<PAGE> 1
As filed with the Securities and Exchange Commission on November 15, 2000
1933 Act Reg. No. 33-39519
1940 Act Reg. No. 811-5686
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No.
----- [ ]
Post-Effective Amendment No. 14 [X]
-----
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 18
-----
(Check appropriate box or boxes.)
AIM INVESTMENT SECURITIES FUNDS
-----------------------------------------------------
(Exact name of Registrant as Specified in Charter)
11 Greenway Plaza, Suite 100, Houston, TX 77046
--------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (713) 626-1919
Robert H. Graham
11 Greenway Plaza, Suite 100, Houston, TX 77046
--------------------------------------------------
(Name and Address of Agent for Service)
Copy to:
Jim Coppedge, Esquire Martha J. Hays, Esquire
A I M Advisors, Inc. Ballard Spahr Andrews & Ingersoll, LLP
11 Greenway Plaza, Suite 100 1735 Market Street, 51st Floor
Houston, Texas 77046 Philadelphia, Pennsylvania 19103-7599
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Amendment
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on November 28, 2000 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph a(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Shares of Beneficial Interest
<PAGE> 2
AIM HIGH YIELD FUND
-------------------------------------------------------------------------
AIM High Yield Fund seeks to achieve a high level of current income.
AIM--Registered Trademark--
PROSPECTUS
NOVEMBER 28, 2000
This prospectus contains important
information about the Class A, B and C
shares of the fund. Please read it
before investing and keep it for
future reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
Investments in the fund:
- are not FDIC insured;
- may lose value; and
- are not guaranteed by a bank.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE
--Registered Trademark-- --Registered Trademark--
<PAGE> 3
-------------------
AIM HIGH YIELD FUND
-------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE FUND 1
- - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 2
- - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 2
Performance Table 2
FEE TABLE AND EXPENSE EXAMPLE 3
- - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 3
Expense Example 3
FUND MANAGEMENT 4
- - - - - - - - - - - - - - - - - - - - - - - -
The Advisor 4
Advisor Compensation 4
Portfolio Managers 4
OTHER INFORMATION 5
- - - - - - - - - - - - - - - - - - - - - - - -
Sales Charges 5
Dividends and Distributions 5
FINANCIAL HIGHLIGHTS 6
- - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - -
Choosing a Share Class A-1
Purchasing Shares A-3
Redeeming Shares A-4
Exchanging Shares A-6
Pricing of Shares A-8
Taxes A-8
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM Funds, AIM Funds and Design, AIM Investor, AIM
LINK, AIM Institutional Funds, aimfunds.com, La Familia AIM de Fondos, La
Familia AIM de Fondos and Design, Invierta con DISCIPLINA and Invest with
DISCIPLINE are registered service marks and AIM Bank Connection and AIM Internet
Connect are service marks of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 4
-------------------
AIM HIGH YIELD FUND
-------------------
INVESTMENT OBJECTIVE AND STRATEGIES
--------------------------------------------------------------------------------
The fund's investment objective is to achieve a high level of current income.
The fund will attempt to achieve its objective by investing primarily in
publicly traded non-investment grade securities. The fund's investment objective
may be changed by the Board of Trustees without shareholder approval.
The fund seeks to meet this objective by investing at least 65% of the value
of its assets in lower-quality debt securities, i.e., "junk bonds." The fund
will principally invest in junk bonds rated B or above by Moody's Investors
Service, Inc. or Standard & Poor's Ratings Services or deemed by the portfolio
managers to be of comparable quality. The fund will invest at least 80% of its
total assets in debt securities, including convertible debt securities and/or
cash or cash equivalents. The fund may also invest in preferred stock. The fund
may invest up to 25% of its total assets in foreign securities. Any percentage
limitations with respect to assets of the fund are applied at the time of
purchase.
Although the portfolio managers focus on debt securities that they believe
have favorable prospects for high current income, they also consider the
possibility of growth of capital of the security. The portfolio managers
consider whether to sell a particular security when any of those factors
materially changes.
In anticipation of or in response to adverse market conditions, for cash
management purposes, or for defensive purposes, the fund may temporarily hold
all or a portion of its assets in cash, money market instruments, shares of
affiliated money market funds, bonds or other debt securities. As a result, the
fund may not achieve its investment objective.
PRINCIPAL RISKS OF INVESTING IN THE FUND
--------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund and that the income you may receive from your investment may vary. The
value of your investment in the fund will go up and down with the prices of the
securities in which the fund invests. Debt securities are particularly
vulnerable to credit risk and interest rate fluctuations. Interest rate
increases can cause the price of a debt security to decrease; junk bonds are
less sensitive to this risk than are higher-quality bonds. The prices of equity
securities change in response to many factors, including the historical and
prospective earnings of the issuer, the value of its assets, general economic
conditions, interest rates, investor perceptions and market liquidity.
Compared to higher-quality debt securities, junk bonds involve greater risk of
default or price changes due to changes in the credit quality of the issuer and
because they are generally unsecured and may be subordinated to other creditors'
claims. The value of junk bonds often fluctuates in response to company,
political or economic developments and can decline significantly over short
periods of time or during periods of general or regional economic difficulty.
During those times, the bonds could be difficult to value or to sell at a fair
price. Credit ratings on junk bonds do not necessarily reflect their actual
market risk.
Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, the relative lack of information about issuers,
relatively low market liquidity and the potential lack of strict financial and
accounting controls and standards.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
1
<PAGE> 5
-------------------
AIM HIGH YIELD FUND
-------------------
PERFORMANCE INFORMATION
--------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS
--------------------------------------------------------------------------------
The following bar chart shows changes in the performance of the fund's Class A
shares from year to year. The bar chart does not reflect sales loads. If it did,
the annual total returns shown would be lower.
[GRAPH]
<TABLE>
<CAPTION>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURNS
----------- -------
<S> <C>
1990 ................................... -9.04%
1991 ................................... 42.50%
1992 ................................... 18.34%
1993 ................................... 18.40%
1994 ................................... -1.68%
1995 ................................... 16.86%
1996 ................................... 15.44%
1997 ................................... 12.52%
1998 ................................... -5.10%
1999 ................................... 2.08%
</TABLE>
* The Class A shares' year-to-date total return as of September 30, 2000 was
-11.53%.
During the periods shown in the bar chart, the highest quarterly return was
14.35% (quarter ended March 31, 1991) and the lowest quarterly return was -9.71%
(quarter ended September 30, 1990).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index. The fund's performance reflects payment of
sales loads.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
-- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(for the periods ended SINCE INCEPTION
December 31, 1999) 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
----------------------------------------------------------------------------------
<S> <C> <C>
Class A -2.80% 6.96% 9.60% 10.24% 07/11/78
Class B -3.14% 6.96% -- 5.90% 09/01/93
Class C 0.54% -- -- -0.11% 08/04/97
Lehman Bros. High Yield
Index(1) 2.39% 9.31% 10.72% 10.88%(2) 06/30/83(2)
----------------------------------------------------------------------------------
</TABLE>
(1) The Lehman Bros. High Yield Index is an index that includes all fixed-income
securities having a maximum quality rating of Ba1 (including defaulted
issues), a minimum amount outstanding of $100mm, and at least one year to
maturity.
(2) The average annual total return given is since the earliest date the index
became available.
2
<PAGE> 6
-------------------
AIM HIGH YIELD FUND
-------------------
FEE TABLE AND EXPENSE EXAMPLE
--------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) CLASS A CLASS B CLASS C
------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 4.75% None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever
is less) None(1) 5.00% 1.00%
------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets) CLASS A CLASS B CLASS C
-------------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.48% 0.48% 0.48%
Distribution and/or
Service (12b-1) Fees 0.25 1.00 1.00
Other Expenses 0.20 0.21 0.21
Total Annual Fund
Operating Expenses 0.93 1.69 1.69
------------------------------------------------------------
</TABLE>
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1% contingent
deferred sales charge (CDSC) at the time of redemption.
You may also be charged a transaction or other fee by the financial institution
managing your account.
As a result of 12b-1 fees, long-term shareholders in the fund may pay more
than the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in different
classes of the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's operating expenses remain the same. Although your actual returns and
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------------------------------------------
<S> <C> <C> <C> <C>
Class A $565 $757 $ 965 $1,564
Class B 672 833 1,118 1,796
Class C 272 533 918 1,998
----------------------------------------------
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------------------------------------------
<S> <C> <C> <C> <C>
Class A $565 $757 $965 $1,564
Class B 172 533 918 1,796
Class C 172 533 918 1,998
----------------------------------------------
</TABLE>
3
<PAGE> 7
-------------------
AIM HIGH YIELD FUND
-------------------
FUND MANAGEMENT
--------------------------------------------------------------------------------
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor and
is responsible for its day-to-day management. The advisor is located at 11
Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The advisor supervises all
aspects of the fund's operations and provides investment advisory services to
the fund, including obtaining and evaluating economic, statistical and financial
information to formulate and implement investment programs for the fund.
The advisor has acted as an investment advisor since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 120
investment portfolios, including the fund, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended July 31, 2000, the advisor received compensation of
0.48% of average daily net assets.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual
members of the team who are primarily responsible for the day-to-day management
of the fund's portfolio are
- Robert G. Alley, Senior Portfolio Manager, who has been responsible for the
fund since 2000 and has been associated with the advisor and/or its affiliates
since 1992.
- Jan H. Friedli, Portfolio Manager, who has been responsible for the fund since
2000 and has been associated with the advisor and/or its affiliates since
1999. From 1997 to 1999, he was global fixed-income portfolio manager for
Nicholas-Applegate Capital Management. From 1994 to 1997, he was international
fixed-income trader and analyst for Strong Capital Management.
- Carolyn L. Gibbs, Senior Portfolio Manager, who has been responsible for the
fund since 2000 and has been associated with the advisor and/or its affiliates
since 1992.
- Craig A. Smith, Senior Portfolio Manager, who has been responsible for the
fund since 2000 and has been associated with the advisor and/or its affiliates
since 1989.
4
<PAGE> 8
-------------------
AIM HIGH YIELD FUND
-------------------
OTHER INFORMATION
--------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM High Yield Fund are subject to the maximum
4.75% initial sales charge as listed under the heading "CATEGORY II Initial
Sales Charges" in the "Shareholder Information--Choosing a Share Class" section
of this prospectus. Purchases of Class B and Class C shares are subject to the
contingent deferred sales charges listed in that section.
DIVIDENDS AND DISTRIBUTIONS
The fund expects that its distributions, if any, will consist primarily of
ordinary income.
DIVIDENDS
The fund generally declares any dividends daily and pays dividends, if any,
monthly.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains, if any,
annually.
5
<PAGE> 9
-------------------
AIM HIGH YIELD FUND
-------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
This information has been audited by KPMG LLP, whose report, along with the
fund's financial statements, is included in the fund's annual report, which is
available upon request.
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------
SEVEN MONTHS YEAR ENDED DECEMBER 31,
ENDED ------------------------------------------------------------
JULY 31, 2000 1999 1998 1997 1996 1995
------------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.07 $ 8.77 $ 10.16 $ 9.88 $ 9.43 $ 8.93
------------------------------------------------ ---------- ---------- ---------- ---------- ---------- --------
Income from investment operations:
Net investment income 0.47 0.85 0.92 0.90 0.92 0.93
------------------------------------------------ ---------- ---------- ---------- ---------- ---------- --------
Net gains (losses) on securities (both
realized and unrealized) (1.03) (0.66) (1.40) 0.28 0.46 0.52
================================================ ========== ========== ========== ========== ========== ========
Total from investment operations (0.56) 0.19 (0.48) 1.18 1.38 1.45
================================================ ========== ========== ========== ========== ========== ========
Less distributions:
Dividends from net investment income (0.49) (0.87) (0.91) (0.90) (0.93) (0.95)
------------------------------------------------ ---------- ---------- ---------- ---------- ---------- --------
Return of capital (0.02) (0.02) -- -- -- --
================================================ ========== ========== ========== ========== ========== ========
Total distributions (0.51) (0.89) (0.91) (0.90) (0.93) (0.95)
================================================ ========== ========== ========== ========== ========== ========
Net asset value, end of period $ 7.00 $ 8.07 $ 8.77 $ 10.16 $ 9.88 $ 9.43
________________________________________________ __________ __________ __________ __________ __________ ________
================================================ ========== ========== ========== ========== ========== ========
Total return(a) (7.12)% 2.21% (5.10)% 12.52% 15.44% 16.86%
________________________________________________ __________ __________ __________ __________ __________ ________
================================================ ========== ========== ========== ========== ========== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,056,453 $1,364,502 $1,670,863 $1,786,352 $1,272,974 $886,106
________________________________________________ __________ __________ __________ __________ __________ ________
================================================ ========== ========== ========== ========== ========== ========
Ratio of expenses to average net assets 0.93%(b) 0.92% 0.85% 0.90% 0.97% 0.96%
________________________________________________ __________ __________ __________ __________ __________ ________
================================================ ========== ========== ========== ========== ========== ========
Ratio of net investment income to average net
assets 10.79%(b) 10.06% 9.45% 9.08% 9.67% 9.95%
________________________________________________ __________ __________ __________ __________ __________ ________
================================================ ========== ========== ========== ========== ========== ========
Portfolio turnover rate 23% 79% 76% 80% 77% 61%
________________________________________________ __________ __________ __________ __________ __________ ________
================================================ ========== ========== ========== ========== ========== ========
</TABLE>
(a) Does not deduct sales charges and is not annualized for periods less than
one year.
(b) Ratios are annualized and based on average net assets of $1,193,177,640.
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------------------------------------
SEVEN MONTHS
ENDED YEAR ENDED DECEMBER 31,
JULY 31, ------------------------------------------------------------
2000 1999 1998 1997 1996 1995
------------ ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.07 $ 8.76 $ 10.16 $ 9.88 $ 9.42 $ 8.92
------------------------------------------------ ---------- ---------- ---------- ---------- ---------- --------
Income from investment operations:
Net investment income 0.44 0.79 0.84 0.83 0.85 0.85
------------------------------------------------ ---------- ---------- ---------- ---------- ---------- --------
Net gains (losses) on securities (both
realized and unrealized) (1.03) (0.66) (1.40) 0.28 0.47 0.52
================================================ ========== ========== ========== ========== ========== ========
Total from investment operations (0.59) 0.13 (0.56) 1.11 1.32 1.37
================================================ ========== ========== ========== ========== ========== ========
Less distributions:
Dividends from net investment income (0.45) (0.80) (0.84) (0.83) (0.86) (0.87)
------------------------------------------------ ---------- ---------- ---------- ---------- ---------- --------
Return of capital (0.02) (0.02) -- -- -- --
================================================ ========== ========== ========== ========== ========== ========
Total distributions (0.47) (0.82) (0.84) (0.83) (0.86) (0.87)
================================================ ========== ========== ========== ========== ========== ========
Net asset value, end of period $ 7.01 $ 8.07 $ 8.76 $ 10.16 $ 9.88 $ 9.42
________________________________________________ __________ __________ __________ __________ __________ ________
================================================ ========== ========== ========== ========== ========== ========
Total return(a) (7.49)% 1.46% (5.90)% 11.71% 14.68% 15.91%
________________________________________________ __________ __________ __________ __________ __________ ________
================================================ ========== ========== ========== ========== ========== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,206,737 $1,559,864 $1,820,899 $1,647,801 $1,068,060 $557,926
________________________________________________ __________ __________ __________ __________ __________ ________
================================================ ========== ========== ========== ========== ========== ========
Ratio of expenses to average net assets 1.69%(b) 1.68% 1.61% 1.65% 1.68% 1.73%
________________________________________________ __________ __________ __________ __________ __________ ________
================================================ ========== ========== ========== ========== ========== ========
Ratio of net investment income to average net
assets 10.03%(b) 9.30% 8.69% 8.33% 8.95% 9.18%
________________________________________________ __________ __________ __________ __________ __________ ________
================================================ ========== ========== ========== ========== ========== ========
Portfolio turnover rate 23% 79% 76% 80% 77% 61%
________________________________________________ __________ __________ __________ __________ __________ ________
================================================ ========== ========== ========== ========== ========== ========
</TABLE>
(a) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(b) Ratios are annualized and based on average net assets of $1,364,593,065.
6
<PAGE> 10
-------------------
AIM HIGH YIELD FUND
-------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS C
---------------------------------------------------
SEVEN MONTHS YEAR ENDED AUGUST 4, 1997
ENDED DECEMBER 31, (DATE SALES
JULY 31, ------------------- COMMENCED)
2000 1999 1998(a) TO 1997
------------ -------- -------- --------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.05 $ 8.74 $ 10.14 $ 10.04
------------------------------------------------ -------- -------- -------- -------
Income from investment operations:
Net investment income 0.44 0.78 0.82 0.35
------------------------------------------------ -------- -------- -------- -------
Net gains (losses) on securities (both
realized and unrealized) (1.03) (0.65) (1.38) 0.10
================================================ ======== ======== ======== =======
Total from investment operations (0.59) 0.13 (0.56) 0.45
================================================ ======== ======== ======== =======
Less distributions:
Dividends from net investment income (0.45) (0.80) (0.84) (0.35)
------------------------------------------------ -------- -------- -------- -------
Return of capital (0.02) (0.02) -- --
================================================ ======== ======== ======== =======
Total distributions (0.47) (0.82) (0.84) (0.35)
================================================ ======== ======== ======== =======
Net asset value, end of period $ 6.99 $ 8.05 $ 8.74 $ 10.14
________________________________________________ ________ ________ ________ _______
================================================ ======== ======== ======== =======
Total return(b) (7.51)% 1.46% (5.92)% 4.49%
________________________________________________ ________ ________ ________ _______
================================================ ======== ======== ======== =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $110,297 $129,675 $113,246 $26,177
________________________________________________ ________ ________ ________ _______
================================================ ======== ======== ======== =======
Ratio of expenses to average net assets 1.69%(c) 1.68% 1.61% 1.68%(d)
________________________________________________ ________ ________ ________ _______
================================================ ======== ======== ======== =======
Ratio of net investment income to average net
assets 10.03%(c) 9.30% 8.69% 8.30%(d)
________________________________________________ ________ ________ ________ _______
================================================ ======== ======== ======== =======
Portfolio turnover rate 23% 79% 76% 80%
________________________________________________ ________ ________ ________ _______
================================================ ======== ======== ======== =======
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(c) Ratios are annualized and based on average net assets of $120,417,254.
(d) Annualized.
7
<PAGE> 11
-------------
THE AIM FUNDS
-------------
SHAREHOLDER INFORMATION
--------------------------------------------------------------------------------
In addition to the fund, A I M Advisors, Inc. serves as investment advisor to
many other mutual funds (the AIM Funds). The following information is about all
the AIM Funds.
CHOOSING A SHARE CLASS
Many of the AIM Funds have multiple classes of shares, each class representing
an interest in the same portfolio of investments. When choosing a share class,
you should consider the factors below:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
- Initial sales charge - No initial sales charge - No initial sales charge
- Reduced or waived initial sales - Contingent deferred sales - Contingent deferred sales
charge for certain purchases charge on redemptions within charge on redemptions within
six years one year
- Lower distribution and service - 12b-1 fee of 1.00% - 12b-1 fee of 1.00%
(12b-1) fee than Class B or
Class C shares (See "Fee Table
and Expense Example")
- Converts to Class A shares - Does not convert to Class A
at the end of the month shares
which is eight years after
the date on which shares
were purchased along with a
pro rata portion of its
reinvested dividends and
distributions(1)
- Generally more appropriate for - Purchase orders limited to - Generally more appropriate
long-term investors amounts less than $250,000 for short-term investors
</TABLE>
(1) AIM Money Market Fund: Class B shares convert to AIM Cash Reserve
Shares.
AIM Global Trends Fund: If you held Class B shares on May 29, 1998 and
continue to hold them, those shares will convert to Class A shares of
that fund at the end of the month which is seven years after the date
on which shares were purchased. If you exchange those shares for Class
B shares of another AIM Fund, the shares into which you exchanged will
not convert to Class A shares until the end of the month which is
eight years after the date on which you purchased your original
shares.
----------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12B-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund) has adopted 12b-1 plans
that allow the AIM Fund to pay distribution fees to A I M Distributors, Inc.
(the distributor) for the sale and distribution of its shares and fees for
services provided to shareholders, all or a substantial portion of which are
paid to the dealer of record. Because the AIM Fund pays these fees out of its
assets on an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
SALES CHARGES
Generally, you will not pay a sales charge on purchases or redemptions of Class
A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund. You may be charged a contingent deferred sales charge if you redeem
AIM Cash Reserve Shares of AIM Money Market Fund acquired through certain
exchanges. Sales charges on all other AIM Funds and classes of those Funds are
detailed below. As used below, the term "offering price" with respect to all
categories of Class A shares includes the initial sales charge.
INITIAL SALES CHARGES
The AIM Funds are grouped into three categories with respect to initial sales
charges. The "Other Information" section of your prospectus will tell you in
what category your particular AIM Fund is classified.
<TABLE>
<CAPTION>
CATEGORY I INITIAL SALES CHARGES
------------------------------------------------------------
INVESTOR'S
SALES CHARGE
----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
-------------------------------------------------------------
<S> <C> <C>
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
-------------------------------------------------------------
</TABLE>
A-1 MCF--10/00
<PAGE> 12
-------------
THE AIM FUNDS
-------------
<TABLE>
<CAPTION>
CATEGORY II INITIAL SALES CHARGES
------------------------------------------------------------
INVESTOR'S
SALES CHARGE
----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
-------------------------------------------------------------
<S> <C> <C>
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
-------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY III INITIAL SALES CHARGES
-------------------------------------------------------------
INVESTOR'S
SALES CHARGE
----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
-------------------------------------------------------------
<S> <C> <C>
Less than $ 100,000 1.00% 1.01%
$100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
-------------------------------------------------------------
</TABLE>
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES
You can purchase $1,000,000 or more of Class A shares at net asset value.
However, if you purchase shares of that amount in Categories I or II, they will
be subject to a contingent deferred sales charge (CDSC) of 1% if you redeem them
prior to 18 months after the date of purchase. The distributor may pay a dealer
concession and/or a service fee for purchases of $1,000,000 or more.
CONTINGENT DEFERRED SALES CHARGES FOR
CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
----------------------------------------------------------
<S> <C> <C>
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
----------------------------------------------------------
</TABLE>
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES
AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial consultant must
provide sufficient information at the time of purchase to verify that your
purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Rights of Accumulation
You may combine your new purchases of Class A shares with Class A shares
currently owned for the purpose of qualifying for the lower initial sales charge
rates that apply to larger purchases. The applicable initial sales charge for
the new purchase is based on the total of your current purchase and the current
value of all Class A shares you own.
Letters of Intent
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of AIM Funds during a 13-month period. The amount you agree to
purchase determines the initial sales charge you pay. If the full face amount of
the LOI is not invested by the end of the 13-month period, your account will be
adjusted to the higher initial sales charge level for the amount actually
invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- on shares purchased by reinvesting dividends and distributions;
- when exchanging shares among certain AIM Funds;
- when using the reinstatement privilege; and
- when a merger, consolidation, or acquisition of assets of an AIM Fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- if you redeem Class B shares you held for more than six years;
- if you redeem Class C shares you held for more than one year;
- if you redeem shares acquired through reinvestment of dividends and
distributions; and
- on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
MCF--10/00 A-2
<PAGE> 13
--------------
THE AIM FUNDS
--------------
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
The minimum investments for AIM Fund accounts (except for investments in AIM
Large Cap Opportunities Fund, AIM Mid Cap Opportunities Fund and AIM Small Cap
Opportunities Fund) are as follows:
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing $ 0 ($25 per AIM Fund investment for $25
plans, 401(k) plans, Simplified Employee Pension salary deferrals from Savings Plans)
(SEP) accounts, Salary Reduction (SARSEP)
accounts, Savings Incentive Match Plans for
Employee IRA (Simple IRA) accounts, 403(b) or
457 plans)
Automatic Investment Plans 50 50
IRA, Education IRA or Roth IRA 250 50
All other accounts 500 50
----------------------------------------------------------------------------------------------------------
</TABLE>
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below.
<TABLE>
<CAPTION>
PURCHASE OPTIONS
---------------------------------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Through a Financial Consultant Contact your financial consultant. Same
By Mail Mail completed account application Mail your check and the remittance
and purchase payment to the slip from your confirmation
transfer agent, statement to the transfer agent.
A I M Fund Services, Inc.,
P.O. Box 4739,
Houston, TX 77210-4739.
By Wire Mail completed account application Call the transfer agent to receive
to the transfer agent. Call the a reference number. Then, use the
transfer agent at (800) 959-4246 to wire instructions at left.
receive a reference number. Then,
use the following wire
instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number:
00100366807
Beneficiary Account Name: A I M
Fund Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank Connection
methods described above. form to the transfer agent. Once
the transfer agent has received the
form, call the transfer agent to
place your purchase order.
By AIM Internet Connect(SM) Open your account using one of the Select the AIM Internet Connect
methods described above. option on your completed account
application or complete an AIM
Internet Connect Authorization
Form. Mail the application or form
to the transfer agent. Once your
request for this option has been
processed (which may take up to 10
days), you may place your purchase
order at www.aimfunds.com. The
maximum purchase amount per
transaction is $100,000. You may
not purchase shares in AIM
prototype retirement accounts on
the internet.
----------------------------------------------------------------------------------------------------------
</TABLE>
A-3 MCF--10/00
<PAGE> 14
-------------
THE AIM FUNDS
-------------
SPECIAL PLANS
AUTOMATIC INVESTMENT PLAN
You can arrange for periodic investments in any of the AIM Funds by authorizing
the AIM Fund to withdraw the amount of your investment from your bank account on
a day or dates you specify and in an amount of at least $50. You may stop the
Automatic Investment Plan at any time by giving the transfer agent notice ten
days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one AIM Fund account to one or more other AIM Fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the 10th or 25th day of the month, whichever
you specify, in the amount you specify. The minimum amount you can exchange to
another AIM Fund is $50.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM Fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same AIM Fund. You may
invest your dividends and distributions (1) into another AIM Fund in the same
class of shares; or (2) from Class A shares into AIM Cash Reserve Shares of AIM
Money Market Fund, or vice versa.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend must be at
least $5,000; or (b) in the AIM Fund receiving the dividend must be at least
$500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends into
another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your AIM Fund holdings should be rebalanced, on a percentage
basis, between two and ten of your AIM Funds on a quarterly, semiannual or
annual basis. Your portfolio will be rebalanced through the exchange of shares
in one or more of your AIM Funds for shares of the same class of one or more
other AIM Funds in your portfolio. If you wish to participate in the Program,
make changes or cancel the Program, the transfer agent must receive your request
to participate, changes, or cancellation in good order at least five business
days prior to the next rebalancing date, which is normally the 28th day of the
last month of the period you choose. You may realize taxable gains from these
exchanges. We may modify, suspend or terminate the Program at any time on 60
days' prior written notice.
RETIREMENT PLANS
Shares of most of the AIM Funds can be purchased through tax-sheltered
retirement plans made available to corporations, individuals and employees of
non-profit organizations and public schools. A plan document must be adopted
to establish a retirement plan. You may use AIM Funds-sponsored retirement
plans, which include IRAs, Education IRAs, Roth IRAs, 403(b) plans, 401(k)
plans, SIMPLE IRA plans, SEP/SARSEP plans and Money Purchase/Profit Sharing
plans, or another sponsor's retirement plan. The plan custodian of the
AIM Funds-sponsored retirement plan assesses an annual maintenance fee of $10.
Contact your financial consultant for details.
REDEEMING SHARES
REDEMPTION FEES
Generally, we will not charge you any fees to redeem your shares. Your broker
or financial consultant may charge service fees for handling redemption
transactions. Your shares also may be subject to a contingent deferred sales
charge (CDSC).
REDEMPTION OF AIM CASH RESERVE SHARES OF
AIM MONEY MARKET FUND ACQUIRED BY EXCHANGE
If you redeem AIM Cash Reserve Shares acquired by exchange from Class A shares
subject to a CDSC within 18 months of the purchase of the Class A shares, you
will be charged a CDSC.
REDEMPTION OF CLASS B SHARES OR CLASS C
SHARES ACQUIRED BY EXCHANGE FROM AIM CASH
RESERVE SHARES OF AIM MONEY MARKET FUND
We will begin the holding period for purposes of calculating the CDSC on Class B
shares or Class C shares acquired by exchange from AIM Cash Reserve Shares of
AIM Money Market Fund at the time of the exchange into Class B shares or Class C
shares.
REDEMPTION OF CLASS B SHARES ACQUIRED BY
EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
MCF--10/00 A-4
<PAGE> 15
-------------
THE AIM FUNDS
-------------
HOW TO REDEEM SHARES
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
Consultant
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners;
(2) the name of the AIM Fund and your account number; (3) if
the transfer agent does not hold your shares, endorsed share
certificates or share certificates accompanied by an
executed stock power; and (4) signature guarantees, if
necessary (see below). The transfer agent may require that
you provide additional information, such as corporate
resolutions or powers of attorney, if applicable. If you are
redeeming from an IRA account, you must include a statement
of whether or not you are at least 59 1/2 years old and
whether you wish to have federal income tax withheld from
your proceeds. The transfer agent may require certain other
information before you can redeem from an employer-sponsored
retirement plan. Contact your employer for details.
By Telephone Call the transfer agent. You will be allowed to redeem by
telephone if (1) the proceeds are to be mailed to the
address on record (if there has been no change communicated
to us within the last 30 days) or transferred electronically
to a pre-authorized checking account; (2) you do not hold
physical share certificates; (3) you can provide proper
identification information; (4) the proceeds of the
redemption do not exceed $50,000; and (5) you have not
previously declined the telephone redemption privilege.
Certain accounts, including retirement accounts and 403(b)
plans, may not be redeemed by telephone. The transfer agent
must receive your call during the hours of the customary
trading session of the New York Stock Exchange (NYSE) in
order to effect the redemption at that day's closing price.
By AIM Internet
Connect Place your redemption request at www.aimfunds.com. You will
be allowed to redeem by internet if (1) you do not hold
physical share certificates; (2) you can provide proper
identification information; (3) the proceeds of the
redemption do not exceed $50,000; and (4) you have
established the internet trading option. AIM prototype
retirement accounts may not be redeemed on the internet.
The transfer agent must confirm your transaction during the
hours of the customary trading session of the NYSE in order
to effect the redemption at that day's closing price.
</TABLE>
-------------------------------------------------------------------------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
REDEMPTION BY INTERNET
If you redeem by internet, we will transmit your redemption proceeds
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by internet are genuine and are not
liable for internet instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC WITHDRAWALS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Withdrawal Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM Cash Reserve Shares of AIM Money Market Fund only)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of the
customary trading session of the NYSE, we generally will transmit payment on the
next business day.
A-5 MCF--10/00
<PAGE> 16
--------------
THE AIM FUNDS
--------------
REDEMPTIONS BY CHECK
(Class A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM
Money Market Fund only)
You may redeem shares of these AIM Funds by writing checks in amounts of $250 or
more if you have completed an authorization form. Redemption by check is not
available for retirement accounts.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
(1) the amount is greater than $50,000;
(2) you request that payment be made to someone other than the name registered
on the account;
(3) you request that payment be sent somewhere other than the bank of record on
the account; or
(4) you request that payment be sent to a new address or an address that changed
in the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of
financial institutions. Call the transfer agent for additional information. Some
institutions have transaction amount maximums for these guarantees. Please check
with the guarantor institution.
REINSTATEMENT PRIVILEGE (Class A shares only)
You may, within 90 days after you sell Class A shares (except Class A shares of
AIM Tax-Exempt Cash Fund), reinvest all or part of your redemption proceeds in
Class A shares of any AIM Fund at net asset value in an identically registered
account. If you sold Class A shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund, you will incur an initial sales charge reflecting
the difference between the initial sales charges on those Funds and the ones in
which you will be investing. In addition, if you paid a contingent deferred
sales charge (CDSC) on any reinstated amount, you will not be subject to a CDSC
if you later redeem that amount. You must notify the transfer agent in writing
at the time you reinstate that you are exercising your reinstatement privilege.
You may exercise this privilege only once per year.
REDEMPTIONS BY THE AIM FUNDS
If your account has been open at least one year, you have not made an additional
purchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions or
exchanges (excluding retirement accounts), the AIM Funds have the right to
redeem the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500 or by utilizing the Automatic Investment Plan.
If an AIM Fund determines that you have not provided a correct Social Security
or other tax ID number on your account application, the AIM Fund may, at its
discretion, redeem the account and distribute the proceeds to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one AIM Fund for those
of another AIM Fund. Before requesting an exchange, review the prospectus of the
AIM Fund you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
PERMITTED EXCHANGES
Except as otherwise stated below, you may exchange your shares for shares of the
same class of another AIM Fund. You may exchange AIM Cash Reserve Shares of AIM
Money Market Fund for Class A shares of another AIM Fund, or vice versa. You
also may exchange AIM Cash Reserve Shares of AIM Money Market Fund for Class B
shares or Class C shares of another AIM Fund, but only if the AIM Cash Reserve
Shares were purchased directly and not acquired by exchange. You may be required
to pay an initial sales charge when exchanging from a Fund with a lower initial
sales charge than the one into which you are exchanging. If you exchange from
Class A shares not subject to a CDSC into Class A shares subject to those
charges, you will be charged a CDSC when you redeem the exchanged shares. The
CDSC charged on redemption of those shares will be calculated starting on the
date you acquired those shares through exchange.
YOU WILL NOT PAY A SALES CHARGE WHEN EXCHANGING:
(1) Class A shares with an initial sales charge (except for Class A shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
Class A shares of another AIM Fund or AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund for
(a) one another;
(b) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of
AIM Tax-Exempt Cash Fund; or
(c) Class A shares of another AIM Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of
an exchange from shares with higher sales charges;
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) one another;
(b) Class A shares of an AIM Fund subject to an initial sales charge (except
for Class A shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund), but only if you acquired the original
shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an
initial sales charge;
MCF--10/00 A-6
<PAGE> 17
--------------
THE AIM FUNDS
--------------
(ii) on or after May 1, 1994 by exchange from Class A shares subject to
an initial sales charge (except for Class A shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(c) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, but only if you acquired the original shares by
exchange from Class A shares subject to an initial sales charge; or
(4) Class B shares for other Class B shares, and Class C shares for other Class
C shares.
(5) AIM Cash Reserve Shares of AIM Money Market Fund for Class B shares and
Class C shares.
EXCHANGES NOT PERMITTED
You may not exchange Class A shares subject to contingent deferred sales charges
for Class A shares of AIM Limited Maturity Treasury Fund, AIM Tax-Free
Intermediate Fund or AIM Tax-Exempt Cash Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- Shares of the AIM Fund you wish to acquire must be available for sale in your
state of residence;
- Exchanges must be made between accounts with identical registration
information;
- The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- Shares must have been held for at least one day prior to the exchange;
- If you have physical share certificates, you must return them to the transfer
agent prior to the exchange; and
- You are limited to a maximum of 10 exchanges per calendar year, because
excessive short-term trading or market-timing activity can hurt fund
performance. If you exceed that limit, or if an AIM Fund or the distributor
determines, in its sole discretion, that your short-term trading is excessive
or that you are engaging in market-timing activity, it may reject any
additional exchange orders. An exchange is the movement out of (redemption)
one AIM Fund and into (purchase) another AIM Fund.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the purchase of shares
being acquired in an exchange for up to five business days if it determines that
it would be materially disadvantaged by the immediate transfer of exchange
proceeds. There is no fee for exchanges. The exchange privilege is not an option
or right to purchase shares. Any of the participating AIM Funds or the
distributor may modify or discontinue this privilege at any time.
BY MAIL
If you wish to make an exchange by mail, you must include original signatures of
each registered owner exactly as the shares are registered, the account
registration and account number, the dollar amount or number of shares to be
exchanged and the names of the AIM Funds from which and into which the exchange
is to be made.
BY TELEPHONE
Conditions that apply to exchanges by telephone are the same as redemptions by
telephone, including that the transfer agent must receive exchange requests
during the hours of the customary trading session of the NYSE; however, you
still will be allowed to exchange by telephone even if you have changed your
address of record within the preceding 30 days.
BY INTERNET
You will be allowed to exchange by internet if (1) you do not hold physical
share certificates; (2) you can provide proper identification information; and
(3) you have established the internet trading option.
EXCHANGING CLASS B AND CLASS C SHARES
If you make an exchange involving Class B or Class C shares, the amount of time
you held the original shares will be added to the holding period of the Class B
or Class C shares, respectively, into which you exchanged for the purpose of
calculating contingent deferred sales charges (CDSC) if you later redeem the
exchanged shares. If you redeem Class B shares acquired by exchange via a tender
offer by AIM Floating Rate Fund, you will be credited with the time period you
held the shares of AIM Floating Rate Fund for the purpose of computing the early
withdrawal charge applicable to those shares.
-------------------------------------------------------------------------------
EACH AIM FUND AND ITS AGENTS RESERVE THE RIGHT AT ANY TIME TO:
- REJECT OR CANCEL ANY PART OF ANY PURCHASE OR EXCHANGE ORDER;
- MODIFY ANY TERMS OR CONDITIONS OF PURCHASE OF SHARES OF ANY AIM FUND;
- REJECT OR CANCEL ANY REQUEST TO ESTABLISH THE AUTOMATIC INVESTMENT PLAN AND
SYSTEMATIC WITHDRAWAL PLAN OPTIONS ON THE SAME ACCOUNT; OR
- WITHDRAW ALL OR ANY PART OF THE OFFERING MADE BY THIS PROSPECTUS.
------------------------------------------------------------------------------
A-7 MCF--10/00
<PAGE> 18
--------------
THE AIM FUNDS
--------------
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. AIM Money
Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at
amortized cost. AIM High Income Municipal Fund, AIM Municipal Bond Fund, AIM
Tax-Exempt Bond Fund of Connecticut and AIM Tax-Free Intermediate Fund value
variable rate securities that have an unconditional demand or put feature
exercisable within seven days or less at par, which reflects the market value of
such securities.
The AIM Funds value all other securities and assets at their fair value.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day. In addition, if,
between the time trading ends on a particular security and the close of the
customary trading session of the NYSE, events occur that materially affect the
value of the security, the AIM Funds may value the security at its fair value as
determined in good faith by or under the supervision of the Board of Directors
or Trustees of the AIM Fund. The effect of using fair value pricing is that an
AIM Fund's net asset value will be subject to the judgment of the Board of
Directors or Trustees or its designee instead of being determined by the market.
Because some of the AIM Funds may invest in securities that are primarily listed
on foreign exchanges that trade on days when the AIM Funds do not price their
shares, the value of those funds' assets may change on days when you will not
be able to purchase or redeem fund shares.
Each AIM Fund determines the net asset value of its shares on each day the
NYSE is open for business, as of the close of the customary trading session, or
any earlier NYSE closing time that day. AIM Money Market Fund also determines
its net asset value as of 12:00 noon Eastern Time on each day the NYSE is open
for business.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours of the customary
trading session of the NYSE. The AIM Funds price purchase, exchange and
redemption orders at the net asset value calculated after the transfer agent
receives an order in good form. An AIM Fund may postpone the right of redemption
only under unusual circumstances, as allowed by the Securities and Exchange
Commission, such as when the NYSE restricts or suspends trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
generally taxable to you at different rates depending on the length of time
the fund holds its assets. Different tax rates may apply to ordinary income
and long-term capital gain distributions, regardless of how long you have held
your shares. Every year, you will be sent information showing the amount of
dividends and distributions you received from each AIM Fund during the prior
year.
Any long-term or short-term capital gains realized from redemptions of AIM
Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
INVESTORS IN TAX-EXEMPT FUNDS SHOULD READ THE INFORMATION UNDER THE HEADING
"OTHER INFORMATION -- SPECIAL TAX INFORMATION REGARDING THE FUND" IN THEIR
PROSPECTUS.
The foreign, state and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
MCF--10/00 A-8
<PAGE> 19
-------------------
AIM HIGH YIELD FUND
-------------------
OBTAINING ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Fund Services, Inc.
P. O. Box 4739
Houston, TX 77046-4739
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
---------------------------------------------------------
You also can review and obtain copies of the fund's SAI, reports and other
information at the SEC's Public Reference Room in Washington, DC; on the EDGAR
database on the SEC's Internet website (http://www.sec.gov); or, after paying a
duplication fee, by sending a letter to the SEC's Public Reference Section,
Washington, DC 20549-0102 or by sending an electronic mail request to
[email protected]. Please call the SEC at 1-202-942-8090 for information about
the Public Reference Room.
----------------------------------
AIM High Yield Fund
SEC 1940 Act file number: 811-5686
----------------------------------
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE
--Registered Trademark-- www.aimfunds.com HYI-PRO-1 --Registered Trademark--
<PAGE> 20
AIM HIGH YIELD FUND II
-------------------------------------------------------------------------------
AIM High Yield Fund II seeks to achieve a high level of current income.
[AIM LOGO APPEARS HERE]
PROSPECTUS --Registered Trademark--
NOVEMBER 28, 2000
This prospectus contains important
information about the
Class A, B and C shares of the fund.
Please read it before
investing and keep it for future
reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information in
this prospectus is adequate or
accurate. Anyone who tells you otherwise
is committing a crime.
An investment in the fund:
- is not FDIC insured;
- may lose value; and
- is not guaranteed by a bank.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE
--Registered Trademark-- --Registered Trademark--
<PAGE> 21
----------------------
AIM HIGH YIELD FUND II
----------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE
FUND 1
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 2
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 2
Performance Table 2
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
FEE TABLE AND EXPENSE EXAMPLE 3
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 3
Expense Example 3
FUND MANAGEMENT 4
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
The Advisor 4
Advisor Compensation 4
Portfolio Managers 4
OTHER INFORMATION 4
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
Sales Charges 4
Dividends and Distributions 4
FINANCIAL HIGHLIGHTS 5
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
Choosing a Share Class A-1
Purchasing Shares A-3
Redeeming Shares A-4
Exchanging Shares A-6
Pricing of Shares A-8
Taxes A-8
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM Funds, AIM Funds and Design, AIM Investor, AIM
LINK, AIM Institutional Funds, aimfunds.com, La Familia AIM de Fondos, La
Familia AIM de Fondos and Design, Invierta con DISCIPLINA and Invest with
DISCIPLINE are registered service marks and AIM Bank Connection and AIM Internet
Connect are service marks of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 22
----------------------
AIM HIGH YIELD FUND II
----------------------
INVESTMENT OBJECTIVE AND STRATEGIES
--------------------------------------------------------------------------------
The fund's investment objective is to achieve a high level of current income.
The fund will attempt to achieve its objective by investing primarily in
publicly traded non-investment grade debt securities. The fund's investment
objective may be changed by the Board of Trustees without shareholder approval.
The fund seeks to meet its objective by investing at least 80% of the value of
the fund's total assets in non-investment grade debt securities, i.e., "junk
bonds." The fund will invest principally in junk bonds rated B or above by
Moody's Investors Service, Inc. or Standard & Poor's Rating Services, or those
deemed by the portfolio managers to be of comparable quality. The fund will
invest at least 80% of the value of the fund's total assets in debt securities,
including convertible debt securities and/or cash or cash equivalents. The fund
may invest up to 15% of the value of its total assets in equity securities. The
fund also may invest up to 25% of its total assets in foreign securities,
including up to 10% of the fund's total assets in securities of issuers located
in developing markets, i.e., those that are in the initial stages of their
industrial cycles. Any percentage limitations with respect to assets of the fund
are applied at the time of purchase.
Although the portfolio managers focus on debt securities that they believe
have favorable prospects for high current income, they also consider the
possibility of capital growth. The portfolio managers consider whether to sell a
particular security when any of those factors materially changes.
In anticipation of or in response to adverse market conditions, for cash
management purposes, or for defensive purposes, the fund may temporarily hold
all or a portion of its assets in cash, money market instruments, shares of
affiliated money market funds, bonds or other debt securities. As a result, the
fund may not achieve its investment objective.
The fund may engage in active and frequent trading of portfolio securities to
achieve its investment objective. If the fund does trade in this way, it may
incur increased transaction costs, which can lower the actual return on your
investment. Active trading may also increase short-term gains and losses, which
may affect the taxes you have to pay.
PRINCIPAL RISKS OF INVESTING IN THE FUND
--------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund and that the income you may receive from your investment may vary. The
value of your investment in the fund will go up and down with the prices of the
securities in which the fund invests. Debt securities are particularly
vulnerable to credit risk and interest rate fluctuations. Interest rate
increases can cause the price of a debt security to decrease; junk bonds are
less sensitive to this risk than are higher-quality bonds. The prices of equity
securities change in response to many factors, including the historical and
prospective earnings of the issuer, the value of its assets, general economic
conditions, interest rates, investor perceptions and market liquidity.
Compared to higher-quality debt securities, junk bonds involve greater risk of
default or price changes due to changes in the credit quality of the issuer and
because they are generally unsecured and may be subordinated to other creditors'
claims. The value of junk bonds often fluctuates in response to company,
political or economic developments and can decline significantly over short
periods of time or during periods of general or regional economic difficulty.
During those times, the bonds could be difficult to value or to sell at a fair
price. Credit ratings on junk bonds do not necessarily reflect their actual
market risk.
Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, the relative lack of information about issuers,
relatively low market liquidity and the potential lack of strict financial and
accounting controls and standards.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
1
<PAGE> 23
----------------------
AIM HIGH YIELD FUND II
----------------------
PERFORMANCE INFORMATION
--------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURN*
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The following bar chart shows the performance of the fund's Class A shares. The
bar chart does not reflect sales loads. If it did, the annual total return
shown would be lower.
[GRAPH]
<TABLE>
<CAPTION>
Annual
Year Ended Total
December 31 Return
----------- -------
<S> <C>
1999 ................................. 19.88%
</TABLE>
* The Class A shares' year-to-date total return as of September 30, 2000 was
-7.91%.
During the period shown in the bar chart, the highest quarterly return was
7.94% (quarter ended December 31, 1999) and the lowest quarterly return was
-0.37% (quarter ended September 30, 1999).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index. The fund's performance reflects payment of
sales loads.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(for the periods ended SINCE INCEPTION
December 31, 1999) 1 YEAR INCEPTION DATE
---------------------------------------------------------------------
<S> <C> <C> <C>
Class A 14.14% 18.65% 09/30/98
Class B 13.90% 14.07% 11/20/98
Class C 17.69% 17.52% 11/20/98
Lehman Bros. High Yield Index(1) 2.39% 3.64%(2) 09/30/98(2)
---------------------------------------------------------------------
</TABLE>
(1) The Lehman Bros. High Yield Index is an index that includes all fixed-income
securities having a maximum quality rating of Ba1 (including defaulted
issues), a minimum amount outstanding of $100mm, and at least one year to
maturity.
(2) The average annual total return given is since inception of fund's oldest
share class (Class A).
2
<PAGE> 24
----------------------
AIM HIGH YIELD FUND II
----------------------
FEE TABLE AND EXPENSE EXAMPLE
--------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) CLASS A CLASS B CLASS C
-------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 4.75% None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever
is less) None(1) 5.00% 1.00%
-------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets) CLASS A CLASS B CLASS C
-------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.63% 0.63% 0.63%
Distribution and/or
Service (12b-1) Fees 0.25 1.00 1.00
Other Expenses 0.37 0.37 0.37
Total Annual Fund
Operating Expenses(2) 1.25 2.00 2.00
-------------------------------------------------------
</TABLE>
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1% contingent
deferred sales charge (CDSC) at the time of redemption.
(2) The investment advisor has agreed to waive fees and reimburse expenses
(excluding interest, taxes, dividends on short sales, extraordinary items
and indirect expenses resulting from expense offset arrangements, if any)
for Class A, Class B and Class C shares to the extent necessary to limit the
total operating expenses of Class A Shares to 1.00% (e.g. if AIM waives
0.25% of Class A expenses, AIM will also waive 0.25% of Class B and Class C
expenses). This agreement can be terminated at any time. Fund operating
expenses net of this agreement are 1.00%, 1.75% and 1.75% for Class A, Class
B and Class C, respectively.
You may also be charged a transaction or other fee by the financial institution
managing your account.
As a result of 12b-1 fees, long-term shareholders in the fund may pay more
than the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's gross operating expenses remain the same. To the extent fees are waived,
the expenses will be lower. Although your actual returns and costs may be higher
or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------------------------------------------
<S> <C> <C> <C> <C>
Class A $596 $853 $1,129 $1,915
Class B 703 927 1,278 2,134
Class C 303 627 1,078 2,327
----------------------------------------------
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------------------------------------------
<S> <C> <C> <C> <C>
Class A $596 $853 $1,129 $1,915
Class B 203 627 1,078 2,134
Class C 203 627 1,078 2,327
----------------------------------------------
</TABLE>
3
<PAGE> 25
----------------------
AIM HIGH YIELD FUND II
----------------------
FUND MANAGEMENT
--------------------------------------------------------------------------------
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor and
is responsible for its day-to-day management. The advisor is located at 11
Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The advisor supervises all
aspects of the fund's operations and provides investment advisory services to
the fund, including obtaining and evaluating economic, statistical and financial
information to formulate and implement investment programs for the fund.
The advisor has acted as an investment advisor since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 120
investment portfolios, including the fund, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fiscal period ended July 31, 2000, the advisor received compensation
of 0.38% of average daily net assets.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual
members of the team who are primarily responsible for the day-to-day management
of the fund's portfolio are
- Robert G. Alley, Senior Portfolio Manager, who has been responsible for the
fund since 2000 and has been associated with the advisor and/or its affiliates
since 1992.
- Jan H. Friedli, Portfolio Manager, who has been responsible for the fund since
2000 and has been associated with the advisor and/or its affiliates since
1999. From 1997 to 1999, he was global fixed-income portfolio manager for
Nicholas-Applegate Capital Management. From 1994 to 1997, he was international
fixed-income trader and analyst for Strong Capital Management.
- Carolyn L. Gibbs, Senior Portfolio Manager, who has been responsible for the
fund since 2000 and has been associated with the advisor and/or its affiliates
since 1992.
- Craig A. Smith, Senior Portfolio Manager, who has been responsible for the
fund since 2000 and has been associated with the advisor and/or its affiliates
since 1989.
OTHER INFORMATION
--------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM High Yield Fund II are subject to the maximum
4.75% initial sales charge as listed under the heading "CATEGORY II Initial
Sales Charges" in the "Shareholder Information--Choosing a Share Class" section
of this prospectus. Purchases of Class B and Class C shares are subject to the
contingent deferred sales charges listed in that section.
DIVIDENDS AND DISTRIBUTIONS
The fund expects that its distributions, if any, will consist primarily of
ordinary income.
DIVIDENDS
The fund generally declares dividends daily and pays dividends, if any, monthly.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains, if
any, annually.
4
<PAGE> 26
----------------------
AIM HIGH YIELD FUND II
----------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
This information has been audited by KPMG LLP, whose report, along with the
fund's financial statements, is included in the fund's annual report, which is
available upon request.
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1998
JULY 31, (DATE OPERATIONS COMMENCED)
2000 TO JULY 31, 1999
---------------------- ----------------------------------------
<S> <C> <C>
Net asset value, beginning of year $ 11.25 $ 10.00
------------------------------------------------ ------- -------
Income from investment operations:
Net investment income 1.12 0.90
------------------------------------------------ ------- -------
Net gains on securities (both realized and
unrealized) (1.00) 1.26
================================================ ======= =======
Total from investment operations 0.12 2.16
================================================ ======= =======
Less distributions:
Dividends from net investment income (1.12) (0.90)
------------------------------------------------ ------- -------
Distributions from net realized gains (0.23) (0.01)
================================================ ======= =======
Total distributions (1.35) (0.91)
================================================
Net asset value, end of year $ 10.02 $ 11.25
________________________________________________ _______ _______
================================================ ======= =======
Total return(a) 0.77% 22.39%
________________________________________________ _______ _______
================================================ ======= =======
Ratios/supplemental data:
Net assets, end of year (000s omitted) $59,932 $34,992
________________________________________________ _______ _______
================================================ ======= =======
Ratio of expenses to average net assets:
With fee waivers 1.00%(b) 1.00%(c)
________________________________________________ _______ _______
================================================ ======= =======
Without fee waivers 1.25%(b) 1.58%(c)
________________________________________________ _______ _______
================================================ ======= =======
Ratio of net investment income to average net
assets 10.51%(b) 9.74%(c)
________________________________________________ _______ _______
================================================ ======= =======
Portfolio turnover rate 94% 223%
________________________________________________ _______ _______
================================================ ======= =======
</TABLE>
(a) Does not deduct sales charges and is not annualized for periods less than
one year.
(b) Ratios are based on average net assets of $46,717,368.
(c) Annualized.
5
<PAGE> 27
----------------------
AIM HIGH YIELD FUND II
----------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------------------
YEAR ENDED NOVEMBER 20, 1998
JULY 31, (DATE SALES COMMENCED)
2000 TO JULY 31, 1999
---------------------- ------------------------------------
<S> <C> <C>
Net asset value, beginning of year $ 11.23 $ 10.59
------------------------------------------------ ------- -------
Income from investment operations:
Net investment income 1.03 0.68
------------------------------------------------ ------- -------
Net gains on securities
(both realized and unrealized) (1.00) 0.65
================================================ ======= =======
Total from investment operations 0.03 1.33
================================================ ======= =======
Less distributions:
Dividends from net investment income (1.03) (0.68)
------------------------------------------------ ------- -------
Distributions from net realized gains (0.23) (0.01)
================================================ ======= =======
Total distributions (1.26) (0.69)
================================================ ======= =======
Net asset value, end of year $ 10.00 $ 11.23
________________________________________________ _______ _______
================================================ ======= =======
Total return(a) (0.03)% 13.03%
________________________________________________ _______ _______
================================================ ======= =======
Ratios/supplemental data:
Net assets, end of year (000s omitted) $67,140 $20,994
________________________________________________ _______ _______
================================================ ======= =======
Ratio of expenses to average net assets:
With fee waivers 1.75%(b) 1.75%(c)
________________________________________________ _______ _______
================================================ ======= =======
Without fee waivers 2.00%(b) 2.33%(c)
________________________________________________ _______ _______
================================================ ======= =======
Ratio of net investment income to average net
assets 9.76%(b) 8.99%(c)
________________________________________________ _______ _______
================================================ ======= =======
Portfolio turnover rate 94% 223%
________________________________________________ _______ _______
================================================ ======= =======
</TABLE>
(a) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(b) Ratios are based on average net assets of $45,124,885.
(c) Annualized.
<TABLE>
<CAPTION>
CLASS C
-------------------------------------------------------------
YEAR ENDED NOVEMBER 20, 1998
JULY 31, (DATE SALES COMMENCED)
2000 TO JULY 31, 1999
---------------------- ------------------------------------
<S> <C> <C>
Net asset value, beginning of year $ 11.22 $ 10.59
------------------------------------------------ ------- -------
Income from investment operations:
Net investment income 1.03 0.68
------------------------------------------------ ------- -------
Net gains on securities (both realized and
unrealized) (0.99) 0.64
================================================ ======= =======
Total from investment operations 0.04 1.32
================================================ ======= =======
Less distributions:
Dividends from net investment income (1.03) (0.68)
------------------------------------------------ ------- -------
Distributions from net realized gains (0.23) (0.01)
================================================ ======= =======
Total distributions (1.26) (0.69)
================================================ ======= =======
Net asset value, end of year $ 10.00 $ 11.22
________________________________________________ _______ _______
================================================ ======= =======
Total return(a) 0.08% 12.93%
________________________________________________ _______ _______
================================================ ======= =======
Ratios/supplemental data:
Net assets, end of year (000s omitted) $11,471 $ 3,139
________________________________________________ _______ _______
================================================ ======= =======
Ratio of expenses to average net assets:
With fee waivers 1.75%(b) 1.75%(c)
________________________________________________ _______ _______
================================================ ======= =======
Without fee waivers 2.00%(b) 2.33%(c)
________________________________________________ _______ _______
================================================ ======= =======
Ratio of net investment income to average net
assets 9.76%(b) 8.99%(c)
________________________________________________ _______ _______
================================================ ======= =======
Portfolio turnover rate 94% 223%
________________________________________________ _______ _______
================================================ ======= =======
</TABLE>
(a) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(b) Ratios are based on average net assets of $7,090,552.
(c) Annualized.
6
<PAGE> 28
-------------
THE AIM FUNDS
-------------
SHAREHOLDER INFORMATION
--------------------------------------------------------------------------------
In addition to the fund, A I M Advisors, Inc. serves as investment advisor to
many other mutual funds (the AIM Funds). The following information is about all
the AIM Funds.
CHOOSING A SHARE CLASS
Many of the AIM Funds have multiple classes of shares, each class representing
an interest in the same portfolio of investments. When choosing a share class,
you should consider the factors below:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
- Initial sales charge - No initial sales charge - No initial sales charge
- Reduced or waived initial sales - Contingent deferred sales - Contingent deferred sales
charge for certain purchases charge on redemptions within charge on redemptions within
six years one year
- Lower distribution and service - 12b-1 fee of 1.00% - 12b-1 fee of 1.00%
(12b-1) fee than Class B or
Class C shares (See "Fee Table
and Expense Example")
- Converts to Class A shares - Does not convert to Class A
at the end of the month shares
which is eight years after
the date on which shares
were purchased along with a
pro rata portion of its
reinvested dividends and
distributions(1)
- Generally more appropriate for - Purchase orders limited to - Generally more appropriate
long-term investors amounts less than $250,000 for short-term investors
</TABLE>
(1) AIM Money Market Fund: Class B shares convert to AIM Cash Reserve
Shares.
AIM Global Trends Fund: If you held Class B shares on May 29, 1998 and
continue to hold them, those shares will convert to Class A shares of
that fund at the end of the month which is seven years after the date
on which shares were purchased. If you exchange those shares for Class
B shares of another AIM Fund, the shares into which you exchanged will
not convert to Class A shares until the end of the month which is
eight years after the date on which you purchased your original
shares.
----------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12B-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund) has adopted 12b-1 plans
that allow the AIM Fund to pay distribution fees to A I M Distributors, Inc.
(the distributor) for the sale and distribution of its shares and fees for
services provided to shareholders, all or a substantial portion of which are
paid to the dealer of record. Because the AIM Fund pays these fees out of its
assets on an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
SALES CHARGES
Generally, you will not pay a sales charge on purchases or redemptions of Class
A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund. You may be charged a contingent deferred sales charge if you redeem
AIM Cash Reserve Shares of AIM Money Market Fund acquired through certain
exchanges. Sales charges on all other AIM Funds and classes of those Funds are
detailed below. As used below, the term "offering price" with respect to all
categories of Class A shares includes the initial sales charge.
INITIAL SALES CHARGES
The AIM Funds are grouped into three categories with respect to initial sales
charges. The "Other Information" section of your prospectus will tell you in
what category your particular AIM Fund is classified.
<TABLE>
<CAPTION>
CATEGORY I INITIAL SALES CHARGES
------------------------------------------------------------
INVESTOR'S
SALES CHARGE
----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
-------------------------------------------------------------
<S> <C> <C>
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
-------------------------------------------------------------
</TABLE>
A-1 MCF--10/00
<PAGE> 29
-------------
THE AIM FUNDS
-------------
<TABLE>
<CAPTION>
CATEGORY II INITIAL SALES CHARGES
------------------------------------------------------------
INVESTOR'S
SALES CHARGE
----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
-------------------------------------------------------------
<S> <C> <C>
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
-------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY III INITIAL SALES CHARGES
-------------------------------------------------------------
INVESTOR'S
SALES CHARGE
----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
-------------------------------------------------------------
<S> <C> <C>
Less than $ 100,000 1.00% 1.01%
$100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
-------------------------------------------------------------
</TABLE>
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES
You can purchase $1,000,000 or more of Class A shares at net asset value.
However, if you purchase shares of that amount in Categories I or II, they will
be subject to a contingent deferred sales charge (CDSC) of 1% if you redeem them
prior to 18 months after the date of purchase. The distributor may pay a dealer
concession and/or a service fee for purchases of $1,000,000 or more.
CONTINGENT DEFERRED SALES CHARGES FOR
CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
----------------------------------------------------------
<S> <C> <C>
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
----------------------------------------------------------
</TABLE>
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES
AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial consultant must
provide sufficient information at the time of purchase to verify that your
purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Rights of Accumulation
You may combine your new purchases of Class A shares with Class A shares
currently owned for the purpose of qualifying for the lower initial sales charge
rates that apply to larger purchases. The applicable initial sales charge for
the new purchase is based on the total of your current purchase and the current
value of all Class A shares you own.
Letters of Intent
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of AIM Funds during a 13-month period. The amount you agree to
purchase determines the initial sales charge you pay. If the full face amount of
the LOI is not invested by the end of the 13-month period, your account will be
adjusted to the higher initial sales charge level for the amount actually
invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- on shares purchased by reinvesting dividends and distributions;
- when exchanging shares among certain AIM Funds;
- when using the reinstatement privilege; and
- when a merger, consolidation, or acquisition of assets of an AIM Fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- if you redeem Class B shares you held for more than six years;
- if you redeem Class C shares you held for more than one year;
- if you redeem shares acquired through reinvestment of dividends and
distributions; and
- on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
MCF--10/00 A-2
<PAGE> 30
--------------
THE AIM FUNDS
--------------
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
The minimum investments for AIM Fund accounts (except for investments in AIM
Large Cap Opportunities Fund, AIM Mid Cap Opportunities Fund and AIM Small Cap
Opportunities Fund) are as follows:
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing $ 0 ($25 per AIM Fund investment for $25
plans, 401(k) plans, Simplified Employee Pension salary deferrals from Savings Plans)
(SEP) accounts, Salary Reduction (SARSEP)
accounts, Savings Incentive Match Plans for
Employee IRA (Simple IRA) accounts, 403(b) or
457 plans)
Automatic Investment Plans 50 50
IRA, Education IRA or Roth IRA 250 50
All other accounts 500 50
----------------------------------------------------------------------------------------------------------
</TABLE>
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below.
<TABLE>
<CAPTION>
PURCHASE OPTIONS
---------------------------------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Through a Financial Consultant Contact your financial consultant. Same
By Mail Mail completed account application Mail your check and the remittance
and purchase payment to the slip from your confirmation
transfer agent, statement to the transfer agent.
A I M Fund Services, Inc.,
P.O. Box 4739,
Houston, TX 77210-4739.
By Wire Mail completed account application Call the transfer agent to receive
to the transfer agent. Call the a reference number. Then, use the
transfer agent at (800) 959-4246 to wire instructions at left.
receive a reference number. Then,
use the following wire
instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number:
00100366807
Beneficiary Account Name: A I M
Fund Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank Connection
methods described above. form to the transfer agent. Once
the transfer agent has received the
form, call the transfer agent to
place your purchase order.
By AIM Internet Connect(SM) Open your account using one of the Select the AIM Internet Connect
methods described above. option on your completed account
application or complete an AIM
Internet Connect Authorization
Form. Mail the application or form
to the transfer agent. Once your
request for this option has been
processed (which may take up to 10
days), you may place your purchase
order at www.aimfunds.com. The
maximum purchase amount per
transaction is $100,000. You may
not purchase shares in AIM
prototype retirement accounts on
the internet.
----------------------------------------------------------------------------------------------------------
</TABLE>
A-3 MCF--10/00
<PAGE> 31
-------------
THE AIM FUNDS
-------------
SPECIAL PLANS
AUTOMATIC INVESTMENT PLAN
You can arrange for periodic investments in any of the AIM Funds by authorizing
the AIM Fund to withdraw the amount of your investment from your bank account on
a day or dates you specify and in an amount of at least $50. You may stop the
Automatic Investment Plan at any time by giving the transfer agent notice ten
days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one AIM Fund account to one or more other AIM Fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the 10th or 25th day of the month, whichever
you specify, in the amount you specify. The minimum amount you can exchange to
another AIM Fund is $50.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM Fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same AIM Fund. You may
invest your dividends and distributions (1) into another AIM Fund in the same
class of shares; or (2) from Class A shares into AIM Cash Reserve Shares of AIM
Money Market Fund, or vice versa.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend must be at
least $5,000; or (b) in the AIM Fund receiving the dividend must be at least
$500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends into
another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your AIM Fund holdings should be rebalanced, on a percentage
basis, between two and ten of your AIM Funds on a quarterly, semiannual or
annual basis. Your portfolio will be rebalanced through the exchange of shares
in one or more of your AIM Funds for shares of the same class of one or more
other AIM Funds in your portfolio. If you wish to participate in the Program,
make changes or cancel the Program, the transfer agent must receive your request
to participate, changes, or cancellation in good order at least five business
days prior to the next rebalancing date, which is normally the 28th day of the
last month of the period you choose. You may realize taxable gains from these
exchanges. We may modify, suspend or terminate the Program at any time on 60
days' prior written notice.
RETIREMENT PLANS
Shares of most of the AIM Funds can be purchased through tax-sheltered
retirement plans made available to corporations, individuals and employees of
non-profit organizations and public schools. A plan document must be adopted
to establish a retirement plan. You may use AIM Funds-sponsored retirement
plans, which include IRAs, Education IRAs, Roth IRAs, 403(b) plans, 401(k)
plans, SIMPLE IRA plans, SEP/SARSEP plans and Money Purchase/Profit Sharing
plans, or another sponsor's retirement plan. The plan custodian of the
AIM Funds-sponsored retirement plan assesses an annual maintenance fee of $10.
Contact your financial consultant for details.
REDEEMING SHARES
REDEMPTION FEES
Generally, we will not charge you any fees to redeem your shares. Your broker
or financial consultant may charge service fees for handling redemption
transactions. Your shares also may be subject to a contingent deferred sales
charge (CDSC).
REDEMPTION OF AIM CASH RESERVE SHARES OF
AIM MONEY MARKET FUND ACQUIRED BY EXCHANGE
If you redeem AIM Cash Reserve Shares acquired by exchange from Class A shares
subject to a CDSC within 18 months of the purchase of the Class A shares, you
will be charged a CDSC.
REDEMPTION OF CLASS B SHARES OR CLASS C
SHARES ACQUIRED BY EXCHANGE FROM AIM CASH
RESERVE SHARES OF AIM MONEY MARKET FUND
We will begin the holding period for purposes of calculating the CDSC on Class B
shares or Class C shares acquired by exchange from AIM Cash Reserve Shares of
AIM Money Market Fund at the time of the exchange into Class B shares or Class C
shares.
REDEMPTION OF CLASS B SHARES ACQUIRED BY
EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
MCF--10/00 A-4
<PAGE> 32
-------------
THE AIM FUNDS
-------------
HOW TO REDEEM SHARES
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
Consultant
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners;
(2) the name of the AIM Fund and your account number; (3) if
the transfer agent does not hold your shares, endorsed share
certificates or share certificates accompanied by an
executed stock power; and (4) signature guarantees, if
necessary (see below). The transfer agent may require that
you provide additional information, such as corporate
resolutions or powers of attorney, if applicable. If you are
redeeming from an IRA account, you must include a statement
of whether or not you are at least 59 1/2 years old and
whether you wish to have federal income tax withheld from
your proceeds. The transfer agent may require certain other
information before you can redeem from an employer-sponsored
retirement plan. Contact your employer for details.
By Telephone Call the transfer agent. You will be allowed to redeem by
telephone if (1) the proceeds are to be mailed to the
address on record (if there has been no change communicated
to us within the last 30 days) or transferred electronically
to a pre-authorized checking account; (2) you do not hold
physical share certificates; (3) you can provide proper
identification information; (4) the proceeds of the
redemption do not exceed $50,000; and (5) you have not
previously declined the telephone redemption privilege.
Certain accounts, including retirement accounts and 403(b)
plans, may not be redeemed by telephone. The transfer agent
must receive your call during the hours of the customary
trading session of the New York Stock Exchange (NYSE) in
order to effect the redemption at that day's closing price.
By AIM Internet
Connect Place your redemption request at www.aimfunds.com. You will
be allowed to redeem by internet if (1) you do not hold
physical share certificates; (2) you can provide proper
identification information; (3) the proceeds of the
redemption do not exceed $50,000; and (4) you have
established the internet trading option. AIM prototype
retirement accounts may not be redeemed on the internet.
The transfer agent must confirm your transaction during the
hours of the customary trading session of the NYSE in order
to effect the redemption at that day's closing price.
</TABLE>
-------------------------------------------------------------------------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
REDEMPTION BY INTERNET
If you redeem by internet, we will transmit your redemption proceeds
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by internet are genuine and are not
liable for internet instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC WITHDRAWALS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Withdrawal Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM Cash Reserve Shares of AIM Money Market Fund only)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of the
customary trading session of the NYSE, we generally will transmit payment on the
next business day.
A-5 MCF--10/00
<PAGE> 33
--------------
THE AIM FUNDS
--------------
REDEMPTIONS BY CHECK
(Class A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM
Money Market Fund only)
You may redeem shares of these AIM Funds by writing checks in amounts of $250 or
more if you have completed an authorization form. Redemption by check is not
available for retirement accounts.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
(1) the amount is greater than $50,000;
(2) you request that payment be made to someone other than the name registered
on the account;
(3) you request that payment be sent somewhere other than the bank of record on
the account; or
(4) you request that payment be sent to a new address or an address that changed
in the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of
financial institutions. Call the transfer agent for additional information. Some
institutions have transaction amount maximums for these guarantees. Please check
with the guarantor institution.
REINSTATEMENT PRIVILEGE (Class A shares only)
You may, within 90 days after you sell Class A shares (except Class A shares of
AIM Tax-Exempt Cash Fund), reinvest all or part of your redemption proceeds in
Class A shares of any AIM Fund at net asset value in an identically registered
account. If you sold Class A shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund, you will incur an initial sales charge reflecting
the difference between the initial sales charges on those Funds and the ones in
which you will be investing. In addition, if you paid a contingent deferred
sales charge (CDSC) on any reinstated amount, you will not be subject to a CDSC
if you later redeem that amount. You must notify the transfer agent in writing
at the time you reinstate that you are exercising your reinstatement privilege.
You may exercise this privilege only once per year.
REDEMPTIONS BY THE AIM FUNDS
If your account has been open at least one year, you have not made an additional
purchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions or
exchanges (excluding retirement accounts), the AIM Funds have the right to
redeem the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500 or by utilizing the Automatic Investment Plan.
If an AIM Fund determines that you have not provided a correct Social Security
or other tax ID number on your account application, the AIM Fund may, at its
discretion, redeem the account and distribute the proceeds to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one AIM Fund for those
of another AIM Fund. Before requesting an exchange, review the prospectus of the
AIM Fund you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
PERMITTED EXCHANGES
Except as otherwise stated below, you may exchange your shares for shares of the
same class of another AIM Fund. You may exchange AIM Cash Reserve Shares of AIM
Money Market Fund for Class A shares of another AIM Fund, or vice versa. You
also may exchange AIM Cash Reserve Shares of AIM Money Market Fund for Class B
shares or Class C shares of another AIM Fund, but only if the AIM Cash Reserve
Shares were purchased directly and not acquired by exchange. You may be required
to pay an initial sales charge when exchanging from a Fund with a lower initial
sales charge than the one into which you are exchanging. If you exchange from
Class A shares not subject to a CDSC into Class A shares subject to those
charges, you will be charged a CDSC when you redeem the exchanged shares. The
CDSC charged on redemption of those shares will be calculated starting on the
date you acquired those shares through exchange.
YOU WILL NOT PAY A SALES CHARGE WHEN EXCHANGING:
(1) Class A shares with an initial sales charge (except for Class A shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
Class A shares of another AIM Fund or AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund for
(a) one another;
(b) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of
AIM Tax-Exempt Cash Fund; or
(c) Class A shares of another AIM Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of
an exchange from shares with higher sales charges;
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) one another;
(b) Class A shares of an AIM Fund subject to an initial sales charge (except
for Class A shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund), but only if you acquired the original
shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an
initial sales charge;
MCF--10/00 A-6
<PAGE> 34
--------------
THE AIM FUNDS
--------------
(ii) on or after May 1, 1994 by exchange from Class A shares subject to
an initial sales charge (except for Class A shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(c) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, but only if you acquired the original shares by
exchange from Class A shares subject to an initial sales charge; or
(4) Class B shares for other Class B shares, and Class C shares for other Class
C shares.
(5) AIM Cash Reserve Shares of AIM Money Market Fund for Class B shares and
Class C shares.
EXCHANGES NOT PERMITTED
You may not exchange Class A shares subject to contingent deferred sales charges
for Class A shares of AIM Limited Maturity Treasury Fund, AIM Tax-Free
Intermediate Fund or AIM Tax-Exempt Cash Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- Shares of the AIM Fund you wish to acquire must be available for sale in your
state of residence;
- Exchanges must be made between accounts with identical registration
information;
- The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- Shares must have been held for at least one day prior to the exchange;
- If you have physical share certificates, you must return them to the transfer
agent prior to the exchange; and
- You are limited to a maximum of 10 exchanges per calendar year, because
excessive short-term trading or market-timing activity can hurt fund
performance. If you exceed that limit, or if an AIM Fund or the distributor
determines, in its sole discretion, that your short-term trading is excessive
or that you are engaging in market-timing activity, it may reject any
additional exchange orders. An exchange is the movement out of (redemption)
one AIM Fund and into (purchase) another AIM Fund.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the purchase of shares
being acquired in an exchange for up to five business days if it determines that
it would be materially disadvantaged by the immediate transfer of exchange
proceeds. There is no fee for exchanges. The exchange privilege is not an option
or right to purchase shares. Any of the participating AIM Funds or the
distributor may modify or discontinue this privilege at any time.
BY MAIL
If you wish to make an exchange by mail, you must include original signatures of
each registered owner exactly as the shares are registered, the account
registration and account number, the dollar amount or number of shares to be
exchanged and the names of the AIM Funds from which and into which the exchange
is to be made.
BY TELEPHONE
Conditions that apply to exchanges by telephone are the same as redemptions by
telephone, including that the transfer agent must receive exchange requests
during the hours of the customary trading session of the NYSE; however, you
still will be allowed to exchange by telephone even if you have changed your
address of record within the preceding 30 days.
BY INTERNET
You will be allowed to exchange by internet if (1) you do not hold physical
share certificates; (2) you can provide proper identification information; and
(3) you have established the internet trading option.
EXCHANGING CLASS B AND CLASS C SHARES
If you make an exchange involving Class B or Class C shares, the amount of time
you held the original shares will be added to the holding period of the Class B
or Class C shares, respectively, into which you exchanged for the purpose of
calculating contingent deferred sales charges (CDSC) if you later redeem the
exchanged shares. If you redeem Class B shares acquired by exchange via a tender
offer by AIM Floating Rate Fund, you will be credited with the time period you
held the shares of AIM Floating Rate Fund for the purpose of computing the early
withdrawal charge applicable to those shares.
-------------------------------------------------------------------------------
EACH AIM FUND AND ITS AGENTS RESERVE THE RIGHT AT ANY TIME TO:
- REJECT OR CANCEL ANY PART OF ANY PURCHASE OR EXCHANGE ORDER;
- MODIFY ANY TERMS OR CONDITIONS OF PURCHASE OF SHARES OF ANY AIM FUND;
- REJECT OR CANCEL ANY REQUEST TO ESTABLISH THE AUTOMATIC INVESTMENT PLAN AND
SYSTEMATIC WITHDRAWAL PLAN OPTIONS ON THE SAME ACCOUNT; OR
- WITHDRAW ALL OR ANY PART OF THE OFFERING MADE BY THIS PROSPECTUS.
------------------------------------------------------------------------------
A-7 MCF--10/00
<PAGE> 35
--------------
THE AIM FUNDS
--------------
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. AIM Money
Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at
amortized cost. AIM High Income Municipal Fund, AIM Municipal Bond Fund, AIM
Tax-Exempt Bond Fund of Connecticut and AIM Tax-Free Intermediate Fund value
variable rate securities that have an unconditional demand or put feature
exercisable within seven days or less at par, which reflects the market value of
such securities.
The AIM Funds value all other securities and assets at their fair value.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day. In addition, if,
between the time trading ends on a particular security and the close of the
customary trading session of the NYSE, events occur that materially affect the
value of the security, the AIM Funds may value the security at its fair value as
determined in good faith by or under the supervision of the Board of Directors
or Trustees of the AIM Fund. The effect of using fair value pricing is that an
AIM Fund's net asset value will be subject to the judgment of the Board of
Directors or Trustees or its designee instead of being determined by the market.
Because some of the AIM Funds may invest in securities that are primarily listed
on foreign exchanges that trade on days when the AIM Funds do not price their
shares, the value of those funds' assets may change on days when you will not
be able to purchase or redeem fund shares.
Each AIM Fund determines the net asset value of its shares on each day the
NYSE is open for business, as of the close of the customary trading session, or
any earlier NYSE closing time that day. AIM Money Market Fund also determines
its net asset value as of 12:00 noon Eastern Time on each day the NYSE is open
for business.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours of the customary
trading session of the NYSE. The AIM Funds price purchase, exchange and
redemption orders at the net asset value calculated after the transfer agent
receives an order in good form. An AIM Fund may postpone the right of redemption
only under unusual circumstances, as allowed by the Securities and Exchange
Commission, such as when the NYSE restricts or suspends trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
generally taxable to you at different rates depending on the length of time
the fund holds its assets. Different tax rates may apply to ordinary income
and long-term capital gain distributions, regardless of how long you have held
your shares. Every year, you will be sent information showing the amount of
dividends and distributions you received from each AIM Fund during the prior
year.
Any long-term or short-term capital gains realized from redemptions of AIM
Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
INVESTORS IN TAX-EXEMPT FUNDS SHOULD READ THE INFORMATION UNDER THE HEADING
"OTHER INFORMATION -- SPECIAL TAX INFORMATION REGARDING THE FUND" IN THEIR
PROSPECTUS.
The foreign, state and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
MCF--10/00 A-8
<PAGE> 36
----------------------
AIM HIGH YIELD FUND II
----------------------
OBTAINING ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Fund Services, Inc.
P.0. Box 4739
Houston, TX 77210-4739
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
---------------------------------------------------------
You also can review and obtain copies of the fund's SAI, reports and other
information at the SEC's Public Reference Room in Washington, DC; on the EDGAR
database on the SEC's Internet website (http://www.sec.gov); or, after paying a
duplication fee, by sending a letter to the SEC's Public Reference Section,
Washington, DC 20549-0102 or by sending an electronic mail request to
[email protected]. Please call the SEC at 1-202-942-8090 for information about
the Public Reference Room.
-----------------------------------
AIM High Yield Fund II
SEC 1940 Act file number: 811-5686
-----------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com HYI2-PRO-1 INVEST WITH DISCIPLINE
--Registered Trademark-- --Registered Trademark--
<PAGE> 37
AIM INCOME FUND
------------------------------------------------------------------------
AIM Income Fund seeks to achieve a high level of current income
consistent with reasonable concern for safety of principal.
PROSPECTUS AIM--Registered Trademark--
NOVEMBER 28, 2000
This prospectus contains important
information about the Class A, B and C
shares of the fund. Please read it
before investing and keep it for
future reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
Investments in the fund:
- are not FDIC insured;
- may lose value; and
- are not guaranteed by a bank.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE
--Registered Trademark-- --Registered Trademark--
<PAGE> 38
---------------
AIM INCOME FUND
---------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE FUND 1
- - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 2
- - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 2
Performance Table 2
FEE TABLE AND EXPENSE EXAMPLE 3
- - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 3
Expense Example 3
FUND MANAGEMENT 4
- - - - - - - - - - - - - - - - - - - - - - - -
The Advisor 4
Advisor Compensation 4
Portfolio Managers 4
OTHER INFORMATION 5
- - - - - - - - - - - - - - - - - - - - - - - -
Sales Charges 5
Dividends and Distributions 5
FINANCIAL HIGHLIGHTS 6
- - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - -
Choosing a Share Class A-1
Purchasing Shares A-3
Redeeming Shares A-4
Exchanging Shares A-6
Pricing of Shares A-8
Taxes A-8
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM Funds, AIM Funds and Design, AIM Investor, AIM
LINK, AIM Institutional Funds, aimfunds.com, La Familia AIM de Fondos, La
Familia AIM de Fondos and Design, Invierta con DISCIPLINA and Invest with
DISCIPLINE are registered service marks and AIM Bank Connection and AIM Internet
Connect are service marks of A I M Management Group Inc.
No dealer, sales person or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 39
---------------
AIM INCOME FUND
---------------
INVESTMENT OBJECTIVE AND STRATEGIES
--------------------------------------------------------------------------------
The fund's investment objective is to achieve a high level of current income
consistent with reasonable concern for safety of principal. The fund will
attempt to achieve its objective by investing primarily in fixed-rate corporate
debt and U.S. and non-U.S. Government obligations. The fund's investment
objective may be changed by the Board of Trustees without shareholder approval.
The fund may invest up to 40% of its total assets in foreign securities. The
fund may invest up to 35% of its net assets in lower-quality debt securities,
i.e., "junk bonds," and unrated debt securities deemed by the portfolio managers
to be of comparable quality. The fund may also invest in preferred stock issues
and convertible corporate debt. Any percentage limitations with respect to
assets of the fund are applied at the time of purchase.
The portfolio managers focus on securities that they believe have favorable
prospects for current income, consistent with their concerns for safety of
principal. The portfolio managers consider whether to sell a particular security
when any of those factors materially changes.
In anticipation of or in response to adverse market conditions, for cash
management purposes, or for defensive purposes, the fund may temporarily hold
all or a portion of its assets in cash, money market instruments, shares of
affiliated money market funds, bonds or other debt securities. As a result, the
fund may not achieve its investment objective.
PRINCIPAL RISKS OF INVESTING IN THE FUND
--------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund and that the income you may receive from your investment may vary. The
value of your investment in the fund will go up and down with the prices of the
securities in which the fund invests. Debt securities are particularly
vulnerable to credit risk and interest rate fluctuations. Interest rate
increases can cause the price of a debt security to decrease. The longer a debt
security's duration, the more sensitive it is to this risk. Junk bonds are less
sensitive to this risk than are higher-quality bonds. The issuer of a security
may default or otherwise be unable to honor a financial obligation.
The prices of foreign securities may be further affected by other factors,
including:
- Currency exchange rates--The dollar value of the fund's foreign investments
will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are valued.
- Political and economic conditions--The value of the fund's foreign investments
may be adversely affected by political and social instability in their home
countries and by changes in economic or taxation policies in those countries.
- Regulations--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available information
about foreign companies than about U.S. companies.
- Markets--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and more volatile than U.S. securities.
Compared to higher-quality debt securities, junk bonds involve a greater risk
of default or price changes due to changes in the credit quality of the issuer
and because they are generally unsecured and may be subordinated to other
creditors' claims. The value of junk bonds debt securities often fluctuates in
response to company, political or economic developments and can decline
significantly over short periods of time or during periods of general or
regional economic difficulty. During those times the bonds could be difficult to
value or sell at a fair price. Credit ratings on junk bonds do not necessarily
reflect their actual market risk.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
1
<PAGE> 40
---------------
AIM INCOME FUND
---------------
PERFORMANCE INFORMATION
--------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS*
--------------------------------------------------------------------------------
The following bar chart shows changes in the performance of the fund's Class A
shares from year to year. The bar chart does not reflect sales loads. If it did,
the annual total returns shown would be lower.
[GRAPH]
<TABLE>
<CAPTION>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURNS
----------- -------
<S> <C>
1990.................................... 3.65%
1991.................................... 18.01%
1992.................................... 7.28%
1993.................................... 15.38%
1994.................................... -7.65%
1995.................................... 22.77%
1996.................................... 8.58%
1997.................................... 11.92%
1998.................................... 4.94%
1999.................................... -2.92%
</TABLE>
* The Class A share's year-to-date total return as of September 30, 2000 was
-0.99%.
During the periods shown in the bar chart, the highest quarterly return was
6.92% (quarter ended March 31, 1993) and the lowest quarterly return was -5.88%
(quarter ended March 31, 1994).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index. The fund's performance reflects payment of
sales loads.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(for the periods ended SINCE INCEPTION
December 31, 1999) 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A -7.55% 7.68% 7.31% 7.45% 05/03/68
Class B -8.25% 7.58% -- 4.32% 09/07/93
Class C -4.62% -- -- 2.17% 08/04/97
Lehman Bros. Aggregate Bond Index(1) -0.82% 7.73% 7.70% 9.24%(2) 12/31/75(2)
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Lehman Bros. Aggregate Bond Index is an unmanaged index generally
considered representative of treasury issues, agency issues, corporate bond
issues and mortgage-backed securities.
(2) The average annual total return given is since the date closest to the
earliest date the index became available.
2
<PAGE> 41
---------------
AIM INCOME FUND
---------------
FEE TABLE AND EXPENSE EXAMPLE
--------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) CLASS A CLASS B CLASS C
-------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 4.75% None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever is
less) None(1) 5.00% 1.00%
-------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets) CLASS A CLASS B CLASS C
-------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.42% 0.42% 0.42%
Distribution and/or
Service (12b-1) Fees 0.25 1.00 1.00
Other Expenses 0.30 0.31 0.31
Total Annual Fund
Operating Expenses 0.97 1.73 1.73
-------------------------------------------------------
</TABLE>
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1% contingent
deferred sales charge (CDSC) at the time of redemption.
You may also be charged a transaction or other fee by the financial institution
managing your account.
As a result of 12b-1 fees, long-term shareholders in the fund may pay more
than the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in different
classes of the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's operating expenses remain the same. Although your actual returns and
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------------------------------------------
<S> <C> <C> <C> <C>
Class A $569 $769 $ 986 $1,608
Class B 676 845 1,139 1,840
Class C 276 545 939 2,041
----------------------------------------------
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------------------------------------------
<S> <C> <C> <C> <C>
Class A $569 $769 $986 $1,608
Class B 176 545 939 1,840
Class C 176 545 939 2,041
----------------------------------------------
</TABLE>
3
<PAGE> 42
---------------
AIM INCOME FUND
---------------
FUND MANAGEMENT
--------------------------------------------------------------------------------
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor and
is responsible for its day-to-day management. The advisor is located at 11
Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The advisor supervises all
aspects of the fund's operations and provides investment advisory services to
the fund, including obtaining and evaluating economic, statistical and financial
information to formulate and implement investment programs for the fund.
The advisor has acted as an investment advisor since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 120
investment portfolios, including the fund, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended July 31, 2000, the advisor received compensation of
0.42% of average daily net assets.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual
members of the team who are primarily responsible for the day-to-day management
of the fund's portfolio are
- Robert G. Alley, Senior Portfolio Manager, who has been responsible for the
fund since 1992 and has been associated with the advisor and/or its affiliates
since 1992.
- Jan H. Friedli, Portfolio Manager, who has been responsible for the fund since
1999 and has been associated with the advisor and/or its affiliates since
1999. From 1997 to 1999, he was global fixed-income portfolio manager for
Nicholas-Applegate Capital Management. From 1994 to 1997, he was international
fixed-income trader and analyst for Strong Capital Management.
- Carolyn L. Gibbs, Senior Portfolio Manager, who has been responsible for the
fund since 1995 and has been associated with the advisor and/or its affiliates
since 1992.
4
<PAGE> 43
---------------
AIM INCOME FUND
---------------
OTHER INFORMATION
--------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Income Fund are subject to the maximum 4.75%
initial sales charge as listed under the heading "CATEGORY II Initial Sales
Charges" in the "Shareholder Information--Choosing a Share Class" section of
this prospectus. Purchases of Class B and Class C shares are subject to the
contingent deferred sales charges listed in that section.
DIVIDENDS AND DISTRIBUTIONS
The fund expects that its distributions, if any, will consist primarily of
ordinary income.
DIVIDENDS
The fund generally declares dividends daily and pays dividends, if any, monthly.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains, if any,
annually.
5
<PAGE> 44
---------------
AIM INCOME FUND
---------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
This information has been audited by KPMG LLP, whose report, along with the
fund's financial statements, is included in the fund's annual report, which is
available upon request.
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------
SEVEN MONTHS YEAR ENDED DECEMBER 31,
ENDED ----------------------------------------------------
JULY 31, 2000 1999 1998 1997 1996 1995
------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 7.59 $ 8.38 $ 8.57 $ 8.24 $ 8.17 $ 7.20
------------------------------------------------ -------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.34 0.57 0.57 0.55 0.57 0.58
------------------------------------------------ -------- -------- -------- -------- -------- --------
Net gains (losses) on securities (both
realized and unrealized) (0.47) (0.81) (0.16) 0.39 0.09 1.00
================================================ ======== ======== ======== ======== ======== ========
Total from investment operations (0.13) (0.24) 0.41 0.94 0.66 1.58
================================================ ======== ======== ======== ======== ======== ========
Less distributions:
Dividends from net investment income (0.25) (0.55) (0.55) (0.52) (0.59) (0.61)
------------------------------------------------ -------- -------- -------- -------- -------- --------
Distributions from net realized gains -- -- (0.05) (0.09) -- --
------------------------------------------------ -------- -------- -------- -------- -------- --------
Return of capital (0.07) -- -- -- -- --
================================================ ======== ======== ======== ======== ======== ========
Total distributions (0.32) (0.55) (0.60) (0.61) (0.59) (0.61)
================================================ ======== ======== ======== ======== ======== ========
Net asset value, end of period $ 7.14 $ 7.59 $ 8.38 $ 8.57 $ 8.24 $ 8.17
________________________________________________ ________ ________ ________ ________ ________ ________
================================================ ======== ======== ======== ======== ======== ========
Total return(a) (1.70)% (2.92)% 4.94% 11.92% 8.58% 22.77%
________________________________________________ ________ ________ ________ ________ ________ ________
================================================ ======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $346,482 $393,414 $399,701 $340,608 $286,183 $251,280
________________________________________________ ________ ________ ________ ________ ________ ________
================================================ ======== ======== ======== ======== ======== ========
Ratio of expenses to average net assets 0.97%(b) 0.91% 0.91% 0.94% 0.98% 0.98%
________________________________________________ ________ ________ ________ ________ ________ ________
================================================ ======== ======== ======== ======== ======== ========
Ratio of net investment income to average net
assets 8.03%(b) 7.11% 6.69% 6.55% 7.13% 7.52%
________________________________________________ ________ ________ ________ ________ ________ ________
================================================ ======== ======== ======== ======== ======== ========
Portfolio turnover rate 43% 78% 41% 54% 80% 227%
________________________________________________ ________ ________ ________ ________ ________ ________
================================================ ======== ======== ======== ======== ======== ========
</TABLE>
(a)Does not deduct sales charges and is not annualized for periods less than one
year.
(b)Ratios are annualized and based on average net assets of $364,052,981.
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------------------
SEVEN MONTHS YEAR ENDED DECEMBER 31,
ENDED --------------------------------------------------
JULY 31, 2000 1999 1998 1997 1996 1995
------------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 7.58 $ 8.37 $ 8.55 $ 8.23 $ 8.15 $ 7.18
------------------------------------------------ -------- -------- -------- -------- ------- -------
Income from investment operations:
Net investment income 0.31 0.50 0.50 0.48 0.50 0.53
------------------------------------------------ -------- -------- -------- -------- ------- -------
Net gains (losses) on securities (both
realized and unrealized) (0.47) (0.80) (0.15) 0.38 0.11 0.98
================================================ ======== ======== ======== ======== ======= =======
Total from investment operations (0.16) (0.30) 0.35 0.86 0.61 1.51
================================================ ======== ======== ======== ======== ======= =======
Less distributions:
Dividends from net investment income (0.21) (0.49) (0.48) (0.45) (0.53) (0.54)
------------------------------------------------ -------- -------- -------- -------- ------- -------
Distributions from net realized gains -- -- (0.05) (0.09) -- --
------------------------------------------------ -------- -------- -------- -------- ------- -------
Return of capital (0.07) -- -- -- -- --
================================================ ======== ======== ======== ======== ======= =======
Total distributions (0.28) (0.49) (0.53) (0.54) (0.53) (0.54)
================================================ ======== ======== ======== ======== ======= =======
Net asset value, end of period $ 7.14 $ 7.58 $ 8.37 $ 8.55 $ 8.23 $ 8.15
________________________________________________ ________ ________ ________ ________ ________ _______
================================================ ======== ======== ======== ======== ======== =======
Total return(a) (2.09)% (3.72)% 4.20% 10.89% 7.87% 21.72%
________________________________________________ ________ ________ ________ ________ ________ _______
================================================ ======== ======== ======== ======== ======== =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $213,926 $244,713 $219,033 $125,871 $85,343 $44,304
________________________________________________ ________ ________ ________ ________ ________ _______
================================================ ======== ======== ======== ======== ======== =======
Ratio of expenses to average net assets 1.73%(b) 1.66% 1.66% 1.69% 1.80% 1.79%
________________________________________________ ________ ________ ________ ________ ________ _______
================================================ ======== ======== ======== ======== ======== =======
Ratio of net investment income to average net
assets 7.28%(b) 6.36% 5.94% 5.80% 6.30% 6.71%
________________________________________________ ________ ________ ________ ________ ________ _______
================================================ ======== ======== ======== ======== ======== =======
Portfolio turnover rate 43% 78% 41% 54% 80% 227%
________________________________________________ ________ ________ ________ ________ ________ _______
================================================ ======== ======== ======== ======== ======== =======
</TABLE>
(a)Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(b)Ratios are annualized and based on average net assets of $223,264,239.
6
<PAGE> 45
---------------
AIM INCOME FUND
---------------
FINANCIAL HIGHLIGHTS (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS C
---------------------------------------------------
AUGUST 4, 1997
YEAR ENDED (DATE SALES
SEVEN MONTHS DECEMBER 31, COMMENCED)
ENDED ----------------- TO DECEMBER 31,
JULY 31, 2000 1999 1998 1997
------------- ------- ------- ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 7.57 $ 8.36 $ 8.54 $ 8.38
------------------------------------------------ ------- ------- ------- ------
Income from investment operations:
Net investment income 0.31 0.50 0.50 0.19
------------------------------------------------ ------- ------- ------- ------
Net gains (losses) on securities (both
realized and unrealized) (0.47) (0.80) (0.15) 0.22
================================================ ======= ======= ======= ======
Total from investment operations (0.16) (0.30) 0.35 0.41
================================================ ======= ======= ======= ======
Less distributions:
Dividends from net investment income (0.21) (0.49) (0.48) (0.16)
------------------------------------------------ ------- ------- ------- ------
Distributions from net realized gains -- -- (0.05) (0.09)
------------------------------------------------ ------- ------- ------- ------
Return of capital (0.07) -- -- --
================================================ ======= ======= ======= ======
Total distributions (0.28) (0.49) (0.53) (0.25)
================================================ ======= ======= ======= ======
Net asset value, end of period $ 7.13 $ 7.57 $ 8.36 $ 8.54
________________________________________________ _______ _______ _______ ______
================================================ ======= ======= ======= ======
Total return(a) (2.09)% (3.71)% 4.21% 4.96%
________________________________________________ _______ _______ _______ ______
================================================ ======= ======= ======= ======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $26,821 $28,202 $19,332 $2,552
________________________________________________ _______ _______ _______ ______
================================================ ======= ======= ======= ======
Ratio of expenses to average net assets 1.73%(b) 1.66% 1.66% 1.69%(c)
________________________________________________ _______ _______ _______ ______
================================================ ======= ======= ======= ======
Ratio of net investment income to average net
assets 7.28%(b) 6.36% 5.94% 5.80%(c)
________________________________________________ _______ _______ _______ ______
================================================ ======= ======= ======= ======
Portfolio turnover rate 43% 78% 41% 54%
________________________________________________ _______ _______ _______ ______
================================================ ======= ======= ======= ======
</TABLE>
(a)Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(b)Ratios are annualized and based on average net assets of $26,828,719.
(c)Annualized.
7
<PAGE> 46
-------------
THE AIM FUNDS
-------------
SHAREHOLDER INFORMATION
--------------------------------------------------------------------------------
In addition to the fund, A I M Advisors, Inc. serves as investment advisor to
many other mutual funds (the AIM Funds). The following information is about all
the AIM Funds.
CHOOSING A SHARE CLASS
Many of the AIM Funds have multiple classes of shares, each class representing
an interest in the same portfolio of investments. When choosing a share class,
you should consider the factors below:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
- Initial sales charge - No initial sales charge - No initial sales charge
- Reduced or waived initial sales - Contingent deferred sales - Contingent deferred sales
charge for certain purchases charge on redemptions within charge on redemptions within
six years one year
- Lower distribution and service - 12b-1 fee of 1.00% - 12b-1 fee of 1.00%
(12b-1) fee than Class B or
Class C shares (See "Fee Table
and Expense Example")
- Converts to Class A shares - Does not convert to Class A
at the end of the month shares
which is eight years after
the date on which shares
were purchased along with a
pro rata portion of its
reinvested dividends and
distributions(1)
- Generally more appropriate for - Purchase orders limited to - Generally more appropriate
long-term investors amounts less than $250,000 for short-term investors
</TABLE>
(1) AIM Money Market Fund: Class B shares convert to AIM Cash Reserve
Shares.
AIM Global Trends Fund: If you held Class B shares on May 29, 1998 and
continue to hold them, those shares will convert to Class A shares of
that fund at the end of the month which is seven years after the date
on which shares were purchased. If you exchange those shares for Class
B shares of another AIM Fund, the shares into which you exchanged will
not convert to Class A shares until the end of the month which is
eight years after the date on which you purchased your original
shares.
----------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12B-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund) has adopted 12b-1 plans
that allow the AIM Fund to pay distribution fees to A I M Distributors, Inc.
(the distributor) for the sale and distribution of its shares and fees for
services provided to shareholders, all or a substantial portion of which are
paid to the dealer of record. Because the AIM Fund pays these fees out of its
assets on an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
SALES CHARGES
Generally, you will not pay a sales charge on purchases or redemptions of Class
A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund. You may be charged a contingent deferred sales charge if you redeem
AIM Cash Reserve Shares of AIM Money Market Fund acquired through certain
exchanges. Sales charges on all other AIM Funds and classes of those Funds are
detailed below. As used below, the term "offering price" with respect to all
categories of Class A shares includes the initial sales charge.
INITIAL SALES CHARGES
The AIM Funds are grouped into three categories with respect to initial sales
charges. The "Other Information" section of your prospectus will tell you in
what category your particular AIM Fund is classified.
<TABLE>
<CAPTION>
CATEGORY I INITIAL SALES CHARGES
------------------------------------------------------------
INVESTOR'S
SALES CHARGE
----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
-------------------------------------------------------------
<S> <C> <C>
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
-------------------------------------------------------------
</TABLE>
A-1 MCF--10/00
<PAGE> 47
-------------
THE AIM FUNDS
-------------
<TABLE>
<CAPTION>
CATEGORY II INITIAL SALES CHARGES
------------------------------------------------------------
INVESTOR'S
SALES CHARGE
----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
-------------------------------------------------------------
<S> <C> <C>
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
-------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY III INITIAL SALES CHARGES
-------------------------------------------------------------
INVESTOR'S
SALES CHARGE
----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
-------------------------------------------------------------
<S> <C> <C>
Less than $ 100,000 1.00% 1.01%
$100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
-------------------------------------------------------------
</TABLE>
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES
You can purchase $1,000,000 or more of Class A shares at net asset value.
However, if you purchase shares of that amount in Categories I or II, they will
be subject to a contingent deferred sales charge (CDSC) of 1% if you redeem them
prior to 18 months after the date of purchase. The distributor may pay a dealer
concession and/or a service fee for purchases of $1,000,000 or more.
CONTINGENT DEFERRED SALES CHARGES FOR
CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
----------------------------------------------------------
<S> <C> <C>
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
----------------------------------------------------------
</TABLE>
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES
AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial consultant must
provide sufficient information at the time of purchase to verify that your
purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Rights of Accumulation
You may combine your new purchases of Class A shares with Class A shares
currently owned for the purpose of qualifying for the lower initial sales charge
rates that apply to larger purchases. The applicable initial sales charge for
the new purchase is based on the total of your current purchase and the current
value of all Class A shares you own.
Letters of Intent
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of AIM Funds during a 13-month period. The amount you agree to
purchase determines the initial sales charge you pay. If the full face amount of
the LOI is not invested by the end of the 13-month period, your account will be
adjusted to the higher initial sales charge level for the amount actually
invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- on shares purchased by reinvesting dividends and distributions;
- when exchanging shares among certain AIM Funds;
- when using the reinstatement privilege; and
- when a merger, consolidation, or acquisition of assets of an AIM Fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- if you redeem Class B shares you held for more than six years;
- if you redeem Class C shares you held for more than one year;
- if you redeem shares acquired through reinvestment of dividends and
distributions; and
- on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
MCF--10/00 A-2
<PAGE> 48
--------------
THE AIM FUNDS
--------------
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
The minimum investments for AIM Fund accounts (except for investments in AIM
Large Cap Opportunities Fund, AIM Mid Cap Opportunities Fund and AIM Small Cap
Opportunities Fund) are as follows:
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing $ 0 ($25 per AIM Fund investment for $25
plans, 401(k) plans, Simplified Employee Pension salary deferrals from Savings Plans)
(SEP) accounts, Salary Reduction (SARSEP)
accounts, Savings Incentive Match Plans for
Employee IRA (Simple IRA) accounts, 403(b) or
457 plans)
Automatic Investment Plans 50 50
IRA, Education IRA or Roth IRA 250 50
All other accounts 500 50
----------------------------------------------------------------------------------------------------------
</TABLE>
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below.
<TABLE>
<CAPTION>
PURCHASE OPTIONS
---------------------------------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Through a Financial Consultant Contact your financial consultant. Same
By Mail Mail completed account application Mail your check and the remittance
and purchase payment to the slip from your confirmation
transfer agent, statement to the transfer agent.
A I M Fund Services, Inc.,
P.O. Box 4739,
Houston, TX 77210-4739.
By Wire Mail completed account application Call the transfer agent to receive
to the transfer agent. Call the a reference number. Then, use the
transfer agent at (800) 959-4246 to wire instructions at left.
receive a reference number. Then,
use the following wire
instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number:
00100366807
Beneficiary Account Name: A I M
Fund Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank Connection
methods described above. form to the transfer agent. Once
the transfer agent has received the
form, call the transfer agent to
place your purchase order.
By AIM Internet Connect(SM) Open your account using one of the Select the AIM Internet Connect
methods described above. option on your completed account
application or complete an AIM
Internet Connect Authorization
Form. Mail the application or form
to the transfer agent. Once your
request for this option has been
processed (which may take up to 10
days), you may place your purchase
order at www.aimfunds.com. The
maximum purchase amount per
transaction is $100,000. You may
not purchase shares in AIM
prototype retirement accounts on
the internet.
----------------------------------------------------------------------------------------------------------
</TABLE>
A-3 MCF--10/00
<PAGE> 49
-------------
THE AIM FUNDS
-------------
SPECIAL PLANS
AUTOMATIC INVESTMENT PLAN
You can arrange for periodic investments in any of the AIM Funds by authorizing
the AIM Fund to withdraw the amount of your investment from your bank account on
a day or dates you specify and in an amount of at least $50. You may stop the
Automatic Investment Plan at any time by giving the transfer agent notice ten
days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one AIM Fund account to one or more other AIM Fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the 10th or 25th day of the month, whichever
you specify, in the amount you specify. The minimum amount you can exchange to
another AIM Fund is $50.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM Fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same AIM Fund. You may
invest your dividends and distributions (1) into another AIM Fund in the same
class of shares; or (2) from Class A shares into AIM Cash Reserve Shares of AIM
Money Market Fund, or vice versa.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend must be at
least $5,000; or (b) in the AIM Fund receiving the dividend must be at least
$500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends into
another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your AIM Fund holdings should be rebalanced, on a percentage
basis, between two and ten of your AIM Funds on a quarterly, semiannual or
annual basis. Your portfolio will be rebalanced through the exchange of shares
in one or more of your AIM Funds for shares of the same class of one or more
other AIM Funds in your portfolio. If you wish to participate in the Program,
make changes or cancel the Program, the transfer agent must receive your request
to participate, changes, or cancellation in good order at least five business
days prior to the next rebalancing date, which is normally the 28th day of the
last month of the period you choose. You may realize taxable gains from these
exchanges. We may modify, suspend or terminate the Program at any time on 60
days' prior written notice.
RETIREMENT PLANS
Shares of most of the AIM Funds can be purchased through tax-sheltered
retirement plans made available to corporations, individuals and employees of
non-profit organizations and public schools. A plan document must be adopted
to establish a retirement plan. You may use AIM Funds-sponsored retirement
plans, which include IRAs, Education IRAs, Roth IRAs, 403(b) plans, 401(k)
plans, SIMPLE IRA plans, SEP/SARSEP plans and Money Purchase/Profit Sharing
plans, or another sponsor's retirement plan. The plan custodian of the
AIM Funds-sponsored retirement plan assesses an annual maintenance fee of $10.
Contact your financial consultant for details.
REDEEMING SHARES
REDEMPTION FEES
Generally, we will not charge you any fees to redeem your shares. Your broker
or financial consultant may charge service fees for handling redemption
transactions. Your shares also may be subject to a contingent deferred sales
charge (CDSC).
REDEMPTION OF AIM CASH RESERVE SHARES OF
AIM MONEY MARKET FUND ACQUIRED BY EXCHANGE
If you redeem AIM Cash Reserve Shares acquired by exchange from Class A shares
subject to a CDSC within 18 months of the purchase of the Class A shares, you
will be charged a CDSC.
REDEMPTION OF CLASS B SHARES OR CLASS C
SHARES ACQUIRED BY EXCHANGE FROM AIM CASH
RESERVE SHARES OF AIM MONEY MARKET FUND
We will begin the holding period for purposes of calculating the CDSC on Class B
shares or Class C shares acquired by exchange from AIM Cash Reserve Shares of
AIM Money Market Fund at the time of the exchange into Class B shares or Class C
shares.
REDEMPTION OF CLASS B SHARES ACQUIRED BY
EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
MCF--10/00 A-4
<PAGE> 50
-------------
THE AIM FUNDS
-------------
HOW TO REDEEM SHARES
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
Consultant
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners;
(2) the name of the AIM Fund and your account number; (3) if
the transfer agent does not hold your shares, endorsed share
certificates or share certificates accompanied by an
executed stock power; and (4) signature guarantees, if
necessary (see below). The transfer agent may require that
you provide additional information, such as corporate
resolutions or powers of attorney, if applicable. If you are
redeeming from an IRA account, you must include a statement
of whether or not you are at least 59 1/2 years old and
whether you wish to have federal income tax withheld from
your proceeds. The transfer agent may require certain other
information before you can redeem from an employer-sponsored
retirement plan. Contact your employer for details.
By Telephone Call the transfer agent. You will be allowed to redeem by
telephone if (1) the proceeds are to be mailed to the
address on record (if there has been no change communicated
to us within the last 30 days) or transferred electronically
to a pre-authorized checking account; (2) you do not hold
physical share certificates; (3) you can provide proper
identification information; (4) the proceeds of the
redemption do not exceed $50,000; and (5) you have not
previously declined the telephone redemption privilege.
Certain accounts, including retirement accounts and 403(b)
plans, may not be redeemed by telephone. The transfer agent
must receive your call during the hours of the customary
trading session of the New York Stock Exchange (NYSE) in
order to effect the redemption at that day's closing price.
By AIM Internet
Connect Place your redemption request at www.aimfunds.com. You will
be allowed to redeem by internet if (1) you do not hold
physical share certificates; (2) you can provide proper
identification information; (3) the proceeds of the
redemption do not exceed $50,000; and (4) you have
established the internet trading option. AIM prototype
retirement accounts may not be redeemed on the internet.
The transfer agent must confirm your transaction during the
hours of the customary trading session of the NYSE in order
to effect the redemption at that day's closing price.
</TABLE>
-------------------------------------------------------------------------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
REDEMPTION BY INTERNET
If you redeem by internet, we will transmit your redemption proceeds
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by internet are genuine and are not
liable for internet instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC WITHDRAWALS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Withdrawal Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM Cash Reserve Shares of AIM Money Market Fund only)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of the
customary trading session of the NYSE, we generally will transmit payment on the
next business day.
A-5 MCF--10/00
<PAGE> 51
--------------
THE AIM FUNDS
--------------
REDEMPTIONS BY CHECK
(Class A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM
Money Market Fund only)
You may redeem shares of these AIM Funds by writing checks in amounts of $250 or
more if you have completed an authorization form. Redemption by check is not
available for retirement accounts.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
(1) the amount is greater than $50,000;
(2) you request that payment be made to someone other than the name registered
on the account;
(3) you request that payment be sent somewhere other than the bank of record on
the account; or
(4) you request that payment be sent to a new address or an address that changed
in the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of
financial institutions. Call the transfer agent for additional information. Some
institutions have transaction amount maximums for these guarantees. Please check
with the guarantor institution.
REINSTATEMENT PRIVILEGE (Class A shares only)
You may, within 90 days after you sell Class A shares (except Class A shares of
AIM Tax-Exempt Cash Fund), reinvest all or part of your redemption proceeds in
Class A shares of any AIM Fund at net asset value in an identically registered
account. If you sold Class A shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund, you will incur an initial sales charge reflecting
the difference between the initial sales charges on those Funds and the ones in
which you will be investing. In addition, if you paid a contingent deferred
sales charge (CDSC) on any reinstated amount, you will not be subject to a CDSC
if you later redeem that amount. You must notify the transfer agent in writing
at the time you reinstate that you are exercising your reinstatement privilege.
You may exercise this privilege only once per year.
REDEMPTIONS BY THE AIM FUNDS
If your account has been open at least one year, you have not made an additional
purchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions or
exchanges (excluding retirement accounts), the AIM Funds have the right to
redeem the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500 or by utilizing the Automatic Investment Plan.
If an AIM Fund determines that you have not provided a correct Social Security
or other tax ID number on your account application, the AIM Fund may, at its
discretion, redeem the account and distribute the proceeds to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one AIM Fund for those
of another AIM Fund. Before requesting an exchange, review the prospectus of the
AIM Fund you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
PERMITTED EXCHANGES
Except as otherwise stated below, you may exchange your shares for shares of the
same class of another AIM Fund. You may exchange AIM Cash Reserve Shares of AIM
Money Market Fund for Class A shares of another AIM Fund, or vice versa. You
also may exchange AIM Cash Reserve Shares of AIM Money Market Fund for Class B
shares or Class C shares of another AIM Fund, but only if the AIM Cash Reserve
Shares were purchased directly and not acquired by exchange. You may be required
to pay an initial sales charge when exchanging from a Fund with a lower initial
sales charge than the one into which you are exchanging. If you exchange from
Class A shares not subject to a CDSC into Class A shares subject to those
charges, you will be charged a CDSC when you redeem the exchanged shares. The
CDSC charged on redemption of those shares will be calculated starting on the
date you acquired those shares through exchange.
YOU WILL NOT PAY A SALES CHARGE WHEN EXCHANGING:
(1) Class A shares with an initial sales charge (except for Class A shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
Class A shares of another AIM Fund or AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund for
(a) one another;
(b) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of
AIM Tax-Exempt Cash Fund; or
(c) Class A shares of another AIM Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of
an exchange from shares with higher sales charges;
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) one another;
(b) Class A shares of an AIM Fund subject to an initial sales charge (except
for Class A shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund), but only if you acquired the original
shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an
initial sales charge;
MCF--10/00 A-6
<PAGE> 52
--------------
THE AIM FUNDS
--------------
(ii) on or after May 1, 1994 by exchange from Class A shares subject to
an initial sales charge (except for Class A shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(c) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, but only if you acquired the original shares by
exchange from Class A shares subject to an initial sales charge; or
(4) Class B shares for other Class B shares, and Class C shares for other Class
C shares.
(5) AIM Cash Reserve Shares of AIM Money Market Fund for Class B shares and
Class C shares.
EXCHANGES NOT PERMITTED
You may not exchange Class A shares subject to contingent deferred sales charges
for Class A shares of AIM Limited Maturity Treasury Fund, AIM Tax-Free
Intermediate Fund or AIM Tax-Exempt Cash Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- Shares of the AIM Fund you wish to acquire must be available for sale in your
state of residence;
- Exchanges must be made between accounts with identical registration
information;
- The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- Shares must have been held for at least one day prior to the exchange;
- If you have physical share certificates, you must return them to the transfer
agent prior to the exchange; and
- You are limited to a maximum of 10 exchanges per calendar year, because
excessive short-term trading or market-timing activity can hurt fund
performance. If you exceed that limit, or if an AIM Fund or the distributor
determines, in its sole discretion, that your short-term trading is excessive
or that you are engaging in market-timing activity, it may reject any
additional exchange orders. An exchange is the movement out of (redemption)
one AIM Fund and into (purchase) another AIM Fund.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the purchase of shares
being acquired in an exchange for up to five business days if it determines that
it would be materially disadvantaged by the immediate transfer of exchange
proceeds. There is no fee for exchanges. The exchange privilege is not an option
or right to purchase shares. Any of the participating AIM Funds or the
distributor may modify or discontinue this privilege at any time.
BY MAIL
If you wish to make an exchange by mail, you must include original signatures of
each registered owner exactly as the shares are registered, the account
registration and account number, the dollar amount or number of shares to be
exchanged and the names of the AIM Funds from which and into which the exchange
is to be made.
BY TELEPHONE
Conditions that apply to exchanges by telephone are the same as redemptions by
telephone, including that the transfer agent must receive exchange requests
during the hours of the customary trading session of the NYSE; however, you
still will be allowed to exchange by telephone even if you have changed your
address of record within the preceding 30 days.
BY INTERNET
You will be allowed to exchange by internet if (1) you do not hold physical
share certificates; (2) you can provide proper identification information; and
(3) you have established the internet trading option.
EXCHANGING CLASS B AND CLASS C SHARES
If you make an exchange involving Class B or Class C shares, the amount of time
you held the original shares will be added to the holding period of the Class B
or Class C shares, respectively, into which you exchanged for the purpose of
calculating contingent deferred sales charges (CDSC) if you later redeem the
exchanged shares. If you redeem Class B shares acquired by exchange via a tender
offer by AIM Floating Rate Fund, you will be credited with the time period you
held the shares of AIM Floating Rate Fund for the purpose of computing the early
withdrawal charge applicable to those shares.
-------------------------------------------------------------------------------
EACH AIM FUND AND ITS AGENTS RESERVE THE RIGHT AT ANY TIME TO:
- REJECT OR CANCEL ANY PART OF ANY PURCHASE OR EXCHANGE ORDER;
- MODIFY ANY TERMS OR CONDITIONS OF PURCHASE OF SHARES OF ANY AIM FUND;
- REJECT OR CANCEL ANY REQUEST TO ESTABLISH THE AUTOMATIC INVESTMENT PLAN AND
SYSTEMATIC WITHDRAWAL PLAN OPTIONS ON THE SAME ACCOUNT; OR
- WITHDRAW ALL OR ANY PART OF THE OFFERING MADE BY THIS PROSPECTUS.
------------------------------------------------------------------------------
A-7 MCF--10/00
<PAGE> 53
--------------
THE AIM FUNDS
--------------
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. AIM Money
Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at
amortized cost. AIM High Income Municipal Fund, AIM Municipal Bond Fund, AIM
Tax-Exempt Bond Fund of Connecticut and AIM Tax-Free Intermediate Fund value
variable rate securities that have an unconditional demand or put feature
exercisable within seven days or less at par, which reflects the market value of
such securities.
The AIM Funds value all other securities and assets at their fair value.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day. In addition, if,
between the time trading ends on a particular security and the close of the
customary trading session of the NYSE, events occur that materially affect the
value of the security, the AIM Funds may value the security at its fair value as
determined in good faith by or under the supervision of the Board of Directors
or Trustees of the AIM Fund. The effect of using fair value pricing is that an
AIM Fund's net asset value will be subject to the judgment of the Board of
Directors or Trustees or its designee instead of being determined by the market.
Because some of the AIM Funds may invest in securities that are primarily listed
on foreign exchanges that trade on days when the AIM Funds do not price their
shares, the value of those funds' assets may change on days when you will not
be able to purchase or redeem fund shares.
Each AIM Fund determines the net asset value of its shares on each day the
NYSE is open for business, as of the close of the customary trading session, or
any earlier NYSE closing time that day. AIM Money Market Fund also determines
its net asset value as of 12:00 noon Eastern Time on each day the NYSE is open
for business.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours of the customary
trading session of the NYSE. The AIM Funds price purchase, exchange and
redemption orders at the net asset value calculated after the transfer agent
receives an order in good form. An AIM Fund may postpone the right of redemption
only under unusual circumstances, as allowed by the Securities and Exchange
Commission, such as when the NYSE restricts or suspends trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
generally taxable to you at different rates depending on the length of time
the fund holds its assets. Different tax rates may apply to ordinary income
and long-term capital gain distributions, regardless of how long you have held
your shares. Every year, you will be sent information showing the amount of
dividends and distributions you received from each AIM Fund during the prior
year.
Any long-term or short-term capital gains realized from redemptions of AIM
Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
INVESTORS IN TAX-EXEMPT FUNDS SHOULD READ THE INFORMATION UNDER THE HEADING
"OTHER INFORMATION -- SPECIAL TAX INFORMATION REGARDING THE FUND" IN THEIR
PROSPECTUS.
The foreign, state and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
MCF--10/00 A-8
<PAGE> 54
---------------
AIM INCOME FUND
---------------
OBTAINING ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
---------------------------------------------------------
You also can review and obtain copies of the fund's SAI, reports and other
information at the SEC's Public Reference Room in Washington, DC; on the EDGAR
database on the SEC's Internet website (http://www.sec.gov); or, after paying a
duplication fee, by sending a letter to the SEC's Public Reference Section,
Washington, DC 20549-0102 or by sending an electronic mail request to
[email protected]. Please call the SEC at 1-202-942-8090 for information about
the Public Reference Room.
-----------------------------------
AIM Income Fund
SEC 1940 Act file number: 811-5686
-----------------------------------
[AIM LOGO APPEARS HERE]
--Registered Trademark-- www.aimfunds.com INC-PRO-1 INVEST WITH DISCIPLINE
--Registered Trademark--
<PAGE> 55
AIM INTERMEDIATE
GOVERNMENT FUND
--------------------------------------------------------------------------
AIM Intermediate Government Fund seeks to achieve a high level of current
income consistent with reasonable concern for safety of principal.
AIM--Registered Trademark--
PROSPECTUS
NOVEMBER 28, 2000
This prospectus contains important
information about Class A, B and C
shares of the fund. Please read it
before investing and keep it for
future reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
Investments in the fund:
- are not FDIC insured;
- may lose value; and
- are not guaranteed by a bank.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE
--Registered Trademark-- --Registered Trademark--
<PAGE> 56
---------------------------------
AIM INTERMEDIATE GOVERNMENT FUND
--------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE FUND 1
- - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 2
- - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 2
Performance Table 2
FEE TABLE AND EXPENSE EXAMPLE 3
- - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 3
Expense Example 3
FUND MANAGEMENT 4
- - - - - - - - - - - - - - - - - - - - - - - -
The Advisor 4
Advisor Compensation 4
Portfolio Managers 4
OTHER INFORMATION 5
- - - - - - - - - - - - - - - - - - - - - - - -
Sales Charges 5
Dividends and Distributions 5
FINANCIAL HIGHLIGHTS 6
- - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - -
Choosing a Share Class A-1
Purchasing Shares A-3
Redeeming Shares A-4
Exchanging Shares A-6
Pricing of Shares A-8
Taxes A-8
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM Funds, AIM Funds and Design, AIM Investor, AIM
LINK, AIM Institutional Funds, aimfunds.com, La Familia AIM de Fondos, La
Familia AIM de Fondos and Design, Invierta con DISCIPLINA and Invest with
DISCIPLINE are registered service marks and AIM Bank Connection and AIM Internet
Connect are service marks of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 57
--------------------------------
AIM INTERMEDIATE GOVERNMENT FUND
--------------------------------
INVESTMENT OBJECTIVE AND STRATEGIES
--------------------------------------------------------------------------------
The fund's investment objective is to achieve a high level of current income
consistent with reasonable concern for safety of principal. The fund will
attempt to achieve its objective by investing in debt securities issued,
guaranteed or otherwise backed by the U.S. Government. The fund's investment
objective may be changed by the Board of Trustees without shareholder approval.
The fund seeks to meet its objective by investing, normally, at least 65% of
its total assets in debt securities issued, guaranteed or otherwise backed by
the U.S. Government. The fund may invest in securities of all maturities issued
or guaranteed by the U.S. Government or its agencies and instrumentalities,
including: (1) U.S. Treasury obligations, and (2) obligations issued or
guaranteed by U.S. Government agencies and instrumentalities and supported by
(a) the full faith and credit of the U.S. Treasury, (b) the right of the issuer
to borrow from the U.S. Treasury, or (c) the credit of the agency or
instrumentality. The fund will maintain a dollar-weighted average portfolio
maturity of between three and ten years. The fund invests primarily in
fixed-rate securities such as high-coupon U.S. Government agency mortgage-backed
securities, which consist of interests in underlying mortgages with maturities
of up to thirty years. Any percentage limitations with respect to assets of the
fund are applied at the time of purchase.
The portfolio managers focus on securities that they believe have favorable
prospects for current income, consistent with their reasonable concern for
safety of principal. The portfolio managers consider whether to sell a
particular security when any of those factors materially changes.
In anticipation of or in response to adverse market conditions, for cash
management purposes, or for defensive purposes, the fund may temporarily hold
all or a portion of its assets in cash, money market instruments, shares of
affiliated money market funds, bonds or other debt securities. As a result, the
fund may not achieve its investment objective.
The fund may engage in active and frequent trading of portfolio securities to
achieve its investment objective. If the fund does trade in this way, it may
incur increased transaction costs, which can lower the actual return on your
investment. Active trading may also increase short-term gains and losses, which
may affect the taxes you have to pay.
PRINCIPAL RISKS OF INVESTING IN THE FUND
--------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund and that the income you may receive from your investment may vary. The
value of your investment in the fund will go up and down with the prices of the
securities in which the fund invests. Debt securities are particularly
vulnerable to credit risk and interest rate fluctuations. Interest rate
increases can cause the price of a debt security to decrease. The longer a debt
security's duration, the more sensitive it is to this risk. The prices of
high-coupon U.S. Government agency mortgage-backed securities fall more slowly
when interest rates rise than do prices of traditional fixed-rate securities.
Some of the securities purchased by the fund are not guaranteed by the U.S.
Government. The agency or instrumentality issuing a security may default or
otherwise be unable to honor a financial obligation.
If the seller of a repurchase agreement in which the fund invests defaults on
its obligation or declares bankruptcy, the fund may experience delays in selling
the securities underlying the repurchase agreement. As a result, the fund may
incur losses arising from decline in the value of those securities, reduced
levels of income and expenses of enforcing its rights.
High-coupon U.S. Government agency mortgage-backed securities provide a higher
coupon at the time of purchase than current prevailing market interest rates.
The fund may purchase such securities at a premium. If these securities
experience a faster principal prepayment rate than expected, both the market
value of and income from such securities will decrease.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
1
<PAGE> 58
--------------------------------
AIM INTERMEDIATE GOVERNMENT FUND
--------------------------------
PERFORMANCE INFORMATION
--------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS*
--------------------------------------------------------------------------------
The following bar chart shows changes in the performance of the fund's Class A
shares from year to year. The bar chart does not reflect sales loads. If it did,
the annual total returns shown would be lower.
[GRAPH]
<TABLE>
<CAPTION>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURNS
----------- -------
<S> <C>
1990.................................... 9.39%
1991.................................... 12.98%
1992.................................... 6.26%
1993.................................... 7.07%
1994.................................... -3.44%
1995.................................... 16.28%
1996.................................... 2.35%
1997.................................... 9.07%
1998.................................... 8.17%
1999.................................... -1.87%
</TABLE>
* The Class A share's year-to-date total return as of September 30, 2000 was
5.52%.
During the periods shown in the bar chart, the highest quarterly return was
5.49% (quarter ended June 30, 1995) and the lowest quarterly return was -2.92%
(quarter ended March 31, 1994).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index. The fund's performance reflects payment of
sales loads.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
---------------------------------------------------------------------------------------------------
(for the periods ended SINCE INCEPTION
December 31, 1999) 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A -6.55% 5.59% 5.95% 6.41% 04/28/87
Class B -7.16% 5.48% -- 3.78% 09/07/93
Class C -3.49% -- -- 3.39% 08/04/97
Lehman Bros. Intermediate Government
Bond Index(1) 0.49% 6.93% 7.10% 7.44%(2) 04/30/87(2)
---------------------------------------------------------------------------------------------------
</TABLE>
(1) The Lehman Bros. Intermediate Government Bond Index is an unmanaged
composite generally considered representative of intermediate publicly
issued debt of U.S. Government agencies and quasi-federal corporations, and
corporate debt guaranteed by the U.S. Government.
(2) The average annual total return given is since the date closest to the
inception date of the class with the longest performance history.
2
<PAGE> 59
--------------------------------
AIM INTERMEDIATE GOVERNMENT FUND
--------------------------------
FEE TABLE AND EXPENSE EXAMPLE
--------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
--------------------------------------------------------------------------------
(fees paid directly from
your investment) CLASS A CLASS B CLASS C
---------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 4.75% None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever is less) None(1) 5.00% 1.00%
-------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
--------------------------------------------------------------------------------
(expenses that are deducted
from fund assets) CLASS A CLASS B CLASS C
---------------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.45% 0.45% 0.45%
Distribution and/or
Service (12b-1) Fees 0.25 1.00 1.00
Other Expenses 0.28 0.29 0.29
Interest 0.27 0.27 0.27
Total Other Expenses 0.55 0.56 0.56
Total Annual Fund
Operating Expenses 1.25 2.01 2.01
-------------------------------------------------------
</TABLE>
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1% contingent
deferred sales charge (CDSC) at the time of redemption.
You may also be charged a transaction or other fee by the financial institution
managing your account.
As a result of 12b-1 fees, long-term shareholders in the fund may pay more
than the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in different
classes of the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's operating expenses remain the same. Although your actual returns and
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------------------------------------------
<S> <C> <C> <C> <C>
Class A $596 $853 $1,129 $1,915
Class B 704 930 1,283 2,142
Class C 304 630 1,083 2,338
----------------------------------------------
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------------------------------------------
<S> <C> <C> <C> <C>
Class A $596 $853 $1,129 $1,915
Class B 204 630 1,083 2,142
Class C 204 630 1,083 2,338
----------------------------------------------
</TABLE>
3
<PAGE> 60
--------------------------------
AIM INTERMEDIATE GOVERNMENT FUND
--------------------------------
FUND MANAGEMENT
--------------------------------------------------------------------------------
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor and
is responsible for its day-to-day management. The advisor is located at 11
Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The advisor supervises all
aspects of the fund's operations and provides investment advisory services to
the fund, including obtaining and evaluating economic, statistical and financial
information to formulate and implement investment programs for the fund.
The advisor has acted as an investment advisor since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 120
investment portfolios, including the fund, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended July 31, 2000, the advisor received compensation of
0.45% of average daily net assets.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual
members of the team who are primarily responsible for the day-to-day management
of the fund's portfolio are
- Laurie F. Brignac, Portfolio Manager, who has been responsible for the fund
since 1999 and has been associated with the advisor and/or its affiliates
since 1992.
- Scot W. Johnson, Senior Portfolio Manager, who has been responsible for the
fund since 1998 and has been associated with the advisor and/or its affiliates
since 1994.
- Karen Dunn Kelley, Senior Portfolio Manager, who has been responsible for the
fund since 1992 and has been associated with the advisor and/or its affiliates
since 1989.
4
<PAGE> 61
--------------------------------
AIM INTERMEDIATE GOVERNMENT FUND
--------------------------------
OTHER INFORMATION
--------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Intermediate Government Fund are subject to
the maximum 4.75% initial sales charge as listed under the heading "CATEGORY II
Initial Sales Charges" in the "Shareholder Information--Choosing a Share Class"
section of this prospectus. Purchases of Class B and Class C shares are subject
to the contingent deferred sales charges listed in that section.
DIVIDENDS AND DISTRIBUTIONS
The fund expects that its distributions, if any, will consist primarily of
ordinary income.
DIVIDENDS
The fund generally declares dividends daily and pays dividends, if any, monthly.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains, if any,
annually.
5
<PAGE> 62
--------------------------------
AIM INTERMEDIATE GOVERNMENT FUND
--------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
This information has been audited by KPMG LLP, whose report, along with the
fund's financial statements, is included in the fund's annual report, which is
available upon request.
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------------
SEVEN MONTHS YEAR ENDED DECEMBER 31,
ENDED ----------------------------------------------------
JULY 31, 2000 1999 1998 1997 1996 1995
------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.80 $ 9.58 $ 9.46 $ 9.28 $ 9.70 $ 8.99
------------------------------------------------ -------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.34 0.60 0.62 0.63 0.63 0.69
------------------------------------------------ -------- -------- -------- -------- -------- --------
Net gains (losses) on securities (both
realized and unrealized) (0.03) (0.78) 0.13 0.18 (0.42) 0.73
================================================ ======== ======== ======== ======== ======== ========
Total from investment operations 0.31 (0.18) 0.75 0.81 0.21 1.42
================================================ ======== ======== ======== ======== ======== ========
Less distributions:
Dividends from net investment income (0.34) (0.60) (0.63) (0.61) (0.59) (0.67)
------------------------------------------------ -------- -------- -------- -------- -------- --------
Return of capital -- -- -- (0.02) (0.04) (0.04)
================================================ ======== ======== ======== ======== ======== ========
Total distributions (0.34) (0.60) (0.63) (0.63) (0.63) (0.71)
================================================ ======== ======== ======== ======== ======== ========
Net asset value, end of period $ 8.77 $ 8.80 $ 9.58 $ 9.46 $ 9.28 $ 9.70
________________________________________________ ________ ________ ________ ________ ________ ________
================================================ ======== ======== ======== ======== ======== ========
Total return(a) 3.55% (1.87)% 8.17% 9.07% 2.35% 16.28%
________________________________________________ ________ ________ ________ ________ ________ ________
================================================ ======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $221,636 $238,957 $245,613 $167,427 $174,344 $176,318
________________________________________________ ________ ________ ________ ________ ________ ________
================================================ ======== ======== ======== ======== ======== ========
Ratio of expenses to average net assets
(including interest expense) 1.25%(b) 1.08% 1.20% 1.11% 1.08% 1.19%
________________________________________________ ________ ________ ________ ________ ________ ________
================================================ ======== ======== ======== ======== ======== ========
Ratio of expenses to average net assets
(excluding interest expense) 0.98%(b) 0.89% 0.96% 1.00% 1.00% 1.08%
________________________________________________ ________ ________ ________ ________ ________ ________
================================================ ======== ======== ======== ======== ======== ========
Ratio of net investment income to average net
assets 6.61%(b) 6.60% 6.43% 6.77% 6.76% 7.36%
________________________________________________ ________ ________ ________ ________ ________ ________
================================================ ======== ======== ======== ======== ======== ========
Ratio of interest expense to average net assets 0.27%(b) 0.19% 0.24% 0.11% 0.08% 0.11%
________________________________________________ ________ ________ ________ ________ ________ ________
================================================ ======== ======== ======== ======== ======== ========
Portfolio turnover rate 65% 141% 147% 99% 134% 140%
________________________________________________ ________ ________ ________ ________ ________ ________
================================================ ======== ======== ======== ======== ======== ========
</TABLE>
(a)Does not deduct sales charges and is not annualized for periods less than one
year.
(b)Ratios are annualized and based on average net assets of $218,614,108.
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------------------------
SEVEN MONTHS YEAR ENDED DECEMBER 31,
ENDED -----------------------------------------------------
JULY 31, 2000 1999 1998 1997 1996 1995
------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.82 $ 9.59 $ 9.46 $ 9.28 $ 9.69 $ 8.99
------------------------------------------------ -------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.30 0.53 0.55 0.56 0.55 0.63
------------------------------------------------ -------- -------- -------- -------- -------- --------
Net gains (losses) on securities (both
realized and unrealized) (0.04) (0.77) 0.13 0.17 (0.41) 0.70
================================================ ======== ======== ======== ======== ======== ========
Total from investment operations 0.26 (0.24) 0.68 0.73 0.14 1.33
================================================ ======== ======== ======== ======== ======== ========
Less distributions:
Dividends from net investment income (0.29) (0.53) (0.55) (0.53) (0.51) (0.59)
------------------------------------------------ -------- -------- -------- -------- -------- --------
Return of capital -- -- -- (0.02) (0.04) (0.04)
================================================ ======== ======== ======== ======== ======== ========
Total distributions (0.29) (0.53) (0.55) (0.55) (0.55) (0.63)
================================================ ======== ======== ======== ======== ======== ========
Net asset value, end of period $ 8.79 $ 8.82 $ 9.59 $ 9.46 $ 9.28 $ 9.69
________________________________________________ ________ ________ ________ ________ ________ ________
================================================ ======== ======== ======== ======== ======== ========
Total return(a) 3.05% (2.56)% 7.40% 8.16% 1.61% 15.22%
________________________________________________ ________ ________ ________ ________ ________ ________
================================================ ======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $177,032 $228,832 $237,919 $ 89,265 $ 79,443 $ 61,300
________________________________________________ ________ ________ ________ ________ ________ ________
================================================ ======== ======== ======== ======== ======== ========
Ratio of expenses to average net assets
(including interest expense) 2.01%(b) 1.85% 1.96% 1.87% 1.84% 1.97%
________________________________________________ ________ ________ ________ ________ ________ ________
================================================ ======== ======== ======== ======== ======== ========
Ratio of expenses to average net assets
(excluding interest expense) 1.74%(b) 1.66% 1.72% 1.76% 1.76% 1.86%
________________________________________________ ________ ________ ________ ________ ________ ________
================================================ ======== ======== ======== ======== ======== ========
Ratio of net investment income to average net
assets 5.85%(b) 5.83% 5.68% 6.01% 6.00% 6.58%
________________________________________________ ________ ________ ________ ________ ________ ________
================================================ ======== ======== ======== ======== ======== ========
Ratio of interest expense to average net assets 0.27%(b) 0.19% 0.24% 0.11% 0.08% 0.11%
________________________________________________ ________ ________ ________ ________ ________ ________
================================================ ======== ======== ======== ======== ======== ========
Portfolio turnover rate 65% 141% 147% 99% 134% 140%
________________________________________________ ________ ________ ________ ________ ________ ________
================================================ ======== ======== ======== ======== ======== ========
</TABLE>
(a)Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(b)Ratios are annualized and based on average net assets of $192,126,552.
6
<PAGE> 63
--------------------------------
AIM INTERMEDIATE GOVERNMENT FUND
--------------------------------
<TABLE>
<CAPTION>
CLASS C
-----------------------------------------------------------------
AUGUST 4, 1997
YEAR ENDED (DATE SALES
SEVEN MONTHS DECEMBER 31, COMMENCED)
ENDED ----------------- TO DECEMBER 31,
JULY 31, 2000 1999 1998 1997
------------- ------- ------- ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.79 $ 9.56 $ 9.44 $ 9.33
------------------------------------------------ ------- ------- ------- ------
Income from investment operations:
Net investment income 0.30 0.53 0.56 0.24
------------------------------------------------ ------- ------- ------- ------
Net gains (losses) on securities (both
realized and unrealized) (0.03) (0.77) 0.11 0.10
================================================ ======= ======= ======= ======
Total from investment operations 0.27 (0.24) 0.67 0.34
================================================ ======= ======= ======= ======
Less distributions:
Dividends from net investment income (0.29) (0.53) (0.55) (0.22)
------------------------------------------------ ------- ------- ------- ------
Return of capital -- -- -- (0.01)
================================================ ======= ======= ======= ======
Total distributions (0.29) (0.53) (0.55) (0.23)
________________________________________________ _______ _______ _______ ______
================================================ ======= ======= ======= ======
Net asset value, end of period $ 8.77 $ 8.79 $ 9.56 $ 9.44
________________________________________________ _______ _______ _______ ______
================================================ ======= ======= ======= ======
Total return(a) 3.18% (2.57)% 7.31% 3.64%
________________________________________________ _______ _______ _______ ______
================================================ ======= ======= ======= ======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $34,206 $39,011 $38,026 $1,851
________________________________________________ _______ _______ _______ ______
================================================ ======= ======= ======= ======
Ratio of expenses to average net assets
(including interest expense) 2.01%(b) 1.85% 1.96% 1.87%(c)
________________________________________________ _______ _______ _______ ______
================================================ ======= ======= ======= ======
Ratio of expenses to average net assets
(excluding interest expense) 1.74%(b) 1.66% 1.72% 1.76%(c)
________________________________________________ _______ _______ _______ ______
================================================ ======= ======= ======= ======
Ratio of net investment income to average net
assets 5.85%(b) 5.83% 5.68% 6.01%(c)
________________________________________________ _______ _______ _______ ______
================================================ ======= ======= ======= ======
Ratio of interest expense to average net assets 0.27%(b) 0.19% 0.24% 0.11%(c)
________________________________________________ _______ _______ _______ ______
================================================ ======= ======= ======= ======
Portfolio turnover rate 65% 141% 147% 99%
________________________________________________ _______ _______ _______ ______
================================================ ======= ======= ======= ======
</TABLE>
(a) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(b) Ratios are annualized and based on average net assets of $34,843,129.
(c) Annualized.
7
<PAGE> 64
-------------
THE AIM FUNDS
-------------
SHAREHOLDER INFORMATION
--------------------------------------------------------------------------------
In addition to the fund, A I M Advisors, Inc. serves as investment advisor to
many other mutual funds (the AIM Funds). The following information is about all
the AIM Funds.
CHOOSING A SHARE CLASS
Many of the AIM Funds have multiple classes of shares, each class representing
an interest in the same portfolio of investments. When choosing a share class,
you should consider the factors below:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
- Initial sales charge - No initial sales charge - No initial sales charge
- Reduced or waived initial sales - Contingent deferred sales - Contingent deferred sales
charge for certain purchases charge on redemptions within charge on redemptions within
six years one year
- Lower distribution and service - 12b-1 fee of 1.00% - 12b-1 fee of 1.00%
(12b-1) fee than Class B or
Class C shares (See "Fee Table
and Expense Example")
- Converts to Class A shares - Does not convert to Class A
at the end of the month shares
which is eight years after
the date on which shares
were purchased along with a
pro rata portion of its
reinvested dividends and
distributions(1)
- Generally more appropriate for - Purchase orders limited to - Generally more appropriate
long-term investors amounts less than $250,000 for short-term investors
</TABLE>
(1) AIM Money Market Fund: Class B shares convert to AIM Cash Reserve
Shares.
AIM Global Trends Fund: If you held Class B shares on May 29, 1998 and
continue to hold them, those shares will convert to Class A shares of
that fund at the end of the month which is seven years after the date
on which shares were purchased. If you exchange those shares for Class
B shares of another AIM Fund, the shares into which you exchanged will
not convert to Class A shares until the end of the month which is
eight years after the date on which you purchased your original
shares.
----------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12B-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund) has adopted 12b-1 plans
that allow the AIM Fund to pay distribution fees to A I M Distributors, Inc.
(the distributor) for the sale and distribution of its shares and fees for
services provided to shareholders, all or a substantial portion of which are
paid to the dealer of record. Because the AIM Fund pays these fees out of its
assets on an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
SALES CHARGES
Generally, you will not pay a sales charge on purchases or redemptions of Class
A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund. You may be charged a contingent deferred sales charge if you redeem
AIM Cash Reserve Shares of AIM Money Market Fund acquired through certain
exchanges. Sales charges on all other AIM Funds and classes of those Funds are
detailed below. As used below, the term "offering price" with respect to all
categories of Class A shares includes the initial sales charge.
INITIAL SALES CHARGES
The AIM Funds are grouped into three categories with respect to initial sales
charges. The "Other Information" section of your prospectus will tell you in
what category your particular AIM Fund is classified.
<TABLE>
<CAPTION>
CATEGORY I INITIAL SALES CHARGES
------------------------------------------------------------
INVESTOR'S
SALES CHARGE
----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
-------------------------------------------------------------
<S> <C> <C>
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
-------------------------------------------------------------
</TABLE>
A-1 MCF--10/00
<PAGE> 65
-------------
THE AIM FUNDS
-------------
<TABLE>
<CAPTION>
CATEGORY II INITIAL SALES CHARGES
------------------------------------------------------------
INVESTOR'S
SALES CHARGE
----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
-------------------------------------------------------------
<S> <C> <C>
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
-------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY III INITIAL SALES CHARGES
-------------------------------------------------------------
INVESTOR'S
SALES CHARGE
----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
-------------------------------------------------------------
<S> <C> <C>
Less than $ 100,000 1.00% 1.01%
$100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
-------------------------------------------------------------
</TABLE>
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES
You can purchase $1,000,000 or more of Class A shares at net asset value.
However, if you purchase shares of that amount in Categories I or II, they will
be subject to a contingent deferred sales charge (CDSC) of 1% if you redeem them
prior to 18 months after the date of purchase. The distributor may pay a dealer
concession and/or a service fee for purchases of $1,000,000 or more.
CONTINGENT DEFERRED SALES CHARGES FOR
CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
----------------------------------------------------------
<S> <C> <C>
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
----------------------------------------------------------
</TABLE>
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES
AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial consultant must
provide sufficient information at the time of purchase to verify that your
purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Rights of Accumulation
You may combine your new purchases of Class A shares with Class A shares
currently owned for the purpose of qualifying for the lower initial sales charge
rates that apply to larger purchases. The applicable initial sales charge for
the new purchase is based on the total of your current purchase and the current
value of all Class A shares you own.
Letters of Intent
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of AIM Funds during a 13-month period. The amount you agree to
purchase determines the initial sales charge you pay. If the full face amount of
the LOI is not invested by the end of the 13-month period, your account will be
adjusted to the higher initial sales charge level for the amount actually
invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- on shares purchased by reinvesting dividends and distributions;
- when exchanging shares among certain AIM Funds;
- when using the reinstatement privilege; and
- when a merger, consolidation, or acquisition of assets of an AIM Fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- if you redeem Class B shares you held for more than six years;
- if you redeem Class C shares you held for more than one year;
- if you redeem shares acquired through reinvestment of dividends and
distributions; and
- on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
MCF--10/00 A-2
<PAGE> 66
--------------
THE AIM FUNDS
--------------
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
The minimum investments for AIM Fund accounts (except for investments in AIM
Large Cap Opportunities Fund, AIM Mid Cap Opportunities Fund and AIM Small Cap
Opportunities Fund) are as follows:
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing $ 0 ($25 per AIM Fund investment for $25
plans, 401(k) plans, Simplified Employee Pension salary deferrals from Savings Plans)
(SEP) accounts, Salary Reduction (SARSEP)
accounts, Savings Incentive Match Plans for
Employee IRA (Simple IRA) accounts, 403(b) or
457 plans)
Automatic Investment Plans 50 50
IRA, Education IRA or Roth IRA 250 50
All other accounts 500 50
----------------------------------------------------------------------------------------------------------
</TABLE>
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below.
<TABLE>
<CAPTION>
PURCHASE OPTIONS
---------------------------------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Through a Financial Consultant Contact your financial consultant. Same
By Mail Mail completed account application Mail your check and the remittance
and purchase payment to the slip from your confirmation
transfer agent, statement to the transfer agent.
A I M Fund Services, Inc.,
P.O. Box 4739,
Houston, TX 77210-4739.
By Wire Mail completed account application Call the transfer agent to receive
to the transfer agent. Call the a reference number. Then, use the
transfer agent at (800) 959-4246 to wire instructions at left.
receive a reference number. Then,
use the following wire
instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number:
00100366807
Beneficiary Account Name: A I M
Fund Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank Connection
methods described above. form to the transfer agent. Once
the transfer agent has received the
form, call the transfer agent to
place your purchase order.
By AIM Internet Connect(SM) Open your account using one of the Select the AIM Internet Connect
methods described above. option on your completed account
application or complete an AIM
Internet Connect Authorization
Form. Mail the application or form
to the transfer agent. Once your
request for this option has been
processed (which may take up to 10
days), you may place your purchase
order at www.aimfunds.com. The
maximum purchase amount per
transaction is $100,000. You may
not purchase shares in AIM
prototype retirement accounts on
the internet.
----------------------------------------------------------------------------------------------------------
</TABLE>
A-3 MCF--10/00
<PAGE> 67
-------------
THE AIM FUNDS
-------------
SPECIAL PLANS
AUTOMATIC INVESTMENT PLAN
You can arrange for periodic investments in any of the AIM Funds by authorizing
the AIM Fund to withdraw the amount of your investment from your bank account on
a day or dates you specify and in an amount of at least $50. You may stop the
Automatic Investment Plan at any time by giving the transfer agent notice ten
days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one AIM Fund account to one or more other AIM Fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the 10th or 25th day of the month, whichever
you specify, in the amount you specify. The minimum amount you can exchange to
another AIM Fund is $50.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM Fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same AIM Fund. You may
invest your dividends and distributions (1) into another AIM Fund in the same
class of shares; or (2) from Class A shares into AIM Cash Reserve Shares of AIM
Money Market Fund, or vice versa.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend must be at
least $5,000; or (b) in the AIM Fund receiving the dividend must be at least
$500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends into
another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your AIM Fund holdings should be rebalanced, on a percentage
basis, between two and ten of your AIM Funds on a quarterly, semiannual or
annual basis. Your portfolio will be rebalanced through the exchange of shares
in one or more of your AIM Funds for shares of the same class of one or more
other AIM Funds in your portfolio. If you wish to participate in the Program,
make changes or cancel the Program, the transfer agent must receive your request
to participate, changes, or cancellation in good order at least five business
days prior to the next rebalancing date, which is normally the 28th day of the
last month of the period you choose. You may realize taxable gains from these
exchanges. We may modify, suspend or terminate the Program at any time on 60
days' prior written notice.
RETIREMENT PLANS
Shares of most of the AIM Funds can be purchased through tax-sheltered
retirement plans made available to corporations, individuals and employees of
non-profit organizations and public schools. A plan document must be adopted
to establish a retirement plan. You may use AIM Funds-sponsored retirement
plans, which include IRAs, Education IRAs, Roth IRAs, 403(b) plans, 401(k)
plans, SIMPLE IRA plans, SEP/SARSEP plans and Money Purchase/Profit Sharing
plans, or another sponsor's retirement plan. The plan custodian of the
AIM Funds-sponsored retirement plan assesses an annual maintenance fee of $10.
Contact your financial consultant for details.
REDEEMING SHARES
REDEMPTION FEES
Generally, we will not charge you any fees to redeem your shares. Your broker
or financial consultant may charge service fees for handling redemption
transactions. Your shares also may be subject to a contingent deferred sales
charge (CDSC).
REDEMPTION OF AIM CASH RESERVE SHARES OF
AIM MONEY MARKET FUND ACQUIRED BY EXCHANGE
If you redeem AIM Cash Reserve Shares acquired by exchange from Class A shares
subject to a CDSC within 18 months of the purchase of the Class A shares, you
will be charged a CDSC.
REDEMPTION OF CLASS B SHARES OR CLASS C
SHARES ACQUIRED BY EXCHANGE FROM AIM CASH
RESERVE SHARES OF AIM MONEY MARKET FUND
We will begin the holding period for purposes of calculating the CDSC on Class B
shares or Class C shares acquired by exchange from AIM Cash Reserve Shares of
AIM Money Market Fund at the time of the exchange into Class B shares or Class C
shares.
REDEMPTION OF CLASS B SHARES ACQUIRED BY
EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
MCF--10/00 A-4
<PAGE> 68
-------------
THE AIM FUNDS
-------------
HOW TO REDEEM SHARES
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
Consultant
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners;
(2) the name of the AIM Fund and your account number; (3) if
the transfer agent does not hold your shares, endorsed share
certificates or share certificates accompanied by an
executed stock power; and (4) signature guarantees, if
necessary (see below). The transfer agent may require that
you provide additional information, such as corporate
resolutions or powers of attorney, if applicable. If you are
redeeming from an IRA account, you must include a statement
of whether or not you are at least 59 1/2 years old and
whether you wish to have federal income tax withheld from
your proceeds. The transfer agent may require certain other
information before you can redeem from an employer-sponsored
retirement plan. Contact your employer for details.
By Telephone Call the transfer agent. You will be allowed to redeem by
telephone if (1) the proceeds are to be mailed to the
address on record (if there has been no change communicated
to us within the last 30 days) or transferred electronically
to a pre-authorized checking account; (2) you do not hold
physical share certificates; (3) you can provide proper
identification information; (4) the proceeds of the
redemption do not exceed $50,000; and (5) you have not
previously declined the telephone redemption privilege.
Certain accounts, including retirement accounts and 403(b)
plans, may not be redeemed by telephone. The transfer agent
must receive your call during the hours of the customary
trading session of the New York Stock Exchange (NYSE) in
order to effect the redemption at that day's closing price.
By AIM Internet
Connect Place your redemption request at www.aimfunds.com. You will
be allowed to redeem by internet if (1) you do not hold
physical share certificates; (2) you can provide proper
identification information; (3) the proceeds of the
redemption do not exceed $50,000; and (4) you have
established the internet trading option. AIM prototype
retirement accounts may not be redeemed on the internet.
The transfer agent must confirm your transaction during the
hours of the customary trading session of the NYSE in order
to effect the redemption at that day's closing price.
</TABLE>
-------------------------------------------------------------------------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
REDEMPTION BY INTERNET
If you redeem by internet, we will transmit your redemption proceeds
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by internet are genuine and are not
liable for internet instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC WITHDRAWALS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Withdrawal Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM Cash Reserve Shares of AIM Money Market Fund only)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of the
customary trading session of the NYSE, we generally will transmit payment on the
next business day.
A-5 MCF--10/00
<PAGE> 69
--------------
THE AIM FUNDS
--------------
REDEMPTIONS BY CHECK
(Class A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM
Money Market Fund only)
You may redeem shares of these AIM Funds by writing checks in amounts of $250 or
more if you have completed an authorization form. Redemption by check is not
available for retirement accounts.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
(1) the amount is greater than $50,000;
(2) you request that payment be made to someone other than the name registered
on the account;
(3) you request that payment be sent somewhere other than the bank of record on
the account; or
(4) you request that payment be sent to a new address or an address that changed
in the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of
financial institutions. Call the transfer agent for additional information. Some
institutions have transaction amount maximums for these guarantees. Please check
with the guarantor institution.
REINSTATEMENT PRIVILEGE (Class A shares only)
You may, within 90 days after you sell Class A shares (except Class A shares of
AIM Tax-Exempt Cash Fund), reinvest all or part of your redemption proceeds in
Class A shares of any AIM Fund at net asset value in an identically registered
account. If you sold Class A shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund, you will incur an initial sales charge reflecting
the difference between the initial sales charges on those Funds and the ones in
which you will be investing. In addition, if you paid a contingent deferred
sales charge (CDSC) on any reinstated amount, you will not be subject to a CDSC
if you later redeem that amount. You must notify the transfer agent in writing
at the time you reinstate that you are exercising your reinstatement privilege.
You may exercise this privilege only once per year.
REDEMPTIONS BY THE AIM FUNDS
If your account has been open at least one year, you have not made an additional
purchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions or
exchanges (excluding retirement accounts), the AIM Funds have the right to
redeem the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500 or by utilizing the Automatic Investment Plan.
If an AIM Fund determines that you have not provided a correct Social Security
or other tax ID number on your account application, the AIM Fund may, at its
discretion, redeem the account and distribute the proceeds to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one AIM Fund for those
of another AIM Fund. Before requesting an exchange, review the prospectus of the
AIM Fund you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
PERMITTED EXCHANGES
Except as otherwise stated below, you may exchange your shares for shares of the
same class of another AIM Fund. You may exchange AIM Cash Reserve Shares of AIM
Money Market Fund for Class A shares of another AIM Fund, or vice versa. You
also may exchange AIM Cash Reserve Shares of AIM Money Market Fund for Class B
shares or Class C shares of another AIM Fund, but only if the AIM Cash Reserve
Shares were purchased directly and not acquired by exchange. You may be required
to pay an initial sales charge when exchanging from a Fund with a lower initial
sales charge than the one into which you are exchanging. If you exchange from
Class A shares not subject to a CDSC into Class A shares subject to those
charges, you will be charged a CDSC when you redeem the exchanged shares. The
CDSC charged on redemption of those shares will be calculated starting on the
date you acquired those shares through exchange.
YOU WILL NOT PAY A SALES CHARGE WHEN EXCHANGING:
(1) Class A shares with an initial sales charge (except for Class A shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
Class A shares of another AIM Fund or AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund for
(a) one another;
(b) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of
AIM Tax-Exempt Cash Fund; or
(c) Class A shares of another AIM Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of
an exchange from shares with higher sales charges;
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) one another;
(b) Class A shares of an AIM Fund subject to an initial sales charge (except
for Class A shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund), but only if you acquired the original
shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an
initial sales charge;
MCF--10/00 A-6
<PAGE> 70
--------------
THE AIM FUNDS
--------------
(ii) on or after May 1, 1994 by exchange from Class A shares subject to
an initial sales charge (except for Class A shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(c) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, but only if you acquired the original shares by
exchange from Class A shares subject to an initial sales charge; or
(4) Class B shares for other Class B shares, and Class C shares for other Class
C shares.
(5) AIM Cash Reserve Shares of AIM Money Market Fund for Class B shares and
Class C shares.
EXCHANGES NOT PERMITTED
You may not exchange Class A shares subject to contingent deferred sales charges
for Class A shares of AIM Limited Maturity Treasury Fund, AIM Tax-Free
Intermediate Fund or AIM Tax-Exempt Cash Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- Shares of the AIM Fund you wish to acquire must be available for sale in your
state of residence;
- Exchanges must be made between accounts with identical registration
information;
- The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- Shares must have been held for at least one day prior to the exchange;
- If you have physical share certificates, you must return them to the transfer
agent prior to the exchange; and
- You are limited to a maximum of 10 exchanges per calendar year, because
excessive short-term trading or market-timing activity can hurt fund
performance. If you exceed that limit, or if an AIM Fund or the distributor
determines, in its sole discretion, that your short-term trading is excessive
or that you are engaging in market-timing activity, it may reject any
additional exchange orders. An exchange is the movement out of (redemption)
one AIM Fund and into (purchase) another AIM Fund.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the purchase of shares
being acquired in an exchange for up to five business days if it determines that
it would be materially disadvantaged by the immediate transfer of exchange
proceeds. There is no fee for exchanges. The exchange privilege is not an option
or right to purchase shares. Any of the participating AIM Funds or the
distributor may modify or discontinue this privilege at any time.
BY MAIL
If you wish to make an exchange by mail, you must include original signatures of
each registered owner exactly as the shares are registered, the account
registration and account number, the dollar amount or number of shares to be
exchanged and the names of the AIM Funds from which and into which the exchange
is to be made.
BY TELEPHONE
Conditions that apply to exchanges by telephone are the same as redemptions by
telephone, including that the transfer agent must receive exchange requests
during the hours of the customary trading session of the NYSE; however, you
still will be allowed to exchange by telephone even if you have changed your
address of record within the preceding 30 days.
BY INTERNET
You will be allowed to exchange by internet if (1) you do not hold physical
share certificates; (2) you can provide proper identification information; and
(3) you have established the internet trading option.
EXCHANGING CLASS B AND CLASS C SHARES
If you make an exchange involving Class B or Class C shares, the amount of time
you held the original shares will be added to the holding period of the Class B
or Class C shares, respectively, into which you exchanged for the purpose of
calculating contingent deferred sales charges (CDSC) if you later redeem the
exchanged shares. If you redeem Class B shares acquired by exchange via a tender
offer by AIM Floating Rate Fund, you will be credited with the time period you
held the shares of AIM Floating Rate Fund for the purpose of computing the early
withdrawal charge applicable to those shares.
-------------------------------------------------------------------------------
EACH AIM FUND AND ITS AGENTS RESERVE THE RIGHT AT ANY TIME TO:
- REJECT OR CANCEL ANY PART OF ANY PURCHASE OR EXCHANGE ORDER;
- MODIFY ANY TERMS OR CONDITIONS OF PURCHASE OF SHARES OF ANY AIM FUND;
- REJECT OR CANCEL ANY REQUEST TO ESTABLISH THE AUTOMATIC INVESTMENT PLAN AND
SYSTEMATIC WITHDRAWAL PLAN OPTIONS ON THE SAME ACCOUNT; OR
- WITHDRAW ALL OR ANY PART OF THE OFFERING MADE BY THIS PROSPECTUS.
------------------------------------------------------------------------------
A-7 MCF--10/00
<PAGE> 71
--------------
THE AIM FUNDS
--------------
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. AIM Money
Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at
amortized cost. AIM High Income Municipal Fund, AIM Municipal Bond Fund, AIM
Tax-Exempt Bond Fund of Connecticut and AIM Tax-Free Intermediate Fund value
variable rate securities that have an unconditional demand or put feature
exercisable within seven days or less at par, which reflects the market value of
such securities.
The AIM Funds value all other securities and assets at their fair value.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day. In addition, if,
between the time trading ends on a particular security and the close of the
customary trading session of the NYSE, events occur that materially affect the
value of the security, the AIM Funds may value the security at its fair value as
determined in good faith by or under the supervision of the Board of Directors
or Trustees of the AIM Fund. The effect of using fair value pricing is that an
AIM Fund's net asset value will be subject to the judgment of the Board of
Directors or Trustees or its designee instead of being determined by the market.
Because some of the AIM Funds may invest in securities that are primarily listed
on foreign exchanges that trade on days when the AIM Funds do not price their
shares, the value of those funds' assets may change on days when you will not
be able to purchase or redeem fund shares.
Each AIM Fund determines the net asset value of its shares on each day the
NYSE is open for business, as of the close of the customary trading session, or
any earlier NYSE closing time that day. AIM Money Market Fund also determines
its net asset value as of 12:00 noon Eastern Time on each day the NYSE is open
for business.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours of the customary
trading session of the NYSE. The AIM Funds price purchase, exchange and
redemption orders at the net asset value calculated after the transfer agent
receives an order in good form. An AIM Fund may postpone the right of redemption
only under unusual circumstances, as allowed by the Securities and Exchange
Commission, such as when the NYSE restricts or suspends trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
generally taxable to you at different rates depending on the length of time
the fund holds its assets. Different tax rates may apply to ordinary income
and long-term capital gain distributions, regardless of how long you have held
your shares. Every year, you will be sent information showing the amount of
dividends and distributions you received from each AIM Fund during the prior
year.
Any long-term or short-term capital gains realized from redemptions of AIM
Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
INVESTORS IN TAX-EXEMPT FUNDS SHOULD READ THE INFORMATION UNDER THE HEADING
"OTHER INFORMATION -- SPECIAL TAX INFORMATION REGARDING THE FUND" IN THEIR
PROSPECTUS.
The foreign, state and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
MCF--10/00 A-8
<PAGE> 72
--------------------------------
AIM INTERMEDIATE GOVERNMENT FUND
--------------------------------
OBTAINING ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77046-4739
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
---------------------------------------------------------
You also can review and obtain copies of the fund's SAI, reports and other
information at the SEC's Public Reference Room in Washington, DC; on the EDGAR
database on the SEC's Internet website (http://www.sec.gov); or, after paying a
duplication fee, by sending a letter to the SEC's Public Reference Section,
Washington, DC 20549-0102 or by sending an electronic mail request to
[email protected]. Please call the SEC at 1-202-942-8090 for information about
the Public Reference Room.
-----------------------------------
AIM Intermediate Government Fund
SEC 1940 Act file number: 811-5686
-----------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com GOV-PRO-1 INVEST WITH DISCIPLINE
--Registered Trademark-- --Registered Trademark--
<PAGE> 73
AIM MONEY MARKET FUND
-----------------------------------------------------------------------
AIM Money Market Fund seeks to provide as high a level of current income
as is consistent with the preservation of capital and liquidity.
PROSPECTUS AIM--Registered Trademark--
NOVEMBER 28, 2000
This prospectus contains important
information about the Class B and C
shares and AIM Cash Reserve Shares of the
fund. Please read it before investing and
keep it for future reference.
As with all other mutual fund securities,
the Securities and Exchange Commission
has not approved or disapproved these
securities or determined whether the
information in this prospectus is
adequate or accurate. Anyone who tells
you otherwise is committing a crime.
There can be no assurance that the fund
will be able to maintain a stable net
asset value of $1.00 per share.
Investments in the fund:
- are not FDIC insured;
- may lose value; and
- are not guaranteed by a bank.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE
--Registered Trademark-- --Registered Trademark--
<PAGE> 74
---------------------
AIM MONEY MARKET FUND
---------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE FUND 1
- - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 2
- - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 2
Performance Table 2
FEE TABLE AND EXPENSE EXAMPLE 3
- - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 3
Expense Example 3
FUND MANAGEMENT 4
- - - - - - - - - - - - - - - - - - - - - - - -
The Advisor 4
Advisor Compensation 4
OTHER INFORMATION 4
- - - - - - - - - - - - - - - - - - - - - - - -
Sales Charges 4
Dividends and Distributions 4
FINANCIAL HIGHLIGHTS 5
- - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - -
Choosing a Share Class A-1
Purchasing Shares A-3
Redeeming Shares A-4
Exchanging Shares A-6
Pricing of Shares A-8
Taxes A-8
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM Funds, AIM Funds and Design, AIM Investor, AIM
LINK, AIM Institutional Funds, aimfunds.com, La Familia AIM de Fondos, La
Familia AIM de Fondos and Design, Invierta con DISCIPLINA and Invest with
DISCIPLINE are registered service marks and AIM Bank Connection and AIM Internet
Connect are service marks of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 75
---------------------
AIM MONEY MARKET FUND
---------------------
INVESTMENT OBJECTIVE AND STRATEGIES
--------------------------------------------------------------------------------
The fund's investment objective is to provide as high a level of current income
as is consistent with the preservation of capital and liquidity. The fund's
investment objective may be changed by the Board of Trustees without shareholder
approval.
The fund attempts to meet its objective by investing only in high-quality U.S.
dollar-denominated short-term obligations, including:
- securities issued by the U.S. Government or its agencies;
- bankers' acceptances, certificates of deposit, and time deposits from U.S. or
foreign banks;
- repurchase agreements;
- commercial paper;
- taxable municipal securities;
- master notes; and
- cash equivalents.
The fund may invest up to 50% of its assets in U.S. dollar-denominated foreign
securities. Any percentage limitations with respect to assets of the fund are
applied at the time of purchase.
The portfolio managers focus on securities that they believe have favorable
prospects for current income, consistent with their concerns for preservation of
capital and liquidity. The portfolio managers usually hold portfolio securities
to maturity, but may sell a particular security when they deem it advisable,
such as when any of the factors above materially changes.
PRINCIPAL RISKS OF INVESTING IN THE FUND
--------------------------------------------------------------------------------
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the fund.
Additionally, the fund's yield will vary as the short-term securities in its
portfolio mature and the proceeds are reinvested in securities with different
interest rates.
The following factors could reduce the fund's income and/or share price:
- sharply rising interest rates;
- downgrades of credit ratings or default of any of the fund's holdings;
- the risks generally associated with concentrating investments in the banking
industry, such as interest rate risk, credit risk and regulatory developments
relating to the banking and financial services industries; or
- the risks generally associated with U.S. dollar-denominated foreign
investments, including political and economic upheaval, seizure or
nationalization of deposits, imposition of taxes or other restrictions on the
payment of principal and interest.
If the seller of a repurchase agreement in which the fund invests defaults on
its obligation or declares bankruptcy, the fund may experience delays in selling
the securities underlying the repurchase agreement. As a result, the fund may
incur losses arising from decline in the value of those securities, reduced
levels of income and expenses of enforcing its rights.
1
<PAGE> 76
---------------------
AIM MONEY MARKET FUND
---------------------
PERFORMANCE INFORMATION
--------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS*
--------------------------------------------------------------------------------
The following bar chart shows changes in the performance of the fund's AIM Cash
Reserve Shares from year to year. AIM Cash Reserve Shares do not have sales
loads.
[GRAPH]
<TABLE>
<CAPTION>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURNS
----------- -------
<S> <C>
1994 ....................................... 3.44%
1995 ....................................... 5.04%
1996 ....................................... 4.41%
1997 ....................................... 4.66%
1998 ....................................... 4.62%
1999 ....................................... 4.22%
</TABLE>
* The Cash Reserve Shares' year-to-date total return as of September 30, 2000
was 3.99%.
During the periods shown in the bar chart, the highest quarterly return was
1.27% (quarters ended March 31, 1995 and June 30, 1995) and the lowest quarterly
return was 0.59% (quarter ended March 31, 1994).
PERFORMANCE TABLE
The following performance table reflects the fund's performance over the period
indicated. The fund's performance reflects payment of sales loads, if any.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(for the periods ended SINCE INCEPTION
December 31, 1999) 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AIM Cash Reserve Shares 4.22% 4.59% -- 4.33% 10/16/93
Class B -1.55% 3.45% -- 3.53% 10/16/93
Class C 2.44% -- -- 3.67% 08/04/97
---------------------------------------------------------------------------------
</TABLE>
AIM Cash Reserve Shares', Class B shares' and Class C shares' seven day yields
on December 31, 1999, were 4.43%, 3.69% and 3.68%, respectively. For the current
seven day yield, call (800) 347-4246.
2
<PAGE> 77
---------------------
AIM MONEY MARKET FUND
---------------------
FEE TABLE AND EXPENSE EXAMPLE
--------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from AIM CASH
your investment) RESERVE SHARES CLASS B CLASS C
-------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering
price) None None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever
is less) None 5.00% 1.00%
-------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted AIM CASH
from fund assets) RESERVE SHARES CLASS B CLASS C
-------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.54% 0.54% 0.54%
Distribution and/or Service
(12b-1) Fees 0.25 1.00 1.00
Other Expenses 0.28 0.28 0.28
Total Annual Fund Operating
Expenses 1.07 1.82 1.82
------------------------------------------------------------------
</TABLE>
You may also be charged a transaction or other fee by the financial institution
managing your account.
As a result of 12b-1 fees, long-term shareholders in the fund may pay more
than the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in different
classes of the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's operating expenses remain the same. Although your actual returns and
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------------------------------------------------------
<S> <C> <C> <C> <C>
AIM Cash Reserve
Shares $109 $340 $ 590 $1,306
Class B 685 873 1,185 1,940
Class C 285 573 985 2,137
----------------------------------------------------------
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------------------------------------------------------
<S> <C> <C> <C> <C>
AIM Cash Reserve
Shares $109 $340 $590 $1,306
Class B 185 573 985 1,940
Class C 185 573 985 2,137
----------------------------------------------------------
</TABLE>
3
<PAGE> 78
---------------------
AIM MONEY MARKET FUND
---------------------
FUND MANAGEMENT
--------------------------------------------------------------------------------
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor and
is responsible for its day-to-day management. The advisor is located at 11
Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The advisor supervises all
aspects of the fund's operations and provides investment advisory services to
the fund, including obtaining and evaluating economic, statistical and financial
information to formulate and implement investment programs for the fund.
The advisor has acted as an investment advisor since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 120
investment portfolios, including the fund, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended July 31, 2000, the advisor received compensation of
0.54% of average daily net assets.
OTHER INFORMATION
--------------------------------------------------------------------------------
SALES CHARGES
Purchase of Class B and Class C Shares of AIM Money Market Fund are subject to
the contingent deferred sales charges listed in the "Shareholder
Information -- Choosing a Share Class" section of this prospectus.
DIVIDENDS AND DISTRIBUTIONS
The fund expects that its distributions, if any, will consist primarily of
ordinary income.
DIVIDENDS
The fund generally declares dividends daily and pays dividends, if any, monthly.
In order to earn dividends on a purchase of fund shares on the day of the
purchase, the transfer agent must receive payment in federal funds before 12:00
noon Eastern Time on that day. Purchases made by payments in other forms, or
payments in federal funds received after 12:00 noon Eastern Time but before the
close of the customary trading session of the New York Stock Exchange, will
begin to earn dividends on the next business day.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains, if any,
annually.
4
<PAGE> 79
---------------------
AIM MONEY MARKET FUND
---------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
This information has been audited by KPMG LLP, whose report, along with the
fund's financial statements, is included in the fund's annual report, which is
available upon request.
<TABLE>
<CAPTION>
CASH RESERVE
--------------------------------------------------------------------------
SEVEN MONTHS
ENDED YEAR ENDED DECEMBER 31,
JULY 31, ----------------------------------------------------------
2000(a) 1999 1998 1997 1996 1995
------------ -------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------------------------------------ -------- -------- ---------- -------- -------- --------
Income from investment operations:
Net investment income 0.0300 0.0414 0.0453 0.0456 0.0433 0.0493
========================================== ======== ======== ========== ======== ======== ========
Less distributions from net investment
income (0.0300) (0.0414) (0.0453) (0.0456) (0.0433) (0.0493)
========================================== ======== ======== ========== ======== ======== ========
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
__________________________________________ ________ ________ __________ ________ ________ ________
========================================== ======== ======== ========== ======== ======== ========
Total return(b) 3.03% 4.22% 4.62% 4.66% 4.41% 5.04%
__________________________________________ ________ ________ __________ ________ ________ ________
========================================== ======== ======== ========== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $912,042 $989,478 $1,179,072 $344,117 $315,470 $293,450
__________________________________________ ________ ________ __________ ________ ________ ________
========================================== ======== ======== ========== ======== ======== ========
Ratio of expenses to average net assets 1.07%(c) 1.04% 0.99% 1.05% 1.08% 1.04%
__________________________________________ ________ ________ __________ ________ ________ ________
========================================== ======== ======== ========== ======== ======== ========
Ratio of net investment income to average
net assets 5.15%(c) 4.16% 4.53% 4.55% 4.32% 4.92%
__________________________________________ ________ ________ __________ ________ ________ ________
========================================== ======== ======== ========== ======== ======== ========
</TABLE>
(a) Calculated using average shares outstanding.
(b) Total returns are not annualized for periods less than one year.
(c) Ratios are annualized and based on average net assets of $915,893,647.
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------------------------
SEVEN MONTHS
ENDED YEAR ENDED DECEMBER 31,
JULY 31, --------------------------------------------------------
2000(a) 1999 1998 1997 1996 1995
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------------------------------------------- -------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.0256 0.0339 0.0371 0.0378 0.0360 0.0419
============================================== ======== ======== ======== ======== ======== ========
Less distributions from net investment income (0.0256) (0.0339) (0.0371) (0.0378) (0.0360) (0.0419)
============================================== ======== ======== ======== ======== ======== ========
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
______________________________________________ ________ ________ ________ ________ ________ ________
============================================== ======== ======== ======== ======== ======== ========
Total return(b) 2.59% 3.45% 3.78% 3.84% 3.66% 4.27%
______________________________________________ ________ ________ ________ ________ ________ ________
============================================== ======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $289,327 $404,911 $310,534 $116,058 $ 91,148 $ 69,857
______________________________________________ ________ ________ ________ ________ ________ ________
============================================== ======== ======== ======== ======== ======== ========
Ratio of expenses to average net assets 1.82%(c) 1.79% 1.81% 1.80% 1.81% 1.78%
______________________________________________ ________ ________ ________ ________ ________ ________
============================================== ======== ======== ======== ======== ======== ========
Ratio of net investment income to average net
assets 4.40%(c) 3.41% 3.71% 3.80% 3.60% 4.14%
______________________________________________ ________ ________ ________ ________ ________ ________
============================================== ======== ======== ======== ======== ======== ========
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct contingent deferred sales charges where applicable and is
not annualized for periods less than one year.
(c) Ratios are annualized and based on average net assets of $327,368,646.
5
<PAGE> 80
---------------------
AIM MONEY MARKET FUND
---------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS C
--------------------------------------------------------------
SEVEN MONTHS YEAR ENDED AUGUST 4, 1997
ENDED DECEMBER 31, (DATE SALES COMMENCED)
JULY 31, -------------------- TO DECEMBER 31,
2000(a) 1999 1998 1997
------------ -------- -------- ----------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------------------------------------------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.0256 0.0339 0.0371 0.0158
================================================= ======== ======== ======== ========
Less distributions from net investment income (0.0256) (0.0339) (0.0371) (0.0158)
================================================= ======== ======== ======== ========
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
_________________________________________________ ________ ________ ________ ________
================================================= ======== ======== ======== ========
Total return(b) 2.59% 3.44% 3.78% 3.92%
_________________________________________________ ________ ________ ________ ________
================================================= ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 45,457 $ 56,636 $ 27,391 $ 8,287
_________________________________________________ ________ ________ ________ ________
================================================= ======== ======== ======== ========
Ratio of expenses to average net assets 1.82%(c) 1.79% 1.81% 1.80%(d)
_________________________________________________ ________ ________ ________ ________
================================================= ======== ======== ======== ========
Ratio of net investment income to average net
assets 4.40%(c) 3.41% 3.71% 3.80%(d)
_________________________________________________ ________ ________ ________ ________
================================================= ======== ======== ======== ========
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct contingent deferred sales charges where applicable and is
not annualized for periods less than one year.
(c) Ratios are annualized and based on average net assets of $45,687,844.
(d) Annualized.
6
<PAGE> 81
-------------
THE AIM FUNDS
-------------
SHAREHOLDER INFORMATION
--------------------------------------------------------------------------------
In addition to the fund, A I M Advisors, Inc. serves as investment advisor to
many other mutual funds (the AIM Funds). The following information is about all
the AIM Funds.
CHOOSING A SHARE CLASS
Many of the AIM Funds have multiple classes of shares, each class representing
an interest in the same portfolio of investments. When choosing a share class,
you should consider the factors below:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
- Initial sales charge - No initial sales charge - No initial sales charge
- Reduced or waived initial sales - Contingent deferred sales - Contingent deferred sales
charge for certain purchases charge on redemptions within charge on redemptions within
six years one year
- Lower distribution and service - 12b-1 fee of 1.00% - 12b-1 fee of 1.00%
(12b-1) fee than Class B or
Class C shares (See "Fee Table
and Expense Example")
- Converts to Class A shares - Does not convert to Class A
at the end of the month shares
which is eight years after
the date on which shares
were purchased along with a
pro rata portion of its
reinvested dividends and
distributions(1)
- Generally more appropriate for - Purchase orders limited to - Generally more appropriate
long-term investors amounts less than $250,000 for short-term investors
</TABLE>
(1) AIM Money Market Fund: Class B shares convert to AIM Cash Reserve
Shares.
AIM Global Trends Fund: If you held Class B shares on May 29, 1998 and
continue to hold them, those shares will convert to Class A shares of
that fund at the end of the month which is seven years after the date
on which shares were purchased. If you exchange those shares for Class
B shares of another AIM Fund, the shares into which you exchanged will
not convert to Class A shares until the end of the month which is
eight years after the date on which you purchased your original
shares.
----------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12B-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund) has adopted 12b-1 plans
that allow the AIM Fund to pay distribution fees to A I M Distributors, Inc.
(the distributor) for the sale and distribution of its shares and fees for
services provided to shareholders, all or a substantial portion of which are
paid to the dealer of record. Because the AIM Fund pays these fees out of its
assets on an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
SALES CHARGES
Generally, you will not pay a sales charge on purchases or redemptions of Class
A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund. You may be charged a contingent deferred sales charge if you redeem
AIM Cash Reserve Shares of AIM Money Market Fund acquired through certain
exchanges. Sales charges on all other AIM Funds and classes of those Funds are
detailed below. As used below, the term "offering price" with respect to all
categories of Class A shares includes the initial sales charge.
INITIAL SALES CHARGES
The AIM Funds are grouped into three categories with respect to initial sales
charges. The "Other Information" section of your prospectus will tell you in
what category your particular AIM Fund is classified.
<TABLE>
<CAPTION>
CATEGORY I INITIAL SALES CHARGES
------------------------------------------------------------
INVESTOR'S
SALES CHARGE
----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
-------------------------------------------------------------
<S> <C> <C>
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
-------------------------------------------------------------
</TABLE>
A-1 MCF--10/00
<PAGE> 82
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THE AIM FUNDS
-------------
<TABLE>
<CAPTION>
CATEGORY II INITIAL SALES CHARGES
------------------------------------------------------------
INVESTOR'S
SALES CHARGE
----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
-------------------------------------------------------------
<S> <C> <C>
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
-------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY III INITIAL SALES CHARGES
-------------------------------------------------------------
INVESTOR'S
SALES CHARGE
----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
-------------------------------------------------------------
<S> <C> <C>
Less than $ 100,000 1.00% 1.01%
$100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
-------------------------------------------------------------
</TABLE>
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES
You can purchase $1,000,000 or more of Class A shares at net asset value.
However, if you purchase shares of that amount in Categories I or II, they will
be subject to a contingent deferred sales charge (CDSC) of 1% if you redeem them
prior to 18 months after the date of purchase. The distributor may pay a dealer
concession and/or a service fee for purchases of $1,000,000 or more.
CONTINGENT DEFERRED SALES CHARGES FOR
CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
----------------------------------------------------------
<S> <C> <C>
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
----------------------------------------------------------
</TABLE>
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES
AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial consultant must
provide sufficient information at the time of purchase to verify that your
purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Rights of Accumulation
You may combine your new purchases of Class A shares with Class A shares
currently owned for the purpose of qualifying for the lower initial sales charge
rates that apply to larger purchases. The applicable initial sales charge for
the new purchase is based on the total of your current purchase and the current
value of all Class A shares you own.
Letters of Intent
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of AIM Funds during a 13-month period. The amount you agree to
purchase determines the initial sales charge you pay. If the full face amount of
the LOI is not invested by the end of the 13-month period, your account will be
adjusted to the higher initial sales charge level for the amount actually
invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- on shares purchased by reinvesting dividends and distributions;
- when exchanging shares among certain AIM Funds;
- when using the reinstatement privilege; and
- when a merger, consolidation, or acquisition of assets of an AIM Fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- if you redeem Class B shares you held for more than six years;
- if you redeem Class C shares you held for more than one year;
- if you redeem shares acquired through reinvestment of dividends and
distributions; and
- on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
MCF--10/00 A-2
<PAGE> 83
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THE AIM FUNDS
--------------
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
The minimum investments for AIM Fund accounts (except for investments in AIM
Large Cap Opportunities Fund, AIM Mid Cap Opportunities Fund and AIM Small Cap
Opportunities Fund) are as follows:
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing $ 0 ($25 per AIM Fund investment for $25
plans, 401(k) plans, Simplified Employee Pension salary deferrals from Savings Plans)
(SEP) accounts, Salary Reduction (SARSEP)
accounts, Savings Incentive Match Plans for
Employee IRA (Simple IRA) accounts, 403(b) or
457 plans)
Automatic Investment Plans 50 50
IRA, Education IRA or Roth IRA 250 50
All other accounts 500 50
----------------------------------------------------------------------------------------------------------
</TABLE>
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below.
<TABLE>
<CAPTION>
PURCHASE OPTIONS
---------------------------------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Through a Financial Consultant Contact your financial consultant. Same
By Mail Mail completed account application Mail your check and the remittance
and purchase payment to the slip from your confirmation
transfer agent, statement to the transfer agent.
A I M Fund Services, Inc.,
P.O. Box 4739,
Houston, TX 77210-4739.
By Wire Mail completed account application Call the transfer agent to receive
to the transfer agent. Call the a reference number. Then, use the
transfer agent at (800) 959-4246 to wire instructions at left.
receive a reference number. Then,
use the following wire
instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number:
00100366807
Beneficiary Account Name: A I M
Fund Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank Connection
methods described above. form to the transfer agent. Once
the transfer agent has received the
form, call the transfer agent to
place your purchase order.
By AIM Internet Connect(SM) Open your account using one of the Select the AIM Internet Connect
methods described above. option on your completed account
application or complete an AIM
Internet Connect Authorization
Form. Mail the application or form
to the transfer agent. Once your
request for this option has been
processed (which may take up to 10
days), you may place your purchase
order at www.aimfunds.com. The
maximum purchase amount per
transaction is $100,000. You may
not purchase shares in AIM
prototype retirement accounts on
the internet.
----------------------------------------------------------------------------------------------------------
</TABLE>
A-3 MCF--10/00
<PAGE> 84
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THE AIM FUNDS
-------------
SPECIAL PLANS
AUTOMATIC INVESTMENT PLAN
You can arrange for periodic investments in any of the AIM Funds by authorizing
the AIM Fund to withdraw the amount of your investment from your bank account on
a day or dates you specify and in an amount of at least $50. You may stop the
Automatic Investment Plan at any time by giving the transfer agent notice ten
days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one AIM Fund account to one or more other AIM Fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the 10th or 25th day of the month, whichever
you specify, in the amount you specify. The minimum amount you can exchange to
another AIM Fund is $50.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM Fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same AIM Fund. You may
invest your dividends and distributions (1) into another AIM Fund in the same
class of shares; or (2) from Class A shares into AIM Cash Reserve Shares of AIM
Money Market Fund, or vice versa.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend must be at
least $5,000; or (b) in the AIM Fund receiving the dividend must be at least
$500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends into
another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your AIM Fund holdings should be rebalanced, on a percentage
basis, between two and ten of your AIM Funds on a quarterly, semiannual or
annual basis. Your portfolio will be rebalanced through the exchange of shares
in one or more of your AIM Funds for shares of the same class of one or more
other AIM Funds in your portfolio. If you wish to participate in the Program,
make changes or cancel the Program, the transfer agent must receive your request
to participate, changes, or cancellation in good order at least five business
days prior to the next rebalancing date, which is normally the 28th day of the
last month of the period you choose. You may realize taxable gains from these
exchanges. We may modify, suspend or terminate the Program at any time on 60
days' prior written notice.
RETIREMENT PLANS
Shares of most of the AIM Funds can be purchased through tax-sheltered
retirement plans made available to corporations, individuals and employees of
non-profit organizations and public schools. A plan document must be adopted
to establish a retirement plan. You may use AIM Funds-sponsored retirement
plans, which include IRAs, Education IRAs, Roth IRAs, 403(b) plans, 401(k)
plans, SIMPLE IRA plans, SEP/SARSEP plans and Money Purchase/Profit Sharing
plans, or another sponsor's retirement plan. The plan custodian of the
AIM Funds-sponsored retirement plan assesses an annual maintenance fee of $10.
Contact your financial consultant for details.
REDEEMING SHARES
REDEMPTION FEES
Generally, we will not charge you any fees to redeem your shares. Your broker
or financial consultant may charge service fees for handling redemption
transactions. Your shares also may be subject to a contingent deferred sales
charge (CDSC).
REDEMPTION OF AIM CASH RESERVE SHARES OF
AIM MONEY MARKET FUND ACQUIRED BY EXCHANGE
If you redeem AIM Cash Reserve Shares acquired by exchange from Class A shares
subject to a CDSC within 18 months of the purchase of the Class A shares, you
will be charged a CDSC.
REDEMPTION OF CLASS B SHARES OR CLASS C
SHARES ACQUIRED BY EXCHANGE FROM AIM CASH
RESERVE SHARES OF AIM MONEY MARKET FUND
We will begin the holding period for purposes of calculating the CDSC on Class B
shares or Class C shares acquired by exchange from AIM Cash Reserve Shares of
AIM Money Market Fund at the time of the exchange into Class B shares or Class C
shares.
REDEMPTION OF CLASS B SHARES ACQUIRED BY
EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
MCF--10/00 A-4
<PAGE> 85
-------------
THE AIM FUNDS
-------------
HOW TO REDEEM SHARES
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
Consultant
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners;
(2) the name of the AIM Fund and your account number; (3) if
the transfer agent does not hold your shares, endorsed share
certificates or share certificates accompanied by an
executed stock power; and (4) signature guarantees, if
necessary (see below). The transfer agent may require that
you provide additional information, such as corporate
resolutions or powers of attorney, if applicable. If you are
redeeming from an IRA account, you must include a statement
of whether or not you are at least 59 1/2 years old and
whether you wish to have federal income tax withheld from
your proceeds. The transfer agent may require certain other
information before you can redeem from an employer-sponsored
retirement plan. Contact your employer for details.
By Telephone Call the transfer agent. You will be allowed to redeem by
telephone if (1) the proceeds are to be mailed to the
address on record (if there has been no change communicated
to us within the last 30 days) or transferred electronically
to a pre-authorized checking account; (2) you do not hold
physical share certificates; (3) you can provide proper
identification information; (4) the proceeds of the
redemption do not exceed $50,000; and (5) you have not
previously declined the telephone redemption privilege.
Certain accounts, including retirement accounts and 403(b)
plans, may not be redeemed by telephone. The transfer agent
must receive your call during the hours of the customary
trading session of the New York Stock Exchange (NYSE) in
order to effect the redemption at that day's closing price.
By AIM Internet
Connect Place your redemption request at www.aimfunds.com. You will
be allowed to redeem by internet if (1) you do not hold
physical share certificates; (2) you can provide proper
identification information; (3) the proceeds of the
redemption do not exceed $50,000; and (4) you have
established the internet trading option. AIM prototype
retirement accounts may not be redeemed on the internet.
The transfer agent must confirm your transaction during the
hours of the customary trading session of the NYSE in order
to effect the redemption at that day's closing price.
</TABLE>
-------------------------------------------------------------------------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
REDEMPTION BY INTERNET
If you redeem by internet, we will transmit your redemption proceeds
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by internet are genuine and are not
liable for internet instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC WITHDRAWALS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Withdrawal Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM Cash Reserve Shares of AIM Money Market Fund only)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of the
customary trading session of the NYSE, we generally will transmit payment on the
next business day.
A-5 MCF--10/00
<PAGE> 86
--------------
THE AIM FUNDS
--------------
REDEMPTIONS BY CHECK
(Class A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM
Money Market Fund only)
You may redeem shares of these AIM Funds by writing checks in amounts of $250 or
more if you have completed an authorization form. Redemption by check is not
available for retirement accounts.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
(1) the amount is greater than $50,000;
(2) you request that payment be made to someone other than the name registered
on the account;
(3) you request that payment be sent somewhere other than the bank of record on
the account; or
(4) you request that payment be sent to a new address or an address that changed
in the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of
financial institutions. Call the transfer agent for additional information. Some
institutions have transaction amount maximums for these guarantees. Please check
with the guarantor institution.
REINSTATEMENT PRIVILEGE (Class A shares only)
You may, within 90 days after you sell Class A shares (except Class A shares of
AIM Tax-Exempt Cash Fund), reinvest all or part of your redemption proceeds in
Class A shares of any AIM Fund at net asset value in an identically registered
account. If you sold Class A shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund, you will incur an initial sales charge reflecting
the difference between the initial sales charges on those Funds and the ones in
which you will be investing. In addition, if you paid a contingent deferred
sales charge (CDSC) on any reinstated amount, you will not be subject to a CDSC
if you later redeem that amount. You must notify the transfer agent in writing
at the time you reinstate that you are exercising your reinstatement privilege.
You may exercise this privilege only once per year.
REDEMPTIONS BY THE AIM FUNDS
If your account has been open at least one year, you have not made an additional
purchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions or
exchanges (excluding retirement accounts), the AIM Funds have the right to
redeem the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500 or by utilizing the Automatic Investment Plan.
If an AIM Fund determines that you have not provided a correct Social Security
or other tax ID number on your account application, the AIM Fund may, at its
discretion, redeem the account and distribute the proceeds to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one AIM Fund for those
of another AIM Fund. Before requesting an exchange, review the prospectus of the
AIM Fund you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
PERMITTED EXCHANGES
Except as otherwise stated below, you may exchange your shares for shares of the
same class of another AIM Fund. You may exchange AIM Cash Reserve Shares of AIM
Money Market Fund for Class A shares of another AIM Fund, or vice versa. You
also may exchange AIM Cash Reserve Shares of AIM Money Market Fund for Class B
shares or Class C shares of another AIM Fund, but only if the AIM Cash Reserve
Shares were purchased directly and not acquired by exchange. You may be required
to pay an initial sales charge when exchanging from a Fund with a lower initial
sales charge than the one into which you are exchanging. If you exchange from
Class A shares not subject to a CDSC into Class A shares subject to those
charges, you will be charged a CDSC when you redeem the exchanged shares. The
CDSC charged on redemption of those shares will be calculated starting on the
date you acquired those shares through exchange.
YOU WILL NOT PAY A SALES CHARGE WHEN EXCHANGING:
(1) Class A shares with an initial sales charge (except for Class A shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
Class A shares of another AIM Fund or AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund for
(a) one another;
(b) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of
AIM Tax-Exempt Cash Fund; or
(c) Class A shares of another AIM Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of
an exchange from shares with higher sales charges;
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) one another;
(b) Class A shares of an AIM Fund subject to an initial sales charge (except
for Class A shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund), but only if you acquired the original
shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an
initial sales charge;
MCF--10/00 A-6
<PAGE> 87
--------------
THE AIM FUNDS
--------------
(ii) on or after May 1, 1994 by exchange from Class A shares subject to
an initial sales charge (except for Class A shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(c) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, but only if you acquired the original shares by
exchange from Class A shares subject to an initial sales charge; or
(4) Class B shares for other Class B shares, and Class C shares for other Class
C shares.
(5) AIM Cash Reserve Shares of AIM Money Market Fund for Class B shares and
Class C shares.
EXCHANGES NOT PERMITTED
You may not exchange Class A shares subject to contingent deferred sales charges
for Class A shares of AIM Limited Maturity Treasury Fund, AIM Tax-Free
Intermediate Fund or AIM Tax-Exempt Cash Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- Shares of the AIM Fund you wish to acquire must be available for sale in your
state of residence;
- Exchanges must be made between accounts with identical registration
information;
- The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- Shares must have been held for at least one day prior to the exchange;
- If you have physical share certificates, you must return them to the transfer
agent prior to the exchange; and
- You are limited to a maximum of 10 exchanges per calendar year, because
excessive short-term trading or market-timing activity can hurt fund
performance. If you exceed that limit, or if an AIM Fund or the distributor
determines, in its sole discretion, that your short-term trading is excessive
or that you are engaging in market-timing activity, it may reject any
additional exchange orders. An exchange is the movement out of (redemption)
one AIM Fund and into (purchase) another AIM Fund.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the purchase of shares
being acquired in an exchange for up to five business days if it determines that
it would be materially disadvantaged by the immediate transfer of exchange
proceeds. There is no fee for exchanges. The exchange privilege is not an option
or right to purchase shares. Any of the participating AIM Funds or the
distributor may modify or discontinue this privilege at any time.
BY MAIL
If you wish to make an exchange by mail, you must include original signatures of
each registered owner exactly as the shares are registered, the account
registration and account number, the dollar amount or number of shares to be
exchanged and the names of the AIM Funds from which and into which the exchange
is to be made.
BY TELEPHONE
Conditions that apply to exchanges by telephone are the same as redemptions by
telephone, including that the transfer agent must receive exchange requests
during the hours of the customary trading session of the NYSE; however, you
still will be allowed to exchange by telephone even if you have changed your
address of record within the preceding 30 days.
BY INTERNET
You will be allowed to exchange by internet if (1) you do not hold physical
share certificates; (2) you can provide proper identification information; and
(3) you have established the internet trading option.
EXCHANGING CLASS B AND CLASS C SHARES
If you make an exchange involving Class B or Class C shares, the amount of time
you held the original shares will be added to the holding period of the Class B
or Class C shares, respectively, into which you exchanged for the purpose of
calculating contingent deferred sales charges (CDSC) if you later redeem the
exchanged shares. If you redeem Class B shares acquired by exchange via a tender
offer by AIM Floating Rate Fund, you will be credited with the time period you
held the shares of AIM Floating Rate Fund for the purpose of computing the early
withdrawal charge applicable to those shares.
-------------------------------------------------------------------------------
EACH AIM FUND AND ITS AGENTS RESERVE THE RIGHT AT ANY TIME TO:
- REJECT OR CANCEL ANY PART OF ANY PURCHASE OR EXCHANGE ORDER;
- MODIFY ANY TERMS OR CONDITIONS OF PURCHASE OF SHARES OF ANY AIM FUND;
- REJECT OR CANCEL ANY REQUEST TO ESTABLISH THE AUTOMATIC INVESTMENT PLAN AND
SYSTEMATIC WITHDRAWAL PLAN OPTIONS ON THE SAME ACCOUNT; OR
- WITHDRAW ALL OR ANY PART OF THE OFFERING MADE BY THIS PROSPECTUS.
------------------------------------------------------------------------------
A-7 MCF--10/00
<PAGE> 88
--------------
THE AIM FUNDS
--------------
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. AIM Money
Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at
amortized cost. AIM High Income Municipal Fund, AIM Municipal Bond Fund, AIM
Tax-Exempt Bond Fund of Connecticut and AIM Tax-Free Intermediate Fund value
variable rate securities that have an unconditional demand or put feature
exercisable within seven days or less at par, which reflects the market value of
such securities.
The AIM Funds value all other securities and assets at their fair value.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day. In addition, if,
between the time trading ends on a particular security and the close of the
customary trading session of the NYSE, events occur that materially affect the
value of the security, the AIM Funds may value the security at its fair value as
determined in good faith by or under the supervision of the Board of Directors
or Trustees of the AIM Fund. The effect of using fair value pricing is that an
AIM Fund's net asset value will be subject to the judgment of the Board of
Directors or Trustees or its designee instead of being determined by the market.
Because some of the AIM Funds may invest in securities that are primarily listed
on foreign exchanges that trade on days when the AIM Funds do not price their
shares, the value of those funds' assets may change on days when you will not
be able to purchase or redeem fund shares.
Each AIM Fund determines the net asset value of its shares on each day the
NYSE is open for business, as of the close of the customary trading session, or
any earlier NYSE closing time that day. AIM Money Market Fund also determines
its net asset value as of 12:00 noon Eastern Time on each day the NYSE is open
for business.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours of the customary
trading session of the NYSE. The AIM Funds price purchase, exchange and
redemption orders at the net asset value calculated after the transfer agent
receives an order in good form. An AIM Fund may postpone the right of redemption
only under unusual circumstances, as allowed by the Securities and Exchange
Commission, such as when the NYSE restricts or suspends trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
generally taxable to you at different rates depending on the length of time
the fund holds its assets. Different tax rates may apply to ordinary income
and long-term capital gain distributions, regardless of how long you have held
your shares. Every year, you will be sent information showing the amount of
dividends and distributions you received from each AIM Fund during the prior
year.
Any long-term or short-term capital gains realized from redemptions of AIM
Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
INVESTORS IN TAX-EXEMPT FUNDS SHOULD READ THE INFORMATION UNDER THE HEADING
"OTHER INFORMATION -- SPECIAL TAX INFORMATION REGARDING THE FUND" IN THEIR
PROSPECTUS.
The foreign, state and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
MCF--10/00 A-8
<PAGE> 89
---------------------
AIM MONEY MARKET FUND
---------------------
OBTAINING ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
---------------------------------------------------------
You also can review and obtain copies of the fund's SAI, reports and other
information at the SEC's Public Reference Room in Washington, DC; on the EDGAR
database on the SEC's Internet website (http://www.sec.gov); or, after paying a
duplication fee, by sending a letter to the SEC's Public Reference Section,
Washington, DC 20549-0102 or by sending an electronic mail request to
[email protected]. Please call the SEC at 1-202-942-8090 for information about
the Public Reference Room.
-----------------------------------
AIM Money Market Fund
SEC 1940 Act file number: 811-5686
-----------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com MKT-PRO-1 INVEST WITH DISCIPLINE
--Registered Trademark-- --Registered Trademark--
<PAGE> 90
AIM MUNICIPAL BOND FUND
------------------------------------------------------------------------
AIM Municipal Bond Fund seeks to achieve a high level of current income
exempt from federal income taxes, consistent with the preservation of
principal.
AIM--Registered Trademark--
PROSPECTUS
NOVEMBER 28, 2000
This prospectus contains important
information about the Class A, B and C
shares of the fund. Please read it
before investing and keep it for
future reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
Investments in the fund:
- are not FDIC insured;
- may lose value; and
- are not guaranteed by a bank.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE
--Registered Trademark-- --Registered Trademark--
<PAGE> 91
-----------------------
AIM MUNICIPAL BOND FUND
-----------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE FUND 1
- - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 2
- - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 2
Performance Table 2
FEE TABLE AND EXPENSE EXAMPLE 3
- - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 3
Expense Example 3
FUND MANAGEMENT 4
- - - - - - - - - - - - - - - - - - - - - - - -
The Advisor 4
Advisor Compensation 4
Portfolio Managers 4
OTHER INFORMATION 5
- - - - - - - - - - - - - - - - - - - - - - - -
Sales Charges 5
Dividends and Distributions 5
Special Tax Information Regarding the
Fund 5
FINANCIAL HIGHLIGHTS 6
- - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - -
Choosing a Share Class A-1
Purchasing Shares A-3
Redeeming Shares A-4
Exchanging Shares A-6
Pricing of Shares A-8
Taxes A-8
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM Funds, AIM Funds and Design, AIM Investor, AIM
LINK, AIM Institutional Funds, aimfunds.com, La Familia AIM de Fondos, La
Familia AIM de Fondos and Design, Invierta con DISCIPLINA and Invest with
DISCIPLINE are registered service marks and AIM Bank Connection and AIM Internet
Connect are service marks of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 92
-----------------------
AIM MUNICIPAL BOND FUND
-----------------------
INVESTMENT OBJECTIVE AND STRATEGIES
--------------------------------------------------------------------------------
The fund's investment objective is to achieve a high level of current income
exempt from federal income taxes, consistent with the preservation of principal.
The fund's investment objective may be changed by the Board of Trustees without
shareholder approval. The fund will attempt to achieve its objective by
investing primarily in a diversified portfolio of municipal bonds.
The fund attempts to meet its objective by investing at least 80% of its total
invested assets in securities that pay interest exempt from all federal taxes
and which does not constitute an item of preference for purposes of the
alternative minimum tax. The fund will invest at least 80% of its total invested
assets in municipal bonds. Municipal bonds include debt obligations of varying
maturities issued to obtain funds for various public purposes by or on behalf of
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies, authorities and
instrumentalities. Certain types of industrial development bonds, such as
private activity bonds, that meet certain standards, are treated as municipal
bonds.
The fund will also invest at least 80% of its total assets in investment-grade
municipal securities rated by Moody's Investors Service, Inc., Standard & Poor's
Ratings Services or any other nationally recognized statistical rating
organization. Other securities meeting certain standards set by the fund are
included in this category. The fund may invest up to 20% of its total assets in
lower-quality municipal securities, i.e. "junk bonds," or unrated municipal
securities. Any percentage limitations with respect to assets of the fund are
applied at the time of purchase.
The portfolio managers focus on municipal securities they believe have
favorable prospects for current income consistent with the fund's objective of
preservation of principal. The portfolio managers consider whether to sell a
particular security when any of those factors materially changes.
In anticipation of or in response to adverse market conditions, for cash
management purposes, or for defensive purposes, the fund may temporarily hold
all or a portion of its assets in cash, money market instruments, shares of
affiliated money market funds, bonds or other debt securities. Such investments
may or may not be subject to federal taxes. As a result, the fund may not
achieve its investment objective.
PRINCIPAL RISKS OF INVESTING IN THE FUND
--------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund and that the income you may receive from your investment may vary. The
value of your investment in the fund will go up and down with the prices of the
securities in which the fund invests. Interest rate increases can cause the
price of a debt security to decrease. The longer a debt security's duration, the
more sensitive it is to this risk. Junk bonds are less sensitive to this risk
than are higher-quality bonds. A municipality may default or otherwise be unable
to honor a financial obligation. Private activity bonds are not backed by the
taxing power of the issuing municipality.
The value of, payment of interest and repayment of principal by, and the
ability of the fund to sell, a municipal security may also be affected by
constitutional amendments, legislative enactments, executive orders,
administrative regulations and voter initiatives as well as the economies of the
regions in which the fund invests.
Compared to higher quality debt securities, junk bonds involve greater risk of
default or price changes due to changes in the credit quality of the issuer and
because they are generally unsecured and may be subordinated to other creditors'
claims. The value of junk bonds often fluctuates in response to company,
political or economic developments and can decline significantly over short
periods of time or during periods of general or regional economic difficulty.
During those times the bonds could be difficult to value or sell at a fair
price. Credit ratings on junk bonds do not necessarily reflect their actual
market risk.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
1
<PAGE> 93
-----------------------
AIM MUNICIPAL BOND FUND
-----------------------
PERFORMANCE INFORMATION
--------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS*
--------------------------------------------------------------------------------
The following bar chart shows changes in the performance of the fund's Class A
shares from year to year. The bar chart does not reflect sales loads. If it did,
the annual total returns shown would be lower.
[GRAPH]
<TABLE>
<CAPTION>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURNS
----------- -------
<S> <C>
1990 ............................... 5.27%
1991 ............................... 13.30%
1992 ............................... 9.10%
1993 ............................... 11.66%
1994 ............................... -3.79%
1995 ............................... 13.04%
1996 ............................... 3.90%
1997 ............................... 7.27%
1998 ............................... 5.28%
1999 ............................... -2.45%
</TABLE>
* The Class A shares' year-to-date total return as of September 30, 2000 was
5.22%.
During the periods shown in the bar chart, the highest quarterly return was
5.03% (quarter ended June 30, 1992) and the lowest quarterly return was -4.22%
(quarter ended March 31, 1994).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index. The fund's performance reflects payment of
sales loads.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
-------------------------------------------------------------------------------------------------------------
(for the periods ended SINCE INCEPTION
December 31, 1999) 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A -7.12% 4.26% 5.59% 6.27% 03/28/77
Class B -7.91% 4.13% -- 3.06% 09/01/93
Class C -4.09% -- -- 1.42% 08/04/97
Lehman Bros. Municipal Bond Index(1) -2.06% 6.91% 6.89% 8.11%(2) 12/31/79(2)
----------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Lehman Bros. Municipal Bond Index is a broad-based, total return index
comprised of 8000 actual bonds, all of which are investment grade, fixed
rate, long term maturities (greater than two years) and are selected from
issues larger than $50 million dated since January 1984.
(2) The average annual total return given is since the earliest date the index
became available.
2
<PAGE> 94
-----------------------
AIM MUNICIPAL BOND FUND
-----------------------
FEE TABLE AND EXPENSE EXAMPLE
--------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
--------------------------------------------------------------------------------
(fees paid directly from
your investment) CLASS A CLASS B CLASS C
----------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 4.75% None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever is less) None(1) 5.00% 1.00%
----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
--------------------------------------------------------------------------------
(expenses that are deducted
from fund assets) CLASS A CLASS B CLASS C
-------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.46% 0.46% 0.46%
Distribution and/or
Service (12b-1) Fees 0.25 1.00 1.00
Other Expenses 0.14 0.15 0.15
Total Annual Fund
Operating Expenses 0.85 1.61 1.61
-------------------------------------------------------
</TABLE>
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1% contingent
deferred sales charge (CDSC) at the time of redemption.
You may also be charged a transaction or other fee by the financial institution
managing your account.
As a result of 12b-1 fees, long-term shareholders in the fund may pay more
than the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in different
classes of the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's operating expenses remain the same. Although your actual returns and
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------------------------------------------
<S> <C> <C> <C> <C>
Class A $558 $733 $ 924 $1,474
Class B 664 808 1,076 1,708
Class C 264 508 876 1,911
----------------------------------------------
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
----------------------------------------------
Class A $558 $733 $924 $1,474
Class B 164 508 876 1,708
Class C 164 508 876 1,911
----------------------------------------------
</TABLE>
3
<PAGE> 95
-----------------------
AIM MUNICIPAL BOND FUND
-----------------------
FUND MANAGEMENT
--------------------------------------------------------------------------------
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor and
is responsible for its day-to-day management. The advisor is located at 11
Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The advisor supervises all
aspects of the fund's operations and provides investment advisory services to
the fund, including obtaining and evaluating economic, statistical and financial
information to formulate and implement investment programs for the fund.
The advisor has acted as an investment advisor since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 120
investment portfolios, including the fund, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended July 31, 2000, the advisor received compensation of
0.46% of average daily net assets.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual
members of the team who are primarily responsible for the day-to-day management
of the fund's portfolio are
- Richard A. Berry, Senior Portfolio Manager, who has been responsible for the
fund since 1992 and has been associated with the advisor and/or its affiliates
since 1987.
- Stephen D. Turman, Senior Portfolio Manager, who has been responsible for the
fund since 1992 and has been associated with the advisor and/or its affiliates
since 1985.
4
<PAGE> 96
-----------------------
AIM MUNICIPAL BOND FUND
-----------------------
OTHER INFORMATION
--------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Municipal Bond Fund are subject to the
maximum 4.75% initial sales charge as listed under the heading "CATEGORY II
Initial Sales Charges" in the "Shareholder Information--Choosing a Share Class"
section of this prospectus. Purchases of Class B and Class C shares are subject
to the contingent deferred sales charges listed in that section.
DIVIDENDS AND DISTRIBUTIONS
The fund expects that its distributions, if any, will consist primarily of
tax-exempt income.
DIVIDENDS
The fund generally declares dividends daily and pays dividends, if any, monthly.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains, if any,
annually.
SPECIAL TAX INFORMATION REGARDING THE FUND
In addition to the general tax information set forth under the heading
"Shareholder Information--Taxes" in this prospectus, the following information
describes the tax impact of certain dividends you may receive from the fund.
You will not be required to include the "exempt-interest" portion of dividends
paid by the fund in your gross income for federal income tax purposes. You will
be required to report the receipt of exempt-interest dividends and other
tax-exempt interest on your federal income tax returns. Exempt-interest
dividends from the fund may be subject to state and local income taxes, may give
rise to a federal alternative minimum tax liability, may affect the amount of
social security benefits subject to federal income tax, may affect the
deductibility of interest on certain indebtedness, and may have other collateral
federal income tax consequences for you. The fund may invest in municipal
securities the interest on which constitutes an item of tax preference and could
give rise to a federal alternative minimum tax liability for you, and may invest
up to 20% of its net assets in such securities and other taxable securities. The
fund will try to avoid investments that result in taxable dividends.
To the extent that dividends paid by the fund are derived from taxable
investments or realized capital gains, they will be taxable as ordinary income
or long-term capital gains. The percentage of dividends that constitutes
exempt-interest dividends will be determined annually. This percentage may
differ from the actual percentage of exempt interest received by the fund for
the particular days in which you hold shares.
From time to time, proposals have been introduced before Congress that would
have the effect of reducing or eliminating the federal tax exemption on
municipal securities. If such a proposal were enacted, the ability of the fund
to pay exempt-interest dividends might be adversely affected.
5
<PAGE> 97
-----------------------
AIM MUNICIPAL BOND FUND
-----------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
This information has been audited by KPMG LLP, whose report, along with the
fund's financial statements, is included in the fund's annual report, which is
available upon request.
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------------
SEVEN MONTHS YEAR ENDED DECEMBER 31,
ENDED ----------------------------------------------------
JULY 31, 2000(a) 1999 1998 1997 1996 1995
---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 7.74 $ 8.35 $ 8.34 $ 8.19 $ 8.31 $ 7.78
------------------------------------------------ -------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.24 0.41 0.42 0.42 0.43 0.43
------------------------------------------------ -------- -------- -------- -------- -------- --------
Net gains (losses) on securities (both realized
and unrealized) 0.09 (0.61) 0.01 0.16 (0.12) 0.56
================================================ ======== ======== ======== ======== ======== ========
Total from investment operations 0.33 (0.20) 0.43 0.58 0.31 0.99
================================================ ======== ======== ======== ======== ======== ========
Less distributions:
Dividends from net investment income (0.24) (0.41) (0.42) (0.43) (0.43) (0.43)
------------------------------------------------ -------- -------- -------- -------- -------- --------
Return of capital -- -- -- -- -- (0.03)
================================================ ======== ======== ======== ======== ======== ========
Total distributions (0.24) (0.41) (0.42) (0.43) (0.43) (0.46)
================================================ ======== ======== ======== ======== ======== ========
Net asset value, end of period 7.83 $ 7.74 $ 8.35 $ 8.34 $ 8.19 $ 8.31
________________________________________________ ________ ________ ________ ________ ________ ________
================================================ ======== ======== ======== ======== ======== ========
Total return(b) 4.32% (2.45)% 5.28% 7.27% 3.90% 13.05%
________________________________________________ ________ ________ ________ ________ ________ ________
================================================ ======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $283,416 $294,720 $327,705 $318,469 $278,812 $284,803
________________________________________________ ________ ________ ________ ________ ________ ________
================================================ ======== ======== ======== ======== ======== ========
Ratio of expenses to average net assets 0.85%(c) 0.84% 0.82% 0.90% 0.80% 0.88%
________________________________________________ ________ ________ ________ ________ ________ ________
================================================ ======== ======== ======== ======== ======== ========
Ratio of net investment income to average net
assets 5.32%(c) 5.01% 5.00% 5.14% 5.29% 5.26%
________________________________________________ ________ ________ ________ ________ ________ ________
================================================ ======== ======== ======== ======== ======== ========
Portfolio turnover rate 18% 28% 19% 24% 26% 36%
________________________________________________ ________ ________ ________ ________ ________ ________
================================================ ======== ======== ======== ======== ======== ========
</TABLE>
(a)Calculated using average shares outstanding.
(b)Does not deduct sales charges and is not annualized for periods less than one
year.
(c)Ratios are annualized and based on average daily net assets of $283,622,551.
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------------------
SEVEN MONTHS YEAR ENDED DECEMBER 31,
ENDED -----------------------------------------------
JULY 31, 2000(a) 1999 1998 1997 1996 1995
---------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 7.75 $ 8.37 $ 8.36 $ 8.19 $ 8.31 $ 7.78
------------------------------------------------ ------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income 0.21 0.35 0.36 0.36 0.37 0.39
------------------------------------------------ ------- ------- ------- ------- ------- -------
Net gains (losses) on securities (both realized
and unrealized) 0.08 (0.62) 0.01 0.17 (0.13) 0.54
================================================ ======= ======= ======= ======= ======= =======
Total from investment operations 0.29 (0.27) 0.37 0.53 0.24 0.93
================================================ ======= ======= ======= ======= ======= =======
Less distributions:
Dividends from net investment income (0.20) (0.35) (0.36) (0.36) (0.36) (0.37)
------------------------------------------------ ------- ------- ------- ------- ------- -------
Return of capital -- -- -- -- -- (0.03)
================================================ ======= ======= ======= ======= ======= =======
Total distributions (0.20) (0.35) (0.36) (0.36) (0.36) (0.40)
================================================ ======= ======= ======= ======= ======= =======
Net asset value, end of period $ 7.84 $ 7.75 $ 8.37 $ 8.36 $ 8.19 $ 8.31
________________________________________________ _______ _______ _______ _______ _______ _______
================================================ ======= ======= ======= ======= ======= =======
Total return(b) 3.84% (3.28)% 4.48% 6.59% 2.99% 12.14%
________________________________________________ _______ _______ _______ _______ _______ _______
================================================ ======= ======= ======= ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $67,363 $72,256 $72,723 $47,185 $33,770 $21,478
________________________________________________ _______ _______ _______ _______ _______ _______
================================================ ======= ======= ======= ======= ======= =======
Ratio of expenses to average net assets 1.61%(c) 1.59% 1.57% 1.66% 1.61% 1.68%(d)
________________________________________________ _______ _______ _______ _______ _______ _______
================================================ ======= ======= ======= ======= ======= =======
Ratio of net investment income to average net
assets 4.56%(c) 4.26% 4.25% 4.38% 4.49% 4.46%
________________________________________________ _______ _______ _______ _______ _______ _______
================================================ ======= ======= ======= ======= ======= =======
Portfolio turnover rate 18% 28% 19% 24% 26% 36%
________________________________________________ _______ _______ _______ _______ _______ _______
================================================ ======= ======= ======= ======= ======= =======
</TABLE>
(a) Calculated using average shares method.
(b) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $67,438,640.
(d) After fee waivers and/or expense reimbursements. The ratio of expenses to
average daily net assets prior to fee waivers and/or expense reimbursements
was 1.77% for 1995.
6
<PAGE> 98
-----------------------
AIM MUNICIPAL BOND FUND
-----------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS C
-----------------------------------------------------------
YEAR ENDED AUGUST 4, 1997
SEVEN MONTHS DECEMBER 31, (DATE SALES COMMENCED)
ENDED --------------- TO DECEMBER 31,
JULY 31, 2000(a) 1999 1998 1997
---------------- ------ ------ ----------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 7.74 $ 8.35 $ 8.35 $ 8.30
------------------------------------------------ ------ ------ ------ ------
Income from investment operations:
Net investment income 0.21 0.35 0.36 0.15
------------------------------------------------ ------ ------ ------ ------
Net gains (losses) on securities (both realized
and unrealized) 0.08 (0.61) -- 0.04
================================================ ====== ====== ====== ======
Total from investment operations 0.29 (0.26) 0.36 0.19
================================================ ====== ====== ====== ======
Less distributions from net investment income (0.20) (0.35) (0.36) (0.14)
------------------------------------------------ ------ ------ ------ ------
Net asset value, end of period $ 7.83 $ 7.74 $ 8.35 $ 8.35
________________________________________________ ______ ______ ______ ______
================================================ ====== ====== ====== ======
Total return(b) 3.85% (3.16)% 4.36% 2.36%
________________________________________________ ______ ______ ______ ______
================================================ ====== ====== ====== ======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $8,252 $9,652 $9,565 $ 825
________________________________________________ ______ ______ ______ ______
================================================ ====== ====== ====== ======
Ratio of expenses to average net assets 1.61%(c) 1.59% 1.57% 1.67%(d)
________________________________________________ ______ ______ ______ ______
================================================ ====== ====== ====== ======
Ratio of net investment income to average net
assets 4.56%(c) 4.26% 4.25% 4.37%(d)
________________________________________________ ______ ______ ______ ______
================================================ ====== ====== ====== ======
Portfolio turnover rate 18% 28% 19% 24%
________________________________________________ ______ ______ ______ ______
================================================ ====== ====== ====== ======
</TABLE>
(a) Calculated using average shares method.
(b) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $8,458,483.
(d) Annualized.
7
<PAGE> 99
-------------
THE AIM FUNDS
-------------
SHAREHOLDER INFORMATION
--------------------------------------------------------------------------------
In addition to the fund, A I M Advisors, Inc. serves as investment advisor to
many other mutual funds (the AIM Funds). The following information is about all
the AIM Funds.
CHOOSING A SHARE CLASS
Many of the AIM Funds have multiple classes of shares, each class representing
an interest in the same portfolio of investments. When choosing a share class,
you should consider the factors below:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
- Initial sales charge - No initial sales charge - No initial sales charge
- Reduced or waived initial sales - Contingent deferred sales - Contingent deferred sales
charge for certain purchases charge on redemptions within charge on redemptions within
six years one year
- Lower distribution and service - 12b-1 fee of 1.00% - 12b-1 fee of 1.00%
(12b-1) fee than Class B or
Class C shares (See "Fee Table
and Expense Example")
- Converts to Class A shares - Does not convert to Class A
at the end of the month shares
which is eight years after
the date on which shares
were purchased along with a
pro rata portion of its
reinvested dividends and
distributions(1)
- Generally more appropriate for - Purchase orders limited to - Generally more appropriate
long-term investors amounts less than $250,000 for short-term investors
</TABLE>
(1) AIM Money Market Fund: Class B shares convert to AIM Cash Reserve
Shares.
AIM Global Trends Fund: If you held Class B shares on May 29, 1998 and
continue to hold them, those shares will convert to Class A shares of
that fund at the end of the month which is seven years after the date
on which shares were purchased. If you exchange those shares for Class
B shares of another AIM Fund, the shares into which you exchanged will
not convert to Class A shares until the end of the month which is
eight years after the date on which you purchased your original
shares.
----------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12B-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund) has adopted 12b-1 plans
that allow the AIM Fund to pay distribution fees to A I M Distributors, Inc.
(the distributor) for the sale and distribution of its shares and fees for
services provided to shareholders, all or a substantial portion of which are
paid to the dealer of record. Because the AIM Fund pays these fees out of its
assets on an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
SALES CHARGES
Generally, you will not pay a sales charge on purchases or redemptions of Class
A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund. You may be charged a contingent deferred sales charge if you redeem
AIM Cash Reserve Shares of AIM Money Market Fund acquired through certain
exchanges. Sales charges on all other AIM Funds and classes of those Funds are
detailed below. As used below, the term "offering price" with respect to all
categories of Class A shares includes the initial sales charge.
INITIAL SALES CHARGES
The AIM Funds are grouped into three categories with respect to initial sales
charges. The "Other Information" section of your prospectus will tell you in
what category your particular AIM Fund is classified.
<TABLE>
<CAPTION>
CATEGORY I INITIAL SALES CHARGES
------------------------------------------------------------
INVESTOR'S
SALES CHARGE
----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
-------------------------------------------------------------
<S> <C> <C>
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
-------------------------------------------------------------
</TABLE>
A-1 MCF--10/00
<PAGE> 100
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THE AIM FUNDS
-------------
<TABLE>
<CAPTION>
CATEGORY II INITIAL SALES CHARGES
------------------------------------------------------------
INVESTOR'S
SALES CHARGE
----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
-------------------------------------------------------------
<S> <C> <C>
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
-------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY III INITIAL SALES CHARGES
-------------------------------------------------------------
INVESTOR'S
SALES CHARGE
----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
-------------------------------------------------------------
<S> <C> <C>
Less than $ 100,000 1.00% 1.01%
$100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
-------------------------------------------------------------
</TABLE>
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES
You can purchase $1,000,000 or more of Class A shares at net asset value.
However, if you purchase shares of that amount in Categories I or II, they will
be subject to a contingent deferred sales charge (CDSC) of 1% if you redeem them
prior to 18 months after the date of purchase. The distributor may pay a dealer
concession and/or a service fee for purchases of $1,000,000 or more.
CONTINGENT DEFERRED SALES CHARGES FOR
CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
----------------------------------------------------------
<S> <C> <C>
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
----------------------------------------------------------
</TABLE>
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES
AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial consultant must
provide sufficient information at the time of purchase to verify that your
purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Rights of Accumulation
You may combine your new purchases of Class A shares with Class A shares
currently owned for the purpose of qualifying for the lower initial sales charge
rates that apply to larger purchases. The applicable initial sales charge for
the new purchase is based on the total of your current purchase and the current
value of all Class A shares you own.
Letters of Intent
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of AIM Funds during a 13-month period. The amount you agree to
purchase determines the initial sales charge you pay. If the full face amount of
the LOI is not invested by the end of the 13-month period, your account will be
adjusted to the higher initial sales charge level for the amount actually
invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- on shares purchased by reinvesting dividends and distributions;
- when exchanging shares among certain AIM Funds;
- when using the reinstatement privilege; and
- when a merger, consolidation, or acquisition of assets of an AIM Fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- if you redeem Class B shares you held for more than six years;
- if you redeem Class C shares you held for more than one year;
- if you redeem shares acquired through reinvestment of dividends and
distributions; and
- on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
MCF--10/00 A-2
<PAGE> 101
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THE AIM FUNDS
--------------
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
The minimum investments for AIM Fund accounts (except for investments in AIM
Large Cap Opportunities Fund, AIM Mid Cap Opportunities Fund and AIM Small Cap
Opportunities Fund) are as follows:
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing $ 0 ($25 per AIM Fund investment for $25
plans, 401(k) plans, Simplified Employee Pension salary deferrals from Savings Plans)
(SEP) accounts, Salary Reduction (SARSEP)
accounts, Savings Incentive Match Plans for
Employee IRA (Simple IRA) accounts, 403(b) or
457 plans)
Automatic Investment Plans 50 50
IRA, Education IRA or Roth IRA 250 50
All other accounts 500 50
----------------------------------------------------------------------------------------------------------
</TABLE>
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below.
<TABLE>
<CAPTION>
PURCHASE OPTIONS
---------------------------------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Through a Financial Consultant Contact your financial consultant. Same
By Mail Mail completed account application Mail your check and the remittance
and purchase payment to the slip from your confirmation
transfer agent, statement to the transfer agent.
A I M Fund Services, Inc.,
P.O. Box 4739,
Houston, TX 77210-4739.
By Wire Mail completed account application Call the transfer agent to receive
to the transfer agent. Call the a reference number. Then, use the
transfer agent at (800) 959-4246 to wire instructions at left.
receive a reference number. Then,
use the following wire
instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number:
00100366807
Beneficiary Account Name: A I M
Fund Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank Connection
methods described above. form to the transfer agent. Once
the transfer agent has received the
form, call the transfer agent to
place your purchase order.
By AIM Internet Connect(SM) Open your account using one of the Select the AIM Internet Connect
methods described above. option on your completed account
application or complete an AIM
Internet Connect Authorization
Form. Mail the application or form
to the transfer agent. Once your
request for this option has been
processed (which may take up to 10
days), you may place your purchase
order at www.aimfunds.com. The
maximum purchase amount per
transaction is $100,000. You may
not purchase shares in AIM
prototype retirement accounts on
the internet.
----------------------------------------------------------------------------------------------------------
</TABLE>
A-3 MCF--10/00
<PAGE> 102
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THE AIM FUNDS
-------------
SPECIAL PLANS
AUTOMATIC INVESTMENT PLAN
You can arrange for periodic investments in any of the AIM Funds by authorizing
the AIM Fund to withdraw the amount of your investment from your bank account on
a day or dates you specify and in an amount of at least $50. You may stop the
Automatic Investment Plan at any time by giving the transfer agent notice ten
days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one AIM Fund account to one or more other AIM Fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the 10th or 25th day of the month, whichever
you specify, in the amount you specify. The minimum amount you can exchange to
another AIM Fund is $50.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM Fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same AIM Fund. You may
invest your dividends and distributions (1) into another AIM Fund in the same
class of shares; or (2) from Class A shares into AIM Cash Reserve Shares of AIM
Money Market Fund, or vice versa.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend must be at
least $5,000; or (b) in the AIM Fund receiving the dividend must be at least
$500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends into
another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your AIM Fund holdings should be rebalanced, on a percentage
basis, between two and ten of your AIM Funds on a quarterly, semiannual or
annual basis. Your portfolio will be rebalanced through the exchange of shares
in one or more of your AIM Funds for shares of the same class of one or more
other AIM Funds in your portfolio. If you wish to participate in the Program,
make changes or cancel the Program, the transfer agent must receive your request
to participate, changes, or cancellation in good order at least five business
days prior to the next rebalancing date, which is normally the 28th day of the
last month of the period you choose. You may realize taxable gains from these
exchanges. We may modify, suspend or terminate the Program at any time on 60
days' prior written notice.
RETIREMENT PLANS
Shares of most of the AIM Funds can be purchased through tax-sheltered
retirement plans made available to corporations, individuals and employees of
non-profit organizations and public schools. A plan document must be adopted
to establish a retirement plan. You may use AIM Funds-sponsored retirement
plans, which include IRAs, Education IRAs, Roth IRAs, 403(b) plans, 401(k)
plans, SIMPLE IRA plans, SEP/SARSEP plans and Money Purchase/Profit Sharing
plans, or another sponsor's retirement plan. The plan custodian of the
AIM Funds-sponsored retirement plan assesses an annual maintenance fee of $10.
Contact your financial consultant for details.
REDEEMING SHARES
REDEMPTION FEES
Generally, we will not charge you any fees to redeem your shares. Your broker
or financial consultant may charge service fees for handling redemption
transactions. Your shares also may be subject to a contingent deferred sales
charge (CDSC).
REDEMPTION OF AIM CASH RESERVE SHARES OF
AIM MONEY MARKET FUND ACQUIRED BY EXCHANGE
If you redeem AIM Cash Reserve Shares acquired by exchange from Class A shares
subject to a CDSC within 18 months of the purchase of the Class A shares, you
will be charged a CDSC.
REDEMPTION OF CLASS B SHARES OR CLASS C
SHARES ACQUIRED BY EXCHANGE FROM AIM CASH
RESERVE SHARES OF AIM MONEY MARKET FUND
We will begin the holding period for purposes of calculating the CDSC on Class B
shares or Class C shares acquired by exchange from AIM Cash Reserve Shares of
AIM Money Market Fund at the time of the exchange into Class B shares or Class C
shares.
REDEMPTION OF CLASS B SHARES ACQUIRED BY
EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
MCF--10/00 A-4
<PAGE> 103
-------------
THE AIM FUNDS
-------------
HOW TO REDEEM SHARES
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
Consultant
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners;
(2) the name of the AIM Fund and your account number; (3) if
the transfer agent does not hold your shares, endorsed share
certificates or share certificates accompanied by an
executed stock power; and (4) signature guarantees, if
necessary (see below). The transfer agent may require that
you provide additional information, such as corporate
resolutions or powers of attorney, if applicable. If you are
redeeming from an IRA account, you must include a statement
of whether or not you are at least 59 1/2 years old and
whether you wish to have federal income tax withheld from
your proceeds. The transfer agent may require certain other
information before you can redeem from an employer-sponsored
retirement plan. Contact your employer for details.
By Telephone Call the transfer agent. You will be allowed to redeem by
telephone if (1) the proceeds are to be mailed to the
address on record (if there has been no change communicated
to us within the last 30 days) or transferred electronically
to a pre-authorized checking account; (2) you do not hold
physical share certificates; (3) you can provide proper
identification information; (4) the proceeds of the
redemption do not exceed $50,000; and (5) you have not
previously declined the telephone redemption privilege.
Certain accounts, including retirement accounts and 403(b)
plans, may not be redeemed by telephone. The transfer agent
must receive your call during the hours of the customary
trading session of the New York Stock Exchange (NYSE) in
order to effect the redemption at that day's closing price.
By AIM Internet
Connect Place your redemption request at www.aimfunds.com. You will
be allowed to redeem by internet if (1) you do not hold
physical share certificates; (2) you can provide proper
identification information; (3) the proceeds of the
redemption do not exceed $50,000; and (4) you have
established the internet trading option. AIM prototype
retirement accounts may not be redeemed on the internet.
The transfer agent must confirm your transaction during the
hours of the customary trading session of the NYSE in order
to effect the redemption at that day's closing price.
</TABLE>
-------------------------------------------------------------------------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
REDEMPTION BY INTERNET
If you redeem by internet, we will transmit your redemption proceeds
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by internet are genuine and are not
liable for internet instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC WITHDRAWALS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Withdrawal Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM Cash Reserve Shares of AIM Money Market Fund only)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of the
customary trading session of the NYSE, we generally will transmit payment on the
next business day.
A-5 MCF--10/00
<PAGE> 104
--------------
THE AIM FUNDS
--------------
REDEMPTIONS BY CHECK
(Class A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM
Money Market Fund only)
You may redeem shares of these AIM Funds by writing checks in amounts of $250 or
more if you have completed an authorization form. Redemption by check is not
available for retirement accounts.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
(1) the amount is greater than $50,000;
(2) you request that payment be made to someone other than the name registered
on the account;
(3) you request that payment be sent somewhere other than the bank of record on
the account; or
(4) you request that payment be sent to a new address or an address that changed
in the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of
financial institutions. Call the transfer agent for additional information. Some
institutions have transaction amount maximums for these guarantees. Please check
with the guarantor institution.
REINSTATEMENT PRIVILEGE (Class A shares only)
You may, within 90 days after you sell Class A shares (except Class A shares of
AIM Tax-Exempt Cash Fund), reinvest all or part of your redemption proceeds in
Class A shares of any AIM Fund at net asset value in an identically registered
account. If you sold Class A shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund, you will incur an initial sales charge reflecting
the difference between the initial sales charges on those Funds and the ones in
which you will be investing. In addition, if you paid a contingent deferred
sales charge (CDSC) on any reinstated amount, you will not be subject to a CDSC
if you later redeem that amount. You must notify the transfer agent in writing
at the time you reinstate that you are exercising your reinstatement privilege.
You may exercise this privilege only once per year.
REDEMPTIONS BY THE AIM FUNDS
If your account has been open at least one year, you have not made an additional
purchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions or
exchanges (excluding retirement accounts), the AIM Funds have the right to
redeem the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500 or by utilizing the Automatic Investment Plan.
If an AIM Fund determines that you have not provided a correct Social Security
or other tax ID number on your account application, the AIM Fund may, at its
discretion, redeem the account and distribute the proceeds to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one AIM Fund for those
of another AIM Fund. Before requesting an exchange, review the prospectus of the
AIM Fund you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
PERMITTED EXCHANGES
Except as otherwise stated below, you may exchange your shares for shares of the
same class of another AIM Fund. You may exchange AIM Cash Reserve Shares of AIM
Money Market Fund for Class A shares of another AIM Fund, or vice versa. You
also may exchange AIM Cash Reserve Shares of AIM Money Market Fund for Class B
shares or Class C shares of another AIM Fund, but only if the AIM Cash Reserve
Shares were purchased directly and not acquired by exchange. You may be required
to pay an initial sales charge when exchanging from a Fund with a lower initial
sales charge than the one into which you are exchanging. If you exchange from
Class A shares not subject to a CDSC into Class A shares subject to those
charges, you will be charged a CDSC when you redeem the exchanged shares. The
CDSC charged on redemption of those shares will be calculated starting on the
date you acquired those shares through exchange.
YOU WILL NOT PAY A SALES CHARGE WHEN EXCHANGING:
(1) Class A shares with an initial sales charge (except for Class A shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
Class A shares of another AIM Fund or AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund for
(a) one another;
(b) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of
AIM Tax-Exempt Cash Fund; or
(c) Class A shares of another AIM Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of
an exchange from shares with higher sales charges;
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) one another;
(b) Class A shares of an AIM Fund subject to an initial sales charge (except
for Class A shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund), but only if you acquired the original
shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an
initial sales charge;
MCF--10/00 A-6
<PAGE> 105
--------------
THE AIM FUNDS
--------------
(ii) on or after May 1, 1994 by exchange from Class A shares subject to
an initial sales charge (except for Class A shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(c) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, but only if you acquired the original shares by
exchange from Class A shares subject to an initial sales charge; or
(4) Class B shares for other Class B shares, and Class C shares for other Class
C shares.
(5) AIM Cash Reserve Shares of AIM Money Market Fund for Class B shares and
Class C shares.
EXCHANGES NOT PERMITTED
You may not exchange Class A shares subject to contingent deferred sales charges
for Class A shares of AIM Limited Maturity Treasury Fund, AIM Tax-Free
Intermediate Fund or AIM Tax-Exempt Cash Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- Shares of the AIM Fund you wish to acquire must be available for sale in your
state of residence;
- Exchanges must be made between accounts with identical registration
information;
- The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- Shares must have been held for at least one day prior to the exchange;
- If you have physical share certificates, you must return them to the transfer
agent prior to the exchange; and
- You are limited to a maximum of 10 exchanges per calendar year, because
excessive short-term trading or market-timing activity can hurt fund
performance. If you exceed that limit, or if an AIM Fund or the distributor
determines, in its sole discretion, that your short-term trading is excessive
or that you are engaging in market-timing activity, it may reject any
additional exchange orders. An exchange is the movement out of (redemption)
one AIM Fund and into (purchase) another AIM Fund.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the purchase of shares
being acquired in an exchange for up to five business days if it determines that
it would be materially disadvantaged by the immediate transfer of exchange
proceeds. There is no fee for exchanges. The exchange privilege is not an option
or right to purchase shares. Any of the participating AIM Funds or the
distributor may modify or discontinue this privilege at any time.
BY MAIL
If you wish to make an exchange by mail, you must include original signatures of
each registered owner exactly as the shares are registered, the account
registration and account number, the dollar amount or number of shares to be
exchanged and the names of the AIM Funds from which and into which the exchange
is to be made.
BY TELEPHONE
Conditions that apply to exchanges by telephone are the same as redemptions by
telephone, including that the transfer agent must receive exchange requests
during the hours of the customary trading session of the NYSE; however, you
still will be allowed to exchange by telephone even if you have changed your
address of record within the preceding 30 days.
BY INTERNET
You will be allowed to exchange by internet if (1) you do not hold physical
share certificates; (2) you can provide proper identification information; and
(3) you have established the internet trading option.
EXCHANGING CLASS B AND CLASS C SHARES
If you make an exchange involving Class B or Class C shares, the amount of time
you held the original shares will be added to the holding period of the Class B
or Class C shares, respectively, into which you exchanged for the purpose of
calculating contingent deferred sales charges (CDSC) if you later redeem the
exchanged shares. If you redeem Class B shares acquired by exchange via a tender
offer by AIM Floating Rate Fund, you will be credited with the time period you
held the shares of AIM Floating Rate Fund for the purpose of computing the early
withdrawal charge applicable to those shares.
-------------------------------------------------------------------------------
EACH AIM FUND AND ITS AGENTS RESERVE THE RIGHT AT ANY TIME TO:
- REJECT OR CANCEL ANY PART OF ANY PURCHASE OR EXCHANGE ORDER;
- MODIFY ANY TERMS OR CONDITIONS OF PURCHASE OF SHARES OF ANY AIM FUND;
- REJECT OR CANCEL ANY REQUEST TO ESTABLISH THE AUTOMATIC INVESTMENT PLAN AND
SYSTEMATIC WITHDRAWAL PLAN OPTIONS ON THE SAME ACCOUNT; OR
- WITHDRAW ALL OR ANY PART OF THE OFFERING MADE BY THIS PROSPECTUS.
------------------------------------------------------------------------------
A-7 MCF--10/00
<PAGE> 106
--------------
THE AIM FUNDS
--------------
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. AIM Money
Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at
amortized cost. AIM High Income Municipal Fund, AIM Municipal Bond Fund, AIM
Tax-Exempt Bond Fund of Connecticut and AIM Tax-Free Intermediate Fund value
variable rate securities that have an unconditional demand or put feature
exercisable within seven days or less at par, which reflects the market value of
such securities.
The AIM Funds value all other securities and assets at their fair value.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day. In addition, if,
between the time trading ends on a particular security and the close of the
customary trading session of the NYSE, events occur that materially affect the
value of the security, the AIM Funds may value the security at its fair value as
determined in good faith by or under the supervision of the Board of Directors
or Trustees of the AIM Fund. The effect of using fair value pricing is that an
AIM Fund's net asset value will be subject to the judgment of the Board of
Directors or Trustees or its designee instead of being determined by the market.
Because some of the AIM Funds may invest in securities that are primarily listed
on foreign exchanges that trade on days when the AIM Funds do not price their
shares, the value of those funds' assets may change on days when you will not
be able to purchase or redeem fund shares.
Each AIM Fund determines the net asset value of its shares on each day the
NYSE is open for business, as of the close of the customary trading session, or
any earlier NYSE closing time that day. AIM Money Market Fund also determines
its net asset value as of 12:00 noon Eastern Time on each day the NYSE is open
for business.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours of the customary
trading session of the NYSE. The AIM Funds price purchase, exchange and
redemption orders at the net asset value calculated after the transfer agent
receives an order in good form. An AIM Fund may postpone the right of redemption
only under unusual circumstances, as allowed by the Securities and Exchange
Commission, such as when the NYSE restricts or suspends trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
generally taxable to you at different rates depending on the length of time
the fund holds its assets. Different tax rates may apply to ordinary income
and long-term capital gain distributions, regardless of how long you have held
your shares. Every year, you will be sent information showing the amount of
dividends and distributions you received from each AIM Fund during the prior
year.
Any long-term or short-term capital gains realized from redemptions of AIM
Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
INVESTORS IN TAX-EXEMPT FUNDS SHOULD READ THE INFORMATION UNDER THE HEADING
"OTHER INFORMATION -- SPECIAL TAX INFORMATION REGARDING THE FUND" IN THEIR
PROSPECTUS.
The foreign, state and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
MCF--10/00 A-8
<PAGE> 107
-----------------------
AIM MUNICIPAL BOND FUND
-----------------------
OBTAINING ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77046-4739
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
---------------------------------------------------------
You also can review and obtain copies of the fund's SAI, reports and other
information at the SEC's Public Reference Room in Washington, DC; on the EDGAR
database on the SEC's Internet website (http://www.sec.gov); or, after paying a
duplication fee, by sending a letter to the SEC's Public Reference Section,
Washington, DC 20549-0102 or by sending an electronic mail request to
[email protected]. Please call the SEC at 1-202-942-8090 for information about
the Public Reference Room.
----------------------------------
AIM Municipal Bond Fund
SEC 1940 Act file number: 811-5686
----------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com MBD-PRO-1 INVEST WITH DISCIPLINE
--Registered Trademark-- --Registered Trademark--
<PAGE> 108
AIM LIMITED MATURITY
TREASURY FUND
--------------------------------------------------------------------------
AIM Limited Maturity Treasury Fund seeks liquidity with minimum
fluctuation of principal value, and, consistent with this objective, the
highest total return achievable.
PROSPECTUS AIM--Registered Trademark--
NOVEMBER 28, 2000
This prospectus contains important
information about Class A shares of the
fund. Please read it before investing and
keep it for future reference.
As with all other mutual fund securities,
the Securities and Exchange Commission
has not approved or disapproved these
securities or determined whether the
information in this prospectus is
adequate or accurate. Anyone who tells
you otherwise is committing a crime.
An investment in the fund:
- is not FDIC insured;
- may lose value; and
- is not guaranteed by a bank.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE
--Registered Trademark-- --Registered Trademark--
<PAGE> 109
----------------------------------
AIM LIMITED MATURITY TREASURY FUND
----------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE FUND 1
- - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 2
- - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 2
Performance Table 2
FEE TABLE AND EXPENSE EXAMPLE 3
- - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 3
Expense Example 3
FUND MANAGEMENT 4
- - - - - - - - - - - - - - - - - - - - - - - - -
The Advisor 4
Advisor Compensation 4
Portfolio Managers 4
OTHER INFORMATION 4
- - - - - - - - - - - - - - - - - - - - - - - - -
Sales Charges 4
Dividends and Distributions 4
FINANCIAL HIGHLIGHTS 5
- - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - -
Choosing a Share Class A-1
Purchasing Shares A-3
Redeeming Shares A-4
Exchanging Shares A-6
Pricing of Shares A-8
Taxes A-8
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM Funds, AIM Funds and Design, AIM Investor, AIM
LINK, AIM Institutional Funds, aimfunds.com, La Familia AIM de Fondos, La
Familia AIM de Fondos and Design, Invierta con DISCIPLINA and Invest with
DISCIPLINE are registered service marks and AIM Bank Connection and AIM Internet
Connect are service marks of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 110
----------------------------------
AIM LIMITED MATURITY TREASURY FUND
----------------------------------
INVESTMENT OBJECTIVE AND STRATEGIES
--------------------------------------------------------------------------------
The fund's investment objective is to seek liquidity with minimum fluctuation of
principal value, and, consistent with this objective, the highest total return
achievable. The fund's investment objective may be changed by the Board of
Trustees without shareholder approval.
The fund attempts to meet its objective by investing in direct obligations of
the U.S. Treasury, including bills, notes and bonds. The fund will only purchase
securities with maturities of three years or less.
The portfolio managers focus on U.S. Treasury obligations they believe have
favorable prospects for total return consistent with the fund's investment
objective. The portfolio managers usually sell a particular security when any of
those factors materially changes.
In anticipation of or in response to adverse market conditions, for cash
management purposes, or for defensive purposes, the fund may temporarily hold
all or a portion of its assets in cash and shares of affiliated money market
funds. As a result, the fund may not achieve its investment objective.
The fund may engage in active and frequent trading of portfolio securities to
achieve its investment objective. If the fund does trade in this way, it may
incur increased transaction costs, which can lower the actual return on your
investment. Active trading may also increase short-term gains and losses, which
may affect the taxes you have to pay.
PRINCIPAL RISKS OF INVESTING IN THE FUND
--------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund and that the income you may receive from your investment may vary. The
value of your investment in the fund will go up and down with the prices of the
securities in which the fund invests. Interest rate increases can cause the
price of a debt security to decrease; the longer the debt security's duration,
the more sensitive it is to this risk.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
1
<PAGE> 111
----------------------------------
AIM LIMITED MATURITY TREASURY FUND
----------------------------------
PERFORMANCE INFORMATION
--------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS*
--------------------------------------------------------------------------------
The following bar chart shows changes in the performance of the fund's Class A
shares from year to year. The bar chart does not reflect sales loads. If it did,
the annual total returns shown would be lower.
[GRAPH]
<TABLE>
<CAPTION>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURNS
----------- -------
<S> <C>
1990.................................... 8.96%
1991.................................... 10.48%
1992.................................... 5.64%
1993.................................... 4.45%
1994.................................... 0.85%
1995.................................... 9.40%
1996.................................... 4.73%
1997.................................... 5.97%
1998.................................... 6.10%
1999.................................... 2.64%
</TABLE>
* The Class A shares' year-to-date total return as of September 30, 2000 was
4.56%.
During the periods shown in the bar chart, the highest quarterly return was
3.24% (quarter ended December 31, 1991) and the lowest quarterly return was
- 0.20% (quarter ended March 31, 1994).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index. The fund's performance reflects payment of
sales loads.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(for the periods ending SINCE INCEPTION
December 31, 1999) 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A 1.64% 5.53% 5.78% 6.12% 12/15/87
Lehman Bros. 1- to 2-Year Government
Bond Index(1) 3.41% 6.28% 6.40% 6.70%(2) 7/31/88(2)
---------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Lehman Bros. 1- to 2-Year Government Bond Index is an unmanaged index
composed of U.S. Agency and Treasury issues with maturities of one to two
years.
(2) The average annual total return given is since the date closest to the
earliest date the index became available.
2
<PAGE> 112
----------------------------------
AIM LIMITED MATURITY TREASURY FUND
----------------------------------
FEE TABLE AND EXPENSE EXAMPLE
--------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) CLASS A
---------------------------------------------------
<S> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 1.00%
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever is less) None
--------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets) CLASS A
---------------------------------------------------
<S> <C>
Management Fees 0.20%
Distribution and/or
Service (12b-1) Fees 0.15
Other Expenses 0.19
Total Annual Fund
Operating Expenses 0.54
---------------------------------------------------
</TABLE>
You may also be charged a transaction or other fee by the financial institution
managing your account.
EXPENSE EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's gross operating expenses remain the same. Although your actual returns
and costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------------------------
<S> <C> <C> <C> <C>
Class A $155 $271 $399 $770
---------------------------------------------------
</TABLE>
3
<PAGE> 113
----------------------------------
AIM LIMITED MATURITY TREASURY FUND
----------------------------------
FUND MANAGEMENT
--------------------------------------------------------------------------------
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor and
is responsible for its day-to-day management. The advisor is located at 11
Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The advisor supervises all
aspects of the fund's operations and provides investment advisory services to
the fund, including obtaining and evaluating economic, statistical and financial
information to formulate and implement investment programs for the fund.
The advisor has acted as an investment advisor since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 120
investment portfolios, including the fund, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended July 31, 2000, the advisor received compensation of
0.20% of average daily net assets.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual
members of the team who are primarily responsible for the day-to-day management
of the fund's portfolio are
- Laurie A. Brignac, Portfolio Manager, who has been responsible for the fund
since 1999 and has been associated with the advisor and/or its affiliates
since 1992.
- Scot W. Johnson, Portfolio Manager, who has been responsible for the fund
since 1998 and has been associated with the advisor and/or its affiliates
since 1994.
- Karen Dunn Kelley, Senior Portfolio Manager, who has been responsible for the
fund since 1992 and has been associated with the advisor and/or its affiliates
since 1989.
OTHER INFORMATION
--------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Limited Maturity Treasury Fund are subject to
the maximum 1.00% initial sales charge as listed under the heading "CATEGORY III
Initial Sales Charges" in the "Shareholder Information--Choosing a Share Class"
section of this prospectus.
DIVIDENDS AND DISTRIBUTIONS
The Fund expects that its distributions, if any, will consist primarily of
ordinary income.
DIVIDENDS
The fund generally declares dividends daily and pays dividends, if any, monthly.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains, if any,
annually.
4
<PAGE> 114
----------------------------------
AIM LIMITED MATURITY TREASURY FUND
----------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
This information has been audited by KPMG LLP, whose report, along with the
fund's financial statements, is included in the fund's annual report, which is
available upon request.
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------
YEAR ENDED JULY 31,
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.03 $ 10.07 $ 10.07 $ 9.97 $ 10.03
------------------------------------------------------ -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.51 0.47 0.53 0.54 0.55
------------------------------------------------------ -------- -------- -------- -------- --------
Net gains (losses) on securities (both realized and
unrealized) (0.07) (0.04) -- 0.10 (0.06)
====================================================== ======== ======== ======== ======== ========
Total from investment operations 0.44 0.43 0.53 0.64 0.49
====================================================== ======== ======== ======== ======== ========
Less distributions:
Dividends from net investment income (0.51) (0.47) (0.53) (0.54) (0.55)
====================================================== ======== ======== ======== ======== ========
Net asset value, end of period $ 9.96 $ 10.03 $ 10.07 $ 10.07 $ 9.97
______________________________________________________ ________ ________ ________ ________ ________
====================================================== ======== ======== ======== ======== ========
Total return(a) 4.50% 4.32% 5.42% 6.55% 4.98%
______________________________________________________ ________ ________ ________ ________ ________
====================================================== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of year (000s omitted) $300,058 $390,018 $345,355 $389,812 $359,048
______________________________________________________ ________ ________ ________ ________ ________
====================================================== ======== ======== ======== ======== ========
Ratio of expenses to average net assets 0.54%(b) 0.54% 0.54% 0.54% 0.54%
______________________________________________________ ________ ________ ________ ________ ________
====================================================== ======== ======== ======== ======== ========
Ratio of net investment income to average net assets 5.07%(b) 4.61% 5.29% 5.35% 5.45%
______________________________________________________ ________ ________ ________ ________ ________
====================================================== ======== ======== ======== ======== ========
Portfolio turnover rate 122% 184% 133% 130% 117%
______________________________________________________ ________ ________ ________ ________ ________
====================================================== ======== ======== ======== ======== ========
</TABLE>
(a) Does not deduct sales charges.
(b) Ratios are based on average net assets of $344,717,229.
5
<PAGE> 115
-------------
THE AIM FUNDS
-------------
SHAREHOLDER INFORMATION
--------------------------------------------------------------------------------
In addition to the fund, A I M Advisors, Inc. serves as investment advisor to
many other mutual funds (the AIM Funds). The following information is about all
the AIM Funds.
CHOOSING A SHARE CLASS
Many of the AIM Funds have multiple classes of shares, each class representing
an interest in the same portfolio of investments. When choosing a share class,
you should consider the factors below:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
- Initial sales charge - No initial sales charge - No initial sales charge
- Reduced or waived initial sales - Contingent deferred sales - Contingent deferred sales
charge for certain purchases charge on redemptions within charge on redemptions within
six years one year
- Lower distribution and service - 12b-1 fee of 1.00% - 12b-1 fee of 1.00%
(12b-1) fee than Class B or
Class C shares (See "Fee Table
and Expense Example")
- Converts to Class A shares - Does not convert to Class A
at the end of the month shares
which is eight years after
the date on which shares
were purchased along with a
pro rata portion of its
reinvested dividends and
distributions(1)
- Generally more appropriate for - Purchase orders limited to - Generally more appropriate
long-term investors amounts less than $250,000 for short-term investors
</TABLE>
(1) AIM Money Market Fund: Class B shares convert to AIM Cash Reserve
Shares.
AIM Global Trends Fund: If you held Class B shares on May 29, 1998 and
continue to hold them, those shares will convert to Class A shares of
that fund at the end of the month which is seven years after the date
on which shares were purchased. If you exchange those shares for Class
B shares of another AIM Fund, the shares into which you exchanged will
not convert to Class A shares until the end of the month which is
eight years after the date on which you purchased your original
shares.
----------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12B-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund) has adopted 12b-1 plans
that allow the AIM Fund to pay distribution fees to A I M Distributors, Inc.
(the distributor) for the sale and distribution of its shares and fees for
services provided to shareholders, all or a substantial portion of which are
paid to the dealer of record. Because the AIM Fund pays these fees out of its
assets on an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
SALES CHARGES
Generally, you will not pay a sales charge on purchases or redemptions of Class
A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund. You may be charged a contingent deferred sales charge if you redeem
AIM Cash Reserve Shares of AIM Money Market Fund acquired through certain
exchanges. Sales charges on all other AIM Funds and classes of those Funds are
detailed below. As used below, the term "offering price" with respect to all
categories of Class A shares includes the initial sales charge.
INITIAL SALES CHARGES
The AIM Funds are grouped into three categories with respect to initial sales
charges. The "Other Information" section of your prospectus will tell you in
what category your particular AIM Fund is classified.
<TABLE>
<CAPTION>
CATEGORY I INITIAL SALES CHARGES
------------------------------------------------------------
INVESTOR'S
SALES CHARGE
----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
-------------------------------------------------------------
<S> <C> <C>
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
-------------------------------------------------------------
</TABLE>
A-1 MCF--10/00
<PAGE> 116
-------------
THE AIM FUNDS
-------------
<TABLE>
<CAPTION>
CATEGORY II INITIAL SALES CHARGES
------------------------------------------------------------
INVESTOR'S
SALES CHARGE
----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
-------------------------------------------------------------
<S> <C> <C>
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
-------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY III INITIAL SALES CHARGES
-------------------------------------------------------------
INVESTOR'S
SALES CHARGE
----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
-------------------------------------------------------------
<S> <C> <C>
Less than $ 100,000 1.00% 1.01%
$100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
-------------------------------------------------------------
</TABLE>
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES
You can purchase $1,000,000 or more of Class A shares at net asset value.
However, if you purchase shares of that amount in Categories I or II, they will
be subject to a contingent deferred sales charge (CDSC) of 1% if you redeem them
prior to 18 months after the date of purchase. The distributor may pay a dealer
concession and/or a service fee for purchases of $1,000,000 or more.
CONTINGENT DEFERRED SALES CHARGES FOR
CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
----------------------------------------------------------
<S> <C> <C>
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
----------------------------------------------------------
</TABLE>
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES
AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial consultant must
provide sufficient information at the time of purchase to verify that your
purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Rights of Accumulation
You may combine your new purchases of Class A shares with Class A shares
currently owned for the purpose of qualifying for the lower initial sales charge
rates that apply to larger purchases. The applicable initial sales charge for
the new purchase is based on the total of your current purchase and the current
value of all Class A shares you own.
Letters of Intent
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of AIM Funds during a 13-month period. The amount you agree to
purchase determines the initial sales charge you pay. If the full face amount of
the LOI is not invested by the end of the 13-month period, your account will be
adjusted to the higher initial sales charge level for the amount actually
invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- on shares purchased by reinvesting dividends and distributions;
- when exchanging shares among certain AIM Funds;
- when using the reinstatement privilege; and
- when a merger, consolidation, or acquisition of assets of an AIM Fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- if you redeem Class B shares you held for more than six years;
- if you redeem Class C shares you held for more than one year;
- if you redeem shares acquired through reinvestment of dividends and
distributions; and
- on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
MCF--10/00 A-2
<PAGE> 117
--------------
THE AIM FUNDS
--------------
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
The minimum investments for AIM Fund accounts (except for investments in AIM
Large Cap Opportunities Fund, AIM Mid Cap Opportunities Fund and AIM Small Cap
Opportunities Fund) are as follows:
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing $ 0 ($25 per AIM Fund investment for $25
plans, 401(k) plans, Simplified Employee Pension salary deferrals from Savings Plans)
(SEP) accounts, Salary Reduction (SARSEP)
accounts, Savings Incentive Match Plans for
Employee IRA (Simple IRA) accounts, 403(b) or
457 plans)
Automatic Investment Plans 50 50
IRA, Education IRA or Roth IRA 250 50
All other accounts 500 50
----------------------------------------------------------------------------------------------------------
</TABLE>
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below.
<TABLE>
<CAPTION>
PURCHASE OPTIONS
---------------------------------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Through a Financial Consultant Contact your financial consultant. Same
By Mail Mail completed account application Mail your check and the remittance
and purchase payment to the slip from your confirmation
transfer agent, statement to the transfer agent.
A I M Fund Services, Inc.,
P.O. Box 4739,
Houston, TX 77210-4739.
By Wire Mail completed account application Call the transfer agent to receive
to the transfer agent. Call the a reference number. Then, use the
transfer agent at (800) 959-4246 to wire instructions at left.
receive a reference number. Then,
use the following wire
instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number:
00100366807
Beneficiary Account Name: A I M
Fund Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank Connection
methods described above. form to the transfer agent. Once
the transfer agent has received the
form, call the transfer agent to
place your purchase order.
By AIM Internet Connect(SM) Open your account using one of the Select the AIM Internet Connect
methods described above. option on your completed account
application or complete an AIM
Internet Connect Authorization
Form. Mail the application or form
to the transfer agent. Once your
request for this option has been
processed (which may take up to 10
days), you may place your purchase
order at www.aimfunds.com. The
maximum purchase amount per
transaction is $100,000. You may
not purchase shares in AIM
prototype retirement accounts on
the internet.
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</TABLE>
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THE AIM FUNDS
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SPECIAL PLANS
AUTOMATIC INVESTMENT PLAN
You can arrange for periodic investments in any of the AIM Funds by authorizing
the AIM Fund to withdraw the amount of your investment from your bank account on
a day or dates you specify and in an amount of at least $50. You may stop the
Automatic Investment Plan at any time by giving the transfer agent notice ten
days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one AIM Fund account to one or more other AIM Fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the 10th or 25th day of the month, whichever
you specify, in the amount you specify. The minimum amount you can exchange to
another AIM Fund is $50.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM Fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same AIM Fund. You may
invest your dividends and distributions (1) into another AIM Fund in the same
class of shares; or (2) from Class A shares into AIM Cash Reserve Shares of AIM
Money Market Fund, or vice versa.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend must be at
least $5,000; or (b) in the AIM Fund receiving the dividend must be at least
$500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends into
another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your AIM Fund holdings should be rebalanced, on a percentage
basis, between two and ten of your AIM Funds on a quarterly, semiannual or
annual basis. Your portfolio will be rebalanced through the exchange of shares
in one or more of your AIM Funds for shares of the same class of one or more
other AIM Funds in your portfolio. If you wish to participate in the Program,
make changes or cancel the Program, the transfer agent must receive your request
to participate, changes, or cancellation in good order at least five business
days prior to the next rebalancing date, which is normally the 28th day of the
last month of the period you choose. You may realize taxable gains from these
exchanges. We may modify, suspend or terminate the Program at any time on 60
days' prior written notice.
RETIREMENT PLANS
Shares of most of the AIM Funds can be purchased through tax-sheltered
retirement plans made available to corporations, individuals and employees of
non-profit organizations and public schools. A plan document must be adopted
to establish a retirement plan. You may use AIM Funds-sponsored retirement
plans, which include IRAs, Education IRAs, Roth IRAs, 403(b) plans, 401(k)
plans, SIMPLE IRA plans, SEP/SARSEP plans and Money Purchase/Profit Sharing
plans, or another sponsor's retirement plan. The plan custodian of the
AIM Funds-sponsored retirement plan assesses an annual maintenance fee of $10.
Contact your financial consultant for details.
REDEEMING SHARES
REDEMPTION FEES
Generally, we will not charge you any fees to redeem your shares. Your broker
or financial consultant may charge service fees for handling redemption
transactions. Your shares also may be subject to a contingent deferred sales
charge (CDSC).
REDEMPTION OF AIM CASH RESERVE SHARES OF
AIM MONEY MARKET FUND ACQUIRED BY EXCHANGE
If you redeem AIM Cash Reserve Shares acquired by exchange from Class A shares
subject to a CDSC within 18 months of the purchase of the Class A shares, you
will be charged a CDSC.
REDEMPTION OF CLASS B SHARES OR CLASS C
SHARES ACQUIRED BY EXCHANGE FROM AIM CASH
RESERVE SHARES OF AIM MONEY MARKET FUND
We will begin the holding period for purposes of calculating the CDSC on Class B
shares or Class C shares acquired by exchange from AIM Cash Reserve Shares of
AIM Money Market Fund at the time of the exchange into Class B shares or Class C
shares.
REDEMPTION OF CLASS B SHARES ACQUIRED BY
EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
MCF--10/00 A-4
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THE AIM FUNDS
-------------
HOW TO REDEEM SHARES
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
Consultant
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners;
(2) the name of the AIM Fund and your account number; (3) if
the transfer agent does not hold your shares, endorsed share
certificates or share certificates accompanied by an
executed stock power; and (4) signature guarantees, if
necessary (see below). The transfer agent may require that
you provide additional information, such as corporate
resolutions or powers of attorney, if applicable. If you are
redeeming from an IRA account, you must include a statement
of whether or not you are at least 59 1/2 years old and
whether you wish to have federal income tax withheld from
your proceeds. The transfer agent may require certain other
information before you can redeem from an employer-sponsored
retirement plan. Contact your employer for details.
By Telephone Call the transfer agent. You will be allowed to redeem by
telephone if (1) the proceeds are to be mailed to the
address on record (if there has been no change communicated
to us within the last 30 days) or transferred electronically
to a pre-authorized checking account; (2) you do not hold
physical share certificates; (3) you can provide proper
identification information; (4) the proceeds of the
redemption do not exceed $50,000; and (5) you have not
previously declined the telephone redemption privilege.
Certain accounts, including retirement accounts and 403(b)
plans, may not be redeemed by telephone. The transfer agent
must receive your call during the hours of the customary
trading session of the New York Stock Exchange (NYSE) in
order to effect the redemption at that day's closing price.
By AIM Internet
Connect Place your redemption request at www.aimfunds.com. You will
be allowed to redeem by internet if (1) you do not hold
physical share certificates; (2) you can provide proper
identification information; (3) the proceeds of the
redemption do not exceed $50,000; and (4) you have
established the internet trading option. AIM prototype
retirement accounts may not be redeemed on the internet.
The transfer agent must confirm your transaction during the
hours of the customary trading session of the NYSE in order
to effect the redemption at that day's closing price.
</TABLE>
-------------------------------------------------------------------------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
REDEMPTION BY INTERNET
If you redeem by internet, we will transmit your redemption proceeds
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by internet are genuine and are not
liable for internet instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC WITHDRAWALS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Withdrawal Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM Cash Reserve Shares of AIM Money Market Fund only)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of the
customary trading session of the NYSE, we generally will transmit payment on the
next business day.
A-5 MCF--10/00
<PAGE> 120
--------------
THE AIM FUNDS
--------------
REDEMPTIONS BY CHECK
(Class A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM
Money Market Fund only)
You may redeem shares of these AIM Funds by writing checks in amounts of $250 or
more if you have completed an authorization form. Redemption by check is not
available for retirement accounts.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
(1) the amount is greater than $50,000;
(2) you request that payment be made to someone other than the name registered
on the account;
(3) you request that payment be sent somewhere other than the bank of record on
the account; or
(4) you request that payment be sent to a new address or an address that changed
in the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of
financial institutions. Call the transfer agent for additional information. Some
institutions have transaction amount maximums for these guarantees. Please check
with the guarantor institution.
REINSTATEMENT PRIVILEGE (Class A shares only)
You may, within 90 days after you sell Class A shares (except Class A shares of
AIM Tax-Exempt Cash Fund), reinvest all or part of your redemption proceeds in
Class A shares of any AIM Fund at net asset value in an identically registered
account. If you sold Class A shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund, you will incur an initial sales charge reflecting
the difference between the initial sales charges on those Funds and the ones in
which you will be investing. In addition, if you paid a contingent deferred
sales charge (CDSC) on any reinstated amount, you will not be subject to a CDSC
if you later redeem that amount. You must notify the transfer agent in writing
at the time you reinstate that you are exercising your reinstatement privilege.
You may exercise this privilege only once per year.
REDEMPTIONS BY THE AIM FUNDS
If your account has been open at least one year, you have not made an additional
purchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions or
exchanges (excluding retirement accounts), the AIM Funds have the right to
redeem the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500 or by utilizing the Automatic Investment Plan.
If an AIM Fund determines that you have not provided a correct Social Security
or other tax ID number on your account application, the AIM Fund may, at its
discretion, redeem the account and distribute the proceeds to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one AIM Fund for those
of another AIM Fund. Before requesting an exchange, review the prospectus of the
AIM Fund you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
PERMITTED EXCHANGES
Except as otherwise stated below, you may exchange your shares for shares of the
same class of another AIM Fund. You may exchange AIM Cash Reserve Shares of AIM
Money Market Fund for Class A shares of another AIM Fund, or vice versa. You
also may exchange AIM Cash Reserve Shares of AIM Money Market Fund for Class B
shares or Class C shares of another AIM Fund, but only if the AIM Cash Reserve
Shares were purchased directly and not acquired by exchange. You may be required
to pay an initial sales charge when exchanging from a Fund with a lower initial
sales charge than the one into which you are exchanging. If you exchange from
Class A shares not subject to a CDSC into Class A shares subject to those
charges, you will be charged a CDSC when you redeem the exchanged shares. The
CDSC charged on redemption of those shares will be calculated starting on the
date you acquired those shares through exchange.
YOU WILL NOT PAY A SALES CHARGE WHEN EXCHANGING:
(1) Class A shares with an initial sales charge (except for Class A shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
Class A shares of another AIM Fund or AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund for
(a) one another;
(b) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of
AIM Tax-Exempt Cash Fund; or
(c) Class A shares of another AIM Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of
an exchange from shares with higher sales charges;
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) one another;
(b) Class A shares of an AIM Fund subject to an initial sales charge (except
for Class A shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund), but only if you acquired the original
shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an
initial sales charge;
MCF--10/00 A-6
<PAGE> 121
--------------
THE AIM FUNDS
--------------
(ii) on or after May 1, 1994 by exchange from Class A shares subject to
an initial sales charge (except for Class A shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(c) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, but only if you acquired the original shares by
exchange from Class A shares subject to an initial sales charge; or
(4) Class B shares for other Class B shares, and Class C shares for other Class
C shares.
(5) AIM Cash Reserve Shares of AIM Money Market Fund for Class B shares and
Class C shares.
EXCHANGES NOT PERMITTED
You may not exchange Class A shares subject to contingent deferred sales charges
for Class A shares of AIM Limited Maturity Treasury Fund, AIM Tax-Free
Intermediate Fund or AIM Tax-Exempt Cash Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- Shares of the AIM Fund you wish to acquire must be available for sale in your
state of residence;
- Exchanges must be made between accounts with identical registration
information;
- The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- Shares must have been held for at least one day prior to the exchange;
- If you have physical share certificates, you must return them to the transfer
agent prior to the exchange; and
- You are limited to a maximum of 10 exchanges per calendar year, because
excessive short-term trading or market-timing activity can hurt fund
performance. If you exceed that limit, or if an AIM Fund or the distributor
determines, in its sole discretion, that your short-term trading is excessive
or that you are engaging in market-timing activity, it may reject any
additional exchange orders. An exchange is the movement out of (redemption)
one AIM Fund and into (purchase) another AIM Fund.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the purchase of shares
being acquired in an exchange for up to five business days if it determines that
it would be materially disadvantaged by the immediate transfer of exchange
proceeds. There is no fee for exchanges. The exchange privilege is not an option
or right to purchase shares. Any of the participating AIM Funds or the
distributor may modify or discontinue this privilege at any time.
BY MAIL
If you wish to make an exchange by mail, you must include original signatures of
each registered owner exactly as the shares are registered, the account
registration and account number, the dollar amount or number of shares to be
exchanged and the names of the AIM Funds from which and into which the exchange
is to be made.
BY TELEPHONE
Conditions that apply to exchanges by telephone are the same as redemptions by
telephone, including that the transfer agent must receive exchange requests
during the hours of the customary trading session of the NYSE; however, you
still will be allowed to exchange by telephone even if you have changed your
address of record within the preceding 30 days.
BY INTERNET
You will be allowed to exchange by internet if (1) you do not hold physical
share certificates; (2) you can provide proper identification information; and
(3) you have established the internet trading option.
EXCHANGING CLASS B AND CLASS C SHARES
If you make an exchange involving Class B or Class C shares, the amount of time
you held the original shares will be added to the holding period of the Class B
or Class C shares, respectively, into which you exchanged for the purpose of
calculating contingent deferred sales charges (CDSC) if you later redeem the
exchanged shares. If you redeem Class B shares acquired by exchange via a tender
offer by AIM Floating Rate Fund, you will be credited with the time period you
held the shares of AIM Floating Rate Fund for the purpose of computing the early
withdrawal charge applicable to those shares.
-------------------------------------------------------------------------------
EACH AIM FUND AND ITS AGENTS RESERVE THE RIGHT AT ANY TIME TO:
- REJECT OR CANCEL ANY PART OF ANY PURCHASE OR EXCHANGE ORDER;
- MODIFY ANY TERMS OR CONDITIONS OF PURCHASE OF SHARES OF ANY AIM FUND;
- REJECT OR CANCEL ANY REQUEST TO ESTABLISH THE AUTOMATIC INVESTMENT PLAN AND
SYSTEMATIC WITHDRAWAL PLAN OPTIONS ON THE SAME ACCOUNT; OR
- WITHDRAW ALL OR ANY PART OF THE OFFERING MADE BY THIS PROSPECTUS.
------------------------------------------------------------------------------
A-7 MCF--10/00
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--------------
THE AIM FUNDS
--------------
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. AIM Money
Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at
amortized cost. AIM High Income Municipal Fund, AIM Municipal Bond Fund, AIM
Tax-Exempt Bond Fund of Connecticut and AIM Tax-Free Intermediate Fund value
variable rate securities that have an unconditional demand or put feature
exercisable within seven days or less at par, which reflects the market value of
such securities.
The AIM Funds value all other securities and assets at their fair value.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day. In addition, if,
between the time trading ends on a particular security and the close of the
customary trading session of the NYSE, events occur that materially affect the
value of the security, the AIM Funds may value the security at its fair value as
determined in good faith by or under the supervision of the Board of Directors
or Trustees of the AIM Fund. The effect of using fair value pricing is that an
AIM Fund's net asset value will be subject to the judgment of the Board of
Directors or Trustees or its designee instead of being determined by the market.
Because some of the AIM Funds may invest in securities that are primarily listed
on foreign exchanges that trade on days when the AIM Funds do not price their
shares, the value of those funds' assets may change on days when you will not
be able to purchase or redeem fund shares.
Each AIM Fund determines the net asset value of its shares on each day the
NYSE is open for business, as of the close of the customary trading session, or
any earlier NYSE closing time that day. AIM Money Market Fund also determines
its net asset value as of 12:00 noon Eastern Time on each day the NYSE is open
for business.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours of the customary
trading session of the NYSE. The AIM Funds price purchase, exchange and
redemption orders at the net asset value calculated after the transfer agent
receives an order in good form. An AIM Fund may postpone the right of redemption
only under unusual circumstances, as allowed by the Securities and Exchange
Commission, such as when the NYSE restricts or suspends trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
generally taxable to you at different rates depending on the length of time
the fund holds its assets. Different tax rates may apply to ordinary income
and long-term capital gain distributions, regardless of how long you have held
your shares. Every year, you will be sent information showing the amount of
dividends and distributions you received from each AIM Fund during the prior
year.
Any long-term or short-term capital gains realized from redemptions of AIM
Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
INVESTORS IN TAX-EXEMPT FUNDS SHOULD READ THE INFORMATION UNDER THE HEADING
"OTHER INFORMATION -- SPECIAL TAX INFORMATION REGARDING THE FUND" IN THEIR
PROSPECTUS.
The foreign, state and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
MCF--10/00 A-8
<PAGE> 123
----------------------------------
AIM LIMITED MATURITY TREASURY FUND
----------------------------------
OBTAINING ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
---------------------------------------------------------
You also can review and obtain copies of the fund's SAI, reports and other
information at the SEC's Public Reference Room in Washington, DC; on the EDGAR
database on the SEC's Internet website (http://www.sec.gov); or, after paying a
duplication fee, by sending a letter to the SEC's Public Reference Section,
Washington, DC 20549-0102 or by sending an electronic mail request to
[email protected]. Please call the SEC at 1-202-942-8090 for information about
the Public Reference Room.
-----------------------------------
AIM Limited Maturity Treasury Fund
SEC 1940 Act file number: 811-5686
-----------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com LTD-PRO-1 INVEST WITH DISCIPLINE
--Registered Trademark-- --Registered Trademark--
<PAGE> 124
STATEMENT OF
ADDITIONAL INFORMATION
AIM INVESTMENT SECURITIES FUNDS
----------------
AIM HIGH YIELD FUND
AIM HIGH YIELD FUND II
AIM INCOME FUND
AIM INTERMEDIATE GOVERNMENT FUND
AIM MONEY MARKET FUND
AIM MUNICIPAL BOND FUND
AND
CLASS A SHARES OF AIM LIMITED MATURITY TREASURY FUND
11 GREENWAY PLAZA
SUITE 100
HOUSTON, TEXAS 77046-1173
(713) 626-1919
----------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, AND
IT SHOULD BE READ IN CONJUNCTION WITH A PROSPECTUS FOR THE
ABOVE-NAMED FUNDS, COPIES OF WHICH MAY BE OBTAINED FREE
OF CHARGE FROM AUTHORIZED DEALERS, OR BY WRITING
A I M FUND SERVICES, INC., P.O. BOX 4739,
HOUSTON, TEXAS 77210- 4739,
OR BY CALLING (800) 347-4246.
----------------
STATEMENT OF ADDITIONAL INFORMATION DATED: NOVEMBER 28, 2000
RELATING TO THE PROSPECTUSES OF
AIM HIGH YIELD FUND DATED: NOVEMBER 28, 2000,
AIM HIGH YIELD FUND II DATED: NOVEMBER 28, 2000,
AIM INCOME FUND DATED: NOVEMBER 28, 2000,
AIM INTERMEDIATE GOVERNMENT FUND DATED: NOVEMBER 28, 2000,
AIM MONEY MARKET FUND DATED: NOVEMBER 28, 2000,
AIM MUNICIPAL BOND FUND DATED: NOVEMBER 28, 2000, AND
CLASS A SHARES OF AIM LIMITED MATURITY TREASURY FUND DATED: NOVEMBER 28, 2000
<PAGE> 125
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
INTRODUCTION......................................................................................................1
GENERAL INFORMATION ABOUT THE TRUST...............................................................................1
The Trust and its Shares.................................................................................1
PERFORMANCE INFORMATION...........................................................................................4
Yield Calculations.......................................................................................4
Total Return Calculations................................................................................5
Total Return Quotations..................................................................................6
Cumulative Return Quotations.............................................................................8
Historical Portfolio Results.............................................................................9
PORTFOLIO TRANSACTIONS...........................................................................................10
General Brokerage Policy................................................................................10
Allocation of Portfolio Transactions....................................................................11
Allocation of IPO Securities Transactions...............................................................11
Section 28(e) Standards.................................................................................12
Transactions with Regular Brokers.......................................................................12
Brokerage Commissions Paid..............................................................................13
Portfolio Turnover (All Funds Except Money Market)......................................................13
INVESTMENT STRATEGIES AND RISKS..................................................................................13
High Yield..............................................................................................14
High Yield II...........................................................................................14
Limited Maturity........................................................................................15
Money Market............................................................................................15
Municipal Bond..........................................................................................16
High Yield, High Yield II, Income, Intermediate Government and Municipal Bond...........................17
Risk Factors Regarding Non-Investment Grade Debt Securities.............................................18
Real Estate Investment Trusts ("REITs").................................................................19
Lending Portfolio Securities............................................................................19
Interfund Loans.........................................................................................19
Short Sales.............................................................................................19
Margin Transactions.....................................................................................20
Delayed Delivery Agreements.............................................................................20
When-Issued Securities..................................................................................21
Investments in Foreign Securities.......................................................................21
Risk Factors Regarding Foreign Securities...............................................................22
Illiquid Securities.....................................................................................23
Rule 144A Securities....................................................................................23
Repurchase Agreements...................................................................................23
Reverse Repurchase Agreements...........................................................................24
Dollar Roll Transactions................................................................................24
Borrowing...............................................................................................25
Investment in Other Investment Companies................................................................25
Temporary Defensive Investments.........................................................................25
U.S. Treasury Securities................................................................................25
Foreign Exchange Transactions...........................................................................25
</TABLE>
i
<PAGE> 126
<TABLE>
<S> <C>
OPTIONS, FUTURES AND CURRENCY STRATEGIES.........................................................................26
Introduction............................................................................................26
General Risks of Options, Futures and Currency Strategies...............................................26
Cover...................................................................................................27
Writing Call Options....................................................................................27
Writing Put Options.....................................................................................28
Purchasing Put Options..................................................................................28
Purchasing Call Options.................................................................................29
Over-The-Counter Options................................................................................29
Index Options...........................................................................................29
Limitations on Options..................................................................................30
Interest Rate, Currency and Stock Index Futures Contracts...............................................30
Options on Futures Contracts............................................................................31
Forward Contracts.......................................................................................31
Limitations on Use of Futures, Options on Futures and Certain Options on Currencies.....................32
INVESTMENT RESTRICTIONS..........................................................................................32
Fundamental Restrictions................................................................................32
Non-Fundamental Restrictions............................................................................33
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES..............................................................34
MANAGEMENT.......................................................................................................39
Trustees and Officers...................................................................................39
Remuneration of Trustees................................................................................42
AIM Funds Retirement Plan for Eligible Directors/Trustees...............................................44
Deferred Compensation Agreements........................................................................44
Investment Advisory and Other Services..................................................................45
Distribution Plans......................................................................................48
THE DISTRIBUTION AGREEMENTS......................................................................................54
SALES CHARGES AND DEALER CONCESSIONS.............................................................................56
REDUCTIONS IN INITIAL SALES CHARGES..............................................................................59
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS......................................................................63
HOW TO PURCHASE AND REDEEM SHARES................................................................................65
Variable Annuity Contracts..............................................................................65
Backup Withholding......................................................................................66
NET ASSET VALUE DETERMINATION....................................................................................67
For Money Market........................................................................................67
For All Other Funds.....................................................................................68
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS.........................................................................69
Dividends and Distributions.............................................................................69
Tax Matters.............................................................................................69
Qualification as a Regulated Investment Company.........................................................70
Excise Tax on Regulated Investment Companies............................................................71
Fund Distributions......................................................................................71
Municipal Bond..........................................................................................72
Sale or Redemption of Fund Shares.......................................................................73
</TABLE>
ii
<PAGE> 127
<TABLE>
<S> <C>
Reinstatement Privilege.................................................................................74
Foreign Shareholders....................................................................................74
Effect of Future Legislation; Local Tax Considerations..................................................74
DESCRIPTION OF MONEY MARKET INSTRUMENTS..........................................................................74
SHAREHOLDER INFORMATION..........................................................................................75
MISCELLANEOUS INFORMATION........................................................................................78
Charges for Certain Account Information.................................................................78
Audit Reports...........................................................................................78
Legal Matters...........................................................................................78
Custodian and Transfer Agent............................................................................78
Other Information.......................................................................................79
DESCRIPTION OF OBLIGATIONS ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES OR INSTRUMENTALITIES.................80
RATINGS OF SECURITIES............................................................................................83
FINANCIAL STATEMENTS.............................................................................................FS
</TABLE>
iii
<PAGE> 128
INTRODUCTION
AIM Investment Securities Funds (the "Trust") is a series mutual fund.
The rules and regulations of the United States Securities and Exchange
Commission (the "SEC") require all mutual funds to furnish prospective investors
with certain information concerning the activities of the Fund being considered
for investment. This information is included in prospectuses for each series
portfolio of the Trust (each a "Fund" and collectively, the "Funds"). The date
of the most recent prospectus for each Fund is set forth below.
<TABLE>
<CAPTION>
Date of Most
Fund Name: Recent Prospectus:
--------- ------------------
<S> <C>
AIM High Yield Fund November 28, 2000
AIM High Yield Fund II November 28, 2000
AIM Income Fund November 28, 2000
AIM Intermediate Government Fund November 28, 2000
AIM Limited Maturity Treasury Fund November 28, 2000
AIM Money Market Fund November 28, 2000
AIM Municipal Bond Fund November 28, 2000
</TABLE>
Throughout this Statement of Additional Information, these prospectuses
are referred to collectively as the "Prospectuses" and individually, each is
referred to as a "Prospectus."
AIM High Yield Fund, AIM High Yield Fund II, AIM Income Fund, AIM
Intermediate Government Fund and AIM Municipal Bond Fund all issue Class A,
Class B and Class C shares. AIM Money Market Fund issues AIM Cash Reserve
Shares, Class B shares and Class C shares. AIM Limited Maturity Treasury Fund
issues Class A shares (which are discussed in this Statement of Additional
Information) and Institutional Class shares (which are discussed in a separate
Statement of Additional Information).
This Statement of Additional Information is intended to furnish
investors with additional information concerning the Funds. Some of the
information set forth in this Statement of Additional Information is also
included in the Prospectuses. Copies of the Prospectuses and additional copies
of this Statement of Additional Information may be obtained without charge by
writing A I M Fund Services, Inc. ("AFS"), P.O. Box 4739, Houston, Texas
77210-4739, or by calling (800) 347-4246. Investors must receive and should read
the appropriate Prospectus before they invest in any Fund.
The Prospectuses and this Statement of Additional Information omit
certain information contained in the Trust's Registration Statement filed with
the SEC. Copies of the Registration Statement, including items omitted from the
Prospectuses and this Statement of Additional Information, may be obtained from
the SEC by paying the charges prescribed under its rules and regulations.
GENERAL INFORMATION ABOUT THE TRUST
THE TRUST AND ITS SHARES
The Trust was previously organized as a Maryland corporation on
November 4, 1988. Pursuant to an Agreement and Plan of Reorganization, AIM
Limited Maturity Treasury Fund ("Limited Maturity") was reorganized on October
15, 1993 as a series portfolio of the Trust. Pursuant to another Agreement and
Plan of Reorganization, AIM High Yield Fund ("High Yield"), AIM Income Fund
("Income"), AIM Intermediate Government Fund ("Intermediate Government"), AIM
Money Market Fund series ("Money Market") and AIM Municipal Bond Fund
("Municipal Bond") were reorganized on June 1, 2000 as series portfolios of the
Trust. A copy of the Trust's Amended and Restated Agreement and Declaration of
Trust dated November 5, 1998, as amended (the "Trust Agreement"), is on file
with the SEC. In connection with their reorganization as series portfolios of
the Trust, the fiscal year end of each of High Yield, Income, Intermediate
Government, Money Market and Municipal Bond changed from December 31 to July 31.
1
<PAGE> 129
AIM High Yield Fund II ("High Yield II") commenced operations on
September 30, 1998. Limited Maturity succeeded to the assets and assumed the
liabilities of a series portfolio with a corresponding name (the "Predecessor
Fund") of Short-Term Investments Co., a Massachusetts business trust, on October
15, 1993. All historical financial information and other information contained
in this Statement of Additional Information for periods prior to October 15,
1993, relating to Limited Maturity (or a class thereof) is that of the
Predecessor Fund (or a corresponding class thereof). High Yield, Income,
Intermediate Government, Money Market and Municipal Bond succeeded to the assets
and assumed the liabilities of series portfolios with corresponding names (the
"Predecessor Funds") of AIM Funds Group, a Delaware business trust, on June 1,
2000. All historical financial information and other information contained in
this Statement of Additional Information for periods prior to June 1, 2000,
relating to High Yield, Income, Intermediate Government, Money Market or
Municipal Bond (or any classes thereof) is that of the Predecessor Funds (or the
corresponding classes thereof).
Shares of beneficial interest of the Trust are redeemable at their net
asset value at the option of the shareholder or at the option of the Trust in
certain circumstances. For information concerning the methods of redemption and
the rights of share ownership, investors should consult the Prospectuses under
the captions "Exchanging Shares" and "Redeeming Shares." The assets received by
the Trust for the issuance or sale of shares of each Fund, and all income,
earnings, profits, losses and proceeds therefrom, subject only to the rights of
creditors, will be allocated to that Fund. They constitute the underlying assets
of a Fund, are required to be segregated on the Trust's books of account, and
are to be charged with the expenses with respect to the Fund and its respective
classes. Any general expenses of the Trust not readily identifiable as belonging
to a particular Fund are allocated by or under the direction of the Board of
Trustees, primarily on the basis of relative net assets, or other relevant
factors.
Shareholders of a Fund are entitled to one vote per share (with
proportionate voting for fractional shares), irrespective of the relative net
asset value of the shares of that Fund. However, on matters affecting one Fund
or one class of shares, a separate vote of shareholders of that Fund or class is
required. Shareholders of a Fund or class are not entitled to vote on any matter
which does not affect that Fund or class. An example of a matter which would be
voted on separately by shareholders of a particular portfolio is the approval of
the Advisory Agreement, and an example of a matter which would be voted on
separately by shareholders of each class is the approval of the distribution
plans. When issued, shares of each Fund are fully paid and nonassessable, have
no preemptive or subscription rights, and are fully transferable. Shares do not
have cumulative voting rights, which means that in situations in which
shareholders elect trustees, holders of more than 50% of the shares voting for
the election of trustees can elect all of the trustees of the Trust, and the
holders of less than 50% of the shares voting for the election of trustees will
not be able to elect any trustees. Under the Trust Agreement, the Board of
Trustees is authorized to create new series of shares without the necessity of a
vote of shareholders of the Trust.
Class B shares automatically convert to Class A shares at the end of
the month which is eight years after the date of purchase. A pro rata portion of
shares from reinvested dividends and distributions convert at the same time. No
other shares have conversion rights. Because Class B shares convert into Class A
shares, the holders of Class B shares (as well as the holders of Class A shares)
of each Fund must approve any material increase in fees payable with respect to
that Fund under the Class A and C Plan or a new class of shares into which the
Class B shares will convert must be created which will be identical in all
material respects to the Class A shares prior to the material increase in fees.
Each share of beneficial interest of a Fund represents an equal
proportionate interest in the Fund with each other share and is entitled to such
dividends and distributions out of the income belonging to the Fund. Fractional
shares have proportionately the same rights, including voting rights, as are
provided for full shares, as declared by the Board of Trustees. The Trust offers
seven separate Funds with differing Class structures: Class A, Class B and Class
C shares of High Yield, High Yield II, Income, Intermediate Government and
Municipal Bond; Class A shares and the Institutional Class of Limited Maturity;
and AIM Cash Reserve Shares, Class B and Class C shares of Money Market. As
further described in the Prospectuses, each class is subject to differing sales
charges (if applicable) and expenses, which differences will result in differing
net asset values and dividends and distributions. Upon any liquidation of the
Trust, shareholders of each class of the
2
<PAGE> 130
respective Funds are entitled to share pro rata in the net assets belonging to
the applicable Fund allocable to such class available for distribution. If the
Trust liquidates, the Funds will first satisfy the outstanding liabilities of
each of their classes. The Funds will then distribute the net assets allocable
to each of their classes to the shareholders of such classes on a pro rata
basis.
To obtain information about the Institutional Class of Limited
Maturity, please call A I M Distributors, Inc. ("AIM Distributors"), a
registered broker-dealer and a wholly owned subsidiary of A I M Advisors, Inc.
("AIM"), at (800) 659-1005. AIM Distributors is the exclusive distributor of the
Trust's shares.
The Trust is not required to hold annual or regular meetings of
shareholders. Meetings of shareholders of a class will be held from time to time
to consider matters requiring a vote of such shareholders in accordance with the
requirements of the Investment Company Act of 1940, as amended, (the "1940
Act"), state law and the provisions of the Trust Agreement. It is not expected
that shareholder meetings will be held annually.
The Trust Agreement provides that trustees of the Trust shall hold
office during the existence of the Trust, except as follows: (a) any trustee may
resign or retire; (b) any trustee may be removed by a vote of at least
two-thirds of the outstanding shares of the Trust, or at any time by written
instrument signed by at least two-thirds of the trustees and specifying when
such removal becomes effective; or (c) any trustee who has died or become
incapacitated and is unable to serve may be retired by a written instrument
signed by a majority of the trustees and specifying the date of his or her
retirement.
Under Delaware law, the shareholders of a Delaware business Trust shall
be entitled to the same limitations of liability extended to shareholders of
private, for-profit corporations; however, there is a remote possibility that
shareholders could, under certain circumstances, be held liable for the
obligations of the Trust to the extent the courts of another state which does
not recognize such limited liability were to apply the laws of such state to a
controversy involving such obligations. The Trust Agreement, though, does
disclaim shareholder liability for acts or obligations of the Trust and requires
that notice of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by the Trust or the trustees to all parties,
and each party thereto must expressly waive all rights of action directly
against shareholders of the Trust. The Trust Agreement also provides for
indemnification out of the property of a Fund for all losses and expenses of any
shareholder of such Fund held liable on account of being or having been a
shareholder. Thus, the risk of a shareholder incurring financial loss is limited
to circumstances in which the Fund would be unable to meet its obligations and
wherein the complaining party was not held to be bound by the disclaimer.
The Trust Agreement further provides that the trustees and officers
will not be liable for any act, omission or obligation of the Trust or any
trustee or officer. However, nothing in the Trust Agreement protects a trustee
or officer against any liability to the Trust or to the shareholders to which a
trustee or officer would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties involved in the
conduct of his or her office with the Trust. The Trust Agreement also provides
for indemnification by the Trust of the trustees, the officers and employees or
agents of the Trust, if it is determined that such person acted in good faith
and reasonably believed: (1) in the case of conduct in his or her official
capacity for the Trust, that his or her conduct was in the Trust's best
interests, (2) in all other cases, that his or her conduct was at least not
opposed to the Trust's best interests and (3) in a criminal proceeding, that he
or she had no reason to believe that his or her conduct was unlawful. Such
person may not be indemnified against any liability to the Trust or to the
Trust's shareholders to which he or she would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office. The Trust Agreement also
authorizes the purchase of liability insurance on behalf of trustees and
officers.
3
<PAGE> 131
PERFORMANCE INFORMATION
YIELD CALCULATIONS
The standard formula for calculating yield for each Fund is as follows:
6
YIELD = 2[((a-b)/(c x d)+1) -1]
Where a = dividends and interest earned during a stated 30-day period.
For purposes of this calculation, dividends are accrued
rather than recorded on the ex-dividend date. Interest earned
under this formula must generally be calculated based on the
yield to maturity of each obligation (or, if more
appropriate, based on yield to call date).
b = expenses accrued during period (net of reimbursement).
c = the average daily number of shares outstanding during the
period.
d = the maximum offering price per share on the last day of the
period.
Yield is a function of the type and quality of the Fund's investments,
the maturity of the securities held in the Fund's portfolio and the operating
expense ratio of the Fund. A tax-equivalent yield is calculated in the same
manner as the standard yield with an adjustment for a stated, assumed tax rate.
Municipal Bond may also demonstrate the effect of such tax-equivalent
adjustments generally by comparing various yield levels with their corresponding
tax-equivalent yields, given a stated tax rate.
The yields for each of the Funds (except Money Market) for the
thirty-day period ended July 31, 2000, were as follows:
<TABLE>
<CAPTION>
30-DAY YIELDS
--------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- -------------- --------------
<S> <C> <C> <C>
High Yield*........................ 12.15% 11.97%* 11.97%*
High Yield II*..................... 11.76% 11.58% 11.58%
Income .......................... 8.23% 7.89% 7.89%
Intermediate Government............ 6.02% 5.55% 5.55%
Limited Maturity ................. 5.89% N/A N/A
Municipal Bond..................... 4.38%** 3.84%** 3.84%**
</TABLE>
* The relatively high yields in this Fund, like that of other
junk bond funds, reflect a substantial premium for the high
default risk perceived by the market. Investors should not
consider these yields a measure of income potential.
** The tax-equivalent yields, assuming a tax rate of 39.6%, for
the Class A shares, Class B shares and Class C shares of
Municipal Bond were 7.25%, 6.36% and 6.36%, respectively.
The standard formula for calculating annualized 7-day yields for Money
Market is as follows:
V - V x 365
1 0
Y = ------ ---
V 7
0
Where Y = annualized yield.
V(0) = the value of a hypothetical pre-existing account in
the Fund having a balance of one share at the
beginning of a stated seven-day period.
V(1) = the value of such an account at the end of the stated
period.
The annualized yields for each of the AIM Cash Reserve Shares, Class B
and Class C shares of Money Market for the 7 days ended July 31, 2000, were
5.58%, 4.85% and 4.86%, respectively.
4
<PAGE> 132
The standard formula for calculating effective annualized yield for
Money Market is as follows:
365/7
EY = (Y+1) -1
Where EY = effective annualized yield.
Y = annualized yield, as determined above.
The effective annualized yields for each of the AIM Cash Reserve Shares,
Class B and Class C shares of Money Market for the 7 days ended July 31, 2000,
were 5.74%, 4.96% and 4.97%, respectively.
For the purpose of determining the annualized yield and effective
annualized yield, the net change in the value of the hypothetical Money Market
account reflects the value of additional shares purchased with dividends from
the original shares and any such additional shares, and all fees charged, other
than non-recurring account or sales charges, to all shareholder accounts in
proportion to the length of the base period and the Fund's average account size,
but does not include realized gains and losses or unrealized appreciation and
depreciation or income other than investment income.
Certain of the Funds may also quote their distribution rates, which
express the historical amount of income a Fund paid as dividends to its
shareholders as a percentage of the Fund's offering price. The distribution
rates for the Class A shares of Limited Maturity for the month ended July 31,
2000; for the Class A, Class B and Class C shares of High Yield, High Yield II,
Income, Intermediate Government and Municipal Bond for the month ended July 31,
2000, were as follows:
<TABLE>
<CAPTION>
DISTRIBUTION RATES
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- ------------------ --------------
<S> <C> <C> <C>
High Yield......................... 10.78% 10.53% 10.56%
High Yield II...................... 11.12% 10.79% 10.81%
Income .......................... 7.36% 6.81% 6.82%
Intermediate Government............ 6.25% 5.73% 5.75%
*Limited Maturity ................. 5.55% N/A N/A
Municipal Bond..................... 4.96% 4.44% 4.44%
</TABLE>
* Limited Maturity 30 day yield.
These distribution rates were calculated by dividing dividends declared
over the applicable month by the maximum offering price per share at the end of
the period and annualizing the result.
TOTAL RETURN CALCULATIONS
Total returns quoted in advertising reflect all aspects of a Fund's
return, including the effect of reinvesting dividends and capital gain
distributions, and any changes in the Fund's net asset value per share over the
period. Average annual returns are calculated by determining the growth or
decline in value of a hypothetical investment in a Fund over a stated period,
and then calculating the annual compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period. While average annual returns are a convenient means of
comparing investment alternatives, investors should realize that a Fund's
performance is not constant over time, but changes from year to year, and that
average annual returns do not represent the actual year-to-year performance of a
Fund.
5
<PAGE> 133
Each Fund's total return is calculated in accordance with a
standardized formula. Standardized total return for Class A shares reflects the
deduction of the Fund's maximum front-end sales charge at the time of purchase.
Standardized total return for Class B and Class C shares of the Funds (except
for Limited Maturity) reflects the deduction of the maximum applicable
contingent deferred sales charge on a redemption of shares held for the period.
Standardized total return for AIM Cash Reserve Shares does not reflect a
deduction of any sales charge, since that class is sold and redeemed at net
asset value.
In addition to average annual total return, a Fund may quote unaveraged
or cumulative total return reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total returns may
be quoted as a percentage or as a dollar amount, and may be calculated for a
single investment, a series of investments, and/or a series of redemptions over
any time period. Total returns may be broken down into their components of
income and capital (including capital gains and changes in share price) in order
to illustrate the relationship of these factors and their contributions to total
return. Total returns, yields and other performance information may be quoted
numerically or in a table, graph or similar illustration. Total returns may be
quoted with or without taking any applicable maximum sales charge or maximum
contingent deferred sales charge into account. If quoted without the sales
charge or contingent deferred sales charge, the performance quotation will be
noted by an asterisk or other conspicuous footnote disclosing this fact.
Excluding a Fund's sales charge or contingent deferred sales charge from a total
return calculation produces a higher total return figure.
TOTAL RETURN QUOTATIONS
The following chart shows the average annual total returns for each of
the named Funds' Class A shares for the one-year, five-year and ten-year periods
(or since inception, if shorter) ended July 31, 2000:
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
------------------------------------------------------
ONE FIVE TEN SINCE
YEAR YEARS YEARS INCEPTION
------ ------- ------- -----------
Class A Shares:
<S> <C> <C> <C> <C>
High Yield (11.86)% 2.99% 8.42% 9.59%
High Yield II (4.00)% N/A N/A 9.18%(1)
Income (6.82)% 4.69% 6.91% 7.25%
Intermediate Government (0.63)% 4.44% 5.84% 6.40%
Limited Maturity 3.47% 4.94% 5.62% 6.10%
Municipal Bond (2.71)% 3.43% 5.62% 6.30%
</TABLE>
(1) September 30, 1998 (date operations commenced)
6
<PAGE> 134
The following chart shows the average annual total returns for each of
the named Funds' Class B shares for the one-year, five-year and ten-year periods
(or since inception, if shorter) ended July 31, 2000:
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
-------------------------------------------
ONE FIVE SINCE
YEAR YEARS INCEPTION
------ ------- ---------
Class B Shares:
---------------
<S> <C> <C> <C>
High Yield......................... (12.23)% 2.96% 4.21%(2)
High Yield II...................... (4.38)% N/A 5.41%(3)
Income............................. (7.47)% 4.59% 3.63%(4)
Intermediate Government............ (1.38)% 4.35% 3.91%(4)
Money Market....................... (0.81)% 3.46% 3.62%(2)
Municipal Bond..................... (3.52)% 3.42% 3.36%(5)
</TABLE>
(2) September 1, 1993 (date operations commenced)
(3) November 20, 1998 (date operations commenced)
(4) September 7, 1993 (date operations commenced)
(5) October 15, 1993 (date operations commenced)
The following chart shows the average annual total return for each of
the named Funds' Class C shares for the one-year and five-year periods (or since
inception, if shorter) ended July 31, 2000:
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
-------------------------------------
ONE SINCE
YEAR INCEPTION
------- ----------
Class C Shares:
---------------
<S> <C> <C>
High Yield......................... (9.05)% (2.66)%(6)
High Yield II...................... (0.92)% 7.43%(7)
Income .......................... (3.84)% 1.03%(6)
Intermediate Government............ 2.66% 3.80%(6)
Money Market....................... 3.19% 3.83%(6)
Municipal Bond..................... 0.36% 2.42%(6)
</TABLE>
(6) August 4, 1997 (date operations commenced)
(7) November 20, 1998 (date operations commenced)
The average annual total return for Money Market's AIM Cash Reserve
Shares, for the one-year period ended July 31, 2000, was 4.96%; for the
five-year period ended July 31, 2000, was 4.60%; and since inception (October
16, 1993), was 4.41%.
7
<PAGE> 135
CUMULATIVE RETURN QUOTATIONS
The following chart shows the cumulative returns for each of the named
Funds' Class A shares, for the one-year, five-year and ten-year periods (or
since inception, if shorter), ended July 31, 2000:
<TABLE>
<CAPTION>
CUMULATIVE RETURNS
------------------------------------------------------------
ONE FIVE TEN SINCE
YEAR YEARS YEARS INCEPTION
------ ------ -------- -----------
Class A Shares:
<S> <C> <C> <C> <C>
High Yield (11.86)% 15.87% 124.34% 654.22%
High Yield II (4.00)% N/A N/A 17.46%(1)
Income (6.82)% 25.74% 95.09% 856.61%
Intermediate Government (0.63)% 24.27% 76.42% 127.66%
Limited Maturity 3.47% 27.28% 72.69% 111.12%
Municipal Bond (2.71)% 18.34% 72.69% 316.51%
</TABLE>
(1) September 30, 1998 (date operations commenced)
The following chart shows the cumulative returns for each of the named
Funds' Class B shares for the one-year, five-year and ten-year periods (or since
inception, if shorter) ended July 31, 2000:
<TABLE>
<CAPTION>
CUMULATIVE RETURNS
--------------------------------------------
ONE FIVE SINCE
YEAR YEARS INCEPTION
------ ------- -----------
Class B Shares:
<S> <C> <C> <C>
High Yield (12.23)% 15.73% 33.00%(2)
High Yield II (4.38)% N/A 9.34%(3)
Income (7.47)% 25.16% 27.92%(4)
Intermediate Government (1.38)% 23.74% 30.25%(2)
Money Market (0.81)% 18.57% 27.27%(5)
Municipal Bond (3.52)% 18.31% 25.68%(2)
</TABLE>
(2) September 1, 1993 (date operations commenced)
(3) November 20, 1998 (date operations commenced)
(4) September 7, 1993 (date operations commenced)
(5) October 15,1993 (date operations commenced)
8
<PAGE> 136
The following chart shows the cumulative returns for each of the named
Funds' Class C shares, for the one-year and five-year periods (or since
inception, if shorter) ended July 31, 2000:
<TABLE>
<CAPTION>
CUMULATIVE RETURNS
---------------------------
ONE SINCE
YEAR INCEPTION
------ -----------
Class C Shares:
---------------
<S> <C> <C>
High Yield......................... (9.05)% (7.75)%(6)
High Yield II...................... (0.92)% 12.90%(7)
Income .......................... (3.84)% 3.12%(6)
Intermediate Government............ 2.66% 11.81%(6)
Money Market....................... 3.19% 11.88%(6)
Municipal Bond..................... 0.36% 7.42%(6)
</TABLE>
(6) August 4, 1997 (date operations commenced)
(7) November 20, 1998 (date operations commenced)
The cumulative return for Money Market's AIM Cash Reserve Shares for
the one-year ended July 31, 2000, was 4.96%; and for the five-year period ended
July 31, 2000, was 25.22%; and since inception was 34.03%.
HISTORICAL PORTFOLIO RESULTS
From time to time, AIM or its affiliates may waive all or a portion of
their fees and/or assume certain expenses of a Fund. Voluntary fee waivers or
reductions or commitments to assume expenses may be rescinded at any time
without further notice to investors. During periods of voluntary fee waivers or
reductions or commitments to assume expenses, AIM will retain its ability to be
reimbursed for such fee prior to the end of each fiscal year. Contractual fee
waivers or reductions or reimbursement of expenses set forth in the Fee Table in
a Prospectus may not be terminated or amended to the Funds' detriment during the
period stated in the agreement between AIM and the Fund. Fee waivers or
reductions or commitments to reduce expenses will have the effect of increasing
that Fund's yield and total return.
The performance of each Fund will vary from time to time and past
performance is not necessarily indicative of future results. A Fund's
performance is a function of its portfolio management in selecting the type and
quality of portfolio securities and is affected by operating expenses of the
Fund and market conditions. A shareholder's investment in a Fund is not insured
or guaranteed. An investor should be aware that an investment in a Fund is
subject to risks not present in ownership of a certificate of deposit, due to
possible greater risk of loss of capital. These factors should be carefully
considered by the investor before making an investment in any Fund.
High Yield II may participate in the Initial Public Offering ("IPO")
market, and a significant portion of its returns may be attributable to its
investment in IPOs. Investment in IPOs could have a magnified impact on High
Yield II due to its small asset base. There is no guarantee that as the Fund's
assets grow, it will continue to experience substantially similar performance by
investing in IPOs.
A Fund's performance may be compared in advertising to the performance
of other mutual funds in general, or to the performance of particular types of
mutual funds, especially those with similar investment objectives. Such
performance data may be prepared by Lipper Inc. and other independent services
which monitor the performance of mutual funds. A Fund may also advertise mutual
fund performance rankings which have been assigned to it by such monitoring
services.
A Fund's performance may also be compared in advertising and other
materials to the performance of comparative benchmarks such as the Consumer
Price Index, the Standard & Poor's 500 Stock Index, and
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fixed-price investments such as bank certificates of deposit and/or savings
accounts. In addition, a Fund's long-term performance may be described in
advertising in relation to historical, political and/or economic events.
From time to time, a Fund's sales literature and/or advertisements may
discuss generic topics pertaining to the mutual fund industry. These topics
include, but are not limited to, literature addressing general information about
mutual funds, variable annuities, dollar-cost averaging, stocks, bonds, money
markets, certificates of deposit, retirement, retirement plans, asset
allocation, tax-free investing, college planning and inflation.
From time to time sales literature and/or advertisements may disclose
(i) top holdings included in a Fund's portfolio, (ii) the names of certain
selling group members and/or (iii) the names of certain institutional
shareholders.
PORTFOLIO TRANSACTIONS
GENERAL BROKERAGE POLICY
AIM makes decisions to buy and sell securities for each Fund, selects
broker-dealers, effects the Funds' investment portfolio transactions, allocates
brokerage fees in such transactions, and where applicable, negotiates
commissions and spreads on transactions. Since most purchases and sales of
portfolio securities by the Funds are usually principal transactions, the Funds
incur little or no brokerage commissions. AIM's primary consideration in
effecting a security transaction is to obtain the most favorable execution of
the order, which includes the best price on the security and a low commission
rate. While AIM seeks reasonably competitive commission rates, the Funds may not
pay the lowest commission or spread available. See "Section 28(e) Standards"
below.
In the event a Fund purchases securities traded in the over-the-counter
market, the Fund deals directly with dealers who make markets in the securities
involved, except when better prices are available elsewhere. Portfolio
transactions placed through dealers who are primary market makers are effected
at net prices without commissions, but which include compensation in the form of
a mark up or mark down.
Traditionally, commission rates have not been negotiated on stock
markets outside the United States. Although in recent years many overseas stock
markets have adopted a system of negotiated rates, a number of markets maintain
an established schedule of minimum commission rates.
AIM may determine target levels of commission business with various
brokers on behalf of its clients (including the Funds) over a certain time
period. The target levels will be based upon the following factors, among
others: (1) the execution services provided by the broker; (2) the research
services provided by the broker; and (3) the broker's interest in mutual funds
in general, and in the Funds and other mutual funds advised by AIM or A I M
Capital Management, Inc. (collectively, "AIM Funds") in particular, including
sales of the Funds and of the other AIM Funds. In connection with item (3)
above, the Funds' trades may be executed directly by dealers that sell shares of
the AIM Funds or by other broker-dealers with which such dealers have clearing
arrangements. AIM will not use a specific formula in connection with any of
these considerations to determine the target levels.
The Funds may engage in certain principal and agency transactions with
banks and their affiliates that own 5% or more of the outstanding voting
securities of an AIM Fund, provided the conditions of an exemptive order
received by the AIM Funds from the SEC are met. In addition, a Fund may purchase
or sell a security from or to another AIM Fund or account and may invest in
affiliated money market funds, provided the Funds follow procedures adopted by
the Boards of Directors/Trustees of the various AIM Funds, including the Trust.
These inter-fund transactions do not generate brokerage commissions but may
result in custodial fees or taxes or other related expenses.
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ALLOCATION OF PORTFOLIO TRANSACTIONS
AIM and its affiliates also manage numerous other investment accounts.
Some of these accounts may have investment objectives similar to the Funds.
Occasionally, identical securities will be appropriate for investment by one of
the Funds and by another AIM Fund or one or more of these investment accounts.
However, the position of each account in the same securities and the length of
time that each account may hold its investment in the same securities may vary.
The timing and amount of a purchase by each account will also be determined by
its cash position. If the purchase or sale of securities is consistent with the
investment policies of the Fund(s) and one or more of these accounts, and is
considered at or about the same time, AIM will fairly allocate transactions in
such securities among the Fund(s) and these accounts. AIM may combine such
transactions, in accordance with applicable laws and regulations, to obtain the
most favorable execution. Simultaneous transactions could, however, adversely
affect a Fund's ability to obtain or dispose of the full amount of a security
which it seeks to purchase or sell.
Sometimes the procedure for allocating portfolio transactions among the
various investment accounts advised by AIM could have an adverse effect on the
price or amount of securities available to a Fund. In making such allocations,
AIM considers the investment objectives and policies of its advisory clients,
the relative size of portfolio holdings of the same or comparable securities,
the availability of cash for investment, the size of investment commitments
generally held, and the judgments of the persons responsible for recommending
the investment.
ALLOCATION OF IPO SECURITIES TRANSACTIONS
From time to time, certain of the AIM Funds or other accounts managed
by AIM may become interested in participating in security distributions that are
available in an IPO, and occasions may arise when purchases of such securities
by one AIM Fund or account may also be considered for purchase by one or more
other AIM Funds or accounts. In such cases, it shall be AIM's practice to
specifically combine or otherwise bunch indications of interest for IPO
securities for all AIM Funds and accounts participating in purchase transactions
for that security, and to allocate such transactions in accordance with the
following procedures:
AIM will determine the eligibility of each AIM Fund and account that
seeks to participate in a particular IPO by reviewing a number of factors,
including suitability of the investment with the AIM Fund's or account's
investment objective, policies and strategies, the liquidity of the AIM Fund or
account if such investment is purchased, and whether the portfolio manager
intends to hold the security as a long-term investment. The allocation of
limited supply securities issued in IPOs will be made to eligible AIM Funds and
accounts in a manner designed to be fair and equitable for the eligible AIM
Funds and accounts, and so that there is equal allocation of IPOs over the
longer term. Where multiple funds or accounts are eligible, rotational
participation may occur, based on the extent to which an AIM Fund or account has
participated in previous IPOs as well as the size of the AIM Fund or account.
Each eligible AIM Fund and account with an asset level of less than $500 million
will be placed in one of three tiers, depending upon its asset level. The AIM
Funds and accounts in the tier containing funds and accounts with the smallest
asset levels will participate first, each receiving a 40 basis point allocation
(rounded to the nearest share round lot that approximates 40 basis points) (the
"Allocation"), based on that AIM Fund's or account's net assets. This process
continues until all of the AIM Funds and accounts in the three tiers receive
their Allocations, or until the shares are all allocated. Should securities
remain after this process, eligible AIM Funds and accounts will receive their
Allocations on a straight pro rata basis. For the tier of AIM Funds and accounts
not receiving a full Allocation, the allocation may be made only to certain AIM
Funds or accounts so that each may receive close to or exactly 40 basis points.
When any AIM Funds and/or accounts with substantially identical
investment objectives and policies participate in syndicates, they will do so in
amounts that are substantially proportionate to each other. In these cases, the
net assets of the largest AIM Fund will be used to determine in which tier, as
described in the paragraph above, such group of AIM Funds or accounts will be
placed. If no AIM Fund is participating, then the net assets of the largest
account will be used to determine tier placement. The price per share of
securities purchased in such syndicate transactions will be the same for each
AIM Fund and account.
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SECTION 28(e) STANDARDS
Section 28(e) of the Securities Exchange Act of 1934 provides that AIM,
under certain circumstances, may lawfully cause an account to pay a higher
commission than the lowest available. Under Section 28(e), AIM must make a good
faith determination that the commissions paid are "reasonable in relation to the
value of the brokerage and research services provided ... viewed in terms of
either that particular transaction or [AIM's] overall responsibilities with
respect to the accounts as to which it exercises investment discretion." The
services provided by the broker also must lawfully and appropriately assist AIM
in the performance of its investment decision-making responsibilities.
Accordingly, in recognition of research services provided to it, a Fund may pay
a broker higher commissions than those available from another broker.
Research services received from broker-dealers supplement AIM's own
research (and the research of its affiliates), and may include the following
types of information: statistical and background information on the U.S. and
foreign economies, industry groups and individual companies; forecasts and
interpretations with respect to the U.S. and foreign economies, securities,
markets, specific industry groups and individual companies; information on
federal, state, local and foreign political developments; portfolio management
strategies; performance information on securities, indexes and investment
accounts; information concerning prices of securities; and information supplied
by specialized services to AIM and to the Board of Trustees with respect to the
performance, investment activities, and fees and expenses of other mutual funds.
Broker-dealers may communicate such information electronically, orally, in
written form or on computer software. Research services may also include the
providing of electronic communication of trade information, the providing of
custody services, as well as the providing of equipment used to communicate
research information, the providing of specialized consultations with AIM
personnel with respect to computerized systems and data furnished to AIM as a
component of other research services, the arranging of meetings with management
of companies, and the providing of access to consultants who supply research
information.
The outside research assistance is useful to AIM since the
broker-dealers used by AIM tend to follow a broader universe of securities and
other matters than AIM's staff can follow. In addition, the research provides
AIM with a diverse perspective on financial markets. Research services provided
to AIM by broker-dealers are available for the benefit of all accounts managed
or advised by AIM or by its affiliates. Some broker-dealers may indicate that
the provision of research services is dependent upon the generation of certain
specified levels of commissions and underwriting concessions by AIM's clients,
including the Funds. However, the Funds are not under any obligation to deal
with any broker-dealer in the execution of transactions in portfolio securities.
In some cases, the research services are available only from the
broker-dealer providing them. In other cases, the research services may be
obtainable from alternative sources in return for cash payments. AIM believes
that the research services are beneficial in supplementing AIM's research and
analysis and that they improve the quality of AIM's investment advice. The
advisory fee paid by the Funds is not reduced because AIM receives such
services. However, to the extent that AIM would have purchased research services
had they not been provided by broker-dealers, the expenses to AIM could be
considered to have been reduced accordingly.
TRANSACTIONS WITH REGULAR BROKERS
As of July 31, 2000, High Yield, High Yield II, Intermediate
Government, Limited Maturity, and Municipal Bond had no transactions with
regular brokers, as that term is defined in Rule 10b-1 under the 1940 Act.
As of July 31, 2000, Money Market entered into repurchase agreements
with Bank of America Securities, Credit Suisse First Boston Corp., UBS Warburg
and Westdeutsche Landesbank Girozentrate, regular brokers, as that term is
defined in Rule 10b-1 under the 1940 Act, having market values of $225,090,983,
$58,000,000, $58,000,000 and $58,000,000, respectively. As of July 31, 2000,
Money Market held an amount of commercial paper issued by Morgan Stanley Dean
Witter, regular brokers, as the term is defined in Rule 10b-1 under the 1940
Act, having a market value of $10,000,000. As of July 31, 2000, Money
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Market entered into a master note agreement with Morgan Stanley Dean Witter,
regular broker, as the term is defined in Rule 10b-1 under the 1940 Act, having
a market value of $60,000,000.
As of July 31, 2000, Income held an amount of common stock issued by
Lehman Brothers Holding Inc. and Merrill Lynch & Co., regular brokers, as that
term is defined in Rule 10b-1 under the 1940 Act, having a market value of
$10,391,806 and $904,270, respectively.
BROKERAGE COMMISSIONS PAID
Intermediate Government, Limited Maturity, Municipal Bond and Money
Market paid no brokerage commissions to brokers affiliated with those Funds
during their past three fiscal years.
Brokerage commissions or underwriting concessions (or both) paid by
High Yield II for the year ended July 31, 2000 and for the period ended July 31,
1999; and for High Yield and Income, for the period ended July 31, 2000 and the
years ended December 31, 1999, 1998 and 1997, were as follows:
<TABLE>
<CAPTION>
FUND 2000 1999 1998 1997
---- ------- ---------- --------- --------
<S> <C> <C> <C> <C>
High Yield ..................... $2,882 $ 102,000 $14,000 $102,000
High Yield II................... $2,868 $ 6,459 N/A N/A
Income.......................... $8,000 $ 44,000 $12,000 $ 28,000
</TABLE>
For the year ended July 31, 2000, AIM allocated certain High Yield
brokerage transactions to certain broker-dealers that provided AIM with certain
research, statistical and other information. Such transactions amounted to
$225,147 and the related brokerage commissions were $1,798.
For the year ended July 31, 2000, AIM allocated certain of High Yield
II's brokerage transactions to certain broker-dealers that provided AIM with
certain research, statistical and other information. Such transactions amounted
to $213,493 and the related brokerage commissions were $1,500.
PORTFOLIO TURNOVER (ALL FUNDS EXCEPT MONEY MARKET)
Any particular security will be sold, and the proceeds reinvested,
whenever such action is deemed prudent from the viewpoint of a Fund's investment
objective, regardless of the holding period of that security. Each Fund's
historical portfolio turnover rates are included in the Financial Highlights
tables of the Fund's Prospectus. For the year ended July 31, 2000 AIM High Yield
Fund II experienced a lower level of turnover due to large cash inflows relative
to its beginning asset base. A higher rate of portfolio turnover may result in
higher transaction costs, including brokerage commissions and other trading
costs. Also, to the extent that higher portfolio turnover results in a higher
rate of net realized capital gains to a Fund, the portion of the Fund's
distributions constituting taxable capital gains may increase. See "Dividends,
Distributions and Tax Matters."
INVESTMENT STRATEGIES AND RISKS
Information concerning each Fund's investment objective is set forth in
the Prospectuses under the heading "Investment Objective and Strategies." There
can be no assurance that any Fund will achieve its objective. The principal
features of each Fund's investment program and the principal risks associated
with the investment program are discussed in the Prospectuses under the headings
"Investment Objective and Strategies" and "Principal Risks of Investing in the
Fund."
The investment objective(s) of each Fund are non-fundamental policies
and may be changed by the Board of Trustees without shareholder approval. Each
Fund's investment policies, strategies and practices are also non-fundamental.
Set forth in this section is a description of each Fund's investment policies,
strategies and practices. The Board of Trustees of the Trust reserves the right
to change any of these non-
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fundamental investment policies, strategies or practices without shareholder
approval. However, shareholders will be notified before any material change in
the investment policies becomes effective.
Each Fund has adopted certain investment restrictions, some of which
are fundamental and cannot be changed without shareholder approval. See
"Investment Restrictions" in this Statement of Additional Information.
Individuals considering the purchase of shares of any fund should
recognize that there are risks in the ownership of any security.
Any percentage limitations with respect to assets of a Fund will be
applied at the time of purchase. A later change in percentage resulting from
changes in asset values will not be considered a violation of the percentage
limitations. The percentage limitations applicable to borrowings, reverse
repurchase agreements and dollar roll transactions will be applied in accordance
with applicable provisions of the 1940 Act and the rules and regulations
promulgated thereunder which specifically limit each Fund's borrowing abilities.
HIGH YIELD
The investment objective of High Yield is to achieve a high level of
current income.
The Fund will attempt to achieve its investment objective by investing
principally in securities that are rated Baa, Ba or B by Moody's Investors
Service, Inc. ("Moody's"), or BBB, BB or B by Standard & Poor's ("S&P"), or
securities of comparable quality in the opinion of AIM that are either unrated
or rated by other nationally recognized statistical rating organizations
("NRSROs"). The Fund may also hold, from time to time, securities rated Caa by
Moody's or CCC by S&P, or, if unrated or rated by other NRSROs, securities of
comparable quality as determined by AIM. It should be noted, however, that
achieving the Fund's investment objective may be more dependent on the credit
analysis of AIM, and less on that of credit rating agencies, than may be the
case for funds that invest in more highly rated bonds.
The Fund will not acquire equity securities, other than preferred
stocks, except when (a) attached to or included in a unit with income-generating
securities that otherwise would be attractive to the Fund; (b) acquired through
the exercise of equity features accompanying convertible securities held by the
Fund, such as conversion or exchange privileges or warrants for the acquisition
of stock or equity interests of the same or a different issuer; or (c) in the
case of an exchange offer whereby the equity security would be acquired with the
intention of exchanging it for a debt security issued on a "when-issued" basis.
HIGH YIELD II
The investment objective of High Yield II is to achieve a high level of
current income.
The Fund will attempt to achieve its investment objective by investing
primarily in publicly traded non-investment grade debt securities. The Fund will
also consider the possibility of capital growth when it purchases and sells
securities. Debt securities of less than investment grade (commonly referred to
as "junk bonds") are considered "high risk" securities.
The Fund may invest up to 100% of its net assets in junk bonds. Junk
bonds are considered to be speculative and entail greater risks, including
default risks, than those found in higher rated securities. See "Risk Factors
Regarding Non-Investment Grade Debt Securities" and Rating Categories below.
At least 80% of the value of the Fund's total assets will be invested
in high yield debt securities. At least 51% of the value of the Fund's total
assets will be invested in securities that are rated Ba or B by Moody's or BB or
B by S&P, or securities of comparable quality as determined by AIM (under the
supervision of and pursuant to guidelines established by the Board of Trustees)
that are either unrated or rated by other NRSROs. The Fund may also hold, from
time to time, securities rated Caa by Moody's or CCC by S&P, or
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<PAGE> 142
securities of comparable quality as determined by AIM that are either unrated or
rated by other NRSROs. It should be noted, however, that achieving the Fund's
investment objective may be more dependent on the credit analysis of AIM, and
less on that of credit rating agencies, than may be the case for Funds that
invest in more highly rated bonds. The Fund may also invest up to 15% of the
value of its total assets in equity securities.
LIMITED MATURITY
The investment objective of Limited Maturity is to seek liquidity with
minimum fluctuation in principal value, and, consistent with this objective, the
highest total return achievable.
The Fund will attempt to achieve its objective by investing in an
actively managed portfolio of U.S. Treasury notes and other direct obligations
of the U.S. Treasury. The Fund will attempt to enhance its total return through
capital appreciation when market factors, such as economic and market conditions
and the prospects for interest rate changes, indicate that capital appreciation
may be available without significant risk to principal. The Fund will only
purchase securities whose maturities do not exceed three (3) years. The Fund's
policy of investing in securities with remaining maturities of three (3) years
or less will result in high portfolio turnover. Under normal circumstances, the
average portfolio maturity of the Fund will range between one-and-one-half
(1 1/2) and two (2) years. Since brokerage commissions are not normally paid on
investments of the type made by the Fund, the high turnover rate should not
adversely affect the net income of the Fund.
MONEY MARKET
The investment objective of Money Market is to provide as high a level
of current income as is consistent with the preservation of capital and
liquidity.
The Fund will limit investments in Money Market Instruments to those
which at the date of purchase are "First Tier" securities as defined in Rule
2a-7 under the Investment Company Act of 1940, as amended (the "1940 Act"), as
such Rule may be amended from time to time. Generally, "First Tier" securities
are securities that are rated in the highest rating category for short-term debt
obligations by two NRSROs, or, if only rated by one NRSRO, are rated in the
highest rating category for short-term debt obligations by that NRSRO, or, if
unrated, are determined by AIM (under the supervision of and pursuant to
guidelines established by the Board of Trustees) to be of comparable quality to
a rated security that meets the foregoing quality standards, as well as
securities issued by a registered investment company that is a money market Fund
and U.S. government securities.
The Fund will not invest in instruments maturing more than 397 days
from the date of investment, and will maintain a dollar weighted average
portfolio maturity of 90 days or less. The Fund must comply with the
requirements of Rule 2a-7, which govern the operations of money market Funds and
may be more restrictive than the Fund's restrictions. If any of the Fund's
policies and restrictions are more restrictive than Rule 2a-7, such policies and
restrictions will be followed.
The rating applied to a security at the time the security is purchased
by the Fund may be changed while the Fund holds such security in its portfolio.
This change may affect, but will not necessarily compel, a decision to dispose
of a security. If the major rating services used by the Fund were to alter their
standards or systems for ratings, the Fund would then employ ratings under the
revised standards or systems that would be comparable to those specified in its
current investment objectives, policies and restrictions.
The Board of Trustees has established procedures in compliance with
Rule 2a-7 that include reviews of portfolio holdings by the trustees at such
intervals as they may deem appropriate to determine whether net asset value,
calculated by using available market quotations, deviates from $1.00 per share
and, if so, whether such deviation may result in material dilution or is
otherwise unfair to investors or existing shareholders. In the event the
trustees determine that a deviation having such a result exists, they intend to
take such corrective action as they deem necessary and appropriate, including,
but not limited to, the following: the sale of portfolio instruments prior to
maturity in order to realize capital gains or losses or to shorten average
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<PAGE> 143
portfolio maturity; withholding dividends; authorizing redemption of shares in
kind; or establishing a net asset value per share by using available market
quotations, in which case, the net asset value could possibly be greater or less
than $1.00 per share. If the trustees deem it inadvisable to continue the
practice of maintaining a net asset value of $1.00 per share, they may alter
this procedure. The shareholders of the Fund will be notified promptly after any
such change.
Any increase in the value of a shareholder's investment in the Fund
resulting from the reinvestment of dividend income is reflected by an increase
in the number of shares in the shareholder's account.
Money Market may not invest in puts, calls, or any combinations
thereof, except to the extent consistent with its other investment policies.
MUNICIPAL BOND
The investment objective of Municipal Bond is to achieve a high level
of current income exempt from federal income taxes, consistent with the
preservation of principal.
For purposes of the Fund's investment policies and limitations, the
term "municipal bonds" includes debt obligations of varying maturities issued to
obtain funds for various public purposes, including the construction of a wide
range of public facilities, the refunding of outstanding obligations, the
obtaining of funds for general operating expenses and the lending of such funds
to other public institutions and facilities. In addition, certain types of
industrial development bonds are issued by or on behalf of public authorities to
obtain funds to provide for the construction, equipment, repair or improvement
of privately operated facilities ("private activity bonds"). Such obligations
are considered to be municipal bonds appropriate for investment by the Fund,
provided that the interest paid thereon, in the opinion of bond counsel, is
exempt from federal income taxes.
The two principal classifications of municipal bonds are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its faith, credit and taxing power for the payment of
principal and interest. Revenue bonds are payable only from the revenues derived
from a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise or other specific revenue source. Industrial
development bonds, which are municipal bonds, are in most cases revenue bonds
and do not generally constitute the pledge of the credit of the issuer of such
bonds.
The Fund may also invest in municipal lease obligations, which may take
the form of a lease, an installment purchase or a conditional sales contract.
Municipal lease obligations are issued by state and local governments and
authorities to acquire land, equipment and facilities such as state and
municipal vehicles, telecommunications and computer equipment, and other capital
assets. Interest payments on qualifying municipal leases are exempt from federal
income taxes. The Fund may purchase these obligations directly, or they may
purchase participation interests in such obligations. Municipal leases are
generally subject to greater risks than general obligation or revenue bonds.
State laws set forth requirements that states or municipalities must meet in
order to issue municipal obligations, and such obligations may contain a
covenant by the issuer to budget for, appropriate, and make payments due under
the obligation. However, certain municipal lease obligations may contain
"non-appropriation" clauses which provide that the issuer is not obligated to
make payments on the obligation in future years unless funds have been
appropriated for this purpose each year. Accordingly, such obligations are
subject to "non-appropriation" risk. While municipal leases are secured by the
underlying capital asset, it may be difficult to dispose of such assets in the
event of non-appropriation or other default. All direct investments by the Fund
in municipal lease obligations shall be deemed illiquid and shall be valued
according to the Fund's Procedures for Valuing Securities current at the time of
such valuation.
As used in this Statement of Additional Information, interest which is
"tax-exempt" or "exempt from federal income taxes" means interest on municipal
securities which is excluded from gross income for federal income tax purposes,
but which may give rise to federal alternative minimum tax liability. The
principal and interest payments on private activity bonds (such as industrial
development or pollution control bonds) are the
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responsibility of the industrial user and, therefore, are not backed by the
taxing power of the issuing municipality. Such obligations are included within
the term municipal bonds if the interest paid thereon qualifies for exemption
from federal income tax, but the interest on private activity bonds will be
considered to be an item of preference for purposes of alternative minimum tax
liability under the Internal Revenue Code of 1986, as amended (the "Code"). See
"Dividends, Distributions and Tax Matters" below.
There is a risk that some or all of the interest received by the Fund
from municipal securities might become taxable as a result of tax law changes or
determinations of the Internal Revenue Service.
At least 80% of the Fund's total assets will be invested in municipal
securities rated within the four highest rating categories of Moody's, S&P or
any other NRSRO. The Fund may invest up to 20% of its total assets in municipal
securities that are rated below Baa/BBB (or a comparable rating of any other
NRSRO) or that are unrated. For purposes of the foregoing percentage
limitations, municipal securities (i) which have been collateralized with U.S.
Government obligations held in escrow until the municipal securities' scheduled
redemption date or final maturity, but (ii) which have not been rated by a NRSRO
subsequent to the date of escrow collateralization, will be treated by the Fund
as the equivalent of Aaa/AAA rated securities.
Securities in which the Fund invests may be insured by financial
insurance companies. Since a limited number of entities provide such insurance,
the Fund may invest more than 25% of its assets in securities insured by the
same insurance company.
For purposes of the Fund's fundamental investment restriction regarding
issuer diversification, the Fund will regard each state and political
subdivision, agency or instrumentality, and each multi-state agency of which
such state is a member, as a separate issuer.
The Fund: (i) will not invest 25% or more of its assets in securities
whose issuers are located in the same state; (ii) will not invest 25% or more of
its assets in securities the interest upon which is paid from revenues of
similar type projects; and (iii) will not invest 25% or more of its assets in
industrial development bonds. The policy described in (ii) does not apply,
however, if the securities are subject to a guarantee. For securities subject to
a guarantee, the Fund does not intend to purchase any such security if, after
giving effect to the purchase, 25% or more of the Fund's assets would be
invested in securities issued or guaranteed by entities in a particular
industry. Securities issued or guaranteed by a bank or subject to financial
guaranty insurance are not subject to the limitations set forth in the preceding
sentence.
The Fund may not invest in puts, calls, straddles, spreads or any
combination thereof, except, however, that the Fund may purchase and sell
options on financial futures contracts and may sell covered call options.
HIGH YIELD, HIGH YIELD II, INCOME, INTERMEDIATE GOVERNMENT AND MUNICIPAL BOND
High Yield, High Yield II, Income, Intermediate Government and
Municipal Bond generally acquire bonds in new offerings or in principal trades
with broker-dealers. Ordinarily, the Funds do not purchase securities with the
intention of engaging in short-term trading. However, any particular security
will be sold, and the proceeds reinvested, whenever such action is deemed
prudent from the viewpoint of a Fund's investment objectives, regardless of the
holding period of that security.
A portion of each Fund's assets may be held in cash and high quality,
short-term money market instruments such as certificates of deposit, commercial
paper, bankers' acceptances, short-term U.S. Government obligations, taxable
municipal securities, master notes, and repurchase agreements, pending
investment in portfolio securities, to meet anticipated short-term cash needs
such as dividend payments or redemptions of shares, or for temporary defensive
purposes. Such investments generally are the type in which Money Market invests,
generally will have maturities of 60 days or less, and normally are held to
maturity. However, Money Market is the only Fund limited to investing in Money
Market Instruments which are "First Tier" securities as defined in Rule 2a-7.
See "Description of Money Market Instruments" below. The
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underlying securities that are subject to a repurchase agreement will be
"marked-to-market" on a daily basis so that AIM can determine the value of the
securities in relation to the amount of the repurchase agreement.
U.S. Government securities may take the form of participation interests
in, and may be evidenced by, deposit or safekeeping receipts. Participation
interests are pro rata interests in U.S. Government securities. A Fund may
acquire participation interests in pools of mortgages sold by the Government
National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Banks. Instruments evidencing
deposit or safekeeping are documentary receipts for such original securities
held in custody by others.
U.S. Government securities, including those that are guaranteed by
federal agencies or instrumentalities, may or may not be backed by the "full
faith and credit" of the United States. Some securities issued by federal
agencies or instrumentalities are only supported by the credit of the agency or
instrumentality (such as the Federal Home Loan Banks) while others have an
additional line of credit with the U.S. Treasury (such as FNMA). In the case of
securities not backed by the full faith and credit of the United States, the
Funds must look principally to the agency issuing or guaranteeing the obligation
for ultimate repayment and may not be able to assert a claim against the United
States itself in the event the agency or instrumentality does not meet its
commitments.
RISK FACTORS REGARDING NON-INVESTMENT GRADE DEBT SECURITIES
High Yield, High Yield II, and to a lesser extent Income and Municipal
Bond, seek to meet their respective investment objectives by investing in
non-investment grade debt securities, commonly known as "junk bonds." While
generally providing greater income and opportunity for gain, non-investment
grade debt securities may be subject to greater risks than higher-rated
securities. Economic downturns tend to disrupt the market for junk bonds and
adversely affect their values. Such economic downturns may be expected to result
in increased price volatility for junk bonds and of the value of shares of the
above-named Funds, and increased issuer defaults on junk bonds.
In addition, many issuers of junk bonds are substantially leveraged,
which may impair their ability to meet their obligations. In some cases, junk
bonds are subordinated to the prior payment of senior indebtedness, which
potentially limits a Fund's ability to fully recover principal or to receive
payments when senior securities are subject to a default.
The credit rating of a junk bond does not necessarily address its
market value risk, and ratings may from time to time change to reflect
developments regarding the issuer's financial condition. Junk bonds have
speculative characteristics which are likely to increase in number and
significance with each successive lower rating category.
When the secondary market for junk bonds becomes more illiquid, or in
the absence of readily available market quotations for such securities, the
relative lack of reliable objective data makes it more difficult for the
trustees to value a Fund's securities, and judgment plays a more important role
in determining such valuations. Increased illiquidity in the junk bond market
also may affect a Fund's ability to dispose of such securities at desirable
prices.
In the event a Fund experiences an unexpected level of net redemptions,
the Fund could be forced to sell its junk bonds without regard to their
investment merits, thereby decreasing the asset base upon which the Fund's
expenses can be spread and possibly reducing the Fund's rate of return. Prices
of junk bonds have been found to be less sensitive to fluctuations in interest
rates, and more sensitive to adverse economic changes and individual corporate
developments than those of higher-rated debt securities.
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REAL ESTATE INVESTMENT TRUSTS ("REITS")
To the extent consistent with their respective investment objectives
and policies, High Yield, High Yield II and Income may each invest up to 10% of
their net assets in equity and/or debt securities issued by REITs.
REITs are Trusts which sell equity or debt securities to investors and
use the proceeds to invest in real estate or interests therein. A REIT may focus
on particular projects, such as apartment complexes, or geographic regions, such
as the Southeastern United States, or both.
To the extent that a Fund has the ability to invest in REITs, the Fund
could conceivably own real estate directly as a result of a default on the
securities it owns. A Fund, therefore, may be subject to certain risks
associated with the direct ownership of real estate, including difficulties in
valuing and trading real estate, declines in the value of real estate, risks
related to general and local economic conditions, adverse changes in the climate
for real estate, environmental liability risks, increases in property taxes and
operating expenses, changes in zoning laws, casualty or condemnation losses,
limitations on rents, changes in neighborhood values, the appeal of properties
to tenants, and increases in interest rates.
In addition to the risks described above, equity REITs may be affected
by any changes in the value of the underlying property owned by the Trusts,
while mortgage REITs may be affected by the quality of any credit extended.
Equity and mortgage REITs are dependent upon management skill, are not
diversified, and are therefore subject to the risk of financing single or a
limited number of projects. Such Trusts are also subject to heavy cash flow
dependency, defaults by borrowers, self-liquidation, and the possibility of
failing to maintain exemption from the 1940 Act. Changes in interest rates may
also affect the value of debt securities held by a Fund. By investing in REITs
indirectly through a Fund, a shareholder will bear not only his/her
proportionate share of the expenses of the Fund, but also, indirectly, similar
expenses of the REITs.
LENDING PORTFOLIO SECURITIES
Consistent with applicable regulatory requirements, the Funds may each
lend their portfolio securities (principally to broker-dealers) to the extent of
one-third of their respective total assets. Such loans would be callable at any
time and will be continuously secured by collateral equal to no less than the
market value, determined daily, of the loaned securities. Such collateral will
be cash, letters of credit, or debt securities issued or guaranteed by the U.S.
Government or its agencies. Each Fund would continue to receive the income on
loaned securities and would, at the same time, earn interest on the loan
collateral or on the investment of the loan collateral if it were cash. Any cash
collateral pursuant to these loans would be invested in short-term money market
instruments or affiliated money market funds. Where voting or consent rights
with respect to loaned securities pass to the borrower, the Funds will follow
the policy of calling the loan, in whole or in part as may be appropriate, to
permit the exercise of such voting or consent rights if the matters involved are
expected to have a material effect on each Fund's investment in the loaned
securities. Lending securities entails a risk of loss to the Funds if and to the
extent that the market value of the securities loaned were to increase and the
lender did not increase the collateral accordingly.
INTERFUND LOANS
Each Fund may lend up to 33-1/3% of its total assets to another AIM
Fund, on such terms and conditions as the SEC may require in an exemptive order.
An application for exemptive relief has been filed with the SEC on behalf of the
Funds and others. Each Fund may also borrow from another AIM Fund to satisfy
redemption requests or to cover unanticipated cash shortfalls due to a delay in
the delivery of cash to the Fund's custodian or improper delivery instructions
by a broker effectuating a transaction.
SHORT SALES
Each of the Funds (except for Limited Maturity and Money Market) may
from time to time make short sales of securities which it owns or which it has
the right to acquire through the conversion or exchange of other securities it
owns. In a short sale, a Fund does not immediately deliver the securities sold
and does not
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receive the proceeds from the sale. A Fund is said to have a short position in
the securities sold until it delivers the securities sold, at which time it
receives the proceeds of the sale. A Fund will neither make short sales of
securities nor maintain a short position unless, at all times when a short
position is open, the Fund owns an equal amount of such securities or securities
convertible into or exchangeable for, without payment of any further
consideration, securities of the same issue as, and equal in amount to, the
securities sold short. This is a technique known as selling short "against the
box." To secure its obligation to deliver the securities sold short, a Fund will
segregate with its custodian, an equal amount of the securities sold short or
securities convertible into or exchangeable for such securities. In no event may
more than 10% of a Fund's total assets be deposited or pledged as collateral for
short sales at any one time.
Since a Fund ordinarily will want to continue to receive interest and
dividend payments on securities in its portfolio which are convertible into the
securities sold short, the Fund will normally close out a short position by
purchasing and delivering an equal amount of the securities sold short, rather
than by delivering securities which it already holds.
A Fund will make a short sale as a hedge when it believes that the
price of a security may decline, causing a decline in the value of a security
owned by the Fund or a security convertible into or exchangeable for such
security, or when the Fund does not want to sell the security it owns, because,
among other reasons, it wishes to defer recognition of gain or loss for federal
income tax purposes. In such case, any future losses in a Fund's long position
should be reduced by a gain in the short position. Conversely, any gain in the
long position should be reduced by a loss in the short position. The extent to
which such gains or losses are reduced will depend upon the amount of the
security sold short relative to the amount the Fund owns, either directly or
indirectly, and, in the case where the Fund owns convertible securities, changes
in the conversion premium. In determining the number of shares to be sold short
against a Fund's position in a convertible security, the anticipated fluctuation
in the conversion premium is considered. A Fund may also make short sales to
generate additional income from the investment of the cash proceeds of short
sales.
MARGIN TRANSACTIONS
The Funds will not purchase any security on margin, except that each
Fund may obtain such short-term credits as may be necessary for the clearance of
purchases and sales of portfolio securities. The payment by a Fund of initial or
variation margin in connection with futures or related options transactions will
not be considered the purchase of a security on margin.
DELAYED DELIVERY AGREEMENTS
Each Fund may purchase or sell securities on a delayed delivery basis.
Delayed delivery agreements involve commitments by a Fund to dealers or issuers
to acquire securities or instruments at a specified future date beyond the
customary same-day settlement for such securities or instruments. These
commitments may fix the payment price and interest rate to be received on the
investment. Intermediate Government may also engage in buy/sellback transactions
(a form of delayed delivery agreement). In a buy/sellback transaction, the Fund
enters a trade to sell securities at one price and simultaneously enters a trade
to buy the same securities at another price for settlement at a future date.
Delayed delivery agreements will not be used as a speculative or leverage
technique. Rather, from time to time, AIM can anticipate that cash for
investment purposes will result from, among other things, scheduled maturities
of existing portfolio instruments or from net sales of shares of a Fund. To
assure that a Fund will be as fully invested as possible in instruments meeting
the Fund's investment objective, a Fund may enter into delayed delivery
agreements, but only to the extent of anticipated funds available for investment
during a period of not more than five business days. Until the settlement date,
a Fund will segregate liquid assets (cash and short-term U. S. Treasury
obligations, in the case of Limited Maturity) of a dollar value sufficient at
all times to make payment for the delayed delivery securities. No more than 25%
of a Fund's total assets will be committed to delayed delivery agreements and
when-issued securities, as described below. The delayed delivery securities,
which will not begin to accrue interest or dividends until the settlement date,
will be recorded as an asset of a Fund and will be subject to the risk of market
fluctuation. The purchase price of the delayed delivery securities is a
liability of a Fund until settlement. Absent extraordinary circumstances, a Fund
will not sell or otherwise transfer the delayed delivery securities prior to
settlement. If cash is not available to a Fund at the time of settlement, the
Fund may be
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required to dispose of portfolio securities that it would otherwise hold to
maturity in order to meet its obligation to accept delivery under a delayed
delivery agreement. The Board of Trustees has determined that entering into
delayed delivery agreements does not present a materially increased risk of loss
to shareholders, but the Board of Trustees may restrict the use of delayed
delivery agreements if the risk of loss is determined to be material, or if it
affects the stable net asset value of Money Market.
WHEN-ISSUED SECURITIES
Each Fund may purchase securities on a "when-issued" basis, that is,
the date for delivery of and payment for the securities is not fixed at the date
of purchase, but is set after the securities are issued (normally within
forty-five days after the date of the transaction). The payment obligation and,
if applicable, the interest rate that will be received on the securities are
fixed at the time the buyer enters into the commitment. A Fund will only make
commitments to purchase such securities with the intention of actually acquiring
such securities, but a Fund may sell these securities before the settlement date
if it is deemed advisable. No additional when-issued commitments will be made if
as a result more than 25% of a Fund's total assets would become committed to
purchases of when-issued securities and delayed delivery agreements.
If a Fund purchases a when-issued security, it will direct its
custodian bank to collateralize the when-issued commitment by segregating liquid
assets (cash and short-term U.S. Treasury obligations, in the case of Limited
Maturity) in the same fashion as required for a delayed delivery agreement. Such
segregated liquid assets will likewise be marked-to-market, and the amount
segregated will be increased if necessary to maintain adequate coverage of the
when-issued commitments.
Securities purchased on a when-issued basis and the securities held in
a Fund's portfolio are subject to changes in market value based upon the
public's perception of the creditworthiness of the issuer and, if applicable,
changes in the level of interest rates. Therefore, if a Fund is to remain
substantially fully invested at the same time that it has purchased securities
on a when-issued basis, there will be a possibility that the market value of the
Fund's assets will fluctuate to a greater degree. Furthermore, when the time
comes for a Fund to meet its obligations under when-issued commitments, the Fund
will do so by using then available cash flow, by sale of the segregated liquid
assets, by sale of other securities or, although it would not normally expect to
do so, by directing the sale of the when-issued securities themselves (which may
have a market value greater or less than the Fund's payment obligation).
Investment in securities on a when-issued or delayed delivery basis may
increase a Fund's exposure to market fluctuation and may increase the
possibility that the Fund will incur short-term gains subject to federal
taxation or short-term losses if the Fund must engage in portfolio transactions
in order to honor a when-issued or delayed delivery commitment. In a delayed
delivery transaction, the Fund relies on the other party to complete the
transaction. If the transaction is not completed, the Fund may miss a price or
yield considered to be advantageous. A Fund will employ techniques designed to
reduce such risks. If a Fund purchases a when-issued security, the Fund's
custodian bank will segregate liquid assets in an amount equal to the
when-issued commitment. If the market value of such segregated assets declines,
additional liquid assets will be segregated on a daily basis so that the market
value of the segregated assets will equal the amount of the Fund's when-issued
commitments. To the extent liquid assets are segregated, they will not be
available for new investments or to meet redemptions. Securities purchased on a
delayed delivery basis may require a similar segregation of liquid assets.
INVESTMENTS IN FOREIGN SECURITIES
High Yield and High Yield II may invest up to 25% of their total assets
in securities of issuers located in foreign countries, including up to 10% of
High Yield II's total assets which may be invested in securities of issuers
located in emerging markets and developing countries such as Turkey, Poland and
Mexico. A "developing country" is a country in the initial stages of its
industrialization cycle. Income and Money Market may invest up to 40% and 50%,
respectively, of their total assets in foreign securities, although Money Market
may only invest in foreign securities denominated in U.S. dollars. To the extent
it invests in securities denominated in foreign currencies, each Fund bears the
risks of changes in the exchange rates between U.S.
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currency and the foreign currency, as well as the availability and status of
foreign securities markets. Each Fund (other than Intermediate Government, Money
Market and Municipal Bond) may invest in securities of foreign issuers which are
in the form of American Depositary Receipts ("ADRs"), European Depositary
Receipts ("EDRs"), or other securities representing underlying securities of
foreign issuers, and such investments are treated as foreign securities for
purposes of percentage limitations on investments in foreign securities. For a
discussion of the risks pertaining to investments in foreign securities, see
"Risk Factors Regarding Foreign Securities" below.
RISK FACTORS REGARDING FOREIGN SECURITIES
Investments by a Fund in foreign securities, whether denominated in
U.S. dollars or foreign currencies, may entail some or all of the risks set
forth below. Investments by a Fund in ADRs, EDRs or similar securities also may
entail some or all of these risks.
Currency Risk. The value of a Fund's foreign investments will be
affected by changes in currency exchange rates. The U.S. dollar value of a
foreign security decreases when the value of the U.S. dollar rises against the
foreign currency in which the security is denominated, and increases when the
value of the U.S. dollar falls against such currency.
On January 1, 1999, certain members of the European Economic and
Monetary Union ("EMU"), namely Austria, Belgium, Finland, France, Germany,
Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain established a
common European currency known as the "euro" and each member's local currency
became a denomination of the euro. It is anticipated that each participating
country will replace its local currency with the euro on July 1, 2002. Any other
European country that is a member of the European Union and satisfies the
criteria for participation in the EMU may elect to participate in the EMU and
may supplement its existing currency with the euro. The anticipated replacement
of existing currencies with the euro on July 1, 2002 could cause market
disruptions before or after July 1, 2002 and could adversely affect the value of
securities held by a Fund.
Political and Economic Risk. The economies of many of the countries in
which the Funds may invest may not be as developed as the United States' economy
and may be subject to significantly different forces. Political or social
instability, expropriation or confiscatory taxation, and limitations on the
removal of funds or other assets could also adversely affect the value of the
Funds' investments.
Regulatory Risk. Foreign companies are not registered with the SEC and
are generally not subject to the regulatory controls imposed on United States
issuers and, as a consequence, there is generally less publicly available
information about foreign securities than is available about domestic
securities. Foreign companies are not subject to uniform accounting, auditing
and financial reporting standards, practices and requirements comparable to
those applicable to domestic companies. Income from foreign securities owned by
the Funds may be reduced by a withholding tax at the source, which tax would
reduce dividend income payable to the Fund's shareholders.
Market Risk. The securities markets in many of the countries in which
the Funds invest will have substantially less trading volume than the major
United States markets. As a result, the securities of some foreign companies may
be less liquid and experience more price volatility than comparable domestic
securities. Increased custodian costs as well as administrative costs (such as
the need to use foreign custodians) may be associated with the maintenance of
assets in foreign jurisdictions. There is generally less government regulation
and supervision of foreign stock exchanges, brokers and issuers which may make
it difficult to enforce contractual obligations. In addition, transaction costs
in foreign securities markets are likely to be higher, since brokerage
commission rates in foreign countries are likely to be higher than in the United
States.
Emerging Markets and Developing Countries. High Yield II may invest in
companies located within emerging markets or developing countries. Investments
in emerging markets or developing countries involve exposure to economic
structures that are generally less diverse and mature and to political systems
which can be expected to have less stability than those of more developed
countries. Developing countries may
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have relatively unstable governments, economies based on only a few industries,
and securities markets which trade only a small number of securities. Historical
experience indicates that emerging markets have been more volatile than the
markets of more mature economies. Such markets have also from time to time
provided higher rates of return and greater risks to investors. AIM believes
that these characteristics of emerging markets can be expected to continue in
the future.
ILLIQUID SECURITIES
Illiquid securities include securities that cannot be disposed of
promptly (within seven days) in the normal course of business at a price at
which they are valued. Illiquid securities may include securities that are
subject to restrictions on resale because they have not been registered under
the Securities Act of 1933. Restricted securities may, in certain circumstances,
be resold pursuant to Rule 144A, and thus may or may not constitute illiquid
securities. Limitations on the resale of restricted securities may have an
adverse effect on their marketability, which may prevent a Fund from disposing
of them promptly at reasonable prices. The Fund may have to bear the expense of
registering such securities for resale, and the risk of substantial delays in
effecting such registrations. The Trust's Board of Trustees has established
procedures for determining the liquidity of Rule 144A securities held by the
Funds and monitors AIM's liquidity determinations made pursuant to such
procedures. High Yield, High Yield II, Income, Intermediate Government, Limited
Maturity and Municipal Bond may each invest up to 15% of their net assets, and
Money Market may invest up to 10% of its net assets, in illiquid securities
including repurchase agreements with remaining maturities in excess of seven (7)
days.
RULE 144A SECURITIES
Each Fund, except Limited Maturity, may purchase securities which,
while privately placed, are eligible for purchase and resale pursuant to Rule
144A under the Securities Act of 1933 (the "1933 Act"). This Rule permits
certain qualified institutional buyers, such as the Funds, to trade in privately
placed securities even though such securities are not registered under the 1933
Act. AIM, under the supervision of the Board of Trustees, will consider whether
securities purchased under Rule 144A are illiquid and thus subject to each
Fund's restrictions of investing no more than 15% of its net assets (10% in the
case of Money Market) in illiquid securities. Determination of whether a Rule
144A security is liquid or not is a question of fact. In making this
determination, AIM will consider the trading markets for the specific security
taking into account the unregistered nature of a Rule 144A security. In
addition, AIM could consider the (i) frequency of trades and quotes, (ii) number
of dealers and potential purchasers, (iii) dealer undertakings to make a market
and (iv) nature of the security and of market place trades (for example, the
time needed to dispose of the security, the method of soliciting offers and the
mechanics of transfer). The liquidity of Rule 144A securities will also be
monitored by AIM and if, as a result of changed conditions, it is determined
that a Rule 144A security is no longer liquid, a Fund's holdings of illiquid
securities will be reviewed to determine what, if any, action is required to
assure that such Fund does not invest more than 15% of its net assets (10% in
the case of Money Market) in illiquid securities. Investing in Rule 144A
securities could have the effect of increasing the amount of the Fund's
investments in illiquid securities if qualified institutional buyers are
unwilling to purchase such securities.
REPURCHASE AGREEMENTS
Each Fund may engage in repurchase agreements involving the types of
securities in which it is permitted to invest. A repurchase agreement involves
the purchase by a Fund of an investment contract from a financial institution,
such as a domestic bank or primary dealers in U.S. Government securities or U.S.
Treasury obligations. The agreement provides that the seller will repurchase the
underlying securities at an agreed-upon time and price. The total amount
received on repurchase will exceed the price paid by a Fund, reflecting the
agreed-upon rate of interest for the period from the date of the repurchase
agreement to the settlement date. This rate of return is not related to the
interest rate on the underlying securities. The difference between the total
amount received upon the repurchase of the securities and the price paid by a
Fund upon their acquisition is accrued daily as interest. Investments in
repurchase agreements may involve risks not associated with investments in the
underlying securities. If the seller defaulted on its repurchase obligations, a
Fund would incur a loss to the extent that the proceeds from a sale of the
underlying securities
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were less than the repurchase price under the agreement. A Fund will limit
repurchase agreements to transactions with sellers believed by AIM to present
minimal credit risk. Securities subject to repurchase agreements will be held by
a Fund's custodian or in the custodian's account with the Federal Reserve
Treasury Book-Entry System. Although the securities subject to repurchase
agreements might bear maturities in excess of one year, a Fund will not enter
into a repurchase agreement with an agreed-upon repurchase date in excess of
seven (7) calendar days from the date of acquisition by a Fund, unless the Fund
has the right to require the selling institution to repurchase the underlying
securities within seven (7) days of the date of acquisition.
Rule 2a-7 provides that, for purposes of determining the percentage of
the total assets of Money Market that are invested in securities of an issuer, a
repurchase agreement shall be deemed to be an acquisition of the underlying
securities, provided that the obligation of the seller to repurchase the
securities from the Fund is fully collateralized. To be fully collateralized,
the collateral must among other things consist entirely of cash items, U.S.
Government securities or securities that, at the time the repurchase agreement
is entered into, are rated in the highest rating category by the Requisite
NRSROs (as defined in Rule 2a-7), and the repurchase agreement must qualify
under a provision of applicable insolvency law providing an exclusion from any
automatic stay of creditors' rights against the seller.
Limited Maturity's investment policies permit it to invest in
repurchase agreements with banks and broker-dealers pertaining to U.S. Treasury
obligations. However, in order to maximize the Fund's dividends which are exempt
from state income taxation, as a matter of operating policy, the Fund does not
currently invest in repurchase agreements.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements involve the sale of securities held by a
Fund, with an agreement that the Fund will repurchase the securities at an
agreed upon price and date. A Fund may employ reverse repurchase agreements (i)
for temporary emergency purposes, such as to meet unanticipated net redemptions
so as to avoid liquidating other portfolio securities during unfavorable market
conditions; (ii) to take advantage of market situations where the interest
income to be earned from the investment of the proceeds of the transaction is
greater than the interest expense of the transaction or (iii) to cover
short-term cash requirements resulting from the timing of trade settlements
(except for Limited Maturity). At the time it enters into a reverse repurchase
agreement, a Fund will segregate liquid assets (U.S. Treasury obligations in the
case of Limited Maturity) having a dollar value equal to the repurchase price.
Reverse repurchase agreements are considered borrowings by a Fund under the 1940
Act.
DOLLAR ROLL TRANSACTIONS
In order to enhance portfolio returns and manage prepayment risks,
Income and Intermediate Government may engage in dollar roll transactions with
respect to mortgage securities issued by GNMA, FNMA and FHLMC. In a dollar roll
transaction, a Fund sells a mortgage security held in the portfolio to a
financial institution such as a bank or broker-dealer, and simultaneously agrees
to repurchase a substantially similar security (same type, coupon and maturity)
from the institution at a later date at an agreed upon price. The mortgage
securities that are repurchased will bear the same interest rate as those sold,
but generally will be collateralized by different pools of mortgages with
different prepayment histories. During the period between the sale and
repurchase, a Fund will not be entitled to receive interest and principal
payments on the securities sold. Proceeds of the sale will be invested in
short-term instruments, and the income from these investments, together with any
additional fee income received on the sale, could generate income for a Fund
exceeding the yield on the sold security.
Dollar roll transactions involve the risk that the market value of the
securities retained by a Fund may decline below the price of the securities that
the Fund has sold but is obligated to repurchase under the agreement. In the
event the buyer of securities in a dollar roll transaction files for bankruptcy
or becomes insolvent, the Fund's use of the proceeds from the sale of the
securities may be restricted pending a
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determination by the other party, or its trustee or receiver, whether to enforce
the Fund's obligation to repurchase the securities.
BORROWING
Each of the Funds may borrow money to a limited extent for temporary or
emergency purposes. If there are unusually heavy redemptions because of changes
in interest rates or for any other reason, a Fund may have to sell a portion of
its investment portfolio at a time when it may be disadvantageous to do so.
Selling fund securities under these circumstances may result in a lower net
asset value per share or decreased dividend income, or both. The Trust believes
that, in the event of abnormally heavy redemption requests, the Funds' borrowing
ability would help to mitigate any such effects and could make the forced sale
of their portfolio securities less likely.
INVESTMENT IN OTHER INVESTMENT COMPANIES
Each of the Funds may invest in other investment companies to the
extent permitted by the 1940 Act, and rules and regulations thereunder, and if
applicable, exemptive orders granted by the SEC. The following restrictions
apply to investments in other investment companies other than Affiliated Money
Market Funds (defined below): (i) a Fund may not purchase more than 3% of the
total outstanding voting stock of another investment company; (ii) a Fund may
not invest more than 5% of its total assets in securities issued by another
investment company; and (iii) a Fund may not invest more than 10% of its total
assets in securities issued by other investment companies other than Affiliated
Money Market Funds. With respect to a Fund's purchase of shares of another
investment company, including Affiliated Money Market Funds, the Fund will
indirectly bear its proportionate share of the advisory fees and other operating
expenses of such investment company. The Funds have obtained an exemptive order
from the SEC allowing them to invest uninvested cash balances and cash
collateral received in connection with securities lending in money market funds
that have AIM or an affiliate of AIM as an investment advisor (the "Affiliated
Money Market Funds"), provided that, with respect to uninvested cash balances,
investments in Affiliated Money Market Funds do not exceed 25% of the total
assets of the investing Fund.
TEMPORARY DEFENSIVE INVESTMENTS
In anticipation of or in response to adverse market conditions, for
cash management purposes, or for defensive purposes, each of the Funds may
temporarily hold all or a portion of its assets in cash, money market
instruments, bonds, or (with the exception of Limited Maturity) other debt
securities. Each of the Funds may also invest up to 25% of their total assets in
Affiliated Money Market Funds for these purposes. For a description of the
various rating categories of corporate bonds and commercial paper in which the
Funds may invest, see "Ratings of Securities" below.
U.S. TREASURY SECURITIES
Each of the Funds may invest in U.S. Treasury obligations, which are
direct obligations of the U.S. Treasury and which differ only in their interest
rates, maturities, and times of issuance, including U.S. Treasury bills, U.S.
Treasury notes and U.S. Treasury bonds.
FOREIGN EXCHANGE TRANSACTIONS
High Yield, High Yield II, and Income each has the ability to deal in
foreign exchange between currencies of the different countries in which it will
invest either for the settlement of transactions or as a hedge against possible
variations in the foreign exchange rates between those currencies. This may be
accomplished through direct purchases or sales of foreign currency, purchases of
futures contracts with respect to foreign currency (and options thereon), and
contractual agreements to purchase or sell a specified currency at a specified
future date (up to one year) at a price set at the time of the contract. Such
contractual commitments may be forward contracts entered into directly with
another party or exchange traded futures contracts.
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A Fund may purchase and sell options on futures contracts or forward
contracts which are denominated in a particular foreign currency to hedge the
risk of fluctuations in the value of another currency. A Fund's dealings in
foreign exchange may involve specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of foreign currency with respect to
specific receivables or payables of a Fund accruing in connection with the
purchase or sale of its portfolio securities, the sale and redemption of shares
of a Fund, or the payment of dividends and distributions by a Fund. Position
hedging is the purchase or sale of foreign currency with respect to portfolio
security positions (or underlying portfolio security positions, such as an ADR)
denominated or quoted in a foreign currency. A Fund will not speculate in
foreign exchange, nor commit a larger percentage of their total assets to
foreign exchange hedges than they could invest in foreign securities.
Purchases and sales of foreign securities are usually made with foreign
currencies, and consequently a Fund may from time to time hold cash balances in
the form of foreign currencies and multinational currency units. Such foreign
currencies and multinational currency units will usually be acquired on a spot
(i.e., cash) basis at the spot rate prevailing in foreign exchange markets, and
will result in currency conversion costs to a Fund. The Funds attempt to
purchase and sell foreign currencies on as favorable a basis as practicable;
however, some price spread on foreign exchange transactions (to cover service
charges) may be incurred, particularly when a Fund changes investments from one
country to another, or when U.S. dollars are used to purchase foreign
securities. Certain countries could adopt policies which would prevent a Fund
from transferring cash out of such countries, and the Fund may be affected
either favorably or unfavorably by fluctuations in relative exchange rates while
they hold foreign currencies.
OPTIONS, FUTURES AND CURRENCY STRATEGIES
INTRODUCTION
High Yield, High Yield II, Income and Intermediate Government may each
use forward contracts, futures contracts, options on securities, options on
indices, options on currencies, and options on futures contracts to attempt to
hedge against the overall level of investment and currency risk normally
associated with each Fund's investments. These instruments are often referred to
as "derivatives," which may be defined as financial instruments whose
performance is derived, at least in part, from the performance of another asset
(such as a security, currency or an index of securities).
GENERAL RISKS OF OPTIONS, FUTURES AND CURRENCY STRATEGIES
The use by the Funds of options, futures contracts and forward currency
contracts involves special considerations and risks, as described below. Risks
pertaining to particular strategies are described in the sections that follow.
(1) Successful use of hedging transactions depends upon AIM's ability
to correctly predict the direction of changes in the value of the applicable
markets and securities, contracts and/or currencies. While AIM is experienced in
the use of these instruments, there can be no assurance that any particular
hedging strategy will succeed.
(2) There might be imperfect correlation, or even no correlation,
between the price movements of an instrument (such as an option contract) and
the price movements of the investments being hedged. For example, if a
"protective put" is used to hedge a potential decline in a security and the
security does decline in price, the put option's increased value may not
completely offset the loss in the underlying security. Such a lack of
correlation might occur due to factors unrelated to the value of the investments
being hedged, such as changing interest rates, market liquidity, and speculative
or other pressures on the markets in which the hedging instrument is traded.
(3) Hedging strategies, if successful, can reduce risk of loss by
wholly or partially offsetting the negative effect of unfavorable price
movements in the investments being hedged. However, hedging
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strategies can also reduce opportunity for gain by offsetting the positive
effect of favorable price movements in the hedged investments.
(4) There is no assurance that a liquid secondary market will exist for
any particular option, futures contract, forward contract or option thereon at
any particular time.
(5) As described below, a Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in instruments involving obligations to third parties. If a Fund were
unable to close out its positions in such instruments, it might be required to
continue to maintain such assets or accounts or make such payments until the
position expired or matured. The requirements might impair the Fund's ability to
sell a portfolio security or make an investment at a time when it would
otherwise be favorable to do so, or require that the Fund sell a portfolio
security at a disadvantageous time.
(6) There is no assurance that a Fund will use hedging transactions.
For example, if a Fund determines that the cost of hedging will exceed the
potential benefit to the Fund, the Fund will not enter into such transaction.
COVER
Transactions using forward contracts, futures contracts and options
(other than options purchased by a Fund) expose a Fund to an obligation to
another party. A Fund will not enter into any such transactions unless it owns
either (1) an offsetting ("covered") position in securities, currencies, or
other options, forward contracts or futures contracts or (2) cash, liquid assets
and/or short-term debt securities with a value sufficient at all times to cover
its potential obligations not covered as provided in (1) above. Each Fund will
comply with SEC guidelines regarding cover for these instruments and, if the
guidelines so require, set aside cash or liquid securities. To the extent that a
futures contract, forward contract or option is deemed to be illiquid, the
assets used to "cover" the Fund's obligation will also be treated as illiquid
for purposes of determining the Fund's maximum allowable investment in illiquid
securities.
Even though options purchased by the Funds do not expose the Funds to
an obligation to another party, but rather provide the Funds with a right to
exercise, the Funds intend to "cover" the cost of any such exercise. To the
extent that a purchased option is deemed illiquid, the Fund will treat the
market value of the option (i.e., the amount at risk to the Fund) as illiquid,
but will not treat the assets used as cover on such transactions as illiquid.
Assets used as cover cannot be sold while the position in the
corresponding forward contract, futures contract or option is open, unless they
are replaced with other appropriate assets. If a large portion of a Fund's
assets is used for cover or otherwise set aside, it could affect portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
WRITING CALL OPTIONS
High Yield, High Yield II, Income and Intermediate Government may each
write (sell) covered call options on securities, futures contracts, forward
contracts, indices and currencies. As the writer of a call option, a Fund would
have the obligation to deliver the underlying security, cash or currency
(depending on the type of derivative) to the holder (buyer) at a specified price
(the exercise price) at any time until (American style) or on (European style) a
certain date (the expiration date). So long as the obligation of a Fund
continues, it may be assigned an exercise notice, requiring it to deliver the
underlying security, cash or currency against payment of the exercise price.
This obligation terminates upon the expiration of the call option, or such
earlier time at which a Fund effects a closing purchase transaction by
purchasing an option identical to that previously sold.
When writing a call option a Fund, in return for the premium, gives up
the opportunity for profit from a price increase in the underlying security,
contract or currency above the exercise price, and retains the risk of loss
should the price of the security, contract or currency decline. Unlike one who
owns securities,
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contracts or currencies not subject to an option, a Fund has no control over
when it may be required to sell the underlying securities, contracts or
currencies, since most options may be exercised at any time prior to the
option's expiration. If a call option that a Fund has written expires, it will
realize a gain in the amount of the premium; however, such gain may be offset by
a decline in the market value of the underlying security, contract or currency
during the option period. If the call option is exercised, a Fund will realize a
gain or loss from the sale of the underlying security, contract or currency,
which will be increased or offset by the premium received.
Writing call options can serve as a limited hedge because declines in
the value of the hedged investment would be offset to the extent of the premium
received for writing the option.
Closing transactions may be effected in order to realize a profit on an
outstanding call option, to prevent an underlying security, contract or currency
from being called or to permit the sale of the underlying security, contract or
currency. Furthermore, effecting a closing transaction will permit the Fund to
write another call option on the underlying security, contract or currency with
either a different exercise price or expiration date, or both.
WRITING PUT OPTIONS
High Yield, High Yield II, Income and Intermediate Government may each
write (sell) covered put options on securities, futures contracts, forward
contracts, indices and currencies. As the writer of a put option, a Fund would
have the obligation to buy the underlying security, contract or currency
(depending on the type of derivative) at the exercise price at any time until
(American style) or on (European style) the expiration date. This obligation
terminates upon the expiration of the put option, or such earlier time at which
a Fund effects a closing purchase transaction by purchasing an option identical
to that previously sold.
A Fund would write a put option at an exercise price that, reduced by
the premium received on the option, reflects the lower price it is willing to
pay for the underlying security, contract or currency. The risk in such a
transaction would be that the market price of the underlying security, contract
or currency would decline below the exercise price less the premium received.
PURCHASING PUT OPTIONS
High Yield, High Yield II, Income and Intermediate Government may each
purchase covered put options on securities, futures contracts, forward
contracts, indices and currencies. As the holder of a put option, a Fund would
have the right to sell the underlying security, contract or currency at the
exercise price at any time until (American style) or on (European style) the
expiration date. A Fund may enter into closing sale transactions with respect to
such options, exercise such option or permit such option to expire.
A Fund may purchase a put option on an underlying security, contract or
currency ("protective put") owned by the Fund in order to protect against an
anticipated decline in the value of the security, contract or currency. Such
hedge protection is provided only during the life of the put option. The premium
paid for the put option and any transaction costs would reduce any profit
realized when the security, contract or currency is delivered upon exercise of
said option. Conversely, if the underlying security, contract or currency does
not decline in value, the option may expire worthless and the premium paid for
the protective put would be lost.
A Fund may also purchase put options on underlying securities,
contracts or currencies against which it has written other put options. For
example, where a Fund has written a put option on an underlying security, rather
than entering a closing transaction of the written option, it may purchase a put
option with a different exercise price and/or expiration date that would
eliminate some or all of the risk associated with the written put. Used in
combinations, these strategies are commonly referred to as "put spreads."
Likewise, a Fund may write call options on underlying securities, contracts or
currencies against which it has purchased protective put options. This strategy
is commonly referred to as a "collar."
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PURCHASING CALL OPTIONS
High Yield, High Yield II, Income and Intermediate Government may each
purchase covered call options on securities, futures contracts, forward
contracts, indices and currencies. As the holder of a call option, a Fund would
have the right to purchase the underlying security, contract or currency at the
exercise price at any time until (American style) or on (European style) the
expiration date. A Fund may enter into closing sale transactions with respect to
such options, exercise such options or permit such options to expire.
Call options may be purchased by a Fund for the purpose of acquiring
the underlying security, contract or currency for its portfolio. Utilized in
this fashion, the purchase of call options would enable a Fund to acquire the
security, contract or currency at the exercise price of the call option plus the
premium paid. So long as it holds such a call option, rather than the underlying
security or currency itself, the Fund is partially protected from any unexpected
decline in the market price of the underlying security, contract or currency
and, in such event, could allow the call option to expire, incurring a loss only
to the extent of the premium paid for the option.
High Yield, High Yield II, Income and Intermediate Government may each
purchase call options on underlying securities, contracts or currencies against
which it has written other call options. For example, where a Fund has written a
call option on an underlying security, rather than entering a closing
transaction of the written option, it may purchase a call option with a
different exercise price and/or expiration date that would eliminate some or all
of the risk associated with the written call. Used in combinations, these
strategies are commonly referred to as "call spreads."
OVER-THE-COUNTER OPTIONS
Options may be either listed on an exchange or traded in
over-the-counter ("OTC") markets. Listed options are third-party contracts
(i.e., performance of the obligations of the purchaser and seller is guaranteed
by the exchange or clearing corporation) and have standardized strike prices and
expiration dates. OTC options are two-party contracts with negotiated strike
prices and expiration dates. A Fund will not purchase an OTC option unless it
believes that daily valuations for such options are readily obtainable. OTC
options differ from exchange-traded options in that OTC options are transacted
with dealers directly and not through a clearing corporation (which guarantees
performance). Consequently, there is a risk of non-performance by the dealer.
Since no exchange is involved, OTC options are valued on the basis of an average
of the last bid prices obtained from dealers, unless a quotation from only one
dealer is available, in which case only that dealer's price will be used. In the
case of OTC options, there can be no assurance that a liquid secondary market
will exist for any particular option at any specific time. Although a Fund will
enter into OTC options only with dealers that are expected to be capable of
entering into closing transactions with it, there is no assurance that the Fund
will in fact be able to close out an OTC option position at a favorable price
prior to expiration. In the event of insolvency of the dealer, a Fund might be
unable to close out an OTC option position at any time prior to its expiration.
The staff of the SEC considers purchased OTC options (i.e., the market
value of the option) to be illiquid securities. A Fund may also sell OTC options
and, in connection therewith, segregate assets or cover its obligations with
respect to OTC options written by it. The assets used as cover for OTC options
written by the Fund will be considered illiquid unless the OTC options are sold
to qualified dealers who agree that the Fund may repurchase any OTC option it
writes at a maximum price to be calculated by a formula set forth in the option
agreement. The cover for an OTC option written subject to this procedure would
be considered illiquid only to the extent that the maximum repurchase price
under the formula exceeds the intrinsic value of the option.
INDEX OPTIONS
Puts and calls on indices are similar to puts and calls on securities
or futures contracts except that all settlements are in cash and gain or loss
depends on changes in the index in question (and thus on price movements in the
securities market or a particular market section generally) rather than on price
movements in individual securities or futures contracts. The amount of cash is
equal to the difference between the closing
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price of the index and the exercise price of the call or put times a specified
multiple (the "multiplier"), which determines the total dollar value for each
point of such difference.
The risks of investment in index options may be greater than options on
securities. Because index options are settled in cash, when a Fund writes a call
on an index it cannot provide in advance for its potential settlement
obligations by acquiring and holding the underlying securities. A Fund can
offset some of the risk of writing a call index position by holding a
diversified portfolio of securities similar to those on which the underlying
index is based. However, the Fund cannot, as a practical matter, acquire and
hold a portfolio containing exactly the same securities as underlie the index
and, as a result, bears a risk that the value of the securities held will not be
perfectly correlated with the value of the index.
LIMITATIONS ON OPTIONS
A Fund will not write options if, immediately after such sale, the
aggregate value of securities or obligations underlying the outstanding options
exceeds 20% of the Fund's total assets. A Fund will not purchase options if, at
the time of the investment, the aggregate premiums paid for the options will
exceed 5% of the Fund's total assets.
INTEREST RATE, CURRENCY AND STOCK INDEX FUTURES CONTRACTS
High Yield, High Yield II, Income and Intermediate Government may each
enter into interest rate, currency or stock index futures contracts
(collectively, "Futures" or "Futures Contracts") as a hedge against changes in
prevailing levels of interest rates, currency exchange rates or stock price
levels, respectively, in order to establish more definitely the effective return
on securities or currencies held or intended to be acquired by it. A Fund's
hedging may include sales of Futures as an offset against the effect of expected
increases in interest rates, and decreases in currency exchange rates and stock
prices, and purchases of Futures as an offset against the effect of expected
declines in interest rates, and increases in currency exchange rates or stock
prices.
A Futures Contract is a two party agreement to buy or sell a specified
amount of a specified security or currency (or delivery of a cash settlement
price, in the case of an index future) for a specified price at a designated
date, time and place. A stock index future provides for the delivery, at a
designated date, time and place, of an amount of cash equal to a specified
dollar amount times the difference between the stock index value at the close of
trading on the contract and the price agreed upon in the Futures Contract; no
physical delivery of stocks comprising the index is made. Brokerage fees are
incurred when a Futures Contract is bought or sold, and margin deposits must be
maintained at all times the Future is outstanding.
The Funds will only enter into Futures Contracts that are traded
(either domestically or internationally) on futures exchanges and are
standardized as to maturity date and underlying financial instrument. Futures
exchanges and trading thereon in the United States are regulated under the
Commodity Exchange Act and by the Commodity Futures Trading Commission ("CFTC").
Foreign futures exchanges and trading thereon are not regulated by the CFTC and
are not subject to the same regulatory controls.
Closing out an open Future is effected by entering into an offsetting
Future for the same aggregate amount of the identical financial instrument or
currency and the same delivery date. There can be no assurance, however, that a
Fund will be able to enter into an offsetting transaction with respect to a
particular Future at a particular time. If a Fund is not able to enter into an
offsetting transaction, it will continue to be required to maintain the margin
deposits on the Future.
A Fund's Futures transactions will be entered into for hedging purposes
only; that is, Futures will be sold to protect against a decline in the price of
securities or currencies that the Fund owns, or Futures will be purchased to
protect the Fund against an increase in the price of securities or currencies it
has committed to purchase or expects to purchase.
"Margin" with respect to Futures is the amount of funds that must be
deposited by a Fund in order to initiate Futures trading and maintain its open
positions in Futures. A margin deposit made when the Futures
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Contract is entered ("initial margin") is intended to ensure the Fund's
performance under the Futures Contract. The margin required for a particular
Future is set by the exchange on which the Future is traded and may be
significantly modified from time to time by the exchange during the term of the
Futures Contract.
Subsequent payments, called "variation margin," to and from the futures
commission merchant through which a Fund entered into the Futures Contract will
be made on a daily basis as the price of the underlying security, currency or
index fluctuates making the Futures more or less valuable, a process known as
marking-to-market.
If a Fund were unable to liquidate a Future or an option on a Futures
position due to the absence of a liquid secondary market or the imposition of
price limits, it could incur substantial losses. The Fund would continue to be
subject to market risk with respect to the position. In addition, except in the
case of purchased options, the Fund would continue to be required to make daily
variation margin payments and might be required to maintain the position being
hedged by the Future or option or to maintain cash or securities in a segregated
account.
OPTIONS ON FUTURES CONTRACTS
Options on Futures Contracts are similar to options on securities or
currencies except that options on Futures Contracts give the purchaser the
right, in return for the premium paid, to assume a position in a Futures
Contract (a long position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during the period of
the option. Upon exercise of the option, the delivery of the Futures position by
the writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's Futures margin account.
FORWARD CONTRACTS
A forward contract is an obligation, usually arranged with a commercial
bank or other currency dealer, to purchase or sell a currency against another
currency at a future date and price as agreed upon by the parties. A Fund either
may accept or make delivery of the currency at the maturity of the forward
contract. A Fund may also, if its contra party agrees prior to maturity, enter
into a closing transaction involving the purchase or sale of an offsetting
contract. Forward contracts are traded over-the-counter, and not on organized
commodities or securities exchanges. As a result, it may be more difficult to
value such contracts, and it may be difficult to enter into closing
transactions.
High Yield, High Yield II, Income and Intermediate Government may each
engage in forward currency transactions in anticipation of, or to protect itself
against, fluctuations in exchange rates. A Fund may enter into forward contracts
with respect to a specific purchase or sale of a security, or with respect to
its portfolio positions generally. When a Fund purchases a security denominated
in a foreign currency for settlement in the near future, it may immediately
purchase in the forward market the currency needed to pay for and settle the
purchase. By entering into a forward contract with respect to the specific
purchase or sale of a security denominated in a foreign currency, the Fund can
secure an exchange rate between the trade and settlement dates for that purchase
or sale transaction. This practice is sometimes referred to as "transaction
hedging." Position hedging is the purchase or sale of foreign currency with
respect to portfolio security positions denominated or quoted in a foreign
currency.
The cost to a Fund of engaging in forward contracts varies with factors
such as the currencies involved, the length of the contract period and the
market conditions then prevailing. Because forward contracts are usually entered
into on a principal basis, no fees or commissions are involved. The use of
forward contracts does not eliminate fluctuations in the prices of the
underlying securities a Fund owns or intends to acquire, but it does establish a
rate of exchange in advance. In addition, while forward contract sales limit the
risk of loss due to a decline in the value of the hedged currencies, they also
limit any potential gain that might result should the value of the currencies
increase.
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LIMITATIONS ON USE OF FUTURES, OPTIONS ON FUTURES AND CERTAIN OPTIONS ON
CURRENCIES
To the extent that a Fund enters into Futures Contracts, options on
Futures Contracts and options on foreign currencies traded on a CFTC-regulated
exchange, in each case other than for bona fide hedging purposes (as defined by
the CFTC), the aggregate initial margin and premiums required to establish those
positions (excluding the amount of which options are "in-the-money") will not
exceed 5% of the total assets of the Fund, after taking into account unrealized
profits and unrealized losses on any contracts it has entered into. This
guideline may be modified by the Board, without a shareholder vote. This
limitation does not limit the percentage of the Fund's assets at risk to 5%.
INVESTMENT RESTRICTIONS
Each Fund is subject to the following investment restrictions, which
may be changed only by a vote of a majority of such Fund's outstanding shares.
Fundamental restrictions may be changed only by a vote of the lesser of (i) 67%
or more of the Fund's shares present at a meeting if the holders of more than
50% of the outstanding shares are present in person or represented by proxy, or
(ii) more than 50% of the Fund's outstanding shares. Any investment restriction
that involves a maximum or minimum percentage of securities or assets shall not
be considered to be violated unless an excess over or a deficiency under the
percentage occurs immediately after, and is caused by, an acquisition or
disposition of securities or utilization of assets by the Fund.
FUNDAMENTAL RESTRICTIONS
(1) The Fund is a "diversified company" as defined in the 1940
Act. The Fund will not purchase the securities of any issuer if, as a
result, the Fund would fail to be a diversified company within the
meaning of the 1940 Act, and the rules and regulations promulgated
thereunder, as such statute, rules and regulations are amended from
time to time or are interpreted from time to time by the SEC staff
(collectively, the "1940 Act Laws and Interpretations") or except to
the extent that the Fund may be permitted to do so by exemptive order
or similar relief (collectively, with the 1940 Act Laws and
Interpretations, the "1940 Act Laws, Interpretations and Exemptions").
In complying with this restriction, however, the Fund may purchase
securities of other investment companies to the extent permitted by the
1940 Act Laws, Interpretations and Exemptions.
(2) The Fund may not borrow money or issue senior securities,
except as permitted by the 1940 Act Laws, Interpretations and
Exemptions.
(3) The Fund may not underwrite the securities of other
issuers. This restriction does not prevent the Fund from engaging in
transactions involving the acquisition, disposition or resale of its
portfolio securities, regardless of whether the Fund may be considered
to be an underwriter under the Securities Act of 1933.
(4) The Fund will not make investments that will result in the
concentration (as that term may be defined or interpreted by the 1940
Act Laws, Interpretations and Exemptions) of its investments in the
securities of issuers primarily engaged in the same industry. This
restriction does not limit the Fund's investments in (i) obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, (ii) tax-exempt obligations issued by governments or
political subdivisions of governments, or (iii) for AIM Money Market
Fund, bank instruments. In complying with this restriction, the Fund
will not consider a bank-issued guaranty or financial guaranty
insurance as a separate security.
(5) The Fund may not purchase real estate or sell real estate
unless acquired as a result of ownership of securities or other
instruments. This restriction does not prevent the Fund from investing
in issuers that invest, deal, or otherwise engage in transactions in
real estate or interests therein, or investing in securities that are
secured by real estate or interests therein.
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(6) The Fund may not purchase physical commodities or sell
physical commodities unless acquired as a result of ownership of
securities or other instruments. This restriction does not prevent the
Fund from engaging in transactions involving futures contracts and
options thereon or investing in securities that are secured by physical
commodities.
(7) The Fund may not make personal loans or loans of its
assets to persons who control or are under common control with the
Fund, except to the extent permitted by 1940 Act Laws, Interpretations
and Exemptions. This restriction does not prevent the Fund from, among
other things, purchasing debt obligations, entering into repurchase
agreements, loaning its assets to broker-dealers or institutional
investors, or investing in loans, including assignments and
participation interests.
(8) The Fund may, notwithstanding any other fundamental
investment policy or limitation, invest all of its assets in the
securities of a single open-end management investment company with
substantially the same fundamental investment objectives, policies and
restrictions as the Fund.
The investment restrictions set forth above provide each of the Funds
with the ability to operate under new interpretations of the 1940 Act or
pursuant to exemptive relief from the SEC without receiving prior shareholder
approval of the change. Even though each of the Funds have this flexibility, the
Board of Trustees has adopted non-fundamental restrictions for each of the Funds
relating to certain of these restrictions which the advisor must follow in
managing the Funds. Any changes to these non-fundamental restrictions, which are
set forth below, require the approval of the Board of Trustees.
NON-FUNDAMENTAL RESTRICTIONS
The following non-fundamental investment restrictions apply to each of
the Funds. They may be changed for any Fund without approval of that Fund's
voting securities.
(1) In complying with the fundamental restriction regarding
issuer diversification, the Fund will not, with respect to 75% of its
total assets (and for Money Market with respect to 100% of its total
assets), purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities), if, as a result, (i) more than 5% of the Fund's
total assets would be invested in the securities of that issuer, except
as permitted by Rule 2a-7 under the 1940 Act, or (ii) the Fund would
hold more than 10% of the outstanding voting securities of that issuer.
The Fund may (i) purchase securities of other investment companies as
permitted by Section 12(d)(1) of the 1940 Act and (ii) invest its
assets in securities of other money market funds and lend money to
other investment companies or their series portfolios that have AIM or
an affiliate of AIM as an investment advisor (an "AIM Advised Fund"),
subject to the terms and conditions of any exemptive orders issued by
the SEC.
(2) In complying with the fundamental restriction regarding
borrowing money and issuing senior securities, the Fund may borrow
money in an amount not exceeding 33 1/3% of its total assets (including
the amount borrowed) less liabilities (other than borrowings). The Fund
may borrow from banks, broker-dealers or an AIM Advised Fund. The Fund
may not borrow for leveraging, but may borrow for temporary or
emergency purposes, in anticipation of or in response to adverse market
conditions, or for cash management purposes. The Fund may not purchase
additional securities when any borrowings from banks exceed 5% of the
Fund's total assets.
(3) In complying with the fundamental restriction regarding
industry concentration, the Fund may invest up to 25% of its total
assets in the securities of issuers whose principal business activities
are in the same industry.
(4) In complying with the fundamental restriction with regard
to making loans, the Fund may lend up to 33 1/3% of its total assets
and may lend money to another AIM Advised Fund, on such terms and
conditions as the SEC may require in an exemptive order.
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(5) Notwithstanding the fundamental restriction with regard to
investing all assets in an open-end fund, the Fund may not invest all
of its assets in the securities of a single open-end management
investment company with the same fundamental investment objectives,
policies and restrictions as the Fund.
For purposes of Limited Maturity's fundamental restriction regarding
industry concentration, the United States Government shall not be considered an
industry.
The Trust has obtained an opinion of Dechert Price & Rhoads, special
counsel to the Trust, that shares of Limited Maturity are eligible for
investment by a federal credit union. In order to ensure that shares of Limited
Maturity meet the requirements for eligibility for investment by federal credit
unions, that Fund has adopted the following additional policies:
(a) The Fund will enter into repurchase agreements only with:
(i) banks insured by the Federal Deposit Insurance Corporation (FDIC);
(ii) savings and loan associations insured by the FDIC; or (iii)
registered broker-dealers. The Fund will only enter into repurchase
transactions pursuant to a master repurchase agreement in writing with
the Fund's counterparty. Under the terms of a written agreement with
its custodian, the Fund receives on a daily basis written confirmation
of each purchase of a security subject to a repurchase agreement and a
receipt from the Fund's custodian evidencing each transaction. In
addition, securities subject to a repurchase agreement may be recorded
in the Federal Reserve Book-Entry System on behalf of the Fund by its
custodian. The Fund purchases securities subject to a repurchase
agreement only when the purchase price of the security acquired is
equal to or less than its market price at the time of the purchase.
(b) The Fund will only enter into reverse repurchase
agreements and purchase additional securities with the proceeds when
such proceeds are used to purchase other securities that either mature
on a date simultaneous with or prior to the expiration date of the
reverse repurchase agreement, or are subject to an agreement to resell
such securities within that same time period.
(c) The Fund will only enter into securities lending
transactions that comply with the same counterparty, safekeeping,
maturity and borrowing restrictions that the Fund observes when
participating in repurchase and reverse repurchase transactions.
(d) The Fund will enter into when-issued and delayed delivery
transactions only when the time period between trade date and
settlement date does not exceed 120 days, and only when settlement is
on a cash basis. When the delivery of securities purchased in such
manner is to occur within 30 days of the trade date, the Fund will
purchase the securities only at their market price as of the trade
date.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of November 1, 2000, the trustees and officers of the Trust as a
group owned less than 1% of all classes of outstanding shares of the Trust
except for the trustees and officers of Municipal Bond which own 3.76% of the
Class A Shares.
To the best knowledge of the Trust, the names and addresses of the
holders of 5% or more of the outstanding shares of each class of the Trust's
equity securities as of November 1, 2000, and the percentage of the outstanding
shares held by such holders are set forth below:
34
<PAGE> 162
<TABLE>
<CAPTION>
Percentage Percentage Owned
Name and Address Owned of of Record and
of Owner Record* Beneficially
---------------- ---------- ----------------
<S> <C> <C>
LIMITED MATURITY
CLASS A SHARES
Merrill Lynch Pierce Fenner & Smith 11.84% -0-
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
INSTITUTIONAL CLASS
Esor & Co. 56.42% -0-
Attn: Trust Operations
P. O. Box 19006
Green Bay, WI 54307-9006
Frost National Bank Tx 43.01% -0-
Muir & Co.
c/o Frost
P. O. Box 2479
San Antonio, TX 78298-2479
HIGH YIELD
CLASS A SHARES
Charles Schwab & Co. Inc. 5.42% -0-
Reinvestment Account
101 Montgomery St
San Francisco, CA 94104-0000
Merrill Lynch Pierce Fenner & Smith 5.20% -0-
FBO The Sole Benefit of Customers
ATTN: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
CLASS B SHARES
Merrill Lynch Pierce Fenner & Smith 12.52% -0-
FBO The Sole Benefit of Customers
ATTN: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
</TABLE>
* The Trust has no knowledge as to whether all or any portion of the
shares owned of record are also owned beneficially.
35
<PAGE> 163
<TABLE>
<CAPTION>
Percentage Percentage Owned
Name and Address Owned of of Record and
of Owner Record* Beneficially
---------------- ---------- ----------------
<S> <C> <C>
CLASS C SHARES
Banc One Securities Corp FBO 14.69% -0-
The One Investment Solution
733 Greencrest Drive
Westerville, OH 43081-0000
Merrill Lynch Pierce Fenner & Smith 14.34% -0-
FBO The Sole Benefit of Customers
ATTN: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
HIGH YIELD II
CLASS A SHARES
Jonathan C. Schoolar SEP Prop -0- 9.98%
3722 Tartan Lane
Houston, TX 77025
Charles Schwab & Co. Inc. 5.29% -0-
Reinvestment Account
101 Montgomery St
San Francisco, CA 94104-0000
CLASS B SHARES
Merrill Lynch Pierce Fenner & Smith 9.25% -0-
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East 2nd Floor
Jacksonville, FL 32246
CLASS C SHARES
Merrill Lynch Pierce Fenner & Smith 8.17% -0-
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
</TABLE>
* The Trust has no knowledge as to whether all or any portion of the
shares owned of record are also owned beneficially.
36
<PAGE> 164
<TABLE>
<CAPTION>
Percentage Percentage Owned
Name and Address Owned of of Record and
of Owner Record* Beneficially
---------------- ---------- ----------------
<S> <C> <C>
INCOME
CLASS B SHARES
Merrill Lynch Pierce Fenner & Smith 7.47% -0-
FBO The Sole Benefit of Customers
ATTN: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
CLASS C SHARES
Merrill Lynch Pierce Fenner & Smith 15.33% -0-
FBO The Sole Benefit of Customers
ATTN: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
INTERMEDIATE GOVERNMENT
CLASS A SHARES
Merrill Lynch Pierce Fenner & Smith 5.18% -0-
FBO The Sole Benefit of Customers
ATTN: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
CLASS B SHARES
Merrill Lynch Pierce Fenner & Smith 15.96% -0-
FBO The Sole Benefit of Customers
ATTN: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
</TABLE>
* The Trust has no knowledge as to whether all or any portion of the
shares owned of record are also owned beneficially.
37
<PAGE> 165
<TABLE>
<CAPTION>
Percentage Percentage Owned
Name and Address Owned of of Record and
of Owner Record* Beneficially
---------------- ---------- ----------------
<S> <C> <C>
CLASS C SHARES
Merrill Lynch Pierce Fenner & Smith 16.10% -0-
FBO The Sole Benefit of Customers
ATTN: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
Banc One Securities Corp FBO 5.05% -0-
The One Investment Solution
733 Greencrest Drive
Westerville, OH 43081-0000
MUNICIPAL BOND
CLASS B SHARES
Merrill Lynch Pierce Fenner & Smith 10.62% -0-
FBO The Sole Benefit of Customers
ATTN: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
CLASS C SHARES
Merrill Lynch Pierce Fenner & Smith 17.90% -0-
FBO The Sole Benefit of Customers
ATTN: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
Reagan Family Partners -0- 6.20%
Robert L Reagan Gen Partner
Dalene C Gragan Gen Partner
125 Crestline Drive
Kerrville, TX 78028
</TABLE>
* The Trust has no knowledge as to whether all or any portion of the
shares owned of record are also owned beneficially.
38
<PAGE> 166
MANAGEMENT
The overall management of the business and affairs of the Funds and the
Trust is vested in the Trust's Board of Trustees. The Board of Trustees approves
all significant agreements between the Trust, on behalf of the Funds, and
persons or companies furnishing services to the Funds, including (i) the
investment advisory and administrative services agreements with AIM; (ii) the
agreements with AIM Distributors regarding distribution of each Fund's shares;
(iii) the agreement with The Bank of New York to act as the custodian for
Limited Maturity and Municipal Bond: (iv) the agreement with State Street Bank
and Trust Company to act as the custodian for High Yield, High Yield II, Income,
Intermediate Government and Money Market; and (v) the agreement with AFS to act
as transfer agent for each of the Funds. The day-to-day operations of each Fund
are delegated to the officers of the Trust and to AIM, subject always to the
investment objectives, restrictions and policies of the applicable Fund and to
the general supervision of the Board of Trustees. Certain trustees and officers
of the Trust are affiliated with AIM and A I M Management Group Inc. ("AIM
Management"), the parent corporation of AIM.
TRUSTEES AND OFFICERS
The trustees and officers of the Trust and their principal occupations
during at least the last five years are set forth below. Unless otherwise
indicated, the address of each trustee and officer is 11 Greenway Plaza, Suite
100, Houston, Texas 77046-1173. All of the trustees of the Trust also serve as
directors or trustees of some or all of the other AIM Funds. Certain of the
Trust's executive officers hold similar offices with some or all of the other
AIM Funds.
39
<PAGE> 167
<TABLE>
<CAPTION>
POSITIONS HELD WITH PRINCIPAL OCCUPATION DURING AT LEAST THE
NAME, ADDRESS AND AGE REGISTRANT PAST 5 YEARS
---------------------- ------------------- -------------------------------------------
<S> <C> <C>
*ROBERT H. GRAHAM (53) Trustee, Chairman and Director, President and Chief Executive Officer,
President A I M Management Group Inc.; Director and President,
A I M Advisors, Inc.; Director and Senior Vice
President, A I M Capital Management, Inc., A I M
Distributors, Inc., A I M Fund Services, Inc., and Fund
Management Company; and Director and Chief Executive
Officer, Managed Products, AMVESCAP PLC.
BRUCE L. CROCKETT (56) Trustee Director, ACE Limited (insurance company). Formerly,
906 Frome Lane Director, President and Chief Executive Officer,
McLean, VA 22102 COMSAT Corporation; and Chairman, Board of Governors
of INTELSAT (international communications company).
OWEN DALY II (76) Trustee Formerly, Director, Cortland Trust Inc. (investment
Six Blythewood Road company). CF & I Steel Corp., Monumental Life
Baltimore, MD 21210 Insurance Company and Monumental General Insurance
Company; and Chairman of the Board of Equitable
Bancorporation.
EDWARD K. DUNN, JR. (65) Trustee Formerly, Chairman of the Board of Directors,
2 Hopkins Plaza, 8th Floor, Mercantile Mortgage Corp.; Vice Chairman of the Board
Suite 805 of Directors, President and Chief Operating Officer,
Baltimore, MD 21201 Mercantile-Safe Deposit & Trust Co.; and President,
Mercantile Bankshares.
JACK M. FIELDS (48) Trustee Chief Executive Officer, Texana Global, Inc. (foreign
434 New Jersey Avenue, S.E. trading company) and Twenty First Century Group, Inc.
Washington, DC 20003 (a governmental affairs company). Formerly, Member of
the U.S. House of Representatives.
** CARL FRISCHLING (63) Trustee Partner, Kramer Levin Naftalis & Frankel, LLP (law
919 Third Avenue firm).
New York, NY 10022
</TABLE>
* A trustee who is an "interested person" of the Trust and AIM as defined
in the 1940 Act.
** A trustee who is an "interest person" of the Trust as defined in the
1940 Act.
40
<PAGE> 168
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATION DURING AT
NAME, ADDRESS AND AGE WITH REGISTRANT LEAST THE PAST 5 YEARS
--------------------- --------------- ------------------------------
<S> <C> <C>
PREMA MATHAI-DAVIS (50) Trustee Formerly, Chief Executive Officer, YWCA of the USA.
370 East 76th Street
New York, NY 10021
LEWIS F. PENNOCK (58) Trustee Partner, Pennock & Cooper (law firm).
6363 Woodway, Suite 825
Houston, TX 77057
LOUIS S. SKLAR (61) Trustee Executive Vice President, Development and
The Williams Tower, 50th Floor Operations, Hines Interests Limited Partnership
2800 Post Oak Blvd. (real estate development).
Houston, TX 77056
GARY T. CRUM (53) Senior Vice President Director and President, A I M Capital Management,
Inc.; Director and Executive Vice President, A I M
Management Group Inc.; Director and Senior Vice
President, A I M Advisors, Inc.; and Director, A I M
Distributors, Inc. and AMVESCAP PLC.
CAROL F. RELIHAN (46) Senior Vice President Director, Senior Vice President, General Counsel and
and Secretary Secretary, A I M Advisors, Inc.; Senior Vice
President, General Counsel and Secretary, A I M
Management Group Inc.; Director, Vice President and
General Counsel, Fund Management Company; General
Counsel and Vice President, A I M Fund Services,
Inc.; and Vice President, A I M Capital Management,
Inc. and A I M Distributors, Inc.
DANA R. SUTTON (41) Vice President and Vice President and Fund Controller, A I M Advisors,
Treasurer Inc.; and Assistant Vice President and Assistant
Treasurer, Fund Management Company.
MELVILLE B. COX (57) Vice President Vice President and Chief Compliance Officer, A I M
Advisors, Inc., A I M Capital Management, Inc., A I M
Distributors, Inc., A I M Fund Services, Inc. and
Fund Management Company.
KAREN DUNN KELLEY (40) Vice President Senior Vice President, A I M Capital Management, Inc
and Vice President, A I M Advisors, Inc.
</TABLE>
41
<PAGE> 169
The standing committees of the Board of Trustees are the Audit
Committee, the Investments Committee, and the Nominating and Compensation
Committee.
The members of the Audit Committee are Messrs. Crockett, Daly, Dunn
(Chairman), Fields, Frischling, Pennock and Sklar and Dr. Mathai-Davis. The
Audit Committee is responsible for: (i) considering management's recommendations
of independent accountants for each Fund and evaluating such accountants'
performance, costs and financial stability; (ii) with AIM, reviewing and
coordinating audit plans prepared by the Fund's independent accountants and
management's internal audit staff; and (iii) reviewing financial statements
contained in periodic reports to shareholders with the Fund's independent
accountants and management.
The members of the Investments Committee are Messrs. Crockett, Daly,
Dunn, Fields, Frischling, Pennock and Sklar (Chairman) and Dr. Mathai-Davis. The
Investments Committee is responsible for: (i) overseeing AIM's
investment-related compliance systems and procedures to ensure their continued
adequacy; and (ii) considering and acting, on an interim basis between meetings
of the full Board, on investment-related matters requiring Board consideration,
including dividends and distributions, brokerage policies and pricing matters.
The members of the Nominating and Compensation Committee are Messrs.
Crockett (Chairman), Daly, Dunn, Fields, Pennock and Sklar and Dr. Mathai-Davis.
The Nominating and Compensation Committee is responsible for: (i) considering
and nominating individuals to stand for election as independent trustees as long
as the Trust maintains a distribution plan pursuant to Rule 12b-1 under the 1940
Act; (ii) reviewing from time to time the compensation payable to the
independent trustees; and (iii) making recommendations to the Board regarding
matters related to compensation, including deferred compensation plans and
retirement plans for the independent trustees.
The Nominating and Compensation Committee will consider nominees
recommended by a shareholder to serve as trustees, provided (i) that such person
is a shareholder of record at the time he or she submits such names and is
entitled to vote at the meeting of shareholders at which trustees will be
elected, and (ii) that the Nominating and Compensation Committee or the Board,
as applicable, shall make the final determination of persons to be nominated.
REMUNERATION OF TRUSTEES
Each trustee is reimbursed for expenses incurred in connection with
each meeting of the Board of Trustees or any committee attended. Each trustee
who is not also an officer of the Trust is compensated for his or her services
according to a fee schedule which recognizes the fact that such trustee also
serves as a trustee or director of the other AIM Funds. Each such trustee
receives a fee, allocated among the AIM Funds for which he or she serves as a
director or trustee, which consists of an annual retainer component and a
meeting fee component.
42
<PAGE> 170
Set forth below is information regarding compensation paid or accrued
for each trustee of the Trust:
<TABLE>
<CAPTION>
RETIREMENT
AGGREGATE BENEFITS TOTAL
COMPENSATION ACCRUED COMPENSATION
FROM THE BY ALL FROM ALL
TRUSTEE TRUST(1) AIM FUNDS(2) AIM FUNDS(3)
----------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Charles T. Bauer(4) $ 0 $ 0 $ 0
Bruce L. Crockett 5,461 37,485 103,500
Owen Daly II 5,461 122,898 103,500
Edward K. Dunn, Jr 5,461 55,565 103,500
Jack M. Fields 5,421 15,826 101,500
Carl Frischling(5) 5,461 97,791 103,500
Robert H. Graham 0 0 0
John F. Kroeger(6) 0 40,461 0
Prema Mathai-Davis 5,422 11,870 101,500
Lewis F. Pennock 5,461 45,766 103,500
Ian W. Robinson(6) 0 94,442 25,000
Louis S. Sklar 5,422 90,232 101,500
</TABLE>
--------------
(1) The total amount of compensation deferred by all trustees of the Trust
during the fiscal year ended July 31, 2000, including earnings thereon,
was $39,147.
(2) During the fiscal year ended July 31, 2000, the total estimated amount
of expenses allocated to the Trust in respect of such retirement
benefits was $12,655. Data reflects compensation for the calendar year
ended December 31, 1999.
(3) Each trustee serves as a director or trustee of a total of 12
registered investment companies advised by AIM as of December 31, 1999.
Data reflects total compensation earned during the calendar year ended
December 31, 1999.
(4) Mr. Bauer was a trustee and officer until September 30, 2000, when he
retired.
(5) During the fiscal year ended July 31, 2000, the Trust paid $22,567 in
legal fees to Mr. Frischling's law firm, Kramer Levin Naftalis &
Frankel, LLP, for services rendered to the independent trustees of the
Trust.
(6) Mr. Kroeger was a trustee until June 11, 1998. Mr. Kroeger passed away
on November 26, 1998. Mr. Kroeger's widow will receive his pension as
described below under "AIM Funds Retirement Plan for Eligible
Directors/Trustees".
(7) Mr. Robinson was a trustee until March 12, 1999, when he retired.
43
<PAGE> 171
AIM FUNDS RETIREMENT PLAN FOR ELIGIBLE DIRECTORS/TRUSTEES
Under the terms of the AIM Funds Retirement Plan for Eligible
Directors/Trustees (the "Plan"), each trustee (who is not an employee of any of
the AIM Funds, AIM Management, or any of their affiliates) may be entitled to
certain benefits upon retirement from the Board of Trustees. Pursuant to the
Plan, a trustee becomes eligible to retire and receive full benefits under the
Plan when he or she has attained age 65 and has completed at least five years of
continuous service with one or more of the regulated investment companies
managed, administered or distributed by AIM or its affiliates (the "Applicable
AIM Funds"). Each eligible trustee is entitled to receive an annual benefit from
the Applicable AIM Funds commencing on the first day of the calendar quarter
coincident with or following his or her date of retirement equal to a maximum of
75% of the annual retainer paid or accrued by the Applicable AIM Funds for such
trustee during the twelve-month period immediately preceding the trustee's
retirement (including amounts deferred under a separate agreement between the
Applicable AIM Funds and the trustee) and based on the number of such trustee's
years of service (not in excess of 10 years of service) completed with respect
to any of the Applicable AIM Funds. Such benefit is payable to each eligible
trustee in quarterly installments. If an eligible trustee dies after attaining
the normal retirement date but before receipt of all benefits under the Plan,
the trustee's surviving spouse (if any) shall receive a quarterly survivor's
benefit equal to 50% of the amount payable to the deceased trustee for no more
than ten years beginning the first day of the calendar quarter following the
date of the trustee's death. Payments under the Plan are not secured or funded
by any Applicable AIM Fund.
Set forth below is a table that shows the estimated annual benefits
payable to an eligible trustee upon retirement assuming the retainer amount
reflected below and various years of service. The estimated credited years of
service for Messrs. Crockett, Daly, Dunn, Fields, Frischling, Kroeger, Pennock,
Robinson and Sklar and Dr. Mathai-Davis are 13, 13, 2, 3, 23, 20, 19, 11, 11 and
2 years, respectively.
ESTIMATED ANNUAL BENEFITS UPON RETIREMENT
<TABLE>
<CAPTION>
Number of Years of
Service With
Applicable AIM Estimated Annual Benefits Upon
Funds Retirement
------------------------- ------------------------------
<S> <C>
10 $ 75,000
9 $ 67,500
8 $ 60,000
7 $ 52,500
6 $ 45,000
5 $ 37,500
</TABLE>
DEFERRED COMPENSATION AGREEMENTS
Messrs. Daly, Dunn, Fields, Frischling and Sklar and Dr. Mathai-Davis
(the "Deferring Trustees") have each executed a Deferred Compensation Agreement.
Pursuant to the agreements, the Deferring Trustees may elect to defer receipt of
up to 100% of their compensation payable by the Trust, and such amounts are
placed into a deferral account. Currently, the Deferring Trustees may select
various AIM Funds in which all or part of their deferral accounts shall be
deemed to be invested. Distributions from the Deferring Trustees'
44
<PAGE> 172
deferral accounts will be paid in cash, in generally equal quarterly
installments over a period of five (5) or ten (10) years (depending on the
agreement) beginning on the date the Deferring Trustee's retirement benefits
commence under the Plan. The Trust's Board of Trustees, in its sole discretion,
may accelerate or extend the distribution of such deferral accounts after the
Deferring Trustee's termination of service as a trustee of the Trust. If a
Deferring Trustee dies prior to the distribution of amounts in his or her
deferral account, the balance of the deferral account will be distributed to his
or her designated beneficiary in a single lump sum payment as soon as
practicable after such Deferring Trustee's death. The agreements are not funded
and, with respect to the payments of amounts held in the deferral accounts, the
Deferring Trustees have the status of unsecured creditors of the Funds and of
each other AIM Fund from which they are deferring compensation.
INVESTMENT ADVISORY AND OTHER SERVICES
The Trust, on behalf of the Funds, has entered into a Master Investment
Advisory Agreement (the "Advisory Agreement") and a Master Administrative
Services Agreement (the "Administrative Services Agreement") with AIM.
AIM was organized in 1976, and together with its subsidiaries advises
or manages over 120 investment portfolios encompassing a broad range of
investment objectives. AIM is a wholly owned subsidiary of AIM Management, 11
Greenway Plaza, Suite 100, Houston, Texas 77046-1173. AIM Management is a
holding company that has been engaged in the financial services business since
1976. AIM Management is an indirect wholly owned subsidiary of AMVESCAP PLC, 11
Devonshire Square, London EC2M 4YK, England. AMVESCAP PLC and its subsidiaries
are an independent investment management group engaged in institutional
investment management and retail fund businesses in the Unites States, Europe
and the Pacific Region. Certain of the directors and officers of AIM are also
executive officers of the Trust and their affiliations are shown under "Trustees
and Officers". AIM Capital, a wholly owned subsidiary of AIM, is engaged in the
business of providing investment advisory services to investment companies,
corporations, institutions and other accounts.
AIM and the Trust have adopted a Code of Ethics which requires
investment personnel and certain other employees (a) to pre-clear all personal
securities transactions subject to the Code of Ethics; (b) file reports or
duplicate confirmations regarding such transactions; (c) refrain from personally
engaging in (i) short-term trading of a security, (ii) transactions involving a
security within seven days of an AIM Fund transaction involving the same
security (subject to a de minimis exception), and (iii) transactions involving
securities being considered for investment by an AIM Fund (subject to the de
minimis exception); and (d) abide by certain other provisions of the Code of
Ethics. The de minimis exception under the Code of Ethics covers situations
where there is no material conflict of interest because of the large market
capitalization of a security and the relatively small number of shares involved
in a personal transaction. The Code of Ethics also generally prohibits AIM
employees who are registered with the NASD from purchasing securities in an
initial public offering. Personal trading reports are periodically reviewed by
AIM, and the Board of Trustees reviews quarterly and annual reports (which
summarize any significant violations of the Code of Ethics). Sanctions for
violating the Code of Ethics may include censure, monetary penalties, suspension
or termination of employment.
The Advisory Agreement provides that each Fund will pay or cause to be
paid all expenses of that Fund not assumed by AIM, including, without
limitation: brokerage commissions; taxes, legal, accounting, auditing or
governmental fees; the cost of preparing share certificates; custodian, transfer
and shareholder service agent costs; expenses of issue, sale, redemption and
repurchase of shares; expenses of registering and qualifying shares for sale;
expenses relating to trustees and shareholder meetings; the cost of preparing
and distributing reports and notices to shareholders; the fees and other
expenses incurred by the Trust on behalf of the Fund in connection with
membership in investment company organizations; the cost of printing copies of
prospectuses and statements of additional information distributed to the Fund's
shareholders; and all other charges and costs of the Fund's operations unless
otherwise explicitly provided.
The Advisory Agreement will continue from year to year only if such
continuance is specifically approved at least annually by the Trust's Board of
Trustees or the vote of a "majority of the outstanding voting securities" of
each Fund (as defined in the 1940 Act) and (ii) the affirmative vote of a
majority of the trustees
45
<PAGE> 173
who are not parties to the Advisory Agreement or "interested persons" of any
such party (the "Non-Interested Trustees") by votes cast in person at a meeting
called for such purpose. The Trust or AIM may terminate the Advisory Agreement
with respect to a Fund on sixty (60) days' written notice without penalty. The
Advisory Agreement terminates automatically in the event of its assignment.
Under the terms of the Advisory Agreement, AIM supervises all aspects
of the Funds' operations and provides investment advisory services to the Funds.
AIM obtains and evaluates economic, statistical and financial information to
formulate and implement investment programs for the Funds. AIM will not be
liable to the Funds or their shareholders except in the case of AIM's willful
misfeasance, bad faith, gross negligence or reckless disregard of duty.
AIM and the Trust have also entered into a Master Administrative
Services Agreement (the "Administrative Services Agreement"), pursuant to which
AIM is entitled to receive from the Funds reimbursement of its costs or such
reasonable compensation as may be approved by the Board of Trustees. Currently,
AIM is reimbursed for the services of the Trust's principal financial officer
and her staff, and any expenses related to fund accounting services.
In addition, pursuant to the terms of a Transfer Agency and Service
Agreement, AFS, a wholly owned subsidiary of AIM and registered transfer agent,
receives a fee for its provision of transfer agency, dividend distribution and
disbursement and shareholder services to the Funds. AFS' principal address is
P.O. Box 4739, Houston, Texas 77210-4739.
In addition, if a Fund engages in securities lending, AIM will provide
the Fund investment advisory services and related administrative services. The
Advisory Agreement describes the administrative services to be rendered by AIM
if a Fund engages in securities lending activities, as well as the compensation
AIM may receive for such administrative services. Services to be provided
include: (a) overseeing participation in the securities lending program to
ensure compliance with all applicable regulatory and investment guidelines; (b)
assisting the securities lending agent or principal (the agent) in determining
which specific securities are available for loan; (c) monitoring the agent to
ensure that securities loans are effected in accordance with AIM's instructions
and with procedures adopted by the Board; (d) preparing appropriate periodic
reports for, and seeking appropriate approvals from, the Board with respect to
securities lending activities; (e) responding to agent inquiries; and (f)
performing such other duties as may be necessary.
AIM's compensation for advisory services rendered in connection with
securities lending is included in the advisory fee schedule. As compensation for
the related administrative services AIM will provide, a lending Fund will pay
AIM a fee equal to 25% of the net monthly interest or fee income retained or
paid to the Fund from such activities. AIM currently intends to waive such fees,
and has agreed to seek Board approval prior to its receipt of all or a portion
of such fees.
Under the Advisory Agreement, AIM is entitled to receive from Limited
Maturity a fee calculated at the following annual rates, based on the average
daily net assets of the Fund during the year:
<TABLE>
<CAPTION>
NET ASSETS ANNUAL RATE
---------- -----------
<S> <C>
First $500 million 0.20%
Amount over $500 million 0.175%
</TABLE>
Under the Advisory Agreement, AIM is entitled to receive from High
Yield a fee calculated at the following annual rates, based on the average daily
net assets of the Fund during the year:
46
<PAGE> 174
<TABLE>
<CAPTION>
NET ASSETS ANNUAL RATE
---------- -----------
<S> <C>
First $200 million 0.625%
Next $300 million 0.550%
Next $500 million 0.500%
Amount over $1 billion 0.450%
</TABLE>
Under the Advisory Agreement, AIM is entitled to receive from High
Yield II a fee calculated at the following annual rates, based on the average
daily net assets of the Fund during the year:
<TABLE>
<CAPTION>
NET ASSETS ANNUAL RATE
---------- -----------
<S> <C>
First $500 million 0.625%
Next $500 million 0.55%
Amount over $1 billion 0.50%
</TABLE>
Under the Advisory Agreement, AIM is entitled to receive from each of
Income, Intermediate Government and Municipal Bond a fee calculated at the
following annual rates, based on the average daily net assets of the Fund during
the year:
<TABLE>
<CAPTION>
NET ASSETS ANNUAL RATE
---------- -----------
<S> <C>
First $200 million 0.50%
Next $300 million 0.40%
Next $500 million 0.35%
Amount over $1 billion 0.30%
</TABLE>
Under the Advisory Agreement, AIM is entitled to receive from Money
Market a fee calculated at the following annual rates based on the average daily
net assets of the Fund during the year:
<TABLE>
<CAPTION>
NET ASSETS ANNUAL RATE
---------- -----------
<S> <C>
First $1 billion 0.55%
Over $1 billion 0.50%
</TABLE>
Each Fund paid to AIM the following management fees net of any expense
limitations and fee waivers for the years ended July 31, 2000, 1999 and 1998,
relating to Limited Maturity, for the year ended July 31, 2000 and for the
period September 30, 1998 through July 31, 1999, relating to High Yield II; and
for the period ended July 31, 2000 and for the years ended December 31, 1999,
1998 and 1997, relating to High Yield, Income, Intermediate Government, Money
Market and Municipal Bond:
<TABLE>
<CAPTION>
2000 1999 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Limited Maturity ............. $ 705,741 $ 850,738 $ 855,900 --
High Yield ................... $ 7,537,550 $ 16,396,698 $ 17,600,312 $ 13,632,090
High Yield II*................ $ 366,416 $ 146,069 N/A N/A
Income ....................... $ 1,512,830 $ 2,785,338 $ 2,375,487 $ 1,801,746
Intermediate Government ...... $ 1,153,654 $ 2,310,621 $ 1,611,515 $ 1,174,166
Money Market ................. $ 4,041,617 $ 7,448,373 $ 5,891,106 $ 4,586,148
Municipal Bond ............... $ 953,308 $ 1,830,490 $ 1,738,038 $ 1,532,157
</TABLE>
* September 30, 1998 (commencement of operations)
For the year ended July 31, 2000, AIM waived $251,914 of the advisory
fees due from High Yield II.
47
<PAGE> 175
AIM may from time to time waive or reduce its fee. Voluntary fee
waivers or reductions may be rescinded at any time without further notice to
investors. During periods of voluntary fee waivers or reductions, AIM will
retain its ability to be reimbursed for such fee prior to the end of each fiscal
year. Contractual fee waivers or reductions set forth in the Fee Table in a
Prospectus may not be terminated or amended to the Funds' detriment during the
period stated in the agreement between AIM and the Funds.
The Administrative Services Agreement for the Funds provides that AIM
may provide or arrange for the performance of certain accounting, shareholder
servicing and other administrative services to the Funds. For such services, AIM
would be entitled to receive from each Fund reimbursement of AIM's costs or such
reasonable compensation as may be approved by AIM and the Board of Trustees. The
Administrative Services Agreement provides that such agreement will continue in
effect from year to year if such continuance is specifically approved at least
annually by (i) the Trust's Board of Trustees or the vote of a "majority of the
outstanding voting securities" of a Fund (as defined in the 1940 Act) and (ii)
the affirmative vote of a majority of the Non-Interested Trustees, by votes cast
in person at a meeting called for such purpose.
For the years ended July 31, 2000, 1999 and 1998, for Limited Maturity;
for the year ended July 31, 2000 and for the period September 30, 1998 through
July 31, 1999 for High Yield II; and for the period ended July 31, 2000 and for
the years ended December 31, 1999, 1998 and 1997 for High Yield, Income,
Intermediate Government, Money Market and Municipal Bond, AIM was paid in the
following amounts:
<TABLE>
<CAPTION>
2000 1999 1998 1997
---- ---- ---- ----
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
AMOUNT AVERAGE AMOUNT AVERAGE AMOUNT AVERAGE AMOUNT AVERAGE NET
PAID NET ASSETS PAID NET ASSETS PAID NET ASSETS PAID NET ASSETS
------ ------------- ------ ------------- ------ ------------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Limited Maturity......... $ 80,566 .023% $ 70,069 .02% $ 59,396 .02% $ 66,785 .02%
High Yield .............. $ 107,029 .004% $ 177,468 .005% $ 135,537 .004% $ 111,767 .004%
High Yield II............ $ 45,890 .046% $ 64,643 .22% N/A N/A N/A N/A
Income................... $ 72,169 .012% $ 111,839 .02% $ 87,349 .02% $ 81,464 .02%
Intermediate Government.. $ 63,465 .014% $ 97,900 .02% $ 80,271 .02% $ 70,736 .03%
Money Market............. $ 83,475 .006% $ 118,024 .01% $ 71,394 .007% $ 68,947 .01%
Municipal Bond........... $ 53,056 .015% $ 91,647 .02% $ 73,917 .02% $ 70,780 .02%
</TABLE>
The Transfer Agency and Service Agreement, provides that AFS will
perform certain shareholder services for the Funds. The Transfer Agency and
Service Agreement provides that AFS will receive a per account fee plus
out-of-pocket expenses to process orders for purchases, redemptions and
exchanges of shares, prepare and transmit payments for dividends and
distributions declared by a Fund, maintain shareholder accounts and provide
shareholders with information regarding the Funds and other accounts.
DISTRIBUTION PLANS
THE CLASS A AND C PLAN. The Trust has adopted a Master Distribution
Plan, as amended, pursuant to Rule 12b-1 under the 1940 Act relating to the
Class A (other than Money Market) and Class C (other than Limited Maturity)
shares of the Funds and the AIM Cash Reserve Shares of Money Market (the "Class
A and C Plan"). Such plan provides that the Class A shares and AIM Cash Reserve
Shares pay 0.25% (0.15% for Limited Maturity) per annum of their average daily
net assets as compensation to AIM Distributors, a registered broker-dealer and a
wholly owned subsidiary of AIM, for the purpose of financing any activity which
is primarily intended to result in the sale of the Class A shares or AIM Cash
Reserve Shares. Under the Class A and C Plan, Class C shares of the Funds (other
than Limited Maturity) pay compensation to A I M Distributors, Inc., a
registered broker-dealer and a wholly owned subsidiary of AIM, at an annual rate
of 1.00% per annum of the average daily net assets attributable to Class C
shares for the purpose of financing any activity which is primarily intended to
result in the sale of Class C shares. Activities appropriate for financing under
the Class A and C Plan include, but are not limited to, the following: printing
of prospectuses and statements of additional information and reports for other
than existing shareholders; overhead; preparation and distribution of
advertising material and sales literature; expenses of organizing and conducting
sales seminars; supplemental payments to dealers and other institutions such as
asset-based sales charges or as payments of service fees under shareholder
service arrangements; and costs of administering the Class A and C Plan.
48
<PAGE> 176
The Class A and C Plan is designed to compensate AIM Distributors, on a
quarterly basis, for certain promotional and other sales-related costs, and to
implement a dealer incentive program which provides for periodic payments to
selected dealers who furnish continuing personal shareholder services to their
customers who purchase and own Class A or Class C shares of a Fund. Payments can
also be directed by AIM Distributors to selected institutions who have entered
into service agreements with respect to Class A and Class C shares (or AIM Cash
Reserve Shares) of each Fund and who provide continuing personal shareholder
services to their customers who own such shares of a Fund.
Of the aggregate amount payable under the Class A and C Plan, payments
to dealers and other financial institutions including AIM Distributors, acting
as principal, for providing continuing personal shareholder services to their
customers who purchase and own shares of a Fund, in amounts of up to 0.25% of
the average daily net assets of the Fund attributable to the customers of such
dealers or financial institutions are characterized as a service fee, and
payments to dealers and other financial institutions including AIM Distributors,
acting as principal, in excess of such amount would be characterized as an
asset-based sales charge pursuant to the Class A and C Plan.
THE CLASS B PLAN. The Trust has also adopted a Master Distribution Plan
pursuant to Rule 12b-1 under the 1940 Act relating to Class B shares of the
Funds (other than Limited Maturity) (the "Class B Plan", and collectively with
the Class A and C Plan, the "Plans"). Under the Class B Plan, each Fund pays
compensation to AIM Distributors at an annual rate of 1.00% of the average daily
net assets attributable to Class B shares. Of such amount, each Fund pays a
service fee of 0.25% of the average daily net assets attributable to Class B
shares to selected dealers and other institutions which furnish continuing
personal shareholder services to its customers who purchase and own Class B
shares. Any amounts not paid as a service fee would constitute an asset-based
sales charge. Amounts paid in accordance with the Class B Plan may be used to
finance any activity primarily intended to result in the sale of Class B shares,
including but not limited to printing of prospectuses and statements of
additional information and reports for other than existing shareholders;
overhead; preparation and distribution of advertising material and sales
literature; expenses of organizing and conducting sales seminars; supplemental
payments to dealers and other institutions such as asset-based sales charges or
as payments of service fees under shareholder service arrangements; and costs of
administering the Class B Plan.
BOTH PLANS. Pursuant to an incentive program, AIM Distributors may
enter into agreements ("Shareholder Service Agreements") with investment dealers
selected from time to time by AIM Distributors for the provision of distribution
assistance in connection with the sale of the Funds' shares to such dealers'
customers, and for the provision of continuing personal shareholder services to
customers who may from time to time directly or beneficially own shares of the
Funds. The distribution assistance and continuing personal shareholder services
to be rendered by dealers under the Shareholder Service Agreements may include,
but shall not be limited to, the following: distributing sales literature;
answering routine customer inquiries concerning the Funds; assisting customers
in changing dividend options, account designations and addresses, and in
enrolling in any of several special investment plans offered in connection with
the purchase of the Funds' shares; assisting in the establishment and
maintenance of customer accounts and records and in the processing of purchase
and redemption transactions; investing dividends and any capital gains
distributions automatically in the Funds' shares; and providing such other
information and services as the Funds or the customer may reasonably request.
Under the Plans, in addition to the Shareholder Service Agreements
authorizing payments to selected dealers, banks may enter into Shareholder
Service Agreements authorizing payments under the Plans to be made to banks
which provide services to their customers who have purchased shares. Services
provided pursuant to Shareholder Service Agreements with banks may include some
or all of the following: answering shareholder inquiries regarding a Fund and
the Trust; performing sub-accounting; establishing and maintaining shareholder
accounts and records; processing customer purchase and redemption transactions;
providing periodic statements showing a shareholder's account balance and the
integration of such statements with those of other transactions and balances in
the shareholder's other accounts serviced by the bank; forwarding applicable
prospectuses, proxy statements, reports and notices to bank clients who hold
Fund shares; and such other administrative services as a Fund reasonably may
request, to the extent permitted by
49
<PAGE> 177
applicable statute, rule or regulation. Similar agreements may be permitted
under the Plans for institutions which provide recordkeeping for and
administrative services to 401(k) plans.
The Trust may also enter into Variable Group Annuity Contractholder
Service Agreements ("Variable Contract Agreements") on behalf of the Funds
(other than Money Market) authorizing payments to selected insurance companies
offering variable annuity contracts to employers as funding vehicles for
retirement plans qualified under Section 401(a) of the Code. Services provided
pursuant to such Variable Contract Agreements may include some or all of the
following: answering inquiries regarding a Fund and the Trust; performing
sub-accounting; establishing and maintaining contractholder accounts and
records; processing and bunching purchase and redemption transactions; providing
periodic statements of contract account balances; forwarding such reports and
notices to contractholders relative to a Fund as deemed necessary; generally,
facilitating communications with contractholders concerning investments in a
Fund on behalf of plan participants; and performing such other administrative
services as deemed to be necessary or desirable, to the extent permitted by
applicable statute, rule or regulation to provide such services.
Similar agreements may be permitted under the Plans for institutions
which provide recordkeeping for and administrative services to 401(k) plans.
In addition, Shareholder Service Agreements may be permitted under the
Plans for bank trust departments and brokers for bank trust departments which
provide shareholder services to their customers.
AIM Distributors, acting as principal, may also enter into Shareholder
Service Agreements with the Funds, substantially identical to those agreements
entered into with investment dealers or other financial institutions,
authorizing payments to AIM Distributors for providing continuing personal
shareholder services to those customers for which AIM Distributors serves as
dealer of record.
Financial intermediaries and any other person entitled to receive
compensation for selling Fund shares may receive different compensation for
selling shares of one particular class over another.
Under a Shareholder Service Agreement, a Fund agrees to pay
periodically fees to selected dealers and other institutions who render the
foregoing services to their customers. The fees payable under a Shareholder
Service Agreement will be calculated at the end of each payment period for each
business day of the Funds during such period at the annual rates of 0.15% of the
average daily net asset value of Limited Maturity's Class A shares, and 0.25% of
the average daily net asset value of the other Fund's shares, purchased or
acquired through exchange. Fees calculated in this manner shall be paid only to
those selected dealers or other institutions who are dealers or institutions of
record at the close of business on the last business day of the applicable
payment period for the account in which such Fund's shares are held.
Payments pursuant to the Plans are subject to any applicable
limitations imposed by rules of the National Association of Securities Dealers,
Inc. and NASD Regulation, Inc. (the "NASD"). The Plans conform to rules of the
NASD by limiting payments made to dealers and other financial institutions who
provide continuing personal shareholder services to their customers who purchase
and own shares of the Funds to no more than 0.25% per annum of the average daily
net assets of the Funds attributable to the customers of such dealers or
financial institutions, and by imposing a cap on the total sales charges,
including asset based sales charges, that may be paid by the Funds and their
respective classes.
AIM Distributors may from time to time waive or reduce any portion of
its 12b-1 fee for Class A shares and Class C shares. Voluntary fee waivers or
reductions may be rescinded at any time without further notice to investors.
During periods of voluntary fee waivers or reductions, AIM Distributors will
retain its ability to be reimbursed for such fee prior to the end of each fiscal
year. Contractual fee waivers or reductions set forth in the Fee Table in a
Prospectus may not be terminated or amended to the Funds' detriment during the
period stated in the agreement between AIM Distributors and the Funds.
Under the Plans, certain financial institutions which have entered into
service agreements and which sell shares of the Funds on an agency basis may
receive payments from the Funds pursuant to the respective Plans. AIM
Distributors does not act as principal, but rather as agent for the Funds, in
making dealer incentive
50
<PAGE> 178
and shareholder servicing payments to dealers and other financial institutions
under the Plans. These payments are an obligation of the Funds and not of AIM
Distributors.
For the fiscal year ended July 31, 2000, Limited Maturity, High Yield
II and for the period ended July 31, 2000, High Yield, Income, Intermediate
Government, Money Market and Municipal Bond and the various classes of the Funds
paid to AIM Distributors the following amounts pursuant to the Plans:
<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
High Yield $1,735,976 $7,941,484 $700,789
High Yield II 116,793 451,249 70,906
Income 529,667 1,299,325 156,134
Intermediate Government 318,066 1,118,113 202,776
Limited Maturity 517,076 N/A N/A
Money Market 1,332,550* 1,905,178 265,889
Municipal Bond 412,647 392,471 49,226
</TABLE>
* AIM Cash Reserve Shares
For the year ended December 31, 1999, High Yield, Income, Intermediate
Government, Money Market and Municipal Bond and the various classes of the Funds
paid to AIM Distributors the following amounts pursuant to the Plans:
<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
High Yield $3,885,854 $17,586,035 $1,307,654
Income 1,006,620 2,401,345 244,571
Intermediate Government 622,422 2,414,889 411,484
Money Market 2,443,795* 3,680,653 440,903
Municipal Bond 805,244 753,522 101,726
</TABLE>
* AIM Cash Reserve Shares
An estimate by category of the allocation of actual fees paid by Class
A shares of the Funds (AIM Cash Reserve Shares of Money Market) under the Class
A and C Plan during the year ended July 31, 2000, with respect to Limited
Maturity and High Yield II and period ended July 31, 2000, with respect to High
Yield, Income, Intermediate Government, Money Market and Municipal Bond was as
follows:
<TABLE>
<CAPTION>
LIMITED HIGH HIGH INTERMEDIATE MONEY MUNICIPAL
MATURITY YIELD YIELD II INCOME GOVERNMENT MARKET BOND
---------- ---------- ---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A
Advertising.............................. $ 12,180 $ 21,843 $ 7,128 $ 8,996 $ 4,798 $ 166,463 $ 10,769
Printing and Mailing prospectuses,
semi-annual reports and annual
reports (other than to current
shareholders)........................ $ 1,155 $ 2,061 $ 674 $ 867 $ 449 $ 15,970 $ 1,048
Seminars................................. $ 2,954 $ 5,131 $ 2,497 $ 2,183 $ 1,118 $ 40,757 $ 2,646
Compensation to Dealers including
Finders Fees......................... $ 500,787 $1,706,941 $ 106,494 $ 517,621 $ 311,701 $1,109,360 $ 398,185
Annual Report Total...................... $ 517,076 $1,735,976 $ 116,793 $ 529,667 $ 318,066 $1,332,550 $ 412,648
</TABLE>
51
<PAGE> 179
An estimate by category of the allocation of actual fees paid by Class
A shares of the Funds (AIM Cash Reserve Shares of Money Market) under the Class
A and C Plan during the year ended December 31, 1999 was as follows:
<TABLE>
<CAPTION>
HIGH INTERMEDIATE MONEY MUNICIPAL
YIELD INCOME GOVERNMENT MARKET BOND
---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
CLASS A
Advertising.............................. $ 63,938 $ 16,079 $ 9,141 $ 174,714 $ 20,146
Printing and Mailing prospectuses,
semi-annual reports and annual
reports (other than to current
shareholders)........................ 5,923 1,532 868 16,315 1,949
Seminars................................. 14,814 4,207 2,380 41,631 5,524
Compensation to Dealers including
Finders Fees......................... 3,801,179 984,801 610,033 2,211,135 777,625
Annual Report Total...................... $3,885,854 $1,006,659 $ 622,422 $2,443,795 $ 805,244
</TABLE>
An estimate by category of the allocation of actual fees paid by the
Funds under the Class B Plan for the year ended July 31, 2000, with respect to
High Yield II; and period ended July 31, 2000, with respect to High Yield,
Income, Intermediate Government, Money Market and Municipal Bond was as follows:
<TABLE>
<CAPTION>
HIGH HIGH INTERMEDIATE MONEY MUNICIPAL
YIELD YIELD II INCOME GOVERNMENT MARKET BOND
---------- ---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
Advertising.............................. $ 115,315 $ 27,406 $ 40,799 $ 33,137 $ 55,730 $ 8,852
Printing and Mailing prospectuses,
semi-annual reports and annual
reports (other than to current
shareholders)........................ $ 11,028 $ 2,615 $ 3,930 $ 3,062 $ 5,166 $ 825
Seminars................................. $ 28,730 $ 6,779 $ 9,585 $ 7,851 $ 12,949 $ 2,037
Compensation to Underwriters to
partially offset other marketing
expenses............................. $5,956,113 $ 338,437 $ 974,494 $ 838,585 $1,428,884 $ 294,353
Compensation to Dealers including
Finders Fees......................... $1,830,298 $ 76,012 $ 270,517 $ 235,479 $ 402,449 $ 86,404
Annual Report Total...................... $7,941,484 $ 451,249 $1,299,325 $1,118,114 $1,905,178 $ 392,471
</TABLE>
An estimate by category of the allocation of actual fees paid by the
Funds under the Class B Plan for the year ended December 31, 1999, was as
follows:
<TABLE>
<CAPTION>
HIGH INTERMEDIATE MONEY MUNICIPAL
YIELD INCOME GOVERNMENT MARKET BOND
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CLASS B
Advertising.............................. $ 515,604 $ 113,165 $ 109,571 $ 117,635 $ 24,928
Printing and Mailing prospectuses,
semi-annual reports and annual
reports (other than to current
shareholders)........................ 48,632 10,994 10,552 10,813 2,466
Seminars................................. 128,178 30,039 28,829 26,840 6,849
Compensation to Underwriters to
partially offset other marketing
expenses............................. 13,189,527 1,801,009 1,811,167 2,760,490 565,142
Compensation to Dealers including
Finders Fees......................... 3,704,095 446,139 454,770 764,875 154,137
Annual Report Total...................... $17,586,036 $ 2,401,346 $ 2,414,889 $ 3,680,653 $ 753,522
</TABLE>
52
<PAGE> 180
An estimate by category of the allocation of actual fees paid by Class
C shares of the Funds under the Class A and C Plan for the year ended July 31,
2000, with respect to High Yield II; and period ended July 31, 2000, with
respect to High Yield, Income, Intermediate Government, Money Market and
Municipal Bond was as follows:
<TABLE>
<CAPTION>
HIGH HIGH INTERMEDIATE MONEY MUNICIPAL
YIELD YIELD II INCOME GOVERNMENT MARKET BOND
-------- -------- -------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C>
CLASS C
Advertising........................... $ 25,206 $ 6,881 $ 9,398 $ 7,668 $ 18,396 $ 2,173
Printing and Mailing prospectuses,
semi-annual reports and annual
reports (other than to current
shareholders)..................... $ 2,363 $ 681 $ 930 $ 703 $ 1,698 $ -0-
Seminars.............................. $ 5,908 $ 2,269 $ 2,582 $ 2,232 $ 4,921 $ -0-
Compensation to Underwriters to
partially offset other marketing
expenses.......................... $161,473 $ 44,237 $ 58,094 $ 48,552 119,334 $ 16,297
Compensation to Dealers including
Finders Fees...................... $505,840 $ 16,838 $ 85,130 $143,621 $121,539 $ 30,756
Annual Report Total................... $700,789 $ 70,906 $156,134 $202,776 $265,888 $ 49,226
</TABLE>
An estimate by category of the allocation of actual fees paid by Class
C shares of the Funds under the Class A and C Plan for the year ended December
31, 1999, was as follows:
<TABLE>
<CAPTION>
HIGH INTERMEDIATE MONEY MUNICIPAL
YIELD INCOME GOVERNMENT MARKET BOND
---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
CLASS C
Advertising........................... $ 0 $ 229 $ 0 $ 0 $ 41
Printing and Mailing prospectuses,
semi-annual reports and annual
reports (other than to current
shareholders)..................... 0 23 0 0 2
Seminars.............................. 0 69 0 0 8
Compensation to Underwriters to
partially offset other marketing
expenses.......................... 716,978 163,909 182,613 273,359 61,493
Compensation to Dealers including
Finders Fees...................... 590,676 80,341 228,871 167,544 40,182
Annual Report Total................... $1,307,654 $ 244,571 $ 411,484 $ 440,903 $ 101,726
</TABLE>
As required by Rule 12b-1, the Plans and related forms of Shareholder
Service Agreements were approved by the Board of Trustees, including a majority
of the trustees who are not "interested persons" (as defined in the 1940 Act) of
the Trust and who have no direct or indirect financial interest in the operation
of the Plans or in any agreements related to the Plans (the "Independent
Trustees"). In approving the Plans in accordance with the requirements of Rule
12b-1, the trustees considered various factors and determined that there is a
reasonable likelihood that the Plans would benefit each affected class of the
Funds and its respective shareholders.
Amounts payable by a Fund under the Plans need not be directly related
to the expenses actually incurred by AIM Distributors on behalf of each Fund.
The Plans do not obligate the Funds to reimburse AIM Distributors for the actual
expenses AIM Distributors may incur in fulfilling its obligations under the
Plans. Thus, even if AIM Distributors' actual expenses exceed the fee payable to
AIM Distributors thereunder at any given time, the Funds will not be obligated
to pay more than that fee. If AIM Distributors' expenses are less than the fee
it receives, AIM Distributors will retain the full amount of the fee.
The Plans require AIM Distributors to provide the Board of Trustees at
least quarterly with a written report of the amounts expended pursuant to the
Plans and the purposes for which such expenditures were made. The Board of
Trustees reviews these reports in connection with their decisions with respect
to the Plans.
53
<PAGE> 181
Unless terminated earlier in accordance with their terms, the Plans
continue as long as such continuance is specifically approved at least annually
by the Board of Trustees, including a majority of the Independent Trustees.
The Plans may be terminated by the vote of a majority of the
Independent Trustees, or, with respect to a particular class, by the vote of a
majority of the outstanding voting securities of that class.
Any change in the Plans that would increase materially the distribution
expenses paid by the applicable class requires shareholder approval; otherwise,
the Plans may be amended by the Trustees, including a majority of the
Independent Trustees, by votes cast in person at a meeting called for the
purpose of voting upon such amendment. As long as the Plans are in effect, the
selection or nomination of the Independent Trustees is committed to the
discretion of the Independent Trustees. In the event the Class A and C Plan is
amended in a manner which the Board of Trustees determines would materially
increase the charges paid by holders of Class A shares under the Class A and C
Plan, the Class B shares will no longer convert into Class A shares of the Funds
unless the Class B shares, voting separately, approve such amendment. If the
Class B shareholders do not approve such amendment, the Board of Trustees will
(i) create a new class of shares of the Funds which is identical in all material
respects to the Class A shares as they existed prior to the implementation of
the amendment, and (ii) ensure that the existing Class B shares of the Funds
will be exchanged or converted into such new class of shares no later than the
date the Class B shares were scheduled to convert into Class A shares.
The principal differences between the Class A and C Plan and the B Plan
are: the Class A and C Plan allows payment to AIM Distributors or to dealers or
financial institutions of up to 0.15% of the average daily net assets for
Limited Maturity and up to 0.25% of the average daily net assets for High Yield,
High Yield II, Income, Intermediate Government, Money Market and Municipal Bond
of their respective Class A shares or AIM Cash Reserve Shares, as compared to
1.00% of such assets of each Fund's Class B and Class C shares; (ii) the Class B
Plan obligates Class B shares to continue to make payments to AIM Distributors
following termination of the Class B shares Distribution Agreement with respect
to Class B shares sold by or attributable to the distribution efforts of AIM
Distributors, unless there has been a complete termination of the Class B Plan
(as defined in such Plan); and (iii) the Class B Plan expressly authorizes AIM
Distributors to assign, transfer or pledge its rights to payments pursuant to
the Class B Plan.
THE DISTRIBUTION AGREEMENTS
The Trust has entered into master distribution agreements, as amended,
relating to the Funds (the "Distribution Agreements") with AIM Distributors,
pursuant to which AIM Distributors acts as the distributor of Class A, Class B
and Class C shares of the Funds and AIM Cash Reserve Shares of Money Market. The
address of AIM Distributors is P. O. Box 4739, Houston, Texas 77210-4739.
Certain trustees and officers of the trust are affiliated with AIM Distributors.
The Distribution Agreements provide AIM Distributors with the exclusive
right to distribute shares of the Funds directly and through institutions with
whom AIM Distributors has entered into selected dealer agreements. Under the
Distribution Agreement for the Class B shares, AIM Distributors sells Class B
shares at net asset value subject to a contingent deferred sales charge
established by AIM Distributors. AIM Distributors is authorized to advance to
institutions through whom Class B shares are sold a sales commission under
schedules established by AIM Distributors. The Distribution Agreement for the
Class B shares provides that AIM Distributors (or its assignee or transferee)
will receive 0.75% (of the total 1.00% payable under the distribution plan
applicable to Class B shares) of each Fund's average daily net assets
attributable to Class B shares attributable to the sales efforts of AIM
Distributors.
The Distribution Agreements provide that AIM Distributors will bear the
expenses of printing from the final proof and distributing the Funds'
prospectuses and statements of additional information relating to public
offerings made by AIM Distributors pursuant to the Distribution Agreements
(other than those prospectuses
54
<PAGE> 182
and statements of additional information distributed to existing shareholders of
the Funds), and any promotional or sales literature used by AIM Distributors or
furnished by AIM Distributors to dealers in connection with the public offering
of the Funds' shares, including expenses of advertising in connection with such
public offerings. AIM Distributors has not undertaken to sell any specified
number of shares of any classes of the Funds.
AIM Distributors expects to pay sales commissions from its own
resources to dealers and institutions who sell Class B and Class C shares at the
time of such sales.
Payments with respect to Class B shares will equal 4.0% of the purchase
price of the Class B shares sold by the dealer or institution, and will consist
of a sales commission equal to 3.75% of the purchase price of the Class B shares
sold plus an advance of the first year service fee of 0.25% with respect to such
shares. The portion of the payments to AIM Distributors under the Class B Plan
which constitutes an asset-based sales charge (0.75%) is intended in part to
permit AIM Distributors to recoup a portion of such sales commissions plus
financing costs. AIM Distributors anticipates that it requires a number of years
to recoup from Class B Plan payments the sales commissions paid to dealers and
institutions in connection with sales of Class B shares. In the future, if
multiple distributors serve a Fund, each such distributor (or its assignee or
transferee) would receive a share of the payments under the Class B Plan based
on the portion of the Fund's Class B shares sold by or attributable to the
distribution efforts of that distributor.
AIM Distributors may pay sales commissions to dealers and institutions
who sell Class C shares at the time of such sales. Payments with respect to
Class C shares will equal 1.00% of the purchase price of the Class C shares sold
by the dealer or institution, and will consist of a sales commission of 0.75% of
the purchase price of the Class C shares sold plus an advance of the first year
service fee of 0.25% with respect to such shares. AIM Distributors will retain
all payments received by it relating to Class C shares for the first year after
they are purchased. The portion of the payments to AIM Distributors under the
Class A and C Plan attributable to Class C shares which constitutes an
asset-based sales charge (0.75%) is intended in part to permit AIM Distributors
to recoup a portion of on-going sales commissions to dealers plus financing
costs, if any. After the first full year, AIM Distributors will pay quarterly to
dealers and institutions 1.00% of the average net asset value of Class C shares
which are attributable to shareholders for whom the dealers and institutions are
designated as dealers of record.
The Trust (on behalf of any class of the Funds) or AIM Distributors may
terminate the Distribution Agreements on sixty (60) days' written notice without
penalty. The Distribution Agreements will terminate automatically in the event
of their assignment. In the event the Class B shares Distribution Agreement is
terminated, AIM Distributors would continue to receive payments of asset-based
distribution fees in respect of the outstanding Class B shares attributable to
the distribution efforts of AIM Distributors; provided, however, that a complete
termination of the Class B Plan (as defined in such Plan) would terminate all
payments to AIM Distributors. Termination of the Class B Plan or the
Distribution Agreement for Class B shares would not affect the obligation of a
Fund and its Class B shareholders to pay contingent deferred sales charges.
From time to time, AIM Distributors may transfer and sell its right to
payments under the Distribution Agreements relating to Class B shares in order
to finance distribution expenditures in respect to Class B shares.
The following chart reflects the total sales charges paid in connection
with the sale of Class A shares of each Fund and the amount retained by AIM
Distributors for the fiscal years ended July 31, 2000, 1999 and 1998, with
respect to Limited Maturity; for the year ended July 31, 2000 and for the period
September 30,
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<PAGE> 183
1998 (date operations commenced) through July 31, 1999, with respect to High
Yield II; and for the period ended July 31, 2000 and for the years ended
December 31, 1999, 1998 and 1997, with respect to High Yield, Income,
Intermediate Government, Money Market and Municipal Bond:
<TABLE>
<CAPTION>
2000 1999 1998 1997
---- ---- ---- ----
SALES AMOUNT SALES AMOUNT SALES AMOUNT SALES AMOUNT
CHARGES RETAINED CHARGES RETAINED CHARGES RETAINED CHARGES RETAINED
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Limited Maturity......... $ 219,047 $ 57,087 $ 292,457 $ 75,023 $ 219,035 $ 56,989 $ 340,764 $ 105,675
High Yield............... 1,492,443 265,022 4,583,060 800,330 10,554,990 1,822,464 12,115,351 2,043,967
High Yield II ........... 989,320 177,396 339,816 61,541 N/A N/A N/A N/A
Income .................. 777,478 133,679 1,984,670 358,051 1,727,399 340,185 1,158,790 203,261
Intermediate Government.. 582,038 103,411 1,622,505 297,352 1,129,232 196,016 648,578 116,124
Money Market ............ -- -- N/A N/A 1,738,598 347,757 2,470,808 443,904
Municipal Bond .......... 167,101 33,406 524,426 97,187 556,829 100,100 480,346 87,434
</TABLE>
The following chart reflects the contingent deferred sales charges paid
by Class A shareholders of Limited Maturity for the years ended July 31, 2000,
1999 and 1998; Class A shareholders of High Yield II for the year ended July 31,
2000 and for the period September 30, 1998 through July 31, 1999; Class B and
Class C shareholders of High Yield II for the year ended July 31, 2000 and for
the period November 20, 1998 through July 31, 1999; Class A, B and AIM Cash
Reserve Shares shareholders of High Yield, Income, Intermediate Government,
Money Market and Municipal Bond for the period ended July 31, 2000 and for the
years ended December 31, 1999, 1998 and 1997; and Class C shareholders of High
Yield, Income, Intermediate Government, Money Market and Municipal Bond for the
period ended July 31, 2000 and for the years ended December 31, 1999, 1998 and
1997:
<TABLE>
<CAPTION>
2000 1999 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Limited Maturity ............. N/A $ 15 N/A N/A
High Yield ................... $ 136,582 423,986 $ 660,651 $ 581,549
High Yield II ................ 15,557 111 N/A N/A
Income ....................... 23,462 48,455 99,010 45,242
Intermediate Government ...... 44,911 171,470 108,148 131,697
Money Market ................. 740,774 1,254,200 905,887 344,545
Municipal Bond ............... 31,486 123,118 48,077 44,830
</TABLE>
SALES CHARGES AND DEALER CONCESSIONS
CATEGORY I. Certain AIM Funds are currently sold with a sales charge
ranging from 5.50% to 2.00% of the offering price on purchases of less than
$1,000,000. These AIM Funds include Class A shares of each of AIM Advisor Flex
Fund, AIM Advisor International Value Fund, AIM Aggressive Growth Fund, AIM
Asian Growth Fund, AIM Basic Value Fund, AIM Blue Chip Fund, AIM Capital
Development Fund, AIM Charter Fund, AIM Constellation Fund, AIM Dent Demographic
Trends Fund, AIM Emerging Growth Fund, AIM European Development Fund, AIM
European Small Company Fund, AIM Euroland Growth Fund, AIM Global Utilities
Fund, AIM International Emerging Growth Fund, AIM International Equity Fund, AIM
Japan Growth Fund, AIM Large Cap Basic Value Fund, AIM Large Cap Growth Fund,
AIM Large Cap Opportunities Fund, AIM Mid Cap Equity Fund, AIM Mid Cap Growth
Fund, AIM Mid Cap Opportunities Fund, AIM New Technology Fund, AIM Select Growth
Fund, AIM Small Cap Equity Fund, AIM Small Cap Growth Fund, AIM Small Cap
Opportunities Fund, AIM Value Fund, AIM Value II Fund and AIM Weingarten Fund.
56
<PAGE> 184
<TABLE>
<CAPTION>
Dealer
Concession
Investor's Sales Charge ----------
----------------------------- As a
As a As a Percentage
Percentage Percentage of the
of the Public of the Net Public
Amount of Investment in Offering Amount Offering
Single Transaction(1) Price Invested Price
------------------------ ------------- ---------- ----------
<S> <C> <C> <C>
Less than $ 25,000 5.50% 5.82% 4.75%
$ 25,000 but less than $ 50,000 5.25 5.54 4.50
$ 50,000 but less than $ 100,000 4.75 4.99 4.00
$100,000 but less than $ 250,000 3.75 3.90 3.00
$250,000 but less than $ 500,000 3.00 3.09 2.50
$500,000 but less than $ 1,000,000 2.00 2.04 1.60
</TABLE>
----------
(1) AIM Small Cap Opportunities Fund will not accept any single purchase in
excess of $250,000.
CATEGORY II. Certain AIM Funds are currently sold with a sales charge
ranging from 4.75% to 2.00% of the offering price on purchases of less than
$1,000,000. These AIM Funds are: the Class A shares of each of AIM Advisor Real
Estate Fund, AIM Balanced Fund, AIM Developing Markets Fund, AIM Global
Aggressive Growth Fund, AIM Global Consumer Products and Services Fund, AIM
Global Financial Services Fund, AIM Global Growth Fund, AIM Global Health Care
Fund, AIM Global Income Fund, AIM Global Infrastructure Fund, AIM Global
Resources Fund, AIM Global Telecommunications and Technology Fund, AIM Global
Trends Fund, AIM High Income Municipal Fund, AIM High Yield Fund, AIM High Yield
Fund II, AIM Income Fund, AIM Intermediate Government Fund, AIM Latin American
Growth Fund, AIM Municipal Bond Fund, AIM Strategic Income Fund and AIM
Tax-Exempt Bond Fund of Connecticut.
<TABLE>
<CAPTION>
Dealer
Concession
Investor's Sales Charge ----------
----------------------------- As a
As a As a Percentage
Percentage Percentage of the
of the Public of the Net Public
Amount of Investment in Offering Amount Offering
Single Transaction Price Invested Price
------------------------ ------------- ---------- ----------
<S> <C> <C> <C>
Less than $ 50,000 4.75% 4.99% 4.00%
$ 50,000 but less than $ 100,000 4.00 4.17 3.25
$100,000 but less than $ 250,000 3.75 3.90 3.00
$250,000 but less than $ 500,000 2.50 2.56 2.00
$500,000 but less than $ 1,000,000 2.00 2.04 1.60
</TABLE>
CATEGORY III. Certain AIM Funds are currently sold with a sales charge
ranging from 1.00% to 0.50% of the offering price on purchases of less than
$1,000,000. These AIM Funds are the Class A shares of each of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund.
57
<PAGE> 185
<TABLE>
<CAPTION>
Dealer
Concession
Investor's Sales Charge ----------
----------------------------- As a
As a As a Percentage
Percentage Percentage of the
of the Public of the Net Public
Amount of Investment in Offering Amount Offering
Single Transaction Price Invested Price
------------------------ ------------- ---------- ----------
<S> <C> <C> <C>
Less than $ 100,000 1.00% 1.01% 0.75%
$100,000 but less than $ 250,000 0.75 0.76 0.50
$250,000 but less than $ 1,000,000 0.50 0.50 0.40
</TABLE>
There is no sales charge on purchases of $1,000,000 or more of Category
I, II or III Funds; however, AIM Distributors may pay a dealer concession and/or
advance a service fee on such transactions as set forth below.
ALL GROUPS OF AIM FUNDS. AIM Distributors may elect to re-allow the
entire initial sales charge to dealers for all sales with respect to which
orders are placed with AIM Distributors during a particular period. Dealers to
whom substantially the entire sales charge is re-allowed may be deemed to be
"underwriters" as that term is defined under the Securities Act of 1933.
In addition to, or instead of, amounts paid to dealers as a sales
commission, AIM Distributors may, from time to time, at its expense or as an
expense for which it may be compensated under a distribution plan, if
applicable, pay a bonus or other consideration or incentive to dealers. The
total amount of such additional bonus payments or other consideration shall not
exceed 0.25% of the public offering price of the shares sold or of average daily
net assets of the AIM Fund attributable to that particular dealer. At the option
of the dealer, such incentives may take the form of payment for travel expenses,
including lodging, incurred in connection with trips taken by qualifying
registered representatives and their families to places within or outside the
United States. Any such bonus or incentive programs will not change the price
paid by investors for the purchase of the applicable AIM Fund's shares or the
amount that any particular AIM Fund will receive as proceeds from such sales.
Dealers may not use sales of the AIM Funds' shares to qualify for any incentives
to the extent that such incentives may be prohibited by the laws of any state.
AIM Distributors may make payments to dealers and institutions who are
dealers of record for purchases of $1 million or more of Class A shares (or
shares which normally involve payment of initial sales charges), which are sold
at net asset value and are subject to a contingent deferred sales charge, for
all AIM Funds other than Class A shares of each of AIM Limited Maturity Treasury
Fund and AIM Tax-Free Intermediate Fund as follows: 1% of the first $2 million
of such purchases, plus 0.80% of the next $1 million of such purchases, plus
0.50% of the next $17 million of such purchases, plus 0.25% of amounts in excess
of $20 million of such purchases. AIM Distributors may make payments to dealers
and institutions who are dealers of record for purchases of $1 million or more
of Class A shares (or shares which normally involve payment of initial sales
charges), and which are sold at net asset value and are not subject to a
contingent deferred sales charge, in an amount up to 0.10% of such purchases of
Class A shares of AIM Limited Maturity Treasury Fund, and in an amount up to
0.25% of such purchases of Class A shares of AIM Tax-Free Intermediate Fund.
AIM Distributors may pay sales commissions to dealers and institutions
who sell Class B shares of the AIM Funds at the time of such sales. Payments
with respect to Class B shares will equal 4.00% of the purchase price of the
Class B shares sold by the dealer or institution, and will consist of a sales
commission equal to 3.75% of the purchase price of the Class B shares sold plus
an advance of the first year service fee of 0.25% with respect to such shares.
The portion of the payments to AIM Distributors under the Class B Plan which
constitutes an asset-based sales charge (0.75%) is intended in part to permit
AIM Distributors to recoup a portion of such sales commissions plus financing
costs.
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<PAGE> 186
AIM Distributors may pay sales commissions to dealers and institutions
who sell Class C shares of the AIM Funds at the time of such sales. Payments
with respect to Class C shares will equal 1.00% of the purchase price of the
Class C shares sold by the dealer or institution, and will consist of a sales
commission of 0.75% of the purchase price of the Class C shares sold plus an
advance of the first year service fee of 0.25% with respect to such shares. AIM
Distributors will retain all payments received by it relating to Class C shares
for the first year after they are purchased. The portion of the payments to AIM
Distributors under the Class A and C Plan attributable to Class C shares which
constitutes an asset-based sales charge (0.75%) is intended in part to permit
AIM Distributors to recoup a portion of on-going sales commissions to dealers
plus financing costs, if any. After the first full year, AIM Distributors will
make such payments quarterly to dealers and institutions based on the average
net asset value of Class C shares which are attributable to shareholders for
whom the dealers and institutions are designated as dealers of record. These
commissions are not paid on sales to investors exempt from the CDSC, including
shareholders of record of AIM Advisor Funds, Inc. on April 30, 1995, who
purchase additional shares in any of the Funds on or after May 1, 1995, and in
circumstances where AIM Distributors grants an exemption on particular
transactions.
Exchanges of AIM Cash Reserve Shares of AIM Money Market Fund for Class
B shares or Class C shares are considered sales of such Class B shares or Class
C shares for purposes of the sales charges and dealer concessions discussed
above.
AIM Distributors may pay investment dealers or other financial service
firms for share purchases (measured on an annual basis) of Class A Shares of all
AIM Funds except AIM Limited Maturity Treasury Fund, AIM Tax-Free Intermediate
Fund and AIM Tax-Exempt Cash Fund sold at net asset value to an employee benefit
plan as follows: 1% of the first $2 million of such purchases, plus 0.80% of the
next $1 million of such purchases, plus 0.50% of the next $17 million of such
purchases, plus 0.25% of amounts in excess of $20 million of such purchases and
up to 0.10% of the net asset value of any Class A shares of AIM Limited Maturity
Treasury Fund sold at net asset value to an employee benefit plan in accordance
with this paragraph.
REDUCTIONS IN INITIAL SALES CHARGES
Reductions in the initial sales charges shown in the sales charge tables
(quantity discounts) apply to purchases of shares of the AIM Funds that are
otherwise subject to an initial sales charge, provided that such purchases are
made by a "purchaser" as hereinafter defined. Purchases of Class A shares of AIM
Tax-Exempt Cash Fund, AIM Cash Reserve Shares of AIM Money Market Fund and Class
B and Class C shares of the AIM Funds will not be taken into account in
determining whether a purchase qualifies for a reduction in initial sales
charges.
The term "purchaser" means:
o an individual and his or her spouse and children, including
any Trust established exclusively for the benefit of any such
person; or a pension, profit-sharing, or other benefit plan
established exclusively for the benefit of any such person,
such as an IRA, Roth IRA, a single-participant
money-purchase/profit-sharing plan or an individual
participant in a 403(b) Plan (unless such 403(b) plan
qualifies as the purchaser as defined below);
o a 403(b) plan, the employer/sponsor of which is an
organization described under Section 501(c)(3) of the Internal
Revenue Code of 1986, as amended (the "Code"), if:
a. the employer/sponsor must submit contributions for
all participating employees in a single contribution
transmittal (i.e., the Funds will not accept
contributions submitted with respect to individual
participants);
b. each transmittal must be accompanied by a single
check or wire transfer; and
59
<PAGE> 187
c. all new participants must be added to the 403(b) plan
by submitting an application on behalf of each new
participant with the contribution transmittal;
o a trustee or fiduciary purchasing for a single Trust, estate
or single fiduciary account (including a pension,
profit-sharing or other employee benefit Trust created
pursuant to a plan qualified under Section 401 of the Code)
and 457 plans, although more than one beneficiary or
participant is involved;
o a Simplified Employee Pension (SEP), Salary Reduction and
other Elective Simplified Employee Pension account (SAR-SEP)
or a Savings Incentive Match Plans for Employees IRA (SIMPLE
IRA), where the employer has notified the distributor in
writing that all of its related employee SEP, SAR-SEP or
SIMPLE IRA accounts should be linked; or
o any other organized group of persons, whether incorporated or
not, provided the organization has been in existence for at
least six months and has some purpose other than the purchase
at a discount of redeemable securities of a registered
investment company.
Investors or dealers seeking to qualify orders for a reduced initial
sales charge must identify such orders and, if necessary, support their
qualification for the reduced charge. AIM Distributors reserves the right to
determine whether any purchaser is entitled, by virtue of the foregoing
definition, to the reduced sales charge. No person or entity may distribute
shares of the AIM Funds without payment of the applicable sales charge other
than to persons or entities who qualify for a reduction in the sales charge as
provided herein.
1. LETTERS OF INTENT. A purchaser, as previously defined, may pay
reduced initial sales charges by completing the appropriate section of the
account application and by fulfilling a Letter of Intent ("LOI"). The LOI
privilege is also available to holders of the Connecticut General Guaranteed
Account, established for tax qualified group annuities, for contracts purchased
on or before June 30, 1992. The LOI confirms such purchaser's intention as to
the total investment to be made in shares of the AIM Funds (except for (i) Class
A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund, (ii) Class B and Class C shares of the AIM Funds and (iii) shares
of AIM Floating Rate Fund) within the following 13 consecutive months. By
marking the LOI section on the account application and by signing the account
application, the purchaser indicates that he understands and agrees to the terms
of the LOI and is bound by the provisions described below.
Each purchase of Fund shares normally subject to an initial sales
charge made during the 13-month period will be made at the public offering price
applicable to a single transaction of the total dollar amount indicated by the
LOI, as described under "Sales Charges and Dealer Concessions." It is the
purchaser's responsibility at the time of purchase to specify the account
numbers that should be considered in determining the appropriate sales charge.
The offering price may be further reduced as described under "Rights of
Accumulation" if the Transfer Agent is advised of all other accounts at the time
of the investment. Shares acquired through reinvestment of dividends and capital
gains distributions will not be applied to the LOI. At any time during the
13-month period after meeting the original obligation, a purchaser may revise
his intended investment amount upward by submitting a written and signed
request. Such a revision will not change the original expiration date. By
signing an LOI, a purchaser is not making a binding commitment to purchase
additional shares, but if purchases made within the 13-month period do not total
the amount specified, the investor will pay the increased amount of sales charge
as described below. Purchases made within 90 days before signing an LOI will be
applied toward completion of the LOI. The LOI effective date will be the date of
the first purchase within the 90-day period. The Transfer Agent will process
necessary adjustments upon the expiration or completion date of the LOI.
Purchases made more than 90 days before signing an LOI will be applied toward
completion of the LOI based on the value of the shares purchased calculated at
the public offering price on the effective date of the LOI.
To assure compliance with the provisions of the 1940 Act, out of the
initial purchase (or subsequent purchases if necessary) the Transfer Agent will
escrow in the form of shares an appropriate dollar amount (computed to the
nearest full share). All dividends and any capital gain distributions on the
escrowed shares will be credited to the purchaser. All shares purchased,
including those escrowed, will be registered in the
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<PAGE> 188
purchaser's name. If the total investment specified under this LOI is completed
within the 13-month period, the escrowed shares will be promptly released. If
the intended investment is not completed, the purchaser will pay the Transfer
Agent the difference between the sales charge on the specified amount and the
amount actually purchased. If the purchaser does not pay such difference within
20 days of the expiration date, he irrevocably constitutes and appoints the
Transfer Agent as his attorney to surrender for redemption any or all shares, to
make up such difference within 60 days of the expiration date.
If at any time before completing the LOI Program, the purchaser wishes
to cancel the agreement, he must give written notice to AIM Distributors. If at
any time before completing the LOI Program the purchaser requests the Transfer
Agent to liquidate or transfer beneficial ownership of his total shares, a
cancellation of the LOI will automatically be effected. If the total amount
purchased is less than the amount specified in the LOI, the Transfer Agent will
redeem an appropriate number of escrowed shares equal to the difference between
the sales charge actually paid and the sales charge that would have been paid if
the total purchases had been made at a single time.
2. RIGHTS OF ACCUMULATION. A "purchaser," as previously defined, may
also qualify for reduced initial sales charges based upon such purchaser's
existing investment in shares of any of the AIM Funds (except for (i) Class A
shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund, (ii) Class B and Class C shares of the AIM Funds and (iii) shares
of AIM Floating Rate Fund) at the time of the proposed purchase. Rights of
Accumulation are also available to holders of the Connecticut General Guaranteed
Account, established for tax-qualified group annuities, for contracts purchased
on or before June 30, 1992. To determine whether or not a reduced initial sales
charge applies to a proposed purchase, AIM Distributors takes into account not
only the money which is invested upon such proposed purchase, but also the value
of all shares of the AIM Funds (except for (i) Class A shares of AIM Tax-Exempt
Cash Fund and AIM Cash Reserve Shares of AIM Money Market Fund, (ii) Class B and
Class C shares of the AIM Funds and (iii) shares of AIM Floating Rate Fund)
owned by such purchaser, calculated at their then current public offering price.
If a purchaser so qualifies for a reduced sales charge, the reduced sales charge
applies to the total amount of money then being invested by such purchaser and
not just to the portion that exceeds the breakpoint above which a reduced sales
charge applies. For example, if a purchaser already owns qualifying shares of
any AIM Fund with a value of $20,000 and wishes to invest an additional $20,000
in a Fund with a maximum initial sales charge of 5.50%, the reduced initial
sales charge of 5.25% will apply to the full $20,000 purchase and not just to
the $15,000 in excess of the $25,000 breakpoint. To qualify for obtaining the
discount applicable to a particular purchase, the purchaser or his dealer must
furnish AFS with a list of the account numbers and the names in which such
accounts of the purchaser are registered at the time the purchase is made.
PURCHASES AT NET ASSET VALUE. Purchases of shares of any of the AIM
Funds at net asset value (without payment of an initial sales charge) may be
made in connection with: (a) the reinvestment of dividends and distributions
from a Fund; (b) exchanges of shares of certain Funds; (c) use of the
reinstatement privilege; or (d) a merger, consolidation or acquisition of assets
of a Fund.
The following purchasers will not pay initial sales charges on
purchases of Class A shares because there is a reduced sales effort involved in
sales to these purchasers:
o AIM Management and its affiliates, or their clients;
o Any current or retired officer, director or employee (and
members of their immediate family) of AIM Management, its
affiliates or The AIM Family of Funds--Registered Trademark--
and any foundation, Trust or employee benefit plan
established exclusively for the benefit of, or by, such
persons;
o Any current or retired officer, director, or employee (and
members of their immediate family), of CIGNA Corporation or
its affiliates, or of First Data Investor Services Group; and
any deferred compensation plan for directors of investment
companies sponsored by CIGNA Investments, Inc. or its
affiliates;
61
<PAGE> 189
o Sales representatives and employees (and members of their
immediate family) of selling group members or financial
institutions that have arrangements with such selling group
members;
o Purchases through approved fee-based programs;
o Employee benefit plans designated as purchasers as defined
above, and non-qualified plans offered in conjunction
therewith, provided the initial investment in the plan(s) is
at least $1 million; the sponsor signs a $1 million LOI; the
employer-sponsored plan(s) has at least 100 eligible
employees; or all plan transactions are executed through a
single omnibus account per Fund and the financial institution
or service organization has entered into the appropriate
agreements with the distributor. Section 403(b) plans
sponsored by public educational institutions are not eligible
for a sales charge exception based on the aggregate investment
made by the plan or the number of eligible employees.
Purchases of AIM Small Cap Opportunities Fund by such plans
are subject to initial sales charges;
o Shareholders of record or discretionary advised clients of any
investment advisor holding shares of AIM Weingarten Fund or
AIM Constellation Fund on September 8, 1986, or of AIM Charter
Fund on November 17, 1986, who have continuously owned shares
having a market value of at least $500 and who purchase
additional shares of the same Fund;
o Shareholders of record of Advisor Class shares of AIM
International Growth Fund or AIM Worldwide Growth Fund on
February 12, 1999 who have continuously owned shares of the
AIM Funds.
o Unitholders of G/SET series unit investment Trusts investing
proceeds from such Trusts in shares of AIM Weingarten Fund or
AIM Constellation Fund; provided, however, prior to the
termination date of the Trusts, a unitholder may invest
proceeds from the redemption or repurchase of his units only
when the investment in shares of AIM Weingarten Fund and AIM
Constellation Fund is effected within 30 days of the
redemption or repurchase;
o A shareholder of a Fund that merges or consolidates with an
AIM Fund or that sells its assets to an AIM Fund in exchange
for shares of an AIM Fund;
o Shareholders of the GT Global Funds as of April 30, 1987 who
since that date continually have owned shares of one or more
of these Funds;
o Certain former AMA Investment Advisers' shareholders who
became shareholders of the AIM Global Health Care Fund in
October 1989, and who have continuously held shares in the GT
Global Funds since that time;
o Shareholders of record of Advisor Class shares of an AIM Fund
on February 11, 2000 who have continuously owned shares of
that AIM Fund, and who purchase additional shares of that AIM
Fund;
o Qualified State Tuition Programs created and maintained in
accordance with Section 529 of the U.S. Internal Revenue Code
of 1986, as amended; and
o Participants in select brokerage programs for defined
contribution plans and rollover IRAs who purchase shares
through an electronic brokerage platform offered by entities
with which AIM Distributors has entered into a written
agreement.
As used above, immediate family includes an individual and his or her
spouse, children, parents and parents of spouse.
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CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS
Former GT Global Funds Class A shares that are subject to a contingent
deferred sales charge and that were purchased before June 1, 1998 are entitled
to the following waivers from the contingent deferred sales charge otherwise due
upon redemption: (1) minimum required distributions made in connection with an
IRA, Keogh Plan or custodial account under Section 403(b) of the Code or other
retirement plan following attainment of age 70 1/2; (2) total or partial
redemptions resulting from a distribution following retirement in the case of a
tax-qualified employer-sponsored retirement plan; (3) when a redemption results
from a tax-free return of an excess contribution pursuant to Section 408(d)(4)
or (5) of the Code or from the death or disability of the employee; (4)
redemptions pursuant to a Fund's right to liquidate a shareholder's account
involuntarily; (5) redemptions pursuant to distributions from a tax-qualified
employer-sponsored retirement plan, which is invested in the former GT Global
Funds, which are permitted to be made without penalty pursuant to the Code,
other than tax-free rollovers or transfers of assets, and the proceeds of which
are reinvested in the former GT Global Funds; (6) redemptions made in connection
with participant-directed exchanges between options in an employer-sponsored
benefit plan; (7) redemptions made for the purpose of providing cash to Fund a
loan to a participant in a tax-qualified retirement plan; (8) redemptions made
in connection with a distribution from any retirement plan or account that is
permitted in accordance with the provisions of Section 72(t)(2) of the Code, and
the regulations promulgated thereunder; (9) redemptions made in connection with
a distribution from any retirement plan or account that involves the return of
an excess deferral amount pursuant to Section 401(k)(8) or Section 402(g)(2) of
the Code; (10) redemptions made in connection with a distribution from a
qualified profit-sharing or stock bonus plan described in Section 401(k) of the
Code to a participant or beneficiary under Section 401(k)(2)(B)(IV) of the Code
upon hardship of the covered employee (determined pursuant to Treasury
Regulation Section 1.401(k)-1(d)(2)); and (11) redemptions made by or for the
benefit of certain states, counties or cities, or any instrumentalities,
departments or authorities thereof where such entities are prohibited or limited
by applicable law from paying a sales charge or commission.
Former GT Global Funds Class B shares purchased before June 1, 1998 are
subject to the following waivers from the contingent deferred sales charge
otherwise due upon redemption in addition to the waivers provided for
redemptions of currently issued Class B shares as described in a Prospectus: (1)
total or partial redemptions resulting from a distribution following retirement
in the case of a tax-qualified employer-sponsored retirement; (2) minimum
required distributions made in connection with an IRA, Keogh Plan or custodial
account under Section 403(b) of the Code or other retirement plan following
attainment of age 70 1/2; (3) redemptions pursuant to distributions from a
tax-qualified employer-sponsored retirement plan, which is invested in the
former GT Global Funds, which are permitted to be made without penalty pursuant
to the Code, other than tax-free rollovers or transfers of assets, and the
proceeds of which are reinvested in the former GT Global Funds; (4) redemptions
made in connection with participant-directed exchanges between options in an
employer-sponsored benefit plan; (5) redemptions made for the purpose of
providing cash to Fund a loan to a participant in a tax-qualified retirement
plan; (6) redemptions made in connection with a distribution from any retirement
plan or account that is permitted in accordance with the provisions of Section
72(t)(2) of the Code, and the regulations promulgated thereunder; (7)
redemptions made in connection with a distribution from a qualified
profit-sharing or stock bonus plan described in Section 401(k) of the Code to a
participant or beneficiary under Section 401(k)(2)(B)(IV) of the Code upon
hardship of the covered employee (determined pursuant to Treasury Regulation
Section 1.401(k)-1(d)(2)); and (8) redemptions made by or for the benefit of
certain states, counties or cities, or any instrumentalities, departments or
authorities thereof where such entities are prohibited or limited by applicable
law from paying a sales charge or commission.
CDSCs will not apply to the following:
o Additional purchases of Class C shares of AIM Advisor Flex
Fund, AIM Advisor International Value Fund and AIM Advisor
Real Estate Fund by shareholders of record on April 30, 1995,
of these Funds, except that shareholders whose broker-dealers
maintain a single omnibus account with AFS on behalf of those
shareholders, perform sub-accounting functions with respect to
those shareholders, and are unable to segregate shareholders
of record prior to April 30, 1995, from shareholders whose
accounts were opened after that date will be subject to a CDSC
on all purchases made after March 1, 1996;
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o Redemptions following the death or post-purchase disability of
(1) any registered shareholders on an account or (2) a settlor
of a living trust, of shares held in the account at the time
of death or initial determination of post-purchase disability;
o Certain distributions from individual retirement accounts,
Section 403(b) retirement plans, Section 457 deferred
compensation plans and Section 401 qualified plans, where
redemptions result from (i) required minimum distributions to
plan participants or beneficiaries who are age 70-1/2 or
older, and only with respect to that portion of such
distributions that does not exceed 12% annually of the
participant's or beneficiary's account value in a particular
AIM Fund; (ii) in kind transfers of assets where the
participant or beneficiary notifies the distributor of the
transfer no later than the time the transfer occurs; (iii)
tax-free rollovers or transfers of assets to another plan of
the type described above invested in Class B or Class C shares
of one or more of the AIM Funds; (iv) tax-free returns of
excess contributions or returns of excess deferral amounts;
and (v) distributions on the death or disability (as defined
in the Internal Revenue Code of 1986, as amended) of the
participant or beneficiary;
o Amounts from a Systematic Withdrawal Plan of up to an annual
amount of 12% of the account value on a per Fund basis, at the
time the withdrawal plan is established, provided the investor
reinvests his dividends;
o Liquidation by the Fund when the account value falls below the
minimum required account size of $500;
o Investment account(s) of AIM; and
o Class C shares where the investor's dealer of record notifies
the distributor prior to the time of investment that the
dealer waives the payment otherwise payable to him.
Upon the redemption of shares of Funds in sales charge Categories I and
II (see "Sales Charges and Dealer Concessions") purchased in amounts of $1
million or more, no CDSC will be applied in the following situations:
o Shares held more than 18 months;
o Redemptions from employee benefit plans designated as
qualified purchasers, as defined above, where the redemptions
are in connection with employee terminations or withdrawals,
provided the total amount invested in the plan is at least
$1,000,000; the sponsor signs a $1 million LOI; or the
employer-sponsored plan has at least 100 eligible employees;
provided, however, that 403(b) plans sponsored by public
educational institutions shall qualify for the CDSC waiver on
the basis of the value of each plan participant's aggregate
investment in the AIM Funds, and not on the aggregate
investment made by the plan or on the number of eligible
employees;
o Private foundations or endowment Funds;
o Redemption of shares by the investor where the investor's
dealer waives the amounts otherwise payable to it by the
distributor and notifies the distributor prior to the time of
investment; and
o Shares acquired by exchange from Class A shares of Funds in
sales charges Categories I and II unless the shares acquired
by exchange are redeemed within 18 months of the original
purchase of the Class A shares.
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HOW TO PURCHASE AND REDEEM SHARES
A complete description of the manner in which shares of the Funds may
be purchased appears in the Prospectuses under the caption "Purchasing Shares."
The sales charge normally deducted on purchases of the Class A shares
is used to compensate AIM Distributors and participating dealers for their
expenses incurred in connection with the distribution of Class A shares. Since
there is little expense associated with unsolicited orders placed directly with
AIM Distributors by persons, who, because of their relationship with the Funds
or with AIM and its affiliates, are familiar with the Funds, or whose programs
for purchase involve little expense (e.g., due to the size of the transaction
and shareholder records required), AIM Distributors believes that it is
appropriate and in the Funds' best interests that such persons, and certain
other persons whose purchases result in relatively low expenses of distribution,
be permitted to purchase Class A shares of the Funds through AIM Distributors
without payment of a sales charge. The persons who may purchase Class A shares
of the Funds without a sales charge are described in "REDUCTIONS IN INITIAL
SALES CHARGES - Purchases At Net Asset Value." You may also be charged a
transaction or other fee by the financial institution managing your account.
Complete information concerning the method of exchanging shares of the
Funds for shares of the other mutual funds managed or advised by AIM is set
forth in the Prospectuses under the caption "Exchanging Shares."
Information concerning redemption of the Funds' shares is set forth in
the Prospectuses under the caption "Redeeming Shares." Shares of AIM Funds may
be redeemed directly through AIM Distributors or through any dealer who has
entered into an agreement with AIM Distributors. In addition to the Funds'
obligations to redeem shares, AIM Distributors may also repurchase shares as an
accommodation to shareholders. To effect a repurchase, those dealers who have
executed Selected Dealer Agreements with AIM Distributors must phone orders to
the order desk of the Funds at (800) 949-4246 and guarantee delivery of all
required documents in good order. A repurchase is effected at the net asset
value per share of the applicable Fund next determined after such order is
received. Such arrangement is subject to timely receipt by AFS of all required
documents in good order. If such documents are not received within a reasonable
time after the order is placed, the order is subject to cancellation. While
there is no charge imposed by the Funds or by AIM Distributors (other than any
applicable contingent deferred sales charge) when shares are redeemed or
repurchased, dealers may charge a fair service fee for handling the transaction.
The right of redemption may be suspended or the date of payment
postponed when (a) trading on the New York Stock Exchange (the "NYSE") is
restricted, as determined by applicable rules and regulations of the SEC, (b)
the NYSE is closed for other than customary weekend and holiday closings, (c)
the SEC has by order permitted such suspension, or (d) an emergency, as
determined by the SEC, exists making disposition of portfolio securities or the
valuation of the net assets of the Funds not reasonably practicable.
The Trust agrees to redeem shares of the Funds, or any other future
portfolios of the Trust, solely in cash up to the lesser of $250,000 or 1% of
the Funds' net assets during any 90-day period for any one shareholder. In
consideration of the best interests of the remaining shareholders, the Trust
reserves the right to pay any redemption price exceeding this amount in whole or
in part by a distribution in kind of securities held by the Funds in lieu of
cash. It is highly unlikely that shares would ever be redeemed in kind. If
shares are redeemed in kind, however, the redeeming shareholder should expect to
incur transaction costs upon the disposition of the securities received in the
distribution.
VARIABLE ANNUITY CONTRACTS
Currently, shares of High Yield may be purchased at net asset value by
the Life Insurance Company of North America ("LINA") under an arrangement
whereby the shares will serve as an underlying investment medium for certain
variable annuity contracts previously issued by LINA.
The basic objective of the variable annuity contracts is to provide
individuals with retirement benefits through net purchase payment accumulations
and annuity payments which are based upon the performance
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of High Yield or other available Funds. The contracts allow their owners and
participants to defer federal income tax ("FIT") payments on contract investment
accumulations until annuity payments begin. The annuity payment options
generally provide for lifetime annuity payments based upon the life of the named
annuitant (and joint annuitant, if applicable). Such payments may be made for a
guaranteed minimum number of years. Certain charges are made in connection with
the sale of the contracts.
The LINA contracts are no longer being issued except that existing
owners, participants and, in some cases, new participants under existing group
contracts under certain tax-qualified plans, may continue to make contributions
under the contract. Persons who wish to receive additional information
concerning investment in High Yield through LINA's variable annuity contracts
are urged to read the LINA prospectus which describes them. LINA variable
annuity information and a prospectus may be obtained by writing to INA Security
Corporation, 601 Walnut Street, Ninth Floor, Philadelphia, Pennsylvania 19102,
or by calling (215) 351-3121.
BACKUP WITHHOLDING
Accounts submitted without a correct, certified taxpayer identification
number or, alternatively, a completed Internal Revenue Service ("IRS") Form W-8
(for non-resident aliens) or Form W-9 (certifying exempt status) accompanying
the registration information will generally be subject to backup withholding.
Each AIM Fund, and other payers, must, according to IRS regulations,
withhold 31% of redemption payments and reportable dividends (whether paid or
accrued) in the case of any shareholder who fails to provide the Fund with a
taxpayer identification number ("TIN") and a certification that he is not
subject to backup withholding.
An investor is subject to backup withholding if:
(1) the investor fails to furnish a correct TIN to the Fund, or
(2) the IRS notifies the Fund that the investor furnished an
incorrect TIN, or
(3) the investor or the Fund is notified by the IRS that the
investor is subject to backup withholding because the investor
failed to report all of the interest and dividends on such
investor's tax return (for reportable interest and dividends
only), or
(4) the investor fails to certify to the Fund that the investor is
not subject to backup withholding under (3) above (for
reportable interest and dividend accounts opened after 1983
only), or
(5) the investor does not certify his TIN. This applies only to
non-exempt mutual fund accounts opened after 1983.
Interest and dividend payments are subject to backup withholding in
all five situations discussed above. Redemption proceeds and long-term gain
distributions are subject to backup withholding only if (1) (2) or (5) above
applies.
Certain payees and payments are exempt from backup withholding and
information reporting. A complete listing of such exempt entities appears in the
Instructions for the Requester of Form W-9 (which can be obtained from the IRS)
and includes, among others, the following:
o a corporation
o an organization exempt from tax under Section 501(a), an individual
retirement plan (IRA), or a custodial account under Section 403(b)(7)
o the United States or any of its agencies or instrumentalities
o a state, the District of Columbia, a possession of the United States,
or any of their political subdivisions or instrumentalities
o a foreign government or any of its political subdivisions, agencies or
instrumentalities
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o an international organization or any of its agencies or
instrumentalities
o a foreign central bank of issue
o a dealer in securities or commodities required to register in the U.S.
or a possession of the U.S.
o a futures commission merchant registered with the Commodity Futures
Trading Commission
o a real estate investment trust
o an entity registered at all times during the tax year under the 1940
Act
o a common trust fund operated by a bank under Section 584(a)
o a financial institution
o a middleman known in the investment community as a nominee or listed
in the most recent publication of the American Society of Corporate
Secretaries, Inc., Nominee List
o a trust exempt from tax under Section 664 or described in Section 4947
Investors should contact the IRS if they have any questions concerning
entitlement to an exemption from backup withholding.
NOTE: Section references are to sections of the Code.
IRS PENALTIES -- Investors who do not supply the AIM Funds with a
correct TIN will be subject to a $50 penalty imposed by the IRS unless such
failure is due to reasonable cause and not willful neglect. If an investor
falsifies information on this form or makes any other false statement resulting
in no backup withholding on an account which should be subject to backup
withholding, such investor may be subject to a $500 penalty imposed by the IRS
and to certain criminal penalties including fines and/or imprisonment.
NONRESIDENT ALIENS -- Nonresident alien individuals and foreign
entities are not subject to the backup withholding previously discussed, but
must certify their foreign status by attaching IRS Form W-8 to their
application. Form W-8 remains in effect for three calendar years beginning with
the calendar year in which it is received by the Fund. Such shareholders may,
however, be subject to federal income tax withholding at a 30% rate on ordinary
income dividends and distributions and return of capital distributions. Under
applicable treaty law, residents of treaty countries may qualify for a reduced
rate of withholding or a withholding exemption.
NET ASSET VALUE DETERMINATION
FOR MONEY MARKET
The net asset value per share of the Fund is determined daily as of
12:00 noon and the close of the customary trading session of the NYSE (generally
4:00 p.m. Eastern time) on each business day of the Fund. In the event the NYSE
closes early (i.e., before 4:00 p.m. Eastern time) on a particular day, the net
asset value of the Fund is determined as of the close of the NYSE on such day.
Net asset value per share is determined by dividing the value of the Fund's
securities, cash and other assets (including interest accrued but not collected)
attributable to a particular class, less all its liabilities (including accrued
expenses and dividends payable) attributable to that class, by the number of
shares outstanding of that class and rounding the resulting per share net asset
value to the nearest one cent. Determination of the net asset value per share is
made in accordance with generally accepted accounting principles.
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The securities of the Fund are valued on the basis of amortized cost.
This method values a security at its cost on the date of purchase and thereafter
assumes a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the security. While this method provides certainty in valuation, it may result
in periods during which value, as determined by amortized cost, is higher or
lower than the price the Fund would receive if the security were sold. During
such periods, the daily yield on shares of the Fund computed as described under
"Performance Information" may differ somewhat from an identical computation made
by another investment company with identical investments utilizing available
indications as to the market value of its portfolio securities.
The valuation of portfolio instruments based upon their amortized cost
and the concomitant maintenance of the net asset value per share of $1.00 for
the Fund is permitted in accordance with applicable rules and regulations of the
SEC which require the Fund to adhere to certain conditions. These rules require,
among other things, that the Fund maintain a dollar-weighted average portfolio
maturity of 90 days or less, purchase only instruments having remaining
maturities of 397 calendar days or less and invest only in securities determined
by the Board of Trustees to be "Eligible Securities" (as defined in Rule 2a-7
under the 1940 Act) and to present minimal credit risk to the Fund.
The Board of Trustees is required to establish procedures designed to
stabilize, to the extent reasonably practicable, the Fund's price per share at
$1.00, as computed for the purpose of sales and redemptions. Such procedures
include review of the Fund's holdings by the Board of Trustees at such intervals
as they may deem appropriate, to determine whether the net asset value
calculated by using available market quotations or other reputable sources for
the Fund deviates from $1.00 per share and, if so, whether such deviation may
result in material dilution or is otherwise unfair to existing holders of the
Fund's shares. In the event the Board of Trustees determines that such a
deviation exists for the Fund, it will take such corrective action as the Board
of Trustees deems necessary and appropriate with respect to the Fund, including
the sale of portfolio instruments prior to maturity to realize capital gains or
losses or to shorten the average portfolio maturity; the withholding of
dividends; redemption of shares in kind; or the establishment of a net asset
value per share by using available market quotations.
The Fund intends to comply with any amendments made to Rule 2a-7 which
may require corresponding changes in the Fund's procedures which are designed to
stabilize the Fund's price per share at $1.00.
FOR ALL OTHER FUNDS
The net asset value of a share of each Fund is normally determined once
daily as of the close of the customary trading session of the NYSE (which is
generally 4:00 p.m. Eastern Time) on each business day of the Fund. In the event
the NYSE closes early (i.e., before 4:00 p.m. Eastern Time) on a particular day,
the net asset value of a share of a Fund is determined as of the close of the
NYSE on such day. For purposes of determining net asset value per share, futures
and options contract closing prices which are available fifteen (15) minutes
after the close of the customary trading session of the NYSE will generally be
used. The net asset value per share is determined by subtracting the liabilities
(e.g., accrued expenses and dividends payable) of a Fund allocated to the class
from the value of securities, cash and assets (including interest accrued but
not collected) of the Fund allocated to the class; and dividing the result by
the total number of shares outstanding of such class. Determination of the
Fund's net asset value per share is made in accordance with generally accepted
accounting principles.
Each equity security held by a Fund is valued at its last sales price
on the exchange where the security is principally traded or, lacking any sales
on a particular day, the security is valued at the closing bid price on that
day, prior to the determination of net asset value. Each security traded in the
over-the-counter market (but not including securities reported on the NASDAQ
National Market System) is valued at the closing bid price back up quotes
furnished by independent pricing services of market makers on the basis of
prices provided by independent pricing services. Each security reported on the
NASDAQ National Market System is valued at the last sales price on the valuation
date or absent a last sales price, at the closing bid price on that day; option
contracts are valued at the mean between the closing bid and asked prices on the
exchange
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where the contracts are principally traded; futures contracts are valued at
final settlement price quotations from the primary exchange on which they are
traded. Debt securities (including convertible bonds) are valued on the basis of
prices provided by an independent pricing service. Prices provided by the
pricing service may be determined without exclusive reliance on quoted prices,
and may reflect appropriate factors such as institution-size trading in similar
groups of securities, developments related to special securities, dividend rate,
yield, quality, coupon rate, maturity, type of issue, individual trading
characteristics and other market data. Securities for which market quotations
are not readily available or are questionable are valued at fair value as
determined in good faith by or under the supervision of the Trust's officers in
a manner specifically authorized by the Board of Trustees. Short-term
obligations having 60 days or less to maturity are valued on the basis of
amortized cost, which approximates market value.
Generally, trading in foreign securities, corporate bonds, U.S.
Government securities and money market instruments is substantially completed
each day at various times prior to the close of the customary trading session of
the NYSE. The values of such securities used in computing the net asset value of
each Fund's shares are determined at such times. Foreign currency exchange rates
are also generally determined prior to the close of the customary trading
session of the NYSE. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which such
values are determined and the close of the customary trading session of the NYSE
which will not be reflected in the computation of a Fund's net asset value. If
events materially affecting the value of such securities occur during such
period, then these securities will be valued at their fair value as determined
in good faith by or under the supervision of the Board of Trustees.
Fund securities primarily traded in foreign markets may be traded in
such markets on days which are not business days of the Fund. Because the net
asset value per share of each Fund is determined only on business days of the
Funds, the net asset value per share of a Fund may be significantly affected on
days when an investor can not exchange or redeem shares of the Fund.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
DIVIDENDS AND DISTRIBUTIONS
The dividends accrued and paid for each class of each Fund's shares
will consist of: (a) interest accrued and discounts earned (including both
original issue and market discount) for the Fund, allocated based upon each
class' pro rata share of the net assets of the Fund, less (b) Trust expenses
accrued for the applicable dividend period attributable to the Fund, such as
custodian fees, trustee's fees, and accounting and legal expenses, allocated
based upon each class' pro rata share of the net assets of the Fund, less (c)
expenses directly attributable to each class which accrued for the applicable
dividend period, such as shareholder servicing plan expenses, if any, or
transfer agent fees unique to each class.
Dividends are declared to shareholders of record immediately prior to
the determination of the net asset value of each Fund. Accordingly, dividends
begin accruing on the first business day of each Fund following the day on which
a purchase order for shares of each Fund is effective, and accrue through the
day on which a redemption order is effective. Thus, if a purchase order is
effective on a Friday, dividends will begin accruing on the following Monday
(unless such day is not a business day of the Fund).
Income dividends and capital gains distributions are automatically
reinvested in additional shares of the same class of a Fund unless the
shareholder has requested in writing to receive such dividends and distributions
in cash or that they be invested in shares of another AIM Fund.
TAX MATTERS
The following is only a summary of certain additional tax
considerations generally affecting a Fund and its shareholders that are not
described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of a Fund or its shareholders, and the
discussion here and in the Prospectus
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is not intended as a substitute for careful tax planning. Investors are urged to
consult their tax advisors with specific reference to their own tax situation.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As a
regulated investment company, a Fund is not subject to federal income tax on the
portion of its net investment income (i.e., its taxable interest, dividends and
other taxable ordinary income, net of expenses) and realized capital gain net
income (i.e., the excess of capital gains over capital losses) that it
distributes to shareholders, provided that it distributes at least 90% of its
investment company taxable income (i.e., net investment income and the excess of
net short-term capital gain over net long-term capital loss) for the taxable
year (the "Distribution Requirement"), and satisfies certain other requirements
of the Code that are described below. Distributions by a Fund made during the
taxable year or, under specified circumstances, within 12 months after the close
of the taxable year, will be considered distributions of income and gains of the
taxable year and can therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement, each Fund must
derive at least 90% of its gross income from dividends, interest, certain
payments with respect to securities loans, gains from the sale or other
disposition of stock or securities or foreign currencies (to the extent such
currency gains are ancillary to the Fund's principal business of investing in
stock or securities) and other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its business of
investing in such stock, securities or currencies (the "Income Requirement").
In general, gain or loss recognized by a Fund on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation purchased by a Fund at a market discount
(generally, at a price less than its principal amount) will be treated as
ordinary income to the extent of the portion of the market discount which
accrued during the period of time a Fund held the debt obligation. In addition,
if a Fund purchases a debt obligation that was originally issued at a discount,
the Fund is generally required to include in gross income each year the portion
of the original issue discount which accrues during such year.
Limited Maturity may enter into notional principal contracts, including
interest rate swaps, caps, floors and collars. Under Treasury regulations, in
general, the net income or deduction from a notional principal contract for a
taxable year is included in or deducted from gross income for that taxable year.
The net income or deduction from a notional principal contract for a taxable
year equals the total of all of the periodic payments (generally, payments that
are payable or receivable at fixed periodic intervals of one year or less during
the entire term of the contract) that are recognized from that contract for the
taxable year and all of the non-periodic payments (including premiums for caps,
floors and collars), even if paid in periodic installments, that are recognized
from that contract for the taxable year. A periodic payment is recognized
ratably over the period to which it relates. In general, a non-periodic payment
must be recognized over the term of the notional principal contract in a manner
that reflects the economic substance of the contract. A non-periodic payment
that relates to an interest rate swap, cap, floor or collar shall be recognized
over the term of the contract by allocating it in accordance with the values of
a series of cash-settled forward or option contracts that reflect the specified
index and notional principal amount upon which the notional principal contract
is based (or, in the case of a swap or of a cap or floor that hedges a debt
instrument, under alternative methods contained in the regulations and, in the
case of other notional principal contracts, under alternative methods that the
IRS may provide in a revenue procedure).
Treasury regulations permit a regulated investment company, in
determining its investment company taxable income and net capital gain (i.e.,
the excess of net long-term capital gain over net short-term capital loss) for
any taxable year, to elect (unless it has made a taxable year election for
excise tax purposes as discussed below) to treat all or part of any net capital
loss, any net long-term capital loss or any net foreign currency loss incurred
after October 31 as if it had been incurred in the succeeding year.
In addition to satisfying the Distribution Requirement and the Income
Requirement, a Fund must satisfy an asset diversification test in order to
qualify as a regulated investment company. Under this test, at
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the close of each quarter of a Fund's taxable year, at least 50% of the value of
the Fund's assets must consist of cash and cash items, U.S. Government
securities, securities of other regulated investment companies, and securities
of other issuers (as to which the Fund has not invested more than 5% of the
value of the Fund's total assets in securities of such issuer and as to which
the Fund does not hold more than 10% of the outstanding voting securities of
such issuer), and no more than 25% of the value of its total assets may be
invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies), or in two or
more issuers which the Fund controls and which are engaged in the same or
similar trades or businesses.
If for any taxable year a Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
will be subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable as
ordinary dividends to the extent of the Fund's current and accumulated earnings
and profits. Such distributions generally will be eligible for the dividends
received deduction in the case of corporate shareholders.
EXCISE TAX ON REGULATED INVESTMENT COMPANIES
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to distribute in each calendar year an amount equal to 98%
of ordinary taxable income for the calendar year and 98% of capital gain net
income for the one year period ended on October 31 of such calendar year (or, at
the election of a regulated investment company having a taxable year ending
November 30 or December 31, for its taxable year (a "taxable year election")).
The balance of such income must be distributed during the next calendar year.
For the foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall
(1) reduce its capital gain net income (but not below its net capital gain) by
the amount of any net ordinary loss for the calendar year and (2) exclude
Section 988 foreign currency gains and losses incurred after October 31 of any
year (or after the end of its taxable year if it has made a taxable year
election) in determining the amount of ordinary taxable income for the current
calendar year (and, instead, include such gains and losses in determining
ordinary taxable income for the succeeding calendar year).
Each Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income prior
to the end of each calendar year to avoid liability for the excise tax. However,
investors should note that a Fund may in certain circumstances be required to
liquidate portfolio investments to make sufficient distributions to avoid excise
tax liability.
FUND DISTRIBUTIONS
Each Fund anticipates distributing substantially all of its investment
company taxable income and net short-term capital gain for each taxable year.
Such distributions will be taxable to shareholders as ordinary income and
treated as dividends for federal income tax purposes, but they are not expected
to qualify for the 70% dividends received deduction for corporations.
Each Fund may either retain or distribute to shareholders its net
capital gain (net long-term capital gain over net short-term capital loss) for
each taxable year. Each Fund currently intends to distribute any such amounts.
If net capital gain is distributed and designated as a capital gain dividend, it
will be taxable to shareholders as long-term capital gain (taxable at a maximum
rate of 20% for non-corporate shareholders), regardless of the length of time
the shareholder has held his shares or whether such gain was recognized by the
Fund prior to the date on which the shareholder acquired his shares. Conversely,
if a Fund elects to retain its net capital gain, the Fund will be taxed thereon
(except to the extent of any available capital loss carryovers) at the 35%
corporate tax rate. If a Fund elects to retain net capital gain, it is expected
that the Fund also will elect to have shareholders treated as if each received a
distribution of its pro rata share of such gain, with the result that each
shareholder will be required to report its pro rata share of such gain on its
tax return as long-term capital gain, will receive a refundable tax credit for
its pro rata share of tax paid by the
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Fund on the gain, and will increase the tax basis for its shares by an amount
equal to the deemed distribution less the tax credit.
Distributions by a Fund that do not constitute ordinary income
dividends, tax-exempt dividends or capital gain dividends will be treated as a
return of capital to the extent of (and in reduction of) the shareholder's tax
basis in his shares; any excess will be treated as gain from the sale of his
shares, as discussed below.
Distributions by a Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of a Fund (or any other Fund in The AIM Family of
Funds--Registered Trademark--). Shareholders receiving a distribution in the
form of additional shares will be treated as receiving a distribution in an
amount equal to the fair market value of the shares received, determined as of
the reinvestment date. In addition, if the net asset value at the time a
shareholder purchases shares of a Fund reflects undistributed net investment
income or recognized capital gain net income, or unrealized appreciation in the
value of the assets of the Fund, distributions of such amounts will be taxable
to the shareholder in the manner described above, although such distributions
economically constitute a return of capital to the shareholder.
Ordinarily, shareholders are required to take distributions by a Fund
into account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made in certain cases)
during the year in accordance with the guidance that has been provided by the
Internal Revenue Service.
Each Fund is required in certain cases to withhold and remit to the
U.S. Treasury 31% of ordinary income dividends and capital gain dividends, and
the proceeds of redemption of shares, paid to any shareholder (1) who has
provided either an incorrect tax identification number or no number at all, (2)
who is subject to backup withholding by the Internal Revenue Service for failure
to report the receipt of interest or dividend income properly, or (3) who has
failed to certify to the Fund that it is not subject to backup withholding or
that it is a corporation or other "exempt recipient."
MUNICIPAL BOND
With respect to interest income that is exempt from federal income tax
("FIT"), the Fund intends to comply with Section 852(b)(5) of the Code, which
enables distributions of tax-exempt income to retain their character when
distributed to shareholders as an exempt interest dividend. Each year, the Fund
provides shareholders a statement indicating the amount of distribution that is
exempt from FIT. Some or all of the non-exempt interest that the Fund receives
from municipal securities might become taxable by law or determined by the
Internal Revenue Service to be taxable. This statement also provides a breakdown
showing the percentage of such income that came from each state. In addition,
the Fund reports for FIT purposes any net realized capital gains and any
ordinary income from the Fund's short-term holdings. Further, the Fund also
reports certain interest from "Qualified Private Activity Bonds" which
shareholders may be required to include in the alternative minimum tax
calculation.
The Tax Reform Act of 1986 (the "1986 Act") divided municipal debt
obligations into three categories, only one of which ("Public Purpose Bonds")
bears interest which is exempt from both the regular income tax and the
alternative minimum tax as it applies to individuals. For corporations, some or
all of the income from Public Purpose Bonds would be includable in the corporate
alternative minimum tax base. Of the other two categories ("Qualified Private
Activity Bonds" and "Private Activity Bonds"), for both individuals and
corporations, Qualified Private Activity Bonds bear interest which is excluded
from income for purposes of the regular income tax but must generally be
included in the alternative minimum tax base, and Private Activity Bonds are
taxable under both the regular and alternative minimum taxes. Certain small
corporations are wholly exempt from the alternative minimum tax.
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The 1986 Act also applied limitations on the issuance of bonds whose
proceeds are used by organizations exempt from tax under Code Section 501(c)(3),
as well as general limitations on the amount of Qualified Private Activity Bonds
governmental units may issue.
The 1986 Act limitations on tax-exempt bonds apply generally to bonds
issued after August 16, 1986. The private activity bond rules are generally
applicable to bonds issued on or after September 1, 1986, with the alternative
minimum tax rules applicable generally to bonds issued on or after August 7,
1986. Municipal Bond intends to limit its investments in Qualified Private
Activity Bonds and taxable securities to no more than 20% of its total assets in
any given year, consistent with its stated investment objective.
Original issue discount on tax-exempt bonds is accrued as tax-exempt
interest (except for a portion thereof in the case of certain stripped
tax-exempt bonds), and is included in the tax basis of the security for capital
gain and loss computation purposes. Any gain or loss from the sale or other
disposition of a tax-exempt security is generally treated as either long-term or
short-term capital gain or loss, depending upon its holding period, and is fully
taxable. However, gain recognized from the sale or other disposition of a
tax-exempt security purchased after April 30, 1993, will be treated as ordinary
income to the extent of the accrued market discount on such security.
Interest on indebtedness incurred by shareholders (including financial
institutions) will not be deductible for FIT purposes to the extent that the
money was used to purchase or carry tax-exempt securities. The purchase of Fund
shares may be considered to have been made with borrowed funds even though the
borrowed funds are not directly traceable to the purchase of Fund shares.
Further, persons who are "substantial users" (or persons related thereto) of
facilities financed by private activity bonds should consult their own tax
advisor before purchasing Fund shares.
The exemption of interest income for FIT purposes does not necessarily
result in exemption under state and local laws. Shareholders should consult
their tax advisors as to the treatment of such income under state and local
laws.
SALE OR REDEMPTION OF FUND SHARES
A shareholder will recognize gain or loss on the sale or redemption of
shares of a Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
In general, any gain or loss arising from (or treated as arising from) the sale
or redemption of shares of a Fund will be considered capital gain or loss and
will be long-term capital gain or loss if the shares were held for longer than
one year. Except to the extent otherwise provided in future treasury
regulations, any long-term capital gain recognized by a noncorporate shareholder
will be subject to tax at a maximum rate of 20%. However, any capital loss
arising from the sale or redemption of shares held for six months or less will
be treated as a long-term capital loss to the extent of the amount of capital
gain dividends received on such shares. For this purpose, the special holding
period rules of Code Section 246(c)(3) and (4) generally will apply in
determining the holding period of shares. Long-term capital gains of
non-corporate taxpayers are currently taxed at a maximum rate that in some cases
may be 19.6% lower than the maximum rate applicable to ordinary income. Capital
losses in any year are deductible only to the extent of capital gains plus, in
the case of a noncorporate taxpayer, $3,000 of ordinary income.
If a shareholder (i) incurs a sales load in acquiring shares of a Fund,
(ii) disposes of such shares less than 91 days after they are acquired and (iii)
subsequently acquires shares of the same or another Fund at a reduced sales load
pursuant to a right to reinvest at such reduced sales load acquired in
connection with the acquisition of the shares disposed of, then the sales load
on the shares disposed of (to the extent of the reduction in the sales load on
the shares subsequently acquired) shall not be taken into account in determining
gain or loss on the shares disposed of but shall be treated as incurred on the
acquisition of the shares subsequently acquired. The wash sale rules may also
limit loss recognized.
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REINSTATEMENT PRIVILEGE
For federal income tax purposes, exercise of your reinstatement
privilege may increase the amount of gain or reduce the amount of loss
recognized in the original redemption transaction, because the initial sales
charge will not be taken into account in determining such gain or loss to the
extent there has been a reduction in the initial sales charge.
FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a
nonresident alien individual, foreign trust or estate, foreign corporation, or
foreign partnership ("foreign shareholder"), depends on whether the income from
the Fund is "effectively connected" with a U.S. trade or business carried on by
such shareholder. If the income from a Fund is not effectively connected with a
U.S. trade or business carried on by a foreign shareholder, ordinary income
dividends and return of capital distributions (other than capital gains
dividends) will be subject to U.S. withholding tax at the rate of 30% (or lower
treaty rate) upon the gross amount of the distribution. Such a foreign
shareholder would generally be exempt from U.S. federal income tax on gains
realized on the sale or redemption of shares of a Fund, capital gain dividends
and amounts retained by the Fund that are designated as undistributed net
capital gains.
If the income from a Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends and any gains realized upon the sale or redemption of
shares of the Fund will be subject to U.S. federal income tax at the rates
applicable to U.S. citizens or domestic corporations.
In the case of foreign non-corporate shareholders, a Fund may be
required to withhold U.S. federal income tax at a rate of 31% on distributions
that are otherwise exempt from withholding tax (or taxable at a reduced treaty
rate) unless such shareholders furnish the Fund with proper notification of
their foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisors with
respect to the particular tax consequences to them of an investment in a Fund,
including the applicability of foreign taxes.
EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS
The foregoing general discussion of U.S. federal income tax
consequences is based on the Code and regulations issued thereunder as in effect
on November 15, 2000. Future legislative or administrative changes or court
decisions may significantly change the conclusions expressed herein, and any
such changes or decisions may have a retroactive effect with respect to the
transactions contemplated herein.
Rules of state and local taxation of ordinary income dividends and
capital gain dividends from regulated investment companies often differ from the
rules for U.S. federal income taxation described above. The tax treatment of
foreign investors may also differ from the treatment for U.S. investors
described above. Shareholders are urged to consult their tax advisors as to the
consequences of these and other state and local tax rules affecting investments
in a Fund.
DESCRIPTION OF MONEY MARKET INSTRUMENTS
Money Market will limit its investments to those securities which at
the time of purchase are "First Tier" securities as defined in Rule 2a-7 under
the 1940 Act, as such Rule may be amended from time to time. Subsequent to its
purchase by Money Market, a security may cease to be a First Tier security.
Subject to certain exceptions set forth in Rule 2a-7, such an event will not
require the disposition of the security by the Fund, but AIM will consider such
an event to be relevant in its determination of whether the Fund should continue
to hold the security.
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U.S. GOVERNMENT DIRECT OBLIGATIONS: Bills, notes and bonds issued by
the U.S. Treasury.
U.S. GOVERNMENT AGENCIES SECURITIES: Certain federal agencies such as
the Government National Mortgage Association have been established as
instrumentalities of the U.S. Government to supervise and finance certain types
of activities. Issues of these agencies, while not direct obligations of the
U.S. Government, are either backed by the full faith and credit of the United
States or are guaranteed by the Treasury or supported by the issuing agencies'
right to borrow from the Treasury.
BANKER'S ACCEPTANCES: A bill of exchange or time draft drawn on and
accepted by a commercial bank. It is used by corporations to finance the
shipment and storage of goods and to furnish dollar exchange. Maturities are
generally six months or less.
CERTIFICATES OF DEPOSIT: A negotiable interest-bearing instrument with
a specific maturity. Certificates of deposit are issued by banks and savings and
loan institutions in exchange for the deposit of Funds and normally can be
traded in the secondary market, prior to maturity.
TIME DEPOSITS: A non-negotiable receipt issued by a bank in exchange
for the deposit of funds. Like a certificate of deposit, it earns a specified
rate of interest over a definite period of time; however, it cannot be traded in
the secondary market.
COMMERCIAL PAPER: The term used to designate unsecured short-term
promissory notes issued by corporations and other entities. Maturities on these
issues vary from a few days to nine months.
REPURCHASE AGREEMENTS: A repurchase agreement is a contractual
undertaking whereby the seller of securities (limited to U.S. Government
securities, including securities issued or guaranteed by the U.S. Treasury or
the various agencies and instrumentalities of the U.S. Government, including
mortgage-backed securities issued by U.S. Government agencies) agrees to
repurchase the securities at a specified price on a future date determined by
negotiations.
MASTER NOTES: Demand notes that permit investment of fluctuating
amounts of money at varying rates of interest pursuant to arrangements with
issuers who meet the quality criteria of a Fund. The interest rate on a master
note may fluctuate based upon changes in specified interest rates or be reset
periodically according to a prescribed formula or may be a set rate. Although
there is no secondary market in master notes, if such notes have a demand
feature, the payee may demand payment of the principal amount of the note on
relatively short notice. The notes may be secured or unsecured.
VARIABLE AND FLOATING RATE INSTRUMENTS: Certain instruments issued,
guaranteed or sponsored by the U.S. Government or its agencies, state and local
government issuers, and certain debt instruments issued by domestic banks or
corporations, may carry variable or floating rates of interest. Such instruments
bear interest at rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index.
SHAREHOLDER INFORMATION
This information supplements the discussion in each Fund's Prospectus
under the title "Shareholder Information."
TIMING OF PURCHASE ORDERS. It is the responsibility of the dealer to
ensure that all orders are transmitted on a timely basis to the Transfer Agent.
Any loss resulting from the dealer's failure to submit an
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order within the prescribed time frame will be borne by that dealer. If a check
used to purchase shares does not clear, or if any investment order must be
canceled due to nonpayment, the investor will be responsible for any resulting
loss to an AIM Fund or to AIM Distributors.
SHARES CERTIFICATES. Shareholders of the Funds do not have the right
to demand or require the Trust to issue share certificates, although the Trust
in its sole discretion may issue them upon written request to AFS. Otherwise,
shares are held on the shareholder's behalf and recorded on the Fund books. AIM
Funds will not issue certificates for shares held in prototype retirement plans.
SYSTEMATIC WITHDRAWAL PLAN. Under a Systematic Withdrawal Plan, all
shares are to be held by the Transfer Agent and all dividends and distributions
are reinvested in shares of the applicable AIM Fund by the Transfer Agent. To
provide Funds for payments made under the Systematic Withdrawal Plan, the
Transfer Agent redeems sufficient full and fractional shares at their net asset
value in effect at the time of each such redemption.
Payments under a Systematic Withdrawal Plan constitute taxable events.
Since such payments are funded by the redemption of shares, they may result in a
return of capital and in capital gains or losses, rather than in ordinary
income. Because sales charges are imposed on additional purchases of shares
(other than Class B or Class C Shares of the AIM Funds and AIM Cash Reserve
Shares of AIM Money Market Fund), it is disadvantageous to effect such purchases
while a Systematic Withdrawal Plan is in effect.
Each AIM Fund bears its share of the cost of operating the Systematic
Withdrawal Plan.
TERMS AND CONDITIONS OF EXCHANGES. Normally, shares of an AIM Fund to
be acquired by exchange are purchased at their net asset value or applicable
offering price, as the case may be, determined on the date that such request is
received, but under unusual market conditions such purchases may be delayed for
up to five business days if it is determined that a Fund would be materially
disadvantaged by an immediate transfer of the proceeds of the exchange. If a
shareholder is exchanging into a Fund paying daily dividends, and the release of
the exchange proceeds is delayed for the foregoing five-day period, such
shareholder will not begin to accrue dividends until the sixth business day
after the exchange.
EXCHANGES BY TELEPHONE. AIM Distributors has made arrangements with
certain dealers and investment advisory firms to accept telephone instructions
to exchange shares between any of the AIM Funds. AIM Distributors reserves the
right to impose conditions on dealers or investment advisors who make telephone
exchanges of shares of the Funds, including the condition that any such dealer
or investment advisor enter into an agreement (which contains additional
conditions with respect to exchanges of shares) with AIM Distributors. To
exchange shares by telephone, a shareholder, dealer or investment advisor who
has satisfied the foregoing conditions must call AFS at (800) 959-4246. If a
shareholder is unable to reach AFS by telephone, he may also request exchanges
by telegraph or use overnight courier services to expedite exchanges by mail,
which will be effective on the business day received by the Transfer Agent as
long as such request is received prior to the close of the customary trading
session of the NYSE. The Transfer Agent and AIM Distributors may in certain
cases be liable for losses due to unauthorized or fraudulent transactions if
they do not follow reasonable procedures for verification of telephone
transactions. Such reasonable procedures may include recordings of telephone
transactions (maintained for six months), requests for confirmation of the
shareholder's Social Security Number and current address, and mailings of
confirmations promptly after the transaction.
By signing an account application form, an investor appoints the
Transfer Agent as his true and lawful attorney-in-fact to surrender for
redemption any and all unissued shares held by the Transfer Agent in the
designated account(s), or in any other account with any of the AIM Funds,
present or future, which has the identical registration as the designated
account(s), with full power of substitution in the premises. The Transfer Agent
and AIM Distributors are thereby authorized and directed to accept and act upon
any telephone redemptions of shares held in any of the account(s) listed, from
any person who requests the redemption proceeds to be applied to purchase shares
in any one or more of the AIM Funds, provided that such Fund is available for
sale and provided that the registration and mailing address of the shares to be
purchased are identical to the registration of the shares being redeemed. An
investor acknowledges by
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signing the form that he understands and agrees that the Transfer Agent and AIM
Distributors may not be liable for any loss, expense or cost arising out of any
telephone exchange requests effected in accordance with the authorization set
forth in these instructions if they reasonably believe such request to be
genuine, but may in certain cases be liable for losses due to unauthorized or
fraudulent transactions. Procedures for verification of telephone transactions
may include recordings of telephone transactions (maintained for six months),
requests for confirmation of the shareholder's Social Security Number and
current address, and mailings of confirmations promptly after the transaction.
The Transfer Agent reserves the right to modify or terminate the telephone
exchange privilege at any time without notice. An investor may elect not to have
this privilege by marking the appropriate box on the application. Then any
exchanges must be effected in writing by the investor.
REDEMPTIONS BY TELEPHONE. By signing an account application form, an
investor appoints the Transfer Agent as his true and lawful attorney-in-fact to
surrender for redemption any and all unissued shares held by the Transfer Agent
in the designated account(s), present or future, with full power of substitution
in the premises. The Transfer Agent and AIM Distributors are thereby authorized
and directed to accept and act upon any telephone redemptions of shares held in
any of the account(s) listed, from any person who requests the redemption. An
investor acknowledges by signing the form that he understands and agrees that
the Transfer Agent and AIM Distributors may not be liable for any loss, expense
or cost arising out of any telephone redemption requests effected in accordance
with the authorization set forth in these instructions if they reasonably
believe such request to be genuine, but may in certain cases be liable for
losses due to unauthorized or fraudulent transactions. Procedures for
verification of telephone transactions may include recordings of telephone
transactions (maintained for six months), requests for confirmation of the
shareholder's Social Security Number and current address, and mailings of
confirmations promptly after the transactions. The Transfer Agent reserves the
right to cease to act as attorney-in-fact subject to this appointment, and AIM
Distributors reserves the right to modify or terminate the telephone redemption
privilege at any time without notice. An investor may elect not to have this
privilege by marking the appropriate box on the application. Then any
redemptions must be effected in writing by the investor.
SIGNATURE GUARANTEES. In addition to those circumstances listed in the
"Shareholder Information" section of each Fund's prospectus, signature
guarantees are required in the following situations: (1) requests to transfer
the registration of shares to another owner; (2) telephone exchange and
telephone redemption authorization forms; (3) changes in previously designated
wiring or electronic funds transfer instructions; and (4) written redemptions or
exchanges of shares previously reported as lost, whether or not the redemption
amount is under $50,000 or the proceeds are to be sent to the address of record.
AIM Funds may waive or modify any signature guarantee requirements at any time.
Acceptable guarantors include banks, broker-dealers, credit unions,
national securities exchanges, savings associations and any other organization,
provided that such institution or organization qualifies as an "eligible
guarantor institution" as that term is defined in rules adopted by the SEC, and
further provided that such guarantor institution is listed in one of the
reference guides contained in the Transfer Agent's current Signature Guarantee
Standards and Procedures, such as certain domestic banks, credit unions,
securities dealers, or securities exchanges. The Transfer Agent will also accept
signatures with either: (1) a signature guaranteed with a medallion stamp of the
STAMP Program, or (2) a signature guaranteed with a medallion stamp of the NYSE
Medallion Signature Program, provided that in either event, the amount of the
transaction involved does not exceed the surety coverage amount indicated on the
medallion. For information regarding whether a particular institution or
organization qualifies as an "eligible guarantor institution," an investor
should contact the Client Services Department of AFS.
TRANSACTIONS BY INTERNET. An investor may effect transactions in his
account through the Internet by selecting the AIM Internet Connect option on his
completed account application form or completing an AIM Internet Connect
Authorization Form. By signing either form the investor acknowledges and agrees
that the Transfer Agent and AIM Distributors will not be liable for any loss,
expense or cost arising out of any internet transaction effected in accordance
with the instructions set forth in the forms if they reasonably believe such
request to be genuine. Procedures for verification of internet transactions
include requests for confirmation of the shareholder's personal identification
number and mailings of confirmations promptly after the transactions. The
investor also acknowledges that (1) if he no longer wants the AIM Internet
Connect option,
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he will notify the Transfer Agent in writing, and (2) the AIM Internet Connect
option may be terminated at any time by the AIM Funds.
DIVIDENDS AND DISTRIBUTIONS. In determining the amount of capital
gains, if any, available for distribution, net capital gains are offset against
available net capital losses, if any, carried forward from previous fiscal
periods.
For Funds that do not declare a dividend daily, such dividends and
distributions will be reinvested at the net asset value per share determined on
the ex-dividend date. For Funds that declare a dividend daily, such dividends
and distributions will be reinvested at the net asset value per share determined
on the payable date.
Dividends on Class B and Class C shares are expected to be lower than
those for Class A shares or AIM Cash Reserve Shares because of higher
distribution fees paid by Class B and Class C shares. Dividends on all shares
may also be affected by other class-specific expenses.
Changes in the form of dividend and distribution payments may be made
by the shareholder at any time by notice to the Transfer Agent and are effective
as to any subsequent payment if such notice is received by the Transfer Agent
prior to the record date of such payment. Any dividend and distribution election
remains in effect until the Transfer Agent receives a revised written election
by the shareholder.
Any dividend or distribution paid by a Fund which does not declare
dividends daily has the effect of reducing the net asset value per share on the
ex-dividend date by the amount of the dividend or distribution. Therefore, a
dividend or distribution declared shortly after a purchase of shares by an
investor would represent, in substance, a return of capital to the shareholder
with respect to such shares even though it would be subject to income taxes.
MISCELLANEOUS INFORMATION
CHARGES FOR CERTAIN ACCOUNT INFORMATION
AFS, the transfer agent, may impose certain copying charges for
requests for copies of shareholder account statements and other historical
account information older than the current year and the immediately preceding
year.
AUDIT REPORTS
The Board of Trustees will issue to the shareholders semi-annually
financial statements for each Fund. Financial statements, audited by independent
auditors, will be issued annually. The firm of KPMG LLP, 700 Louisiana, Houston,
Texas 77002, currently serves as the auditors of each Fund.
LEGAL MATTERS
Certain legal matters for the Trust have been passed upon by Ballard
Spahr Andrews & Ingersoll, LLP, 1735 Market Street, Philadelphia, Pennsylvania
19103-7599.
CUSTODIAN AND TRANSFER AGENT
The Bank of New York, 90 Washington Street, 11th Floor, New York, New
York 10286, is custodian of all securities and cash of Limited Maturity, Money
Market and Municipal Bond. State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110, is custodian of all securities and cash of
High Yield, High Yield II, Income and Intermediate Government. The custodians
attend to the collection of principal and income, pay and collect all monies for
securities bought and sold by the respective Funds, and perform certain other
ministerial duties. AFS, P.O. Box 4739, Houston, Texas 77210-4739, is transfer
and dividend disbursing agent for the Funds' shares. These services do not
include any supervisory function over
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management or provide any protection against any possible depreciation of
assets. The Funds pay the Custodians and AFS such compensation as may be agreed
upon from time to time.
Chase Bank of Texas, N.A., 712 Main, Houston, Texas 77002, serves as
Sub-Custodian for retail purchases of the AIM Funds.
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") has
entered into an agreement with the Trust (and certain other AIM Funds), First
Data Investor Service Group, and Financial Data Services, Inc., pursuant to
which MLPF&S has agreed to perform certain shareholder sub-accounting services
for its customers who beneficially own shares of the Fund(s).
OTHER INFORMATION
Each Prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement which the Trust has
filed with the SEC under the 1933 Act and reference is hereby made to the
Registration Statement for further information with respect to the Funds and the
securities offered pursuant to the Prospectuses. The Registration Statement is
available for inspection by the public at the SEC in Washington, DC.
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DESCRIPTION OF OBLIGATIONS ISSUED OR GUARANTEED BY U.S. GOVERNMENT
AGENCIES OR INSTRUMENTALITIES
Intermediate Government may invest in "Agency Securities," which
include some or all of those listed below. The following list does not purport
to be an exhaustive list of all Agency Securities, and the Fund reserves the
right to invest in Agency Securities other than those listed below.
EXPORT-IMPORT BANK CERTIFICATES are certificates of beneficial interest
and participation certificates issued and guaranteed by the Export-Import Bank
of the United States.
FEDERAL FARM CREDIT SYSTEM NOTES AND BONDS are bonds issued by a
cooperatively owned, nationwide system of banks and associations supervised by
the Farm Credit Administration, an independent agency of the U.S. Government.
FEDERAL HOME LOAN BANK NOTES AND BONDS are notes and bonds issued by
the Federal Home Loan Bank System.
FHA DEBENTURES are debentures issued by the Federal Housing
Administration of the U.S. Government.
FHA INSURED NOTES are bonds issued by the Farmers Home Administration
of the U.S. Government.
FEDERAL HOME LOAN MORTGAGE CORPORATION ("FHLMC") BONDS are bonds issued
and guaranteed by FHLMC, a corporate instrumentality of the U.S. Government. The
Federal Home Loan Banks own all the capital stock of FHLMC, which obtains its
Funds by selling mortgages (as well as participation interests in the mortgages)
and by borrowing funds through the issuance of debentures and otherwise.
FHLMC PARTICIPATION CERTIFICATES OR "FREDDIE MACS" represent undivided
interests in specified groups of conventional mortgage loans (and/or
participation interests in those loans) underwritten and owned by FHLMC. At
least 95% of the aggregate principal balance of the whole mortgage loans and/or
participations in a group formed by FHLMC typically consist of single-family
mortgage loans, and not more than 5% consists of multi-family loans. FHLMC
Participation Certificates are not guaranteed by, and do not constitute a debt
or obligation of, the U.S. Government or any Federal Home Loan Bank. FHLMC
Participation Certificates are issued in fully registered form only, in original
unpaid principal balances of $25,000, $100,000, $200,000, $500,000, $1 million
and $5 million. FHLMC guarantees to each registered holder of a Participation
Certificate, to the extent of such holder's pro rata share (i) the timely
payment of interest accruing at the applicable certificate rate on the unpaid
principal balance outstanding on the mortgage loans, and (ii) collection of all
principal on the mortgage loans without any offset or deductions. Pursuant to
these guaranties, FHLMC indemnifies holders of Participation Certificates
against any reduction in principal by reason of charges for property repairs,
maintenance, and foreclosure.
FEDERAL NATIONAL MORTGAGE ASSOCIATION ("FNMA") BONDS are bonds issued
and guaranteed by the Federal National Mortgage Association, a federally
chartered and privately-owned corporation.
FNMA PASS-THROUGH CERTIFICATES OR "FANNIE MAES" are mortgage
pass-through certificates issued and guaranteed by FNMA. FNMA Certificates
represent a fractional undivided ownership interest in a pool of mortgage loans
either provided from FNMA's own portfolio or purchased from primary lenders. The
mortgage loans included in the pool are conventional, insured by the Federal
Housing Administration or guaranteed by the Veterans Administration. FNMA
Certificates are not backed by, nor entitled to, the full faith and credit of
the U.S. Government.
Loans not provided from FNMA's own portfolio are purchased only from
primary lenders that satisfy certain criteria developed by FNMA, including depth
of mortgage origination experience, servicing experience
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and financial capacity. FNMA may purchase an entire loan pool from a single
lender, and issue Certificates backed by that loan pool alone, or may package a
pool made up of loans purchased from various lenders.
Various types of mortgage loans, and loans with varying interest
rates, may be included in a single pool, although each pool will consist of
mortgage loans related to one-family or two-to-four family residential
properties. Substantially all FNMA mortgage pools currently consist of fixed
interest rate and growing equity mortgage loans, although FNMA mortgage pools
may also consist of adjustable interest rate mortgage loans or other types of
mortgage loans. Each mortgage loans must conform to FNMA's published
requirements or guidelines with respect to maximum principal amount,
loan-to-value ratio, loan term, underwriting standards and insurance coverage.
All mortgage loans are held by FNMA as trustee pursuant to a Trust
indenture for the benefit of Certificate holders. The Trust indenture gives FNMA
responsibility for servicing or administering the loans in a pool. FNMA
contracts with the lenders or other servicing institutions to perform all
services and duties customary to the servicing of mortgages, as well as duties
specifically prescribed by FNMA, and under FNMA supervision. FNMA may remove
service providers for cause.
The pass-through rate on FNMA Certificates is the lowest annual
interest rate borne by an underlying mortgage loan in the pool, less a fee to
FNMA as compensation for servicing and for FNMA's guarantee. Lenders servicing
the underlying mortgage loans receive as compensation a portion of the fee paid
to FNMA, the excess yields on pooled loans with coupon rates above the lowest
rate borne by any mortgage loan in the pool and certain other amounts collected,
such as late charges.
The minimum size of a FNMA pool is $1 million of mortgage loans.
Registered holders purchase Certificates in amounts not less than $25,000.
FNMA Certificates are marketed by the servicing lender banks, usually
through securities dealers. The lender of a single lender pool typically markets
all Certificates based on that pool, and lenders of multiple lender pool market
Certificates based on a pro rata interest in the aggregate pool. The amounts of
FNMA Certificates currently outstanding is limited.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION ("GNMA") CERTIFICATES OR
"GINNIE MAES" are mortgage-backed securities which represent a partial ownership
interest in a pool of mortgage loans issued by lenders such as mortgage bankers,
commercial banks and savings and loan associations. Each mortgage loan included
in the pool is either insured by the Federal Housing Administration or
guaranteed by the Veterans Administration. A "pool" or group of such mortgages
is assembled, and, after being approved by GNMA, is offered to investors through
securities dealers. GNMA is a U.S. Government corporation within the Department
of Housing and Urban Development.
The Portfolio will purchase only GNMA Certificates of the "modified
pass-through" type, which entitle the holder to receive its proportionate share
of all interest and principal payments owed on the mortgage pool, net of fees
paid to the issuer and GNMA, regardless of whether or not the mortgagor actually
makes the payment. GNMA Certificates differ from bonds in that the principal is
paid back monthly by the borrower over the term of the loan rather than returned
in a lump sum at maturity. Payment of principal of and interest on GNMA
Certificates of the "modified pass-through" type is guaranteed by GNMA and
backed by the full faith and credit of the U.S. Government.
The average life of a GNMA Certificate is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return on the greater part of principal invested far in advance of
the maturity of the mortgages in the pool. Foreclosures impose no risk to
principal investment because of the GNMA guarantee.
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As the prepayment rates of individual mortgage pools will vary widely,
it is not possible to accurately predict the average life of a particular issue
of GNMA Certificates. However, statistics published by the FHA indicate that the
average life of a single-family dwelling mortgage with 25- to 30-year maturity,
the type of mortgage which backs the vast majority of GNMA Certificates, is
approximately 12 years. It is therefore customary practice to treat GNMA
Certificates as 30-year mortgage-backed securities which prepay fully in the
twelfth year.
As a consequence of the fees paid to GNMA and the issuer of GNMA
Certificates, the coupon rate of interest of GNMA Certificates is lower than the
interest paid on the VA-guaranteed or FHA-insured mortgages underlying the
Certificates.
The yield which will be earned on GNMA Certificates may vary from
their coupon rates for the following reasons: (i) Certificates may be issued at
a premium or discount, rather than at par; (ii) Certificates may trade in the
secondary market at a premium or discount after issuance; (iii) interest is
earned and compounded monthly which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium may result in a loss to the
Portfolio.
Due to the large amount of GNMA Certificates outstanding and active
participation in the secondary market by securities dealers and investors, GNMA
Certificates are highly liquid instruments. Prices of GNMA Certificates are
readily available from securities dealers and depend on, among other things, the
level of market rates, the Certificate's coupon rate and the prepayment
experience of the pool of mortgages backing each Certificate.
GENERAL SERVICES ADMINISTRATION PARTICIPATION CERTIFICATES are
participation certificates issued by the General Services Administration of the
U.S. Government.
MARITIME ADMINISTRATION BONDS are bonds issued and provided by the
Department of Transportation of the U.S. Government.
NEW COMMUNITIES DEBENTURES are debentures issued in accordance with
the provisions of Title IV of the Housing and Urban Development Act of 1968, as
supplemented and extended by Title VII of the Housing and Urban Development Act
of 1970, the payment of which is guaranteed by the U.S. Government.
PUBLIC HOUSING NOTES AND BONDS are short-term project notes and
long-term bonds issued by public housing and urban renewal agencies in
connection with programs administered by the Department of Housing and Urban
Development of the U.S. Government, the payment of which is secured by the U.S.
Government.
SBA DEBENTURES are debentures fully guaranteed as to principal and
interest by the Small Business Administration of the U.S. Government.
SLMA DEBENTURES are debentures backed by the Student Loan Marketing
Association.
TITLE XI BONDS are bonds issued in accordance with the provisions of
Title XI of the Merchant Marine Act of 1936, as amended, the payment of which is
guaranteed by the U.S. Government.
WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY BONDS are bonds issued
by the Washington Metropolitan Area Transit Authority and are guaranteed by the
Secretary of Transportation of the U.S. Government.
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RATINGS OF SECURITIES
The following is a description of the factors underlying the
commercial paper and debt ratings of Moody's, S&P, Fitch IBCA, Inc. ("Fitch")
and Duff & Phelps:
MOODY'S BOND RATINGS
Moody's describes its ratings for corporate bonds as follows:
Aaa: Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high grade bonds. These are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the Aaa
securities.
A: Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa: Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca: Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from Aa to B. The modifier 1 indicates that the company
ranks in the higher end of its generic rating category; the
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modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the
company ranks in the lower end of its generic rating category.
MOODY'S MUNICIPAL BOND RATINGS
Aaa: Bonds rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from Aa to B. The modifier indicates that the issue ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic category.
MOODY'S SHORT-TERM LOAN RATINGS
Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or (MIG). Such ratings recognize the
differences between short-term credit risk and long-term risk. Factors affecting
the liquidity of the borrower and short-term cyclical elements are critical in
short-term
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ratings, while other factors of major importance in bond risk, long-term secular
trends for example, may be less important over the short run.
A short-term rating may also be assigned on an issue having a demand
feature variable rate demand obligation (VRDO). Such ratings will be designated
as VMIG or, if the demand feature is not rated, as NR. Short-term ratings on
issues with demand features are differentiated by the use of the VMIG symbol to
reflect such characteristics as payment upon periodic demand rather than fixed
maturity dates and payment relying on external liquidity. Additionally,
investors should be alert to the fact that the source of payment may be limited
to the external liquidity with no or limited legal recourse to the issuer in the
event the demand is not met.
A VMIG rating may also be assigned to commercial paper programs. Such
programs are characterized as having variable short-term maturities but having
neither a variable rate nor demand feature.
Moody's short-term ratings are designated Moody's Investment Grade as
MIG 1 or VMIG 1 through MIG 4 or VMIG 4.
Gradations of investment quality are indicated by rating symbols, with
each symbol representing a group in which the quality characteristics are
broadly the same.
MIG 1/VMIG 1: This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2/VMIG 2: This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG 3/VMIG 3: This designation denotes favorable quality. All security elements
are accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
MIG 4/VMIG 4: This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.
MOODY'S COMMERCIAL PAPER RATINGS
Moody's commercial paper ratings are opinions of the ability of issues
to repay punctually promissory obligations not having an original maturity in
excess of nine months.
PRIME-1: Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
leading market positions in well-established industries; high rates of return on
Funds employed; conservative capitalization structures with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
PRIME-2: Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
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PRIME-3: Issuers rated Prime-3 (or related supported institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime rating
categories.
S&P BOND RATINGS
S&P describes its ratings for corporate bonds as follows:
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB-B-CCC-CC-C: Debt rated BB, B, CCC, CC and C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. BB indicates the lowest degree of speculation and
C the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or large exposure
to adverse conditions.
S&P DUAL RATINGS
S&P assigns "dual" ratings to all debt issues that have a put option
or demand feature as part of their structure.
The first rating addresses the likelihood of repayment of principal
and interest as due, and the second rating addresses only the demand feature.
The long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols for the put option (for
example, AAA/A-1+). With short-term demand debt, the note rating symbols are
used with the commercial paper rating symbols (for example, SP-1+/A-1+).
S&P MUNICIPAL NOTE RATINGS
An S&P note rating reflects the liquidity factors and market-access
risks unique to notes. Notes maturing in three years or less will likely receive
a note rating. Notes maturing beyond three years will most likely receive a
long-term debt rating. The following criteria will be used in making that
assessment: amortization schedule (the larger the final maturity relative to
other maturities, the more likely the issue will be treated as a note); and
source of payment (the more the issue depends on the market for its refinancing,
the more likely it is to be treated as a note).
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Note rating symbols and definitions are as follows:
SP-1: Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3: Speculative capacity to pay principal and interest.
S&P COMMERCIAL PAPER RATINGS
An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days.
Rating categories are as follows:
A-1: This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B: Issues with this rating are regarded as having only speculative capacity for
timely payment.
C: This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D: Debt with this rating is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless it is believed that such
payments will be made during such grace period.
FITCH INVESTMENT GRADE BOND RATINGS
Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
represent Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue in a timely manner.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be
provided by insurance policies or financial guaranties unless otherwise
indicated.
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Bonds carrying the same rating are of similar but not necessarily
identical credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell or hold any
security. Ratings do not comment on the adequacy of market price, the
suitability of any security for a particular investor, or the tax-exempt nature
or taxability of payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+."
A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds and, therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
PLUS (+) MINUS (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA" category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of a
project or the occurrence of a specific event.
SUSPENDED: A rating is suspended when Fitch deems the amount of information
available from the issuer to be inadequate for rating purposes.
WITHDRAWN: A rating will be withdrawn when an issue matures or is called or
refinanced, and, at Fitch's discretion, when an issuer fails to furnish proper
and timely information.
FITCHALERT: Ratings are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change and the likely direction
of such change. These are designated as "Positive," indicating a potential
upgrade, "Negative," for potential downgrade, or "Evolving," where ratings may
be raised or lowered. FitchAlert is relatively short-term, and should be
resolved within 12 months.
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RATINGS OUTLOOK
An outlook is used to describe the most likely direction of any rating
change over the intermediate term. It is described as "Positive" or "Negative."
The absence of a designation indicates a stable outlook.
FITCH SPECULATIVE GRADE BOND RATINGS
Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
("BB" to "C") represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating ("DDD" to "D") is an
assessment of the ultimate recovery value through reorganization or liquidation.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer or possible recovery value in
bankruptcy, the current and prospective financial condition and operating
performance of the issuer and any guarantor, as well as the economic and
political environment that might affect the issuer's future financial strength.
Bonds that have the same rating are of similar but not necessarily
identical credit quality since rating categories cannot fully reflect the
differences in degrees of credit risk.
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified, which could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics that, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
PLUS (+) MINUS (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "DDD", "DD", or "D" categories.
FITCH SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.
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The short-term rating places greater emphasis than a long-term rating
on the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
Fitch short-term ratings are as follows:
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+."
F-2: Good Credit Quality. Issues assigned this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned "F-1+" and "F-1" ratings.
F-3: Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse changes could cause these securities to be rated below
investment grade.
F-S: Weak Credit Quality. Issues assigned this rating have characteristics
suggesting a minimal degree of assurance for timely payment and are vulnerable
to near-term adverse changes in financial and economic conditions.
D: Default. Issues assigned this rating are in actual or imminent payment
default.
LOC: The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
DUFF & PHELPS LONG-TERM RATINGS
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA AND AA-: High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
A+, A AND A-: Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.
BBB+, BBB AND BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB AND BB-: Below investment grade but deemed likely to meet obligations
when due. Present or prospective financial protection factors fluctuate
according to industry conditions or company fortunes. Overall quality may move
up or down frequently within this category.
B+, B AND B-: Below investment grade and possessing risk that obligations will
not be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or into
a higher or lower rating grade.
CCC: Well below investment grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
90
<PAGE> 218
DD: Defaulted debt obligations. Issuer failed to meet scheduled principal and/or
interest payments.
DP: Preferred stock with dividend arrearages.
DUFF & PHELPS SHORT-TERM RATINGS
D - 1+: Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of Funds, is
outstanding and safety is just below risk-free U.S. Treasury short-term
obligations.
D - 1: Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.
D - 1-: High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
D - 2: Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
D - 3: Satisfactory liquidity and other protection factors qualify issue as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.
D - 4: Speculative investment characteristics. Liquidity is not sufficient to
insure against disruption in debt service. Operating factors and market access
may be subject to a high degree of variation.
D - 5: Issuer failed to meet scheduled principal and/or interest payments.
91
<PAGE> 219
FINANCIAL STATEMENTS
FS
<PAGE> 220
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
AIM High Yield Fund:
We have audited the accompanying statement of assets and liabilities of AIM High
Yield Fund (a portfolio of AIM Investment Securities Funds), including the
schedule of investments, as of July 31, 2000, the related statement of
operations for the seven months ended July 31, 2000 and the year ended December
31, 1999, the statements of changes in net assets for the seven months ended
July 31, 2000 and the two-years ended December 31, 1999, and the financial
highlights for the seven months ended July 31, 2000 and for each of the years in
the five-year period ended December 31, 1999. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of July 31, 2000, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
High Yield Fund as of July 31, 2000, the results of its operations for seven
months ended July 31, 2000 and the year ended December 31, 1999, the changes in
its net assets for the seven months ended July 31, 2000 and the two-years ended
December 31, 1999, and the financial highlights for the seven months ended July
31, 2000 and for each of the years in the five-year period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States of America.
/s/ KPMG LLP
September 1, 2000
Houston, Texas
FS-1
<PAGE> 221
SCHEDULE OF INVESTMENTS
July 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. DOLLAR DENOMINATED BONDS & NOTES-92.16%
AEROSPACE/DEFENSE-0.57%
Precision Partners, Inc., Sr.
Unsec. Sub. Notes, 12.00%,
03/15/09 $19,225,000 $ 13,553,625
---------------------------------------------------------------
AIR FREIGHT-0.66%
Atlas Air, Inc., Sr. Unsec.
Notes, 10.75%, 08/01/05 15,147,000 15,601,410
---------------------------------------------------------------
AIRLINES-3.21%
Airplanes Pass Through
Trust-Series D, Gtd. Sub.
Bonds, 10.88%, 03/15/19 62,086,822 49,896,385
---------------------------------------------------------------
Amtran, Inc., Sr. Unsec. Gtd.
Notes, 10.50%, 08/01/04 9,115,000 8,408,587
---------------------------------------------------------------
Dunlop Standard Aerospace
Holdings PLC (United Kingdom),
Sr. Unsec. Yankee Sub. Notes,
11.88%, 05/15/09 17,960,000 17,915,100
---------------------------------------------------------------
76,220,072
---------------------------------------------------------------
AUTO PARTS & EQUIPMENT-2.38%
Advance Stores Co., Inc.-Series
B, Sr. Unsec. Gtd. Sub. Notes,
10.25%, 04/15/08 24,825,000 20,418,562
---------------------------------------------------------------
Exide Corp., Sr. Notes, 10.00%,
04/15/05 22,550,000 20,858,750
---------------------------------------------------------------
Venture Holdings Trust, Sr.
Unsec. Gtd. Sub. Notes, 11.00%,
06/01/07 20,250,000 15,288,750
---------------------------------------------------------------
56,566,062
---------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO &
CABLE)-4.66%
Charter Communications Holdings,
LLC/ Charter Communications
Holdings Capital Corp., Sr.
Unsec. Disc. Notes, 9.92%,
04/01/11(a) 33,920,000 19,504,000
---------------------------------------------------------------
Diamond Cable Communications PLC
(United Kingdom), Sr. Disc.
Yankee Notes, 10.75%,
02/15/07(a) 8,000,000 6,240,000
---------------------------------------------------------------
Fox Family Worldwide, Inc., Sr.
Unsec. Disc. Notes, 10.25%,
11/01/07(a) 28,000,000 19,460,000
---------------------------------------------------------------
Knology Holdings, Inc., Sr. Disc.
Notes, 11.88%, 10/15/07(a) 44,305,000 23,592,412
---------------------------------------------------------------
Pegasus Communications
Corp.-Series B, Sr. Unsec.
Notes, 12.50%, 08/01/07 17,500,000 18,637,500
---------------------------------------------------------------
United Pan-Europe Communications
N.V. (Netherlands)-Series B,
Sr. Unsec. Disc. Yankee Notes,
13.38%, 11/01/09(a) 50,000,000 23,250,000
---------------------------------------------------------------
110,683,912
---------------------------------------------------------------
BUILDING MATERIALS-1.51%
Blount Inc., Sr. Unsec. Gtd. Sub.
Notes, 13.00%, 08/01/09 22,750,000 23,091,250
---------------------------------------------------------------
Dayton Superior Corp., Sr. Sub.
Notes, 13.00%, 06/15/09
(Acquired 06/09/00; Cost
$12,179,750)(b)(c) 12,500,000 12,468,750
---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
BUILDING MATERIALS-(CONTINUED)
Imperial Home Decor Group-Series
B, Sr. Unsec. Gtd. Sub. Notes,
11.00%, 03/15/08(d) $19,100,000 $ 286,500
---------------------------------------------------------------
35,846,500
---------------------------------------------------------------
CHEMICALS (DIVERSIFIED)-1.33%
Avecia Group PLC (United
Kingdom), Sr. Unsec. Gtd.
Yankee Notes, 11.00%, 07/01/09 14,300,000 14,478,750
---------------------------------------------------------------
Sterling Chemicals, Inc.-Series
B, Sr. Gtd. Sec. Sub. Notes,
12.38%, 07/15/06 16,500,000 17,201,250
---------------------------------------------------------------
31,680,000
---------------------------------------------------------------
CHEMICALS (SPECIALTY)-0.28%
Key Plastics Holdings,
Inc.-Series B, Sr. Unsec. Gtd.
Sub. Notes, 10.25%, 03/15/07(d) 23,770,000 2,495,850
---------------------------------------------------------------
Trans-Resources, Inc.-Series B,
Sr. Unsec. Disc. Notes, 12.00%,
03/15/08(a) 11,750,000 1,116,250
---------------------------------------------------------------
Sr. Unsec. Notes, 10.75%,
03/15/08 19,000,000 2,945,000
---------------------------------------------------------------
6,557,100
---------------------------------------------------------------
COMPUTERS (NETWORKING)-1.47%
Convergent Communications-Series
B, Sr. Unsec. Notes, 13.00%,
04/01/08 23,540,000 16,536,850
---------------------------------------------------------------
Exodus Communications, Inc., Sr.
Unsec. Notes, 11.25%, 07/01/08 18,425,000 18,425,000
---------------------------------------------------------------
34,961,850
---------------------------------------------------------------
COMPUTERS (PERIPHERALS)-0.54%
Equinix Inc., Sr. Unsec. Notes,
13.00%, 12/01/07 15,110,000 12,843,500
---------------------------------------------------------------
COMPUTERS (SOFTWARE &
SERVICES)-2.68%
Cybernet Internet Services
International, Inc., Conv.
Unsec. Sub. Notes, 13.00%,
08/15/09(a)(e) 11,250,000 5,203,125
---------------------------------------------------------------
Earthwatch Inc.,
Sr. Disc. Notes, 13.00%,
07/15/07 (Acquired 07/07/99;
Cost $23,276,740)(a)(b)(c) 34,000,000 23,715,000
---------------------------------------------------------------
Sr. Notes, 12.50%, 03/01/05
(Acquired 03/14/97-09/01/99;
Cost $15,500,000)(c) 22,320,000 15,679,800
---------------------------------------------------------------
Globix Corp., Sr. Unsec. Notes,
12.50%, 02/01/10 24,000,000 19,020,000
---------------------------------------------------------------
63,617,925
---------------------------------------------------------------
CONSTRUCTION (CEMENT &
AGGREGATES)-0.41%
Schuff Steel Co., Sr. Unsec. Gtd.
Sub. Notes, 10.50%, 06/01/08 14,000,000 9,695,000
---------------------------------------------------------------
</TABLE>
FS-2
<PAGE> 222
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
DISTRIBUTORS (FOOD &
HEALTH)-1.01%
Fleming Cos., Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 10.63%,
07/31/07 $27,700,000 $ 24,029,750
---------------------------------------------------------------
ELECTRONICS (COMPONENT
DISTRIBUTORS)-0.75%
Cherokee International LCC-Series
B, Sr. Unsec. Sub. Notes,
10.50%, 05/01/09 20,600,000 17,819,000
---------------------------------------------------------------
ENGINEERING & CONSTRUCTION-0.70%
Morrison Knudsen Corp., Sr.
Notes, 11.00%, 07/01/10
(Acquired 06/28/00; Cost
$16,467,566)(c) 16,590,000 16,672,950
---------------------------------------------------------------
ENTERTAINMENT-0.52%
Callahan Nordrhein Westfalen
(Denmark), Sr. Yankee Notes,
14.00%, 07/15/10 (Acquired
06/29/00; Cost $12,500,000)(c) 12,500,000 12,281,250
---------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-1.07%
Madison River Capital, Sr. Notes,
13.25%, 03/01/10(e) 17,700,000 16,018,500
---------------------------------------------------------------
ONO Finance PLC (United Kingdom),
Sr. Gtd. Sub. Euro Notes,
13.00%, 05/01/09 9,500,000 9,357,500
---------------------------------------------------------------
25,376,000
---------------------------------------------------------------
FOODS-0.47%
Volume Services America Inc., Sr.
Unsec. Gtd. Sub. Notes, 11.25%,
03/01/09 12,000,000 11,040,000
---------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL
COMPANIES-3.14%
Hollywood Casino Corp., Sr. Sec.
Gtd. Sub. Notes, 11.25%,
05/01/07 1,000,000 1,025,000
---------------------------------------------------------------
MGM Grand, Inc., Sr. Unsec. Gtd.
Sub. Notes, 9.75%, 06/01/07 12,240,000 12,576,600
---------------------------------------------------------------
Resort at Summerlin LP-Series B,
Sr. Unsec. Sub. Notes, 13.00%,
12/15/07 25,769,000 18,167,145
---------------------------------------------------------------
Venetian Casino Resort LLC, Sec.
Gtd. Mortgage Notes, 12.25%,
11/15/04 42,200,000 42,833,000
---------------------------------------------------------------
74,601,745
---------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC &
OTHER)-1.77%
King Pharmaceuticals, Inc., Sr.
Unsec. Gtd. Sub. Notes, 10.75%,
02/15/09 19,300,000 20,747,500
---------------------------------------------------------------
Warner Chilcott, Inc., Sr. Unsec.
Gtd. Notes, 12.63%, 02/15/08(e) 20,650,000 21,372,750
---------------------------------------------------------------
42,120,250
---------------------------------------------------------------
HEALTH CARE (HOSPITAL
MANAGEMENT)-0.39%
Triad Hospitals, Inc.-Series B,
Sr. Unsec. Gtd. Sub. Notes,
11.00%, 05/15/09 8,915,000 9,360,750
---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES)-0.50%
DJ Orthopedics, LLC, Sr. Unsec.
Gtd. Sub. Notes, 12.63%,
06/15/09 12,400,000 11,842,000
---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
HEALTH CARE (SPECIALIZED
SERVICES)-0.06%
Team Health Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 12.00%,
03/15/09 $ 1,735,000 $ 1,479,087
---------------------------------------------------------------
HOMEBUILDING-0.29%
Lennar Corp., Sr. Notes, 9.95%,
05/01/10(e) 6,775,000 6,842,750
---------------------------------------------------------------
HOUSEHOLD FURNISHING &
APPLIANCES-2.03%
Falcon Products, Inc.-Series B,
Sr. Unsec. Gtd. Sub. Notes,
11.38%, 06/15/09 12,065,000 11,672,887
---------------------------------------------------------------
O'Sullivan Industries,
Inc.-Series B, Sr. Unsec. Gtd.
Sub. Notes, 13.38%, 10/15/09 21,000,000 19,740,000
---------------------------------------------------------------
Winsloew Furniture, Inc.-Series
B, Sr. Gtd. Sub. Notes, 12.75%,
08/15/07 17,870,000 16,708,450
---------------------------------------------------------------
48,121,337
---------------------------------------------------------------
IRON & STEEL-0.51%
Acme Metals Inc., Sr. Unsec. Gtd.
Notes, 10.88%, 12/15/07(d) 28,939,000 3,906,765
---------------------------------------------------------------
Sheffield Steel Corp.-Series B,
First Mortgage Notes, 11.50%,
12/01/05 13,500,000 8,167,500
---------------------------------------------------------------
12,074,265
---------------------------------------------------------------
LEISURE TIME (PRODUCTS)-0.99%
Marvel Enterprises, Inc., Sr.
Unsec. Gtd. Sub. Notes, 12.00%,
06/15/09 29,375,000 23,573,437
---------------------------------------------------------------
MACHINERY (DIVERSIFIED)-0.42%
National Equipment
Services-Series B, Sr. Unsec.
Sub. Notes, 10.00%, 11/30/04 11,850,000 9,894,750
---------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-1.45%
Actuant Corp., Sr. Unsec. Gtd.
Sub. Notes, 13.00%, 05/01/09
(Acquired 07/21/00; Cost
$9,038,630)(c) 9,160,000 9,205,800
---------------------------------------------------------------
Anthony Crane Rentals LP-Series
B, Sr. Unsec. Gtd. Sub. Notes,
10.38%, 08/01/08 21,085,000 11,649,463
---------------------------------------------------------------
Glenoit Corp., Sr. Unsec. Gtd.
Sub. Notes, 11.00%, 04/15/07(d) 24,915,000 4,235,550
---------------------------------------------------------------
Jordan Industries, Inc.-Series D,
Sr. Unsec. Notes, 10.38%,
08/01/07 10,000,000 9,325,000
---------------------------------------------------------------
34,415,813
---------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-5.15%
Berry Plastics Corp.,
Sr. Gtd. Sub. Notes, 12.25%,
04/15/04 13,000,000 12,577,500
---------------------------------------------------------------
Series C, Sr. Gtd. Sub. Notes,
12.25%, 04/15/04 4,750,000 4,607,500
---------------------------------------------------------------
Brand Scaffold Services, Inc.,
Sr. Unsec. Notes, 10.25%,
02/15/08 20,800,000 18,564,000
---------------------------------------------------------------
First Wave Marine, Inc., Sr.
Unsec. Notes, 11.00%, 02/01/08 22,835,000 13,130,125
---------------------------------------------------------------
Flextronics International Ltd.
(Singapore), Sr. Sub Yankee
Notes, 9.88%, 07/01/10
(Acquired 06/26/00; Cost
$6,151,640)(c) 6,200,000 6,378,250
---------------------------------------------------------------
</TABLE>
FS-3
<PAGE> 223
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
MANUFACTURING (SPECIALIZED)-(CONTINUED)
Knowles Electronics, Inc., Sr.
Sub. Notes, 13.13%, 10/15/09(e) $12,000,000 $ 10,980,000
---------------------------------------------------------------
MMI Products, Inc.-Series B, Sr.
Unsec. Sub. Notes, 11.25%,
04/15/07 17,640,000 17,375,400
---------------------------------------------------------------
Neenah Corp.
Series B, Sr. Sub. Notes,
11.13%, 05/01/07 4,000,000 3,030,000
---------------------------------------------------------------
Series D, Sr. Sub. Notes,
11.13%, 05/01/07 15,000,000 11,362,500
---------------------------------------------------------------
Omega Cabinets, Sr. Sub. Notes,
10.50%, 06/15/07 16,740,000 15,317,100
---------------------------------------------------------------
Tekni-Plex Inc., Sr. Sub. Notes,
12.75%, 06/15/10 (Acquired
06/15/00; Cost $8,580,810)(c) 8,700,000 8,917,500
---------------------------------------------------------------
122,239,875
---------------------------------------------------------------
METALS MINING-1.83%
Centaur Mining and Exploration
Ltd. (Australia), Sr. Gtd.
Yankee Notes, 11.00%, 12/01/07 28,800,000 22,320,000
---------------------------------------------------------------
Doe Run Resources Corp.
(The)-Series B, Sr. Unsec. Gtd.
Sub. Notes, 11.25%, 03/15/05 21,000,000 10,815,000
---------------------------------------------------------------
Metal Management, Inc., Sr.
Unsec. Gtd. Sub. Notes, 10.00%,
05/15/08 20,500,000 10,352,500
---------------------------------------------------------------
43,487,500
---------------------------------------------------------------
NATURAL GAS-0.53%
Western Gas Resources, Inc., Sr.
Unsec. Gtd. Sub. Notes, 10.00%,
06/15/09 12,000,000 12,480,000
---------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES-0.32%
Global Imaging Systems, Inc., Sr.
Unsec. Gtd. Sub. Notes, 10.75%,
02/15/07 8,800,000 7,612,000
---------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT)-0.56%
Pride International, Inc., Sr.
Unsec. Notes, 10.00%, 06/01/09 12,735,000 13,180,725
---------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-4.38%
Abraxas Petroleum Corp.
Series A, Sr. Gtd. Sub. Notes,
11.50%, 11/01/04 8,644,000 7,477,060
---------------------------------------------------------------
Series B, Sr. Sec. Gtd. Notes,
12.88%, 03/15/03 13,000,000 13,422,500
---------------------------------------------------------------
Chesapeake Energy Corp., Series
B, Sr. Unsec. Gtd. Sub. Notes,
9.63%, 05/01/05 1,150,000 1,144,250
---------------------------------------------------------------
Comstock Resources, Inc., Sr.
Unsec. Gtd. Sub. Notes, 11.25%,
05/01/07 17,275,000 17,706,875
---------------------------------------------------------------
Frontier Oil Corp., Sr. Unsec.
Notes, 11.75%, 11/15/09 23,750,000 24,759,375
---------------------------------------------------------------
Pioneer Natural Resources Co.,
Sr. Unsec. Gtd. Notes, 9.63%,
04/01/10 13,000,000 13,617,500
---------------------------------------------------------------
Pogo Producing Co.-Series B, Sr.
Unsec. Sub. Notes, 10.38%,
02/15/09 18,335,000 18,976,725
---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
OIL & GAS (EXPLORATION & PRODUCTION)-(CONTINUED)
Queen Sand Resources, Inc., Sr.
Unsec. Gtd. Sub. Notes, 12.50%,
07/01/08 $13,145,000 $ 6,769,675
---------------------------------------------------------------
103,873,960
---------------------------------------------------------------
OIL & GAS (REFINING & MARKETING)-0.67%
Texas Petrochemical Corp., Sr.
Unsec. Sub. Notes, 11.13%,
07/01/06 17,980,000 15,912,300
---------------------------------------------------------------
PHOTOGRAPHY/IMAGING-0.82%
Polaroid Corp., Sr. Unsec. Notes,
11.50%, 02/15/06 18,370,000 19,380,350
---------------------------------------------------------------
POWER PRODUCERS
(INDEPENDENT)-0.85%
Panda Funding Corp., Series A-1,
Pooled Project Bonds, 11.63%,
08/20/12 20,439,125 20,132,538
---------------------------------------------------------------
PUBLISHING-0.34%
Ziff Davis Media, Inc., Sr. Sub.
Notes, 12.00%, 07/15/10
(Acquired 07/18/00-07/20/00;
Cost $7,949,200)(c) 7,880,000 8,037,600
---------------------------------------------------------------
RAILROADS-1.72%
RailWorks Corp., Sr. Unsec. Gtd.
Sub. Notes, 11.50%, 04/15/09 16,400,000 15,170,000
---------------------------------------------------------------
TFM S.A. de C.V. (Mexico), Sr.
Yankee Gtd. Disc. Notes,
11.75%, 06/15/09(a) 33,150,000 25,691,250
---------------------------------------------------------------
40,861,250
---------------------------------------------------------------
RESTAURANTS-0.11%
AFC Enterprises, Sr. Unsec. Sub.
Notes, 10.25%, 05/15/07 2,625,000 2,559,375
---------------------------------------------------------------
RETAIL (SPECIALTY)-1.46%
CSK Auto Inc.-Series A, Sr. Gtd.
Sub. Deb, 11.00%, 11/01/06 14,245,000 11,146,713
---------------------------------------------------------------
Neff Corp., Sr. Unsec. Gtd. Sub.
Notes, 10.25%, 06/01/08 27,650,000 16,175,250
---------------------------------------------------------------
Rent-A-Center, Inc., Sr. Unsec.
Gtd. Sub. Notes, 11.00%,
08/15/08 7,520,000 7,294,400
---------------------------------------------------------------
34,616,363
---------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-0.82%
Big 5 Corp.-Series B, Sr. Unsec.
Notes, 10.88%, 11/15/07 17,315,000 15,799,938
---------------------------------------------------------------
J. Crew Operating Corp., Sr. Sub.
Notes, 10.38%, 10/15/07 4,500,000 3,768,750
---------------------------------------------------------------
19,568,688
---------------------------------------------------------------
SERVICES
(ADVERTISING/MARKETING)-0.65%
MDC Corp. Inc. (Canada), Sr.
Unsec. Sub. Yankee Notes,
10.50%, 12/01/06 15,920,000 15,362,800
---------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-0.82%
Avis Group Holdings, Inc., Sr.
Unsec. Gtd. Sub. Notes, 11.00%,
05/01/09 18,400,000 19,458,000
---------------------------------------------------------------
SERVICES (EMPLOYMENT)-0.59%
MSX International, Inc., Sr.
Unsec. Gtd. Sub. Notes, 11.38%,
01/15/08 14,930,000 14,108,850
---------------------------------------------------------------
</TABLE>
FS-4
<PAGE> 224
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
TELECOMMUNICATIONS (CELLULAR/
WIRELESS)-11.40%
AirGate PCS, Inc., Sr. Disc. Sub.
Notes, 13.50%, 10/01/09(a)(b) $28,400,000 $ 16,543,000
---------------------------------------------------------------
Alamosa PCS Holdings, Inc., Sr.
Unsec. Gtd. Disc. Notes,
12.88%, 02/15/10(a) 25,300,000 13,282,500
---------------------------------------------------------------
Crown Castle International Corp.,
Sr. Notes, 10.75%, 08/01/11 10,000,000 10,300,000
---------------------------------------------------------------
Sr. Unsec. Disc. Notes, 10.63%,
11/15/07(a) 18,144,000 13,925,520
---------------------------------------------------------------
IPCS, Inc., Sr. Disc. Notes,
14.00%, 07/15/10 (Acquired
06/30/00; Cost
$2,995,843)(a)(b)(c) 5,900,000 3,289,250
---------------------------------------------------------------
KMC Telecom Holdings, Inc., Sr.
Unsec. Notes, 13.50%, 05/15/09 21,100,000 18,884,500
---------------------------------------------------------------
Metrocall, Inc., Sr. Sub. Notes,
11.88%, 06/15/05 19,650,000 16,407,750
---------------------------------------------------------------
Nextel Communications, Inc., Sr.
Notes, 12.00%, 11/01/08 29,040,000 31,363,200
---------------------------------------------------------------
Nextel International, Inc., Sr.
Notes, 12.75%, 08/01/10
(Acquired 07/26/00; Cost
$16,765,740)(c) 17,000,000 16,957,500
---------------------------------------------------------------
Sr. Unsec. Disc. Notes, 12.13%,
04/15/08(a) 37,500,000 24,872,250
---------------------------------------------------------------
Orion Network Systems, Inc., Sr.
Gtd. Sub. Notes, 11.25%,
01/15/07 20,300,000 12,484,500
---------------------------------------------------------------
Powertel, Inc., Sr. Unsec. Disc.
Notes, 12.00%, 05/01/06(a) 38,000,000 35,719,240
---------------------------------------------------------------
Spectrasite Holdings, Inc., Sr.
Disc. Notes, 12.00%,
07/15/08(a) 30,300,000 21,058,500
---------------------------------------------------------------
Sr. Unsec. Disc. Notes, 11.25%,
04/15/09(a) 21,230,000 13,056,450
---------------------------------------------------------------
TeleCorp PCS, Inc., Sr. Sub.
Notes, 10.63%, 07/15/10
(Acquired 07/11/00; Cost
$5,350,000)(c) 5,350,000 5,457,000
---------------------------------------------------------------
UbiquiTel Operating Co., Sr. Gtd.
Disc. Notes, 14.00%,
04/15/10(a)(b)(e) 28,700,000 16,933,000
---------------------------------------------------------------
270,534,160
---------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-7.68%
360networks Inc. (Canada), Sr.
Unsec. Yankee Notes, 12.00%,
08/01/09 17,210,000 16,091,350
---------------------------------------------------------------
Sr. Yankee Notes, 12.50%,
12/15/05 9,065,000 9,042,338
---------------------------------------------------------------
Destia Communications, Inc., Sr.
Unsec. Notes, 13.50%, 07/15/07 20,200,000 17,675,000
---------------------------------------------------------------
Esprit Telecom Group PLC (United
Kingdom), Sr. Unsec. Yankee
Notes, 11.50%, 12/15/07 19,500,000 14,137,500
---------------------------------------------------------------
FirstCom Corp., Sr. Notes,
14.00%, 10/27/07 30,990,000 34,786,275
---------------------------------------------------------------
Primus Telecommunications Group,
Inc., Sr. Sec. Notes, 11.75%,
08/01/04 20,000,000 13,300,000
---------------------------------------------------------------
RSL Communications PLC (United
Kingdom), Sr. Unsec. Gtd.
Yankee Notes, 12.00%, 11/01/08 14,500,000 5,292,500
---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
TELECOMMUNICATIONS (LONG DISTANCE)-(CONTINUED)
Versatel Telecom International
N.V. (Netherlands), Sr. Unsec.
Yankee Notes, 13.25%, 05/15/08 $12,810,000 $ 13,194,300
---------------------------------------------------------------
Sr. Yankee Notes, 13.25%,
05/15/08 19,100,000 19,673,000
---------------------------------------------------------------
Viatel, Inc., Sr. Sec. Notes,
11.25%, 04/15/08 28,250,000 19,351,250
---------------------------------------------------------------
Sr. Unsec. Notes, 11.50%,
03/15/09(e) 28,417,000 19,749,815
---------------------------------------------------------------
182,293,328
---------------------------------------------------------------
TELEPHONE-11.02%
Alestra S.A. (Mexico), Sr. Unsec.
Yankee Notes, 12.13%,
05/15/06(e) 12,000,000 11,880,000
---------------------------------------------------------------
Sr. Yankee Notes, 12.63%,
05/15/09(e) 7,535,000 7,327,788
---------------------------------------------------------------
CFW Communications Co., Sr.
Notes, 13.00%, 08/15/10
(Acquired 07/21/00; Cost
$14,944,346)(b)(c) 15,155,000 15,155,000
---------------------------------------------------------------
GT Group Telecom Inc. (Canada),
Sr. Disc. Yankee Notes, 13.25%,
02/01/10(a)(b) 28,900,000 15,172,500
---------------------------------------------------------------
ICG Services, Inc., Sr. Unsec.
Disc. Notes, 10.00%,
02/15/08(a) 79,650,000 44,782,416
---------------------------------------------------------------
IMPSAT Fiber Networks, Inc., Sr.
Yankee Notes, 13.75%, 02/15/05
(Acquired 02/11/00; Cost
$12,000,000)(c) 12,000,000 10,920,000
---------------------------------------------------------------
Intermedia Communications,
Inc.-Series B, Sr. Disc. Notes,
11.25%, 07/15/07(a) 30,620,000 20,668,500
---------------------------------------------------------------
Logix Communications Enterprises,
Sr. Unsec. Notes, 12.25%,
06/15/08 53,750,000 13,571,875
---------------------------------------------------------------
NEXTLINK Communications, Inc.,
Sr. Disc. Notes, 12.13%,
12/01/09(a)(e) 23,500,000 13,218,750
---------------------------------------------------------------
Sr. Unsec. Disc. Notes, 12.25%,
06/01/09(a) 25,855,000 15,771,550
---------------------------------------------------------------
NTL Communications Corp.-Series
B, Sr. Unsec. Notes, 11.50%,
10/01/08 16,320,000 16,870,800
---------------------------------------------------------------
NTL Inc.-Series B, Sr. Disc.
Notes, 11.50%, 02/01/06 4,245,000 3,990,300
---------------------------------------------------------------
PF.Net Communications Inc., Sr.
Notes, 13.75%, 05/15/10
(Acquired 05/05/00; Cost
$18,200,000)(b)(c) 18,200,000 13,923,000
---------------------------------------------------------------
PTC International Finance II S.A.
(Luxembourg), Sr. Unsec. Gtd.
Yankee Sub. Notes, 11.25%,
12/01/09 11,400,000 11,913,000
---------------------------------------------------------------
U.S. Xchange LLC, Sr. Unsec.
Notes, 15.00%, 07/01/08 42,500,000 46,431,250
---------------------------------------------------------------
261,596,729
---------------------------------------------------------------
TEXTILES (APPAREL)-0.51%
Cabot Safety Corp., Sr. Sub.
Notes, 12.50%, 07/15/05 11,975,000 12,034,875
---------------------------------------------------------------
TRUCKERS-0.58%
Travelcenters of America, Inc.,
Sr. Unsec. Gtd. Sub. Notes,
10.25%, 04/01/07 13,530,000 13,699,125
---------------------------------------------------------------
</TABLE>
FS-5
<PAGE> 225
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
TRUCKS & PARTS-1.29%
FleetPride Inc., Sr. Unsec. Gtd.
Sub. Notes, 12.00%, 08/01/05 $10,665,000 $ 7,172,213
---------------------------------------------------------------
North American Van Lines Inc.,
Sr. Sub. Notes, 13.38%,
12/01/09(e) 24,750,000 23,388,750
---------------------------------------------------------------
30,560,963
---------------------------------------------------------------
WASTE MANAGEMENT-2.29%
Allied Waste North America
Inc.-Series B, Sr. Unsec. Gtd.
Sub. Notes, 10.00%, 08/01/09(e) 61,990,000 54,396,225
---------------------------------------------------------------
Total U.S. Dollar Denominated
Bonds & Notes
(Cost $2,569,417,266) 2,187,359,669
---------------------------------------------------------------
<CAPTION>
SHARES
<S> <C> <C>
STOCKS & OTHER EQUITY INTERESTS-5.22%
BROADCASTING (TELEVISION, RADIO & CABLE)-0.17%
UnitedGlobalCom Inc.-Class A(f) 83,896 4,116,147
---------------------------------------------------------------
COMPUTERS (SOFTWARE &
SERVICES)-0.09%
Earthwatch Inc.-Series C, $1.20,
Conv. Pfd. (Acquired
03/14/97-06/15/00; Cost
$4,824)(c) 112,106 2,045,936
---------------------------------------------------------------
HEALTH CARE (HOSPITAL
MANAGEMENT)-0.03%
Tenet Healthcare Corp.(f) 26,460 805,376
---------------------------------------------------------------
OIL & GAS (DRILLING &
EQUIPMENT)-0.06%
Abraxas Petroleum Corp.(f) 736,227 1,426,440
---------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS)-0.04%
Convergent Communications,
Inc.(f) 179,280 918,810
---------------------------------------------------------------
SHIPPING-0.03%
Pegasus Shipping Hellas Co.
(Bermuda) 15,000 825,000
---------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/
WIRELESS)-3.55%
AirGate PCS, Inc.(f) 61,003 3,065,401
---------------------------------------------------------------
Celcaribe S.A., Ordinary Trust
Ctfs. (Acquired
05/17/94-01/23/97; Cost
$0)(c)(f) 2,276,400 3,414,600
---------------------------------------------------------------
Clearnet Communications
Inc.-Class A-ADR (Canada)(f) 100,716 2,832,637
---------------------------------------------------------------
Crown Castle International
Corp.-$3.13 Conv. Pfd.(f) 248,000 13,407,500
---------------------------------------------------------------
Dobson Communications
Corp.-$122.50 PIK Pfd. 22,781 21,471,313
---------------------------------------------------------------
Microcell Telecommunications
Inc.-Class B-ADR (Canada)(f) 253,257 8,056,738
---------------------------------------------------------------
Nextel Communications, Inc.-Class
A(f) 104,390 5,839,316
---------------------------------------------------------------
Powertel, Inc.(f) 45,663 4,103,962
---------------------------------------------------------------
WebLink Wireless, Inc.(f) 1,260,940 12,688,209
---------------------------------------------------------------
World Access, Inc.-Series D,
Conv. Pfd. (Acquired 03/03/00;
Cost $16,365,448)(c)(f) 15,511 9,500,488
---------------------------------------------------------------
84,380,164
---------------------------------------------------------------
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TELECOMMUNICATIONS (LONG
DISTANCE)-1.22%
FirstCom Corp.(f) 804,650 $ 11,164,519
---------------------------------------------------------------
Primus Telecommunications Group,
Inc.(f) 34,902 569,339
---------------------------------------------------------------
RSL Communications, Ltd.-Class A
(United Kingdom)(f) 179,444 964,512
---------------------------------------------------------------
Versatel Telecom International
N.V.-ADR (Netherlands)(f) 452,021 14,464,672
---------------------------------------------------------------
Viatel, Inc.(f) 121,387 1,691,831
---------------------------------------------------------------
28,854,873
---------------------------------------------------------------
TELEPHONE-0.03%
ICG Communications, Inc.(f) 39,600 603,900
---------------------------------------------------------------
Total Stocks & Other Equity
Interests
(Cost $85,723,866) 123,976,646
---------------------------------------------------------------
WARRANTS & OTHER INTERESTS-0.58%
BROADCASTING (TELEVISION, RADIO & CABLE)-0.01%
Knology Inc., expiring 10/22/07
(Acquired 03/12/98-02/01/00;
Cost $270)(c) 47,295 118,238
---------------------------------------------------------------
CHEMICALS (DIVERSIFIED)-0.00%
Sterling Chemicals Holdings,
expiring 08/15/08 7,500 69,375
---------------------------------------------------------------
COMPUTERS (PERIPHERALS)-0.05%
Equinix Inc., expiring 12/01/07
(Acquired 05/30/00; Cost
$0)(c)(g) 15,110 1,057,972
---------------------------------------------------------------
COMPUTERS (SOFTWARE &
SERVICES)-0.01%
Cybernet Internet Services
International, Inc., expiring
07/01/09 (Acquired 10/18/99;
Cost $0)(c)(g) 23,000 235,750
---------------------------------------------------------------
ELECTRICAL EQUIPMENT-0.00%
Electronic Retailing Systems
International, Inc., expiring
02/01/04 18,802 18,802
---------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL
COMPANIES-0.00%
Resort At Summerlin LP, expiring
12/15/07 21,197 0
---------------------------------------------------------------
HOUSEHOLD FURNISHING &
APPLIANCES-0.03%
O'Sullivan Industries, Inc.,
expiring 11/05/09(g) 42,000 630,000
---------------------------------------------------------------
Winsloew Furniture, Inc.,
expiring 08/15/07 (Acquired
12/06/99; Cost $0)(c)(g) 17,870 178,700
---------------------------------------------------------------
808,700
---------------------------------------------------------------
IRON & STEEL-0.00%
Bar Technologies, Inc., expiring
04/01/01(g) 6,000 0
---------------------------------------------------------------
METAL FABRICATORS-0.00%
Gulf States Steel, Inc., expiring
04/15/03(h) 15,990 0
---------------------------------------------------------------
OIL & GAS (EXPLORATION &
PRODUCTION)-0.00%
Abraxas Petroleum Corp.-Rts.(i) 736,228 0
---------------------------------------------------------------
</TABLE>
FS-6
<PAGE> 226
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TELECOMMUNICATIONS (CELLULAR/
WIRELESS)-0.05%
Cellnet Data System, expiring
10/01/07 (Acquired
09/24/97-10/15/97; Cost
$0)(c)(g) 10,000 $ 2,600
---------------------------------------------------------------
Globalstar Telecom, expiring
02/15/04 (Acquired 01/05/00;
Cost $11,790)(c) 45 56
---------------------------------------------------------------
KMC Telecom Holdings, Inc.,
expiring 04/15/08 35 107
---------------------------------------------------------------
Nextel International, Inc.,
expiring 04/15/07(g) 39,500 1,195,298
---------------------------------------------------------------
1,198,061
---------------------------------------------------------------
TELECOMMUNICATIONS (LONG
DISTANCE)-0.00%
Long Distance International,
Inc., expiring 04/13/08(g) 25,620 0
---------------------------------------------------------------
TELEPHONE-0.43%
Esat Telecom Group PLC (Ireland),
expiring 02/01/07 (Acquired
06/16/97-01/05/00; Cost
$7,245)(c) 25,565 5,943,863
---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TELEPHONE-(CONTINUED)
PF.Net Communications Inc.,
expiring 05/15/10 (Acquired
07/19/00; Cost $0)(c)(g) 18,200 $ 4,277,000
---------------------------------------------------------------
10,220,863
---------------------------------------------------------------
Total Warrants & Other
Interests (Cost $414,302) 13,727,761
---------------------------------------------------------------
MONEY MARKET FUNDS-1.32%
STIC Liquid Assets Portfolio(j) 15,696,885 15,696,885
---------------------------------------------------------------
STIC Prime Portfolio(j) 15,696,885 15,696,885
---------------------------------------------------------------
Total Money Market Funds
(Cost $31,393,770) 31,393,770
---------------------------------------------------------------
TOTAL INVESTMENTS-99.28% (Cost
$2,686,949,204) 2,356,457,846
---------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-0.72% 17,028,761
---------------------------------------------------------------
NET ASSETS-100.00% $2,373,486,607
===============================================================
</TABLE>
Investment Abbreviations:
ADR - American Depositary Receipt
Conv. - Convertible
Ctfs. - Certificates
Deb. - Debentures
Disc. - Discounted
Gtd. - Guaranteed
Pfd. - Preferred
PIK - Payment In Kind
Rts. - Rights
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
Notes to Schedule of Investments:
(a) Discounted bond at purchase. The interest rate represents the coupon rate at
which the bond will accrue at a specified future date.
(b) Consists of more than one class of securities traded together as a unit. In
addition to the security listed, each unit contains warrants that enable the
holder to purchase shares of the issuer at a predetermined price.
(c) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The valuation of these securities has been determined in
accordance with procedures established by the Board of Trustees. The
aggregate market value of these securities at 07/31/00 was $205,833,581
which represented 8.67% of the Fund's net assets.
(d) Defaulted security. Currently, the issuer is in default with respect to
interest payments.
(e) Represents a security sold under Rule 144A, which is exempt from
registration and may be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1993, as amended.
(f) Non-income producing security.
(g) Acquired as part of a unit with or in exchange for other securities.
(h) Affiliated issuers are those in which the Fund's holdings of an issuer
represent 5% or more of the outstanding voting securities of the issuer. The
Fund has not owned enough of the outstanding voting securities of the issuer
to have control (as defined in the Investment Company Act of 1940) of that
issuer. The market value as of 07/31/00 represented 0.00% of the Fund's net
assets.
(i) Security fair valued in accordance with the procedures established by the
Board of Trustees.
(j) The money market fund has the same investment advisor as the Fund.
See Notes to Financial Statements.
FS-7
<PAGE> 227
SCHEDULE OF INVESTMENTS
June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. DOLLAR DENOMINATED BONDS & NOTES-88.24%
AEROSPACE/DEFENSE-0.46%
Precision Partners, Inc., Sr.
Unsec. Sub. Notes, 12.00%,
03/15/09 $19,225,000 $ 11,246,625
---------------------------------------------------------------
AIR FREIGHT-0.63%
Atlas Air, Inc., Sr. Unsec.
Notes, 10.75%, 08/01/05 15,147,000 15,601,410
---------------------------------------------------------------
AIRLINES-3.30%
Airplanes Pass Through
Trust-Series D, Gtd. Sub.
Bonds, 10.88%, 03/15/19 62,086,822 50,477,518
---------------------------------------------------------------
Amtran, Inc., Sr. Unsec. Gtd.
Notes, 10.50%, 08/01/04 14,045,000 12,956,512
---------------------------------------------------------------
Dunlop Standard Aerospace
Holdings PLC (United Kingdom),
Sr. Unsec. Yankee Sub. Notes,
11.88%, 05/15/09 17,960,000 17,690,600
---------------------------------------------------------------
81,124,630
---------------------------------------------------------------
AUTO PARTS & EQUIPMENT-2.23%
Advance Stores Co., Inc.-Series
B, Sr. Unsec. Gtd. Sub. Notes,
10.25%, 04/15/08 24,825,000 20,232,375
---------------------------------------------------------------
Exide Corp., Sr. Notes, 10.00%,
04/15/05 22,550,000 20,295,000
---------------------------------------------------------------
Venture Holdings Trust, Sr.
Unsec. Gtd. Sub. Notes, 11.00%,
06/01/07 20,250,000 14,276,250
---------------------------------------------------------------
54,803,625
---------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE)-4.24%
Charter Communications Holdings,
LLC/ Charter Communications
Holdings Capital Corp., Sr.
Unsec. Disc. Notes, 9.92%,
04/01/11(a) 33,920,000 19,419,200
---------------------------------------------------------------
Fox Family Worldwide, Inc., Sr.
Unsec. Disc. Notes, 10.25%,
11/01/07(a) 28,000,000 17,500,000
---------------------------------------------------------------
Knology Holdings, Inc., Sr. Disc.
Notes, 11.88%, 10/15/07(a) 44,305,000 24,035,462
---------------------------------------------------------------
Pegasus Communications
Corp.-Series B, Sr. Unsec.
Notes, 12.50%, 08/01/07 17,500,000 18,725,000
---------------------------------------------------------------
United Pan-Europe Communications
N.V. (Netherlands)-Series B,
Sr. Unsec. Disc. Yankee Notes,
13.38%, 11/01/09(a) 50,000,000 24,500,000
---------------------------------------------------------------
104,179,662
---------------------------------------------------------------
BUILDING MATERIALS-1.47%
Blount Inc., Sr. Unsec. Gtd. Sub.
Notes, 13.00%, 08/01/09 22,750,000 23,318,750
---------------------------------------------------------------
Dayton Superior Corp., Sr. Sub.
Notes, 13.00%, 06/15/09
(Acquired 06/09/00; Cost
$12,179,750)(b)(c) 12,500,000 12,406,250
---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
BUILDING MATERIALS-(CONTINUED)
Imperial Home Decor Group-Series
B, Sr. Unsec. Gtd. Sub. Notes,
11.00%, 03/15/08(d) $19,100,000 $ 286,500
---------------------------------------------------------------
36,011,500
---------------------------------------------------------------
CHEMICALS (DIVERSIFIED)-1.27%
Avecia Group PLC (United
Kingdom), Sr. Unsec. Gtd.
Yankee Notes, 11.00%, 07/01/09 14,300,000 14,085,500
---------------------------------------------------------------
Sterling Chemicals, Inc.-Series
B, Sr. Gtd. Sec. Sub. Notes,
12.38%, 07/15/06 16,500,000 17,077,500
---------------------------------------------------------------
31,163,000
---------------------------------------------------------------
CHEMICALS (SPECIALTY)-0.31%
Key Plastics Holdings,
Inc.-Series B, Sr. Unsec. Gtd.
Sub. Notes, 10.25%, 03/15/07(d) 23,770,000 2,495,850
---------------------------------------------------------------
Trans-Resources, Inc.-Series B,
Sr. Unsec. Disc. Notes, 12.00%,
03/15/08(a) 11,750,000 1,233,750
---------------------------------------------------------------
Sr. Unsec. Notes, 10.75%,
03/15/08 19,000,000 3,895,000
---------------------------------------------------------------
7,624,600
---------------------------------------------------------------
COMPUTERS (NETWORKING)-1.42%
Convergent Communications-Series
B, Sr. Unsec. Notes, 13.00%,
04/01/08 23,540,000 16,536,850
---------------------------------------------------------------
Exodus Communications, Inc., Sr.
Unsec. Notes, 11.25%, 07/01/08 18,425,000 18,332,875
---------------------------------------------------------------
34,869,725
---------------------------------------------------------------
COMPUTERS (PERIPHERALS)-0.63%
Equinix Inc., Sr. Notes, 13.00%,
12/01/07(b)(e) 15,110,000 15,601,075
---------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-3.05%
Cybernet Internet Services
International, Inc.,
Conv. Unsec. Sub. Notes,
13.00%, 08/15/09(a)(e) 11,250,000 5,203,125
---------------------------------------------------------------
Sr. Notes, 14.00%, 07/01/09 24,000,000 10,620,000
---------------------------------------------------------------
Earthwatch Inc.,
Sr. Disc. Notes, 13.00%,
07/15/07 (Acquired 07/07/99;
Cost $23,276,740)(a)(b)(c) 34,000,000 23,715,000
---------------------------------------------------------------
Sr. Notes, 12.50%, 03/01/05
(Acquired 03/14/97-09/01/99;
Cost $15,500,000)(c) 22,320,000 15,679,800
---------------------------------------------------------------
Globix Corp., Sr. Unsec. Notes,
12.50%, 02/01/10 24,000,000 19,860,000
---------------------------------------------------------------
75,077,925
---------------------------------------------------------------
</TABLE>
FS-8
<PAGE> 228
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
CONSTRUCTION (CEMENT & AGGREGATES)-0.40%
Schuff Steel Co., Sr. Unsec. Gtd.
Sub. Notes, 10.50%, 06/01/08 $14,000,000 $ 9,870,000
---------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH)-0.95%
Fleming Companies, Inc.-Series B,
Sr. Unsec. Gtd. Sub. Notes,
10.63%, 07/31/07 27,700,000 23,406,500
---------------------------------------------------------------
ELECTRONICS (COMPONENT DISTRIBUTORS)-0.73%
Cherokee International LCC-Series
B, Sr. Unsec. Sub. Notes,
10.50%, 05/01/09 20,600,000 17,819,000
---------------------------------------------------------------
ENGINEERING & CONSTRUCTION-0.67%
Morrison Knudsen Corp., Sr.
Notes, 11.00%, 07/01/10
(Acquired 06/28/00; Cost
$16,467,566)(c) 16,590,000 16,548,525
---------------------------------------------------------------
ENTERTAINMENT-0.51%
Callahan Nordrhein Westfalen
(Denmark), Sr. Yankee Notes,
14.00%, 07/15/10 (Acquired
06/29/00; Cost $12,500,000)(c) 12,500,000 12,515,625
---------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-1.04%
Madison River Capital, Sr. Notes,
13.25%, 03/01/10(e) 17,700,000 16,195,500
---------------------------------------------------------------
ONO Finance PLC (United Kingdom),
Sr. Gtd. Sub. Euro Notes,
13.00%, 05/01/09 9,500,000 9,357,500
---------------------------------------------------------------
25,553,000
---------------------------------------------------------------
FOODS-0.45%
Volume Services America Inc., Sr.
Unsec. Gtd. Sub. Notes, 11.25%,
03/01/09 12,000,000 11,040,000
---------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL COMPANIES-2.94%
MGM Grand, Inc., Sr. Unsec. Gtd.
Sub. Notes, 9.75%, 06/01/07 12,240,000 12,484,800
---------------------------------------------------------------
Resort at Summerlin LP-Series B,
Sr. Unsec. Sub. Notes, 13.00%,
12/15/07 25,769,000 16,878,695
---------------------------------------------------------------
Venetian Casino Resort LLC, Sec.
Gtd. Mortgage Notes, 12.25%,
11/15/04 42,200,000 42,833,000
---------------------------------------------------------------
72,196,495
---------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER)-1.68%
King Pharmaceuticals, Inc., Sr.
Unsec. Gtd. Sub. Notes, 10.75%,
02/15/09 19,300,000 20,072,000
---------------------------------------------------------------
Warner Chilcott, Inc., Sr. Unsec.
Gtd. Notes, 12.63%, 02/15/08(e) 20,650,000 21,166,250
---------------------------------------------------------------
41,238,250
---------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT)-0.37%
Triad Hospitals, Inc.-Series B,
Sr. Unsec. Gtd. Sub. Notes,
11.00%, 05/15/09 8,915,000 9,182,450
---------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-0.48%
DJ Orthopedics, LLC, Sr. Unsec.
Gtd. Sub. Notes, 12.63%,
06/15/09 12,400,000 11,873,000
---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
HEALTH CARE (SPECIALIZED SERVICES)-0.15%
Team Health Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 12.00%,
03/15/09 $ 4,335,000 $ 3,728,100
---------------------------------------------------------------
HOMEBUILDING-0.27%
Lennar Corp., Sr. Notes, 9.95%,
05/01/10(e) 6,775,000 6,673,375
---------------------------------------------------------------
HOUSEHOLD FURNISHING & APPLIANCES-1.97%
Falcon Products, Inc.-Series B,
Sr. Unsec. Gtd. Sub. Notes,
11.38%, 06/15/09 12,065,000 11,642,725
---------------------------------------------------------------
O'Sullivan Industries, Inc., Sr.
Sub. Notes, 13.38%,
10/15/09(b)(e) 21,000,000 20,317,500
---------------------------------------------------------------
Winsloew Furniture, Inc.-Series
B, Sr. Gtd. Sub. Notes, 12.75%,
08/15/07 17,870,000 16,529,750
---------------------------------------------------------------
48,489,975
---------------------------------------------------------------
IRON & STEEL-0.71%
Acme Metals Inc., Sr. Unsec. Gtd.
Notes, 10.88%, 12/15/07(d) 28,939,000 4,485,545
---------------------------------------------------------------
GS Technologies Operating Co.,
Inc., Sr. Gtd. Notes, 12.00%,
09/01/04 13,285,000 3,387,675
---------------------------------------------------------------
Sheffield Steel Corp.-Series B,
First Mortgage Notes, 11.50%,
12/01/05 13,500,000 9,517,500
---------------------------------------------------------------
17,390,720
---------------------------------------------------------------
LEISURE TIME (PRODUCTS)-0.92%
Marvel Enterprises, Inc., Sr.
Unsec. Gtd. Sub. Notes, 12.00%,
06/15/09 29,375,000 22,692,188
---------------------------------------------------------------
MACHINERY (DIVERSIFIED)-0.54%
National Equipment
Services-Series B, Sr. Unsec.
Sub. Notes, 10.00%, 11/30/04 16,000,000 13,360,000
---------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-1.09%
Anthony Crane Rentals LP-Series
B, Sr. Unsec. Gtd. Sub. Notes,
10.38%, 08/01/08 21,085,000 13,810,675
---------------------------------------------------------------
Glenoit Corp., Sr. Unsec. Gtd.
Sub. Notes, 11.00%, 04/15/07(d) 24,915,000 3,612,675
---------------------------------------------------------------
Jordan Industries, Inc.-Series D,
Sr. Unsec. Notes, 10.38%,
08/01/07 10,000,000 9,350,000
---------------------------------------------------------------
26,773,350
---------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-5.10%
Berry Plastics Corp.,
Sr. Gtd. Sub. Notes, 12.25%,
04/15/04 13,000,000 12,285,000
---------------------------------------------------------------
Series C, Sr. Gtd. Sub. Notes,
12.25%, 04/15/04 4,750,000 4,530,313
---------------------------------------------------------------
Brand Scaffold Services, Inc.,
Sr. Unsec. Notes, 10.25%,
02/15/08 20,800,000 18,408,000
---------------------------------------------------------------
First Wave Marine, Inc., Sr.
Unsec. Notes, 11.00%, 02/01/08 22,835,000 13,130,125
---------------------------------------------------------------
Flextronics International Ltd.
(Singapore), Sr. Sub Yankee
Notes, 9.88%, 07/01/10
(Acquired 06/26/00; Cost
$6,151,640)(c) 6,200,000 6,308,500
---------------------------------------------------------------
Knowles Electronics, Inc., Sr.
Sub. Notes, 13.13%, 10/15/09(e) 17,000,000 14,705,000
---------------------------------------------------------------
</TABLE>
FS-9
<PAGE> 229
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
MANUFACTURING (SPECIALIZED)-(CONTINUED)
MMI Products, Inc.-Series B, Sr.
Unsec. Sub. Notes, 11.25%,
04/15/07 $17,640,000 $ 17,375,400
---------------------------------------------------------------
Neenah Corp.,
Series B, Sr. Sub. Notes,
11.13%, 05/01/07 4,000,000 3,080,000
---------------------------------------------------------------
Series D, Sr. Sub. Notes,
11.13%, 05/01/07 15,000,000 11,550,000
---------------------------------------------------------------
Omega Cabinets, Sr. Sub. Notes,
10.50%, 06/15/07 16,740,000 15,149,700
---------------------------------------------------------------
Tekni-Plex Inc., Sr. Sub. Notes,
12.75%, 06/15/10 (Acquired
06/15/10; Cost $8,580,810)(c) 8,700,000 8,721,750
---------------------------------------------------------------
125,243,788
---------------------------------------------------------------
METALS MINING-1.71%
Centaur Mining and Exploration
Ltd. (Australia), Sr. Gtd.
Yankee Notes, 11.00%, 12/01/07 28,800,000 23,184,000
---------------------------------------------------------------
Doe Run Resources Corp.
(The)-Series B, Sr. Unsec. Gtd.
Sub. Notes, 11.25%, 03/15/05 21,000,000 8,505,000
---------------------------------------------------------------
Metal Management, Inc., Sr.
Unsec. Gtd. Sub. Notes, 10.00%,
05/15/08 20,500,000 10,352,500
---------------------------------------------------------------
42,041,500
---------------------------------------------------------------
NATURAL GAS-0.50%
Western Gas Resources, Inc., Sr.
Unsec. Gtd. Sub. Notes, 10.00%,
06/15/09 12,000,000 12,240,000
---------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES-0.36%
Global Imaging Systems, Inc., Sr.
Unsec. Gtd. Sub. Notes, 10.75%,
02/15/07 10,300,000 8,909,500
---------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT)-0.53%
Pride International, Inc., Sr.
Unsec. Notes, 10.00%, 06/01/09 12,735,000 13,053,375
---------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-4.09%
Abraxas Petroleum Corp.,
Series A, Sr. Gtd. Sub. Notes,
11.50%, 11/01/04 8,644,000 6,958,420
---------------------------------------------------------------
Series B, Sr. Sec. Gtd. Notes,
12.88%, 03/15/03 13,000,000 13,422,500
---------------------------------------------------------------
Comstock Resources, Inc., Sr.
Unsec. Gtd. Sub. Notes, 11.25%,
05/01/07 17,275,000 17,620,500
---------------------------------------------------------------
Frontier Oil Corp., Sr. Unsec.
Notes, 11.75%, 11/15/09 23,750,000 23,868,750
---------------------------------------------------------------
Pioneer Natural Resources Co.,
Sr. Unsec. Gtd. Notes, 9.63%,
04/01/10 13,000,000 13,520,000
---------------------------------------------------------------
Pogo Producing Co.-Series B, Sr.
Unsec. Sub. Notes, 10.38%,
02/15/09 18,335,000 18,793,375
---------------------------------------------------------------
Queen Sand Resources, Inc., Sr.
Unsec. Gtd. Sub. Notes, 12.50%,
07/01/08 13,145,000 6,441,050
---------------------------------------------------------------
100,624,595
---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
OIL & GAS (REFINING & MARKETING)-0.63%
Texas Petrochemical Corp., Sr.
Unsec. Sub. Notes, 11.13%,
07/01/06 $17,980,000 $ 15,372,900
---------------------------------------------------------------
PHOTOGRAPHY/IMAGING-0.78%
Polaroid Corp., Sr. Unsec. Notes,
11.50%, 02/15/06 18,370,000 19,265,538
---------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT)-0.82%
Panda Funding Corp., Series A-1,
Pooled Project Bonds, 11.63%,
08/20/12 20,439,125 20,132,538
---------------------------------------------------------------
RAILROADS-1.58%
RailWorks Corp., Sr. Unsec. Gtd.
Sub. Notes, 11.50%, 04/15/09 16,400,000 15,826,000
---------------------------------------------------------------
TFM S.A. de C.V. (Mexico), Sr.
Yankee Gtd. Disc. Notes,
11.75%, 06/15/09(a) 33,150,000 22,956,375
---------------------------------------------------------------
38,782,375
---------------------------------------------------------------
RESTAURANTS-0.14%
AFC Enterprises, Sr. Unsec. Sub.
Notes, 10.25%, 05/15/07 3,625,000 3,480,000
---------------------------------------------------------------
RETAIL (SPECIALTY)-1.54%
CSK Auto Inc.-Series A, Sr. Gtd.
Sub. Deb, 11.00%, 11/01/06 14,245,000 13,176,625
---------------------------------------------------------------
Neff Corp., Sr. Unsec. Gtd. Sub.
Notes, 10.25%, 06/01/08 27,650,000 17,281,250
---------------------------------------------------------------
Rent-A-Center, Inc., Sr. Unsec.
Gtd. Sub. Notes, 11.00%,
08/15/08 7,520,000 7,332,000
---------------------------------------------------------------
37,789,875
---------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-0.89%
Big 5 Corp.-Series B, Sr. Unsec.
Notes, 10.88%, 11/15/07 17,315,000 16,102,950
---------------------------------------------------------------
J. Crew Operating Corp., Sr. Sub.
Notes, 10.38%, 10/15/07 7,000,000 5,722,500
---------------------------------------------------------------
21,825,450
---------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING)-0.68%
MDC Corp. Inc. (Canada), Sr.
Unsec. Sub. Yankee Notes,
10.50%, 12/01/06 17,420,000 16,810,300
---------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-0.78%
Avis Group Holdings, Inc., Sr.
Unsec. Gtd. Sub. Notes, 11.00%,
05/01/09 18,400,000 19,274,000
---------------------------------------------------------------
SERVICES (EMPLOYMENT)-0.58%
MSX International, Inc., Sr.
Unsec. Gtd. Sub. Notes, 11.38%,
01/15/08 14,930,000 14,183,500
---------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-9.75%
AirGate PCS, Inc., Sr. Disc. Sub.
Notes, 13.50%, 10/01/09(a)(b) 28,400,000 16,898,000
---------------------------------------------------------------
Alamosa PCS Holdings, Inc., Sr.
Unsec. Gtd. Disc. Notes,
12.88%, 02/15/10(a) 25,300,000 13,282,500
---------------------------------------------------------------
Crown Castle International Corp.,
Sr. Notes, 10.75%, 08/01/11 10,000,000 10,200,000
---------------------------------------------------------------
</TABLE>
FS-10
<PAGE> 230
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-(CONTINUED)
Sr. Unsec. Disc. Notes, 10.63%,
11/15/07(a) $18,144,000 $ 13,562,640
---------------------------------------------------------------
IPCS, Inc., Sr. Disc. Notes,
14.00%, 07/15/10 (Acquired
06/30/00; Cost
$2,998,839)(a)(b)(c) 5,900,000 3,068,000
---------------------------------------------------------------
KMC Telecom Holdings, Inc., Sr.
Unsec. Notes, 13.50%, 05/15/09 18,000,000 15,930,000
---------------------------------------------------------------
Metrocall, Inc., Sr. Sub. Notes,
11.88%, 06/15/05 19,650,000 14,049,750
---------------------------------------------------------------
Nextel Communications, Inc., Sr.
Notes, 12.00%, 11/01/08 29,040,000 31,363,200
---------------------------------------------------------------
Nextel International, Inc., Sr.
Unsec. Disc. Notes, 12.13%,
04/15/08(a) 37,500,000 24,627,375
---------------------------------------------------------------
Orion Network Systems, Inc., Sr.
Gtd. Sub. Notes, 11.25%,
01/15/07 20,300,000 11,875,500
---------------------------------------------------------------
Powertel, Inc., Sr. Unsec. Disc.
Notes, 12.00%, 05/01/06(a) 38,000,000 35,429,680
---------------------------------------------------------------
Spectrasite Holdings, Inc.,
Sr. Disc. Notes, 12.00%,
07/15/08(a) 30,300,000 20,149,500
---------------------------------------------------------------
Sr. Unsec. Disc. Notes, 11.25%,
04/15/09(a) 21,230,000 12,419,550
---------------------------------------------------------------
UbiquiTel Operating Co., Sr. Gtd.
Disc. Notes, 14.00%,
04/15/10(a)(b)(e) 28,700,000 16,753,625
---------------------------------------------------------------
239,609,320
---------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-8.43%
360 networks Inc. (Canada),
Sr. Unsec. Yankee Notes,
12.00%, 08/01/09 17,210,000 16,435,550
---------------------------------------------------------------
Sr. Yankee Notes, 12.50%,
12/15/05 9,065,000 9,336,950
---------------------------------------------------------------
Destia Communications, Inc., Sr.
Unsec. Notes, 13.50%, 07/15/07 20,200,000 18,079,000
---------------------------------------------------------------
Esprit Telecom Group PLC (United
Kingdom), Sr. Unsec. Yankee
Notes, 11.50%, 12/15/07 19,500,000 15,307,500
---------------------------------------------------------------
FirstCom Corp., Sr. Notes,
14.00%, 10/27/07 30,990,000 33,856,575
---------------------------------------------------------------
Primus Telecommunications Group,
Inc., Sr. Sec. Notes, 11.75%,
08/01/04 20,000,000 16,100,000
---------------------------------------------------------------
RSL Communications PLC (United
Kingdom),
Sr. Unsec. Gtd. Yankee Notes,
12.88%, 03/01/10 (Acquired
02/14/00-03/23/00; Cost
$15,451,800)(c) 15,740,000 11,726,300
---------------------------------------------------------------
12.00%, 11/01/08 14,500,000 10,657,500
---------------------------------------------------------------
Versatel Telecom International
N.V. (Netherlands),
Sr. Unsec. Yankee Notes,
13.25%, 05/15/08 12,810,000 13,130,250
---------------------------------------------------------------
Sr. Yankee Notes, 13.25%,
05/15/08 19,100,000 19,577,500
---------------------------------------------------------------
Viatel, Inc.,
Sr. Sec. Notes, 11.25%,
04/15/08 28,250,000 21,328,750
---------------------------------------------------------------
Sr. Unsec. Notes, 11.50%,
03/15/09(e) 28,417,000 21,739,005
---------------------------------------------------------------
207,274,880
---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
TELEPHONE-10.03%
Alestra S.A. (Mexico),
Sr. Unsec. Yankee Notes,
12.13%, 05/15/06(e) $12,000,000 $ 11,160,000
---------------------------------------------------------------
Sr. Yankee Notes, 12.63%,
05/15/09(e) 7,535,000 6,781,500
---------------------------------------------------------------
GT Group Telecom Inc. (Canada),
Sr. Disc. Yankee Notes, 13.25%,
02/01/10(a)(b)(e) 28,900,000 16,039,500
---------------------------------------------------------------
ICG Services, Inc., Sr. Unsec.
Disc. Notes, 10.00%,
02/15/08(a) 79,650,000 44,288,586
---------------------------------------------------------------
IMPSAT Fiber Networks, Inc., Sr.
Yankee Notes, 13.75%, 02/15/05
(Acquired 02/11/00; Cost
$12,000,000)(c) 12,000,000 10,860,000
---------------------------------------------------------------
Intermedia Communications,
Inc.-Series B, Sr. Disc. Notes,
11.25%, 07/15/07(a) 24,720,000 19,652,400
---------------------------------------------------------------
Logix Communications Enterprises,
Sr. Unsec. Notes, 12.25%,
06/15/08 53,750,000 18,946,875
---------------------------------------------------------------
NEXTLINK Communications, Inc.,
Sr. Disc. Notes, 12.13%,
12/01/09(a)(e) 23,500,000 13,747,500
---------------------------------------------------------------
Sr. Unsec. Disc. Notes, 12.25%,
06/01/09(a) 25,855,000 16,159,375
---------------------------------------------------------------
NTL Communications Corp.-Series
B, Sr. Unsec. Notes, 11.50%,
10/01/08 12,320,000 12,381,600
---------------------------------------------------------------
PF.Net Communications Inc., Sr.
Notes, 13.75%, 05/15/10
(Acquired 05/05/00; Cost
$18,200,000)(b)(c) 18,200,000 18,427,500
---------------------------------------------------------------
PTC International Finance II S.A.
(Luxembourg), Sr. Unsec. Gtd.
Yankee Sub. Notes, 11.25%,
12/01/09 11,400,000 11,628,000
---------------------------------------------------------------
U.S. Xchange LLC, Sr. Unsec.
Notes, 15.00%, 07/01/08 42,500,000 46,431,250
---------------------------------------------------------------
246,504,086
---------------------------------------------------------------
TEXTILES (APPAREL)-0.49%
Cabot Safety Corp., Sr. Sub.
Notes, 12.50%, 07/15/05 11,975,000 12,034,875
---------------------------------------------------------------
TRUCKERS-0.56%
Travelcenters of America, Inc.,
Sr. Unsec. Gtd. Sub. Notes,
10.25%, 04/01/07 13,530,000 13,699,125
---------------------------------------------------------------
TRUCKS & PARTS-1.27%
FleetPride Inc., Sr. Unsec. Gtd.
Sub. Notes, 12.00%, 08/01/05 10,665,000 7,732,125
---------------------------------------------------------------
North American Van Lines Inc.,
Sr. Sub. Notes, 13.38%,
12/01/09(e) 24,750,000 23,388,750
---------------------------------------------------------------
31,120,875
---------------------------------------------------------------
WASTE MANAGEMENT-2.12%
Allied Waste North America
Inc.-Series B, Sr. Unsec. Gtd.
Sub. Notes, 10.00%, 08/01/09(e) 61,990,000 52,071,600
---------------------------------------------------------------
Total U.S. Dollar Denominated
Bonds & Notes (Cost
$2,562,241,584) 2,168,998,325
---------------------------------------------------------------
</TABLE>
FS-11
<PAGE> 231
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
STOCKS & OTHER EQUITY INTERESTS-5.09%
BROADCASTING (TELEVISION, RADIO & CABLE)-0.16%
UnitedGlobalCom Inc.-Class A(f) 83,896 $ 3,922,138
---------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-0.08%
Earthwatch Inc.-Series C, $1.20,
Conv. Pfd. (Acquired 03/14/97;
Cost $4,824)(c) 103,236 1,884,057
---------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT)-0.03%
Tenet Healthcare Corp.(f) 26,460 714,420
---------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT)-0.04%
Abraxas Petroleum Corp.(f) 736,227 1,104,340
---------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS)-0.06%
Convergent Communications,
Inc.(f) 179,280 1,434,240
---------------------------------------------------------------
SHIPPING-0.03%
Pegasus Shipping Hellas Co.
(Bermuda) 15,000 825,000
---------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-3.11%
AirGate PCS, Inc.(f) 61,003 3,206,470
---------------------------------------------------------------
Celcaribe S.A., Ordinary Trust
Ctfs. (Acquired
05/17/94-01/23/97; Cost
$0)(c)(f) 2,276,400 2,845,500
---------------------------------------------------------------
Clearnet Communications
Inc.-Class A-ADR (Canada)(f) 100,716 2,796,443
---------------------------------------------------------------
Dobson Communications
Corp.-$122.50 PIK Pfd 22,097 22,041,757
---------------------------------------------------------------
Microcell Telecommunications
Inc.-Class B-ADR (Canada)(f) 253,257 9,148,909
---------------------------------------------------------------
Nextel Communications, Inc.-Class
A(f) 104,390 6,387,363
---------------------------------------------------------------
Powertel, Inc.(f) 45,663 3,239,219
---------------------------------------------------------------
WebLink Wireless, Inc.(f) 1,260,940 16,707,455
---------------------------------------------------------------
World Access, Inc.-Series D,
Conv. Pfd. (Acquired 03/03/00;
Cost $16,365,448)(c)(f) 15,511 9,965,818
---------------------------------------------------------------
76,338,934
---------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-1.55%
FirstCom Corp.(f) 804,650 12,120,041
---------------------------------------------------------------
Primus Telecommunications Group,
Inc.(f) 34,902 868,187
---------------------------------------------------------------
RSL Communications, Ltd.-Class A
(United Kingdom)(f) 179,444 2,052,391
---------------------------------------------------------------
Versatel Telecom International
N.V.-ADR (Netherlands)(f) 452,021 19,493,406
---------------------------------------------------------------
Viatel, Inc.(f) 121,387 3,467,116
---------------------------------------------------------------
38,001,141
---------------------------------------------------------------
TELEPHONE-0.03%
ICG Communications, Inc.(f) 39,600 873,675
---------------------------------------------------------------
Total Stocks & Other Equity
Interests (Cost
$73,323,866) 125,097,945
---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
WARRANTS & OTHER INTERESTS-0.35%
BROADCASTING (TELEVISION, RADIO & CABLE)-0.00%
Knology Inc., expiring 10/22/07
(Acquired 03/12/98-02/01/00;
Cost $270)(c) 47,295 $ 118,238
---------------------------------------------------------------
CHEMICALS (DIVERSIFIED)-0.00%
Sterling Chemicals Holdings,
expiring 08/15/08 7,500 65,625
---------------------------------------------------------------
COMPUTERS (PERIPHERALS)-0.00%
Equinix Inc., expiring 12/01/07
(Acquired 05/30/00; Cost
$0)(c)(g) 15,110 0
---------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-0.02%
Cybernet Internet Services
International, Inc., expiring
07/01/09 (Acquired 10/18/99;
Cost $0)(c)(g) 23,000 465,901
---------------------------------------------------------------
ELECTRICAL EQUIPMENT-0.00%
Electronic Retailing Systems
International, Inc., expiring
02/01/04 18,802 19,014
---------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL COMPANIES-0.00%
Resort At Summerlin LP, expiring
12/15/07 21,197 0
---------------------------------------------------------------
HOUSEHOLD FURNISHING & APPLIANCES-0.05%
O'Sullivan Industries, Inc.,
expiring 11/05/09(g) 42,000 945,067
---------------------------------------------------------------
Winsloew Furniture, Inc.,
expiring 08/15/07 (Acquired
12/06/99; Cost $0)(c)(g) 17,870 178,700
---------------------------------------------------------------
1,123,767
---------------------------------------------------------------
IRON & STEEL-0.00%
Bar Technologies, Inc., expiring
04/01/01(g) 6,000 0
---------------------------------------------------------------
METAL FABRICATORS-0.00%
Gulf States Steel, Inc., expiring
04/15/03(h) 15,990 160
---------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-0.00%
Abraxas Petroleum Corp.-Rts(i) 736,228 0
---------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-0.05%
Cellnet Data System, expiring
10/01/07 (Acquired
09/24/97-10/15/97; Cost
$0)(c)(g) 10,000 2,600
---------------------------------------------------------------
Globalstar Telecom, expiring
02/15/04 (Acquired 01/05/00;
Cost $11,790)(c) 45 0
---------------------------------------------------------------
KMC Telecom Holdings, Inc.,
expiring 04/15/08 35 163
---------------------------------------------------------------
Nextel International, Inc.,
expiring 04/15/07(g) 39,500 1,194,875
---------------------------------------------------------------
1,197,638
---------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-0.00%
Long Distance International,
Inc., expiring 04/13/08(g) 25,620 0
---------------------------------------------------------------
</TABLE>
FS-12
<PAGE> 232
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TELEPHONE-0.23%
Esat Telecom Group PLC (Ireland),
expiring 02/01/07 (Acquired
06/16/97-01/05/00; Cost
$7,245)(c) 25,565 $ 5,560,644
---------------------------------------------------------------
Total Warrants & Other
Interests (Cost $414,303) 8,550,987
---------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
U.S. TREASURY NOTES-3.94%
6.63%, 05/31/02 $34,000,000 34,150,620
---------------------------------------------------------------
6.75%, 05/15/05 38,000,000 38,908,580
---------------------------------------------------------------
6.50%, 02/15/10 23,000,000 23,790,740
---------------------------------------------------------------
96,849,940
---------------------------------------------------------------
Total U.S. Treasury Notes
(Cost $96,364,844) 96,849,940
---------------------------------------------------------------
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MONEY MARKET FUNDS-1.72%
STIC Liquid Assets Portfolio(j) 21,067,923 $ 21,067,923
---------------------------------------------------------------
STIC Prime Portfolio(j) 21,067,923 21,067,923
---------------------------------------------------------------
Total Money Market Funds
(Cost $42,135,846) 42,135,846
---------------------------------------------------------------
TOTAL INVESTMENTS-99.34% (Cost
$2,774,480,443) 2,441,633,043
---------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-0.66% 16,324,930
---------------------------------------------------------------
NET ASSETS-100.00% $2,457,957,973
===============================================================
</TABLE>
<TABLE>
<S> <C> <C>
Investment Abbreviations:
ADR - American Depositary Receipt PIK - Payment In Kind
Conv. - Convertible Rts. - Rights
Ctfs. - Certificates Sec. - Secured
Deb. - Debentures Sr. - Senior
Disc. - Discounted Sub. - Subordinated
Gtd. - Guaranteed Unsec. - Unsecured
Pfd. - Preferred
</TABLE>
Notes to Schedule of Investments:
(a) Discounted bond at purchase. The interest rate represents the coupon rate at
which the bond will accrue at a specified future date.
(b) Consists of more than one class of securities traded together as a unit. In
addition to the security listed, each unit contains warrants that enable the
holder to purchase shares of the issuer at a predetermined price.
(c) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The valuation of these securities has been determined in
accordance with procedures established by the Board of Trustees. The
aggregate market value of these securities at 06/30/00 was $160,998,508
which represented 6.55% of the Fund's net assets.
(d) Defaulted security. Currently, the issuer is in default with respect to a
portion of interest payments.
(e) Represents a security sold under Rule 144A, which is exempt from
registration and may be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1993, as amended.
(f) Non-income producing security.
(g) Acquired as a part of a unit with or in exchange for other securities.
(h) Affiliated issuers are those in which the Fund's holdings of an issuer
represent 5% or more of the outstanding voting securities of the issuer. The
Fund has not owned enough of the outstanding voting securities of the issuer
to have control (as defined in the Investment Company Act of 1940) of that
issuer. The market value as of 06/30/00 represented 0.00% of the Fund's net
assets.
(i) Security fair valued in accordance with the procedures established by the
Board of Trustees.
(j) The money market fund has the same investment advisor as the Fund.
See Notes to Financial Statements.
FS-13
<PAGE> 233
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
JUNE 30, 2000
JULY 31, 2000 (UNAUDITED)
-------------- --------------
<S> <C> <C>
ASSETS:
Investments, at market value (cost
$2,686,949,204 and $2,774,480,443,
respectively) $2,356,457,846 $2,441,633,043
---------------------------------------------------------------------------------------------
Receivables for:
Investments sold 19,441,006 14,666,345
---------------------------------------------------------------------------------------------
Fund shares sold 2,552,311 3,733,151
---------------------------------------------------------------------------------------------
Dividends and interest 58,427,054 57,648,913
---------------------------------------------------------------------------------------------
Investment for deferred compensation plan 87,353 84,858
---------------------------------------------------------------------------------------------
Other assets 262,688 14,989
---------------------------------------------------------------------------------------------
Total assets 2,437,228,258 2,517,781,299
---------------------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 38,204,370 34,693,114
---------------------------------------------------------------------------------------------
Fund shares reacquired 11,575,972 9,384,520
---------------------------------------------------------------------------------------------
Dividends 10,792,466 11,874,999
---------------------------------------------------------------------------------------------
Deferred compensation plan 87,353 84,858
---------------------------------------------------------------------------------------------
Accrued advisory fees 981,404 993,902
---------------------------------------------------------------------------------------------
Accrued administrative services fees 15,047 14,723
---------------------------------------------------------------------------------------------
Accrued distribution fees 1,517,739 2,408,880
---------------------------------------------------------------------------------------------
Accrued trustees' fees 439 3,233
---------------------------------------------------------------------------------------------
Accrued transfer agent fees 344,285 328,861
---------------------------------------------------------------------------------------------
Accrued operating expenses 222,576 36,236
---------------------------------------------------------------------------------------------
Total liabilities 63,741,651 59,823,326
---------------------------------------------------------------------------------------------
Net assets applicable to shares outstanding $2,373,486,607 $2,457,957,973
=============================================================================================
NET ASSETS:
Class A $1,056,453,189 $1,090,533,020
=============================================================================================
Class B $1,206,736,726 $1,252,962,645
=============================================================================================
Class C $ 110,296,692 $ 114,462,308
=============================================================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 150,860,590 153,636,597
=============================================================================================
Class B 172,126,117 176,303,478
=============================================================================================
Class C 15,771,552 16,145,681
=============================================================================================
Class A:
Net asset value and redemption price per share $ 7.00 $ 7.10
---------------------------------------------------------------------------------------------
Offering price per share:
(Net asset value divided
by 95.25%) $ 7.35 $ 7.45
=============================================================================================
Class B:
Net asset value and offering price per share $ 7.01 $ 7.11
=============================================================================================
Class C:
Net asset value and offering price per share $ 6.99 $ 7.09
=============================================================================================
</TABLE>
See Notes to Financial Statements.
FS-14
<PAGE> 234
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS
SEVEN MONTHS ENDED
ENDED JUNE 30, 2000 YEAR ENDED
JULY 31, 2000 (UNAUDITED) DECEMBER 31, 1999
------------- ------------- -----------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 180,465,440 $ 155,351,624 $ 375,366,595
---------------------------------------------------------------------------------------------------------------
Dividends -- -- 1,457,300
---------------------------------------------------------------------------------------------------------------
Dividends -- affiliated issuers 2,209,329 2,051,763 936,102
---------------------------------------------------------------------------------------------------------------
Total investment income 182,674,769 157,403,387 377,759,997
---------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 7,537,550 6,556,146 16,396,698
---------------------------------------------------------------------------------------------------------------
Administrative services fee 107,029 91,982 177,468
---------------------------------------------------------------------------------------------------------------
Custodian fees 81,232 64,443 235,619
---------------------------------------------------------------------------------------------------------------
Distribution fees -- Class A 1,735,976 1,506,774 3,885,854
---------------------------------------------------------------------------------------------------------------
Distribution fees -- Class B 7,941,484 6,887,276 17,586,035
---------------------------------------------------------------------------------------------------------------
Distribution fees -- Class C 700,789 604,019 1,307,654
---------------------------------------------------------------------------------------------------------------
Transfer agent fees -- Class A 1,019,300 869,910 2,097,314
---------------------------------------------------------------------------------------------------------------
Transfer agent fees -- Class B 1,249,466 1,074,312 2,604,737
---------------------------------------------------------------------------------------------------------------
Transfer agent fees -- Class C 110,253 94,233 193,682
---------------------------------------------------------------------------------------------------------------
Trustees' fees 7,321 6,275 27,921
---------------------------------------------------------------------------------------------------------------
Other 550,567 447,527 1,290,693
---------------------------------------------------------------------------------------------------------------
Total expenses 21,040,967 18,202,897 45,803,675
---------------------------------------------------------------------------------------------------------------
Less: Expenses paid indirectly (45,044) (37,293) (175,176)
---------------------------------------------------------------------------------------------------------------
Net expenses 20,995,923 18,165,604 45,628,499
---------------------------------------------------------------------------------------------------------------
Net investment income 161,678,846 139,237,783 332,131,498
---------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES
Net realized gain (loss) from investment securities (248,282,272) (212,556,807) (269,838,431)
---------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (113,824,748) (116,180,790) 1,279,047
---------------------------------------------------------------------------------------------------------------
Net gain (loss) on investment securities (362,107,020) (328,737,597) (268,559,384)
---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations $(200,428,174) $(189,499,814) $ 63,572,114
===============================================================================================================
</TABLE>
See Notes to Financial Statements.
FS-15
<PAGE> 235
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
SEVEN MONTHS ENDED YEAR YEAR
ENDED JUNE 30, ENDED ENDED
JULY 31, 2000 DECEMBER 31, DECEMBER 31,
2000 (UNAUDITED) 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 161,678,846 $ 139,237,783 $ 332,131,498 $ 336,256,233
-------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities (248,282,272) (212,556,807) (269,838,431) (188,887,632)
-------------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (113,824,748) (116,180,790) 1,279,047 (359,473,146)
-------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (200,428,174) (189,499,814) 63,572,114 (212,104,545)
-------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (77,895,270) (67,278,486) (159,655,684) (170,021,135)
-------------------------------------------------------------------------------------------------------------------------------
Class B (81,662,712) (70,584,600) (165,609,472) (158,792,161)
-------------------------------------------------------------------------------------------------------------------------------
Class C (7,223,368) (6,207,027) (12,356,480) (6,792,770)
-------------------------------------------------------------------------------------------------------------------------------
Return of capital distributions:
Class A (2,891,943) -- (2,837,931) --
-------------------------------------------------------------------------------------------------------------------------------
Class B (3,303,456) -- (3,209,458) --
-------------------------------------------------------------------------------------------------------------------------------
Class C (292,296) -- (239,296) --
-------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income:
Class A -- (3,427,039) (520,904) --
-------------------------------------------------------------------------------------------------------------------------------
Class B -- (3,595,446) (589,357) --
-------------------------------------------------------------------------------------------------------------------------------
Class C -- (316,174) (43,823) --
-------------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A (141,076,710) (121,569,405) (181,118,609) 142,435,247
-------------------------------------------------------------------------------------------------------------------------------
Class B (163,296,867) (133,739,372) (116,020,002) 448,570,951
-------------------------------------------------------------------------------------------------------------------------------
Class C (2,482,351) 135,582 27,659,521 101,384,122
-------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (680,553,147) (596,081,781) (550,969,381) 144,679,709
-------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 3,054,039,754 3,054,039,754 3,605,009,135 3,460,329,426
-------------------------------------------------------------------------------------------------------------------------------
End of period $2,373,486,607 $2,457,957,973 $3,054,039,754 $3,605,009,135
===============================================================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $3,422,514,855 $3,480,685,283 $3,735,858,478 $4,011,736,919
-------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income (3,613,421) (12,271,700) (100,711) 5,490,138
-------------------------------------------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities (714,923,469) (677,608,210) (465,051,403) (194,272,265)
-------------------------------------------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities (330,491,358) (332,847,400) (216,666,610) (217,945,657)
-------------------------------------------------------------------------------------------------------------------------------
$2,373,486,607 $2,457,957,973 $3,054,039,754 $3,605,009,135
===============================================================================================================================
</TABLE>
See Notes to Financial Statements.
FS-16
<PAGE> 236
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM High Yield Fund (the "Fund") is a series portfolio of AIM Investment
Securities Funds (the "Trust"). The Trust is a Delaware business trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of seven
separate portfolios, each having an unlimited number of shares of beneficial
interest. Prior to June 1, 2000 the Fund was organized as a series portfolio of
AIM Funds Group. At a meeting held on February 3, 2000, the Board of Trustees of
AIM Funds Group approved an Agreement and Plan of Reorganization (the
"Reorganization") which reorganized the Fund as a series portfolio of the Trust.
Shareholders of the Fund approved the Reorganization at a meeting held on May
31, 2000. Pursuant to the Reorganization, the Fund's fiscal year-end was changed
from December 31 to July 31. This report includes financial information for the
period ended July 31, 2000 (seven months), the six months ended June 30, 2000
and the year ended December 31, 1999. Financial information for the six months
ended June 30, 2000 is unaudited. The Fund currently offers three different
classes of shares: Class A shares, Class B shares and Class C shares. Class A
shares are sold with a front-end sales charge. Class B shares and Class C shares
are sold with a contingent deferred sales charge. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund. The Fund's investment objective is to achieve a high
level of current income. The Fund will also consider the possibility of capital
growth when it purchases and sells securities. Debt securities of less than
investment grade are considered "high-risk" securities (commonly referred to as
junk bonds). These bonds may involve special risks in addition to the risks
associated with higher rated debt securities. High yield bonds may be more
susceptible to real or perceived adverse economic conditions than higher grade
bonds. Also, the secondary market in which high yield bonds are traded may be
less liquid than the market for higher grade bonds.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. Security Valuations -- A security listed or traded on an exchange
(except convertible bonds) is valued at its last sales price as of the close
of the customary trading session on the exchange where the security is
principally traded, or lacking any sales on a particular day, the security is
valued at the closing bid price on that day. Each security reported on the
NASDAQ National Market System is valued at the last sales price as of the
close of the customary trading session on the valuation date or absent a last
sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as yield, type of issue, coupon rate and maturity
date. Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and are
valued at the last bid price in the case of equity securities and in the case
of debt obligations, the mean between the last bid and asked prices.
Securities for which market quotations are not readily available or are
questionable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers in a manner specifically authorized
by the Board of Trustees. Short-term obligations having 60 days or less to
maturity are valued at amortized cost which approximates market value. For
purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Generally, trading in foreign securities is substantially completed each
day at various times prior to the close of the NYSE. The values of such
securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the NYSE. Occasionally, events
affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of the customary
trading session of the NYSE which would not be reflected in the computation
of the Fund's net asset value. If events materially affecting the value of
such securities occur during such period, then these securities will be
valued at their fair value as determined in good faith by or under the
supervision of the Board of Trustees.
B. Securities Transactions and Investment Income -- Securities transactions are
accounted for on a trade date basis. Realized gains or losses on sales are
computed on the basis of specific identification of the securities sold.
Interest income is recorded on the accrual basis from settlement date.
Dividend income is recorded on the ex-dividend date.
On July 31, 2000, undistributed net investment income was increased by
$8,077,489, undistributed net realized gains decreased by $1,589,794 and
paid-in capital was decreased by $6,487,695 a result of differing book/tax
treatment of market discount and other reclassifications. Net assets of the
Fund were unaffected by the reclassifications.
C. Distributions -- Distributions from income are declared daily and paid
monthly and are recorded on ex-dividend date. Distributions from net realized
capital gains, if any, are generally paid annually and recorded on
ex-dividend date. The
FS-17
<PAGE> 237
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. Federal Income Taxes -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements.
The Fund has a capital loss carryforward of $713,198,778 which may be
carried forward to offset future taxable gains, if any, which expires in
varying increments, if not previously utilized, in the year 2008.
E. Expenses -- Distribution expenses and certain transfer agency expenses
directly attributable to a class of shares are charged to those classes'
operations. All other expenses which are attributable to more than one class
are allocated among the classes.
F. Bond Premiums -- It is the policy of the Fund not to amortize market premiums
on bonds for financial reporting purposes.
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 investment advisory agreement,
the Fund pays an advisory fee to AIM at an annual rate of 0.625% on the first
$200 million of the Fund's average daily net assets, plus 0.55% on the next $300
million of the Fund's average daily net assets, plus 0.50% on the next $500
million of the Fund's average daily net assets, plus 0.45% on 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 pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the seven-month period ended July 31, 2000,
the six months ended June 30, 2000 and the year ended December 31, 1999, AIM was
paid $107,029, $91,982 and $177,468, respectively, for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. For the seven-month period ended July 31,
2000, the six months ended June 30, 2000 and the year ended December 31, 1999,
AFS was paid $1,463,943, $1,272,274 and $2,941,102, respectively, for such
services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.25% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and C shares. Of these amounts, the Fund may
pay a service fee of 0.25% of the average daily net assets of the Class A, Class
B or Class C shares to selected dealers and financial institutions who furnish
continuing personal shareholder services to their customers who purchase and own
the appropriate class of shares of the Fund. Any amounts not paid as a service
fee under the Plans would constitute an asset-based sales charge. The Plans also
impose a cap on the total sales charges, including asset-based sales charges
that may be paid by the respective classes. For the seven-month period ended
July 31, 2000, the Class A, Class B and Class C shares paid AIM Distributors
$1,735,976, $7,941,484 and $700,789, respectively, as compensation under the
Plans. For the six months ended June 30, 2000, the Class A, Class B and Class C
shares paid AIM Distributors $1,506,774, $6,887,276 and $604,019, respectively,
as compensation under the Plans. For the year ended December 31, 1999, the Class
A, Class B and Class C shares paid AIM Distributors $3,885,854, $17,586,035 and
$1,307,654, respectively, as compensation under the Plans.
AIM Distributors received commissions of $265,022, $234,338 and $800,330 from
sales of the Class A shares of the Fund during the seven-month period ended July
31, 2000, the six months ended June 30, 2000 and the year ended December 31,
1999, respectively. 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 seven-month period ended July 31, 2000, the six months ended
June 30, 2000 and the year ended December 31, 1999, AIM Distributors received
$136,582, $127,185 and $423,986, respectively, in contingent deferred sales
charges imposed on redemptions of Fund shares.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors. During the seven-month period ended July 31, 2000, the
six months ended June 30, 2000 and the year ended December 31, 1999, the Fund
paid legal fees of $4,817, $3,776 and $9,734, respectively, for services
rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Trust's
trustees. A member of that firm is a trustee of the Trust.
NOTE 3-INDIRECT EXPENSES
For the seven-month period ended July 31, 2000, the six months ended June 30,
2000 and the year ended December 31, 1999, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) of $18,336, $15,037 and
$39,420, respectively, and reductions in custodian fees of $26,708, $22,256 and
$135,756, respectively, under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $45,044, $37,293 and $175,176 for the
seven-month period ended July 31, 2000, the six months ended June 30, 2000 and
the year ended December 31, 1999, respectively.
NOTE 4-TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. The Trust invests trustees' fees, if so elected by a
trustee, in mutual fund shares in accordance with a deferred compensation plan.
FS-18
<PAGE> 238
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $1,000,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the seven months ended July
31, 2000, the Fund did not borrow under the line of credit agreement. The funds
which are party to the line of credit are charged a commitment fee of 0.09% on
the unused balance of the committed line. Prior to May 28, 1999, the commitment
fee rate was 0.05%. The commitment fee is allocated among the funds based on
their respective average net assets for the period.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the seven-month period ended July 31, 2000
was $586,121,511 and $829,386,205, respectively, and during the six months ended
June 30, 2000 was $495,609,987 and $692,814,640, respectively. The amount of
unrealized appreciation (depreciation) of investment securities, for tax
purposes, is as follows:
<TABLE>
<CAPTION>
JUNE 30,
JULY 31, 2000
2000 (UNAUDITED)
------------- -------------
<S> <C> <C>
Aggregate unrealized
appreciation of investment
securities $ 109,030,572 $ 103,969,470
-------------------------------------------------------------
Aggregate unrealized
(depreciation) of investment
securities (441,246,620) (440,300,434)
-------------------------------------------------------------
Net unrealized appreciation
(depreciation) of investment
securities $(332,216,048) $(336,330,964)
=============================================================
Cost of investments for tax purposes for the seven months
ended July 31, 2000 and the six months ended June 30, 2000
are $2,688,673,894 and $2,777,964,007, respectively.
</TABLE>
FS-19
<PAGE> 239
NOTE 7-SHARE INFORMATION
Changes in shares outstanding during the seven-month period ended July 31, 2000,
the six months ended June 30, 2000 and the years ended December 31, 1999 and
1998 were as follows:
<TABLE>
<CAPTION>
JUNE 30, 2000
JULY 31, 2000 (UNAUDITED) DECEMBER 31, 1999
--------------------------- --------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Sold:
Class A 29,346,531 $ 221,060,411 27,824,466 $ 210,254,406 87,500,179 $ 744,553,292
-------------------------------------------------------------------------------------------------------------------
Class B 18,742,023 140,014,267 17,869,910 128,818,625 46,805,949 400,392,138
-------------------------------------------------------------------------------------------------------------------
Class C 6,229,247 47,023,748 5,725,634 42,218,363 10,550,688 89,612,238
-------------------------------------------------------------------------------------------------------------------
Issued as reinvestment
of dividends:
Class A 6,800,148 50,644,208 5,938,164 44,606,398 12,419,332 104,772,227
-------------------------------------------------------------------------------------------------------------------
Class B 5,317,053 39,676,757 3,922,082 34,822,144 10,055,937 84,833,641
-------------------------------------------------------------------------------------------------------------------
Class C 623,821 4,641,763 366,455 4,059,693 975,391 8,192,752
-------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (54,468,978) (412,781,329) (49,308,922) (376,430,209) (121,294,314) (1,030,444,128)
-------------------------------------------------------------------------------------------------------------------
Class B (45,276,418) (342,987,891) (38,831,973) (297,380,141) (71,318,813) (601,245,781)
-------------------------------------------------------------------------------------------------------------------
Class C (7,191,956) (54,147,862) (6,056,848) (46,142,474) (8,365,761) (70,145,469)
-------------------------------------------------------------------------------------------------------------------
(39,878,529) $(306,855,928) (32,551,032) $(255,173,195) (32,671,412) $ (269,479,090)
===================================================================================================================
<CAPTION>
DECEMBER 31, 1998
------------------------------
SHARES AMOUNT
------------ ---------------
<S> <C> <C>
Sold:
Class A 113,312,954 $ 1,099,027,598
------------------------------------------------------
Class B 81,983,594 793,346,240
------------------------------------------------------
Class C 31,084,188 309,774,327
------------------------------------------------------
Issued as reinvestment
of dividends:
Class A 11,706,241 112,173,341
------------------------------------------------------
Class B 8,418,057 80,427,189
------------------------------------------------------
Class C 480,845 4,500,556
------------------------------------------------------
Reacquired:
Class A (110,296,515) (1,068,765,692)
------------------------------------------------------
Class B (44,848,230) (425,202,478)
------------------------------------------------------
Class C (21,196,339) (212,890,761)
------------------------------------------------------
70,644,795 $ 692,390,320
======================================================
</TABLE>
NOTE 8-FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------------------------------
SIX MONTHS
SEVEN MONTHS ENDED YEAR ENDED DECEMBER 31,
ENDED JUNE 30, 2000 ------------------------------------------------------------
JULY 31, 2000 (UNAUDITED) 1999 1998 1997 1996 1995
------------------ ---------------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $ 8.07 $ 8.07 $ 8.77 $ 10.16 $ 9.88 $ 9.43 $ 8.93
--------------------------- ---------- ---------- ---------- ---------- ---------- ---------- --------
Income from investment
operations:
Net investment income 0.47 0.40 0.85 0.92 0.90 0.92 0.93
--------------------------- ---------- ---------- ---------- ---------- ---------- ---------- --------
Net gains (losses) on
securities (both
realized and
unrealized) (1.03) (0.93) (0.66) (1.40) 0.28 0.46 0.52
--------------------------- ---------- ---------- ---------- ---------- ---------- ---------- --------
Total from investment
operations (0.56) (0.53) 0.19 (0.48) 1.18 1.38 1.45
--------------------------- ---------- ---------- ---------- ---------- ---------- ---------- --------
Less distributions:
Dividends from net
investment income (0.49) (0.44) (0.87) (0.91) (0.90) (0.93) (0.95)
--------------------------- ---------- ---------- ---------- ---------- ---------- ---------- --------
Return of capital (0.02) -- (0.02) -- -- -- --
--------------------------- ---------- ---------- ---------- ---------- ---------- ---------- --------
Total distributions (0.51) (0.44) (0.89) (0.91) (0.90) (0.93) (0.95)
--------------------------- ---------- ---------- ---------- ---------- ---------- ---------- --------
Net asset value, end of
period $ 7.00 $ 7.10 $ 8.07 $ 8.77 $ 10.16 $ 9.88 $ 9.43
=========================== ========== ========== ========== ========== ========== ========== ========
Total return(a) (7.12)% (6.56)% 2.21% (5.10)% 12.52% 15.44% 16.86%
=========================== ========== ========== ========== ========== ========== ========== ========
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $1,056,453 $1,090,533 $1,364,502 $1,670,863 $1,786,352 $1,272,974 $886,106
=========================== ========== ========== ========== ========== ========== ========== ========
Ratio of expenses to
average net assets 0.93%(b) 0.93%(b) 0.92% 0.85% 0.90% 0.97% 0.96%
=========================== ========== ========== ========== ========== ========== ========== ========
Ratio of net investment
income to average net
assets 10.79%(b) 10.72%(b) 10.06% 9.45% 9.08% 9.67% 9.95%
=========================== ========== ========== ========== ========== ========== ========== ========
Portfolio turnover rate 23% 19% 79% 76% 80% 77% 61%
=========================== ========== ========== ========== ========== ========== ========== ========
</TABLE>
(a) Does not deduct sales charges and is not annualized for periods less than
one year.
(b) Ratios are annualized and based on average net assets of $1,193,177,640 and
$1,212,042,030 for July 31, 2000 and June 30, 2000, respectively.
FS-20
<PAGE> 240
NOTE 8-FINANCIAL HIGHLIGHTS-(CONTINUED)
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
SEVEN MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
JULY 31, 2000 ------------------------------------------------------------
2000 (UNAUDITED) 1999 1998 1997 1996 1995
------------------ ---------------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $ 8.07 $ 8.07 $ 8.76 $ 10.16 $ 9.88 $ 9.42 $ 8.92
--------------------------- ---------- ---------- ---------- ---------- ---------- ---------- --------
Income from investment
operations:
Net investment income 0.44 0.38 0.79 0.84 0.83 0.85 0.85
--------------------------- ---------- ---------- ---------- ---------- ---------- ---------- --------
Net gains (losses) on
securities (both
realized and
unrealized) (1.03) (0.93) (0.66) (1.40) 0.28 0.47 0.52
--------------------------- ---------- ---------- ---------- ---------- ---------- ---------- --------
Total from investment
operations (0.59) (0.55) 0.13 (0.56) 1.11 1.32 1.37
--------------------------- ---------- ---------- ---------- ---------- ---------- ---------- --------
Less distributions:
Dividends from net
investment income (0.45) (0.41) (0.80) (0.84) (0.83) (0.86) (0.87)
--------------------------- ---------- ---------- ---------- ---------- ---------- ---------- --------
Return of capital (0.02) -- (0.02) -- -- -- --
--------------------------- ---------- ---------- ---------- ---------- ---------- ---------- --------
Total distributions (0.47) (0.41) (0.82) (0.84) (0.83) (0.86) (0.87)
--------------------------- ---------- ---------- ---------- ---------- ---------- ---------- --------
Net asset value, end of
period $ 7.01 $ 7.11 $ 8.07 $ 8.76 $ 10.16 $ 9.88 $ 9.42
=========================== ========== ========== ========== ========== ========== ========== ========
Total return(a) (7.49)% (6.99)% 1.46% (5.90)% 11.71% 14.68% 15.91%
=========================== ========== ========== ========== ========== ========== ========== ========
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $1,206,737 $1,252,963 $1,559,864 $1,820,899 $1,647,801 $1,068,060 $557,926
=========================== ========== ========== ========== ========== ========== ========== ========
Ratio of expenses to
average net assets 1.69%(b) 1.69%(b) 1.68% 1.61% 1.65% 1.68% 1.73%
=========================== ========== ========== ========== ========== ========== ========== ========
Ratio of net investment
income to average net
assets 10.03%(b) 9.96%(b) 9.30% 8.69% 8.33% 8.95% 9.18%
=========================== ========== ========== ========== ========== ========== ========== ========
Portfolio turnover rate 23% 19% 79% 76% 80% 77% 61%
=========================== ========== ========== ========== ========== ========== ========== ========
</TABLE>
(a) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(b) Ratios are annualized and based on average net assets of $1,364,593,065 and
$1,385,023,658 for July 31, 2000 and June 30, 2000, respectively.
<TABLE>
<CAPTION>
CLASS C
--------------------------------------------------------------------------------
AUGUST 4, 1997
SIX MONTHS ENDED YEAR ENDED (DATE SALES
SEVEN MONTHS ENDED JUNE 30, DECEMBER 31, COMMENCED)
JULY 31, 2000 -------------------- TO
2000 (UNAUDITED) 1999 1998(a) 1997
------------------ ---------------- -------- -------- --------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.05 $ 8.05 $ 8.74 $ 10.14 $ 10.04
----------------------------------------------- -------- -------- -------- -------- -------
Income from investment operations:
Net investment income 0.44 0.38 0.78 0.82 0.35
----------------------------------------------- -------- -------- -------- -------- -------
Net gains (losses) on securities (both
realized and unrealized) (1.03) (0.93) (0.65) (1.38) 0.10
----------------------------------------------- -------- -------- -------- -------- -------
Total from investment operations (0.59) (0.55) 0.13 (0.56) 0.45
----------------------------------------------- -------- -------- -------- -------- -------
Less distributions:
Dividends from net investment income (0.45) (0.41) (0.80) (0.84) (0.35)
----------------------------------------------- -------- -------- -------- -------- -------
Return of capital (0.02) -- (0.02) -- --
----------------------------------------------- -------- -------- -------- -------- -------
Total distributions (0.47) (0.41) (0.82) (0.84) (0.35)
----------------------------------------------- -------- -------- -------- -------- -------
Net asset value, end of period $ 6.99 $ 7.09 $ 8.05 $ 8.74 $ 10.14
=============================================== ======== ======== ======== ======== =======
Total return(b) (7.51)% (7.01)% 1.46% (5.92)% 4.49%
=============================================== ======== ======== ======== ======== =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $110,297 $114,462 $129,675 $113,246 $26,177
=============================================== ======== ======== ======== ======== =======
Ratio of expenses to average net assets 1.69%(c) 1.69%(c) 1.68% 1.61% 1.68%(d)
=============================================== ======== ======== ======== ======== =======
Ratio of net investment income to average net
assets 10.03%(c) 9.96%(c) 9.30% 8.69% 8.30%(d)
=============================================== ======== ======== ======== ======== =======
Portfolio turnover rate 23% 19% 79% 76% 80%
=============================================== ======== ======== ======== ======== =======
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(c) Ratios are annualized and based on average net assets of $120,417,254 and
$121,467,555 for July 31, 2000 and June 30, 2000, respectively.
(d) Annualized.
FS-21
<PAGE> 241
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders of
AIM Investment Securities Funds:
We have audited the accompanying statement of assets and
liabilities of the AIM High Yield Fund II (a series of AIM
Investment Securities Funds) including the schedule of
investments, as of July 31, 2000, and the related statement of
operations for the year then ended, the statement of changes
in net assets, and the financial highlights for the year then
ended and for the period September 30, 1998 (date operations
commenced) through July 31, 1999. These financial statements
and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on
our audits.
We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of
July 31, 1999, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management,
as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all material
respects, the financial position of AIM High Yield Fund II as
of July 31, 2000, the results of its operations for the year
then ended, the changes in its net assets, and the financial
highlights for the year then ended and for the period
September 30, 1998 (date operations commenced) through July
31, 1999, in conformity with accounting principles generally
accepted in the United States of America.
/S/ KPMG LLP
September 1, 2000
Houston, Texas
FS-22
<PAGE> 242
SCHEDULE OF INVESTMENTS
July 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. DOLLAR DENOMINATED BONDS &
NOTES-87.50%
AIR FREIGHT-0.73%
Atlas Air, Inc., Sr. Unsec. Notes,
10.75%, 08/01/05 $ 980,000 $ 1,009,400
--------------------------------------------------------------
AIRLINES-1.87%
Airplanes Pass Through Trust-Series
D, Gtd. Sub. Bonds, 10.88%,
03/15/19 1,975,400 1,587,540
--------------------------------------------------------------
Dunlop Standard Aerospace Holdings
PLC (United Kingdom), Sr. Unsec.
Yankee Sub. Notes, 11.88%,
05/15/09 1,000,000 997,500
--------------------------------------------------------------
2,585,040
--------------------------------------------------------------
AUTO PARTS & EQUIPMENT-2.19%
Advance Stores Co., Inc.-Series B,
Sr. Unsec. Gtd. Sub. Notes,
10.25%, 04/15/08 2,000,000 1,645,000
--------------------------------------------------------------
Exide Corp., Sr. Notes, 10.00%,
04/15/05 1,500,000 1,387,500
--------------------------------------------------------------
3,032,500
--------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO &
CABLE)-6.02%
Charter Communications Holdings
LLC,
Sr. Unsec. Notes, 10.25%,
01/15/10 1,750,000 1,710,625
--------------------------------------------------------------
Sr. Unsec. Disc. Notes, 9.92%,
04/01/11(a) 1,750,000 1,006,250
--------------------------------------------------------------
Diamond Cable Communications PLC
(United Kingdom), Sr. Unsec.
Disc. Yankee Notes, 11.75%,
12/15/05(a) 1,250,000 1,193,750
--------------------------------------------------------------
Fox Family Worldwide, Inc., Sr.
Unsec. Disc. Notes, 10.25%,
11/01/07(a) 1,500,000 1,042,500
--------------------------------------------------------------
Knology Holdings, Inc., Sr. Disc.
Notes, 11.88%, 10/15/07(a) 2,000,000 1,065,000
--------------------------------------------------------------
United Pan-Europe Communications
N.V. (Netherlands)-Series B, Sr.
Unsec. Disc. Yankee Notes,
13.38%, 11/01/09(a) 5,000,000 2,325,000
--------------------------------------------------------------
8,343,125
--------------------------------------------------------------
BUILDING MATERIALS-1.78%
Blount Inc., Sr. Unsec. Gtd. Sub.
Notes, 13.00%, 08/01/09 1,250,000 1,268,750
--------------------------------------------------------------
Dayton Superior Corp., Sr. Sub.
Notes, 13.00%, 06/15/09(b)(e) 1,200,000 1,197,000
--------------------------------------------------------------
2,465,750
--------------------------------------------------------------
CHEMICALS (DIVERSIFIED)-1.51%
Sterling Chemicals, Inc.-Series B,
Sr. Gtd. Sec. Sub. Notes, 12.38%,
07/15/06 2,000,000 2,085,000
--------------------------------------------------------------
CHEMICALS (SPECIALTY)-0.19%
Key Plastics Holdings, Inc.-Series
B, Sr. Unsec. Gtd. Sub. Notes,
10.25%, 03/15/07(c) 2,540,000 266,700
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
COMMUNICATIONS EQUIPMENT-1.10%
Dictaphone Corp., Sr. Sub. Gtd.
Notes, 11.75%, 08/01/05 $1,500,000 $ 1,522,500
--------------------------------------------------------------
COMPUTERS (HARDWARE)-0.31%
Candescent Technology Corp., Sr.
Conv. Sub. Deb., 8.00%, 05/01/03
(Acquired 03/07/00; Cost
$480,000)(d) 600,000 435,000
--------------------------------------------------------------
COMPUTERS (SOFTWARE &
SERVICES)-2.64%
Earthwatch Inc., Sr. Disc. Notes,
13.00%, 07/15/07 (Acquired
07/07/99; Cost
$1,711,525)(a)(b)(d) 2,500,000 1,743,750
--------------------------------------------------------------
Globix Corp., Sr. Unsec. Notes,
12.50%, 02/01/10 2,420,000 1,917,850
--------------------------------------------------------------
3,661,600
--------------------------------------------------------------
CONSTRUCTION (CEMENT &
AGGREGATES)-0.78%
Schuff Steel Co., Sr. Unsec. Gtd.
Sub. Notes, 10.50%, 06/01/08 1,550,000 1,073,375
--------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH)-1.25%
Fleming Cos., Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 10.63%,
07/31/07 2,000,000 1,735,000
--------------------------------------------------------------
ENGINEERING & CONSTRUCTION-0.80%
Morrison Knudsen Corp., Sr. Notes,
11.00%, 07/01/10(e) 1,100,000 1,105,500
--------------------------------------------------------------
ENTERTAINMENT-0.92%
Callahan Nordrhein Westfalen
(Denmark), Sr. Yankee Notes,
14.00%, 07/15/10 (Acquired
06/29/00; Cost $1,300,000)(d) 1,300,000 1,277,250
--------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-2.37%
Madison River Capital, Sr. Notes,
13.25%, 03/01/10(e) 2,000,000 1,810,000
--------------------------------------------------------------
ONO Finance PLC (United Kingdom),
Sr. Gtd. Sub. Euro Notes, 13.00%,
05/01/09 1,500,000 1,477,500
--------------------------------------------------------------
3,287,500
--------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL
COMPANIES-3.40%
Hollywood Casino Corp., Sr. Sec.
Gtd. Sub. Notes, 11.25%, 05/01/07 1,000,000 1,025,000
--------------------------------------------------------------
MGM Grand, Inc., Sr. Unsec. Gtd.
Sub. Notes, 9.75%, 06/01/07 1,110,000 1,140,525
--------------------------------------------------------------
Venetian Casino Resort LLC, Sec.
Gtd. Mortgage Notes, 12.25%,
11/15/04 2,500,000 2,537,500
--------------------------------------------------------------
4,703,025
--------------------------------------------------------------
</TABLE>
FS-23
<PAGE> 243
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
HEALTH CARE (DRUGS-GENERIC &
OTHER)-2.67%
King Pharmaceuticals, Inc., Sr.
Unsec. Gtd. Sub. Notes, 10.75%,
02/15/09 $2,000,000 $ 2,150,000
--------------------------------------------------------------
Warner Chilcott, Inc., Sr. Unsec.
Gtd. Notes, 12.63%, 02/15/08(e) 1,500,000 1,552,500
--------------------------------------------------------------
3,702,500
--------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES)-1.10%
DJ Orthopedics, LLC, Sr. Unsec.
Gtd. Sub. Notes, 12.63%, 06/15/09 1,600,000 1,528,000
--------------------------------------------------------------
HEALTH CARE (SPECIALIZED
SERVICES)-0.17%
Team Health Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 12.00%,
03/15/09 275,000 234,437
--------------------------------------------------------------
HOMEBUILDING-0.73%
Lennar Corp., Sr. Notes, 9.95%,
05/01/10(e) 1,000,000 1,010,000
--------------------------------------------------------------
HOUSEHOLD FURNISHING &
APPLIANCES-2.11%
Falcon Products, Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 11.38%,
06/15/09 1,085,000 1,049,737
--------------------------------------------------------------
O'Sullivan Industries, Inc.-Series
B, Sr. Unsec. Gtd. Sub. Notes,
13.38%, 10/15/09(b) 1,000,000 940,000
--------------------------------------------------------------
Winsloew Furniture, Inc.-Series B,
Sr. Gtd. Sub. Notes, 12.75%,
08/15/07 1,000,000 935,000
--------------------------------------------------------------
2,924,737
--------------------------------------------------------------
LEISURE TIME (PRODUCTS)-1.11%
Marvel Enterprises, Inc., Sr.
Unsec. Gtd. Sub. Notes, 12.00%,
06/15/09 1,910,000 1,532,775
--------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-2.02%
Actuant Corp., Sr. Unsec. Gtd. Sub.
Notes, 13.00%, 05/01/09 (Acquired
07/21/00; Cost $986,750)(d) 1,000,000 1,005,000
--------------------------------------------------------------
Anthony Crane Rentals LP-Series B,
Sr. Unsec. Gtd. Sub. Notes,
10.38%, 08/01/08 3,250,000 1,795,625
--------------------------------------------------------------
2,800,625
--------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-3.29%
Brand Scaffold Services, Inc., Sr.
Unsec. Notes, 10.25%, 02/15/08 1,850,000 1,651,125
--------------------------------------------------------------
Flextronics International Ltd.
(Singapore), Sr. Sub Yankee
Notes, 9.88%, 07/01/10 (Acquired
06/26/00; Cost $654,852)(d) 660,000 678,975
--------------------------------------------------------------
MMI Products, Inc.-Series B, Sr.
Unsec. Sub. Notes, 11.25%,
04/15/07 1,225,000 1,206,625
--------------------------------------------------------------
Tekni-Plex Inc., Sr. Sub. Notes,
12.75%, 06/15/10 (Acquired
06/15/00; Cost $986,300)(d) 1,000,000 1,025,000
--------------------------------------------------------------
4,561,725
--------------------------------------------------------------
OIL & GAS (EXPLORATION &
PRODUCTION)-4.23%
Chesapeake Energy Corp., Series B,
Sr. Unsec. Gtd. Sub. Notes,
9.63%, 05/01/05 1,500,000 1,492,500
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
OIL & GAS (EXPLORATION &
PRODUCTION)-4.23%-(CONTINUED)
Comstock Resources, Inc., Sr.
Unsec. Gtd. Sub. Notes, 11.25%,
05/01/07 $1,250,000 $ 1,281,250
--------------------------------------------------------------
Frontier Oil Corp., Sr. Unsec.
Notes, 11.75%, 11/15/09 2,000,000 2,085,000
--------------------------------------------------------------
Pioneer Natural Resources Co., Sr.
Unsec. Gtd. Notes, 9.63%,
04/01/10 955,000 1,000,362
--------------------------------------------------------------
5,859,112
--------------------------------------------------------------
PHOTOGRAPHY/IMAGING-0.76%
Polaroid Corp., Sr. Unsec. Notes,
11.50%, 02/15/06 1,000,000 1,055,000
--------------------------------------------------------------
PUBLISHING-0.74%
Ziff Davis Media, Inc., Sr. Sub.
Notes, 12.00%, 07/15/10(e) 1,000,000 1,020,000
--------------------------------------------------------------
RAILROADS-1.74%
RailWorks Corp., Sr. Unsec. Gtd.
Sub. Notes, 11.50%, 04/15/09 1,350,000 1,248,750
--------------------------------------------------------------
TFM S.A. de C.V. (Mexico), Sr.
Yankee Gtd. Disc. Notes, 11.75%,
06/15/09(a) 1,500,000 1,162,500
--------------------------------------------------------------
2,411,250
--------------------------------------------------------------
RETAIL (SPECIALTY)-0.83%
CSK Auto Inc.-Series A, Sr. Gtd.
Sub. Deb, 11.00%, 11/01/06 800,000 626,000
--------------------------------------------------------------
Neff Corp., Sr. Unsec. Gtd. Sub.
Notes, 10.25%, 06/01/08 890,000 520,650
--------------------------------------------------------------
1,146,650
--------------------------------------------------------------
SERVICES (COMMERCIAL &
CONSUMER)-1.18%
Avis Group Holdings, Inc., Sr.
Unsec. Gtd. Sub. Notes, 11.00%,
05/01/09 1,550,000 1,639,125
--------------------------------------------------------------
SERVICES (EMPLOYMENT)-0.67%
MSX International, Inc., Sr. Unsec.
Gtd. Sub. Notes, 11.38%, 01/15/08 975,000 921,375
--------------------------------------------------------------
SHIPPING-1.09%
Transportacion Maritima Mexicana
S.A. de C.V. (Mexico),
Sr. Yankee Unsec. Notes, 10.00%,
11/15/06 1,000,000 765,000
--------------------------------------------------------------
Yankee Notes, 8.50%, 10/15/00 750,000 744,375
--------------------------------------------------------------
1,509,375
--------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/
WIRELESS)-12.94%
AirGate PCS, Inc., Sr. Disc. Sub.
Notes, 13.50%, 10/01/09(a)(b) 1,400,000 815,500
--------------------------------------------------------------
Alamosa PCS Holdings, Inc., Sr.
Unsec. Gtd. Disc. Notes, 12.88%,
02/15/10(a) 3,300,000 1,732,500
--------------------------------------------------------------
Crown Castle International Corp.,
Sr. Notes, 10.75%, 08/01/11 500,000 515,000
--------------------------------------------------------------
Sr. Unsec. Disc. Notes, 10.63%,
11/15/07(a) 1,500,000 1,151,250
--------------------------------------------------------------
</TABLE>
FS-24
<PAGE> 244
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
TELECOMMUNICATIONS (CELLULAR/
WIRELESS)-12.94%-(CONTINUED)
IPCS, Inc., Sr. Disc. Notes,
14.00%, 07/15/10(a)(b)(e) $1,000,000 $ 557,500
--------------------------------------------------------------
KMC Telecom Holdings, Inc., Sr.
Unsec. Notes, 13.50%, 05/15/09 1,500,000 1,342,500
--------------------------------------------------------------
Metrocall, Inc., Sr. Sub. Notes,
11.88%, 06/15/05 3,000,000 2,505,000
--------------------------------------------------------------
Nextel International, Inc.,
Sr. Notes, 12.75%, 08/01/10
(Acquired 07/26/00; Cost
$986,220)(d) 1,000,000 997,500
--------------------------------------------------------------
Sr. Unsec. Disc. Notes, 12.13%,
04/15/08(a) 2,500,000 1,658,150
--------------------------------------------------------------
Orion Network Systems, Inc., Sr.
Gtd. Sub. Notes, 11.25%, 01/15/07 1,700,000 1,045,500
--------------------------------------------------------------
Powertel, Inc., Sr. Unsec. Disc.
Notes, 12.00%, 05/01/06(a) 2,000,000 1,879,960
--------------------------------------------------------------
Spectrasite Holdings, Inc., Sr.
Unsec. Disc. Notes, 11.25%,
04/15/09(a) 1,900,000 1,168,500
--------------------------------------------------------------
TeleCorp PCS, Inc., Sr. Sub. Notes,
10.63%, 07/15/10(e) 1,350,000 1,377,000
--------------------------------------------------------------
UbiquiTel Operating Co., Sr. Gtd.
Disc. Notes, 14.00%,
04/15/10(a)(b)(e) 2,000,000 1,180,000
--------------------------------------------------------------
17,925,860
--------------------------------------------------------------
TELECOMMUNICATIONS (LONG
DISTANCE)-5.51%
360networks Inc. (Canada), Sr.
Unsec. Yankee Notes, 12.00%,
08/01/09 1,060,000 991,100
--------------------------------------------------------------
Destia Communications, Inc., Sr.
Unsec. Notes, 13.50%, 07/15/07 200,000 175,000
--------------------------------------------------------------
FirstCom Corp., Sr. Notes, 14.00%,
10/27/07 2,000,000 2,245,000
--------------------------------------------------------------
Primus Telecommunications Group,
Inc., Sr. Unsec. Notes, 12.75%,
10/15/09 2,100,000 1,291,500
--------------------------------------------------------------
Versatel Telecom International N.V.
(Netherlands), Sr. Yankee Notes,
13.25%, 05/15/08 1,000,000 1,030,000
--------------------------------------------------------------
Viatel, Inc., Sr. Unsec. Notes,
11.50%, 03/15/09(e) 2,744,000 1,907,080
--------------------------------------------------------------
7,639,680
--------------------------------------------------------------
TELEPHONE-12.82%
Alestra S.A. (Mexico), Sr. Yankee
Notes, 12.63%, 05/15/09(e) 1,585,000 1,541,413
--------------------------------------------------------------
CFW Communications Co., Sr. Notes,
13.00%, 08/15/10 (Acquired
07/21/00; Cost $1,380,540)(d) 1,400,000 1,400,000
--------------------------------------------------------------
GT Group Telecom Inc. (Canada), Sr.
Disc. Yankee Notes, 13.25%,
02/01/10(a)(b)(e) 3,000,000 1,575,000
--------------------------------------------------------------
ICG Services, Inc., Sr. Unsec.
Disc. Notes, 10.00%, 02/15/08(a) 3,000,000 1,686,720
--------------------------------------------------------------
IMPSAT Fiber Networks, Inc.,
Sr. Gtd. Notes, 12.13%, 07/15/03 575,000 508,875
--------------------------------------------------------------
Sr. Yankee Notes, 13.75%,
02/15/05 (Acquired 02/11/00;
Cost $1,725,000)(d) 1,725,000 1,569,750
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
TELEPHONE-12.82%-(CONTINUED)
Intermedia Communications,
Inc.-Series B, Sr. Disc. Notes,
11.25%, 07/15/07(a) $3,875,000 $ 2,615,625
--------------------------------------------------------------
Jazztel PLC (United Kingdom), Sr.
Unsec. Yankee Notes, 14.00%,
04/01/09 500,000 472,500
--------------------------------------------------------------
Logix Communications Enterprises,
Sr. Unsec. Notes, 12.25%,
06/15/08 2,295,000 579,488
--------------------------------------------------------------
NTL Communications Corp.-Series B,
Sr. Unsec. Notes, 12.38%,
10/01/08 1,900,000 1,249,250
--------------------------------------------------------------
NTL Inc.-Series B, Sr. Disc. Notes,
11.50%, 02/01/06(a) 1,000,000 940,000
--------------------------------------------------------------
PF.Net Communications Inc., Sr.
Notes, 13.75%, 05/15/10(b)(e) 1,500,000 1,147,500
--------------------------------------------------------------
U.S. Xchange LLC, Sr. Unsec. Notes,
15.00%, 07/01/08 2,270,000 2,479,975
--------------------------------------------------------------
17,766,096
--------------------------------------------------------------
TRUCKERS-1.36%
North American Van Lines Inc., Sr.
Sub. Notes, 13.38%, 12/01/09(e) 2,000,000 1,890,000
--------------------------------------------------------------
TRUCKS & PARTS-0.68%
FleetPride Inc., Sr. Unsec. Gtd.
Sub. Notes, 12.00%, 08/01/05 1,410,000 948,225
--------------------------------------------------------------
WASTE MANAGEMENT-1.89%
Allied Waste North America
Inc.-Series B, Sr. Unsec. Gtd.
Sub. Notes, 10.00%, 08/01/09 2,980,000 2,614,950
--------------------------------------------------------------
Total U.S. Dollar Denominated
Bonds & Notes (Cost
$129,737,189) 121,229,762
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
STOCKS & OTHER EQUITY
INTERESTS-5.41%
AIR FREIGHT-0.06%
Atlas Air, Inc.(f) 2,000 88,750
--------------------------------------------------------------
COMPUTERS (SOFTWARE &
SERVICES)-0.24%
Cybernet Internet Services
International, Inc.(f) 5,000 23,125
--------------------------------------------------------------
Cybernet Internet Services
International, Inc.-Wts.,
expiring 07/01/09(g) 1,000 10,250
--------------------------------------------------------------
GT Group Telecom Inc.-Class B
(Canada)(f) 18,000 293,625
--------------------------------------------------------------
327,000
--------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC &
OTHER)-0.20%
King Pharmaceuticals, Inc.(f) 9,000 271,125
--------------------------------------------------------------
HOUSEHOLD FURNISHING &
APPLIANCES-0.03%
O'Sullivan Industries, Inc.-Wts.,
expiring 11/05/09 (Acquired
06/13/00; Cost $0)(d)(g) 2,000 30,000
--------------------------------------------------------------
Winsloew Furniture, Inc.-Wts.,
expiring 08/15/07(e)(g) 1,000 10,000
--------------------------------------------------------------
40,000
--------------------------------------------------------------
OIL & GAS (DRILLING &
EQUIPMENT)-0.15%
Pride International, Inc.(f) 10,000 208,125
--------------------------------------------------------------
</TABLE>
FS-25
<PAGE> 245
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
OIL & GAS (EXPLORATION &
PRODUCTION)-0.20%
Comstock Resources, Inc.(f) 20,000 $ 138,750
--------------------------------------------------------------
Pogo Producing Co. 7,000 139,125
--------------------------------------------------------------
277,875
--------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS)-0.01%
Convergent Communications, Inc.(f) 1,620 8,302
--------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/
WIRELESS)-2.63%
AirGate PCS, Inc.(f) 923 46,381
--------------------------------------------------------------
Alamosa PCS Holdings, Inc.(f) 7,000 140,000
--------------------------------------------------------------
Clearnet Communications Inc.-Class
A-ADR (Canada)(f) 6,500 182,812
--------------------------------------------------------------
Crown Castle International Corp.(f) 3,000 102,000
--------------------------------------------------------------
Dobson Communications Corp.,(f) 5,000 109,375
--------------------------------------------------------------
Microcell Telecommunications
Inc.-Class B-ADR (Canada)(f) 12,000 381,750
--------------------------------------------------------------
Nextel Communications, Inc.-Class
A(f) 8,000 447,500
--------------------------------------------------------------
WebLink Wireless, Inc.(f) 100,500 1,011,281
--------------------------------------------------------------
World Access, Inc.-Series D, Conv.
Pfd. (Acquired 03/03/00; Cost
$1,900,625)(d) 1,998 1,223,775
--------------------------------------------------------------
3,644,874
--------------------------------------------------------------
TELECOMMUNICATIONS (LONG
DISTANCE)-1.41%
Call-Net Enterprises, Inc.(f) 15,000 30,000
--------------------------------------------------------------
FirstCom Corp.(f) 100,000 1,387,500
--------------------------------------------------------------
Long Distance International,
Inc.-Wts., expiring 04/13/08(g) 670 0
--------------------------------------------------------------
Primus Telecommunications Group,
Inc.(f) 8,000 130,500
--------------------------------------------------------------
Versatel Telecom International
N.V.-ADR (Netherlands)(f) 8,000 256,000
--------------------------------------------------------------
Viatel, Inc.(f) 11,270 157,083
--------------------------------------------------------------
1,961,083
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TELEPHONE-0.47%
ICG Communications, Inc.(f) 8,300 $ 126,575
--------------------------------------------------------------
Intermedia Communications Inc.(f) 4,500 79,312
--------------------------------------------------------------
NEXTLINK Communications, Inc.-Class
A(f) 3,000 99,188
--------------------------------------------------------------
PF.Net Communications Inc.-Wts,
expiring 05/15/10 (Acquired
07/19/00; Cost $0)(d)(g) 1,500 352,500
--------------------------------------------------------------
657,575
--------------------------------------------------------------
WASTE MANAGEMENT-0.01%
Allied Waste North America Inc.(f) 1,000 9,313
--------------------------------------------------------------
Total Stocks & Other Equity
Interests (Cost $5,865,712) 7,494,022
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
U.S. TREASURY NOTES-2.74%
6.75%, 05/15/05 $3,000,000 3,074,520
--------------------------------------------------------------
6.50%, 02/15/10 700,000 723,296
--------------------------------------------------------------
Total U.S. Treasury Notes (Cost
$3,773,133) 3,797,816
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
MONEY MARKET FUNDS-3.40%
STIC Liquid Assets Portfolio(h) 2,351,478 2,351,478
--------------------------------------------------------------
STIC Prime Portfolio(h) 2,351,478 2,351,478
--------------------------------------------------------------
Total Money Market Funds (Cost
$4,702,956) 4,702,956
--------------------------------------------------------------
TOTAL INVESTMENTS-99.05% (Cost
$144,078,990) 137,224,556
--------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-0.95% 1,319,756
--------------------------------------------------------------
NET ASSETS-100.00% $138,544,312
==============================================================
</TABLE>
Investment Abbreviations:
ADR - American Depositary Receipt
Conv. - Convertible
Deb. - Debentures
Disc. - Discounted
Gtd. - Guaranteed
Pfd. - Preferred
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
Wts. - Warrants
Notes to Schedule of Investments:
(a)Discounted bond at purchase. The interest rate represents the coupon rate at
which the bond will accrue at a specified future date.
(b)Consists of more than one class of securities traded together as a unit. In
addition to the security listed, each unit contains warrants that enable the
holder to purchase shares of the issuer at a predetermined price.
(c)Defaulted security. Currently, the issuer is in default with respect to
interest payments.
(d)Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of 1933,
as amended. The valuation of these securities has been determined in
accordance with procedures established by the Board of Trustees. The
aggregate market value of these securities at 07/31/00 was $11,738,500 which
represented 8.47% of the Fund's net assets.
(e)Represents a security sold under Rule 144A, which is exempt from registration
and may be resold to qualified institutional buyers in accordance with the
provisions of Rule 144A under the Securities Act of 1993, as amended.
(f)Non-income producing security.
(g)Acquired as part of a unit with or in exchange for other securities.
(h)The money market fund has the same investment advisor as the Fund.
See Notes to Financial Statements.
FS-26
<PAGE> 246
STATEMENT OF ASSETS AND LIABILITIES
July 31, 2000
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$144,078,990) $137,224,556
------------------------------------------------------------
Receivables for:
Investments sold 744,445
------------------------------------------------------------
Fund shares sold 1,286,945
------------------------------------------------------------
Dividends and interest 3,023,829
------------------------------------------------------------
Principal paydowns 15,996
------------------------------------------------------------
Investment for deferred compensation plan 9,552
------------------------------------------------------------
Other assets 687
------------------------------------------------------------
Total assets 142,306,010
------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 1,972,970
------------------------------------------------------------
Fund shares reacquired 1,058,157
------------------------------------------------------------
Dividends 557,763
------------------------------------------------------------
Deferred compensation plan 9,552
------------------------------------------------------------
Accrued advisory fees 43,714
------------------------------------------------------------
Accrued administrative services fees 4,235
------------------------------------------------------------
Accrued distribution fees 83,466
------------------------------------------------------------
Accrued trustees' fees 1,329
------------------------------------------------------------
Accrued transfer agent fees 10,381
------------------------------------------------------------
Accrued operating expenses 20,131
------------------------------------------------------------
Total liabilities 3,761,698
------------------------------------------------------------
Net assets applicable to shares outstanding $138,544,312
============================================================
NET ASSETS:
Class A $ 59,932,447
============================================================
Class B $ 67,140,371
============================================================
Class C $ 11,471,494
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 5,980,900
============================================================
Class B 6,710,694
============================================================
Class C 1,147,715
============================================================
Class A:
Net asset value and redemption price per
share $ 10.02
------------------------------------------------------------
Offering price per share:
(Net asset value of $10.02 divided
by 95.25%) $ 10.52
============================================================
Class B:
Net asset value and offering price per share $ 10.00
============================================================
Class C:
Net asset value and offering price per share $ 10.00
============================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended July 31, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 11,052,412
------------------------------------------------------------
Dividends -- affiliated issuers 322,436
------------------------------------------------------------
Dividends 1,946
------------------------------------------------------------
Total investment income 11,376,794
------------------------------------------------------------
EXPENSES:
Advisory fees 618,330
------------------------------------------------------------
Administrative services fee 45,890
------------------------------------------------------------
Custodian fees 29,597
------------------------------------------------------------
Distribution fees -- Class A 116,793
------------------------------------------------------------
Distribution fees -- Class B 451,249
------------------------------------------------------------
Distribution fees -- Class C 70,906
------------------------------------------------------------
Transfer agent fees -- Class A 55,409
------------------------------------------------------------
Transfer agent fees -- Class B 52,957
------------------------------------------------------------
Transfer agent fees -- Class C 8,320
------------------------------------------------------------
Trustee's fees 7,516
------------------------------------------------------------
Registration and filing fees 87,264
------------------------------------------------------------
Other 89,252
------------------------------------------------------------
Total expenses 1,633,483
------------------------------------------------------------
Less: Fees waived (251,914)
------------------------------------------------------------
Expenses paid indirectly (12,769)
------------------------------------------------------------
Net expenses 1,368,800
------------------------------------------------------------
Net investment income 10,007,994
------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES
Net realized gain (loss) from investment
securities (4,184,754)
------------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of investment securities (8,210,697)
------------------------------------------------------------
Net gain (loss) on investment securities (12,395,451)
------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ (2,387,457)
============================================================
</TABLE>
See Notes to Financial Statements.
FS-27
<PAGE> 247
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
JULY 31, JULY 31,
2000 1999
------------ -----------
<S> <C> <C>
OPERATIONS:
Net investment income $ 10,007,994 $ 2,231,058
-----------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities (4,184,754) 1,689,995
-----------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (8,210,697) 1,356,263
-----------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (2,387,457) 5,277,316
-----------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (4,862,629) (1,710,595)
-----------------------------------------------------------------------------------------
Class B (4,371,506) (446,277)
-----------------------------------------------------------------------------------------
Class C (688,979) (70,876)
-----------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A (812,826) (22,467)
-----------------------------------------------------------------------------------------
Class B (819,787) (421)
-----------------------------------------------------------------------------------------
Class C (117,753) (64)
-----------------------------------------------------------------------------------------
Share transactions-net:
Class A 31,472,427 32,499,124
-----------------------------------------------------------------------------------------
Class B 52,638,735 20,530,581
-----------------------------------------------------------------------------------------
Class C 9,369,182 3,068,584
-----------------------------------------------------------------------------------------
Net increase in net assets 79,419,407 59,124,905
-----------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 59,124,905 --
-----------------------------------------------------------------------------------------
End of year $138,544,312 $59,124,905
=========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $149,564,881 $56,080,847
-----------------------------------------------------------------------------------------
Undistributed net investment income 100,666 20,746
-----------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities (4,266,801) 1,667,049
-----------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities (6,854,434) 1,356,263
-----------------------------------------------------------------------------------------
$138,544,312 $59,124,905
=========================================================================================
</TABLE>
See Notes to Financial Statements.
FS-28
<PAGE> 248
NOTES TO FINANCIAL STATEMENTS
July 31, 2000
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM High Yield Fund II (the "Fund") is a series portfolio of AIM Investment
Securities Funds (the "Trust"). The Trust is a Delaware business trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management company consisting of seven separate
portfolios each having unlimited number of shares of beneficial interests. The
Fund currently offers three different classes of shares: Class A shares, Class B
shares and Class C shares. Class A shares are sold with a front-end sales
charge. Class B and Class C shares are sold with a contingent deferred sales
charge. Matters affecting each portfolio or class are voted on exclusively by
the shareholders of such portfolio or class. The assets, liabilities and
operations of each portfolio are accounted for separately. Information presented
in these financial statements pertains only to the Fund. The Fund's investment
objective is to achieve a high level of current income by investing primarily in
publicly traded, non-investment grade debt securities. The Fund will also
consider the possibility of capital growth when it purchases and sells
securities. Debt securities of less than investment grade are considered
"high-risk" securities (commonly referred to as junk bonds). These bonds may
involve special risks in addition to the risks associated with higher rated debt
securities. High yield bonds may be more susceptible to real or perceived
adverse economic conditions than higher grade bonds. Also, the secondary market
in which high yield bonds are traded may be less liquid than the market for
higher grade bonds.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. Security Valuations -- A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price as of the close of the
customary trading session on the exchange where the security is principally
traded, or lacking any sales on a particular day, the security is valued at
the closing bid price on that day. Each security reported on the NASDAQ
National Market System is valued at the last sales price as of the close of
the customary trading session on the valuation date or absent a last sales
price, at the closing bid price. Debt obligations (including convertible
bonds) are valued on the basis of prices provided by an independent pricing
service. Prices provided by the pricing service may be determined without
exclusive reliance on quoted prices, and may reflect appropriate factors such
as yield, type of issue, coupon rate and maturity date. Securities for which
market prices are not provided by any of the above methods are valued based
upon quotes furnished by independent sources and are valued at the last bid
price in the case of equity securities and in the case of debt obligations,
the mean between the last bid and asked prices. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the Trust's
officers in a manner specifically authorized by the Board of Trustees.
Short-term obligations having 60 days or less to maturity are valued at
amortized cost which approximates market value. For purposes of determining
net asset value per share, futures and option contracts generally will be
valued 15 minutes after the close of the customary trading session of the New
York Stock Exchange ("NYSE").
Generally, trading in foreign securities is substantially completed each
day at various times prior to the close of the NYSE. The values of such
securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the NYSE. Occasionally, events
affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of the customary
trading session of the NYSE which would not be reflected in the computation
of the Fund's net asset value. If events materially affecting the value of
such securities occur during such period, then these securities will be
valued at their fair value as determined in good faith by or under the
supervision of the Board of Trustees.
B. Securities Transactions and Investment Income -- Securities transactions are
accounted for on a trade date basis. Realized gains or losses on sales are
computed on the basis of specific identification of the securities sold.
Interest income, adjusted for amortization of discounts on investments, is
recorded on the accrual basis from settlement date. It is the policy of the
Fund not to amortize bond premiums for financial reporting purposes. On July
31, 2000, undistributed net investment income was decreased by $4,960,
undistributed net realized gains increased by $1,270 and paid-in capital was
increased by $3,690 a result of differing book/tax treatment
reclassifications. Net assets of the Fund were unaffected by the
reclassifications.
C. Distributions -- It is the policy of the Fund to declare daily dividends from
net investment income. Such distributions are paid monthly. Distributions
from net realized capital gains, if any, are generally paid annually and
recorded on ex-dividend date. The Fund may elect to use a portion of the
proceeds from redemptions as distributions for Federal income tax purposes.
D. Federal Income Taxes -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements.
FS-29
<PAGE> 249
E. Expenses -- Distribution expenses and certain transfer agency expenses
directly attributable to a class of shares are charged to those classes'
operations. All other expenses which are attributable to more than one class
are allocated among the classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.625% on
the first $500 million of the Fund's average daily net assets, plus 0.55% on the
next $500 million of Fund's average daily net assets, plus 0.50% on the Fund's
average daily net assets in excess of $1 billion. During the year ended July 31,
2000, AIM waived fees of $251,914.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended July 31, 2000, AIM was paid
$45,890 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. For the year ended July 31, 2000, AFS was paid
$56,527 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.25% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and C shares. Of these amounts, the Fund may
pay a service fee of 0.25% of the average daily net assets of the Class A, Class
B or Class C shares to selected dealers and financial institutions who furnish
continuing personal shareholder services to their customers who purchase and own
the appropriate class of shares of the Fund. Any amounts not paid as a service
fee under the Plans would constitute an asset-based sales charge. The Plans also
impose a cap on the total sales charges, including asset-based sales charges
that may be paid by the respective classes. For the year ended July 31, 2000,
the Class A, Class B and Class C shares paid AIM Distributors $116,793, $451,249
and $70,906, respectively, as compensation under the Plans.
AIM Distributors received commissions of $177,396 from sales of the Class A
shares of the Fund during the year ended July 31, 2000. Such commissions are not
an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended July 31, 2000, AIM
Distributors received $15,557 in contingent deferred sales charges imposed on
redemptions of Fund shares.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended July 31, 2000, the Fund paid legal fees of $2,949 for
services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Trustees. A member of that firm is a trustee of the Trust.
NOTE 3-INDIRECT EXPENSES
For the year ended July 31, 2000, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $1,076 and reductions in custodian
fees of $11,693 under expense offset arrangements which resulted in a reduction
of the Fund's total expenses of $12,769.
NOTE 4-TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. The Trust invests trustees' fees, if so elected by a
trustee, in mutual fund shares in accordance with a deferred compensation plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $1,000,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the year ended July 31, 2000,
the Fund did not borrow under the line of credit agreement. The funds which are
party to the line of credit are charged a commitment fee of 0.09% on the unused
balance of the committed line. The commitment fee is allocated among the funds
based on their respective average net assets for the period.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended July 31, 2000 was
$173,269,358 and $86,523,800, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of July 31, 2000 was as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $ 6,549,816
---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (13,411,863)
---------------------------------------------------------
Net unrealized appreciation (depreciation)
of investment securities $ (6,862,047)
=========================================================
Cost of investments for tax purposes is $144,086,603.
</TABLE>
FS-30
<PAGE> 250
NOTE 7-SHARE INFORMATION
Changes in shares outstanding during the years ended July 31, 2000 and 1999 were
as follows:
<TABLE>
<CAPTION>
2000 1999
-------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Sold:
Class A 6,219,653 $ 67,705,096 3,879,343 $40,951,231
--------------------------------------------------------------------------------------------------------------------
Class B 6,916,159 75,069,344 2,156,519 23,713,819
--------------------------------------------------------------------------------------------------------------------
Class C 1,071,505 11,566,013 322,660 3,551,731
--------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A 340,326 3,674,382 99,704 1,082,276
--------------------------------------------------------------------------------------------------------------------
Class B 294,647 3,168,494 23,551 261,935
--------------------------------------------------------------------------------------------------------------------
Class C 45,665 488,435 3,953 43,955
--------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (3,689,603) (39,907,051) (868,523) (9,534,383)
--------------------------------------------------------------------------------------------------------------------
Class B (2,369,468) (25,599,103) (310,714) (3,445,173)
--------------------------------------------------------------------------------------------------------------------
Class C (249,183) (2,685,266) (46,885) (527,102)
--------------------------------------------------------------------------------------------------------------------
8,579,701 $ 93,480,344 5,259,608 $56,098,289
====================================================================================================================
</TABLE>
NOTES 8-FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------------------- ------------------------------ ------------------------------
SEPTEMBER 30, 1998 NOVEMBER 20, 1998 NOVEMBER 20, 1998
(DATE OPERATIONS (DATE SALES (DATE SALES
YEAR ENDED COMMENCED) YEAR ENDED COMMENCED) YEAR ENDED COMMENCED)
JULY 31, TO JULY 31, JULY 31, TO JULY 31, JULY 31, TO JULY 31,
2000 1999 2000 1999 2000 1999
---------- ------------------ ---------- ----------------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $ 11.25 $ 10.00 $ 11.23 $ 10.59 $ 11.22 $10.59
------------------------------ ------- ------- ------- ------- ------- ------
Income from investment
operations:
Net investment income 1.12 0.90 1.03 0.68 1.03 0.68
------------------------------ ------- ------- ------- ------- ------- ------
Net gains on securities
(both realized and
unrealized) (1.00) 1.26 (1.00) 0.65 (0.99) 0.64
------------------------------ ------- ------- ------- ------- ------- ------
Total from investment
operations 0.12 2.16 0.03 1.33 0.04 1.32
------------------------------ ------- ------- ------- ------- ------- ------
Less distributions:
Dividends from net
investment income (1.12) (0.90) (1.03) (0.68) (1.03) (0.68)
------------------------------ ------- ------- ------- ------- ------- ------
Distributions from net
realized gains (0.23) (0.01) (0.23) (0.01) (0.23) (0.01)
------------------------------ ------- ------- ------- ------- ------- ------
Total distributions (1.35) (0.91) (1.26) (0.69) (1.26) (0.69)
------------------------------ ------- ------- ------- ------- ------- ------
Net asset value, end of year $ 10.02 $ 11.25 $ 10.00 $ 11.23 $ 10.00 $11.22
============================== ======= ======= ======= ======= ======= ======
Total return(a) 0.77% 22.39% (0.03)% 13.03% 0.08% 12.93%
============================== ======= ======= ======= ======= ======= ======
Ratios/supplemental data:
Net assets, end of year (000s
omitted) $59,932 $34,992 $67,140 $20,994 $11,471 $3,139
============================== ======= ======= ======= ======= ======= ======
Ratio of expenses to average
net assets:
With fee waivers 1.00%(b) 1.00%(c) 1.75%(b) 1.75%(c) 1.75%(b) 1.75%(c)
------------------------------ ------- ------- ------- ------- ------- ------
Without fee waivers 1.25%(b) 1.58%(c) 2.00%(b) 2.33%(c) 2.00%(b) 2.33%(c)
============================== ======= ======= ======= ======= ======= ======
Ratio of net investment income
to average net assets 10.51%(b) 9.74%(c) 9.76%(b) 8.99%(c) 9.76%(b) 8.99%(c)
============================== ======= ======= ======= ======= ======= ======
Portfolio turnover rate 94% 223% 94% 223% 94% 223%
============================== ======= ======= ======= ======= ======= ======
</TABLE>
(a) Does not deduct sales charges and is not annualized for periods less than
one year.
(b) Ratios are based on average net assets of $46,717,368, $45,124,885, and
$7,090,552, for Class A, Class B and Class C, respectively.
(c) Annualized.
FS-31
<PAGE> 251
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
AIM Income Fund:
We have audited the accompanying statement of assets and liabilities of AIM
Income Fund (a portfolio of AIM Investment Securities Funds), including the
schedule of investments, as of July 31, 2000, and the related statement of
operations for the seven months ended July 31, 2000 and the year ended December
31, 1999, the statement of changes in net assets for the seven months ended July
31, 2000 and the two-years ended December 31, 1999, and the financial highlights
for the seven months ended July 31, 2000 and for each of the years in the
five-year period ended December 31, 1999. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of July 31, 2000, 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 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
Income Fund as of July 31, 2000, the results of its operations for the seven
months ended July 31, 2000 and the year ended December 31, 1999, the changes in
its net assets for the seven months ended July 31, 2000 and the two-years ended
December 31, 1999, and the financial highlights for the seven months ended July
31, 2000 and for each of the years in the five-year period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States of America.
/s/ KPMG LLP
September 1, 2000
Houston, Texas
FS-32
<PAGE> 252
SCHEDULE OF INVESTMENTS
July 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. DOLLAR DENOMINATED BONDS &
NOTES-84.76%
AIR FREIGHT-0.70%
Atlas Air, Inc., Sr. Unsec. Notes,
10.75%, 08/01/05 $ 3,970,000 $ 4,089,100
--------------------------------------------------------------
AIRLINES-3.64%
Air 2 US-Series C, Equipment Trust
Ctfs., 10.13%, 10/01/20
(Acquired 10/28/99; Cost
$3,750,000)(a) 3,750,000 3,853,350
--------------------------------------------------------------
Airplanes Pass Through
Trust-Series D, Gtd. Sub. Bonds,
10.88%, 03/15/19 1,787,737 1,436,724
--------------------------------------------------------------
Delta Air Lines, Inc., Deb.,
9.00%, 05/15/16 700,000 696,038
--------------------------------------------------------------
10.38%, 12/15/22 4,000,000 4,399,560
--------------------------------------------------------------
Equipment Trust Ctfs., 10.50%,
04/30/16 5,000,000 5,713,650
--------------------------------------------------------------
Dunlop Standard Aerospace Holdings
PLC (United Kingdom), Sr. Unsec.
Yankee Sub. Notes, 11.88%,
05/15/09 2,700,000 2,693,250
--------------------------------------------------------------
United Air Lines, Inc.-Series
95A2, Pass Through Ctfs., 9.56%,
10/19/18 2,325,000 2,594,793
--------------------------------------------------------------
21,387,365
--------------------------------------------------------------
AUTO PARTS & EQUIPMENT-0.78%
Advance Stores Co., Inc.-Series B,
Sr. Unsec. Gtd. Sub. Notes,
10.25%, 04/15/08 2,585,000 2,126,162
--------------------------------------------------------------
Exide Corp., Sr. Notes, 10.00%,
04/15/05 2,640,000 2,442,000
--------------------------------------------------------------
4,568,162
--------------------------------------------------------------
AUTOMOBILES-0.40%
DaimlerChrysler N.A. Holding
Corp., Gtd. Notes, 8.00%,
06/15/10 2,300,000 2,341,492
--------------------------------------------------------------
BANKS (MAJOR REGIONAL)-2.39%
BB&T Corp., Putable Sub. Notes,
6.38%, 06/30/05 1,000,000 937,240
--------------------------------------------------------------
Crestar Financial Corp., Sub.
Notes, 8.75%, 11/15/04 645,000 670,503
--------------------------------------------------------------
Midland Bank PLC (United Kingdom),
Yankee Sub. Notes, 7.65%,
05/01/25 1,870,000 1,869,177
--------------------------------------------------------------
Regions Financial Corp., Putable
Sub. Notes, 7.75%, 09/15/24 3,650,000 3,674,163
--------------------------------------------------------------
Republic New York Corp.,
Sub. Deb., 9.50%, 04/15/14 2,750,000 3,044,882
--------------------------------------------------------------
Sub. Notes, 9.70%, 02/01/09 2,500,000 2,751,850
--------------------------------------------------------------
Union Planters Bank N.A., Unsec.
Sub. Notes, 6.50%, 03/15/08 1,240,000 1,092,353
--------------------------------------------------------------
14,040,168
--------------------------------------------------------------
BANKS (MONEY CENTER)-1.55%
First Union Corp., Putable Sub.
Deb.,
6.55%, 10/15/35 660,000 624,842
--------------------------------------------------------------
7.50%, 04/15/35 5,000,000 4,940,750
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
BANKS (MONEY CENTER)-(CONTINUED)
NCNB Corp., Sub. Notes, 9.38%,
09/15/09 $ 3,200,000 $ 3,525,856
--------------------------------------------------------------
9,091,448
--------------------------------------------------------------
BANKS (REGIONAL)-2.10%
Banponce Trust I-Series A, Gtd.
Notes, 8.33%, 02/01/27 3,000,000 2,705,550
--------------------------------------------------------------
Mercantile Bancorp., Inc., Unsec.
Sub. Notes, 7.30%, 06/15/07 3,585,000 3,496,952
--------------------------------------------------------------
NBD Bank N.A. Michigan, Putable
Sub. Deb., 8.25%, 11/01/24 2,800,000 2,934,512
--------------------------------------------------------------
Riggs Capital Trust II-Series C,
Gtd. Sec. Bonds, 8.88%, 03/15/27 3,800,000 3,216,358
--------------------------------------------------------------
12,353,372
--------------------------------------------------------------
BEVERAGES (ALCOHOLIC)-0.70%
J Seagram & Sons, Gtd. Deb.,
9.65%, 08/15/18 3,500,000 4,122,615
--------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO &
CABLE)-8.33%
AT&T Corp.-Liberty Media Group,
Bonds, 7.88%, 07/15/09 1,500,000 1,464,870
--------------------------------------------------------------
Sr. Unsec. Deb., 8.25%, 02/01/30 3,400,000 3,264,748
--------------------------------------------------------------
British Sky Broadcasting Group PLC
(United Kingdom), Sr. Unsec.
Gtd. Yankee Notes, 8.20%,
07/15/09 5,400,000 4,983,984
--------------------------------------------------------------
CF Cable TV Inc. (Canada), Sr.
Sec. Priority Yankee Notes,
9.13%, 07/15/07 2,000,000 2,117,460
--------------------------------------------------------------
Charter Communications Holdings,
LLC/Charter Communications
Holdings Capital Corp., Sr.
Unsec. Disc. Notes, 9.92%,
04/01/11(b) 2,500,000 1,437,500
--------------------------------------------------------------
Comcast Cable Communications,
Notes, 8.88%, 05/01/17 5,000,000 5,412,400
--------------------------------------------------------------
Sr. Unsec. Notes, 8.50%,
05/01/27 3,000,000 3,164,640
--------------------------------------------------------------
Cox Enterprises, Inc., Notes,
8.00%, 02/15/07 (Acquired
02/16/00; Cost $3,771,614)(a) 3,800,000 3,818,810
--------------------------------------------------------------
CSC Holdings Inc., Sr. Unsec.
Deb.,
7.63%, 07/15/18 3,250,000 2,951,357
--------------------------------------------------------------
7.88%, 02/15/18 1,000,000 931,380
--------------------------------------------------------------
Sr. Unsec. Notes, 7.88%,
12/15/07 6,850,000 6,666,831
--------------------------------------------------------------
Fox Family Worldwide, Inc., Sr.
Unsec. Disc. Notes, 10.25%,
11/01/07(b) 3,930,000 2,731,350
--------------------------------------------------------------
Knology Holdings, Inc., Sr. Disc.
Notes, 11.88%, 10/15/07(b) 4,100,000 2,183,250
--------------------------------------------------------------
Lenfest Communications, Inc., Sr.
Unsec. Sub. Notes, 8.25%,
02/15/08 5,000,000 4,989,050
--------------------------------------------------------------
United Pan-Europe Communications
N.V. (Netherlands)-Series B, Sr.
Unsec. Disc. Yankee Notes,
13.38%, 11/01/09(b) 6,000,000 2,790,000
--------------------------------------------------------------
48,907,630
--------------------------------------------------------------
</TABLE>
FS-33
<PAGE> 253
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
BUILDING MATERIALS-0.48%
Blount Inc., Sr. Unsec. Gtd. Sub.
Notes, 13.00%, 08/01/09 $ 2,750,000 $ 2,791,250
--------------------------------------------------------------
CHEMICALS-0.49%
Sterling Chemicals, Inc.-Series B,
Sr. Gtd. Sec. Sub. Notes,
12.38%, 07/15/06 2,750,000 2,866,875
--------------------------------------------------------------
CHEMICALS (SPECIALTY)-0.02%
Key Plastics Holdings, Inc.-Series
B, Sr. Unsec. Gtd. Sub. Notes,
10.25%, 03/15/07(c) 1,325,000 139,125
--------------------------------------------------------------
COMPUTERS (HARDWARE)-0.25%
Candescent Technology Corp., Sr.
Conv. Sub. Deb., 8.00%, 05/01/03
(Acquired 04/20/98; Cost
$2,000,000)(a) 2,000,000 1,450,000
--------------------------------------------------------------
COMPUTERS (NETWORKING)-0.35%
Exodus Communications, Inc., Sr.
Unsec. Notes, 11.25%, 07/01/08 2,025,000 2,025,000
--------------------------------------------------------------
COMPUTERS (PERIPHERALS)-0.51%
Equinix Inc., Sr. Unsec. Notes,
13.00%, 12/01/07 3,540,000 3,009,000
--------------------------------------------------------------
CONSUMER FINANCE-2.76%
Capital One Bank,
Sr. Notes, 6.65%, 03/15/04 1,600,000 1,520,176
--------------------------------------------------------------
Unsec. Notes, 7.25%, 05/01/06 2,500,000 2,313,850
--------------------------------------------------------------
CitiFinancial Credit Co., Putable
Notes, 7.88%, 02/01/25 1,400,000 1,415,162
--------------------------------------------------------------
Countrywide Home Loans,
Inc.-Series H, Unsec. Gtd.
Medium Term Sub Notes, 6.25%,
04/15/09 1,600,000 1,411,296
--------------------------------------------------------------
General Motors Acceptance Corp.,
Notes, 5.75%, 11/10/03 2,500,000 2,392,575
--------------------------------------------------------------
Household Finance Corp., Unsec.
Notes, 8.00%, 07/15/10 2,000,000 1,996,940
--------------------------------------------------------------
MBNA Capital I-Series A, Gtd.
Bonds, 8.28%, 12/01/26 6,065,000 5,165,560
--------------------------------------------------------------
16,215,559
--------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH)-0.24%
Fleming Cos., Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 10.63%,
07/31/07 1,600,000 1,388,000
--------------------------------------------------------------
ELECTRIC COMPANIES-7.16%
Cilcorp Inc., Bonds, 9.38%,
10/15/29 2,100,000 2,254,266
--------------------------------------------------------------
Cleveland Electric Illuminating
Co. (The)- Series D, Sr. Sec.
Notes, 7.88%, 11/01/17 3,800,000 3,709,777
--------------------------------------------------------------
CMS Energy Corp., Sr. Unsec.
Notes, 8.13%, 05/15/02 850,000 846,158
--------------------------------------------------------------
El Paso Electric Co.-Series E,
Sec. First Mortgage Bonds,
9.40%, 05/01/11 3,000,000 3,170,760
--------------------------------------------------------------
Indiana Michigan Power Co.-Series
F, Sec. Lease Obligation Bonds,
9.82%, 12/07/22 4,967,714 5,434,977
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
ELECTRIC COMPANIES-(CONTINUED)
Niagara Mohawk Holdings Inc.,
First Mortgage Notes, 7.75%,
05/15/06 $ 4,300,000 $ 4,273,082
--------------------------------------------------------------
Series H, Sr. Unsec. Disc.
Notes, 8.50%, 07/01/10(b) 10,000,000 7,678,800
--------------------------------------------------------------
Public Service Company of New
Mexico- Series A, Sr. Unsec.
Notes, 7.10%, 08/01/05 1,200,000 1,168,872
--------------------------------------------------------------
Southern Energy, Inc., Sr. Notes,
7.90%, 07/15/09 (Acquired
07/21/99-12/03/99; Cost
$5,978,820)(a) 6,000,000 5,566,380
--------------------------------------------------------------
Texas-New Mexico Power Co., Sr.
Sec. Notes, 6.25%, 01/15/09 4,050,000 3,476,965
--------------------------------------------------------------
Western Resources, Inc., Sr.
Unsec. Notes, 7.13%, 08/01/09 5,352,000 4,468,706
--------------------------------------------------------------
42,048,743
--------------------------------------------------------------
ELECTRONICS (COMPONENT
DISTRIBUTORS)-0.56%
Israel Electric Corp. Ltd.
(Israel),
Series E, Sr. Sec. Medium Term
Yankee Notes, 7.75%, 03/01/09
(Acquired 04/13/00; Cost
$2,138,136)(a) 2,200,000 2,130,634
--------------------------------------------------------------
Yankee Deb., 7.75%, 12/15/27
(Acquired 06/09/00; Cost
$1,141,374)(a) 1,300,000 1,178,541
--------------------------------------------------------------
3,309,175
--------------------------------------------------------------
ENGINEERING & CONSTRUCTION-0.39%
Morrison Knudsen Corp., Sr. Notes,
11.00%, 07/01/10 (Acquired
06/28/00; Cost $2,233,395)(a) 2,250,000 2,261,250
--------------------------------------------------------------
ENTERTAINMENT-2.34%
Callahan Nordrhein Westfalen
(Denmark), Sr. Yankee Notes,
14.00%, 07/15/10 (Acquired
06/29/00; Cost $1,100,000)(a) 1,100,000 1,080,750
--------------------------------------------------------------
Time Warner Inc., Deb.,
9.13%, 01/15/13 5,000,000 5,460,900
--------------------------------------------------------------
9.15%, 02/01/23 6,500,000 7,218,055
--------------------------------------------------------------
13,759,705
--------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-3.46%
Associates Corp. of North America,
Sr. Deb., 6.95%, 11/01/18 1,000,000 903,540
--------------------------------------------------------------
Beaver Valley Funding Corp., Sec.
Lease Obligations Deb., 9.00%,
06/01/17 1,500,000 1,503,045
--------------------------------------------------------------
Citicorp Lease-Class A2, Series
1999-1, Pass Through Ctfs.,
8.04%, 12/15/19 (Acquired
06/01/00-07/14/00; Cost
$2,974,186)(a) 3,000,000 3,037,380
--------------------------------------------------------------
Citigroup Inc., Deb., 6.63%,
01/15/28 1,150,000 998,844
--------------------------------------------------------------
General Electric Capital
Corp.-Series A, Medium Term
Notes, 7.38%, 01/19/10 5,600,000 5,660,032
--------------------------------------------------------------
Heller Financial, Inc., Sr. Unsec.
Notes,
7.38%, 11/01/09 1,750,000 1,661,765
--------------------------------------------------------------
8.00%, 06/15/05 2,300,000 2,308,694
--------------------------------------------------------------
Hutchison Delta Finance
Ltd.-Series REGS (Cayman
Islands), Conv. Unsec. Euro
Notes, 7.00%, 11/08/02 2,000,000 2,380,000
--------------------------------------------------------------
</TABLE>
FS-34
<PAGE> 254
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
FINANCIAL (DIVERSIFIED)-(CONTINUED)
Source One Mortgage Services
Corp., Deb., 9.00%, 06/01/12 $ 1,130,000 $ 1,199,570
--------------------------------------------------------------
Sun Canada Financial Co., Gtd.
Sub. Notes, 6.63%, 12/15/07
(Acquired 10/14/99; Cost
$654,311)(a) 700,000 667,169
--------------------------------------------------------------
20,320,039
--------------------------------------------------------------
FOODS-0.85%
Grand Metropolitan Investment
Corp, Gtd. Bonds, 7.45%,
04/15/35 5,000,000 4,990,900
--------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL
COMPANIES-0.81%
Hollywood Casino Corp., Sr. Sec.
Gtd. Sub. Notes, 11.25%,
05/01/07 1,200,000 1,230,000
--------------------------------------------------------------
Venetian Casino Resort LLC, Sec.
Gtd. Mortgage Notes, 12.25%,
11/15/04 3,500,000 3,552,500
--------------------------------------------------------------
4,782,500
--------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC &
OTHER)-0.35%
Warner Chilcott, Inc., Sr. Unsec.
Gtd. Notes, 12.63%, 02/15/08(d) 2,000,000 2,070,000
--------------------------------------------------------------
HOUSEHOLD FURNISHING &
APPLIANCES-0.48%
O'Sullivan Industries, Inc.-Series
B, Sr. Unsec. Gtd. Sub. Notes,
13.38%, 10/15/09 3,000,000 2,820,000
--------------------------------------------------------------
HOUSEHOLD PRODUCTS
(NON-DURABLES)-0.45%
Procter & Gamble Co. (The),
Putable Deb., 8.00%, 09/01/24 2,500,000 2,665,875
--------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-1.07%
American General Finance Corp.,
Sr. Notes, 8.45%, 10/15/09 2,100,000 2,157,414
--------------------------------------------------------------
Americo Life, Inc., Sr. Sub.
Notes, 9.25%, 06/01/05 1,000,000 945,000
--------------------------------------------------------------
John Hancock Global Funding II,
Sec. Medium Term Notes, 7.90%,
07/02/10 (Acquired 06/23/00;
Cost $1,995,220)(a) 2,000,000 2,011,820
--------------------------------------------------------------
Torchmark Corp., Notes, 7.88%,
05/15/23 1,325,000 1,142,799
--------------------------------------------------------------
6,257,033
--------------------------------------------------------------
INSURANCE (MULTI-LINE)-0.43%
AIG SunAmerica Global Financing
II, Sr. Sec. Notes, 7.60%,
06/15/05 (Acquired 06/08/00;
Cost $2,500,000)(a) 2,500,000 2,526,875
--------------------------------------------------------------
INSURANCE (PROPERTY &
CASUALTY)-1.50%
GE Global Insurance Holdings
Corp., Notes, 7.75%, 06/15/30 4,800,000 4,864,320
--------------------------------------------------------------
Terra Nova Insurance PLC (United
Kingdom), Sr. Unsec. Gtd. Yankee
Notes,
7.00%, 05/15/08 2,000,000 1,872,940
--------------------------------------------------------------
7.20%, 08/15/07 2,200,000 2,094,070
--------------------------------------------------------------
8,831,330
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
INVESTMENT BANKING/BROKERAGE-1.92%
Lehman Brothers Holdings Inc.,
Notes, 8.50%, 08/01/15 $ 4,490,000 $ 4,546,484
--------------------------------------------------------------
Sr. Sub. Notes, 7.38%, 01/15/07 3,585,000 3,450,312
--------------------------------------------------------------
Series E, Medium Term Notes,
9.34%, 02/10/28(e) 8,700,000 707,745
--------------------------------------------------------------
Putable Sr. Notes, 8.80%,
03/01/15 1,640,000 1,687,265
--------------------------------------------------------------
Merrill Lynch & Co., Unsec. Notes,
6.88%, 11/15/18 1,000,000 904,270
--------------------------------------------------------------
11,296,076
--------------------------------------------------------------
IRON & STEEL-0.07%
Acme Metals Inc., Sr. Unsec. Gtd.
Notes, 10.88%, 12/15/07(c) 3,240,000 437,400
--------------------------------------------------------------
LEISURE TIME (PRODUCTS)-0.28%
Marvel Enterprises, Inc., Sr.
Unsec. Gtd. Sub. Notes, 12.00%,
06/15/09 2,075,000 1,665,187
--------------------------------------------------------------
LODGING-HOTELS-0.31%
John Q. Hammons Hotels, Inc., Sec.
First Mortgage Notes, 9.75%,
10/01/05 2,000,000 1,800,000
--------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-0.41%
Actuant Corp., Sr. Unsec. Gtd.
Sub. Notes, 13.00%, 05/01/09
(Acquired 07/21/00; Cost
$1,164,365)(a) 1,180,000 1,185,900
--------------------------------------------------------------
Anthony Crane Rentals LP-Series B,
Sr. Unsec. Gtd. Sub. Notes,
10.38%, 08/01/08 1,500,000 828,750
--------------------------------------------------------------
Glenoit Corp., Sr. Unsec. Gtd.
Sub. Notes, 11.00%, 04/15/07(c) 2,310,000 392,700
--------------------------------------------------------------
2,407,350
--------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-0.55%
MMI Products, Inc.-Series B, Sr.
Unsec. Sub. Notes, 11.25%,
04/15/07 2,070,000 2,038,950
--------------------------------------------------------------
Tekni-Plex Inc., Sr. Sub. Notes,
12.75%, 06/15/10 (Acquired
06/15/00; Cost $1,163,834)(a) 1,180,000 1,209,500
--------------------------------------------------------------
3,248,450
--------------------------------------------------------------
METALS MINING-0.90%
Centaur Mining and Exploration
Ltd. (Australia), Sr. Gtd.
Yankee Notes, 11.00%, 12/01/07 2,500,000 1,937,500
--------------------------------------------------------------
Rio Algom Ltd. (Canada), Unsec.
Yankee Deb., 7.05%, 11/01/05 3,500,000 3,332,945
--------------------------------------------------------------
5,270,445
--------------------------------------------------------------
NATURAL GAS-3.15%
Dynegy Inc., Sr. Unsec. Deb.,
7.13%, 05/15/18 3,550,000 3,166,280
--------------------------------------------------------------
Enron Corp.,
Sr. Sub. Deb., 8.25%, 09/15/12 4,100,000 4,196,637
--------------------------------------------------------------
Series A, Medium Term Notes,
8.38%, 05/23/05 1,750,000 1,812,877
--------------------------------------------------------------
KN Capital Trust III, Gtd. Sub.
Bonds, 7.63%, 04/15/28 2,500,000 2,204,650
--------------------------------------------------------------
Nova Gas Transmission Ltd.
(Canada), Yankee Deb., 8.50%,
12/15/12 3,000,000 3,166,920
--------------------------------------------------------------
</TABLE>
FS-35
<PAGE> 255
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
NATURAL GAS-(CONTINUED)
Sonat Inc., Unsec. Notes, 7.63%,
07/15/11 $ 4,000,000 $ 3,933,040
--------------------------------------------------------------
18,480,404
--------------------------------------------------------------
OIL & GAS (DRILLING &
EQUIPMENT)-0.55%
NRG Energy, Inc., Sr. Unsec.
Notes, 7.50%, 06/01/09 3,400,000 3,242,138
--------------------------------------------------------------
OIL & GAS (EXPLORATION &
PRODUCTION)-2.11%
Den Norske Stats Oljeselskap A.S.
(Norway), Yankee Deb., 7.38%,
05/01/16 (Acquired 06/01/00;
Cost $2,064,678)(a) 2,200,000 2,108,194
--------------------------------------------------------------
ONEOK, Inc., Unsec. Notes, 7.75%,
08/15/06 3,500,000 3,489,325
--------------------------------------------------------------
Talisman Energy Inc. (Canada),
Yankee Deb., 7.13%, 06/01/07 3,750,000 3,581,212
--------------------------------------------------------------
Union Pacific Resources Group
Inc., Unsec. Deb., 7.50%,
10/15/26 3,350,000 3,196,737
--------------------------------------------------------------
12,375,468
--------------------------------------------------------------
OIL & GAS (REFINING &
MARKETING)-1.32%
Petroleos Mexicanos-Series P
(Mexico), Unsub. Yankee Notes,
9.50%, 09/15/27 2,600,000 2,697,110
--------------------------------------------------------------
Texas Petrochemical Corp., Sr.
Unsec. Sub. Notes, 11.13%,
07/01/06 2,010,000 1,778,850
--------------------------------------------------------------
Tosco Corp., Unsec. Deb., 7.80%,
01/01/27 3,400,000 3,301,706
--------------------------------------------------------------
7,777,666
--------------------------------------------------------------
OIL (DOMESTIC INTEGRATED)-1.27%
Amerada Hess Corp., Bonds, 7.88%,
10/01/29 3,000,000 2,929,170
--------------------------------------------------------------
Occidental Petroleum Corp., Sr.
Deb., 9.25%, 08/01/19 4,100,000 4,496,716
--------------------------------------------------------------
7,425,886
--------------------------------------------------------------
OIL (INTERNATIONAL
INTEGRATED)-0.60%
YPF Sociedad Anonima (Argentina),
Yankee Bonds, 9.13%, 02/24/09 3,500,000 3,546,620
--------------------------------------------------------------
PAPER & FOREST PRODUCTS-0.67%
Domtar, Inc. (Canada), Unsec.
Yankee Deb., 9.50%, 08/01/16 3,750,000 3,914,063
--------------------------------------------------------------
PHOTOGRAPHY/IMAGING-0.40%
Polaroid Corp., Sr. Unsec. Notes,
11.50%, 02/15/06 2,220,000 2,342,100
--------------------------------------------------------------
POWER PRODUCERS
(INDEPENDENT)-0.48%
Kincaid Generation LLC, Sec.
Bonds, 7.33%, 06/15/20 (Acquired
04/30/98; Cost $2,004,940)(a) 1,977,000 1,823,980
--------------------------------------------------------------
Panda Funding Corp., Series A-1,
Pooled Project Bonds, 11.63%,
08/20/12 985,892 971,103
--------------------------------------------------------------
2,795,083
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
PUBLISHING (NEWSPAPERS)-2.33%
News America Holdings, Inc.,
Putable Notes, 8.45%, 08/01/34 $ 7,000,000 $ 7,144,270
--------------------------------------------------------------
Sr. Gtd. Deb., 9.25%, 02/01/13 5,250,000 5,585,895
--------------------------------------------------------------
Sr. Unsec. Gtd. Putable Bonds,
7.43%, 10/01/26 1,000,000 973,470
--------------------------------------------------------------
13,703,635
--------------------------------------------------------------
RAILROADS-1.21%
CSX Corp., Sr. Unsec. Putable
Deb., 7.25%, 05/01/27 7,250,000 7,090,573
--------------------------------------------------------------
REAL ESTATE INVESTMENT
TRUSTS-0.88%
ERP Operating L.P., Unsec. Notes,
7.13%, 10/15/17 2,400,000 2,084,784
--------------------------------------------------------------
Health Care REIT, Inc., Sr. Unsec.
Notes, 7.63%, 03/15/08 1,500,000 1,244,160
--------------------------------------------------------------
Spieker Properties, Inc., Unsec.
Deb., 7.35%, 12/01/17 2,000,000 1,807,080
--------------------------------------------------------------
5,136,024
--------------------------------------------------------------
RETAIL (SPECIALTY)-0.98%
Amazon.com, Inc., Conv. Deb.,
4.75%, 02/01/09 (Acquired
01/29/99; Cost $2,507,500)(a) 2,500,000 1,368,750
--------------------------------------------------------------
CSK Auto Inc.-Series A, Sr. Gtd.
Sub. Deb, 11.00%, 11/01/06 715,000 559,488
--------------------------------------------------------------
Neff Corp., Sr. Unsec. Gtd. Sub.
Notes, 10.25%, 06/01/08 5,190,000 3,036,150
--------------------------------------------------------------
Rent-A-Center, Inc., Sr. Unsec.
Gtd. Sub. Notes, 11.00%,
08/15/08 820,000 795,400
--------------------------------------------------------------
5,759,788
--------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-0.25%
Big 5 Corp.-Series B, Sr. Unsec.
Notes, 10.88%, 11/15/07 1,625,000 1,482,813
--------------------------------------------------------------
SAVINGS & LOAN COMPANIES-2.04%
Dime Capital Trust I-Series A,
Gtd. Bonds, 9.33%, 05/06/27 2,020,000 1,876,035
--------------------------------------------------------------
Sovereign Bancorp, Inc., Medium
Term Sub. Notes, 8.00%, 03/15/03 5,050,000 4,827,245
--------------------------------------------------------------
St. Paul Bancorp, Inc., Sr. Unsec.
Notes, 7.13%, 02/15/04 1,500,000 1,449,915
--------------------------------------------------------------
Washington Mutual Cap I,
Sec. Gtd. Bonds, 8.38%, 06/01/27 1,485,000 1,340,703
--------------------------------------------------------------
Sub. Notes, 8.25%, 04/01/10 2,500,000 2,491,125
--------------------------------------------------------------
11,985,023
--------------------------------------------------------------
SERVICES (COMMERCIAL &
CONSUMER)-0.33%
Avis Group Holdings, Inc., Sr.
Unsec. Gtd. Sub. Notes, 11.00%,
05/01/09 1,850,000 1,956,375
--------------------------------------------------------------
SERVICES (EMPLOYMENT)-0.32%
MSX International, Inc., Sr.
Unsec. Gtd. Sub. Notes, 11.38%,
01/15/08 1,980,000 1,871,100
--------------------------------------------------------------
</TABLE>
FS-36
<PAGE> 256
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
SOVEREIGN DEBT-1.58%
Newfoundland (Province of)
(Canada), Unsec. Yankee Deb.,
9.00%, 06/01/19 $ 4,000,000 $ 4,569,160
--------------------------------------------------------------
Quebec (Province of)
(Canada)-Series A, Medium Term
Putable Yankee Notes, 6.29%,
03/06/26(g) 4,800,000 4,693,824
--------------------------------------------------------------
9,262,984
--------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/
WIRELESS)-1.47%
Crown Castle International Corp.,
Sr. Notes, 10.75%, 08/01/11 1,100,000 1,133,000
--------------------------------------------------------------
Metrocall, Inc., Sr. Sub. Notes,
11.88%, 06/15/05 1,940,000 1,619,900
--------------------------------------------------------------
Nextel Communications, Inc.,
Sr. Notes, 12.00%, 11/01/08 3,375,000 3,645,000
--------------------------------------------------------------
Sr. Notes, 12.75%, 08/01/10
(Acquired 07/26/00; Cost
$986,220)(a) 1,000,000 997,500
--------------------------------------------------------------
Orion Network Systems, Inc., Sr.
Gtd. Sub. Notes, 11.25%,
01/15/07 2,000,000 1,230,000
--------------------------------------------------------------
8,625,400
--------------------------------------------------------------
TELECOMMUNICATIONS (LONG
DISTANCE)-3.50%
360networks Inc. (Canada),
Sr. Unsec. Yankee Notes, 12.00%,
08/01/09 1,000,000 935,000
--------------------------------------------------------------
Sr. Yankee Notes, 12.50%,
12/15/05 1,430,000 1,426,425
--------------------------------------------------------------
Destia Communications, Inc., Sr.
Unsec. Notes, 13.50%, 07/15/07 3,500,000 3,062,500
--------------------------------------------------------------
Esprit Telecom Group PLC (United
Kingdom), Sr. Unsec. Yankee
Notes, 11.50%, 12/15/07 1,500,000 1,087,500
--------------------------------------------------------------
Primus Telecommunications Group,
Inc., Sr. Unsec. Notes,
11.25%, 01/15/09 3,500,000 2,152,500
--------------------------------------------------------------
12.75%, 10/15/09 1,560,000 959,400
--------------------------------------------------------------
Sprint Corp., Putable Deb., 9.00%,
10/15/19 2,500,000 2,873,125
--------------------------------------------------------------
Versatel Telecom International
N.V. (Netherlands), Sr. Yankee
Notes, 13.25%, 05/15/08 1,370,000 1,411,100
--------------------------------------------------------------
Williams Communications Group,
Inc., Sr. Unsec. Notes, 10.70%,
10/01/07 3,000,000 2,910,000
--------------------------------------------------------------
WorldCom, Inc., Notes, 8.00%,
05/15/06 3,650,000 3,720,701
--------------------------------------------------------------
20,538,251
--------------------------------------------------------------
TELEPHONE-5.19%
Alestra S.A. (Mexico), Sr. Yankee
Notes, 12.63%, 05/15/09 2,380,000 2,314,550
--------------------------------------------------------------
AT&T Canada Inc. (Canada), Sr.
Unsec. Yankee Notes 7.65%,
09/15/06 2,800,000 2,792,871
--------------------------------------------------------------
Bell Atlantic Financial Services,
Inc.- Series REGS, Conv. Bonds,
4.25%, 09/15/05 2,700,000 3,170,100
--------------------------------------------------------------
CFW Communications Co., Sr. Notes,
13.00%, 08/15/10 (Acquired
07/21/00; Cost $1,750,328)(a)(f) 1,775,000 1,775,000
--------------------------------------------------------------
Deutsche Telekom International
Finance B.V. (Netherlands),
Unsec. Unsub. Yankee Bonds,
8.00%, 06/15/10 2,700,000 2,725,299
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
TELEPHONE-(CONTINUED)
ICG Services, Inc., Sr. Unsec.
Disc. Notes, 10.00%, 02/15/08(b) $ 4,000,000 $ 2,248,960
--------------------------------------------------------------
Intermedia Communications,
Inc.-Series B, Sr. Disc. Notes,
11.25%, 07/15/07(b) 2,300,000 1,552,500
--------------------------------------------------------------
Logix Communications Enterprises,
Sr. Unsec. Notes, 12.25%,
06/15/08 1,000,000 252,500
--------------------------------------------------------------
NTL Inc.-Series B, Sr. Disc.
Notes, 11.50%, 02/01/06(b) 1,475,000 1,386,500
--------------------------------------------------------------
Qwest Communications International
Inc., Sr. Unsec. Notes, 7.50%,
11/01/08 3,050,000 2,984,212
--------------------------------------------------------------
Telefonos de Mexico S.A. de C.V.
(Mexico), Conv. Yankee Notes,
4.25%, 06/15/04 3,000,000 3,817,500
--------------------------------------------------------------
U.S. Xchange LLC, Sr. Unsec.
Notes, 15.00%, 07/01/08 5,000,000 5,462,500
--------------------------------------------------------------
30,482,492
--------------------------------------------------------------
TRUCKERS-1.18%
North American Van Lines Inc., Sr.
Sub. Notes, 13.38%, 12/01/09(d) 5,000,000 4,725,000
--------------------------------------------------------------
Travelcenters of America, Inc.,
Sr. Unsec. Gtd. Sub. Notes,
10.25%, 04/01/07 2,180,000 2,207,250
--------------------------------------------------------------
6,932,250
--------------------------------------------------------------
WASTE MANAGEMENT-2.97%
Allied Waste North America
Inc.-Series B, Sr. Unsec. Gtd.
Sub. Notes, 10.00%, 08/01/09(d) 4,920,000 4,317,300
--------------------------------------------------------------
Browning-Ferris Industries, Inc.,
Deb.,
7.40%, 09/15/35 1,200,000 774,000
--------------------------------------------------------------
9.25%, 05/01/21 2,570,000 2,197,350
--------------------------------------------------------------
Waste Management, Inc., Sr. Unsec.
Notes,
7.13%, 10/01/07 3,710,000 3,388,158
--------------------------------------------------------------
7.13%, 12/15/17 935,000 796,583
--------------------------------------------------------------
Unsec. Putable Notes, 7.10%,
08/01/26 6,270,000 5,984,339
--------------------------------------------------------------
17,457,730
--------------------------------------------------------------
Total U.S. Dollar Denominated
Bonds & Notes (Cost
$526,526,492) 497,738,360
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT(h)
<S> <C> <C>
NON-U.S. DOLLAR DENOMINATED BONDS
& NOTES-9.00%
AUSTRALIA-0.36%
State Bank New South Wales-Series
E (Banks-Major Regional), Sr.
Unsec. Gtd. Medium Term Notes,
8.63%, 08/20/01 AUD 3,600,000 2,126,493
--------------------------------------------------------------
CANADA-3.39%
AT&T Canada Inc. (Telephone), Sr.
Unsec. Notes, 7.15%, 09/23/04CAD 1,150,000 780,007
--------------------------------------------------------------
Bell Mobility Cellular Inc.
(Telecommunications-Cellular/Wireless),
Deb., 6.55%, 06/02/08 CAD 2,250,000 1,478,020
--------------------------------------------------------------
</TABLE>
FS-37
<PAGE> 257
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(h) VALUE
<S> <C> <C>
CANADA-(CONTINUED)
Canadian Pacific Ltd.-Series D
(Manufacturing-Diversified),
Unsec. Medium Term Notes, 5.85%,
03/30/09 (Acquired 03/24/99;
Cost $2,149,150)(a) CAD 3,250,000 $ 2,029,397
--------------------------------------------------------------
Clearnet Communications Inc.
(Telecommunications-Cellular/Wireless),
Sr. Disc. Notes,
10.40%, 05/15/08(b) CAD 9,050,000 3,698,039
--------------------------------------------------------------
11.75%, 08/13/07(b) CAD 8,200,000 3,847,111
--------------------------------------------------------------
Export Development Corp.
(Sovereign Debt), Sr. Unsec.
Unsub. Notes, 6.50%, 12/21/04NZD 2,150,000 933,761
--------------------------------------------------------------
Microcell Telecommunications Inc.
(Telecommunications-Cellular/Wireless),
Sr. Disc. Notes, 11.13%,
10/15/07(b) CAD 3,500,000 1,653,831
--------------------------------------------------------------
Ontario (Province of) (Sovereign
Debt), Unsec. Unsub. Notes,
6.25%, 12/03/08 NZD 2,500,000 1,019,756
--------------------------------------------------------------
Rogers Cablesystems
(Broadcasting-Television, Radio
& Cable), Sr. Sec. Second
Priority Deb., 9.65%,
01/15/14 CAD 3,300,000 2,352,862
--------------------------------------------------------------
TransCanada Pipelines-Series Q
(Natural Gas), Deb., 10.63%,
10/20/09 CAD 1,750,000 1,449,438
--------------------------------------------------------------
Westcoast Energy Inc.-Series V
(Natural Gas), Unsec. Deb.,
6.45%, 12/18/06 (Acquired
12/03/96; Cost $739,169)(a) CAD 1,000,000 664,721
--------------------------------------------------------------
19,906,943
--------------------------------------------------------------
CAYMAN ISLANDS-0.52%
Sutton Bridge Financial Ltd.
(Power Producers-Independent),
Gtd. Euro Bonds, 8.63%,
06/30/22(d) GBP 2,000,000 3,079,298
--------------------------------------------------------------
FRANCE-0.51%
Vivendi Environment (Waste
Management), Conv. Bonds, 1.50%,
01/01/05 EUR 1,050,000 2,973,891
--------------------------------------------------------------
NETHERLANDS-1.23%
Grapes Communications N.V.
(Telecommunications-Cellular/Wireless),
Sr. Notes, 13.50%, 05/15/10
(Acquired 05/03/00; Cost
$12,085,640)(a)(f) 2,300,000 1,919,822
--------------------------------------------------------------
Tecnost International
N.V.-(Telephone) Series E, Gtd.
Medium Term Notes, 6.13%,
07/30/09 EUR 2,050,000 1,769,144
--------------------------------------------------------------
Tele1 Europe B.V.
(Telecommunications-Long
Distance), Sr. Notes, 11.88%,
12/01/09 EUR 3,750,000 3,504,022
--------------------------------------------------------------
7,192,988
--------------------------------------------------------------
NEW ZEALAND-0.35%
Inter-American Development Bank
(Banks- Money Center), Unsec.
Bonds, 5.75%, 04/15/04 NZD 4,750,000 2,029,258
--------------------------------------------------------------
NORWAY-0.39%
Enitel ASA
(Telecommunications-Long
Distance), Sr. Notes, 12.50%,
04/15/10 EUR 2,500,000 2,272,253
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(h) VALUE
<S> <C> <C>
UNITED KINGDOM-2.25%
Airtours PLC (Services-Commercial
& Consumer), Conv. Sub. Notes,
5.75%, 01/05/04 (Acquired
12/09/98; Cost $3,091,887)(a)GBP 1,869,000 $ 2,566,138
--------------------------------------------------------------
British Sky Broadcasting Group PLC
(Broadcasting-Television, Radio
& Cable), Sr. Gtd. Unsec. Unsub.
Notes, 7.75%, 07/09/09 GBP 1,750,000 2,528,772
--------------------------------------------------------------
Energis PLC (Telephone), Sr.
Notes, 9.13%, 03/15/10 GBP 3,000,000 4,320,176
--------------------------------------------------------------
Jazztel PLC (Telephone), Sr.
Unsec. Notes, 13.25%,
12/15/09 EUR 2,260,000 1,907,394
--------------------------------------------------------------
Scotia Holdings PLC (Health
Care-Drugs- Generic & Other),
Conv. Unsec. Notes, 8.50%,
03/26/02 GBP 1,500,000 1,915,604
--------------------------------------------------------------
13,238,084
--------------------------------------------------------------
Total Non-U.S. Dollar
Denominated Bonds & Notes
(Cost $60,180,822) 52,819,208
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
STOCKS & OTHER EQUITY
INTERESTS-2.72%
BANKS (REGIONAL)-1.06%
First Republic Capital
Corp.-Series A-Pfd. (Acquired
05/26/99; Cost $3,500,000)(a) 3,500 3,141,250
--------------------------------------------------------------
Westpac Banking Corp., STRYPES
Trust-$3.14 Conv. Pfd. 95,000 3,069,688
--------------------------------------------------------------
6,210,938
--------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO &
CABLE)-0.00%
Knology Inc.-Wts., expiring
10/22/07 (Acquired 03/12/98;
Cost $0)(a)(i) 4,100 10,250
--------------------------------------------------------------
COMPUTERS (PERIPHERALS)-0.04%
Equinix Inc.-Wts., expiring
12/01/07 (Acquired 05/30/00;
Cost $0)(a)(i) 3,540 247,800
--------------------------------------------------------------
COMPUTERS (SOFTWARE &
SERVICES)-0.24%
Microsoft Corp.(j) 20,291 1,416,582
--------------------------------------------------------------
ELECTRICAL EQUIPMENT-0.00%
Electronic Retailing Systems
International, Inc.-Wts.,
expiring 02/01/04(i) 3,630 3,630
--------------------------------------------------------------
FOODS-0.13%
Ralston Purina Group.-$4.34 Conv.
Pfd. 23,000 764,750
--------------------------------------------------------------
HOUSEHOLD FURNISHING &
APPLIANCES-0.02%
O'Sullivan Industries, Inc.-Wts.,
expiring 11/05/09 (Acquired
06/13/00; Cost $0)(a)(i) 6,000 90,000
--------------------------------------------------------------
METAL FABRICATORS-0.00%
Gulf States Steel, Inc.-Wts.,
expiring 04/15/03(i) 1,650 --
--------------------------------------------------------------
SERVICES (COMMERCIAL &
CONSUMER)-0.33%
Cendant Corp.-$3.75 Conv. PRIDES 78,000 1,579,500
--------------------------------------------------------------
</TABLE>
FS-38
<PAGE> 258
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SERVICES (COMMERCIAL & CONSUMER)-(CONTINUED)
Cendant Corp.-Rts., expiring
02/14/01(i) 50,000 $ 375,000
--------------------------------------------------------------
1,954,500
--------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/
WIRELESS)-0.38%
Clearnet Communications Inc.-Class
A-ADR (Canada)(j) 5,874 165,206
--------------------------------------------------------------
Loral Space & Communications
Ltd.(j) 2,059 10,681
--------------------------------------------------------------
WebLink Wireless, Inc.(j) 204,685 2,059,643
--------------------------------------------------------------
2,235,530
--------------------------------------------------------------
TELECOMMUNICATIONS (LONG
DISTANCE)-0.52%
Enitel ASA (Norway)-Wts., expiring
04/05/05(i) 2,500 23,186
--------------------------------------------------------------
Versatel Telecom International
N.V.-ADR (Netherlands)(j) 17,663 565,216
--------------------------------------------------------------
Viatel, Inc., $3.88 Conv. Pfd.
(Acquired 04/07/00; Cost
$5,000,000)(a) 100,000 2,462,500
--------------------------------------------------------------
3,050,902
--------------------------------------------------------------
Total Stocks & Other Equity
Interests (Cost $21,633,642) 15,984,882
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. TREASURY NOTES-1.47%
6.63%, 05/31/02 $ 3,000,000 $ 3,013,710
--------------------------------------------------------------
6.75%, 05/15/05 5,500,000 5,636,620
--------------------------------------------------------------
8,650,330
--------------------------------------------------------------
Total U.S. Treasury Notes
(Cost $8,629,961) 8,650,330
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
MONEY MARKET FUNDS-0.48%
STIC Liquid Assets Portfolio(k) 1,416,926 1,416,926
--------------------------------------------------------------
STIC Prime Portfolio(k) 1,416,926 1,416,926
--------------------------------------------------------------
Total Money Market Funds (Cost
$2,833,852) 2,833,852
--------------------------------------------------------------
TOTAL INVESTMENTS-98.43% (Cost
$619,804,769) 578,026,632
--------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-1.57% 9,202,630
--------------------------------------------------------------
NET ASSETS-100.00% $587,229,262
==============================================================
</TABLE>
Investment Abbreviations:
ADR - American Depositary Receipt
AUD - Australian Dollar
CAD - Canadian Dollar
Conv. - Convertible
Ctfs. - Certificates
Deb. - Debentures
Disc. - Discounted
EUR - Euro
GBP - British Pound Sterling
Gtd. - Guaranteed
NZD - New Zealand Dollar
Pfd. - Preferred
PRIDES - Preferred Redemption Increase Dividend Equity Security
REIT - Real Estate Investment Trust
REGS - Regulation S
Rts. - Rights
Sec. - Secured
Sr. - Senior
STRYPES - Structured Yield Product Exchangeable for Stock
Sub. - Subordinated
Unsec. - Unsecured
Unsub. - Unsubordinated
Wts. - Warrants
Notes to Schedule of Investments:
(a)Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of 1933,
as amended. The valuation of these securities has been determined in
accordance with procedures established by the Board of Trustees. The
aggregate market value of these securities at 07/31/00 was $53,183,661 which
represented 9.06% of the Fund's net assets.
(b)Discounted bond at purchase. The interest rate represents the coupon rate at
which the bond will accrue at a specified future date.
(c)Defaulted security. Currently, the issuer is in default with respect to
interest payments.
(d)Represents a security sold under Rule 144A, which is exempt from registration
and may be resold to qualified institutional buyers in accordance with the
provisions of Rule 144A under the Securities Act of 1993, as amended.
(e)Zero coupon bond issued at a discount. The interest rate shown represents the
rate of original issue discount.
(f)Consists of more than one class of securities traded together as a unit. In
addition to the security listed, each unit contains warrants that enable the
holder to purchase shares of the issuer at a predetermined price.
(g)Step-up bond. The interest rate represents the coupon rate at which the bond
will accrue at a specified future date.
(h)Foreign denominated security. Par value is denominated in currency indicated.
(i)Non-income producing security acquired as part of a unit with or in exchange
for other securities.
(j)Non-income producing security.
(k)The money market fund has the same investment advisor as the Fund.
See Notes to Financial Statements.
FS-39
<PAGE> 259
SCHEDULE OF INVESTMENTS
June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. DOLLAR DENOMINATED BONDS &
NOTES-83.31%
AIR FREIGHT-0.69%
Atlas Air, Inc., Sr. Unsec. Notes,
10.75%, 08/01/05 $ 3,970,000 $ 4,089,100
--------------------------------------------------------------
AIRLINES-4.21%
Air 2 US-Series C, Equipment Trust
Ctfs., 10.13%, 10/01/20
(Acquired 10/28/99; Cost
$3,750,000)(a) 3,750,000 3,898,200
--------------------------------------------------------------
Airplanes Pass Through
Trust-Series D, Gtd. Sub. Bonds,
10.88%, 03/15/19 1,787,737 1,453,457
--------------------------------------------------------------
Delta Air Lines, Inc., Deb.,
9.00%, 05/15/16 700,000 674,170
--------------------------------------------------------------
10.38%, 12/15/22 4,000,000 4,287,040
--------------------------------------------------------------
Equipment Trust Ctfs., 10.50%,
04/30/16 5,000,000 5,721,450
--------------------------------------------------------------
Dunlop Standard Aerospace Holdings
PLC (United Kingdom), Sr. Unsec.
Yankee Sub. Notes, 11.88%,
05/15/09 2,700,000 2,659,500
--------------------------------------------------------------
United Air Lines, Inc.,
Deb., 9.75%, 08/15/21 (Acquired
09/23/99; Cost $4,205,475)(a) 3,750,000 3,618,562
--------------------------------------------------------------
Series 95A2, Pass Through Ctfs.,
9.56%, 10/19/18 2,325,000 2,565,823
--------------------------------------------------------------
24,878,202
--------------------------------------------------------------
AUTO PARTS & EQUIPMENT-0.76%
Advance Stores Co., Inc.-Series B,
Sr. Unsec. Gtd. Sub. Notes,
10.25%, 04/15/08 2,585,000 2,106,775
--------------------------------------------------------------
Exide Corp., Sr. Notes, 10.00%,
04/15/05 2,640,000 2,376,000
--------------------------------------------------------------
4,482,775
--------------------------------------------------------------
AUTOMOBILES-0.40%
DaimlerChrysler N.A. Holding
Corp., Gtd. Notes, 8.00%,
06/15/10 2,300,000 2,340,710
--------------------------------------------------------------
BANKS (MAJOR REGIONAL)-2.37%
BB&T Corp., Putable Sub. Notes,
6.38%, 06/30/05 1,000,000 935,650
--------------------------------------------------------------
Crestar Financial Corp., Sub.
Notes, 8.75%, 11/15/04 645,000 669,097
--------------------------------------------------------------
Midland Bank PLC (United Kingdom),
Yankee Sub. Notes, 7.65%,
05/01/25 1,870,000 1,864,222
--------------------------------------------------------------
Regions Financial Corp., Putable
Sub. Notes, 7.75%, 09/15/24 3,650,000 3,667,666
--------------------------------------------------------------
Republic New York Corp.,
Sub. Deb., 9.50%, 04/15/14 2,750,000 3,044,002
--------------------------------------------------------------
Sub. Notes, 9.70%, 02/01/09 2,500,000 2,735,775
--------------------------------------------------------------
Union Planters Bank N.A., Unsec.
Sub. Notes, 6.50%, 03/15/08 1,240,000 1,085,769
--------------------------------------------------------------
14,002,181
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
BANKS (MONEY CENTER)-1.53%
First Union Corp., Putable Sub.
Deb.,
6.55%, 10/15/35 $ 660,000 $ 622,783
--------------------------------------------------------------
7.50%, 04/15/35 5,000,000 4,931,650
--------------------------------------------------------------
NCNB Corp., Sub. Notes, 9.38%,
09/15/09 3,200,000 3,493,056
--------------------------------------------------------------
9,047,489
--------------------------------------------------------------
BANKS (REGIONAL)-2.06%
Banponce Trust I-Series A, Gtd.
Notes, 8.33%, 02/01/27 3,000,000 2,660,760
--------------------------------------------------------------
Mercantile Bancorp., Inc., Unsec.
Sub. Notes, 7.30%, 06/15/07 3,585,000 3,461,748
--------------------------------------------------------------
NBD Bank N.A. Michigan, Putable
Sub. Deb., 8.25%, 11/01/24 2,800,000 2,885,792
--------------------------------------------------------------
Riggs Capital Trust II-Series C,
Gtd. Sec. Bonds, 8.88%, 03/15/27 3,800,000 3,121,662
--------------------------------------------------------------
12,129,962
--------------------------------------------------------------
BEVERAGES (ALCOHOLIC)-0.67%
J Seagram & Sons, Gtd. Deb.,
9.65%, 08/15/18 3,500,000 3,976,805
--------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO &
CABLE)-7.74%
AT&T Corp.-Liberty Media Group,
Bonds, 7.88%, 07/15/09 1,500,000 1,447,530
--------------------------------------------------------------
Sr. Unsec. Deb., 8.25%, 02/01/30 3,400,000 3,140,750
--------------------------------------------------------------
British Sky Broadcasting Group PLC
(United Kingdom), Sr. Unsec.
Gtd. Yankee Notes, 8.20%,
07/15/09 5,400,000 5,094,198
--------------------------------------------------------------
CF Cable TV Inc. (Canada), Sr.
Sec. Priority Yankee Notes,
9.13%, 07/15/07 2,000,000 2,116,360
--------------------------------------------------------------
Charter Communications Holdings,
LLC/Charter Communications
Holdings Capital Corp., Sr.
Unsec. Disc. Notes, 9.92%,
04/01/11(b) 2,500,000 1,431,250
--------------------------------------------------------------
Comcast Cable Communications,
Notes, 8.88%, 05/01/17 5,000,000 5,371,000
--------------------------------------------------------------
Sr. Unsec. Notes, 8.50%,
05/01/27 3,000,000 3,145,080
--------------------------------------------------------------
Cox Enterprises, Inc., Notes,
8.00%, 02/15/07 (Acquired
02/16/00; Cost $3,771,614)(a) 3,800,000 3,781,418
--------------------------------------------------------------
CSC Holdings Inc., Sr. Unsec.
Deb.,
Sr. Unsec. Deb., 7.88%, 02/15/18 1,000,000 922,940
--------------------------------------------------------------
Sr. Unsec. Notes, 7.88%,
12/15/07 6,850,000 6,641,280
--------------------------------------------------------------
Fox Family Worldwide, Inc., Sr.
Unsec. Disc. Notes, 10.25%,
11/01/07(b) 3,930,000 2,456,250
--------------------------------------------------------------
Knology Holdings, Inc., Sr. Disc.
Notes, 11.88%, 10/15/07(b) 4,100,000 2,224,250
--------------------------------------------------------------
Lenfest Communications, Inc., Sr.
Unsec. Sub. Notes, 8.25%,
02/15/08 5,000,000 4,953,350
--------------------------------------------------------------
United Pan-Europe Communications
N.V. (Netherlands)-Series B, Sr.
Unsec. Disc. Yankee Notes,
13.38%, 11/01/09(b) 6,000,000 2,940,000
--------------------------------------------------------------
45,665,656
--------------------------------------------------------------
</TABLE>
FS-40
<PAGE> 260
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
BUILDING MATERIALS-0.48%
Blount Inc., Sr. Unsec. Gtd. Sub.
Notes, 13.00%, 08/01/09 $ 2,750,000 $ 2,818,750
--------------------------------------------------------------
CHEMICALS-0.48%
Sterling Chemicals, Inc.-Series B,
Sr. Gtd. Sec. Sub. Notes,
12.38%, 07/15/06 2,750,000 2,846,250
--------------------------------------------------------------
CHEMICALS (SPECIALTY)-0.02%
Key Plastics Holdings, Inc.-Series
B, Sr. Unsec. Gtd. Sub. Notes,
10.25%, 03/15/07(c) 1,325,000 139,125
--------------------------------------------------------------
COMPUTERS (HARDWARE)-0.37%
Candescent Technology Corp., Sr.
Conv. Sub. Deb., 8.00%, 05/01/03
(Acquired 04/20/98; Cost
$2,000,000)(a) 2,000,000 1,450,000
--------------------------------------------------------------
Lattice Semiconductor Corp., Conv.
Notes, 4.75%, 11/01/06 (Acquired
12/03/99; Cost $538,200)(a) 390,000 705,412
--------------------------------------------------------------
2,155,412
--------------------------------------------------------------
COMPUTERS (NETWORKING)-0.34%
Exodus Communications, Inc., Sr.
Unsec. Notes, 11.25%, 07/01/08 2,025,000 2,014,875
--------------------------------------------------------------
COMPUTERS (PERIPHERALS)-0.62%
Equinix Inc., Sr. Notes, 13.00%,
12/01/07(d)(e) 3,540,000 3,655,050
--------------------------------------------------------------
CONSUMER FINANCE-2.56%
Capital One Financial Corp.,
Unsec. Notes, 7.25%, 05/01/06 2,500,000 2,306,150
--------------------------------------------------------------
CitiFinancial Credit Co., Putable
Notes, 7.88%, 02/01/25 1,400,000 1,410,738
--------------------------------------------------------------
Countrywide Home Loans,
Inc.-Series H, Unsec. Gtd.
Medium Term Sub Notes, 6.25%,
04/15/09 1,600,000 1,397,712
--------------------------------------------------------------
General Motors Acceptance Corp.,
Notes, 5.75%, 11/10/03 2,500,000 2,386,100
--------------------------------------------------------------
Household Finance Corp., Sr.
Unsec. Notes, 8.00%, 05/09/05 2,500,000 2,519,125
--------------------------------------------------------------
MBNA Capital I-Series A, Gtd.
Bonds, 8.28%, 12/01/26 6,065,000 5,084,047
--------------------------------------------------------------
15,103,872
--------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH)-0.23%
Fleming Companies, Inc.-Series B,
Sr. Unsec. Gtd. Sub. Notes,
10.63%, 07/31/07 1,600,000 1,352,000
--------------------------------------------------------------
ELECTRIC COMPANIES-6.69%
Cleveland Electric Illuminating
Co. (The)- Series D, Sr. Sec.
Notes, 7.88%, 11/01/17 3,800,000 3,638,895
--------------------------------------------------------------
CMS Energy Corp., Sr. Unsec.
Notes, 8.13%, 05/15/02 850,000 847,033
--------------------------------------------------------------
El Paso Electric Co.-Series E,
Sec. First Mortgage Bonds,
9.40%, 05/01/11 3,000,000 3,163,560
--------------------------------------------------------------
Indiana Michigan Power Co.-Series
F, Sec. Lease Obligation Bonds,
9.82%, 12/07/22 4,967,714 5,374,371
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
ELECTRIC COMPANIES-(CONTINUED)
Niagara Mohawk Holdings Inc.,
First Mortgage Notes, 7.75%,
05/15/06 $ 4,300,000 $ 4,262,031
--------------------------------------------------------------
Series H, Sr. Unsec. Disc.
Notes, 8.50%, 07/01/10(b) 10,000,000 7,649,300
--------------------------------------------------------------
Public Service Company of New
Mexico- Series A, Sr. Unsec.
Notes, 7.10%, 08/01/05 1,200,000 1,166,412
--------------------------------------------------------------
Southern Energy, Inc., Sr. Notes,
7.90%, 07/15/09 (Acquired
07/21/99-12/03/99; Cost
$5,978,820)(a) 6,000,000 5,551,320
--------------------------------------------------------------
Texas-New Mexico Power Co., Sr.
Sec. Notes, 6.25%, 01/15/09 4,050,000 3,476,317
--------------------------------------------------------------
Western Resources, Inc., Sr.
Unsec. Notes, 7.13%, 08/01/09 5,352,000 4,384,572
--------------------------------------------------------------
39,513,811
--------------------------------------------------------------
ELECTRONICS (COMPONENT
DISTRIBUTORS)-0.55%
Israel Electric Corp. Ltd.
(Israel),
Series E, Sr. Sec. Medium Term
Yankee Notes, 7.75%, 03/01/09
(Acquired 04/13/00; Cost
$2,138,136)(a) 2,200,000 2,125,200
--------------------------------------------------------------
Yankee Deb., 7.75%, 12/15/27
(Acquired 06/09/00; Cost
$1,141,374)(a) 1,300,000 1,138,878
--------------------------------------------------------------
3,264,078
--------------------------------------------------------------
ENGINEERING & CONSTRUCTION-0.38%
Morrison Knudsen Corp., Sr. Notes,
11.00%, 07/01/10 (Acquired
06/28/00; Cost $2,233,395)(a) 2,250,000 2,244,375
--------------------------------------------------------------
ENTERTAINMENT-2.32%
Callahan Nordrhein Westfalen
(Denmark), Sr. Yankee Notes,
14.00%, 07/15/10 (Acquired
06/29/00; Cost $1,100,000)(a) 1,100,000 1,101,375
--------------------------------------------------------------
Time Warner Inc., Deb.,
9.13%, 01/15/13 5,000,000 5,434,900
--------------------------------------------------------------
9.15%, 02/01/23 6,500,000 7,133,620
--------------------------------------------------------------
13,669,895
--------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-3.86%
Associates Corp. of North America,
Sr. Deb., 6.95%, 11/01/18 1,000,000 884,380
--------------------------------------------------------------
Beaver Valley Funding Corp., Sec.
Lease Obligations Deb., 9.00%,
06/01/17 1,500,000 1,483,665
--------------------------------------------------------------
Citicorp Lease-Class A2, Series
1999-1, Pass Through Ctfs.,
8.04%, 12/15/19 (Acquired
06/01/00; Cost $2,172,874)(a) 2,200,000 2,193,576
--------------------------------------------------------------
General Electric Capital
Corp.-Series A, Medium Term
Notes, 7.38%, 01/19/10 5,600,000 5,650,064
--------------------------------------------------------------
Heller Financial, Inc., Sr. Unsec.
Notes,
7.38%, 11/01/09 1,750,000 1,647,520
--------------------------------------------------------------
8.00%, 06/15/05 2,300,000 2,295,009
--------------------------------------------------------------
Hutchison Delta Finance
Ltd.-Series REGS (Cayman
Islands), Conv. Unsec. Euro
Notes, 7.00%, 11/08/02 2,000,000 2,350,000
--------------------------------------------------------------
Source One Mortgage Services
Corp., Deb., 9.00%, 06/01/12 1,130,000 1,200,627
--------------------------------------------------------------
</TABLE>
FS-41
<PAGE> 261
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
FINANCIAL (DIVERSIFIED)-(CONTINUED)
Sumitomo Bank International
Finance N.V. (Japan), Gtd. Sub.
Yankee Notes, 8.50%, 06/15/09 $ 4,350,000 $ 4,407,289
--------------------------------------------------------------
Sun Canada Financial Co., Gtd.
Sub. Notes, 6.63%, 12/15/07
(Acquired 10/14/99; Cost
$654,311)(a) 700,000 667,533
--------------------------------------------------------------
22,779,663
--------------------------------------------------------------
FOODS-0.85%
Grand Metropolitan Investment,
Gtd. Bonds, 7.45%, 04/15/35 5,000,000 5,006,000
--------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL
COMPANIES-0.60%
Venetian Casino Resort LLC, Sec.
Gtd. Mortgage Notes, 12.25%,
11/15/04 3,500,000 3,552,500
--------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC &
OTHER)-0.35%
Warner Chilcott, Inc., Sr. Unsec.
Gtd. Notes, 12.63%, 02/15/08(d) 2,000,000 2,050,000
--------------------------------------------------------------
HOUSEHOLD FURNISHING &
APPLIANCES-0.49%
O'Sullivan Industries, Inc., Sr.
Sub. Notes, 13.38%, 10/15/09 3,000,000 2,902,500
--------------------------------------------------------------
HOUSEHOLD PRODUCTS
(NON-DURABLES)-0.45%
Procter & Gamble Co. (The),
Putable Deb., 8.00%, 09/01/24 2,500,000 2,646,125
--------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-1.06%
American General Finance Corp.,
Sr. Notes, 8.45%, 10/15/09 2,100,000 2,159,472
--------------------------------------------------------------
Americo Life, Inc., Sr. Sub.
Notes, 9.25%, 06/01/05 1,000,000 945,000
--------------------------------------------------------------
John Hancock Global Funding II,
Sec. Medium Term Notes, 7.90%,
07/02/10 (Acquired 06/23/00;
Cost $1,995,220)(a) 2,000,000 2,013,800
--------------------------------------------------------------
Torchmark Corp., Notes, 7.88%,
05/15/23 1,325,000 1,127,668
--------------------------------------------------------------
6,245,940
--------------------------------------------------------------
INSURANCE (MULTI-LINE)-0.43%
AIG SunAmerica Global Financing
II, Sr. Sec. Notes, 7.60%,
06/15/05 (Acquired 06/08/00;
Cost $2,500,000)(a) 2,500,000 2,518,025
--------------------------------------------------------------
INSURANCE (PROPERTY &
CASUALTY)-1.48%
GE Global Insurance Holdings
Corp., Notes, 7.75%, 06/15/30 4,800,000 4,760,112
--------------------------------------------------------------
Terra Nova Insurance PLC (United
Kingdom), Sr. Unsec. Gtd. Yankee
Notes,
7.00%, 05/15/08 2,000,000 1,873,480
--------------------------------------------------------------
7.20%, 08/15/07 2,200,000 2,094,466
--------------------------------------------------------------
8,728,058
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
INVESTMENT BANKING/BROKERAGE-1.72%
Lehman Brothers Holdings Inc.,
Notes, 8.50%, 08/01/15 $ 4,490,000 $ 4,426,691
--------------------------------------------------------------
Sr. Sub. Notes, 7.38%, 01/15/07 3,585,000 3,403,025
--------------------------------------------------------------
Series E, Medium Term Notes,
9.09%, 02/10/28(f) 8,700,000 679,557
--------------------------------------------------------------
Putable Sr. Notes, 8.80%,
03/01/15 1,640,000 1,657,417
--------------------------------------------------------------
10,166,690
--------------------------------------------------------------
IRON & STEEL-0.15%
Acme Metals Inc., Sr. Unsec. Gtd.
Notes, 10.88%, 12/15/07(c) 3,240,000 502,200
--------------------------------------------------------------
GS Technologies Operating Co.,
Inc., Sr. Gtd. Notes, 12.00%,
09/01/04 1,585,000 404,175
--------------------------------------------------------------
906,375
--------------------------------------------------------------
LEISURE TIME (PRODUCTS)-0.27%
Marvel Enterprises, Inc., Sr.
Unsec. Gtd. Sub. Notes, 12.00%,
06/15/09 2,075,000 1,602,937
--------------------------------------------------------------
LODGING-HOTELS-0.30%
John Q. Hammons Hotels, Inc., Sec.
First Mortgage Notes, 9.75%,
10/01/05 2,000,000 1,760,000
--------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-0.22%
Anthony Crane Rentals LP-Series B,
Sr. Unsec. Gtd. Sub. Notes,
10.38%, 08/01/08 1,500,000 982,500
--------------------------------------------------------------
Glenoit Corp., Sr. Unsec. Gtd.
Sub. Notes, 11.00%, 04/15/07(c) 2,310,000 334,950
--------------------------------------------------------------
1,317,450
--------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-0.79%
Brand Scaffold Services, Inc., Sr.
Unsec. Notes, 10.25%, 02/15/08 1,600,000 1,416,000
--------------------------------------------------------------
MMI Products, Inc.-Series B, Sr.
Unsec. Sub. Notes, 11.25%,
04/15/07 2,070,000 2,038,950
--------------------------------------------------------------
Tekni-Plex Inc., Sr. Sub. Notes,
12.75%, 06/15/10 (Acquired
06/15/00; Cost $1,163,834)(a) 1,180,000 1,182,950
--------------------------------------------------------------
4,637,900
--------------------------------------------------------------
METALS MINING-0.90%
Centaur Mining and Exploration
Ltd. (Australia), Sr. Gtd.
Yankee Notes, 11.00%, 12/01/07 2,500,000 2,012,500
--------------------------------------------------------------
Rio Algom Ltd. (Canada), Unsec.
Yankee Deb., 7.05%, 11/01/05 3,500,000 3,325,280
--------------------------------------------------------------
5,337,780
--------------------------------------------------------------
NATURAL GAS-3.10%
Dynegy Inc., Sr. Unsec. Deb.,
7.13%, 05/15/18 3,550,000 3,121,764
--------------------------------------------------------------
Enron Corp.,
Series A, Medium Term Notes,
8.38%, 05/23/05 1,750,000 1,797,198
--------------------------------------------------------------
Sr. Sub. Deb., 8.25%, 09/15/12 4,100,000 4,184,870
--------------------------------------------------------------
KN Capital Trust III, Gtd. Sub.
Bonds, 7.63%, 04/15/28 2,500,000 2,150,475
--------------------------------------------------------------
</TABLE>
FS-42
<PAGE> 262
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
NATURAL GAS-(CONTINUED)
Nova Gas Transmission Ltd.
(Canada), Yankee Deb., 8.50%,
12/15/12 $ 3,000,000 $ 3,134,430
--------------------------------------------------------------
Sonat Inc., Unsec. Notes, 7.63%,
07/15/11 4,000,000 3,921,440
--------------------------------------------------------------
18,310,177
--------------------------------------------------------------
OIL & GAS (DRILLING &
EQUIPMENT)-0.54%
NRG Energy, Inc., Sr. Unsec.
Notes, 7.50%, 06/01/09 3,400,000 3,203,344
--------------------------------------------------------------
OIL & GAS (EXPLORATION &
PRODUCTION)-2.08%
Den Norske Stats Oljeselskap
(Norway), Yankee Deb., 7.38%,
05/01/16 (Acquired 06/01/00;
Cost $2,064,678)(a) 2,200,000 2,081,860
--------------------------------------------------------------
ONEOK, Inc., Unsec. Notes, 7.75%,
08/15/06 3,500,000 3,491,040
--------------------------------------------------------------
Talisman Energy Inc. (Canada),
Yankee Deb., 7.13%, 06/01/07 3,750,000 3,582,338
--------------------------------------------------------------
Union Pacific Resources Group
Inc., Unsec. Deb., 7.50%,
10/15/26 3,350,000 3,148,565
--------------------------------------------------------------
12,303,803
--------------------------------------------------------------
OIL & GAS (REFINING &
MARKETING)-0.85%
Texas Petrochemical Corp., Sr.
Unsec. Sub. Notes, 11.13%,
07/01/06 2,010,000 1,718,550
--------------------------------------------------------------
Tosco Corp., Unsec. Deb., 7.80%,
01/01/27 3,400,000 3,291,914
--------------------------------------------------------------
5,010,464
--------------------------------------------------------------
OIL (DOMESTIC INTEGRATED)-1.26%
Amerada Hess Corp., Bonds, 7.88%,
10/01/29 3,000,000 2,933,220
--------------------------------------------------------------
Occidental Petroleum Corp., Sr.
Deb., 9.25%, 08/01/19 4,100,000 4,472,854
--------------------------------------------------------------
7,406,074
--------------------------------------------------------------
OIL (INTERNATIONAL
INTEGRATED)-0.60%
YPF Sociedad Anonima (Argentina),
Yankee Bonds, 9.13%, 02/24/09 3,500,000 3,559,675
--------------------------------------------------------------
PAPER & FOREST PRODUCTS-0.66%
Domtar, Inc. (Canada), Unsec.
Yankee Deb., 9.50%, 08/01/16 3,750,000 3,914,063
--------------------------------------------------------------
PHOTOGRAPHY/IMAGING-0.40%
Polaroid Corp., Sr. Unsec. Notes,
11.50%, 02/15/06 2,220,000 2,328,225
--------------------------------------------------------------
POWER PRODUCERS
(INDEPENDENT)-0.47%
Kincaid Generation LLC, Sec.
Bonds, 7.33%, 06/15/20 (Acquired
04/30/98; Cost $1,981,883)(a) 1,977,000 1,799,129
--------------------------------------------------------------
Panda Funding Corp., Series A-1,
Pooled Project Bonds, 11.63%,
08/20/12 985,892 971,103
--------------------------------------------------------------
2,770,232
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
PUBLISHING (NEWSPAPERS)-2.32%
News America Holdings, Inc.,
Putable Notes, 8.45%, 08/01/34 $ 7,000,000 $ 7,121,310
--------------------------------------------------------------
Sr. Gtd. Deb., 9.25%, 02/01/13 5,250,000 5,621,175
--------------------------------------------------------------
Sr. Unsec. Gtd. Putable Bonds,
7.43%, 10/01/26 1,000,000 961,540
--------------------------------------------------------------
13,704,025
--------------------------------------------------------------
RAILROADS-1.19%
CSX Corp., Sr. Unsec. Putable
Deb., 7.25%, 05/01/27 7,250,000 7,045,623
--------------------------------------------------------------
REAL ESTATE INVESTMENT
TRUSTS-0.84%
ERP Operating L.P., Unsec. Notes,
7.13%, 10/15/17 2,400,000 1,987,872
--------------------------------------------------------------
Health Care REIT, Inc., Sr. Unsec.
Notes, 7.63%, 03/15/08 1,500,000 1,243,290
--------------------------------------------------------------
Spieker Properties, Inc., Unsec.
Deb., 7.35%, 12/01/17 2,000,000 1,751,580
--------------------------------------------------------------
4,982,742
--------------------------------------------------------------
RETAIL (SPECIALTY)-1.07%
Amazon.com, Inc., Conv. Deb.,
4.75%, 02/01/09 (Acquired
01/29/99; Cost $2,507,500)(a) 2,500,000 1,584,375
--------------------------------------------------------------
CSK Auto Inc.-Series A, Sr. Gtd.
Sub. Deb, 11.00%, 11/01/06 715,000 661,375
--------------------------------------------------------------
Neff Corp., Sr. Unsec. Gtd. Sub.
Notes, 10.25%, 06/01/08 5,190,000 3,243,750
--------------------------------------------------------------
Rent-A-Center, Inc., Sr. Unsec.
Gtd. Sub. Notes, 11.00%,
08/15/08 820,000 799,500
--------------------------------------------------------------
6,289,000
--------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-0.26%
Big 5 Corp.-Series B, Sr. Unsec.
Notes, 10.88%, 11/15/07 1,625,000 1,511,250
--------------------------------------------------------------
SAVINGS & LOAN COMPANIES-2.07%
Dime Capital Trust I-Series A,
Gtd. Bonds, 9.33%, 05/06/27 2,380,000 2,176,629
--------------------------------------------------------------
Sovereign Bancorp, Inc., Medium
Term Sub. Notes, 8.00%, 03/15/03 5,050,000 4,789,925
--------------------------------------------------------------
St. Paul Bancorp, Inc., Sr. Unsec.
Notes, 7.13%, 02/15/04 1,500,000 1,446,345
--------------------------------------------------------------
Washington Mutual Cap I,
Sec. Gtd. Bonds, 8.38%, 06/01/27 1,485,000 1,331,778
--------------------------------------------------------------
Sub. Notes, 8.25%, 04/01/10 2,500,000 2,484,900
--------------------------------------------------------------
12,229,577
--------------------------------------------------------------
SERVICES (COMMERCIAL &
CONSUMER)-0.33%
Avis Group Holdings, Inc., Sr.
Unsec. Gtd. Sub. Notes, 11.00%,
05/01/09 1,850,000 1,937,875
--------------------------------------------------------------
SERVICES (EMPLOYMENT)-0.32%
MSX International, Inc., Sr.
Unsec. Gtd. Sub. Notes, 11.38%,
01/15/08 1,980,000 1,881,000
--------------------------------------------------------------
</TABLE>
FS-43
<PAGE> 263
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
SOVEREIGN DEBT-1.56%
Newfoundland (Province of)
(Canada), Unsec. Yankee Deb.,
9.00%, 06/01/19 $ 4,000,000 $ 4,511,080
--------------------------------------------------------------
Quebec (Province of)
(Canada)-Series A, Medium Term
Putable Yankee Notes, 6.29%,
03/06/26(g) 4,800,000 4,684,368
--------------------------------------------------------------
9,195,448
--------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/
WIRELESS)-1.24%
Crown Castle International Corp.,
Sr. Notes, 10.75%, 08/01/11 1,100,000 1,122,000
--------------------------------------------------------------
Metrocall, Inc., Sr. Sub. Notes,
11.88%, 06/15/05 1,940,000 1,387,100
--------------------------------------------------------------
Nextel Communications, Inc., Sr.
Notes, 12.00%, 11/01/08 3,375,000 3,645,000
--------------------------------------------------------------
Orion Network Systems, Inc., Sr.
Gtd. Sub. Notes, 11.25%,
01/15/07 2,000,000 1,170,000
--------------------------------------------------------------
7,324,100
--------------------------------------------------------------
TELECOMMUNICATIONS (LONG
DISTANCE)-4.31%
360networks Inc. (Canada),
Sr. Unsec. Yankee Notes, 12.00%,
08/01/09 1,000,000 955,000
--------------------------------------------------------------
Sr. Yankee Notes, 12.50%,
12/15/05 1,430,000 1,472,900
--------------------------------------------------------------
Destia Communications, Inc., Sr.
Unsec. Notes, 13.50%, 07/15/07 3,500,000 3,132,500
--------------------------------------------------------------
Esprit Telecom Group PLC (United
Kingdom), Sr. Unsec. Yankee
Notes, 11.50%, 12/15/07 1,500,000 1,177,500
--------------------------------------------------------------
Primus Telecommunications Group,
Inc., Sr. Unsec. Notes,
11.25%, 01/15/09 3,500,000 2,747,500
--------------------------------------------------------------
12.75%, 10/15/09 1,560,000 1,255,800
--------------------------------------------------------------
RSL Communications PLC (United
Kingdom), Sr. Unsec. Gtd. Yankee
Notes, 12.88%, 03/01/10
(Acquired 02/14/00; Cost
$4,965,000)(a) 5,000,000 3,725,000
--------------------------------------------------------------
Sprint Corp., Putable Deb., 9.00%,
10/15/19 2,500,000 2,841,150
--------------------------------------------------------------
Versatel Telecom International
N.V. (Netherlands), Sr. Yankee
Notes, 13.25%, 05/15/08 1,370,000 1,404,250
--------------------------------------------------------------
Williams Communications Group,
Inc., Sr. Unsec. Notes, 10.70%,
10/01/07 3,000,000 2,985,000
--------------------------------------------------------------
WorldCom, Inc., Notes, 8.00%,
05/15/06 3,650,000 3,703,546
--------------------------------------------------------------
25,400,146
--------------------------------------------------------------
TELEPHONE-4.39%
Alestra S.A. (Mexico), Sr. Yankee
Notes, 12.63%, 05/15/09 2,380,000 2,142,000
--------------------------------------------------------------
AT&T Canada Inc. (Canada), Sr.
Unsec. Yankee Notes 7.65%,
09/15/06 2,800,000 2,775,962
--------------------------------------------------------------
Bell Atlantic Financial Services,
Inc.- Series REGS, Conv. Bonds,
4.25%, 09/15/05 2,700,000 3,268,480
--------------------------------------------------------------
Deutsche Telekom International
Finance B.V. (Netherlands),
Unsec. Unsub. Yankee Bonds,
8.00%, 06/15/10 2,700,000 2,729,889
--------------------------------------------------------------
ICG Services, Inc., Sr. Unsec.
Disc. Notes, 10.00%, 02/15/08(b) 4,000,000 2,224,160
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
TELEPHONE-(CONTINUED)
Logix Communications Enterprises,
Sr. Unsec. Notes, 12.25%,
06/15/08 $ 1,000,000 $ 352,500
--------------------------------------------------------------
Qwest Communications International
Inc., Sr. Unsec. Notes, 7.50%,
11/01/08 3,050,000 2,947,062
--------------------------------------------------------------
Telefonos de Mexico S.A. de C.V.
(Mexico), Conv. Yankee Notes,
4.25%, 06/15/04 3,000,000 4,035,000
--------------------------------------------------------------
U.S. Xchange LLC, Sr. Unsec.
Notes, 15.00%, 07/01/08 5,000,000 5,462,500
--------------------------------------------------------------
25,937,553
--------------------------------------------------------------
TRUCKERS-1.17%
North American Van Lines Inc., Sr.
Sub. Notes, 13.38%, 12/01/09(d) 5,000,000 4,725,000
--------------------------------------------------------------
Travelcenters of America, Inc.,
Sr. Unsec. Gtd. Sub. Notes,
10.25%, 04/01/07 2,180,000 2,207,250
--------------------------------------------------------------
6,932,250
--------------------------------------------------------------
WASTE MANAGEMENT-2.89%
Allied Waste North America
Inc.-Series B, Sr. Unsec. Gtd.
Sub. Notes, 10.00%, 08/01/09(d) 4,920,000 4,132,800
--------------------------------------------------------------
Browning-Ferris Industries, Inc.,
Deb.,
7.40%, 09/15/35 1,200,000 750,000
--------------------------------------------------------------
9.25%, 05/01/21 2,570,000 2,068,850
--------------------------------------------------------------
Waste Management, Inc., Sr. Unsec.
Notes,
7.13%, 10/01/07 3,710,000 3,395,318
--------------------------------------------------------------
7.13%, 12/15/17 935,000 772,974
--------------------------------------------------------------
Unsec. Putable Notes, 7.10%,
08/01/26 6,270,000 5,967,284
--------------------------------------------------------------
17,087,226
--------------------------------------------------------------
Total U.S. Dollar Denominated
Bonds & Notes (Cost
$523,626,173) 491,812,188
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT(h)
<S> <C> <C>
NON-U.S. DOLLAR DENOMINATED BONDS
& NOTES-9.08%
AUSTRALIA-0.37%
State Bank New South Wales-Series
E (Banks-Major Regional), Sr.
Unsec. Gtd. Medium Term Notes,
8.63%, 08/20/01 AUD 3,600,000 2,200,827
--------------------------------------------------------------
CANADA-3.38%
AT&T Canada Inc. (Telephone), Sr.
Unsec. Notes, 7.15%, 09/23/04CAD 1,150,000 785,929
--------------------------------------------------------------
Bell Mobility Cellular Inc.
(Telecommunications-Cellular/Wireless),
Deb., 6.55%, 06/02/08 CAD 2,250,000 1,491,097
--------------------------------------------------------------
Canadian Pacific Ltd.-Series D
(Manufacturing-Diversified),
Unsec. Medium Term Notes, 5.85%,
03/30/09 (Acquired 03/24/99;
Cost $2,149,250)(a) CAD 3,250,000 2,037,336
--------------------------------------------------------------
Clearnet Communications Inc.
(Telecommunications-Cellular/Wireless),
Sr. Disc. Notes,
10.40%, 05/15/08(b) CAD 9,050,000 3,716,789
--------------------------------------------------------------
11.75%, 08/13/07(b) CAD 8,200,000 3,852,758
--------------------------------------------------------------
</TABLE>
FS-44
<PAGE> 264
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(h) VALUE
<S> <C> <C>
CANADA-(CONTINUED)
Export Development Corp.
(Sovereign Debt), Sr. Unsec.
Unsub. Notes, 6.50%, 12/21/04NZD 2,150,000 $ 960,413
--------------------------------------------------------------
Microcell Telecommunications Inc.
(Telecommunications-Cellular/Wireless),
Sr. Disc. Notes, 11.13%,
10/15/07(b) CAD 3,500,000 1,567,570
--------------------------------------------------------------
Ontario (Province of) (Sovereign
Debt), Unsec. Unsub. Notes,
6.25%, 12/03/08 NZD 2,500,000 1,044,765
--------------------------------------------------------------
Rogers Cablesystems
(Broadcasting-Television, Radio
& Cable), Sr. Sec. Second
Priority Deb., 9.65%,
01/15/14 CAD 3,300,000 2,348,060
--------------------------------------------------------------
TransCanada Pipelines-Series Q
(Natural Gas), Deb., 10.63%,
10/20/09 CAD 1,750,000 1,458,077
--------------------------------------------------------------
Westcoast Energy Inc.-Series V
(Natural Gas), Unsec. Deb.,
6.45%, 12/18/06 (Acquired
12/03/96; Cost $739,169)(a) CAD 1,000,000 670,072
--------------------------------------------------------------
19,932,866
--------------------------------------------------------------
CAYMAN ISLANDS-0.53%
Sutton Bridge Financial Ltd.
(Power Producers-Independent),
Gtd. Euro Bonds, 8.63%,
06/30/22(d) GBP 2,000,000 3,106,341
--------------------------------------------------------------
FRANCE-0.54%
Vivendi Environment (Waste
Management), Conv. Bonds, 1.50%,
01/01/05 EUR 1,050,000 3,194,010
--------------------------------------------------------------
NETHERLANDS-1.24%
Grapes Communications N.V.
(Telecommunications-Cellular/Wireless),
Sr. Notes, 13.50%, 05/15/10
(Acquired 05/03/00; Cost
$2,085,640)(a)(e) EUR 2,300,000 2,049,104
--------------------------------------------------------------
Tecnost International
N.V.-(Telephone) Series E, Gtd.
Medium Term Notes, 6.13%,
07/30/09 EUR 2,050,000 1,753,828
--------------------------------------------------------------
Tele1 Europe B.V.
(Telecommunications-Long
Distance), Sr. Notes, 11.88%,
12/01/09 (Acquired 12/08/99;
Cost $3,834,750)(a) EUR 3,750,000 3,519,590
--------------------------------------------------------------
7,322,522
--------------------------------------------------------------
NEW ZEALAND-0.35%
Inter-American Development Bank
(Banks- Money Center), Unsec.
Bonds, 5.75%, 04/15/04 NZD 4,750,000 2,086,729
--------------------------------------------------------------
NORWAY-0.39%
Enitel ASA
(Telecommunications-Long
Distance), Sr. Notes, 12.50%,
04/15/10 (Acquired 03/30/00;
Cost $2,380,375)(a)(e) EUR 2,500,000 2,334,482
--------------------------------------------------------------
UNITED KINGDOM-2.28%
Airtours PLC (Services-Commercial
& Consumer), Conv. Sub. Notes,
5.75%, 01/05/04 (Acquired
12/09/98; Cost $3,091,887)(a)GBP 1,869,000 2,703,902
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(h) VALUE
<S> <C> <C>
UNITED KINGDOM-(CONTINUED)
British Sky Broadcasting Group PLC
(Broadcasting-Television, Radio
& Cable), Sr. Gtd. Unsec. Unsub.
Notes, 7.75%, 07/09/09 GBP 1,750,000 $ 2,552,268
--------------------------------------------------------------
Energis PLC (Telephone), Sr.
Notes, 9.13%, 03/15/10 (Acquired
02/07/00; Cost $4,767,300)(a)GBP 3,000,000 4,316,054
--------------------------------------------------------------
Jazztel PLC (Telephone), Sr.
Unsec. Notes, 13.25%,
12/15/09 EUR 2,260,000 1,948,864
--------------------------------------------------------------
Scotia Holdings PLC (Health
Care-Drugs- Generic & Other),
Conv. Unsec. Notes, 8.50%,
03/26/02 GBP 1,500,000 1,921,273
--------------------------------------------------------------
13,442,361
--------------------------------------------------------------
Total Non-U.S. Dollar
Denominated Bonds & Notes
(Cost $60,059,331) 53,620,138
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
STOCKS & OTHER EQUITY
INTERESTS-3.09%
BANKS (REGIONAL)-1.05%
First Republic Capital
Corp.-Series A-Pfd. (Acquired
05/26/99; Cost $3,500,000)(a) 3,500 3,081,750
--------------------------------------------------------------
Westpac Banking Corp., STRYPES
Trust-$3.14 Conv. Pfd. 95,000 3,135,000
--------------------------------------------------------------
6,216,750
--------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO &
CABLE)-0.00%
Knology Inc.-Wts., expiring
10/22/07 (Acquired 03/12/98;
Cost $0)(a)(i) 4,100 10,250
--------------------------------------------------------------
COMPUTERS (PERIPHERALS)-0.00%
Equinix Inc.-Wts., expiring
12/01/07 (Acquired 05/30/00;
Cost $0)(a)(i) 3,540 36
--------------------------------------------------------------
COMPUTERS (SOFTWARE &
SERVICES)-0.28%
Microsoft Corp.(i) 20,291 1,623,280
--------------------------------------------------------------
ELECTRICAL EQUIPMENT-0.00%
Electronic Retailing Systems
International, Inc.-Wts.,
expiring 02/01/04(i) 3,630 3,630
--------------------------------------------------------------
FOODS-0.11%
Ralston Purina Group.-$4.34 Conv.
Pfd. 23,000 652,625
--------------------------------------------------------------
HOUSEHOLD FURNISHING &
APPLIANCES-0.02%
O'Sullivan Industries, Inc.-Wts.,
expiring 11/05/09 (Acquired
06/13/00; Cost $0)(a)(i) 6,000 135,000
--------------------------------------------------------------
METAL FABRICATORS-0.00%
Gulf States Steel, Inc.-Wts.,
expiring 04/15/03(i) 1,650 17
--------------------------------------------------------------
SERVICES (COMMERCIAL &
CONSUMER)-0.36%
Cendant Corp.-$3.75 Conv. PRIDES 78,000 1,696,500
--------------------------------------------------------------
Cendant Corp.-Rts., expiring
02/14/01(i) 50,000 421,875
--------------------------------------------------------------
2,118,375
--------------------------------------------------------------
</TABLE>
FS-45
<PAGE> 265
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TELECOMMUNICATIONS (CELLULAR/
WIRELESS)-0.49%
Clearnet Communications Inc.-Class
A-ADR (Canada)(j) 5,874 $ 163,095
--------------------------------------------------------------
Loral Space & Communications
Ltd.(j) 2,059 14,284
--------------------------------------------------------------
WebLink Wireless, Inc.(j) 204,685 2,712,076
--------------------------------------------------------------
2,889,455
--------------------------------------------------------------
TELECOMMUNICATIONS (LONG
DISTANCE)-0.78%
Versatel Telecom International
N.V.-ADR (Netherlands)(j) 17,663 761,717
--------------------------------------------------------------
Viatel, Inc., $3.88 Conv. Pfd.
(Acquired 04/07/00; Cost
$5,000,000)(a) 100,000 3,825,000
--------------------------------------------------------------
4,586,717
--------------------------------------------------------------
Total Stocks & Other Equity
Interests (Cost $21,633,642) 18,236,135
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. TREASURY NOTES-1.38%
6.63%, 05/31/02 $ 3,000,000 $ 3,013,290
--------------------------------------------------------------
6.75%, 05/15/05 3,000,000 3,071,730
--------------------------------------------------------------
6.50%, 02/15/10 2,000,000 2,068,760
--------------------------------------------------------------
Total U.S. Treasury Notes
(Cost $8,113,242) 8,153,780
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
MONEY MARKET FUNDS-2.14%
STIC Liquid Assets Portfolio(k) 6,316,692 6,316,692
--------------------------------------------------------------
STIC Prime Portfolio(k) 6,316,692 6,316,692
--------------------------------------------------------------
Total Money Market Funds (Cost
$12,633,384) 12,633,384
--------------------------------------------------------------
TOTAL INVESTMENTS-99.00% (Cost
$626,065,772) 584,455,625
--------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-1.00% 5,920,060
--------------------------------------------------------------
NET ASSETS-100.00% $590,375,685
==============================================================
</TABLE>
Investment Abbreviations:
ADR - American Depositary Receipt
AUD - Australian Dollar
CAD - Canadian Dollar
Conv. - Convertible
Ctfs. - Certificates
Deb. - Debentures
Disc. - Discounted
EUR - Euro
GBP - British Pound Sterling
Gtd. - Guaranteed
NZD - New Zealand Dollar
Pfd. - Preferred
PRIDES - Preferred Redemption Increase Dividend Equity Security
REIT - Real Estate Investment Trust
REGS - Regulation S
Rts. - Rights
Sec. - Secured
Sr. - Senior
STRYPES - Structured Yield Product Exchangeable for Stock
Sub. - Subordinated
Unsec. - Unsecured
Unsub. - Unsubordinated
Wts. - Warrants
Notes to Schedule of Investments:
(a)Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of 1933,
as amended. The valuation of these securities has been determined in
accordance with procedures established by the Board of Trustees. The
aggregate market value of these securities at 06/30/00 was $75,712,864 which
represented 12.83% of the Fund's net assets.
(b)Discounted bond at purchase. The interest rate represents the coupon rate at
which the bond will accrue at a specified future date.
(c)Defaulted security. Currently, the issuer is in default with respect to
interest payments.
(d)Represents a security sold under Rule 144A, which is exempt from registration
and may be resold to qualified institutional buyers in accordance with the
provisions of Rule 144A under the Securities Act of 1993, as amended.
(e)Consists of more than one class of securities traded together as a unit. In
addition to the security listed, each unit contains warrants that enable the
holder to purchase shares of the issuer at a predetermined price.
(f)Zero coupon bond issued at a discount. The interest rate shown represents the
rate of original issue discount.
(g)Step-up bond. The interest rate represents the coupon rate at which the bond
will accrue at a specified future date.
(h)Foreign denominated security. Par value is denominated in currency indicated.
(i)Non-income producing security acquired as part of a unit with or in exchange
for other securities.
(j)Non-income producing security.
(k)The money market fund has the same investment advisor as the Fund.
See Notes to Financial Statements.
FS-46
<PAGE> 266
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
JUNE 30,
JULY 31, 2000
2000 (UNAUDITED)
------------ ------------
<S> <C> <C>
ASSETS:
Investments, at market value (cost $619,804,769 and
$626,065,772, respectively) $578,026,632 $584,455,625
-----------------------------------------------------------------------------------------
Foreign currencies, at value (cost $83 and $160,926,
respectively) 82 163,675
-----------------------------------------------------------------------------------------
Receivables for:
Investments sold 1,733,489 1,437,500
-----------------------------------------------------------------------------------------
Fund shares sold 1,154,862 1,062,228
-----------------------------------------------------------------------------------------
Dividends and interest 12,236,502 12,367,451
-----------------------------------------------------------------------------------------
Foreign currency contracts outstanding 110,436 --
-----------------------------------------------------------------------------------------
Investment for deferred compensation plan 72,796 71,144
-----------------------------------------------------------------------------------------
Other assets 83,246 47,748
-----------------------------------------------------------------------------------------
Total assets 593,418,045 599,605,371
-----------------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 3,173,618 6,024,134
-----------------------------------------------------------------------------------------
Fund shares reacquired 1,410,536 1,461,242
-----------------------------------------------------------------------------------------
Dividends 787,035 747,496
-----------------------------------------------------------------------------------------
Foreign currency contracts outstanding 13,281 160,217
-----------------------------------------------------------------------------------------
Deferred compensation plan 72,796 71,144
-----------------------------------------------------------------------------------------
Accrued advisory fees 208,724 205,649
-----------------------------------------------------------------------------------------
Accrued administrative services fees 10,386 10,048
-----------------------------------------------------------------------------------------
Accrued distribution fees 297,122 508,206
-----------------------------------------------------------------------------------------
Accrued transfer agent fees 126,597 25,226
-----------------------------------------------------------------------------------------
Accrued trustees' fees 2,940 1,975
-----------------------------------------------------------------------------------------
Accrued operating expenses 85,748 14,349
-----------------------------------------------------------------------------------------
Total liabilities 6,188,783 9,229,686
-----------------------------------------------------------------------------------------
Net assets applicable to shares outstanding $587,229,262 $590,375,685
=========================================================================================
NET ASSETS:
Class A $346,482,284 $348,151,991
=========================================================================================
Class B $213,926,095 $215,588,680
=========================================================================================
Class C $ 26,820,883 $ 26,635,014
=========================================================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 48,538,788 48,430,694
=========================================================================================
Class B 29,967,838 29,992,412
=========================================================================================
Class C 3,764,038 3,712,180
=========================================================================================
Class A:
Net asset value and redemption price per share $ 7.14 $ 7.19
-----------------------------------------------------------------------------------------
Offering price per share:
(Net asset value / 95.25%) $ 7.50 $ 7.55
=========================================================================================
Class B:
Net asset value and offering price per share $ 7.14 $ 7.19
=========================================================================================
Class C:
Net asset value and offering price per share $ 7.13 $ 7.18
=========================================================================================
</TABLE>
See Notes to Financial Statements.
FS-47
<PAGE> 267
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS
SEVEN MONTHS ENDED YEAR
ENDED JUNE 30, ENDED
JULY 31, 2000 DECEMBER 31,
2000 (UNAUDITED) 1999
------------ ------------ ------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $30,576,443 $ 26,203,763 $ 52,455,832
---------------------------------------------------------------------------------------------------------
Dividends 911,287 715,119 838,880
---------------------------------------------------------------------------------------------------------
Dividends -- affiliated issuers 694,358 653,607 185,198
---------------------------------------------------------------------------------------------------------
Total investment income 32,182,088 27,572,489 53,479,910
---------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 1,512,830 1,304,106 2,785,338
---------------------------------------------------------------------------------------------------------
Administrative services fee 72,169 61,783 111,839
---------------------------------------------------------------------------------------------------------
Custodian fees 65,213 46,970 102,279
---------------------------------------------------------------------------------------------------------
Distribution fees -- Class A 529,667 456,012 1,006,620
---------------------------------------------------------------------------------------------------------
Distribution fees -- Class B 1,299,325 1,116,968 2,401,345
---------------------------------------------------------------------------------------------------------
Distribution fees -- Class C 156,134 133,454 244,571
---------------------------------------------------------------------------------------------------------
Transfer agent fees -- Class A 432,953 320,021 649,179
---------------------------------------------------------------------------------------------------------
Transfer agent fees -- Class B 275,244 205,547 405,725
---------------------------------------------------------------------------------------------------------
Transfer agent fees -- Class C 33,074 24,561 41,321
---------------------------------------------------------------------------------------------------------
Trustees' fees 5,541 2,636 10,727
---------------------------------------------------------------------------------------------------------
Other 186,723 130,067 306,728
---------------------------------------------------------------------------------------------------------
Total expenses 4,568,873 3,802,125 8,065,672
---------------------------------------------------------------------------------------------------------
Less: Expenses paid indirectly (15,928) (13,190) (12,978)
---------------------------------------------------------------------------------------------------------
Net expenses 4,552,945 3,788,935 8,052,694
---------------------------------------------------------------------------------------------------------
Net investment income 27,629,143 23,783,554 45,427,216
---------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
SECURITIES, FOREIGN CURRENCIES, FOREIGN CURRENCY CONTRACTS
AND FUTURES CONTRACTS
Net realized gain (loss) from:
Investment securities (28,885,502) (24,377,258) (21,513,111)
---------------------------------------------------------------------------------------------------------
Foreign currencies (584,731) (566,812) (246,991)
---------------------------------------------------------------------------------------------------------
Foreign currency contracts 1,402,270 1,331,070 1,947,070
---------------------------------------------------------------------------------------------------------
Futures contracts (854,156) (854,156) (76,650)
---------------------------------------------------------------------------------------------------------
(28,922,119) (24,467,156) (19,889,682)
---------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities (10,459,347) (10,291,356) (47,772,599)
---------------------------------------------------------------------------------------------------------
Foreign currencies (48,107) (48,243) (1,694)
---------------------------------------------------------------------------------------------------------
Foreign currency contracts (238,061) (495,433) (36,322)
---------------------------------------------------------------------------------------------------------
(10,745,515) (10,835,032) (47,810,615)
---------------------------------------------------------------------------------------------------------
Net gain (loss) on investment securities, foreign
currencies, foreign currency contracts and futures
contracts (39,667,634) (35,302,188) (67,700,297)
---------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations $(12,038,491) $(11,518,634) $(22,273,081)
=========================================================================================================
</TABLE>
See Notes to Financial Statements.
FS-48
<PAGE> 268
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
SEVEN MONTHS ENDED YEAR YEAR
ENDED JUNE 30, ENDED ENDED
JULY 31, 2000 DECEMBER 31, DECEMBER 31,
2000 (UNAUDITED) 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $27,629,143 $ 23,783,554 $45,427,216 $ 35,484,095
-----------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies, foreign currency contracts and
futures contracts (28,922,119) (24,467,156) (19,889,682) (2,670,536)
-----------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies, foreign
currency contracts and futures contracts (10,745,515) (10,835,032) (47,810,615) (8,393,729)
-----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (12,038,491) (11,518,634) (22,273,081) 24,419,830
-----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (12,352,865) (9,986,195) (27,905,932) (24,056,371)
-----------------------------------------------------------------------------------------------------------------------
Class B (6,412,480) (5,114,084) (14,665,005) (9,376,348)
-----------------------------------------------------------------------------------------------------------------------
Class C (772,178) (612,189) (1,497,538) (561,222)
-----------------------------------------------------------------------------------------------------------------------
Return of capital distributions:
Class A (3,591,530) -- -- --
-----------------------------------------------------------------------------------------------------------------------
Class B (2,203,866) -- -- --
-----------------------------------------------------------------------------------------------------------------------
Class C (265,128) -- -- --
-----------------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income:
Class A -- (3,737,159) -- (2,510,957)
-----------------------------------------------------------------------------------------------------------------------
Class B -- (2,290,070) -- (1,354,867)
-----------------------------------------------------------------------------------------------------------------------
Class C -- (273,821) -- (120,997)
-----------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A (24,315,697) (25,082,235) 33,756,872 67,975,662
-----------------------------------------------------------------------------------------------------------------------
Class B (17,373,034) (17,193,094) 49,567,754 97,469,590
-----------------------------------------------------------------------------------------------------------------------
Class C 225,211 (146,154) 11,280,738 17,151,361
-----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (79,100,058) (75,953,635) 28,263,808 169,035,681
-----------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 666,329,320 666,329,320 638,065,512 469,029,831
-----------------------------------------------------------------------------------------------------------------------
End of period $587,229,262 $590,375,685 $666,329,320 $638,065,512
=======================================================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $671,562,117 $676,664,678 $719,086,161 $624,536,057
-----------------------------------------------------------------------------------------------------------------------
Undistributed net investment income (405,470) 422,211 (1,347,825) 68,804
-----------------------------------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities, foreign currencies, foreign currency
contracts and futures contracts (42,216,290) (44,910,592) (20,443,436) (3,384,384)
-----------------------------------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities, foreign currencies, foreign currency
contracts and futures contracts (41,711,095) (41,800,612) (30,965,580) 16,845,035
-----------------------------------------------------------------------------------------------------------------------
$587,229,262 $590,375,685 $666,329,320 $638,065,512
=======================================================================================================================
</TABLE>
See Notes to Financial Statements.
FS-49
<PAGE> 269
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Income Fund (the "Fund") is a series portfolio of AIM Investment Securities
Funds (the "Trust"). The Trust is a Delaware business trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of seven separate portfolios,
each having an unlimited number of shares of beneficial interest. Prior to June
1, 2000 the Fund was organized as a series portfolio of AIM Funds Group. At a
meeting held on February 3, 2000, the Board of Trustees of AIM Funds Group
approved an Agreement and Plan of Reorganization (the "Reorganization") which
reorganized the Fund as a series portfolio of the Trust. Shareholders of the
Fund approved the Reorganization at a meeting held on May 31, 2000. Pursuant to
the Reorganization, the Fund's fiscal year-end was changed from December 31 to
July 31. This report includes financial information for the period ended July
31, 2000 (seven months), the six months ended June 30, 2000 and the year ended
December 31, 1999. Financial information for the six months ended June 30, 2000
is unaudited. The Fund currently offers three different classes of shares: Class
A shares, Class B shares and Class C shares. Class A shares are sold with a
front-end sales charge. Class B shares and Class C shares are sold with a
contingent deferred sales charge. Matters affecting each portfolio or class will
be voted on exclusively by the shareholders of such portfolio or class. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund. The Fund's investment objective is to achieve a high level of current
income consistent with reasonable concern for safety of principal.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. Security Valuations -- A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price as of the close of the
customary trading session on the exchange where the security is principally
traded, or lacking any sales on a particular day, the security is valued at
the closing bid price on that day. Each security reported on the NASDAQ
National Market System is valued at the last sales price as of the close of
the customary trading session on the valuation date or absent a last sales
price, at the closing bid price. Debt obligations (including convertible
bonds) are valued on the basis of prices provided by an independent pricing
service. Prices provided by the pricing service may be determined without
exclusive reliance on quoted prices, and may reflect appropriate factors such
as yield, type of issue, coupon rate and maturity date. Securities for which
market prices are not provided by any of the above methods are valued based
upon quotes furnished by independent sources and are valued at the last bid
price in the case of equity securities and in the case of debt obligations,
the mean between the last bid and asked prices. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the Trust's
officers in a manner specifically authorized by the Board of Trustees.
Short-term obligations having 60 days or less to maturity are valued at
amortized cost which approximates market value. For purposes of determining
net asset value per share, futures and option contracts generally will be
valued 15 minutes after the close of the customary trading session of the New
York Stock Exchange ("NYSE").
Generally, trading in foreign securities is substantially completed each day
at various times prior to the close of the NYSE. The values of such securities
used in computing the net asset value of the Fund's shares are determined as
of such times. Foreign currency exchange rates are also generally determined
prior to the close of the NYSE. Occasionally, events affecting the values of
such securities and such exchange rates may occur between the times at which
they are determined and the close of the customary trading session of the NYSE
which would not be reflected in the computation of the Fund's net asset value.
If events materially affecting the value of such securities occur during such
period, then these securities will be valued at their fair value as determined
in good faith by or under the supervision of the Board of Trustees.
B. Securities Transactions and Investment Income -- Securities transactions are
accounted for on a trade date basis. Realized gains or losses on sales are
computed on the basis of specific identification of the securities sold.
Interest income is recorded on the accrual basis from settlement date.
Dividend income is recorded on the ex-dividend date.
On July 31, 2000, undistributed net investment income was decreased by
$1,088,741, undistributed net realized gains increased by $7,149,265 and
paid-in capital decreased by $6,060,524 as a result of differing book/tax
treatment of foreign currency transactions and other reclassifications. Net
assets of the Fund were unaffected by the reclassifications.
C. Distributions -- It is the policy of the Fund to declare dividends from net
investment income daily and pay monthly. Distributions from net realized
capital gains, if any, are generally paid annually and recorded on
ex-dividend date. The Fund may elect to use a portion of the proceeds from
redemptions as distributions for federal income tax purposes.
D. Federal Income Taxes -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income
FS-50
<PAGE> 270
(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 $42,072,428 which may be
carried forward to offset future taxable gains, if any, which expires in
varying increments, if not previously utilized, in the year 2008.
E. Foreign Currency Translations -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S. dollar
amounts at date of valuation. Purchases and sales of portfolio securities and
income items denominated in foreign currencies are translated into U.S.
dollar amounts on the respective dates of such transactions. The Fund does
not separately account for the portion of the results of operations resulting
from changes in foreign exchange rates on investments and the fluctuations
arising from changes in market prices of securities held. Such fluctuations
are included with the net realized and unrealized gain or loss from
investments.
F. Foreign Currency Contracts -- A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
Outstanding foreign currency contracts at July 31, 2000 were as follows:
<TABLE>
<CAPTION>
CONTRACT TO UNREALIZED
SETTLEMENT ------------------------ APPRECIATION
DATE CURRENCY DELIVER RECEIVE VALUE (DEPRECIATION)
--------------------- -------- ---------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
08/04/00 CAD 14,000,000 $ 9,410,898 $ 9,417,720 $ (6,822)
-----------------------------------------------------------------------------------------
10/26/00 EUR 6,000,000 5,629,319 5,593,092 36,227
-----------------------------------------------------------------------------------------
10/24/00 GBP 6,000,000 9,071,200 9,003,450 67,750
-----------------------------------------------------------------------------------------
26,000,000 $24,111,417 $24,014,262 $ 97,155
-----------------------------------------------------------------------------------------
</TABLE>
Outstanding foreign currency contracts at June 30, 2000 were as follows:
<TABLE>
<CAPTION>
CONTRACT TO UNREALIZED
SETTLEMENT ------------------------ APPRECIATION
DATE CURRENCY DELIVER RECEIVE VALUE (DEPRECIATION)
--------------------- -------- ---------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
07/26/00 EUR 8,000,000 $ 7,538,400 $ 7,636,320 $ (97,920)
-----------------------------------------------------------------------------------------
08/04/00 CAD 14,000,000 9,410,898 9,473,195 (62,297)
-----------------------------------------------------------------------------------------
22,000,000 $16,949,298 $17,109,515 $(160,217)
-----------------------------------------------------------------------------------------
</TABLE>
G. Futures Contracts -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits required
upon entering into futures contracts are satisfied by the segregation of
specific securities as collateral for the account of the broker (the Fund's
agent in acquiring the futures position). During the period the futures
contracts are open, changes in the value of the contracts are recognized as
unrealized gains or losses by "marking to market" on a daily basis to reflect
the market value of the contracts at the end of each day's trading. Variation
margin payments are made or received depending upon whether unrealized gains
or losses are incurred. When the contracts are closed, the Fund recognizes a
realized gain or loss equal to the difference between the proceeds from, or
cost of, the closing transaction and the Fund's basis in the contract. Risks
include the possibility of an illiquid market and that a change in value of
the contracts may not correlate with changes in the value of the securities
being hedged.
H. Bond Premiums -- It is the policy of the Fund not to amortize market premiums
on bonds for financial reporting purposes.
I. Expenses -- Distribution expenses and certain transfer agency expenses
directly attributable to a class of shares are charged to those classes'
operations. All other expenses which are attributable to more than one class
are allocated among the classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at an annual rate of 0.50% on the first
$200 million of the Fund's average daily net assets, plus 0.40% on the next $300
million of the Fund's average daily net assets, plus 0.35% on the next $500
million of the Fund's average daily net assets, plus 0.30% on 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 pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the seven-month period ended July 31, 2000,
the six months ended June 30, 2000 and the year ended December 31, 1999, AIM was
paid $72,169, $61,783 and $111,839, respectively, for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. For the seven-month period ended July 31,
2000, the six months ended June 30, 2000 and the year ended December 31, 1999,
AFS was paid $383,909, $331,354 and $668,106, respectively, for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.25% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and C shares. Of these amounts, the Fund may
pay a service fee of 0.25% of the average daily net assets of the Class A, Class
B or Class C shares to selected dealers and financial institutions who furnish
continuing
FS-51
<PAGE> 271
personal shareholder services to their customers who purchase and own the
appropriate class of shares of the Fund. Any amounts not paid as a service fee
under the Plans would constitute an asset-based sales charge. The Plans also
impose a cap on the total sales charges, including asset-based sales charges
that may be paid by the respective classes. For the seven-month period ended
July 31, 2000, the Class A, Class B and Class C shares paid AIM Distributors
$529,667, $1,299,325 and $156,134, respectively, as compensation under the
Plans. For the six months ended June 30, 2000, the Class A, Class B and Class C
shares paid AIM Distributors $456,012, $1,116,968 and $133,454, respectively, as
compensation under the Plans. For the year ended December 31, 1999, the Class A,
Class B and Class C shares paid AIM Distributors $1,006,620, $2,401,345, and
$244,571, respectively, as compensation under the Plans.
AIM Distributors received commissions of $133,679, $122,603 and $358,051 from
sales of the Class A shares of the Fund during the seven-month period ended July
31, 2000, the six months ended June 30, 2000 and the year ended December 31,
1999, respectively. 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 seven-month period ended July 31, 2000, the six months ended
June 30, 2000 and the year ended December 31, 1999, AIM Distributors received
$23,462, $24,692 and $48,455, respectively, in contingent deferred sales charges
imposed on redemptions of Fund shares.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the seven-month period ended July 31, 2000, the six months ended June
30, 2000 and the year ended December 31, 1999, the Fund paid legal fees of
$2,820, $2,181 and $4,426, respectively, for services rendered by Kramer, Levin,
Naftalis & Frankel LLP as counsel to the Trust's trustees. A member of that firm
is a trustee of the Trust.
NOTE 3-INDIRECT EXPENSES
For the seven-month period ended July 31, 2000, the six months ended June 30,
2000 and the year ended December 31, 1999, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) of $4,165, $3,387 and
$7,504, respectively, and reductions in custodian fees of $11,763, $9,803 and
$5,474, respectively, under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $15,928, $13,190 and $12,978 for the
seven-month period ended July 31, 2000, the six months ended June 30, 2000 and
the year ended December 31, 1999, respectively.
NOTE 4-TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. The Trust invests trustees' fees, if so elected by a
trustee, in mutual fund shares in accordance with a deferred compensation plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $1,000,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the seven months ended July
31, 2000, the Fund did not borrow under the line of credit agreement. The funds
which are party to the line of credit are charged a commitment fee of 0.09% on
the unused balance of the committed line. Prior to May 28, 1999, the commitment
fee rate was 0.05%. The commitment fee is allocated among the funds based on
their respective average net assets for the period.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the seven-month period ended July 31, 2000
was $292,979,835 and $327,575,067, respectively, and during the six months ended
June 30, 2000 was $263,297,463 and $305,548,063, respectively. The amount of
unrealized appreciation (depreciation) of investment securities, for tax
purposes, is as follows:
<TABLE>
<CAPTION>
JUNE 30,
JULY 31, 2000
2000 (UNAUDITED)
------------ ------------
<S> <C> <C>
Aggregate unrealized
appreciation of investment
securities $ 7,751,605 $ 7,681,015
-------------------------------------------------------------
Aggregate unrealized
(depreciation) of investment
securities (49,576,450) (49,292,204)
-------------------------------------------------------------
Net unrealized appreciation
(depreciation) of investment
securities $(41,824,845) $(41,611,189)
=============================================================
Cost of investments for tax purposes at July 31, 2000 and
June 30, 2000 were $619,851,477 and $626,066,814,
respectively.
</TABLE>
FS-52
<PAGE> 272
NOTE 7-SHARE INFORMATION
Changes in shares outstanding during the seven-month period ended July 31, 2000,
the six months ended June 30, 2000 and the years ended December 31, 1999 and
1998 were as follows:
<TABLE>
<CAPTION>
JUNE 30, 2000
JULY 31, 2000 (UNAUDITED) DECEMBER 31, 1999
--------------------------- --------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sold:
Class A 7,718,634 $ 56,674,366 6,815,059 $ 50,176,822 19,309,632 $ 154,855,498
------------------------------------------------------------------------------------------------------------------
Class B 4,326,094 31,759,218 3,836,635 28,237,367 14,308,868 114,665,985
------------------------------------------------------------------------------------------------------------------
Class C 1,046,350 7,655,971 915,255 6,715,122 2,744,473 21,843,332
------------------------------------------------------------------------------------------------------------------
Issued as reinvestment
of dividends:
Class A 1,780,355 13,014,300 1,531,606 11,237,603 2,892,178 22,930,219
------------------------------------------------------------------------------------------------------------------
Class B 880,732 6,435,623 756,406 5,547,494 1,404,212 11,107,962
------------------------------------------------------------------------------------------------------------------
Class C 113,060 824,514 96,588 706,920 150,804 1,188,183
------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (12,794,917) (94,004,363) (11,750,687) (86,496,660) (18,052,165) (144,028,845)
------------------------------------------------------------------------------------------------------------------
Class B (7,508,184) (55,567,875) (6,869,825) (50,977,955) (9,612,004) (76,206,193)
------------------------------------------------------------------------------------------------------------------
Class C (1,120,567) (8,255,274) (1,024,858) (7,568,196) (1,483,247) (11,750,777)
------------------------------------------------------------------------------------------------------------------
(5,558,443) $(41,463,520) (5,693,821) $(42,421,483) 11,662,751 $ 94,605,364
------------------------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31, 1998
----------------------------
SHARES AMOUNT
----------- -------------
<S> <C> <C>
Sold:
Class A 18,358,462 $ 156,866,536
----------------------------------------------------
Class B 15,156,529 128,945,810
----------------------------------------------------
Class C 2,530,069 21,507,916
----------------------------------------------------
Issued as reinvestment
of dividends:
Class A 2,575,274 21,978,433
----------------------------------------------------
Class B 956,975 8,134,643
----------------------------------------------------
Class C 65,508 553,356
----------------------------------------------------
Reacquired:
Class A (12,996,807) (110,869,307)
----------------------------------------------------
Class B (4,664,899) (39,610,863)
----------------------------------------------------
Class C (581,112) (4,909,911)
----------------------------------------------------
21,399,999 $ 182,596,613
----------------------------------------------------
</TABLE>
NOTE 8-FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------------------------
SIX MONTHS ENDED
SEVEN MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
JULY 31, 2000 ----------------------------------------------------
2000 (UNAUDITED) 1999 1998 1997 1996 1995
------------------ ---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 7.59 $ 7.59 $ 8.38 $ 8.57 $ 8.24 $ 8.17 $ 7.20
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.34 0.29 0.57 0.57 0.55 0.57 0.58
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Net gains (losses) on securities
(both realized and unrealized) (0.47) (0.41) (0.81) (0.16) 0.39 0.09 1.00
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations (0.13) (0.12) (0.24) 0.41 0.94 0.66 1.58
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment
income (0.25) (0.28) (0.55) (0.55) (0.52) (0.59) (0.61)
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Distributions from net realized
gains -- -- -- (0.05) (0.09) -- --
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Return of capital (0.07) -- -- -- -- -- --
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Total distributions (0.32) (0.28) (0.55) (0.60) (0.61) (0.59) (0.61)
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of period $ 7.14 $ 7.19 $ 7.59 $ 8.38 $ 8.57 $ 8.24 $ 8.17
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Total return(a) (1.70)% (1.65)% (2.92)% 4.94% 11.92% 8.58% 22.77%
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $346,482 $348,152 $393,414 $399,701 $340,608 $286,183 $251,280
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Ratio of expenses to average net
assets 0.97%(b) 0.93%(b) 0.91% 0.91% 0.94% 0.98% 0.98%
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Ratio of net investment income to
average net assets 8.03%(b) 8.04%(b) 7.11% 6.69% 6.55% 7.13% 7.52%
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Portfolio turnover rate 43% 45% 78% 41% 54% 80% 227%
----------------------------------- -------- -------- -------- -------- -------- -------- --------
</TABLE>
(a) Does not deduct sales charges and is not annualized for periods less than
one year.
(b) Ratios are annualized and based on average net assets of $364,052,981 and
$366,814,168 for July 31, 2000 and June 30, 2000, respectively.
FS-53
<PAGE> 273
NOTE 8-FINANCIAL HIGHLIGHTS - (CONTINUED)
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------------------------------------------
SIX MONTHS ENDED
SEVEN MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
JULY 31, 2000 --------------------------------------------------
2000 (UNAUDITED) 1999 1998 1997 1996 1995
------------------ ---------------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 7.58 $ 7.58 $ 8.37 $ 8.55 $ 8.23 $ 8.15 $ 7.18
------------------------------------- -------- -------- -------- -------- -------- ------- -------
Income from investment operations:
Net investment income 0.31 0.27 0.50 0.50 0.48 0.50 0.53
------------------------------------- -------- -------- -------- -------- -------- ------- -------
Net gains (losses) on securities
(both realized and unrealized) (0.47) (0.42) (0.80) (0.15) 0.38 0.11 0.98
------------------------------------- -------- -------- -------- -------- -------- ------- -------
Total from investment operations (0.16) (0.15) (0.30) 0.35 0.86 0.61 1.51
------------------------------------- -------- -------- -------- -------- -------- ------- -------
Less distributions:
Dividends from net investment
income (0.21) (0.24) (0.49) (0.48) (0.45) (0.53) (0.54)
------------------------------------- -------- -------- -------- -------- -------- ------- -------
Distributions from net realized
gains -- -- -- (0.05) (0.09) -- --
------------------------------------- -------- -------- -------- -------- -------- ------- -------
Return of capital (0.07) -- -- -- -- -- --
------------------------------------- -------- -------- -------- -------- -------- ------- -------
Total distributions (0.28) (0.24) (0.49) (0.53) (0.54) (0.53) (0.54)
------------------------------------- -------- -------- -------- -------- -------- ------- -------
Net asset value, end of period $ 7.14 $ 7.19 $ 7.58 $ 8.37 $ 8.55 $ 8.23 $ 8.15
------------------------------------- -------- -------- -------- -------- -------- ------- -------
Total return(a) (2.09)% (1.96)% (3.72)% 4.20% 10.89% 7.87% 21.72%
------------------------------------- -------- -------- -------- -------- -------- ------- -------
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $213,926 $215,589 $244,713 $219,033 $125,871 $85,343 $44,304
------------------------------------- -------- -------- -------- -------- -------- ------- -------
Ratio of expenses to average net
assets 1.73%(b) 1.69%(b) 1.66% 1.66% 1.69% 1.80% 1.79%
------------------------------------- -------- -------- -------- -------- -------- ------- -------
Ratio of net investment income to
average net assets 7.28%(b) 7.29%(b) 6.36% 5.94% 5.80% 6.30% 6.71%
------------------------------------- -------- -------- -------- -------- -------- ------- -------
Portfolio turnover rate 43% 45% 78% 41% 54% 80% 227%
------------------------------------- -------- -------- -------- -------- -------- ------- -------
</TABLE>
(a) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(b) Ratios are annualized and based on average net assets of $223,264,239 and
$224,621,090 for July 31, 2000 and June 30, 2000, respectively.
<TABLE>
<CAPTION>
CLASS C
----------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED AUGUST 4, 1997
SEVEN MONTHS ENDED JUNE 30, DECEMBER 31, (DATE SALES COMMENCED)
JULY 31, 2000 ----------------- TO DECEMBER 31,
2000 (UNAUDITED) 1999 1998 1997
------------------ ---------------- ------- ------- ----------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 7.57 $ 7.57 $ 8.36 $ 8.54 $ 8.38
--------------------------------------------- ------- ------- ------- ------- ------
Income from investment operations:
Net investment income 0.31 0.27 0.50 0.50 0.19
--------------------------------------------- ------- ------- ------- ------- ------
Net gains (losses) on securities (both
realized and unrealized) (0.47) (0.42) (0.80) (0.15) 0.22
--------------------------------------------- ------- ------- ------- ------- ------
Total from investment operations (0.16) (0.15) (0.30) 0.35 0.41
--------------------------------------------- ------- ------- ------- ------- ------
Less distributions:
Dividends from net investment income (0.21) (0.24) (0.49) (0.48) (0.16)
--------------------------------------------- ------- ------- ------- ------- ------
Distributions from net realized gains -- -- -- (0.05) (0.09)
--------------------------------------------- ------- ------- ------- ------- ------
Return of capital (0.07) -- -- -- --
--------------------------------------------- ------- ------- ------- ------- ------
Total distributions (0.28) (0.24) (0.49) (0.53) (0.25)
--------------------------------------------- ------- ------- ------- ------- ------
Net asset value, end of period $ 7.13 $ 7.18 $ 7.57 $ 8.36 $ 8.54
--------------------------------------------- ------- ------- ------- ------- ------
Total return(a) (2.09)% (1.96)% (3.71)% 4.21% 4.96%
--------------------------------------------- ------- ------- ------- ------- ------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $26,821 $26,635 $28,202 $19,332 $2,552
--------------------------------------------- ------- ------- ------- ------- ------
Ratio of expenses to average net assets 1.73%(b) 1.69%(b) 1.66% 1.66% 1.69%(c)
--------------------------------------------- ------- ------- ------- ------- ------
Ratio of net investment income to average net
assets 7.28%(b) 7.29%(b) 6.36% 5.94% 5.80%(c)
--------------------------------------------- ------- ------- ------- ------- ------
Portfolio turnover rate 43% 45% 78% 41% 54%
--------------------------------------------- ------- ------- ------- ------- ------
</TABLE>
(a) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(b) Ratios are annualized and based on average net assets of $26,828,719 and
$26,837,492 for July 31, 2000 and June 30, 2000, respectively.
(c) Annualized.
FS-54
<PAGE> 274
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
AIM Intermediate Government Fund:
We have audited the accompanying statement of assets and liabilities of AIM
Intermediate Government Fund (a portfolio of AIM Investment Securities Funds),
including the schedule of investments, as of July 31, 2000, and the related
statement of operations for the seven months ended July 31, 2000 and the year
ended December 31, 1999, the statement of cash flows for the seven months ended
July 31, 2000, the statement of changes in net assets for the seven months ended
July 31, 2000 and the two-years ended December 31, 1999 and the financial
highlights for the seven months ended July 31, 2000 and for each of the years in
the five-year period ended December 31, 1999. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of July 31, 2000, by correspondence with the custodian. 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
Intermediate Government Fund as of July 31, 2000, the results of its operations
for the seven months ended July 31, 2000 and the year ended December 31, 1999,
the statement of cash flows for the seven months ended July 31, 2000, the
changes in its net assets for the seven months ended July 31, 2000 and the
two-years ended December 31, 1999 and the financial highlights for the seven
months ended July 31, 2000 and for each of the years in the five-year period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States of America.
/s/ KPMG LLP
September 1, 2000
Houston, Texas
FS-55
<PAGE> 275
SCHEDULE OF INVESTMENTS
July 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. GOVERNMENT AGENCY
SECURITIES-78.83%
FEDERAL FARM CREDIT BANK-0.16%
Debentures,
6.15%, 09/01/00 $ 700,000 $ 699,776
--------------------------------------------------------------
FEDERAL HOME LOAN BANK-6.27%
Debentures,
7.31%, 07/06/01 4,000,000 4,008,880
--------------------------------------------------------------
7.13%, 11/15/01 10,000,000 10,006,200
--------------------------------------------------------------
7.36%, 07/01/04 2,800,000 2,834,384
--------------------------------------------------------------
8.00%, 05/24/05 4,140,000 4,167,200
--------------------------------------------------------------
8.10%, 05/24/05 6,060,000 6,113,328
--------------------------------------------------------------
27,129,992
--------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP.
("FHLMC")-21.25%
Pass through certificates,
6.50%, 07/01/01 to 01/01/28 6,557,413 6,285,655
--------------------------------------------------------------
9.00%, 12/01/05 to 04/01/25 2,933,806 3,053,040
--------------------------------------------------------------
8.00%, 07/01/06 to 01/01/30 56,608,266 57,008,115
--------------------------------------------------------------
8.50%, 07/01/07 to 12/01/26 10,215,323 10,486,327
--------------------------------------------------------------
10.50%, 09/01/09 to 01/01/21 1,011,930 1,095,779
--------------------------------------------------------------
7.00%, 11/01/10 to 04/01/11 890,436 878,943
--------------------------------------------------------------
10.00%, 11/01/11 to 04/01/20 6,650,471 7,094,611
--------------------------------------------------------------
12.00%, 02/01/13 12,167 13,726
--------------------------------------------------------------
9.50%, 11/01/20 to 04/01/25 5,771,278 6,075,378
--------------------------------------------------------------
91,991,574
--------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION ("FNMA")-37.23%
Debentures,
7.25%, 01/15/10 9,500,000 9,589,300
--------------------------------------------------------------
8.25%, 12/18/00 5,000,000 5,028,350
--------------------------------------------------------------
7.50%, 02/11/02 9,000,000 9,071,640
--------------------------------------------------------------
7.13%, 03/15/07 9,110,000 9,151,359
--------------------------------------------------------------
Medium term notes,
7.57%, 04/06/04 5,000,000 4,994,050
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION
("FNMA")-(CONTINUED)
Pass through certificates,
8.50%, 01/01/07 to 11/01/26 $49,327,003 $ 50,205,566
--------------------------------------------------------------
8.00%, 05/01/10 to 02/01/30 39,301,008 39,585,062
--------------------------------------------------------------
7.50%, 06/01/10 to 03/01/27 12,538,282 12,494,043
--------------------------------------------------------------
7.00%, 05/01/11 to 10/01/12 6,392,562 6,299,979
--------------------------------------------------------------
6.50%, 05/01/13 to 11/01/28 7,387,049 7,195,757
--------------------------------------------------------------
6.00%, 10/01/13 to 04/01/24 70,082 65,249
--------------------------------------------------------------
9.50%, 07/01/16 to 08/01/22 1,141,977 1,191,456
--------------------------------------------------------------
10.00%, 12/20/19 to 12/20/21 5,802,013 6,277,530
--------------------------------------------------------------
161,149,341
--------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION ("GNMA")-13.92%
Pass through certificates,
6.00%, 10/15/08 to 11/15/08 394,900 379,104
--------------------------------------------------------------
6.50%, 10/15/08 348,625 341,760
--------------------------------------------------------------
7.00%, 10/15/08 to 07/15/28 15,062,396 14,708,850
--------------------------------------------------------------
9.00%, 10/15/08 to 04/15/21 955,537 996,787
--------------------------------------------------------------
9.50%, 06/15/09 to 03/15/23 3,368,017 3,502,407
--------------------------------------------------------------
10.00%, 11/15/09 to 07/15/24 7,097,426 7,602,534
--------------------------------------------------------------
11.00%, 12/15/09 to 12/15/15 59,880 65,534
--------------------------------------------------------------
13.50%, 07/15/10 to 04/15/15 200,157 233,119
--------------------------------------------------------------
12.50%, 11/15/10 80,034 90,813
--------------------------------------------------------------
13.00%, 01/15/11 to 05/15/15 218,048 249,878
--------------------------------------------------------------
12.00%, 01/15/13 to 07/15/15 338,107 380,274
--------------------------------------------------------------
10.50%, 07/15/13 to 02/15/16 80,586 87,606
--------------------------------------------------------------
8.00%, 01/15/22 to 06/15/27 25,218,157 25,604,943
--------------------------------------------------------------
7.50%, 03/15/26 to 08/15/28 6,047,207 6,017,444
--------------------------------------------------------------
60,261,053
--------------------------------------------------------------
Total U.S. Government Agency
Securities (Cost
$347,049,196) 341,231,736
--------------------------------------------------------------
U.S. TREASURY SECURITIES-14.17%
U.S. TREASURY NOTES-7.22%
7.50%, 02/15/05 20,000,000 20,991,600
--------------------------------------------------------------
6.75%, 05/15/05(a) 10,000,000 10,248,400
--------------------------------------------------------------
31,240,000
--------------------------------------------------------------
</TABLE>
FS-56
<PAGE> 276
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. TREASURY BONDS-5.06%
7.50%, 11/15/16 $ 5,500,000 $ 6,270,605
--------------------------------------------------------------
7.25%, 08/15/22 1,100,000 1,252,944
--------------------------------------------------------------
6.25%, 05/15/30 13,500,000 14,383,845
--------------------------------------------------------------
21,907,394
--------------------------------------------------------------
U.S. TREASURY STRIPS-1.89%(b)
6.61%, 05/15/06 8,000,000 5,623,440
--------------------------------------------------------------
6.78%, 11/15/18 7,750,000 2,582,223
--------------------------------------------------------------
8,205,663
--------------------------------------------------------------
Total U.S. Treasury Securities
(Cost $60,594,157) 61,353,057
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
REPURCHASE AGREEMENTS-8.81%(c)
Bank of America Securities, 3.15%,
01/03/00 (Cost $38,138,868)(d) $38,138,868 $ 38,138,868
--------------------------------------------------------------
TOTAL INVESTMENTS-101.81% (Cost
$445,782,221) 440,723,661
--------------------------------------------------------------
LIABILITIES LESS OTHER
ASSETS-(1.81%) (7,849,460)
--------------------------------------------------------------
NET ASSETS-100.00% $432,874,201
==============================================================
</TABLE>
Investment Abbreviations:
STRIPS - Separately Traded Interest and Principal Security
Notes to Schedule of Investments:
(a)Principal amount has been deposited in escrow with custodian as collateral
for reverse repurchase agreements outstanding at 07/31/00.
(b)STRIPS are traded on a discount basis. In such cases, the interest rate shown
represents the rate of discount paid or received at the time of purchase by
the Fund.
(c)Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value is at least 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(d)Joint repurchase agreement entered into 07/31/00 with a maturing value of
$750,138,333 and collateralized by U.S. Government obligations.
See Notes to Financial Statements.
FS-57
<PAGE> 277
SCHEDULE OF INVESTMENTS
June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. GOVERNMENT AGENCY
SECURITIES-80.21%
FEDERAL FARM CREDIT BANK-0.16%
Debentures,
6.15%, 09/01/00 $ 700,000 $ 699,440
--------------------------------------------------------------
FEDERAL HOME LOAN BANK-6.22%
Debentures,
7.31%, 07/06/01 4,000,000 4,007,160
--------------------------------------------------------------
7.13%, 11/15/01 10,000,000 9,997,900
--------------------------------------------------------------
7.36%, 07/01/04 2,800,000 2,829,820
--------------------------------------------------------------
8.00%, 05/24/05 4,140,000 4,182,683
--------------------------------------------------------------
8.10%, 05/24/05 6,060,000 6,136,053
--------------------------------------------------------------
27,153,616
--------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP.
("FHLMC")-23.53%
Debentures,
6.45%, 04/29/09 10,000,000 9,327,400
--------------------------------------------------------------
Pass through certificates,
6.50%, 07/01/01 to 01/01/28 6,665,632 6,378,045
--------------------------------------------------------------
9.00%, 12/01/05 to 04/01/25 3,009,612 3,130,339
--------------------------------------------------------------
8.00%, 07/01/06 to 01/01/30 57,157,008 57,597,731
--------------------------------------------------------------
8.50%, 07/01/07 to 12/01/26 10,405,944 10,701,653
--------------------------------------------------------------
10.50%, 09/01/09 to 01/01/21 1,027,806 1,112,085
--------------------------------------------------------------
7.00%, 11/01/10 to 04/01/11 897,927 885,771
--------------------------------------------------------------
10.00%, 11/01/11 to 04/01/20 6,739,406 7,200,291
--------------------------------------------------------------
12.00%, 02/01/13 13,638 15,364
--------------------------------------------------------------
9.50%, 11/01/20 to 04/01/25 5,953,604 6,278,507
--------------------------------------------------------------
102,627,186
--------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION ("FNMA")-36.25%
Debentures,
8.25%, 12/18/00 5,000,000 5,039,800
--------------------------------------------------------------
7.50%, 02/11/02 9,000,000 9,069,120
--------------------------------------------------------------
6.63%, 04/15/02 5,000,000 4,977,200
--------------------------------------------------------------
7.13%, 03/15/07 9,110,000 9,136,510
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION
("FNMA")-(CONTINUED)
Medium term notes,
7.57%, 04/06/04 $ 5,000,000 $ 5,000,100
--------------------------------------------------------------
Pass through certificates,
8.50%, 01/01/07 to 11/01/26 49,893,193 50,875,102
--------------------------------------------------------------
8.00%, 05/01/10 to 02/01/30 39,691,478 39,995,051
--------------------------------------------------------------
7.50%, 06/01/10 to 03/01/27 12,734,066 12,679,834
--------------------------------------------------------------
7.00%, 05/01/11 to 10/01/12 6,471,311 6,373,523
--------------------------------------------------------------
6.50%, 05/01/13 to 11/01/28 7,447,241 7,244,814
--------------------------------------------------------------
6.00%, 10/01/13 to 04/01/24 70,631 65,529
--------------------------------------------------------------
9.50%, 07/01/16 to 08/01/22 1,157,065 1,209,360
--------------------------------------------------------------
10.00%, 12/20/19 to 12/20/21 5,919,270 6,415,476
--------------------------------------------------------------
158,081,419
--------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION ("GNMA")-14.05%
Pass through certificates,
6.00%, 10/15/08 to 11/15/08 398,585 382,267
--------------------------------------------------------------
6.50%, 10/15/08 357,347 349,865
--------------------------------------------------------------
7.00%, 10/15/08 to 07/15/28 15,271,970 14,917,912
--------------------------------------------------------------
9.00%, 10/15/08 to 04/15/21 968,782 1,013,631
--------------------------------------------------------------
9.50%, 06/15/09 to 03/15/23 3,438,173 3,584,013
--------------------------------------------------------------
10.00%, 11/15/09 to 07/15/24 7,270,160 7,785,116
--------------------------------------------------------------
11.00%, 12/15/09 to 12/15/15 61,608 67,406
--------------------------------------------------------------
13.50%, 07/15/10 to 04/15/15 209,850 244,340
--------------------------------------------------------------
12.50%, 11/15/10 80,512 91,330
--------------------------------------------------------------
13.00%, 01/15/11 to 05/15/15 218,554 250,389
--------------------------------------------------------------
12.00%, 01/15/13 to 07/15/15 342,187 384,758
--------------------------------------------------------------
10.50%, 07/15/13 to 02/15/16 80,773 87,784
--------------------------------------------------------------
8.00%, 01/15/22 to 06/15/27 25,643,358 26,084,065
--------------------------------------------------------------
7.50%, 03/15/26 to 08/15/28 6,054,273 6,032,045
--------------------------------------------------------------
61,274,921
--------------------------------------------------------------
Total U.S. Government Agency
Securities (Cost
$356,126,161) 349,836,582
--------------------------------------------------------------
</TABLE>
FS-58
<PAGE> 278
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. TREASURY SECURITIES-10.41%
U.S. TREASURY NOTES-4.81%
7.50%, 02/15/05 $20,000,000 $ 20,977,800
--------------------------------------------------------------
U.S. TREASURY BONDS-3.75%
7.50%, 11/15/16 5,500,000 6,199,380
--------------------------------------------------------------
7.25%, 08/15/22 1,100,000 1,235,421
--------------------------------------------------------------
6.25%, 05/15/30 8,500,000 8,923,045
--------------------------------------------------------------
16,357,846
--------------------------------------------------------------
U.S. TREASURY STRIPS-1.85%(a)
6.61%, 05/15/06 8,000,000 5,595,520
--------------------------------------------------------------
6.78%, 11/15/18 7,750,000 2,487,053
--------------------------------------------------------------
8,082,573
--------------------------------------------------------------
Total U.S. Treasury Securities
(Cost $45,052,298) 45,418,219
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
REPURCHASE AGREEMENT-7.82%(b)
UBS Warburg, 6.85%, 07/03/00 (Cost
$34,086,602)(c) $34,086,602 $ 34,086,602
--------------------------------------------------------------
TOTAL INVESTMENTS-98.44% (Cost
$435,265,061) 429,341,403
--------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-1.56% 6,793,676
--------------------------------------------------------------
NET ASSETS-100.00% $436,135,079
==============================================================
</TABLE>
Abbreviations:
STRIPS - Separately Traded Registered Interest and Principal Security
Notes to Schedule of Investments:
(a)STRIPS are traded on a discount basis. In such cases, the interest rate shown
represents the rate of discount paid or received at the time of purchase by
the Fund.
(b)Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value is at least 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(c)Joint repurchase agreement entered into 06/30/00 with a maturing value of
$250,142,708 and collateralized by U.S. Government obligations.
See Notes to Financial Statements.
FS-59
<PAGE> 279
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
JUNE 30,
JULY 31, 2000
2000 (UNAUDITED)
------------ ------------
<S> <C> <C>
ASSETS:
Investments, at market value (cost $445,782,221 and
$435,265,061, respectively) $440,723,661 $429,341,403
-----------------------------------------------------------------------------------------
Receivables for:
Fund shares sold 1,126,802 6,312,913
-----------------------------------------------------------------------------------------
Interest 4,537,057 4,189,265
-----------------------------------------------------------------------------------------
Principal paydowns 229,042 149,558
-----------------------------------------------------------------------------------------
Investment for deferred compensation plan 44,645 43,202
-----------------------------------------------------------------------------------------
Other assets 73,903 9,322
-----------------------------------------------------------------------------------------
Total assets 446,735,110 440,045,663
-----------------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Fund shares reacquired 2,237,973 2,610,674
-----------------------------------------------------------------------------------------
Dividends 631,114 624,097
-----------------------------------------------------------------------------------------
Reverse repurchase agreements 10,387,500 --
-----------------------------------------------------------------------------------------
Interest expense 6,261 --
-----------------------------------------------------------------------------------------
Deferred compensation plan 44,645 43,202
-----------------------------------------------------------------------------------------
Accrued advisory fees 160,597 157,593
-----------------------------------------------------------------------------------------
Accrued administrative services fees 9,013 8,678
-----------------------------------------------------------------------------------------
Accrued distribution fees 264,692 402,500
-----------------------------------------------------------------------------------------
Accrued trustees' fees 921 2,154
-----------------------------------------------------------------------------------------
Accrued transfer agent fees 51,549 55,200
-----------------------------------------------------------------------------------------
Accrued operating expenses 66,644 6,486
-----------------------------------------------------------------------------------------
Total liabilities 13,860,909 3,910,584
-----------------------------------------------------------------------------------------
Net assets applicable to shares outstanding $432,874,201 $436,135,079
=========================================================================================
NET ASSETS:
Class A $221,636,262 $223,090,975
=========================================================================================
Class B $177,031,878 $178,738,656
=========================================================================================
Class C $ 34,206,061 $ 34,305,448
=========================================================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 25,258,561 25,429,238
=========================================================================================
Class B 20,131,968 20,330,912
=========================================================================================
Class C 3,902,004 3,914,233
=========================================================================================
Class A:
Net asset value and redemption price per share $ 8.77 $ 8.77
-----------------------------------------------------------------------------------------
Offering price per share:
(Net asset value divided by 95.25%) $ 9.21 $ 9.21
=========================================================================================
Class B:
Net asset value and offering price per share $ 8.79 $ 8.79
=========================================================================================
Class C:
Net asset value and offering price per share $ 8.77 $ 8.76
=========================================================================================
</TABLE>
See Notes to Financial Statements.
FS-60
<PAGE> 280
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS
SEVEN MONTHS ENDED YEAR
ENDED JUNE 30, ENDED
JULY 31, 2000 DECEMBER 31,
2000 (UNAUDITED) 1999
------------ ----------- ------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $18,958,479 $16,195,011 $ 39,664,653
-------------------------------------------------------------------------------------------------------
Dividends - affiliated issuers 1,419,678 1,419,678 1,139,420
-------------------------------------------------------------------------------------------------------
Total investment income 20,378,157 17,614,689 40,804,073
-------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 1,153,654 993,057 2,310,621
-------------------------------------------------------------------------------------------------------
Administrative services fee 63,465 54,453 97,900
-------------------------------------------------------------------------------------------------------
Custodian fees 45,311 39,978 68,252
-------------------------------------------------------------------------------------------------------
Distribution fees - Class A 318,066 270,752 622,422
-------------------------------------------------------------------------------------------------------
Distribution fees - Class B 1,118,113 967,895 2,414,889
-------------------------------------------------------------------------------------------------------
Distribution fees - Class C 202,776 174,108 411,484
-------------------------------------------------------------------------------------------------------
Interest 699,935 677,466 984,822
-------------------------------------------------------------------------------------------------------
Transfer agent fees - Class A 215,029 185,747 318,908
-------------------------------------------------------------------------------------------------------
Transfer agent fees - Class B 203,030 178,299 341,419
-------------------------------------------------------------------------------------------------------
Transfer agent fees - Class C 36,818 32,079 59,001
-------------------------------------------------------------------------------------------------------
Trustee's fees 4,499 3,927 10,971
-------------------------------------------------------------------------------------------------------
Other 177,472 159,325 255,687
-------------------------------------------------------------------------------------------------------
Total expenses 4,238,168 3,737,086 7,896,376
-------------------------------------------------------------------------------------------------------
Less: Expenses paid indirectly (3,009) (2,440) (6,776)
-------------------------------------------------------------------------------------------------------
Net expenses 4,235,159 3,734,646 7,889,600
-------------------------------------------------------------------------------------------------------
Net investment income 16,142,998 13,880,043 32,914,473
-------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES
Net realized gain (loss) from investment securities (8,156,637) (7,362,795) (27,037,801)
-------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities 6,328,795 5,463,697 (17,820,871)
-------------------------------------------------------------------------------------------------------
Net gain (loss) on investment securities (1,827,842) (1,899,098) (44,858,672)
-------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations $14,315,156 $11,980,945 $(11,944,199)
=======================================================================================================
</TABLE>
See Notes to Financial Statements.
FS-61
<PAGE> 281
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
SEVEN MONTHS ENDED YEAR YEAR
ENDED JUNE 30, ENDED ENDED
JULY 31, 2000 DECEMBER 31, DECEMBER 31,
2000 (UNAUDITED) 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $16,142,998 $ 13,880,043 $32,914,473 $ 21,481,081
-----------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities (8,156,637) (7,362,795) (27,037,801) 6,570,449
-----------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities 6,328,795 5,463,697 (17,820,871) (2,570,929)
-----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 14,315,156 11,980,945 (11,944,199) 25,480,601
-----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (8,371,950) (7,157,816) (16,289,770) (12,395,672)
-----------------------------------------------------------------------------------------------------------------------
Class B (6,448,874) (5,600,030) (13,961,515) (7,690,274)
-----------------------------------------------------------------------------------------------------------------------
Class C (1,172,877) (1,010,558) (2,201,216) (1,395,135)
-----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders in excess of net investment
income:
Class A -- -- -- (247,750)
-----------------------------------------------------------------------------------------------------------------------
Class B -- -- -- (176,643)
-----------------------------------------------------------------------------------------------------------------------
Class C -- -- -- (32,108)
-----------------------------------------------------------------------------------------------------------------------
Return of capital distributions
Class A -- -- (133,023) --
-----------------------------------------------------------------------------------------------------------------------
Class B -- -- (129,047) --
-----------------------------------------------------------------------------------------------------------------------
Class C -- -- (21,986) --
-----------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A (16,487,253) (14,977,294) 14,339,321 76,269,628
-----------------------------------------------------------------------------------------------------------------------
Class B (51,077,582) (49,325,820) 11,152,000 147,670,216
-----------------------------------------------------------------------------------------------------------------------
Class C (4,681,894) (4,573,823) 4,431,396 35,531,445
-----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (73,925,274) (70,664,396) (14,758,039) 263,014,308
-----------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 506,799,475 506,799,475 521,557,514 258,543,206
-----------------------------------------------------------------------------------------------------------------------
End of period $432,874,201 $436,135,079 $506,799,475 $521,557,514
=======================================================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $481,727,062 $485,096,854 $553,973,791 $524,340,223
-----------------------------------------------------------------------------------------------------------------------
Undistributed net investment income (19,532) 59,156 (52,483) (42,488)
-----------------------------------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities (43,774,769) (43,097,273) (35,734,478) (9,173,737)
-----------------------------------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities (5,058,560) (5,923,658) (11,387,355) 6,433,516
-----------------------------------------------------------------------------------------------------------------------
$432,874,201 $436,135,079 $506,799,475 $521,557,514
=======================================================================================================================
</TABLE>
See Notes to Financial Statements.
FS-62
<PAGE> 282
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
SEVEN MONTHS ENDED
ENDED JUNE 30,
JULY 31, 2000
2000 (UNAUDITED)
------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATIONS:
Interest and dividends $ 20,378,157 $ 17,614,689
----------------------------------------------------------------------------------------------------------
Expenses (4,235,159) (3,734,646)
----------------------------------------------------------------------------------------------------------
Net investment income 16,142,998 13,880,043
----------------------------------------------------------------------------------------------------------
ADJUSTMENTS TO RECONCILE NET INVESTMENT INCOME TO NET CASH
PROVIDED BY OPERATIONS:
Purchases of securities* (273,733,038) (248,629,355)
----------------------------------------------------------------------------------------------------------
Proceeds from sales of securities and principal payments* 332,923,342 315,039,272
----------------------------------------------------------------------------------------------------------
Net proceeds from short term securities 68,247,951 72,300,217
----------------------------------------------------------------------------------------------------------
Change in receivable for investments sold and principal
payments 75,723,867 75,803,351
----------------------------------------------------------------------------------------------------------
Change in receivable for fund shares sold 130,370 (5,055,741)
----------------------------------------------------------------------------------------------------------
Change in receivable for dividends and interest 3,054,939 3,402,731
----------------------------------------------------------------------------------------------------------
Change in other assets (24,333) 41,688
----------------------------------------------------------------------------------------------------------
Change in payables for investments purchased (76,453,125) (76,453,125)
----------------------------------------------------------------------------------------------------------
Change in payables for fund shares reacquired (771,927) (399,226)
----------------------------------------------------------------------------------------------------------
Change in payables for dividends (168,677) (175,694)
----------------------------------------------------------------------------------------------------------
Change in accrued expenses (320,022) (248,531)
----------------------------------------------------------------------------------------------------------
Amortization (266,915) (227,791)
----------------------------------------------------------------------------------------------------------
Net cash provided by operations 144,485,430 149,277,839
----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid to shareholders (15,993,701) (13,768,404)
----------------------------------------------------------------------------------------------------------
Dividends reinvested 11,316,186 9,750,914
----------------------------------------------------------------------------------------------------------
Capital stock sold 195,806,930 152,827,225
----------------------------------------------------------------------------------------------------------
Capital stock reacquired (279,369,845) (231,455,076)
----------------------------------------------------------------------------------------------------------
Borrowings (56,245,000) (66,632,500)
----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (144,485,430) (149,277,841)
----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash -- (2)
----------------------------------------------------------------------------------------------------------
Cash at beginning of period -- 2
----------------------------------------------------------------------------------------------------------
Cash at end of period $ -- $ --
==========================================================================================================
</TABLE>
* Other than short-term securities
See Notes to Financial Statements.
FS-63
<PAGE> 283
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Intermediate Government Fund (the "Fund") is a series portfolio of AIM
Investment Securities Funds (the "Trust"). The Trust is a Delaware business
trust registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of seven
separate portfolios, each having an unlimited number of shares of beneficial
interest. Prior to June 1, 2000, the Fund was organized as a series portfolio of
AIM Funds Group. At a meeting held on February 3, 2000, the Board of Trustees of
AIM Funds Group approved an Agreement and Plan of Reorganization (the
"Reorganization") which reorganized the Fund as a series portfolio of the Trust.
Shareholders of the Fund approved the Reorganization at a meeting held on May
31, 2000. Pursuant to the Reorganization, the Fund's fiscal year-end was changed
from December 31 to July 31. This report includes financial information for the
period ended July 31, 2000 (seven months), the six months ended June 30, 2000
and the year ended December 31, 1999. Financial information for the six months
ended June 30, 2000 is unaudited. The Fund currently offers three different
classes of shares: Class A shares, Class B shares and Class C shares. Class A
shares are sold with a front-end sales charge. Class B shares and Class C shares
are sold with a contingent deferred sales charge. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund. The Fund's investment objective is to achieve a high
level of current income consistent with reasonable concern for safety of
principal.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. Security Valuations -- A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price as of the close of the
customary trading session on the exchange where the security is principally
traded, or lacking any sales on a particular day, the security is valued at
the closing bid price on that day. Each security reported on the NASDAQ
National Market System is valued at the last sales price as of the close of
the customary trading session on the valuation date or absent a last sales
price, at the closing bid price. Debt obligations (including convertible
bonds) are valued on the basis of prices provided by an independent pricing
service. Prices provided by the pricing service may be determined without
exclusive reliance on quoted prices, and may reflect appropriate factors such
as yield, type of issue, coupon rate, maturity and seasoning differential.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and are
valued at the last bid price in the case of equity securities and in the case
of debt obligations, the mean between the last bid and asked prices.
Securities for which market quotations are not readily available or are
questionable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers in a manner specifically authorized
by the Board of Trustees. Short-term obligations having 60 days or less to
maturity are valued at amortized cost which approximates market value. For
purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
B. Securities Transactions and Investment Income -- Securities transactions are
accounted for on a trade date basis. The Fund may engage in dollar roll
transactions with respect to mortgage backed securities issued by GNMA, FNMA
and FHLMC. In a dollar roll transaction, the Fund sells a mortgage backed
security held in the Fund to a financial institution such as a bank or
broker-dealer, and simultaneously agrees to repurchase a substantially
similar security (same type, coupon and maturity) from the institution at a
later date at an agreed upon price. The mortgage backed securities that are
repurchased will bear the same interest rate as those sold, but generally
will be collateralized by different pools of mortgages with varying
prepayment histories. During the period between the sale and repurchase, the
Fund will not be entitled to receive interest and principal payments on
securities sold. Proceeds of the sale will be invested in short-term
instruments, and the income from these investments, together with any
additional fee income received on the sale, could generate income for the
Fund exceeding the yield on the security sold.
Dollar roll transactions involve the risk that the market value of the
securities retained by the Fund may decline below the price of the securities
that the Fund has sold but is obligated to repurchase under the agreement. In
the event the buyer of securities in a dollar roll transaction files for
bankruptcy or becomes insolvent, the Fund's use of the proceeds from the sale
of the securities may be restricted pending a determination by the other
party, or its trustee or receiver, whether to enforce the Fund's obligation
to repurchase the securities.
Realized gains or losses on sales are computed on the basis of specific
identification of the securities sold. Interest income is recorded on the
accrual basis from settlement date. Dividend income is recorded on the
ex-dividend date.
On July 31, 2000, undistributed net investment income was decreased by
$116,346 and undistributed net realized gains increased by $116,346 as a
result of differing book/tax treatment of paydowns and other
reclassifications. Net assets of the Fund were unaffected by the
reclassifications.
FS-64
<PAGE> 284
C. Distributions -- It is the policy of the Fund to declare dividends from net
investment income daily and pay monthly. Distributions from net realized
capital gains, if any, are generally paid annually and recorded on
ex-dividend date. The Fund may elect to use a portion of the proceeds from
redemptions as distributions for federal income tax purposes.
D. Federal Income Taxes -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements.
The Fund has a capital loss carryforward of $43,320,823 which may be
carried forward to offset future taxable gains, if any, which expires in
varying increments, if not previously utilized, in the year 2008.
E. Expenses -- Distribution expenses and certain transfer agency expenses
directly attributable to a class of shares are charged to those classes'
operations. All other expenses which are attributable to more than one class
are allocated among the classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at an annual rate of 0.50% on the first
$200 million of the Fund's average daily net assets, plus 0.40% on the next $300
million of the Fund's average daily net assets, plus 0.35% on the next $500
million of the Fund's average daily net assets, plus 0.30% on 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 pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the seven-month period ended July 31, 2000,
the six months ended June 30, 2000 and the year ended December 31, 1999, AIM was
paid $63,465, $54,453 and $97,900, respectively, for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. For the seven-month period ended July 31,
2000, the six months ended June 30, 2000 and the year ended December 31, 1999,
AFS was paid $222,407, $192,781 and $398,305, respectively, for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.25% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and C shares. Of these amounts, the Fund may
pay a service fee of 0.25% of the average daily net assets of the Class A, Class
B or Class C shares to selected dealers and financial institutions who furnish
continuing personal shareholder services to their customers who purchase and own
the appropriate class of shares of the Fund. Any amounts not paid as a service
fee under the Plans would constitute an asset-based sales charge. The Plans also
impose a cap on the total sales charges, including asset-based sales charges
that may be paid by the respective classes. For the seven-month period ended
July 31, 2000, the Class A, Class B and Class C shares paid AIM Distributors
318,066, 1,118,113 and 202,776, respectively, as compensation under the Plans.
For the six months ended June 30, 2000, the Class A, Class B and Class C shares
paid AIM Distributors $270,752, $967,895 and $174,108, respectively, as
compensation under the Plans. For the year ended December 31, 1999, the Class A,
Class B and Class C shares paid AIM Distributors $622,422, $2,414,889, and
$411,484, respectively, as compensation under the Plans.
AIM Distributors received commissions of $103,411, $91,528 and $297,352 from
sales of the Class A shares of the Fund during the seven-month period ended July
31, 2000, the six months ended June 30, 2000 and the year ended December 31,
1999, respectively. 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 seven-month period ended July 31, 2000, the six months ended
June 30, 2000 and the year ended December 31, 1999, AIM Distributors received
$44,911, $42,361 and $171,470, respectively, in contingent deferred sales
charges imposed on redemptions of Fund shares.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the seven-month period ended July 31, 2000, the six months ended June
30, 2000 and the year ended December 31, 1999, the Fund paid legal fees of
$2,666, $2,059 and $4,381, respectively, for services rendered by Kramer, Levin,
Naftalis & Frankel LLP as counsel to the Trust's trustees. A member of that firm
is a trustee of the Trust.
NOTE 3-INDIRECT EXPENSES
For the seven-month period ended July 31, 2000, the six months ended June 30,
2000 and the year ended December 31, 1999, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) and reductions in custodian
fees of $3,009, $2,440 and $6,004 and $0, $0, and $772, respectively, under
expense offset arrangements which resulted in a reduction of the Fund's total
expenses of $3,009, $2,440 and $6,776, for the seven-month period ended July 31,
2000, the six months ended June 30, 2000 and the year ended December 31, 1999,
respectively.
NOTE 4-TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. The Trust invests trustees' fees, if so elected by a
trustee, in mutual fund shares in accordance with a deferred compensation plan.
FS-65
<PAGE> 285
NOTE 5-BORROWINGS
Reverse repurchase agreements involve the sale of securities held by the Fund,
with an agreement that the Fund will repurchase such securities at an
agreed-upon price and date. The Fund will use the proceeds of a reverse
repurchase agreement (which are considered to be borrowings under the 1940 Act)
to purchase other permitted securities either maturing, or under an agreement to
resell, at a date simultaneous with or prior to the expiration of the reverse
repurchase agreement. The Fund will enter into a reverse repurchase agreement
only when the interest income to be earned from the investment of proceeds of
the transaction is greater than the interest expense of the transaction. The
agreements are collateralized by the underlying securities and are carried at
the amount at which the securities will subsequently be repurchased as specified
in the agreements.
The maximum amount outstanding during the seven-month period ended July 31,
2000, the six months ended June 30, 2000 and the year ended December 31, 1999,
was $66,632,500, $66,632,500 and $68,903,125 while borrowings averaged
$25,000,845, $28,481,013 and $29,142,158, respectively, per day with a weighted
average interest rate of 4.40%, 4.78% and 3.38%, respectively.
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $1,000,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the seven months ended July
31, 2000, the Fund did not borrow under the line of credit agreement. The funds
which are party to the line of credit are charged a commitment fee of 0.09% on
the unused balance of the committed line. The commitment fee is allocated among
the funds based on their respective average net assets for the period.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the seven-month period ended July 31, 2000
was $273,733,038 and $332,923,342, respectively, and during the six months ended
June 30, 2000 was $248,629,355 and $315,039,272, respectively. The amount of
unrealized appreciation (depreciation) of investment securities, for tax
purposes, is as follows:
<TABLE>
<CAPTION>
JUNE 30,
JULY 31, 2000
2000 (UNAUDITED)
----------- -----------
<S> <C> <C>
Aggregate unrealized appreciation
of investment securities $ 1,440,331 $ 1,403,908
------------------------------------------------------------
Aggregate unrealized
(depreciation) of investment
securities (6,952,837) (7,327,566)
------------------------------------------------------------
Net unrealized appreciation
(depreciation) of investment
securities $(5,512,506) $(5,923,658)
------------------------------------------------------------
Cost of investments for tax purposes at July 31, 2000 is
$446,236,167. Investments have the same cost for tax and
financial statement purposes at June 30, 2000.
</TABLE>
NOTE 7-SHARE INFORMATION
Changes in shares outstanding during the seven-month period ended July 31, 2000,
the six months ended June 30, 2000 and the years ended December 31, 1999 and
1998 were as follows:
<TABLE>
<CAPTION>
JUNE 30, 2000
JULY 31, 2000 (UNAUDITED) DECEMBER 31, 1999
---------------------------- ---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sold:
Class A 14,428,306 $ 126,418,351 10,440,474 $ 91,401,026 43,994,368 $ 405,966,986
--------------------------------------------------------------------------------------------------------------------------
Class B 5,530,370 48,527,357 5,035,925 44,179,134 24,981,699 228,902,826
--------------------------------------------------------------------------------------------------------------------------
Class C 2,386,392 20,861,222 1,974,283 17,247,065 4,401,944 40,514,763
--------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of
dividends:
Class A 744,846 6,516,394 638,528 5,583,990 1,422,251 12,951,091
--------------------------------------------------------------------------------------------------------------------------
Class B 457,487 4,009,997 397,860 3,485,865 1,015,685 9,277,928
--------------------------------------------------------------------------------------------------------------------------
Class C 90,390 789,795 77,992 681,059 193,191 1,758,352
--------------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (17,067,415) (149,421,998) (12,802,588) (111,962,310) (43,911,017) (404,578,756)
--------------------------------------------------------------------------------------------------------------------------
Class B (11,813,222) (103,614,936) (11,060,206) (96,990,819) (24,856,772) (227,028,754)
--------------------------------------------------------------------------------------------------------------------------
Class C (3,013,546) (26,332,911) (2,576,810) (22,501,947) (4,134,353) (37,841,719)
--------------------------------------------------------------------------------------------------------------------------
(8,256,392) $ (72,246,729) (7,874,542) $ (68,876,937) 3,106,996 $ 29,922,717
--------------------------------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31, 1998
----------------------------
SHARES AMOUNT
----------- -------------
<S> <C> <C>
Sold:
Class A 29,655,462 $ 283,586,927
----------------------------------------------------------
Class B 27,535,042 264,070,374
----------------------------------------------------------
Class C 6,742,689 63,813,508
----------------------------------------------------------
Issued as reinvestment of
dividends:
Class A 1,069,069 10,191,327
----------------------------------------------------------
Class B 568,105 5,430,298
----------------------------------------------------------
Class C 143,118 1,253,716
----------------------------------------------------------
Reacquired:
Class A (22,783,533) (217,508,626)
----------------------------------------------------------
Class B (12,722,862) (121,830,456)
----------------------------------------------------------
Class C (3,103,831) (29,535,779)
----------------------------------------------------------
27,103,259 $ 259,471,289
==========================================================
</TABLE>
FS-66
<PAGE> 286
NOTE 8-FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------------------------
SIX MONTHS ENDED
SEVEN MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
JULY 31, 2000 ----------------------------------------------------
2000 (UNAUDITED) 1999 1998 1997 1996 1995
------------------ ---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 8.80 $ 8.80 $ 9.58 $ 9.46 $ 9.28 $ 9.70 $ 8.99
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.34 0.29 0.60 0.62 0.63 0.63 0.69
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Net gains (losses) on securities
(both realized and unrealized) (0.03) (0.03) (0.78) 0.13 0.18 (0.42) 0.73
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations 0.31 0.26 (0.18) 0.75 0.81 0.21 1.42
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment
income (0.34) (0.29) (0.60) (0.63) (0.61) (0.59) (0.67)
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Return of capital -- -- -- -- (0.02) (0.04) (0.04)
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Total distributions (0.34) (0.29) (0.60) (0.63) (0.63) (0.63) (0.71)
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of period $ 8.77 $ 8.77 $ 8.80 $ 9.58 $ 9.46 $ 9.28 $ 9.70
=================================== ======== ======== ======== ======== ======== ======= ========
Total return(a) 3.55% 2.99% (1.87)% 8.17% 9.07% 2.35% 16.28%
=================================== ======== ======== ======== ======== ======== ======= ========
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $221,636 $223,091 $238,957 $245,613 $167,427 $174,344 $176,318
=================================== ======== ======== ======== ======== ======== ======== ========
Ratio of expenses to average net
assets (including interest
expense) 1.25%(b) 1.29%(b) 1.08% 1.20% 1.11% 1.08% 1.19%
=================================== ======== ======== ======== ======== ======== ======== ========
Ratio of expenses to average net
assets (excluding interest
expense) 0.98%(b) 0.98%(b) 0.89% 0.96% 1.00% 1.00% 1.08%
=================================== ======== ======== ======== ======== ======== ======== ========
Ratio of net investment income to
average net assets 6.61%(b) 6.63%(b) 6.60% 6.43% 6.77% 6.76% 7.36%
=================================== ======== ======== ======== ======== ======== ======== ========
Ratio of interest expense to
average net assets 0.27%(b) 0.30%(b) 0.19% 0.24% 0.11% 0.08% 0.11%
=================================== ======== ======== ======== ======== ======== ======== ========
Portfolio turnover rate 65% 59% 141% 147% 99% 134% 140%
=================================== ======== ======== ======== ======== ======== ======== =======
</TABLE>
(a)Does not deduct sales charges and is not annualized for periods less than one
year.
(b)Ratios are annualized and based on average net assets of $218,614,108 and
$217,792,119 for July 31, 2000 and June 30, 2000, respectively.
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------------------------------------------------
SIX MONTHS ENDED
SEVEN MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
JULY 31, 2000 ----------------------------------------------------
2000 (UNAUDITED) 1999 1998 1997 1996 1995
------------------ ---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 8.82 $ 8.82 $ 9.59 $ 9.46 $ 9.28 $ 9.69 $ 8.99
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.30 0.26 0.53 0.55 0.56 0.55 0.63
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Net gains (losses) on securities
(both realized and unrealized) (0.04) (0.04) (0.77) 0.13 0.17 (0.41) 0.70
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations 0.26 0.22 (0.24) 0.68 0.73 0.14 1.33
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment
income (0.29) (0.25) (0.53) (0.55) (0.53) (0.51) (0.59)
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Return of capital -- -- -- -- (0.02) (0.04) (0.04)
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Total distributions (0.29) (0.25) (0.53) (0.55) (0.55) (0.55) (0.63)
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of period $ 8.79 $ 8.79 $ 8.82 $ 9.59 $ 9.46 $ 9.28 $ 9.69
=================================== ======== ======== ======== ======== ======== ======== ========
Total return(a) 3.05% 2.56% (2.56)% 7.40% 8.16% 1.61% 15.22%
=================================== ======== ======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $177,032 $178,739 $228,832 $237,919 $ 89,265 $ 79,443 $ 61,300
=================================== ======== ======== ======== ======== ======== ======== ========
Ratio of expenses to average net
assets (including interest
expense) 2.01%(b) 2.05%(b) 1.85% 1.96% 1.87% 1.84% 1.97%
=================================== ======== ======== ======== ======== ======== ======== ========
Ratio of expenses to average net
assets (excluding interest
expense) 1.74%(b) 1.75%(b) 1.66% 1.72% 1.76% 1.76% 1.86%
=================================== ======== ======== ======== ======== ======== ======== ========
Ratio of net investment income to
average net assets 5.85%(b) 5.87%(b) 5.83% 5.68% 6.01% 6.00% 6.58%
=================================== ======== ======== ======== ======== ======== ======== ========
Ratio of interest expense to
average net assets 0.27%(b) 0.30%(b) 0.19% 0.24% 0.11% 0.08% 0.11%
=================================== ======== ======== ======== ======== ======== ======== ========
Portfolio turnover rate 65% 59% 141% 147% 99% 134% 140%
=================================== ======== ======== ======== ======== ======== ======== ========
</TABLE>
(a)Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(b)Ratios are annualized and based on average net assets of $192,126,552 and
$194,642,705 for July 31, 2000 and June 30, 2000, respectively.
FS-67
<PAGE> 287
NOTE 8-FINANCIAL HIGHLIGHTS-(CONTINUED)
<TABLE>
<CAPTION>
CLASS C
---------------------------------------------------------------------------
AUGUST 4, 1997
SIX MONTHS ENDED YEAR ENDED (DATE SALES
SEVEN MONTHS ENDED JUNE 30, DECEMBER 31, COMMENCED)
JULY 31, 2000 ----------------- TO DECEMBER 31,
2000 (UNAUDITED) 1999 1998 1997
------------------ ---------------- ------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.79 $ 8.79 $ 9.56 $ 9.44 $ 9.33
---------------------------------------------------- ------- ------- ------- ------- --------
Income from investment operations:
Net investment income 0.30 0.25 0.53 0.56 0.24
---------------------------------------------------- ------- ------- ------- ------- --------
Net gains (losses) on securities (both realized
and unrealized) (0.03) (0.03) (0.77) 0.11 0.10
---------------------------------------------------- ------- ------- ------- ------- --------
Total from investment operations 0.27 0.22 (0.24) 0.67 0.34
---------------------------------------------------- ------- ------- ------- ------- --------
Less distributions:
Dividends from net investment income (0.29) (0.25) (0.53) (0.55) (0.22)
---------------------------------------------------- ------- ------- ------- ------- --------
Return of capital -- -- -- -- (0.01)
---------------------------------------------------- ------- ------- ------- ------- --------
Total distributions (0.29) (0.25) (0.53) (0.55) (0.23)
---------------------------------------------------- ------- ------- ------- ------- --------
Net asset value, end of period $ 8.77 $ 8.76 $ 8.79 $ 9.56 $ 9.44
==================================================== ======= ======= ======= ======= ========
Total return(a) 3.18% 2.57% (2.57)% 7.31% 3.64%
==================================================== ======= ======= ======= ======= ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $34,206 $34,305 $39,011 $38,026 $ 1,851
==================================================== ======= ======= ======= ======= ========
Ratio of expenses to average net assets (including
interest expense) 2.01%(b) 2.05%(b) 1.85% 1.96% 1.87%(c)
==================================================== ======= ======= ======= ======= ========
Ratio of expenses to average net assets (excluding
interest expense) 1.74%(b) 1.75%(b) 1.66% 1.72% 1.76%(c)
==================================================== ======= ======= ======= ======= ========
Ratio of net investment income to average net assets 5.85%(b) 5.87%(b) 5.83% 5.68% 6.01%(c)
==================================================== ======= ======= ======= ======= ========
Ratio of interest expense to average net assets 0.27%(b) 0.30%(b) 0.19% 0.24% 0.11%(c)
==================================================== ======= ======= ======= ======= ========
Portfolio turnover rate 65% 59% 141% 147% 99%
==================================================== ======= ======= ======= ======= ========
</TABLE>
(a)Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(b)Ratios are annualized and based on average net assets of $34,843,129 and
$35,012,892 for July 31, 2000 and June 30, 2000, respectively.
(c)Annualized.
FS-68
<PAGE> 288
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders of
AIM Money Market Fund:
We have audited the accompanying statement of assets and liabilities of AIM
Money Market Fund (a portfolio of AIM Investment Securities Funds), including
the schedule of investments, as of July 31, 2000, and the related statement of
operations for the seven months ended July 31, 2000 and the year ended December
31, 1999, the statement of changes in net assets for the seven months ended July
31, 2000 and the two-years ended December 31, 1999, and the financial highlights
for the seven months ended July 31, 2000 and for each of the years in the
five-year period ended December 31, 1999. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of July 31, 2000, 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 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
Money Market Fund as of July 31, 2000, the results of its operations for the
seven months ended July 31, 2000 and the year ended December 31, 1999, the
changes in net assets for the seven months ended July 31, 2000 and the two-years
ended December 31, 1999, and the financial highlights for the seven months ended
July 31, 2000 and for each of the years in the five-year period ended December
31, 1999, in conformity with accounting principles generally accepted in the
United States of America.
/s/ KPMG LLP
September 1, 2000
Houston, Texas
FS-69
<PAGE> 289
SCHEDULE OF INVESTMENTS
JULY 31, 2000
<TABLE>
<CAPTION>
MATURITY PAR (000) VALUE
<S> <C> <C> <C>
COMMERCIAL PAPER-40.34%(a)
ASSET-BACKED SECURITIES-
COMMERCIAL/LOAN/
LEASES-3.21%
Atlantis One Funding Corp.
6.57% 08/18/00 $ 27,000 $ 26,916,233
------------------------------------------------------------------
Centric Capital Corp.
6.68% 12/27/00 13,500 13,129,260
------------------------------------------------------------------
40,045,493
------------------------------------------------------------------
ASSET-BACKED SECURITIES-
CONSUMER
RECEIVABLES-4.31%
Old Line Funding Corp.
6.57% 08/04/00 31,380 31,362,819
------------------------------------------------------------------
Thunder Bay Funding Inc.
6.54% 09/08/00 22,588 22,432,068
------------------------------------------------------------------
53,794,887
------------------------------------------------------------------
ASSET-BACKED
SECURITIES-FULLY
BACKED-5.64%
Forrestal Funding Master
Trust
6.53% 09/08/00 30,602 30,391,067
------------------------------------------------------------------
6.55% 09/26/00 14,000 13,857,356
------------------------------------------------------------------
Triple-A One Funding Master
Trust
6.53% 09/14/00 26,264 26,054,384
------------------------------------------------------------------
70,302,807
------------------------------------------------------------------
ASSET-BACKED SECURITIES-
MULTI-PURPOSE-14.30%
Clipper Receivables Funding
Corp.
6.56% 09/08/00 25,000 24,826,889
------------------------------------------------------------------
Corporate Receivables Corp.
6.53% 09/14/00 50,000 49,600,944
------------------------------------------------------------------
Falcon Asset Securitization
Corp.
6.19% 09/18/00 35,000 34,711,133
------------------------------------------------------------------
Monte Rosa Capital Corp.
6.53% 08/17/00 29,401 29,315,672
------------------------------------------------------------------
Preferred Receivables
Funding Corp.
6.51% 08/28/00 40,000 39,804,700
------------------------------------------------------------------
178,259,338
------------------------------------------------------------------
BANKS-REGIONAL-6.92%
Delaware Funding Corp.
6.53% 09/08/00 27,037 26,850,640
------------------------------------------------------------------
Wells Fargo & Co.
6.61% 09/22/00 60,000 59,427,133
------------------------------------------------------------------
86,277,773
------------------------------------------------------------------
FINANCIAL-DIVERSIFIED-5.96%
Associates First Capital
Corp.
6.58% 09/26/00 30,000 29,692,933
------------------------------------------------------------------
6.61% 09/28/00 25,000 24,733,764
------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MATURITY PAR (000) VALUE
<S> <C> <C> <C>
FINANCIAL-DIVERSIFIED-(CONTINUED)
General Electric Capital
Corp.
6.06% 08/28/00 $ 20,000 $ 19,909,100
------------------------------------------------------------------
74,335,797
------------------------------------------------------------------
Total Commercial Paper
(Cost $503,016,095) 503,016,095
------------------------------------------------------------------
SHORT-TERM OBLIGATIONS-8.56%
BANKS-DOMESTIC-1.00%
Atlantic American Corp.,
Weekly VRD Series,
(LOC-Wachovia Bank)
6.62%(b) 06/01/09 12,500 12,500,000
------------------------------------------------------------------
BANKS-REGIONAL-3.03%
Capital One Funding Corp.,
Floating Rate Notes,
Weekly VRD Series
6.70%(b) 08/01/12 11,436 11,436,000
------------------------------------------------------------------
Family Express Corp., LLC,
Loan Program Notes,
Weekly VRD Series,
(LOC-First of America
Bank)
6.67%(b) 04/01/28 9,040 9,040,000
------------------------------------------------------------------
KBL Capital Fund Inc., Loan
Program Notes, Weekly VRD
Series, (LOC-National
City Bank)
6.67%(b) 05/01/27 17,350 17,350,000
------------------------------------------------------------------
37,826,000
------------------------------------------------------------------
FINANCIAL-DIVERSIFIED-3.73%
Associates Corp. NA, Medium
Term Notes
5.85% 01/15/01 8,443 8,415,793
------------------------------------------------------------------
AT&T Capital Corp., Medium
Term Notes
7.50% 11/15/00 16,000 16,040,981
------------------------------------------------------------------
Beneficial Corp., Medium
Term Notes
6.33% 12/18/00 9,000 8,985,811
------------------------------------------------------------------
General Electric Capital
Corp., Floating Rate
Medium Term Notes
6.54%(c) 08/21/00 13,000 12,998,513
------------------------------------------------------------------
46,441,098
------------------------------------------------------------------
INVESTMENT BANKING/
BROKERAGE-0.80%
Morgan Stanley Dean Witter
& Co., Floating Rate
Medium Term Notes
6.61%(c) 09/06/00 10,000 10,000,000
------------------------------------------------------------------
Total Short-Term
Obligations (Cost
$106,767,098) 106,767,098
------------------------------------------------------------------
</TABLE>
FS-70
<PAGE> 290
<TABLE>
<CAPTION>
MATURITY PAR (000) VALUE
<S> <C> <C> <C>
TAXABLE MUNICIPAL BONDS-3.75%
FINANCE-MULTIPLE
INDUSTRY-2.21%
Mississippi Business
Finance Corp.
(Mississippi Industrial
Development); Revenue
Bonds, Weekly VRD Series
6.70% (LOC-Bank of
America)(b) 06/01/15 $ 17,500 $ 17,500,000
------------------------------------------------------------------
6.62%(b) 02/01/23 10,000 10,000,000
------------------------------------------------------------------
27,500,000
------------------------------------------------------------------
HOSPITAL MANAGEMENT-1.54%
Colorado Health Facilities
Authority; Revenue Bonds,
Weekly VRD Series,
(LOC-KBC Bank N.V.)
6.60%(b) 03/01/30 9,750 9,750,000
------------------------------------------------------------------
Illinois Health Facilities
Authority (Loyola
University Health
Systems); Revenue Bonds,
Weekly VRD Series
6.60%(b)(d) 07/01/24 9,500 9,500,000
------------------------------------------------------------------
19,250,000
------------------------------------------------------------------
Total Taxable Municipal
Bonds (Cost
$46,750,000) 46,750,000
------------------------------------------------------------------
CERTIFICATES OF
DEPOSIT-2.01%
Commerzbank
6.31% (Cost $25,000,535) 08/22/00 25,000 25,000,535
------------------------------------------------------------------
MASTER NOTE
AGREEMENTS-10.83%(e)
Merrill Lynch Mortgage
Capital, Inc.
6.95%(f) 08/17/00 75,000 75,000,000
------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MATURITY PAR (000) VALUE
<S> <C> <C> <C>
MASTER NOTE AGREEMENTS-(CONTINUED)
Morgan Stanley Dean Witter
& Co.
6.79%(g) 09/01/00 $ 60,000 $ 60,000,000
------------------------------------------------------------------
Total Master Note
Agreements (Cost
$135,000,000) 135,000,000
------------------------------------------------------------------
Total Investments
(excluding repurchase
agreements) (Cost
$816,533,728) 816,533,728
------------------------------------------------------------------
REPURCHASE
AGREEMENTS-32.01%(h)
Bank of America Securities
6.64%(i) 08/01/00 225,091 225,090,983
------------------------------------------------------------------
Credit Suisse First Boston
Corp.
6.62%(j) 08/01/00 58,000 58,000,000
------------------------------------------------------------------
UBS Warburg
6.64%(k) 08/01/00 58,000 58,000,000
------------------------------------------------------------------
Westdeutsche Landesbank
Girozentrale
6.64%(l) 08/01/00 58,000 58,000,000
------------------------------------------------------------------
Total Repurchase
Agreements (Cost
$399,090,983) 399,090,983
------------------------------------------------------------------
TOTAL INVESTMENTS-97.50% 1,215,624,711(m)
------------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-2.50% 31,201,651
------------------------------------------------------------------
NET ASSETS-100.00% $1,246,826,362
==================================================================
</TABLE>
Investment Abbreviations:
LOC - Letter of Credit
VRD - Variable Rate Demand
Notes to Schedule of Investments:
(a) Some commercial paper is traded on a discount basis. In such cases the
interest rate shown represents the rate of discount paid or received at the
time of purchase by the Fund.
(b) Demand security; payable upon demand by the Fund with usually no more than
seven calendar days notice. Interest rates are redetermined periodically.
Rates shown are rates in effect on 07/31/00.
(c) The coupon rate shown on floating rate note represents the rate at period
end.
(d) Secured by bond insurance provided by MBIA Insurance Co.
(e) The investments in master note agreements are through participation in joint
accounts with other mutual funds, private accounts, and certain
non-registered investment companies managed by the investment advisor or its
affiliates.
(f) The Fund may demand prepayment of notes purchased under the Master Note
Purchase Agreement upon one business day notice. Interest rates on master
notes are redetermined periodically. Rate shown is the rate in effect on
07/31/00.
(g) The Fund may demand prepayment of notes purchased under the Master Note
Purchase Agreement upon three business days notice. Interest rates on master
notes are redetermined periodically. Rate shown is the rate in effect on
07/31/00.
(h) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value is at least 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(i) Joint repurchase agreement entered into 07/31/00 with a maturing value of
$750,138,333. Collateralized by $862,030,072 par value of U.S. Government
obligations, 5.00% to 7.50% due 01/15/04 to 07/01/29 with an aggregate
market value at 07/31/00 of $765,000,000.
(j) Joint repurchase agreement entered into 07/31/00 with a maturing value of
$150,027,583. Collateralized by $158,744,000 par value of U.S. Government
obligations, 0% to 7.25% due 08/01/00 to 05/15/29 with an aggregate market
value at 07/31/00 of $155,738,821.
(k) Joint repurchase agreement entered into 07/31/00 with a maturing value of
$500,092,222. Collateralized by $605,860,547 par value of U.S. Government
and Treasury obligations, 5.50% to 9.00% due 12/15/01 to 12/15/37 with an
aggregate market value at 07/31/00 of $510,001,104.
(l) Joint repurchase agreement entered into 07/31/00 with a maturing value of
$200,036,889. Collateralized by $249,829,594 par value of U.S. Government
obligations, 6.00% to 7.13% due 01/01/04 to 08/01/29 with an aggregate
market value at 07/31/00 of $204,303,574.
(m) Also represents Cost for federal income tax purposes.
See Notes to Financial Statements.
FS-71
<PAGE> 291
SCHEDULE OF INVESTMENTS
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
MATURITY PAR (000) VALUE
<S> <C> <C> <C>
COMMERCIAL PAPER-18.61%(a)
ASSET-BACKED SECURITIES-
COMMERCIAL/LOAN/
LEASES-3.11%
Atlantis One Funding Corp.
6.57% 08/18/00 $ 27,000 $ 26,763,480
------------------------------------------------------------------
Centric Capital Corp.
6.68% 12/27/00 13,500 13,051,605
------------------------------------------------------------------
39,815,085
------------------------------------------------------------------
ASSET-BACKED SECURITIES-
CONSUMER
RECEIVABLES-2.43%
Old Line Funding Corp.
6.57% 08/04/00 31,380 31,185,287
------------------------------------------------------------------
ASSET-BACKED SECURITIES-
MULTI-PURPOSE-2.69%
Falcon Asset Securitization
Corp.
6.19% 09/18/00 35,000 34,524,574
------------------------------------------------------------------
BANKS-REGIONAL-4.61%
Wells Fargo & Company
6.61% 09/22/00 60,000 59,085,617
------------------------------------------------------------------
FINANCIAL-DIVERSIFIED-5.77%
Associates First Capital
Corp.
6.58% 09/26/00 30,000 29,522,950
------------------------------------------------------------------
6.61% 09/28/00 25,000 24,591,465
------------------------------------------------------------------
General Electric Capital
Corp.
6.06% 08/28/00 20,000 19,804,733
------------------------------------------------------------------
73,919,148
------------------------------------------------------------------
Total Commercial Paper
(Cost $238,529,711) 238,529,711
------------------------------------------------------------------
SHORT-TERM
OBLIGATIONS-6.99%
BANKS-DOMESTIC-0.97%
Atlantic American Corp.,
Weekly VRD Series,
(LOC-Wachovia Bank)
6.67%(b) 06/01/09 12,500 12,500,000
------------------------------------------------------------------
BANKS-REGIONAL-1.62%
Capital One Funding Corp.,
Floating Rate Notes,
Weekly VRD Series
6.70%(b) 08/01/12 11,674 11,674,000
------------------------------------------------------------------
Family Express Corp., LLC,
Loan Program Notes,
Weekly VRD Series,
(LOC-First of America
Bank)
6.73%(b) 04/01/28 9,040 9,040,000
------------------------------------------------------------------
20,714,000
------------------------------------------------------------------
FINANCIAL-DIVERSIFIED-3.62%
Associates Corp. NA, Medium
Term Notes
5.85% 01/15/01 8,443 8,410,743
------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MATURITY PAR (000) VALUE
<S> <C> <C> <C>
FINANCIAL-DIVERSIFIED-(CONTINUED)
AT&T Capital Corp., Medium
Term Notes
7.50% 11/15/00 $ 16,000 $ 16,052,966
------------------------------------------------------------------
Beneficial Corp., Medium
Term Notes
6.33% 12/18/00 9,000 8,982,646
------------------------------------------------------------------
General Electric Capital
Corp., Floating Rate
Medium Term Notes
6.86%(c) 08/21/00 13,000 12,996,207
------------------------------------------------------------------
46,442,562
------------------------------------------------------------------
INVESTMENT BANKING/
BROKERAGE-0.78%
Morgan Stanley Dean Witter
& Co., Floating Rate
Medium Term Notes
6.93%(c) 09/06/00 10,000 10,000,000
------------------------------------------------------------------
Total Short-Term
Obligations (Cost
$89,656,562) 89,656,562
------------------------------------------------------------------
TAXABLE MUNICIPAL
BONDS-3.65%
FINANCE-MULTIPLE
INDUSTRY-2.15%
Mississippi Business
Finance Corp.
(Mississippi Industrial
Development); Revenue
Bonds, Weekly VRD Series
6.74% (LOC-Bank of
America)(b) 06/01/15 17,500 17,500,000
------------------------------------------------------------------
6.63%(b) 02/01/23 10,000 10,000,000
------------------------------------------------------------------
27,500,000
------------------------------------------------------------------
HOSPITAL MANAGEMENT-1.50%
Colorado Health Facilities
Authority; Revenue Bonds,
Weekly VRD Series
(LOC-KBC Bank N.V.)
6.65%(b) 03/01/30 9,750 9,750,000
------------------------------------------------------------------
Illinois Health Facilities
Authority (Loyola
University Health
Systems); Revenue Bonds,
Weekly VRD Series
6.85%(b)(d) 07/01/24 9,500 9,500,000
------------------------------------------------------------------
19,250,000
------------------------------------------------------------------
Total Taxable Municipal
Bonds (Cost
$46,750,000) 46,750,000
------------------------------------------------------------------
CERTIFICATES OF
DEPOSIT-2.73%
Bank Austria
5.65% 07/06/00 10,000 9,999,934
------------------------------------------------------------------
Commerzbank
6.31% 08/22/00 25,000 25,001,324
------------------------------------------------------------------
Total Certificates of
Deposit (Cost
$35,001,258) 35,001,258
------------------------------------------------------------------
</TABLE>
FS-72
<PAGE> 292
<TABLE>
<CAPTION>
MATURITY PAR (000) VALUE
<S> <C> <C> <C>
MASTER NOTE
AGREEMENTS-10.53%(e)
Merrill Lynch Mortgage
Capital, Inc.
7.34%(f) 08/17/00 $ 75,000 $ 75,000,000
------------------------------------------------------------------
Morgan Stanley Dean Witter
& Co.
7.23%(g) 09/01/00 60,000 60,000,000
------------------------------------------------------------------
Total Master Note
Agreements (Cost
$135,000,000) 135,000,000
------------------------------------------------------------------
Total Investments
(excluding repurchase
agreements) (Cost
$544,937,531) 544,937,531
------------------------------------------------------------------
REPURCHASE
AGREEMENTS-53.01%(h)
Bank of America Securities
6.90%(i) 07/03/00 10,000 10,000,000
------------------------------------------------------------------
Barclays Capital Inc.
6.80%(j) 07/03/00 58,000 58,000,000
------------------------------------------------------------------
Chase Securities, Inc.
6.80%(k) 07/03/00 296,600 296,600,000
------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MATURITY PAR (000) VALUE
<S> <C> <C> <C>
REPURCHASE AGREEMENTS-(CONTINUED)
Deutsche Bank Securities
Corp.
6.72%(l) 07/03/00 $ 82,923 $ 82,922,978
------------------------------------------------------------------
First Union Capital Markets
6.90%(m) 07/03/00 58,000 58,000,000
------------------------------------------------------------------
Goldman Sachs & Co.
6.88%(n) 07/03/00 58,000 58,000,000
------------------------------------------------------------------
UBS Warburg
6.85%(o) 07/03/00 58,000 58,000,000
------------------------------------------------------------------
Westdeutsche Landesbank
Girozentrale
6.85%(p) 07/03/00 58,000 58,000,000
------------------------------------------------------------------
Total Repurchase
Agreements (Cost
$679,522,978) 679,522,978
------------------------------------------------------------------
TOTAL INVESTMENTS-95.52% 1,224,460,509(q)
------------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-4.48% 57,396,025
------------------------------------------------------------------
NET ASSETS-100.00% $1,281,856,534
==================================================================
</TABLE>
Investment Abbreviations:
LOC - Letter of Credit
VRD - Variable Rate Demand
Notes to Schedule of Investments:
(a) Some commercial paper is traded on a discount basis. In such cases the
interest rate shown represents the rate of discount paid or received at the
time of purchase by the Fund.
(b) Demand security; payable upon demand by the Fund with usually no more than
seven calendar days notice. Interest rates are redetermined periodically.
Rates shown are rates in effect on 06/30/00.
(c) The coupon rate shown on floating rate note represents the rate at period
end.
(d) Secured by bond insurance provided by MBIA Insurance Co.
(e) The investments in master note agreements are through participation in joint
accounts with other mutual funds, private accounts, and certain
non-registered investment companies managed by the investment advisor or its
affiliates.
(f) The Fund may demand prepayment of notes purchased under the Master Note
Purchase Agreement upon one business day notice. Interest rates on master
notes are redetermined periodically. Rate shown is the rate in effect on
06/30/00.
(g) The Fund may demand prepayment of notes purchased under the Master Note
Purchase Agreement upon three business days notice. Interest rates on master
notes are redetermined periodically. Rate shown is the rate in effect on
06/30/00.
(h) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value is at least 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(i) Joint repurchase agreement entered into 06/30/00 with a maturing value of
$500,287,500. Collateralized by $556,572,016 par value of U.S. Government
obligations, 6.11% to 6.50% due 12/01/14 to 07/01/29 with an aggregate
market value at 06/30/00 of $510,000,000.
(j) Joint repurchase agreement entered into 06/30/00 with a maturing value of
$467,874,523. Collateralized by $479,206,000 par value of U.S. Government
obligations, 0% to 7.25% due 08/02/00 to 05/14/10 with an aggregate market
value at 06/30/00 of $476,961,879.
(k) Joint repurchase agreement entered into 06/30/00 with a maturing value of
$300,170,000. Collateralized by $543,975,698 par value of U.S. Government
and Treasury obligations, 0% to 9.00% due 06/15/09 to 03/01/33 with an
aggregate market value at 06/30/00 of $306,003,760.
(l) Joint repurchase agreement entered into 06/30/00 with a maturing value of
$150,084,000. Collateralized by $154,584,000 par value of U.S. Government
obligations, 0% to 7.25% due 11/02/00 to 05/13/05 with an aggregate market
value at 06/30/00 of $153,004,476.
(m) Joint repurchase agreement entered into 06/30/00 with a maturing value of
$750,431,250. Collateralized by $1,638,512,025 par value of U.S. Government
and Treasury obligations, 5.00% to 12.50% due 10/01/00 to 07/01/30 with an
aggregate market value at 06/30/00 of $765,000,000.
(n) Joint repurchase agreement entered into 06/30/00 with a maturing value of
$1,000,573,333. Collateralized by $1,815,571,441 par value of U.S.
Government and Treasury obligations, 0% to 10.00% due 03/01/05 to 06/01/37
with an aggregate market value at 06/30/00 of $1,020,000,001.
(o) Joint repurchase agreement entered into 06/30/00 with a maturing value of
$250,142,708. Collateralized by $310,901,218 par value of U.S. Government
and Treasury obligations, 6.00% to 8.50% due 03/15/01 to 12/15/37 with an
aggregate market value at 06/30/00 of $255,000,262.
(p) Joint repurchase agreement entered into 06/30/00 with a maturing value of
$200,114,167. Collateralized by $293,357,525 par value of U.S. Government
and Treasury obligations, 5.50% to 9.50% due 01/31/02 to 08/01/29 with an
aggregate market value at 06/30/00 of $204,000,456.
(q) Also represents cost for federal income tax purposes.
See Notes to Financial Statements.
FS-73
<PAGE> 293
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
JUNE 30,
JULY 31, 2000
2000 (UNAUDITED)
-------------- --------------
<S> <C> <C>
ASSETS:
Investments, excluding repurchase agreements, at value
(amortized cost) $ 816,533,728 $ 544,937,531
---------------------------------------------------------------------------------------------
Repurchase agreements 399,090,983 679,522,978
---------------------------------------------------------------------------------------------
Receivables for:
Investments sold 238,000 --
---------------------------------------------------------------------------------------------
Fund shares sold 91,517,474 79,884,809
---------------------------------------------------------------------------------------------
Interest 2,573,876 2,907,800
---------------------------------------------------------------------------------------------
Investment for deferred compensation plan 93,043 91,036
---------------------------------------------------------------------------------------------
Other assets 271,472 263,285
---------------------------------------------------------------------------------------------
Total assets 1,310,318,576 1,307,607,439
---------------------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Fund shares reacquired 61,779,969 23,671,140
---------------------------------------------------------------------------------------------
Dividends 266,174 254,396
---------------------------------------------------------------------------------------------
Deferred compensation plan 93,043 91,036
---------------------------------------------------------------------------------------------
Accrued advisory fees 541,572 565,533
---------------------------------------------------------------------------------------------
Accrued administrative service fees 11,946 11,745
---------------------------------------------------------------------------------------------
Accrued distribution fees 461,927 896,390
---------------------------------------------------------------------------------------------
Accrued trustees' fees 802 2,991
---------------------------------------------------------------------------------------------
Accrued transfer agent fees 241,659 184,654
---------------------------------------------------------------------------------------------
Accrued operating expenses 95,122 73,020
---------------------------------------------------------------------------------------------
Total liabilities 63,492,214 25,750,905
---------------------------------------------------------------------------------------------
Net assets applicable to shares outstanding $1,246,826,362 $1,281,856,534
=============================================================================================
NET ASSETS:
AIM Cash Reserve Shares $ 912,041,597 $ 932,932,450
=============================================================================================
Class B $ 289,327,479 $ 302,416,702
=============================================================================================
Class C $ 45,457,286 $ 46,507,382
=============================================================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
AIM Cash Reserve Shares 912,028,393 932,915,313
=============================================================================================
Class B 289,323,006 302,417,029
=============================================================================================
Class C 45,456,592 46,505,821
=============================================================================================
AIM Cash Reserve Shares:
Net asset value, redemption and offering price per share $ 1.00 $ 1.00
=============================================================================================
Class B:
Net asset value and offering price per share $ 1.00 $ 1.00
=============================================================================================
Class C:
Net asset value and offering price per share $ 1.00 $ 1.00
=============================================================================================
</TABLE>
See Notes to Financial Statements.
FS-74
<PAGE> 294
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS
SEVEN MONTHS ENDED YEAR
ENDED JUNE 30, ENDED
JULY 31, 2000 DECEMBER 31,
2000 (UNAUDITED) 1999
------------ ----------- ------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $46,634,241 $39,794,906 $72,284,896
-------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 4,041,617 3,500,045 7,448,373
-------------------------------------------------------------------------------------------------------
Administrative services fees 83,475 71,529 118,024
-------------------------------------------------------------------------------------------------------
Custodian fees 84,840 72,658 171,275
-------------------------------------------------------------------------------------------------------
Distribution fees - AIM Cash Reserve Shares 1,332,550 1,145,100 2,443,795
-------------------------------------------------------------------------------------------------------
Distribution fees - Class B 1,905,178 1,669,584 3,680,653
-------------------------------------------------------------------------------------------------------
Distribution fees - Class C 265,889 229,427 440,903
-------------------------------------------------------------------------------------------------------
Trustees' fees 6,820 6,540 15,267
-------------------------------------------------------------------------------------------------------
Transfer agent fees - AIM Cash Reserve Shares 1,105,308 935,627 1,549,204
-------------------------------------------------------------------------------------------------------
Transfer agent fees - Class B 395,108 341,020 583,322
-------------------------------------------------------------------------------------------------------
Transfer agent fees - Class C 55,135 46,874 69,876
-------------------------------------------------------------------------------------------------------
Other 377,807 323,718 1,055,705
-------------------------------------------------------------------------------------------------------
Total expenses 9,653,727 8,342,122 17,576,397
-------------------------------------------------------------------------------------------------------
Less: Expenses paid indirectly (20,578) (16,924) (20,102)
-------------------------------------------------------------------------------------------------------
Net expenses 9,633,149 8,325,198 17,556,295
-------------------------------------------------------------------------------------------------------
Net investment income 37,001,092 31,469,708 54,728,601
-------------------------------------------------------------------------------------------------------
Net realized gain from investments -- -- 83
-------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $37,001,092 $31,469,708 $54,728,684
=======================================================================================================
</TABLE>
See Notes to Financial Statements.
FS-75
<PAGE> 295
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
SEVEN MONTHS ENDED YEAR YEAR
ENDED JUNE 30, ENDED ENDED
JULY 31, 2000 DECEMBER 31, DECEMBER 31,
2000 (UNAUDITED) 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 37,001,092 $ 31,469,708 $ 54,728,601 $ 46,894,254
------------------------------------------------------------------------------------------------------------------------------
Net realized gain from investments -- -- 83 2,781
------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 37,001,092 31,469,708 54,728,684 46,897,035
------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
AIM Cash Reserve Shares (27,493,666) (23,284,591) (40,668,074) (18,980,988)
------------------------------------------------------------------------------------------------------------------------------
Class A* -- -- -- (20,797,936)
------------------------------------------------------------------------------------------------------------------------------
Class B (8,335,400) (7,192,863) (12,546,032) (6,486,731)
------------------------------------------------------------------------------------------------------------------------------
Class C (1,172,026) (992,254) (1,514,495) (628,599)
------------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
AIM Cash Reserve Shares (77,443,140) (56,556,220) (189,587,232) 834,944,363
------------------------------------------------------------------------------------------------------------------------------
Class A* -- -- -- (375,997,608)
------------------------------------------------------------------------------------------------------------------------------
Class B (115,577,813) (102,483,790) 94,371,540 194,469,771
------------------------------------------------------------------------------------------------------------------------------
Class C (11,177,934) (10,128,705) 29,244,201 19,103,703
------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (204,198,887) (169,168,715) (65,971,408) 672,523,010
------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 1,451,025,249 1,451,025,249 1,516,996,657 844,473,647
------------------------------------------------------------------------------------------------------------------------------
End of period $1,246,826,362 $1,281,856,534 $1,451,025,249 $1,516,996,657
==============================================================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,246,789,171 $1,281,819,343 $1,450,988,058 $1,516,959,549
------------------------------------------------------------------------------------------------------------------------------
Undistributed net realized gain from investments 37,191 37,191 37,191 37,108
------------------------------------------------------------------------------------------------------------------------------
$1,246,826,362 $1,281,856,534 $1,451,025,249 $1,516,996,657
==============================================================================================================================
</TABLE>
* The Fund's Class A shares were reclassified as AIM Cash Reserve Shares on
12/21/98.
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Money Market Fund (the "Fund") is a series portfolio of AIM Investment
Securities Funds (the "Trust"). The Trust is a Delaware business trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of seven
separate portfolios, each having an unlimited number of shares of beneficial
interest. Prior to June 1, 2000, the Fund was organized as a series portfolio of
AIM Funds Group. At a meeting held on February 3, 2000, the Board of Trustees of
AIM Funds Group approved an Agreement and Plan of Reorganization (the
"Reorganization") which reorganized the Fund as a series portfolio of the Trust.
Shareholders of the Fund approved the Reorganization at a meeting held on May
31, 2000. Pursuant to the Reorganization, the Fund's fiscal year-end was changed
from December 31 to July 31. This report includes financial information for the
period ended July 31, 2000 (seven months), the six months ended June 30, 2000
and the year ended December 31, 1999. Financial information for the six months
ended June 30, 2000 is unaudited. The Fund currently offers three different
classes of shares: Class A shares, Class B shares and Class C shares. Class A
shares are sold with a front-end sales charge. Class B shares and Class C shares
are sold with a contingent deferred sales charge. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund. The Fund's investment objective is to provide as high
a level of current income as is consistent with the preservation of capital and
liquidity.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of
FS-76
<PAGE> 296
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the preparation of its financial statements.
A. Security Valuations -- As permitted under Rule 2a-7 of the 1940 Act, the
Fund's securities are valued on the basis of amortized cost which
approximates market value. This method values a security at its cost on the
date of purchase and thereafter, assumes a constant amortization to maturity
of any discount or premiums.
B. Securities Transactions and Investment Income -- Securities transactions are
accounted for on a trade date basis. Realized gains or losses on sales are
computed on the basis of specific identification of the securities sold.
Interest income, adjusted for amortization of premiums and discounts on
investments, is recorded on the accrual basis from settlement date.
C. Distributions -- It is the policy of the Fund to declare and pay dividends
daily from net investment income. Distributions from net realized capital
gains, if any, are generally paid annually and recorded on ex-dividend date.
D. Federal Income Taxes -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements.
E. Expenses -- Distribution expenses and certain transfer agency expenses
directly attributable to a class of shares are charged to those classes'
operations. All other expenses which are attributable to more than one class
are allocated among the classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at an annual rate of 0.55% on the first $1
billion of the Fund's average daily net assets, plus 0.50% on 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 pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the seven-month period ended July 31, 2000,
the six months ended June 30, 2000 and the year ended December 31, 1999, AIM was
paid $83,475, $71,529 and $118,024, respectively, for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. For the seven-month period ended July 31,
2000, the six months ended June 30, 2000 and the year ended December 31, 1999,
AFS was paid $776,212, $671,889 and $1,341,736, respectively, 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 AIM
Cash Reserve shares, Class B shares and Class C shares of the Fund. The Trust
has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's AIM Cash Reserve shares, Class B shares and Class C shares (collectively
the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors
compensation at the annual rate of 0.25% of the Fund's average daily net assets
of AIM Cash Reserve shares and 1.00% of the average daily net assets of Class B
and C shares. Of these amounts, the Fund may pay a service fee of 0.25% of the
average daily net assets of the AIM Cash Reserve shares, Class B shares or Class
C shares to selected dealers and financial institutions who furnish continuing
personal shareholder services to their customers who purchase and own the
appropriate class of shares of the Fund. Any amounts not paid as a service fee
under the Plans would constitute an asset-based sales charge. The Plans also
impose a cap on the total sales charges, including asset-based sales charges
that may be paid by the respective classes. For the seven-month period ended
July 31, 2000, the AIM Cash Reserve shares, Class B shares and Class C shares
paid AIM Distributors $1,332,550, $1,905,178 and $265,889, respectively, as
compensation under the Plans. For the six months ended June 30, 2000, the AIM
Cash Reserve shares, Class B shares and Class C shares paid AIM Distributors
$1,145,100, $1,669,584 and $229,427, respectively, as compensation under the
Plans. For the year ended December 31, 1999, the AIM Cash Reserves, Class B and
Class C shares paid AIM Distributors $2,443,795, $3,680,653, and $440,903,
respectively, as compensation under the Plans.
During the seven-month period ended July 31, 2000, the six months ended June
30, 2000 and the year ended December 31, 1999, AIM Distributors received
$740,774, $679,919 and $1,254,200, respectively, in contingent deferred sales
charges imposed on redemptions of Fund shares.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the seven-month period ended July 31, 2000, the six months ended June
30, 2000 and the year ended December 31, 1999, the Fund paid legal fees of
$3,444, $2,668 and $5,825, respectively, for services rendered by Kramer, Levin,
Naftalis & Frankel LLP as counsel to the Trust's trustees. A member of that firm
is a trustee of the Trust.
NOTE 3-INDIRECT EXPENSES
For the seven-month period ended July 31, 2000, the six months ended June 30,
2000 and the year ended December 31, 1999, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) of $8,809, $7,117 and
$15,823, respectively, and reductions in custodian fees of $11,769, $9,807 and
$4,279, respectively, under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $20,578, $16,924 and $20,102 for the
seven-month period ended July 31, 2000, the six months ended June 30, 2000 and
the year ended December 31, 1999, respectively.
FS-77
<PAGE> 297
NOTE 4-TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. The Trust invests trustees' fees, if so elected by a
trustee, in mutual fund shares in accordance with a deferred compensation plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $1,000,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the seven months ended July
31, 2000, the Fund did not borrow under the line of credit agreement. The funds
which are party to the line of credit are charged a commitment fee of 0.09% on
the unused balance of the committed line. The commitment fee is allocated among
the funds based on their respective average net assets for the period.
NOTE 6-SHARE INFORMATION
Changes in shares outstanding during the seven-month period ended July 31, 2000,
the six months ended June 30, 2000 and the years ended December 31, 1999 and
1998 were as follows:
<TABLE>
<CAPTION>
JUNE 30, 2000
JULY 31, 2000 (UNAUDITED)
-------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Sold:
Cash Reserve Shares 3,591,529,412 $ 3,591,529,412 3,119,085,058 $ 3,122,260,400
-----------------------------------------------------------------------------------------------------
Class A* -- -- -- --
-----------------------------------------------------------------------------------------------------
Class B 509,744,331 509,744,331 448,990,264 450,158,250
-----------------------------------------------------------------------------------------------------
Class C 156,197,199 156,197,199 130,393,503 130,551,340
-----------------------------------------------------------------------------------------------------
Issued as reinvestment of
dividends:
Cash Reserve Shares 24,814,673 24,814,673 24,207,616 21,032,274
-----------------------------------------------------------------------------------------------------
Class A* -- -- -- --
-----------------------------------------------------------------------------------------------------
Class B 7,211,243 7,211,243 7,419,659 6,251,673
-----------------------------------------------------------------------------------------------------
Class C 1,019,008 1,019,008 1,022,298 864,461
-----------------------------------------------------------------------------------------------------
Issued in connection with
acquisitions:**
Cash Reserve Shares -- -- -- --
-----------------------------------------------------------------------------------------------------
Class A* -- -- -- --
-----------------------------------------------------------------------------------------------------
Class B -- -- -- --
-----------------------------------------------------------------------------------------------------
Class C -- -- -- --
-----------------------------------------------------------------------------------------------------
Reacquired:
Cash Reserve Shares (3,693,787,225) (3,693,787,225) (3,199,848,894) (3,199,848,894)
-----------------------------------------------------------------------------------------------------
Class A* -- -- -- --
-----------------------------------------------------------------------------------------------------
Class B (632,533,387) (632,533,387) (558,893,713) (558,893,713)
-----------------------------------------------------------------------------------------------------
Class C (168,394,141) (168,394,141) (141,544,506) (141,544,506)
-----------------------------------------------------------------------------------------------------
(204,198,887) $ (204,198,887) (169,168,715) $ (169,168,715)
=====================================================================================================
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
-------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Sold:
Cash Reserve Shares 8,060,651,699 $ 8,060,651,699 6,566,275,190 $ 6,566,275,190
------------------------------------------------------------------------------------------------------
Class A* -- -- 12,526,260,894 12,526,260,894
------------------------------------------------------------------------------------------------------
Class B 1,129,278,732 1,129,278,732 732,230,888 732,230,888
------------------------------------------------------------------------------------------------------
Class C 387,953,922 387,953,922 350,900,238 350,900,238
------------------------------------------------------------------------------------------------------
Issued as reinvestment of
dividends:
Cash Reserve Shares 34,229,027 34,229,027 15,456,154 15,456,154
------------------------------------------------------------------------------------------------------
Class A* -- -- 15,630,817 15,630,817
------------------------------------------------------------------------------------------------------
Class B 10,880,999 10,880,999 5,684,934 5,684,934
------------------------------------------------------------------------------------------------------
Class C 1,259,465 1,259,465 536,206 536,206
------------------------------------------------------------------------------------------------------
Issued in connection with
acquisitions:**
Cash Reserve Shares -- -- 117,682,745 117,682,745
------------------------------------------------------------------------------------------------------
Class A* -- -- 135,276 135,276
------------------------------------------------------------------------------------------------------
Class B -- -- 72,923,588 72,923,588
------------------------------------------------------------------------------------------------------
Class C -- -- 5,548,897 5,548,897
------------------------------------------------------------------------------------------------------
Reacquired:
Cash Reserve Shares (8,284,467,958) (8,284,467,958) (5,864,469,726) (5,864,469,726)
------------------------------------------------------------------------------------------------------
Class A* -- -- (12,918,024,595) (12,918,024,595)
------------------------------------------------------------------------------------------------------
Class B (1,045,788,191) (1,045,788,191) (616,369,639) (616,369,639)
------------------------------------------------------------------------------------------------------
Class C (359,969,186) (359,969,186) (337,881,638) (337,881,638)
------------------------------------------------------------------------------------------------------
(65,971,491) $ (65,971,491) 672,520,229 $ 672,520,229
======================================================================================================
</TABLE>
* Class A shares were reclassified to AIM Cash Reserve Shares effective
December 21, 1998.
** The fund acquired AIM Advisor Cash Management Fund and AIM Dollar Fund on
February 27, 1998 and December 21, 1998, respectively. The acquired funds'
net assets as of the respective closing dates were $5,680,255 and
$190,605,903, respectively. The net assets of the Fund immediately prior to
each acquisition were $701,467,228 and $1,383,530,387, respectively.
FS-78
<PAGE> 298
NOTE 7-FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
CASH RESERVE
-----------------------------------------------------------------------------------------
SIX MONTHS
SEVEN MONTHS ENDED
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
JULY 31, 2000 ----------------------------------------------------------
2000(a) (UNAUDITED) 1999 1998 1997 1996 1995
------------ ----------- -------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------------------------------------- -------- -------- -------- ---------- -------- -------- --------
Income from investment operations:
Net investment income 0.0300 0.0252 0.0414 0.0453 0.0456 0.0433 0.0493
-------------------------------------- -------- -------- -------- ---------- -------- -------- --------
Less distributions from net investment
income (0.0300) (0.0252) (0.0414) (0.0453) (0.0456) (0.0433) (0.0493)
-------------------------------------- -------- -------- -------- ---------- -------- -------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====================================== ======== ======== ======== ========== ======== ======== ========
Total return(b) 3.03% 2.55% 4.22% 4.62% 4.66% 4.41% 5.04%
====================================== ======== ======== ======== ========== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $912,042 $932,932 $989,478 $1,179,072 $344,117 $315,470 $293,450
====================================== ======== ======== ======== ========== ======== ======== ========
Ratio of expenses to average net
assets 1.07%(c) 1.07%(c) 1.04% 0.99% 1.05% 1.08% 1.04%
====================================== ======== ======== ======== ========== ======== ======== ========
Ratio of net investment income to
average net assets 5.15%(c) 5.08%(c) 4.16% 4.53% 4.55% 4.32% 4.92%
====================================== ======== ======== ======== ========== ======== ======== ========
</TABLE>
(a) Calculated using average shares outstanding.
(b) Total returns are not annualized for periods less than one year.
(c) Ratios are annualized and based on average net assets of $915,893,647 and
$921,113,716 for July 31, 2000 and June 30, 2000, respectively.
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------------------------------------------
SIX MONTHS
SEVEN MONTHS ENDED
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
JULY 31, 2000 --------------------------------------------------------
2000(a) (UNAUDITED) 1999 1998 1997 1996 1995
------------ ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------------------------------------- -------- -------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.0256 0.0215 0.0339 0.0371 0.0378 0.0360 0.0419
----------------------------------------- -------- -------- -------- -------- -------- -------- --------
Less distributions from net investment
income (0.0256) (0.0215) (0.0339) (0.0371) (0.0378) (0.0360) (0.0419)
----------------------------------------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========================================= ======== ======== ======== ======== ======== ======== ========
Total return(b) 2.59% 2.17% 3.45% 3.78% 3.84% 3.66% 4.27%
========================================= ======== ======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $289,327 $302,417 $404,911 $310,534 $116,058 $ 91,148 $ 69,857
========================================= ======== ======== ======== ======== ======== ======== ========
Ratio of expenses to average net assets 1.82%(c) 1.82%(c) 1.79% 1.81% 1.80% 1.81% 1.78%
========================================= ======== ======== ======== ======== ======== ======== ========
Ratio of net investment income to average
net assets 4.40%(c) 4.33%(c) 3.41% 3.71% 3.80% 3.60% 4.14%
========================================= ======== ======== ======== ======== ======== ======== ========
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct contingent deferred sales charges where applicable and is
not annualized for periods less than one year.
(c) Ratios are annualized and based on average net assets of $327,368,646 and
$335,751,488 for July 31, 2000 and June 30, 2000, respectively.
FS-79
<PAGE> 299
NOTE 7-FINANCIAL HIGHLIGHTS-(CONTINUED)
<TABLE>
<CAPTION>
CLASS C
-----------------------------------------------------------------------------
SIX MONTHS
SEVEN MONTHS ENDED YEAR ENDED AUGUST 4, 1997
ENDED JUNE 30, DECEMBER 31, (DATE SALES COMMENCED)
JULY 31, 2000 -------------------- TO DECEMBER 31,
2000(a) (UNAUDITED) 1999 1998 1997
------------ ----------- -------- -------- ----------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------------------------------------------------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.0256 0.0215 0.0339 0.0371 0.0158
-------------------------------------------------- -------- -------- -------- -------- --------
Less distributions from net investment income (0.0256) (0.0215) (0.0339) (0.0371) (0.0158)
-------------------------------------------------- -------- -------- -------- -------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
================================================== ======== ======== ======== ======== ========
Total return(b) 2.59% 2.17% 3.44% 3.78% 3.92%
================================================== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 45,457 $ 46,507 $ 56,636 $ 27,391 $ 8,287
================================================== ======== ======== ======== ======== ========
Ratio of expenses to average net assets 1.82%(c) 1.82%(c) 1.79% 1.81% 1.80%(d)
================================================== ======== ======== ======== ======== ========
Ratio of net investment income to average net
assets 4.40%(c) 4.33%(c) 3.41% 3.71% 3.80%(d)
================================================== ======== ======== ======== ======== ========
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct contingent deferred sales charges where applicable and is
not annualized for periods less than one year.
(c) Ratios are annualized and based on average net assets of $45,687,844 and
$46,137,478 for July 31, 2000 and June 30, 2000, respectively.
(d) Annualized.
FS-80
<PAGE> 300
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 Investment Securities Funds), including
the schedule of investments, as of July 31, 2000, and the related statement of
operations for the seven months ended July 31, 2000 and the year ended December
31, 1999, the statement of changes in net assets for the seven months ended July
31, 2000 and the two-years ended December 31, 1999, and the financial highlights
for the seven months ended July 31, 2000 and for each of the years in the
five-year period ended December 31, 1999. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of July 31, 2000, 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 July 31, 2000, the results of its operations for the
seven months ended July 31, 2000 and the year ended December 31, 1999, the
changes in its net assets for the seven months ended July 31, 2000 and the
two-years ended December 31, 1999, and the financial highlights for the seven
months ended July 31, 2000 and for each of the years in the five-year period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States of America.
/s/ KPMG
September 1, 2000
Houston, Texas
FS-81
<PAGE> 301
SCHEDULE OF INVESTMENTS
July 31, 2000
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
ALABAMA-1.30%
Alabama (State of)
Housing Finance
Authority; Single
Family Mortgage Series
D-2 RB
5.50%, 10/01/17(b) -- Aaa $ 970 $ 937,534
----------------------------------------------------------------
Alabama (State of) Public
School & College
Authority; Capital
Improvement Series 1999
C RB
5.75%, 07/01/17 AA Aa3 1,400 1,432,970
----------------------------------------------------------------
Courtland Industrial
Development Board
(Champion International
Corp. Project);
Refunding Environmental
Improvement Series RB
6.40%, 11/01/26(b) -- Baa1 2,315 2,279,997
----------------------------------------------------------------
4,650,501
----------------------------------------------------------------
ALASKA-0.76%
Alaska (State of) Housing
Finance Corp.;
Collateralized First
Veterans' Home Mortgage
Series A-2 RB
6.75%, 12/01/24(b) AAA Aaa 2,465 2,525,442
----------------------------------------------------------------
Alaska (State of) Housing
Finance Corp.;
Collateralized First
Veterans' Mortgage
Program Series RB
6.88%, 06/01/33 AAA Aaa 205 209,633
----------------------------------------------------------------
2,735,075
----------------------------------------------------------------
ARIZONA-1.47%
Arizona (State of)
Educational Loan
Marketing Corp.; RB
6.13%, 09/01/02(b) -- Aa2 1,900 1,941,211
----------------------------------------------------------------
Pima (County of) Unified
School District No. 10
(Amphitheater); School
Improvement Series 1992
E GO
6.50%, 07/01/05 A+ A2 3,100 3,343,443
----------------------------------------------------------------
5,284,654
----------------------------------------------------------------
ARKANSAS-0.56%
Little Rock (City of);
Capital Improvement
Series B GO
5.75%, 02/01/06 AA Aa3 2,000 2,011,400
----------------------------------------------------------------
CALIFORNIA-2.02%
Abag Financing Authority
for Non-profit Corps.
(Lytton Gardens Inc.);
Series 1999 COP
6.00%, 02/15/19 AA- -- 2,085 2,113,627
----------------------------------------------------------------
Abag Financing Authority
for Non-Profit Corps.
(Odd Fellows Home of
California); Series
1999 COP
6.00%, 08/15/24 AA- -- 1,000 1,013,180
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
CALIFORNIA-(CONTINUED)
Abag Financing Authority
for Non-Profit Corps.
(Lincoln Glen Manor
Senior Citizens);
Series 2000 COP
6.10%, 02/15/25 AA- -- $1,000 $ 1,027,600
----------------------------------------------------------------
California (State of)
Educational Facilities
Authority (Fresno
Pacific University);
Series 2000 A RB
6.05%, 03/01/11 -- Baa3 1,350 1,417,716
----------------------------------------------------------------
Foothill/Eastern Corridor
Agency (California Toll
Road Project); Senior
Lien Series A RB
6.00%, 01/01/10(d)(e) AAA Aaa 400 445,280
----------------------------------------------------------------
Sacramento (City of)
California City
Financing Authority
(Senior Convention
Center Hotel); Series
1999 A RB
6.25%, 01/01/30(f) -- -- 750 707,738
----------------------------------------------------------------
Sacramento (City of)
California Cogeneration
Authority (Procter &
Gamble Project); Series
1995 RB
7.00%, 07/01/04 BBB -- 500 539,510
----------------------------------------------------------------
7,264,651
----------------------------------------------------------------
COLORADO-1.32%
Adams (County of)
Colorado School
District No. 1;
Unlimited Tax Series
1992 A GO
6.63%, 12/01/02(d)(e) AAA Aaa 500 528,270
----------------------------------------------------------------
Colorado Health
Facilities Authority
(National Jewish
Medical and Research
Project); Hospital
Series RB
5.38%, 01/01/29 BBB -- 1,000 767,110
----------------------------------------------------------------
Colorado (State of) E-470
Public Highway
Authority; Series 2000
A RB
5.75%, 09/01/35(c) AAA Aaa 1,000 995,460
----------------------------------------------------------------
Highlands Ranch Metro
District No. 1;
Unlimited Tax Refunding
& Improvement Series A
GO
7.30%, 09/01/02(d)(e) NRR NRR 500 540,605
----------------------------------------------------------------
Mesa County School
District No. 51; 1989
Series B COP
6.88%, 12/01/05(c) AAA Aaa 1,465 1,522,853
----------------------------------------------------------------
Mountain Village Metro
District (San Miguel
County); Unlimited Tax
Refunding Series GO
7.95%, 12/01/02(d)(e) NRR NRR 50 54,183
----------------------------------------------------------------
</TABLE>
FS-82
<PAGE> 302
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
COLORADO-(CONTINUED)
Mountain Village Metro
District (San Miguel
County); Unlimited Tax
Unrefunded Balance
Series GO
7.95%, 12/01/03(f) -- -- $ 305 $ 317,420
----------------------------------------------------------------
4,725,901
----------------------------------------------------------------
CONNECTICUT-2.12%
Connecticut (State of)
(Bradley International
Airport); Special
Obligation Parking
Series 2000 A RB
6.60%, 07/01/24(b) A -- 1,000 1,021,440
----------------------------------------------------------------
Connecticut (State of);
General Purpose Public
Improvement Series
1992-A GO
6.50%, 03/15/02(d)(e) NRR NRR 5,500 5,776,100
----------------------------------------------------------------
Connecticut (State of)
Housing Finance
Authority; Sub-series
1996 A-3 RB
5.95%, 05/15/17 AA Aa2 800 818,400
----------------------------------------------------------------
7,615,940
----------------------------------------------------------------
DELAWARE-0.08%
Delaware Economic
Development Authority
(Osteopathic Hospital
Association); Series A
RB
6.75% 01/01/13(d) NRR Aaa 250 282,160
----------------------------------------------------------------
DISTRICT OF
COLUMBIA-0.27%
District of Columbia
(Gonzaga College High
School); Series 1999 RB
5.38%, 07/01/19(c) AAA Aaa 1,000 970,500
----------------------------------------------------------------
FLORIDA-2.00%
Crossings at Fleming
Island (Community
Development District
Special Assessment);
Refunding Series 2000 B
RB
5.80%, 05/01/16(c) AAA Aaa 1,000 1,028,900
----------------------------------------------------------------
Dade (County of)
(Courthouse Center
Project); Special
Obligation Series 1995
RB
5.90%, 04/01/05(d)(e) NRR NRR 500 533,740
----------------------------------------------------------------
Escambia (County of)
(Champion International
Corp. Project); PCR
6.90%, 08/01/22(b) BBB Baa1 1,125 1,144,811
----------------------------------------------------------------
Escambia (County of)
Health Facilities
Authority (Health Care
Facility Loan-Veterans
Hospital Project);
Hospital Series 2000 RB
5.95%, 07/01/20(c) -- Aaa 1,000 1,022,280
----------------------------------------------------------------
Miami (City of) Dade
County Florida Aviation
(Miami International
Airport); Series 2000 B
RB
5.75%, 10/01/29(c) AAA Aaa 2,000 2,020,760
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
FLORIDA-(CONTINUED)
Miami (City of) Parking
Facilities; Series 1992
A RB
6.70%, 10/01/01(d)(e) NRR NRR $1,120 $ 1,168,754
----------------------------------------------------------------
Plantation (City of)
Health Facilities
Authority (Covenant
Retirement Communities
Inc.); Series 1992 RB
7.75%, 12/01/02(d)(e) NRR NRR 250 272,425
----------------------------------------------------------------
7,191,670
----------------------------------------------------------------
GEORGIA-0.48%
Georgia (State of)
Housing and Finance
Authority (Home
Ownership Opportunity
Program); Series C RB
6.50%, 12/01/11 AA+ Aa2 650 676,429
----------------------------------------------------------------
Savannah (City of)
Economic Development
Authority (Hershey
Foods Corp. Project);
Refunding IDR
6.60%, 06/01/12 A+ -- 1,000 1,043,300
----------------------------------------------------------------
1,719,729
----------------------------------------------------------------
IDAHO-0.26%
Idaho Health Facilities
Authority (Elks
Rehabilitation Hospital
Project); Hospital
Series RB
5.30%, 07/15/18 BBB -- 1,150 921,875
----------------------------------------------------------------
ILLINOIS-9.23%
Berwyn (City of) (Macneal
Memorial Hospital
Association Project);
Hospital Series 1991 RB
7.00%, 06/01/01(d)(e) AAA Aaa 3,250 3,382,275
----------------------------------------------------------------
Chicago (City of) Public
Building Committee
(Chicago School
Reform); Refunding
Series 1999 RB
5.25%, 12/01/15(c) AAA Aaa 1,500 1,490,520
----------------------------------------------------------------
Cook (County of);
Unlimited Tax Series
1992 B GO
5.75%, 11/15/02(d)(e) AAA Aaa 2,000 2,091,880
----------------------------------------------------------------
Freeport (City of) (Sewer
System Improvements);
Unlimited Tax Series
2000 GO
6.00%, 12/01/29(c) AAA Aaa 1,000 1,013,850
----------------------------------------------------------------
Illinois (State of);
Sales Tax Series 1991 O
RB
6.50%, 06/15/01(d)(e) AAA NRR 1,500 1,556,205
----------------------------------------------------------------
Illinois (State of)
Development Finance
Authority (CPC
International Project);
Refunding PCR
6.75%, 05/01/16 -- A2 2,500 2,584,550
----------------------------------------------------------------
Illinois (State of)
Development Finance
Authority (Adventist
Health Systems
Project); Hospital
Series 1997 A RB
6.00%, 11/15/11 AAA Aaa 2,500 2,677,700
----------------------------------------------------------------
</TABLE>
FS-83
<PAGE> 303
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
ILLINOIS-(CONTINUED)
Illinois (State of)
Educational Facilities
Authority (Midwestern
University); Series B
RB
5.50%, 05/15/18 A -- $1,000 $ 958,330
----------------------------------------------------------------
Illinois (State of)
Educational Facilities
Authority (Northwestern
University); Adjustable
Medium Term Series RB
5.25%, 11/01/14(e) AA+ Aa1 1,000 992,980
----------------------------------------------------------------
Illinois (State of)
Educational Facilities
Authority (Shedd
Aquarium Society); RB
5.60%, 07/01/27(c) AAA Aaa 3,500 3,428,355
----------------------------------------------------------------
Illinois Health
Facilities Authority
(Blessing Hospital);
Hospital Series 1999 A
6.00%, 11/15/19(b) AAA Aaa 1,000 1,015,530
----------------------------------------------------------------
Illinois Health
Facilities Authority
(Evangelical Hospital
Corp.); RB
6.25%, Refunding Series
1992 A 04/15/22(d)(e) NRR Aaa 1,000 1,074,390
----------------------------------------------------------------
6.25%, Series 1992 C
04/15/22(d)(e) NRR NRR 1,150 1,231,052
----------------------------------------------------------------
Illinois Health
Facilities Authority
(Franciscan Sisters
Health Care); Series
1992 RB
6.40%, 09/01/04(d) AAA Aaa 2,000 2,133,140
----------------------------------------------------------------
Illinois Health
Facilities Authority
(Memorial Hospital);
Hospital Series 1992 RB
7.25%, 05/01/02(d)(e) NRR NRR 200 212,810
----------------------------------------------------------------
Illinois State University
(Auxiliary Facilities
System);
5.75%, Series 1993 RB
04/01/14(c) AAA Aaa 1,000 1,013,350
----------------------------------------------------------------
5.75%, Series 1991 RB
04/01/22 AA- Aa3 4,750 4,751,900
----------------------------------------------------------------
Peoria and Pekin and
Waukegan (Cities of);
GNMA Collateralized
Mortgage Series 1990 RB
7.88%, 08/01/22(b) AA -- 60 61,945
----------------------------------------------------------------
Tazewell County Community
High School District
No. 303 (Pekin);
Unlimited Tax Series
1996 GO
5.63%, 01/01/14(c) AAA Aaa 1,435 1,461,562
----------------------------------------------------------------
33,132,324
----------------------------------------------------------------
INDIANA-1.22%
Carmel Retirement Rental
Housing (Beverly
Enterprises Project);
Refunding Series RB
8.75%, 12/01/08(f) -- -- 90 95,327
----------------------------------------------------------------
East Allen (City of)
Multi-School Building
Corp.; First Mortgage
Series 2000 RB
5.75%, 01/15/15(c) AAA Aaa 735 754,367
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
INDIANA-(CONTINUED)
Indiana (State of)
(Special Program);
Series 2000 A RB
5.90%, 02/01/14(c) AAA Aaa $1,000 $ 1,042,400
----------------------------------------------------------------
Indiana (State of)
Housing Finance
Authority; Series B-1
RB
6.15%, 07/01/17 -- Aaa 150 153,630
----------------------------------------------------------------
Indianapolis (City of)
(Lake Nora and Fox Club
Project); Series 1999 A
Multi-Family RB
5.90%, 10/01/19(c) -- Aaa 1,795 1,802,109
----------------------------------------------------------------
Indiana Transportation
Finance Authority
(Airport Lease
Facility); Series 1992
A RB
6.25%, 11/01/02(d)(e) NRR Aaa 395 416,717
----------------------------------------------------------------
6.25%, 11/01/16 AA A1 105 108,294
----------------------------------------------------------------
4,372,844
----------------------------------------------------------------
IOWA-0.30%
Iowa Finance Authority
(Trinity Regional
Hospital Project);
Hospital Facilities
Series 1997 RB
6.00%, 07/01/12(c) AAA Aaa 1,000 1,068,490
----------------------------------------------------------------
KANSAS-0.45%
Hutchinson Health Care
Facilities (Wesley
Towers); Refunding &
Improvement Series 1999
A RB
6.25%, 11/15/19(f) -- -- 1,500 1,320,870
----------------------------------------------------------------
Newton (City of) (Newton
Healthcare Corp.);
Hospital Series A RB
7.38%, 11/15/04(d)(e) NRR NRR 250 280,368
----------------------------------------------------------------
1,601,238
----------------------------------------------------------------
KENTUCKY-1.73%
Jefferson (County of)
(Beverly Enterprises
Project); Refunding
Health Facilities
Series RB
5.88%, 05/01/08(f) -- -- 595 559,127
----------------------------------------------------------------
Kenton (County of)
Kentucky Airport Board
(Delta Airlines
Project); Special
Facilities Series 1992
A RB
7.13%, 02/01/21(b) BBB- Baa3 2,500 2,539,575
----------------------------------------------------------------
Mount Sterling (City of);
Lease Funding Series
1993 A RB
6.15%, 03/01/13 -- Aa 3,000 3,124,530
----------------------------------------------------------------
6,223,232
----------------------------------------------------------------
LOUISIANA-3.59%
Louisiana (State of)
Local Government
Environmental
Facilities and
Community Development
Authority (Capital
Projects and Equipment
Acquisition); Series
2000 A RB
6.30%, 07/01/30(c) AAA -- 2,000 2,156,080
----------------------------------------------------------------
</TABLE>
FS-84
<PAGE> 304
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
LOUISIANA-(CONTINUED)
Louisiana Public
Facilities Authority
(Medical Center at New
Orleans Project); RB
6.13%, 10/15/07(c) AAA -- $2,775 $ 2,843,154
----------------------------------------------------------------
Louisiana Public
Facilities Authority
(Our Lady of Lake
Regional Hospital);
Hospital Refunding
Series C RB
6.00%, 12/01/01(d)(e) AAA Aaa 1,000 1,038,170
----------------------------------------------------------------
Louisiana Public
Facilities Authority
(Tulane University of
Louisiana); RB
6.00%, 10/01/16(c) AAA Aaa 2,500 2,587,725
----------------------------------------------------------------
New Orleans Levee
District; Trust
Receipts Series 1995 A
RB
5.95%, 11/01/07(c) AAA Aaa 1,000 1,058,920
----------------------------------------------------------------
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 1,008,860
----------------------------------------------------------------
St. John Baptist Parish
(Sales Tax District);
Public Improvement
Series 1987 RB
7.60%, 01/01/08(d) NRR NRR 500 581,675
----------------------------------------------------------------
7.60%, 01/01/09(d) NRR NRR 500 590,605
----------------------------------------------------------------
West Feliciana Parish
(Gulf States
Utilities); Series A
PCR
7.50%, 05/01/15 BB+ -- 1,000 1,040,160
----------------------------------------------------------------
12,905,349
----------------------------------------------------------------
MAINE-0.64%
Maine (State of)
Education Loan
Authority; Education
Loan Series A-2 RB
6.95%, 12/01/07(b) -- A2 770 793,577
----------------------------------------------------------------
Maine (State of) Housing
Authority; Series 1999
E-1 RB
5.85%, 11/15/20 AA Aa2 1,500 1,513,740
----------------------------------------------------------------
2,307,317
----------------------------------------------------------------
MASSACHUSETTS-3.50%
Massachusetts (State of)
(Consumer Loans);
Unlimited Tax Series
1991 C GO
7.00%, 08/01/01(d)(e) NRR NRR 2,450 2,559,466
----------------------------------------------------------------
Massachusetts (State of)
Health and Education
Facilities Authority
(Lowell General
Hospital); Series 1991
A RB
8.40%, 06/01/01(d)(e) NRR NRR 3,550 3,732,328
----------------------------------------------------------------
Massachusetts (State of)
Health and Education
Facilities Authority
(Winchester Hospital);
Series D RB
5.80%, 07/01/09(c) AAA -- 1,000 1,045,660
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
MASSACHUSETTS-(CONTINUED)
Massachusetts (State of)
Industrial Finance
Agency (Beverly
Enterprises); Refunding
Series RB
8.00%, 05/01/02(f) -- -- $ 125 $ 126,197
----------------------------------------------------------------
Massachusetts (State of)
Housing Finance Agency;
Single Family Housing
Series 1994 RB
6.60%, 12/01/26(b) A+ Aa3 1,890 1,943,771
----------------------------------------------------------------
Massachusetts (State of)
Municipal Wholesale
Electric Cooperative
Power Supply; System
Series 1992 A RB
6.75%, 07/01/08(c) AAA Aaa 3,000 3,176,670
----------------------------------------------------------------
12,584,092
----------------------------------------------------------------
MICHIGAN-4.12%
Detroit (City of) School
District; Unlimited Tax
Series 1992 GO
6.00%, 05/01/01(d)(e) NRR NRR 1,000 1,031,250
----------------------------------------------------------------
6.15%, 05/01/01(d)(e) NRR NRR 1,300 1,342,029
----------------------------------------------------------------
Flint (City of) Hospital
Building Authority;
Hospital Series B RB
5.38%, 07/01/18(c) A -- 1,000 933,720
----------------------------------------------------------------
Garden City Hospital
Finance Authority
(Garden City Hospital);
Hospital Refunding
Series A RB
5.63%, 09/01/10 -- Ba3 1,000 852,790
----------------------------------------------------------------
Lake Orion Community
School District;
Unlimited Tax Refunding
Series 1994 GO
7.00%, 05/01/05(d)(e) AAA Aaa 2,500 2,771,925
----------------------------------------------------------------
Lakeview Community School
District; Refunding
Unlimited Tax Series
1996 GO
5.75%, 05/01/07(d)(e) AAA Aaa 1,000 1,059,420
----------------------------------------------------------------
Lincoln Park (City of)
School District;
Unlimited Tax Series
1996 GO
6.00%, 05/01/06(d)(e) AAA Aaa 1,210 1,300,085
----------------------------------------------------------------
Michigan (State of)
Housing Development
Authority; Refunding
Rental Housing Series A
RB
6.60%, 04/01/12 AA- -- 945 985,578
----------------------------------------------------------------
Ypsilanti (City of)
School District;
Refunding Unlimited Tax
Series 1996 GO
5.75%, 05/01/07(d)(e) AAA Aaa 4,275 4,529,020
----------------------------------------------------------------
14,805,817
----------------------------------------------------------------
MINNESOTA-0.29%
Minneapolis (City of)
(Parking Ramp Project);
Unlimited Tax Series
2000 A GO
5.90%, 12/01/20 AAA Aaa 1,000 1,025,560
----------------------------------------------------------------
</TABLE>
FS-85
<PAGE> 305
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
MISSISSIPPI-2.58%
Mississippi (State of)
Development Board
(Panola County
Hospital); Special
Obligation Series RB
5.00%, 07/01/28 A -- $5,000 $ 4,099,600
----------------------------------------------------------------
Mississippi Higher
Education Assistance
Corp.; Student Loan
Sub-Series 1994 C RB
7.50%, 09/01/09(b)(f) -- -- 5,000 5,176,200
----------------------------------------------------------------
9,275,800
----------------------------------------------------------------
MISSOURI-1.15%
Kansas City Industrial
Development Authority
(General Motors Corp.
Project); PCR
6.05%, 04/01/06 A A3 1,435 1,444,973
----------------------------------------------------------------
Kansas City Municipal
Assistance Corp.
(Truman Medical Center
Charitable Foundation);
Leasehold Improvement
Series 1991 A RB
7.00%, 11/01/01(d)(e) NRR NRR 605 623,199
----------------------------------------------------------------
Missouri (State of)
Environmental
Improvement and Energy
Resources Authority;
Series 1995 C PCR
5.85%, 01/01/10 -- Aaa 1,000 1,049,360
----------------------------------------------------------------
St. Louis (City of)
Airport; Series 2000 RB
6.25%, 01/01/02 Baa3 BBB- 1,000 1,008,240
----------------------------------------------------------------
4,125,772
----------------------------------------------------------------
NEVADA-1.62%
Boulder (City of)
(Boulder City Hospital
Inc. Project); Hospital
Refunding Series RB
5.85%, 01/01/22(f) -- -- 500 415,230
----------------------------------------------------------------
Humboldt (County of)
(Sierra Pacific
Project); Refunding
Series 1987 PCR
6.55%, 10/01/13(c) AAA Aaa 3,000 3,140,250
----------------------------------------------------------------
Las Vegas (City of);
Refunding 1992 Limited
Tax GO
6.50%, 04/01/02(d)(e) AAA Aaa 1,000 1,050,990
----------------------------------------------------------------
Reno Redevelopment
Agency; Refunding
Sub-Series A Tax
Allocation Notes
6.00%, 06/01/10 -- Baa3 1,185 1,210,288
----------------------------------------------------------------
5,816,758
----------------------------------------------------------------
NEW HAMPSHIRE-0.42%
Hudson (City of);
Unlimited Tax Series GO
5.25%, 03/15/28 -- Aa3 1,610 1,497,042
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
NEW JERSEY-2.89%
Hudson (County of)
Correctional Facility;
Refunding Series 1992
COP
6.60%, 12/01/21(c) AAA Aaa $1,250 $ 1,290,675
----------------------------------------------------------------
New Jersey Economic
Development Authority
(Atlantic City Sewer
Co.); Sewer Facility
Series 1991 RB
7.25%, 12/01/11(b)(f) -- -- 1,630 1,684,980
----------------------------------------------------------------
New Jersey Economic
Development Authority
(Continental Airlines
Inc. Project);
Specialty Facilities
Series 1999 RB
6.40%, 09/15/23(b) BB Ba2 4,000 3,765,760
----------------------------------------------------------------
6.25%, 09/15/29(b) BB Ba2 2,250 2,033,527
----------------------------------------------------------------
New Jersey City Economic
Development Authority
(Franciscan Oaks
Project); First
Mortgage Series RB
5.70%, 10/01/17(f) -- -- 500 423,875
----------------------------------------------------------------
New Jersey Health Care
Facility Financing
Authority; Unrefunded
Balance Series 1987 C
RB
8.60%, 07/01/17(c) AAA Aaa 185 186,554
----------------------------------------------------------------
New Jersey (State of)
Turnpike Authority;
Series 2000 A RB
5.50%, 01/01/25(c) AAA Aaa 1,000 988,040
----------------------------------------------------------------
10,373,411
----------------------------------------------------------------
NEW MEXICO-1.62%
Albuquerque (City of) New
Mexico Educational
Facilities Authority
(Albuquerque Academy
Project); Education
Series 1995 RB
5.75%, 10/15/03(d)(e) NRR NRR 915 945,909
----------------------------------------------------------------
Las Cruces South Central
Solid Waste Authority;
Environmental Services
RB
5.65%, 06/01/09 -- A3 575 586,856
----------------------------------------------------------------
Los Alamos (County of);
Utility Series A RB
6.00%, 07/01/15(c) AAA Aaa 2,000 2,069,120
----------------------------------------------------------------
Santa Fe (City of);
Series 1994 A RB
6.25%, 06/01/04(d)(e) AAA Aaa 2,100 2,220,939
----------------------------------------------------------------
5,822,824
----------------------------------------------------------------
NEW YORK-11.61%
Metropolitan
Transportation
Authority; Dedicated
Tax Fund Series 2000 A
RB
5.88%, 04/01/25(c) AAA Aaa 1,500 1,520,265
----------------------------------------------------------------
</TABLE>
FS-86
<PAGE> 306
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
NEW YORK-(CONTINUED)
New York (City of); GO
8.25%, Unlimited Tax
Series 1991 F
11/15/01(d)(e) NRR Aaa $2,000 $ 2,123,220
----------------------------------------------------------------
7.65%, Unlimited Tax
Series 1992 F GO
02/01/02(d)(e) NRR Aaa 4,775 5,066,323
----------------------------------------------------------------
7.00%, Unlimited Tax
Series H
02/01/02(d)(e) NRR NRR 350 367,836
----------------------------------------------------------------
7.20%, Unlimited Tax
Series H
02/01/02(d)(e) NRR NRR 390 410,994
----------------------------------------------------------------
02/01/15 A- A3 110 115,138
----------------------------------------------------------------
7.70%, Unlimited Tax
Series D GO
02/01/02(d)(e) NRR Aaa 1,970 2,091,608
----------------------------------------------------------------
02/01/09 A- A3 30 31,699
----------------------------------------------------------------
7.00%, Unlimited Tax
Series C, Sub-Series
C-1
08/01/02(d)(e) NRR Aaa 1,990 2,116,305
----------------------------------------------------------------
7.38%, Unlimited Tax
Series B1
08/15/04(d)(e) NRR Aaa 500 556,456
----------------------------------------------------------------
6.25%, Unlimited Tax
Series A
08/01/17 A- A3 3,035 3,166,689
----------------------------------------------------------------
7.00%, Unlimited Tax
Series C, Sub-Series
C-1
08/01/17 A- A3 10 10,527
----------------------------------------------------------------
7.00%, Unlimited Tax
Series B
02/01/18(c) AAA Aaa 830 865,549
----------------------------------------------------------------
7.00%, Unlimited Tax
Series B
02/01/02(d)(e) AAA Aaa 170 178,791
----------------------------------------------------------------
New York (City of)
Industrial Development
Agency (The Lighthouse
Inc. Project); Series
1992 RB (LOC-Chase
Manhattan Bank)
6.50%, 07/01/02(d)(e) NRR NRR 1,500 1,585,515
----------------------------------------------------------------
New York (City of)
Municipal Water Finance
Authority; Water &
Sewer Systems
5.75%, Series 1997 B RB
06/15/29 AA Aa3 3,850 3,854,504
----------------------------------------------------------------
5.00%, Series 1987 A RB
06/15/17 AA Aa3 1,350 1,270,674
----------------------------------------------------------------
5.50%, Series 1996 A RB
06/15/24(c) AAA Aaa 1,000 975,280
----------------------------------------------------------------
New York State Dorm
Authority (City
University System);
Series 1990 C RB
6.00%, 07/01/16 A Baa1 365 365,675
----------------------------------------------------------------
New York (State of) Dorm
Authority (State
University Educational
Facilities); Series A
RB
6.50%, 05/15/06 A A3 1,000 1,081,730
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
NEW YORK-(CONTINUED)
New York (State of)
Environmental
Facilities Corp.; Water
Revenue Series 1991 E
PCR
6.88%, 06/15/01(d)(e) AAA Aaa $2,300 $ 2,395,036
----------------------------------------------------------------
6.88%, 06/15/10 AAA Aaa 1,100 1,139,798
----------------------------------------------------------------
New York (State of) Urban
Development Corp.
(Correctional Capital
Facilities); Series
1991-3 RB
7.38%, 01/01/02(d)(e) NRR Aaa 7,850 8,316,682
----------------------------------------------------------------
North Babylon (City of)
Union Free School
District; Unlimited Tax
Series 2000 A GO
5.50%, 02/15/17(c) -- Aaa 2,070 2,071,594
----------------------------------------------------------------
41,677,888
----------------------------------------------------------------
NORTH CAROLINA-1.58%
North Carolina Eastern
Municipal Power Agency;
Series A RB
6.13%, 01/01/10(c) AAA Aaa 1,500 1,641,870
----------------------------------------------------------------
North Carolina Housing
Finance Agency; Single
Family-Series II RB
6.20%, 03/01/16 AA Aa2 570 588,725
----------------------------------------------------------------
North Carolina Municipal
Power Agency (No. 1
Catawba Electric
Project);
7.25%, Refunding RB
01/01/07 BBB+ Baa1 2,890 3,166,486
----------------------------------------------------------------
6.50%, Series 1990 RB
01/01/10(d) AAA Aaa 260 286,720
----------------------------------------------------------------
5,683,801
----------------------------------------------------------------
NORTH DAKOTA-0.15%
North Dakota Housing
Finance Agency; Home
Mortgage Series B RB
5.85%, 07/01/28(b) -- Aa3 545 533,958
----------------------------------------------------------------
OHIO-2.65%
Cleveland (City of)
Parking Facilities;
Improvement Series RB
8.00%, 09/15/02(d)(e) NRR NRR 500 542,960
----------------------------------------------------------------
Fairfield (City of)
School District;
Unlimited Tax Series
1995 GO
6.10%, 12/01/15(c) AAA Aaa 1,000 1,036,620
----------------------------------------------------------------
Findlay (City of);
Limited Tax Series 1996
GO
5.88%, 07/01/17 AA- Aa3 1,000 1,028,900
----------------------------------------------------------------
Lake Ohio School
District; Unlimited Tax
Series 2000 GO
5.75%, 12/01/26(c) AAA Aaa 2,500 2,526,925
----------------------------------------------------------------
Mason (City of) Health
Care Facilities (MCV
Health Care
Facilities); Series
1990 RB
7.63%, 02/01/01(d)(e) AAA NRR 2,090 2,173,224
----------------------------------------------------------------
</TABLE>
FS-87
<PAGE> 307
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
OHIO-(CONTINUED)
Montgomery (County of)
Ohio Hospital Authority
(Grandview Hospital &
Medical Center);
Refunding Hospital
Series RB
5.50%, 12/01/09(d)(e) NRR NRR $1,000 $ 1,041,380
----------------------------------------------------------------
Ohio Department of
Transportation
(Panhandle Rail Line
Project); Series 1992
COP
6.50%, 04/15/12(c) AAA Aaa 1,100 1,147,795
----------------------------------------------------------------
9,497,804
----------------------------------------------------------------
OKLAHOMA-2.77%
McAlester (City of)
Public Works Authority;
Refunding and
Improvement Series 1995
RB
5.50%, 12/01/09(d)(e) AAA Aaa 975 1,029,015
----------------------------------------------------------------
Mustang Improvement
Utility Authority;
Series 1999 RB
5.70%, 10/01/19(c) -- Aaa 1,500 1,503,555
----------------------------------------------------------------
Oklahoma Development
Finance Authority (St.
John Health System);
Refunding Series 1999
RB
5.75%, 02/15/18 AA Aa3 675 674,244
----------------------------------------------------------------
5.75%, 02/15/25 AA Aa3 1,750 1,752,503
----------------------------------------------------------------
Sapula (City of)
Municipal Authority;
Capital Improvement
Series RB
5.00%, 07/01/21(c) AAA Aaa 1,000 920,790
----------------------------------------------------------------
Tulsa (City of)
Industrial Authority
(St. Johns Medical
Center Project);
Hospital Series 1994 RB
6.25%, 02/15/06(d)(e) NRR NRR 2,000 2,150,480
----------------------------------------------------------------
Tulsa (City of)
Industrial Authority
(Tulsa Regional Medical
Center); Hospital
Series RB
7.20%, 06/01/03(d)(e) AAA NRR 500 543,550
----------------------------------------------------------------
Tulsa Public Facilities
Authority-Capital
Improvements-Water
System; Series 1988 B
RB
6.00%, 03/01/08 A+ -- 1,305 1,361,702
----------------------------------------------------------------
9,935,839
----------------------------------------------------------------
OREGON-0.93%
Cow Creek Band Umpqua
Tribe of Indians;
Series B RB
5.10%, 07/01/12(c) AAA Aaa 1,000 999,070
----------------------------------------------------------------
Portland (City of) Sewer
System; Series 1994 A
RB
6.20%, 06/01/04(d)(e) AAA NRR 1,200 1,277,112
----------------------------------------------------------------
6.25%, 06/01/04(d)(e) AAA NRR 1,000 1,065,990
----------------------------------------------------------------
3,342,172
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
PENNSYLVANIA-1.63%
Allegheny (County of)
Port Authority; Special
Revenue Transportation
Series 1999 RB
6.13% 03/01/29(c) AAA Aaa $1,000 $ 1,030,240
----------------------------------------------------------------
Montgomery (County of)
Industrial Development
Authority (Meadowood
Corp. Project);
Refunding First
Mortgage Series A RB
10.25%, 12/01/00(d)(e) NRR NRR 100 103,820
----------------------------------------------------------------
Montgomery (County of)
Industrial Development
Authority (Pennsburg
Nursing &
Rehabilitation Center);
Series 1993 RB
7.63%, 03/31/04(d)(e) NRR Aaa 100 112,101
----------------------------------------------------------------
Pennsylvania (State of);
Unlimited Tax Third
Series GO
6.75%, 11/15/13(c) AAA Aaa 1,250 1,355,512
----------------------------------------------------------------
Pennsylvania Economic
Development Finance
Authority (Colver
Project); Resource
Recovery Series 1994 D
RB
7.05%, 12/01/10(b) BBB- -- 2,900 2,976,125
----------------------------------------------------------------
Scranton-Lackawanna
Health & Welfare
Authority (Moses Taylor
Hospital Project);
Series 1991 B RB
8.50%, 07/01/01(d)(e) AAA NRR 250 263,893
----------------------------------------------------------------
5,841,691
----------------------------------------------------------------
PUERTO RICO-0.39%
Puerto Rico (Commonwealth
of) Electric Power
Authority; Series 1991
P RB
7.00%, 07/01/01(d)(e) AAA Aaa 1,325 1,382,902
----------------------------------------------------------------
RHODE ISLAND-0.66%
Rhode Island Depositors
Economic Protection
Corp.; Special
Obligation Series 1992
A RB
6.95%, 08/01/02(d)(e) AAA Aaa 1,250 1,331,912
----------------------------------------------------------------
Rhode Island Housing and
Mortgage Finance Corp.;
Homeownership
Opportunity Series 15 B
RB
6.00%, 10/01/04 AA+ Aa2 1,000 1,041,640
----------------------------------------------------------------
2,373,552
----------------------------------------------------------------
SOUTH CAROLINA-0.58%
Piedmont Municipal Power
Agency; Refunding
Electric Series A RB
5.75%, 01/01/24 BBB- Baa3 1,150 1,054,654
----------------------------------------------------------------
</TABLE>
FS-88
<PAGE> 308
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
SOUTH CAROLINA-(CONTINUED)
South Carolina (State of)
Jobs Economic
Development Authority
(Palmetto Health
Alliance); Hospital
Facilities Improvement
Series 2000 A RB
7.13%, 12/15/15 BBB Baa1 $1,000 $ 1,021,740
----------------------------------------------------------------
2,076,394
----------------------------------------------------------------
SOUTH DAKOTA-0.03%
South Dakota Health and
Educational Facility
Authority (Huron
Regional Medical
Center); Series 1994 RB
7.25%, 04/01/20 BBB -- 100 101,698
----------------------------------------------------------------
TENNESSEE-1.77%
Franklin Industrial
Development Board
(Landings Apartment
Project); Multifamily
Housing Series A RB
5.75%, 04/01/10(c) AAA Aaa 975 992,765
----------------------------------------------------------------
Montgomery (County of)
Health, Educational and
Housing Facilities
Board (Clarksville
Project); Refunding and
Improvement Hospital
Series RB
5.38%, 01/01/28(c) A -- 1,800 1,627,164
----------------------------------------------------------------
Robertson and Sumner
(Counties of) White
House Utilities
District; Water and
Sewer Series 2000 RB
6.00%, 01/01/26 -- Aaa 1,000 1,023,750
----------------------------------------------------------------
Shelby (County of);
Unlimited Tax School
Series B GO
6.00%, 03/01/02(d)(e) NRR NRR 1,000 1,031,880
----------------------------------------------------------------
Shelby County Health,
Educational & Housing
Facilities Board (Kirby
Pines); Health Care
Facilities Series A RB
6.25%, 11/15/16(f) -- -- 1,000 886,000
----------------------------------------------------------------
Tennessee Housing
Development Agency;
Homeownership
Progressive Series Q RB
6.80%, 07/01/17 AA Aa2 770 798,451
----------------------------------------------------------------
6,360,010
----------------------------------------------------------------
TEXAS-20.07%
Allen Independent School
District; Unlimited Tax
Refunding Series 2000
GO
5.95%, 02/15/25(c) AAA Aaa 1,600 1,624,368
----------------------------------------------------------------
Arlington Independent
School District;
Unlimited Tax Series GO
5.75%, 02/15/05(d)(e) NRR Aaa 705 736,647
----------------------------------------------------------------
5.75%, 02/15/21(d) -- Aaa 295 295,808
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
TEXAS-(CONTINUED)
Austin (City of); Utility
System Combined Fee
Refunding Series 1991
RB
6.50%, 05/15/01(d)(e) AAA Aaa $1,380 $ 1,429,390
----------------------------------------------------------------
Austin Community College
District; Combined Fee
Revenue Building and
Refunding Series 1995
RB
6.10%, 02/01/05(d)(e) AAA Aaa 1,115 1,180,361
----------------------------------------------------------------
Austin Hotel Occupancy
Tax; Refunding Sub Lien
1999 Series RB
5.80%, 11/15/29(c) AAA Aaa 1,000 1,003,460
----------------------------------------------------------------
Bellville Independent
School District;
Unlimited Tax Series
1995 GO
6.13%, 02/01/06(d)(e) NRR Aaa 535 571,808
----------------------------------------------------------------
6.13%, 02/01/20 NRR Aaa 295 302,938
----------------------------------------------------------------
Bexar (County of) Housing
Finance Corp. (Dymaxion
& Marrach Park
Apartments);
Multifamily Housing
Series 2000 A RB
6.10%, 08/01/30(c) -- Aaa 1,000 1,000,000
----------------------------------------------------------------
Brazos (County of) Health
Facilities Development
Corp. (Franciscan
Services Corp.); Series
A RB
5.38%, 01/01/22(c) AAA Aaa 2,000 1,901,120
----------------------------------------------------------------
Brazos Higher Education
Loan Authority Inc.;
Refunding Series 1992
C-1 RB
6.30%, Series 1992 C-1
11/01/01(b) -- Aa 325 330,714
----------------------------------------------------------------
6.45%, Series 1992 C-1
11/01/02(b) -- Aa 1,135 1,164,816
----------------------------------------------------------------
Carrollton (City of);
Limited Tax Series 1996
GO
5.75%, 08/15/06(d)(e) NRR NRR 1,000 1,052,440
----------------------------------------------------------------
Comal (County of)
Industrial Development
Authority (The Coleman
Co., Inc. Project);
Industrial Development
Series 1980 RB
9.25%, 08/01/00(d)(e) NRR NRR 280 280,000
----------------------------------------------------------------
Comal (County of)
Independent School
District; Unlimited Tax
Refunding Series 1999
GO
5.75%, 08/01/28(c) -- Aaa 1,000 998,610
----------------------------------------------------------------
Dallas (City of);
Waterworks and Sewer
System Refunding and
Improvement Series RB
5.35%, 04/01/14 AA Aa2 2,055 2,054,836
----------------------------------------------------------------
Dallas (City of);
Waterworks and Sewer
System Series A RB
6.00%, 10/01/01(d)(e) NRR NRR 2,030 2,094,473
----------------------------------------------------------------
De Soto (City of)
Independent School
District; Refunding
Unlimited Tax Series GO
5.13%, 08/15/17(c) AAA -- 1,000 951,430
----------------------------------------------------------------
</TABLE>
FS-89
<PAGE> 309
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
TEXAS-(CONTINUED)
Georgetown (City of);
Utility System Series
1995 A RB
6.20%, 08/15/05(d)(e) AAA Aaa $1,500 $ 1,600,470
----------------------------------------------------------------
Grapevine (City of);
Limited Tax Series 2000
COP
5.88%, 08/15/26(c) AAA Aaa 1,610 1,632,492
----------------------------------------------------------------
Harris County; Toll Road
Unlimited Tax GO and
Sub. Lien Refunding
Series 1991
6.75%, 08/01/14 AA Aa1 3,850 4,013,510
----------------------------------------------------------------
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 1,050,880
----------------------------------------------------------------
Harris County Health
Facilities Development
Corp. (Texas Childrens
Hospital Project);
Hospital Series 1999 A
RB
5.25%, 10/01/29 AA Aa2 2,000 1,765,040
----------------------------------------------------------------
Harris County Mental
Health and Mental
Retardation Authority;
Refunding Series 1992
RB
6.25%, 09/15/10(c) AAA Aaa 4,500 4,618,620
----------------------------------------------------------------
Houston (City of);
Limited Tax Series 1992
C GO
6.25%, 03/01/02(d)(e) NRR NRR 1,470 1,509,822
----------------------------------------------------------------
Houston (City of); Water
and Sewer System Series
1997 C RB
5.38%, 12/01/27(c) AAA Aaa 2,495 2,363,339
----------------------------------------------------------------
Hurst, Euless, Bedford,
Texas Independent
School District;
6.50%, Refunding
Unlimited Tax Series
1994 GO
08/15/04(d)(e) AAA Aaa 640 684,531
----------------------------------------------------------------
6.50%, Unrefunded
Unlimited Tax Series
1994 GO 08/15/24(c) AAA Aaa 360 371,938
----------------------------------------------------------------
Katy (City of)
Independent School
District; Limited Tax
Series 1999 GO
6.13%, 02/15/32 AAA Aaa 1,500 1,545,630
----------------------------------------------------------------
Keller (City of)
Independent School
District; Series 1994
COP
6.00%, 08/15/05(c) AAA Aaa 1,000 1,058,110
----------------------------------------------------------------
Little Elm (City of)
Independent School
District; Unlimited Tax
Refunding Series
6.00%, Series 1999 GO
08/15/35 AAA -- 2,500 2,557,625
----------------------------------------------------------------
6.13%, Series 2000 GO
08/15/35 AAA -- 1,000 1,031,340
----------------------------------------------------------------
Lockhart (City of) Tax
and Utility Systems;
Unlimited Tax Series
1996 GO
5.85%, 08/01/11(c) AAA Aaa 605 631,989
----------------------------------------------------------------
5.90%, Refunding
08/01/06(d)(e) AAA Aaa 1,100 1,168,849
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
TEXAS-(CONTINUED)
Matagorda (County of)
District No. 1 (Reliant
Energy Project);
Refunding 1999 RB
5.95%, 05/01/30(b) BBB Baa1 $2,250 $ 2,028,915
----------------------------------------------------------------
North Central Texas
Health Facilities
Development Corp. (CC
Young Memorial
Project); Hospital
Series RB
5.38%, 02/15/25(c) A -- 1,000 931,140
----------------------------------------------------------------
Northside Independent
School District;
Unlimited Tax Series
1999 A GO
5.50%, 08/15/24 AAA Aaa 1,000 973,980
----------------------------------------------------------------
North Texas Higher
Education Authority
Inc.; Student Loan RB
6.10%, Series 1993 C
04/01/08(b) -- Aa 1,000 1,021,400
----------------------------------------------------------------
6.30%, Series 1993 D
04/01/09(b) -- A 500 509,420
----------------------------------------------------------------
Plano (City of); Limited
Tax Series 2000 GO
5.88%, 09/01/19 AAA Aaa 850 868,428
----------------------------------------------------------------
Plano (City of)
Independent School
District; Unlimited Tax
Series 1991 B GO
5.63%, 02/15/01(d)(e) AAA Aaa 2,500 2,516,850
----------------------------------------------------------------
Richardson (City of);
Hotel Occupancy Limited
Tax Series 2000 A COP
5.75%, 12/15/21(c) AAA Aaa 2,000 2,008,680
----------------------------------------------------------------
San Antonio (City of)
Independent School
District; Unlimited Tax
Series 1999 GO
5.50%, 08/15/24 AAA Aaa 3,500 3,408,930
----------------------------------------------------------------
Southwest Higher
Education Authority
Inc. (Southern
Methodist University);
Higher Education Series
D RB
5.00%, 10/01/22 A+ A1 1,750 1,555,155
----------------------------------------------------------------
Spring Branch Independent
School District;
Limited Tax Series 2000
GO
5.75%, 02/01/24(c) AAA Aaa 1,700 1,697,824
----------------------------------------------------------------
Texas (State of) Public
Property Finance Corp.
(Mental Health and
Mental Retardation);
Series 1996 RB
6.20%, 09/01/16 BBB+ -- 965 961,053
----------------------------------------------------------------
Texas (State of);
Veteran's Land
Unlimited Tax Series
1994 GO
6.40%, 12/01/24(b) AA Aa1 2,000 2,052,060
----------------------------------------------------------------
Texas (State of)
Department of Housing
and Community Affairs
(Asmara Project);
Multifamily Housing
Series 1996 A RB
6.30%, 01/01/16 A -- 310 321,644
----------------------------------------------------------------
</TABLE>
FS-90
<PAGE> 310
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
TEXAS-(CONTINUED)
Texas National Research
Laboratory Community
Financing Corp.
(Superconducting Super
Collider); Refunded
Series 1991 RB
7.10%, 12/01/01(d)(e) AAA Aaa $ 600 $ 631,710
----------------------------------------------------------------
Tyler Health Facilities
Development Corp.
(Mother Frances
Hospital); Hospital
Series A RB
5.63%, 07/01/13 -- Baa2 1,000 864,160
----------------------------------------------------------------
University of Texas;
Series 1999 B RB
5.70%, 08/15/20 AAA Aa1 1,000 1,007,690
----------------------------------------------------------------
Victoria (County of)
(Texas Hospital
Citizens Medical
Center); RB
6.20%, 01/01/10(c) AAA Aaa 1,000 1,050,190
----------------------------------------------------------------
Weatherford (City of)
Independent School
District; Unlimited Tax
Series 1994 GO
6.40%, 02/15/05(d)(e) NRR Aaa 900 964,071
----------------------------------------------------------------
6.40%, 02/15/12(c) -- Aaa 100 106,280
----------------------------------------------------------------
72,056,984
----------------------------------------------------------------
UTAH-1.38%
Intermountain Power
Agency (Utah Power
Supply); Series 1986 B
RB
5.00%, 07/01/16 A+ A1 1,550 1,448,165
----------------------------------------------------------------
Salt Lake (County of)
(Westminster College
Project); RB
5.75%, 10/01/27 BBB -- 1,000 936,180
----------------------------------------------------------------
Utah (State of) Housing
Finance Agency;
Federally Insured Term
Sub. Single Family
Mortgage RB
6.30%, Sub-Series 1994
E-1, 07/01/06 AA- Aa3 240 248,585
----------------------------------------------------------------
7.15%, Sub-Series 1994
G-1, 07/01/06 AA- Aa3 135 142,376
----------------------------------------------------------------
Utah (State of) Housing
Finance Agency; Single
Family Mortgage RB
6.05%, Series 1994 C
07/01/06 AA- Aa3 350 360,115
----------------------------------------------------------------
6.45%, Series G2
07/01/27(b) AAA Aaa 780 796,957
----------------------------------------------------------------
Utah (State of) Housing
Finance Agency; Single
Family Mortgage
Sub-Series 2000 B-1 RB
6.00%, 07/01/10(b) AA- Aa3 1,000 1,008,860
----------------------------------------------------------------
4,941,238
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
VERMONT-0.28%
Vermont (State of)
Educational and Health
Buildings Financing
Agency (Fletcher Allen
Health); Hospital
Series 2000 A RB
6.00%, 12/01/23(c) AAA Aaa $1,000 $ 1,020,510
----------------------------------------------------------------
VIRGIN ISLAND-0.93%
Virgin Islands Public
Finance Authority;
Matching Fund Loan
Notes Series 1992 A RB
7.25%, 10/01/02(d)(e) AAA NRR 1,000 1,079,500
----------------------------------------------------------------
Virgin Islands Territory
(Hugo Insurance Claims
Fund); Special Tax Bond
Series 1991
7.75%, 10/01/01(d)(e) NRR NRR 2,155 2,262,017
----------------------------------------------------------------
3,341,517
----------------------------------------------------------------
VIRGINIA-0.65%
Covington-Alleghany
(County of) Industrial
Development Authority
(Beverly Enterprises);
Refunding Series RB
9.38%, 09/01/01(f) -- -- 30 30,449
----------------------------------------------------------------
Richmond (City of);
Public Improvement
Refunding Unlimited Tax
Series B GO
6.25%, 01/15/18 AA A1 2,000 2,056,520
----------------------------------------------------------------
Virginia (State of)
Housing Development
Authority; Commonwealth
Mortgage Series A RB
7.10%, 01/01/17 AA+ Aa1 250 258,420
----------------------------------------------------------------
2,345,389
----------------------------------------------------------------
WASHINGTON-1.98%
Clark (County of) School
District No. 117;
Unlimited Tax Series
1995 GO
6.00%, 12/01/05(d)(e) AAA Aaa 1,000 1,058,640
----------------------------------------------------------------
King (County of);
Unlimited Tax GO
5.50%, 07/01/07(d) AAA Aaa 500 522,150
----------------------------------------------------------------
King (County of);
Unlimited Tax Refunding
GO
6.50%, 12/01/11 AA+ Aaa 500 500,850
----------------------------------------------------------------
King (County of)
Washington Sewer
Authority; Series 1999
RB
5.50%, 01/01/22(c) AAA Aaa 1,000 977,810
----------------------------------------------------------------
Pend Oreille (County of)
Public Utility District
No. 1; Electric Series
B RB
6.30%, 01/01/17 A- A3 1,400 1,448,398
----------------------------------------------------------------
Washington State Public
Power Supply System
(Nuclear Project No.
1); Refunding Series A
RB
5.75%, 07/01/12(c) AAA Aaa 2,000 2,061,340
----------------------------------------------------------------
</TABLE>
FS-91
<PAGE> 311
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
WASHINGTON-(CONTINUED)
West Richland (City of);
Water & Sewer Refunding
Series RB
7.00%, 12/01/04(d)(e) AAA Aaa $ 500 $ 546,770
----------------------------------------------------------------
7,115,958
----------------------------------------------------------------
WISCONSIN-1.14%
Wisconsin Health and
Educational Facilities
Authority (Sinai
Samaritan Medical
Center); Series 1996 F
RB
5.75%, 08/15/16(c) AAA Aaa 1,500 1,516,290
----------------------------------------------------------------
Wisconsin Health and
Educational Facility
Authority (Sisters of
Sorrowful Mother);
Series 1997 A RB
5.90%, 08/15/24(c) AAA Aaa 2,500 2,499,925
----------------------------------------------------------------
Wisconsin Housing and
Economic Development
Authority; Home
Ownership Series 1994 E
RB
7.35%, 01/01/17 AA Aa2 75 78,136
----------------------------------------------------------------
4,094,351
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
WYOMING-0.64%
Laramie (County of)
(Memorial Hospital
Project); Hospital
Series RB
6.70%, 05/01/12(c) AAA Aaa $ 250 $ 263,860
----------------------------------------------------------------
Natrona (County of)
Wyoming Medical Center;
RB
6.00%, 09/15/11(c) AAA Aaa 1,000 1,045,960
----------------------------------------------------------------
Sweetwater (County of)
(Idaho Power Company
Project); Refunding
Series 1996 A PCR
6.05%, 07/15/26 A A3 1,000 1,003,710
----------------------------------------------------------------
2,313,530
----------------------------------------------------------------
TOTAL INVESTMENTS (Cost
$348,120,898)-99.81% 358,349,112
----------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-0.19% 683,203
----------------------------------------------------------------
NET ASSETS-100.00% $359,032,315
================================================================
</TABLE>
Investment Abbreviations:
COP - Certificates of Participation
GO - General Obligation Bonds
IDR - Industrial Development Revenue Bonds
LOC - Letter of Credit
NRR - Not Re-Rated
PCR - Pollution Control Revenue Bonds
RB - Revenue Bonds
Sub. - Subordinate
VRD - Variable Rate Demand
GNMA - Government National Mortgage Association
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 of the
security. Ratings are not covered by Independent Auditors' Report.
(b)Security subject to the alternative minimum tax.
(c)Secured by bond insurance provided by one of the following companies: Ambac
Assurance Corp., Financial Guaranty Insurance Co., Financial Security
Assurance, or MBIA Insurance Co.
(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)Demand security, payable upon demand by the Fund at specified time intervals
no greater than thirteen months. Interest rate is redetermined periodically.
Rate shown is the rate in effect on 07/31/00.
See Notes to Financial Statements.
FS-92
<PAGE> 312
SCHEDULE OF INVESTMENTS
June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
ALABAMA-1.28%
Alabama (State of)
Housing Finance
Authority; Single
Family Mortgage Series
D-2 RB
5.50%, 10/01/17(b) -- Aaa $ 970 $ 917,688
----------------------------------------------------------------
Alabama (State of) Public
School & College
Authority; Capital
Improvement Series 1999
C RB
5.75%, 07/01/17 AA Aa3 1,400 1,422,792
----------------------------------------------------------------
Courtland Industrial
Development Board
(Champion International
Corp. Project);
Refunding Environmental
Improvement Series RB
6.40%, 11/01/26(b) -- Baa1 2,315 2,257,264
----------------------------------------------------------------
4,597,744
----------------------------------------------------------------
ALASKA-0.76%
Alaska (State of) Housing
Finance Corp.;
Collateralized First
Veterans' Home Mortgage
Series A-2 RB
6.75%, 12/01/24(b) AAA Aaa 2,465 2,517,135
----------------------------------------------------------------
Alaska (State of) Housing
Finance Corp.;
Collateralized First
Veterans' Mortgage
Program Series RB
6.88%, 06/01/33 AAA Aaa 205 209,699
----------------------------------------------------------------
2,726,834
----------------------------------------------------------------
ARIZONA-1.47%
Arizona (State of)
Educational Loan
Marketing Corp.; RB
6.13%, 09/01/02(b) -- Aa2 1,900 1,939,083
----------------------------------------------------------------
Pima (County of) Unified
School District No. 10
(Amphitheater); School
Improvement Series 1992
E GO
6.50%, 07/01/05 A+ A2 3,100 3,321,278
----------------------------------------------------------------
5,260,361
----------------------------------------------------------------
ARKANSAS-0.56%
Little Rock (City of);
Capital Improvement
Series B GO
5.75%, 02/01/06 AA Aa3 2,000 2,001,240
----------------------------------------------------------------
CALIFORNIA-2.01%
Abag Financing Authority
for Non-profit Corps.
(Lytton Gardens Inc.);
Series 1999 COP
6.00%, 02/15/19 AA- -- 2,085 2,095,425
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
CALIFORNIA-(CONTINUED)
Abag Financing Authority
for Non-Profit Corps.
(Odd Fellows Home of
California); Series
1999 COP
6.00%, 08/15/24 AA- -- $1,000 $ 1,006,890
----------------------------------------------------------------
Abag Financing Authority
for Non-Profit Corps.
(Lincoln Glen Manor
Senior Citizens);
Series 2000 COP
6.10%, 02/15/25 AA- -- 1,000 1,017,370
----------------------------------------------------------------
California (State of)
Educational Facilities
Authority (Fresno
Pacific University);
Series 2000 A RB
6.05%, 03/01/11 -- Baa3 1,350 1,406,929
----------------------------------------------------------------
Foothill/Eastern Corridor
Agency (California Toll
Road Project); Senior
Lien Series A RB
6.00%, 01/01/10(d)(e) AAA Aaa 400 442,656
----------------------------------------------------------------
Sacramento (City of)
California City
Financing Authority
(Senior Convention
Center Hotel); Series
1999 A RB
6.25%, 01/01/30(f) -- -- 750 697,770
----------------------------------------------------------------
Sacramento (City of)
California Cogeneration
Authority (Procter &
Gamble Project); Series
1995 RB
7.00%, 07/01/04 BBB -- 500 537,225
----------------------------------------------------------------
7,204,265
----------------------------------------------------------------
COLORADO-1.31%
Adams (County of)
Colorado School
District No. 1;
Unlimited Tax Series
1992 A GO
6.63%, 12/01/02(d)(e) AAA Aaa 500 526,890
----------------------------------------------------------------
Colorado Health
Facilities Authority
(National Jewish
Medical and Research
Project); Hospital
Series RB
5.38%, 01/01/29 BBB -- 1,000 764,030
----------------------------------------------------------------
Colorado (State of) E-470
Public Highway
Authority; Series 2000
A RB
5.75%, 09/01/35(c) AAA Aaa 1,000 982,140
----------------------------------------------------------------
Highlands Ranch Metro
District No. 1;
Unlimited Tax Refunding
& Improvement Series A
GO
7.30%, 09/01/02(d)(e) NRR NRR 500 539,530
----------------------------------------------------------------
</TABLE>
FS-93
<PAGE> 313
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
COLORADO-(CONTINUED)
Mesa County School
District No. 51; 1989
Series B COP
6.88%, 12/01/05(c) AAA Aaa $1,465 $ 1,524,098
----------------------------------------------------------------
Mountain Village Metro
District (San Miguel
County); Unlimited Tax
Refunding Series GO
7.95%, 12/01/02(d)(e) NRR NRR 50 54,075
----------------------------------------------------------------
Mountain Village Metro
District (San Miguel
County); Unlimited Tax
Unrefunded Balance
Series GO
7.95%, 12/01/03(f) -- -- 305 317,066
----------------------------------------------------------------
4,707,829
----------------------------------------------------------------
CONNECTICUT-2.71%
Bridgeport (City of);
Unlimited Tax Refunding
Series A GO
6.00%, 09/01/06(c) AAA Aaa 1,000 1,059,380
----------------------------------------------------------------
Connecticut (State of)
(Bradley International
Airport); Special
Obligation Parking
Series 2000 A RB
6.60%, 07/01/24(b) A -- 1,000 1,010,710
----------------------------------------------------------------
Connecticut (State of);
General Purpose Public
Improvement Series
1992-A GO
6.50%, 03/15/02(d)(e) NRR NRR 5,500 5,766,860
----------------------------------------------------------------
Connecticut (State of)
(JP Morgan Putters);
VRD Series 110 1999
4.54%, 12/15/08(g) -- VMIG-1 545 545,000
----------------------------------------------------------------
Connecticut (State of)
Housing Finance
Authority; Sub-series
1996 A-3 RB
5.95%, 05/15/17 AA Aa2 800 812,968
----------------------------------------------------------------
Connecticut (State of)
(Transportation
Infrastructure Purpose
S-1); Special Tax
Obligation VRD Series
1990 RB
4.75%, 12/01/10(g) A-1+ VMIG-1 2 2,000
----------------------------------------------------------------
Connecticut (State of)
Health Care Development
Authority (Corporate
Independent Living
Project); VRD Series
1990 (LOC-Chase
Manhatten Bank)
4.65%, 07/01/15(g) -- VMIG-1 494 494,000
----------------------------------------------------------------
9,690,918
----------------------------------------------------------------
DELAWARE-0.08%
Delaware Economic
Development Authority
(Osteopathic Hospital
Association); Series A
RB
6.75% 01/01/13(d) NRR Aaa 250 279,398
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
DISTRICT OF
COLUMBIA-0.27%
District of Columbia
(Gonzaga College High
School); Series 1999 RB
5.38%, 07/01/19(c) AAA Aaa $1,000 $ 959,230
----------------------------------------------------------------
FLORIDA-1.99%
Crossings at Fleming
Island (Community
Development District
Special Assessment);
Refunding Series 2000 B
RB
5.80%, 05/01/16(c) AAA Aaa 1,000 1,020,860
----------------------------------------------------------------
Dade (County of)
(Courthouse Center
Project); Special
Obligation Series 1995
RB
5.90%, 04/01/05(d)(e) NRR NRR 500 531,000
----------------------------------------------------------------
Escambia (County of)
(Champion International
Corp. Project); PCR
6.90%, 08/01/22(b) BBB Baa1 1,125 1,144,946
----------------------------------------------------------------
Escambia (County of)
Health Facilities
Authority (Health Care
Facility Loan-Veterans
Hospital Project);
Hospital Series 2000 RB
5.95%, 07/01/20(c) -- Aaa 1,000 1,006,980
----------------------------------------------------------------
Miami (City of) Dade
County Florida Aviation
(Miami International
Airport); Series 2000 B
RB
5.75%, 10/01/29(c) AAA Aaa 2,000 1,994,180
----------------------------------------------------------------
Miami (City of) Parking
Facilities; Series 1992
A RB
6.70%, 10/01/01(d)(e) NRR NRR 1,120 1,169,291
----------------------------------------------------------------
Plantation (City of)
Health Facilities
Authority (Covenant
Retirement Communities
Inc.); Series 1992 RB
7.75%, 12/01/02(d)(e) NRR NRR 250 272,008
----------------------------------------------------------------
7,139,265
----------------------------------------------------------------
GEORGIA-0.48%
Georgia (State of)
Housing and Finance
Authority (Home
Ownership Opportunity
Program); Series C RB
6.50%, 12/01/11 AA+ Aa2 650 674,043
----------------------------------------------------------------
Savannah (City of)
Economic Development
Authority (Hershey
Foods Corp. Project);
Refunding IDR
6.60%, 06/01/12 A+ -- 1,000 1,042,570
----------------------------------------------------------------
1,716,613
----------------------------------------------------------------
</TABLE>
FS-94
<PAGE> 314
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
IDAHO-0.26%
Idaho Health Facilities
Authority (Elks
Rehabilitation Hospital
Project); Hospital
Series RB
5.30%, 07/15/18 BBB -- $1,150 $ 918,493
----------------------------------------------------------------
ILLINOIS-9.25%
Berwyn (City of) (Macneal
Memorial Hospital
Association Project);
Hospital Series 1991 RB
7.00%, 08/01/01(d)(e) AAA Aaa 3,250 3,386,890
----------------------------------------------------------------
Chicago (City of) Public
Building Committee
(Chicago School
Reform); Refunding
Series 1999 RB
5.25%, 12/01/15(c) AAA Aaa 1,500 1,476,585
----------------------------------------------------------------
Cook (County of);
Unlimited Tax Series
1992 B GO
5.75%, 11/15/02(d)(e) AAA Aaa 2,000 2,085,280
----------------------------------------------------------------
Freeport (City of) (Sewer
System Improvements);
Unlimited Tax Series
2000 GO
6.00%, 12/01/29(c) AAA Aaa 1,000 1,004,030
----------------------------------------------------------------
Illinois (State of);
Sales Tax Series 1991 O
RB
6.50%, 06/15/01(d)(e) AAA NRR 1,500 1,557,765
----------------------------------------------------------------
Illinois (State of)
Development Finance
Authority (CPC
International Project);
Refunding PCR
6.75%, 05/01/16 -- A2 2,500 2,578,325
----------------------------------------------------------------
Illinois (State of)
Development Finance
Authority (Adventist
Health Systems
Project); Hospital
Series 1997 A RB
6.00%, 11/15/11 AAA Aaa 2,500 2,654,300
----------------------------------------------------------------
Illinois (State of)
Educational Facilities
Authority (Midwestern
University); Series B
RB
5.50%, 05/15/18 A -- 1,000 939,510
----------------------------------------------------------------
Illinois (State of)
Educational Facilities
Authority (Northwestern
University); Adjustable
Medium Term Series RB
5.25%, 11/01/14(e) AA+ Aa1 1,000 983,140
----------------------------------------------------------------
Illinois (State of)
Educational Facilities
Authority (Shedd
Aquarium Society); RB
5.60%, 07/01/27(c) AAA Aaa 3,500 3,318,420
----------------------------------------------------------------
Illinois Health
Facilities Authority;
Revolving Fund Pooled
VRD Series 1985 D RB
(LOC-Bank One Illinois
N.A.)
4.70%, 08/01/15(g) A1 VMIG-1 300 300,000
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
ILLINOIS-(CONTINUED)
Illinois Health
Facilities Authority
(Blessing Hospital);
Hospital Series 1999 A
6.00%, 11/15/19(b) AAA Aaa $1,000 $ 1,007,740
----------------------------------------------------------------
Illinois Health
Facilities Authority
(Evangelical Hospital
Corp.); RB
6.25%, Refunding Series
1992 A 04/15/22(d)(e) NRR Aaa 1,000 1,066,710
----------------------------------------------------------------
6.25%, Series 1992 C
04/15/22(d)(e) NRR NRR 1,150 1,219,299
----------------------------------------------------------------
Illinois Health
Facilities Authority
(Franciscan Sisters
Health Care); Series
1992 RB
6.40%, 09/01/04(d) AAA Aaa 2,000 2,122,120
----------------------------------------------------------------
Illinois Health
Facilities Authority
(Memorial Hospital);
Hospital Series 1992 RB
7.25%, 05/01/02(d)(e) NRR NRR 200 212,524
----------------------------------------------------------------
Illinois State University
(Auxiliary Facilities
System);
5.75%, Series 1993 RB
04/01/14(c) AAA Aaa 1,000 1,009,790
----------------------------------------------------------------
5.75%, Series 1991 RB
04/01/22 AA- Aa3 4,750 4,685,733
----------------------------------------------------------------
Peoria and Pekin and
Waukegan (Cities of);
GNMA Collateralized
Mortgage Series 1990 RB
7.88%, 08/01/22(b) AA -- 70 72,134
----------------------------------------------------------------
Tazewell County Community
High School District
No. 303 (Pekin);
Unlimited Tax Series
1996 GO
5.63%, 01/01/14(c) AAA Aaa 1,435 1,454,803
----------------------------------------------------------------
33,135,098
----------------------------------------------------------------
INDIANA-1.21%
Carmel Retirement Rental
Housing (Beverly
Enterprises Project);
Refunding Series RB
8.75%, 12/01/08(f) -- -- 90 95,288
----------------------------------------------------------------
East Allen (City of)
Multi-School Building
Corp.; First Mortgage
Series 2000 RB
5.75%, 01/15/15(c) AAA Aaa 735 748,472
----------------------------------------------------------------
Indiana (State of)
(Special Program);
Series 2000 A RB
5.90%, 02/01/14(c) AAA Aaa 1,000 1,032,990
----------------------------------------------------------------
Indiana (State of)
Housing Finance
Authority; Series B-1
RB
6.15%, 07/01/17 -- Aaa 150 152,721
----------------------------------------------------------------
</TABLE>
FS-95
<PAGE> 315
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
INDIANA-(CONTINUED)
Indianapolis (City of)
(Lake Nora and Fox Club
Project); Series 1999 A
Multi-Family RB
5.90%, 10/01/19(c) -- Aaa $1,795 $ 1,780,550
----------------------------------------------------------------
Indiana Transportation
Finance Authority
(Airport Lease
Facility); Series 1992
A RB
6.25%, 11/01/02(d)(e) NRR Aaa 395 415,544
----------------------------------------------------------------
6.25%, 11/01/16 AA A1 105 107,617
----------------------------------------------------------------
4,333,182
----------------------------------------------------------------
IOWA-0.30%
Iowa Finance Authority
(Trinity Regional
Hospital Project);
Hospital Facilities
Series 1997 RB
6.00%, 07/01/12(c) AAA Aaa 1,000 1,056,960
----------------------------------------------------------------
KANSAS-0.44%
Hutchinson Health Care
Facilities (Wesley
Towers); Refunding &
Improvement Series 1999
A RB
6.25%, 11/15/19(f) -- -- 1,500 1,311,525
----------------------------------------------------------------
Newton (City of) (Newton
Healthcare Corp.);
Hospital Series A RB
7.38%, 11/15/04(d)(e) NRR NRR 250 278,987
----------------------------------------------------------------
1,590,512
----------------------------------------------------------------
KENTUCKY-1.73%
Jefferson (County of)
(Beverly Enterprises
Project); Refunding
Health Facilities
Series RB
5.88%, 05/01/08(f) -- -- 595 555,760
----------------------------------------------------------------
Kenton (County of)
Kentucky Airport Board
(Delta Airlines
Project); Special
Facilities Series 1992
A RB
7.13%, 02/01/21(b) BBB- Baa3 2,500 2,533,850
----------------------------------------------------------------
Mount Sterling (City of);
Lease Funding Series
1993 A RB
6.15%, 03/01/13 -- Aa 3,000 3,113,700
----------------------------------------------------------------
6,203,310
----------------------------------------------------------------
LOUISIANA-3.57%
Louisiana (State of)
Local Government
Environmental
Facilities and
Community Development
Authority (Capital
Projects and Equipment
Acquisition); Series
2000 A RB
6.30%, 07/01/30(c) AAA -- 2,000 2,108,940
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
LOUISIANA-(CONTINUED)
Louisiana Public
Facilities Authority
(Medical Center at New
Orleans Project); RB
6.13%, 10/15/07(c) AAA -- $2,775 $ 2,834,579
----------------------------------------------------------------
Louisiana Public
Facilities Authority
(Our Lady of Lake
Regional Hospital);
Hospital Refunding
Series C RB
6.00%, 12/01/01(d)(e) AAA Aaa 1,000 1,037,800
----------------------------------------------------------------
Louisiana Public
Facilities Authority
(Tulane University of
Louisiana); RB
6.00%, 10/01/16(c) AAA Aaa 2,500 2,569,975
----------------------------------------------------------------
New Orleans Levee
District; Trust
Receipts Series 1995 A
RB
5.95%, 11/01/07(c) AAA Aaa 1,000 1,048,190
----------------------------------------------------------------
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 1,000,670
----------------------------------------------------------------
St. John Baptist Parish
(Sales Tax District);
Public Improvement
Series 1987 RB
7.60%, 01/01/08(d) NRR NRR 500 575,970
----------------------------------------------------------------
7.60%, 01/01/09(d) NRR NRR 500 584,855
----------------------------------------------------------------
West Feliciana Parish
(Gulf States
Utilities); Series A
PCR
7.50%, 05/01/15 BB+ -- 1,000 1,034,110
----------------------------------------------------------------
12,795,089
----------------------------------------------------------------
MAINE-0.64%
Maine (State of)
Education Loan
Authority; Education
Loan Series A-2 RB
6.95%, 12/01/07(b) -- A2 770 791,491
----------------------------------------------------------------
Maine (State of) Housing
Authority; Series 1999
E-1 RB
5.85%, 11/15/20 AA Aa2 1,500 1,502,010
----------------------------------------------------------------
2,293,501
----------------------------------------------------------------
MASSACHUSETTS-3.65%
Massachusetts (State of)
(Consumer Loans);
Unlimited Tax Series
1991 C GO
7.00%, 08/01/01(d)(e) NRR NRR 2,450 2,563,019
----------------------------------------------------------------
Massachusetts (State of)
Health and Education
Facilities Authority
(Lowell General
Hospital); Series 1991
A RB
8.40%, 06/01/01(d)(e) NRR NRR 3,550 3,741,381
----------------------------------------------------------------
</TABLE>
FS-96
<PAGE> 316
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
MASSACHUSETTS-(CONTINUED)
Massachusetts (State of)
Health and Education
Facilities Authority
(Winchester Hospital);
Series D RB
5.80%, 07/01/09(c) AAA -- $1,500 $ 1,555,140
----------------------------------------------------------------
Massachusetts (State of)
Industrial Finance
Agency (Beverly
Enterprises); Refunding
Series RB
8.00%, 05/01/02(f) -- -- 125 126,119
----------------------------------------------------------------
Massachusetts (State of)
Housing Finance Agency;
Single Family Housing
Series 1994 RB
6.60%, 12/01/26(b) A+ Aa3 1,890 1,933,300
----------------------------------------------------------------
Massachusetts (State of)
Municipal Wholesale
Electric Cooperative
Power Supply; System
Series 1992 A RB
6.75%, 07/01/08(c) AAA Aaa 3,000 3,170,610
----------------------------------------------------------------
13,089,569
----------------------------------------------------------------
MICHIGAN-4.10%
Detroit (City of) School
District; Unlimited Tax
Series 1992 GO
6.00%, 05/01/01(d)(e) NRR NRR 1,000 1,031,720
----------------------------------------------------------------
6.15%, 05/01/01(d)(e) NRR NRR 1,300 1,342,783
----------------------------------------------------------------
Flint (City of) Hospital
Building Authority;
Hospital Series B RB
5.38%, 07/01/18(c) A -- 1,000 916,970
----------------------------------------------------------------
Garden City Hospital
Finance Authority
(Garden City Hospital);
Hospital Refunding
Series A RB
5.63%, 09/01/10 -- Ba3 1,000 852,230
----------------------------------------------------------------
Lake Orion Community
School District;
Unlimited Tax Refunding
Series 1994 GO
7.00%, 05/01/05(d)(e) AAA Aaa 2,500 2,753,800
----------------------------------------------------------------
Lakeview Community School
District; Refunding
Unlimited Tax Series
1996 GO
5.75%, 05/01/07(d)(e) AAA Aaa 1,000 1,048,100
----------------------------------------------------------------
Lincoln Park (City of)
School District;
Unlimited Tax Series
1996 GO
6.00%, 05/01/06(d)(e) AAA Aaa 1,210 1,288,251
----------------------------------------------------------------
Michigan (State of)
Housing Development
Authority; Refunding
Rental Housing Series A
RB
6.60%, 04/01/12 AA- -- 945 983,839
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
MICHIGAN-(CONTINUED)
Ypsilanti (City of)
School District;
Refunding Unlimited Tax
Series 1996 GO
5.75%, 05/01/07(d)(e) AAA Aaa $4,275 $ 4,480,627
----------------------------------------------------------------
14,698,320
----------------------------------------------------------------
MINNESOTA-0.28%
Minneapolis (City of)
(Parking Ramp Project);
Unlimited Tax Series
2000 A GO
5.90%, 12/01/20 AAA Aaa 1,000 1,017,040
----------------------------------------------------------------
MISSISSIPPI-2.57%
Mississippi (State of)
Development Board
(Panola County
Hospital); Special
Obligation Series RB
5.00%, 07/01/28 A -- 5,000 4,046,150
----------------------------------------------------------------
Mississippi Higher
Education Assistance
Corp.; Student Loan
Sub-Series 1994 C RB
7.50%, 09/01/09(b)(f) -- -- 5,000 5,162,350
----------------------------------------------------------------
9,208,500
----------------------------------------------------------------
MISSOURI-0.87%
Kansas City Industrial
Development Authority
(General Motors Corp.
Project); PCR
6.05%, 04/01/06 A A3 1,435 1,444,399
----------------------------------------------------------------
Kansas City Municipal
Assistance Corp.
(Truman Medical Center
Charitable Foundation);
Leasehold Improvement
Series 1991 A RB
7.00%, 11/01/01(d)(e) NRR NRR 605 623,483
----------------------------------------------------------------
Missouri (State of)
Environmental
Improvement and Energy
Resources Authority;
Series 1995 C PCR
5.85%, 01/01/10 -- Aaa 1,000 1,043,010
----------------------------------------------------------------
3,110,892
----------------------------------------------------------------
NEVADA-1.62%
Boulder (City of)
(Boulder City Hospital
Inc. Project); Hospital
Refunding Series RB
5.85%, 01/01/22(f) -- -- 500 412,125
----------------------------------------------------------------
Humboldt (County of)
(Sierra Pacific
Project); Refunding
Series 1987 PCR
6.55%, 10/01/13(c) AAA Aaa 3,000 3,137,700
----------------------------------------------------------------
Las Vegas (City of);
Refunding 1992 Limited
Tax GO
6.50%, 04/01/02(d)(e) AAA Aaa 1,000 1,048,370
----------------------------------------------------------------
</TABLE>
FS-97
<PAGE> 317
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
NEVADA-(CONTINUED)
Reno Redevelopment
Agency; Refunding
Sub-Series A Tax
Allocation Notes
6.00%, 06/01/10 -- Baa3 $1,185 $ 1,201,258
----------------------------------------------------------------
5,799,453
----------------------------------------------------------------
NEW HAMPSHIRE-0.41%
Hudson (City of);
Unlimited Tax Series GO
5.25%, 03/15/28 -- Aa3 1,610 1,480,234
----------------------------------------------------------------
NEW JERSEY-3.01%
Hudson (County of)
Correctional Facility;
Refunding Series 1992
COP
6.60%, 12/01/21(c) AAA Aaa 1,250 1,287,462
----------------------------------------------------------------
New Jersey Economic
Development Authority
(Atlantic City Sewer
Co.); Sewer Facility
Series 1991 RB
7.25%, 12/01/11(b)(f) -- -- 1,630 1,683,969
----------------------------------------------------------------
New Jersey Economic
Development Authority
(Continental Airlines
Inc. Project);
Specialty Facilities
Series 1999 RB
6.40%, 09/15/23(b) BB Ba2 5,250 4,856,565
----------------------------------------------------------------
6.25%, 09/15/29(b) BB Ba2 1,000 891,300
----------------------------------------------------------------
New Jersey City Economic
Development Authority
(Franciscan Oaks
Project); First
Mortgage Series RB
5.70%, 10/01/17(f) -- -- 500 420,860
----------------------------------------------------------------
New Jersey Health Care
Facility Financing
Authority; Unrefunded
Balance Series 1987 C
RB
8.60%, 07/01/17(c) AAA Aaa 185 186,480
----------------------------------------------------------------
New Jersey (State of)
Turnpike Authority;
Series 2000 A RB
5.50%, 01/01/25(c) AAA Aaa 1,000 975,050
----------------------------------------------------------------
5.50%, 01/01/30(c) AAA Aaa 500 485,795
----------------------------------------------------------------
10,787,481
----------------------------------------------------------------
NEW MEXICO-1.62%
Albuquerque (City of) New
Mexico Educational
Facilities Authority
(Albuquerque Academy
Project); Education
Series 1995 RB
5.75%, 10/15/03(d)(e) NRR NRR 915 941,535
----------------------------------------------------------------
Las Cruces South Central
Solid Waste Authority;
Environmental Services
RB
5.65%, 06/01/09 -- A3 575 582,814
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
NEW MEXICO-(CONTINUED)
Los Alamos (County of);
Utility Series A RB
6.00%, 07/01/15(c) AAA Aaa $2,000 $ 2,058,600
----------------------------------------------------------------
Santa Fe (City of);
Series 1994 A RB
6.25%, 06/01/04(d)(e) AAA Aaa 2,100 2,210,145
----------------------------------------------------------------
5,793,094
----------------------------------------------------------------
NEW YORK-11.03%
Metropolitan
Transportation
Authority; Dedicated
Tax Fund Series 2000 A
RB
5.88%, 04/01/25(c) AAA Aaa 1,500 1,510,335
----------------------------------------------------------------
New York (City of); GO
8.25%, Unlimited Tax
Series 1991 F
11/15/01(d)(e) NRR Aaa 2,000 2,126,360
----------------------------------------------------------------
7.65%, Unlimited Tax
Series 1992 F GO
02/01/02(d)(e) NRR Aaa 4,775 5,064,795
----------------------------------------------------------------
7.00%, Unlimited Tax
Series H
02/01/02(d)(e) NRR NRR 350 367,559
----------------------------------------------------------------
7.20%, Unlimited Tax
Series H
02/01/02(d)(e) NRR NRR 390 410,736
----------------------------------------------------------------
02/01/15 A- A3 110 115,130
----------------------------------------------------------------
7.70%, Unlimited Tax
Series D GO
02/01/02(d)(e) NRR Aaa 1,970 2,091,037
----------------------------------------------------------------
02/01/09 A- A3 30 31,684
----------------------------------------------------------------
7.00%, Unlimited Tax
Series C, Sub-Series
C-1 08/01/02(d)(e) NRR Aaa 1,990 2,113,181
----------------------------------------------------------------
7.38%, Unlimited Tax
Series B1
08/15/04(d)(e) NRR Aaa 500 554,330
----------------------------------------------------------------
6.25%, Unlimited Tax
Series A 08/01/17 A- A3 3,035 3,147,568
----------------------------------------------------------------
7.00%, Unlimited Tax
Series C, Sub-Series
C-1 08/01/17 A- A3 10 10,519
----------------------------------------------------------------
7.00%, Unlimited Tax
Series B 02/01/18(c) AAA Aaa 830 865,341
----------------------------------------------------------------
7.00%, Unlimited Tax
Series B
02/01/02(d)(e) AAA Aaa 170 178,662
----------------------------------------------------------------
New York (City of)
Industrial Development
Agency (The Lighthouse
Inc. Project); Series
1992 RB (LOC-Chase
Manhattan Bank)
6.50%, 07/01/02(d)(e) NRR NRR 1,500 1,582,965
----------------------------------------------------------------
</TABLE>
FS-98
<PAGE> 318
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
NEW YORK-(CONTINUED)
New York (City of)
Municipal Water Finance
Authority; Water &
Sewer Systems
5.75%, Series 1997 B RB
06/15/29 AA Aa3 $3,850 $ 3,822,973
----------------------------------------------------------------
5.00%, Series 1987 A RB
06/15/17 AA Aa3 1,350 1,259,253
----------------------------------------------------------------
5.50%, Series 1996 A RB
06/15/24(c) AAA Aaa 1,000 962,640
----------------------------------------------------------------
New York State Dorm
Authority (City
University System);
Series 1990 C RB
6.00%, 07/01/16 A Baa1 365 365,650
----------------------------------------------------------------
New York (State of) Dorm
Authority (State
University Educational
Facilities); Series A
RB
6.50%, 05/15/06 A A3 1,000 1,071,620
----------------------------------------------------------------
New York (State of)
Environmental
Facilities Corp.; Water
Revenue Series 1991 E
PCR
6.88%, 06/15/01(d)(e) AAA Aaa 2,300 2,398,624
----------------------------------------------------------------
6.88%, 06/15/10 AAA Aaa 1,100 1,139,908
----------------------------------------------------------------
New York (State of) Urban
Development Corp.
(Correctional Capital
Facilities); Series
1991-3 RB
7.38%, 01/01/02(d)(e) NRR Aaa 7,850 8,314,328
----------------------------------------------------------------
39,505,198
----------------------------------------------------------------
NORTH CAROLINA-1.57%
North Carolina Eastern
Municipal Power Agency;
Series A RB
6.13%, 01/01/10(c) AAA Aaa 1,500 1,626,225
----------------------------------------------------------------
North Carolina Housing
Finance Agency; Single
Family- Series II RB
6.20%, 03/01/16 AA Aa2 570 583,879
----------------------------------------------------------------
North Carolina Municipal
Power Agency (No. 1
Catawba Electric
Project);
7.25%, Refunding RB
01/01/07 BBB+ Baa1 2,890 3,141,430
----------------------------------------------------------------
6.50%, Series 1990 RB
01/01/10(d) AAA Aaa 260 283,834
----------------------------------------------------------------
5,635,368
----------------------------------------------------------------
NORTH DAKOTA-0.15%
North Dakota Housing
Finance Agency; Home
Mortgage Series B RB
5.85%, 07/01/28(b) -- Aa3 545 525,396
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
OHIO-2.64%
Cleveland (City of)
Parking Facilities;
Improvement Series RB
8.00%, 09/15/02(d)(e) NRR NRR $ 500 $ 542,085
----------------------------------------------------------------
Fairfield (City of)
School District;
Unlimited Tax Series
1995 GO
6.10%, 12/01/15(c) AAA Aaa 1,000 1,031,890
----------------------------------------------------------------
Findlay (City of);
Limited Tax Series 1996
GO
5.88%, 07/01/17 AA- Aa3 1,000 1,023,320
----------------------------------------------------------------
Lake Ohio School
District; Unlimited Tax
Series 2000 GO
5.75%, 12/01/26(c) AAA Aaa 2,500 2,501,775
----------------------------------------------------------------
Mason (City of) Health
Care Facilities (MCV
Health Care
Facilities); Series
1990 RB
7.63%, 02/01/01(d)(e) AAA NRR 2,090 2,174,499
----------------------------------------------------------------
Montgomery (County of)
Ohio Hospital Authority
(Grandview Hospital &
Medical Center);
Refunding Hospital
Series RB
5.50%, 12/01/09(d)(e) NRR NRR 1,000 1,028,780
----------------------------------------------------------------
Ohio Department of
Transportation
(Panhandle Rail Line
Project); Series 1992
COP
6.50%, 04/15/12(c) AAA Aaa 1,100 1,146,398
----------------------------------------------------------------
9,448,747
----------------------------------------------------------------
OKLAHOMA-2.74%
McAlester (City of)
Public Works Authority;
Refunding and
Improvement Series 1995
RB
5.50%, 12/01/09(d)(e) AAA Aaa 975 1,016,545
----------------------------------------------------------------
Mustang Improvement
Utility Authority;
Series 1999 RB
5.70%, 10/01/19(c) -- Aaa 1,500 1,482,600
----------------------------------------------------------------
Oklahoma Development
Finance Authority (St.
John Health System);
Refunding Series 1999
RB
5.75%, 02/15/18 AA Aa3 675 663,957
----------------------------------------------------------------
5.75%, 02/15/25 AA Aa3 1,750 1,722,718
----------------------------------------------------------------
Sapula (City of)
Municipal Authority;
Capital Improvement
Series RB
5.00%, 07/01/21(c) AAA Aaa 1,000 898,180
----------------------------------------------------------------
Tulsa (City of)
Industrial Authority
(St. Johns Medical
Center Project);
Hospital Series 1994 RB
6.25%, 02/15/06(d)(e) NRR NRR 2,000 2,134,920
----------------------------------------------------------------
</TABLE>
FS-99
<PAGE> 319
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
OKLAHOMA-(CONTINUED)
Tulsa (City of)
Industrial Authority
(Tulsa Regional Medical
Center); Hospital
Series RB
7.20%, 06/01/03(d)(e) AAA NRR $ 500 $ 541,830
----------------------------------------------------------------
Tulsa Public Facilities
Authority-Capital
Improvements-Water
System; Series 1988 B
RB
6.00%, 03/01/08 A+ -- 1,305 1,352,450
----------------------------------------------------------------
9,813,200
----------------------------------------------------------------
OREGON-1.22%
Cow Creek Band Umpqua
Tribe of Indians;
Series B RB
5.10%, 07/01/12(c) AAA Aaa 1,000 987,650
----------------------------------------------------------------
Marion (County of) (Ogden
Martin Systems);
Refunding Solid Waste &
Electric Series RB
5.50%, 10/01/06(c) AAA Aaa 1,000 1,034,540
----------------------------------------------------------------
Portland (City of) Sewer
System; Series 1994 A
RB
6.20%, 06/01/04(d)(e) AAA NRR 1,200 1,270,812
----------------------------------------------------------------
6.25%, 06/01/04(d)(e) AAA NRR 1,000 1,060,770
----------------------------------------------------------------
4,353,772
----------------------------------------------------------------
PENNSYLVANIA-1.62%
Allegheny (County of)
Port Authority; Special
Revenue Transportation
Series 1999 RB
6.13% 03/01/29(c) AAA Aaa 1,000 1,020,710
----------------------------------------------------------------
Montgomery (County of)
Industrial Development
Authority (Meadowood
Corp. Project);
Refunding First
Mortgage Series A RB
10.25%, 12/01/00(d)(e) NRR NRR 100 104,201
----------------------------------------------------------------
Montgomery (County of)
Industrial Development
Authority (Pennsburg
Nursing &
Rehabilitation Center);
Series 1993 RB
7.63%, 03/31/04(d)(e) NRR Aaa 100 111,651
----------------------------------------------------------------
Pennsylvania (State of);
Unlimited Tax Third
Series GO
6.75%, 11/15/13(c) AAA Aaa 1,250 1,351,775
----------------------------------------------------------------
Pennsylvania Economic
Development Finance
Authority (Colver
Project); Resource
Recovery Series 1994 D
RB
7.05%, 12/01/10(b) BBB- -- 2,900 2,965,250
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
PENNSYLVANIA-(CONTINUED)
Scranton-Lackawanna
Health & Welfare
Authority (Moses Taylor
Hospital Project);
Series 1991 B RB
8.50%, 07/01/01(d)(e) AAA NRR $ 250 $ 264,498
----------------------------------------------------------------
5,818,085
----------------------------------------------------------------
PUERTO RICO-0.39%
Puerto Rico (Commonwealth
of) Electric Power
Authority; Series 1991
P RB
7.00%, 07/01/01(d)(e) AAA Aaa 1,325 1,384,585
----------------------------------------------------------------
RHODE ISLAND-0.66%
Rhode Island Depositors
Economic Protection
Corp.; Special
Obligation Series 1992
A RB
6.95%, 08/01/02(d)(e) AAA Aaa 1,250 1,328,013
----------------------------------------------------------------
Rhode Island Housing and
Mortgage Finance Corp.;
Homeownership
Opportunity Series 15 B
RB
6.00%, 10/01/04 AA+ Aa2 1,000 1,038,050
----------------------------------------------------------------
2,366,063
----------------------------------------------------------------
SOUTH CAROLINA-0.57%
Piedmont Municipal Power
Agency; Refunding
Electric Series A RB
5.75%, 01/01/24 BBB- Baa3 1,150 1,031,596
----------------------------------------------------------------
South Carolina (State of)
Jobs Economic
Development Authority
(Palmetto Health
Alliance); Hospital
Facilities Improvement
Series 2000 A RB
7.13%, 12/15/15 BBB Baa1 1,000 1,016,020
----------------------------------------------------------------
2,047,616
----------------------------------------------------------------
SOUTH DAKOTA-0.03%
South Dakota Health and
Educational Facility
Authority (Huron
Regional Medical
Center); Series 1994 RB
7.25%, 04/01/20 BBB -- 100 101,431
----------------------------------------------------------------
TENNESSEE-1.76%
Franklin Industrial
Development Board
(Landings Apartment
Project); Multifamily
Housing Series A RB
5.75%, 04/01/10(c) AAA Aaa 975 985,150
----------------------------------------------------------------
</TABLE>
FS-100
<PAGE> 320
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
TENNESSEE-(CONTINUED)
Montgomery (County of)
Health, Educational and
Housing Facilities
Board (Clarksville
Project); Refunding and
Improvement Hospital
Series RB
5.38%, 01/01/28(c) A -- $1,800 $ 1,584,954
----------------------------------------------------------------
Robertson and Sumner
(Counties of) White
House Utilities
District; Water and
Sewer Series 2000 RB
6.00%, 01/01/26 -- Aaa 1,000 1,014,420
----------------------------------------------------------------
Shelby (County of);
Unlimited Tax School
Series B GO
6.00%, 03/01/02(d)(e) NRR NRR 1,000 1,029,950
----------------------------------------------------------------
Shelby County Health,
Educational & Housing
Facilities Board (Kirby
Pines); Health Care
Facilities Series A RB
6.25%, 11/15/16(f) -- -- 1,000 880,150
----------------------------------------------------------------
Tennessee Housing
Development Agency;
Homeownership
Progressive Series Q RB
6.80%, 07/01/17 AA Aa2 770 794,840
----------------------------------------------------------------
6,289,464
----------------------------------------------------------------
TEXAS-19.67%
Allen Independent School
District; Unlimited Tax
Refunding Series 2000
GO
5.95%, 02/15/25(c) AAA Aaa 1,600 1,606,848
----------------------------------------------------------------
Arlington Independent
School District;
Unlimited Tax Series GO
5.75%, 02/15/05(d)(e) NRR Aaa 705 732,354
----------------------------------------------------------------
5.75%, 02/15/21(d) -- Aaa 295 292,870
----------------------------------------------------------------
Austin (City of); Utility
System Combined Fee
Refunding Series 1991
RB
6.50%, 05/15/01(d)(e) AAA Aaa 1,380 1,430,881
----------------------------------------------------------------
Austin Community College
District; Combined Fee
Revenue Building and
Refunding Series 1995
RB
6.10%, 02/01/05(d)(e) AAA Aaa 1,115 1,173,794
----------------------------------------------------------------
Austin Hotel Occupancy
Tax (Convention
Center); Series 1999 A
RB
5.50%, 11/15/29(c) AAA Aaa 1,425 1,347,694
----------------------------------------------------------------
Austin Hotel Occupancy
Tax; Refunding Sub Lien
1999 Series RB
5.80%, 11/15/29(c) AAA Aaa 1,000 988,790
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
TEXAS-(CONTINUED)
Bellville Independent
School District;
Unlimited Tax Series
1995 GO
6.13%, 02/01/06(d)(e) NRR Aaa $ 535 $ 567,656
----------------------------------------------------------------
6.13%, 02/01/20 NRR Aaa 295 300,755
----------------------------------------------------------------
Brazos (County of) Health
Facilities Development
Corp. (Franciscan
Services Corp.); Series
A RB
5.38%, 01/01/22(c) AAA Aaa 2,000 1,854,700
----------------------------------------------------------------
Brazos Higher Education
Loan Authority Inc.;
Refunding Series 1992
C-1 RB
6.30%, Series 1992 C-1
11/01/01(b) -- Aa 325 330,674
----------------------------------------------------------------
6.45%, Series 1992 C-1
11/01/02(b) -- Aa 1,135 1,163,523
----------------------------------------------------------------
Carrollton (City of);
Limited Tax Series 1996
GO
5.75%, 08/15/06(d)(e) NRR NRR 1,000 1,043,810
----------------------------------------------------------------
Comal (County of)
Industrial Development
Authority (The Coleman
Co., Inc. Project);
Industrial Development
Series 1980 RB
9.25%, 08/01/00(d)(e) NRR NRR 280 281,098
----------------------------------------------------------------
Comal (County of)
Independent School
District; Unlimited Tax
Refunding Series 1999
GO
5.75%, 08/01/28(c) -- Aaa 1,000 983,540
----------------------------------------------------------------
Dallas (City of);
Waterworks and Sewer
System Refunding and
Improvement Series RB
5.35%, 04/01/14 AA Aa2 2,055 2,041,005
----------------------------------------------------------------
Dallas (City of);
Waterworks and Sewer
System Series A RB
6.00%, 10/01/01(d)(e) NRR NRR 2,030 2,094,128
----------------------------------------------------------------
De Soto (City of)
Independent School
District; Refunding
Unlimited Tax Series GO
5.13%, 08/15/17(c) AAA -- 1,000 941,790
----------------------------------------------------------------
Georgetown (City of);
Utility System Series
1995 A RB
6.20%, 08/15/05(d)(e) AAA Aaa 1,500 1,590,570
----------------------------------------------------------------
Grapevine (City of);
Limited Tax Series 2000
COP
5.88%, 08/15/26(c) AAA Aaa 1,610 1,614,138
----------------------------------------------------------------
Harris County; Toll Road
Unlimited Tax GO and
Sub. Lien Refunding
Series 1991
6.75%, 08/01/14 AA Aa1 3,850 4,017,667
----------------------------------------------------------------
</TABLE>
FS-101
<PAGE> 321
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
TEXAS-(CONTINUED)
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 $ 1,047,750
----------------------------------------------------------------
Harris County Health
Facilities Development
Corp. (Texas Childrens
Hospital Project);
Hospital Series 1999 A
RB
5.25%, 10/01/29 AA Aa2 2,000 1,728,600
----------------------------------------------------------------
Harris County Mental
Health and Mental
Retardation Authority;
Refunding Series 1992
RB
6.25%, 09/15/10(c) AAA Aaa 4,500 4,610,295
----------------------------------------------------------------
Houston (City of);
Limited Tax Series 1992
C GO
6.25%, 03/01/02(d)(e) NRR NRR 1,470 1,507,367
----------------------------------------------------------------
Houston (City of); Water
and Sewer System Series
1997 C RB
5.38%, 12/01/27(c) AAA Aaa 2,495 2,317,955
----------------------------------------------------------------
Hurst, Euless, Bedford,
Texas Independent
School District;
6.50%, Refunding
Unlimited Tax Series
1994 GO
08/15/04(d)(e) AAA Aaa 640 681,075
----------------------------------------------------------------
6.50%, Unrefunded
Unlimited Tax Series
1994 GO 08/15/24(c) AAA Aaa 360 369,994
----------------------------------------------------------------
Katy (City of)
Independent School
District; Limited Tax
Series 1999 GO
6.13%, 02/15/32 AAA Aaa 1,500 1,527,480
----------------------------------------------------------------
Keller (City of)
Independent School
District; Series 1994
COP
6.00%, 08/15/05(c) AAA Aaa 1,000 1,050,500
----------------------------------------------------------------
Little Elm (City of)
Independent School
District; Unlimited Tax
Refunding Series
6.00%, Series 1999 GO
08/15/35 AAA -- 2,500 2,526,000
----------------------------------------------------------------
6.13%, Series 2000 GO
08/15/35 AAA -- 1,000 1,019,920
----------------------------------------------------------------
Lockhart (City of) Tax
and Utility Systems;
Unlimited Tax Series
1996 GO
5.85%, 08/01/11(c) AAA Aaa 605 627,131
----------------------------------------------------------------
5.90%, Refunding
08/01/06(d)(e) AAA Aaa 1,100 1,159,466
----------------------------------------------------------------
Matagorda (County of)
District No. 1 (Reliant
Energy Project);
Refunding 1999 RB
5.95%, 05/01/30(b) BBB Baa1 2,250 2,006,595
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
TEXAS-(CONTINUED)
North Central Texas
Health Facilities
Development Corp. (CC
Young Memorial
Project); Hospital
Series RB
5.38%, 02/15/25(c) A -- $1,000 $ 907,940
----------------------------------------------------------------
Northside Independent
School District;
Unlimited Tax Series
1999 A GO
5.50%, 08/15/24 AAA Aaa 1,000 959,990
----------------------------------------------------------------
North Texas Higher
Education Authority
Inc.; Student Loan RB
6.10%, Series 1993 C
04/01/08(b) -- Aa 1,000 1,017,950
----------------------------------------------------------------
6.30%, Series 1993 D
04/01/09(b) -- A 500 507,690
----------------------------------------------------------------
Plano (City of); Limited
Tax Series 2000 GO
5.88%, 09/01/19 AAA Aaa 850 862,580
----------------------------------------------------------------
Plano (City of)
Independent School
District; Unlimited Tax
Series 1991 B GO
5.63%, 02/15/01(d)(e) AAA Aaa 2,500 2,518,350
----------------------------------------------------------------
Richardson (City of);
Hotel Occupancy Limited
Tax Series 2000 A COP
5.75%, 12/15/21(c) AAA Aaa 2,000 1,985,560
----------------------------------------------------------------
Southwest Higher
Education Authority
Inc. (Southern
Methodist University);
Higher Education Series
D RB
5.00%, 10/01/22 A+ A1 1,750 1,528,625
----------------------------------------------------------------
Spring Branch Independent
School District;
Limited Tax Series 2000
GO
5.75%, 02/01/24(c) AAA Aaa 1,700 1,674,058
----------------------------------------------------------------
Tarrant County Texas
Water Control and
Improvement District
No. 1; Refunding Series
1993 RB
5.20%, 03/01/10(c) AAA Aaa 2,000 2,000,840
----------------------------------------------------------------
Texas (State of) Public
Property Finance Corp.
(Mental Health and
Mental Retardation);
Series 1996 RB
6.20%, 09/01/16 BBB+ -- 965 954,250
----------------------------------------------------------------
Texas (State of);
Veteran's Land
Unlimited Tax Series
1994 GO
6.40%, 12/01/24(b) AA Aa1 2,000 2,034,260
----------------------------------------------------------------
Texas (State of)
Department of Housing
and Community Affairs
(Asmara Project);
Multifamily Housing
Series 1996 A RB
6.30%, 01/01/16 A -- 310 319,223
----------------------------------------------------------------
</TABLE>
FS-102
<PAGE> 322
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
TEXAS-(CONTINUED)
Texas National Research
Laboratory Community
Financing Corp.
(Superconducting Super
Collider); Refunded
Series 1991 RB
7.10%, 12/01/01(d)(e) AAA Aaa $ 600 $ 631,962
----------------------------------------------------------------
Tyler Health Facilities
Development Corp.
(Mother Frances
Hospital); Hospital
Series A RB
5.63%, 07/01/13 -- Baa2 1,000 872,020
----------------------------------------------------------------
University of Texas;
Series 1999 B RB
5.70%, 08/15/20 AAA Aa1 1,000 996,380
----------------------------------------------------------------
Victoria (County of)
(Texas Hospital
Citizens Medical
Center); RB
6.20%, 01/01/10(c) AAA Aaa 1,000 1,044,770
----------------------------------------------------------------
Weatherford (City of)
Independent School
District; Unlimited Tax
Series 1994 GO
6.40%, 02/15/05(d)(e) NRR Aaa 900 958,842
----------------------------------------------------------------
6.40%, 02/15/12(c) -- Aaa 100 105,608
----------------------------------------------------------------
70,459,311
----------------------------------------------------------------
UTAH-1.37%
Intermountain Power
Agency (Utah Power
Supply); Series 1986 B
RB
5.00%, 07/01/16 A+ A1 1,550 1,435,610
----------------------------------------------------------------
Salt Lake (County of)
(Westminster College
Project); RB
5.75%, 10/01/27 BBB -- 1,000 941,070
----------------------------------------------------------------
Utah (State of) Housing
Finance Agency;
Federally Insured Term
Sub. Single Family
Mortgage RB
6.30%, Sub-Series 1994
E-1, 07/01/06 AA- Aa3 240 247,337
----------------------------------------------------------------
7.15%, Sub-Series 1994
G-1, 07/01/06 AA- Aa3 135 141,812
----------------------------------------------------------------
Utah (State of) Housing
Finance Agency; Single
Family Mortgage RB
6.05%, Series 1994 C
07/01/06 AA- Aa3 350 358,271
----------------------------------------------------------------
6.45%, Series G2
07/01/27(b) AAA Aaa 780 791,996
----------------------------------------------------------------
Utah (State of) Housing
Finance Agency; Single
Family Mortgage
Sub-Series 2000 B-1 RB
6.00%, 07/01/10(b) AA- Aa3 1,000 1,003,700
----------------------------------------------------------------
4,919,796
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
VERMONT-0.28%
Vermont (State of)
Educational and Health
Buildings Financing
Agency (Fletcher Allen
Health); Hospital
Series 2000 A RB
6.00%, 12/01/23(c) AAA Aaa $1,000 $ 1,009,800
----------------------------------------------------------------
VIRGIN ISLANDS-0.93%
Virgin Islands Public
Finance Authority;
Matching Fund Loan
Notes Series 1992 A RB
7.25%, 10/01/02(d)(e) AAA NRR 1,000 1,078,560
----------------------------------------------------------------
Virgin Islands Territory
(Hugo Insurance Claims
Fund); Special Tax Bond
Series 1991
7.75%, 10/01/01(d)(e) NRR NRR 2,155 2,266,004
----------------------------------------------------------------
3,344,564
----------------------------------------------------------------
VIRGINIA-0.66%
Covington-Alleghany
(County of) Industrial
Development Authority
(Beverly Enterprises);
Refunding Series RB
9.38%, 09/01/01(f) -- -- 30 30,459
----------------------------------------------------------------
Richmond (City of);
Public Improvement
Refunding Unlimited Tax
Series B GO
6.25%, 01/15/18 AA A1 2,000 2,058,800
----------------------------------------------------------------
Virginia (State of)
Housing Development
Authority; Commonwealth
Mortgage Series A RB
7.10%, 01/01/17 AA+ Aa1 250 257,663
----------------------------------------------------------------
2,346,922
----------------------------------------------------------------
WASHINGTON-1.97%
Clark (County of) School
District No. 117;
Unlimited Tax Series
1995 GO
6.00%, 12/01/05(d)(e) AAA Aaa 1,000 1,049,190
----------------------------------------------------------------
King (County of);
Unlimited Tax GO
5.50%, 07/01/07(d) AAA Aaa 500 515,775
----------------------------------------------------------------
King (County of);
Unlimited Tax Refunding
GO
6.50%, 12/01/11 AA+ Aaa 500 500,575
----------------------------------------------------------------
King (County of)
Washington Sewer
Authority; Series 1999
RB
5.50%, 01/01/22(c) AAA Aaa 1,000 961,040
----------------------------------------------------------------
Pend Oreille (County of)
Public Utility District
No. 1; Electric Series
B RB
6.30%, 01/01/17 A- A3 1,400 1,437,730
----------------------------------------------------------------
</TABLE>
FS-103
<PAGE> 323
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
WASHINGTON-(CONTINUED)
Washington State Public
Power Supply System
(Nuclear Project No.
1); Refunding Series A
RB
5.75%, 07/01/12(c) AAA Aaa $2,000 $ 2,044,900
----------------------------------------------------------------
West Richland (City of);
Water & Sewer Refunding
Series RB
7.00%, 12/01/04(d)(e) AAA Aaa 500 542,955
----------------------------------------------------------------
7,052,165
----------------------------------------------------------------
WISCONSIN-1.13%
Wisconsin Health and
Educational Facilities
Authority (Sinai
Samaritan Medical
Center); Series 1996 F
RB
5.75%, 08/15/16(c) AAA Aaa 1,500 1,505,685
----------------------------------------------------------------
Wisconsin Health and
Educational Facility
Authority (Sisters of
Sorrowful Mother);
Series 1997 A RB
5.90%, 08/15/24(c) AAA Aaa 2,500 2,458,775
----------------------------------------------------------------
Wisconsin Housing and
Economic Development
Authority; Home
Ownership Series 1994 E
RB
7.35%, 01/01/17 AA Aa2 75 78,130
----------------------------------------------------------------
4,042,590
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR
S&P MOODY'S (000) MARKET VALUE
<S> <C> <C> <C> <C>
WYOMING-0.93%
Campbell (County of)
School District No. 1
(Gillette); Unlimited
Tax Series GO
5.35%, 06/01/04 AAA Aaa $1,000 $ 1,021,100
----------------------------------------------------------------
Laramie (County of)
(Memorial Hospital
Project); Hospital
Series RB
6.70%, 05/01/12(c) AAA Aaa 250 263,410
----------------------------------------------------------------
Natrona (County of)
Wyoming Medical Center;
RB
6.00%, 09/15/11(c) AAA Aaa 1,000 1,039,840
----------------------------------------------------------------
Sweetwater (County of)
(Idaho Power Company
Project); Refunding
Series 1996 A PCR
6.05%, 07/15/26 A A3 1,000 997,380
----------------------------------------------------------------
3,321,730
----------------------------------------------------------------
TOTAL INVESTMENTS (Cost
$349,522,693)-99.77% 357,380,228
----------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-0.23% 836,066
----------------------------------------------------------------
NET ASSETS-100.00% $358,216,294
================================================================
</TABLE>
Investment Abbreviations:
COP - Certificates of Participation
GO - General Obligation Bonds
IDR - Industrial Development Revenue Bonds
LOC - Letter of Credit
NRR - Not Re-Rated
PCR - Pollution Control Revenue Bonds
RB - Revenue Bonds
Sub. - Subordinate
VRD - Variable Rate Demand
GNMA - Government National Mortgage Association
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 of the
security.
(b)Security subject to the alternative minimum tax.
(c)Secured by bond insurance provided by one of the following companies: Ambac
Assurance Corp., Financial Guaranty Insurance Co., Financial Security
Assurance, or MBIA Insurance Co.
(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)Demand security, payable upon demand by the Fund at specified time intervals
no greater than thirteen months. Interest rate is redetermined periodically.
Rate shown is the rate in effect on 06/30/00.
See Notes to Financial Statements.
FS-104
<PAGE> 324
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
JUNE 30,
JULY 31, 2000
2000 (UNAUDITED)
------------ ------------
<S> <C> <C>
ASSETS:
Investments, at market value (cost $348,120,898 and
$349,522,693, respectively) $358,349,112 $357,380,228
-----------------------------------------------------------------------------------------
Receivables for:
Investments sold 1,397,681 2,004,449
-----------------------------------------------------------------------------------------
Fund shares sold 606,957 119,660
-----------------------------------------------------------------------------------------
Interest 6,030,296 6,474,820
-----------------------------------------------------------------------------------------
Investment for deferred compensation plan 65,917 64,411
-----------------------------------------------------------------------------------------
Other assets 6,031 31,269
-----------------------------------------------------------------------------------------
Total assets 366,455,994 366,074,837
-----------------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 2,012,046 6,374,572
-----------------------------------------------------------------------------------------
Fund shares reacquired 1,410,228 266,001
-----------------------------------------------------------------------------------------
Amount due custodian 2,921,166 --
-----------------------------------------------------------------------------------------
Dividends 685,601 681,667
-----------------------------------------------------------------------------------------
Deferred compensation plan 65,917 64,411
-----------------------------------------------------------------------------------------
Accrued advisory fees 135,628 133,408
-----------------------------------------------------------------------------------------
Accrued administrative services fees 7,740 7,472
-----------------------------------------------------------------------------------------
Accrued distribution fees 140,939 271,699
-----------------------------------------------------------------------------------------
Accrued trustees' fees 627 6,158
-----------------------------------------------------------------------------------------
Accrued transfer agent fees 14,203 7,107
-----------------------------------------------------------------------------------------
Accrued operating expenses 29,584 46,048
-----------------------------------------------------------------------------------------
Total liabilities 7,423,679 7,858,543
-----------------------------------------------------------------------------------------
Net assets applicable to shares outstanding $359,032,315 $358,216,294
=========================================================================================
NET ASSETS:
Class A $283,416,443 $283,568,571
=========================================================================================
Class B $ 67,363,390 $ 66,576,044
=========================================================================================
Class C $ 8,252,482 $ 8,071,679
=========================================================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 36,187,747 36,453,574
=========================================================================================
Class B 8,588,708 8,546,095
=========================================================================================
Class C 1,053,882 1,037,788
=========================================================================================
Class A:
Net asset value and redemption price per share $ 7.83 $ 7.78
-----------------------------------------------------------------------------------------
Offering price per share:
(Net asset value of divided by 95.25%) $ 8.22 $ 8.17
=========================================================================================
Class B:
Net asset value and offering price per share $ 7.84 $ 7.79
=========================================================================================
Class C:
Net asset value and offering price per share $ 7.83 $ 7.78
=========================================================================================
</TABLE>
See Notes to Financial Statements.
FS-105
<PAGE> 325
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS
SEVEN MONTHS ENDED YEAR
ENDED JUNE 30, ENDED
JULY 31, 2000 DECEMBER 31,
2000 (UNAUDITED) 1999
-------------- ----------- --------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $12,909,783 $11,069,501 $ 23,860,069
-----------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 953,308 817,680 1,830,490
-----------------------------------------------------------------------------------------------------------
Administrative services fee 53,056 45,316 91,647
-----------------------------------------------------------------------------------------------------------
Custodian fees 8,867 6,935 19,729
-----------------------------------------------------------------------------------------------------------
Distribution fees - Class A 412,647 352,748 805,244
-----------------------------------------------------------------------------------------------------------
Distribution fees - Class B 392,471 335,861 753,522
-----------------------------------------------------------------------------------------------------------
Distribution fees - Class C 49,226 42,594 101,726
-----------------------------------------------------------------------------------------------------------
Transfer agent fees - Class A 84,511 67,215 160,531
-----------------------------------------------------------------------------------------------------------
Transfer agent fees - Class B 23,789 19,398 46,049
-----------------------------------------------------------------------------------------------------------
Transfer agent fees - Class C 2,984 2,458 5,831
-----------------------------------------------------------------------------------------------------------
Trustees' fees 4,777 4,095 9,669
-----------------------------------------------------------------------------------------------------------
Other 129,335 113,991 232,903
-----------------------------------------------------------------------------------------------------------
Total expenses 2,114,971 1,808,291 4,057,341
-----------------------------------------------------------------------------------------------------------
Less: Expenses paid indirectly (2,421) (1,949) (4,633)
-----------------------------------------------------------------------------------------------------------
Net expenses 2,112,550 1,806,342 4,052,708
-----------------------------------------------------------------------------------------------------------
Net investment income 10,797,233 9,263,159 19,807,361
-----------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES
Net realized gain (loss) from investment securities (6,118,133) (6,145,848) (3,713,985)
-----------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment
securities 9,924,682 7,554,003 (26,831,659)
-----------------------------------------------------------------------------------------------------------
Net gain (loss) on investment securities 3,806,549 1,408,155 (30,545,644)
-----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations $14,603,782 $10,671,314 $(10,738,283)
===========================================================================================================
</TABLE>
See Notes to Financial Statements.
FS-106
<PAGE> 326
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
SEVEN MONTHS ENDED
ENDED JUNE 30, YEAR ENDED YEAR ENDED
JULY 31, 2000 DECEMBER 31, DECEMBER 31,
2000 (UNAUDITED) 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $10,797,233 $ 9,263,159 $19,807,361 $ 18,756,162
-----------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities (6,118,133) (6,145,848) (3,713,985) 595,427
-----------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities 9,924,682 7,554,003 (26,831,659) (197,391)
-----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 14,603,782 10,671,314 (10,738,283) 19,154,198
-----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (8,732,079) (7,501,193) (16,158,034) (16,134,077)
-----------------------------------------------------------------------------------------------------------------------
Class B (1,770,019) (1,522,371) (3,218,044) (2,410,612)
-----------------------------------------------------------------------------------------------------------------------
Class C (222,272) (193,241) (435,134) (214,027)
-----------------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income:
Class A -- -- (288,606) (87,502)
-----------------------------------------------------------------------------------------------------------------------
Class B -- -- (67,461) (15,369)
-----------------------------------------------------------------------------------------------------------------------
Class C -- -- (9,104) (1,355)
-----------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A (14,365,926) (12,294,815) (8,643,725) 8,923,504
-----------------------------------------------------------------------------------------------------------------------
Class B (5,621,856) (5,955,475) 5,334,838 25,558,113
-----------------------------------------------------------------------------------------------------------------------
Class C (1,486,944) (1,615,554) 857,965 8,741,537
-----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (17,595,314) (18,411,335) (33,365,588) 43,514,410
-----------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 376,627,629 376,627,629 409,993,217 366,478,807
-----------------------------------------------------------------------------------------------------------------------
End of year $359,032,315 $358,216,294 $376,627,629 $409,993,217
=======================================================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $359,527,570 $361,136,452 $381,002,296 $383,815,745
-----------------------------------------------------------------------------------------------------------------------
Undistributed net investment income (7,534) (34,043) (80,397) (73,902)
-----------------------------------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities (10,715,935) (10,743,650) (4,597,802) (883,817)
-----------------------------------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 10,228,214 7,857,535 303,532 27,135,191
-----------------------------------------------------------------------------------------------------------------------
$359,032,315 $358,216,294 $376,627,629 $409,993,217
=======================================================================================================================
</TABLE>
See Notes to Financial Statements.
FS-107
<PAGE> 327
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Municipal Bond Fund (the "Fund") is a series portfolio of AIM Investment
Securities Funds (the "Trust"). The Trust is a Delaware business trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of seven
separate portfolios, each having an unlimited number of shares of beneficial
interest. Prior to June 1, 2000 the Fund was organized as a series portfolio of
AIM Funds Group. At a meeting held on February 3, 2000, the Board of Trustees of
AIM Funds Group approved an Agreement and Plan of Reorganization (the
"Reorganization") which reorganized the Fund as a series portfolio of the Trust.
Shareholders of the Fund approved the Reorganization at a meeting held on May
31, 2000. Pursuant to the Reorganization, the Fund's fiscal year-end was changed
from December 31 to July 31. This report includes financial information for the
period ended July 31, 2000 (seven months), the six months ended June 30, 2000
and the year ended December 31, 1999. Financial information for the six months
ended June 30, 2000 is unaudited. The Fund currently offers three different
classes of shares: Class A shares, Class B shares and Class C shares. Class A
shares are sold with a front-end sales charge. Class B shares and Class C shares
are sold with a contingent deferred sales charge. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund. The Fund's investment objective is to achieve a high
level of current income exempt from federal income taxes, consistent with the
preservation of principal.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. Security Valuations -- Portfolio securities are valued on the basis of prices
provided by an independent 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 obligations with maturities of 60 days
or less are valued at amortized cost.
B. Securities Transactions and Investment Income -- Securities transactions are
accounted for on a trade date basis. Realized gains or losses on sales are
computed on the basis of specific identification of the securities sold.
Interest income is recorded on the accrual basis from settlement date.
Dividend income is recorded on the ex-dividend date.
C. Distributions -- It is the policy of the Fund to declare dividends from net
investment income daily and pay monthly. Distributions from net realized
capital gains, if any, are generally paid annually and recorded on
ex-dividend date. The Fund may elect to use a portion of the proceeds from
redemptions as distributions for federal income tax purposes.
D. Federal Income Taxes -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements.
The Fund has a capital loss carryforward of $10,715,935 which may be
carried forward to offset future taxable gains, if any, which expires in
varying increments, if not previously utilized, in the year 2008.
E. Expenses -- Distribution expenses and certain transfer agency expenses
directly attributable to a class of shares are charged to those classes'
operations. All other expenses which are attributable to more than one class
are allocated among the classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at an annual rate of 0.50% on the first
$200 million of the Fund's average daily net assets, plus 0.40% on the next $300
million of the Fund's average daily net assets, plus 0.35% on the next $500
million of the Fund's average daily net assets, plus 0.30% on 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 pay AIM for certain administrative costs incurred in providing
accounting services to
FS-108
<PAGE> 328
the Fund. For the seven-month period ended July 31, 2000, the six months ended
June 30, 2000 and the year ended December 31, 1999, AIM was paid $53,056,
$45,316 and $91,647, respectively, for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. For the seven-month period ended July 31,
2000, the six months ended June 30, 2000 and the year ended December 31, 1999,
AFS was paid $74,735, $64,678 and $138,338, respectively, for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.25% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and C shares. Of these amounts, the Fund may
pay a service fee of 0.25% of the average daily net assets of the Class A, Class
B or Class C shares to selected dealers and financial institutions who furnish
continuing personal shareholder services to their customers who purchase and own
the appropriate class of shares of the Fund. Any amounts not paid as a service
fee under the Plans would constitute an asset-based sales charge. The Plans also
impose a cap on the total sales charges, including asset-based sales charges
that may be paid by the respective classes. For the seven-month period ended
July 31, 2000, the Class A, Class B and Class C shares paid AIM Distributors
$412,647, $392,471, and $49,226, respectively, as compensation under the Plans.
For the six months ended June 30, 2000, the Class A, Class B and Class C shares
paid AIM Distributors $352,748, $335,861 and $42,594, respectively, as
compensation under the Plans. For the year ended December 31, 1999, the Class A,
Class B and Class C shares paid AIM Distributors $805,244, $753,522, and
$101,726, respectively, as compensation under the Plan.
AIM Distributors received commissions of $33,406, $30,129 and $97,187 from
sales of the Class A shares of the Fund during the seven-month period ended July
31, 2000, the six months ended June 30, 2000 and the year ended December 31,
1999, respectively. 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 seven-month period ended July 31, 2000, the six months ended
June 30, 2000 and the year ended December 31, 1999, AIM Distributors received
$31,486, $30,740 and $123,118, respectively, in contingent deferred sales
charges imposed on redemptions of Fund shares.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the seven-month period ended July 31, 2000, the six months ended June
30, 2000 and the year ended December 31, 1999, the Fund paid legal fees of
$2,577, $1,986 and $4,178, respectively, for services rendered by Kramer, Levin,
Naftalis & Frankel LLP as counsel to the Trust's trustees. A member of that firm
is a trustee of the Trust.
NOTE 3-INDIRECT EXPENSES
For the seven-month period ended July 31, 2000, the six months ended June 30,
2000 and the year ended December 31, 1999, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) of $2,421, $1,949 and
$4,633, respectively, under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $2,421, $1,949 and $4,633, for the
seven-month period ended July 31, 2000, the six months ended June 30, 2000 and
the year ended December 31, 1999, respectively.
NOTE 4-TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. The Trust invests trustees' fees, if so elected by a
trustee, in mutual fund shares in accordance with a deferred compensation plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $1,000,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the seven months ended July
31, 2000, the Fund did not borrow under the line of credit agreement. The funds
which are party to the line of credit are charged a commitment fee of 0.09% on
the unused balance of the committed line. The commitment fee is allocated among
the funds based on their respective average net assets for the period. During
the year ended December 31, 1999, the Fund borrowed minimal amounts under the
line of credit agreement. Interest expense for the Fund for the year ended
December 31, 1999 was $461.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the seven-month period ended July 31, 2000
was $64,555,118 and $82,559,573, respectively, and during the six months ended
June 30, 2000 was $55,967,185 and $73,884,663, respectively. The amount of
unrealized appreciation (depreciation) of investment securities, for tax
purposes, is as follows:
<TABLE>
<CAPTION>
JUNE 30,
JULY 31, 2000
2000 (UNAUDITED)
----------- -----------
<S> <C> <C>
Aggregate unrealized appreciation
of investment securities $13,446,655 $11,919,899
------------------------------------------------------------
Aggregate unrealized
(depreciation) of investment
securities (3,218,441) (4,062,364)
------------------------------------------------------------
Net unrealized appreciation of
investment securities $10,228,214 $ 7,857,535
============================================================
Investments have the same cost for tax and financial
statement purposes.
</TABLE>
FS-109
<PAGE> 329
NOTE 7-SHARE INFORMATION
Changes in shares outstanding during the seven-month period ended July 31, 2000,
the six months ended June 30, 2000 and the years ended December 31, 1999 and
1998 were as follows:
<TABLE>
<CAPTION>
JUNE 30,
JULY 31, 2000 DECEMBER 31,
2000 (UNAUDITED) 1999
-------------------------- -------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Sold:
Class A 2,678,233 $ 20,753,046 2,271,873 $ 17,572,470 10,431,994 $ 85,813,744
--------------------------------------------------------------------------------------------------------------------
Class B 1,323,354 10,242,284 1,147,928 8,868,397 3,700,766 30,098,258
--------------------------------------------------------------------------------------------------------------------
Class C 1,196,822 9,264,086 969,742 7,487,360 851,082 6,903,087
--------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of
dividends:
Class A 600,193 4,643,890 518,640 4,005,344 1,102,784 8,919,262
--------------------------------------------------------------------------------------------------------------------
Class B 149,624 1,159,114 129,640 1,002,438 264,015 2,137,326
--------------------------------------------------------------------------------------------------------------------
Class C 17,331 134,046 15,147 116,951 31,375 254,074
--------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (5,145,569) (39,762,862) (4,391,829) (33,872,629) (12,703,387) (103,376,731)
--------------------------------------------------------------------------------------------------------------------
Class B (2,201,952) (17,023,254) (2,049,155) (15,826,310) (3,338,570) (26,900,746)
--------------------------------------------------------------------------------------------------------------------
Class C (1,407,096) (10,885,076) (1,193,926) (9,219,865) (780,440) (6,299,196)
--------------------------------------------------------------------------------------------------------------------
(2,789,060) $(21,474,726) (2,581,940) $(19,865,844) 440,381 $ 2,450,922
====================================================================================================================
<CAPTION>
DECEMBER 31,
1998
---------------------------
SHARES AMOUNT
------------ ------------
<S> <C> <C>
Sold:
Class A 12,409,366 $103,769,637
----------------------------------------------------------
Class B 5,306,019 44,489,342
----------------------------------------------------------
Class C 1,294,847 10,824,561
----------------------------------------------------------
Issued as reinvestment of
dividends:
Class A 1,031,670 8,611,126
----------------------------------------------------------
Class B 183,219 1,532,455
----------------------------------------------------------
Class C 16,529 138,044
----------------------------------------------------------
Reacquired:
Class A (12,388,704) (103,457,259)
----------------------------------------------------------
Class B (2,444,886) (20,463,684)
----------------------------------------------------------
Class C (265,347) (2,221,068)
----------------------------------------------------------
5,142,713 $ 43,223,154
==========================================================
</TABLE>
NOTE 8-FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------------------------
SIX MONTHS ENDED
SEVEN MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
JULY 31, 2000 ----------------------------------------------------
2000(A) (UNAUDITED) 1999 1998 1997 1996 1995
------------------ ---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 7.74 $ 7.74 $ 8.35 $ 8.34 $ 8.19 $ 8.31 $ 7.78
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.24 0.20 0.41 0.42 0.42 0.43 0.43
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Net gains (losses) on securities
(both realized and unrealized) 0.09 0.04 (0.61) 0.01 0.16 (0.12) 0.56
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations 0.33 0.24 (0.20) 0.43 0.58 0.31 0.99
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment
income (0.24) (0.20) (0.41) (0.42) (0.43) (0.43) (0.43)
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Return of capital -- -- -- -- -- -- (0.03)
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Total distributions (0.24) (0.20) (0.41) (0.42) (0.43) (0.43) (0.46)
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of period 7.83 $ 7.78 $ 7.74 $ 8.35 $ 8.34 $ 8.19 $ 8.31
=================================== ======== ======== ======== ======== ======== ======== ========
Total return(b) 4.32% 3.20% (2.45)% 5.28% 7.27% 3.90% 13.05%
=================================== ======== ======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $283,416 $283,569 $294,720 $327,705 $318,469 $278,812 $284,803
=================================== ======== ======== ======== ======== ======== ======== ========
Ratio of expenses to average net
assets 0.85%(c) 0.85%(c) 0.84% 0.82% 0.90% 0.80% 0.88%
=================================== ======== ======== ======== ======== ======== ======== ========
Ratio of net investment income to
average net assets 5.32%(c) 5.34%(c) 5.01% 5.00% 5.14% 5.29% 5.26%
----------------------------------- -------- -------- -------- -------- -------- -------- --------
Portfolio turnover rate 18% 16% 28% 19% 24% 26% 36%
=================================== ======== ======== ======== ======== ======== ======== ========
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not deduct sales charges and is not annualized for periods less than
one year.
(c) Ratios are annualized and based on average daily net assets of $283,622,551
and $283,749,076 for July 31, 2000 and June 30, 2000, respectively.
FS-110
<PAGE> 330
NOTE 8-FINANCIAL HIGHLIGHTS-(continued)
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------------------------------------
SEVEN MONTHS SIX MONTHS ENDED
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
JULY 31, 2000 ----------------------------------------------
2000(A) (UNAUDITED) 1999 1998 1997 1996 1995
------------ ---------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 7.75 $ 7.75 $ 8.37 $ 8.36 $ 8.19 $ 8.31 $ 7.78
---------------------------------------------- ------- ------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income 0.21 0.18 0.35 0.36 0.36 0.37 0.39
---------------------------------------------- ------- ------- ------- ------- ------- ------- -------
Net gains (losses) on securities (both
realized and unrealized) 0.08 0.03 (0.62) 0.01 0.17 (0.13) 0.54
---------------------------------------------- ------- ------- ------- ------- ------- ------- -------
Total from investment operations 0.29 0.21 (0.27) 0.37 0.53 0.24 0.93
---------------------------------------------- ------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income (0.20) (0.17) (0.35) (0.36) (0.36) (0.36) (0.37)
---------------------------------------------- ------- ------- ------- ------- ------- ------- -------
Return of capital -- -- -- -- -- -- (0.03)
---------------------------------------------- ------- ------- ------- ------- ------- ------- -------
Total distributions (0.20) (0.17) (0.35) (0.36) (0.36) (0.36) (0.40)
---------------------------------------------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of period $ 7.84 $ 7.79 $ 7.75 $ 8.37 $ 8.36 $ 8.19 $ 8.31
============================================== ======= ======= ======= ======= ======= ======= =======
Total return(b) 3.84% 2.80% (3.28)% 4.48% 6.59% 2.99% 12.14%
============================================== ======= ======= ======= ======= ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $67,363 $66,576 $72,256 $72,723 $47,185 $33,770 $21,478
============================================== ======= ======= ======= ======= ======= ======= =======
Ratio of expenses to average net assets 1.61%(c) 1.61%(c) 1.59% 1.57% 1.66% 1.61% 1.68%(d)
---------------------------------------------- ------- ------- ------- ------- ------- ------- -------
Ratio of net investment income to average net
assets 4.56%(c) 4.58%(c) 4.26% 4.25% 4.38% 4.49% 4.46%
============================================== ======= ======= ======= ======= ======= ======= =======
Portfolio turnover rate 18% 16% 28% 19% 24% 26% 36%
============================================== ======= ======= ======= ======= ======= ======= =======
</TABLE>
(a) Calculated using average shares method.
(b) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $67,438,640
and $67,541,243 for July 31, 2000 and June 30, 2000, respectively.
(d) After fee waivers and/or expense reimbursements. The ratio of expenses to
average daily net assets prior to fee waivers and/or expense reimbursements
was 1.77% for 1995.
<TABLE>
<CAPTION>
CLASS C
--------------------------------------------------------------------------
SEVEN MONTHS SIX MONTHS ENDED YEAR ENDED AUGUST 4, 1997
ENDED JUNE 30, DECEMBER 31, (DATE SALES COMMENCED)
JULY 31, 2000 --------------- TO DECEMBER 31,
2000(A) (UNAUDITED) 1999 1998 1997
------------ ---------------- ------ ------ ----------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 7.74 $ 7.74 $ 8.35 $ 8.35 $8.30
----------------------------------------------------- ------ ------ ------ ------ -----
Income from investment operations:
Net investment income 0.21 0.18 0.35 0.36 0.15
----------------------------------------------------- ------ ------ ------ ------ -----
Net gains (losses) on securities (both realized and
unrealized) 0.08 0.03 (0.61) -- 0.04
----------------------------------------------------- ------ ------ ------ ------ -----
Total from investment operations 0.29 0.21 (0.26) 0.36 0.19
----------------------------------------------------- ------ ------ ------ ------ -----
Less distributions from net investment income (0.20) (0.17) (0.35) (0.36) (0.14)
----------------------------------------------------- ------ ------ ------ ------ -----
Net asset value, end of period $ 7.83 $ 7.78 $ 7.74 $ 8.35 $8.35
===================================================== ====== ====== ====== ====== =====
Total return(b) 3.85% 2.80% (3.16)% 4.36% 2.36%
===================================================== ====== ====== ====== ====== =====
Ratios/supplemental data:
Net assets, end of period (000s omitted) $8,252 $8,072 $9,652 $9,565 $ 825
===================================================== ====== ====== ====== ====== =====
Ratio of expenses to average net assets 1.61%(c) 1.61%(c) 1.59% 1.57% 1.67%(d)
----------------------------------------------------- ------ ------ ------ ------ -----
Ratio of net investment income to average net assets 4.56%(c) 4.58%(c) 4.26% 4.25% 4.37%(d)
===================================================== ====== ====== ====== ====== =====
Portfolio turnover rate 18% 16% 28% 19% 24%
===================================================== ====== ====== ====== ====== =====
</TABLE>
(a) Calculated using average shares method.
(b) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $8,458,483
and $8,565,676 for July 31, 2000 and June 30, 2000, respectively.
(d) Annualized.
FS-111
<PAGE> 331
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
AIM Investment Securities Funds:
We have audited the accompanying statement of assets and
liabilities of AIM Limited Maturity Treasury Fund (a
series of AIM Investment Securities Funds) including the
schedule of investments, as of July 31, 2000, and the
related statement of operations for the year then ended,
the statements 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 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 auditing
standards generally accepted in the United States of
America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether the financial statements and financial
highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned
as of July 31, 2000, by correspondence with the
custodian. 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 Limited
Maturity Treasury Fund as of July 31, 2000, the results
of its operations for the year then ended, the changes
in its net assets for each of the years in the two-year
period then ended and the financial highlights for each
of the years in the five-year period then ended, in
conformity with accounting principles generally accepted
in the United States of America.
/s/ KPMG LLP
September 1, 2000
Houston, Texas
FS-112
<PAGE> 332
SCHEDULE OF INVESTMENTS
July 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL MARKET
MATURITY AMOUNT VALUE
(000s)
<S> <C> <C> <C>
U.S. TREASURY SECURITIES-99.01%
U.S. TREASURY NOTES-99.01%
5.50% 08/31/01 $25,100 $ 24,862,554
-------------------------------------------------------------------------------------------------
5.63% 09/30/01 25,100 24,875,857
-------------------------------------------------------------------------------------------------
5.88% 10/31/01 25,100 24,938,356
-------------------------------------------------------------------------------------------------
5.88% 11/30/01 25,100 24,931,328
-------------------------------------------------------------------------------------------------
6.13% 12/31/01 25,100 25,007,632
-------------------------------------------------------------------------------------------------
6.38% 01/31/02 25,100 25,092,470
-------------------------------------------------------------------------------------------------
6.50% 02/28/02 25,100 25,144,427
-------------------------------------------------------------------------------------------------
6.50% 03/31/02 25,100 25,147,188
-------------------------------------------------------------------------------------------------
6.38% 04/30/02 25,100 25,099,247
-------------------------------------------------------------------------------------------------
6.63% 05/31/02 25,100 25,214,707
-------------------------------------------------------------------------------------------------
6.38% 06/30/02 25,100 25,115,562
-------------------------------------------------------------------------------------------------
6.25% 07/31/02 24,100 24,085,058
-------------------------------------------------------------------------------------------------
Total U.S. Treasury Securities (Cost $299,787,994) 299,514,386
-------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS-99.01% 299,514,386
-------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-0.99% 2,999,031
-------------------------------------------------------------------------------------------------
NET ASSETS-100.00% $302,513,417
=================================================================================================
</TABLE>
See Notes to Financial Statements.
FS-113
<PAGE> 333
STATEMENT OF ASSETS AND LIABILITIES
July 31, 2000
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (Cost
$299,787,994) $299,514,386
-----------------------------------------------------------
Cash 1,120,488
-----------------------------------------------------------
Receivables for:
-----------------------------------------------------------
Fund shares sold 272,822
-----------------------------------------------------------
Interest 3,873,029
-----------------------------------------------------------
Investment for deferred compensation plan 40,106
-----------------------------------------------------------
Other assets 2,306
-----------------------------------------------------------
Total assets 304,823,137
-----------------------------------------------------------
LIABILITIES:
Payables for:
-----------------------------------------------------------
Fund shares reacquired 1,752,268
-----------------------------------------------------------
Dividends 358,703
-----------------------------------------------------------
Deferred compensation plan 40,106
-----------------------------------------------------------
Accrued advisory fees 48,904
-----------------------------------------------------------
Accrued administrative services fees 5,859
-----------------------------------------------------------
Accrued distribution fees 54,237
-----------------------------------------------------------
Accrued transfer agent fees 39,501
-----------------------------------------------------------
Accrued operating expenses 10,142
-----------------------------------------------------------
Total liabilities 2,309,720
-----------------------------------------------------------
Net assets applicable to shares outstanding $302,513,417
===========================================================
NET ASSETS:
Class A $300,058,098
===========================================================
Institutional Class $ 2,455,319
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 30,115,896
===========================================================
Institutional Class 246,425
===========================================================
Class A :
Net asset value and redemption price per
share $ 9.96
-----------------------------------------------------------
Offering price per share:
(Net asset value of $9.96 divided by
99.00%) $ 10.06
===========================================================
Institutional Class:
Net asset value, redemption price and
offering price per share $ 9.96
===========================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended July 31, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $19,783,947
------------------------------------------------------------
EXPENSES:
Advisory fees 705,741
------------------------------------------------------------
Administrative services fee 80,566
------------------------------------------------------------
Custodian fees 11,079
------------------------------------------------------------
Distribution fees -- Class A 517,076
------------------------------------------------------------
Transfer agent fees -- Class A 444,091
------------------------------------------------------------
Transfer agent fees -- Institutional Class 2,749
------------------------------------------------------------
Trustees' fees 9,224
------------------------------------------------------------
Other 104,612
------------------------------------------------------------
Total expenses 1,875,138
------------------------------------------------------------
Less: Expenses paid indirectly (3,920)
------------------------------------------------------------
Net expenses 1,871,218
------------------------------------------------------------
Net investment income 17,912,729
------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES:
Net realized gain (loss) from investment
securities (4,797,259)
------------------------------------------------------------
Change in net unrealized appreciation of
investment securities 2,049,768
------------------------------------------------------------
Net gain (loss) on investment securities (2,747,491)
------------------------------------------------------------
Net increase in net assets resulting from
operations $15,165,238
===========================================================
</TABLE>
See Notes to Financial Statements.
FS-114
<PAGE> 334
STATEMENT OF CHANGES IN NET ASSETS
For the years ended July 31, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
------------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 17,912,729 $ 19,679,426
-------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities (4,797,259) 1,359,439
-------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities 2,049,768 (3,023,894)
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 15,165,238 18,014,971
-------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (17,525,848) (18,245,067)
-------------------------------------------------------------------------------------------
Institutional Class (416,635) (1,523,201)
-------------------------------------------------------------------------------------------
Share transactions-net:
Class A (87,282,579) 46,655,684
-------------------------------------------------------------------------------------------
Institutional Class (14,575,249) (33,718,444)
-------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (104,635,073) 11,183,943
-------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 407,148,490 395,964,547
-------------------------------------------------------------------------------------------
End of year $ 302,513,417 $407,148,490
===========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 311,671,908 $413,559,490
-------------------------------------------------------------------------------------------
Undistributed net investment income 29,754 29,754
-------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities (8,914,637) (4,117,378)
-------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities (273,608) (2,323,376)
-------------------------------------------------------------------------------------------
$ 302,513,417 $407,148,490
===========================================================================================
</TABLE>
See Notes to Financial Statements.
FS-115
<PAGE> 335
NOTES TO FINANCIAL STATEMENTS
July 31, 2000
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Limited Maturity Treasury Fund (the "Fund") is a series portfolio of AIM
Investment Securities Funds (the "Trust"). The Trust is a Delaware business
trust registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management company consisting of seven separate
series portfolios each having an unlimited number of shares of beneficial
interests. The Fund currently offers two different classes of shares: Class A
shares and the Institutional Class. Matters affecting each portfolio or class
are voted on exclusively by the shareholders of such portfolio or class. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund. The Fund's investment objective is to seek liquidity with minimum
fluctuation in principal value and, consistent with this investment objective,
the highest total return achievable.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. Security Valuations -- Debt obligations that are issued or guaranteed by the
U.S. Treasury are valued on the basis of prices provided by an independent
pricing service. Prices provided by the pricing service may be determined
without exclusive reliance on quoted prices, and may reflect appropriate
factors such as yield, type of issue, coupon rate and maturity date.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and are
valued the mean between the last bid and asked prices. Securities for which
market quotations are not readily available or are questionable are valued at
fair value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity are
valued at amortized cost which approximates market value.
B. Securities Transactions and Investment Income -- Securities transactions are
accounted for on a trade date basis. Realized gains or losses on sales are
computed on the basis of specific identification of the securities sold.
Interest income, adjusted for amortization of discounts on investments, is
recorded on the accrual basis from settlement date. It is the policy of the
Fund not to amortize bond premiums for financial reporting purposes.
On July 31, 2000 undistributed net investment income was increased by
$29,754 and additional paid-in capital was decreased by $29,754 as a result
of reclassifications of nondeductible organizational expenses. Net assets of
the Fund were unaffected by the reclassifications discussed above.
C. Distributions -- It is the policy of the Fund to declare dividends from net
investment income daily and pay monthly. Distributions from net realized
capital gains, if any, are generally paid annually and recorded on
ex-dividend date. The Fund may elect to use a portion of the proceeds from
redemptions as distributions for Federal income tax purposes.
D. Federal Income Taxes -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements. The Fund has a capital loss
carryforward of $4,224,162 as of July 31, 2000 which may be carried forward
to offset future taxable gains, if any, which expires in varying increments,
if not previously utilized, in the year 2008.
E. Expenses -- Distribution expenses and certain transfer agency expenses
directly attributable to a class of shares are charged to those classes'
operations. All other expenses which are attributable to more than one class
are allocated between 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 0.20% on
the first $500 million of the Fund's average daily net assets, plus 0.175% on
the Fund's average daily net assets in excess of $500 million.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended July 31, 2000, AIM was paid
$80,566 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. For the year ended July 31, 2000, AFS was paid
$151,859 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 shares and a master distribution agreement with Fund Management Company
("FMC") to serve as the distributor for the Institutional Class. The Trust has
adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A shares. The Fund, pursuant to the Plans, pays AIM Distributors
compensation at the annual rate of 0.15% of the Fund's average daily net assets
of Class A shares. The Plan is
FS-116
<PAGE> 336
designed to compensate AIM Distributors for certain promotional and other sales
related costs and provides periodic payments to selected dealers and financial
institutions who furnish continuing personal shareholder services to their
customers who purchase and own the appropriate class of shares of the Fund. Any
amounts not paid as a service fee under the Plan would constitute an asset-
based sales charge. The Plan also imposes a cap on the total sales charges,
including asset-based sales charges that may be paid by the Fund. For the year
ended July 31, 2000, the Fund paid AIM Distributors $517,076 as compensation
under the Plan.
AIM Distributors received commissions of $57,087 from sales of the Class A
shares of the Fund during the year ended July 31, 2000. Such commissions are not
an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS, FMC and AIM Distributors.
During the year ended July 31, 2000, the Fund paid legal fees of $3,294 for
services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Trustees. A member of that firm is a trustee of the Trust.
NOTE 3-INDIRECT EXPENSES
For the year ended July 31, 2000, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $3,920 under expense offset
arrangements which resulted in a reduction of the Fund's total expenses of
$3,920.
NOTE 4-TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. The Trust invests trustees' fees, if so elected by a
trustee, in mutual fund shares in accordance with a deferred compensation plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A.. The Fund may borrow up to the lesser
of (i) $1,000,000,000 or (ii) the limits set by its prospectus for borrowings.
The Fund and other funds advised by AIM which are parties to the line of credit
may borrow on a first come, first served basis. During the year ended July 31,
2000, the Fund did not borrow under the line of credit agreement. The funds
which are party to the line of credit are charged a commitment fee of 0.09% on
the unused balance of the committed line. The commitment fee is allocated among
the funds based on their respective average net assets for the period.
FS-117
<PAGE> 337
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended July 31, 2000 was
$431,234,972 and $537,432,998, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of July 31, 2000 was as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $ 395,575
------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (874,560)
------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities $(478,985)
========================================================================
Cost of investments for tax purposes is $299,993,371.
</TABLE>
NOTE 7-SHARE INFORMATION
Changes in shares outstanding during the years ended July 31, 2000 and 1999 were
as follows:
<TABLE>
<CAPTION>
2000 1999
--------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Sold:
Class A 20,491,334 $ 204,290,029 66,719,952 $675,218,081
----------------------------------------------------------------------------------------------------------------------
Institutional Class 191,454 1,910,678 489,034 4,947,727
----------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A 1,468,058 14,627,764 1,524,802 15,430,990
----------------------------------------------------------------------------------------------------------------------
Institutional Class 891 11,992 1,998 20,239
----------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (30,726,141) (306,200,372) (63,662,111) (643,993,387)
----------------------------------------------------------------------------------------------------------------------
Institutional Class (1,653,776) (16,497,919) (3,809,602) (38,686,410)
----------------------------------------------------------------------------------------------------------------------
(10,228,180) $(101,857,828) 1,264,073 $ 12,937,240
======================================================================================================================
</TABLE>
NOTE 8-FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.03 $ 10.07 $ 10.07 $ 9.97 $ 10.03
------------------------------------------------------------ -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.51 0.47 0.53 0.54 0.55
------------------------------------------------------------ -------- -------- -------- -------- --------
Net gains (losses) on securities (both realized and
unrealized) (0.07) (0.04) -- 0.10 (0.06)
------------------------------------------------------------ -------- -------- -------- -------- --------
Total from investment operations 0.44 0.43 0.53 0.64 0.49
------------------------------------------------------------ -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.51) (0.47) (0.53) (0.54) (0.55)
------------------------------------------------------------ -------- -------- -------- -------- --------
Net asset value, end of period $ 9.96 $ 10.03 $ 10.07 $ 10.07 $ 9.97
============================================================ ======== ======== ======== ======== ========
Total return(a) 4.50% 4.32% 5.42% 6.55% 4.98%
============================================================ ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of year (000s omitted) $300,058 $390,018 $345,355 $389,812 $359,048
============================================================ ======== ======== ======== ======== ========
Ratio of expenses to average net assets 0.54%(b) 0.54% 0.54% 0.54% 0.54%
============================================================ ======== ======== ======== ======== ========
Ratio of net investment income to average net assets 5.07%(b) 4.61% 5.29% 5.35% 5.45%
============================================================ ======== ======== ======== ======== ========
Portfolio turnover rate 122% 184% 133% 130% 117%
============================================================ ======== ======== ======== ======== ========
</TABLE>
(a) Does not deduct sales charges.
(b) Ratios are based on average net assets of $344,717,229.
FS-118
<PAGE> 338
AIM LIMITED MATURITY
TREASURY FUND
-----------------------------------------------------------------------
Institutional Class
AIM Limited Maturity Treasury Fund seeks liquidity with minimum
fluctuation of principal value, and, consistent with this objective,
the highest total return achievable.
AIM--Registered Trademark--
PROSPECTUS
NOVEMBER 28, 2000
This prospectus contains important
information about the Institutional Class of
the fund. Please read it before investing
and keep it for future reference.
As with all other mutual fund securities,
the Securities and Exchange Commission has
not approved or disapproved these securities
or determined whether the information in
this prospectus is adequate or accurate.
Anyone who tells you otherwise is committing
a crime.
An investment in the fund:
- is not FDIC insured;
- may lose value; and
- is not guaranteed by a bank.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE
--Registered Trademark-- --Registered Trademark--
<PAGE> 339
----------------------------------
AIM LIMITED MATURITY TREASURY FUND
----------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE FUND 1
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 2
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 2
Performance Table 2
FEE TABLE AND EXPENSE EXAMPLE 3
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 3
Expense Example 3
FUND MANAGEMENT 4
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
The Advisor 4
Advisor Compensation 4
Portfolio Managers 4
OTHER INFORMATION 4
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
Suitability for Investors 4
Dividends and Distributions 4
FINANCIAL HIGHLIGHTS 5
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
Purchasing Shares A-1
Redeeming Shares A-1
Pricing of Shares A-2
Taxes A-2
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM Funds, AIM Funds and Design, AIM Investor, AIM
LINK, AIM Institutional Funds, aimfunds.com, La Familia AIM de Fondos, La
Familia AIM de Fondos and Design, Invierta Con DISCIPLINA and Invest with
DISCIPLINE are registered service marks and AIM Bank Connection and AIM Internet
Connect are service marks of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 340
----------------------------------
AIM LIMITED MATURITY TREASURY FUND
----------------------------------
INVESTMENT OBJECTIVE AND STRATEGIES
--------------------------------------------------------------------------------
The fund's investment objective is to seek liquidity with minimum fluctuation of
principal value, and, consistent with this objective, the highest total return
achievable. The fund's investment objective may be changed by the Board of
Trustees without shareholder approval.
The fund attempts to meet its objective by investing in direct obligations of
the U.S. Treasury, including bills, notes and bonds. The fund will only purchase
securities with maturities of three years or less.
The portfolio managers focus on U.S. Treasury obligations they believe have
favorable prospects for total return consistent with the fund's investment
objective. The portfolio managers usually sell a particular security when any of
those factors materially changes.
In anticipation of or in response to adverse market conditions, for cash
management purposes, or for defensive purposes, the fund may temporarily hold
all or a portion of its assets in cash and shares of affiliated money market
funds. As a result, the fund may not achieve its investment objective.
The fund may engage in active and frequent trading of portfolio securities to
achieve its investment objective. If the fund does trade in this way, it may
incur increased transaction costs, which can lower the actual return on your
investment. Active trading may also increase short-term gains and losses, which
may affect the taxes you have to pay.
PRINCIPAL RISKS OF INVESTING IN THE FUND
--------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund and that the income you may receive from your investment may vary. The
value of your investment in the fund will go up and down with the prices of the
securities in which the fund invests. Interest rate increases can cause the
price of a debt security to decrease; the longer the debt security's duration,
the more sensitive it is to this risk.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
1
<PAGE> 341
----------------------------------
AIM LIMITED MATURITY TREASURY FUND
----------------------------------
PERFORMANCE INFORMATION
--------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS*
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The following bar chart shows changes in the performance of the Institutional
Class shares from year to year.
[GRAPH]
<TABLE>
<CAPTION>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURNS
----------- -------
<S> <C>
1990 .................................. 9.19%
1991 .................................. 10.62%
1992 .................................. 5.87%
1993 .................................. 4.68%
1994 .................................. 1.08%
1995 .................................. 9.67%
1996 .................................. 5.01%
1997 .................................. 6.22%
1998 .................................. 6.33%
1999 .................................. 2.88%
</TABLE>
* The Institutional Class shares' year-to-date total return as of September 30,
2000 was 4.69%.
During the periods shown in the bar chart, the highest quarterly return was
3.27% (quarter ended December 31, 1991) and the lowest quarterly return was
-0.15% (quarter ended March 31, 1994).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(for the periods ended SINCE INCEPTION
December 31, 1999) 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Institutional Class 2.88% 6.00% 6.12% 6.40% 07/13/87
Lehman Bros. 1- to 2-Year U.S. Government Bond
Index(1) 3.41% 6.28% 6.40% 6.70%(2) 07/31/88(2)
----------------------------------------------------------------------------------------------------
</TABLE>
(1) The Lehman Bros. 1- to 2-Year Government Bond Index is an unmanaged index
composed of U.S. Agency and Treasury issues with maturities of one to two
years.
(2) The average annual total return given is since the date closest to the
earliest date the index became available.
2
<PAGE> 342
----------------------------------
AIM LIMITED MATURITY TREASURY FUND
----------------------------------
FEE TABLE AND EXPENSE EXAMPLE
--------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) INSTITUTIONAL CLASS
--------------------------------------------------------
<S> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever is less) None
------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets) INSTITUTIONAL CLASS
-------------------------------------------------------
<S> <C>
Management Fees 0.20%
Distribution and/or
Service (12b-1) Fees None
Other Expenses 0.09
Total Annual Fund
Operating Expenses 0.29
------------------------------------------------------
</TABLE>
You should also consider the effect of any account fees charged by the financial
institution managing the account.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in the
Institutional Class of the fund with the cost of investing in other mutual
funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's gross operating expenses remain the same. Although your actual returns
and costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional Class $30 $93 $163 $368
-----------------------------------------------------------
</TABLE>
3
<PAGE> 343
----------------------------------
AIM LIMITED MATURITY TREASURY FUND
----------------------------------
FUND MANAGEMENT
--------------------------------------------------------------------------------
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor and
is responsible for its day-to-day management. The advisor is located at 11
Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The advisor supervises all
aspects of the fund's operations and provides investment advisory services to
the fund, including obtaining and evaluating economic, statistical and financial
information to formulate and implement investment programs for the fund.
The advisor has acted as an investment advisor since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 120
investment portfolios, including the fund, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended July 31, 2000, the advisor received compensation of
0.20% of average daily net assets.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual
members of the team who are primarily responsible for the day-to-day management
of the fund's portfolio are
- Laurie A. Brignac, Portfolio Manager, who has been responsible for the fund
since 1999 and has been associated with the advisor and/or its affiliates
since 1992.
- Scott W. Johnson, Portfolio Manager, who has been responsible for the fund
since 1998 and has been associated with the advisor and/or its affiliates
since 1994.
- Karen Dunn Kelley, Senior Portfolio Manager, who has been responsible for the
fund since 1992 and has been associated with the advisor and/or its affiliates
since 1989.
OTHER INFORMATION
--------------------------------------------------------------------------------
SUITABILITY FOR INVESTORS
The Institutional Class of the fund is intended for use by institutions,
particularly banks, acting for themselves or in a fiduciary or similar capacity.
The Institutional Class may be particularly appropriate for institutions
investing short-term cash reserves for the benefit of customer accounts.
Prospective investors should determine if an investment in the fund is
consistent with the objectives of its customer account and with applicable state
and federal laws and regulations.
The Institutional Class of the fund is designed to be a convenient and
economical vehicle for investing in a portfolio of direct U.S. Treasury
obligations with remaining maturities of three (3) years or less. An investment
in the fund may relieve the institution of many of the investment and
administrative burdens encountered when investing directly in securities. These
include: selection and diversification of portfolio investments; surveying the
market for the best price at which to buy and sell; valuation of portfolio
securities; receipt, delivery and safekeeping of securities; and portfolio
recordkeeping. It is anticipated that most investors will perform their own
subaccounting.
The price per share of the fund's shares will fluctuate inversely with changes
in interest rates. However the price changes in the fund's shares due to changes
in interest rates should be more moderate than the per share fluctuations of a
fund which invests in longer-term obligations. The fund is designed for the
investor who seeks a higher yield and greater stability of income than a money
market fund offers, but with less capital fluctuation than a long-term bond fund
might provide.
DIVIDENDS AND DISTRIBUTIONS
The fund expects that its distributions, if any, will consist primarily of
ordinary income.
DIVIDENDS
The fund generally declares dividends daily and pays dividends, if any, monthly.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains, if any,
annually.
4
<PAGE> 344
----------------------------------
AIM LIMITED MATURITY TREASURY FUND
----------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
This information has been audited by KPMG LLP, whose report, along with the
fund's financial statements, is included in the fund's annual report, which is
available upon request.
<TABLE>
<CAPTION>
INSTITUTIONAL CLASS
--------------------------------------------------------
YEAR ENDED JULY 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.03 $ 10.07 $ 10.07 $ 9.97 $ 10.03
------------------------------------------------------------ ------- ------- ------- ------- --------
Income from investment operations:
Net investment income 0.54 0.49 0.56 0.56 0.58
============================================================ ======= ======= ======= ======= ========
Net gains (losses) on securities (both realized and
unrealized) (0.07) (0.04) -- 0.10 (0.06)
============================================================ ======= ======= ======= ======= ========
Total from investment operations 0.47 0.45 0.56 0.66 0.52
============================================================ ======= ======= ======= ======= ========
Less distributions:
Dividends from net investment income (0.54) (0.49) (0.56) (0.56) (0.58)
------------------------------------------------------------ ------- ------- ------- ------- --------
Net asset value, end of period $ 9.96 $ 10.03 $ 10.07 $ 10.07 $ 9.97
____________________________________________________________ _______ _______ _______ _______ ________
============================================================ ======= ======= ======= ======= ========
Total return 4.78% 4.55% 5.66% 6.79% 5.27%
____________________________________________________________ _______ _______ _______ _______ ________
============================================================ ======= ======= ======= ======= ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 2,455 $17,131 $50,609 $48,866 $143,468
____________________________________________________________ _______ _______ _______ _______ ________
============================================================ ======= ======= ======= ======= ========
Ratio of expenses to average net assets 0.29%(a) 0.31% 0.32% 0.31% 0.27%
____________________________________________________________ _______ _______ _______ _______ ________
============================================================ ======= ======= ======= ======= ========
Ratio of net investment income to average net assets 5.31%(a) 4.84% 5.51% 5.56% 5.72%
____________________________________________________________ _______ _______ _______ _______ ________
============================================================ ======= ======= ======= ======= ========
Portfolio turnover rate 122% 184% 133% 130% 117%
____________________________________________________________ _______ _______ _______ _______ ________
============================================================ ======= ======= ======= ======= ========
</TABLE>
(a) Ratios are based on average net assets of $8,153,267.
5
<PAGE> 345
----------------------------------
AIM LIMITED MATURITY TREASURY FUND
----------------------------------
SHAREHOLDER INFORMATION
--------------------------------------------------------------------------------
PURCHASING SHARES
The minimum initial investment in the Institutional Class is $1,000,000. No
minimum amount is required for subsequent investments in the fund, nor are
minimum balances required.
Shares of the Institutional Class of the fund are sold on a continuing basis
at their net asset value. Although no sales charge is imposed in connection with
the purchase of shares, banks or other financial institutions may charge a
recordkeeping, account maintenance or other fee to their customers, and
beneficial holders of shares of the fund should consult with such institutions
to obtain a schedule of such fees. Institutions may be requested to maintain
separate master accounts in the fund for shares held by the institution (a) for
its own account, for the account of other institutions and for accounts for
which the institution acts as a fiduciary; and (b) for accounts for which the
institution acts in some other capacity. An institution's master accounts and
subaccounts with the fund may be aggregated for the purpose of the minimum
investment requirement. Prior to the initial purchase of shares, an account
application must be completed and sent to A I M Fund Services, Inc. (transfer
agent) at P.O. Box 4497, Houston, Texas 77210-4497. An account application may
be obtained from the transfer agent.
In order to be accepted for execution, purchase orders must be submitted in
proper form and received during the hours of the customary trading session of
the New York Stock Exchange (NYSE) on days the NYSE is open for business and
such orders will be confirmed at the net asset value determined as of the close
of the customary trading session of the NYSE on that day (trade date).
Subsequent purchases of shares of the fund may also be made via AIM
LINK--Registered Trademark-- Remote, a personal computer application software
product.
Payments for shares purchased must be in the form of federal funds or other
funds immediately available to the fund and must be made on the "settlement
date," which shall be the next business day of the fund following the trade
date. Federal Reserve wires should be sent as early as possible on the
settlement date in order to facilitate crediting to the shareholder's account.
Any funds received in respect to an order which is not accepted by the fund and
any funds received for which an order has not been received will be returned to
the sending institution. An order to purchase shares must specify which fund is
being purchased, otherwise any funds received will be returned to the sending
institution.
REDEEMING SHARES
TIMING OF REDEMPTIONS
You can redeem shares during the hours of the customary trading session of the
NYSE on days the NYSE is open for business. The fund may postpone the right of
redemption only under unusual circumstances, as allowed by the Securities and
Exchange Commission, such as when the NYSE restricts or suspends trading.
A shareholder may redeem any or all of its shares at the net asset value next
determined after receipt of the redemption request in proper form by the fund.
Redemption requests with respect to shares for which certificates have not been
issued are normally made by calling the transfer agent.
Shareholders may request a redemption by telephone. The transfer agent and the
distributor will not be liable for any loss, expense or cost arising out of any
telephone redemption request effected in accordance with the authorization set
forth in the account application if they reasonably believe such request to be
genuine, but may in certain cases be liable for losses due to unauthorized or
fraudulent transactions. Procedures for verification of telephone transactions
may include recordings of telephone transactions (maintained for six months),
and mailings of confirmation promptly after the transaction. Redemption of
shares of the fund may also be made via AIM LINK--Registered Trademark-- Remote.
TIMING AND METHOD OF PAYMENT
If a redemption request is received during the hours of the customary trading
session of the NYSE on days the NYSE is open for business, the redemption will
be effected at the net asset value determined as of the close of that day (the
redemption date).
Payment for redeemed shares is normally made by Federal Reserve wire to the
commercial bank account designated in the shareholder's Account Application, but
may be remitted by check upon request by a shareholder. The proceeds of a
redemption request will be wired on the next business day following the
redemption date.
Payment for shares redeemed by mail and payment for telephone redemptions in
amounts under $1,000 may, at the option of the fund, be made by check mailed
within seven days after receipt of the redemption request in proper form. The
fund may make payment for telephone redemptions in excess of $1,000 by check
when it is considered to be in the fund's best interest to do so.
REDEMPTIONS BY THE FUND
If the fund determines that you have provided incorrect information in opening
an account or in the course of conducting subsequent transactions, the fund may,
at its discretion, redeem the account and distribute the proceeds to you.
The fund is permitted to redeem shares in any account with a net asset value
less than $500.
The fund reserves the right at any time to:
- reject or cancel any part of any purchase order;
- modify any terms or conditions of purchase of shares of the fund; or
- withdraw all or any part of the offering made by this prospectus.
A-1
<PAGE> 346
----------------------------------
AIM LIMITED MATURITY TREASURY FUND
----------------------------------
SHAREHOLDER INFORMATION (continued)
--------------------------------------------------------------------------------
PRICING OF SHARES
The fund prices its shares based on its net asset value. The fund values
portfolio securities for which market quotations are readily available at market
value. The fund values short-term investments maturing within 60 days at
amortized cost, which approximates market value.
The fund values all other securities and assets at their fair value. In
addition, if, between the time trading ends on a particular security and the
close of the customary trading session of the NYSE, events occur that materially
affect the value of the security, the fund may value the security at its fair
value as determined in good faith by or under the supervision of the Board of
Trustees of the fund. The effect of using fair value pricing is that the fund's
net asset value will be subject to the judgment of the Board of Trustees or its
designee instead of being determined by the market.
The fund determines the net asset value of its shares on each day the NYSE is
open for business, as of the close of the customary trading session, or any
earlier NYSE closing time that day. The fund prices purchase and redemption
orders at the net asset value calculated after the transfer agent receives an
order in good form.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
generally taxable to you at different rates depending on the length of time the
fund holds its assets. Different rates of tax may apply to ordinary income and
long-term capital gain distributions. Every year, information showing the amount
of dividends and distributions you received from the fund during the prior year
will be sent to you.
Any long-term or short-term capital gains realized from redemptions of fund
shares will be subject to federal income tax.
The foreign, state and local tax consequences of investment in fund shares may
differ materially from the federal income tax consequences described above. You
should consult your tax advisor before investing.
A-2
<PAGE> 347
----------------------------------
AIM LIMITED MATURITY TREASURY FUND
----------------------------------
OBTAINING ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Fund Services, Inc.
P.O. Box 0843
Houston, TX 77001-0843
BY TELEPHONE: (800) 659-1005
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
--------------------------------------------------------------------------------
You also can review and obtain copies of the fund's SAI, reports and other
information at the SEC's Public Reference Room in Washington, DC; on the EDGAR
database on the SEC's Internet website (http://www.sec.gov); or, after paying a
duplication fee, by sending a letter to the SEC's Public Reference Section,
Washington, DC 20549-0102 or by sending an electronic mail request to
[email protected]. Please call the SEC at 1-202-942-8090 for information about
the Public Reference Room.
----------------------------------
AIM Limited Maturity Treasury Fund
SEC 1940 Act file number: 811-5686
----------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com INVEST WITH DISCIPLINE
--Registered Trademark-- --Registered Trademark--
<PAGE> 348
STATEMENT OF
ADDITIONAL INFORMATION
AIM INVESTMENT SECURITIES FUNDS
AIM LIMITED MATURITY TREASURY FUND
INSTITUTIONAL CLASS
11 GREENWAY PLAZA
SUITE 100
HOUSTON, TEXAS 77046-1173
(800) 659-1005
---------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND
IT SHOULD BE READ IN CONJUNCTION WITH A PROSPECTUS OF THE
ABOVE-NAMED FUND, A COPY OF WHICH MAY BE OBTAINED FREE
OF CHARGE FROM AUTHORIZED DEALERS OR BY WRITING
A I M FUND SERVICES, INC., P.O. BOX 0843,
HOUSTON, TEXAS 77001-0843
OR BY CALLING (800) 659-1005
---------------
STATEMENT OF ADDITIONAL INFORMATION DATED NOVEMBER 28, 2000
RELATING TO THE PROSPECTUS DATED NOVEMBER 28, 2000
<PAGE> 349
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INTRODUCTION......................................................................................................1
GENERAL INFORMATION ABOUT THE FUND................................................................................1
The Fund and Its Shares..................................................................................1
MANAGEMENT........................................................................................................3
Trustees and Officers....................................................................................3
Remuneration of Trustees.................................................................................6
AIM Funds Retirement Plan for Eligible Directors/Trustees................................................8
Deferred Compensation Agreements.........................................................................8
The Investment Advisor...................................................................................9
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES..............................................................11
Limited Maturity Treasury Fund..........................................................................11
AIM High Yield Fund.....................................................................................12
AIM High Yield Fund II..................................................................................12
AIM Income Fund.........................................................................................13
AIM Municipal Bond Fund.................................................................................14
PURCHASES AND REDEMPTIONS........................................................................................15
Net Asset Value Determination...........................................................................15
The Distribution Agreement..............................................................................15
Suspension of Redemption Rights.........................................................................16
Redemptions by the Fund.................................................................................16
INVESTMENT PROGRAM AND RESTRICTIONS..............................................................................16
Investment Program......................................................................................16
Investment Restrictions.................................................................................18
PERFORMANCE INFORMATION..........................................................................................21
Yield Calculations......................................................................................21
Total Return Calculations...............................................................................21
Historical Portfolio Results............................................................................22
PORTFOLIO TRANSACTIONS...........................................................................................23
General Brokerage Policy................................................................................23
Allocation of Portfolio Transactions....................................................................23
Section 28(e) Standards.................................................................................24
Portfolio Turnover......................................................................................25
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS.........................................................................25
Dividends and Distributions.............................................................................25
Tax Matters.............................................................................................25
Qualification as a Regulated Investment Company.........................................................25
Excise Tax on Regulated Investment Companies............................................................27
Fund Distributions......................................................................................27
Sale or Redemption of Fund Shares.......................................................................28
Foreign Shareholders....................................................................................28
Effect of Future Legislation; Local Tax Considerations..................................................29
MISCELLANEOUS INFORMATION........................................................................................29
</TABLE>
i
<PAGE> 350
<TABLE>
<S> <C>
Shareholder Inquiries...................................................................................29
Audit Reports...........................................................................................29
Legal Matters...........................................................................................29
Transfer Agent and Custodian............................................................................29
Other Information.......................................................................................30
FINANCIAL STATEMENTS.............................................................................................FS
</TABLE>
ii
<PAGE> 351
INTRODUCTION
AIM Investment Securities Funds (the "Trust") is a series mutual fund
currently offering seven investment portfolios: the AIM Limited Maturity
Treasury Fund (the "Fund") AIM High Yield Fund, AIM High Yield Fund II, AIM
Income Fund, AIM Intermediate Government Fund, AIM Money Market Fund and AIM
Municipal Bond Fund. Currently, the Fund has two classes of shares, consisting
of the Institutional Class and the Class A shares. This Statement of Additional
Information relates solely to the Institutional Class of the Fund.
The rules and regulations of the United States Securities and Exchange
Commission (the "SEC") require all mutual funds to furnish prospective investors
certain information concerning the activities of the fund being considered for
investment. This information is included in a Prospectus for the Institutional
Class (the "Prospectus"), dated November 28, 2000. Copies of the Prospectus and
additional copies of this Statement of Additional Information may be obtained
without charge by writing the principal distributor of the Fund's shares, A I M
Fund Services, Inc., P.O. Box 0843, Houston, Texas 77001-0843 or by calling
(800) 659-1005. Investors must receive a Prospectus before they invest.
This Statement of Additional Information is intended to furnish
prospective investors with additional information concerning the Institutional
Class. Some of the information required to be in this Statement of Additional
Information is also included in the current Prospectus; and, in order to avoid
repetition, reference will be made to sections of the Prospectus. Additionally,
the Prospectus and this Statement of Additional Information omit certain
information contained in the registration statement filed with the SEC. Copies
of the registration statement, including items omitted from the Prospectus and
this Statement of Additional Information, may be obtained from the SEC by paying
the charges prescribed under its rules and regulations.
GENERAL INFORMATION ABOUT THE FUND
THE FUND AND ITS SHARES
The Fund is an open-end, series portfolio of the Trust. The Trust is an
open-end, series, management investment company, and may consist of one or more
series portfolios as authorized from time to time by the Board of Trustees. The
Trust was originally organized as a Maryland corporation on November 4, 1988. On
October 15, 1993, the Trust was reorganized as a Delaware business trust and the
Fund, which previously had been a portfolio of another open-end investment
company, was redomesticated as a portfolio of the Trust. A copy of the Trust's
Amended and Restated Agreement and Declaration of Trust, dated November 5, 1998,
as amended (the "Declaration of Trust"), is on file with the SEC.
Shares of beneficial interest of the Fund will be redeemable at the net
asset value thereof at the option of the shareholder, or at the option of the
Fund in certain circumstances.
Shareholders of the Trust do not have cumulative voting rights.
Therefore, the holders of more than 50% of the outstanding shares of all series
or classes voting together for election of trustees may elect all of the members
of the Board of Trustees and in such event, the remaining holders cannot elect
any members of the Board of Trustees.
The Declaration of Trust provides for the perpetual existence of the
Trust. The Trust or any portfolio or class thereof, however, may be terminated
at any time, upon the recommendation of the Board of Trustees, by vote of the
holders of a majority of the outstanding shares of the Trust, such portfolio or
such class, respectively; provided, however, that the Board of Trustees may
terminate, without such shareholder approval, the Trust, any portfolio or any
class thereof with respect to which there are fewer than 100 holders of record.
1
<PAGE> 352
The Declaration of Trust permits the trustees to issue an unlimited
number of full and fractional shares, $0.01 par value, of each class of shares
of beneficial interest of the Trust. The Board of Trustees may establish
additional series or classes of shares from time to time without shareholder
approval. Additional information concerning the rights of share ownership is set
forth in the prospectus applicable to each such class or series of shares of the
Trust.
The assets received by the Trust for the issuance or sale of shares of
each class relating to a portfolio and all income, earnings, profits, losses and
proceeds therefrom, subject only to the rights of creditors, will be allocated
to that portfolio, and constitute the underlying assets of that portfolio. The
underlying assets of each portfolio will be segregated and will be charged with
the expenses with respect to that portfolio and with a share of the general
expenses of the Trust. While certain expenses of the Trust will be allocated to
the separate books of account of each portfolio, certain other expenses may be
legally chargeable against the assets of the entire Trust.
Under Delaware law, shareholders of a Delaware business trust shall be
entitled to the same limitations of liability extended to shareholders of
private for-profit corporations, however, there is a remote possibility that
shareholders could, under certain circumstances, be held liable for the
obligations of the Trust to the extent the courts of another state which does
not recognize such limited liability were to apply the laws of such state to a
controversy involving such obligations. However, the Trust Agreement disclaims
shareholder liability for acts or obligations of the Trust and requires that
notice of such disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Trust or the trustees to all parties, and each
party thereto must expressly waive all rights of action directly against
shareholders of the Trust. The Trust Agreement provides for indemnification out
of the property of a Fund for all losses and expenses of any shareholder of such
Fund held liable on account of being or having been a shareholder. Thus, the
risk of a shareholder incurring financial loss due to shareholder liability is
limited to circumstances in which the Fund would be unable to meet its
obligations and wherein the complaining party was held not to be bound by the
disclaimer.
The Declaration of Trust further provides that the trustees and
officers of the Trust will not be personally responsible for any act, omission
or obligation of the Trust or any trustee or officer. However, nothing in the
Declaration of Trust protects a trustee against any liability to the Trust or to
the shareholders to which a trustee or officer would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office with the Trust.
The Declaration of Trust provides for indemnification by the Trust of the
trustees and the officers, employees or agents of the Trust if it is determined
that such person acted in good faith and reasonably believed: (1) in the case of
conduct in his official care or conduct in his official capacity for the Trust,
that his conduct was in the Trust's best interests, (2) in all of the cases,
that his conduct was at least not opposed to the Trust's best interests and (3)
in a criminal proceeding, that he had no reason to believe that his conduct was
unlawful. Such person may not be indemnified against any liability to the Trust
or to the Trust's shareholders to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office. The Declaration of Trust also
authorizes the purchase of liability insurance on behalf of trustees and
officers.
All shares of the Trust have equal rights with respect to voting,
except that (i) the holders of shares of all classes of a particular portfolio,
voting together, will have the exclusive right to vote on matters (such as
advisory fees) pertaining solely to that portfolio, and (ii) the holders of
shares of a particular class will have the exclusive right to vote on matters
pertaining to distribution plans or shareholder service plans, if any such plans
are adopted, relating solely to such class. The holders of each class have
distinctive rights with respect to dividends. In the event of dissolution or
liquidation, holders of each portfolio's shares will receive pro rata, subject
to the rights of creditors, (a) the proceeds of the sale of the assets held in
the respective portfolio to which such shares related, less (b) the liabilities
of the Trust attributable to the respective portfolio or allocated between the
portfolios based on the respective liquidation values of each such portfolio.
2
<PAGE> 353
The Trust will not normally hold annual shareholders' meetings. At such
time as less than a majority of the trustees have been elected by the
shareholders, the trustees then in office will call a shareholders' meeting for
the election of trustees. In addition, trustees may be removed from office by a
written instrument signed by at least two-thirds of the trustees of the Trust or
by a vote of the holders of two-thirds of the outstanding shares present at a
meeting of which a quorum is present and which has been duly called for that
purpose, which meeting shall be held upon written request of the holders of not
less than 10% of the outstanding shares of the Trust's shares.
As used herein, the term "majority of the outstanding shares" of
beneficial interest of the Trust or a portfolio means, respectively, the lesser
of (i) 67% or more of the shares of beneficial interest of the Trust or the
portfolio present at a meeting, if the holders of more than 50% of the
outstanding shares of beneficial interest of the Trust or the portfolio are
present or represented by proxy, or (ii) more than 50% of the outstanding shares
of beneficial interest of the Trust or the portfolio.
The Institutional Class and the Class A shares of the Fund have
different shareholders and are allocated certain differing class expenses, such
as distribution and/or service fees related to their respective shares. To
obtain information about the Class A shares, please call A I M Fund Services,
Inc., a registered broker-dealer and wholly owned subsidiary of A I M Advisors,
Inc. ("AIM"), at (800) 347-4246. A I M Distributors ("AIM Distributors") is the
exclusive distributor of the Trust's shares.
There are no preemptive or conversion rights applicable to any of the
Trust's shares. The Trust's shares, when issued, will be fully paid and
non-assessable. The Board of Trustees may create additional classes or series of
the Trust's shares without shareholder approval.
MANAGEMENT
The overall management of the business and affairs of the Fund is
vested in the Trust's Board of Trustees. The Board of Trustees approves all
significant agreements between the Trust, on behalf of the Fund, and persons or
companies furnishing services to the Fund, including the Master Investment
Advisory Agreement and Master Administrative Services Agreement with AIM, the
agreement with AIM Distributors regarding distribution of the Fund's shares, the
agreement with The Bank of New York as the custodian and the agreement with
A I M Fund Services, Inc. ("AFS") as transfer agent. The day-to-day operations
of the Fund is delegated to the officers of the Trust and to AIM, subject always
to the investment objective, restrictions and policies of the Fund and to the
general supervision of the Board of Trustees. Certain trustees and officers of
the Trust are affiliated with AIM and A I M Management Group Inc. ("AIM
Management"), the parent corporation of AIM.
TRUSTEES AND OFFICERS
The trustees and officers of the Trust and their principal occupations
during at least the last five years are set forth below. Unless otherwise
indicated, the address of each trustee and officer is 11 Greenway Plaza, Suite
100, Houston, Texas 77046-1173. All of the trustees of the Trust also serve as
directors or trustees of some or all of the other investment companies managed
or advised by AIM ("AIM Funds"). Certain of the executive officers of the Trust
hold similar offices with some or all of such investment companies.
3
<PAGE> 354
<TABLE>
<CAPTION>
======================================== ======================= ====================================================
POSITIONS HELD WITH PRINCIPAL OCCUPATION DURING AT LEAST THE PAST
NAME, ADDRESS AND AGE REGISTRANT 5 YEARS
======================================== ======================= ====================================================
<S> <C> <C>
*ROBERT H. GRAHAM (53) Trustee, Chairman and Director, President and Chief Executive Officer,
President A I M Management Group Inc.; Director and President,
A I M Advisors, Inc.; Director and Senior Vice
President, A I M Capital Management, Inc., A I M
Distributors, Inc., A I M Fund Services, Inc., and
Fund Management Company; and Director and Chief
Executive Officer, Managed Products, AMVESCAP PLC.
---------------------------------------- ----------------------- ----------------------------------------------------
BRUCE L. CROCKETT (56) Trustee Director, ACE Limited (insurance company).
906 Frome Lane Formerly, Director, President and Chief Executive
McLean, VA 22102 Officer, COMSAT Corporation; and Chairman, Board
of Governors of INTELSAT (international
communications company).
---------------------------------------- ----------------------- ----------------------------------------------------
OWEN DALY II (76) Trustee Formerly, Director, Cortland Trust Inc.
Six Blythewood Road (investment company). CF & I Steel Corp.,
Baltimore, MD 21210 Monumental Life Insurance Company and Monumental
General Insurance Company; and Chairman of the
Board of Equitable Bancorporation.
---------------------------------------- ----------------------- ----------------------------------------------------
EDWARD K. DUNN, JR. (65) Trustee Formerly, Chairman of the Board of Directors,
2 Hopkins Plaza, 8th Floor, Mercantile Mortgage Corp.; Vice Chairman of the
Suite 805 Board of Directors, President and Chief Operating
Baltimore, MD 21201 Officer, Mercantile-Safe Deposit & Trust Co.; and
President, Mercantile Bankshares.
---------------------------------------- ----------------------- ----------------------------------------------------
JACK M. FIELDS (48) Trustee Chief Executive Officer, Texana Global, Inc.
434 New Jersey Avenue, S.E. (foreign trading company) and Twenty First Century
Washington, DC 20003 Group, Inc. (a governmental affairs company).
Formerly, Member of the U.S. House of
Representatives.
---------------------------------------- ----------------------- ----------------------------------------------------
**CARL FRISCHLING (63) Trustee Partner, Kramer Levin Naftalis & Frankel LLP (law
919 Third Avenue firm).
New York, NY 10022
======================================== ======================= ====================================================
</TABLE>
* A trustee who is an "interested person" of the Trust and AIM as defined in
the 1940 Act.
** A trustee who is an "interested person" of the Trust as defined in the 1940
Act.
4
<PAGE> 355
<TABLE>
<CAPTION>
======================================== ======================= ====================================================
POSITIONS HELD WITH PRINCIPAL OCCUPATION DURING AT LEAST THE PAST
NAME, ADDRESS AND AGE REGISTRANT 5 YEARS
======================================== ======================= ====================================================
<S> <C> <C>
PREMA MATHAI-DAVIS (50) Trustee Formerly, Chief Executive Officer, YWCA of the USA.
370 East 76th Street
New York, NY 10021
---------------------------------------- ----------------------- ----------------------------------------------------
LEWIS F. PENNOCK (58) Trustee Partner, Pennock & Coopers (law firm).
6363 Woodway, Suite 825
Houston, TX 77057
---------------------------------------- ----------------------- ----------------------------------------------------
LOUIS S. SKLAR (61) Trustee Executive Vice President, Development and
The Williams Tower, 50th Floor Operations, Hines Interests Limited Partnership
2800 Post Oak Blvd. (real estate development).
Houston, TX 77056
---------------------------------------- ----------------------- ----------------------------------------------------
GARY T. CRUM (53) Senior Vice President Director and President, A I M Capital Management,
Inc.; Director and Executive Vice President, A I M
Management Group Inc.; Director and Senior Vice
President, A I M Advisors, Inc.; and Director, A I M
Distributors, Inc. and AMVESCAP PLC.
---------------------------------------- ----------------------- ----------------------------------------------------
CAROL F. RELIHAN (46) Senior Vice President Director, Senior Vice President, General Counsel
and Secretary and Secretary, A I M Advisors, Inc; Senior Vice
President, General Counsel and Secretary, A I M
Management Group Inc.; Director, Vice President
and General Counsel, Fund Management Company;
General Counsel and Vice President, A I M Fund
Services, Inc.; and Vice President,
A I M Capital Management, Inc. and A I M
Distributors, Inc.
---------------------------------------- ----------------------- ----------------------------------------------------
DANA R. SUTTON (41) Vice President and Vice President and Fund Controller, A I M
Treasurer Advisors, Inc.; and Assistant Vice President and
Assistant Treasurer, Fund Management Company.
---------------------------------------- ----------------------- ----------------------------------------------------
MELVILLE B. COX (57) Vice President Vice President and Chief Compliance Officer, A I M
Advisors, Inc., A I M Capital Management, Inc.,
A I M Distributors, Inc., A I M Fund Services, Inc.
and Fund Management Company.
---------------------------------------- ----------------------- ----------------------------------------------------
KAREN DUNN KELLEY (40) Vice President Senior Vice President, A I M Capital Management,
Inc. and Vice President, A I M Advisors, Inc.
======================================== ======================= ====================================================
</TABLE>
5
<PAGE> 356
The standing Committees of the Board of Trustees are the Audit
Committee, the Investments Committee and the Nominating and Compensation
Committee.
The members of the Audit Committee are Messrs. Crockett, Daly, Dunn
(Chairman), Fields, Frischling, Pennock and Sklar and Dr. Mathai-Davis. The
Audit Committee is responsible for: (i) considering management's recommendations
of independent accountants for the Fund and evaluating such accountants'
performance, costs and financial stability; (ii) with AIM, reviewing and
coordinating audit plans prepared by the Funds' independent accountants and
management's internal audit staff; and (iii) reviewing financial statements
contained in periodic reports to shareholders with the Fund's independent
accountants and management.
The members of the Investments Committee are Messrs. Crockett, Daly,
Dunn, Fields, Frischling, Pennock and Sklar (Chairman) and Dr. Mathai-Davis. The
Investments Committee is responsible for: (i) overseeing AIM's
investment-related compliance systems and procedures to ensure their continued
adequacy; and (ii) considering and acting, on an interim basis between meetings
of the full Board, on investment-related matters requiring Board consideration,
including dividends and distributions, brokerage policies and pricing matters.
The members of the Nominating and Compensation Committee are Messrs.
Crockett (Chairman), Daly, Dunn, Fields, Pennock and Sklar and Dr. Mathai-Davis.
The Nominating and Compensation Committee is responsible for: (i) considering
and nominating individuals to stand for election as independent trustees as long
as the Trust maintains a distribution plan pursuant to Rule 12b-1 under the 1940
Act; (ii) reviewing from time to time the compensation payable to the
independent trustees; and (iii) making recommendations to the Board regarding
matters related to compensation, including deferred compensation plans and
retirement plans for the independent trustees.
The Nominating and Compensation Committee will consider nominees
recommended by a shareholder to serve as trustees, provided (i) that such person
is a shareholder of record at the time he or she submits such names and is
entitled to vote at the meeting of shareholders at which trustees will be
elected, and (ii) that the Nominating and Compensation Committee or the Board,
as applicable, shall make the final determination of persons to be nominated.
REMUNERATION OF TRUSTEES
Each trustee is reimbursed for expenses incurred in connection with
each meeting of the Board of Trustees or any Committee attended. Each trustee
who is not also an officer of the Trust is compensated for his or her services
according to a fee schedule which recognizes the fact that such trustee also
serves as a trustee or director of other funds advised by AIM or A I M Capital
Management, Inc. (collectively, the "AIM Funds"). Each such trustee receives a
fee, allocated among the AIM Funds for which he or she serves as a director or
trustee, which consists of an annual retainer component and a meeting fee
component.
6
<PAGE> 357
Set forth below is information regarding compensation paid or accrued
for each trustee of the Trust:
<TABLE>
<CAPTION>
=================================== ===================== ====================== ======================
RETIREMENT
AGGREGATE BENEFITS TOTAL
COMPENSATION ACCRUED COMPENSATION
FROM THE BY ALL FROM ALL
TRUSTEE TRUST(1) AIM FUNDS(2) AIM FUNDS(3)
----------------------------------- --------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Charles T. Bauer(4) $ 0 $ 0 $ 0
----------------------------------- --------------------- ---------------------- ----------------------
Bruce L. Crockett 5,461 37,485 103,500
----------------------------------- --------------------- ---------------------- ----------------------
Owen Daly II 5,461 122,898 103,500
----------------------------------- --------------------- ---------------------- ----------------------
Edward K. Dunn, Jr 5,461 55,565 103,500
----------------------------------- --------------------- ---------------------- ----------------------
Jack M. Fields 5,421 15,826 101,500
----------------------------------- --------------------- ---------------------- ----------------------
Carl Frischling(5) 5,461 97,791 103,500
----------------------------------- --------------------- ---------------------- ----------------------
Robert H. Graham 0 0 0
----------------------------------- --------------------- ---------------------- ----------------------
John F. Kroeger(6) 0 40,461 0
----------------------------------- --------------------- ---------------------- ----------------------
Prema Mathai-Davis 5,422 11,870 101,500
----------------------------------- --------------------- ---------------------- ----------------------
Lewis F. Pennock 5,461 45,766 103,500
----------------------------------- --------------------- ---------------------- ----------------------
Ian W. Robinson(6) 0 94,442 25,000
----------------------------------- --------------------- ---------------------- ----------------------
Louis S. Sklar 5,422 90,232 101,500
=================================== ===================== ====================== ======================
</TABLE>
----------
(1) The total amount of compensation deferred by all trustees of the Trust
during the fiscal year ended July 31, 2000, including earnings thereon, was
$39,147.
(2) During the fiscal year ended July 31, 2000, the total estimated amount of
expenses allocated to the Trust in respect of such retirement benefits was
$12,655. Data reflects compensation estimated for the calendar year ended
December 31, 1999.
(3) Each trustee serves as a director or trustee of a total of 12 registered
investment companies advised by AIM as of December 31, 1999. Data reflects
total compensation earned during the calendar year ended December 31, 1999.
(4) Mr. Bauer was a trustee and officer until September 30, 2000, when he
retired.
(5) During the fiscal year ended July 31, 2000, the Trust paid $22,567 in legal
fees to Mr. Frischling's law firm, Kramer Levin Naftalis & Frankel, LLP
for services rendered to the independent trustees of the Trust.
(6) Mr. Kroeger was a trustee until June 11, 1998. Mr. Kroeger passed away on
November 26, 1998. Mr. Kroeger's widow will receive his pension as
described below under "AIM Funds Retirement Plan for Eligible
Directors/Trustees".
(7) Mr. Robinson was a trustee until March 12, 1999, when he retired.
7
<PAGE> 358
AIM FUNDS RETIREMENT PLAN FOR ELIGIBLE DIRECTORS/TRUSTEES
Under the terms of the AIM Funds Retirement Plan for Eligible
Directors/Trustees (the "Plan"), each trustee (who is not an employee of any of
the AIM Funds, AIM Management or any of their affiliates) may be entitled to
certain benefits upon retirement from the Board of Trustees. Pursuant to the
Plan, a trustee becomes eligible to retire and receive full benefits under the
Plan when he or she has attained age 65 and has completed at least five years of
continuous service with one or more of the regulated investment companies
managed, administered or distributed by AIM or its affiliates (the "Applicable
AIM Funds"). Each eligible trustee is entitled to receive an annual benefit from
the Applicable AIM Funds commencing on the first day of the calendar quarter
coincident with or following his or her date of retirement equal to a maximum of
75% of the annual retainer paid or accrued by the Applicable AIM Funds for such
trustee during the twelve-month period immediately preceding the trustee's
retirement (including amounts deferred under a separate agreement between the
Applicable AIM Funds and the trustee) and based on the number of such trustee's
years of service (not in excess of 10 years of service) completed with respect
to any of the Applicable AIM Funds. Such benefit is payable to each eligible
trustee in quarterly installments. If an eligible trustee dies after attaining
the normal retirement date but before receipt of all benefits under the Plan,
the trustee's surviving spouse (if any) shall receive a quarterly survivor's
benefit equal to 50% of the amount payable to the deceased trustee for no more
than ten years beginning the first day of the calendar quarter following the
date of the trustee's death. Payments under the Plan are not secured or funded
by any Applicable AIM Fund.
Set forth below is a table that shows the estimated annual benefits
payable to an eligible trustee upon retirement assuming the retainer amount
reflected below and various years of service. The estimated credited years of
service for Messrs. Crockett, Daly, Dunn, Fields, Frischling, Kroeger, Pennock,
Robinson and Sklar and Dr. Mathai-Davis are 13, 13, 2, 3, 23, 20, 19, 11, 11,
and 2 years, respectively.
ESTIMATED ANNUAL BENEFITS UPON RETIREMENT
<TABLE>
<CAPTION>
================== =======================================================
Number of Years
of Service With Estimated Annual Benefits Upon Retirement
AIM Funds
================== =======================================================
<S> <C>
10 $75,000
------------------ -------------------------------------------------------
9 $67,500
------------------ -------------------------------------------------------
8 $60,000
------------------ -------------------------------------------------------
7 $52,500
------------------ -------------------------------------------------------
6 $45,000
------------------ -------------------------------------------------------
5 $37,500
================== =======================================================
</TABLE>
DEFERRED COMPENSATION AGREEMENTS
Messrs. Daly, Dunn, Fields, Frischling, and Sklar and Dr. Mathai-Davis
(the "Deferring Trustees") have each executed a Deferred Compensation Agreement.
Pursuant to the agreements, the Deferring Trustees may elect to defer receipt of
up to 100% of their compensation payable by the Trust, and such amounts are
placed into a deferral account. Currently, the Deferring Trustees may select
various AIM Funds in which all or part of their deferral accounts shall be
deemed to be invested. Distributions from the Deferring Trustees' deferral
accounts will be paid in cash, in generally equal quarterly installments over a
8
<PAGE> 359
period of five (5) or ten (10) years (depending on the agreement) beginning on
the date the Deferring Trustee's retirement benefits commence under the Plan.
The Trust's Board of Trustees, in its sole discretion, may accelerate or extend
the distribution of such deferral accounts after the Deferring Trustee's
termination of service as a trustee of the Trust. If a Deferring Trustee dies
prior to the distribution of amounts in his or her deferral account, the balance
of the deferral account will be distributed to his or her designated beneficiary
in a single lump sum payment as soon as practicable after such deferring
trustee's death. The Agreements are not funded and, with respect to the payments
of amounts held in the deferral accounts, the Deferring Trustees have the status
of unsecured creditors of the Trust and of each other AIM Fund from which they
are deferring compensation.
THE INVESTMENT ADVISOR
AIM, 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173, serves as
the investment advisor to the Fund pursuant to a Master Investment Advisory
Agreement with the Trust (the "Advisory Agreement"), and a Master Administrative
Services Agreement with AIM. AIM was organized in 1976, and together with its
subsidiaries, advises or manages over 120 investment portfolios encompassing a
broad range of investment objectives.
AIM is a wholly owned subsidiary of AIM Management, 11 Greenway Plaza,
Suite 100, Houston, Texas 77046-1173. AIM Management is a holding company that
has been engaged in the financial services business since 1976. AIM Management
is an indirect wholly owned subsidiary of AMVESCAP PLC, 11 Devonshire Square,
London EC2M 4YR, United Kingdom. AMVESCAP PLC and its subsidiaries are an
independent investment management group engaged in institutional investment
management and retail fund businesses in the United States, Europe and the
Pacific Region. Certain of the directors and officers of AIM are also executive
officers of the Trust and their affiliations are shown under "Trustees and
Officers." A I M Capital Management, Inc. ("AIM Capital"), a wholly owned
subsidiary of AIM, is engaged in the business of providing investment advisory
services to investment companies, corporations, institutions and other accounts.
AIM and the Trust have adopted a Code of Ethics which requires
investment personnel and certain other employees (a) pre-clear all personal
securities transactions subject to the Code of Ethics; (b) file reports
regarding such transactions; (c) refrain from personally engaging in (i)
short-term trading of a security, (ii) transactions involving a security within
seven days of an AIM Fund transaction involving the same security, (subject to a
de minimis exception), and (iii) transactions involving securities being
considered for investment by an AIM Fund (subject to a de minimis exception);
and (d) abide by certain other provisions of the Code of Ethics. The de minimis
exception under the Code of Ethics covers situations where there are no material
conflict of interest because of the large market capitalization of a security
and the relatively small number of shares involved in a personal transaction.
The Code of Ethics also prohibits employees from purchasing securities in an
initial public offering. Personal trading reports are periodically reviewed by
AIM, and the Board of Trustees reviews quarterly and annual reports (which
summarize any significant violations of the Code of Ethics). Sanctions for
violations of the Code of Ethics may include censure, monetary penalties,
suspension or termination of employment.
The Advisory Agreement will continue from year to year only if such
continuance is specifically approved at least annually by (i) the Trust's Board
of Trustees or the vote of a "majority of the outstanding voting securities" of
the Fund (as defined in the 1940 Act) and (ii) the affirmative vote of a
majority of the trustees who are not parties to the Advisory Agreement or
"interested persons" of any such party (the "Non-Interested Trustees") by votes
cast in person at a meeting called for such purpose. The Trust or AIM may
terminate the Advisory Agreement on sixty (60) days' written notice without
penalty. The Advisory Agreement terminates automatically in the event of its
"assignment," as defined in the 1940 Act.
Pursuant to the terms of the Advisory Agreement, AIM manages the
investments of the Fund and obtains and evaluates economic, statistical and
financial information to formulate and implement investment policies for the
Fund. Any investment program undertaken by AIM will at all times be subject to
the policies and control of the Trust's Board of Trustees. AIM shall not be
liable to the Fund or its shareholders for any act or omission by AIM or for any
loss sustained by the Fund or its shareholders
9
<PAGE> 360
except in the case of willful misfeasance, bad faith, gross negligence or
reckless disregard of duty. Pursuant to the Advisory Agreement, AIM receives a
fee as compensation for its services with respect to the Fund, calculated daily
and paid monthly, at an annual rate equal to 0.20% of the first $500 million of
the Fund's aggregate average daily net assets, plus 0.175% of the Fund's
aggregate average daily net assets in excess of $500 million.
In addition, if a Fund engages in securities lending, AIM will provide
the Fund investment advisory services and related administrative services. The
Advisory Agreement describes the administrative services to be rendered by AIM
if a Fund engages in securities lending activities, as well as the compensation
AIM may receive for such administrative services. Services to be provided
include: (a) overseeing participation in the securities lending program to
ensure compliance with all applicable regulatory and investment guidelines; (b)
assisting the securities lending agent or principal (the agent) in determining
which specific securities are available for loan; (c) monitoring the agent to
ensure that securities loans are effected in accordance with AIM's instructions
and with procedures adopted by the Board; (d) preparing appropriate periodic
reports for, and seeking appropriate approvals from, the Board with respect to
securities lending activities; (e) responding to agent inquiries; and (f)
performing such other duties as may be necessary.
AIM's compensation for advisory services rendered in connection with
securities lending is included in the advisory fee schedule. As compensation for
the related administrative services AIM will provide, a lending Fund will pay
AIM a fee equal to 25% of the net monthly interest or fee income retained or
paid to the Fund from such activities. AIM currently intends to waive such fees,
and has agreed to seek Board approval prior to its receipt of all or a portion
of such fees.
AIM may from time to time waive or reduce its fee. Voluntary fee
waivers or reductions may be rescinded at any time without further notice to
investors. During periods of voluntary fee waivers or reductions, AIM will
retain its ability to be reimbursed for such fee prior to the end of each fiscal
year. Contractual fee waivers or reductions set forth in the Fee Table in a
Prospectus may not be terminated or amended to the Funds' detriment during the
period stated in the agreement between AIM and the Fund.
In addition to the fees paid to AIM pursuant to the Advisory Agreement
and the Master Administrative Services Agreement, the Trust, on behalf of the
Fund, also pays or causes to be paid all other expenses attributable to the
Fund, including, without limitation: the charges and expenses of any registrar,
any custodian or depository appointed by the Trust for the safekeeping of cash,
portfolio securities and other property, and any transfer, dividend or
accounting agent or agents; brokers' commissions in connection with portfolio
securities transactions of the Fund; all taxes, including securities issuance
and transfer taxes, and fees payable to federal, state or other governmental
agencies; the cost and expenses of engraving or printing share certificates; all
costs and expenses in connection with registration and maintenance of
registration with the SEC and various states and other jurisdictions (including
filing and legal fees and disbursements of counsel); the costs and expenses of
printing, including typesetting, and distributing proxy statements, reports to
shareholders, prospectuses and statements of additional information of the Fund
and supplements thereto; expenses of shareholders' and trustees' meetings; fees
and travel expenses of trustees and trustee members of any advisory board or
committee; expenses incident to the payment of any dividend, distribution,
withdrawal or redemption, whether in shares or in cash; charges and expenses of
any outside pricing service; fees and expenses of legal counsel, including
counsel to the Non-Interested Trustees of the Trust or AIM, and of independent
accountants; membership dues of industry associations; interest payable on
borrowings; postage; insurance premiums on property or personnel (including
officers and trustees) of the Trust; and extraordinary expenses (including but
not limited to, legal claims and liabilities and litigation costs and any
indemnification related thereto). AIM Distributors bears the expenses of
printing and distributing reports to shareholders, prospectuses and statements
of additional information (other than those reports to shareholders,
prospectuses and statements of additional information distributed to existing
shareholders of the Institutional Shares) and any other promotional or sales
literature used by AIM Distributors or furnished by AIM Distributors to
purchasers or dealers in connection with the public offering of shares of the
Institutional Shares.
10
<PAGE> 361
Expenses of the Trust which are not directly attributable to the
operations of any class of shares or Portfolio of the Trust are prorated among
all classes of the Trust based upon the relative net assets of each class or
Portfolio. Expenses of the Trust which are not directly attributable to a
specific class of shares but are directly attributable to a specific Portfolio
are prorated among all classes of such Portfolio based upon the relative net
assets of each such class. Expenses of the Trust which are directly attributable
to a specified class of shares are charged against the income available for
distribution as dividends to such shares.
During the fiscal years ended July 31, 2000, 1999 and 1998, AIM
received advisory fees of $705,741, $850,738 and $855,900, respectively,
pursuant to the Advisory Agreement. During the fiscal years ended July 31, 2000,
1999, and 1998, AIM was reimbursed $80,566, $70,069 and $59,396, respectively,
pursuant to the Administrative Services Agreement.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To the best of the Trust's knowledge, as of November 1, 2000, the
trustees and officers of the Trust owned less than 1% of the outstanding shares
of all classes of the Trust except for the trustees and officers of AIM
Municipal Bond Fund which own 3.76% of the Class A Shares.
To the best of the Trust's knowledge, the names and addresses of the
holders of 5% or more of the outstanding shares of the Trust as of November 1,
2000, and the percent of outstanding shares owned by such shareholders are as
follows:
LIMITED MATURITY TREASURY FUND
<TABLE>
<CAPTION>
Percentage Percentage Owned
Name and Address Owned of of Record and
of Owner Record* Beneficially
----------------------------------- ---------- ----------------
<S> <C> <C>
INSTITUTIONAL CLASS:
Esor & Co. 56.42% -0-
Attn: Trust Operations
P.O. Box 19006
Green Bay, WI 54307-9006
Frost National Bank Tx 43.01% -0-
Muir & Co. c/o Frost
P.O. Box 2479
San Antonio, TX 78298-2479
CLASS A SHARES:
Merrill Lynch Pierce Fenner & Smith 11.84% -0-
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
</TABLE>
----------
* The Trust has no knowledge as to whether all or any portion of the shares
owned of record are also owned beneficially.
11
<PAGE> 362
<TABLE>
<CAPTION>
Percentage Percentage Owned
Name and Address Owned of of Record and
of Owner Record* Beneficially
----------------------------------- ---------- ----------------
<S> <C> <C>
AIM HIGH YIELD FUND
CLASS A SHARES:
Charles Schwab & Co., Inc. 5.42% -0-
Reinvestment Account
101 Montgomery St.
San Francisco, CA 94104
Merrill Lynch Pierce Fenner & Smith 5.20% -0-
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
CLASS B SHARES:
Merrill Lynch Pierce Fenner & Smith 12.52% -0-
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
CLASS C SHARES:
Banc One Securities Corp 14.69% -0-
FBO The One Investment Solution
733 Greencrest Drive
Westerville, OH 43081
Merrill Lynch Pierce Fenner & Smith 14.34% -0-
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
AIM HIGH YIELD FUND II
CLASS A SHARES:
Jonathan C. Schoolar SEP Prop -0- 9.98%
3722 Tartan Lane
Houston, TX 77025
</TABLE>
----------
* The Trust has no knowledge as to whether all or any portion of the shares
owned of record are also owned beneficially.
12
<PAGE> 363
<TABLE>
<CAPTION>
Percentage Percentage Owned
Name and Address Owned of of Record and
of Owner Record* Beneficially
----------------------------------- ---------- ----------------
<S> <C> <C>
Charles Schwab & Co., Inc. 5.29% -0-
Reinvestment Account
101 Montgomery St.
San Francisco, CA 94104
CLASS B SHARES:
Merrill Lynch Pierce Fenner & Smith 9.25% -0-
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
CLASS C SHARES:
Merrill Lynch Pierce Fenner & Smith 8.17% -0-
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
AIM INCOME FUND
CLASS B SHARES:
Merrill Lynch Pierce Fenner & Smith 7.47% -0-
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
CLASS C SHARES:
Merrill Lynch Pierce Fenner & Smith 15.33% -0-
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
AIM INTERMEDIATE GOVERNMENT FUND
CLASS A SHARES:
Merrill Lynch Pierce Fenner & Smith 5.18% -0-
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
</TABLE>
----------
* The Trust has no knowledge as to whether all or any portion of the shares
owned of record are also owned beneficially.
13
<PAGE> 364
<TABLE>
<CAPTION>
Percentage Percentage Owned
Name and Address Owned of of Record and
of Owner Record* Beneficially
----------------------------------- ---------- ----------------
<S> <C> <C>
CLASS B SHARES:
Merrill Lynch Pierce Fenner & Smith 15.96% -0-
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
CLASS C SHARES:
Merrill Lynch Pierce Fenner & Smith 16.10% -0-
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
Banc One Securities Corp. 5.05% -0-
FBO The One Investment Solution
733 Greencrest Drive
Westerville, OH 43081
AIM MUNICIPAL BOND FUND
CLASS B SHARES:
Merrill Lynch Pierce Fenner & Smith 10.62% -0-
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
CLASS C SHARES:
Merrill Lynch Pierce Fenner & Smith 17.90% -0-
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
Reagan Family Partners
Robert L. Reagan, General Partner
Dalene C. Reagan, General Partner
125 Crestline Dr.
Kerrville, TX 78028 -0- 6.20%
</TABLE>
----------
* The Trust has no knowledge as to whether all or any portion of the shares
owned of record are also owned beneficially.
14
<PAGE> 365
PURCHASES AND REDEMPTIONS
NET ASSET VALUE DETERMINATION
A complete description of the manner by which shares of the
Institutional Class may be purchased appears in the Prospectus under the caption
"Purchasing Shares."
Shares of the Institutional Class are sold at the net asset value of
such shares. Shareholders may at any time redeem all or a portion of their
shares at net asset value. The investor's price for purchases and redemptions
will be the net asset value next determined following the receipt of an order to
purchase or a request to redeem shares. The net asset value of the Fund varies
depending on the market value of its assets.
In accordance with the current rules and regulations of the SEC, the
net asset value per share of the Fund is determined once daily as of the close
of the customary trading session of the New York Stock Exchange (the "NYSE")
which is generally 4:00 p.m. Eastern Time on each business day of the Fund. In
the event the NYSE closes early (i.e., before 4:00 p.m. Eastern Time) on a
particular day, the net asset value of a Fund share is determined as of the
close of the customary trading session of the NYSE on such day. Net asset value
per share of the Fund is determined by subtracting the liabilities (e.g.,
accrued expenses and dividends payable) of the Fund allocated to the class from
the value of securities, cash and other assets (including interest accrued but
not collected) of the Fund allocated to the class, and dividing the result by
the total number of shares outstanding of such class of the Fund. Determination
of the Fund's net asset value per share is made in accordance with generally
accepted accounting principles.
Securities will be valued on the basis of prices provided by an
independent pricing service. Prices provided by the pricing services may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as yield, type of issue, coupon rate, maturity and
seasoning differential. Securities for which prices are not provided by the
pricing service are valued at the mean between the last bid and asked prices
based upon quotes furnished by market makers for such securities. Securities for
which market quotations are not readily available are valued at fair value as
determined in good faith by or under the supervision of the Trust's officers in
accordance with methods which are specifically authorized by the Board of
Trustees of the Trust. Short-term obligations having sixty (60) days or less to
maturity are valued at amortized cost, which approximates market value. (See
also "Purchasing Shares," "Redeeming Shares" and "Pricing of Shares" in the
Prospectus.)
The Trust agrees to redeem shares of the Fund solely in cash up to the
lesser of $250,000 or 1% of the Fund's net assets during any 90-day period for
any one shareholder. In consideration of the best interests of the remaining
shareholders, the Trust reserves the right to pay any redemption price exceeding
this amount in whole or in part by a distribution in kind of securities held by
the Fund in lieu of cash. It is highly unlikely that shares would ever be
redeemed in kind. If shares are redeemed in kind, however, the redeeming
shareholder should expect to incur transaction costs upon the disposition of the
securities received in the distribution.
THE DISTRIBUTION AGREEMENT
The Trust has entered into a Distribution Agreement with AIM
Distributors (the "Distribution Agreement"), pursuant to which AIM Distributors
has agreed to act as the exclusive distributor of shares of the Institutional
Class. The address of AIM Distributors is P.O. Box 4739, Houston, Texas
77210-4739. The Distribution Agreement provides that AIM Distributors has the
exclusive right to distribute shares of the Institutional Class either directly
or through other broker-dealers. The Distribution Agreement also provides that
AIM Distributors will pay promotional expenses, including the incremental costs
of printing prospectuses and statements of additional information, annual
reports and other periodic reports for distribution to persons who are not
shareholders of the Institutional Class and the costs of preparing and
distributing any other supplemental sales literature. AIM Distributors has not
undertaken to sell any specified number of shares of the Institutional Class.
AIM Distributors does not receive any fees from the Fund pursuant to the
Distribution Agreement.
15
<PAGE> 366
AIM Distributors is a registered broker-dealer and is also a wholly
owned subsidiary of AIM. Certain trustees and officers of the Trust are
affiliated with AIM Distributors.
The Distribution Agreement will continue from year to year only if such
continuation is specifically approved at least annually by (i) the Trust's Board
of Trustees or the vote of a "majority of the outstanding securities" of the
Fund (as defined in the 1940 Act) and (ii) the affirmative vote of a majority of
the Non-Interested Trustees by votes cast in person at a meeting called for such
purpose. The Fund or AIM Distributors may terminate the Distribution Agreement
on sixty (60) days' written notice without penalty. The Distribution Agreement
will terminate in the event of its "assignment," as defined in the 1940 Act.
SUSPENSION OF REDEMPTION RIGHTS
The right of redemption may be suspended or the date of payment upon
redemption may be postponed when (a) trading on the NYSE is restricted, as
determined by applicable rules and regulations of the SEC, (b) the NYSE is
closed for other than customary weekend or holiday closings, (c) the SEC has by
order permitted such suspension, or (d) an emergency, as determined by the SEC,
exists making disposition of portfolio securities or the valuation of the net
assets of the Fund not reasonably practicable.
REDEMPTIONS BY THE FUND
If your account has been open at least one year, you have not made an
additional purchase in the account during the past six calendar months, and the
value of your account falls below $500 for three consecutive months due to
redemptions or exchanges (excluding retirement accounts), the fund has the right
to redeem the account after giving you 60 days' prior written notice. You may
avoid having your account redeemed during the notice period by bringing the
account value up to $500.
If the fund determines that you have provided incorrect information in
opening an account or in the course of conducting subsequent transactions, the
fund may, at its discretion, redeem the account and distribute the proceeds to
you.
INVESTMENT PROGRAM AND RESTRICTIONS
Set forth in this section is a description of the Fund's investment
policies, strategies and practices. The investment objective of the Fund is a
non-fundamental policy and may be changed by the Board of Trustees without
shareholder approval. The Fund's investment policies, strategies and practices
are also non-fundamental. The Board of Trustees of the Trust reserves the right
to change any of these non-fundamental investment policies, strategies or
practices without shareholder approval. However, shareholders will be notified
before any material change in the investment policies becomes effective. The
Fund has adopted certain investment restrictions, some of which are fundamental
and cannot be changed without shareholder approval.
Any percentage limitations with respect to assets of a Fund will be
applied at the time of purchase. A later change in percentage resulting from
changes in asset values will not be considered a violation of the percentage
limitations. The percentage limitations applicable to borrowings and reverse
repurchase agreements will be applied in accordance with applicable provisions
of the 1940 Act and the rules and regulations promulgated thereunder which
specifically limit each Fund's borrowing abilities.
INVESTMENT PROGRAM
To achieve its objective, the Fund will invest in an actively managed
portfolio of U.S. Treasury notes and other direct obligations of the U.S.
Treasury. The Fund may invest in U.S. Treasury obligations, which are direct
obligations of the U.S. Treasury and which differ only in their interest rates,
maturities, and times of issuance, including U.S. Treasury bills, U.S. Treasury
notes and U.S. Treasury bonds. The Fund will attempt to enhance its total return
through capital appreciation when market factors, such as economic and market
conditions and the prospects for interest rate changes, indicate that capital
appreciation may be available without significant risk to principal. The Fund
does not intend
16
<PAGE> 367
to engage in margin transactions, short sales, or put or call options. The Fund
will only purchase securities whose maturities do not exceed three (3) years.
Under normal circumstances, the average portfolio maturity of the Fund will
range between one-and-one-half (1 1/2) and two (2) years. Since brokerage
commissions are not normally paid on investments of the type made by the Fund,
the high turnover rate should not adversely affect the net income of the Fund.
Any percentage limitations with respect to assets of the Fund will be applied at
the time of purchase.
Limited Maturity does not intend to engage in margin transactions.
Loans of Portfolio Securities. Subject to its investment restrictions
(see "Investment Restrictions") the Fund may from time to time loan securities
from its portfolio to brokers, dealers and financial institutions and receive
collateral in cash or U.S. Treasury obligations which will be maintained at all
times in an amount equal to at least 100% of the current market value of the
loaned securities; provided, however, that such loans are made according to the
guidelines of the SEC and the Trust's Board of Trustees. The Fund will be
entitled to the interest paid upon investment of the cash collateral in its
permitted investments, or to the payment of a premium or fee for the loan. The
Fund may at any time call such loans and obtain the securities loaned. However,
if the borrower of the securities should default on its obligation to return the
securities borrowed, the value of the collateral may be insufficient to permit
the Fund to reestablish its position by making a comparable investment due to
changes in market conditions. The Fund may pay reasonable fees to persons
unaffiliated with the Fund in connection with the arranging of such loans. The
Fund will only engage in securities lending transactions with broker-dealers
registered with the SEC, or with federally supervised banks or savings and loan
associations.
When-Issued or Delayed Delivery Trading. The Fund may purchase U.S.
Treasury obligations on a when-issued basis, and it may purchase or sell such
securities for delayed delivery. These transactions occur when securities are
purchased or sold by the Fund with payment and delivery to take place in the
future in order to secure what is considered an advantageous yield and price to
the Fund at the time of entering into the transaction. The value of the security
on the delivery date may be more or less than its purchase price. The Fund will
segregate cash or short-term U.S. Treasury obligations in an aggregate amount
equal to the amount of its commitments in connection with such delayed delivery
and when-issued purchase transactions. No delayed delivery or when-issued
commitments will be made if, as a result, more than 25% of the Fund's net assets
would be so committed.
Borrowing. Subject to its investment restrictions (see "Investment
Restrictions"), the Fund may borrow money for temporary or emergency purposes
such as to meet redemption requests which might otherwise require the untimely
disposition of securities. The Fund may not borrow for the purpose of increasing
income. If there are unusually heavy redemptions because of changes in interest
rates or for any other reason, the Fund may have to sell a portion of its
investment portfolio at a time when it may be disadvantageous to do so. Selling
Fund securities under these circumstances may result in a lower net asset value
per share or decreased dividend income, or both. The Fund believes that, in the
event of abnormally heavy redemption requests, its borrowing provisions would
help to mitigate any such effects and could make the forced sale of its
portfolio securities less likely.
Reverse Repurchase Agreements. A reverse repurchase agreement involves
the sale of securities held by the Fund, with an agreement that the Fund will
repurchase such securities at an agreed-upon price and date. It is the current
operating policy of the Fund to enter into reverse repurchase agreements (which
are considered to be borrowings under the Investment Company Act of 1940 (the
"1940 Act")) only for temporary or emergency purposes and not as a means to
increase income, even though the Fund's investment restrictions permit the Fund
to engage in reverse repurchase agreements for income enhancement. The Fund will
enter into a reverse repurchase agreement only when the interest income to be
earned from the investment of the proceeds of the transaction is greater than
the interest expense of the transaction. During the time a reverse repurchase
agreement is outstanding, the Fund will maintain a segregated custodial account
containing U.S. Treasury obligations having a value equal to the repurchase
price under such reverse repurchase agreement.
Illiquid Securities. The Fund will limit its investment in illiquid
securities to no more than 15% of its net assets, including repurchase
agreements with remaining maturities in excess of seven days.
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Investment in Other Investment Companies. The Fund may invest in other
investment companies to the extent permitted by the 1940 Act, and rules and
regulations thereunder, and if applicable, exemptive orders granted by the SEC.
The following restrictions apply to investments in other investment companies
other than Affiliated Money Market Funds (defined below): (i) the Fund may not
purchase more than 3% of the total outstanding voting stock of another
investment company; (ii) the Fund may not invest more than 5% of its total
assets in securities issued by another investment company; and (iii) the Fund
may not invest more than 10% of its total assets in securities issued by other
investment companies other than Affiliated Money Market Funds. With respect to
the Fund's purchase of shares of another investment company, including
Affiliated Money Market Funds, the Fund will indirectly bear its proportionate
share of the advisory fees and other operating expenses of such investment
company. The Fund has obtained an exemptive order from the SEC allowing it to
invest uninvested cash balances and cash collateral received in connection with
securities lending in money market funds that have AIM or an affiliate of AIM as
an investment advisor (the "Affiliated Money Market Funds"), provided that, with
respect to uninvested cash balances, investments in Affiliated Money Market
Funds do not exceed 25% of the total assets of the investing Fund.
Temporary Defensive Investments. In anticipation of or in response to
adverse market conditions, for cash management purposes, or for defensive
purposes, the Fund may temporarily hold all or a portion of its assets in cash
and money market instruments. The Fund may also invest up to 25% of its total
assets in Affiliated Money Market Funds for these purposes.
Repurchase Agreements. The Fund's investment policies permit the Fund
to invest in repurchase agreements with banks and broker-dealers pertaining to
U.S. Treasury obligations. However, in order to maximize the Fund's dividends
which are exempt from state taxation, as a matter of operating policy, the Fund
does not currently invest in repurchase agreements. A repurchase agreement
involves the purchase by the Fund of an investment contract from a financial
institution, such as a bank or broker-dealer, which contract is secured by U.S.
Treasury obligations of the type described above whose value is equal to or
greater than the value of the repurchase agreement, including the agreed-upon
interest. The agreement provides that the seller will repurchase the underlying
securities at an agreed-upon time and price. The total amount received on
repurchase will exceed the price paid by the Fund, reflecting the agreed-upon
rate of interest for the period from the date of the repurchase agreement to the
settlement date. This rate of return is not related to the interest rate on the
underlying securities. The difference between the total amount received upon the
repurchase of the securities and the price paid by the Fund upon their
acquisition is accrued daily as interest. Investments in repurchase agreements
may involve risks not associated with investments in the underlying securities.
If the seller defaulted on its repurchase obligation, the Fund would incur a
loss to the extent that the proceeds from a sale of the underlying securities
were less than the repurchase price under the agreement. The Fund will limit
repurchase agreements to transactions with sellers believed by AIM to present
minimal credit risk. Securities subject to repurchase agreements will be held by
the Fund's custodian or in the custodian's account with the Federal Reserve
Treasury Book-Entry System. Although the securities subject to repurchase
agreements might bear maturities in excess of one year, the Fund will not enter
into a repurchase agreement with an agreed-upon repurchase date in excess of
seven calendar days from the date of acquisition by the Fund, unless the Fund
has the right to require the selling institution to repurchase the underlying
securities within seven days of the date of acquisition.
The investment program described above may be changed by the Board of
Trustees without the affirmative vote of a majority of the outstanding shares of
beneficial interest of the Fund.
INVESTMENT RESTRICTIONS
Fundamental Restrictions. The Fund is subject to the following
investment restrictions, which may be changed only by a vote of a majority of
the Fund's outstanding shares. Fundamental restrictions may be changed only by a
vote of the lesser of (i) 67% or more of the Fund's shares present at a meeting
if the holders of more than 50% of the outstanding shares are present in person
or represented by proxy, or (ii) more than 50% of the Fund's outstanding shares.
Any investment restriction that involves a
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maximum or minimum percentage of securities or assets shall not be considered to
be violated unless an excess over or a deficiency under the percentage occurs
immediately after, and is caused by, an acquisition or disposition of securities
or utilization of assets by the Fund.
(1) The Fund is a "diversified company" as defined in the 1940 Act.
The Fund will not purchase the securities of any issuer if, as a result,
the Fund would fail to be a diversified company within the meaning of the
1940 Act, and the rules and regulations promulgated thereunder, as such
statute, rules and regulations are amended from time to time or are
interpreted from time to time by the SEC staff (collectively, the "1940 Act
Laws and Interpretations") or except to the extent that the Fund may be
permitted to do so by exemptive order or similar relief (collectively, with
the 1940 Act Laws and Interpretations, the "1940 Act Laws, Interpretations
and Exemptions"). In complying with this restriction, however, the Fund may
purchase securities of other investment companies to the extent permitted
by the 1940 Act Laws, Interpretations and Exemptions.
(2) The Fund may not borrow money or issue senior securities, except as
permitted by the 1940 Act Laws, Interpretations and Exemptions.
(3) The Fund may not underwrite the securities of other issuers. This
restriction does not prevent the Fund from engaging in transactions
involving the acquisition, disposition or resale of its portfolio
securities, regardless of whether the Fund may be considered to be an
underwriter under the Securities Act of 1933.
(4) The Fund will not make investments that will result in the
concentration (as that term may be defined or interpreted by the 1940 Act
Laws, Interpretations and Exemptions) of its investments in the securities
of issuers primarily engaged in the same industry. This restriction does
not limit the Fund's investments in (i) obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities, (ii) tax-exempt
obligations issued by governments or political subdivisions of governments,
or (iii) for AIM Money Market Fund, bank instruments. In complying with
this restriction, the Fund will not consider a bank-issued guaranty or
financial guaranty insurance as a separate security.
(5) The Fund may not purchase real estate or sell real estate unless
acquired as a result of ownership of securities or other instruments. This
restriction does not prevent the Fund from investing in issuers that
invest, deal, or otherwise engage in transactions in real estate or
interests therein, or investing in securities that are secured by real
estate or interests therein.
(6) The Fund may not purchase physical commodities or sell physical
commodities unless acquired as a result of ownership of securities or other
instruments. This restriction does not prevent the Fund from engaging in
transactions involving futures contracts and options thereon or investing
in securities that are secured by physical commodities.
(7) The Fund may not make personal loans or loans of its assets to
persons who control or are under common control with the Fund, except to
the extent permitted by 1940 Act Laws, Interpretations and Exemptions. This
restriction does not prevent the Fund from, among other things, purchasing
debt obligations, entering into repurchase agreements, loaning its assets
to broker-dealers or institutional investors, or investing in loans,
including assignments and participation interests.
(8) The Fund may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of a
single open-end management investment company with substantially the same
fundamental investment objectives, policies and restrictions as the Fund.
The investment restrictions set forth above provide the Fund with the
ability to operate under new interpretations of the 1940 Act or pursuant to
exemptive relief from the SEC without receiving prior shareholder approval of
the change. Even though the Fund has this flexibility, the Board of Trustees has
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<PAGE> 370
adopted non-fundamental restrictions for the Fund relating to certain of these
restrictions which the adviser must follow in managing the Fund. Any changes to
these non-fundamental restrictions, which are set forth below, require the
approval of the Board of Trustees.
Non-Fundamental Restrictions. The following non-fundamental investment
restrictions apply to the Fund. They may be changed without approval of the
Fund's voting securities.
(1) In complying with the fundamental restriction regarding issuer
diversification, the Fund will not, with respect to 75% of its total assets
(and for AIM Money Market Fund with respect to 100% of its total assets),
purchase securities of any issuer (other than securities issued or
guaranteed by the U.S. Government or any of its agencies or
instrumentalities), if, as a result, (i) more than 5% of the Fund's total
assets would be invested in the securities of that issuer, except as
permitted by Rule 2a-7 under the 1940 Act, or (ii) the Fund would hold more
than 10% of the outstanding voting securities of that issuer. The Fund may
(i) purchase securities of other investment companies as permitted by
Section 12(d)(1) of the 1940 Act and (ii) invest its assets in securities
of other money market funds and lend money to other investment companies
and their series portfolios that have AIM or an affiliate of AIM as an
investment advisor (an "AIM Advised Fund"), subject to the terms and
conditions of any exemptive orders issued by the SEC.
(2) In complying with the fundamental restriction regarding borrowing
money and issuing senior securities, the Fund may borrow money in an amount
not exceeding 33 1/3% of its total assets (including the amount borrowed)
less liabilities (other than borrowings). The Fund may borrow from banks,
broker-dealers or an AIM Advised Fund. The Fund may not borrow for
leveraging, but may borrow for temporary or emergency purposes, in
anticipation of or in response to adverse market conditions, or for cash
management purposes. The Fund may not purchase additional securities when
any borrowings from banks exceed 5% of the Fund's total assets.
(3) In complying with the fundamental restriction regarding industry
concentration, the Fund may invest up to 25% of its total assets in the
securities of issuers whose principal business activities are in the same
industry.
(4) In complying with the fundamental restriction with regard to
making loans, the Fund may lend up to 33 1/3% of its total assets and may
lend money to another AIM Advised Fund, on such terms and conditions as the
SEC may require in an exemptive order.
(5) Notwithstanding the fundamental restriction with regard to
investing all assets in an open-end fund, the Fund may not invest all of
its assets in the securities of a single open-end management investment
company with the same fundamental investment objectives, policies and
restrictions as the Fund.
For purposes of Limited Maturity's fundamental restriction regarding
industry concentration, the United States Government shall not be considered an
industry.
The Trust has obtained an opinion of Dechert Price & Rhoads, special
counsel to the Trust, that shares of the Fund are eligible for investment by a
federal credit union. In order to ensure that shares of the Fund meet the
requirements for eligibility for investment by federal credit unions, the Fund
has adopted the following policies:
(a) The Fund will enter into repurchase agreements only with:
(a) banks insured by the Federal Deposit Insurance Corporation
("FDIC"); (b) savings and loan associations insured by the FDIC;
or (c) registered broker-dealers. The Fund will only enter into
repurchase transactions pursuant to a master repurchase agreement
in writing with the Fund's counterparty. Under the terms of a
written agreement with its custodian, the Fund receives on a
daily basis written confirmation of each purchase of a security
subject to a repurchase agreement and a receipt from the Fund's
custodian evidencing each transaction. In addition, securities
subject to a repurchase agreement may be recorded in
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<PAGE> 371
the Federal Reserve Book-Entry System on behalf of the Fund by
its custodian. The Fund purchases securities subject to a
repurchase agreement only when the purchase price of the security
acquired is equal to or less than its market price at the time of
the purchase.
(b) The Fund will only enter into reverse repurchase
agreements and purchase additional securities with the proceeds
when such proceeds are used to purchase other securities that
either mature on a date simultaneous with or prior to the
expiration date of the reverse repurchase agreement, or are
subject to an agreement to resell such securities within that
same time period.
(c) The Fund will only enter into securities lending
transactions that comply with the same counterparty, safekeeping,
maturity and borrowing restrictions that the Fund observes when
participating in repurchase and reverse repurchase transactions.
(d) The Fund will enter into when-issued and delayed delivery
transactions only when the time period between trade date and
settlement date does not exceed 120 days, and only when
settlement is on a cash basis. When the delivery of securities
purchased in such manner is to occur within 30 days of the trade
date, the Fund will purchase the securities only at their market
price as of the trade date.
PERFORMANCE INFORMATION
YIELD CALCULATIONS
Yields for the Institutional Shares used in advertising are computed as
follows: (a) divide the interest and dividend income of the Institutional Class
for a given 30-day or one-month period, net of expenses, by the average number
of shares entitled to receive dividends during the period; (b) divide the figure
arrived at in step (a) by the net asset value of the Institutional Class at the
end of the period; and (c) annualize the result (assuming compounding of income)
in order to arrive at an annual percentage rate. For purposes of yield
quotation, income is calculated in accordance with standardized methods
applicable to all stock and bond mutual funds. In general, interest income is
reduced with respect to bonds trading at a premium over their par value by
subtracting a portion of the premium from income on a daily basis, and is
increased with respect to bonds trading at a discount by adding a portion of the
discount to daily income. Capital gains and losses are excluded from the
calculation.
Income calculated for the purposes of calculating the yield of the
Institutional Class differs from income as determined for other accounting
purposes. Because of the different accounting methods used, and because of the
compounding assumed in yield calculations, the yield quoted for the
Institutional Class may differ from the rate of distributions the Institutional
Class paid over the same period or the rate of income reported in the financial
statements of the Institutional Class.
The Fund may also quote the distribution rate for the Institutional
Class, which expresses the historical amount of income dividends of the
Institutional Class to its shareholders as a percentage of the net asset value
per share of the Institutional Class. The distribution rate for the
Institutional Class for the thirty day period ended July 31, 2000 was 5.91%.
This distribution rate was calculated by dividing dividends declared over the
thirty days ended July 31, 2000 by the net asset value per share of the
Institutional Class at the end of that period and annualizing the result.
TOTAL RETURN CALCULATIONS
Total returns quoted in advertising reflect all aspects of the
Institutional Class' return, including the effect of reinvesting dividends and
capital gain distributions, and any change in the net asset value per share of
the Institutional Class over the period. Average annual returns are calculated
by determining the growth or decline in value of a hypothetical investment in
the Institutional Shares over a stated period,
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<PAGE> 372
and then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period. While average annual returns are a convenient means of
comparing investment alternatives, investors should realize that the performance
of the Institutional Shares is not constant over time, but changes from year to
year, and that average annual returns do not represent the actual year-to-year
performance of the Institutional Class.
In addition to average annual returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Average annual and cumulative total returns may be quoted
as a percentage or as a dollar amount, and may be calculated for a single
investment, a series of investments, and/or a series of redemptions, over any
time period. Total returns may be broken down into their components of income
and capital (including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to total
return. Total returns, yields, and other performance information may be quoted
numerically or in a table, graph, or similar illustration.
HISTORICAL PORTFOLIO RESULTS
The following chart shows the total returns for the Institutional Class
for the twelve months and the five and ten year periods ended July 31, 2000.
<TABLE>
<CAPTION>
AVERAGE
ANNUAL CUMULATIVE
RETURN RETURN
------- ----------
<S> <C> <C>
Twelve months ended 07/31/00........................... 4.78% 4.78%
Five years ended 07/31/00 ............................. 5.41% 30.13%
Ten years ended 07/31/00 .............................. 5.96% 78.47%
</TABLE>
The 30 day yield of the Institutional Class as of July 31, 2000 was
6.22%.
A hypothetical investment of $1,000 in the Institutional Class made at
the beginning of the twelve-month period ended July 31, 2000 would have been
worth $1,047.76. During the five-year period ended July 31, 2000, a hypothetical
$1,000 investment in the Institutional Class at the beginning of such period
would have been worth $1,301.25. A hypothetical investment of $1,000 made at the
beginning of the ten-year period ended July 31, 2000, would have been worth
$1,784.70 assuming in each case that all distributions were reinvested.
The performance of the Institutional Class may be compared in
advertising to the performance of other mutual funds in general or of particular
types of mutual funds, especially those with similar objectives. Such
performance data may be prepared by Lipper Inc. and other independent services
which monitor the performance of mutual funds. The Institutional Class may also
advertise mutual fund performance rankings which have been assigned to the
Institutional Class by such monitoring services.
From time to time, AIM or its affiliates may waive all or a portion of
their fees and/or assume certain expenses of the Fund. Voluntary fee waivers or
reductions or commitments to assume expenses may be rescinded at any time
without further notice to investors. During periods of voluntary fee waivers or
reductions or commitments to assume expenses, AIM will retain its ability to be
reimbursed for such fee prior to the end of each fiscal year. Contractual fee
waivers or reductions or reimbursement of expenses set forth in the Fee Table in
the Prospectus may not be terminated or amended to the Fund's detriment during
the period stated in the agreement between AIM and the Fund. Fee waivers or
reductions or commitments to reduce expenses will have the effect of increasing
the Fund's yield and total return.
The performance of the Fund will vary from time to time and past
results are not necessarily indicative of future results. The Fund's performance
is a function of its portfolio management in selecting the type and quality of
portfolio securities and is affected by operating expenses of the Fund and
market
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<PAGE> 373
conditions. A shareholder's investment in the Fund is not insured or guaranteed.
These factors should be carefully considered by the investor before making an
investment in the Fund.
PORTFOLIO TRANSACTIONS
GENERAL BROKERAGE POLICY
AIM makes decisions to buy and sell securities for the Fund, selects
broker-dealers, effects the Fund's investment portfolio transactions, allocates
brokerage fees in such transactions, and where applicable, negotiates
commissions and spreads on transactions. Since most purchases and sales of
portfolio securities by the Fund are usually principal transactions, the Fund
incur little or no brokerage commissions. AIM's primary consideration in
effecting a security transaction is to obtain the most favorable execution of
the order, which includes the best price on the security and a low commission
rate. While AIM seeks reasonably competitive commission rates, the Fund may not
pay the lowest commission or spread available. See "Section 28(e) Standards"
below.
In the event the Fund purchases securities traded in the
over-the-counter market, the Fund deals directly with dealers who make markets
in the securities involved, except when better prices are available elsewhere.
Portfolio transactions placed through dealers who are primary market makers are
effected at net prices without commissions, but which include compensation in
the form of a mark up or mark down.
Traditionally, commission rates have not been negotiated on stock
markets outside the United States. Although in recent years many overseas stock
markets have adopted a system of negotiated rates, a number of markets maintain
an established schedule of minimum commission rates.
AIM may determine target levels of commission business with various
brokers on behalf of its clients (including the Fund) over a certain time
period. The target levels will be based upon the following factors, among
others: (1) the execution services provided by the broker; (2) the research
services provided by the broker; and (3) the broker's interest in mutual funds
in general and in the Fund and other mutual funds advised by AIM or A I M
Capital Management, Inc. (collectively, the "AIM Funds") in particular,
including sales of the Fund and of the other AIM Funds. In connection with (3)
above, the Fund's trades may be executed directly by dealers that sell shares of
the AIM Funds or by other broker-dealers with which such dealers have clearing
arrangements. AIM will not use a specific formula in connection with any of
these considerations to determine the target levels.
The Fund may engage in certain principal and agency transactions with
banks and their affiliates that own 5% or more of the outstanding voting
securities of an AIM Fund, provided the conditions of an exemptive order
received by the AIM Funds from the SEC are met. In addition, the Fund may
purchase or sell a security from or to another AIM Fund or account (and may
invest in affiliated money funds) provided the Fund follows procedures adopted
by the Boards of Directors/Trustees of the various AIM Funds, including the
Trust. These inter-fund transactions do not generate brokerage commissions but
may result in custodial fees or taxes or other related expenses.
ALLOCATION OF PORTFOLIO TRANSACTIONS
AIM and its affiliates manage numerous other investment accounts. Some
of these accounts may have investment objectives similar to the Fund.
Occasionally, identical securities will be appropriate for investment by the
Fund and by another AIM Fund or one or more of these investment accounts.
However, the position of each account in the same securities and the length of
time that each account may hold its investment in the same securities may vary.
The timing and amount of purchase by each account will also be determined by its
cash position. If the purchase or sale of securities is consistent with the
investment policies of the Fund(s) and one or more of these accounts, and is
considered at or about the same time, AIM will fairly allocate transactions in
such securities among the Fund(s) and these accounts. AIM may combine such
transactions, in accordance with applicable laws and regulations, to obtain the
most favorable execution. Simultaneous transactions could, however, adversely
affect a Fund's ability to obtain or dispose of the full amount of a security
which it seeks to purchase or sell.
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<PAGE> 374
Sometimes the procedure for allocating portfolio transactions among the
various investment accounts advised by AIM could have an adverse effect on the
price or amount of securities available to a Fund. In making such allocations,
AIM considers the investment objectives and policies of its advisory clients,
the relative size of portfolio holdings of the same or comparable securities,
the availability of cash for investment, the size of investment commitments
generally held, and the judgments of the persons responsible for recommending
the investment.
SECTION 28(e) STANDARDS
Section 28(e) of the Securities Exchange Act of 1934 provides that AIM,
under certain circumstances, lawfully may cause an account to pay a higher
commission than the lowest available. Under Section 28(e), AIM must make a good
faith determination that the commissions paid are "reasonable in relation to the
value of the brokerage and research services provided . . . viewed in terms of
either that particular transaction or [AIM's] overall responsibilities with
respect to the accounts as to which it exercises investment discretion." The
services provided by the broker also must lawfully and appropriately assist AIM
in the performance of its investment decision-making responsibilities.
Accordingly, in recognition of research services provided to it, the Fund may
pay a broker higher commissions than those available from another broker.
Research services received from broker-dealers supplement AIM's own
research (and the research of its affiliates), and may include the following
types of information: statistical and background information on the U.S. and
foreign economies, industry groups and individual companies; forecasts and
interpretations with respect to the U.S. and foreign economies, securities,
markets, specific industry groups and individual companies; information on
federal, state, local and foreign political developments; portfolio management
strategies; performance information on securities, indexes and investment
accounts; information concerning prices of securities; and information supplied
by specialized services to AIM and to the Trust's trustees with respect to the
performance, investment activities, and fees and expenses of other mutual funds.
Broker-dealers may communicate such information electronically, orally, in
written form or on computer software. Research services may also include the
providing of electronic communication of trade information, the providing of
custody services, as well as the providing of equipment used to communicate
research information, the providing of specialized consultations with AIM
personnel with respect to computerized systems and data furnished to AIM as a
component of other research services, the arranging of meetings with management
of companies, and the providing of access to consultants who supply research
information.
The outside research assistance is useful to AIM since the
broker-dealers used by AIM tend to follow a broader universe of securities and
other matters than AIM's staff can follow. In addition, the research provides
AIM with a diverse perspective on financial markets. Research services provided
to AIM by broker-dealers are available for the benefit of all accounts managed
or advised by AIM or by its affiliates. Some broker-dealers may indicate that
the provision of research services is dependent upon the generation of certain
specified levels of commissions and underwriting concessions by AIM's clients,
including the Funds. However, the Fund is not under any obligation to deal with
any broker-dealer in the execution of transactions in portfolio securities.
In some cases, the research services are available only from the
broker-dealer providing them. In other cases, the research services may be
obtainable from alternative sources in return for cash payments. AIM believes
that the research services are beneficial in supplementing AIM's research and
analysis and that they improve the quality of AIM's investment advice. The
advisory fee paid by the Fund is not reduced because AIM receives such services.
However, to the extent that AIM would have purchased research services had they
not been provided by broker-dealers, the expenses to AIM could be considered to
have been reduced accordingly.
Limited Maturity paid no brokerage commissions to brokers affiliated
with that Fund during the past three fiscal years of the Fund.
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<PAGE> 375
PORTFOLIO TURNOVER
Changes in the portfolio holdings of the Fund are made without regard
to whether a sale would result in a profit or loss. High portfolio turnover
involves correspondingly greater transaction costs which are borne directly by
the Fund, and may increase capital gains which are taxable as ordinary income
when distributed to shareholders.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
DIVIDENDS AND DISTRIBUTIONS
The dividends accrued and paid for each class of the Fund's shares will
consist of: (a) interest accrued and discounts earned (including both original
issue and market discount) for the Fund, allocated based upon each class' pro
rata share of the net assets of the Fund, less (b) Trust expenses accrued for
the applicable dividend period attributable to the Fund, such as custodian fees,
trustee's fees, and accounting and legal expenses, allocated based upon each
class' pro rata share of the net assets of the Fund, less (c) expenses directly
attributable to each class which accrued for the applicable dividend period,
such as shareholder servicing plan expenses, if any, or transfer agent fees
unique to each class.
Dividends are declared to shareholders of record immediately prior to
the determination of the net asset value of the Fund. Accordingly, dividends
begin accruing on the first business day of the Fund following the day on which
a purchase order for shares of the Fund is effective, and accrue through the day
on which a redemption order is effective. Thus, if a purchase order is effective
on a Friday, dividends will begin accruing on the following Monday (unless such
day is not a business day of the Fund).
All dividends declared during a month will be paid by check or wire
transfer. (Wire transfers may only be made in amounts of $1,000 or more.) In
such case, payment will normally be made on the first business day of the
following month. A shareholder may elect to have all dividends and distributions
automatically reinvested in additional full and fractional shares of the Fund at
the net asset value of such shares. Such election, or any revocation thereof,
must be made in writing by the institution to AFS at 11 Greenway Plaza, Suite
100, Houston, Texas 77046-1173 and will become effective with dividends paid
after its receipt by AFS. If a shareholder redeems all the shares in its account
at any time during the month, all dividends declared through the date of
redemption are paid to the shareholder along with the proceeds of the
redemption.
TAX MATTERS
The following is only a summary of certain additional tax
considerations generally affecting the Fund and its shareholders that are not
described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussion here and in the Prospectus is not intended as a substitute for
careful tax planning.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As a
regulated investment company, the Fund is not subject to federal income tax on
the portion of its net investment income (i.e., its taxable interest, dividends
and other taxable ordinary income, net of expenses) and realized capital gain
net income (i.e., the excess of capital gains over capital losses) that it
distributes to shareholders, provided that it distributes at least 90% of its
investment company taxable income (i.e., net investment income and the excess of
net short-term capital gain over net long-term capital loss) for the taxable
year (the "Distribution Requirement"), and satisfies certain other requirements
of the Code that are described below. Distributions by the Fund made during the
taxable year or, under specified circumstances, within 12 months after the close
of the taxable year, will be considered distributions of income and gains of the
taxable year and can therefore satisfy the Distribution Requirement.
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<PAGE> 376
In addition to satisfying the Distribution Requirement, the Fund must
derive at least 90% of its gross income from dividends, interest, certain
payments with respect to securities loans, gains from the sale or other
disposition of stock or securities or foreign currencies (to the extent such
currency gains are ancillary to the Fund's principal business of investing in
stock or securities) and other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its business of
investing in such stock, securities or currencies (the "Income Requirement").
In general, gain or loss recognized by the Fund on the disposition of
an asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation purchased by the Fund at a market discount
(generally, at a price less than its principal amount) will be treated as
ordinary income to the extent of the portion of the market discount which
accrued during the period of time the Fund held the debt obligation. In
addition, if the Fund purchases a debt obligation that was originally issued at
a discount, the Fund is generally required to include in gross income each year
the portion of the original issue discount which accrues during such year.
The Fund may enter into notional principal contracts, including
interest rate swaps, caps, floors and collars. Under Treasury regulations, in
general, the net income or deduction from a notional principal contract for a
taxable year is included in or deducted from gross income for that taxable year.
The net income or deduction from a notional principal contract for a taxable
year equals the total of all of the periodic payments (generally, payments that
are payable or receivable at fixed periodic intervals of one year or less during
the entire term of the contract) that are recognized from that contract for the
taxable year and all of the non-periodic payments (including premiums for caps,
floors and collars), even if paid in periodic installments, that are recognized
from that contract for the taxable year. A periodic payment is recognized
ratably over the period to which it relates. In general, a non-periodic payment
must be recognized over the term of the notional principal contract in a manner
that reflects the economic substance of the contract. A non-periodic payment
that relates to an interest rate swap, cap, floor or collar shall be recognized
over the term of the contract by allocating it in accordance with the values of
a series of cash-settled forward or option contracts that reflect the specified
index and notional principal amount upon which the notional principal contract
is based (or, in the case of a swap or of a cap or floor that hedges a debt
instrument, under alternative methods contained in the regulations and, in the
case of other notional principal contracts, under alternative methods that the
IRS may provide in a revenue procedure).
Treasury regulations permit a regulated investment company, in
determining its investment company taxable income and net capital gain (i.e.,
the excess of net long-term capital gain over net short-term capital loss) for
any taxable year, to elect (unless it has made a taxable year election for
excise tax purposes as discussed below) to treat all or part of any net capital
loss, any net long-term capital loss or any net foreign currency loss incurred
after October 31 as if it had been incurred in the succeeding year.
In addition to satisfying the requirements described above, the Fund
must satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of the Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of the Fund's total assets in securities
of such issuer and as to which the Fund does not hold more than 10% of the
outstanding voting securities of such issuer), and no more than 25% of the value
of its total assets may be invested in the securities of any one issuer (other
than U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses.
If for any taxable year the Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
will be subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable as
ordinary dividends to the extent of the Fund's current and accumulated earnings
and profits. Such distributions generally will be eligible for the dividends
received deduction in the case of corporate shareholders.
26
<PAGE> 377
EXCISE TAX ON REGULATED INVESTMENT COMPANIES
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to distribute in each calendar year an amount equal to 98%
of ordinary taxable income for the calendar year and 98% of capital gain net
income gain or loss for the one-year period ended on October 31 of such calendar
year (or, at the election of a regulated investment company having a taxable
year ending November 30 or December 31, for its taxable year (a "taxable year
election")). The balance of such income must be distributed during the next
calendar year. For the foregoing purposes, a regulated investment company is
treated as having distributed any amount on which it is subject to income tax
for any taxable year ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall
(1) reduce its capital gain net income (but not below its net capital gain) by
the amount of any net ordinary loss for the calendar year and (2) exclude
Section 988 foreign currency gains and losses incurred after October 31 of any
year (or after the end of its taxable year if it has made a taxable year
election) in determining the amount of ordinary taxable income for the current
calendar year (and, instead, include such gains and losses in determining
ordinary taxable income for the succeeding calendar year).
The Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income prior
to the end of each calendar year to avoid liability for the excise tax. However,
investors should note that the Fund may in certain circumstances be required to
liquidate portfolio investments to make sufficient distributions to avoid excise
tax liability.
FUND DISTRIBUTIONS
The Fund anticipates distributing substantially all of its investment
company taxable income and net short-term capital gain for each taxable year.
Such distributions will be taxable to shareholders as ordinary income and
treated as dividends for federal income tax purposes, but they are not expected
to qualify for the 70% dividends received deduction for corporations.
The Fund may either retain or distribute to shareholders its net
capital gain (net long-term capital gain over net short-term capital loss) for
each taxable year. The Fund currently intends to distribute any such amounts. If
net capital gain is distributed and designated as a capital gain dividend, it
will be taxable to shareholders as long-term capital gain (taxable at a maximum
rate of 20% for noncorporate shareholders), regardless of the length of time the
shareholder has held his shares or whether such gain was recognized by the Fund
prior to the date on which the shareholder acquired his shares. Conversely, if
the Fund elects to retain its net capital gain, the Fund will be taxed thereon
(except to the extent of any available capital loss carryovers) at the 35%
corporate tax rate. If the Fund elects to retain net capital gain, it is
expected that the Fund also will elect to have shareholders treated as if each
received a distribution of its pro rata share of such gain, with the result that
each shareholder will be required to report its pro rata share of such gain on
its tax return as long-term capital gain, will receive a refundable tax credit
for its pro rata share of tax paid by the Fund on the gain, and will increase
the tax basis for its shares by an amount equal to the deemed distribution less
the tax credit.
Distributions by the Fund that do not constitute ordinary income
dividends or capital gain dividends will be treated as a return of capital to
the extent of (and in reduction of) the shareholder's tax basis in his shares;
any excess will be treated as gain from the sale of his shares, as discussed
below.
Distributions by the Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or any other fund in the AIM Funds). Shareholders
receiving a distribution in the form of additional shares will be treated as
receiving a distribution in an amount equal to the fair market value of the
shares received, determined as of the reinvestment date. In addition, if the net
asset value at the time a shareholder purchases shares of the Fund reflects
undistributed net investment income or recognized capital gain net income, or
unrealized appreciation in the value of the assets of the Fund, distributions of
such amounts will be
27
<PAGE> 378
taxable to the shareholder in the manner described above, although such
distributions economically constitute a return of capital to the shareholder.
Ordinarily, shareholders are required to take distributions by the Fund
into account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made in certain cases)
during the year in accordance with the guidance that has been provided by the
Internal Revenue Service.
The Fund is required in certain cases to withhold and remit to the U.S.
Treasury 31% of ordinary income dividends and capital gain dividends, and the
proceeds of redemption of shares, paid to any shareholder (1) who has provided
either an incorrect tax identification number or no number at all, (2) who is
subject to backup withholding by the Internal Revenue Service for failure to
report the receipt of interest or dividend income properly, or (3) who has
failed to certify to the Fund that it is not subject to backup withholding or
that it is a corporation or other "exempt recipient."
SALE OR REDEMPTION OF FUND SHARES
A shareholder will recognize gain or loss on the sale or redemption of
shares of the Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
In general, any gain or loss arising from (or treated as arising from) the sale
or redemption of shares of the Fund will be considered capital gain or loss and
will be long-term capital gain or loss if the shares were held for longer than
one year. Except to the extent otherwise provided in future Treasury
regulations, any long-term capital gain recognized by a noncorporate shareholder
will be subject to tax at a maximum rate of 20%. However, any capital loss
arising from the sale or redemption of shares held for six months or less will
be treated as a long-term capital loss to the extent of the amount of capital
gain dividends received on such shares. For this purpose, the special holding
period rules of Code Section 246(c)(3) and (4) generally will apply in
determining the holding period of shares. Long-term capital gains of
non-corporate taxpayers are currently taxed at a maximum rate that in some cases
may be 19.6% lower than the maximum rate applicable to ordinary income. Capital
losses in any year are deductible only to the extent of capital gains plus, in
the case of a noncorporate taxpayer, $3,000 of ordinary income.
If a shareholder (i) incurs a sales load in acquiring shares of the
Fund, (ii) disposes of such shares less than 91 days after they are acquired and
(iii) subsequently acquires shares of the same or another fund at a reduced
sales load pursuant to a right to reinvest at such reduced sales load acquired
in connection with the acquisition of the shares disposed of, then the sales
load on the shares disposed of (to the extent of the reduction in the sales load
on the shares subsequently acquired) shall not be taken into account in
determining gain or loss on the shares disposed of but shall be treated as
incurred on the acquisition of the shares subsequently acquired. The wash sale
rules may also limit loss recognized.
FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a
nonresident alien individual, foreign trust or estate, foreign corporation, or
foreign partnership ("foreign shareholder"), depends on whether the income from
the Fund is "effectively connected" with a U.S. trade or business carried on by
such shareholder.
If the income from the Fund is not effectively connected with a U.S.
trade or business carried on by a foreign shareholder, ordinary income dividends
and return of capital distributions (other than capital gain dividends) will be
subject to U.S. withholding tax at the rate of 30% (or lower treaty rate) upon
the gross amount of the distribution. Such a foreign shareholder would generally
be exempt from U.S. federal income tax on gains realized on the sale or
redemption of shares of the Fund, capital gain dividends and amounts retained by
the Fund that are designated as undistributed net capital gains.
28
<PAGE> 379
If the income from the Fund is effectively connected with a U.S. trade
or business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends and any gains realized upon the sale or redemption of
shares of the Fund will be subject to U.S. federal income tax at the rates
applicable to U.S. citizens or domestic corporations.
In the case of foreign non-corporate shareholders, the Fund may be
required to withhold U.S. federal income tax at a rate of 31% on distributions
that are otherwise exempt from withholding tax (or taxable at a reduced treaty
rate) unless such shareholders furnish the Fund with proper notification of
their foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisors with
respect to the particular tax consequences to them of an investment in the Fund,
including the applicability of foreign taxes.
EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS
The foregoing general discussion of U.S. federal income tax
consequences is based on the Code and regulations issued thereunder as in effect
on November 15, 2000. Future legislative or administrative changes or court
decisions may significantly change the conclusions expressed herein, and any
such changes or decisions may have a retroactive effect with respect to the
transactions contemplated herein.
Rules of state and local taxation of ordinary income dividends and
capital gain dividends from regulated investment companies often differ from the
rules for U.S. federal income taxation described above. The tax treatment of
foreign investors may also differ from the treatment for U.S. investors
described above. Shareholders are urged to consult their tax advisors as to the
consequences of these and other state and local tax rules affecting investments
in the Fund.
MISCELLANEOUS INFORMATION
SHAREHOLDER INQUIRIES
Shareholder inquiries concerning the status of an account should be
directed to the Fund at P.O. Box 0843, Houston, Texas 77001-0843, or may be made
by calling (800) 659-1005.
AUDIT REPORTS
The Trust furnishes holders of the Institutional Class with semi-annual
reports containing information about the Trust and its operations, including a
schedule of investments held by the Fund and its financial statements. The
annual financial statements are audited by the Fund's independent certified
public accountants. The Board of Trustees has selected KPMG LLP, 700 Louisiana,
Houston, Texas 77002, as the independent auditors to audit the financial
statements and review the tax returns of the Fund.
LEGAL MATTERS
Certain legal matters for the Trust have been passed upon by Ballard
Spahr Andrews & Ingersoll, LLP, 1735 Market Street, Philadelphia, Pennsylvania
19103-7599.
TRANSFER AGENT AND CUSTODIAN
The Fund and AFS, a wholly owned subsidiary of AIM and registered
transfer agent, have entered into the Transfer Agency and Service Agreement,
pursuant to which AFS provides transfer agency, dividend distribution and
disbursement, and shareholder services to the Fund. These services do not
include any supervisory function over management or provide any protection
against any possible
29
<PAGE> 380
depreciation of assets. The Bank of New York acts as custodian for the Fund's
portfolio securities and cash. The Bank of New York attends to the collection of
principal and income, pays and collects all monies for securities bought and
sold for the Fund, and performs certain other ministerial duties. The Bank of
New York and AFS receive such compensation from the Trust for their services as
is agreed to from time to time. The address of The Bank of New York is 90
Washington Street, 11th Floor, New York, New York 10286.
OTHER INFORMATION
The Prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement which the Trust has
filed with the SEC under the 1933 Act and reference is hereby made to the
Registration Statement for further information with respect to the Fund and the
securities offered pursuant to the Prospectus. The Registration Statement is
available for inspection by the public at the SEC in Washington, DC.
30
<PAGE> 381
FINANCIAL STATEMENTS
FS
<PAGE> 382
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
AIM Investment Securities Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Limited Maturity Treasury Fund (a series of AIM Investment Securities Funds)
including the schedule of investments, as of July 31, 2000, and the related
statement of operations for the year then ended, the statements 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 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 auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of July 31, 2000, by correspondence with the custodian. 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
Limited Maturity Treasury Fund as of July 31, 2000, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended and the financial highlights for
each of the years in the five-year period then ended, in conformity with
accounting principles generally accepted in the United States of America.
/s/ KPMG LLP
September 1, 2000
Houston, Texas
FS-1
<PAGE> 383
SCHEDULE OF INVESTMENTS
JULY 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MARKET
MATURITY (000) VALUE
<S> <C> <C> <C>
U.S. TREASURY SECURITIES-99.01%
U.S. TREASURY NOTES-99.01%
5.50% 08/31/01 $25,100 $ 24,862,554
--------------------------------------------------------------------------------------------
5.63% 09/30/01 25,100 24,875,857
--------------------------------------------------------------------------------------------
5.88% 10/31/01 25,100 24,938,356
--------------------------------------------------------------------------------------------
5.88% 11/30/01 25,100 24,931,328
--------------------------------------------------------------------------------------------
6.13% 12/31/01 25,100 25,007,632
--------------------------------------------------------------------------------------------
6.38% 01/31/02 25,100 25,092,470
--------------------------------------------------------------------------------------------
6.50% 02/28/02 25,100 25,144,427
--------------------------------------------------------------------------------------------
6.50% 03/31/02 25,100 25,147,188
--------------------------------------------------------------------------------------------
6.38% 04/30/02 25,100 25,099,247
--------------------------------------------------------------------------------------------
6.63% 05/31/02 25,100 25,214,707
--------------------------------------------------------------------------------------------
6.38% 06/30/02 25,100 25,115,562
--------------------------------------------------------------------------------------------
6.25% 07/31/02 24,100 24,085,058
--------------------------------------------------------------------------------------------
Total U.S. Treasury Securities (Cost $299,787,994) 299,514,386
--------------------------------------------------------------------------------------------
TOTAL INVESTMENTS-99.01% 299,514,386
--------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-0.99% 2,999,031
--------------------------------------------------------------------------------------------
NET ASSETS-100.00% $302,513,417
============================================================================================
</TABLE>
See Notes to Financial Statements.
FS-2
<PAGE> 384
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 2000
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (Cost $299,787,994) $299,514,386
--------------------------------------------------------------------------
Cash 1,120,488
--------------------------------------------------------------------------
Receivables for:
--------------------------------------------------------------------------
Fund shares sold 272,822
--------------------------------------------------------------------------
Interest 3,873,029
--------------------------------------------------------------------------
Investment for deferred compensation plan 40,106
--------------------------------------------------------------------------
Other assets 2,306
--------------------------------------------------------------------------
Total assets 304,823,137
--------------------------------------------------------------------------
LIABILITIES:
Payables for:
Fund shares reacquired 1,752,268
--------------------------------------------------------------------------
Dividends 358,703
--------------------------------------------------------------------------
Deferred compensation plan 40,106
--------------------------------------------------------------------------
Accrued advisory fees 48,904
--------------------------------------------------------------------------
Accrued administrative services fees 5,859
--------------------------------------------------------------------------
Accrued distribution fees 54,237
--------------------------------------------------------------------------
Accrued transfer agent fees 39,501
--------------------------------------------------------------------------
Accrued operating expenses 10,142
--------------------------------------------------------------------------
Total liabilities 2,309,720
--------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $302,513,417
==========================================================================
NET ASSETS:
Class A $300,058,098
==========================================================================
Institutional Class $ 2,455,319
==========================================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 30,115,896
==========================================================================
Institutional Class 246,425
==========================================================================
Class A :
Net asset value and redemption price per share $ 9.96
--------------------------------------------------------------------------
Offering price per share:
(Net asset value of $9.96 divided by 99.00%) $ 10.06
==========================================================================
Institutional Class:
Net asset value, redemption price and offering price per
share $ 9.96
==========================================================================
</TABLE>
See Notes to Financial Statements.
FS-3
<PAGE> 385
STATEMENT OF OPERATIONS
For the year ended July 31, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $19,783,947
-------------------------------------------------------------------------
EXPENSES:
Advisory fees 705,741
-------------------------------------------------------------------------
Administrative services fee 80,566
-------------------------------------------------------------------------
Custodian fees 11,079
-------------------------------------------------------------------------
Distribution fees -- Class A 517,076
-------------------------------------------------------------------------
Transfer agent fees -- Class A 444,091
-------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 2,749
-------------------------------------------------------------------------
Trustees' fees 9,224
-------------------------------------------------------------------------
Other 104,612
-------------------------------------------------------------------------
Total expenses 1,875,138
-------------------------------------------------------------------------
Less: Expenses paid indirectly (3,920)
-------------------------------------------------------------------------
Net expenses 1,871,218
-------------------------------------------------------------------------
Net investment income 17,912,729
-------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
SECURITIES:
Net realized gain (loss) from investment securities (4,797,259)
-------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 2,049,768
-------------------------------------------------------------------------
Net gain (loss) on investment securities (2,747,491)
-------------------------------------------------------------------------
Net increase in net assets resulting from operations $15,165,238
-------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
For the years ended July 31, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 17,912,729 $ 19,679,426
------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities (4,797,259) 1,359,439
------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities 2,049,768 (3,023,894)
------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 15,165,238 18,014,971
------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A (17,525,848) (18,245,067)
------------------------------------------------------------------------------------------
Institutional Class (416,635) (1,523,201)
------------------------------------------------------------------------------------------
SHARE TRANSACTIONS-NET:
Class A (87,282,579) 46,655,684
------------------------------------------------------------------------------------------
Institutional Class (14,575,249) (33,718,444)
------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (104,635,073) 11,183,943
------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 407,148,490 395,964,547
------------------------------------------------------------------------------------------
End of year $302,513,417 $407,148,490
==========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $311,671,908 $413,559,490
------------------------------------------------------------------------------------------
Undistributed net investment income 29,754 29,754
------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities (8,914,637) (4,117,378)
------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities (273,608) (2,323,376)
------------------------------------------------------------------------------------------
$302,513,417 $407,148,490
==========================================================================================
</TABLE>
See Notes to Financial Statements.
FS-4
<PAGE> 386
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2000
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Limited Maturity Treasury Fund (the "Fund") is a series portfolio of AIM
Investment Securities Funds (the "Trust"). The Trust is a Delaware business
trust registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management company consisting of seven separate
series portfolios each having an unlimited number of shares of beneficial
interests. The Fund currently offers two different classes of shares: Class A
shares and the Institutional Class. Matters affecting each portfolio or class
are voted on exclusively by the shareholders of such portfolio or class. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund. The Fund's investment objective is to seek liquidity with minimum
fluctuation in principal value and, consistent with this investment objective,
the highest total return achievable.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. Security Valuations -- Debt obligations that are issued or guaranteed by the
U.S. Treasury are valued on the basis of prices provided by an independent
pricing service. Prices provided by the pricing service may be determined
without exclusive reliance on quoted prices, and may reflect appropriate
factors such as yield, type of issue, coupon rate and maturity date.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and are
valued the mean between the last bid and asked prices. Securities for which
market quotations are not readily available or are questionable are valued at
fair value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity are
valued at amortized cost which approximates market value.
B. Securities Transactions and Investment Income -- Securities transactions are
accounted for on a trade date basis. Realized gains or losses on sales are
computed on the basis of specific identification of the securities sold.
Interest income, adjusted for amortization of discounts on investments, is
recorded on the accrual basis from settlement date. It is the policy of the
Fund not to amortize bond premiums for financial reporting purposes.
On July 31, 2000 undistributed net investment income was increased by
$29,754 and additional paid-in capital was decreased by $29,754 as a result
of reclassifications of nondeductible organizational expenses. Net assets of
the Fund were unaffected by the reclassifications discussed above.
C. Distributions -- It is the policy of the Fund to declare dividends from net
investment income daily and pay monthly. Distributions from net realized
capital gains, if any, are generally paid annually and recorded on
ex-dividend date. The Fund may elect to use a portion of the proceeds from
redemptions as distributions for Federal income tax purposes.
D. Federal Income Taxes -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements. The Fund has a capital loss
carryforward of $4,224,162 as of July 31, 2000 which may be carried forward
to
FS-5
<PAGE> 387
offset future taxable gains, if any, which expires in varying increments, if
not previously utilized, in the year 2008.
E. Expenses -- Distribution expenses and certain transfer agency expenses
directly attributable to a class of shares are charged to those classes'
operations. All other expenses which are attributable to more than one class
are allocated between 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 0.20% on
the first $500 million of the Fund's average daily net assets, plus 0.175% on
the Fund's average daily net assets in excess of $500 million.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended July 31, 2000, AIM was paid
$80,566 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. For the year ended July 31, 2000, AFS was paid
$151,859 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 shares and a master distribution agreement with Fund Management Company
("FMC") to serve as the distributor for the Institutional Class. The Trust has
adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A shares. The Fund, pursuant to the Plans, pays AIM Distributors
compensation at the annual rate of 0.15% of the Fund's average daily net assets
of Class A shares. The Plan is designed to compensate AIM Distributors for
certain promotional and other sales related costs and provides periodic payments
to selected dealers and financial institutions who furnish continuing personal
shareholder services to their customers who purchase and own the appropriate
class of shares of the Fund. Any amounts not paid as a service fee under the
Plan would constitute an asset-based sales charge. The Plan also imposes a cap
on the total sales charges, including asset-based sales charges that may be paid
by the Fund. For the year ended July 31, 2000, the Fund paid AIM Distributors
$517,076 as compensation under the Plan.
AIM Distributors received commissions of $57,087 from sales of the Class A
shares of the Fund during the year ended July 31, 2000. Such commissions are not
an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares.
Certain officers and trustees of the Trust are officers and directors of
AIM, AFS, FMC and AIM Distributors.
During the year ended July 31, 2000, the Fund paid legal fees of $3,294 for
services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Trustees. A member of that firm is a trustee of the Trust.
NOTE 3-INDIRECT EXPENSES
For the year ended July 31, 2000, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $3,920 under expense offset
arrangements which resulted in a reduction of the Fund's total expenses of
$3,920.
NOTE 4-TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. The Trust invests trustees' fees, if so elected by a
trustee, in mutual fund shares in accordance with a deferred compensation plan.
FS-6
<PAGE> 388
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $1,000,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the year ended July 31, 2000,
the Fund did not borrow under the line of credit agreement. The funds which are
party to the line of credit are charged a commitment fee of 0.09% on the unused
balance of the committed line. The commitment fee is allocated among the funds
based on their respective average net assets for the period.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended July 31, 2000 was
$431,234,972 and $537,432,998, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, for tax purposes, as of July 31, 2000 was as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $ 395,575
------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (874,560)
------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities $(478,985)
========================================================================
Cost of investments for tax purposes is $299,993,371.
</TABLE>
NOTE 7-SHARE INFORMATION
Changes in shares outstanding during the years ended July 31, 2000 and 1999 were
as follows:
<TABLE>
<CAPTION>
2000 1999
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Sold:
Class A 20,491,334 $ 204,290,029 66,719,952 $ 675,218,081
----------------------------------------------------------------------------------------------
Institutional Class 191,454 1,910,678 489,034 4,947,727
----------------------------------------------------------------------------------------------
Issued as reinvestment of
dividends:
Class A 1,468,058 14,627,764 1,524,802 15,430,990
----------------------------------------------------------------------------------------------
Institutional Class 891 11,992 1,998 20,239
----------------------------------------------------------------------------------------------
Reacquired:
Class A (30,726,141) (306,200,372) (63,662,111) (643,993,387)
----------------------------------------------------------------------------------------------
Institutional Class (1,653,776) (16,497,919) (3,809,602) (38,686,410)
----------------------------------------------------------------------------------------------
(10,228,180) $(101,857,828) 1,264,073 $ 12,937,240
==============================================================================================
</TABLE>
FS-7
<PAGE> 389
NOTE 8-FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
INSTITUTIONAL CLASS
---------------------------------------------------
2000 1999 1998 1997 1996
---------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.03 $ 10.07 $ 10.07 $ 9.97 $ 10.03
-------------------------------------------- ------ ------- ------- ------- --------
Income from investment operations:
Net investment income 0.54 0.49 0.56 0.56 0.58
-------------------------------------------- ------ ------- ------- ------- --------
Net gains (losses) on securities (both
realized and unrealized) (0.07) (0.04) -- 0.10 (0.06)
-------------------------------------------- ------ ------- ------- ------- --------
Total from investment operations 0.47 0.45 0.56 0.66 0.52
-------------------------------------------- ------ ------- ------- ------- --------
Less distributions:
Dividends from net investment income (0.54) (0.49) (0.56) (0.56) (0.58)
-------------------------------------------- ------ ------- ------- ------- --------
Net asset value, end of period $ 9.96 $ 10.03 $ 10.07 $ 10.07 $ 9.97
============================================ ====== ======= ======= ======= ========
Total return 4.78% 4.55% 5.66% 6.79% 5.27%
============================================ ====== ======= ======= ======= ========
Ratios/supplemental data:
Net assets, end of year (000s omitted) $2,455 $17,131 $50,609 $48,866 $143,468
============================================ ====== ======= ======= ======= ========
Ratio of expenses to average net assets 0.29%(a) 0.31% 0.32% 0.31% 0.27%
============================================ ====== ======= ======= ======= ========
Ratio of net investment income to average
net assets 5.31%(a) 4.84% 5.51% 5.56% 5.72%
============================================ ====== ======= ======= ======= ========
Portfolio turnover rate 122% 184% 133% 130% 117%
============================================ ====== ======= ======= ======= ========
</TABLE>
(a) Ratios are based on average net assets of $8,153,267.
FS-8
<PAGE> 390
PART C
OTHER INFORMATION
<TABLE>
<CAPTION>
Item 23. Exhibits
--------
<S> <C> <C>
a (1) (a) Agreement and Declaration of Trust of the Registrant was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 3 on August 16, 1993, and was filed
electronically as an Exhibit to Post-Effective Amendment No. 6 on November 17, 1995.
(b) First Amendment to Agreement and Declaration of Trust of Registrant was filed
as an Exhibit to Registrant's Post-Effective Amendment No. 4 on October 15, 1993,
and was filed electronically as an Exhibit to Post-Effective Amendment No. 6 on
November 17, 1995.
(c) Second Amendment to Agreement and Declaration of Trust of Registrant was filed
electronically as an Exhibit to Post-Effective Amendment No. 7 on November 21, 1996.
(d) Third Amendment to Agreement and Declaration of Trust of Registrant was filed
electronically as an Exhibit to Post-Effective Amendment No. 8 on November 21, 1997.
(e) Fourth Amendment to Agreement and Declaration of Trust of Registrant was filed
as an Exhibit to Post-Effective Amendment No. 9 on July 10, 1998.
(f) Fifth Amendment to Agreement and Declaration of Trust of Registrant was filed
as an Exhibit to Post-Effective Amendment No. 9 on July 10, 1998.
(g) Sixth Amendment to Agreement and Declaration of Trust of Registrant was filed
electronically as an Exhibit to Post-Effective Amendment No. 10 on November 18,
1998.
(2) (a) Amended and Restated Agreement and Declaration of Trust of Registrant was filed
electronically as an Exhibit to Post-Effective Amendment No. 10 on November 18, 1998 and
is hereby incorporated by reference.
(b) First Amendment, dated March 8, 2000 to the Amended and Restated Agreement and
Declaration of Trust of Registrant was filed electronically as an Exhibit to
Post-Effective Amendment No. 13 on March 10, 2000 and is hereby incorporated by
reference.
(c) Amendment No. 2 dated May 10, 2000 to the Amended and Restated Agreement and
Declaration of Trust of Registrant was filed electronically as an Exhibit to
Post-Effective Amendment No. 13 on May 25, 2000 and is hereby incorporated by reference.
b (1) (a) By-Laws of the Registrant were filed as an Exhibit to Registrant's Post-Effective
Amendment No. 3 on August 16, 1993, and were filed electronically as an Exhibit to
Post-Effective Amendment No. 7 on November 21, 1996.
(b) Amendment to By-Laws of Registrant was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 5 on November 30, 1994, and was filed
</TABLE>
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<PAGE> 391
<TABLE>
<S> <C>
electronically as an Exhibit to Post-Effective Amendment No. 7 on November 21, 1996.
(c) Second Amendment to By-Laws of Registrant was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 5 on November 30, 1994, and was filed electronically as an
Exhibit to Post-Effective Amendment No. 7 on November 21, 1996.
(2) Amended and Restated By-laws of Registrant were filed as an Exhibit to Post-Effective
Amendment No. 8 on November 21, 1997.
(3) (a) Amended and Restated Bylaws of Registrant, effective November 5, 1998, were filed
electronically as an Exhibit to Post-Effective Amendment No. 10 on November 18, 1998 and is
hereby incorporated by reference.
(b) First Amendment to the Amended and Restated Bylaws of Registrant, effective June 9,
1999, was filed electronically as an Exhibit to Post-Effective Amendment No. 11 on
October 14, 1999 and is hereby incorporated by reference.
(c) Amendment No. 2 to the Amended and Restated Bylaws of Registrant, effective June 14,
2000, is filed herewith electronically.
c Instruments Defining Rights of Security Holders - None.
d (1) Investment Advisory Agreement between Registrant (on behalf of its AIM Adjustable
Rate Government Fund) and A I M Advisors, Inc. was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 1 on June 15, 1992.
(2) Master Investment Advisory Agreement, dated as of August 6, 1993, between Registrant and
A I M Advisors, Inc. was filed as an Exhibit to Registrant's Post-Effective Amendment No. 4
on October 15, 1993.
(3) Master Investment Advisory Agreement, dated October 18, 1993, between Registrant and
A I M Advisors, Inc. was filed as an Exhibit to Registrant's Post-Effective Amendment
No. 5 on November 30, 1994, and was filed electronically as an Exhibit to Post-Effective
Amendment No. 6 on November 17, 1995.
(4) Notice of Termination dated November 18, 1994 to Master Investment Advisory Agreement, dated
October 18, 1993, between Registrant, with respect to the AIM Adjustable Rate Government
Fund, and A I M Advisors, Inc. was filed electronically as an Exhibit to Post-Effective
Amendment No. 6 on November 17, 1995.
(5) (a) Master Investment Advisory Agreement, dated February 28, 1997, between Registrant and
A I M Advisors, Inc. was filed electronically as an Exhibit to Post-Effective Amendment
No. 8 on November 21, 1997.
(b) Amendment No. 1 to the Master Investment Advisory Agreement, dated February 28,
1997, between Registrant and A I M Advisors, Inc., with respect to AIM High Yield Fund
II, was filed electronically as an Exhibit to Post-Effective Amendment No. 10 on
November 18, 1998.
</TABLE>
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<TABLE>
<S> <C>
(6) Master Investment Advisory Agreement, dated June 1, 2000, between Registrant and
A I M Advisors, Inc. is filed herewith electronically.
(7) (a) Foreign Country Selection and Mandatory Securities Depository Responsibilities
Delegation Agreement, dated September 9, 1998, between Registrant and A I M Advisors,
Inc. was filed electronically as an Exhibit to Post-Effective Amendment No. 11 on
October 14, 1999 and is hereby incorporated by reference.
(b) Amendment No. 1, dated September 28, 1998 to Foreign Country Selection and Mandatory
Securities Depository Responsibilities Delegation Agreement, dated September 9, 1998,
between Registrant and A I M Advisors, Inc. was filed electronically as an Exhibit to
Post-Effective Amendment No. 11 on October 14, 1999 and is hereby incorporated by
reference.
(c) Amendment No. 2, dated as of December 14, 1998 to Foreign Country Selection and
Mandatory Securities Depository Responsibilities Delegation Agreement, dated September
9, 1998, between Registrant and A I M Advisors, Inc. was filed electronically as an
Exhibit to Post-Effective Amendment No. 11 on October 14, 1999 and is hereby
incorporated by reference.
(d) Amendment No. 3, dated as of December 22, 1998 to Foreign Country Selection and
Mandatory Securities Depository Responsibilities Delegation Agreement, dated September
9, 1998, between Registrant and A I M Advisors, Inc. was filed electronically as an
Exhibit to Post-Effective Amendment No. 11 on October 14, 1999 and is hereby
incorporated by reference.
(e) Amendment No. 4, dated as of January 26, 1999 to Foreign Country Selection and
Mandatory Securities Depository Responsibilities Delegation Agreement, dated September
9, 1998, between Registrant and A I M Advisors, Inc. was filed electronically as an
Exhibit to Post-Effective Amendment No. 11 on October 14, 1999 and is hereby
incorporated by reference.
(f) Amendment No. 5, dated as of March 1, 1999 to Foreign Country Selection and
Mandatory Securities Depository Responsibilities Delegation Agreement, dated September
9, 1998, between Registrant and A I M Advisors, Inc. was filed electronically as an
Exhibit to Post-Effective Amendment No. 11 on October 14, 1999 and is hereby
incorporated by reference.
(g) Amendment No. 6, dated as of March 18, 1999 to Foreign Country Selection and
Mandatory Securities Depository Responsibilities Delegation Agreement, dated September
9, 1998, between Registrant and A I M Advisors, Inc. was filed electronically as an
Exhibit to Post-Effective Amendment No. 11 on October 14, 1999 and is hereby
incorporated by reference.
(h) Amendment No. 7, dated November 15, 1999 to Foreign Country Selection and Mandatory
Securities Depository Responsibilities Delegation Agreement, dated September 9, 1998,
between Registrant and A I M Advisors, Inc. was filed electronically as an Exhibit to
Post-Effective Amendment No. 13 on March 10, 2000 and is hereby incorporated by
reference.
e (1) Distribution Agreement between Registrant (on behalf of its AIM Adjustable Rate
Government Fund) and A I M Distributors, Inc. was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 1 on June 15, 1992.
(2) Master Distribution Agreement, dated August 6, 1993, between Registrant (on behalf of its
AIM Adjustable Rate Government Fund and Limited Maturity Treasury Portfolio - AIM
Limited Maturity Treasury Shares) and A I M Distributors,
</TABLE>
C-3
<PAGE> 393
<TABLE>
<S> <C>
Inc. was filed as an Exhibit to Registrant's Post-Effective Amendment No. 4 on October
15, 1993.
(3) Distribution Agreement, dated August 6, 1993, between Registrant (on behalf of its Limited
Maturity Treasury Portfolio - Institutional Shares) and Fund Management Company was
filed as an Exhibit to Registrant's Post-Effective Amendment No. 4 on October 15, 1993.
(4) (a) Master Distribution Agreement, dated October 18, 1993, between Registrant (on behalf of
its Limited Maturity Treasury Portfolio - AIM Limited Maturity Treasury Shares) and
A I M Distributors, Inc. was filed as an Exhibit to Registrant's Post-Effective Amendment
No. 5 on November 30, 1994, and was filed electronically as an Exhibit to Post-Effective
Amendment No. 6 on November 17, 1995.
(b) Amendment No. 1 dated November 18, 1994, to Master Distribution Agreement, dated
October 18, 1993, between Registrant (on behalf of its Limited Maturity Treasury
Portfolio - AIM Limited Maturity Treasury Shares) and A I M Distributors, Inc. was filed
electronically as an Exhibit to Post-Effective Amendment No. 6 on November 17, 1995.
(5) Master Distribution Agreement dated February 28, 1997, between Registrant and A I M
Distributors, Inc. was filed electronically as an Exhibit to Post-Effective
Amendment No. 8 on November 21, 1997.
(6) Amended and Restated Master Distribution Agreement between Registrant (on behalf of
Registrant's Class A and Class C shares) and A I M Distributors, Inc. was filed
electronically as an Exhibit to Post-Effective Amendment No. 10 on November 18,
1998.
(7) Second Amended and Restated Master Distribution Agreement, dated June 1, 2000, between
Registrant (on behalf of Class A Shares, Class C Shares and AIM Cash Reserve Shares) and
A I M Distributors, Inc. is filed herewith electronically.
(8) Form of Third Amended and Restated Master Distribution Agreement, between AIM Investment
Securities Funds (Class A Shares, Class C Shares, AIM Cash Reserve Shares and
Institutional Class Shares) and A I M Distributors, Inc. is filed herewith
electronically.
(9) Master Distribution Agreement between Registrant (on behalf of Registrant's Class B
shares) and AIM Distributors, Inc. was filed electronically as an Exhibit to
Post-Effective Amendment No. 10 on November 18, 1998 and is hereby incorporated by
reference.
(10) Distribution Agreement, dated October 18, 1993, between Registrant (on behalf of its Limited
Maturity Treasury Portfolio - Institutional Shares) and Fund Management Company was
filed as an Exhibit to Registrant's Post-Effective Amendment No. 5 on November 30, 1994,
and was filed electronically as an Exhibit to Post-Effective Amendment No. 7 on November
21, 1996.
(11) Master Distribution Agreement, dated February 28, 1997, between Registrant (on behalf of the
Institutional Shares of AIM Limited Maturity Treasury Fund) and Fund Management Company
was filed electronically as an Exhibit to
</TABLE>
C-4
<PAGE> 394
<TABLE>
<S> <C>
Post-Effective Amendment No. 8 on November 21, 1997 and is hereby incorporated by reference.
(12) Form of Selected Dealer Agreement between A I M Distributors, Inc. and selected dealers
was filed electronically as an Exhibit to Post-Effective Amendment No. 10 on November
18, 1998 and is hereby incorporated by reference.
(13) Form of Bank Selling Group Agreement between A I M Distributors, Inc. and banks was
filed electronically as an Exhibit to Post-Effective Amendment No. 10 on November
18, 1998 and is hereby incorporated by reference.
(14) Form of Service Agreement for Certain Retirement Plans between Fund Management
Company and Plan Providers was filed electronically as an Exhibit to Post-Effective
Amendment No. 6 on November 17, 1995, and is hereby incorporated by reference.
f (1) Retirement Plan for Registrant's Non-Affiliated Trustees was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 5 on November 30, 1994.
(2) Retirement Plan for Registrant's Non-Affiliated Trustees effective as of March 8, 1994, as
restated September 18, 1995, was filed electronically as an Exhibit to Post-Effective
Amendment No. 7 on November 21, 1996.
(3) AIM Funds Retirement Plan for Eligible Directors/Trustees restated March 7, 2000,
is filed herewith electronically.
(4) Form of Deferred Compensation Agreement for Registrant's Non-Affiliated Trustees
was filed as an Exhibit to Registrant's Post-Effective Amendment No. 5 on November
30, 1994.
(5) Form of Deferred Compensation Agreement for Registrant's Non-Affiliated Trustees as approved
December 5, 1995, was filed electronically as an Exhibit to Post-Effective Amendment No.
7 on November 21, 1996 and is hereby incorporated by reference.
(6) Form of Deferred Compensation Agreement for Registrant's Non-Affiliated Trustees as
approved March 12, 1997, was filed as an Exhibit to Post-Effective Amendment No. 9
on July 10, 1998 and is hereby incorporated by reference.
(7) Form of AIM Funds Director Deferred Compensation Agreement, as amended March 7,
2000, is filed herewith electronically.
g (1) Custody Agreement between Registrant and State Street Bank and Trust Company was
filed as an Exhibit to Registrant's Post-Effective Amendment No. 1 on June 15, 1992.
(2) (a) Second Amended and Restated Custody Agreement between Short-Term Investments Co. (on behalf
of its Limited Maturity Treasury Portfolio) and The Bank of New York was filed as an
Exhibit to Registrant's Post-Effective Amendment No. 5 on November 30, 1994, and was
filed electronically as an Exhibit to Post-Effective Amendment No.7 on November 21, 1996
and is hereby incorporated by reference.
</TABLE>
C-5
<PAGE> 395
<TABLE>
<S> <C>
(b) Amendment to Second Amended and Restated Custody Agreement between Short-Term
Investments Co. (on behalf of its Limited Maturity Treasury Portfolio) and The Bank
of New York was filed as an Exhibit to Registrant's Post-Effective Amendment No. 5
on November 30, 1994, and was filed electronically as an Exhibit to Post-Effective
Amendment No. 7 on November 21, 1996 and is hereby incorporated by reference.
(3) Assignment and Acceptance of Assignment of Custody Agreement between Registrant (on
behalf of its Limited Maturity Treasury Portfolio) and Short-Term Investments Co.
(on behalf of its Limited Maturity Treasury Portfolio) was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 5 on November 30, 1994, and was filed
electronically as an Exhibit to Post-Effective Amendment No. 7 on November 21, 1996
and is hereby incorporated by reference.
(4) Letter Agreement, dated June 1, 2000, between Registrant and The Bank of New York,
is filed herewith electronically.
(5) Letter Agreement, dated August 30, 2000, between Registrant and The Bank of New
York, is filed herewith electronically.
(6) Custodian Contract, dated September 28, 1998, between Registrant (on behalf of its
High Yield Fund II portfolio) and State Street Bank and Trust Company was filed
electronically as an Exhibit to Post-Effective Amendment No. 10 on November 18,
1998.
(7) (a) Master Custodian Contract, dated May 1, 2000, between Registrant (on behalf of
High Yield Fund II portfolio) and State Street Bank and Trust Company is filed
herewith electronically.
(b) Amendment to Custodian Contract, dated May 1, 2000, between Registrant (on behalf of
High Yield Fund II portfolio) and State Street Bank and Trust Company is filed herewith
electronically.
(8) (a) Subcustodian Agreement with Texas Commerce Bank, dated September 9, 1994, among Texas
Commerce Bank National Association, State Street Bank and Trust Company, A I M Fund
Services, Inc. and Registrant was filed electronically as an Exhibit to Post-Effective
Amendment No. 7 on November 21, 1996 and is hereby incorporated by reference.
(9) (b) Amendment No. 1, dated October 2, 1998, to the Subcustodian Agreement with Texas
Commerce Bank, dated September 9, 1994, among Texas Commerce Bank National Association,
State Street Bank and Trust Company, A I M Fund Services, Inc. and Registrant was filed
electronically as an Exhibit to Post-Effective Amendment No. 13 on March 10, 2000 and is
hereby incorporated by reference.
h (1) Administrative Services Agreement between Registrant and A I M Advisors, Inc. was
filed as an Exhibit to Registrant's Post-Effective Amendment No. 1 on June 15, 1992.
(2) Master Administrative Services Agreement, dated as of August 6, 1993, between
Registrant and A I M Advisors, Inc. was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 4 on October 15, 1993.
</TABLE>
C-6
<PAGE> 396
<TABLE>
<S> <C>
(3) (a) Master Administrative Services Agreement, dated October 18, 1993, between
Registrant and A I M Advisors, Inc. was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 5 on November 30, 1994, and was filed electronically as
an Exhibit to Post-Effective Amendment No. 6 on November 17, 1995.
(b) Amendment No. 1 dated November 18, 1994 to Master Administrative Services
Agreement, dated October 18, 1993, between Registrant and A I M Advisors, Inc. was
filed electronically as an Exhibit to Post-Effective Amendment No. 6 on November
17, 1995.
(4) (a) Master Administrative Services Agreement, dated February 28, 1997, between
Registrant and A I M Advisors, Inc. was filed electronically as an Exhibit to
Post-Effective Amendment No. 8 on November 21, 1997 and is hereby incorporated by
reference.
(b) Amendment No. 1 to the Master Administrative Services Agreement, dated February
28, 1998, between Registrant and A I M Advisors, Inc. was filed electronically as
an Exhibit to Post-Effective Amendment No. 10 on November 18, 1998 and is hereby
incorporated by reference.
(5) (a) Administrative Services Agreement, dated as of October 18, 1993, between A I M
Advisors, Inc., on behalf of Registrant's portfolios and classes, and A I M Fund
Services, Inc. was filed as an Exhibit to Registrant's Post-Effective Amendment No. 5 on
November 30, 1994.
(b) Amendment No. 1 dated May 11, 1994, to Administrative Services Agreement, dated
October 18, 1993, between A I M Advisors, Inc., on behalf of Registrant's
portfolios and classes, and A I M Fund Services, Inc. was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 5 on November 30, 1994.
(c) Amendment No. 2 dated July 1, 1994, to Administrative Services Agreement, dated
October 18, 1993, between A I M Advisors, Inc., on behalf of Registrant's
portfolios and classes, and A I M Fund Services, Inc. was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 5 on November 30, 1994.
(d) Amendment No. 3 dated September 16, 1994, to Administrative Services Agreement,
dated October 18, 1993, between A I M Advisors, Inc., on behalf of Registrant's
portfolios and classes, and A I M Fund Services, Inc. was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 5 on November 30, 1994.
(e) Amendment No. 4 dated November 1, 1994, to Administrative Services Agreement,
dated October 18, 1993, between A I M Advisors, Inc., on behalf of Registrant's
portfolios and classes, and A I M Fund Services, Inc. was filed electronically as
an Exhibit to Post-Effective Amendment No. 6 on November 17, 1995.
(6) Master Administrative Services Agreement, dated June 1, 2000, between Registrant
and A I M Advisors, Inc. is filed herewith electronically.
(7) (a) Transfer Agency Agreement between Registrant and The Shareholder Services
Group, Inc. was filed as an Exhibit to Registrant's Post-Effective Amendment No. 2
on November 27, 1992.
</TABLE>
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<PAGE> 397
<TABLE>
<S> <C>
(b) Amendment to Transfer Agency Agreement between Registrant and The Shareholder
Services Group, Inc. was filed as an Exhibit to Registrant's Post-Effective
Amendment No. 2 on November 27, 1992.
(8) (a) Remote Access and Related Services Agreement, dated December 23, 1994, between
Registrant and First Data Investor Services Group (formerly The Shareholder
Services Group, Inc.) was filed electronically as an Exhibit to Post-Effective
Amendment No. 6 on November 17, 1995 and is hereby incorporated by reference.
(b) Amendment No. 1 Remote Access and Related Services Agreement, dated October 4,
1995, between Registrant and First Data Investor Services Group (formerly The
Shareholder Services Group, Inc). was filed electronically as an Exhibit to
Post-Effective Amendment No. 6 on November 17, 1995 and is hereby incorporated by
reference.
(c) Addendum No. 2 to Remote Access and Related Services Agreement, dated October
12, 1995, between Registrant and First Data Investor Services Group (formerly The
Shareholder Services Group, Inc.) was filed electronically as an Exhibit to
Post-Effective Amendment No. 6 on November 17, 1995 and is hereby incorporated by
reference.
(d) Amendment No. 3 to Remote Access and Related Services Agreement, dated February
1, 1997 between Registrant and First Data Investor Services Group was filed
electronically as an Exhibit to Post-Effective Amendment No. 8 on November 21, 1997
and is hereby incorporated by reference.
(e) Exhibit 1, effective as of August 4, 1997, to the Remote Access and Related Services
Agreement, dated December 23, 1994, between Registrant and First Data Investor Services
Group, Inc. was filed as an Exhibit to Post-Effective Amendment No. 9 on July 10, 1998
and is hereby incorporated by reference.
(f) Amendment No. 4 to Remote Access and Related Services Agreement, dated June 30,
1998 between Registrant and First Data Investor Services Group, Inc. was filed
electronically as an Exhibit to Post-Effective Amendment No. 10 on November 18,
1998 and is hereby incorporated by reference.
(g) Amendment No. 5 to Remote Access and Related Services Agreement, dated July 1,
1998 between Registrant and First Data Investor Services Group, Inc. was filed
electronically as an Exhibit to Post-Effective Amendment No. 10 on November 18,
1998 and is hereby incorporated by reference.
(h) Amendment No. 6 to Remote Access and Related Services Agreement, dated
August 30, 1999 between Registrant and First Data Investor Services Group,
Inc. was filed electronically as an Exhibit to Post-Effective Amendment No. 13
on March 10, 2000 and is hereby incorporated by reference.
(i) Amendment No. 7 to Remote Access and Related Services Agreement, dated February
29, 2000, between Registrant and PFPC (formerly known as First Data Investor
Services Group, Inc.) is filed herewith electronically.
</TABLE>
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<PAGE> 398
<TABLE>
<S> <C>
(j) Amendment No. 8 to the Remote Access and Related Services Agreement, dated June
26, 2000, between Registrant and PFPC, is filed herewith electronically.
(k) Amendment No. 9 - Restated and Amended Amendment No. 6 to the Remote Access and
Related Services Agreement, dated June 26, 2000, between Registrant and PFPC is
filed herewith electronically.
(l) Amendment No. 10 to the Remote Access and Related Services Agreement, dated
July 28, 2000, between Registrant and PFPC is filed herewith electronically.
(9) Preferred Registration Technology Escrow Agreement, dated September 10, 1997,
between Registrant and First Data Investor Services Group, Inc. was filed as an
Exhibit to Post-Effective Amendment No. 9 on July 10, 1998 and is hereby
incorporated by reference.
(10) Assignment and Acceptance of Assignment of Transfer Agency Agreement among
Registrant (on behalf of its Limited Maturity Treasury Portfolio - Institutional
Shares), Short-Term Investments Co. and State Street Bank and Trust Company was
filed as an Exhibit to Registrant's Post-Effective Amendment No. 5 on November 30,
1994.
(11) Transfer Agency and Service Agreement, dated November 1, 1994, between Registrant (on behalf
of its Limited Maturity Treasury Portfolio - AIM Limited Maturity Treasury Shares) and
A I M Fund Services, Inc. was filed electronically as an Exhibit to Post-Effective
Amendment No. 6 on November 17, 1995.
(12) (a) Transfer Agency and Service Agreement, dated July 1, 1995, between Registrant (on behalf
of its Limited Maturity Treasury Portfolio - Institutional Shares) and A I M
Institutional Fund Services, Inc. was filed electronically as an Exhibit to
Post-Effective Amendment No. 6 on November 17, 1995.
(b) Amendment No. 1 to Transfer Agency and Service Agreement, dated July 1, 1996,
between Registrant and A I M Institutional Fund Services, Inc. was filed electronically
as an Exhibit to Post-Effective Amendment No. 8 on November 21, 1997.
(c) Amendment No. 2 to Transfer Agency and Service Agreement, dated July 1, 1997,
between Registrant and A I M Institutional Fund Services, Inc. was filed electronically
as an Exhibit to Post Effective Amendment No. 8 on November 21, 1997.
(13) (a) Amended and Restated Transfer Agency and Service Agreement, dated December 29,
1997, between Registrant and A I M Fund Services, Inc. was filed as an Exhibit to
Post-Effective Amendment No. 9 on July 10, 1998 and is hereby incorporated by
reference.
(b) Amendment No. 1 to the Amended and Restated Transfer Agency and Service Agreement,
dated January 1, 1999, between Registrant and A I M Fund Services, Inc. was filed
electronically as an Exhibit to Post-Effective Amendment No. 11 on October 14, 1999 and
is hereby incorporated by reference.
</TABLE>
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<TABLE>
<S> <C>
(c) Amendment No. 2 to the Amended and Restated Transfer Agency and Service
Agreement, dated July 1, 1999, between Registrant and A I M Fund Services, Inc. was
filed electronically as an Exhibit to Post-Effective Amendment No. 11 on October
14, 1999 and is hereby incorporated by reference.
(d) Amendment No. 3 to the Amended and Restated Transfer Agency and Service
Agreement, dated July 1, 2000, between Registrant and A I M Fund Services, Inc. is
filed herewith electronically.
(13) Memorandum of Agreement, dated November 29, 1999, between Registrant and A I M Advisors,
Inc. was filed electronically as an Exhibit to Post-Effective Amendment No. 13 on
March 10, 2000.
(14) Memorandum of Agreement, dated June 1, 2000, between Registrant and A I M Advisors,
Inc. is filed herewith electronically.
(15) Agreement and Plan of Reorganization, dated as of December 7, 1999, between
Registrant and AIM Funds Group was filed electronically as an Exhibit to
Post-Effective Amendment No. 13 on March 10, 2000 and is hereby incorporated by
reference.
i (1) Opinion and Consent of Ballard Spahr Andrews & Ingersoll, LLP was filed as an
Exhibit to Post-Effective Amendment No. 12 on March 10, 2000 and is hereby
incorporated by reference.
j (1) Consent of Ballard Spahr Andrews & Ingersoll, LLP is filed herewith electronically.
(2) Consent of Dechert Price & Rhoads is filed herewith electronically.
(3) Consent of KPMG LLP is filed herewith electronically.
(4) (a) Opinion of Dechert Price & Rhoads was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 5 on November 30, 1994 and was filed electronically as
an Exhibit to Post-Effective Amendment No. 7 on November 21, 1996.
(b) Opinion of Dechert Price & Rhoads was filed electronically as an Exhibit to
Post-Effective Amendment No. 8 on November 21, 1997 and is hereby incorporated by
reference.
k Financial Statements - None.
l Initial Capitalization Agreement of Registrant's AIM High Yield Fund II was filed
electronically as an Exhibit to Post-Effective Amendment No. 10 on November 18,
1998 and is hereby incorporated by reference.
m (1) Distribution Plan for Registrant (on behalf of its Limited Maturity Treasury
Portfolio - AIM Limited Maturity Treasury Shares), was filed electronically as an
Exhibit to Post-Effective Amendment No. 6 on November 17, 1995.
(2) Amended and Restated Master Distribution Plan, dated June 30, 1997, was filed
electronically as an Exhibit to Post-Effective Amendment No. 8 on November 21, 1997.
</TABLE>
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<TABLE>
<S> <C>
(3) Second Amended and Restated Master Distribution Plan for Registrant's Class A
shares was filed electronically as an Exhibit to Post-Effective Amendment No. 10 on
November 18, 1998.
(4) Third Amended and Restated Master Distribution Plan for Registrant's Class A and Class C
shares was filed electronically as an Exhibit to Post-Effective Amendment No. 10 on
November 18, 1998.
(5) Fourth Amended and Restated Master Distribution Plan, dated July 1, 2000, for
Registrant's Class A Shares, Class C Shares and AIM Cash Reserve Shares is filed
herewith electronically.
(6) (a) Master Distribution Plan for Registrant's Class B shares was filed
electronically as an Exhibit to Post-Effective Amendment No. 10 on November 18,
1998 and is hereby incorporated by reference.
(b) Amendment No. 1 to Master Distribution Plan, dated July 1, 2000, for
Registrant's Class B Shares is filed herewith electronically.
(7) Form of Shareholder Service Agreement to be used in connection with Registrant's
Master Distribution Plan was filed electronically as an Exhibit to Post-Effective
Amendment No. 11 on October 14, 1999 and is hereby incorporated by reference.
(8) Form of Bank Shareholder Service Agreement to be used in connection with Registrant's
Master Distribution Plan was filed electronically as an Exhibit to Post-Effective
Amendment No. 11 on October 14, 1999 and is hereby incorporated by reference.
(9) Form of Agency Pricing Agreement (for the Retail Classes) to be used in connection
with Registrant's Master Distribution Plan was filed electronically as an Exhibit
to Post-Effective Amendment No. 11 on October 14, 1999 and is hereby incorporated
by reference.
(10) Form of Service Agreements for Bank Trust Departments and for Brokers for Bank Trust
Departments to be used in connection with Registrant's Master Distribution Plan was
filed electronically as an Exhibit to Post-Effective Amendment No. 11 on October 14,
1999 and is hereby incorporated by reference.
(11) Form of Variable Group Annuity Contractholder Service Agreement to be used in connection
with Registrant's Master Distribution Plan was filed electronically as an Exhibit to
Post-Effective Amendment No. 11 on October 14, 1999 and is hereby incorporated by
reference.
(12) Form of Shareholder Service Agreement for Shares of the AIM Mutual Funds is filed
herewith electronically.
n (1) Multiple Class (Rule 18f-3) Plan was filed electronically as an Exhibit to
Post-Effective Amendment No. 7 on November 21, 1996.
(2) Amended and Restated Multiple Class Plan, effective as of July 1, 1997, was filed
electronically as an Exhibit to Post-Effective Amendment No. 8 on November 21, 1997.
</TABLE>
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<TABLE>
<S> <C>
(3) Second Amended and Restated Multiple Class Plan, effective September 1, 1997, was
filed electronically as an Exhibit to Post-Effective Amendment No. 8 on November
21, 1997.
(4) Third Amended and Restated Multiple Class Plan, effective as of August 5, 1999, was
filed electronically as an Exhibit to Post-Effective Amendment No. 11 on October 14,
1999 and is hereby incorporated by reference.
o Reserved.
p (1) The AIM Management Group Inc. Code of Ethics, adopted May 1, 1981, as last amended
August 17, 1999, relating to A I M Management Group Inc. and A I M Advisors, Inc.,
was filed electronically as an Exhibit to Post-Effective Amendment No. 11 on
October 14, 1999.
(2) The A I M Management Group Inc. Code of Ethics adopted May 1, 1981, as last amended
February 24, 2000, relating to A I M Management Group Inc. and A I M Advisors, Inc.
was filed electronically as an Exhibit to Post-Effective Amendment No. 13 on May
25, 2000 and is hereby incorporated by reference.
(3) Code of Ethics of Registrant, effective as of the 14th day of December, 1990, was
filed electronically as an Exhibit to Post-Effective Amendment No. 11 on October
14, 1999.
(4) AIM Funds Code of Ethics of Registrant, effective as of the 14th day of June, 2000,
is filed herewith electronically.
(5) AIM Funds Code of Ethics of Registrant, effective as of the 23rd day of September,
2000, is filed herewith electronically.
</TABLE>
Item 24. Persons Controlled by or Under Common Control With Registrant
Provide a list or diagram of all persons directly or indirectly
controlled by or under common control with the Registrant. For any person
controlled by another person, disclose the percentage of voting securities owned
by the immediately controlling person or other basis of that person's control.
For each company, also provide the state or other sovereign power under the laws
of which the company is organized.
None.
Item 25. Indemnification
State the general effect of any contract, arrangement or statute
under which any director, officer, underwriter or affiliated person of the
Registrant is insured or indemnified against any liability incurred in their
official capacity, other than insurance provided by any director, officer,
affiliated person or underwriter for their own protection.
Delaware law provides that subject to such standards or restrictions,
if any, as are set forth in the governing instrument of a business
trust, a business trust shall have the power to indemnify and hold
harmless any trustee or beneficial owner or other person from and
against any and all claims and demands whatsoever. The Registrant's
Agreement and Declaration of Trust provides that every person who is or
has been a trustee or officer of the Registrant shall be indemnified by
the Registrant to the fullest extent permitted by Delaware law, the
Registrant's bylaws and other applicable law. The Registrant's bylaws
provide that a trustee, when acting in such capacity, shall not be
liable for any act or omission or any conduct whatsoever in his
capacity as trustee, provided that nothing contained in the bylaws or
the
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<PAGE> 402
Delaware Business Trust Act shall protect any trustee against any
liability to the Trust or its shareholders to which he would otherwise
be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard involved in the conduct of his office.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
United States Securities and Exchange Commission such indemnification
is against public policy and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a
trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such trustee, officer or controlling person in connection with the
securities being registered hereby, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy and will be
governed by the final adjudication of such issue.
The Registrant has obtained insurance coverage for its officers and
trustees under a joint Mutual Fund and Investment Advisory Professional
Directors and Officers Liability Policy, issued by ICI Mutual Insurance
Company, with a $35,000,000 limit of liability.
Item 26. Business and Other Connections of Investment Advisor
Describe any other business, profession, vocation or employment of a
substantial nature that each investment advisor of the Registrant, and each
director, officer or partner of the advisor, is or has been, engaged within the
two fiscal years for his or her own account or in the capacity of director,
officer, employee, partner or trustee.
The only employment of a substantial nature of the officers and
directors of A I M Advisors, Inc. (the "Advisor"), the Registrant's
investment advisor, is with the Advisor and its affiliated companies.
For additional information regarding the Advisor and its officers and
directors, see "Management" in the Prospectus and the Statement of
Additional Information for the Class A shares and "Management of the
Trust" and "General Information About the Fund" in the Prospectus and
the Statement of Additional Information, respectively, for the
Institutional Class.
Item 27. Principal Underwriters
(a) State the name of each investment company (other than the
Registrant) for which each principal underwriter currently distributing
the Registrant's securities also acts as a principal underwriter,
depositor, or investment adviser.
(1) A I M Distributors, Inc., the Registrant's principal
underwriter for the Class A, Class B and Class C shares, also
acts as a principal underwriter to the following investment
companies:
AIM Advisor Funds
AIM Equity Funds (Retail Classes)
AIM Floating Rate Fund
AIM Funds Group
AIM Growth Series
AIM International Funds, Inc.
AIM Investment Funds
AIM Series Trust
AIM Special Opportunities Funds
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<PAGE> 403
AIM Summit Fund
AIM Tax-Exempt Funds
AIM Variable Insurance Funds
(2) Fund Management Company, the Registrant's principal
underwriter for Institutional Class of AIM Limited Maturity
Treasury Fund, also acts as a principal underwriter to the
following investment companies:
AIM Equity Funds (Institutional Classes)
Short-Term Investments Co.
Short-Term Investments Trust
Tax-Free Investments Co.
(b) Provide the information required by the following table for each
director, officer, or partner of each principal underwriter named in
the response to Item 20:
<TABLE>
<CAPTION>
Name and Principal Position and Offices Position and Offices
Business Address* with Principal Underwriter with Registrant
---------------- -------------------------- --------------------
<S> <C> <C>
(1) A I M Distributors, Inc.
Charles T. Bauer Director and Chairman None
Michael J. Cemo Director and President None
Robert H. Graham Director and Senior Vice President Chairman, Trustee and
President
Gary T. Crum Director Senior Vice President
W. Gary Littlepage Director and Senior Vice President None
James L. Salners Executive Vice President None
Marilyn M. Miller Senior Vice President None
Gene L. Needles Senior Vice President None
Gordon J. Sprague Senior Vice President None
Michael C. Vessels Senior Vice President None
B. J. Thompson First Vice President None
Melville B. Cox Vice President and Vice President
Chief Compliance Officer
Ofelia M. Mayo General Counsel, Vice President Assistant Secretary
and Assistant Secretary
</TABLE>
--------
* 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173
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<PAGE> 404
<TABLE>
<CAPTION>
Name and Principal Position and Offices Position and Offices
Business Address* with Principal Underwriter with Registrant
---------------- -------------------------- --------------------
<S> <C> <C>
James R. Anderson Vice President None
Mary K. Coleman Vice President None
Mary A. Corcoran Vice President None
Glenda A. Dayton Vice President None
Sidney M. Dilgren Vice President None
Tony D. Green Vice President None
Dawn M. Hawley Vice President and Treasurer None
Charles H. McLaughlin Vice President None
Ivy B. McLemore Vice President None
Terri L. Ransdell Vice President None
Carol F. Relihan Vice President Senior Vice President
and Secretary
Kamala C. Sachidanandan Vice President None
Christopher T. Simutis Vice President None
Gary K. Wendler Vice President None
Norman W. Woodson Vice President None
Kathleen J. Pflueger Secretary Assistant Secretary
David E. Hessel Assistant Vice President, Assistant None
Treasurer and Controller
Luke P. Beausoleil Assistant Vice President None
Sheila R. Brown Assistant Vice President None
Scott E. Burman Assistant Vice President None
Mary E. Gentempo Assistant Vice President None
Simon R. Hoyle Assistant Vice President None
Kathryn A. Jordan Capage Assistant Vice President None
Kim T. McAuliffe Assistant Vice President None
</TABLE>
--------
* 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173
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<PAGE> 405
<TABLE>
<CAPTION>
Name and Principal Position and Offices Position and Offices
Business Address* with Principal Underwriter with Registrant
---------------- -------------------------- --------------------
<S> <C> <C>
David B. O'Neil Assistant Vice President None
Rebecca Starling-Klatt Assistant Vice President None
Nicholas D. White Assistant Vice President None
Nancy L. Martin Assistant General Counsel Assistant Secretary
and Assistant Secretary
P. Michelle Grace Assistant Secretary Assistant Secretary
Lisa A. Moss Assistant Secretary Assistant Secretary
(2) Fund Management Company
Charles T. Bauer Director and Chairman None
J. Abbott Sprague Director and President None
Robert H. Graham Director and Senior Vice President Chairman, President and
Trustee
Carol F. Relihan Director, Vice President and Senior Vice President
General Counsel and Secretary
Mark D. Santero Senior Vice President None
William J. Wendel Senior Vice President None
Melville B. Cox Vice President and Vice President
Chief Compliance Officer
Dawn M. Hawley Vice President and Treasurer None
Lisa A. Moss Vice President, Assistant General Assistant Secretary
Counsel and Assistant Secretary
James R. Anderson Vice President None
Kathleen J. Pflueger Secretary Assistant Secretary
David E. Hessel Assistant Vice President, None
Assistant Treasurer and
Controller
Dana R. Sutton Assistant Vice President Vice President
and Assistant Treasurer and Treasurer
Jeffrey L. Horne Assistant Vice President None
</TABLE>
--------
* 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173
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<PAGE> 406
<TABLE>
<CAPTION>
Name and Principal Position and Offices Position and Offices
Business Address* with Principal Underwriter with Registrant
---------------- -------------------------- --------------------
<S> <C> <C>
Robert W. Morris, Jr. Assistant Vice President None
Ann M. Srubar Assistant Vice President None
Rebecca Starling-Klatt Assistant Vice President None
Nicholas D. White Assistant Vice President None
Nancy L. Martin Assistant General Counsel and Assistant Secretary
Assistant Secretary
Ofelia M. Mayo Assistant General Counsel and Assistant Secretary
Assistant Secretary
P. Michelle Grace Assistant Secretary Assistant Secretary
</TABLE>
(c) Provide the information required by the following table for all
commissions and other compensation received, directly or
indirectly, from the Registrant during the last fiscal year by each
principal underwriter who is not an affiliated person of the
Registrant or any affiliated person of an affiliated person.
Not applicable.
Item 28. Location of Accounts and Records
State the name and address of each person maintaining physical possession
of each account, book, or other document required to be maintained by Section
31(a) [15 U.S.C. 80a-30(a)] and the rules under that section.
A I M Advisors, Inc., 11 Greenway Plaza, Suite 100, Houston, Texas
77046-1173, will maintain physical possession of each such account, book
or other document of the Registrant at its principal executive offices,
except for those relating to certain transactions in portfolio securities
that are maintained by the Registrant's Custodians, The Bank of New York,
90 Washington Street, 11th Floor, New York, New York 10286, with respect
to AIM Limited Maturity Treasury Fund, AIM Money Market Fund and AIM
Municipal Bond Fund, and State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110, with respect to AIM High Yield Fund,
AIM High Yield Fund II, AIM Income Fund and AIM Intermediate Government
Fund, and Registrant's Transfer Agent and Dividend Paying Agent, A I M
Fund Services, Inc., P.O. Box 4739, Houston, Texas 77210-4739.
Item 29. Management Services
Provide a summary of the substantive provisions of any management-related
service contract not discussed in Part A and Part B, disclosing the parties to
the contract and the total dollars paid and by whom, for the Registrant's last
three fiscal years.
None.
--------
* 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173
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<PAGE> 407
Item 30. Undertakings
In initial registration statements filed under the Securities Act,
provide an undertaking to file an amendment to the registration statement with
certified financial statements showing the initial capital received before
accepting subscriptions from more than 25 persons if the Registrant intends to
raise its initial capital under Section 14(a)(3) [15 U.S.C. 80a-14(a)(3)].
None.
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<PAGE> 408
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment
to its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of Houston, Texas on the 15th day of
November, 2000.
REGISTRANT: AIM INVESTMENT SECURITIES FUNDS
By: /s/ ROBERT H. GRAHAM
-------------------------------------
Robert H. Graham, President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ ROBERT H. GRAHAM Chairman, Trustee & President November 15, 2000
----------------------------------- (Principal Executive Officer)
(Robert H. Graham)
/s/ BRUCE L. CROCKETT Trustee November 15, 2000
-----------------------------------
(Bruce L. Crockett)
/s/ OWEN DALY II Trustee November 15, 2000
-----------------------------------
(Owen Daly II)
/s/ EDWARD K. DUNN, JR. Trustee November 15, 2000
-----------------------------------
(Edward K. Dunn, Jr.)
/s/ JACK FIELDS Trustee November 15, 2000
-----------------------------------
(Jack Fields)
/s/ CARL FRISCHLING Trustee November 15, 2000
-----------------------------------
(Carl Frischling)
/s/ PREMA MATHAI-DAVIS Trustee November 15, 2000
-----------------------------------
(Prema Mathai-Davis)
/s/ LEWIS F. PENNOCK Trustee November 15, 2000
-----------------------------------
(Lewis F. Pennock)
/s/ LOUIS S. SKLAR Trustee November 15, 2000
-----------------------------------
(Louis S. Sklar)
/s/ DANA R. SUTTON Vice President & November 15, 2000
----------------------------------- Treasurer (Principal Financial
(Dana R. Sutton) and Accounting Officer)
</TABLE>
<PAGE> 409
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
b(3)(c) Amendment No. 2 to the Amended and Restated Bylaws of Registrant, effective June 14, 2000
d(6) Master Investment Advisory Agreement, dated June 1, 2000, between Registrant and A I M
Advisors, Inc.
e(7) Second Amended and Restated Master Distribution Agreement, dated June 1, 2000 between Registrant
(on behalf of Class A Shares, Class C Shares and AIM Cash Reserve Shares) and A I M
Distributors, Inc.
e(8) Form of Third Amended and Restated Master Distribution Agreement, between AIM Investment Securities
Funds (Class A Shares, Class C Shares, AIM Cash Reserve and Institutional Class Shares) and
A I M Distributors, Inc.
f(3) AIM Funds Retirement Plan for Eligible Directors/Trustees restated March 7, 2000
f(7) Form of AIM Funds Director Deferred Compensation Agreement, as amended March 7, 2000
g(4) Letter Agreement, dated June 1, 2000, between Registrant and The Bank of New York
g(5) Letter Agreement, dated August 30, 2000, between Registrant and The Bank of New York
g(7)(a) Master Custodian Contract, dated May 1, 2000, between Registrant (on behalf of High Yield
Fund II portfolio) and State Street Bank and Trust Company
g(7)(b) Amendment to Custodian Contract, dated May 1, 2000, between Registrant (on behalf of High Yield
Fund II portfolio) and State Street Bank and Trust Company
h(6) Master Administrative Services Agreement, dated June 1, 2000, between Registrant and
A I M Advisors, Inc.
h(8)(i) Amendment No. 7 to Remote Access and Related Services Agreement, dated February 29, 2000,
between Registrant and PFPC (formerly known as First Data Investor Services Group, Inc.)
h(8)(j) Amendment No. 8 to the Remote Access and Related Services Agreement, dated June 26, 2000,
between Registrant and PFPC
h(8)(k) Amendment No. 9 - Restated and Amended Amendment No. 6 to the Remote Access and Related
Services Agreement, dated June 26, 2000, between Registrant and PFPC
h(8)(l) Amendment No. 10 to the Remote Access and Related Services Agreement, dated July 28,
2000, between Registrant and PFPC
h(13)(d) Amendment No. 3 to the Amended and Restated Transfer Agency and Service Agreement, dated
July 1, 2000, between Registrant and A I M Fund Services, Inc.
</TABLE>
<PAGE> 410
<TABLE>
<S> <C>
h(14) Memorandum of Agreement, dated June 1, 2000, between Registrant and A I M Advisors, Inc.
j(1) Consent of Ballard Spahr Andrews & Ingersoll, LLP
j(2) Consent of Dechert Price & Rhoads
j(3) Consent of KPMG LLP
m(5) Fourth Amended and Restated Master Distribution Plan, dated July 1, 2000, for
Registrant's Class A Shares, Class C Shares and AIM Cash Reserve Shares
m(6)(b) Amendment No. 1 to Master Distribution Plan, dated July 1, 2000, for Registrant's Class B
Shares
m(12) Form of Shareholder Service Agreement for Shares of the AIM Mutual Funds
p(4) AIM Funds Code of Ethics of Registrant, effective as of the 14th day of June, 2000
p(5) AIM Funds Code of Ethics of Registrant, effective as of the 23rd day of September, 2000
</TABLE>
