ------------------------------------------------------------------
New York State Urban
Development Corp.; Capital
Facilities 1991 Series 3
RB
7.375%, 01/01/02(d)(e) NRR Aaa 7,850 8,888,948
- ------------------------------------------------------------------
38,085,738
- ------------------------------------------------------------------
NORTH CAROLINA-2.19%
North Carolina Eastern
Municipal Power Agency;
Series A RB
6.125%, 01/01/10(c) AAA Aaa 1,500 1,638,135
- ------------------------------------------------------------------
North Carolina Housing
Finance Agency; Single
Family-Series II RB
6.20%, 03/01/16 AA Aa2 625 669,181
- ------------------------------------------------------------------
North Carolina Medical Care
Community Health Care
Facilities (Glenaire
Project); First Mortgage
Series RB
5.75%, 07/01/19(f) - - 500 495,250
- ------------------------------------------------------------------
5.85%, 07/01/27(f) - - 500 498,600
- ------------------------------------------------------------------
North Carolina Municipal
Power Agency (No. 1
Catawba Electric Project);
Refunding RB
7.25%, 01/01/07 A- A3 2,750 3,234,880
- ------------------------------------------------------------------
North Carolina Municipal
Power Agency (No. 1
Catawba Electric Project);
Series 1990 RB
6.50%, 01/01/10(c)(d) AAA Aaa 260 297,497
- ------------------------------------------------------------------
6.50%, 01/01/10(c) AAA Aaa 1,115 1,186,984
- ------------------------------------------------------------------
8,020,527
- ------------------------------------------------------------------
</TABLE>
9
<PAGE> 12
<TABLE>
<CAPTION>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
NORTH DAKOTA-0.42%
Grand Forks Senior Housing
(4000 Valley Square
Project); Special Term
Series RB
6.375%, 12/01/34(f) - - $ 500 $ 504,705
- ------------------------------------------------------------------
North Dakota Housing Finance
Agency; Home Mortgage
Series B RB
5.85%, 07/01/28(b) - Aa3 1,000 1,026,930
- ------------------------------------------------------------------
1,531,635
- ------------------------------------------------------------------
OHIO-2.63%
Cleveland (City of) Parking
Facilities; Improvement
Series RB
8.00%, 09/15/02(d)(e) NRR NRR 500 587,155
- ------------------------------------------------------------------
Fairfield (City of) Economic
Development (Beverly
Enterprises Project);
Refunding Series RB
8.50%, 01/01/03(f) - - 190 207,343
- ------------------------------------------------------------------
Fairfield (City of) School
District; Unlimited Tax
Series 1995 GO
6.10%, 12/01/15(c) AAA Aaa 1,000 1,092,160
- ------------------------------------------------------------------
Findlay (City of); Limited
Tax Series 1996 GO
5.875%, 07/01/17 AA- A1 1,000 1,055,680
- ------------------------------------------------------------------
Hamilton (County of);
Electric System Mortgage
Series 1998 RB
8.00%, 10/15/98(d)(e) AAA Aaa 1,000 1,052,300
- ------------------------------------------------------------------
Mason (City of) Health Care
Facilities (MCV Health
Care Facilities, Inc.);
Series 1990 RB
7.625%, 02/01/40(c) AAA - 2,170 2,401,170
- ------------------------------------------------------------------
Montgomery (County of)
(Grandview Hospital &
Medical Center); Refunding
Hospital Series RB
5.50%, 12/01/10 BBB - 1,000 1,013,020
- ------------------------------------------------------------------
Ohio Department of
Transportation (Panhandle
Rail Line Project); Series
1992 Certificates of
Participation
6.50%, 04/15/12(c) AAA Aaa 1,100 1,203,235
- ------------------------------------------------------------------
Washington (County of)
(Marietta Memorial
Hospital); Series B RB
7.00%, 09/01/12(c) AAA Aaa 1,000 1,013,650
- ------------------------------------------------------------------
9,625,713
- ------------------------------------------------------------------
OKLAHOMA-1.77%
McAlester (City of) Public
Works Authority; Refunding
and Improvement Series
1995 RB
5.50%, 12/01/10(c) AAA Aaa 975 1,058,636
- ------------------------------------------------------------------
Southern Oklahoma Memorial
Hospital Authority; Series
1993 A RB
5.60%, 02/01/00(d) NRR NRR 1,250 1,288,550
- ------------------------------------------------------------------
Tulsa (City of) Industrial
Authority (St. Johns
Hospital); RB
6.25%, 02/15/14 AA Aa3 2,000 2,162,940
- ------------------------------------------------------------------
Tulsa (City of) Industrial
Authority (Tulsa Regional
Medical Center); Hospital
Series RB
7.20%, 06/01/03(d)(e) AAA NRR 500 578,475
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
OKLAHOMA-(CONTINUED)
Tulsa Public Facilities
Authority-Capital
Improvements-Water System;
Series 1988 B RB
6.00%, 03/01/08 A+ - $1,305 $ 1,396,076
- ------------------------------------------------------------------
6,484,677
- ------------------------------------------------------------------
OREGON-0.96%
Marion (County of) (Ogden
Martin Systems); Refunding
Solid Waste & Electric
Series RB
5.50%, 10/01/06(c) AAA Aaa 1,000 1,089,590
- ------------------------------------------------------------------
Portland (City of) Sewer
System; Series 1994 A RB
6.20%, 06/01/04(d)(e) A+ A1 1,200 1,331,952
- ------------------------------------------------------------------
6.25%, 06/01/04(d)(e) A+ A1 1,000 1,112,730
- ------------------------------------------------------------------
3,534,272
- ------------------------------------------------------------------
PENNSYLVANIA-3.81%
Chester (County of) Health
and Educational Facilities
Authority (Jefferson
Health Systems); Series B
RB
5.375%, 05/15/27 AA- A1 4,000 4,019,440
- ------------------------------------------------------------------
Chester Upland School
Authority; Refunding
School Series B RB
5.25%, 09/01/21(c) AAA Aaa 1,000 1,007,460
- ------------------------------------------------------------------
Doylestown Hospital
Authority (Pine Run
Hospital); Hospital Series
A RB
7.20%, 07/01/23(f) - - 150 163,046
- ------------------------------------------------------------------
Lancaster (County of) Solid
Waste Management
Authority; Resource
Recovery System Series
1988 A RB
8.50%, 12/15/10(b) BBB A 3,500 3,626,210
- ------------------------------------------------------------------
Montgomery County Industrial
Development Authority
(Meadowood Corp. Project);
Refunding First Mortgage
Series A RB
10.25%, 12/01/00(d)(e) NRR NRR 100 113,502
- ------------------------------------------------------------------
Montgomery County Industrial
Development
Authority (Pennsburg
Nursing & Rehabilitation
Center); RB
7.625%, 07/01/18 - Ba3 100 111,242
- ------------------------------------------------------------------
Pennsylvania (State of);
Third Series GO
6.75%, 11/15/13(c) AAA Aaa 1,250 1,421,750
- ------------------------------------------------------------------
Pennsylvania Economic
Development Finance
Authority (Colver
Project); Resource
Recovery Series 1994 D RB
7.05%, 12/01/10(b) BBB- - 2,900 3,223,292
- ------------------------------------------------------------------
Scranton-Lackawanna Health &
Welfare Authority (Moses
Taylor Hospital Project);
Series B RB
8.50%, 07/01/01(d)(e) AAA NRR 250 289,290
- ------------------------------------------------------------------
13,975,232
- ------------------------------------------------------------------
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
PUERTO RICO-1.51%
Puerto Rico (Commonwealth
of) Electric Power
Authority; Series 1991 P
RB 7.00%, 07/01/01(d)(e) NRR Aaa $1,325 $ 1,476,222
- ------------------------------------------------------------------
6.00%, Series 1989
07/01/10 BBB+ Baa1 4,000 4,057,680
- ------------------------------------------------------------------
5,533,902
- ------------------------------------------------------------------
RHODE ISLAND-0.68%
Rhode Island Depositors
Economic Protection Corp.;
Special Obligation Series
1992 A RB
6.95%, 08/01/02(d)(e) AAA Aaa 1,250 1,409,400
- ------------------------------------------------------------------
Rhode Island Housing and
Mortgage Finance Agency;
Homeownership Opportunity
Series 15 B RB
6.00%, 10/01/04 AA+ Aa2 1,000 1,079,020
- ------------------------------------------------------------------
2,488,420
- ------------------------------------------------------------------
SOUTH CAROLINA-0.60%
Piedmont Municipal Power
Agency; Refunding Electric
Series A RB
5.75%, 01/01/24 BBB Baa1 1,150 1,150,955
- ------------------------------------------------------------------
South Carolina State
Education Assistance
Authority; Guaranteed
Student Loan Series 1990
RB
6.60%, 09/01/01(b) AA - 500 529,010
- ------------------------------------------------------------------
South Carolina State Housing
Finance and Development
Authority; Homeownership
Mortgage Series 1990 C RB
7.50%, 07/01/05(b) AA Aa2 500 529,755
- ------------------------------------------------------------------
2,209,720
- ------------------------------------------------------------------
SOUTH DAKOTA-0.03%
South Dakota Health &
Educational Facilities
Authority (Huron Regional
Medical Center); RB
7.25%, 04/01/20 BBB - 100 110,939
- ------------------------------------------------------------------
TENNESSEE-1.20%
Franklin Industrial
Development Board
(Landings Apartment
Project); Multifamily
Housing Series A RB
5.75%, 04/01/10(c) AAA Aaa 1,165 1,224,928
- ------------------------------------------------------------------
Nashville and Davidson
(Counties of) Metropolitan
Government; Water and
Sewer Refunding Series
1986 RB
7.25%, 01/20/98(e) A A1 145 145,580
- ------------------------------------------------------------------
Shelby (County of);
Unlimited Tax School GO
6.00%, 03/01/02(d)(e) NRR NRR 1,000 1,074,310
- ------------------------------------------------------------------
Shelby County Health,
Educational & Housing
Facilities Board (Kirby
Pines); Health Care
Facilities Series A RB
6.25%, 11/15/16(f) - - 1,000 1,014,960
- ------------------------------------------------------------------
Tennessee Housing
Development Agency;
Homeownership Progressive
Series Q RB
6.80%, 07/01/17 AA Aa2 895 953,614
- ------------------------------------------------------------------
4,413,392
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
TEXAS-14.66%
Arlington Independent School
District; Refunding Series
1995 GO
5.75%, 02/15/21(c) - Aaa $1,000 $ 1,041,910
- ------------------------------------------------------------------
Austin (City of); Utility
System RB
6.50%, 05/15/01(d)(e) AAA Aaa 1,380 1,506,919
- ------------------------------------------------------------------
Austin Community College
District; Combined Fee
Revenue Building and
Refunding Series 1995 RB
6.10%, 02/01/13(c) AAA Aaa 1,115 1,205,839
- ------------------------------------------------------------------
Bellville Independent School
District; Unlimited Tax
School Building and
Refunding Series 1995 GO
6.125%, 02/01/20(c) - Aaa 830 897,637
- ------------------------------------------------------------------
Brazos (County of) Health
Facilities Development
Corp. (Franciscan Services
Corp.); Series A RB
5.375%, 01/01/22(c) AAA Aaa 2,000 2,026,500
- ------------------------------------------------------------------
Brazos Higher Education Loan
Authority Inc.; Student
Loan Refunding RB
6.30%, Refunding Series
1992 C-1 11/01/01(b) - Aa 325 343,888
- ------------------------------------------------------------------
6.45%, Series 1992 C-1
11/01/02(b) - Aa 1,135 1,216,141
- ------------------------------------------------------------------
6.50%, Series 1994 B-1
06/01/04(b) - A 260 280,831
- ------------------------------------------------------------------
Carrollton (City of); GO
5.75%, 08/15/16 AA- Aa 1,000 1,049,750
- ------------------------------------------------------------------
Comal County Industrial
Development Authority (The
Coleman Company, Inc.
Project); Industrial
Development Series 1980 RB
9.25%, 08/01/00(d) NRR NRR 840 907,158
- ------------------------------------------------------------------
Dallas (City of); Waterworks
and Sewer System Refunding
and Improvement Series RB
5.35%, 04/01/14 AA Aa 3,055 3,134,430
- ------------------------------------------------------------------
Dallas (City of); Waterworks
and Sewer System Series A
RB
6.00%, 10/01/14 AA Aa2 2,030 2,130,607
- ------------------------------------------------------------------
Dallas-Fort Worth Regional
Airport Authority; Airport
Series 1985 RB
6.10%, 11/01/07 AAA Aaa 200 200,496
- ------------------------------------------------------------------
6.10%, 11/01/07(c) A+ A1 430 433,255
- ------------------------------------------------------------------
Georgetown (City of);
Utility System Series 1995
A RB
6.20%, 08/15/15(c) AAA Aaa 1,500 1,618,560
- ------------------------------------------------------------------
Harris County; Toll Road
Unlimited Tax General
Obligation and Subordinate
Lien Refunding Series 1991
RB
6.75%, 08/01/14 AA Aa2 3,850 4,234,654
- ------------------------------------------------------------------
5.375%, 08/15/20(c) AAA Aaa 1,000 1,012,650
- ------------------------------------------------------------------
Harris County Health
Facilities Development
Corp. (Saint Luke's
Episcopal Hospital
Project); Series 1991 RB
6.70%, 02/15/03(d)(e) AAA NRR 1,000 1,108,960
- ------------------------------------------------------------------
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
TEXAS-(CONTINUED)
Harris County Mental Health
and Mental Retardation
Authority; Refunding
Series 1992 RB
6.25%, 09/15/10(c) AAA Aaa $4,500 $ 4,817,565
- ------------------------------------------------------------------
Houston (City of); Refunding
Series 1992 C GO
6.25%, 03/01/02(d)(e) NRR NRR 1,470 1,577,854
- ------------------------------------------------------------------
Hurst, Euless, Bedford,
Texas Independent School
District; Refunding RB
6.50%, 08/15/04(c)(d)(e) AAA Aaa 640 718,253
- ------------------------------------------------------------------
6.50%, 08/15/24(c) AAA Aaa 360 396,636
- ------------------------------------------------------------------
Keller (City of) Independent
School District;
Certificates of
Participation Series 1994
RB
6.00%, 08/15/05(c) AAA Aaa 1,000 1,107,900
- ------------------------------------------------------------------
Lockhart (City of);
Certificates of
Participation Tax and
Utility Systems Series
1996 GO
5.85%, 08/01/11(c) AAA Aaa 605 653,146
- ------------------------------------------------------------------
5.90%, 08/01/16(c) AAA Aaa 1,100 1,161,204
- ------------------------------------------------------------------
North Texas Higher Education
Authority Inc.; Student
Loan Refunding Series D RB
6.10%, 04/01/08(b) - Aa 1,000 1,041,970
- ------------------------------------------------------------------
6.30%, 04/01/09(b) - A 500 523,865
- ------------------------------------------------------------------
Plano (City of) Independent
School District; Unlimited
Tax Series 1991 B GO
5.625%, 02/15/01(d)(e) AAA Aaa 2,500 2,610,075
- ------------------------------------------------------------------
Tarrant (County of) Texas
Water Control and
Improvement District #1;
Refunding Series 1993 RB
5.20%, 03/01/10 AAA Aaa 2,000 2,035,080
- ------------------------------------------------------------------
Texas (State of) Public
Property Finance Corp.
(Mental Health Mental
Retardation); Series 1996
RB
6.20%, 09/01/16 BBB+ - 1,590 1,665,541
- ------------------------------------------------------------------
Texas (State of); Unlimited
Tax Veteran's Land GO
6.40%, 12/01/24(b) AA Aa2 2,000 2,131,600
- ------------------------------------------------------------------
Texas (State of) Department
of Housing and Community
Affairs (Asmara Project);
Multifamily Housing Series
1996 A RB
6.30%, 01/01/16 A - 310 335,832
- ------------------------------------------------------------------
Texas (State of) Housing
Agency; Residential
Development Mortgage
Series 1987 D RB
8.40%, 07/01/20(b) A+ Aa 3,045 3,220,209
- ------------------------------------------------------------------
Texas (State of) Public
Finance Authority (General
Services Community
Projects); Refunding
Building Series A RB
5.00%, 02/01/15(c) AAA Aaa 1,500 1,493,115
- ------------------------------------------------------------------
Texas National Research
Laboratory Community
Financing Corp.
(Superconducting Super
Collider); Lease RB
7.10%, 12/01/01(d)(e) AAA Aaa 600 673,356
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
TEXAS-(CONTINUED)
Tyler Health Facilities
Development Corp. (Mother
Frances Hospital);
Hospital Series A RB
5.625%, 07/01/13 - Baa2 $1,000 $ 1,004,110
- ------------------------------------------------------------------
Victoria (County of) Texas
Hospital Citizens Medical
Center; RB
6.20%, 01/01/10(c) - Aaa 1,000 1,092,060
- ------------------------------------------------------------------
Weatherford (City of)
Independent School
District; Refunding Series
1994 GO
6.40%, 02/15/05(d)(e) AAA Aaa 1,000 1,101,020
- ------------------------------------------------------------------
53,710,576
- ------------------------------------------------------------------
UTAH-1.88%
Intermountain Power Agency
(Utah Power Supply); RB
5.00%, Series 1986 B,
07/01/16 A+ A1 1,550 1,492,061
- ------------------------------------------------------------------
5.00%, Series 1986 C,
07/01/18 A+ A1 950 906,633
- ------------------------------------------------------------------
Salt Lake (County of)
(Westminster College
Project); RB
5.75%, 10/01/27 BBB - 1,000 1,029,860
- ------------------------------------------------------------------
Utah (State of) Housing
Finance Agency; Federally
Insured Term Subordinate
Single Family Mortgage RB
6.30%, Series 1994 E-1,
07/01/06 A+ - 615 667,077
- ------------------------------------------------------------------
7.15%, Series 1994 G-1,
07/01/06 A+ A1 530 588,607
- ------------------------------------------------------------------
Utah (State of) Housing
Finance Agency; Series
1994 C RB
6.05%, 07/01/06 - A1 810 864,756
- ------------------------------------------------------------------
Utah (State of) Housing
Finance Agency; Single
Family Mortgage Series G2
RB
6.45%, 07/01/27(b) AAA Aaa 1,235 1,325,192
- ------------------------------------------------------------------
6,874,186
- ------------------------------------------------------------------
VIRGIN ISLANDS-1.08%
Virgin Islands Public
Finance Authority;
Matching Fund Loan Notes
Series A RB
7.25%, 10/01/18(f) - - 1,000 1,129,480
- ------------------------------------------------------------------
Virgin Islands Territory
(Hugo Insurance Claims
Fund); Special Tax Bond
Series 1991 GO
7.75%, 10/01/06(f) - - 2,565 2,838,532
- ------------------------------------------------------------------
3,968,012
- ------------------------------------------------------------------
VIRGINIA-0.67%
Covington-Alleghany (County
of) Industrial Development
Authority (Beverly
Enterprises); Refunding
Series RB
9.375%, 09/01/01(f) - - 55 61,612
- ------------------------------------------------------------------
Richmond (City of); Public
Improvement Refunding
Series B GO
6.25%, 01/15/18 AA A1 2,000 2,138,760
- ------------------------------------------------------------------
Virginia Housing Development
Authority; Commonwealth
Mortgage Series A RB
7.10%, 01/01/17 AA+ Aa1 250 264,552
- ------------------------------------------------------------------
2,464,924
- ------------------------------------------------------------------
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
WASHINGTON-2.95%
Clark (County of) Gamas
School District #117; GO
6.00%, 12/01/14(c) AAA Aaa $1,000 $ 1,085,620
- ------------------------------------------------------------------
King (County of); Unlimited
Tax GO
5.50%, 07/01/07(d) AAA Aaa 500 533,480
- ------------------------------------------------------------------
King (County of); Unlimited
Tax Refunding GO
6.50%, 12/01/11 AA+ Aa1 500 500,975
- ------------------------------------------------------------------
Pend Oreille (County of)
Public Utility District
#1; Electric Series B RB
6.30%, 01/01/17 BBB+ A 1,400 1,477,448
- ------------------------------------------------------------------
Seattle (City of)
Metropolitan Municipality;
Refunding Unlimited Sales
Tax Series GO
6.875%, 01/01/20 A+ Aa 1,450 1,491,514
- ------------------------------------------------------------------
Seattle (City of)
Metropolitan Municipality
Sewer District; Series T
RB
6.80%, 01/01/00(d)(e) NRR NRR 1,780 1,904,296
- ------------------------------------------------------------------
Washington State Public
Power Supply System
(Nuclear Project No. 1);
Refunding Series A RB
6.00%, 07/01/07(c) AAA Aaa 1,000 1,109,880
- ------------------------------------------------------------------
5.75%, 07/01/12(c) AAA Aaa 2,000 2,131,320
- ------------------------------------------------------------------
West Richland (City of);
Water & Sewer Series RB
7.00%, 12/01/04(d)(e) AAA Aaa 500 578,250
- ------------------------------------------------------------------
10,812,783
- ------------------------------------------------------------------
WEST VIRGINIA-0.14%
Ohio County Board of
Education; Unlimited Tax
Refunding Series GO
5.125%, 06/01/18 A+ A 500 497,155
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
WISCONSIN-1.11%
Wisconsin Housing and
Economic Development
Authority; Home Ownership
RB
7.40%, Series 1994 F
07/01/13(b) AA Aa2 $1,000 $ 1,096,150
- ------------------------------------------------------------------
7.35%, Series 1994 E
01/01/17 AA Aa2 500 545,340
- ------------------------------------------------------------------
8.00%, Series 1990 E
03/01/21(b) AA Aa 300 316,472
- ------------------------------------------------------------------
Wisconsin Health and
Educational Facilities
Authority (Sinai Samaritan
Medical Center); Series
1994 F RB 5.75%,
08/15/16(c) AA Aa 1,500 1,576,515
- ------------------------------------------------------------------
Wisconsin Health and
Educational Facilities
Authority (Wheaton
Franciscan Services Inc.);
RB
8.20%, 08/15/98(d)(e) NRR Aaa 500 523,155
- ------------------------------------------------------------------
4,057,632
- ------------------------------------------------------------------
WYOMING-0.96%
Campbell (County of) School
District No. 1 (Gillette);
Unlimited Tax Series GO
5.35%, 06/01/04 AAA Aaa 1,000 1,064,510
- ------------------------------------------------------------------
Laramie (County of)
(Memorial Hospital
Project); Hospital
Series RB
6.70%, 05/01/12(c) AAA Aaa 250 276,915
- ------------------------------------------------------------------
Natrona (County of) Wyoming
Medical Center; RB
6.00%, 09/15/11(c) AAA Aaa 1,000 1,086,470
- ------------------------------------------------------------------
Sweetwater (County of)
(Idaho Power Company
Project); PCR
Series 1996 A RB
6.05%, 07/15/26 A A3 1,000 1,073,240
- ------------------------------------------------------------------
3,501,135
- ------------------------------------------------------------------
TOTAL INVESTMENTS-97.99% 359,123,485
- ------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-2.01% 7,355,322
- ------------------------------------------------------------------
NET ASSETS-100.00% $366,478,807
==================================================================
</TABLE>
Notes to Schedule of Investments:
(a) Ratings assigned by Moody's Investors Service, Inc. ("Moody's") and Standard
& Poor's Corporation ("S&P"). NRR indicates a security that is not re-rated
subsequent to funding of an escrow fund (consisting of U.S. Treasury
obligations); this funding is pursuant to an advance refunding for the
security. Ratings are not covered by Independent Auditors' Report.
(b) Security subject to the alternative minimum tax.
(c) Secured by bond insurance.
(d) Secured by an escrow fund of U.S. Treasury obligations.
(e) Security has an irrevocable call or mandatory put by the issuer. Maturity
date reflects such call or put.
(f) Unrated security; determined by the investment advisor to be of comparable
quality to the rated securities in which the Fund may invest pursuant to
guidelines of quality adopted by the Board of Trustees and followed by the
investment advisor.
(g) Secured by a letter of credit.
Investment Abbreviations:
GO - General Obligation Bonds
IDR - Industrial Development Revenue Bonds
NRR - Not Re-Rated
PCR - Pollution Control Revenue Bonds
RB - Revenue Bonds
See Notes to Financial Statements.
13
<PAGE> 16
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$331,790,903) $359,123,485
- ----------------------------------------------------------
Cash 787,976
- ----------------------------------------------------------
Receivables for:
Fund shares sold 488,687
- ----------------------------------------------------------
Interest 6,554,748
- ----------------------------------------------------------
Investments sold 830,750
- ----------------------------------------------------------
Investment for deferred compensation plan 65,053
- ----------------------------------------------------------
Other assets 28,067
- ----------------------------------------------------------
Total assets 367,878,766
- ----------------------------------------------------------
LIABILITIES:
Payables for:
Fund shares reacquired 95,828
- ----------------------------------------------------------
Dividends 699,674
- ----------------------------------------------------------
Deferred compensation plan 65,053
- ----------------------------------------------------------
Accrued advisory fees 140,726
- ----------------------------------------------------------
Accrued administrative service fees 5,442
- ----------------------------------------------------------
Accrued distribution fees 251,546
- ----------------------------------------------------------
Accrued trustees' fees 2,970
- ----------------------------------------------------------
Accrued transfer agent fees 106,994
- ----------------------------------------------------------
Accrued operating expenses 31,726
- ----------------------------------------------------------
Total liabilities 1,399,959
- ----------------------------------------------------------
Net assets applicable to shares outstanding $366,478,807
==========================================================
NET ASSETS:
Class A $318,468,805
==========================================================
Class B $ 47,185,232
==========================================================
Class C $ 824,770
==========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 38,171,168
==========================================================
Class B 5,647,120
==========================================================
Class C 98,779
==========================================================
Class A:
Net asset value and redemption price per
share $ 8.34
==========================================================
Offering price per share:
(Net asset value of $8.34
divided by 95.25%) $ 8.76
==========================================================
Class B:
Net asset value and offering price per
share $ 8.36
==========================================================
Class C:
Net asset value and offering price per
share $ 8.35
==========================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $20,118,944
- ----------------------------------------------------------
EXPENSES:
Advisory fees 1,532,157
- ----------------------------------------------------------
Administrative service fees 70,780
- ----------------------------------------------------------
Custodian fees 17,893
- ----------------------------------------------------------
Transfer agent fees - Class A 240,369
- ----------------------------------------------------------
Transfer agent fees - Class B 32,698
- ----------------------------------------------------------
Transfer agent fees - Class C 124
- ----------------------------------------------------------
Trustees' fees 10,573
- ----------------------------------------------------------
Distribution fees - Class A 732,575
- ----------------------------------------------------------
Distribution fees - Class B 398,613
- ----------------------------------------------------------
Distribution fees - Class C 1,511
- ----------------------------------------------------------
Other 268,154
- ----------------------------------------------------------
Total expenses 3,305,447
- ----------------------------------------------------------
Less: Expenses paid indirectly (4,966)
- ----------------------------------------------------------
Net expenses 3,300,481
- ----------------------------------------------------------
Net investment income 16,818,463
- ----------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENT
SECURITIES:
Net realized gain on sales of investment
securities 114,781
- ----------------------------------------------------------
Net unrealized appreciation of investment
securities 9,751,922
- ----------------------------------------------------------
Net gain on investment securities 9,866,703
- ----------------------------------------------------------
Net increase in net assets resulting from
operations $26,685,166
==========================================================
</TABLE>
See Notes to Financial Statements.
14
<PAGE> 17
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 16,818,463 $ 15,871,748
- ------------------------------------------------------------------------------------------
Net realized gain on sales of investment securities 114,781 118,748
- ------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities 9,751,922 (4,496,798)
- ------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 26,685,166 11,493,698
- ------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (15,139,605) (14,634,820)
- ------------------------------------------------------------------------------------------
Class B (1,703,002) (1,210,672)
- ------------------------------------------------------------------------------------------
Class C (5,880) --
- ------------------------------------------------------------------------------------------
Distributions in excess of net investment income:
Class A (152,238) --
- ------------------------------------------------------------------------------------------
Class B (20,640) --
- ------------------------------------------------------------------------------------------
Class C (62) --
- ------------------------------------------------------------------------------------------
Share transactions-net:
Class A 30,852,332 (1,870,211)
- ------------------------------------------------------------------------------------------
Class B 12,563,423 12,523,478
- ------------------------------------------------------------------------------------------
Class C 817,511 --
- ------------------------------------------------------------------------------------------
Net increase in net assets 53,897,005 6,301,473
- ------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 312,581,802 306,280,329
- ------------------------------------------------------------------------------------------
End of period $366,478,807 $312,581,802
==========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $340,696,817 $296,629,932
- ------------------------------------------------------------------------------------------
Undistributed net investment income (71,348) (34,765)
- ------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) on investment
securities (1,479,244) (1,594,025)
- ------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 27,332,582 17,580,660
- ------------------------------------------------------------------------------------------
$366,478,807 $312,581,802
==========================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Municipal Bond Fund (the "Fund") is a series portfolio of AIM Funds Group
(the "Trust"). The Trust is a Delaware business trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of nine separate series
portfolios, each having an unlimited number of shares of beneficial interest.
The Fund currently offers three different classes of shares: the Class A shares,
the Class B shares, and the Class C shares. The new Class C shares commenced
sales on August 4, 1997. Class A shares are sold with a front-end sales charge.
Class B and Class C shares are sold with a contingent deferred sales charge.
Matters affecting each portfolio or class are voted on exclusively by the
shareholders of such portfolio or class. The assets, liabilities and operations
of each portfolio are accounted for separately. Information presented in these
financial statements pertains only to the Fund. The Fund's objective is to
achieve a high level of current income exempt from federal income taxes
consistent with the preservation of principal by investing in a diversified
portfolio of municipal 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 -- Portfolio securities are valued based on market
quotations or at fair value determined by a pricing service approved by the
Board of Trustees, provided that securities with a demand feature exercisable
within one to seven days will be valued at par. 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, yield, quality, coupon rate, maturity, type of
issue, individual trading characteristics and other market data. Portfolio
securities for which prices are not provided by the pricing service are
valued at the mean between the last available bid and asked prices, unless
the Board of Trustees, or persons designated by the Board of Trustees,
determines that the mean between the last available bid and asked prices does
not accurately reflect the current market value of the security. 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. Notwithstanding the above, short-term
15
<PAGE> 18
obligations with maturities of 60 days or less are valued at amortized cost.
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. 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. On December 31, 1997, undistributed
net investment income was increased by $166,381 and paid-in capital reduced
by $166,381 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 $1,479,245 (which may be carried forward to offset future
taxable capital gains, if any) which expires, if not previously utilized, in
the year 2002. The Fund cannot distribute capital gains to shareholders until
the tax loss carryforwards have been utilized.
D. Expenses -- Distribution and transfer agency expenses directly attributable
to a class of shares are charged to that class' operations. All other
expenses which are attributable to more than one class are allocated among
the classes.
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 0.50% of
the first $200 million of the Fund's average daily net assets, plus 0.40% of the
Fund's average daily net assets in excess of $200 million to and including $500
million, plus 0.35% of the Fund's average daily net assets in excess of $500
million to and including $1 billion, plus 0.30% of the Fund's average daily net
assets in excess of $1 billion.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to reimburse AIM for certain administrative costs incurred in providing
accounting services to the Fund. During the year ended December 31, 1997, AIM
was reimbursed $70,780 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended December 31, 1997, AFS
was paid $113,921 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 an annual rate of 1.00% of
the average daily net assets attributable to the Class B shares. Of these
amounts, the Fund may pay a service fee of 0.25% of the average daily net assets
of the Class A, Class B or Class C shares to selected dealers and financial
institutions who furnish continuing personal shareholder services to their
customers who purchase and own the appropriate class of shares of the Fund. Any
amounts not paid as a service fee by the Class B or Class C shares under the
Plans would constitute an asset-based sales charge. The Plans also impose a cap
on the total sales charges, including asset-based sales charges that may be paid
by the respective classes. AIM Distributors may, from time to time, assign,
transfer, or pledge to one or more designees, its rights to all or a designated
portion of (a) compensation received by AIM Distributors from the Fund pursuant
to the Class B Plan (but not AIM Distributors' duties and obligations pursuant
to the Class B Plan) and (b) any contingent deferred sales charges received by
AIM Distributors related to the Class B shares. During the year ended December
31, 1997, for the Class A shares and Class B shares and the period August 4,
1997 (date sales commenced) through December 31, 1997, the Class A, Class B and
Class C shares paid AIM Distributors $732,575, $398,613, and $1,511
respectively, as compensation under the Plans.
AIM Distributors received commissions of $87,434 from sales of the Class A
shares of the Fund during the year ended December 31, 1997. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended December 31, 1997,
AIM Distributors received $44,830 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, 1997, the Fund paid legal fees of $5,021
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-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 4-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $500,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. Interest on
borrowings under the line of credit is payable on maturity or prepayment date.
Prior to an amendment of the line of credit on July 15, 1997, the Fund was
limited to borrowing up to the lesser of (i) $325,000,000 or (ii) the limits set
by its prospectus for borrowings. During the year ended December 31, 1997, the
Fund did not borrow under the line of credit agreement. The funds which are
parties to the line of credit are charged a commitment fee of 0.05% on the
unused balance of the committed line. The commitment fee is allocated among such
funds based on their respective average net assets for the period.
NOTE 5-INDIRECT EXPENSES
AIM has directed certain portfolio trades to brokers who paid a portion of the
Fund's expenses related to pricing services used by the Fund which reduced Fund
expenses by $1,233 during the year ended December 31, 1997. Also during the year
ended December 31, 1997, the Fund received a reduction in transfer agency fees
from AFS (an affiliate of AIM) of $3,733, under an expense offset arrangement.
The effect of the above arrangements resulted in reductions of the Fund's total
expenses of $4,966 during the year ended December 31, 1997.
16
<PAGE> 19
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended December 31, 1997 was
$94,911,754 and $78,890,833, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of December 31, 1997 was as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $27,334,470
- ------------------------------------------------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (1,888)
- ------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities $27,332,582
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Investments have the same cost for tax and financial statement purposes.
NOTE 7-SHARE INFORMATION
Changes in shares outstanding during the years ended December 31, 1997 and 1996
were as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Sold:
Class A 10,031,224 $ 79,386,539 5,797,996 $ 47,332,136
- ------------------------------------------------------------ -------------------------- ---------------------------
Class B 2,368,696 19,504,059 2,660,265 21,695,791
- ------------------------------------------------------------ -------------------------- ---------------------------
Class C* 111,584 923,229 -- --
- ------------------------------------------------------------ -------------------------- ---------------------------
Issued as reinvestment of dividends:
Class A 1,051,195 8,642,466 1,054,624 8,611,381
- ------------------------------------------------------------ -------------------------- ---------------------------
Class B 131,460 1,082,551 85,876 701,022
- ------------------------------------------------------------ -------------------------- ---------------------------
Class C* 510 4,239 -- --
- ------------------------------------------------------------ -------------------------- ---------------------------
Reacquired:
Class A (6,962,233) (57,176,673) (7,075,891) (57,813,728)
- ------------------------------------------------------------ -------------------------- ---------------------------
Class B (975,132) (8,023,187) (1,208,742) (9,873,335)
- ------------------------------------------------------------ -------------------------- ---------------------------
Class C* (13,315) (109,957) -- --
- ------------------------------------------------------------ -------------------------- ---------------------------
5,743,989 $ 44,233,266 1,314,128 $ 10,653,267
============================================================ ========================== ===========================
</TABLE>
* Class C shares commenced sales on August 4, 1997.
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A outstanding
during each of the years in the five-year period ended December 31, 1997, for a
share of Class B outstanding during each of the years in the four-year period
ended December 31, 1997 and the period September 1, 1993 (date sales commenced)
through December 31, 1993, and for a share of Class C outstanding during the
period August 4, 1997 (date sales commenced) through December 31, 1997.
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.19 $ 8.31 $ 7.78 $ 8.61 $ 8.27
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.42 0.43 0.43 0.46 0.48
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net gains (losses) on securities
(both realized and unrealized) 0.16 (0.12) 0.56 (0.78) 0.46
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total from investment operations 0.58 0.31 0.99 (0.32) 0.94
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.43) (0.43) (0.43) (0.45) (0.48)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Distributions from net realized gains -- -- -- (0.03) (0.11)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Returns of capital -- -- (0.03) (0.03) (0.01)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total distributions (0.43) (0.43) (0.46) (0.51) (0.60)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net asset value, end of period $ 8.34 $ 8.19 $ 8.31 $ 7.78 $ 8.61
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total return(a) 7.27% 3.90% 13.05% (3.79)% 11.66%
============================================================ ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $318,469 $278,812 $284,803 $257,456 $294,209
============================================================ ======== ======== ======== ======== ========
Ratio of expenses to average net assets 0.90%(b)(c) 0.80% 0.88% 0.89% 0.91%
============================================================ ======== ======== ======== ======== ========
Ratio of net investment income to average net assets 5.14%(b) 5.29% 5.26% 5.61% 5.65%
============================================================ ======== ======== ======== ======== ========
Portfolio turnover rate 24% 26% 36% 43% 24%
============================================================ ======== ======== ======== ======== ========
</TABLE>
(a) Does not deduct sales charges.
(b) Ratios are based on average daily net assets of $293,030,139.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been the same.
17
<PAGE> 20
<TABLE>
<CAPTION>
CLASS B CLASS C
--------------------------------------------------- -------
1997 1996 1995 1994 1993 1997
---- ------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.19 $ 8.31 $ 7.78 $ 8.61 $ 8.71 $ 8.30
- -------------------------------------------------------- ------- ------- ------- ------ ------ ------
Income from investment operations:
Net investment income 0.36 0.37 0.39 0.39 0.14 0.15
- -------------------------------------------------------- ------- ------- ------- ------ ------ ------
Net gains (losses) on securities (both realized and
unrealized) 0.17 (0.13) 0.54 (0.78) 0.01 0.04
- -------------------------------------------------------- ------- ------- ------- ------ ------ ------
Total from investment operations 0.53 0.24 0.93 (0.39) 0.15 0.19
- -------------------------------------------------------- ------- ------- ------- ------ ------ ------
Less distributions:
Dividends from net investment income (0.36) (0.36) (0.37) (0.38) (0.13) (0.14)
- -------------------------------------------------------- ------- ------- ------- ------ ------ ------
Distributions from net realized gains -- -- -- (0.03) (0.11) --
- -------------------------------------------------------- ------- ------- ------- ------ ------ ------
Returns of capital -- -- (0.03) (0.03) (0.01) --
- -------------------------------------------------------- ------- ------- ------- ------ ------ ------
Total distributions (0.36) (0.36) (0.40) (0.44) (0.25) (0.14)
- -------------------------------------------------------- ------- ------- ------- ------ ------ ------
Net asset value, end of period $ 8.36 $ 8.19 $ 8.31 $ 7.78 $ 8.61 $ 8.35
======================================================== ======= ======= ======= ====== ====== ======
Total return(a) 6.59% 2.99% 12.14% (4.57)% 1.95% 2.36%
======================================================== ======= ======= ======= ====== ====== ======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $47,185 $33,770 $21,478 $9,175 $2,319 $ 825
======================================================== ======= ======= ======= ====== ====== ======
Ratio of expenses to average net assets(b) 1.66%(c)(d) 1.61% 1.68% 1.67% 1.65%(e) 1.67%(c)(d)(e)
======================================================== ======= ======= ======= ====== ====== ======
Ratio of net investment income to average net assets(f) 4.38%(c) 4.49% 4.46% 4.83% 4.91%(e) 4.37%(c)(e)
======================================================== ======= ======= ======= ====== ====== ======
Portfolio turnover rate 24% 26% 36% 43% 24% 24%
======================================================== ======= ======= ======= ====== ====== ======
</TABLE>
(a) Does not deduct contingent deferred sales charges and are not annualized for
periods less than one year.
(b) After fee waivers and/or expense reimbursements. Ratios of expenses to
average daily net assets prior to fee waivers and/or expense reimbursements
were 1.77%, 1.84% and 3.08% (annualized) for the periods 1995-1993,
respectively.
(c) Ratios are based on average daily net assets of $39,861,298 and $367,550,
respectively for Class B and Class C.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been the same.
(e) Annualized.
(f) After fee waivers and/or expense reimbursements. Ratios of net investment
income to average daily net assets prior to fee waivers and/or expense
reimbursements are 4.37%, 4.66% and 3.48% (annualized) for the periods
1995-1993, respectively.
18
<PAGE> 21
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders of
AIM Municipal Bond Fund:
We have audited the accompanying statement of assets and
liabilities of AIM Municipal Bond Fund (a portfolio of
AIM Funds Group), including the schedule of investments,
as of December 31, 1997, and the related statement of
operations for the year then ended, the statement of
changes in net assets for each of the years in the
two-year period then ended and the financial highlights
for each of the years or periods in the five-year period
then ended. These financial statements and financial
highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion
on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures
included confirmation of securities owned as of December
31, 1997, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting
principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all
material respects, the financial position of AIM
Municipal Bond Fund as of December 31, 1997, the results
of its operations for the year then ended, the changes in
its net assets for each of the years in the two-year
period then ended and the financial highlights for each
of the years or periods in the five-year period then
ended, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Houston, Texas
February 6, 1998
19
<PAGE> 22
Trustees & Officers
<TABLE>
<CAPTION>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
<S> <C> <C>
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
Jack Fields Dana R. Sutton Houston, TX 77210-4739
Chief Executive Officer Vice President and Assistant Treasurer
Texana Global, Inc. CUSTODIAN
Formerly Member of the Robert G. Alley
U.S. House of Representatives Vice President The Bank of New York
90 Washington Street
Carl Frischling Stuart W. Coco New York, NY 10286
Partner Vice President
Kramer, Levin, Naftalis & Frankel COUNSEL TO THE FUND
Melville B. Cox
Robert H. Graham Vice President Ballard Spahr
President and Chief Executive Officer Andrews & Ingersoll
A I M Management Group Inc. Karen Dunn Kelly 1735 Market Street
Vice President Philadelphia, PA 19103
John F. Kroeger
Formerly Consultant Jonathan C. Schoolar COUNSEL TO THE TRUSTEES
Wendell & Stockel Associates, Inc. Vice President
Kramer, Levin, Naftalis & Frankel
Lewis F. Pennock P. Michelle Grace 919 Third Avenue
Attorney Assistant Secretary New York, NY 10022
Ian W. Robinson Nancy L. Martin DISTRIBUTOR
Consultant; Formerly Executive Assistant Secretary
Vice President and A I M Distributors, Inc.
Chief Financial Officer Ofelia M. Mayo 11 Greenway Plaza
Bell Atlantic Management Assistant Secretary Suite 100
Services, Inc. Houston, TX 77046
Kathleen J. Pflueger
Louis S. Sklar Assistant Secretary AUDITORS
Executive Vice President
Hines Interests Samuel D. Sirko KMPG Peat Marwick LLP
Limited Partnership Assistant Secretary 700 Louisiana
Houston, TX 77002
Stephen I. Winer
Assistant Secretary
Mary J. Benson
Assistant Treasurer
</TABLE>
REQUIRED FEDERAL INCOME TAX INFORMATION
AIM Municipal Bond Fund Class A, Class B, and Class C shares paid ordinary
dividends in the amount of $0.429, $0.357 and $0.144, respectively, to
shareholders during its tax year ended December 31, 1997. Of this amount,
99% is qualified as exempt-interest dividends for federal income tax purposes.
20
<PAGE> 23
HOW AIM MAKES INVESTING
EASY FOR YOU
o LOW INITIAL INVESTMENT. You can get your investment program started for as
little as $500. Subsequent investments can be made for only $50.
o AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR CAPITAL GAINS. Distributions may
be received in cash or reinvested in the Fund free of charge. Over time,
the power of compounding can significantly increase the value of your
assets.
o AUTOMATIC INVESTMENT PLAN. You may build your investment by regularly
purchasing additional shares. Pre-authorized checks for $50 or more can be
drafted monthly from your personal checking account.
o EASY ACCESS TO YOUR MONEY. Your shares may be redeemed at net asset value
any day the New York Stock Exchange is open. The price of shares sold may
be more or less than their original cost, depending on market conditions.
o SYSTEMATIC WITHDRAWAL PLAN. You may elect to receive checks of at least
$50 monthly or quarterly through a systematic withdrawal plan.
o EXCHANGE PRIVILEGE. As your goals change, you may exchange all or part of
your assets for those of other funds within the same share class of The AIM
Family of Funds--Registered Trademark--. The exchange privilege may be
modified or discontinued for any of the AIM funds.
o RETIREMENT PLANS. You may purchase shares of the fund for your Individual
Retirement Account (IRA) or any other type of retirement plan, and earn
tax-deferred dollars for your retirement.
o TOLL-FREE ACCESS. Current shareholders can call our AIM Investor Line at
800-246-5463 for 24-hour-a-day account information. Or, of course, you may
contact your financial consultant for assistance.
o WWW.AIMFUNDS.COM. As a current shareholder, you can check account balances
24 hours a day over the Internet. State-of-the-art encryption lets you send
us questions that include confidential information without the fear of
eavesdropping, tampering, or forgery.
---------------
Current shareholders
can call our
AIM Investor Line at
800-246-5463
for 24-hour-a-day
account information.
---------------
<PAGE> 24
<TABLE>
<S> <C>
THE AIM FAMILY OF FUNDS--Registered Trademark--
AGGRESSIVE GROWTH
AIM Aggressive Growth Fund*
AIM Asian Growth Fund
AIM Capital Development Fund
AIM Constellation Fund
AIM European Development Fund
AIM Global Aggressive Growth Fund
[PHOTO OF GROWTH OF CAPITAL
11 GREENWAY PLAZA AIM Advisor International Value Fund
APPEARS HERE] AIM Blue Chip Fund
AIM Global Growth Fund
AIM Growth Fund
AIM International Equity Fund
AIM Value Fund
AIM Weingarten Fund
GROWTH AND INCOME OR INCOME WITH CAPITAL GROWTH
AIM Advisor Flex Fund
AIM Advisor Large Cap Value Fund
AIM Advisor MultiFlex Fund
AIM Advisor Real Estate Fund
AIM Balanced Fund
AIM Charter Fund
AIM Global Utilities Fund
HIGH CURRENT INCOME OR CURRENT INCOME
AIM High Yield Fund
AIM Global Income Fund
AIM Income Fund
CURRENT TAX-FREE INCOME
AIM High Income Municipal Fund
AIM Municipal Bond Fund
AIM Tax-Exempt Bond Fund of Connecticut
AIM Tax-Free Intermediate Fund
CURRENT INCOME AND HIGH DEGREE OF SAFETY
A I M Management Group Inc. has provided leadership in the AIM Intermediate Government Fund
mutual fund industry since 1976 and managed approximately AIM Limited Maturity Treasury Fund
$83 billion in assets for more than 3.7 million shareholders, AIM Money Market Fund
including individual investors, corporate clients, and financial AIM Tax-Exempt Cash Fund
institutions as of December 31, 1997. The AIM Family of
Funds--Registered Trademark-- is distributed nationwide, and *AIM Aggressive Growth Fund was closed to new investors on
AIM today ranks among the nation's top 15 mutual fund June 5, 1997. For more complete information about any AIM
companies in assets under management, according to Lipper Fund(s), including sales charges and expenses, ask your
Analytical Services, Inc. financial consultant or securities dealer for a free
prospectus(es). Please read the prospectus(es) carefully
before you invest or send money.
INVEST WITH DISCIPLINE-SM-
</TABLE>
