AIM TAX EXEMPT FUNDS INC/NEW, 485BPOS, 1996-07-26

AIM TAX EXEMPT FUNDS INC/NEW
485BPOS, 1996-07-26

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<PAGE> 1

As filed with the Securities and Exchange Commission on July 26, 1996

1933 Act Reg. No. 33-66242
1940 Act Reg. No. 811-7890

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
-----
Pre-Effective Amendment No.
-----

Post-Effective Amendment No. 4 X
-----

and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 X
-----

Amendment No. 5 X
--------- -----

(Check appropriate box or boxes.)

AIM TAX-EXEMPT FUNDS, INC.
-----------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)

11 Greenway Plaza, Suite 1919, Houston, TX 77046
-----------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code (713) 626-1919
----------------

Charles T. Bauer
11 Greenway Plaza, Suite 1919, Houston, TX 77046
-----------------------------------------------------------
(Name and Address of Agent for Service)

Copy to:
P. Michelle Grace, Esquire Martha J. Hayes, Esquire
A I M Advisors, Inc. Ballard Spahr Andrews & Ingersoll
11 Greenway Plaza, Suite 1919 1735 Market Street, 51st Floor
Houston, Texas 77046 Philadelphia, Pennsylvania 19103-7599

Approximate Date of Proposed As soon as practicable after the
Public Offering: 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 August 1, 1996 pursuant to paragraph (b)

______ 60 days after filing pursuant to paragraph (a)(1)
______ on (date) pursuant to paragraph (a)(1)
______ 75 days after filing pursuant to paragraph (a)(2)
______ on (date) pursuant to paragraph (a)(2) 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.

(Continued on next page)
<PAGE> 2

<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933*
- ------------------------------------------------------------------------------------------------------------------------
Proposed Proposed
Title of Maximum Maximum
Securities Amount Offering Aggregate Amount of
Being Being Price per Offering Registration
Registered Registered Share** Price Fee
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common
Stock
Par Value
$0.001

Name of Series:

AIM Tax-Exempt 593,411.369 $ 1.00 $593,411.37 $ 94.41
Cash Fund

AIM Tax-Free 20,411.973 $10.79 $220,245.19 $ 5.59
----------- ----------- -------
Intermediate
Shares

Total 613,823.342 $813,656.56 $100.00
</TABLE>

* Registrant continues its election to register an indefinite number of
its shares of common stock under Rule 24f-2 under the Investment
Company Act of 1940 and filed its Rule 24f-2 Notice for the fiscal
year ended March 31, 1996 on May 28, 1996.

** Registrant elects to calculate the maximum offering price pursuant to
Rule 24e-2. 47,117,467.900 shares were redeemed during the
Registrant's fiscal year ended March 31, 1996. 46,778,935.968 shares
were used for reduction pursuant to Paragraph (c) of Rule 24f-2 during
the current year. 319,622.369 shares of AIM TAX-EXEMPT CASH FUND, and
18,909.563 shares of AIM TAX-FREE INTERMEDIATE SHARES is the amount of
redeemed shares being registered in this amendment. Pursuant to Rule
457(d) under the Securities Act of 1933, the offering price per share
of common stock of AIM TAX-EXEMPT CASH FUND of $1.00 per share and for
AIM TAX-FREE INTERMEDIATE SHARES of $10.79 per share on July 11, 1996,
is the price used as the basis for these calculations. While no fee
is required for the 319,622.369 shares of AIM TAX-EXEMPT CASH FUND and
18,909.563 shares of AIM TAX-FREE INTERMEDIATE SHARES, the Registrant
has elected to register for $100, an additional 275,291.410 shares
(273,789.000 shares of AIM TAX-EXEMPT CASH FUND and 1,502.410 shares
of AIM TAX-FREE INTERMEDIATE SHARES).

<PAGE> 3

CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)

<TABLE>
<CAPTION>
FORM N-1A ITEM PROSPECTUS CAPTION
- -------------- ------------------
<S> <C>
Part A
Item 1. Cover Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
Item 2. Synopsis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary; Table of Fees and Expenses
Item 3. Condensed Financial Information . . . . . . . . . . . . . . . . . . . . . . . Financial Highlights; Performance
Item 4. General Description of Registrant . . . . . . . . . . . . . . . . . . . . . . . Cover Page; Summary; Investment
Program; Management; General Information
Item 5. Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary; Investment Program;
Management; General Information
Item 5A. Management's Discussion of Fund Performance . . . . . . . . . . . . . . . . . . . . . . . . . Not applicable
Item 6. Capital Stock and Other Securities . . . . . . . . . . . . . Summary; Management; Organization of the Company;
Dividends, Distributions and Tax Matters;
General Information
Item 7. Purchase of Securities Being Offered . . . . . . . . . . . . . . . . . . . Management; How to Purchase Shares;
Terms and Conditions of Purchase of the
AIM Funds; Special Plans; Exchange
Privilege; Determination of Net Asset Value
Item 8. Redemption or Repurchase . . . . . . . . . . . . . . . . . . . . . . . . . How To Redeem Shares; Special Plans
Item 9. Pending Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable

STATEMENT OF ADDITIONAL INFORMATION CAPTION
-------------------------------------------
Part B
Item 10. Cover Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
Item 11. Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Table of Contents
Item 12. General Information and History . . . . . . . . . . . . . . . . . . . . . . Introduction; General Information
About the Company
Item 13. Investment Objectives and Policies . . . . . . . . . . . . . . . . . . . Investment Program and Restrictions;
Ratings of Securities
Item 14. Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Management
Item 15. Control Persons and Principal
Holders of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Miscellaneous Information
Item 16. Investment Advisory and Other Services . . . . . . . . . . . . . . . . Investment Advisory and Other Services
Item 17. Brokerage Allocation and Other Practices . . . . . . . . . . . . . . . . . . . . . . . Portfolio Transactions
Item 18. Capital Stock and Other Securities . . . . . . . . . . . . . . . . . . . General Information About the Company
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered . . . . . . . . . . . . . . . . . . . . General Information About the Company;
How to Purchase and Redeem Shares
Item 20. Tax Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividend, Distributions and Tax Matters
Item 21. Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment Advisory and Other Services
Item 22. Calculation of Performance Data . . . . . . . . . . . . . . . . . . . . . . . . . . . Performance Information
Item 23. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Statements
</TABLE>

Part C

Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.

<PAGE> 4

[AIM LOGO APPEARS HERE] THE AIM FAMILY OF FUNDS - Registered Trademark -
AIM TAX-EXEMPT FUNDS, INC.

AIM TAX-EXEMPT CASH FUND
AIM TAX-FREE INTERMEDIATE SHARES
AIM TAX-EXEMPT BOND FUND OF CONNECTICUT

PROSPECTUS

AUGUST 1, 1996

AIM Tax-Exempt Funds, Inc. (the "Company") is designed for investors
seeking income which is exempt from federal income taxes and, for
investments in one portfolio of the Company, Connecticut taxes. This
Prospectus contains information about the three mutual funds listed
below (the "Funds"), which are separate series portfolios of the
Company.

AIM TAX-EXEMPT CASH FUND: A diversified portfolio primarily
consisting of municipal obligations, including project notes, various
anticipation notes and tax-exempt commercial paper having a maturity
of 397 days or less. AN INVESTMENT IN AIM TAX-EXEMPT CASH FUND IS
NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT AND THERE CAN
BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE.

INTERMEDIATE PORTFOLIO: A diversified portfolio primarily consisting
of high quality, intermediate-term municipal obligations having a
maturity of ten and one-half years or less. The Fund currently offers
one class of shares, AIM TAX-FREE INTERMEDIATE SHARES.

AIM TAX-EXEMPT BOND FUND OF CONNECTICUT: A non-diversified portfolio
primarily consisting of municipal bonds and other municipal
securities issued by the State of Connecticut and authorities,
agencies, instrumentalities and political subdivisions of the State
of Connecticut. THE FUND MAY INVEST IN LOWER RATED DEBT SECURITIES,
COMMONLY REFERRED TO AS "JUNK BONDS." JUNK BONDS ARE CONSIDERED TO BE
SPECULATIVE WITH REGARD TO THE PAYMENT OF INTEREST AND RETURN OF
PRINCIPAL. PURCHASERS SHOULD CAREFULLY ASSESS THE RISKS ASSOCIATED
WITH AN INVESTMENT IN THIS FUND. FOR A DISCUSSION OF CERTAIN RISK
FACTORS ASSOCIATED WITH THE FUND, SEE "AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT -- QUALITY STANDARDS" UNDER "INVESTMENT PROGRAM."

This Prospectus sets forth basic information that a prospective investor
should know about the Funds before investing. It should be read and
retained for future reference. A Statement of Additional Information,
dated August 1, 1996, has been filed with the United States Securities
and Exchange Commission (the "SEC") and is incorporated herein by
reference. The Statement of Additional Information is available without
charge upon written request to the Company at P.O. Box 4739, Houston,
Texas 77210-4739 or by calling (800) 347-4246.

THE FUNDS' SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE FUNDS' SHARES ARE NOT FEDERALLY INSURED
OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. SHARES OF
THE FUNDS INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 5

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE PAGE
---- ----
<S> <C> <C> <C>
SUMMARY................................. 2 How to Purchase Shares................ A-1
THE FUNDS............................... 2 Terms and Conditions of Purchase of
Table of Fees and Expenses............ 3 the AIM Funds...................... A-2
Financial Highlights.................. 4 Special Plans......................... A-7
Performance........................... 6 Exchange Privilege.................... A-8
Investment Program.................... 7 How to Redeem Shares.................. A-10
Management............................ 13 Determination of Net Asset Value...... A-13
Organization of the Company........... 15 Dividends, Distributions and Tax
INVESTOR'S GUIDE TO THE AIM Matters............................ A-13
FAMILY OF FUNDS-Registered Trademark-. A-1 General Information................... A-15
Introduction to The AIM Family of APPENDIX A.............................. A-17
Funds.............................. A-1 APPLICATION INSTRUCTIONS................ B-1
</TABLE>

SUMMARY
- --------------------------------------------------------------------------------

THE FUNDS. AIM Tax-Exempt Funds, Inc. (the "Company") is a Maryland
corporation organized as an open-end series management investment company.
Currently, the Company has three separate series portfolios. This Prospectus
relates to all of such portfolios, which are: AIM TAX-EXEMPT CASH FUND, the
INTERMEDIATE PORTFOLIO and AIM TAX-EXEMPT BOND FUND OF CONNECTICUT
(collectively, the "Funds"). The INTERMEDIATE PORTFOLIO currently offers one
class of shares, AIM TAX-FREE INTERMEDIATE SHARES.

MANAGEMENT. A I M Advisors, Inc. ("AIM") serves as the Funds' investment
advisor pursuant to a Master Investment Advisory Agreement (the "Advisory
Agreement"). AIM, together with its affiliates, manages or advises 43 investment
company portfolios. As of July 1, 1996, the total assets advised or managed by
AIM or its affiliates were approximately $52.8 billion. Under the terms of the
Advisory Agreement, AIM supervises all aspects of each Fund's operations and
provides investment advisory services to each Fund. As compensation for these
services, AIM receives a fee based on the respective average daily net assets of
each Fund. Under a Master Administrative Services Agreement, AIM may be
reimbursed by each Fund for its costs of performing, or arranging for the
performance of, certain accounting and other administrative services for the
Funds. Under a Transfer Agency and Service Agreement, A I M Fund Services, Inc.
("AFS"), AIM's wholly-owned subsidiary and a registered transfer agent, receives
a fee for its provision of transfer agency, dividend distribution and
disbursement, and shareholder services to the Funds.

PURCHASING SHARES. Shares of AIM TAX-EXEMPT CASH FUND are offered by this
Prospectus at net asset value. Shares of the INTERMEDIATE PORTFOLIO are offered
by this Prospectus at net asset value plus a maximum sales charge of 1% of the
public offering price per share, which sales charge is reduced on purchases of
$100,000 or more. Shares of AIM TAX-EXEMPT BOND FUND OF CONNECTICUT are offered
by this Prospectus at net asset value plus a maximum sales charge of 4.75% of
the public offering price, which sales charge is reduced on purchases of $50,000
or more. Initial investments in each Fund generally must be at least $500, and
subsequent investments must be at least $50. The distributor of the Funds'
shares is A I M Distributors, Inc. ("AIM Distributors"), P.O. Box 4739, Houston,
Texas 77210-4739. See "How to Purchase Shares" and "Special Plans."

EXCHANGE PRIVILEGE. The Funds are among those mutual funds distributed by
AIM Distributors (collectively, "The AIM Family of Funds"). Shares of the Funds
may be exchanged for shares of other funds in The AIM Family of Funds in the
manner and subject to the policies and charges set forth herein. See "Exchange
Privilege."

REDEEMING SHARES. Shareholders may redeem all or a portion of their shares
at net asset value, generally without charge. A contingent deferred sales charge
of 1% may apply to certain redemptions of shares of AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT, where purchases of $1 million or more are made at net asset value.
See "How To Redeem Shares."

DISTRIBUTIONS. Dividends from net investment income are declared daily and
paid monthly, and distributions from net capital gains, if any, are paid
annually, although AIM TAX-EXEMPT CASH FUND may pay distributions of short-term
capital gains more frequently. Dividends and distributions paid by a Fund may be
reinvested at their net asset value (without payment of a sales charge) in the
Fund's shares or, subject to certain conditions, in shares of another fund in
The AIM Family of Funds. See "Dividends, Distributions and Tax Matters" and
"Special Plans."

The AIM Family of Funds, AIM, The AIM Family of Funds and Design (i.e., the
AIM logo), and AIM and Design are registered service marks and La Familia AIM de
Fondos and La Familia AIM de Fondos and Design are service marks of A I M
Management Group Inc.

2
<PAGE> 6

THE FUNDS
- --------------------------------------------------------------------------------

TABLE OF FEES AND EXPENSES

The following table is designed to help an investor in the Funds understand
the various costs that an investor will bear, both directly and indirectly. The
fees and expenses set forth in the table are based on expenses of the Funds for
the most recent fiscal year, except where they have been restated to reflect
current fee waivers. In addition, the rules of the SEC require that the maximum
sales charge be reflected in the table, even though certain investors may
qualify for reduced sales charges. See "How to Purchase Shares."

<TABLE>
<CAPTION>
AIM
AIM AIM TAX-EXEMPT
TAX-EXEMPT TAX-FREE BOND FUND
CASH INTERMEDIATE OF
FUND SHARES CONNECTICUT
---------- ------------ ----------
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales load imposed on purchases of shares (as
a % of offering price)............................ None 1.00% 4.75%
Maximum sales load on reinvested dividends and
distributions..................................... None None None
Deferred sales load.................................. None None None*
Redemption fees...................................... None None None
Exchange fee**....................................... None None None
Annual Operating Expenses (as a % of average net
assets)
Management fees...................................... 0.35% 0.30% 0.10%***
Rule 12b-1 distribution plan payments................ 0.10%*** None 0.25%
Other expenses....................................... 0.60% 0.35% 0.41%
----- ----- -----
Total fund operating expenses................ 1.05%*** 0.65% 0.76%***
========== =========== ==========
</TABLE>

- ------------

* Purchases of $1 million or more are not subject to an initial sales
charge. However, a contingent deferred sales charge of 1% applies to
certain redemptions made within 18 months following the end of the
calendar month of such purchase. See the Investor's Guide, under the
caption "How to Redeem Shares -- Contingent Deferred Sales Charge Program
for Large Purchases."

** No fee will be charged for exchanges among The AIM Family of Funds
- Registered Trademark -; however, a $5 service fee will be charged for
exchanges by accounts of market timers.

*** After fee waivers. With respect to AIM TAX-EXEMPT CASH FUND, absent a
partial fee waiver, Rule 12b-1 distribution plan payments would have been
0.25% and Total fund operating expenses would have been 1.20%. With
respect to AIM TAX-EXEMPT BOND FUND CONNECTICUT, absent a partial fee
waiver, Management fees would have been 0.50% and Total fund operating
expenses would have been 1.16%.

EXAMPLES. An investor in each of the Funds would pay the following expenses
on a $1,000 investment, assuming (1) a 5% annual return and (2) redemption at
the end of each time period:

AIM AIM AIM
TAX-EXEMPT TAX-FREE TAX-EXEMPT
CASH INTERMEDIATE BOND FUND OF
FUND SHARES CONNECTICUT
---- --- ----
<S> <C> <C> <C>
1 Year......................................... $ 11 $17 $ 54
3 Years........................................ $ 33 $31 $ 68
5 Years........................................ $ 58 $46 $ 83
10 Years....................................... $128 $90 $126
</TABLE>

As a result of 12b-1 distribution plan payments, a long-term shareholder of
AIM TAX-EXEMPT BOND FUND OF CONNECTICUT may pay more than the economic
equivalent of the maximum front-end sales charges permitted by rules of the
National Association of Securities Dealers, Inc. Given the maximum front-end
sales charge and 12b-1 distribution plan payments applicable to shares of AIM
TAX-EXEMPT BOND FUND OF CONNECTICUT, AIM estimates that it would require a
substantial number of years to exceed the maximum permissible front-end sales
charges.

THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED TO BE REPRESENTATIVE OF THE
FUNDS' ACTUAL OR FUTURE EXPENSES, WHICH MAY BE GREATER OR LESS THAN THOSE SHOWN.
In addition, while the examples assume a 5% annual return, the Funds' actual
performance will vary and may result in an actual return that is greater or less
than 5%.The examples assume reinvestment of all dividends and distributions and
that the percentage amounts for total operating expenses remain the same for
each year. The examples assume payment of a sales charge at the time of purchase
(if applicable); actual expenses may vary for purchases of $1 million or more
which are made at net asset value and are subject to a contingent deferred sales
charge for 18 months following the end of the calendar month of purchase.

3
<PAGE> 7

- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS

AIM TAX-EXEMPT CASH FUND*

Shown below are the condensed financial highlights for the years ended
March 31, 1996 and 1995, the three months ended March 31, 1994 and the year
ended December 31, 1993, which have been audited by KPMG Peat Marwick LLP,
independent auditors, whose reports thereon were unqualified. The information
presented for the periods other than the years ended March 31, 1996 and 1995,
the three months ended March 31, 1994 and the year ended December 31, 1993 was
derived from financial statements audited by Price Waterhouse LLP, independent
accountants, whose reports thereon were also unqualified. The report of KPMG
Peat Marwick LLP, independent auditors, for the fiscal year ended March 31, 1996
is included in the Statement of Additional Information.

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
---------------------------------------- -------------------------------------------
1996 1995 1994 1993 1992(a) 1991 1990
------- ------- ------- ------- ------- ------- -------
<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....... 0.03 0.03 0.004 0.02 0.02 0.04 0.05
------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment income......... (0.03) (0.03) (0.004) (0.02) (0.02) (0.04) (0.05)
------- ------- ------- ------- ------- ------- -------
Net asset value, end of
period...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= ======= =======
Total return................. 2.92% 2.54% 1.73%(d) 1.78% 2.42% 3.91% 5.17%
======= ======= ======= ======= ======= ======= =======
Ratios/supplemental data:
Net assets, end of period
(000s omitted)............ $30,014 $30,365 $33,658 $35,230 $41,291 $43,366 $43,302
======= ======= ======= ======= ======= ======= =======
Ratio of expenses to average
net assets................ 1.05%(b)(c) 1.01%(c) 1.00%(c)(d) 1.00%(e) 0.98%(f) 0.98% 0.99%
======= ======= ======= ======= ======= ======= =======
Ratio of net investment
income to average net
assets.................... 2.97%(b)(c) 2.53%(c) 1.75%(c)(d) 1.76%(e) 2.42%(f) 3.87% 5.05%
======= ======= ======= ======= ======= ======= =======

1989 1988 1987
------- ------- -------
<S> <C> <C> <C>
Net asset value, beginning
of period................... $ 1.00 $ 1.00 $ 1.00
Income from investment
operations:
Net investment income....... 0.05 0.05 0.04
------- ------- -------
Less distributions:
Dividends from net
investment income......... (0.05) (0.05) (0.04)
------- ------- -------
Net asset value, end of
period...................... $ 1.00 $ 1.00 $ 1.00
======= ======= =======
Total return................. 5.62% 4.65% 3.95%
======= ======= =======
Ratios/supplemental data:
Net assets, end of period
(000s omitted)............ $45,995 $51,597 $54,616
======= ======= =======
Ratio of expenses to average
net assets................ 0.93% 0.83% 0.72%
======= ======= =======
Ratio of net investment
income to average net
assets.................... 5.48% 4.54% 3.87%
======= ======= =======
</TABLE>

- ---------------

* On October 15, 1993 the Fund redomesticated from a portfolio of a
Massachusetts business trust to a portfolio of the Company. In addition, on
April 30, 1985 shareholders of the Fund approved a plan of reorganization
whereby the Fund, which was a Maryland corporation, became a portfolio of a
Massachusetts business trust.

(a) The Fund changed investment advisors on June 30, 1992.

(b) Ratios are based on average net assets of $29,042,556.

(c) After waiver of distribution fees. Ratios of expenses and net investment
income to average net assets prior to waiver of distribution fees were 1.20%
and 2.82%, respectively for 1996, 1.16% and 2.38%, respectively for 1995,
and 1.14% and 1.61%, respectively for 1994 (annualized).

(d) Annualized.

(e) After waiver of advisory fees and expense reimbursements. Ratios of expenses
and net investment income to average net assets prior to waiver of advisory
fees and expense reimbursements were 1.36% and 1.40%, respectively.

(f) After waiver of advisory fees. Ratios of expenses and net investment income
to average net assets prior to waiver of advisory fees were 1.00% and 2.40%,
respectively.

4
<PAGE> 8

- --------------------------------------------------------------------------------

AIM TAX-FREE INTERMEDIATE SHARES*

Shown below are the condensed financial highlights for each of the years in
the seven-year period ended March 31, 1996, the eleven months ended March 31,
1989 and the period from May 11, 1987 (date operations commenced) through April
30, 1988. The following information has been audited by KPMG Peat Marwick LLP,
independent auditors, whose report thereon was unqualified. The report of KPMG
Peat Marwick LLP, independent auditors, for the fiscal year ended March 31, 1996
is included in the Statement of Additional Information.

<TABLE>
<CAPTION>
MARCH 31,
------------------------------------------------------------------------------------------ APRIL 30,
1996 1995 1994 1993 1992 1991 1990 1989 1988
------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period.............. $ 10.67 $10.62 $10.74 $10.27 $10.07 $ 9.89 $ 9.69 $ 9.88 $10.00
Income from
investment
operations:
Net investment
income............ 0.52 0.49 0.48 0.53 0.62 0.63 0.62 0.56 0.55
Net gains (losses)
on securities
(both realized
and unrealized)... 0.12 0.04 (0.10) 0.47 0.20 0.18 0.20 (0.19) (0.12)
------- ------ ------ ------ ------ ------ ------ ------ ------
Total from
investment
operations........ 0.64 0.53 0.38 1.00 0.82 0.81 0.82 0.37 0.43
------- ------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from
net investment
income............ (0.52) (0.48) (0.48) (0.53) (0.62) (0.63) (0.62) (0.56) (0.55)
Distributions from
net realized
capital gains..... -- -- (0.02) -- -- -- -- -- --
------- ------ ------ ------ ------ ------ ------ ------ ------
Total distributions. (0.52) (0.48) (0.50) (0.53) (0.62) (0.63) (0.62) (0.56) (0.55)
------- ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end
of period........... $ 10.79 $10.67 $10.62 $10.74 $10.27 $10.07 $ 9.89 $ 9.69 $ 9.88
======= ====== ====== ====== ====== ====== ====== ====== ======
Total return(a)....... 6.06% 5.17% 3.47% 10.01% 8.39% 8.39% 8.66% 3.85% 4.46%
======= ======= ======= ======= ======= ======= ======= ======= =======
Ratios/supplemental
data:
Net assets, end of
period (000s
omitted).......... $83,066 $82,355 $99,757 $70,120 $38,773 $ 6,184 $5,231 $4,413 $5,594
======= ======= ======= ======= ======= ======= ====== ====== ======
Ratio of expenses
to average net
assets............ 0.65%(b) 0.59% 0.61%(c) 0.38%(c) 0.02%(d) 0.50%(d) 0.50%(d) 0.53%(d)(e) 0.50%(d)(e)
======= ======= ======= ======= ======= ======= ====== ====== ======
Ratio of net
investment
income to
average net
assets............ 4.81%(b) 4.65% 4.37%(c) 5.00%(c) 5.78%(d) 6.29%(d) 6.27%(d) 6.74%(d)(e) 5.86%(d)(e)
======= ======= ======= ======= ======= ======= ======= ======= =======
Portfolio turnover
rate... 32% 75% 26% 29% 15% 0% 12% 31% 80%
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>

- ---------------

* On October 15, 1993 the Fund redomesticated from a portfolio of another
Maryland corporation to a portfolio of the Company.

(a) Does not deduct sales charges and for periods less than one year, total
return is not annualized.

(b) Ratios are based on average net assets of $77,641,400.

(d) After waiver of advisory fees and expense reimbursements.

(e) Annualized.

5
<PAGE> 9

- --------------------------------------------------------------------------------

AIM TAX-EXEMPT BOND FUND OF CONNECTICUT*

Shown below are the condensed financial highlights for the years ended
March 31, 1996 and 1995, the three months ended March 31, 1994 and the year
ended December 31, 1993, which have been audited by KPMG Peat Marwick LLP,
independent auditors, whose reports thereon were unqualified. The information
presented for the period October 3, 1989 (date operations commenced) through
December 31, 1989, and the three-year period ended December 31, 1992 was derived
from financial statements audited by Price Waterhouse LLP, independent
accountants, whose reports thereon were also unqualified. The report of KPMG
Peat Marwick LLP, independent auditors, for the fiscal year ended March 31, 1996
is included in the Statement of Additional Information.

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
-------------------------------- ------------------------------------------------------
1996 1995 1994 1993 1992(a) 1991 1990 1989
------- ------- ------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $ 10.71 $ 10.69 $ 11.29 $ 10.65 $ 10.52 $ 10.07 $ 10.19 $10.00
Income from investment operations:
Net investment income............. 0.56 0.56 0.15 0.60 0.66 0.69 0.67 0.14
Net gains (losses) on securities
(both realized and unrealized).. 0.10 0.04 (0.61) 0.65 0.17 0.50 (0.10) 0.16
------- ------- ------- ------- ------- ------- ------- -------
Total from investment operations.. 0.66 0.60 (0.46) 1.25 0.83 1.19 0.57 0.30
------- ------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net investment
income.......................... (0.56) (0.57) (0.14) (0.60) (0.66) (0.69) (0.69) (0.11)
Distributions from net realized
capital gains................... -- -- -- (0.01) (0.04) (0.05) -- --
Returns of capital................ -- (0.01) -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total distributions............... (0.56) (0.58) (0.14) (0.61) (0.70) (0.74) (0.69) (0.11)
------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of period...... $ 10.81 $ 10.71 $ 10.69 $ 11.29 $ 10.65 $ 10.52 $ 10.07 $10.19
======= ======= ======= ======= ======= ======= ======= =======
Total return(b)..................... 6.24% 5.78% (4.06)% 11.99% 8.22% 12.23% 5.88% 3.06%
======= ======= ======= ======= ======= ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s
omitted)........................ $39,355 $38,289 $42,361 $46,224 $33,110 $27,298 $16,685 $6,556
======= ======= ======= ======= ======= ======= ======= =======
Ratio of expenses to average net
assets(c)....................... 0.66%(d) 0.55% 0.50%(e) 0.34% 0.25% 0.25% 0.25% 0.25%(e)
======= ======= ======= ======= ======= ======= ======= =======
Ratio of net investment income to
average net assets(c)........... 5.16%(d) 5.37% 5.32%(e) 5.42% 6.25% 6.73% 6.82% 6.21%(e)
======= ======= ======= ======= ======= ======= ======= =======
Portfolio turnover rate........... 17% 7% 2% 5% 43% 43% 57% 63%
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>

- ---------------

* On October 15, 1993 the Fund redomesticated from a portfolio of a
Massachusetts business trust to a portfolio of the Company.

(a) The Fund changed investment advisors on June 30, 1992.

(b) Does not deduct sales charges and for periods less than one year, total
return is not annualized.

(c) After waiver of advisory fees and expense reimbursements. Ratios of expenses
to average net assets prior to waiver of advisory fees and expense
reimbursements were 1.16%, 1.13%, 1.23% (annualized), 1.30%, 1.12%, 1.26%,
1.33% and 1.99% (annualized) for the period 1996-1989, respectively. Ratios
of net investment income to average net assets prior to waiver of advisory
fees and expense reimbursements were 4.66%, 4.79%, 4.59% (annualized),
4.45%, 5.38%, 5.72%, 5.74% and 4.48% (annualized) for the period 1996-1989,
respectively.

(d) Ratios are based on average daily net assets of $39,637,920.

(e) Annualized.

- --------------------------------------------------------------------------------

PERFORMANCE

The performance of each Fund may be quoted in advertising in terms of yield
or total return. Both types of performance are based on historical results and
are not intended to indicate future performance. All advertisements for each
Fund will disclose the maximum sales charge imposed on purchases of that Fund's
shares. If any advertised performance data does not reflect the maximum sales
charge, such advertisement will disclose that the sales charge has not been
deducted in computing the performance data, and that, if reflected, the maximum
sales charge would reduce the performance quoted. See the Statement of
Additional Information for further details concerning performance comparisons
used in advertisements by the Funds. Further information regarding each Fund's
performance is contained in that Fund's annual report to shareholders, which is
available upon request and without charge.

A Fund's total return shows its overall change in value, including changes
in share price and assuming all the Fund's dividends and capital gain
distributions are reinvested. A cumulative total return reflects the performance
of a Fund over a stated period of time. An average annual total return reflects
the hypothetical annually compounded return that would have produced the same
cumulative total return if the Fund's performance had been constant over the
entire period. BECAUSE AVERAGE ANNUAL RETURNS TEND TO EVEN OUT VARIATIONS IN A
FUND'S RETURNS, INVESTORS SHOULD RECOGNIZE THAT SUCH RETURNS ARE NOT THE SAME AS
ACTUAL YEAR-BY-

6
<PAGE> 10

YEAR RESULTS. To illustrate the components of overall performance, a Fund may
separate its cumulative and average annual returns into income results and
capital gain or loss.

Yield is computed in accordance with standardized formulas described in the
Statement of Additional Information and can be expected to fluctuate from time
to time and is not necessarily indicative of future results. Accordingly, yield
information may not provide a basis for comparison with investments which pay a
fixed rate of interest for a stated period of time. Yield reflects investment
income net of expenses over the relevant period attributable to a Fund share,
expressed as an annualized percentage of the maximum offering price per share
for AIM TAX-FREE INTERMEDIATE SHARES and AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT, and net asset value per share for AIM TAX-EXEMPT CASH FUND.

Yield is a function of the type and quality of a Fund's investments, the
maturity of the securities held in a Fund's portfolio and the operating expense
ratio of the Fund. A shareholder's investment in a Fund is not insured or
guaranteed. These factors should be carefully considered by the investor before
making an investment in a Fund. A tax-equivalent yield is calculated in the same
manner as the standard yield with an adjustment for a stated, assumed tax rate.
The Funds 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.

From time to time and in its discretion, AIM or its affiliates may waive
all or a portion of advisory or distribution fees and/or assume certain expenses
of any Fund. Such a practice will have the effect of increasing the Fund's yield
and total return.

The annual reports of the Funds contain management's discussion of fund
performance and may be obtained without charge upon written request to the
Company at P.O. Box 4739, Houston, Texas 77210-4739 or by calling (800)
347-4246.

- --------------------------------------------------------------------------------

INVESTMENT PROGRAM

AIM TAX-EXEMPT CASH FUND

AIM TAX-EXEMPT CASH FUND's investment objective is to earn the highest
level of current income free from federal income taxes that is consistent with
safety of principal and liquidity. The Fund's policy is to invest at least 80%
of its net assets in securities which are exempt from federal income taxes. This
objective will not be changed without the approval of a majority of the Fund's
outstanding shares (within the meaning of the Investment Company Act of 1940
(the "1940 Act")). There can be no assurance that the Fund will attain its
objective. As used in this Prospectus and the 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, and which does not give rise to federal
alternative minimum tax liability.

The Fund may invest up to 20% of its net assets in money market instruments
that may be subject to federal taxes. Such taxable instruments may include,
without limitation, repurchase agreements, bankers' acceptances and commercial
paper. Money market instruments in which the Fund may invest will be "Eligible
Securities" as defined in Rule 2a-7 under the 1940 Act, as such Rule may be
amended from time to time. The securities in which the Fund invests may include
but shall not be limited to the following:

MUNICIPAL SECURITIES. "Municipal Securities" can be broadly classified as
follows: (a) "general obligation" bonds, debentures and notes, which are secured
as to payment of principal and interest by a state or local government's pledge
of its full faith, credit and taxing power and (b) "revenue" bonds, debentures
and notes, which are payable only from the revenues derived from a particular
facility or class of facilities, from the proceeds of a special excise tax or
from some other specifically identified revenue source. Municipal Securities,
such as those listed below, include short-term obligations issued or guaranteed
by any state, territory or possession of the United States, or by the District
of Columbia, or by any political subdivision, agency, municipality or
instrumentality thereof.

BOND ANTICIPATION NOTES usually are general obligations of state and local
governmental issuers which are sold to obtain interim financing for projects
that will eventually be funded through the sale of long-term debt obligations or
bonds.

TAX ANTICIPATION NOTES are issued by state and local governments to finance
the current operations of such governments. Repayment is generally to be derived
from specific future tax revenues. Tax anticipation notes are usually general
obligations of the issuer.

REVENUE ANTICIPATION NOTES are issued by governments or governmental bodies
with the expectation that future revenues from a designated source will be used
to repay the notes. In general, they also constitute general obligations of the
issuer.

TAX-EXEMPT COMMERCIAL PAPER (MUNICIPAL PAPER) is identical to taxable
commercial paper, except that tax-exempt commercial paper is issued by states,
municipalities and their agencies.

VARIABLE OR FLOATING RATE INSTRUMENTS are Municipal Securities which have
variable or floating interest rates which readjust periodically. Such
readjustment may be based either upon a predetermined standard, such as a bank
prime rate or the U.S. Treasury bill rate, or upon prevailing market conditions.
Variable or floating interest rates generally reduce changes in the market price
of Municipal Securities from their original purchase price. Accordingly, as
interest rates decrease or increase, the potential for capital appreciation or
depreciation is less for variable or floating rate Municipal Securities than for
fixed income securities. Many variable or floating rate securities are subject
to redemption or repurchase at par, plus accrued interest, upon demand by the
Fund (frequently

7
<PAGE> 11

upon no more than seven days' notice). The terms of such demand instruments
require payment of principal and accrued interest from the issuer or a
guarantor. Frequently such obligations are secured by letters of credit or other
credit support arrangements provided by financial institutions. For a further
discussion of such instruments, see the Statement of Additional Information.

QUALITY STANDARDS. AIM TAX-EXEMPT CASH FUND will limit its investments to
those securities which at the date of purchase are "Eligible Securities" as
defined in Rule 2a-7, as such Rule may be amended from time to time. Generally,
"Eligible Securities" are securities that are rated in one of the two highest
rating categories by two nationally recognized statistical rating organizations
("NRSROs"), or if rated only by one NRSRO, are rated in one of the two highest
rating categories by that NRSRO, or if unrated, are determined by AIM (under the
supervision of and pursuant to guidelines established by the Board of Directors)
to be of comparable quality to a rated security that meets such quality
standards. Since AIM TAX-EXEMPT CASH FUND invests in securities backed by banks
and other financial institutions, changes in the credit quality of these
institutions could cause losses to the Fund and affect its share price.

MATURITIES. AIM TAX-EXEMPT CASH FUND will attempt to maintain a constant
net asset value per share of $1.00 and, to this end, values its assets by the
amortized cost method and rounds the per share net asset value of its shares in
compliance with applicable rules and regulations. Accordingly, the Fund invests
only in securities having remaining maturities of 397 days or less and maintains
a dollar weighted average portfolio maturity of 90 days or less. The maturity of
a security held by the Fund is determined in compliance with applicable rules
and regulations. Certain securities bearing interest at rates that are adjusted
prior to the stated maturity of the instrument or that are subject to redemption
or repurchase agreements are deemed to have maturities shorter than their stated
maturities.

SYNTHETIC MUNICIPAL INSTRUMENTS. AIM believes that certain synthetic
municipal instruments provide opportunities for mutual funds to invest in high
credit quality securities providing attractive returns, even in market
conditions where the supply of short-term tax-exempt instruments may be limited.
Synthetic municipal instruments (sometimes referred to as "derivative municipal
instruments") are securities the value of and return on which are derived from
underlying securities. Synthetic municipal instruments comprise a large
percentage of tax-exempt securities eligible for purchase by tax-exempt money
market funds. The types of synthetic municipal instruments in which AIM
TAX-EXEMPT CASH FUND may invest involve the deposit into a trust or custodial
account of one or more long-term tax-exempt bonds or notes ("Underlying Bonds"),
and the sale of certificates evidencing interests in the trust or custodial
account to investors such as the Fund. The trustee or custodian receives the
long-term fixed rate interest payments on the Underlying Bonds, and pays
certificate holders short-term floating or variable interest rates which are
reset periodically. Synthetic municipal instruments typically are created by a
bank, broker-dealer or other financial institution ("Sponsor"). Typically, a
portion of the interest paid on the Underlying Bonds which exceeds the interest
paid to the certificate holders is paid to the Sponsor or other investors. For
further information regarding specific types of synthetic municipal instruments
in which the Fund may invest see the Statement of Additional Information.

All such instruments must meet the minimum quality standards required for
the Fund's investments and must present minimal credit risks. In selecting
synthetic municipal instruments for the Fund, AIM considers the creditworthiness
of the issuer of the Underlying Bond, the Sponsor and the party providing
certificate holders with a conditional right to sell (put) their certificates at
stated times and prices. Typically, a certificate holder cannot exercise its put
upon the occurrence of certain conditions, such as where the issuer of the
Underlying Bond defaults on interest payments. Moreover, because synthetic
municipal instruments involve a trust or custodial account and a third party
conditional put feature, they involve complexities and potential risks that may
not be present where a municipal security is owned directly.

The tax-exempt character of the interest paid to certificate holders is
based on the assumption that the holders have an ownership interest in the
Underlying Bonds; however, the Internal Revenue Service has not issued a ruling
addressing this issue. In the event the Internal Revenue Service issues an
adverse ruling or successfully litigates this issue, it is possible that the
interest paid to the Fund on certain synthetic municipal instruments would be
deemed to be taxable. The Fund relies on opinions of special tax counsel on this
ownership question and opinions of bond counsel regarding the tax-exempt
character of interest paid on the Underlying Bonds.

WHEN-ISSUED OR DELAYED DELIVERY SECURITIES. AIM TAX-EXEMPT CASH FUND may
purchase securities on a "when-issued" basis, that is, 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), and may purchase or sell securities on a delayed delivery basis.
The payment obligation and the interest rate that will be received on the
securities are fixed at the time the buyer enters into the commitment. The Fund
will only make commitments to purchase when-issued or delayed delivery
securities with the intention of actually acquiring such securities, but may
sell these securities before the settlement date if it is deemed advisable. No
more than 25% of the Fund's net assets may be committed to when-issued or
delayed delivery securities.

Investments in when-issued or delayed delivery securities may increase the
Fund's exposure to market fluctuations and may increase the possibility that the
Fund will incur short-term gains subject to federal taxation or short-term
losses if the Fund engages 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. The Fund will employ techniques designed to reduce such risks.

8
<PAGE> 12

If the Fund purchases a when-issued or delayed delivery security, it will
direct its custodian bank to segregate cash or other high grade securities
(including temporary investments and Municipal Securities) in an amount equal to
the when-issued or delayed delivery commitment. If the market value of such
segregated securities declines, additional cash or securities will be segregated
on a daily basis so that the market value of the segregated cash or securities
will equal the amount of the Fund's when-issued or delayed delivery commitments.
To the extent assets of the Fund are segregated, they will not be available for
new investments or to meet redemptions.

For a more complete description of when-issued and delayed delivery
securities, see the Statement of Additional Information.

PARTICIPATION INTERESTS AND MUNICIPAL LEASES. The Fund may purchase
participation interests or custodial receipts from financial institutions. These
participation interests give the purchaser an undivided interest in one or more
underlying Municipal Securities. The Fund may also invest in municipal leases
and participation interests therein. Such obligations, which may take the form
of a lease or an installment sales contract, are issued by state and local
governments and authorities to acquire a wide variety of equipment and
facilities. Interest payments on qualifying municipal leases are exempt from
federal income taxes.

OTHER CONSIDERATIONS. The ability of the Fund to attain its investment
objective depends on the continuing ability of the issuers or guarantors of
Municipal Securities held by the Fund to meet their obligations for the payment
of interest and principal when due. The securities in which the Fund invests may
not yield as high a level of current income as longer term or lower grade
securities, which generally have less liquidity and greater fluctuation in
value.

The investment policies and standards stated above are not fundamental
policies of the Fund and may be changed by the Board of Directors without
shareholder approval. Shareholders will be notified before any material change
in the foregoing investment policies becomes effective.

INTERMEDIATE PORTFOLIO

The investment objective of the INTERMEDIATE PORTFOLIO is to generate as
high a level of tax-exempt income as is consistent with preservation of capital
by investing in high quality, intermediate-term Municipal Securities having a
maturity of ten and one-half years or less. No assurance can be given that the
Fund's investment objective will be achieved.

MUNICIPAL SECURITIES. Municipal Securities which are considered appropriate
for investment by the Fund (provided that the interest paid thereon, in the
opinion of bond counsel, is exempt from federal income taxes) include debt
obligations 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. Certain types
of industrial development bonds 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") also are considered
appropriate for investment by the Fund. The Fund will seek to avoid the purchase
of those private activity bonds the interest on which could give rise to an
alternative minimum tax liability for shareholders under the Internal Revenue
Code of 1986, as amended (the "Code"). See "Dividends, Distributions and Tax
Matters" herein and the Statement of Additional Information.

VARIABLE OR FLOATING RATE INSTRUMENTS. The Fund may invest in Municipal
Securities which have variable or floating interest rates. All variable or
floating rate instruments must meet the quality standards of the Fund. AIM will
monitor the pricing, quality and liquidity of the variable or floating rate
Municipal Securities held by the Fund. For additional information regarding such
instruments see "AIM TAX-EXEMPT CASH FUND -- Variable or Floating Rate
Instruments" above and the Statement of Additional Information.

QUALITY STANDARDS. The following quality standards apply at the time a
security is purchased. Information concerning the ratings criteria of Moody's
Investors Service, Inc. ("Moody's"), Standard & Poor's Corporation ("S&P"), and
Fitch Investors Service, Inc. ("Fitch") appears in Appendix A to this Prospectus
and/or in the Statement of Additional Information.

The INTERMEDIATE PORTFOLIO may purchase Municipal Securities which meet any
of the following quality criteria:

(a) They are rated within the three highest ratings for municipal
obligations by Moody's (Aaa, Aa or A) or S&P (AAA, AA or A), or have
received a comparable rating from another NRSRO; or

(b) They are rated within the two highest ratings for short-term
municipal obligations by Moody's (MIG 1/VMIG 1/P-1 or MIG 2/VMIG 2/P-2), or
S&P (SP-1/A-1 or SP-2/A-2), or have received a comparable rating from
another NRSRO; or

(d) They are fully collateralized by an escrow of U.S. Government or
other high quality securities; or

(e) They are not rated, if other Municipal Securities of the same
issuer are rated A or better by Moody's or S&P, or have received a
comparable rating from another NRSRO; or

(f) They are not rated, but are determined by AIM to be of comparable
quality to the rated obligations in which the Fund may invest.

9
<PAGE> 13

Since the INTERMEDIATE PORTFOLIO invests in securities backed by insurance
companies and other financial institutions, changes in the financial condition
of these institutions could cause losses to the Fund and affect its share price.

MATURITIES. The Fund may invest only in Municipal Securities which have
maturities of ten and one-half years or less, and will maintain a dollar
weighted average maturity of more than three years and not more than seven and
one-half years. For purposes of this limitation, the maturity of an instrument
will be considered to be the earlier of:

(a) the stated maturity of the instrument; or

(b) the date, if any, on which the issuer has agreed to redeem or
purchase the instrument; or

WHEN-ISSUED OR DELAYED DELIVERY SECURITIES. The Fund may purchase Municipal
Securities on a when-issued or delayed delivery basis, but no more than 25% of
the Fund's net assets may be committed to such investments. For further
information regarding such investments see "AIM TAX-EXEMPT CASH FUND --
When-Issued or Delayed Delivery Securities" above and the Statement of
Additional Information.

TEMPORARY INVESTMENTS. The Fund may from time to time on a temporary basis
or for defensive purposes, make certain investments which may result in taxable
ordinary income; however, the Fund intends to minimize taxable income through
investment, when possible, in short-term tax-exempt securities. Short-term
taxable investments may include obligations of the U.S. Government, its agencies
or instrumentalities, and repurchase agreements (instruments under which the
seller agrees to repurchase the security at a specified time and price) relating
thereto; commercial paper rated within the highest rating category by a NRSRO;
and certificates of deposit of domestic banks with assets of $1.5 billion or
more as of the date of their most recently published financial statements.

It is a fundamental policy of the Fund to invest its assets so that at
least 80% of the Fund's assets will be invested in securities that generate
interest that is exempt from federal income taxes. The Fund will seek to avoid
the purchase of "private activity bonds" the interest on which could give rise
to an alternative minimum tax liability for individuals and other noncorporate
shareholders.

PORTFOLIO TURNOVER. Ordinarily, the Fund does 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 view-point of the Fund's investment objective,
regardless of the holding period of that security. Also, to the extent that
higher portfolio turnover results in a higher rate of net realized capital gains
to the Fund, the portion of the Fund's distributions constituting taxable
capital gain may increase. It is expected that total portfolio turnover in any
year will be less than 100%. See "Dividends, Distributions and Tax Matters."

OTHER CONSIDERATIONS. The ability of the Fund to achieve its investment
objective depends upon the continuing ability of the issuers or guarantors of
Municipal Securities held by the Fund to meet their obligations for the payment
of interest and principal when due. The securities in which the Fund invests may
not yield as high a level of current income as longer term or lower grade
securities, which generally have less liquidity and greater fluctuation in
value. The net asset value of shares of the Fund will generally vary inversely
with changes in prevailing interest rates.

Unless otherwise noted, the investment policies and standards stated above
are not fundamental policies of the Fund and may be changed by the Board of
Directors without shareholder approval. Shareholders will be notified before any
material change in the foregoing investment policies becomes effective.

AIM TAX-EXEMPT BOND FUND OF CONNECTICUT

AIM TAX-EXEMPT BOND FUND OF CONNECTICUT's investment objective is to earn a
high level of current income free from federal taxes and Connecticut taxes by
investing at least 80% of its net assets in municipal bonds and other Municipal
Securities. This objective is a fundamental policy and will not be changed
without the approval of a majority of the Fund's outstanding shares (within the
meaning of the 1940 Act). There can be no assurance that the Fund will attain
its objective.

MUNICIPAL SECURITIES. To achieve its objective, the Fund intends to invest
up to 100% of its assets, and no less than 80% of its net assets, in municipal
bonds and other Municipal Securities issued by the State of Connecticut and
authorities, agencies, instrumentalities and political subdivisions of the State
of Connecticut, or other entities, the interest from which, in the opinion of
bond counsel for the issuer, is exempt from federal income taxes (including the
alternative minimum tax) and from Connecticut income taxes. The Fund will
maintain at least 65% of its assets in municipal bonds. This 65% figure
represents a minimum level of investment; the actual level of investment will,
of course, fluctuate in accordance with AIM's assessment of market conditions.
For temporary defensive purposes, the Fund may invest up to 35% of its net
assets in municipal bond obligations and in other Municipal Securities issued by
or on

10
<PAGE> 14

behalf of states (including the State of Connecticut) territories and
possessions of the United States and the District of Columbia and their
political subdivisions, agencies, authorities and instrumentalities which are
free from federal income taxes but are subject to Connecticut income taxes, and
up to 20% of its net assets in money market instruments that may not be exempt
from federal income taxes. See "Tax Matters" in the Statement of Additional
Information for a further discussion of federal and Connecticut tax
considerations. The net asset value of shares of the Fund can be expected to
rise when market interest rates decline and to fall when market interest rates
rise.

The Fund may invest in high quality, taxable short-term money market
instruments such as certificates of deposit, commercial paper, bankers'
acceptances, short-term U.S. Government obligations, repurchase agreements and
reverse repurchase agreements, pending investment in portfolio securities or to
meet anticipated short-term cash needs such as dividend payments or redemptions
of shares. Such investments generally will have maturities of 60 days or less
and normally will be held to maturity.

Municipal bonds include debt obligations issued to obtain funds for various
public purposes, including the construction of public facilities, the refunding
of outstanding obligations, the obtaining of funds for general operating
expenses and the providing of loans to public institutions and facilities. The
principal and interest payments on industrial development bonds or pollution
control bonds are often the sole responsibility of the industrial user and
therefore may not be backed by the taxing power of the issuing municipality.
Such obligations are included within the term municipal bonds if the interest
paid thereon qualifies as exempt from federal income tax, although such interest
may be subject to the alternative minimum tax.

VARIABLE OR FLOATING RATE INSTRUMENTS. The Fund may invest in Municipal
Securities which have variable or floating interest rates. All variable or
floating rate instruments must meet the quality standards of the Fund. AIM will
monitor the pricing, quality and liquidity of the variable or floating rate
Municipal Securities held by the Fund. For further information regarding such
instruments see "AIM TAX-EXEMPT CASH FUND -- Variable or Floating Rate
Instruments" above and the Statement of Additional Information.

QUALITY STANDARDS. At least 80% of the municipal bonds purchased by the
Fund will be rated within the four highest rating categories, or will be
obligations of issuers having an issue of outstanding municipal bonds rated
within the four highest rating categories, of any NRSRO. A description of
municipal bond ratings is contained in the Statement of Additional Information.

The Fund will maintain less than 35% of its net assets in bonds and other
Municipal Securities rated below Baa/BBB by Moody's or S&P, respectively, or a
comparable rating of any other NRSRO. During the last fiscal year, the Fund did
not invest in any such securities, and the Fund expects to invest less than 5%
of its net assets in such securities during the current fiscal year. See
Appendix A to this Prospectus and the Statement of Additional Information for
information regarding bond rating categories. Up to 20% of the Fund's net assets
may be invested in unrated municipal bonds and other Municipal Securities if in
the judgment of AIM, after considering available information as to the
creditworthiness of the issuer and its ability to meet its future debt
obligations, such investments are similar in quality to those bonds and other
Municipal Securities rated within the four highest NRSRO rating categories
mentioned above. For purposes of the foregoing percentage limitations, municipal
bonds (i) which have been collateralized with U.S. Government securities held in
escrow until the municipal securities refunding date or final maturity, but (ii)
which have not been re-rated by a NRSRO, will be treated by the Fund as the
equivalent of Aaa/AAA rated securities.

Securities held by the Fund that are rated below Baa/BBB by Moody's or S&P,
respectively, may be subject to certain risk factors to which other securities
are not subject to the same degree. An economic downturn tends to disrupt the
market for high yield bonds and adversely affect their values. Such an economic
downturn may be expected to result in increased price volatility of high yield
bonds and an increase in issuers' defaults on such bonds.

Also, many issuers of high yield bonds are substantially leveraged, which
may impair their ability to meet their obligations. In some cases, the
securities in which the Fund invests are subordinated to the prior payment of
senior indebtedness, thus potentially limiting the Fund's ability to recover
full principal or to receive payments when senior securities are in default.

When the secondary market for high yield bonds becomes increasingly
illiquid, or in the absence of readily available market quotations for such
bonds, the relative lack of reliable, objective data makes the responsibility of
the Board of Directors to value the Fund's securities more difficult, and
judgment plays a greater role in the valuation of portfolio securities. Also,
increased illiquidity of the high yield bond market may affect the Fund's
ability to dispose of portfolio securities at a desirable price.

In addition, if the Fund experiences unexpected net redemptions, it could
be forced to sell its high yield 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. Also, prices of high
yield bonds have been found to be less sensitive to interest rate changes and
more sensitive to adverse economic changes and individual issuer developments
than are more highly rated instruments.

WHEN-ISSUED OR DELAYED DELIVERY SECURITIES. The Fund may purchase
securities on a when-issued or delayed delivery basis. For further information
regarding such securities see "AIM TAX-EXEMPT CASH FUND -- When-Issued or
Delayed Delivery Securities" above and the Statement of Additional Information.

11
<PAGE> 15

RISK FACTORS IN CONCENTRATING IN CONNECTICUT MUNICIPAL OBLIGATIONS. Since
the Fund invests primarily in obligations of the State of Connecticut, the
marketability and market value of these obligations may be affected by the
regional economy, certain Connecticut constitutional amendments, legislative
measures, executive orders, administrative regulations and voter initiatives.
The ability of the Fund to achieve its objective is affected by the ability of
municipal issuers to meet their payment obligations. Problems which may arise in
the foregoing areas and which are not resolved could adversely affect the
various Connecticut issuers' abilities to meet their financial obligations.

INTEREST RATE FUTURES CONTRACTS AND RELATED OPTIONS. The Fund may purchase
and sell interest rate futures contracts or purchase options thereon to hedge
its portfolio against changes in interest rates. An interest rate futures
contract is an agreement between two parties to buy and sell a debt security for
a set price on a future date. The Fund may purchase and sell futures contracts
and related options in order to hedge the value of its portfolio against changes
in market conditions. Generally, the Fund may elect to close a position in a
futures contract by taking an opposite position which will operate to terminate
the Fund's position in the futures contract. See the Statement of Additional
Information for a description of interest rate futures contracts and options on
futures contracts, including certain related risks.

The Fund will not purchase or sell futures contracts or purchase related
options thereon, if immediately thereafter the sum of the amount of margin
deposits and premiums on open positions with respect to futures contracts and
related options would exceed 5% of the market value of the Fund's total assets.
The Fund will not hedge more than 20% of its assets at one time.

PORTFOLIO TURNOVER. Ordinarily, the Fund does 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 in light of the Fund's investment objective, regardless of the
holding period of that security. A higher rate of portfolio turnover may result
in higher transaction costs. Also, to the extent that higher portfolio turnover
results in a higher rate of net realized capital gains to the Fund, the portion
of the Fund's distributions constituting taxable capital gain may increase. It
is expected that total portfolio turnover in any year will be less than 100%.
See "Dividends, Distributions and Tax Matters."

INVESTMENT RESTRICTIONS

Each of the Funds' investment programs is subject to a number of investment
restrictions which reflect self-imposed standards as well as federal and state
regulatory limitations. The most significant of these restrictions are set forth
below, and other investment restrictions are set forth in the Statement of
Additional Information. In addition to the restrictions described herein, AIM
TAX-EXEMPT CASH FUND must comply with the requirements of Rule 2a-7 under the
1940 Act which may be more restrictive. Pursuant to these restrictions:

(1) Neither AIM TAX-EXEMPT CASH FUND nor the INTERMEDIATE PORTFOLIO
will, with respect to 75% of its total assets, purchase the securities of
any issuer if such purchase would cause more than 5% of the value of its
total assets to be invested in the securities of such issuer (except
securities issued, guaranteed or sponsored by the U.S. Government or its
agencies and instrumentalities and, with respect to AIM TAX-EXEMPT CASH
FUND, except as permitted by Rule 2a-7, as amended from time to time).

(2) The Funds will not borrow money or issue senior securities except
for temporary or emergency purposes, except that the Funds may enter into
reverse repurchase agreements and may purchase when-issued securities
(consistent with their respective investment policies and objectives), and
except that AIM TAX-EXEMPT BOND FUND OF CONNECTICUT may enter into
financial futures contracts and it may borrow from banks provided that no
borrowing exceeds one-third of the value of its total assets. The Funds
will not purchase securities while borrowings in excess of 5% of their
respective total assets are outstanding and, in addition, AIM TAX-EXEMPT
CASH FUND will not borrow money if such borrowing will exceed the borrowing
limits established by the Securities and Exchange Commission (the "SEC")
for money market funds, as amended from time to time.

(3) The INTERMEDIATE PORTFOLIO and AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT will not invest more than 15% of the value of their respective
net assets in illiquid securities, including repurchase agreements with
remaining maturities in excess of seven days. AIM TAX-EXEMPT CASH FUND will
not invest more than 10% of its net assets in such securities.

Restrictions (1) and (2) above are matters of fundamental policy and may
not be changed without shareholder approval. Restriction (3) above is a
non-fundamental policy which may be changed by the Board of Directors. For
additional investment restrictions applicable to the Funds see the Statement of
Additional Information.

12
<PAGE> 16

- --------------------------------------------------------------------------------

MANAGEMENT

The overall management of the business and affairs of the Funds is vested
in the Company's Board of Directors. The Board of Directors approves all
significant agreements between the Company, on behalf of the Funds, and persons
or companies furnishing services to the Funds, including the investment advisory
agreement and administrative services agreement with AIM, the agreement with AIM
Distributors regarding distribution of each Fund's shares, the agreement with
The Bank of New York as the custodian and the agreement with AFS as transfer
agent. The day-to-day operations of each Fund are delegated to the officers of
the Company and to AIM, subject always to the objective and policies of the
applicable Fund and to the general supervision of the Board of Directors.
Certain directors and officers of the Company are affiliated with AIM and A I M
Management Group Inc. ("AIM Management"), the parent corporation of AIM. AIM
Management is a holding company engaged in the financial services business.
Information concerning the Board of Directors may be found in the Statement of
Additional Information.

INVESTMENT ADVISOR. A I M Advisors, Inc., 11 Greenway Plaza, Suite 1919,
Houston, Texas 77046, serves as the investment advisor to each Fund pursuant to
a Master Investment Advisory Agreement, dated as of October 18, 1993 (the
"Advisory Agreement"). AIM was organized in 1976 and, together with its
affiliates, manages or advises 43 investment company portfolios. As of July 1,
1996, the total assets of such investment company portfolios were approximately
$52.8 billion.

Under the terms of the Advisory Agreement, AIM supervises all aspects of
each Fund's 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. The Advisory
Agreement also provides that, upon the request of the Board of Directors, AIM
may perform or arrange for certain accounting and other administrative services
for the Funds which are not required to be performed by AIM under the Advisory
Agreement. The Board of Directors has made such a request. As a result, AIM and
the Company have entered into a Master Administrative Services Agreement, dated
as of October 18, 1993 (the "Administrative Services Agreement"), pursuant to
which AIM is entitled to receive from each Fund reimbursement of its costs or
such reasonable compensation as may be approved by the Board of Directors.
Currently, AIM is reimbursed for the services of the Funds' principal financial
officer and his staff, and any expenses related to fund accounting services. In
addition, A I M Fund Services Inc., 11 Greenway Plaza, Suite 1919, Houston,
Texas 77046, a wholly-owned subsidiary of AIM and a registered transfer agent,
receives a fee pursuant to a Transfer Agency and Service Agreement for its
provision of transfer agency, dividend distribution and disbursement, and
shareholder services to the Funds.

In accordance with policies established by the directors, AIM may take into
account sales of shares of the Funds and other funds advised by AIM in selecting
broker-dealers to effect portfolio transactions on behalf of the Funds. See the
Statement of Additional Information under the caption "Portfolio Transactions."

PORTFOLIO MANAGEMENT. AIM uses a team approach and disciplined investment
strategy in providing investment advisory services to all its accounts,
including the Funds. AIM's investment staff consists of 91 individuals. While
individual members of AIM's investment staff are assigned primary responsibility
for the day-to-day management of each of AIM's accounts, all accounts are
reviewed on a regular basis by AIM's Investment Policy Committee to ensure that
they are being invested in accordance with the accounts' and AIM's investment
policies. The individuals on the investment team primarily responsible for the
day-to-day management of AIM TAX-EXEMPT BOND FUND OF CONNECTICUT and the
INTERMEDIATE PORTFOLIO are Richard A. Berry and Stephen D. Turman. Mr. Berry is
Vice President of A I M Capital Management, Inc. ("AIM Capital"), and has been
responsible for AIM TAX-EXEMPT BOND FUND OF CONNECTICUT since 1992 and for the
INTERMEDIATE PORTFOLIO since 1987. Mr. Berry has been associated with AIM since
1987, and has a total of 28 years of experience as an investment professional.
Mr. Turman is Vice President of AIM Capital, and has been responsible for AIM
TAX-EXEMPT BOND FUND OF CONNECTICUT since 1992 and for the INTERMEDIATE
PORTFOLIO since 1988. Mr. Turman has been associated with AIM since 1985 and has
a total of 13 years of experience as an investment professional.

FEES AND EXPENSES. For the year ended March 31, 1996, AIM TAX-EXEMPT CASH
FUND paid 0.35% of its average daily net assets to AIM for its advisory
services, and its total expenses for the same period, stated as a percentage of
average daily net assets, were 1.05%. For the year ended March 31, 1996, the
INTERMEDIATE PORTFOLIO paid 0.30% of its average daily net assets to AIM for its
advisory services, and its total expenses for the same period, stated as a
percentage of its average daily net assets were 0.65%. For the year ended March
31, 1996, AIM TAX-EXEMPT BOND FUND OF CONNECTICUT paid no advisory fees to AIM,
and its total expenses for the same period, stated as a percentage of its
average daily net assets, were 0.66%.

For the year ended March 31, 1996, AIM TAX-EXEMPT CASH FUND paid 0.12% of
its average daily net assets to AIM as reimbursement for administrative
services. For the year ended March 31, 1996, the INTERMEDIATE PORTFOLIO paid
0.06% of its average daily net assets to AIM as reimbursement for administrative
services. For the year ended March 31, 1996, AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT paid 0.12% of its average daily net assets to AIM as reimbursement
for administrative services.

FEE WAIVERS. In order to increase the yield to investors, AIM or its
affiliates may from time to time voluntarily waive or reduce advisory or
distribution fees, while retaining the ability to be reimbursed for such fees
prior to the end of each fiscal year. Fee waivers or reductions, other than
those which may be set forth in the Advisory Agreement, may be rescinded at any
time without notice to investors; provided, however, that the Board of Directors
of the applicable Fund will be notified of the discontinuance of each fee waiver
described below.

13
<PAGE> 17

For the year ended March 31, 1996, AIM voluntarily waived its entire
advisory fee from AIM TAX-EXEMPT BOND FUND OF CONNECTICUT. Had it not waived
such fee, the advisory fee would have been 0.50% of that Fund's average daily
net assets for this period.

DISTRIBUTOR. The Company has entered into a Master Distribution Agreement,
dated October 18, 1993, relating to the Funds (the "Distribution Agreement")
with A I M Distributors, Inc. ("AIM Distributors"), a registered broker-dealer
and a wholly-owned subsidiary of AIM, to act as the distributor of the Funds'
shares. The address of AIM Distributors is P.O. Box 4739, Houston, Texas
77210-4739. Certain directors and officers of the Company are affiliated with
AIM Distributors. The Distribution Agreement provides AIM Distributors with the
exclusive right to distribute shares of the Funds through affiliated
broker-dealers and through other broker-dealers with whom AIM Distributors has
entered into selected dealer agreements.

DISTRIBUTION PLAN. The Company has adopted a Master Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the 1940 Act with respect to AIM TAX-EXEMPT
CASH FUND and AIM TAX-EXEMPT BOND FUND OF CONNECTICUT. The Company has not
adopted such a plan with respect to the INTERMEDIATE PORTFOLIO. Under the Plan,
AIM TAX-EXEMPT CASH FUND and AIM TAX-EXEMPT BOND FUND OF CONNECTICUT each pays
compensation of 0.25% per annum of its respective average daily net assets to
AIM Distributors for the purpose of financing any activity which is primarily
intended to result in the sale of shares of each respective Fund. The Plan is
designed to compensate AIM Distributors for certain promotional and other
sales-related costs, and to implement an incentive program which provides for
periodic payments to selected dealers and financial institutions who furnish
continuing personal shareholder services to their customers who purchase and own
shares of such Funds. Under the Plan, AIM Distributors may in its discretion
from time to time agree to waive voluntarily all or any portion of its fee,
while retaining its ability to be reimbursed for such fee prior to the end of
the fiscal year. Currently, AIM Distributors has voluntarily elected to waive a
portion of its compensation payable by AIM TAX-EXEMPT CASH FUND such that the
compensation paid pursuant to the Plan equals 0.10% per annum of that Fund's
average daily net assets. This waiver may be rescinded by AIM Distributors at
any time and without further notice to investors.

Activities that may be financed under the 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,
supplemental payments to dealers and other institutions such as asset-based
sales charges or as payments of service fees under shareholder service
arrangements and the cost of administering the Plan. Amounts payable by AIM
TAX-EXEMPT CASH FUND and AIM TAX-EXEMPT BOND FUND OF CONNECTICUT under the Plan
need not be directly related to the expenses actually incurred by AIM
Distributors on behalf of each Fund. Thus, even if AIM Distributors' actual
expenses exceed the fee payable to AIM Distributors thereunder at any given
time, such Funds will not be obligated to pay more than that fee, and, if AIM
Distributors' expenses are less than the fee it receives, AIM Distributors may
retain the full amount of the fee.

The Plan may be terminated at any time by a vote of a majority of those
directors who are not "interested persons" of the Company or by a vote of the
holders of a majority of the outstanding shares of AIM TAX-EXEMPT CASH FUND or
AIM TAX-EXEMPT BOND FUND OF CONNECTICUT.

Certain financial institutions which have entered into service agreements
and which sell shares of AIM TAX-EXEMPT CASH FUND and/or AIM TAX-EXEMPT BOND
FUND OF CONNECTICUT on an agency basis, may receive payments from those Funds
pursuant to the Plan. AIM Distributors does not act as principal, but rather as
agent, for those Funds in making such payments. The Funds will obtain a
representation from such financial institutions that they will either be
licensed as dealers as required under applicable state law, or that they will
not engage in activities which would constitute acting as a "dealer" as defined
under applicable state law.

Payments pursuant to the Plan are subject to any applicable limitations
imposed by rules of the National Association of Securities Dealers, Inc.
("NASD"). The Plan conforms 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 AIM
TAX-EXEMPT CASH FUND and AIM TAX-EXEMPT BOND FUND OF CONNECTICUT to no more than
0.25% per annum of the average daily net assets of each Fund 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 each Fund. As a result of AIM Distributors' waiver of compensation due from
AIM TAX-EXEMPT CASH FUND, payments to dealers and other financial institutions
by that Fund will be limited to 0.10% of that Fund's average daily net assets.

For additional information concerning the operation of the Plan see the
Statement of Additional Information.

14
<PAGE> 18

- --------------------------------------------------------------------------------

ORGANIZATION OF THE COMPANY

The Company was incorporated in Maryland on May 4, 1993. Shares of common
stock of the Company are currently divided into three portfolios, AIM TAX-EXEMPT
CASH FUND, the INTERMEDIATE PORTFOLIO and AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT. The INTERMEDIATE PORTFOLIO currently has one class, AIM TAX-FREE
INTERMEDIATE SHARES. All shares of the Company have equal rights with respect to
voting, except that the holders of shares of a particular Fund will have the
exclusive right to vote on matters (such as advisory fees) pertaining solely to
that Fund. In the event of dissolution or liquidation, holders of each Fund'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 Fund to which such
shares relate, less (b) the liabilities of the Company attributable to the
respective Fund or allocated between the Funds based on the respective
liquidation values of each such Fund.

There are no preemptive or conversion rights applicable to any of the
Company's shares, and such shares, when issued, are fully paid and
non-assessable.

Under Maryland law and the Company's By-laws, the Company need not hold an
annual meeting of shareholders unless a meeting is otherwise required under the
1940 Act to elect directors. Shareholders may remove directors from office, and
a meeting of shareholders may be called at the request of the holders of 10% or
more of the Company's outstanding shares.

15
<PAGE> 19

THE TOLL-FREE NUMBER FOR ACCESS TO ROUTINE ACCOUNT INFORMATION AND SHAREHOLDER
ASSISTANCE IS
(800) 959-4246 (7:30 A.M. TO 5:30 P.M. CENTRAL TIME).
INVESTOR'S GUIDE
TO THE AIM FAMILY OF FUNDS(R)
- --------------------------------------------------------------------------------

INTRODUCTION TO THE AIM FAMILY OF FUNDS

THE AIM FAMILY OF FUNDS consists of the following mutual funds:

<TABLE>
<S> <C>
AIM AGGRESSIVE GROWTH FUND AIM INCOME FUND+
AIM BALANCED FUND+ AIM INTERMEDIATE GOVERNMENT FUND+
AIM BLUE CHIP FUND AIM INTERNATIONAL EQUITY FUND+
AIM CAPITAL DEVELOPMENT FUND AIM LIMITED MATURITY TREASURY SHARES
AIM CHARTER FUND+ AIM MONEY MARKET FUND*+
AIM CONSTELLATION FUND AIM MUNICIPAL BOND FUND+
AIM GLOBAL AGGRESSIVE GROWTH AIM TAX-EXEMPT BOND FUND OF CONNECTICUT
FUND+ AIM TAX-EXEMPT CASH FUND*
AIM GLOBAL GROWTH FUND+ AIM TAX-FREE INTERMEDIATE SHARES
AIM GLOBAL INCOME FUND+ AIM VALUE FUND+
AIM GLOBAL UTILITIES FUND+ AIM WEINGARTEN FUND+
AIM GROWTH FUND+
AIM HIGH YIELD FUND+
</TABLE>

* Shares of AIM TAX-EXEMPT CASH FUND, and Class C Shares of AIM MONEY MARKET
FUND, are offered to investors at net asset value, without payment of a sales
charge, as described below.

+ Shares of different classes of these funds, including the Class A and Class B
Shares of AIM MONEY MARKET FUND, are offered to investors at different sales
charges pursuant to a Multiple Distribution System. For more information
consult the prospectus of any of these funds.

IT IS IMPORTANT FOR SHAREHOLDERS CONSIDERING AN EXCHANGE TO CAREFULLY REVIEW
THE PROSPECTUS OF THE FUND WHOSE SHARES WILL BE ACQUIRED IN AN EXCHANGE. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL SHARES OF ANY FUND OTHER THAN
THE FUND(S) NAMED ON THE COVER PAGE OF THIS PROSPECTUS.
- --------------------------------------------------------------------------------

HOW TO PURCHASE SHARES

HOW TO OPEN AN ACCOUNT. In order to purchase shares of any of The AIM Family
of Funds ("AIM Funds"), an investor must submit a fully completed new Account
Application form directly to A I M Fund Services, Inc. ("AFS" or the "Transfer
Agent") or through any dealer authorized by A I M Distributors, Inc. ("AIM
Distributors") to sell shares of the AIM Funds.

Accounts submitted without a correct, certified taxpayer identification number
or, alternatively, a completed IRS Form W-8 (for non-resident aliens) or Form
W-9 (certifying exempt status) accompanying the registration information will be
subject to backup withholding. See the Account Application for applicable
Internal Revenue Service penalties. The minimum initial investment is $500,
except for accounts initially established through an Automatic Investment Plan,
which requires a special authorization form (see "Special Plans") and for
certain retirement accounts. The minimum initial investment for accounts
established with an Automatic Investment Plan is $50. The minimum initial
investment for an Individual Retirement Account ("IRA") is $250. There are no
minimum initial investment requirements applicable to
money-purchase/profit-sharing plans, 401(k) plans, IRA/Simplified Employee
Pension ("SEP") accounts, 403(b) plans or 457 (state deferred compensation)
plans (except that the minimum initial investment for salary deferrals for such
plans is $25), or for investment of dividends and distributions of any of the
AIM Funds into any existing AIM Funds account.

AFS' mailing address is:

A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739

For additional information or assistance, investors should call the Client
Services Department of AFS at:

(800) 959-4246

Shares of any AIM Funds not named on the cover of this Prospectus are offered
pursuant to separate prospectuses. Copies of other prospectuses may be obtained
by calling (800) 347-4246.

HOW TO PURCHASE ADDITIONAL SHARES. The minimum investment for subsequent
purchases is $50. The minimum employee salary deferral investment for
participants in money-purchase/profit sharing plans, 401(k), IRA/SEP, 403(b) or
457 plans is $25. There are no such minimum investment requirements for
investment of dividends and distributions of any of the AIM Funds into any other
existing AIM Funds account.

RET 7/96

A-1
<PAGE> 20

Additional shares may be purchased directly through AIM Distributors or
through any dealer who has entered into an agreement with AIM Distributors.
Direct investments may be made by mail or by wiring payment to AFS, as follows:

SUBSEQUENT PURCHASES BY MAIL: Investors must indicate their account number and
the name of the Fund being purchased. The remittance slip from a confirmation
statement should be used for this purpose, and sent to AFS.

PURCHASES BY WIRE: To insure prompt credit to his account, an investor or his
dealer should call AFS' Client Services Department at (800) 959-4246 prior to
sending a wire to receive a reference number for the wire. The following wire
instructions should be used:

<TABLE>
<S> <C>
Beneficiary Bank ABA/Routing #: 113000609
Beneficiary Account Number: 00100366807
Beneficiary Account Name: AIM Fund Services, Inc.
RFB: Fund name, Reference Number (16 character
limit)
OBI: Shareholder Name, Shareholder Account
Number
(70 character limit)
</TABLE>

- --------------------------------------------------------------------------------

TERMS AND CONDITIONS OF PURCHASE OF THE AIM FUNDS

Shares of the AIM Funds may be purchased at their respective net asset value
plus a sales charge as indicated below, except that shares of AIM TAX-EXEMPT
CASH FUND and Class C Shares of AIM MONEY MARKET FUND (the "No Load Funds") are
sold without a sales charge. For information on purchasing any of the AIM Funds
and to receive a prospectus, please call (800) 347-4246. As described below, the
sales charge otherwise applicable to a purchase of shares of a fund may be
reduced if certain conditions are met. In order to take advantage of a reduced
sales charge, the prospective investor or his dealer must advise AIM
Distributors that the conditions for obtaining a reduced sales charge have been
met. Net asset value is determined in the manner described under the caption
"Determination of Net Asset Value." The following tables show the sales charge
and dealer concession at various investment levels for the AIM Funds.

SALES CHARGES AND DEALER CONCESSIONS

GROUP 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 AGGRESSIVE GROWTH FUND, AIM BLUE
CHIP FUND, AIM CAPITAL DEVELOPMENT FUND, AIM CHARTER FUND, AIM CONSTELLATION
FUND, AIM GLOBAL UTILITIES FUND, AIM GROWTH FUND, AIM INTERNATIONAL EQUITY FUND,
AIM MONEY MARKET FUND, AIM VALUE FUND and AIM WEINGARTEN FUND.

<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> <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>

There is no sales charge on purchases of $1,000,000 or more; however, AIM
Distributors may pay a dealer concession and/or advance a service fee on such
transactions. See "All Groups of AIM Funds." Purchases of $1,000,000 or more are
at net asset value, subject to a contingent deferred sales charge of 1% if
shares are redeemed prior to 18 months from the date such shares were purchased,
as described under the caption "How to Redeem Shares -- Contingent Deferred
Sales Charge Program for Large Purchases."

RET 7/96

A-2
<PAGE> 21

GROUP 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 AIM TAX-EXEMPT BOND FUND OF CONNECTICUT; and the Class A
shares of each of AIM BALANCED FUND, AIM GLOBAL AGGRESSIVE GROWTH FUND, AIM
GLOBAL GROWTH FUND, AIM GLOBAL INCOME FUND, AIM HIGH YIELD FUND, AIM INCOME
FUND, AIM INTERMEDIATE GOVERNMENT FUND, and AIM MUNICIPAL BOND FUND.

<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>

There is no sales charge on purchases of $1,000,000 or more; however, AIM
Distributors may pay a dealer concession and/ or advance a service fee on such
transactions. See "All Groups of AIM Funds." Purchases of $1,000,000 or more are
at net asset value, subject to a contingent deferred sales charge of 1% if
shares are redeemed prior to 18 months from the date such shares were purchased,
as described under the caption "How to Redeem Shares -- Contingent Deferred
Sales Charge Program for Large Purchases."

GROUP 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 AIM LIMITED MATURITY TREASURY SHARES and AIM TAX-FREE
INTERMEDIATE SHARES.

<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; however, AIM
Distributors may pay a dealer concession and/ or advance a service fee on such
transactions.

ALL GROUPS OF AIM FUNDS. AIM Distributors may elect to re-allow the entire
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 reallowed may be deemed to be "underwriters" as that
term is defined under the Securities Act of 1933.

In addition to amounts paid to dealers as a dealer concession out of the
initial sales charge paid by investors, 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 who sell a minimum dollar amount of the shares of the AIM
Funds during a specified period of time. In some instances, these incentives may
be offered only to certain dealers who have sold or may sell significant amounts
of shares. 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. 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. 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 AIM LIMITED MATURITY TREASURY SHARES and AIM TAX-FREE INTERMEDIATE
SHARES 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. See "Contingent Deferred Sales Charge Program for Large Purchases."
AIM Distributors may make payments to dealers and institutions who are dealers
of record for purchases of $1 million or more of shares which normally involve
payment of initial sales charges, and which are

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<PAGE> 22

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 shares of AIM LIMITED
MATURITY TREASURY SHARES, and in an amount up to 0.25% of such purchases of
shares of AIM TAX-FREE INTERMEDIATE SHARES.

TIMING OF PURCHASE ORDERS. Orders for the purchase of shares of an AIM Fund
(other than AIM MONEY MARKET FUND, as described below) received prior to the
close of the New York Exchange ("NYSE"), which is generally 4:00 p.m. Eastern
Time (and which is hereinafter referred to as "NYSE Close") on any business day
of an AIM Fund will be confirmed at the price next determined. Orders received
after NYSE Close will be confirmed at the price determined on the next business
day of the AIM Fund. 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 order within the prescribed
time frame will be borne by that dealer. Please see "How to Purchase
Shares -- Purchases by Wire" for information on obtaining a reference number for
wire orders, which will facilitate the handling of such orders and ensure prompt
credit to an investor's account. A "business day" of an AIM Fund is any day on
which the NYSE is open for business. It is expected that the NYSE will be closed
during the next twelve months on Saturdays and Sundays and on the days on which
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day are observed by the NYSE.

An investor who uses a check to purchase shares will be credited with the full
number of shares purchased at the time of receipt of the purchase order, as
previously described. However, in the event of a redemption or exchange of such
shares, the investor may be required to wait up to ten business days before the
redemption proceeds are sent. This delay is necessary in order to ensure that
the check has cleared. If the check does not clear, or if any investment order
must be cancelled due to nonpayment, the investor will be responsible for any
resulting loss to an AIM Fund or to AIM Distributors.

TIMING OF PURCHASE, EXCHANGE AND REDEMPTION ORDERS (AIM MONEY MARKET FUND
ONLY). Orders for purchases, exchanges and redemptions of shares of AIM MONEY
MARKET FUND received prior to 12:00 noon or NYSE Close on any business day of
the Fund will be confirmed at the price next determined. Net asset value is
normally determined at 12:00 noon and NYSE Close on each business day of AIM
MONEY MARKET FUND.

SPECIAL INFORMATION RELATING TO AIM MONEY MARKET FUND AND AIM TAX-EXEMPT CASH
FUND (THE "MONEY MARKET FUNDS"). Because each Money Market Fund uses the
amortized cost method of valuing the securities it holds and rounds its per
share net asset value to the nearest whole cent, it is anticipated that the net
asset value of the shares of such funds will remain constant at $1.00 per share.
However, there is no assurance that either Money Market Fund can maintain a
$1.00 net asset value per share. In order to earn dividends with respect to AIM
MONEY MARKET FUND on the same day that a purchase is made, purchase payments in
the form of federal funds must be received by the Transfer Agent before 12:00
noon Eastern Time on that day. Purchases made by payments in any other form, or
payments in the form of federal funds received after such time but prior to NYSE
Close, will begin to earn dividends on the next business day following the date
of purchase. The Money Market Funds generally will not issue share certificates
but will record investor holdings in noncertificate form and regularly advise
the shareholder of his ownership position.

SHARE CERTIFICATES. Share certificates for all AIM Funds will be issued upon
written request by a shareholder to AIM Distributors or the Transfer Agent.
Otherwise such shares will be held on the shareholder's behalf by the applicable
AIM Fund(s) and be recorded on the books of such fund(s). See "Exchange
Privilege -- Exchanges by Telephone" and "How to Redeem Shares -- Redemptions by
Telephone" for restrictions applicable to shares issued in certificate form.
Please note that certificates will not be issued for shares held in prototype
retirement plans.

MINIMUM ACCOUNT BALANCE. If (1) an account opened in a fund has been in effect
for at least one year and the shareholder has not made an additional purchase in
that account within the preceding six calendar months and (2) the value of such
account drops below $500 for three consecutive months as a result of redemptions
or exchanges, the fund has the right to redeem the account, after giving the
shareholder 60 days' prior written notice, unless the shareholder makes
additional investments within the notice period to bring the account value up to
$500.

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 (except for
the No Load Funds, which are sold without payment of a sales charge) provided
that such purchases are made by a "purchaser" as hereinafter defined. Purchases
of shares of AIM TAX-EXEMPT CASH FUND, Class C shares of AIM MONEY MARKET FUND
and Class B shares of funds offered pursuant to a Multiple Distribution System
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 minor 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, 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);

RET 7/96

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<PAGE> 23

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"), provided that:

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

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 SEP, Salary Reduction and other Elective Simplified Employee Pension
account ("SARSEP") where the employer has notified AIM Distributors in
writing that all of its related employee SEP or SARSEP accounts should be
linked;

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; or

o the discretionary advised accounts of A I M Advisors, Inc. ("AIM") or A I M
Capital Management, Inc. ("AIM Capital")

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) the No
Load Funds and (ii) Class B Shares of funds offered pursuant to a Multiple
Distribution System) 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 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 escrowed 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) the No Load Funds
and (ii) Class B Shares

RET 7/96

A-5
<PAGE> 24

of funds offered pursuant to a Multiple Distribution System) 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) the No Load Funds and (ii) Class B Shares of funds offered
pursuant to a Multiple Distribution System) 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
(see "Dividends, Distributions and Tax Matters"); (b) exchanges of shares of
certain other funds (see "Exchange Privilege"); (c) use of the reinstatement
privilege (see "How to Redeem Shares"); or (d) a merger, consolidation or
acquisition of assets of a fund.

Shareholders of record of Class A shares of AIM WEINGARTEN FUND and AIM
CONSTELLATION FUND on September 8, 1986, and shareholders of record of Class A
shares of AIM CHARTER FUND on November 17, 1986, may purchase additional Class A
shares of the particular AIM Fund(s) whose shares they owned on such date, at
net asset value (without payment of a sales charge) for as long as they
continuously own Class A shares of such AIM Fund(s) having a market value of at
least $500. In addition, discretionary advised clients of any investment
advisors whose clients held Class A shares of AIM WEINGARTEN FUND or AIM
CONSTELLATION FUND on September 8, 1986, or who held Class A shares of AIM
CHARTER FUND on November 17, 1986, and have held such Class A shares at all
times subsequent to such date, may purchase Class A shares of the applicable AIM
Fund(s) at the net asset value of such shares.

The following persons may purchase shares of the AIM Funds through AIM
Distributors without payment of an initial sales charge: (a) A I M Management
Group Inc. ("AIM Management") and its affiliated companies; (b) any current or
retired officer, director, trustee or employee, or any member of the immediate
family (including spouse, minor children, parents and parents of spouse) of any
such person, of AIM Management or its affiliates or of certain mutual funds
which are advised or managed by AIM, or any trust established exclusively for
the benefit of such persons; (c) any employee benefit plan established for
employees of AIM Management or its affiliates; (d) any current or retired
officer, director, trustee or employee, or any member of the immediate family
(including spouse, minor children, parents and parents of spouse) of any such
person, or of CIGNA Corporation or of any of its affiliated companies, or of
First Data Investor Services Group (formerly The Shareholders Services Group,
Inc.); (e) any investment company sponsored by CIGNA Investments, Inc. or any of
its affiliated companies for the benefit of its directors' deferred compensation
plans; (f) discretionary advised clients of AIM or AIM Capital; (g) registered
representatives and employees of dealers who have entered into agreements with
AIM Distributors (or financial institutions that have arrangements with such
dealers with respect to the sale of shares of the AIM Funds) and any member of
the immediate family (including spouse, minor children, parents and parents of
spouse) of any such person, provided that purchases at net asset value are
permitted by the policies of such person's employer; (h) certain broker-dealers,
investment advisers or bank trust departments that provide asset allocation,
similar specialized investment services or investment company transaction
services for their customers, that charge a minimum annual fee for such
services, and that have entered into an agreement with AIM Distributors with
respect to their use of the AIM Funds in connection with such services; and (i)
shareholders of Baird Capital Development Fund who are exchanging their shares
for shares of AIM CAPITAL DEVELOPMENT FUND.

In addition, shares of any AIM Fund may be purchased at net asset value,
without payment of a sales charge, by pension, profit-sharing or other employee
benefit plans created pursuant to a plan qualified under Section 401 of the Code
or plans under Section 457 of the Code, or employee benefit plans created
pursuant to Section 403(b) of the Code and sponsored by nonprofit organizations
defined under Section 501(c)(3) of the Code. Such plans will qualify for
purchases at net asset value provided that (1) the initial amount invested in
the fund(s) is at least $1,000,000, (2) the sponsor signs a $1,000,000 LOI, (3)
such shares are purchased by an employer-sponsored plan with at least 100
eligible employees, or (4) all of the plan's transactions are executed through a
single omnibus account per fund and the financial institution or service
organization has entered into an agreement with AIM Distributors with respect to
their use of the AIM Funds in connection with such accounts. Section 403(b)
plans sponsored by public educational institutions will not be eligible for net
asset value purchases based on the aggregate investment made by the plan or the
number of eligible employees. Participants in such plans will be eligible for
reduced sales charges based solely on the aggregate value of their individual
investments in the applicable AIM Fund. PLEASE NOTE THAT TAX-EXEMPT FUNDS ARE
NOT APPROPRIATE INVESTMENTS FOR SUCH PLANS. AIM Distributors may pay investment
dealers or other financial service firms up to 1.00% of the net asset value of
any shares of the Load Funds (as defined on page A-8 herein), up to 0.10% of the
net asset value of any shares of AIM LIMITED MATURITY TREASURY SHARES, and up to
0.25% of the net asset value of any shares of all other AIM Funds sold at net
asset value to an employee benefit plan in accordance with this paragraph.

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<PAGE> 25

Class A shares of AIM WEINGARTEN FUND and AIM CONSTELLATION FUND may be
deposited at net asset value, without payment of a sales charge, in G/SET series
unit investment trusts, whose portfolios consist exclusively of Class A shares
of AIM WEINGARTEN FUND or AIM CONSTELLATION FUND and stripped United States
Treasury issued notes or bonds bearing no current interest ("Treasury
Obligations"). Class A shares of such funds may also be purchased at net asset
value by other unit investment trusts approved by the Board of Directors of AIM
Equity Funds, Inc. Unit holders of such trusts may elect to invest cash
distributions from such trusts in Class A shares of AIM WEINGARTEN FUND or AIM
CONSTELLATION FUND at net asset value, including: (a) distributions of any
dividend income or other income received by such trusts; (b) distributions of
any net capital gains received in respect of Class A shares of AIM WEINGARTEN
FUND or AIM CONSTELLATION FUND and proceeds of the sale of Class A shares of AIM
WEINGARTEN FUND or AIM CONSTELLATION FUND used to redeem units of such trusts;
and (c) proceeds from the maturity of the Treasury Obligations at the
termination dates of such trusts. Prior to the termination dates of such trusts,
a unit holder may invest the proceeds from the redemption or repurchase of his
units in Class A shares of AIM WEINGARTEN FUND or AIM CONSTELLATION FUND at net
asset value, provided: (a) that the investment in Class A shares of AIM
WEINGARTEN FUND or AIM CONSTELLATION FUND is effected within 30 days of such
redemption or repurchase; and (b) that the unit holder or his dealer provides
AIM Distributors with a letter which: (i) identifies the name, address and
telephone number of the dealer who sold to the unit holder the units to be
redeemed or repurchased; and (ii) states that the investment in Class A shares
of AIM WEINGARTEN FUND or AIM CONSTELLATION FUND is being funded exclusively by
the proceeds from the redemption or repurchase of units of such trusts.

FOR ANY FUND NAMED ON THE COVER PAGE OF THIS PROSPECTUS, AIM DISTRIBUTORS AND
ITS AGENTS RESERVE THE RIGHT AT ANY TIME (1) TO WITHDRAW ALL OR ANY PART OF THE
OFFERING MADE BY THIS PROSPECTUS; (2) TO REJECT ANY PURCHASE OR EXCHANGE ORDER
OR TO CANCEL ANY PURCHASE DUE TO NONPAYMENT OF THE PURCHASE PRICE; (3) TO
INCREASE, WAIVE OR LOWER THE MINIMUM INVESTMENT REQUIREMENTS; OR (4) TO MODIFY
ANY OF THE TERMS OR CONDITIONS OF PURCHASE OF SHARES OF SUCH FUND. For any fund
named on the cover page, AIM Distributors and its agents will use their best
efforts to provide notice of any such actions through correspondence with
broker-dealers and existing shareholders, supplements to the AIM Funds'
prospectuses, or other appropriate means, and will provide sixty (60) days'
notice in the case of termination or material modification to the exchange
privilege discussed under the caption "Exchange Privilege."

- --------------------------------------------------------------------------------

SPECIAL PLANS

Except as noted below, each AIM Fund provides the special plans described
below for the convenience of its shareholders. Once established, there is no
obligation to continue to invest through a plan, and a shareholder may terminate
a plan at any time.

Special plan applications and further information, including details of any
fees which are charged to a shareholder investing through a plan, may be
obtained by written request, directed to AFS at the address provided under "How
to Purchase Shares," or by calling the Client Services Department of AFS at
(800) 959-4246. IT IS RECOMMENDED THAT A SHAREHOLDER CONSIDERING ANY OF THE
PLANS DESCRIBED HEREIN CONSULT A TAX ADVISOR BEFORE COMMENCING PARTICIPATION IN
SUCH A PLAN.

SYSTEMATIC WITHDRAWAL PLAN. Under a Systematic Withdrawal Plan, a shareholder
can arrange for monthly, quarterly or annual checks in any amount (but not less
than $50) to be drawn against the balance of his account in the designated AIM
Fund. Payment of this amount is normally made on or about the tenth or the
twenty-fifth day of each month in which a payment is to be made. A minimum
account balance of $5,000 is required to establish a Systematic Withdrawal Plan,
but there is no requirement thereafter to maintain any minimum investment.

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, it
is disadvantageous to effect such purchases while a Systematic Withdrawal Plan
is in effect.

The Systematic Withdrawal Plan may be terminated at any time upon 10 days'
prior notice to AFS. Each AIM Fund bears its share of the cost of operating the
Systematic Withdrawal Plan. Each AIM Fund reserves the right to initiate a fee
for each withdrawal (not to exceed its cost), but there is no present intent to
do so.

AUTOMATIC INVESTMENT PLAN. Shareholders who wish to make monthly investments
may establish an Automatic Investment Plan. Under this plan, on or about the
tenth and/or the twenty-fifth day of each month, a draft is drawn on the
shareholder's bank account in the amount specified by the shareholder (minimum
$50 per investment, per account). The proceeds of the draft are invested in
shares of the designated AIM Fund at the applicable offering price determined on
the date of the draft. An Automatic Investment Plan may be discontinued upon 10
days' prior notice to the Transfer Agent or AIM Distributors.

AUTOMATIC DIVIDEND INVESTMENT PLAN. Shareholders may elect to have all
dividends and distributions declared by an AIM Fund paid in cash or invested at
net asset value, without payment of an initial sales charge, either in shares of
the same AIM Fund or

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<PAGE> 26

invested in shares of another AIM Fund. See "Dividends, Distributions and Tax
Matters -- Dividends and Distributions" for a description of payment dates for
these options. In order to qualify to have dividends and distributions of one
AIM Fund invested in shares of another AIM Fund, the following conditions must
be satisfied: (a) the shareholder must have an account balance in the dividend
paying fund of at least $5,000; (b) the account must be held in the name of the
shareholder (i.e., the account may not be held in nominee name); and (c) the
shareholder must have requested and completed an authorization relating to the
reinvestment of dividends into another AIM Fund. An authorization may be given
on the account application or on an authorization form available from AIM
Distributors. An AIM Fund will waive the $5,000 minimum account value
requirement if the shareholder has an account in the fund selected to receive
the dividends and distributions with a value of at least $500.

DOLLAR COST AVERAGING. Shareholders may elect to have a specified amount
automatically exchanged, either monthly or quarterly (on or about the 10th or
25th day of the applicable month), from one of their accounts into one or more
AIM Funds, subject to the terms and conditions described under the caption
"Exchange Privilege -- Terms and Conditions of Exchanges." The account from
which exchanges are to be made must have a value of at least $5,000 when a
shareholder elects to begin this program, and the exchange minimum is $50 per
transaction. All of the accounts that are part of this program must have
identical registrations. The net asset value of shares purchased under this
program may vary, and may be more or less advantageous than if shares were not
exchanged automatically. There is no charge for entering the Dollar Cost
Averaging program. Sales charges may apply, as described under the caption
"Exchange Privilege."

PROTOTYPE RETIREMENT PLANS. The AIM Funds (except for AIM TAX-FREE
INTERMEDIATE SHARES, AIM TAX-EXEMPT CASH FUND, AIM MUNICIPAL BOND FUND and AIM
TAX-EXEMPT BOND FUND OF CONNECTICUT) have made the following prototype
retirement plans available to corporations, individuals and employees of
non-profit organizations and public schools: combination money-
purchase/profit-sharing plans; 403(b) plans; IRA plans; and SEP plans
(collectively, "retirement accounts"). Information concerning these plans,
including the custodian's fees and the forms necessary to adopt such plans, can
be obtained by calling or writing the AIM Funds or AIM Distributors. Shares of
the AIM Funds are also available for investment through existing 401(k) plans
(for both individuals and employers) adopted under the Code. The plan custodian
currently imposes an annual $10 maintenance fee with respect to each retirement
account for which it serves as the custodian. This fee is generally charged in
December. Each AIM Fund and/or the custodian reserve the right to change this
maintenance fee and to initiate an establishment fee (not to exceed its cost).

- --------------------------------------------------------------------------------

EXCHANGE PRIVILEGE

TERMS AND CONDITIONS OF EXCHANGES. Shareholders of the AIM Funds may
participate in an exchange privilege as described below. The exchange 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. AIM Distributors acts as distributor for the AIM Funds,
which represent a range of different investment objectives and policies. As set
forth under the caption "Terms and Conditions of Purchase of the AIM
Funds -- Sales Charges and Dealer Concessions," shares of certain of the AIM
Funds, referred to herein as the "Load Funds," are sold at a public offering
price that includes a maximum sales charge of 5.50% or 4.75% of the public
offering price of such shares; shares of certain of the AIM Funds, referred to
herein as the "Lower Load Funds," are sold at a public offering price that
includes a maximum sales charge of 1.00% of the public offering price of such
shares; and shares of certain other funds, referred to herein as the "No Load
Funds," are sold at net asset value, without payment of a sales charge.

<TABLE>
<CAPTION>
LOAD FUNDS: LOWER LOAD FUNDS:
----------- -----------------
<S> <C> <C>
AIM AGGRESSIVE GROWTH AIM HIGH YIELD FUND -- CLASS A AIM LIMITED MATURITY TREASURY
FUND -- CLASS A AIM INCOME FUND -- CLASS A SHARES
AIM BALANCED FUND -- CLASS A AIM INTERMEDIATE GOVERNMENT AIM TAX-FREE INTERMEDIATE SHARES
AIM BLUE CHIP FUND -- CLASS A FUND -- CLASS A
AIM CAPITAL DEVELOPMENT AIM INTERNATIONAL EQUITY NO LOAD FUNDS:
FUND -- CLASS A FUND -- CLASS A --------------
AIM CHARTER FUND -- CLASS A AIM MONEY MARKET AIM MONEY MARKET FUND -- CLASS C
AIM CONSTELLATION FUND -- CLASS A FUND -- CLASS A AIM TAX-EXEMPT CASH FUND
AIM GLOBAL AGGRESSIVE GROWTH AIM MUNICIPAL BOND
FUND -- CLASS A FUND -- CLASS A
AIM GLOBAL GROWTH FUND -- CLASS A AIM TAX-EXEMPT BOND FUND
AIM GLOBAL INCOME FUND -- CLASS A OF CONNECTICUT
AIM GLOBAL UTILITIES FUND -- CLASS A AIM VALUE FUND -- CLASS A
AIM GROWTH FUND -- CLASS A AIM WEINGARTEN FUND -- CLASS A
</TABLE>

Shares of any AIM Fund may be exchanged for shares of any other AIM Fund,
except that (i) Load Funds share purchases of $1,000,000 or more which are
subject to a contingent deferred sales charge may not be exchanged for Lower
Load Funds or for AIM TAX-EXEMPT CASH FUND, (ii) Lower Load Funds share
purchases of $1,000,000 or more and No Load Fund purchases may be exchanged for
Load Fund shares in amounts of $1,000,000 or more which will then be subject to
a contingent deferred sales charge;

RET 7/96

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<PAGE> 27

however, for purposes of calculating the contingent deferred sales charge on the
Load Fund shares acquired, the 18-month period shall be computed from the date
of such exchange, and (iii) if the fund offers more than one class of shares,
the exchange must be between the same class of shares. DEPENDING UPON THE FUND
FROM WHICH AND INTO WHICH AN EXCHANGE IS BEING MADE, SHARES BEING ACQUIRED IN AN
EXCHANGE MAY BE ACQUIRED AT THEIR OFFERING PRICE OR AT THEIR NET ASSET VALUE
(WITHOUT PAYMENT OF A SALES CHARGE) AS SET FORTH IN THE TABLE BELOW FOR SHARES
INITIALLY PURCHASED PRIOR TO MAY 1, 1994:

<TABLE>
<CAPTION>
LOWER LOAD NO LOAD
FROM: TO: LOAD FUNDS FUNDS FUNDS
----- ----------------- ---------- -------
<S> <C> <C> <C>
Load Funds.......... Net Asset Value Net Asset Value Net Asset Value

Lower Load Funds.... Net Asset Value if shares were held for at Net Asset Value Net Asset Value
least 30 days; or if shares were acquired
upon exchange of any Load Fund; or if shares
were acquired upon exchange from any Lower
Load Fund and such shares were held for at
least 30 days. (No exchange privilege is
available for the first 30 days following the
purchase of the Lower Load Fund shares.)

No Load Funds....... Offering Price if No Load Fund shares were Net Asset Value Net Asset Value
directly purchased. Net Asset Value if No if No Load shares
Load Fund shares were acquired upon exchange were acquired
of shares of any Load Fund or any Lower Load upon exchange of
Fund; Net Asset Value if No Load shares were shares of any
acquired upon exchange of Lower Load Fund Load Fund or any
shares and were held at least 30 days Lower Load Fund;
following the purchase of the Lower Load Fund otherwise, Of-
shares. (No exchange privilege is available fering Price.
for the first 30 days following the
acquisition of the Lower Load Fund shares.)
</TABLE>

FOR SHARES INITIALLY PURCHASED ON OR AFTER MAY 1, 1994, THE FOREGOING TABLE IS
REVISED AS FOLLOWS:

<TABLE>
<CAPTION>
LOWER LOAD NO LOAD
FROM: TO: LOAD FUNDS FUNDS FUNDS
----- ----------------- ---------- -------
<S> <C> <C> <C>
Load Funds.......... Net Asset Value Net Asset Value Net Asset Value

Lower Load Funds.... Net Asset Value if shares were acquired upon Net Asset Value Net Asset Value
exchange of any Load Fund. Otherwise,
difference in sales charge will apply.

No Load Funds....... Offering Price if No Load Fund shares were Net Asset Value Net Asset Value
directly purchased. Net Asset Value if No if No Load Fund
Load Fund shares were acquired upon exchange shares were
of shares of any Load Fund. Difference in acquired upon
sales charge will apply if No Load Fund exchange of
shares were acquired upon exchange of Lower shares of any
Load Fund shares. Load Fund or any
Lower Load Fund;
otherwise, Of-
fering Price.
</TABLE>

An exchange is permitted only in the following circumstances: (a) the dollar
amount of the exchange must be at least equal to the minimum investment
applicable to the shares of the fund acquired through such exchange; (b) the
shares of the fund acquired through exchange must be qualified for sale in the
state in which the shareholder resides; (c) the exchange must be made between
accounts having identical registrations and addresses; (d) the full amount of
the purchase price for the shares being exchanged must have already been
received by the fund; (e) the account from which shares have been exchanged must
be coded as having a certified taxpayer identification number on file or, in the
alternative, an appropriate Internal Revenue Service ("IRS") Form W-8
(certificate of foreign status) or Form W-9 (certifying exempt status) must have
been received by the fund; (f) newly acquired shares (through either an initial
or subsequent investment) are held in an account for at least ten business days,
and all other shares are held in an account for at least one day, prior to the
exchange; (g) certificates representing shares must be returned before shares
can be exchanged; and (h) if the fund offers more than one class of shares, the
exchange must be between the same class of shares.

THE CURRENT PROSPECTUS OF EACH OF THE AIM FUNDS AND CURRENT INFORMATION
CONCERNING THE OPERATION OF THE EXCHANGE PRIVILEGE ARE AVAILABLE THROUGH AIM
DISTRIBUTORS OR THROUGH ANY DEALER WHO HAS EXECUTED AN APPLICABLE AGREEMENT WITH
AIM DISTRIBUTORS. BEFORE EXCHANGING SHARES, INVESTORS SHOULD REVIEW THE
PROSPECTUSES OF THE FUNDS WHOSE SHARES WILL BE ACQUIRED THROUGH EXCHANGE.
EXCHANGES OF SHARES ARE CONSIDERED TO BE SALES FOR FEDERAL AND STATE INCOME TAX
PURPOSES AND MAY RESULT IN A TAXABLE GAIN OR LOSS TO A SHAREHOLDER.

THE EXCHANGE PRIVILEGE IS NOT AN OPTION OR RIGHT TO PURCHASE SHARES BUT IS
PERMITTED UNDER THE RESPECTIVE POLICIES OF THE PARTICIPATING FUNDS, AND MAY BE
MODIFIED OR DISCONTINUED BY ANY OF SUCH FUNDS OR BY AIM DISTRIBUTORS AT ANY
TIME, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, WITHOUT NOTICE.

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<PAGE> 28

There is no fee for exchanges among the AIM Funds. A service fee of $5 per
transaction may, however, be charged by AIM Distributors on accounts of market
timing investment firms to help to defray the costs of maintaining an automated
exchange service. This service fee will be charged against the market timing
account from which shares are being exchanged.

Shares of any AIM Fund (other than AIM MONEY MARKET FUND) to be exchanged are
redeemed at their net asset value as determined at NYSE Close on the day that an
exchange request in proper form (described below) is received. Exchange requests
received after NYSE Close will result in the redemption of shares at their net
asset value at NYSE Close on the next business day. See "Terms and Conditions of
Purchase of the AIM Funds -- Timing of Purchase, Exchange and Redemption Orders
(AIM MONEY MARKET FUND only)" for information regarding the timing of exchange
orders for AIM MONEY MARKET FUND. 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 (see "Dividends, Distributions and
Tax Matters -- Dividends and Distributions," below), 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. Shares purchased by check may not be exchanged until it is determined
that the check has cleared, which may take up to ten business days from the date
that the check is received. See "Terms and Conditions of Purchase of the AIM
Funds -- Timing of Purchase Orders."

In the event of unusual market conditions, AIM Distributors reserves the right
to reject any exchange request, if, in the judgment of AIM Distributors, the
number of requests or the total value of the shares that are the subject of the
exchange places a material burden on a fund. For example, the number of
exchanges by investment managers making market timing exchanges may be limited.

EXCHANGES BY MAIL. Investors exchanging their shares by mail should send a
written request to AFS. The request should contain the account registration and
account number, the dollar amount or number of shares to be exchanged, and the
names of the funds from which and into which the exchange is to be made. The
request should comply with all of the requirements for redemption by mail,
except those required for redemption of IRAs. See "How to Redeem Shares."

EXCHANGES BY TELEPHONE. Shareholders or their agents may request an exchange
by telephone. If a shareholder does not wish to allow telephone exchanges by any
person in his account, he should decline that option on the account application.
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 NYSE Close. The Transfer Agent and AIM Distributors will not be liable
for any loss, expense or cost arising out of any telephone exchange request that
they reasonably believe to be genuine, but 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.

- --------------------------------------------------------------------------------

HOW TO REDEEM SHARES

Shares of the 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 obligation of the fund(s) named on the cover page to redeem
shares, AIM Distributors also repurchases shares. Although a contingent deferred
sales charge may be applicable to certain redemptions, as described below, there
is no redemption fee imposed when shares are redeemed or repurchased; however,
dealers may charge service fees for handling repurchase transactions.

CONTINGENT DEFERRED SALES CHARGE PROGRAM FOR LARGE PURCHASES. Except for
purchases of shares of Lower Load Funds and No Load Funds, a contingent deferred
sales charge of 1% applies to purchases of $1,000,000 or more that are redeemed
within 18 months of the date of purchase. For a description of the AIM Funds
participating in this program, see "Terms and Conditions of Purchase of the AIM
Funds -- Sales Charges and Dealer Concessions." This charge will be 1% of the
lesser of the value of the shares redeemed (excluding reinvested dividends and
capital gain distributions) or the total original cost of such shares. In
determining whether a contingent deferred sales charge is payable, and the
amount of any such charge, shares not subject to the contingent deferred sales
charge are redeemed first (including shares purchased by reinvested dividends
and capital gains distributions and amounts representing increases from capital
appreciation), and then other shares are redeemed in the order of purchase. No
such charge will be imposed upon exchanges unless the shares acquired by
exchange are redeemed within 18 months of the date the shares were originally
purchased. For purposes of computing this 18-month period (i) shares of any Load
Fund or Class C shares of AIM MONEY MARKET FUND which were acquired through an
exchange of shares which previously were subject to the 1% contingent deferred
sales charge will be credited with the period of time such exchanged shares were
held, and (ii) shares of any Load Fund which

RET 7/96

A-10
<PAGE> 29

are subject to the 1% contingent deferred sales charge and which were acquired
through an exchange of shares of a Lower Load Fund or a No Load Fund which
previously were not subject to the 1% contingent deferred sales charge will not
be credited with the period of time such exchanged shares were held. The charge
will be waived in the following circumstances:

(1) redemptions of shares by employee benefit plans ("Plans")
qualified under Sections 401 or 457 of the Code, or Plans created under
Section 403(b) of the Code and sponsored by nonprofit organizations as
defined under Section 501(c)(3) of the Code, where (a) the initial amount
invested by a Plan in one or more of the AIM Funds is at least $1,000,000,
(b) the sponsor of a Plan signs a letter of intent to invest at least
$1,000,000 in one or more of the AIM Funds, or (c) the shares being
redeemed were purchased by an employer-sponsored Plan with at least 100
eligible employees; provided, however, that Plans created under Section
403(b) of the Code which are sponsored by public educational institutions
shall qualify under (a), (b) or (c) above 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;

(2) redemptions of shares following the registered shareholder's (or
in the case of joint accounts, all registered joint owners') death or
disability, as defined in Section 72(m)(7) of the Code;

(3) redemptions of shares purchased at net asset value by private
foundations or endowment funds where the initial amount invested was at
least $1,000,000; and

(4) redemptions of shares purchased by an investor in amounts of
$1,000,000 or more where such investor's dealer of record, due to the
nature of the investor's account, notifies AIM Distributors prior to the
time of investment that the dealer waives the payments otherwise payable to
the dealer as described in the third paragraph under the caption "Terms and
Conditions of Purchase of the AIM Funds -- All Groups of AIM Funds."

REDEMPTIONS BY MAIL. Redemption requests must be in writing and sent to the
Transfer Agent. Upon receipt of a redemption request in proper form, payment
will be made as soon as practicable, but in any event will normally be made
within seven days after receipt. However, in the event of a redemption of shares
purchased by check, the investor may be required to wait up to ten business days
before the redemption proceeds are sent. See "Terms and Conditions of Purchase
of the AIM Funds -- Timing of Purchase Orders."

Requests for redemption must include: (a) original signatures of each
registered owner exactly as the shares are registered; (b) the Fund and the
account number of shares to be redeemed; (c) share certificates, either properly
endorsed or accompanied by a duly executed stock power, for the shares to be
redeemed if such certificates have been issued and the shares are not in the
custody of the Transfer Agent; (d) signature guarantees, as described below; and
(e) any additional documents that may be required for redemption by
corporations, partnerships, trusts or other entities. The burden is on the
shareholder to inquire as to whether any additional documentation is required.
Any request not in proper form may be rejected and in such case must be renewed
in writing.

In addition to these requirements, shareholders who have invested in a fund to
establish an IRA, should include the following information along with a written
request for either partial or full liquidation of fund shares: (a) a statement
as to whether or not the shareholder has attained age 59 1/2; and (b) a
statement as to whether or not the shareholder elects to have federal income tax
withheld from the proceeds of the liquidation.

REDEMPTIONS BY TELEPHONE. Shareholders may request a redemption by telephone.
If a shareholder does not wish to allow telephone redemptions by any person in
his account, he should decline that option on the account application. The
telephone redemption feature can be used only if: (a) the redemption proceeds
are to be mailed to the address of record or wired to the pre-authorized bank
account as indicated on the account application; (b) there has been no change of
address of record on the account within the preceding 30 days; (c) the shares to
be redeemed are not in certificate form; (d) the person requesting the
redemption can provide proper identification information; and (e) the proceeds
of the redemption do not exceed $50,000. Accounts in AIM Distributors' prototype
retirement plans (such as IRA and IRA/SEP) or 403(b) plans are not eligible for
the telephone redemption option. AIM Distributors has made arrangements with
certain dealers and investment advisors to accept telephone instructions for the
redemption of shares. AIM Distributors reserves the right to impose conditions
on these dealers and investment advisors, including the condition that they
enter into agreements (which contain additional conditions with respect to the
redemption of shares) with AIM Distributors. The Transfer Agent and AIM
Distributors 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 at that item of 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 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.

EXPEDITED REDEMPTIONS (AIM MONEY MARKET FUND ONLY). If a redemption order is
received prior to 11:30 a.m. Eastern Time, the redemption will be effective on
that day and AIM MONEY MARKET FUND will endeavor to transmit payment on that
same

RET 7/96

A-11
<PAGE> 30

business day. If the redemption order is received after 11:30 a.m. and prior to
NYSE Close, the redemption will be made at the next determined net asset value
and payment will be generally transmitted on the next business day.

REDEMPTIONS BY CHECK (NO LOAD FUNDS). After completing the appropriate
authorization form, shareholders may use checks to effect redemptions from the
No Load Funds. Checks may be drawn in any amount of $250 or more. This privilege
does not apply to retirement accounts or qualified plans. Checks drawn against
insufficient shares in the account, against shares held less than ten business
days, or in amounts of less than the applicable minimum will be returned to the
payee. The payee of the check may cash or deposit it in the same way as an
ordinary bank check. When a check is presented to the Transfer Agent for
payment, the Transfer Agent will cause a sufficient number of shares of such
fund to be redeemed to cover the amount of the check. Shareholders are entitled
to dividends on the shares redeemed through the day on which the check is
presented to the Transfer Agent for payment.

TIMING AND PRICING OF REDEMPTION ORDERS. Shares of the various AIM Funds
(other than AIM MONEY MARKET FUND) are redeemed at their net asset value next
computed after a request for redemption in proper form (including signature
guarantees and other required documentation for written redemptions) is received
by the Transfer Agent, except that shares which are subject to the contingent
deferred sales charge program for large purchases described above may be subject
to the imposition of deferred sales charges that will be deducted from the
redemption proceeds. See "Contingent Deferred Sales Charge Program for Large
Purchases." Orders for the redemption of shares received in proper form prior to
NYSE Close on any business day of an AIM Fund will be confirmed at the price
determined as of the close of that day. Orders received after NYSE Close will be
confirmed at the price determined on the next business day of an AIM Fund.
Redemptions of shares of AIM MONEY MARKET FUND received prior to 12:00 noon or
NYSE Close on any business day of the fund will be confirmed at the price next
determined. It is the responsibility of the dealer to ensure that all orders are
transmitted on a timely basis. Any resulting loss from the dealer's failure to
submit a request for redemption within the prescribed time frame will be borne
by that dealer. Telephone redemption requests must be made by NYSE Close on any
business day of an AIM Fund and will be confirmed at the price determined as of
the close of that day. No AIM Fund will accept requests which specify a
particular date for redemption or which specify any special conditions.

Payment of the proceeds of redeemed shares is normally mailed within seven
days following the redemption date. However, in the event of a redemption of
shares purchased by check, the investor may be required to wait up to ten
business days before the redemption proceeds are sent. See "Terms and Conditions
of Purchase of AIM Funds -- Timing of Purchase Orders." A charge for special
handling (such as wiring of funds or expedited delivery services) may be made by
the Transfer Agent. The right of redemption may not be suspended or the date of
payment upon redemption postponed except under unusual circumstances such as
when trading on the NYSE is restricted or suspended. Payment of the proceeds of
redemptions relating to shares for which checks sent in payment have not yet
cleared will be delayed until it is determined that the check has cleared, which
may take up to ten business days from the date that the check is received.

SIGNATURE GUARANTEES. A signature guarantee is designed to protect the
investor, the AIM Funds, AIM Distributors, and their agents by verifying the
signature of each investor seeking to redeem, transfer, or exchange shares of an
AIM Fund. Examples of when signature guarantees are required are: (1)
redemptions by mail in excess of $50,000; (2) redemptions by mail if the
proceeds are to be paid to someone other than the name(s) in which the account
is registered; (3) written redemptions requesting proceeds to be sent by wire to
other than the bank of record for the account; (4) redemptions requesting
proceeds to be sent to a new address or an address that has been changed within
the past 30 days; (5) requests to transfer the registration of shares to another
owner; (6) telephone exchange and telephone redemption authorization forms; (7)
changes in previously designated wiring instructions; and (8) 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. These requirements may be waived or modified upon notice to
shareholders.

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 United States
Securities and Exchange Commission (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.

REINSTATEMENT PRIVILEGE. Within 90 days of a redemption, a shareholder may
invest all or part of the redemption proceeds in shares of the AIM Fund from
which the redemption was made, at the net asset value next computed after
receipt by the Transfer Agent of the funds to be reinvested. The shareholder
must ask the Transfer Agent for such privilege at the time of reinvestment. A
realized gain on the redemption is taxable, and reinvestment will not alter any
capital gains payable. If there has been a loss on the redemption, all of the
loss may not be tax deductible, depending on the timing and amount reinvested.
Under the Code, if the redemption proceeds of fund shares on which a sales
charge was paid are reinvested in (or exchanged for) shares of the same fund
within 90 days of the payment of the sales charge, the shareholder's basis in
the fund shares redeemed may not include the amount of the sales charge paid,
thereby reducing the loss or increasing the gain recognized from the redemption.
Each AIM Fund may amend, suspend or

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<PAGE> 31

cease offering this privilege at any time as to shares redeemed after the date
of such amendment, suspension or cessation. This privilege may only be exercised
once each year by a shareholder with respect to each AIM Fund.

Shareholders who are assessed a contingent deferred sales charge in connection
with the redemption of shares of any AIM Fund, and who subsequently reinvest a
portion or all of the value of the redeemed shares in shares of the same AIM
Fund within 90 days after such redemption may do so at net asset value if such
privilege is claimed at the time of reinvestment. Such reinvested proceeds will
not be subject to either a front-end sales charge at the time of reinvestment or
an additional contingent deferred sales charge upon subsequent redemption. In
order to exercise this reinvestment privilege, the shareholder must notify the
Transfer Agent of his or her intent to do so at the time of reinvestment.

- --------------------------------------------------------------------------------

DETERMINATION OF NET ASSET VALUE

The net asset value per share (or share price) of each AIM Fund other than AIM
MONEY MARKET FUND will be determined as of NYSE Close, on each business day of a
fund. The net asset value (or share price) of AIM MONEY MARKET FUND will be
determined as of 12:00 noon and NYSE Close 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 an AIM Fund's share will be 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
15 minutes after the close of trading of the NYSE will generally be used. The
net asset value per share is calculated by subtracting a class' liabilities from
its assets and dividing the result by the total number of class shares
outstanding. The determination of net asset value per share is made in
accordance with generally accepted accounting principles. Among other items,
liabilities include accrued expenses and dividends payable, and total assets
include portfolio securities valued at their market value, as well as income
accrued but not yet received. 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 fund's officers and in accordance with methods
which are specifically authorized by its governing Board of Directors or
Trustees. Short-term obligations with maturities of 60 days or less, and the
securities held by the Money Market Funds, are valued at amortized cost as
reflecting fair value. AIM MUNICIPAL BOND FUND, AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT and AIM TAX-FREE INTERMEDIATE SHARES 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.

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 NYSE. The values of such securities used
in computing the net asset value of an AIM 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 the
values of the securities are determined and the close of the NYSE which will not
be reflected in the computation of an AIM 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 Directors or Trustees of the
applicable AIM Fund.

- --------------------------------------------------------------------------------

DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS

DIVIDENDS AND DISTRIBUTIONS

Each AIM Fund's policy regarding the payment of dividends and distributions is
set forth below.

<TABLE>
<CAPTION>
DISTRIBUTIONS DISTRIBUTIONS
OF NET OF NET
DIVIDENDS FROM REALIZED REALIZED
NET INVESTMENT SHORT-TERM LONG-TERM
FUND INCOME CAPITAL GAINS CAPITAL GAINS
- ---- -------------- --------------- ---------------
<S> <C> <C> <C>
AIM AGGRESSIVE GROWTH FUND............ declared and paid annually annually annually
AIM BALANCED FUND..................... declared and paid quarterly annually annually
AIM BLUE CHIP FUND.................... declared and paid annually annually annually
AIM CAPITAL DEVELOPMENT FUND.......... declared and paid annually annually annually
AIM CHARTER FUND...................... declared and paid quarterly annually annually
AIM CONSTELLATION FUND................ declared and paid annually annually annually
AIM GLOBAL AGGRESSIVE GROWTH FUND..... declared and paid annually annually annually
AIM GLOBAL GROWTH FUND................ declared and paid annually annually annually
AIM GLOBAL INCOME FUND................ declared daily; paid monthly annually annually
AIM GLOBAL UTILITIES FUND............. declared daily; paid monthly annually annually
AIM GROWTH FUND....................... declared and paid annually annually annually
AIM HIGH YIELD FUND................... declared daily; paid monthly annually annually
</TABLE>

RET 7/96

A-13
<PAGE> 32

<TABLE>
<CAPTION>
DISTRIBUTIONS DISTRIBUTIONS
OF NET OF NET
DIVIDENDS FROM REALIZED REALIZED
NET INVESTMENT SHORT-TERM LONG-TERM
FUND INCOME CAPITAL GAINS CAPITAL GAINS
- ---- -------------- --------------- -------------
<S> <C> <C> <C>
AIM INCOME FUND.......................... declared daily; paid monthly annually annually
AIM INTERMEDIATE GOVERNMENT FUND......... declared daily; paid monthly annually annually
AIM INTERNATIONAL EQUITY FUND............ declared and paid annually annually annually
AIM LIMITED MATURITY TREASURYSHARES...... declared daily; paid monthly quarterly annually
AIM MONEY MARKET FUND.................... declared daily; paid monthly at least annually annually
AIM MUNICIPAL BOND FUND.................. declared daily; paid monthly annually annually
AIM TAX-EXEMPT BOND FUND OF CONNECTICUT.. declared daily; paid monthly annually annually
AIM TAX-EXEMPT CASH FUND................. declared daily; paid monthly at least annually annually
AIM TAX-FREE INTERMEDIATE SHARES......... declared daily; paid monthly annually annually
AIM VALUE FUND........................... declared and paid annually annually annually
AIM WEINGARTEN FUND...................... declared and paid annually annually annually
</TABLE>

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.

All dividends and distributions of an AIM Fund are automatically reinvested on
the payment date in full and fractional shares of such fund, unless the
shareholder has made an alternate election as to the method of payment. 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. Shareholders may elect, by written notice to the Transfer
Agent, to receive such distributions, or the dividend portion thereof, in cash,
or to invest such dividends and distributions in shares of another fund in the
AIM Funds. Investors who have not previously selected such a reinvestment option
on the account application form may contact the Transfer Agent at any time to
obtain a form to authorize such reinvestments in another AIM Fund. Such
reinvestments into the AIM Funds are not subject to sales charges, and shares so
purchased are automatically credited to the account of the shareholder.

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, as
discussed below.

TAX MATTERS

Each AIM Fund has qualified or intends to qualify for treatment as a regulated
investment company under Subchapter M of the Code. As long as a fund qualifies
for this tax treatment, it is not subject to federal income taxes on net
investment income and capital gains that are distributed to shareholders. Each
fund, for purposes of determining taxable income, distribution requirements and
other requirements of Subchapter M, is treated as a separate corporation.
Therefore, no fund may offset its gains against another fund's losses and each
fund must individually comply with all of the provisions of the Code which are
applicable to its operations.

TAX TREATMENT OF DISTRIBUTIONS -- GENERAL. Because each AIM Fund intends to
distribute substantially all of its net investment income and net realized
capital gains to its shareholders, it is not expected that any such fund will be
required to pay any federal income tax. Each AIM Fund also intends to meet the
distribution requirements of the Code to avoid the imposition of a
non-deductible 4% excise tax calculated as a percentage of certain undistributed
amounts of taxable ordinary income and capital gain net income. Nevertheless,
shareholders normally are subject to federal income taxes, and any applicable
state and local income taxes, on the dividends and distributions received by
them from a fund whether in the form of cash or additional shares of a fund,
except for tax-exempt dividends paid by AIM MUNICIPAL BOND FUND, AIM TAX-EXEMPT
BOND FUND OF CONNECTICUT, AIM TAX-EXEMPT CASH FUND and AIM TAX-FREE INTERMEDIATE
FUND SHARES (the "Tax-Exempt Funds") which are exempt from federal tax.
Dividends paid by a fund (other than capital gain distributions) may qualify for
the federal 70% dividends received deduction for corporate shareholders to the
extent of the qualifying dividends received by the fund on domestic common or
preferred stock. It is not likely that dividends received from AIM GLOBAL
AGGRESSIVE GROWTH FUND, AIM GLOBAL GROWTH FUND, AIM GLOBAL INCOME FUND, AIM HIGH
YIELD FUND, AIM INCOME FUND, AIM INTERMEDIATE GOVERNMENT FUND, AIM INTERNATIONAL
EQUITY FUND, AIM LIMITED MATURITY TREASURY SHARES, AIM MONEY MARKET FUND, AIM
MUNICIPAL BOND FUND, AIM TAX-EXEMPT BOND FUND OF CONNECTICUT, AIM TAX-EXEMPT
CASH FUND or AIM TAX-FREE INTERMEDIATE SHARES will qualify for this dividends
received deduction. Shortly after

RET 7/96

A-14
<PAGE> 33

the end of each year, shareholders will receive information regarding the amount
and federal income tax treatment of all distributions paid during the year.

Certain states exempt from state income taxes dividends paid by mutual funds
out of interest on U.S. Treasury and certain other U.S. Government obligations,
and investors should consult with their own tax advisors concerning the
availability of such exemption.

For each redemption of a fund's shares by a non-exempt shareholder, the fund
or the securities dealer effecting the transaction is required to file an
information return with the IRS.

TO AVOID BEING SUBJECT TO FEDERAL INCOME TAX WITHHOLDING AT THE RATE OF 31% ON
DIVIDENDS, DISTRIBUTIONS AND REDEMPTION PAYMENTS, SHAREHOLDERS OF A FUND MUST
FURNISH THE FUND WITH THEIR TAXPAYER IDENTIFICATION NUMBER AND CERTIFY UNDER
PENALTIES OF PERJURY THAT THE NUMBER PROVIDED IS CORRECT AND THAT THEY ARE NOT
SUBJECT TO BACKUP WITHHOLDING FOR ANY REASON.

Under existing provisions of the Code, nonresident alien individuals, foreign
partnerships and foreign corporations may be subject to federal income tax
withholding at a 30% rate on ordinary income dividends and distributions (other
than exempt-interest dividends and long-term capital gain dividends) 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.

DISTRIBUTIONS MAY BE SUBJECT TO TREATMENT UNDER FOREIGN, STATE OR LOCAL TAX
LAWS THAT DIFFERS FROM THE FEDERAL INCOME TAX CONSEQUENCES DISCUSSED HEREIN.
ADDITIONAL INFORMATION ABOUT TAXES IS SET FORTH IN THE STATEMENT OF ADDITIONAL
INFORMATION.

TAX-EXEMPT FUNDS -- SPECIAL TAX INFORMATION. Shareholders will not be required
to include the "exempt-interest" portion of dividends paid by the Tax-Exempt
Funds in their gross income for federal income tax purposes. However,
shareholders will be required to report the receipt of exempt-interest dividends
and other tax-exempt interest on their federal income tax returns. Moreover,
exempt-interest dividends from the Tax-Exempt Funds may be subject to state
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 of the shareholder,
and may have other collateral federal income tax consequences. The Tax-Exempt
Funds may invest in Municipal Securities the interest on which will constitute
an item of tax preference and which therefore could give rise to a federal
alternative minimum tax liability for shareholders, and may invest up to 20% of
their net assets in such securities and other taxable securities. For additional
information concerning the alternative minimum tax and certain collateral tax
consequences of the receipt of exempt-interest dividends, see the Statements of
Additional Information applicable to the Tax-Exempt Funds.

The Tax-Exempt Funds may pay dividends to shareholders which are taxable, but
will endeavor to avoid investments which would result in taxable dividends. The
percentage of dividends which constitute exempt-interest dividends, and the
percentage thereof (if any) which constitute an item of tax preference, will be
determined annually. This percentage may differ from the actual percentages for
any particular day.

To the extent that dividends are derived from taxable investments or net
realized short-term capital gains, they will constitute ordinary income for
federal income tax purposes, whether received in cash or additional shares.
Distributions of net long-term capital gains will be taxable as long-term
capital gains, whether received in cash or additional shares, and regardless of
the length of time a particular shareholder may have held his 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
Tax-Exempt Funds to pay exempt-interest dividends might be adversely affected.

AIM INTERNATIONAL EQUITY FUND, AIM GLOBAL AGGRESSIVE GROWTH FUND, AIM GLOBAL
GROWTH FUND, AIM GLOBAL INCOME FUND AND AIM GLOBAL UTILITIES FUND -- SPECIAL TAX
INFORMATION. For taxable years in which it is eligible to do so, each of these
funds may elect to pass through to shareholders credits for foreign taxes paid.
If the fund makes such an election, a shareholder who receives a distribution
(1) will be required to include in gross income his proportionate share of
foreign taxes allocable to the distribution and (2) may claim a credit or
deduction for such share for his taxable year in which the distribution is
received, subject to the general limitations imposed on the allowance of foreign
tax credits and deductions. Shareholders should also note that certain gains or
losses attributable to fluctuations in exchange rates or foreign currency
forward contracts may increase or decrease the amount of income of the fund
available for distribution to shareholders, and should note that if such losses
exceed other income during a taxable year, the fund would not be able to pay
ordinary income dividends.

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A-15
<PAGE> 34

- --------------------------------------------------------------------------------

GENERAL INFORMATION

CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110, serves as custodian for the
portfolio securities and cash of the AIM Funds other than AIM LIMITED MATURITY
TREASURY SHARES, AIM MUNICIPAL BOND FUND, AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT, AIM TAX-EXEMPT CASH FUND, AND AIM TAX-FREE INTERMEDIATE SHARES, for
which The Bank of New York, 90 Washington Street, 11th Floor, New York, New York
10286, serves as custodian. Texas Commerce Bank National Association, 712 Main
Street, Houston, Texas 77002, serves as Sub-Custodian for retail purchases of
the AIM Funds.

A I M Fund Services, Inc., P.O. Box 4739, Houston, Texas 77210-4739, a
wholly-owned subsidiary of AIM, serves as each AIM Fund's transfer agent and as
dividend payment agent.

LEGAL COUNSEL. The law firm of Ballard Spahr Andrews & Ingersoll,
Philadelphia, Pennsylvania, serves as counsel to the AIM Funds and has passed
upon the legality of the shares offered pursuant to this Prospectus.

SHAREHOLDER INQUIRIES. Shareholder inquiries concerning their accounts should
be directed to an AFS Client Services Representative by calling (800) 959-4246.
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.

OTHER INFORMATION. This Prospectus sets forth basic information that investors
should know about the fund(s) named on the cover page prior to investing.
Recipients of this Prospectus will be provided with a copy of the annual report
of the fund(s) to which this Prospectus relates, upon request and without
charge. A Statement of Additional Information has been filed with the SEC and is
available upon request and without charge, by calling (800) 347-4246. This
Prospectus omits certain information contained in the registration statement
filed with the SEC. Copies of the registration statement, including items
omitted from this Prospectus, may be obtained from the SEC by paying the charges
prescribed under its rules and regulations.

RET 7/96

A-16
<PAGE> 35

APPLICATION INSTRUCTIONS

SOCIAL SECURITY OR TAXPAYER ID NUMBER. Investors should make sure that the
social security number or taxpayer identification number (TIN) which appears in
Section 1 of the Application complies with the following guidelines:

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
GIVE SOCIAL SECURITY GIVE TAXPAYER I.D.
ACCOUNT TYPE NUMBER OF: ACCOUNT TYPE NUMBER OF:
------------ -------------------- ------------ ------------------
<S> <C> <C> <C>
Individual Individual Trust, Estate, Pension Trust, Estate, Pension
Plan Trust Plan Trust and not
personal TIN of fiduciary

Joint Individual First individual listed in the "Account
Registration" portion of the Application

Unif. Gifts to Minors/Unif. Minor Corporation, Partnership, Corporation, Partnership,
Transfers to Minors Other Organization Other Organization

Legal Guardian Ward, Minor or
Incompetent

Sole Proprietor Owner of Business Broker/Nominee Broker/Nominee
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Applications without a certified TIN will not be accepted unless the applicant
is a nonresident alien, foreign corporation or foreign partnership and has
attached a completed IRS Form W-8.

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 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 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 reportable
interest, dividend, broker or barter exchange accounts opened after 1983,
or broker accounts considered inactive during 1983.

Except as explained in (5) above, other reportable payments are subject to
backup withholding only if (1) or (2) above applies.

Certain payees and payments are exempt from backup withholding and information
reporting and such entities should check the box "Exempt from Backup
Withholding" on the Application. A complete listing of such exempt entities
appears in the Instructions for 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
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 Investment
Company Act of 1940
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

RET 7/96

B-1
<PAGE> 36

calendar years beginning with the calendar year in which it is received by the
Fund. Such shareholders may, however, be subject to appropriate withholding as
described in the Prospectus under "Dividends, Distributions and Tax Matters."

SPECIAL INFORMATION REGARDING TELEPHONE EXCHANGE PRIVILEGE. By signing the new
Account Application form, an investor appoints the Transfer Agent as his true
and lawful attorney 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 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 transactions. The Transfer
Agent reserves the right to cease to act as agent subject to this appointment,
and AIM Distributors reserves the right to modify or terminate the telephone
exchange privilege at any time without notice.

SPECIAL INFORMATION REGARDING TELEPHONE REDEMPTION PRIVILEGE. By signing the
new Account Application form, an investor appoints the Transfer Agent as his
true and lawful attorney 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 agent 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
exchanges must be effected in writing by the investor (see the applicable Fund's
prospectus under the caption "Exchange Privilege -- Exchanges by Mail").

RET 7/96

B-2
<PAGE> 37

[AIM LOGO APPEARS HERE] THE AIM FAMILY OF FUNDS - Registered Trademark -

Investment Advisor
A I M Advisors, Inc.
11 Greenway Plaza, Suite 1919
Houston, TX 77046-1173

Transfer Agent
A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739

Custodian

The Bank of New York

90 Washington Street, 11th Floor

New York, NY 10286

Principal Underwriter
A I M Distributors, Inc.

P.O. Box 4739

Houston, TX 77210-4739

Independent Accountants
KPMG Peat Marwick LLP
700 Louisiana
NationsBank Building
Houston, TX 77002

For more complete information about any other Fund in The AIM Family of
Funds - Registered Trademark -, including charges and expenses, please call
(800) 347-4246, or write to A I M Distributors, Inc. and request a free
prospectus. Please read the prospectus carefully before you invest or send
money.

<PAGE> 38
STATEMENT OF
ADDITIONAL INFORMATION

AIM TAX-EXEMPT FUNDS, INC.

AIM TAX-EXEMPT CASH FUND
AIM TAX-FREE INTERMEDIATE SHARES
AIM TAX-EXEMPT BOND FUND OF CONNECTICUT

11 Greenway Plaza
Suite 1919
Houston, Texas 77046
(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, A COPY OF WHICH MAY BE OBTAINED FROM AUTHORIZED DEALERS OR BY
WRITING A I M DISTRIBUTORS, INC., P.O. BOX 4739, HOUSTON, TEXAS
77210-4739, OR BY CALLING (800) 347-4246

----------------------

Statement of Additional Information Dated: August 1, 1996
Relating to the Prospectus Dated: August 1, 1996

<PAGE> 39
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

GENERAL INFORMATION ABOUT THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Company and its Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Yield Calculations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Total Return Calculations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Historical Portfolio Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

INVESTMENT PROGRAM AND RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Investment Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Municipal Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
When-Issued or Delayed Delivery Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Synthetic Municipal Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Variable or Floating Rate Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Investments in Securities Owned by Officers and Directors . . . . . . . . . . . . . . . . . . . . . . . . . 10
Eligible Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Concentration of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Investment in High Risk Securities: AIM Tax-Exempt Bond Fund of Connecticut Only . . . . . . . . . . . . . . 13
Risks Regarding Interest Rate Futures Contracts and Related Options: AIM Tax-Exempt Bond Fund of Connecticut
Only . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

INVESTMENT ADVISORY AND OTHER SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
The Distributor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

MISCELLANEOUS INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Shareholder Inquiries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Audit Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Custodian and Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Control Persons and Principal Holders of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

HOW TO PURCHASE AND REDEEM SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

RATINGS OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FS-1
</TABLE>

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<PAGE> 40
INTRODUCTION

AIM Tax-Exempt Funds, Inc. (formerly named AIM Tax-Free Funds, Inc.)
(the "Company") 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 certain information concerning the
activities of the fund being considered for investment. This information is
included in a Prospectus (the "Prospectus"), dated August 1, 1996 which relates
to the Company's AIM TAX-EXEMPT CASH FUND, AIM TAX-FREE INTERMEDIATE SHARES, a
class of the INTERMEDIATE PORTFOLIO, and AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT (collectively, the "Funds" and each separately a "Fund"). Copies
of the Prospectus and additional copies of this Statement of Additional
Information may be obtained without charge by writing the distributor of the
Funds' shares, A I M Distributors, Inc. ("AIM Distributors"), P.O. Box 4739,
Houston, Texas 77210- 4739, or by calling (800) 347-4246. Investors must
receive a Prospectus before they invest in any Fund.

This Statement of Additional Information is intended to furnish
investors with additional information concerning the Funds. Some of the
information required to be in this Statement of Additional Information is also
included in the Funds' current Prospectus. Additionally, the Prospectus and
this Statement of Additional Information omit certain information contained in
the Company's 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 COMPANY

THE COMPANY AND ITS SHARES

The Company was incorporated under the laws of the State of Maryland
on May 4, 1993, and is registered with the SEC as an open-end series management
investment company.

On October 15, 1993, pursuant to an Agreement and Plan of
Reorganization between the Company and AIM Funds Group, a Massachusetts
business trust ("AFG"), the Company's AIM TAX-EXEMPT CASH FUND and AIM
TAX-EXEMPT BOND FUND OF CONNECTICUT succeeded to the assets and assumed the
liabilities of AFG's AIM Tax-Exempt Cash Fund and AIM Tax-Exempt Bond Fund of
Connecticut (the "AFG Funds"), respectively. Similarly, on October 15, 1993,
pursuant to an Agreement and Plan of Reorganization between the Company and
Tax-Free Investments Co., a Maryland corporation ("TFIC"), the Company's
INTERMEDIATE PORTFOLIO succeeded to the assets and assumed the liabilities of
TFIC's Intermediate Portfolio (together with the AFG Funds, the "Predecessor
Funds"). All historical financial and other information contained in this
Statement of Additional Information for periods prior to October 15, 1993
relating to the Funds is that of the Predecessor Funds. Shares of common stock
of the Company are redeemable at their net asset value at the option of the
shareholder or at the option of the Company in certain circumstances. Shares
of AIM TAX-EXEMPT BOND FUND OF CONNECTICUT and AIM TAX-FREE INTERMEDIATE SHARES
purchased in amounts of $1 million or more may be subject to a contingent
deferred sales charge under certain circumstances. For information concerning
the methods of redemption and the rights of share ownership, investors should
consult the Prospectus under the captions "General Information" and "How to
Redeem Shares."

As used in the Prospectus, the term "majority of the outstanding
shares" of the Company or a Fund means, respectively, the vote of the lesser of
(i) 67% or more of the shares of the Company or the Fund present at a meeting
of shareholders, if the holders of more than 50% of the outstanding shares of
the Company or the Fund are present or represented by proxy or (ii) more than
50% of the outstanding shares of the Company or the Fund.

Each share of a Fund is entitled to one vote, to participate equally
in dividends and distributions declared by the Board of Directors with respect
to the Fund and, upon liquidation of a Fund, to participate proportionately in
the Fund's net assets remaining after satisfaction of the Fund's outstanding
liabilities. Each

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<PAGE> 41
Fund's shares are fully paid, non-assessable and fully transferable when issued
and have no preemptive, conversion or exchange rights. Fractional shares have
proportionately the same rights, including voting rights, as do full shares.

Shareholders of the Funds do not have cumulative voting rights and
therefore the holders of more than 50% of the outstanding shares of all Funds
voting together for election of directors can elect all the members of the
Board of Directors of the Company. In such event, the remaining holders cannot
elect any directors of the Company.

The assets received by the Company for the issue or sale of shares of
each Fund, and all income, earnings, profits, losses and proceeds thereof,
subject only to the rights of creditors, are specifically allocated to the
appropriate Fund. They constitute the underlying assets of each Fund, are
required to be segregated on the Company's books of account, and are to be
charged with the expenses of such Fund. Any general expenses of the Company
not readily identifiable as belonging to a particular Fund are allocated by or
under the direction of the Board of Directors, primarily on the basis of
relative net assets, or other relevant factors.

PERFORMANCE INFORMATION

YIELD CALCULATIONS

INTERMEDIATE PORTFOLIO and AIM TAX-EXEMPT BOND FUND OF CONNECTICUT

Calculations of yield will take into account the total income earned
by the INTERMEDIATE PORTFOLIO and AIM TAX-EXEMPT BOND FUND OF CONNECTICUT,
respectively, including taxable income, if any; however, both Funds intend to
invest their respective assets so that 100% of annual interest income will be
tax-exempt.

Yields for each Fund used in advertising are computed as follows: (a)
divide the Fund's income 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 offering price
of the Fund's shares (including the maximum sales charge) 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 such 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 this yield
calculation.

A Fund's tax equivalent yield is the rate an investor would have to
earn from a fully taxable investment in order to equal the Fund's yield after
taxes. Tax equivalent yields are calculated by dividing the Fund's yield by
one minus a stated tax rate (if only a portion of the Fund's yield was
tax-exempt, only that portion would be adjusted in the calculation).

A Fund also may quote its distribution rate, which expresses the
historical amount of income the Fund paid as dividends to its shareholders as a
percentage of the Fund's offering price. The distribution rates for the
INTERMEDIATE PORTFOLIO and AIM TAX-EXEMPT BOND FUND OF CONNECTICUT for the
thirty days ended March 31, 1996 were 4.95% and 4.86%, respectively.

Income calculated for purposes of calculating a Fund's yield 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 a Fund may differ from the rate of
distributions from the Fund paid over the same period or the rate of income
reported in the Fund's financial statements.

2
<PAGE> 42
AIM TAX-EXEMPT CASH FUND

The standard formula for calculating annualized yield for AIM
TAX-EXEMPT CASH FUND is as follows:

Y = (V -- V ) 365
1 0
-------- x ---
V 7
0

Where Y = annualized yield.
V = the value of a hypothetical pre-existing account
0 in the Fund having a balance of one share at the
beginning of a stated seven-day period.
V = the value of such an account at the end of the
1 stated period.

The standard formula for calculating effective annualized yield for
the Fund is as follows:

365/7
EY = (Y + 1) - 1

Where EY = effective annualized yield.
Y = annualized yield, as determined above.

For purposes of the annualized yield and effective annualized yield,
the net change in the value of the hypothetical AIM TAX-EXEMPT CASH FUND
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 or losses or unrealized appreciation
and depreciation.

Tax-equivalent yield for the Fund will be calculated by dividing that
portion of the yield of the Fund (as determined above) which is tax-exempt by
one minus a stated income tax rate and adding the product to that portion of
the yield that is not tax-exempt.

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 change in the Fund's net asset value per share over the
period. Average annual total returns are calculated by determining the growth
or decline in value of a hypothetical investment in a Fund over a stated period
of time, 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 total 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 total return does not represent the actual
year-to-year performance of a Fund.

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 tables, graphs or similar
illustrations. Total returns may be quoted with or without taking any
applicable maximum sales charge into account. The total returns included for
the Funds do not include applicable maximum sales charges. Excluding a sales
charge from a total return calculation produces a higher total return figure.

3
<PAGE> 43
HISTORICAL PORTFOLIO RESULTS

A Fund's performance 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 Analytical Services, 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 to the
performance of comparative benchmarks such as the Consumer Price Index, the
Standard & Poor's 500 Stock Index, and 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. 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 greater risk of loss of capital.

From time to time, sales literature and/or advertisements for any of
the Funds may disclose (i) the largest holdings in the Fund's portfolio, (ii)
certain selling group members and/or (iii) certain institutional shareholders.

Although performance data may be useful to prospective investors when
comparing a Fund's performance with other mutual funds and other potential
investments, investors should note that the methods of computing performance of
other potential investments are not necessarily comparable to the methods
employed by a Fund.

From time to time, the Funds' 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, asset allocation,
tax-free investing, college planning and inflation.

AIM TAX-EXEMPT CASH FUND

The annualized and effective annualized yields for the seven-day
period ended March 31, 1996 were 2.78% and 2.82%, respectively. Assuming a tax
rate of 39.6%, these yields for the Fund on a tax-equivalent basis were 4.60%
and 4.67%, respectively.

The annual average total returns of the Fund for the one, five and
ten-year periods ended March 31, 1996 were 2.92%, 2.58% and 3.67%,
respectively. The cumulative total returns of the Fund for the one, five and
ten-year periods ended March 31, 1996 were 2.92%, 13.60% and 43.42%,
respectively.

INTERMEDIATE PORTFOLIO - AIM TAX-FREE INTERMEDIATE SHARES

The following chart shows the total returns of the Fund for the one
and five-year periods ended March 31, 1996, and the period from May 11, 1987
(date operations commenced) through March 31, 1996:

<TABLE>
<CAPTION>
Average
Period Annual Return Cumulative Return
------ ------------- -----------------
<S> <C> <C>
One year ended 3/31/96 5.00% 5.00%
Five year ended 3/31/96 6.38% 36.25%
5/11/87 through 3/31/96 6.43% 73.99%
</TABLE>

The Fund's 30-day yield as of March 31, 1996 was 3.71%, with a
corresponding tax-equivalent yield of 6.14%, assuming a tax rate of 39.6%.

4
<PAGE> 44
AIM TAX-EXEMPT BOND FUND OF CONNECTICUT

The following chart shows the total returns of the Fund for the one
and five-year periods ended March 31, 1996 and the period from October 3, 1989
(date operations commenced) through March 31, 1996:

<TABLE>
<CAPTION>
Average
Period Annual Return Cumulative Return
------ ------------- -----------------
<S> <C> <C>
One year ended 3/31/96 1.19% 1.19%
Five year ended 3/31/96 6.46% 36.78%
10/03/89 through 3/31/96 6.71% 52.42%
</TABLE>

The Fund's 30-day yield as of March 31, 1996 was 4.52%, with a
corresponding Connecticut individual's tax-equivalent yield of 7.84%, assuming
a federal tax rate of 39.6%, and a state tax rate of 4.5%.

PORTFOLIO TRANSACTIONS

A I M Advisors, Inc. ("AIM") is responsible for decisions to buy and
sell securities for the Funds, selection of broker-dealers and negotiation of
commission rates. Since purchases and sales of portfolio securities by the
Funds are usually principal transactions, each Fund incurs little or no
brokerage commissions. Portfolio securities are normally purchased directly
from the issuer or from a market maker for the securities. The purchase price
paid to dealers serving as market makers may include a spread between the bid
and asked prices. The Funds also may purchase securities from underwriters at
prices which include a commission paid by the issuer to the underwriter.

AIM's primary consideration in effecting a security transaction is to
obtain the best net price and the most favorable execution of the order. To
the extent that the execution and prices offered by more than one dealer are
comparable, AIM may, in its discretion, effect transactions with dealers that
furnish statistical, research or other information or services which AIM deems
to be beneficial to the Funds' investment programs. Such research services
supplement AIM's own research. Research services may include the following:
statistical and background information on U.S. and foreign economies, industry
groups and individual companies; forecasts and interpretations with respect to
U.S. and foreign economies, money markets, fixed income markets, equity
markets, specific industry groups and individual companies; information on
federal, state, local and foreign political developments; portfolio management
strategies; performance information on securities, indices and investment
accounts; information concerning prices of securities; the providing of
equipment used to communicate research information; the arranging of meetings
with management of companies; and the providing of access to consultants who
supply research information. Certain research services furnished by dealers
may be useful to AIM with clients other than the Funds. Similarly, any
research services received by AIM through placement of portfolio transactions
of other clients may be of value to AIM in fulfilling their obligations to a
Fund. AIM is of the opinion that the material received is beneficial in
supplementing AIM's research and analysis; and therefore, it may benefit a Fund
by improving the quality of AIM's investment advice. The advisory fee paid by
a Fund is not reduced because AIM receives such services; however, because AIM
must evaluate information received as a result of such services, receipt of
such services does not reduce AIM's workload.

Under the Investment Company Act of 1940, as amended (the "1940 Act"),
persons affiliated with the Company are prohibited from dealing with the Funds
as principal in any purchase or sale of securities unless an exemptive order
allowing such transactions is obtained from the SEC. The 1940 Act prohibits
the Funds from purchasing a security being publicly underwritten by a syndicate
of which a person affiliated with the Company is a member except in accordance
with certain conditions. These conditions may restrict the ability of a Fund
to purchase municipal securities being publicly underwritten by such syndicate,
and the Fund may be required to wait until the syndicate has been terminated
before buying such securities. At such time, the market price of the
securities may be higher or lower than the original offering price. A person
affiliated with

5
<PAGE> 45
the Company may, from time to time, serve as placement agent or financial
advisor to an issuer of municipal securities and be paid a fee by such issuer.
Each Fund may purchase such municipal securities directly from the issuer,
provided that the purchase is reviewed by the Board of Directors and a
determination is made that the placement fee or other remuneration paid by the
issuer to a person affiliated with the Company is fair and reasonable in
relation to the fees charged by others performing similar services.

From time to time, an identical security may be sold by an investment
company managed by AIM (an "AIM Fund") or another investment account advised by
AIM or A I M Capital Management, Inc. ("AIM Capital") and simultaneously
purchased by another AIM Fund or another investment account advised by AIM or
AIM Capital, when such transactions comply with applicable rules and
regulations and are deemed consistent with the investment objective(s) and
policies of the investment accounts involved. Procedures pursuant to Rule
17a-7 under the 1940 Act regarding transactions between investment accounts
advised by AIM or AIM Capital have been adopted by the Boards of
Directors/Trustees of the various AIM Funds. Although such transactions may
result in custodian, tax or other related expenses, no brokerage commissions or
other direct transaction costs are generated by transactions among the
investment accounts advised by AIM or AIM Capital.

Provisions of the 1940 Act and rules and regulations thereunder have
also been construed to prohibit the Funds from purchasing securities or
instruments from, or selling securities or instruments to, any holder of 5% or
more of the voting securities of any investment company managed or advised by
AIM. The Company has obtained an order of exemption from the SEC which permits
the Funds to engage in certain transactions with such 5% holder if the Funds
comply with conditions and procedures designed to ensure that such transactions
are executed at fair market value and present no conflicts of interest.

Some of the AIM Funds may have objectives similar to those of the
Funds. It is possible that at times identical securities will be appropriate
for investment by a Fund and by one or more of the other AIM Funds. The
position of each account, however, in the securities of the same issue may vary
and the length of time that each account may choose to hold its investment in
the securities of the same issue may likewise 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 consistent with the investment policies of a
Fund and one or more of the other AIM Funds is considered at or about the same
time, transactions in such securities will be allocated among the Fund and the
other AIM Funds in a manner deemed equitable by AIM. AIM may combine such
transactions, in accordance with applicable laws and regulations, in order to
obtain the best net price and most favorable execution. Simultaneous
transactions could, however, adversely affect the ability of a Fund to obtain
or dispose of the full amount of a security which it seeks to purchase or sell.

In some cases the procedure for allocating portfolio transactions
among the Funds and the other AIM Funds could have an adverse effect on the
price or amount of securities available to a Fund. In making such allocations,
the main factors considered by AIM are the respective investment objectives and
policies of the Funds and the other AIM Funds, the relative size of portfolio
holdings by 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.

The Funds paid no brokerage commissions to brokers affiliated with the
Funds during the past three fiscal years of each Fund.

The decrease in the portfolio turnover rate for AIM TAX-FREE
INTERMEDIATE SHARES from 1995 to 1996 was primarily due to the stabilization of
the Fund's cash flows. The increase in the portfolio turnover rate for the
Fund from 1994 to 1995 was in response to shareholder redemptions and market
conditions.

6
<PAGE> 46
INVESTMENT PROGRAM AND RESTRICTIONS

INVESTMENT PROGRAM

Information concerning each Fund's investment objective and operating
policies is set forth in the Prospectus. The principal features of each Fund's
investment program and the primary risks associated with that investment
program are also discussed in the Prospectus. There can be no assurance that a
Fund will achieve its objective. The values of the securities in which a Fund
invests fluctuate based upon interest rates, the financial stability of the
issuer and other market factors. The following is a more detailed description
of the portfolio instruments eligible for purchase by the Funds, which augments
the discussion of the Funds' investment programs which appears under the
caption "Investment Program" in the Prospectus.

Subsequent to its purchase by a Fund, an issue of Municipal Securities
may cease to be rated by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P"), or another nationally recognized
statistical rating organization ("NRSRO"), or the rating of such a security may
be reduced below the minimum rating required for purchase by a Fund. Neither
event would require a Fund to dispose of the security, but AIM will consider
such events to be relevant in determining whether the Fund should continue to
hold the security. To the extent that the ratings applied by Moody's, S&P or
another NRSRO to Municipal Securities may change as a result of changes in
these rating systems, a Fund will attempt to use comparable ratings as
standards for its investments in Municipal Securities in accordance with the
investment policies described herein.

The Funds may from time to time invest in taxable short-term
investments ("Taxable Investments") consisting of obligations of the U.S.
Government, its agencies or instrumentalities, and repurchase
agreements/reverse repurchase agreements (instruments under which the seller
agrees to repurchase the security at a specified time and price) relating
thereto; commercial paper rated within the highest rating category by a
recognized rating agency; and certificates of deposit of domestic banks with
assets of at least $1.5 billion or more as of the date of their most recently
published financial statements. A Fund may invest in Taxable Investments, for
example, due to market conditions or pending the investment of proceeds from
the sale of its shares or proceeds from the sale of portfolio securities or in
anticipation of redemptions. Although interest earned from Taxable Investments
will be taxable to shareholders as ordinary income, the Funds generally intend
to minimize taxable income through investment, when possible, in short-term
tax-exempt securities, which may include shares of other investment companies
whose dividends are tax-exempt.

MUNICIPAL SECURITIES

"Municipal Securities" include debt obligations issued to obtain funds
for various public purposes, including the construction of a wide range of
public facilities such as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works.

Other public purposes for which Municipal Securities may be issued
include the refunding of outstanding obligations, obtaining funds for general
operating expenses and lending 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 housing
facilities, airport, mass transit, industrial, port or parking facilities, air
or water pollution control facilities and certain local facilities for water
supply, gas, electricity or sewage or solid waste disposal. The interest paid
on such bonds may be exempt from federal income tax, although current federal
tax laws place substantial limitations on the purposes and size of such issues.
Such obligations are considered to be Municipal Securities provided that the
interest paid thereon, in the opinion of bond counsel, qualifies as exempt from
federal income tax. However, interest on Municipal Securities may give rise to
a federal alternative minimum tax liability and may have other collateral
federal income tax consequences. See "Dividends, Distributions and Tax Matters
- - Tax Matters."

7
<PAGE> 47
The two major classifications of Municipal Securities are bonds and
notes. Bonds may be further classified as "general obligation" or "revenue"
issues. General obligation bonds are secured by the issuer's pledge of its
full faith, credit and taxing power for the payment of principal and interest.
Revenue bonds are payable from the revenues derived from a particular facility
or class of facilities, and in some cases, from the proceeds of a special
excise or other specific revenue source, but not from the general taxing power.
Tax-exempt industrial development bonds are in most cases revenue bonds and do
not generally carry the pledge of the credit of the issuing municipality.
Notes are short-term instruments which usually mature in less than two years.
Most notes are general obligations of the issuing municipalities or agencies
and are sold in anticipation of a bond sale, collection of taxes or receipt of
other revenues. There are, of course, variations in the risks associated with
Municipal Securities, both within a particular classification and between
classifications. The Funds' assets may consist of any combination of general
obligation bonds, revenue bonds, industrial revenue bonds and notes. The
percentage of such Municipal Securities held by a Fund will vary from time to
time.

For purposes of the diversification requirements applicable to a Fund,
the identification of the issuer of Municipal Securities depends on the terms
and conditions of each individual security. When the assets and revenues of an
agency, authority, instrumentality or other political subdivision are separate
from those of the government creating the subdivision, and the security is
backed only by the assets and revenues of the subdivision, such subdivision will
be deemed to be the sole issuer. Similarly, in the case of an industrial
revenue bond, if that bond is backed only by the assets and revenues of the
non-governmental user, then such non-governmental user will be deemed to be the
sole issuer. If, however, in either case, the creating government or some other
entity guarantees a security, such guarantee would be considered a separate
security and will be treated as an issue of such government or other entity
unless the value of all securities issued or guaranteed by such government or
other entity and owned by a Fund does not exceed 10% of the total assets of such
Fund. Certain Municipal Securities may be secured by a guaranty or irrevocable
letter of credit of a major banking institution, or may be insured by an
insurance company.

The yields on Municipal Securities are dependent on a variety of
factors, including general economic and monetary conditions, money market
factors, conditions of the Municipal Securities market, size of a particular
offering, and maturity and rating of the obligation. The yield realized by a
Fund's shareholders will be the yield realized by the Fund on its investments,
reduced by the general expenses of the Fund and the Company. The market values
of the Municipal Securities held by a Fund will be affected by changes in the
yields available on similar securities. If yields increase following the
purchase of a Municipal Security, the market value of such Municipal Security
will generally decrease. Conversely, if yields decrease, the market value of a
Municipal Security will generally increase.

WHEN-ISSUED OR DELAYED DELIVERY SECURITIES

The Funds may purchase Municipal 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 Funds also may
purchase or sell Municipal Securities on a delayed delivery basis. The payment
obligation and the interest rate that will be received on the when-issued
securities are fixed at the time the buyer enters into the commitment. The
Funds will only make commitments to purchase when-issued or delayed delivery
Municipal Securities with the intention of actually acquiring such securities,
but the Funds may sell these securities before the settlement date if it is
deemed advisable.

If a Fund purchases a when-issued or delayed delivery security, the
Fund will direct its custodian bank to segregate cash or other high grade
securities (including Temporary Investments and Municipal Securities) in an
amount equal to the when-issued or delayed delivery commitment. If Fund assets
are so segregated, the assets will be valued at market for the purpose of
determining the adequacy of the segregated securities. If the market value of
such securities declines, additional cash or securities 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 or delayed delivery commitments. To the
extent assets are segregated, they will not be available for new investment or
to meet redemptions.

8
<PAGE> 48
Securities purchased on a when-issued or delayed delivery basis and
the other securities held by a Fund are subject to changes in market value
based on the public's perception of the creditworthiness of the issuer and
changes in the level of interest rates (which will generally result in all of
those securities changing in value in the same way (e.g., appreciating when
interest rates fall)). Therefore, if in order to achieve higher interest
income a Fund remains substantially fully invested at the same time that it has
purchased securities on a when-issued or delayed delivery basis, there is a
possibility that the Fund will experience greater fluctuation in the market
value of its assets.

Furthermore, when the time comes for a Fund to meet its obligations
under when-issued or delayed delivery commitments, the Fund will do so by use
of its then available cash, by the sale of the segregated securities, by the
sale of other securities or, although it would not normally expect to do so, by
directing the sale of the when-issued or delayed delivery securities themselves
(which may have a market value greater or less than the Fund's payment
obligation thereunder). The sale of securities to meet such obligations
carries with it a greater potential for the realization of net short-term
capital gains, which are not exempt from federal income taxes. The value of
when-issued or delayed delivery securities on the settlement date may be more
or less than the purchase price.

In a delayed delivery transaction, a 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.

As a non-fundamental policy, AIM TAX-EXEMPT CASH FUND will not enter
into when-issued commitments if more than 25% of its net assets would be
subject to commitments for when-issued and delayed delivery securities.

SYNTHETIC MUNICIPAL INSTRUMENTS

AIM TAX-EXEMPT CASH FUND may invest in synthetic municipal instruments
the value of and return on which are derived from underlying securities. The
types of synthetic municipal instruments in which the Fund may invest include
tender option bonds and variable rate trust certificates. Both types of
instruments involve the deposit into a trust or custodial account of one or
more long-term tax-exempt bonds or notes ("Underlying Bonds"), and the sale of
certificates evidencing interests in the trust or custodial account to
investors such as the Fund. The trustee or custodian receives the long-term
fixed rate interest payments on the Underlying Bonds, and pays certificate
holders short-term floating or variable interest rates which are reset
periodically. A "tender option bond" provides a certificate holder with the
conditional right to sell (put) its certificate to the Sponsor or some
designated third party at specified intervals and receive the par value of the
certificate plus accrued interest. A "variable rate trust certificate"
evidences an interest in a trust entitling the certificate holder to receive
variable rate interest based on prevailing short-term interest rates and also
typically providing the certificate holder with the conditional right to put
its certificate at par value plus accrued interest.

Because synthetic municipal instruments involve a trust or custodial
account and a third party conditional put feature, they involve complexities
and potential risks that may not be present where a municipal security is owned
directly. For further information regarding certain risks associated with
investing in synthetic municipal instruments see the Prospectus under the
caption "Investment Program--AIM Tax-Exempt Cash Fund--Synthetic Municipal
Instruments."

VARIABLE OR FLOATING RATE INSTRUMENTS

The Funds may invest in Municipal Securities which have variable or
floating interest rates which are readjusted periodically. Variable or
floating interest rates generally reduce changes in the market price of
Municipal Securities from their original purchase price. Accordingly, as
interest rates decrease or increase, the potential for capital appreciation or
depreciation is less for variable or floating rate Municipal Securities than
for fixed rate obligations.

9
<PAGE> 49
Many Municipal Securities with variable or floating interest rates
purchased by a Fund are subject to payment of principal and accrued interest
(usually within seven days) on the Fund's demand. The terms of such demand
instruments require payment of principal and accrued interest by the issuer, a
guarantor, and/or a liquidity provider. All variable or floating rate
instruments will meet the applicable quality standards of a Fund. AIM will
monitor the pricing, quality and liquidity of the variable or floating rate
Municipal Securities held by the Funds.

INVESTMENTS IN SECURITIES OWNED BY OFFICERS AND DIRECTORS

No Fund will purchase or retain the securities of any issuer if the
officers and directors of the Company or AIM who beneficially own more than 1/2
of 1% of the securities of such issuer together own more than 5% of the
securities of such issuer. This is a non-fundamental policy of each of the
Funds.

ELIGIBLE SECURITIES

AIM TAX-EXEMPT CASH FUND will limit its investments to those
securities which at the time of purchase are "Eligible Securities" as defined
in Rule 2a-7 under the 1940 Act, as amended from time to time, and which the
Fund's Board of Directors has determined present minimal credit risk.

CONCENTRATION OF INVESTMENTS

As a non-fundamental policy, neither AIM TAX-EXEMPT CASH FUND nor the
INTERMEDIATE PORTFOLIO will purchase any securities which would cause more than
25% of the value of its net assets at the time of such purchase to be invested
in: (i) securities of one or more issuers conducting their principal activities
in the same state, (ii) securities, the interest on which is paid from revenues
of projects with similar characteristics or (iii) industrial development bonds;
provided, that there is no limit with respect to investments in U.S. Treasury
bills, other obligations issued or guaranteed by the U.S. Government and its
agencies or instrumentalities, certificates of deposit and guarantees of
Municipal Securities by banks.

INVESTMENT RESTRICTIONS

In addition to those investment restrictions set forth in the
Prospectus, each Fund is subject to the following restrictions which may not be
changed without the approval 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
percentage limitation applies at the time of investment, without regard to
later increases or decreases in the values of securities or assets.

AIM TAX-EXEMPT CASH FUND may not:

1. Lend any portfolio securities if the value of the
securities loaned by it would exceed an amount equal to one-third of
its total assets.

2. Concentrate 25% or more of its total assets in issuers in
a particular industry. Tax-exempt securities issued by governments or
political subdivisions of governments are not included within this
restriction.

4. Make loans, other than by investing in obligations in
which it may invest consistent with its investment objective and
policies, and other than by engaging in repurchase agreements and
loans of portfolio securities as described above.

10
<PAGE> 50
5. Pledge, mortgage or hypothecate more than 33-1/3% of its
total assets; provided that for purposes of this restriction, reverse
repurchase agreements and loans of portfolio securities are not deemed
to involve the pledge, mortgage or hypothecation of assets.

6. Purchase or sell real estate, but it may invest in
marketable securities secured by real estate or interests therein.

7. Purchase or sell commodities or commodities futures
contracts.

8. Underwrite any issue of securities, except that it may
purchase securities, either directly from an issuer or from an
underwriter for an issuer, and later dispose of such securities in
accordance with its investment program.

9. Invest in shares of any other investment company, other
than in connection with a merger, consolidation, reorganization or
acquisition of assets, except that it may invest in shares of other
investment companies representing compensation otherwise payable to
directors of the Company pursuant to any deferred compensation plan.

The INTERMEDIATE PORTFOLIO may not:

1. Lend money or lend any portfolio securities if the value
of the securities loaned by it would exceed an amount equal to
one-third of its total assets.

6. Purchase or sell real estate, but it may invest in
marketable securities secured by real estate or interests therein.

7. Purchase or sell commodities or commodities futures
contracts.

9. Invest in shares of any other investment company, other
than in connection with a merger, consolidation, reorganization or
acquisition of assets, except that for temporary purposes it may
invest up to 10% of its assets in securities of other investment
companies whose dividends are tax-exempt; provided that it will not
invest more than 5% of its assets in securities of any investment
company or purchase more than 3% of the outstanding voting stock of
any investment company.

11
<PAGE> 51
AIM TAX-EXEMPT BOND FUND OF CONNECTICUT may not:

1. Lend any portfolio securities if the value of the
securities loaned by it would exceed an amount equal to one-third of
its total assets.

3. Make short sales of securities or purchase securities on
margin or invest in puts, calls, straddles, spreads or any combination
thereof, except that it may obtain such short-term credits as are
necessary for the clearance of purchases and sales of securities, and
it may make margin payments in connection with transactions in
financial futures contracts and options thereon and municipal bond
index futures contracts.

5. Pledge, mortgage or hypothecate more than 33-1/3% of its
total assets; provided that for purposes of this restriction, reverse
repurchase agreements and loans of portfolio securities are not deemed
to involve the pledge, mortgage or hypothecation of assets, and
provided further that collateral arrangements with respect to margin
for financial or municipal bond index futures contracts are not deemed
to involve the pledge, mortgage or hypothecation of assets.

6. Purchase or sell real estate, but it may invest in
marketable securities secured by real estate or interests therein.

7. Purchase or sell commodities or commodities futures
contracts.

The following restrictions are non-fundamental and may be changed by
the Company's Board of Directors. Pursuant to such restrictions:

1. None of the Funds may invest in oil, gas or other mineral
leases, rights, royalty contracts or exploration or development
programs.

2. None of the Funds may invest for the purpose of exercising
control.

In order to permit the sale of the Funds' shares in certain states,
the Funds may from time to time make commitments that are more restrictive than
the restrictions described above. For example, as of the date of this
Statement of Additional Information, (1) each of the Funds has undertaken that
it will not invest more than 15% of its average net assets at the time of
purchase in investments which are not readily marketable (Texas); (2) each of
the Funds has undertaken to comply with Texas Rule 123.2(6) and follow SEC
guidelines which provide that loans of portfolio securities will be fully
collateralized (Texas); (3) each of the Funds has undertaken to comply with
Texas Rule 123.2(4) and not issue shares for any consideration other than cash

12
<PAGE> 52

(Texas); (4) AIM TAX-EXEMPT BOND FUND OF CONNECTICUT has undertaken to not
hedge over 5% of the value of its assets without first amending its prospectus
to inform investors of the relevant risks (Maryland); (5) each of the Funds has
undertaken that it will not invest more than 15% of its respective total assets
in securities of issuers which together with any predecessors have a record of
less than three years of continuous operation or securities of issuers which
are restricted as to disposition (Ohio); and (6) each of the INTERMEDIATE
PORTFOLIO and AIM TAX-EXEMPT CASH FUND has undertaken that it will not invest
more than 5% of its total assets in securities of issuers which together with
any predecessors have a record of less than three years of continuous operation
(Arkansas). Should any of the Funds determine that any such commitment is no
longer in the best interests of the Fund and its shareholders, that Fund will
revoke the commitment by terminating sales of its shares in the state(s)
involved.

Any loan of portfolio securities by a Fund (as permitted by the above
restrictions) would involve risks of delay in receiving additional collateral
in the event the value of the collateral decreased below the value of the
securities loaned, or of delay in recovering the securities loaned, or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, loans of securities will only be made to borrowers
determined by AIM to be of good standing and only when, in AIM's judgment, the
income to be earned from such loans justifies the attendant risks.

INVESTMENT IN HIGH RISK SECURITIES: AIM TAX-EXEMPT BOND FUND OF CONNECTICUT
ONLY

As noted in the Prospectus, in pursuit of its investment objective,
AIM TAX-EXEMPT BOND FUND OF CONNECTICUT will maintain less than 35% of its net
assets in debt securities rated below Baa/BBB. Such non-investment grade debt
securities are typically considered high risk securities and are commonly
referred to as "junk bonds." During the latest fiscal year, the Fund did not
invest in any securities which were rated below investment grade, and the Fund
expects to invest less than 5% of its net assets in such securities during the
next fiscal year.

Issuers of non-investment grade debt securities are substantially
leveraged, which may impair their ability to meet their obligations. In some
cases, such securities are subordinated to the prior payment of indebtedness
senior to the securities purchased by the Fund, thus potentially limiting the
Fund's ability to recover full principal or to receive payments when senior
securities are in default. When the secondary market for non-investment grade
debt securities becomes increasingly illiquid, including the absence of readily
available market quotations, the relative lack of reliable, objective data
makes the responsibility of the Board of Directors to value the Fund's
securities more difficult, and judgment plays a greater role in the valuation
of portfolio securities, which may have a negative impact on the ability to
accurately value the Fund's assets. Also, increased illiquidity in the
non-investment grade debt market may affect the Fund's ability to dispose of
portfolio securities at a desirable price.

The credit rating of a security does not necessarily address its
market value risk. Also, ratings may from time to time be changed to reflect
developments in the issuer's financial condition. Non-investment grade debt
securities have speculative characteristics which generally increase in number
and significance with each successive lower rating category. Also, prices of
non-investment grade debt securities have been found to be less sensitive to
interest rate changes and more sensitive to adverse economic changes and
individual corporate developments than more highly rated debt securities.

RISKS REGARDING INTEREST RATE FUTURES CONTRACTS AND RELATED OPTIONS: AIM
TAX-EXEMPT BOND FUND OF CONNECTICUT ONLY

There are several risks related to the use of interest rate futures
contracts and related options as hedging devices. One risk arises because of
the imperfect correlation between movements in the price of futures contracts
and movements in the price of the debt securities which are the subject of the
hedge. Such imperfect correlation is exacerbated in the case of AIM TAX-EXEMPT
BOND FUND OF CONNECTICUT by the fact that futures contracts are not based on a
portfolio of bonds issued by the State of Connecticut and its political
subdivisions. If the price of a futures contract moves less than the price of
the Fund's investments which are

13
<PAGE> 53
the subject of the hedge, the hedge will not be fully effective. If the price
of a futures contract moves more than the price of the Fund's investments, the
Fund will experience either a loss or a gain on the futures contract which will
not be completely offset by movements in the price of the investments which are
the subject of the hedge. The use of options on interest rate futures
contracts also involves the risk that changes in the value of the underlying
futures contract will not be fully reflected in the value of the option.

Successful use of interest rate futures contracts by the Fund is also
subject to AIM's ability to predict correctly movements in the direction of
interest rates. Because of possible price distortions in the futures and
options markets and because of the imperfect correlation between movements in
the prices of futures contracts and the investments being hedged, even a
correct forecast by AIM of general market trends may not result in a completely
successful hedging transaction.

It is possible that where the Fund has sold interest rate futures
contracts to hedge its portfolio against a decline in the market, the market
may advance and the value of debt securities held by the Fund may decline. If
this occurred, the Fund would lose money on the futures contracts and also
experience a decline in the value of its portfolio securities.

Positions in futures contracts or options may be closed out only on an
exchange on which such contracts are traded. Although the Fund intends to
purchase or sell futures contracts or purchase options only on exchanges or
boards of trade where there appears to be an active market, there is no
assurance that a liquid market on an exchange or board of trade will exist for
any particular contract or at any particular time. If there is not a liquid
market at a particular time, it may not be possible to close a futures contract
position or purchase an option at such time. In the event of adverse price
movements under those circumstances, the Fund would continue to be required to
make daily cash payments of maintenance margin on its futures positions. The
extent to which the Fund may engage in futures contracts or related options
will be limited by tax law requirements for qualification as a regulated
investment company and the Fund's intent to continue to qualify as such.

The result of any hedging program cannot be foreseen and may cause the
Fund to incur losses which it would not otherwise sustain.

MANAGEMENT

DIRECTORS AND OFFICERS

The directors and officers of the Company and their principal
occupations during the last five years are set forth below. Unless otherwise
noted, the address of each director and officer is 11 Greenway Plaza, Suite
1919, Houston, Texas 77046.

*CHARLES T. BAUER, Director and Chairman (77)

Director, Chairman and Chief Executive Officer, A I M Management Group
Inc.; and Chairman of the Board of Directors, A I M Advisors, Inc., A I M
Capital Management, Inc., A I M Distributors, Inc., A I M Fund Services, Inc.,
A I M Institutional Fund Services, Inc. and Fund Management Company.

- ----------------------------------

* A director who is an "interested person" of A I M Advisors, Inc. and
the Company as defined in the 1940 Act.

14
<PAGE> 54

BRUCE L. CROCKETT, Director (52)
COMSAT Corporation
6560 Rock Spring Drive
Bethesda, MD 20817

Formerly, Director, President and Chief Executive Officer, COMSAT
Corporation (includes COMSAT World Systems, COMSAT Mobile Communications,
COMSAT Video Enterprises , COMSAT RSI and COMSAT International Ventures).
Previously, President and Chief Operating Officer, COMSAT Corporation;
President, World Systems Division, COMSAT Corporation; and Chairman, Board of
Governors of INTELSAT; (each of the COMSAT companies listed above is an
international communication, information and entertainment-distribution
services company).

OWEN DALY II, Director (71)
Six Blythewood Road
Baltimore, MD 21210

Director, Cortland Trust Inc. (investment company). Formerly,
Director, CF & I Steel Corp., Monumental Life Insurance Company and Monumental
General Insurance Company; and Chairman of the Board of Equitable
Bancorporation.

*CARL FRISCHLING, Director (59)
919 Third Avenue
New York, NY 10022

Partner, Kramer, Levin, Naftalis & Frankel (formerly, Kramer, Levin,
Naftalis, Nessen, Kamin & Frankel) (law firm). Formerly, Partner, Reid &
Priest (law firm); and prior thereto, Partner, Spengler Carlson Gubar Brodsky &
Frischling (law firm).

**ROBERT H. GRAHAM, Director and President (49)

Director, President and Chief Operating Officer, A I M Management
Group Inc.; Director and President, A I M Advisors, Inc.; and Director and
Senior Vice President, A I M Capital Management, Inc., A I M Distributors,
Inc., A I M Fund Services, Inc., A I M Institutional Fund Services, Inc. and
Fund Management Company.

JOHN F. KROEGER, Director (71)
37 Pippins Way
Morristown, NJ 07960

Director, Flag Investors International Fund, Inc., Flag Investors
Emerging Growth Fund, Inc., Flag Investors Telephone Income Fund, Inc., Flag
Investors Equity Partners Fund, Inc., Total Return U.S. Treasury Fund, Inc.,
Flag Investors Intermediate Term Income Fund, Inc., Managed Municipal Fund,
Inc., Flag Investors Value Builder Fund, Inc., Flag Investors Maryland
Intermediate Tax-Free Income Fund, Inc., Flag Investors Real Estate Securities
Fund, Inc., Alex. Brown Cash Reserve Fund, Inc. and North American Government
Bond Fund, Inc. (investment companies). Formerly, Consultant, Wendell &
Stockel Associates, Inc. (consulting firm).

- ----------------------------------

* A director who is an "interested person" of the Company as defined in
the 1940 Act.

** A director who is an "interested person of A I M Advisors, Inc. and
the Company as defined in the 1940 Act.

15
<PAGE> 55

LEWIS F. PENNOCK, Director (53)
6363 Woodway, Suite 825
Houston, TX 77057

Attorney in private practice in Houston, Texas.

IAN W. ROBINSON, Director (73)
183 River Drive
Tequesta, FL 33469

Formerly, Executive Vice President and Chief Financial Officer, Bell
Atlantic Management Service, Inc. (provider of centralized management services
to telephone companies); Executive Vice President, Bell Atlantic Corporation
(parent of seven telephone companies); and Vice President and Chief Financial
Officer, Bell Telephone Company of Pennsylvania and Diamond State Telephone
Company.

LOUIS S. SKLAR, Director (56)
Transco Tower, 50th Floor
2800 Post Oak Blvd.
Houston, TX 77056

Executive Vice President, Development and Operations, Hines Interests
Limited Partnership (real estate development).

***JOHN J. ARTHUR, Senior Vice President and Treasurer (51)

Senior Vice President and Treasurer, A I M Advisors, Inc.; and Vice
President and Treasurer, A I M Management Group Inc., A I M Capital Management,
Inc., A I M Distributors, Inc., A I M Fund Services, Inc., A I M Institutional
Fund Services, Inc. and Fund Management Company.

GARY T. CRUM, Senior Vice President (48)

Director and President, A I M Capital Management, Inc.; Director and
Senior Vice President, A I M Management Group Inc. and A I M Advisors, Inc.;
and Director, A I M Distributors, Inc.

***CAROL F. RELIHAN, Senior Vice President and Secretary (41)

Senior Vice President, General Counsel and Secretary, A I M Advisors,
Inc.; Vice President, General Counsel and Secretary, A I M Management Group
Inc.; Vice President and General Counsel, Fund Management Company; and Vice
President, A I M Capital Management, Inc., A I M Distributors, Inc., A I M
Fund Services, Inc. and A I M Institutional Fund Services, Inc.

DANA R. SUTTON, Vice President and Assistant Treasurer (37)

Vice President and Fund Controller, A I M Advisors, Inc.; and
Assistant Vice President and Assistant Treasurer, Fund Management Company.

STUART W. COCO, Vice President (41)

Senior Vice President, A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.

- ----------------------------------

*** Mr. Arthur and Ms. Relihan are married to each other.

16
<PAGE> 56

MELVILLE B. COX, Vice President (52)

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., A I M Institutional Fund Services, Inc. and Fund Management Company.
Formerly, Vice President, Charles Schwab & Co., Inc.; Assistant Secretary,
Charles Schwab Family of Funds and Schwab Investments; Chief Compliance
Officer, Charles Schwab Investment Management, Inc.; and Vice President,
Integrated Resources Life Insurance Co. and Capitol Life Insurance Co.

KAREN DUNN KELLEY, Vice President (36)

Senior Vice President, A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.

All of the directors of the Company serve as directors or trustees of
some or all of the other AIM Funds. All of the Company's executive officers
hold similar offices with some or all of the other AIM Funds.

The standing committees of the Board of Directors are the Audit
Committee, the Investments Committee, and the Nominating and Compensation
Committee.

The members of the Audit Committee are Messrs. Daly, Kroeger
(Chairman), Pennock and Robinson. The Audit Committee is responsible for
meeting with the Funds' auditors to review audit procedures and results and to
consider any matters arising from an audit to be brought to the attention of
the directors as a whole with respect to the Funds' portfolio accounting or
their internal accounting controls, and for considering such matters as may
from time to time be set forth in a charter adopted by the Board of Directors
and such committee.

The members of the Investments Committee are Messrs. Bauer, Crockett,
Daly (Chairman), Kroeger and Pennock. The Investments Committee is responsible
for reviewing portfolio compliance, brokerage allocation, portfolio investment
pricing issues, interim dividend and distribution issues, and considering such
matters as may from time to time be set forth in a charter adopted by the Board
of Directors and such committee.

The members of the Nominating and Compensation Committee are Messrs.
Crockett, Daly, Kroeger, Pennock (Chairman) and Sklar. The Nominating and
Compensation Committee is responsible for considering and nominating
individuals to stand for election as directors who are not interested persons
as long as any of the Funds maintains a distribution plan pursuant to Rule
12b-1 under the 1940 Act, reviewing from time to time the compensation payable
to the disinterested directors, and considering such matters as may from time
to time be set forth in a charter adopted by the Board of Directors and such
committee.

REMUNERATION OF DIRECTORS

Each director is reimbursed for expenses incurred in connection with
each meeting of the Board of Directors or any committee thereof. Each director
who is not also an officer of the Company is compensated for his or her
services according to a fee schedule which recognizes the fact that such
director also serves as a director or trustee of other AIM Funds. Each such
director 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.

Set forth below is information regarding compensation paid or accrued
for each director of the Company:

17
<PAGE> 57

<TABLE>
<CAPTION>
=======================================================================================================
RETIREMENT
AGGREGATE BENEFITS
COMPENSATION ACCRUED TOTAL
FROM THE BY ALL AIM COMPENSATION
Director COMPANY(1) FUNDS(2) FROM ALL AIM FUNDS(3)
-------- ------- ----- ------------------
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Charles T. Bauer $ 0 $ 0 $ 0
- ------------------------------------------------------------------------------------------------
Bruce L. Crockett 2,744 3,655 57,750
- ------------------------------------------------------------------------------------------------
Owen Daly II 3,104 18,662 58,125
- ------------------------------------------------------------------------------------------------
Carl Frischling 3,054 11,323 57,250 (4)
- ------------------------------------------------------------------------------------------------
Robert H. Graham 0 0 0
- ------------------------------------------------------------------------------------------------
John F. Kroeger 2,976 22,313 58,125
- ------------------------------------------------------------------------------------------------
Lewis F. Pennock 2,681 5,067 58,125
- ------------------------------------------------------------------------------------------------
Ian Robinson 2,735 15,381 56,750
- ------------------------------------------------------------------------------------------------
Louis S. Sklar 3,079 6,632 57,250
=======================================================================================================
</TABLE>

- -------------------------

(1) The total amount of compensation deferred by all Directors of the
Company during the fiscal year ended March 31, 1996, including interest earned
thereon, was $11,305.

(2) During the fiscal year ended March 31, 1996, the total amount of
expenses allocated to the Company in respect of such retirement benefits was
$592. Data reflects compensation for the calendar year ended December 31,
1995.

(3) Messrs. Bauer, Daly, Graham, Kroeger and Pennock each serve as
Director or Trustee of a total of 11 AIM Funds. Messrs. Crockett, Frischling,
Robinson and Sklar each serves as a Director or Trustee of a total of 10 AIM
Funds. Data reflect total compensation for the calendar year ended December
31, 1995.

(4) See also page 19 regarding fees earned by Mr. Frischling's former law firm.

AIM FUNDS RETIREMENT PLAN FOR ELIGIBLE DIRECTORS/TRUSTEES

Under the terms of the AIM Funds Retirement Plan for Eligible
Directors/Trustees (the "Plan"), each director (who is not an employee of any
of the AIM Funds, A I M Management Group Inc. or any of their affiliates) may
be entitled to certain benefits upon retirement from the Board of Directors.
Pursuant to the Plan, the normal retirement date is the date on which the
eligible director 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 director 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 date of retirement equal to 75% of the
retainer paid or accrued by the Applicable AIM Funds for such director during
the twelve-month period immediately preceding the director's retirement
(including amounts deferred under a separate agreement between the Applicable
AIM Funds and the director) for the number of such Director's years of service
(not in excess of 10 years of service) completed with respect to any of the AIM
Funds. Such benefit is payable to each eligible director in quarterly
installments. If an eligible director dies after attaining the normal
retirement date but before receipt of any benefits under the Plan

18
<PAGE> 58

commences, the director's surviving spouse (if any) shall receive a quarterly
survivor's benefit equal to 50% of the amount payable to the deceased director
for no more than ten years beginning the first day of the calendar quarter
following the date of the director's death. Payments under the Plan are not
secured or funded by any AIM Fund.

Set forth below is a table that shows the estimated annual benefits
payable to an eligible director upon retirement assuming various compensation
and years of service classifications. The estimated credited years of service
for Messrs. Crockett, Daly, Frischling, Kroeger, Pennock, Robinson and Sklar
are 9, 9, 19, 18, 14, 9 and 6 years, respectively.

ESTIMATED BENEFITS UPON RETIREMENT
<TABLE>
<CAPTION>

Annual Compensation Paid By All AIM Funds

$55,000 $60,000 $65,000
==================================================================
<S> <C> <C> <C> <C>
10 $41,250 $45,000 $48,750
Number of ---------------------------------------------------------------
Years of 9 $37,125 $40,500 $43,875
Service With ---------------------------------------------------------------
the AIM Funds 8 $33,000 $36,000 $39,000
---------------------------------------------------------------
7 $28,875 $31,500 $34,125
---------------------------------------------------------------
6 $24,750 $27,000 $29,250
---------------------------------------------------------------
5 $20,625 $22,500 $24,750
==================================================================
</TABLE>

DEFERRED COMPENSATION AGREEMENTS

Messrs. Daly, Frischling, Kroeger, Robinson and Sklar (for purposes of
this paragraph only, the "deferring directors") have each executed a Deferred
Compensation Agreement (collectively, the "Agreements"). Pursuant to the
Agreements, the deferring directors may elect to defer receipt of up to 100% of
their compensation payable by the Company, and such amounts are placed into a
deferral account. Currently, the deferring directors may select various AIM
Funds in which all or part of their deferral accounts shall be deemed to be
invested. Distributions from the deferring directors' deferral accounts will
be paid in cash, in generally equal quarterly installments over a period of ten
years beginning on the date the deferring director's retirement benefits
commence under the Plan. The Company's Board of Directors, in its sole
discretion, may accelerate or extend the distribution of such deferral accounts
after the deferring director's termination of service as a director of the
Company. If a deferring director dies prior to the distribution of amounts in
his deferral account, the balance of the deferral account will be distributed
to his designated beneficiary in a single lump sum payment as soon as
practicable after such deferring director's death. The Agreements are not
funded and, with respect to the payments of amounts held in the deferral
accounts, the deferring directors have the status of unsecured creditors of the
Company and of each other AIM Fund from which they are deferring compensation.

Effective September 1994, the firm of Kramer, Levin, Naftalis &
Frankel ("Kramer Levin") (formerly Kramer, Levin, Naftalis, Nessen, Kamin &
Frankel) was appointed counsel to the Board of Directors. During the year
ended March 31, 1996, AIM TAX-EXEMPT CASH FUND paid $2,820 in legal fees to
Kramer Levin. During the year ended March 31, 1996, AIM TAX-EXEMPT BOND FUND
OF CONNECTICUT paid $2,959 in legal fees to Kramer Levin. During the year
ended March 31, 1996, the INTERMEDIATE PORTFOLIO paid $3,086 in legal fees to
Kramer Levin. Mr. Frischling, a director of the Company, is a partner in
Kramer Levin.

19
<PAGE> 59
INVESTMENT ADVISORY AND OTHER SERVICES

AIM is a wholly owned subsidiary of A I M Management Group Inc. ("AIM
Management"), 11 Greenway Plaza, Suite 1919, Houston, Texas 77046. AIM
Management is a holding company that has been engaged in the financial services
business since 1976. Certain of the directors and officers of AIM are also
executive officers of the Company and their affiliations are shown under
"Directors 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 was organized in 1976, and together with its affiliates advises or
manages 43 investment company portfolios. As of July 1, 1996, the total assets
of the investment company portfolios advised or managed by AIM and its
affiliates were approximately $52.8 billion.

AIM and the Company 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) to file reports or
duplicate confirmations regarding such transactions, (c) to 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, and (iii) transactions involving securities being considered for
investment by an AIM Fund, and (d) to abide by certain other provisions under
the Code of Ethics. The Code of Ethics also prohibits investment personnel and
all other AIM employees from purchasing securities in an initial public
offering. Personal trading reports are reviewed periodically by AIM, and the
Board of Directors reviews quarterly and annual reports (including information
on any substantial violations of the Code of Ethics). Violations of the Code
of Ethics may include censure, monetary penalties, suspension or termination of
employment.

The Company, on behalf of each Fund, has entered into a Master
Investment Advisory Agreement (the "Advisory Agreement") and a Master
Administrative Services Agreement (the "Administrative Agreement") with AIM.

The Advisory Agreement provides that each Fund will pay or cause to be
paid all expenses of the 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 director and shareholder meetings; the
cost of preparing and distributing reports and notices to shareholders; the
fees and other expenses incurred by the Company on behalf of each 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 in effect from year to year only if such continuance is
specifically approved at least annually by the Company's Board of Directors and
by the affirmative vote of a majority of the directors who are not parties to
the Advisory Agreement or "interested persons" of any such party (the
"Non-Interested Directors") by votes cast in person at a meeting called for
such purpose. The Advisory Agreement was approved by the Company's Board of
Directors (including the affirmative vote of all the Non-Interested Directors
on July 19, 1993. The Advisory Agreement became effective as of October 18,
1993. Under the Advisory Agreement, AIM is entitled to receive a fee from AIM
TAX-EXEMPT CASH FUND and AIM TAX-EXEMPT BOND FUND OF CONNECTICUT at the annual
rates of 0.35% and 0.50% of those Funds' average daily net assets,
respectively. The Advisory Agreement also provides that AIM is entitled to
receive a fee from the INTERMEDIATE PORTFOLIO at the following annual rates
based on the Fund's average daily net assets:

20
<PAGE> 60
INTERMEDIATE PORTFOLIO

NET ASSETS ANNUAL RATE
---------- -----------
[S] [C]
First $500 million 0.30%
Next $500 million 0.25%
Amount over $1 billion 0.20%

Each Fund 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.

The Advisory Agreement provides that if, for any fiscal year, the
total of all ordinary business expenses of a Fund, including all investment
advisory fees, but excluding brokerage commissions and fees, taxes, interest
and extraordinary expenses, such as litigation costs, exceed the applicable
expense limitations imposed by state securities regulations in any state in
which that Fund's shares are qualified for sale, as such limitations may be
raised or lowered from time to time, the aggregate of all such investment
advisory fees paid by such Fund shall be reduced by the amount of such excess.
The amount of any such reduction to be borne by AIM shall be deducted from the
monthly investment advisory fee otherwise payable to AIM during such fiscal
year. If required pursuant to such state securities regulations, AIM will
reimburse a Fund no later than the last day of the first month of the next
succeeding fiscal year for any such annual operating expenses (after reduction
of all investment advisory fees in excess of such limitation).

For the years ended March 31, 1996 and 1995, and the three-month
period ended March 31, 1994, AIM received advisory fees from AIM TAX-EXEMPT
CASH FUND of $101,649, $119,085 and $17,773, respectively.

For the years ended March 31, 1996, 1995 and 1994, AIM received
advisory fees from the INTERMEDIATE PORTFOLIO of $232,893, $283,990 and
$246,347, respectively. For the years ended March 31, 1996, 1995 and 1994, AIM
waived advisory fees from the INTERMEDIATE PORTFOLIO in the amounts of $0, $0
and $25,418, respectively.

For the years ended March 31, 1996 and 1995, and the three-month
period ended March 31, 1994, AIM received no advisory fees from AIM TAX-EXEMPT
BOND FUND OF CONNECTICUT, and waived fees from the Fund in the amount of
$198,182, $195,413 and $55,417, respectively.

The Administrative Agreement for the Funds provides that AIM may
perform, or arrange for the performance of, certain accounting and other
administrative services to the Funds which are not required to be performed by
AIM under the Advisory Agreement. 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 the Company's Board of Directors. The
Administrative Agreement provides that such agreement will continue in effect
until June 30, 1997, and shall continue in effect from year to year thereafter
only if such continuance is specifically approved at least annually by the
Company's Board of Directors, including the Non-Interested Directors, by votes
cast in person at a meeting called for such purpose. The Administrative
Agreement was approved by the Company's Board of Directors (including the
Non-Interested Directors) on July 19, 1993 and became effective as of October
18, 1993.

In addition, the Transfer Agency and Service Agreement (the "Transfer
Agency and Service Agreement") between the Company and A I M Fund Services,
Inc. ("AFS"), a registered transfer agent and wholly-owned subsidiary of AIM,
will perform certain shareholder services for the Funds for a fee per account
serviced. 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 the Funds, maintain shareholder
accounts and provide shareholders with information regarding the Funds and
their accounts. The Transfer Agency and Service Agreement became effective on
November 1, 1994.

21
<PAGE> 61

For the years ended March 31, 1996 and 1995, and the three-month
period ended March 31, 1994, AIM TAX-EXEMPT CASH FUND reimbursed AIM $34,220,
$43,481 and $11,576, respectively, for administrative services.

For the years ended March 31, 1996, 1995 and 1994, the INTERMEDIATE
PORTFOLIO reimbursed AIM $44,054, $43,890 and $44,521, respectively, for
administrative services.

For the years ended March 31, 1996 and 1995, and the three-month
period ended March 31, 1994, AIM TAX-EXEMPT BOND FUND OF CONNECTICUT
reimbursed AIM for administrative services in the amounts of $45,950, $46,754
and $11,548, respectively, for administrative services.

DISTRIBUTION PLAN

The Company has adopted a Master Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act relating to AIM TAX-EXEMPT CASH FUND
and AIM TAX-EXEMPT BOND FUND OF CONNECTICUT (collectively, the "Covered
Funds"). The Plan provides that each Covered Fund pays a fee to AIM
Distributors for distribution-related services performed by AIM Distributors,
including, but not limited to, expenses of organizing and conducting sales
seminars, printing of prospectuses and statements of additional information
(and supplements thereto) and reports for other than existing shareholders,
preparation and distribution of advertising material and sales literature and
costs of administering the Plan. Under the Plan, AIM Distributors is entitled
to receive a distribution fee, which is accrued daily and paid monthly, of
0.25% on an annualized basis of the average daily net assets of each Covered
Fund. The Plan does not obligate the Covered Funds to reimburse AIM
Distributors for the actual expenses AIM Distributors may incur in fulfilling
its obligations under the Plan on behalf of the Covered Funds. Thus, under the
Plan, even if AIM Distributors' actual expenses exceed the fees payable by the
Covered Funds thereunder at any given time, the Covered Funds will not be
obligated to pay more than those fees. If AIM Distributors' expenses are less
than the fees it receives, AIM Distributors will retain the full amount of the
fees. Currently, AIM Distributors has voluntarily elected to waive a portion
of its compensation payable by AIM TAX-EXEMPT CASH FUND such that the
compensation paid pursuant to the Plan equals 0.10% per annum of that Fund's
average daily net assets. This waiver may be rescinded by AIM Distributors at
any time and without notice to investors.

AIM Distributors is a wholly-owned subsidiary of AIM, which is in turn
a wholly-owned subsidiary of A I M Management Group Inc. ("AIM Management").

The Plan requires the officers of the Company to provide the Board of
Directors at least quarterly with a written report of the amounts expended
pursuant to the Plan and the purposes for which such expenditures were made.
The Board of Directors reviews these reports in connection with their decisions
with respect to the Plan.

As required by Rule 12b-1 under the 1940 Act, the Plan was approved by
the Board of Directors, including a majority of the directors who are not
"interested persons" (as defined in the 1940 Act) of the Company and who have
no direct or indirect financial interest in the operation of the Plan or in any
agreements related to the Plan ("Qualified Directors") on July 19, 1993. In
approving the Plan in accordance with the requirements of Rule 12b-1, the
directors considered various factors and determined that there is a reasonable
likelihood that the Plan would benefit the Covered Funds and their respective
shareholders.

The Plan became effective on August 6, 1993, and unless terminated
earlier in accordance with its terms, shall continue in effect until June 30,
1997, and each year thereafter as long as such continuance is specifically
approved at least annually by the Board of Directors, including a majority of
the Qualified Directors.

The Plan may be terminated by a vote of a majority of the Qualified
Directors, or, with respect to a Covered Fund, by a vote of a majority of the
holders of the outstanding voting securities of that Covered Fund. Any change
in the Plan that would increase materially the distribution expenses paid by a
Covered Fund requires shareholder approval; otherwise the Plan may be amended
by the Board of Directors, including a

22
<PAGE> 62
majority of the Qualified Directors, by votes cast in person at a meeting
called for the purpose of voting upon such amendment. As long as the Plan is in
effect, the selection or nomination of the Qualified Directors is committed to
the discretion of the Qualified Directors.

The Covered Funds had a different plan of distribution pursuant to
Rule 12b-1 under the 1940 Act (the "Former Plan") for the period prior to
October 15, 1993. The Former Plan provided that the Covered Funds would pay
AIM Distributors a fee of up to 0.25% of each Covered Fund's respective average
daily net assets to reimburse AIM Distributors for its expenses incurred in
distributing shares of the Covered Funds.

For the years ended March 31, 1996 and 1995, and the three-month
period ended March 31, 1994, AIM TAX-EXEMPT CASH FUND paid a total of $29,043,
$34,024 and $8,350, respectively, under the Plan and the Former Plan, which
constituted 0.10%, 0.10% and 0.10% (annualized), respectively, of the Fund's
average daily net assets. For the years ended March 31, 1996 and 1995, and the
three-month period ended March 31, 1994, AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT paid a total of $99,095, $97,706 and $27,709, respectively, under
the Plan and the Former Plan, which constituted 0.25%, 0.25% and 0.25%
(annualized), respectively, of the Fund's average daily net assets. The fees
paid by each Covered Fund under the Plan during the year ended March 31, 1996
were spent as follows:

<TABLE>
<CAPTION>
AIM TAX- AIM TAX-EXEMPT
EXEMPT BOND FUND OF
CASH FUND* CONNECTICUT*
--------- -----------
<S> <C> <C>
Advertising $ 1,773 $ 758
Printing and mailing 0 0
Seminars 886 0
Compensation to Underwriters 0 0
Compensations to Dealers 26,384 98,337
Compensation to Sales Personnel 0 0
</TABLE>

* Table contains estimated numbers.

Pursuant to an incentive program, AIM Distributors may enter into
agreements ("Shareholder Service Agreements") with such investment dealers
selected from time to time by AIM Distributors to provide distribution
assistance in connection with the sale of the Covered Funds' shares to such
dealers' customers, and to provide continuing personal shareholder services to
customers who may from time to time directly or beneficially own shares of the
Covered 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 Covered 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 Covered 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 Covered Funds' shares; and
providing such other information and services as the Covered Funds or the
customer may reasonably request.

Under the Plan, in addition to the Shareholder Service Agreements
authorizing payments to selected dealers, banks may enter into Shareholder
Service Agreements authorizing payments under the Plan 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 Covered
Fund and the Company; 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

23
<PAGE> 63
by the bank; forwarding applicable prospectuses, proxy statements, reports and
notices to bank clients who hold Covered Fund shares; and such other
administrative services as a Covered Fund reasonably may request, to the extent
permitted by applicable statute, rule or regulation.

Under a Shareholder Service Agreement, a Covered 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 Covered Funds during such period at the annual rate of
0.25% of the average daily net asset value of each Covered 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 Covered Fund's shares
are held. Due to AIM Distributors' waiver of fees payable by AIM TAX-EXEMPT
CASH FUND under the Plan, fees payable under Shareholder Service Agreements
currently are limited to 0.10% of the average daily net asset value of that
Covered Fund's shares purchased or acquired through exchange.

The Plan is subject to any applicable limitations imposed from time to
time by rules of the National Association of Securities Dealers, Inc.

AIM Distributors does not act as principal, but rather as agent for
the Covered Funds, in making dealer incentive and shareholder servicing
payments under the Plan. These payments are an obligation of the Covered Funds
and not of AIM Distributors.

THE DISTRIBUTOR

Information concerning AIM Distributors and the continuous offering of
the Funds' shares is set forth in the Prospectus under the headings "How to
Purchase Shares" and "Terms and Conditions of Purchase of the AIM Funds." A
Master Distribution Agreement (the "Distribution Agreement") was approved by
the Board of Directors of the Company on July 19, 1993. The Distribution
Agreement provides 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 Agreement (other than those prospectuses 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 the Funds.

AIM Distributors will make payments to dealers and institutions who
are dealers of record for purchases of $1 million or more at net asset value
and subject to a contingent deferred sales charge for all AIM Funds other than
AIM LIMITED MATURITY TREASURY SHARES and AIM TAX-FREE INTERMEDIATE SHARES 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 will make payments to dealers and institutions who are dealers
of record for purchases of $1 million or more at net asset value and subject to
a contingent deferred sales charge for AIM LIMITED MATURITY TREASURY SHARES
and AIM TAX-FREE INTERMEDIATE SHARES in the amount of 0.10% and 0.25%,
respectively, of such purchases.

Each Fund or AIM Distributors may terminate the Distribution Agreement
on sixty (60) days' written notice without penalty. The Distribution Agreement
will terminate automatically in the event of its assignment.

For the years ended March 31, 1996, 1995 and 1994, the total sales
charges paid in connection with the sale of shares of AIM TAX-FREE INTERMEDIATE
SHARES were $69,848, $71,141 and $382,263, respectively, of which AIM
Distributors retained $18,234, $18,075 and $76,101, respectively.

24
<PAGE> 64
For the years ended March 31, 1996 and 1995, and the three-month
period ended March 31, 1994, the total sales charges paid in connection with
the sale of shares of AIM TAX-EXEMPT BOND FUND OF CONNECTICUT were $183,364,
$132,560 and $39,971, respectively, of which AIM Distributors retained $33,891,
$21,690 and $8,070, respectively.

MISCELLANEOUS INFORMATION

SHAREHOLDER INQUIRIES

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 Directors will issue to shareholders at least semi-annually
the Funds' financial statements. Financial statements, audited by independent
auditors, will be issued annually. The firm of Price Waterhouse LLP served as
the auditors to AIM TAX-EXEMPT CASH FUND and AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT for the year ended December 31, 1992. The firm of KPMG Peat Marwick
LLP, 700 Louisiana, NationsBank Building, Houston, Texas 77002, currently serves
as the auditors of the Funds.

LEGAL MATTERS

Legal matters for the Company have been passed upon by Ballard Spahr
Andrews & Ingersoll, Philadelphia, Pennsylvania.

CUSTODIAN AND TRANSFER AGENT

The Bank of New York (the "Custodian"), 90 Washington Street, 11th
Floor, New York, New York 10286 is custodian of all securities and cash of the
Funds. Under its contract with the Company, the Custodian maintains the
portfolio securities of the Funds, administers the purchases and sales of
portfolio securities, collects interest and dividends and other distributions
made on the securities held in the portfolios of the Funds and performs other
ministerial duties. A I M Fund Services, Inc., a wholly-owned subsidiary of
AIM (the "Transfer Agent"), P.O. Box 4739, Houston, Texas 77210-4739, acts as
transfer and dividend disbursing agent for the Funds. These services do not
include any supervisory function over management or provide any protection
against any possible depreciation of assets. The Funds pay the Custodian and
the Transfer Agent such compensation as may be agreed upon from time to time.

Texas Commerce Bank National Association, 712 Main, Houston, Texas
77002, serves as Sub-Custodian for retail purchases of the AIM Funds.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

As of July 1, 1996, the directors and officers of the Company as a
group owned less than 1% of the outstanding shares of AIM TAX-EXEMPT BOND FUND
OF CONNECTICUT. Also as of July 1, 1996, the directors and officers of the
Company as a group owned 3.9% of the outstanding shares of AIM TAX-EXEMPT CASH
FUND. Also as of July 1, 1996, the directors and officers of the Company as a
group owned 2.7% of the outstanding shares of the INTERMEDIATE PORTFOLIO.

25
<PAGE> 65

To the best knowledge of the Company, the names and addresses of the
holders of 5% or more of the outstanding shares of each Fund as of July 1,
1996, and the amount of outstanding shares held of record or beneficially by
such holders are set forth below:

<TABLE>
<CAPTION>
Percent Owned
Name and Address of Number of Shares Owned of Record
Fund Record or Beneficial Owner of Record or Beneficially or Beneficially
- ---- -------------------------- ------------------------- ------------------
<S> <C> <C> <C>
Intermediate Portfolio Merrill Lynch, Pierce, 712,444.757* 8.92%*
Fenner & Smith
Mutual Fund Operations
P. O. Box 45286
Jacksonville, FL 32232
</TABLE>

* The Company has no knowledge as to whether all or any of the shares owned of
record only are also owned beneficially.

HOW TO PURCHASE AND REDEEM SHARES

A complete description of the manner by which the shares of the Funds
may be purchased appears in the Prospectus under the headings "How to Purchase
Shares," "Terms and Conditions of Purchase of the AIM Funds" and "Special
Plans."

The sales charge normally deducted on purchases of shares of AIM
TAX-FREE INTERMEDIATE SHARES and AIM TAX- EXEMPT BOND FUND OF CONNECTICUT is
used to compensate AIM Distributors and participating dealers for their
expenses incurred in connection with the distribution of such Funds' 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
(e.g., due to the size of the transaction and shareholder records required),
AIM Distributors believes that it is appropriate and in a Fund's best interest
that such persons, and certain other persons whose purchases result in
relatively low expenses of distribution, be permitted to purchase shares of AIM
TAX-FREE INTERMEDIATE SHARES and AIM TAX-EXEMPT BOND FUND OF CONNECTICUT
through AIM Distributors without payment of a sales charge. The persons who
may purchase shares of those Funds without a sales charge are set forth in the
Prospectus.

Complete information concerning the method of exchanging shares of the
Funds for shares of the other AIM Funds is set forth in the Prospectus under
the heading "Exchange Privilege."

Information concerning redemption of the Funds' shares is set forth in
the Prospectus under the heading "How to Redeem Shares." In addition to the
Funds' obligation 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 (Telephone: (800) 959-4246) 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 the
repurchase order is received. Such arrangement is subject to timely receipt by
the Transfer Agent 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 a Fund or by
AIM Distributors 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

26
<PAGE> 66

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 a Fund not reasonably practicable.

A Fund's net asset value is calculated by dividing the number of
outstanding shares into the net assets of the Fund. Net assets are the excess
of a Fund's assets over its liabilities.

For AIM TAX-EXEMPT CASH FUND: The Fund may use the amortized cost
method to determine its net asset value so long as the Fund does not (a)
purchase any instrument with a remaining maturity greater than 397 days (for
these purposes, repurchase agreements shall not be deemed to involve the
purchase by the Fund of the securities pledged as collateral in connection with
such agreements) or (b) maintain a dollar-weighted average portfolio maturity
in excess of 90 days, and otherwise complies with the terms of rules adopted by
the SEC.

Under the amortized cost method, each investment is valued at its cost
and thereafter any discount or premium is amortized on a constant basis to
maturity. While this method provides certainty of valuation, it may result in
periods in which the amortized cost value of the Fund's investments is higher
or lower than the price that would be received if the investments were sold.
During periods of declining interest rates, use by the Fund of the amortized
cost method of valuing its portfolio may result in a lower value than the
market value of the portfolio, which could be an advantage to new investors
relative to existing shareholders. The converse would apply in a period of
rising interest rates.

The Board of Directors has established procedures designed to
stabilize at $1.00, to the extent reasonably possible, the Fund's net asset
value per share. Such procedures include review of portfolio holdings by the
directors 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 directors determine that a deviation having such a result exists,
they intend to take such corrective action as they deem necessary and
appropriate, including the sale of portfolio securities prior to maturity in
order to realize capital gains or losses or to shorten average portfolio
maturity; withholding dividends; 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 more or less than $1.00 per share.

For the INTERMEDIATE PORTFOLIO and AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT: Securities held by the INTERMEDIATE PORTFOLIO and AIM TAX-EXEMPT
BOND FUND OF CONNECTICUT are valued using market quotations or at fair value
determined by a pricing service approved by the Board of Directors. Debt
securities with remaining maturities of sixty (60) days or less are valued on
the basis of amortized cost. All variable rate securities held by such Funds,
with an unconditional demand or put feature exercisable within seven (7) days
or less are valued at par, which reflects the market value of such securities.
Securities and assets for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the direction of
the Board of Directors.

The following formula may be used to determine the public offering
price per share of an investment in the INTERMEDIATE PORTFOLIO or AIM
TAX-EXEMPT BOND FUND OF CONNECTICUT:

Net Asset Value / (1 - Sales Charge as % of Offering Price) = Offering Price.

DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS

DIVIDENDS AND DISTRIBUTIONS

Net investment income for each Fund is declared as a dividend to the
shareholders of record of such Fund on each business day of the Fund.
Dividends will be paid monthly. Net realized capital gains, if any, are
normally distributed annually, although AIM TAX-EXEMPT CASH FUND may distribute
short-term capital gains

27
<PAGE> 67
more frequently. Dividends and distributions are reinvested in
additional full and fractional shares of the Fund at the net asset value
thereof, unless the shareholder has elected to have dividends and distributions
paid in cash. Dividends and distributions may also be reinvested in shares of
another AIM Fund. See the caption "Dividends, Distributions and Tax Matters" in
the Prospectus.

Dividends with respect to the shares of the INTERMEDIATE PORTFOLIO and
AIM TAX-EXEMPT BOND FUND OF CONNECTICUT begin accruing on the day on which
payment is received for the purchase of shares, and accrue through the day
preceding the date of payment of redemption proceeds. Dividends with respect
to the shares of AIM TAX-EXEMPT CASH FUND begin accruing on the day after which
payment is received, and accrue through the date of payment of redemption
proceeds.

TAX MATTERS

The following is only a summary of certain additional tax
considerations generally affecting the Funds and their shareholders that are
not described in the Funds' Prospectus. No attempt is made to present a
detailed explanation of the tax treatment of the Funds or their shareholders,
and the discussion here and in the Funds' Prospectus 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., taxable interest, dividends and other taxable ordinary
income, net of expenses) and capital gain net income (i.e., the excess of
capital gains over capital losses) that it distributes to shareholders,
provided that it distributes an amount at least equal to the sum of (a) 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) and (b)
90% of its tax-exempt income (net of allocable expenses and amortized bond
premium) for the taxable year (the "Distribution Requirement"), and satisfies
certain other requirements of the Code that are described below. Distributions
by each Fund made during the taxable year or, under specified circumstances,
within twelve 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, a regulated
investment company must (1) 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 directly related to the regulated
investment company'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
securities or currencies (the "Income Requirement"); and (2) derive less than
30% of its gross income from the sale or other disposition of securities or
foreign currencies that are not directly related to its principal business of
investing in securities (or options, futures or forward contracts thereon) held
for less than three months (the "Short-Short Gain Test"). Because of the
Short-Short Gain Test, a Fund may have to limit the sale of appreciated
securities that it has held for less than three months. However, the
Short-Short Gain Test will not prevent a Fund from disposing of investments at
a loss, since the recognition of a loss before the expiration of the
three-month holding period is disregarded. Interest (including original issue
discount) received by a Fund at maturity or upon the disposition of a security
held for less than three months will not be treated as gross income derived
from the sale or other disposition of such security within the meaning of the
Short-Short Gain Test. However, income that is attributable to realized market
appreciation will be treated as gross income from the sale or other disposition
of securities for this purpose.

At 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%

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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 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 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 a regulated investment company that fails to
distribute in each calendar year an amount equal to 98% of its ordinary taxable
income for the calendar year plus 98% of its capital gain net income (excess of
capital gains over capital losses) for the one-year period ended on October 31
of such calendar year. The balance of such income must be distributed during
the next calendar year. Undistributed tax-exempt interest on Municipal
Securities (as defined under "Investment Program and Restrictions -- Municipal
Securities") is not subject to the excise tax. 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.

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 if it intends to make sufficient
distributions to avoid excise tax liability.

Tax Treatment of Interest Rate Futures Contracts and Related Options.
Section 1092 of the Code affects the taxation of certain transactions involving
futures or options contracts. If a futures or options contract is part of a
"straddle" (which could include another futures contract or underlying stock or
securities), as defined in Section 1092 of the Code, then, generally, losses
are deferred first to the extent that the modified "wash sale" rules of the
Section 1092 regulations apply, and second to the extent of unrecognized gains
on offsetting positions. Further, a Fund may be required to capitalize, rather
than deduct currently, any interest expense on indebtedness incurred or
continued to purchase or carry any positions that are part of a straddle.
Sections 1092 of the Code and the Treasury Regulations thereunder also suspend
the holding periods for straddle positions with possible adverse effects
regarding long-term capital gain treatment.

Section 1256 of the Code generally requires that futures contracts and
options on futures contracts be "marked-to-market" at the end of each year for
federal income tax purposes. Code Section 1256 further characterizes 60% of
any capital gain or loss with respect to such futures and options contracts as
long-term capital gain or loss and 40% as short-term capital gain or loss. If
such a future or option is held as an offsetting position and can be considered
a straddle under Section 1092 of the Code, such a straddle will constitute a
mixed straddle. A mixed straddle will be subject to both Section 1256 and
Section 1092 unless certain elections are made by a Fund.

Fund Distributions. Each Fund intends to qualify to pay
exempt-interest dividends by satisfying the requirement that at the close of
each quarter of a Fund's taxable year at least 50% of the Fund's total assets
consist of tax-exempt Municipal Securities. Distributions from a Fund will
constitute exempt-interest dividends to the extent of the Fund's tax-exempt
interest income (net of allocable expenses and amortized bond premium).
Exempt-interest dividends distributed to shareholders of a Fund are excluded
from gross income for federal income tax purposes. However, shareholders who
file federal income tax returns will be required to report the receipt of
exempt-interest dividends on such returns. Moreover, while exempt-interest
dividends are excluded from gross income for federal income tax purposes, they
may be subject to alternative minimum tax ("AMT") in certain circumstances and
may have other collateral tax consequences as discussed below. Distributions
by a Fund of any investment company taxable income or of any net capital gain
will be taxable to shareholders as discussed below.

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<PAGE> 69
AMT is imposed in addition to, but only to the extent it exceeds, the
regular tax and is computed at a maximum rate of 28% for non-corporate
taxpayers and 20% for corporate taxpayers on the excess of the taxpayer's
alternative minimum taxable income ("AMTI") over an exemption amount. In
addition, under the Superfund Amendments and Reauthorization Act of 1986, a tax
is imposed for taxable years beginning after 1986 and before 1996 at the rate
of 0.12% on the excess of a corporate taxpayer's AMTI (determined without
regard to the deduction for this tax and the AMT net operating loss deduction)
over $2 million. Exempt-interest dividends derived from certain "private
activity" Municipal Securities issued after August 7, 1986 will generally
constitute an item of tax preference includable in AMTI for both corporate and
non-corporate taxpayers. In addition, exempt-interest dividends derived from
all Municipal Securities, regardless of the date of issue, must be included in
adjusted current earnings, which are used in computing an additional corporate
preference item (i.e., 75% of the excess of a corporate taxpayer's adjusted
current earnings over its AMTI (determined without regard to this item and the
AMT net operating loss deduction)) includable in AMTI.

Exempt-interest dividends must be taken into account in computing the
portion, if any, of social security or railroad retirement benefits that must
be included in an individual shareholder's gross income subject to federal
income tax. Further, a shareholder of a Fund is denied a deduction for
interest on indebtedness incurred or continued to purchase or carry such
shares. Moreover, a shareholder who is (or is related to) a "substantial user"
of a facility financed by industrial development bonds held by a Fund will
likely be subject to tax on dividends paid by the Fund which are derived from
interest on such bonds. Receipt of exempt-interest dividends may result in
other collateral federal income tax consequences to certain taxpayers,
including financial institutions, property and casualty insurance companies and
foreign corporations engaged in a trade or business in the United States.
Prospective investors should consult their own tax advisors as to such
consequences.

Each Fund anticipates distributing substantially all of its investment
company taxable income, if any, 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 will not qualify for the 70%
dividends-received deduction for corporations.

Each Fund may either retain or distribute to shareholders its net
capital gain, if any, 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 distribution, it will be taxable to shareholders as long-term
capital gain, regardless of the length of time the shareholder has held his
shares or whether such gain was recognized by a Fund prior to the date on which
the shareholder acquired his shares. If a Fund does not distribute its net
capital gain in any taxable year, such Fund will be subject to taxes on such
net capital gain at the highest corporate rate. If a Fund elects to retain its
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 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. Realized market discount on
Municipal Securities purchased after April 30, 1993 will be treated as ordinary
income and not as capital gain.

Distributions by a Fund that do not constitute ordinary income
dividends, exempt-interest dividends or capital gain distributions 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 the Fund (or of another AIM Fund). Shareholders electing
to reinvest a distribution in additional shares will be treated as receiving a
distribution in an amount equal to the net asset value of the shares acquired,
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

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of the Fund, distributions of such amounts will be taxable to the shareholder
in the manner described above, although such distributions economically would
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 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) during the year.

Each Fund will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of ordinary income dividends and capital gain
distributions, and the proceeds of redemptions of shares, paid to any
shareholder who (1) has provided either an incorrect tax identification number
or no number at all, (2) is subject to backup withholding by the Internal
Revenue Service for failure to properly report the receipt of interest or
dividend income, or (3) 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 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. All or a portion of any loss so recognized
may be disallowed if the shareholder purchases other shares of the same Fund
within 30 days before or after the sale or redemption. Investors should note
that this rule applies to shares purchased through the reinvestment of
dividends within 30 days before or after a sale or redemption of 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. However, any capital loss arising from the sale or redemption of shares
held for six months or less will be disallowed to the extent of the amount of
exempt-interest dividends received on such shares and (to the extent not
disallowed) 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 at least
11.6% 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 non-corporate taxpayers, $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 such shares or shares of 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 (unless such
shares also are disposed of less than 91 days after they are acquired).

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 a 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, dividends and
distributions (other than long-term capital gain distributions and
exempt-interest dividends) will be subject to U.S. withholding tax at the rate
of 30% (or lower applicable treaty rate) upon the gross amount of the dividend
or distribution. Such a foreign shareholder would generally be exempt from
U.S. federal income tax on gains realized on the sale of shares of a Fund,
capital gain distributions and exempt-interest dividends.

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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 distributions and any gains realized upon the sale 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
(other than exempt-interest dividends) 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. Recently proposed regulations may change the information provided
here. 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.

Effect of Future Legislation; Local Tax Considerations. The foregoing
general discussion of federal income tax consequences is based on the Code and
the regulations issued thereunder as in effect on the date of this Statement of
Additional Information. 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 discussed herein.

Connecticut Tax Considerations. The Connecticut income tax ("CIT") is
imposed on individuals resident in Connecticut and certain non-residents and
partial-year residents with income derived from or connected with sources
located within Connecticut. The CIT is imposed on the federal adjusted gross
income of taxpayers (including married couples who file a joint federal income
tax return) with certain adjustments. The applicable CIT law provides that
distributions by a regulated investment company that qualify as exempt-interest
dividends for federal income tax purposes are not added to federal adjusted
gross income and thus are not subject to CIT to the extent such distributions
are derived from obligations issued by or on behalf of the State of
Connecticut, any political subdivision thereof, or public instrumentality,
state or local authority, district or similar public entity created under the
laws thereof, and certain other U.S. Government obligations and obligations of
certain U.S. Territories. Distributions of the net income of AIM TAX-EXEMPT
BOND FUND OF CONNECTICUT from other sources, including distributions from
Municipal Securities issued by other states or authorities and short-term
capital gains that are treated as ordinary income dividends for federal income
tax purposes are taxable as dividends for CIT purposes.

In addition, the Connecticut corporation business tax ("CCBT") is
imposed on any corporation or association carrying on, or having the right to
carry on, business in Connecticut. Distributions from any source that are
treated as exempt-interest dividends for federal income tax purposes are
includable in gross income for purposes of the CCBT. Moreover, while the CCBT
generally allows a 70% deduction for amounts includable in taxable income for
CCBT purposes that are treated as "dividends" for federal income tax purposes,
such as distributions of taxable net investment income and net short-term
capital gains, the Connecticut Department of Revenue Services has ruled that
the CCBT does not allow this deduction for exempt-interest dividends and
capital gain distributions whose character as "dividends" has been altered for
federal income tax purposes.

Rules of state and local taxation of ordinary income dividends,
exempt-interest dividends and capital gain distributions from regulated
investment companies often differ from the rules for U.S. federal income
taxation described above. Shareholders are urged to consult their tax advisors
as to the consequences of these and other federal, state and local tax rules
affecting investments in the Funds.

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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 and Fitch:

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 edged." 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. 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 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 modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the company
ranks in the low end of its generic rating category.

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MOODY'S MUNICIPAL BOND RATINGS
------------------------------

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. 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 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.

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: Those bonds in the Aa, A, Baa and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols Aa1, A1, Baa1, Ba1 and B1.

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 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 (i.e., a variable rate demand obligation or VRDO). Such ratings will
be designated as VMIG or, if the demand feature is not rated,

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<PAGE> 74
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, 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 earning 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.

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.

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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 higher 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 least degree of speculation and
C the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures 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 (e.g.,
AAA/A-1+). With short-term demand debt, the note rating symbols are used with
the commercial paper rating symbols (e.g., SP-1+/A-1+).

S&P MUNICIPAL NOTE RATINGS
--------------------------

A 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 dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).

Note rating symbols and definitions are as follows.

SP-1 Category denotes strong capacity to pay principal and interest.
Issues determined to possess very strong characteristics are given a plus (+)
designation.

SP-2 Rating denotes 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.

36
<PAGE> 76
S&P COMMERCIAL PAPER RATINGS
----------------------------

A 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 This rating indicates capacity for timely payment is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.

A-3 This rating indicates adequate capacity for timely payment. They are,
however, more vulnerable to the adverse effects of changes in circumstances
than obligations carrying higher designations.

B This rating indicates only a speculative capacity for timely payment.

C This rating indicates, for short-term debt, a doubtful capacity for
payment.

D This rating indicates that payment is in 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 or class of debt 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.

Bonds that have 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.

37
<PAGE> 77
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.

CREDIT TREND

Credit trend indicators show whether credit fundamentals are
improving, stable, declining, or uncertain, as follows:

Improving (symbol for up arrow)
Stable (symbol for left and right arrow)
Declining (symbol for down arrow)
Uncertain (symbol for up and down arrow)

Credit trend indicators are not predictions that any rating change
will occur, and have a longer-term time frame than issues placed on FitchAlert.

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.

38
<PAGE> 78
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.

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.

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.

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.

39
<PAGE> 79
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.

40
<PAGE> 80
FINANCIAL STATEMENTS

FS-1
<PAGE> 81

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders of
AIM Tax-Exempt Funds, Inc.:

We have audited the accompanying statement of assets and liabilities of AIM
Tax-Exempt Cash Fund (a portfolio of AIM Tax-Exempt Funds, Inc.), including the
schedule of investments, as of March 31, 1996, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the years in the two-year period then ended and the financial highlights
for each of the years in the two-year period then ended, the three-month period
ended March 31, 1994, and the year ended December 31, 1993. 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 the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the 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 March
31, 1996, 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
Tax-Exempt Cash Fund as of March 31, 1996, the results of its operations for the
year then ended, 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
two-year period then ended, the three-month period ended March 31, 1994, and the
year ended December 31, 1993, in conformity with generally accepted accounting
principles.

/s/ KPMG PEAT MARWICK LLP

KPMG Peat Marwick LLP

Houston, Texas
May 3, 1996

FS-2
<PAGE> 82

Financials

SCHEDULE OF INVESTMENTS

March 31, 1996

<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES-77.73%

ARIZONA-5.93%

Arizona State Transportation Board
(Maricopa County Regional Area Road A); Excise
Tax RB
5.70%, 07/01/96 AA- Aa $ 250 $ 251,155
- -----------------------------------------------------------------------------------------
Maricopa (County of) High School
District No. 210; Series A GO
3.75%, 07/01/96 AA Aa 230 229,926
- -----------------------------------------------------------------------------------------
Maricopa (County of) Pollution Control Corporation
(Arizona Public Services Company
Palo Verde Project); Series 1994 E PCR
3.75%, 05/01/29(b)(c) A-1+ P-1 1,300 1,300,000
- -----------------------------------------------------------------------------------------
1,781,081
- -----------------------------------------------------------------------------------------

ARKANSAS-1.25%

Arkansas State; College Savings GO
3.65%, 06/01/96 AA Aa 375 374,776
- -----------------------------------------------------------------------------------------

COLORADO-2.67%

Colorado Housing Finance Authority (Grant Plaza
Project); Multi-Family Mortgage Series 1991 A RB
3.425%, 11/01/09(b)(c) A-1+ Aaa 800 800,000
- -----------------------------------------------------------------------------------------

CONNECTICUT-2.67%

Connecticut Development Authority
(Connecticut Power & Light); Series 1993 A RB
3.30%, 09/01/28(b)(c) A-1+ VMIG-1 800 800,000
- -----------------------------------------------------------------------------------------

DISTRICT OF COLUMBIA-3.00%

District of Columbia (American Association
for the Advancement of Science); Series 1995 RB
3.75%, 10/01/22(b)(c) A-1 VMIG-1 900 900,000
- -----------------------------------------------------------------------------------------

ILLINOIS-3.35%

Calumet (City of) (Corporate Purpose Bonds);
Series 1996 C GO
6.00%, 01/01/97(b) -- Aaa 350 356,253
- -----------------------------------------------------------------------------------------
Chicago (City of); Series 1996 GO
3.10%, 02/04/97(b)(d) SP-1+ MIG-1 400 399,160
- -----------------------------------------------------------------------------------------
Illinois Development Finance Authority
(Olin Corporation); Variable Rate
Refunding Series 1993 D RB
3.70%, 03/01/16(c)(e) A-1+ -- 250 250,000
- -----------------------------------------------------------------------------------------
1,005,413
- -----------------------------------------------------------------------------------------
</TABLE>

FS-3
<PAGE> 83

Financials

<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>

KANSAS-1.00%

Shawnee (City of) (Hampton Woods
Apartment Project); Multifamily Housing
Series 1985 RB
3.40%, 12/01/09(b)(c) -- VMIG-1 $ 300 $ 300,000
- -----------------------------------------------------------------------------------------

LOUISIANA-4.67%

Plaquemine Port Harbor and Terminal Authority
(TECO Energy, Inc.); Marine Terminal Facility
Series B Refunding RB
3.45%, 04/01/96(d) -- P-1 1,400 1,400,000
- -----------------------------------------------------------------------------------------

MARYLAND-2.33%

Maryland Industrial Development Financing Authority
(Liberty Medical Center); Variable Rate
Demand/Fixed Rate 1989 Issue Refunding RB
3.50%, 07/01/18(b)(c) -- A-1 700 700,000
- -----------------------------------------------------------------------------------------

MICHIGAN-5.33%

Michigan State Hospital Finance Authority
(Hospital Equipment Loan Program);
Adjustable Series 1995 A RB
3.55%, 12/01/23(b)(c) -- VMIG-1 900 900,000
- -----------------------------------------------------------------------------------------
Michigan Strategic Fund (Consumer's Power
Corporation); Pollution Control Variable Rate
Demand Series 1988 A RB
3.70%, 04/15/18(b)(c) -- P-1 500 500,000
- -----------------------------------------------------------------------------------------
Plymouth (Township of) Economic Development
Corporation
(Key International Project); Variable Rate Demand
Series 1984 RB
3.55%, 07/01/04(b)(c)(f) -- -- 200 200,000
- -----------------------------------------------------------------------------------------
1,600,000
- -----------------------------------------------------------------------------------------

MISSISSIPPI-5.16%

Jackson (City of) Public School District;
Refunding Series 1995 GO
4.10%, 04/01/96(e) AAA Aaa 350 350,000
- -----------------------------------------------------------------------------------------
Jackson (County of) (Chevron U.S.A. Inc. Project);
Port Facility Refunding Series 1993 RB
3.70%, 06/01/23(c) -- P-1 1,200 1,200,000
- -----------------------------------------------------------------------------------------
1,550,000
- -----------------------------------------------------------------------------------------

MONTANA-3.66%

Missoula (County of) (Washington Corporations
Project);
Floating Rate Monthly Demand Series 1984 IDR
3.53%, 11/01/04(b)(c)(f) -- -- 1,100 1,100,000
- -----------------------------------------------------------------------------------------

NEVADA-5.00%

Clark (County of) (Nevada Power Company Project);
Refunding Series 1995C IDR
3.40%, 10/01/30(b)(c) A-1+ -- 1,000 1,000,000
- -----------------------------------------------------------------------------------------
</TABLE>

FS-4
<PAGE> 84

Financials

<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>

NEVADA-(CONTINUED)

Nevada (State of) (FMC Corporation Project);
State Department of Commerce Series 1985 IDR
4.00%, 09/15/96(b)(d) -- VMIG-1 $ 500 $ 500,000
- -----------------------------------------------------------------------------------------
1,500,000
- -----------------------------------------------------------------------------------------

NEW JERSEY-2.18%

Morris (Township of); Series 1991 GO
6.55%, 07/01/96 AA Aa 450 452,793
- -----------------------------------------------------------------------------------------
New Jersey (State of) (Wastewater Treatment Trust);
Series 1991 RB
6.50%, 07/01/96 AA Aa 200 201,169
- -----------------------------------------------------------------------------------------
653,962
- -----------------------------------------------------------------------------------------

NEW YORK-4.20%

Merrill Lynch Group Float Program;
Power Supply System Series 1993 A RB
3.40%, 01/01/16(c)(e)(g) -- VMIG-1 1,260 1,260,000
- -----------------------------------------------------------------------------------------

NORTH CAROLINA-0.33%

New Hanover County Industrial Facilities
and Pollution Control Financing Authority
(Gang-Nail Systems, Inc. Project); Series 1984
IDR
3.50%, 12/01/99(b)(c) -- P-1 100 100,000
- -----------------------------------------------------------------------------------------

OHIO-1.51%

Cleveland (City of) (Waterfront Transit Line
Project);
Regional Transit Authority of Ohio
Certificates of Participation
9.10%, 07/01/96(e) AAA Aaa 150 151,815
- -----------------------------------------------------------------------------------------
Delaware (County of) (Radiation Sterilizers, Inc.);
Series 1984 IDR
3.50%, 12/01/04(b)(c) A-1 -- 300 300,000
- -----------------------------------------------------------------------------------------
451,815
- -----------------------------------------------------------------------------------------

PENNSYLVANIA-4.00%

Delaware (County of) Industrial Development
Authority (Scotfoam Corporation Project);
Variable Rate Demand Series 1985 IDR
3.55%, 10/01/05(b)(c)(f) -- -- 1,000 1,000,000
- -----------------------------------------------------------------------------------------
Pittsburgh (City of) Pennsylvania Public Parking
Authority; Series 1992 A RB
4.60%, 12/01/96(e) AAA Aaa 200 200,710
- -----------------------------------------------------------------------------------------
1,200,710
- -----------------------------------------------------------------------------------------

SOUTH CAROLINA-1.67%

South Carolina State Education; Guaranteed
Student Loan Senior Lien Series A-2
4.75%, 09/01/96 AAA -- 500 502,141
- -----------------------------------------------------------------------------------------
</TABLE>

FS-5
<PAGE> 85

Financials

<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>

TENNESSEE-4.33%

Industrial Development Board of the Metropolitan
Government of Nashville & Davidson County
(Amberwood, Ltd. Project); Multi-family Housing
Series RB
3.67%, 07/01/13(b)(c) -- VMIG-1 $ 1,300 $ 1,300,000
- -----------------------------------------------------------------------------------------

TEXAS-6.01%

Hockley (County of) Industrial Development
Corporation (Amoco Project); Adjustable-Rate
Series 1983 PCR
3.30%, 09/01/96(d) A-1+ Aa1 1,300 1,300,000
- -----------------------------------------------------------------------------------------
Texas A&M University; Reserves Combined Fee RB
7.625%, 07/01/96(b)(d)(h) AAA Aaa 500 504,867
- -----------------------------------------------------------------------------------------
1,804,867
- -----------------------------------------------------------------------------------------

WASHINGTON-1.84%

Industrial Development Corporation of Port
Townsend (Port Townsend Paper Corp.
Project); Series 1988 A Refunding RB
3.45%, 03/01/09(b)(c) -- VMIG-1 500 500,000
- -----------------------------------------------------------------------------------------
Washington (State of) Public Power Supply
(Nuclear Power Project); Series C RB
10.25%, 07/01/96(b)(d)(h) AAA Aaa 50 51,754
- -----------------------------------------------------------------------------------------
551,754
- -----------------------------------------------------------------------------------------

WEST VIRGINIA-3.97%

Berkley (County of) West Virginia
Board of Education Public Schools;
Unlimited Tax Series 1995 GO
6.05%, 06/01/96(e) AAA Aaa 690 692,581
- -----------------------------------------------------------------------------------------
West Virginia Hospital Finance Authority
(VHA Mid-Atlantic States, Inc. Capital Asset
Financing Program); Series 1985 G RB
3.30%, 12/01/25(c)(e) A-1 Aaa 500 500,000
- -----------------------------------------------------------------------------------------
1,192,581
- -----------------------------------------------------------------------------------------

WISCONSIN-1.67%

Fox Valley (City of) Wisconsin Vocational
Technical & Adult Education Authority; Series
1991 GO
5.20%, 06/01/96 -- Aa1 500 501,083
- -----------------------------------------------------------------------------------------
Total Short-Term Municipal Securities 23,330,183
- -----------------------------------------------------------------------------------------
</TABLE>

FS-6
<PAGE> 86

Financials

<TABLE>
<CAPTION>
PAR
(000) VALUE
<S> <C> <C> <C> <C>

U.S. TREASURY SECURITIES-9.27%

U.S. Treasury Bills
4.79%, 08/29/96(i)(j) $ 1,400 $ 1,372,058
- -----------------------------------------------------------------------------------------
U.S. Treasury Notes
6.50%, 09/30/96(j) 1,400 1,410,201
- -----------------------------------------------------------------------------------------
Total U.S. Treasury Securities 2,782,259
- -----------------------------------------------------------------------------------------
Total Investments (excluding Repurchase Agreement) 26,112,442
- -----------------------------------------------------------------------------------------

REPURCHASE AGREEMENT(k)-10.40%

Daiwa Securities America, Inc.
5.45%, 04/01/96(j)(l) 3,120,687
- -----------------------------------------------------------------------------------------
TOTAL INVESTMENTS-97.40% 29,233,129(m)
- -----------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-2.60% 781,214
- -----------------------------------------------------------------------------------------
NET ASSETS-100.00% $30,014,343
- -----------------------------------------------------------------------------------------
</TABLE>

Abbreviations:
GO -- General Obligation Bonds
IDR -- Industrial Development Revenue Bonds
PCR -- Pollution Control Revenue Bonds
RB -- Revenue Bonds

Notes to Schedule of Investments:
(a) Ratings assigned by Standard & Poor's Corporation ("S&P") and Moody's
Investors Service, Inc. ("Moody's"). Ratings are not covered by the
Independent Auditor's Report.
(b) Secured by a letter of credit.
(c) Demand security; payable upon demand by the Fund at specified time
intervals no greater than 13 months. Interest rate is redetermined
periodically. Rate shown was the rate in effect on March 31, 1996.
(d) Subject to an irrevocable call or mandatory put by the issuer. Maturity
date and value reflect such call or put.
(e) Secured by bond insurance.
(f) Unrated; determined by the investment advisor to be of comparable quality
to the rated securities in which the Fund may invest, pursuant to
guidelines for the determination of quality adopted by the Board of
Directors and followed by the investment advisor.
(g) The Fund may invest in synthetic municipal instruments the value of and
return on which are derived from underlying securities. The types of
synthetic municipal instruments in which the Fund may invest include
variable rate instruments. These instruments involve the deposit into a
trust of one or more long-term tax-exempt bonds or notes ("Underlying
Bonds"), and the sale of certificates evidencing interests in the trust to
investors such as the Fund. The trustee receives the long-term fixed rate
interest payments on the Underlying Bonds, and pays certificate holders
short-term floating or variable interest rates which are reset
periodically. A "variable rate trust certificate" evidences an interest in
a trust entitling the certificate holder to receive variable rate interest
based on prevailing short-term interest rates and also typically providing
the certificate holder with the conditional right to put its certificate at
par value plus accrued interest. Because synthetic municipal instruments
involve a trust and a third party conditional put feature, they involve
complexities and potential risks that may not be present where a municipal
security is owned directly.
(h) Secured by an escrow fund of U.S. Treasury obligations.
(i) U.S. Treasury bills are traded on a discount basis. In such case, the
interest shown represents the rate of discount paid or received at the time
of purchase by the Fund.
(j) Interest does not qualify as exempt interest for federal tax purposes.
(k) 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 as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds managed by
the investment advisor.
(l) Joint repurchase agreement entered into 03/29/96 with a maturing value of
$502,369,667. Collateralized by $488,649,000 U.S. Treasury obligations,
0.00% to 12.00% due 04/04/96 to 11/15/16.
(m) Cost for Federal income tax purposes is $29,232,388.

See Notes to Financial Statements.

FS-7
<PAGE> 87

Financials

STATEMENT OF ASSETS AND LIABILITIES

March 31, 1996

<TABLE>
<S> <C>
ASSETS:

Investments, excluding repurchase agreement, at value (amortized cost) $ 26,112,442
- -----------------------------------------------------------------------------------------
Repurchase agreement 3,120,687
- -----------------------------------------------------------------------------------------
Receivable for investments called 600,000
- -----------------------------------------------------------------------------------------
Interest receivable 198,477
- -----------------------------------------------------------------------------------------
Investment for deferred compensation plan 14,019
- -----------------------------------------------------------------------------------------
Other assets 13,793
- -----------------------------------------------------------------------------------------
Total assets 30,059,418
- -----------------------------------------------------------------------------------------

LIABILITIES:

Payables for:
Dividends 3,444
- -----------------------------------------------------------------------------------------
Deferred compensation 14,019
- -----------------------------------------------------------------------------------------
Accrued advisory fees 8,641
- -----------------------------------------------------------------------------------------
Accrued distribution fees 6,966
- -----------------------------------------------------------------------------------------
Accrued administrative service fees 2,763
- -----------------------------------------------------------------------------------------
Accrued transfer agent fees 1,464
- -----------------------------------------------------------------------------------------
Accrued operating expenses 7,778
- -----------------------------------------------------------------------------------------
Total liabilities 45,075
- -----------------------------------------------------------------------------------------

NET ASSETS APPLICABLE TO SHARES OUTSTANDING $ 30,014,343

=========================================================================================
Capital stock, $.001 par value per share:
Authorized 1,000,000,000
- -----------------------------------------------------------------------------------------
Outstanding 30,020,450
- -----------------------------------------------------------------------------------------

NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE $ 1.00

=========================================================================================
</TABLE>

See Notes to Financial Statements.

FS-8
<PAGE> 88

Financials

STATEMENT OF OPERATIONS

For the year ended March 31, 1996

<TABLE>
<S> <C>
INVESTMENT INCOME:

Interest income $ 1,167,290
- ----------------------------------------------------------------------------------------
EXPENSES:

Advisory fees 101,649
- ----------------------------------------------------------------------------------------
Custodian fees 9,167
- ----------------------------------------------------------------------------------------
Administrative service fees 34,220
- ----------------------------------------------------------------------------------------
Directors' fees and expenses 6,062
- ----------------------------------------------------------------------------------------
Transfer agent fees 62,766
- ----------------------------------------------------------------------------------------
Distribution fees 29,043
- ----------------------------------------------------------------------------------------
Registration and filing fees 18,135
- ----------------------------------------------------------------------------------------
Other 44,582
- ----------------------------------------------------------------------------------------
Total expenses 305,624
- ----------------------------------------------------------------------------------------
Net investment income 861,666
- ----------------------------------------------------------------------------------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES:

Net realized gain on sales of investment securities 12,256
- ----------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment securities (1,694)
- ----------------------------------------------------------------------------------------
Net gain on investment securities 10,562
- ----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 872,228
========================================================================================

</TABLE>

STATEMENT OF CHANGES IN NET ASSETS

For the years ended March 31, 1996 and 1995

<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
OPERATIONS:

Net investment income $ 861,666 $ 862,516
- --------------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investment securities 12,256 (52,241)
- --------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities (1,694) 1,646
- --------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 872,228 811,921
- --------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (838,861) (853,604)
- --------------------------------------------------------------------------------------------
Net increase (decrease) from capital stock transactions (383,580) (3,251,715)
- --------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (350,213) (3,293,398)
- --------------------------------------------------------------------------------------------

NET ASSETS:

Beginning of period 30,364,556 33,657,954
- --------------------------------------------------------------------------------------------
End of period $30,014,343 $30,364,556
- --------------------------------------------------------------------------------------------

NET ASSETS CONSIST OF:

Capital (par value and additional paid-in) $30,020,450 $30,404,030
- --------------------------------------------------------------------------------------------
Undistributed net investment income 31,717 8,912
- --------------------------------------------------------------------------------------------
Undistributed realized gain (loss) on sales of investment
securities (38,565) (50,821)
- --------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 741 2,435
- --------------------------------------------------------------------------------------------
$30,014,343 $30,364,556
============================================================================================
</TABLE>

See Notes to Financial Statements.

FS-9
<PAGE> 89

Financials

NOTES TO FINANCIAL STATEMENTS

March 31, 1996

NOTE 1-SIGNIFICANT ACCOUNTING POLICIES

AIM Tax-Exempt Cash Fund (the "Fund") is a series portfolio of AIM Tax-Exempt
Funds, Inc. (the "Company"). The Company is a Maryland corporation registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end series management investment company consisting of three separate
portfolios: AIM Tax-Exempt Cash Fund, AIM Tax-Exempt Bond Fund of Connecticut
and the Intermediate Portfolio. Matters affecting each portfolio are voted on
exclusively by the shareholders of such portfolio. 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 earn the highest level of current income free from federal
income taxes that is consistent with safety of principal and liquidity.
The following is a summary of the significant accounting policies followed by
the Fund in the preparation of its financial statements. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

A. Security Valuations--The Fund invests only in securities which have
maturities of 397 days or less from the date of purchase. The 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 premiums or original issue
discounts.
B. Securities Transactions, Investment Income and Distributions--Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date,
adjusted for amortization of premiums and discounts on investments, and is
recorded on the accrual basis. Discounts, other than original issue, are
amortized to unrealized appreciation for financial reporting purposes.
Dividends to shareholders are declared daily and are paid monthly.
C. Federal Income Taxes--The Fund intends to comply with the requirements of the
Internal Revenue Code necessary to qualify as a regulated investment company
and, as such, will not be subject to federal income taxes on otherwise
taxable income (including net realized capital gains) which is distributed to
shareholders. Therefore, no provision for federal income taxes is recorded in
the financial statements. The Fund has a capital loss carryforward of $41,305
(which may be carried forward to offset future taxable capital gains, if any)
which expires, if not previously utilized, through the year 2004. The Fund
cannot distribute capital gains to shareholders until the tax loss
carryforwards have been utilized.

NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES

The Company 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 the annual rate of 0.35% of the Fund's
average daily net assets. This agreement requires AIM to reduce its fees or, if
necessary, make payments to the Fund to the extent required to satisfy any
expense limitations imposed by the securities laws or regulations thereunder of
any state in which the Fund's shares are qualified for sale.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to reimburse AIM for certain administrative costs incurred in
providing accounting and shareholder services to the Fund. During the year
ended March 31, 1996, the Fund reimbursed AIM $34,220 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
services to the Fund. During the year ended March 31, 1996, the Fund paid AFS
$40,165 for such services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") pursuant to which AIM Distributors
serves as the distributor for the Fund. The Company has also

FS-10
<PAGE> 90

Financials

adopted a plan pursuant to Rule 12b-1 under the 1940 Act (the "Plan") with
respect to the Fund whereby the Fund will pay AIM Distributors up to a maximum
annual rate of 0.25% of the Fund's average daily net assets as compensation for
services related to the sale and distribution of the Fund's shares. Currently,
AIM Distributors has voluntarily elected to waive a portion of its compensation
payable by the Fund such that the compensation paid pursuant to the Plan equals
0.10% per annum of the Fund's average daily net assets. This waiver may be
rescinded by AIM Distributors at any time without further notice to investors.
The Plan provides that of the aggregate amount payable under the Plan, payments
to dealers and other financial institutions that provide continuing personal
shareholder services to their customers who purchase and own shares of the 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 may be
characterized as a service fee, and that payments to dealers and other financial
institutions in excess of such amount and payments to AIM Distributors would be
characterized as an asset-based sales charge. The Plan also imposes a cap on the
total amount of sales charges, including asset-based sales charges, that may be
paid by the Company with respect to the Fund. As a result of AIM Distributors'
waiver of compensation due from the Fund, payments to dealers and other
financial institutions by that Fund will be limited to 0.10% of the Fund's
average daily net assets. During the year ended March 31, 1996, the Fund paid
AIM Distributors $29,043 as compensation pursuant to the Plan.
Certain officers and directors of the Company are officers and directors of
AIM, AFS and AIM Distributors. The Fund paid legal fees of $2,820 for services
rendered by Kramer, Levin, Naftalis, Nessen, Kamin & Frankel as counsel to the
Fund's Board of Directors. A member of that firm is a director of the Company.

NOTE 3-DIRECTORS' FEES

Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company invests directors' fees, if so
elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.

FS-11
<PAGE> 91

Financials

NOTE 4-CAPITAL STOCK

Changes in capital stock outstanding during the years ended March 31, 1996 and
1995 were as follows:

<TABLE>
<CAPTION>
1996 1995
--------------------------- ---------------------------
SHARES VALUE SHARES VALUE
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Sold 42,892,892 $ 42,892,892 57,113,755 $ 57,113,755
- -----------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 808,372 808,372 813,463 813,463
- -----------------------------------------------------------------------------------------------------------------------
Reacquired (44,084,844) (44,084,844) (61,178,933) (61,178,933)
- -----------------------------------------------------------------------------------------------------------------------
(383,580) $ (383,580) (3,251,715) $ (3,251,715)
=======================================================================================================================
</TABLE>

NOTE 5-FINANCIAL HIGHLIGHTS

Shown below are the condensed financial highlights for a share of capital stock
outstanding during each of the years in the two-year period ended March 31,
1996, the three months ended March 31, 1994 and each of the years in the
seven-year period ended December 31, 1993.

<TABLE>
<CAPTION>
MARCH 31,
--------------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
- ------------------------------------ ------- ------- -------
Income from investment operations:
Net investment income 0.03 0.03 0.004
- ------------------------------------ ------- ------- -------
Less distributions:
Dividends from net investment
income (0.03) (0.03) (0.004)
- ------------------------------------ ------- ------- -------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
==================================== ======= ======= =======
Total return 2.92% 2.54% 1.73%(d)
==================================== ======= ======= =======

RATIOS/SUPPLEMENTAL DATA:

Net assets, end of period
(000s omitted) $30,014 $30,365 $33,658
==================================== ======= ======= =======
Ratio of expenses to average net
assets 1.05%(b)(c) 1.01%(c) 1.00%(c)(d)
==================================== ======= ======= =======
Ratio of net investment income to
average net assets 2.97%(b)(c) 2.53%(c) 1.75%(c)(d)
==================================== ======= ======= =======

<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------------------
1993 1992(a) 1991 1990 1989 1988 1987
------- ------- ------- ------- ------- ------- -------
<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 0.02 0.02 0.04 0.05 0.05 0.05 0.04
- ------------------------------------ ------- ------- -------- -------- ------- ------- -------
Less distributions:
Dividends from net investment
income (0.02) (0.02) (0.04) (0.05) (0.05) (0.05) (0.04)
- ------------------------------------ ------- ------- -------- -------- ------- ------- -------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
==================================== ======= ======= ======= ======= ======= ======= =======
Total return 1.78% 2.42% 3.91% 5.17% 5.62% 4.65% 3.95%
==================================== ======= ======= ======= ======= ======= ======= =======

RATIOS/SUPPLEMENTAL DATA:

Net assets, end of period
(000s omitted) $35,230 $41,291 $43,366 $43,302 $45,995 $51,597 $54,616
==================================== ======= ======= ======= ======= ======= ======= =======
Ratio of expenses to average net
assets 1.00%(e) 0.98%(f) 0.98% 0.99% 0.93% 0.83% 0.72%
==================================== ======= ======= ======= ======= ======= ======= =======
Ratio of net investment income to
average net assets 1.76%(e) 2.42%(f) 3.87% 5.05% 5.48% 4.54% 3.87%
==================================== ======= ======= ======= ======= ======= ======= =======
</TABLE>

(a) The Fund changed investment advisors on June 30, 1992.
(b) Ratios are based on average daily net assets of $29,042,556.
(c) After waiver of distribution fees. Ratios of expenses and net investment
income to average net assets prior to waiver of distribution fees were 1.20%
and 2.82%, respectively for 1996, 1.16% and 2.38%, respectively for 1995,
and 1.14% and 1.61%, respectively for 1994 (annualized).
(d) Annualized.
(e) After waiver of advisory fees and expense reimbursements. Ratios of expenses
and net investment income to average net assets prior to waiver of advisory
fees and expense reimbursements were 1.36% and 1.40%, respectively.
(f) After waiver of advisory fees. Ratios of expenses and net investment income
to average net assets prior to waiver of advisory fees were 1.00% and 2.40%,
respectively.

FS-12

<PAGE> 92

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders of
AIM Tax-Exempt Funds, Inc.:

We have audited the accompanying statement of assets and liabilities of AIM
Tax-Free Intermediate Shares (a portfolio of AIM Tax-Exempt Funds, Inc.),
including the schedule of investments, as of March 31, 1996, and the related
statement of operations for the year then ended, the statement of changes in net
assets for each of the years in the two-year period then ended and the financial
highlights for each of the years in the seven-year period then ended, the
eleven-month period ended March 31, 1989, and for the period May 11, 1987 (date
operations commenced) through April 30, 1988. 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 the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the 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 March
31, 1996, 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
Tax-Free Intermediate Shares as of March 31, 1996, the results of its operations
for the year then ended, 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 seven-year period then ended, the eleven-month period ended March 31, 1989,
and for the period May 11, 1987 (date operations commenced) through April 30,
1988, in conformity with generally accepted accounting principles.

/s/ KPMG PEAT MARWICK LLP

KPMG Peat Marwick LLP

Houston, Texas
May 3, 1996

FS-13
<PAGE> 93

Financials

SCHEDULE OF INVESTMENTS

March 31, 1996

<TABLE>
<CAPTION>
RATING(a) MARKET
S&P MOODY'S PAR VALUE
<S> <C> <C> <C> <C>
ALABAMA-1.12%

Alabama State Municipal Electric Authority;
Power Supply Series A RB
6.30%, 09/01/01(b) AAA Aaa $ 400,000 $ 429,256
- -------------------------------------------------------------------------------------------------------
Birmingham-Carraway Special Care Facilities
(Carraway Methodist Health System); Series 1995 A RB
4.25%, 08/15/97(b) AAA -- 500,000 500,175
- -------------------------------------------------------------------------------------------------------
929,431
- -------------------------------------------------------------------------------------------------------

ARIZONA-5.75%

Arizona (State of); Educational Loan Marketing Corp.
Series A Refunding RB
6.55%, 03/01/99 -- A 1,000,000 1,038,710
- -------------------------------------------------------------------------------------------------------
Cochise (County of) (Douglas Unified School District #27);
School Improvement Series 1995 B GO
4.25%, 07/01/97(b) AAA Aaa 200,000 200,662
- -------------------------------------------------------------------------------------------------------
Maricopa County Gilbert Unified School District
#41 (Project of 1988); School Improvement
Series 1992 E GO
6.20%, 07/01/02(c) AAA Aaa 1,250,000 1,364,450
- -------------------------------------------------------------------------------------------------------
Phoenix (City of); Senior Lien Street and
Highway User Refunding Series 1992 RB
6.20%, 07/01/02 AA A-1 1,000,000 1,069,110
- -------------------------------------------------------------------------------------------------------
Pinal County Industrial Development Authority
(Magma Copper Co. Project); Series 1984 PCR
3.35%, 12/01/11(d) A-1+ VMIG-1 1,100,000 1,100,000
- -------------------------------------------------------------------------------------------------------
4,772,932
- -------------------------------------------------------------------------------------------------------

ARKANSAS-2.48%

Little Rock (City of) (Baptist Medical Center);
Health Facility Hospital RB
6.70%, 11/01/04(b) AAA Aaa 1,400,000 1,530,592
- -------------------------------------------------------------------------------------------------------
North Little Rock (City of); Electric System
Refunding Series 1992 A RB
6.00%, 07/01/01(b) AAA Aaa 500,000 532,485
- -------------------------------------------------------------------------------------------------------
2,063,077
- -------------------------------------------------------------------------------------------------------

CALIFORNIA-7.64%

California Statewide Communities Development
Authority (San Gabriel Valley Medical Center);
Series 1996 A Certificates of Participation
4.00%, 09/01/97 A -- 1,000,000 1,000,240
- -------------------------------------------------------------------------------------------------------
Folsom (City of) (School Facilities Project);
Series 1993 B GO
6.00%, 08/01/02(b) AAA Aaa 500,000 537,160
- -------------------------------------------------------------------------------------------------------
</TABLE>

FS-14
<PAGE> 94

Financials

<TABLE>
<CAPTION>
RATING(a) MARKET
S&P MOODY'S PAR VALUE
<S> <C> <C> <C> <C>
CALIFORNIA-(CONTINUED)

Inglewood (City of) (Daniel Freeman Hospital Inc.);
Insured Hospital Series 1991 RB
6.50%, 05/01/01(b) A -- $ 400,000 $ 422,376
- -------------------------------------------------------------------------------------------------------
Irvine (City of) Unified School District;
Certificates of Participation Series 1995
4.00%, 12/01/97(b) AAA Aaa 725,000 725,290
- -------------------------------------------------------------------------------------------------------
Los Angeles (County of) Metropolitan
Transportation Authority;
Proposition C Sales Tax Revenue Series 1995 A RB
5.90%, 07/01/06(b) AAA Aaa 1,175,000 1,246,287
- -------------------------------------------------------------------------------------------------------
Oakland (City of); Housing Finance Issue D-1 RB
6.70%, 01/01/98 A+ -- 190,000 194,929
- -------------------------------------------------------------------------------------------------------
Orange (County of); Refunding Recovery Series A RB
5.50%, 06/01/06(b) AAA Aaa 1,000,000 1,028,940
- -------------------------------------------------------------------------------------------------------
Parking Authority of the City and County of San Francisco;
Parking Meter Series 1994 RB
6.75%, 06/01/05(b) AAA Aaa 500,000 562,465
- -------------------------------------------------------------------------------------------------------
Regents (The) of the University of California
(Multiple Purpose Projects); Refunding Series A RB
5.75%, 09/01/97 A- A 250,000 255,520
- -------------------------------------------------------------------------------------------------------
State Public Works Board of the State of California
(Department of Corrections) (State Prison-Madera County);
Lease Series 1990 A RB
7.00%, 09/01/00 A- A 100,000 109,269
- -------------------------------------------------------------------------------------------------------
West End Water Development, Treatment, and
Conservation Joint Powers Authority; 1990
Water Facilities Certificates of Participation
7.00%, 10/01/00 BBB+ A 250,000 268,655
- -------------------------------------------------------------------------------------------------------
6,351,131
- -------------------------------------------------------------------------------------------------------

COLORADO-0.44%

Aspen (City of) Public Facility Authority; Lease
Purchase and Sublease Agreement Series 1995 RB
4.20%, 09/01/96(b) AAA Aaa 240,000 240,209
- -------------------------------------------------------------------------------------------------------
Colorado Student Obligation Bond Authority;
Student Loan Series 1985 B RB
6.125%, 12/01/98 -- A 125,000 127,984
- -------------------------------------------------------------------------------------------------------
368,193
- -------------------------------------------------------------------------------------------------------

CONNECTICUT-0.12%

Connecticut (State of) Development Authority;
Power and Light Series 1993 A RB
3.30%, 09/01/28(d) A-1+ VMIG-1 100,000 100,000
- -------------------------------------------------------------------------------------------------------

DELAWARE-0.96%

Delaware Transportation Authority; Senior
Lien Transportation System Series 1991 RB
6.00%, 07/01/01(c)(e) AAA Aaa 750,000 798,368
- -------------------------------------------------------------------------------------------------------
</TABLE>

FS-15
<PAGE> 95

Financials

<TABLE>
<CAPTION>
RATING(a) MARKET
S&P MOODY'S PAR VALUE
<S> <C> <C> <C> <C>
DISTRICT OF COLUMBIA-2.54%

District of Columbia (American Association for the
Advancement of Science); Series 1995 RB
3.75%, 10/01/22(d) A-1 VMIG-1 $ 400,000 $ 400,000
- -------------------------------------------------------------------------------------------------------
District of Columbia; Series B GO
6.75%, 06/01/99(b) AAA Aaa 750,000 792,150
- -------------------------------------------------------------------------------------------------------
District of Columbia; Refunding Series 1992 A6
GO 3.85%, 10/01/07(d) A-1+ VMIG-1 700,000 700,000
- -------------------------------------------------------------------------------------------------------
District of Columbia (The Howard University
Issue); University Series 1990 A RB
6.90%, 10/01/00 AA- A-1 200,000 217,218
- -------------------------------------------------------------------------------------------------------
2,109,368
- -------------------------------------------------------------------------------------------------------

FLORIDA-2.88%

Broward County Housing Finance Authority
(Margate Investments Project); Multifamily
Housing Series 1995 RB 3.30%, 11/01/05(d) A-1 -- 1,000,000 1,000,000
- -------------------------------------------------------------------------------------------------------
Dade (County of); Special Series 1986 GO
6.70%, 10/01/03(b) AAA Aaa 1,000,000 1,032,090
- -------------------------------------------------------------------------------------------------------
Jacksonville (City of); Excise Tax Series 1986 A RB
7.60%, 10/01/96(c) NRR NRR 250,000 254,918
- -------------------------------------------------------------------------------------------------------
Palm Beach County Solid Waste Authority; RB
7.90%, 07/01/97 A A 100,000 104,629
- -------------------------------------------------------------------------------------------------------
2,391,637
- -------------------------------------------------------------------------------------------------------

GEORGIA-6.07%

Albany (City of); Sewer System Series 1992 RB
6.30%, 07/01/02(b) AAA Aaa 500,000 536,385
- -------------------------------------------------------------------------------------------------------
Fulton (County of); Water and Sewer Refunding Series 1992 RB
5.75%, 01/01/02 AAA Aaa 715,000 752,716
- -------------------------------------------------------------------------------------------------------
Georgia (State of); Series 1988 D GO
7.10%, 06/01/99 AA+ Aaa 2,000,000 2,154,600
- -------------------------------------------------------------------------------------------------------
Georgia State Municipal Electric Authority; Series V RB
6.00%, 01/01/01(b) AAA Aaa 1,000,000 1,056,800
- -------------------------------------------------------------------------------------------------------
Metropolitan Atlanta Rapid Transit Authority;
Sales Tax Refunding Series M RB
6.15%, 07/01/02 AA- A-1 500,000 538,795
- -------------------------------------------------------------------------------------------------------
5,039,296
- -------------------------------------------------------------------------------------------------------

ILLINOIS-5.50%

Chicago (City of) (Central Public Library Project);
Adjustable Rate Series 1988 C GO
6.10%, 01/01/99(b) AAA Aaa 500,000 522,625
- -------------------------------------------------------------------------------------------------------
Chicago Park District; Capital Improvement
Series 1991 GO
5.80%, 01/01/98(b) AA- A-1 750,000 769,920
- -------------------------------------------------------------------------------------------------------
</TABLE>

FS-16
<PAGE> 96

Financials

<TABLE>
<CAPTION>
RATING(a) MARKET
S&P MOODY'S PAR VALUE
<S> <C> <C> <C> <C>
ILLINOIS-(CONTINUED)

Cook (County of); School District #25
School Building Obligations Series 1996 GO
5.30%, 05/01/06(b) AAA Aaa $ 1,000,000 $ 1,000,720
- ------------------------------------------------------------------------------------------------------------
Glenview (City of); GO
6.25%, 12/01/96 -- MIG-1 1,000,000 1,011,240
- ------------------------------------------------------------------------------------------------------------
Illinois Health Facilities Authority (Mercy Hospital and Medical
Center); Refunding Series 1992 RB
6.20%, 01/01/00 A- Baa1 250,000 255,908
- ------------------------------------------------------------------------------------------------------------
Joliet (City of); Waterworks and Sewer Series 1991 RB
6.95%, 01/01/01(b) AAA Aaa 250,000 272,208
- ------------------------------------------------------------------------------------------------------------
Kane (County of) Public Building Commission;
Unlimited Tax Public Building Series B GO
6.20%, 12/01/01 -- Aa 700,000 738,738
- ------------------------------------------------------------------------------------------------------------
4,571,359
- ------------------------------------------------------------------------------------------------------------

INDIANA-0.98%

Indiana Transportation Finance Authority; Airport
Facilities Lease Series A RB
6.00%, 11/01/01 A A 500,000 528,780
- ------------------------------------------------------------------------------------------------------------
New Prairie School Building Corporation; First
Mortgage Refunding Series 1995 RB
4.10%, 01/05/97(b) AAA Aaa 285,000 284,838
- ------------------------------------------------------------------------------------------------------------
813,618
- ------------------------------------------------------------------------------------------------------------

IOWA-0.63%

Iowa Student Loan Liquidity Corp.; Student Loan
Series 1992 A RB
6.25%, 03/01/00 -- Aa1 500,000 520,125
- ------------------------------------------------------------------------------------------------------------

KENTUCKY-0.35%

Kentucky State Turnpike Authority (Economic
Development Road Revitalization Project); RB
7.125%, 05/15/00(c) AAA Aaa 260,000 288,098
- ------------------------------------------------------------------------------------------------------------

LOUISIANA-2.18%

Lafayette Public Power Authority; Electric Refunding
Series 1987 RB
6.80%, 11/01/00 A A 275,000 286,740
- ------------------------------------------------------------------------------------------------------------
Louisiana (State of); Refunding Series B GO
8.00%, 05/01/96(c) NRR NRR 200,000 200,716
- ------------------------------------------------------------------------------------------------------------
Louisiana Offshore Terminal Authority (Loop, Inc.); Deepwater
Port Refunding Series 1992 RB
6.00%, 09/01/01 A Baa1 1,000,000 1,037,730
- ------------------------------------------------------------------------------------------------------------
Louisiana Public Facilities Authority (Tulane University of
Louisiana); Series 1987 C RB
7.30%, 08/15/99 A A-1 270,000 285,158
- ------------------------------------------------------------------------------------------------------------
1,810,344
- ------------------------------------------------------------------------------------------------------------
</TABLE>

FS-17
<PAGE> 97

Financials

<TABLE>
<CAPTION>
RATING(a) MARKET
S&P MOODY'S PAR VALUE
<S> <C> <C> <C> <C>
MASSACHUSETTS-0.51%

New England Education Loan Marketing Corp.; Student Loan
Refunding Senior Issue 1992 D RB
6.20%, 09/01/00 -- Aaa $ 400,000 $ 422,328
- ---------------------------------------------------------------------------------------------------------

MICHIGAN-5.06%

Dearborn (City of) Economic Development Corp. (Oakwood
Obligated Group); Hospital Series 1991 A RB
6.95%, 08/15/01(c)(e) AAA Aaa 1,000,000 1,126,220
- ---------------------------------------------------------------------------------------------------------
Michigan State Building Authority; Refunding Series I RB
6.40%, 10/01/04 AA- A-1 2,000,000 2,175,640
- ---------------------------------------------------------------------------------------------------------
Novi Community School District; GO
5.875%, 05/01/97(b) AAA Aaa 100,000 101,743
- ---------------------------------------------------------------------------------------------------------
Wayne County School District; Michigan School Building Site
Bond Unlimited Tax Series 1992 GO
5.60%, 05/01/01 AA Aa 765,000 801,728
- ---------------------------------------------------------------------------------------------------------
4,205,331
- ---------------------------------------------------------------------------------------------------------

MISSOURI-0.61%

State Environmental Improvement and Energy Resource Authority
(City of Branson Project) (State Revolving Fund Program);
Water Series 1995 A PCR
5.00%, 07/01/99(b) AAA Aaa 500,000 505,775
- ---------------------------------------------------------------------------------------------------------

MONTANA-0.57%

Montana Higher Education Assistance Corp.;
Student Loan Series 1992 A RB
6.60%, 12/01/00 -- A 450,000 475,169
- ---------------------------------------------------------------------------------------------------------

NEVADA-0.60%

Clark County Improvement District No. 65 (Lamb
Boulevard III); Series November 1, 1992 GO
6.20%, 12/01/02 AA- A1 120,000 123,856
- ---------------------------------------------------------------------------------------------------------
Nevada (State of) (Nevada Municipal Bond Bank
Project Nos. 38-39); Limited Tax Series 1992 A GO
6.00%, 07/01/01(c) NRR NRR 350,000 370,902
- ---------------------------------------------------------------------------------------------------------
494,758
- ---------------------------------------------------------------------------------------------------------

NEW JERSEY-3.48%

Gloucester County Utilities Authority; Sewer
Refunding Series 1991 RB
6.10%, 01/01/00 AA- A-1 225,000 239,252
- ---------------------------------------------------------------------------------------------------------
Jersey City (City of) (Qualified School Bond); GO
6.40%, 02/15/00 AA A 1,000,000 1,071,430
- ---------------------------------------------------------------------------------------------------------
New Jersey Transportation Trust Fund Authority;
Transportation System Series 1992 A RB
5.90%, 6/15/99(c) NRR NRR 1,000,000 1,045,760
- ---------------------------------------------------------------------------------------------------------
</TABLE>

FS-18
<PAGE> 98

Financials

<TABLE>
<CAPTION>
RATING(a) MARKET
S&P MOODY'S PAR VALUE
<S> <C> <C> <C> <C>
NEW JERSEY-(CONTINUED)

Trenton (City of); Fiscal Year Adjustment GO
6.10%, 08/15/02(b) AAA Aaa $ 500,000 $ 536,110
- -----------------------------------------------------------------------------------------------------------
2,892,552
- -----------------------------------------------------------------------------------------------------------

NEW MEXICO-2.22%

Albuquerque (City of); Joint Water and Sewer
Series 1990 A RB
6.00%, 07/01/00(c)(e) AAA NRR 1,000,000 1,055,310
- -----------------------------------------------------------------------------------------------------------
Las Cruces (City of) South Central Solid Waste
Authority; Environmental RB
6.00%, 06/01/97 -- A 260,000 265,351
- -----------------------------------------------------------------------------------------------------------
Santa Fe (City of); Series 1994 A RB
5.50%, 06/01/03(b) AAA Aaa 500,000 519,425
- -----------------------------------------------------------------------------------------------------------
1,840,086
- -----------------------------------------------------------------------------------------------------------

NORTH CAROLINA-2.89%

Greenville Hospital System; Board of Trustees Hospital
Facilities; Series 1996 B RB
5.25%, 05/01/06 AA- Aa 1,000,000 999,180
- -----------------------------------------------------------------------------------------------------------
North Carolina Eastern Municipal Power Agency;
Power System Refunding Series 1995 RB
4.50%, 01/01/97 BBB+ A 400,000 399,160
- -----------------------------------------------------------------------------------------------------------
North Carolina Municipal Power Authority;
(Catawba Project #1); Electric RB
4.90%, 01/01/03(b) AAA Aaa 1,000,000 1,006,200
- -----------------------------------------------------------------------------------------------------------
2,404,540
- -----------------------------------------------------------------------------------------------------------

OHIO-7.62%

Franklin (County of); 1991 Issue GO
6.30%, 12/01/01(c)(e) NRR NRR 1,500,000 1,648,890
- -----------------------------------------------------------------------------------------------------------
Hilliard City School District; Unlimited Tax School Improvement
Refunding Series 1992 GO
6.05%, 12/01/00(b) AAA Aaa 500,000 535,040
- -----------------------------------------------------------------------------------------------------------
6.15%, 12/01/01(b) AAA Aaa 250,000 270,135
- -----------------------------------------------------------------------------------------------------------
Lucas County (St. Vincent's Medical Center); Hospital
Series A RB
6.75%, 08/15/00(b) AAA Aaa 2,000,000 2,205,200
- -----------------------------------------------------------------------------------------------------------
Ohio Air Quality Development Authority (The Cincinnati Gas &
Electric Co. Project); Series 1995 B
3.70%, 09/01/30(d) A-1+ VMIG-1 100,000 100,000
- -----------------------------------------------------------------------------------------------------------
Ohio State Public Facilities Commission;
Mental Health Series A RB
7.00%, 12/01/97 A+ A-1 1,500,000 1,568,310
- -----------------------------------------------------------------------------------------------------------
6,327,575
- -----------------------------------------------------------------------------------------------------------

OKLAHOMA-2.35%

Grand River Dam Authority; Refunding Series 1987 RB
6.45%, 06/01/97(c)(e) AAA Aaa 500,000 524,740
- -----------------------------------------------------------------------------------------------------------
</TABLE>

FS-19
<PAGE> 99

Financials

<TABLE>
<CAPTION>
RATING(a) MARKET
S&P MOODY'S PAR VALUE
<S> <C> <C> <C> <C>
OKLAHOMA-(CONTINUED)

Oklahoma Housing Finance Agency; Single Family Mortgage
Series A RB
6.55%, 03/01/00(b) AAA Aaa $ 150,000 $ 156,965
- ---------------------------------------------------------------------------------------------------------
Southern Oklahoma Memorial Hospital Authority; Hospital
Series 1993 A RB
5.60%, 02/01/00 A A 1,250,000 1,273,988
- ---------------------------------------------------------------------------------------------------------
1,955,693
- ---------------------------------------------------------------------------------------------------------

OREGON-3.19%

Oregon (State of) Department of Transportation (Westside Light
Rail Project); Series 1994 RB
5.00%, 06/01/97(b) AAA Aaa 1,000,000 1,012,650
- ---------------------------------------------------------------------------------------------------------
Portland (City of); Sewer System Series 1994 A RB
5.45%, 06/01/03 A+ A-1 1,065,000 1,111,700
- ---------------------------------------------------------------------------------------------------------
5.55%, 06/01/04 A+ A-1 500,000 524,350
- ---------------------------------------------------------------------------------------------------------
2,648,700
- ---------------------------------------------------------------------------------------------------------

PENNSYLVANIA-1.60%

Pennsylvania Industrial Development Authority;
Economic Development Series 1991 A RB
6.40%, 01/01/97(c)(e) NRR NRR 200,000 203,470
- ---------------------------------------------------------------------------------------------------------
6.50%, 01/01/98(c)(e) NRR NRR 100,000 104,335
- ---------------------------------------------------------------------------------------------------------
6.50%, 07/01/98(c)(e) NRR NRR 150,000 157,632
- ---------------------------------------------------------------------------------------------------------
Philadelphia Hospitals & Higher Education Facilities Authority
(St. Agnes Medical Center Hospital); Refunding Series A RB
5.00%, 07/01/05(b) AAA Aaa 865,000 864,299
- ---------------------------------------------------------------------------------------------------------
1,329,736
- ---------------------------------------------------------------------------------------------------------

RHODE ISLAND-1.30%

Rhode Island (State of); Refunding Series 1992 A GO
6.10%, 06/15/03(b) AAA Aaa 1,000,000 1,076,370
- ---------------------------------------------------------------------------------------------------------
SOUTH DAKOTA-0.92%
Lawrence (County of) (Homestake Mining Company
Project); Series 1983 PCR
3.40%, 04/01/03(d) A-1+ P-1 500,000 500,000
- ---------------------------------------------------------------------------------------------------------
Rapid City (City of); Sales Tax Series 1995 A RB
5.60%, 06/01/05(b) AAA Aaa 255,000 264,975
- ---------------------------------------------------------------------------------------------------------
764,975
- ---------------------------------------------------------------------------------------------------------

TEXAS-14.87%

Alamo Community College District; Series 1990 GO
6.90%, 02/15/00(c)(e) NRR Aaa 500,000 541,195
- ---------------------------------------------------------------------------------------------------------
Arlington City Hospital Authority (Arlington Medical Center);
Hospital Authority RB
5.50%, 12/01/97 AAA Aaa 575,000 584,706
- ---------------------------------------------------------------------------------------------------------
</TABLE>

FS-20
<PAGE> 100

Financials

<TABLE>
<CAPTION>
RATING(a) MARKET
S&P MOODY'S PAR VALUE
<S> <C> <C> <C> <C>
TEXAS-(CONTINUED)

Austin (City of); Combined Utility System
Refunding Series 1986 RB
7.20%, 05/15/98 A A $ 200,000 $ 204,600
- ---------------------------------------------------------------------------------------------------------
Clint Independent School District; Unlimited Tax
Refunding Series 1991 GO
6.30%, 03/01/00(b) -- Aaa 185,000 194,392
- ---------------------------------------------------------------------------------------------------------
Comal County Industrial Development Authority (The
Coleman Company, Inc. Project); Series 1980 IDR
9.25%, 08/01/00(c) NRR NRR 835,000 935,618
- ---------------------------------------------------------------------------------------------------------
Conroe (City of) Independent School District;
Unlimited School Tax GO
7.375%, 02/01/01(b) AAA Aaa 115,000 128,611
- ---------------------------------------------------------------------------------------------------------
Gatesville Independent School District; Unlimited Tax School
Building and Refunding Series 1995 RB
5.80%, 02/01/03(b) -- Aaa 485,000 514,071
- ---------------------------------------------------------------------------------------------------------
Harris County Health Facilities Development Corp.
(Memorial Hospital System Project);
Hospital Series 1992 RB
6.70%, 06/01/00 A- A 1,000,000 1,058,830
- ---------------------------------------------------------------------------------------------------------
Hays (County of); Series 1995 GO
7.75%, 08/15/97(b) AAA Aaa 175,000 183,797
- ---------------------------------------------------------------------------------------------------------
Houston (Port of) Authority; Harris County RB
5.75%, 05/01/02 A A 1,425,000 1,461,238
- ---------------------------------------------------------------------------------------------------------
Keller (City of) Independent School District;
Certificates of Participation Series 1994
5.75%, 08/15/01(b) AAA Aaa 915,000 965,810
- ---------------------------------------------------------------------------------------------------------
Kerrville (City of); Electric System Refunding
Series 1991 RB
6.375%, 11/01/01(b) AAA Aaa 185,000 199,571
- ---------------------------------------------------------------------------------------------------------
La Marque Independent School District;
Unlimited Schoolhouse Tax Series 1992 GO
7.50%, 08/15/99(b) AAA Aaa 575,000 628,848
7.50%, 08/15/02(b) AAA Aaa 750,000 865,672
- ---------------------------------------------------------------------------------------------------------
Northside Independent School District; School
Improvement Series 1986 GO
6.90%, 02/01/97 AA- Aa 1,000,000 1,027,380
- ---------------------------------------------------------------------------------------------------------
San Antonio (City of); Electric and Gas System
Refunding Series 1989 A RB
7.00%, 02/01/01 AA Aa1 400,000 430,976
- ---------------------------------------------------------------------------------------------------------
Temple (City of) (Bell County); Refunding Series 1992 GO
5.80%, 02/01/01(b) AAA Aaa 250,000 264,278
- ---------------------------------------------------------------------------------------------------------
Texas Housing Agency; Residential Mortgage
Series 1988 A RB
7.15%, 01/01/97 A+ Aa 195,000 198,048
- ---------------------------------------------------------------------------------------------------------
Texas Municipal Power Agency; RB
5.75%, 09/01/02(c)(e) AAA Aaa 1,000,000 1,054,660
- ---------------------------------------------------------------------------------------------------------
</TABLE>

FS-21
<PAGE> 101

Financials

<TABLE>
<CAPTION>
RATING(a) MARKET
S&P MOODY'S PAR VALUE
<S> <C> <C> <C> <C>
TEXAS-(CONTINUED)

Texas Turnpike Authority (Addison Airport Toll Tunnel Project);
Dallas North Tollway Series 1994 RB
6.30%, 01/01/05(b) AAA Aaa $ 500,000 $ 546,280
- ---------------------------------------------------------------------------------------------------------
Texas Water Resources Finance Authority; Series 1989 A RB
7.25%, 08/15/97 A A 150,000 155,822
- ---------------------------------------------------------------------------------------------------------
University of Texas System; General Tuition Series 1986 RB
7.75%, 08/15/96(c)(e) AAA Aaa 190,000 196,685
- ---------------------------------------------------------------------------------------------------------
7.75%, 08/15/98(c) AAA Aaa 10,000 10,791
- ---------------------------------------------------------------------------------------------------------
12,351,879
- ---------------------------------------------------------------------------------------------------------

UTAH-1.88%

Intermountain Power Agency; Power Supply
Refunding Series 1986 F RB
7.00%, 07/01/01 AA Aa 500,000 513,510
- ---------------------------------------------------------------------------------------------------------
Utah (State of) (Board of Water Resources Program); Revolving
Fund Recapitalization Series 1992 B RB
6.10%, 04/01/02 AA -- 500,000 540,530
- ---------------------------------------------------------------------------------------------------------
Utah Municipal Finance Cooperative (Pooled Capital
Improvement Financing Program) (University Hospital
Project); Local Government Series August 1, 1991 RB
6.50%, 05/15/99 AA- -- 475,000 504,151
- ---------------------------------------------------------------------------------------------------------
1,558,191
- ---------------------------------------------------------------------------------------------------------

VIRGINIA-3.39%

Medical College of Hampton Roads; General
Refunding Series 1991 B RB
5.60%, 11/15/96 A- -- 300,000 302,898
- ---------------------------------------------------------------------------------------------------------
6.00%, 11/15/99 A- -- 605,000 633,090
- ---------------------------------------------------------------------------------------------------------
Norfolk (City of) Redevelopment and Housing
Authority (State Board for Community Colleges-
Tidewater); Educational Facility Series 1995 RB
5.30%, 11/01/04 AA Aa 535,000 549,814
- ---------------------------------------------------------------------------------------------------------
5.40%, 11/01/05 AA Aa 500,000 517,744
- ---------------------------------------------------------------------------------------------------------
Portsmouth (City of); Port Improvement
Unlimited Tax Refunding GO
6.40%, 11/01/03 AA- A 300,000 328,299
- ---------------------------------------------------------------------------------------------------------
Portsmouth (City of); Public Utility Refunding
Series 1992 GO
5.90%, 11/01/01 AA- A 450,000 480,983
- ---------------------------------------------------------------------------------------------------------
2,812,828
- ---------------------------------------------------------------------------------------------------------

WASHINGTON-3.68%

Seattle (City of) (West Seattle Bridge); Limited
Tax Refunding Series 1991 GO
6.40%, 10/01/01 AA+ Aa1 250,000 272,513
- ---------------------------------------------------------------------------------------------------------
Seattle (Port of); Series 1992 A RB
6.00%, 11/01/01 AA- A-1 500,000 530,285
- ---------------------------------------------------------------------------------------------------------
</TABLE>

FS-22
<PAGE> 102

Financials

<TABLE>
<CAPTION>
RATING(a) MARKET
S&P MOODY'S PAR VALUE
<S> <C> <C> <C> <C>
WASHINGTON-(CONTINUED)

Washington Health Care Facility Authority (Our Lady of Lourdes
Health Center); Refunding RB
7.35%, 12/01/97 A -- $ 500,000 $ 520,400
- ----------------------------------------------------------------------------------------------------------
Washington Public Power Supply
System (Nuclear Project Number 1); RB
6.50%, 07/01/05(f) AA Aa 1,000,000 1,077,050
- ----------------------------------------------------------------------------------------------------------
Washington Public Power Supply System (Nuclear Project
Number 3); Refunding Series B RB
6.90%, 07/01/96 AA Aa 400,000 402,548
6.80%, 07/01/97 AA Aa 250,000 257,195
- ----------------------------------------------------------------------------------------------------------
3,059,991
- ----------------------------------------------------------------------------------------------------------

WISCONSIN-2.34%

Wisconsin (State of); Series A GO
5.75%, 05/01/99 AA Aa 1,000,000 1,046,040
- ----------------------------------------------------------------------------------------------------------
Wisconsin Health and Education Facility Authority (Franciscan
Sisters of Christian Charity); Series 1995 RB
4.20%, 02/15/97(b) AAA -- 900,000 899,271
- ----------------------------------------------------------------------------------------------------------
1,945,311
- ----------------------------------------------------------------------------------------------------------

WYOMING-0.48%

Lincoln County (Exxon Project); Series 1984 D PCR
3.80%, 11/01/14(d) A-1+ -- 400,000 400,000
- ----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS-99.20% 82,398,765
- ----------------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-0.80% 667,682
- ----------------------------------------------------------------------------------------------------------
NET ASSETS-100.00% $ 83,066,447
==========================================================================================================
</TABLE>

Investment Abbreviations:

<TABLE>
<S> <C>
GO -- General Obligation Bonds
IDR -- Industrial Development Revenue Bonds
NRR -- Not re-rated
PCR -- Pollution Control Revenue Bonds
RB -- Revenue Bonds
</TABLE>

Notes to Schedule of Investments:
(a) Ratings assigned by Moody's Investors Service, Inc. ("MOODY'S") and Standard
& Poor's Corporation ("S&P"). NRR indicates a security that is not re-rated
subsequent to funding of an escrow fund (consisting of U.S. Treasury
obligations); this funding is pursuant to an advance refunding of the
security. Ratings are not covered by Independent Auditors' Report.
(b) Secured by bond insurance.
(c) Secured by an escrow fund of U.S. Treasury obligations.
(d) Payable on demand by the Fund at specified frequencies no greater than
thirteen months. Interest rate is redetermined periodically. Rate shown is
the rate in effect on March 31, 1996.
(e) Security has an outstanding irrevocable call or mandatory put by the issuer.
Market value and maturity date reflect such call or put.
(f) Secured by a letter of credit.

See Notes to Financial Statements.

FS-23
<PAGE> 103

Financials

STATEMENT OF ASSETS AND LIABILITIES

March 31, 1996

<TABLE>
<S> <C>
ASSETS:

Investments, at market value (cost $79,678,165) $ 82,398,765
- -----------------------------------------------------------------------------------------
Cash 65,342
- -----------------------------------------------------------------------------------------
Receivables for:
Capital stock sold 614,469
- -----------------------------------------------------------------------------------------
Interest 1,244,673
- -----------------------------------------------------------------------------------------
Investment for deferred compensation plan 8,355
- -----------------------------------------------------------------------------------------
Other assets 35,603
- -----------------------------------------------------------------------------------------
Total assets 84,367,207
- -----------------------------------------------------------------------------------------

LIABILITIES:

Payables for:
Investments purchased 1,039,736
- -----------------------------------------------------------------------------------------
Capital stock reacquired 77,861
- -----------------------------------------------------------------------------------------
Dividends 105,625
- -----------------------------------------------------------------------------------------
Deferred compensation plan 8,355
- -----------------------------------------------------------------------------------------
Accrued advisory fees 20,898
- -----------------------------------------------------------------------------------------
Accrued administrative service fees 3,777
- -----------------------------------------------------------------------------------------
Accrued directors' fees 1,550
- -----------------------------------------------------------------------------------------
Accrued transfer agent fees 8,385
- -----------------------------------------------------------------------------------------
Accrued operating expenses 34,573
- -----------------------------------------------------------------------------------------
Total liabilities 1,300,760
- -----------------------------------------------------------------------------------------

NET ASSETS APPLICABLE TO SHARES OUTSTANDING $ 83,066,447

=========================================================================================
Capital stock, $.001 par value per share:
Authorized 1,000,000,000
- -----------------------------------------------------------------------------------------
Outstanding 7,695,513
=========================================================================================

NET ASSET VALUE AND REDEMPTION PRICE PER SHARE $ 10.79

=========================================================================================

OFFERING PRICE PER SHARE:

(Net asset value of $10.79 divided by 99.00%) $ 10.90
=========================================================================================
</TABLE>

See Notes to Financial Statements.

FS-24
<PAGE> 104

Financials

STATEMENT OF OPERATIONS

For the year ended March 31, 1996

<TABLE>
<S> <C>
INVESTMENT INCOME:

Interest income $ 4,239,021
- ----------------------------------------------------------------------------------------

EXPENSES:

Advisory fees 232,893
- ----------------------------------------------------------------------------------------
Custodian fees 24,929
- ----------------------------------------------------------------------------------------
Transfer agent fees 62,348
- ----------------------------------------------------------------------------------------
Registration and filing fees 31,557
- ----------------------------------------------------------------------------------------
Administrative service fees 44,054
- ----------------------------------------------------------------------------------------
Directors' fees 6,370
- ----------------------------------------------------------------------------------------
Printing 39,234
- ----------------------------------------------------------------------------------------
Professional fees 25,788
- ----------------------------------------------------------------------------------------
Other 40,092
- ----------------------------------------------------------------------------------------
Total expenses 507,265
- ----------------------------------------------------------------------------------------
Net investment income 3,731,756
- ----------------------------------------------------------------------------------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES:

Net realized gain (loss) on sales of investment securities (5,848)
- ----------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities 836,452
- ----------------------------------------------------------------------------------------
Net gain on investment securities 830,604
- ----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 4,562,360
========================================================================================
</TABLE>

See Notes to Financial Statements.

STATEMENT OF CHANGES IN NET ASSETS

For the years ended March 31, 1996 and 1995

<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
OPERATIONS:

Net investment income $ 3,731,756 $ 4,401,553
- --------------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investment securities (5,848) (1,102,920)
- --------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities 836,452 1,255,198
- --------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 4,562,360 4,553,831
- --------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (3,712,690) (4,304,084)
- --------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on
investment securities -- (28,666)
- --------------------------------------------------------------------------------------------
Net increase (decrease) from capital stock transactions (137,887) (17,623,430)
- --------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 711,783 (17,402,349)
- --------------------------------------------------------------------------------------------

NET ASSETS:

Beginning of period 82,354,664 99,757,013
- --------------------------------------------------------------------------------------------
End of period $83,066,447 $82,354,664
- --------------------------------------------------------------------------------------------

NET ASSETS CONSIST OF:

Capital (par value and additional paid-in) $81,353,865 $81,491,752
- --------------------------------------------------------------------------------------------
Undistributed net investment income 103,347 84,281
- --------------------------------------------------------------------------------------------
Undistributed realized gain (loss) on sales of investment
securities (1,111,365) (1,105,517)
- --------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 2,720,600 1,884,148
- --------------------------------------------------------------------------------------------
$83,066,447 $82,354,664
============================================================================================
</TABLE>

See Notes to Financial Statements.

FS-25
<PAGE> 105

Financials

NOTES TO FINANCIAL STATEMENTS

March 31, 1996

NOTE 1-SIGNIFICANT ACCOUNTING POLICIES

AIM Tax Exempt Funds, Inc. (the "Company") is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Company is organized as a Maryland corporation
consisting of three separate portfolios; the Intermediate Portfolio, AIM
Tax-Exempt Cash Fund and AIM Tax-Exempt Bond Fund of Connecticut. Matters
affecting each portfolio are voted on exclusively by the shareholders of such
portfolio. The assets, liabilities, and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Intermediate Portfolio (the "Fund"). The Fund currently
offers one class of shares, AIM Tax-Free Intermediate Shares (the "Shares"). The
investment objective of the Fund to generate as high a level of tax-exempt
income as is consistent with preservation of capital by investing in high
quality, intermediate-term municipal securities having a maturity of ten and
one-half years or less.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

A. Security Valuations--Portfolio securities are valued based on market
quotations or at fair value determined by a pricing service approved by the
Company's Board of Directors, provided that securities with a demand feature
exercisable within one to seven days are valued at par. Prices provided by
the pricing service represent valuations of the mean between current bid and
asked market prices which 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 Directors or its designees 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
Company's officers in accordance with methods which are specifically
authorized by the Board of Directors. Notwithstanding the above, short-term
obligations with maturities of sixty days or less are valued at amortized
cost.
B. Securities Transactions and Investment Income--Securities transactions are
recorded on a trade date basis. Realized gains and losses are computed on the
basis of specific identification of the securities sold. Interest income,
adjusted for amortization of premiums and original issue discounts, is earned
from settlement date and is recorded on the accrual basis.
C. Dividends and Distributions to Shareholders--It is the policy of the Fund to
declare daily dividends from net investment income. Such dividends are paid
monthly. Net realized capital gains (including net short-term capital gains
and market discounts), if any, are distributed annually.
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 (which may
be carried forward to offset future taxable capital gains, if any) of
$1,108,769, which expires, if not previously utilized, in the year 2004. The
Fund cannot distribute capital gains to shareholders until the tax loss
carryforwards have been utilized. In addition, the Fund intends to invest in
such municipal securities to allow it to qualify to pay "exempt interest
dividends," as defined in the Internal Revenue Code.

FS-26
<PAGE> 106

Financials

NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES

The Company 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 the annual rate of 0.30% of
the first $500 million of the Fund's average daily net assets, plus 0.25% of the
Fund's average daily net assets in excess of $500 million, but not in excess of
$1 billion, plus 0.20% of the Fund's average daily net assets in excess of $1
billion. AIM will, if necessary, reduce its fee for any fiscal year to the
extent required so that the amount of ordinary expenses of the Fund (excluding
interest, taxes, brokerage commissions and extraordinary expenses) paid or
incurred by the Fund for such fiscal year does not exceed the applicable expense
limitations imposed by the state securities regulations in any state in which
the Fund's shares are qualified for sale.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to reimburse AIM for certain costs incurred in providing accounting
services to the Fund. During the year ended March 31, 1996, the Fund reimbursed
AIM $44,054 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 agent and
shareholder services to the Fund. During the year ended March 31, 1996, the Fund
paid AFS $42,242 for such services.
Under the terms of a master distribution agreement between the Company and the
Fund, A I M Distributors, Inc. ("AIM Distributors") acts as the exclusive
distributor of the Shares. AIM Distributors received commissions of $18,234 from
sales of capital stock during the year ended March 31, 1996. Such commissions
are not an expense of the Company. They are deducted from, and are not included
in, the proceeds from sales of capital stock. Certain officers and directors of
the Company are officers of AIM, AFS and AIM Distributors.
During the year ended March 31, 1996, the Fund paid legal fees of $3,086 for
services rendered by Kramer, Levin, Naftalis, Nessen, Kamin & Frankel as counsel
to the Board of Directors. A member of that firm is a director of the Company.

NOTE 3-DIRECTORS' FEES

Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if so
elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.

NOTE 4-INVESTMENT SECURITIES

The aggregate amount of investment securities (other than short-term securities)
purchased and sold during the year ended March 31, 1996 was $26,794,936 and
$23,524,271, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
as of March 31, 1996 is as follows:

<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $2,730,107
- -----------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (9,507)
- -----------------------------------------------------------------------------------
Net unrealized appreciation of investment securities $2,720,600
===================================================================================
</TABLE>

Investments have the same cost for tax and financial statement purposes.

FS-27
<PAGE> 107

Financials

NOTE 5-CAPITAL STOCK

Changes in capital stock outstanding for the years ended March 31, 1996 and 1995
were as follows:

<TABLE>
<CAPTION>
1996 1995
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold 2,173,832 $ 23,604,635 1,622,139 $ 17,104,803
- -----------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 232,136 2,517,616 261,976 2,765,599
- -----------------------------------------------------------------------------------------------------------------------
Reacquired (2,428,661) (26,260,138) (3,561,084) (37,493,832)
- -----------------------------------------------------------------------------------------------------------------------
(22,693) $ (137,887) (1,676,969) $(17,623,430)
=======================================================================================================================
</TABLE>

NOTE 6-FINANCIAL HIGHLIGHTS

Shown below are the condensed financial highlights for a share of capital stock
outstanding during each of the years in the seven-year period ended March 31,
1996, the eleven months ended March 31, 1989 and the period May 11, 1987 (date
operations commenced) through April 30, 1988.

<TABLE>
<CAPTION>
MARCH 31, APRIL
------------------------------------------------------------------------------------------- 30,
1996 1995 1994 1993 1992 1991 1990 1989 1988
------- ------- ------- ------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period $ 10.67 $ 10.62 $ 10.74 $ 10.27 $ 10.07 $ 9.89 $ 9.69 $ 9.88 $10.00
- -------------------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Income from
investment
operations:
Net investment
income 0.52 0.49 0.48 0.53 0.62 0.63 0.62 0.56 0.55
- -------------------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Net gains
(losses) on
securities
(both realized
and
unrealized) 0.12 0.04 (0.10) 0.47 0.20 0.18 0.20 (0.19) (0.12)
- -------------------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Total from
investment
operations 0.64 0.53 0.38 1.00 0.82 0.81 0.82 0.37 0.43
- -------------------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Less distributions:
Dividends from
net investment
income (0.52) (0.48) (0.48) (0.53) (0.62) (0.63) (0.62) (0.56) (0.55)
- -------------------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Distributions
from net
realized
capital gains -- -- (0.02) -- -- -- -- -- --
- -------------------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Total
distributions (0.52) (0.48) (0.50) (0.53) (0.62) (0.63) (0.62) (0.56) (0.55)
- -------------------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Net asset value, end
of period $ 10.79 $ 10.67 $ 10.62 $ 10.74 $ 10.27 $10.07 $ 9.89 $ 9.69 $ 9.88
==================== ======= ======= ======= ======= ======= ======= ======= ======= =======
Total return(a) 6.06% 5.17% 3.47% 10.01% 8.39% 8.39% 8.66% 3.85% 4.46%
==================== ======= ======= ======= ======= ======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000s
omitted) $83,066 $82,355 $99,757 $70,120 $38,773 $6,184 $5,231 $4,413 $5,594
==================== ======= ======= ======= ======= ======= ======= ======= ======= =======
Ratio of expenses to
average net assets 0.65%(b) 0.59% 0.61%(c) 0.38%(c) 0.02%(d) 0.50%(d) 0.50%(d) 0.53%(d)(e) 0.50 (d)(e)
==================== ======= ======= ======= ======= ======= ======= ======= ======= =======
Ratio of net
investment income
to average net
assets 4.81%(b) 4.65% 4.37%(c) 5.00%(c) 5.78%(d) 6.29%(d) 6.27%(d) 6.74%(d)(e) 5.86 (d)(e)
==================== ======= ======= ======= ======= ======= ======= ======= ======= =======
Portfolio turnover
rate 32% 75% 26% 29% 15% 0% 12% 31% 80%
==================== ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>

(a) Does not deduct sales charges and for periods less than one year, total
return is not annualized.
(b) Ratios are based on average net assets of $77,641,400.
(c) After waiver of advisory fees.
(d) After waiver of advisory fees and expense reimbursements.
(e) Annualized.

FS-28
<PAGE> 108

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders of
AIM Tax-Exempt Funds, Inc.:

We have audited the accompanying statement of assets and liabilities of AIM
Tax-Exempt Bond Fund of Connecticut (a portfolio of AIM Tax-Exempt Funds, Inc.),
including the schedule of investments, as of March 31, 1996, and the related
statement of operations for the year then ended, the statement of changes in net
assets for each of the years in the two-year period then ended and the financial
highlights for each of the years in the two-year period then ended, the
three-month period ended March 31, 1994, and the year ended December 31, 1993.
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 the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the 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 March
31, 1996, 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
Tax-Exempt Bond Fund of Connecticut as of March 31, 1996, the results of its
operations for the year then ended, 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 two-year period then ended, the three-month period ended March
31, 1994, and the year ended December 31, 1993, in conformity with generally
accepted accounting principles.

/s/ KPMG PEAT MARWICK LLP

KPMG Peat Marwick LLP

Houston, Texas
May 3, 1996

FS-29
<PAGE> 109

Financials

SCHEDULE OF INVESTMENTS

March 31, 1996

<TABLE>
<CAPTION>
RATING(a) MARKET
S&P MOODY'S PAR VALUE
<S> <C> <C> <C> <C>
MUNICIPAL OBLIGATIONS-98.51%

EDUCATION-11.35%

Connecticut Health and Education Facilities Authority
(Fairfield University); Series F RB
6.875%, 07/01/09 BBB+ Baa1 $1,475,000 $ 1,565,417
- ------------------------------------------------------------------------------------------------
Connecticut Health and Education Facilities Authority
(Quinnipiac College); RB
4.90%, Series D, 07/01/98 BBB- - 150,000 149,015
- ------------------------------------------------------------------------------------------------
7.25%, Series 1989 B, 07/01/99(b)(c) AAA NRR 450,000 497,597
- ------------------------------------------------------------------------------------------------
Connecticut Regional School District No. 5;
Series 1992 GO
6.00%, 03/01/12(d) AAA Aaa 335,000 345,579
- ------------------------------------------------------------------------------------------------
Connecticut Regional School District No. 5
(Towns of Bethany, Orange and Woodbridge); 1993
Issue GO
5.50%, 02/15/07(d) AAA Aaa 500,000 515,650
- ------------------------------------------------------------------------------------------------
Connecticut State Higher Education Supplemental
Loan Authority (Family Education Loan
Program); Series 1990 A RB
7.50%, 11/15/10(e) - A1 1,320,000 1,391,742
- ------------------------------------------------------------------------------------------------
4,465,000
- ------------------------------------------------------------------------------------------------

ELECTRIC-6.13%

Connecticut Development Authority (Connecticut Power &
Light Co.); Series 1993 A PCR
3.30%, 09/01/28(f)(g) A-1+ VMIG-1 700,000 700,000
- ------------------------------------------------------------------------------------------------
Connecticut Development Authority (New England Power
Co.); Series 1985 Fixed Rate PCR
7.25%, 10/15/15 A+ A1 1,600,000 1,713,040
- ------------------------------------------------------------------------------------------------
2,413,040
- ------------------------------------------------------------------------------------------------

GENERAL OBLIGATION-9.93%

Brooklyn (City of), Connecticut; Unlimited Tax GO
5.50%, 05/01/06(d) AAA Aaa 250,000 257,793
- ------------------------------------------------------------------------------------------------
5.70%, 05/01/08(d) AAA Aaa 250,000 259,345
- ------------------------------------------------------------------------------------------------
Cheshire (Town of), Connecticut; Series 1993 GO
5.25%, 08/15/12 - Aa 200,000 192,340
- ------------------------------------------------------------------------------------------------
Chester (Town of), Connecticut; Series 1989 GO
7.00%, 10/01/05 - A 190,000 204,670
- ------------------------------------------------------------------------------------------------
Connecticut (State of); Series 1991 A GO
6.75%, 03/01/01(b)(c) NRR NRR 480,000 531,437
- ------------------------------------------------------------------------------------------------
Connecticut (State of) (General Purpose Public
Improvement); GO
6.75%, Series 1991 A, 03/01/01(b)(c) NRR NRR 200,000 221,432
- ------------------------------------------------------------------------------------------------
6.50%, Series 1992 A, 03/15/02(b)(c) NRR NRR 300,000 331,461
- ------------------------------------------------------------------------------------------------
Mansfield (City of), Connecticut; Series 1990 GO
6.00%, 06/15/07 - A1 100,000 106,718
- ------------------------------------------------------------------------------------------------
6.00%, 06/15/08 - A1 100,000 105,760
- ------------------------------------------------------------------------------------------------
6.00%, 06/15/09 - A1 100,000 106,576
- ------------------------------------------------------------------------------------------------
New Britain (City of), Connecticut; Series 1992
Various Purpose GO
6.00%, 02/01/11(d) AAA Aaa 400,000 420,060
- ------------------------------------------------------------------------------------------------
</TABLE>

FS-30
<PAGE> 110

Financials

<TABLE>
<CAPTION>
RATING(a) MARKET
S&P MOODY'S PAR VALUE
<S> <C> <C> <C> <C>
GENERAL OBLIGATION-Continued

North Canaan (City of), Connecticut;
Series 1991 GO
6.50%, 01/15/08 - A $ 125,000 $ 138,588
- ------------------------------------------------------------------------------------------------
6.50%, 01/15/09 - A 125,000 138,663
- ------------------------------------------------------------------------------------------------
6.50%, 01/15/10 - A 125,000 138,361
- ------------------------------------------------------------------------------------------------
6.50%, 01/15/11 - A 125,000 137,656
- ------------------------------------------------------------------------------------------------
Somers (City of), Connecticut; Series 1990 Various
Purpose GO
6.00%, 12/01/10 - A1 190,000 201,626
- ------------------------------------------------------------------------------------------------
Westbrook (City of), Connecticut; Series 1992 GO
6.40%, 03/15/10(d) AAA Aaa 380,000 414,545
- ------------------------------------------------------------------------------------------------
3,907,031
- ------------------------------------------------------------------------------------------------

HEALTH CARE-11.54%

Connecticut Health and Education Facilities Authority
(Bridgeport Hospital); 1992 Series A RB
6.625%, 07/01/18(d) AAA Aaa 500,000 529,355
- ------------------------------------------------------------------------------------------------
Connecticut Health and Education Facilities Authority
(Capital Asset); Series 1989 B RB
7.00%, 01/01/00(f) A A1 200,000 214,188
- ------------------------------------------------------------------------------------------------
Connecticut Health and Education Facilities Authority
(Danbury Hospital); 1991 Series E RB
6.50%, 07/01/14(d) AAA Aaa 750,000 788,745
- ------------------------------------------------------------------------------------------------
Connecticut Health and Education Facilities Authority
(Middlesex Hospital); 1992 Series G RB
6.25%, 07/01/12(d) AAA Aaa 1,100,000 1,145,837
- ------------------------------------------------------------------------------------------------
Connecticut Health and Education Facilities Authority
(New Britain Memorial Hospital); Series 1991 A RB
7.75%, 07/01/22 BBB- - 500,000 527,910
- ------------------------------------------------------------------------------------------------
Connecticut Health and Education Facilities Authority
(St. Raphael Hospital); 1993 Series H RB
5.00%, 07/01/05(d) AAA Aaa 500,000 501,430
- ------------------------------------------------------------------------------------------------
Connecticut Health and Education Facilities Authority
(Yale-New Haven Hospital);
Series 1990 F RB
7.10%, 07/01/25(d) AAA Aaa 775,000 836,039
- ------------------------------------------------------------------------------------------------
4,543,504
- ------------------------------------------------------------------------------------------------

HOUSING-13.43%

Connecticut Housing Development Authority
(Housing Mortgage Finance Program); RB
7.55%, Series 1990 B-1, 11/15/08 AA Aa 2,760,000 2,808,355
- ------------------------------------------------------------------------------------------------
7.50%, Series 1990 A, 11/15/09(e) AA Aa 5,000 5,186
- ------------------------------------------------------------------------------------------------
7.00%, Series 1991 A-1, 11/15/09 AA Aa 450,000 470,992
- ------------------------------------------------------------------------------------------------
6.55%, Series 1991 C, Sub-Series C-3, 11/15/13 AA Aa 310,000 320,683
- ------------------------------------------------------------------------------------------------
7.125%, Series 1985 F, 11/15/18 AA Aa 190,000 194,921
- ------------------------------------------------------------------------------------------------
Connecticut (State of) (Housing Mortgage Finance
Program); RB
6.00%, Series 1993 E-1, 05/15/17 AA Aa 675,000 669,357
- ------------------------------------------------------------------------------------------------
6.00%, Series 1995 F-1, 05/15/17 AA Aa 310,000 308,506
- ------------------------------------------------------------------------------------------------
6.70%, Series C2, 11/15/22(e) AA Aa 500,000 507,125
- ------------------------------------------------------------------------------------------------
5,285,125
- ------------------------------------------------------------------------------------------------
</TABLE>

FS-31
<PAGE> 111

Financials

<TABLE>
<CAPTION>
RATING(a) MARKET
S&P MOODY'S PAR VALUE
<S> <C> <C> <C> <C>
LEASE RENTAL-1.08%

Connecticut (State of) (Middletown Courthouse
Facilities Project); 1991 Issue Lease-Rental Revenue
Certificates of Participation
6.25%, 12/15/10(d) AAA Aaa $ 400,000 $ 425,288
- ------------------------------------------------------------------------------------------------

RESOURCE RECOVERY-5.78%

Connecticut State Resource Recovery Authority
(American Ref-Fuel Co.-Southeastern Connecticut
Project); Series 1988 A RB
8.00%, 11/15/15(e) AA- Baa1 500,000 543,045
- ------------------------------------------------------------------------------------------------
Connecticut State Resource Recovery Authority
(Bridgeport Resco Corp.-Ltd. Partners);
1985 Issue RB
8.625%, Project B, 01/01/04 A A 670,000 688,177
- ------------------------------------------------------------------------------------------------
7.625%, Project A, 01/01/09 A A 1,000,000 1,042,700
- ------------------------------------------------------------------------------------------------
2,273,922
- ------------------------------------------------------------------------------------------------

TRANSPORTATION-18.59%

Connecticut State Special Tax Obligation
(Transportation Infrastructure); RB
5.10%, Series 1992 B, 09/01/99 AA- A1 1,000,000 1,018,100
- ------------------------------------------------------------------------------------------------
6.80%, Series A, 06/01/03(b)(c) NRR NRR 1,250,000 1,395,875
- ------------------------------------------------------------------------------------------------
6.25%, Series 1991 B, 10/01/09 AA- A1 1,000,000 1,067,180
- ------------------------------------------------------------------------------------------------
6.50%, Series 1991 B, 10/01/10 AA- A1 530,000 594,347
- ------------------------------------------------------------------------------------------------
Connecticut State Special Tax Obligation
(Transportation Infrastructure Sales and Excise
Tax); RB
5.90%, Series 1991 B, 10/01/99 AA- A1 1,000,000 1,047,760
- ------------------------------------------------------------------------------------------------
6.80%, Series 1989 C, 12/01/99(b)(c) AAA NRR 500,000 548,655
- ------------------------------------------------------------------------------------------------
6.50%, Series 1991 B, 10/01/12 AA- A1 1,500,000 1,642,410
- ------------------------------------------------------------------------------------------------
7,314,327
- ------------------------------------------------------------------------------------------------

WATER & SEWER-8.65%

Connecticut Development Authority (Pfizer Inc.);
Series 1982 Refunding PCR
6.55%, 02/15/13 AAA Aaa 250,000 269,625
- ------------------------------------------------------------------------------------------------
Connecticut Development Authority Water Facility
(Bridgeport Hydraulic Co. Project); Series 1990
Refunding RB
7.25%, 06/01/20 A+ - 800,000 866,608
- ------------------------------------------------------------------------------------------------
Connecticut State Clean Water Fund; Series 1991
Clean Water RB
7.00%, 01/01/11 AA+ Aa 1,100,000 1,215,588
- ------------------------------------------------------------------------------------------------
Manchester (City of) Connecticut Eighth Utilities Fire
District; Series 1991 GO
6.75%, 08/15/06 - A1 180,000 202,896
- ------------------------------------------------------------------------------------------------
South Central Connecticut Regional Water
Authority; Eighth Series 1990 A Water System RB
6.60%, 08/01/00(b)(c) NRR NRR 250,000 274,023
- ------------------------------------------------------------------------------------------------
South Central Connecticut Regional Water
Authority; Series 1988 Water System RB
6.80%, 08/01/98(b)(c) NRR NRR 535,000 575,210
- ------------------------------------------------------------------------------------------------
3,403,950
- ------------------------------------------------------------------------------------------------
</TABLE>

FS-32
<PAGE> 112

Financials

<TABLE>
<CAPTION>
RATING(a) MARKET
S&P MOODY'S PAR VALUE
<S> <C> <C> <C> <C>
MISCELLANEOUS-12.03%

Connecticut Development Authority (Economic
Development Projects); 1992 Series Refunding Bonds
6.00%, 11/15/08 AA- Aa $ 500,000 $ 525,365
- ------------------------------------------------------------------------------------------------
Guam (Government of); Series 1995 A GO
4.90%, 09/01/97 BBB - 500,000 500,110
- ------------------------------------------------------------------------------------------------
5.25%, 09/01/99 BBB - 250,000 250,788
- ------------------------------------------------------------------------------------------------
5.375%, 09/01/00 BBB - 250,000 250,953
- ------------------------------------------------------------------------------------------------
Guam (Government of); Series 1994 A GO
5.50%, 08/15/97 BBB - 500,000 504,675
- ------------------------------------------------------------------------------------------------
Guam Airport Authority; Series 1993 B RB
5.00%, 10/01/96(e) BBB - 1,700,000 1,701,547
- ------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth (Highway and Transportation
Authority); Series X RB
5.20%, 07/01/03 A Baa1 1,000,000 1,005,910
- ------------------------------------------------------------------------------------------------
4,739,348
- ------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS-98.51% 38,770,535
- ------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-1.49% 584,906
- ------------------------------------------------------------------------------------------------
NET ASSETS-100.00% $39,355,441
================================================================================================
</TABLE>

Abbreviations:

<TABLE>
<S> <C>
GO General Obligation Bonds
NRR Not re-rated
PCR Pollution Control Revenue Bonds
RB Revenue Bonds
</TABLE>

Notes to Schedule of Investments:

(a) Ratings assigned by Moody's Investors Service, Inc. ("Moody's")
and Standard & Poor's Corporation ("S&P"). NRR indicates a
security that is not re-rated subsequent to funding of an escrow
fund (consisting of U.S. Treasury obligations); this funding is
pursuant to an advance refunding of the security. Ratings are not
covered by Independent Auditors' Report.
(b) Secured by an escrow fund of U.S. Treasury obligations.
(c) Subject to an irrevocable call or mandatory put. Market value and
maturity date reflect such call or put.
(d) Secured by bond insurance.
(e) Security subject to alternative minimum tax.
(f) Secured by a letter of credit.
(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
March 31, 1996.

See Notes to Financial Statements.

FS-33
<PAGE> 113

Financials

STATEMENT OF ASSETS AND LIABILITIES

March 31, 1996

<TABLE>
<S> <C>
ASSETS:

Investments, at market value (cost $37,102,995) $ 38,770,535
- -----------------------------------------------------------------------------------------
Receivables for:
Capital stock sold 49,322
- -----------------------------------------------------------------------------------------
Interest 743,229
- -----------------------------------------------------------------------------------------
Investment for deferred compensation plan 9,092
- -----------------------------------------------------------------------------------------
Other assets 3,693
- -----------------------------------------------------------------------------------------
Total assets 39,575,871
- -----------------------------------------------------------------------------------------

LIABILITIES:

Payables for:
Capital stock reacquired 16,767
- -----------------------------------------------------------------------------------------
Amount due to custodian bank 70,225
- -----------------------------------------------------------------------------------------
Deferred compensation 9,092
- -----------------------------------------------------------------------------------------
Dividends 64,683
- -----------------------------------------------------------------------------------------
Accrued administrative service fees 3,721
- -----------------------------------------------------------------------------------------
Accrued distribution fees 24,647
- -----------------------------------------------------------------------------------------
Accrued transfer agent fees 2,841
- -----------------------------------------------------------------------------------------
Accrued operating expenses 28,454
- -----------------------------------------------------------------------------------------
Total liabilities 220,430
- -----------------------------------------------------------------------------------------

NET ASSETS APPLICABLE TO SHARES OUTSTANDING $ 39,355,441

- -----------------------------------------------------------------------------------------
Capital stock, $.001 par value per share:
Authorized 1,000,000,000
- -----------------------------------------------------------------------------------------
Outstanding 3,641,266
- -----------------------------------------------------------------------------------------

NET ASSET VALUE AND REDEMPTION PRICE PER SHARE $ 10.81

- -----------------------------------------------------------------------------------------

OFFERING PRICE PER SHARE:

(Net asset value of $10.81 divided by 95.25%) $ 11.35
=========================================================================================
</TABLE>

See Notes to Financial Statements.

FS-34
<PAGE> 114

Financials

STATEMENT OF OPERATIONS

For the year ended March 31, 1996

<TABLE>
<S> <C>
INVESTMENT INCOME:

Interest income $2,308,362
- ----------------------------------------------------------------------------------------

EXPENSES:

Advisory fees 198,182
- ----------------------------------------------------------------------------------------
Custodian fees 10,438
- ----------------------------------------------------------------------------------------
Transfer agent fees 30,460
- ----------------------------------------------------------------------------------------
Directors' fees 6,242
- ----------------------------------------------------------------------------------------
Distribution fees 99,095
- ----------------------------------------------------------------------------------------
Administrative services fees 45,950
- ----------------------------------------------------------------------------------------
Other 69,546
- ----------------------------------------------------------------------------------------
Total expenses 459,913
- ----------------------------------------------------------------------------------------
Less expenses assumed by advisor (198,182)
- ----------------------------------------------------------------------------------------
Net expenses 261,731
- ----------------------------------------------------------------------------------------
Net investment income 2,046,631
- ----------------------------------------------------------------------------------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES:

Net realized gain (loss) on sales of investment securities (39,012)
- ----------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 362,769
- ----------------------------------------------------------------------------------------
Net gain on investment securities 323,757
- ----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $2,370,388
========================================================================================
</TABLE>

See Notes to Financial Statements.

FS-35
<PAGE> 115

Financials

STATEMENT OF CHANGES IN NET ASSETS

For the years ended March 31, 1996 and 1995

<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
OPERATIONS:

Net investment income $ 2,046,631 $ 2,097,384
- ---------------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investment securities (39,012) (127,300)
- ---------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities 362,769 195,742
- ---------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 2,370,388 2,165,826
- ---------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income (2,032,807) (2,111,073)
- ---------------------------------------------------------------------------------------------
Return of capital -- (19,319)
- ---------------------------------------------------------------------------------------------
Net increase (decrease) from capital stock transactions 729,185 (4,107,391)
- ---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 1,066,766 (4,071,957)
- ---------------------------------------------------------------------------------------------

NET ASSETS:

Beginning of period 38,288,675 42,360,632
- ---------------------------------------------------------------------------------------------
End of period $39,355,441 $38,288,675
=============================================================================================

NET ASSETS CONSIST OF:

Capital (par value and additional paid-in) $37,823,822 $37,094,637
- ---------------------------------------------------------------------------------------------
Undistributed net investment income 5,077 (8,747)
- ---------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) on sales of investment
securities (140,998) (101,986)
- ---------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 1,667,540 1,304,771
- ---------------------------------------------------------------------------------------------
$39,355,441 $38,288,675
=============================================================================================
</TABLE>

See Notes to Financial Statements.

FS-36
<PAGE> 116

Financials

NOTES TO FINANCIAL STATEMENTS

March 31, 1996

NOTE 1-SIGNIFICANT ACCOUNTING POLICIES

AIM Tax-Exempt Funds, Inc. (the "Company") is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end management
investment company. The Company is organized as a Maryland corporation
consisting of three separate portfolios; AIM Tax-Exempt Bond Fund of
Connecticut, AIM Tax-Exempt Cash Fund and the Intermediate Portfolio. Matters
affecting each portfolio are voted on exclusively by the shareholders of such
portfolio. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the AIM Tax-Exempt Bond Fund of Connecticut (the "Fund"). The
investment objective of the Fund is to earn a high level of income free from
federal taxes and Connecticut taxes by investing at least 80% of its net assets
in municipal bonds and other municipal securities.
The following is a summary of the significant accounting policies followed by
the Fund in the preparation of its financial statements. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

A. Security Valuations--Portfolio securities are valued based on market
quotations or at fair value determined by a pricing service approved by the
Board of Directors, provided that securities with a demand feature
exercisable within one to seven days are valued at par. Prices provided by
the pricing service represent valuations of the mean between current bid and
asked market prices which 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 Directors or its designees 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
Company's officers in accordance with methods which are specifically
authorized by the Board of Directors. Notwithstanding the above, short-term
obligations with maturities of sixty days or less are valued at amortized
cost.
B. Securities Transactions and Investment Income--Securities transactions are
recorded on a trade date basis. Realized gains and losses on sales are
computed on the basis of specific identification of the securities sold.
Interest income, adjusted for amortization of premiums and original issue
discounts, is recorded as earned from settlement date and is recorded on the
accrual basis.
C. Dividends and Distributions to Shareholders--It is the policy of the Fund to
declare daily dividends from net investment income. Such dividends are paid
monthly. Net realized capital gains (including net short-term capital gains
and market discounts), if any, are distributed annually.
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 (which may
be carried forward to offset future taxable gains, if any) of $130,061, which
expires, if not previously utilized, through the year 2004. The Fund cannot
distribute capital gains to shareholders until the tax loss carryforwards
have been utilized. In addition, the Fund intends to invest in such municipal
securities to allow it to qualify to pay to shareholders "exempt interest
dividends," as defined in the Internal Revenue Code.

FS-37
<PAGE> 117

Financials

NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES

The Company 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 the annual rate of 0.50% of
the Fund's average daily net assets. AIM will, if necessary, reduce its fee for
any fiscal year to the extent required so that the amount of ordinary expenses
of the Fund (excluding interest, taxes, brokerage commissions and extraordinary
expenses) paid or incurred by the Fund for such fiscal year does not exceed the
applicable expense limitations imposed by the state securities regulations in
any state in which the Fund's shares are qualified for sale. During the year
ended March 31, 1996, AIM voluntarily waived advisory fees of $198,182.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to reimburse AIM for certain costs incurred in providing accounting
services to the Fund. During the year ended March 31, 1996, the Fund reimbursed
AIM $45,950 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 agent and
shareholder services to the Fund. During the year ended March 31, 1996, the Fund
paid AFS $19,600 for such services.
Under the terms of a master distribution agreement between the Company and the
Fund, A I M Distributors, Inc. ("AIM Distributors") acts as the exclusive
distributor of the Fund's shares. The Company has also adopted a plan pursuant
to Rule 12b-1 under the 1940 Act (the "Plan") with respect to the Fund, whereby
the Fund pays to AIM Distributors compensation at an annual rate of 0.25% of the
Fund's average daily net assets. The Plan is designed to compensate AIM
Distributors for certain promotional and other sales related costs and provides
for periodic payments to selected dealers and financial institutions who furnish
continuing personal shareholder services to their customers who purchase and own
shares of the Fund. Any amounts not paid as a service fee under such 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. During the year ended March 31, 1996, the Fund paid AIM Distributors
$99,095 as compensation under the Plan. Certain officers and directors of the
Company are officers of AIM, AFS and AIM Distributors.
AIM Distributors received commissions of $33,891 from sales of shares of the
Fund's capital stock during the year ended March 31, 1996. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of capital stock.
During the year ended March 31, 1996, the Fund paid legal fees of $2,959 for
services rendered by Kramer, Levin, Naftalis, Nessen, Kamin & Frankel as Counsel
to the Board of Directors. A member of that firm is a director of the Company.

NOTE 3-DIRECTORS' FEES

NOTE 4-INVESTMENT SECURITIES

The aggregate amount of investment securities (other than short-term securities)
purchased and sold during the year ended March 31, 1996 were $8,751,359 and
$6,205,837, respectively. The amount of unrealized appreciation (depreciation)
of investment securities as of March 31, 1996 is as follows:

<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $1,723,654
- ----------------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (56,114)
- ----------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities $1,667,540
========================================================================================
</TABLE>

Investments have the same cost for tax and financial statement purposes.

FS-38
<PAGE> 118

Financials

NOTE 5-CAPITAL STOCK

Changes in capital stock outstanding for the years ended March 31, 1996 and 1995
were as follows:

<TABLE>
<CAPTION>
1996 1995
----------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Sold 555,351 $ 6,036,362 370,407 $ 3,925,610
- ---------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 116,353 1,264,613 129,768 1,372,166
- ---------------------------------------------------------------------------------------------------------------------------
Reacquired (603,962) (6,571,790) (889,770) (9,405,167)
- ---------------------------------------------------------------------------------------------------------------------------
67,742 $ 729,185 (389,595) $(4,107,391)
===========================================================================================================================
</TABLE>

NOTE 6-FINANCIAL HIGHLIGHTS

Shown below are the condensed financial highlights for a share of capital stock
outstanding during each of the years in the two-year period ended March 31,
1996, the three months ended March 31, 1994, each of the years in the four-year
period ended December 31, 1993 and the period October 3, 1989 (date operations
commenced) through December 31, 1989.

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
-------------------------------- ----------------------------------------------------------
1996 1995 1994 1993 1992(a) 1991 1990 1989
------- ------- ------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 10.71 $ 10.69 $ 11.29 $ 10.65 $ 10.52 $ 10.07 $ 10.19 $10.00
- ------------------------------- ------- ------- ------- ------- ------- ------- ------- -------
Income from investment
operations:
Net investment income 0.56 0.56 0.15 0.60 0.66 0.69 0.67 0.14
- ------------------------------- ------- ------- ------- ------- ------- ------- ------- -------
Net gains (losses) on
securities (both
realized and unrealized) 0.10 0.04 (0.61) 0.65 0.17 0.50 (0.10) 0.16
- ------------------------------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations 0.66 0.60 (0.46) 1.25 0.83 1.19 0.57 0.30
- ------------------------------- ------- ------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment income (0.56) (0.57) (0.14) (0.60) (0.66) (0.69) (0.69) (0.11)
- ------------------------------- ------- ------- ------- ------- ------- ------- ------- -------
Distributions from net
realized capital gains -- -- -- (0.01) (0.04) (0.05) -- --
- ------------------------------- ------- ------- ------- ------- ------- ------- ------- -------
Returns of capital -- (0.01) -- -- -- -- --
- ------------------------------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions (0.56) (0.58) (0.14) (0.61) (0.70) (0.74) (0.69) (0.11)
- ------------------------------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of period $ 10.81 $ 10.71 $ 10.69 $ 11.29 $ 10.65 $ 10.52 $ 10.07 $10.19
=============================== ======= ======= ======= ======= ======= ======= ======= =======
Total return(b) 6.24% 5.78% (4.06)% 11.99% 8.22% 12.23% 5.88% 3.06%
=============================== ======= ======= ======= ======= ======= ======= ======= =======
Ratio/supplemental data:
Net assets, end of period
(000s omitted) $39,355 $38,289 $42,361 $46,224 $33,110 $27,298 $16,685 $6,556
=============================== ======= ======= ======= ======= ======= ======= ======= =======
Ratio of expenses to average
net assets(c) 0.66%(d) 0.55% 0.50%(e) 0.34% 0.25% 0.25% 0.25% 0.25%(e)
=============================== ======= ======= ======= ======= ======= ======= ======= =======
Ratio of net investment income
to average net assets(c) 5.16%(d) 5.37% 5.32%(e) 5.42% 6.25% 6.73% 6.82% 6.21%(e)
=============================== ======= ======= ======= ======= ======= ======= ======= =======
Portfolio turnover rate 17% 7% 2% 5% 43% 43% 57% 63%
=============================== ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>

(a) The Fund changed investment advisors on June 30, 1992.
(b) Does not deduct sales charges and for periods less than one year, total
returns are not annualized.
(c) After waiver of advisory fees and expense reimbursements. Ratios of expenses
to average net assets prior to waiver of advisory fees and expense
reimbursements are 1.16%, 1.13%, 1.23% (annualized), 1.30%, 1.12%, 1.26%,
1.33%, and 1.99% (annualized) for the period 1996-89, respectively. Ratios
of net investment income to average net assets prior to waiver of advisory
fees and expense reimbursements are 4.66%, 4.79%, 4.59% (annualized), 4.45%,
5.38%, 5.72%, 5.74%, and 4.48% (annualized) for the period 1996-89,
respectively.
(d) Ratios are based on average daily net assets of $39,637,920.
(e) Annualized.

FS-39
<PAGE> 119

PART C
OTHER INFORMATION

Item 24. (a) Financial Statements:

(1) AIM Tax-Exempt Cash Fund

In Part A: Financial Highlights

In Part B: (1) Independent Auditors' Report
(2) Schedule of Investments as of March 31, 1996
(3) Statement of Assets and Liabilities as of
March 31, 1996
(4) Statement of Operations for the year ended
March 31, 1996
(5) Statement of Changes in Net Assets for the
years ended March 31, 1996 and 1995

(2) Intermediate Portfolio - AIM Tax-Free Intermediate Shares

In Part A: Financial Highlights

(3) AIM Tax-Exempt Bond Fund of Connecticut

In Part A: Financial Highlights

(b) Exhibits

Exhibit
Number Description
- ------ --------------------------------------------
<S> <C>
(1) (a) - Articles of Incorporation of Registrant, dated April 30, 1993, were filed as an Exhibit to
Registrant's Registration Statement on July 19, 1993, and are filed herewith electronically.
</TABLE>

C-1
<PAGE> 120

<TABLE>
<S> <C>
(b) - Articles of Amendment, dated July 27, 1993, were filed as an Exhibit to Registrant's Pre-Effective
Amendment No. 1 on October 12, 1993, and are filed herewith electronically.

(c) - Articles of Amendment, dated September 10, 1993, were filed as an Exhibit to Registrant's Pre-
Effective Amendment No. 1 on October 12, 1993, and are filed herewith electronically.

(2) (a) - By-Laws of Registrant were filed as an Exhibit to Registrant's Registration Statement on July 19,
1993, and were electronically filed as an Exhibit to Post-Effective Amendment No. 3 on July 27, 1995,
and are hereby incorporated by reference.

(b) - First Amendment, dated March 14, 1995, to the By-Laws of Registrant was electronically filed as an
Exhibit to Post-Effective Amendment No. 3 on July 27, 1995, and is hereby incorporated by reference.

(3) - Voting Trust Agreements - None.

(4) (a) - Specimen share certificate for AIM Tax-Exempt Cash Fund of Registrant (transfer agent change) was
electronically filed as an Exhibit to Post-Effective Amendment No. 3 on July 27, 1995, and is hereby
incorporated by reference.

(b) - Specimen share certificate for Intermediate Portfolio - AIM Tax-Free Intermediate Shares of
Registrant (transfer agent change) was electronically filed as an Exhibit to Post-Effective Amendment
No. 3 on July 27, 1995, and is hereby incorporated by reference.

(c) - Specimen share certificate for AIM Tax-Exempt Bond Fund of Connecticut of Registrant (transfer agent
change) was electronically filed as an Exhibit to Post-Effective Amendment No. 3 on July 27, 1995,
and is hereby incorporated by reference.

(5) (a) - 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 Pre-Effective Amendment No. 1 on October
12, 1993.

(b) - 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. 1 on April 28, 1994 and is
filed herewith electronically.

(6) (a) - (1) Master Distribution Agreement, dated as of August 6, 1993, between Registrant and A I M
Distributors, Inc. was filed as an Exhibit to Registrant's Pre-Effective Amendment No. 1 on October
12, 1993.

(2) Master Distribution Agreement, dated October 18, 1993, between Registrant and A I M Distributors,
Inc. was filed as an Exhibit to Registrant's Post-Effective Amendment No. 1 on April 28, 1994, and is
filed herewith electronically.

</TABLE>

C-2
<PAGE> 121

<TABLE>
<S> <C>
(b) - Form of Selected Dealer Agreement between A I M Distributors, Inc. and selected dealers was
electronically filed as an Exhibit to Post-Effective Amendment No. 3 on July 27, 1995, and is hereby
incorporated by reference.

(c) - Form of Bank Agreement between A I M Distributors, Inc. and selected banks was electronically filed
as an Exhibit to Post-Effective Amendment No. 3 on July 27, 1995, and is hereby incorporated by
reference.

(7) (a) - Retirement Plan for Registrant's Non-Affiliated Directors was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 2 on July 26, 1994.

(b) - AIM Funds Retirement Plan for Eligible Directors/Trustees.

(c) - Form of Deferred Compensation Agreement for Registrant's Non-Affiliated Directors was filed as an
Exhibit to Registrant's Post-Effective Amendment No. 2 on July 26, 1994.

(d) - Form of Deferred Compensation Plan for Eligible Directors/Trustees.

(8) (a) - Custodian Agreement, dated October 15, 1993, between Registrant and State Street Bank and Trust
Company was filed as an Exhibit to Registrant's Post-Effective Amendment No. 1 on April 28, 1994.

(b) - Custody Agreement, dated October 19, 1995, between Registrant and The Bank of New York is filed
herewith electronically.

(c) - Subcustodian Agreement, dated September 9, 1994, between Registrant and Texas Commerce Bank National
Association was electronically filed as an Exhibit to Post-Effective Amendment No. 3 on July 27,
1995, and is hereby incorporated by reference.

(9) (a) - (1) Assignment and Acceptance of Assignment of Transfer Agency and Registrar Agreement, dated as of
October 15, 1993, among Registrant (on behalf of its Intermediate Portfolio - AIM Tax-Free
Intermediate Shares), Tax-Free Investments Co. (on behalf of its Intermediate Portfolio - AIM
Tax-Free Intermediate Shares) and First Data Investor Services Group (formerly The Shareholder
Services Group, Inc.) was filed as an Exhibit to Registrant's Post-Effective Amendment No. 2 on July
26, 1994.

(2) Amendment No. 1, dated October 15, 1993, to the Transfer Agency and Registrar Agreement between
Registrant and First Data Investor Services Group (formerly The Shareholder Services Group, Inc.) was
filed as an Exhibit to Registrant's Post-Effective Amendment No. 2 on July 26, 1994.

(3) Transfer Agency and Service Agreement, dated November 1, 1994, between Registrant and A I M Fund
Services, Inc. was electronically filed as an Exhibit to Post-Effective Amendment No. 3 on July 27,
1995, and is hereby incorporated by reference.
</TABLE>

C-3
<PAGE> 122

<TABLE>
<S> <C>
(4) Remote Access and Related Services Agreement, dated as December 23, 1994, between Registrant and
First Data Investor Services Group (formerly The Shareholder Services Group, Inc.) was electronically
filed as an Exhibit to Post-Effective Amendment No. 3 on July 27, 1995, and is hereby incorporated by
reference.

(5) Amendment No. 1, dated October 4, 1995, to the Remote Access and Related Services Agreement,
dated December 23, 1994, between Registrant and First Data Investor Services Group (formerly, The
Shareholder Services Group, Inc.) is filed herewith electronically.

(6) Addendum No. 2, dated October 12, 1995, to the Remote Access and Related Services Agreement,
dated December 23, 1994, between Registrant and First Data Investor Services Group (formerly The
Shareholder Services Group, Inc.) is filed herewith electronically.

(b) - (1) 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 Pre-Effective Amendment No. 1 on October
12, 1993.

(2) 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. 1 on April
28, 1994, and is filed herewith electronically.

(3)(i) Administrative Services Agreement, dated October 18, 1993, between A I M Advisors, Inc., on
behalf of Registrant's portfolios, and A I M Fund Services, Inc. was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 1 on April 28, 1994.

(3)(ii) Amendment No. 1 to the 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. 2 on July 26, 1994.

(10) - Opinion of Ballard Spahr Andrews & Ingersoll was filed as an Exhibit to Registrant's Pre-Effective
Amendment No. 1 on October 12, 1993, and is hereby incorporated by reference.

(11) (a) - Consent of Ballard Spahr Andrews & Ingersoll is filed herewith electronically.

(b) - Consent of KPMG Peat Marwick LLP is filed herewith electronically.

(12) - Financial Statements - None.

(13) - Agreements Concerning Initial Capitalization - None.

(14) - Retirement Plan Documents - None.
</TABLE>

C-4
<PAGE> 123

<TABLE>
<S> <C>
(15) (a) - Distribution Plan for Registrant's AIM Tax-Exempt Cash Fund and AIM Tax-Exempt Bond Fund of
Connecticut, and related forms of agreements were filed as an Exhibit to Registrant's Post-Effective
Amendment No. 1 on April 28, 1994.

(b) - Amended Distribution Plan, dated as of September 10, 1994, for Registrant's AIM Tax-Exempt Cash Fund
and AIM Tax-Exempt Bond Fund of Connecticut, and related forms of agreement were electronically filed
as an Exhibit to Post-Effective Amendment No. 3 on July 27, 1995, and is hereby incorporated by
reference.

(16) - Schedule of Sample Performance Quotation Calculations was filed as an Exhibit to Registrant's Post-
Effective Amendment No. 2 on July 26, 1994 and is filed herewith electronically.

(18) - Rule 18f-3 Plan - None.

(27) - Financial Data Schedule is filed herewith electronically.

</TABLE>

Item 25. Persons Controlled by or Under Common Control with Registrant

Furnish a list or diagram of all persons directly or indirectly
controlled by or under common control with the Registrant and as to each such
person indicate (1) if a company, the state or other sovereign power under the
laws of which it is organized, and (2) the percentage of voting securities
owned or other basis of control by the person, if any, immediately controlling
it.

Not Applicable.

Item 26. Number of Holders of Securities

State in substantially the tabular form indicated, as of a
specified date within 90 days prior to the date of filing, the number of record
holders of each class of securities of the Registrant.

<TABLE>
<CAPTION>
Number of Record Holders as
Title of Class of July 1, 1996
-------------- ---------------------------
<S> <C>
AIM Tax-Exempt Cash Fund 2,500
Intermediate Portfolio -
AIM Tax-Free Intermediate Shares 2,737
AIM Tax-Exempt Bond Fund of Connecticut 1,273
</TABLE>

Item 27. Indemnification

State the general effect of any contract, arrangements or statute under
which any director, officer, underwriter or affiliated person of the Registrant
is insured or indemnified in any manner against any liability which may be
incurred in such capacity, other than insurance provided by any director,
officer, affiliated person or underwriter for their own protection.

Pursuant to the Maryland General Corporation Law and the Registrant's
Charter and By-Laws, the Registrant may indemnify any person who was or
is a director, officer, employee or agent of the Registrant to the
maximum

C-5
<PAGE> 124
extent permitted by the Maryland General Corporation Law. The specific
terms of such indemnification are reflected in the Registrant's Charter
and By-Laws, which are incorporated herein as part of this Registration
Statement. No indemnification will be provided by the Registrant to any
director or officer of the Registrant for any liability to the Registrant
or shareholders to which such director or officer would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of duty.

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 Securities and
Exchange Commission such indemnification is against public policy as
expressed in such Act 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 director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, 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. Insurance coverage is provided under a joint Mutual Fund
and Investment Advisory Professional Directors & Officers Liability
Policy, issued by ICI Mutual Insurance Company, with a $15,000,000 limit
of liability.

Item 28. Business and Other Connections of Investment Advisor

Describe any other business, profession, vocation or employment of a
substantial nature in which each investment advisor of the Registrant, and each
director, officer or partner of any such investment advisor, is or has been,
at any time during the past two fiscal years, engaged for his own account or in
the capacity of director, officer, employee, partner, or trustee.

The only employment of a substantial nature of the Advisor's directors
and officers is with the Advisor and its affiliated companies. Reference
is also made to the discussion under the captions "Management" of the
Prospectus which comprises Part A of this Registration Statement, and to
the discussion under the caption "Investment Advisory and Other Services"
of the Statement of Additional Information which comprises Part B of this
Registration Statement, and to Item 29(b) of Part C of this Registration
Statement.

Item 29. Principal Underwriters

(a) A I M Distributors, Inc., the Registrant's principal underwriter,
also acts as principal underwriter to the following investment
companies:

AIM Equity Funds, Inc. (Retail Classes)
AIM Funds Group

C-6
<PAGE> 125
AIM International Funds, Inc.
AIM Investment Securities Funds (AIM Limited Maturity Treasury
Shares)
AIM Summit Fund, Inc.
AIM Variable Insurance Funds, Inc.

(b) The following table sets forth information with respect to each
director, officer or partner of A I M Distributors, Inc.

<TABLE>
<CAPTION>
Name and Principal Position and Offices Position and Offices
Business Address* with Principal Underwriter with Registrant
- ---------------- -------------------------- ---------------
<S> <C> <C>
Charles T. Bauer Chairman of the Board of Directors Chairman

Michael J. Cemo President & Director None

Gary T. Crum Director Senior Vice President

Robert H. Graham Senior Vice President & Director President & Director

James L. Salners Senior Vice President & Director None

William G. Littlepage Senior Vice President & Director None

John Caldwell Senior Vice President None

Gordan J. Sprague Senior Vice President None

Michael C. Vessels Senior Vice President None

Lawrence E. Manierre First Vice President None

James E. Stueve First Vice President None

John J. Arthur Vice President & Treasurer Senior Vice President
& Treasurer

Melville B. Cox Vice President & Chief Compliance Vice President
Officer

Ofelia M. Mayo Vice President, General Counsel Assistant Secretary
& Assistant Secretary

William H. Kleh Vice President None

Carol F. Relihan Vice President Senior Vice President
& Secretary
</TABLE>

- ----------------------------------

*11 Greenway Plaza, Suite 1919, Houston, Texas 77046-1173

C-7
<PAGE> 126

Sidney M. Dilgren Vice President None

Frank V. Serebrin Vice President None

B.J. Thompson Vice President None

Robert D. Van Sant Vice President None

Kathleen J. Pflueger Secretary Assistant Secretary

David E. Hessel Assistant Vice President, None
Assistant Treasurer &
Controller

Mary E. Gentempo Assistant Vice President None

Jeffrey L. Horne Assistant Vice President None

Kim T. Lankford Assistant Vice President None

Nicholas D. White Assistant Vice President None

David L. Kite Assistant General Counsel & Assistant Secretary
Assistant Secretary

Nancy L. Martin Assistant General Counsel & Assistant Secretary
Assistant Secretary

Samuel D. Sirko Assistant General Counsel & Assistant Secretary
Assistant Secretary

Stephen I. Winer Assistant Secretary Assistant Secretary

- ------------------------------------------

*11 Greenway Plaza, Suite 1919, Houston, Texas 77046-1173

C-8
<PAGE> 127

Item 30. Location of Accounts and Records

With respect to each account, book or other document required to be
maintained by Section 31(a) of the 1940 Act and the Rules (17 CFR 270.31a-1 to
31a-3) promulgated thereunder, furnish the name and address of each person
maintaining physical possession of each such account, book or other document.

A I M Advisors, Inc., 11 Greenway Plaza, Suite 1919, Houston, Texas
77046-1173, maintains physical possession of each such account, book or
other document of the Registrant at its principal executive offices,
except for those maintained by the Registrant's Custodian, The Bank of
New York, 90 Washington Street, 11th Floor, New York, New York 10286, and
the Registrant's Transfer Agent and Dividend Paying Agent, A I M Fund
Services, Inc., 11 Greenway Plaza, Suite 1919, Houston, Texas 77046-1173.

Item 31. Management Services

Furnish a summary of the substantive provisions of any management-related
service contract not discussed in Part A or Part B of this Form (because the
contract was not believed to be of interest to a purchaser of securities of the
Registrant) under which services are provided to the Registrant, indicating the
parties to the contract, the total dollars paid and by whom, for the last three
fiscal years.

Not Applicable.

Item 32. Undertakings

The Registrant undertakes to furnish each person to whom a prospectus is
delivered a copy of the applicable Fund's latest annual report to
shareholders, upon request and without charge.

C-9
<PAGE> 128

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,
thereto duly authorized, in the city of Houston, Texas on the 26 day of July,
1996.

Registrant: AIM TAX-EXEMPT FUNDS, INC.

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/ CHARLES T. BAUER Chairman & Director July 26, 1996
----------------------------------------
(Charles T. Bauer)

/s/ ROBERT H. GRAHAM Director & President July 26, 1996
---------------------------------------- (Principal Executive Officer)
(Robert H. Graham)

/s/ B.L. CROCKETT Director July 26, 1996
----------------------------------------
(Bruce L. Crockett)

/s/ OWEN DALY II Director July 26, 1996
----------------------------------------
(Owen Daly II)

/s/ CARL FRISCHLING Director July 26, 1996
----------------------------------------
(Carl Frischling)

/s/ JOHN F. KROEGER Director July 26, 1996
----------------------------------------
(John F. Kroeger)

/s/ LEWIS F. PENNOCK Director July 26, 1996
----------------------------------------
(Lewis F. Pennock)

/s/ IAN W. ROBINSON Director July 26, 1996
----------------------------------------
(Ian W. Robinson)

/s/ LOUIS S. SKLAR Director July 26, 1996
----------------------------------------
(Louis S. Sklar)
Senior Vice President &
/s/ JOHN J. ARTHUR Treasurer (Principal Financial July 26, 1996
---------------------------------------- and Accounting Officer)
(John J. Arthur)
</TABLE>

<PAGE> 129
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
1(a) Articles of Incorporation of Registrant, dated April 30, 1993, were filed as an Exhibit to Registrant's
Registration Statement on July 19, 1993, and are filed herewith electronically.

1(b) Articles of Amendment, dated July 27, 1993, were filed as an Exhibit to Registrant's Pre-Effective
Amendment No. 1 on October 12, 1993, and are filed herewith electronically.

1(c) Articles of Amendment, dated September 10, 1993, were filed as an Exhibit to Registrant's Pre-Effective
Amendment No. 1 on October 12, 1993, and are filed herewith electronically.

5(b) 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. 1 on April 28, 1994 and is filed
herewith electronically.

6(a)(2) Master Distribution Agreement, dated October 18, 1993, between Registrant and A I M Distributors, Inc. was
filed as an Exhibit to Registrant's Post-Effective Amendment No. 1 on April 28, 1994, and is filed herewith
electronically.

7(b) AIM Funds Retirement Plan for Eligible Directors/Trustees

7(d) Form of Deferred Compensation Plan for Eligible Directors/Trustees.

8(b) Custody Agreement, dated October 19, 1995, between Registrant and The Bank of New York is filed herewith
electronically.

9(a)(5) Amendment No. 1, dated October 4, 1995, to the Remote Access and Related Services Agreement, dated December
23, 1994, between Registrant and First Data Investor Services Group (formerly, The Shareholder Services
Group, Inc.) is filed herewith electronically.

9(a)(6) Addendum No. 2, dated October 12, 1995, to the Remote Access and Related Services Agreement, dated December
23, 1994, between Registrant and First Data Investor Services Group (formerly The Shareholder Services
Group, Inc.) is filed herewith electronically.

9(b)(2) 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. 1 on April 28, 1994, and is filed
herewith electronically.
</TABLE>

<PAGE> 130
<TABLE>
<S> <C>
11(a) Consent of Ballard Spahr Andrews & Ingersoll is filed herewith electronically.

11(b) Consent of KPMG Peat Marwick LLP is filed herewith electronically.

11(c) Consent of Price Waterhouse LLP is filed herewith electronically.

16 Schedule of Sample Performance Quotation Calculations was filed as an Exhibit to Registrant's Post-
Effective Amendment No. 2 on July 26, 1994 and is filed herewith electronically.

27 Financial Data Schedule is filed herewith electronically.
</TABLE>

<PAGE> 1
EXHIBIT 1(a)

ARTICLES OF INCORPORATION
OF
AIM TAX-FREE FUNDS, INC.

FIRST: Incorporator. The undersigned, Carol F. Relihan, whose
address is 11 Greenway Plaza, Suite 1919, Houston, Texas 77046-1173, being at
least eighteen years of age, does, under and by virtue of the general laws of
the State of Maryland authorizing the formation of corporations, hereby act as
incorporator with the intention of forming a corporation.

SECOND: Name. The name of the corporation (hereinafter called the
"Corporation") is AIM TAX-FREE FUNDS, INC.

THIRD: Purpose. The purpose for which the Corporation is formed and
the business or objects to be transacted, carried on and promoted by it, is to
act as an open-end management investment company registered with the Securities
and Exchange Commission under the Investment Company Act of 1940, as amended
(the "1940 Act"), and to exercise and generally to enjoy all of the powers,
rights and privileges granted to, or conferred upon, corporations by the
general laws of the State of Maryland now or hereafter in force.

FOURTH: Principal Office and Resident Agent. The address of the
principal office of the Corporation in the State of Maryland is c/o The
Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland 21202.
The name of the resident agent of the Corporation in the State of Maryland is
The Corporation Trust Incorporated, and the address of such resident agent is
32 South Street, Baltimore, Maryland 21202.

FIFTH: Capitalization. (a) The total number of shares of common
stock which the Corporation shall have the authority to issue is 5,000,000,000
shares, of which 1,000,000,000 shares are classified as AIM Tax-Exempt Cash
Fund shares, 1,000,000,000 shares are classified as AIM Tax-Exempt Bond Fund of
Connecticut shares, 1,000,000,000 shares are classified as AIM Tax-Free
Intermediate Fund shares and the balance of which are unclassified. The par
value of common stock is $.001, and the aggregate par value of all authorized
shares of common stock is $5,000,000. Unissued shares of common stock may be
classified and reclassified by the Board of Directors in the manner permitted
by the Maryland General Corporation Law.

(b) The assets of a class may be invested together with the assets
belonging to another class now or hereafter authorized in a currently existing
or hereafter created investment portfolio of the Corporation. Any and all
classes of shares of the Corporation that represent an interest in the same
investment portfolio of the Corporation are hereafter referred to as a "series"
of the Corporation. Subject to the power of the Board of Directors to
reclassify unissued shares, the shares of each class or series of stock of the
Corporation shall have the following preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption:

(i) All consideration received by the Corporation for the
issuance or sale of shares of a particular class or series, together with all
income, earnings, profits and proceeds thereof,

-1-

- --------------------------------------------------------------------------------

STATE OF MARYLAND

I hereby certify that this is a true and complete copy of the 7 page document
on file in this office. DATED: 5-4-93.
------

STATE DEPARTMENT OF ASSESSMENTS AND TAXATION

BY: /s/ GLORIA J. WATSON
This stamp replaces our previous certification system. Effective: 10/84

- --------------------------------------------------------------------------------
<PAGE> 2
shall irrevocably belong to such class or series for all purposes, subject only
to the rights of creditors, and are herein referred to as "assets belonging to"
such class.

(ii) The assets belonging to such class or series shall be
charged with the liabilities of the Corporation in respect of such class or
series, and with such class' or series' respective share of the general
liabilities of the Corporation, in the latter case in the proportion that the
net asset value of such class or series bears to the net asset value of all
classes or series. The determination of the Board of Directors shall be
conclusive as to the allocation of liabilities, including accrued expenses and
reserves, to a class or series.

(iii) Dividends or distributions on shares of any class or
series, whether payable in stock or cash, shall be paid only out of earnings,
surplus or other assets belonging to such class or series.

(iv) In the event of the liquidation or dissolution of the
Corporation, stockholders of each class or series shall be entitled to receive,
as a class or series, out of the assets of the Corporation available for
distribution to stockholders, the assets belonging to such class or series; and
the assets so distributable to the stockholders of such class or series shall
be distributed among such stockholders in proportion to the number of shares of
such class or series held by them and recorded on the books of the Corporation.

(v) On each matter submitted to a vote of the
stockholders, each holder of a share of stock shall be entitled to one vote for
each such share of stock standing in such holder's on the books of the
Corporation, irrespective of the class or series thereof, and all shares shall
be voted in the aggregate and not by class; provided, however, that to the
extent class voting is required by the 1940 Act or Maryland law, or otherwise
directed by the Board of Directors, as to any such matter, shares shall be
voted by individual class or series. No holder of shares of any class or
series of stock shall be entitled to vote on any merger of another corporation
with and into the Corporation if the consideration for such merger consists
solely of the shares of another class or series of stock of the Corporation.

Except as provided above, all provisions of the charter relating to
stock of the Corporation shall apply to shares of and to the holders of shares
of all classes or series of stock, whether now or hereafter classified.

(c) To the extent that the Corporation has funds or property
legally available therefor, each holder of shares of stock of the Corporation,
upon proper written request (including signature guarantees, if required by the
Board of Directors) to the Corporation accompanied, when stock certificates
representing such shares are outstanding, by surrender of the appropriate stock
certificate or certificates in proper form for transfer, or any such form as
the Board of Directors may provide, shall be entitled to require the
Corporation to redeem all or any number of the shares outstanding in the name
of such holder on the books of the Corporation, at the net asset value of such
shares. Notwithstanding the foregoing, the Board of Directors of the
Corporation may suspend the right of the holders of the shares of stock of the
Corporation to require the Corporation to redeem such shares or to receive
payment for redeemed shares when permitted or required to do so by the 1940 Act
or any rule or regulation of the Securities and Exchange Commission promulgated
thereunder.

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<PAGE> 3
The Corporation, without the vote or consent of the stockholders of
the Corporation, may redeem all shares of stock in any stockholder's account in
which the value of such shares is less than $500.00, or such other minimum
amount as the Board of Directors may from time to time establish in its
discretion; provided, that any such redemption is at a price determined in
accordance with the current prospectus of the class or series of stock to be
redeemed.

(d) All persons who shall acquire stock or securities of the
Corporation shall acquire the same subject to the provisions of the charter of
the Corporation.

SIXTH: Directors. The initial number of directors of the Corporation
shall be three (3), and the names of those who will serve as such until their
successors are duly elected and qualified are as follows:

Charles T. Bauer
Robert H. Graham
William H. Kleh

The By-Laws of the Corporation may from time to time fix the number of
directors at a number other than three (3), and may authorize the Board of
Directors, by the vote of a majority of the entire Board of Directors, to
increase or decrease the number of directors initially set by these Articles of
Incorporation or by the By-Laws (provided that in no case shall the number of
directors be less than three (3) or the number of stockholders, whichever is
less), and to fill vacancies created by any such increase in the number of
directors. Unless otherwise provided by the By-Laws of the Corporation, the
directors of the Corporation need not be stockholders thereof.

SEVENTH: Other Powers. In furtherance and not in limitation of the
powers conferred by the laws of the State of Maryland, the following provisions
are hereby adopted for the purpose of defining and regulating the powers of the
Corporation and of the directors and stockholders:

(a) The Board of Directors of the Corporation is hereby empowered
to authorize the issuance from time to time of shares of its stock of any
class, whether now or hereafter authorized, and securities convertible into
shares of its stock of any class or classes, whether now or hereafter
authorized, in each case upon the terms and conditions and for such
consideration as the Board of Directors shall from time to time determine.

(b) No holder of shares of stock of the Corporation shall, as such
holder, have any preemptive or other right to purchase or subscribe for any
shares of stock of the Corporation, other than such rights, if any, as the
Board of Directors, in its discretion, may from time to time determine.

(c) The Board of Directors is hereby empowered to authorize the
issuance from time to time of fractional shares of stock of this Corporation,
whether now or hereafter authorized, and any fractional shares so issued shall
entitle the holder thereof to exercise voting rights, receive dividends and
participate in the distribution of assets of the Corporation in the event of
liquidation or dissolution to the extent of the proportionate interest
represented by such fractional shares. The Corporation shall not be obligated
to issue stock certificates evidencing fractional shares.

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<PAGE> 4
(d) Except to the extent otherwise prohibited by applicable law,
the Corporation may enter into any management or investment advisory contract
or underwriting contract or any other type of contract with, and may otherwise
engage in any transaction or do business with, any person, firm or corporation
or any subsidiary or other affiliate of any such person, firm or corporation,
and may authorize such person, firm or corporation or such subsidiary or other
affiliate to enter into any other contracts or arrangements with any other
person, firm or corporation which relate to the Corporation or the conduct of
its business, notwithstanding that any directors or officers of the Corporation
are or may subsequently become partners, directors, officers, stockholders or
employees of such person, firm or corporation or of such subsidiary or other
affiliate or may have a material financial interest in any such contract,
transaction or business; and except to the extent otherwise provided by
applicable law, no such contract, transaction or business shall be invalidated
or voidable, or in any way affected thereby, nor shall any of such directors or
officers of the Corporation be liable to the Corporation or to any stockholder
or creditor thereof or to any other person for any loss incurred solely because
of the entering into and performance of such contract or the engaging in such
transaction or business or the existence of such material financial interest
therein, provided that such relationship to such person, firm or corporation or
such subsidiary or affiliate or such material financial interest was disclosed
or otherwise known to the Board of Directors prior to the Corporation's
entering into such contract or engaging in such transaction or business, and in
the case of directors of the Corporation, that Section 2-419 of the Maryland
General Corporation Law has been satisfied. Provided further, that nothing
herein shall protect any director or officer of the Corporation from liability
to the Corporation or its security holders to which he would be 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.

(e) The net asset value of a share of any class or series of stock
of the Corporation shall be determined by or in accordance with the
determination of the Board of Directors, which is authorized to determine the
methods to be used to value the assets of a class or series, the amount and
allocation of liabilities of the Corporation to each class or series, and all
other matters in connection therewith.

(f) Any determination made in good faith by or pursuant to the
direction of the Board of Directors as to the (i) amount of the assets, debts,
obligations or liabilities of the Corporation, (ii) amount of any reserves or
charges set up and the propriety thereof, (iii) time of or purpose for creating
such reserves or charges, (iv) use, alteration or cancellation of any reserves
or charges (whether or not any debt, obligation or liability for which such
reserves or charges shall have been created, shall have been paid or
discharged, or shall be then or thereafter required to be paid or discharged),
(v) value of any security or other asset owned or held by the Corporation, (vi)
number of shares of the Corporation outstanding, (vii) net investment income of
the Corporation, or (viii) other matters relating to the issuance, sale,
purchase and/or other acquisition or disposition of securities or shares of the
Corporation or the amount or payment of dividends, shall be final and
conclusive, and shall be binding upon the Corporation and all holders of its
shares, past present and future. Shares of the Corporation are issued and sold
on the condition and understanding, evidenced by acceptance of certificates for
such shares, that any and all determinations shall be binding as aforesaid.

(g) The stockholders of the Corporation may remove any director of
the Corporation prior to the expiration of such director's term of office, for
cause, and not otherwise, by the

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<PAGE> 5
affirmative vote of a majority of all votes entitled to be cast for the
election of directors. "Cause" shall mean (a) material theft, fraud or
embezzlement by the director or active and deliberate dishonesty by the
director; (b) habitual neglect of duty having a material and adverse
significance to the Company; or (c) the director's conviction of a felony or of
any crime involving moral turpitude.

(h) Notwithstanding any provision of law requiring any action to
be taken or authorized by the affirmative vote of the holders of a designated
proportion greater than a majority of the shares or votes entitled to be cast,
such action shall be effective and valid if taken or authorized by the
affirmative vote of the holders of a majority of the total number of shares
entitled to vote thereon.

NINTH: Limitation of Liability; Indemnification. (a) No director or
officer of the Corporation shall be liable to the Corporation or its
stockholders for money damages, except (i) to the extent that it is proved that
such director or officer actually received an improper benefit or profit in
money, property or services, for the amount of the benefit or profit in money,
property or services actually received, or (ii) to the extent that a judgment
or other final adjudication adverse to such director or officer is entered in a
proceeding based on a finding in the proceeding that such director's or
officer's action, or failure to act, was the result of active and deliberate
dishonesty and was material to the cause of action adjudicated in the
proceeding. The foregoing shall not be construed to protect or purport to
protect any director or officer of the Corporation against any liability to the
Corporation or its stockholders to which such director 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 such
office.

(b) The Corporation shall indemnify and advance expenses to its
currently acting and its former directors to the fullest extent that
indemnification of directors is permitted by the Maryland General Corporation
Law. The Corporation shall indemnify and advance expenses to its officers to
the same extent as its directors and to such further extent as is consistent
with law. The Board of Directors may by By-Law, resolution or agreement make
further provision for indemnification of directors, officers, employees and
agents of the Corporation to the fullest extent permitted by the Maryland
General Corporation Law.

(c) References to Maryland General Corporation Law in this Article
are to the law as amended from time to time. No further amendment to the
Articles of Incorporation shall affect any right of any person under this
Article based on any event, omission or proceeding prior to such amendment.

TENTH: Quorum. At any meeting of stockholders, thirty percent (30%)
of the outstanding shares of stock entitled to vote at such meeting, present in
person or represented by proxy, shall constitute a quorum; provided, that if
there is to be acted on at the meeting an action which requires the affirmative
vote of "a majority of the outstanding voting securities" as such phrase is
defined in the Investment Company Act of 1940, then a majority of the
outstanding shares of stock entitled to vote at such meeting, present in person
or represented by proxy, shall constitute a quorum. If any matter is to be
voted on by individual class or series, then a quorum shall be required as to
each such class or series.

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<PAGE> 6
ELEVENTH: Amendments. The Corporation reserves the right from time
to time to amend, alter, change, add to, or repeal any provision contained in
these Articles of Incorporation in the manner now or hereafter prescribed or
permitted by statute, including any amendment which alters the contract rights,
as expressly set forth in these Articles of Incorporation, of any outstanding
stock, and all rights conferred on stockholders and others herein are granted
subject to this reservation.

IN WITNESS WHEREOF, the undersigned incorporator of AIM TAX-FREE
FUNDS, INC. who executed the foregoing Articles of Incorporation on the 30th
day of April, 1993, hereby acknowledges the same to be his act, and
further acknowledges that, to the best of his knowledge, information and
belief, the matters and facts set forth herein are true in all material
respects and that this statement is made under the penalties for perjury.

/s/ CAROL F. RELIHAN
-------------------------------------
Carol F. Relihan

Subscribed and sworn to before me
this 30th day of April, 1993

/s/ BEVERLY A. COOK
- ---------------------------------
Notary Public

[SEAL]
-----------------------------------
BEVERLY A. COOK
Notary Public, State of Texas
My Commission Expires July 8, 1995
-----------------------------------

-6-

<PAGE> 1
EXHIBIT 1(b)

AIM TAX-FREE FUNDS, INC.

ARTICLES OF AMENDMENT

AIM Tax-Free Funds, Inc., a Maryland corporation having its
principal office in the State of Maryland in Baltimore City (hereinafter called
the "Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:

FIRST: The Articles of Incorporation of the Corporation are
hereby amended by deleting SECOND and inserting in lieu thereof the following:

SECOND: Name. The name of the corporation (hereinafter
called the "Corporation") is AIM Tax- Exempt Funds, Inc.

SECOND: The foregoing amendment to the charter was approved
by a majority of the board of directors. No stock entitled to be voted on the
matter was outstanding or subscribed for at the time of approval.

The undersigned acknowledges these Articles of Amendment to be
the corporate act of the Corporation and states to the best of his knowledge,
information and belief that the matters and facts set forth in these Articles
with respect to authorization and approval are true in all material respects
and that this statement is made under the penalties of perjury.

IN WITNESS WHEREOF, AIM Tax-Free Funds, Inc. has caused these
Articles of Amendment to be signed in its name and on its behalf by its
President and witnessed by its Secretary on June 27, 1993.

AIM Tax-Free Funds, Inc.

By: /s/ CHARLES T. BAUER
-------------------------------
Charles T. Bauer
President
WITNESS:

/s/ WILLIAM H. KLEH
- ------------------------------
William H. Kleh
Secretary

- --------------------------------------------------------------------------------

STATE OF MARYLAND

I hereby certify that this is a true and complete copy of the 2 page document
on file in this office. DATED: July 28, 1993.

STATE DEPARTMENT OF ASSESSMENTS AND TAXATION

BY: /s/ BETTY J. SWOBODA
-----------------------------------------------------------------------------
This stamp replaces our previous certification system. Effective: 10/84

- --------------------------------------------------------------------------------

<PAGE> 1

EXHIBIT 1(c)

AIM TAX-EXEMPT FUNDS, INC.

ARTICLES OF AMENDMENT

AIM Tax-Exempt Funds, Inc., a Maryland corporation having its
principal office in the State of Maryland in Baltimore City (hereinafter called
the "Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:

FIRST: Article Fifth (a) is hereby amended in its entirety to read as
follows:

"The total number of shares of common stock which the Corporation
shall have the authority to issue is 5,000,000,000 shares, of which
1,000,000,000 shares are classified as AIM Tax-Exempt Cash Fund
shares, 1,000,000,000 shares are classified AIM Tax Exempt Bond Fund
of Connecticut shares, 1,000,000,000 shares are classified as
Intermediate Portfolio (of which 1,000,000,000 shares are classified
as AIM Tax-Free Intermediate Shares) and the balance of which are
unclassified. The par value of common stock is $.001, and the
aggregate par value of all authorized shares of common stock is
$5,000,000. Unissued shares of common stock may be classified and
reclassified by the Board of Directors in the manner permitted by the
Maryland General Corporation Law."

SECOND: The foregoing amendment to the charter was approved by a
majority of the board of directors. No stock entitled to be voted on the
matter was outstanding or subscribed for at the time of approval.

The undersigned President acknowledges these Articles of Amendment to
be the corporate act of the Corporation and states to the best of his
knowledge, information and belief that the matters and facts set forth in these
Articles with respect to authorization and approval are true in all material
respects and that this statement is made under the penalties of perjury.

- --------------------------------------------------------------------------------

STATE OF MARYLAND

I hereby certify that this is a true and complete copy of the 3 page document
on file in this office. DATED: October 7, 1993.

STATE DEPARTMENT OF ASSESSMENTS AND TAXATION

BY: /s/ GERALDINE C. SHELEY
-----------------------------------------------------------------------------
This stamp replaces our previous certification system. Effective: 10/84

- --------------------------------------------------------------------------------
<PAGE> 2
IN WITNESS WHEREOF, AIM Tax-Exempt Funds, Inc. has caused these
Articles of Amendment to be signed in its name and on its behalf of its
President and witnessed by its Assistant Secretary on September 10, 1993.

AIM Tax-Exempt Funds, Inc.

By /s/ CHARLES T. BAUER
----------------------------
Charles T. Bauer

WITNESS:

/s/ CAROL F. RELIHAN
- -------------------------------
Carol F. Relihan

<PAGE> 1
EXHIBIT 5(b)

AIM TAX EXEMPT FUNDS, INC.

MASTER INVESTMENT ADVISORY AGREEMENT

THIS AGREEMENT is made as of the 18th day of October, 1993, by and
between AIM Tax-Exempt Funds, Inc., a Maryland Corporation (the "Company"), and
A I M Advisors, Inc., a Delaware corporation (the "Advisor").

RECITALS

WHEREAS, the Company is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end diversified management
investment company; and

WHEREAS, the Advisor is registered under the Investment Advisers Act
of 1940, as amended (the "Advisers Act"), as an investment advisor and engages
in the business of acting as an investment advisor, and

WHEREAS, the Company's charter authorizes the Board of Directors of
the Company to classify or reclassify authorized but unissued shares of the
Company and, as of the date of this Agreement, the Company's Board of Directors
has authorized the issuance of three series of shares representing interests in
three investment portfolios: Intermediate Portfolio, AIM Tax-Exempt Cash Fund
and AIM Tax-Exempt Bond Fund of Connecticut (such portfolios and any other
portfolios hereafter added to the Company being referred to collectively herein
as the "Portfolios"); and

WHEREAS, the Company and the Advisor desire to enter into an agreement
to provide for investment advisory services to the Company upon the terms and
conditions hereinafter set forth;

NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto agree as follows:

1. Advisory Services. The Advisor shall act as investment
advisor for each Portfolio and shall, in such capacity, supervise all aspects
of each Portfolio's operations, including the investment and reinvestment of
the cash, securities or other properties comprising each Portfolio's assets,
subject at all times to the policies and control of the Company's Board of
Directors. The Advisor shall give the Company and the Portfolios the benefit
of its best judgment, efforts and facilities in rendering its services as
investment advisor.

2. Investment Analysis and Implementation. In carrying out its
duties under Section 1 hereof, the Advisor shall:

(a) supervise all aspects of the operations of the
Portfolios;

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<PAGE> 2
(b) obtain and evaluate pertinent information about
significant developments and economic, statistical and financial data,
domestic, foreign, or otherwise, whether affecting the economy
generally or the Portfolios, and whether concerning the individual
issuers whose securities are included in the assets of the Portfolios
or the activities in which such issuers engage, or with respect to
securities which the Advisor considers desirable for inclusion in the
Portfolios;

(c) determine which issuers and securities shall be
represented in the Portfolios and regularly report thereon to the
Company's Board of Directors; and

(d) formulate and implement continuing programs for the
purchases and sales of the securities of such issuers, and regularly
report thereon to the Company's Board of Directors;

and take, on behalf of the Company and the Portfolios, all actions which appear
to the Company and the Portfolios necessary to carry into effect such purchase
and sale programs and supervisory functions as aforesaid, including but not
limited to the placing of orders for the purchase and sale of securities for
the Portfolios.

3. Delegation of Responsibilities. Subject to the approval of
the Board of Directors and the shareholders of the Portfolios, the Advisor may
delegate to a Sub-Advisor certain of its duties enumerated in Section 2 hereof,
provided that the Advisor shall continue to supervise the performance of any
such Sub-Advisor.

4. Control by Board of Directors. Any investment program
undertaken by the Advisor pursuant to this Agreement, as well as any other
activities undertaken by the Advisor on behalf of the Company, shall at all
times be subject to any directives of the Board of Directors of the Company.

5. Compliance with Applicable Requirements. In performing its
duties hereunder, the Advisor shall at all times conform to:

(a) all applicable provisions of the 1940 Act and the
Advisers Act, and any rules and regulations adopted thereunder;

(b) the provisions of the registration statement of the
Company, as the same may be amended from time to time, under the
Securities Act of 1933 and the 1940 Act;

(d) the provisions of the by-laws of the Company, as the
same may be amended from time to time; and

(e) any other applicable provisions of state or federal
law.

6. Broker-Dealer Relationships. The Advisor is responsible for
decisions to buy and sell securities for the Portfolios, broker-dealer
selection, and negotiation of brokerage commission

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<PAGE> 3
rates. The Advisor's primary consideration in effecting a security transaction
will be execution at the most favorable price. In selecting a broker-dealer to
execute each particular transaction, the Advisor shall take the following into
consideration: the best net price available; the reliability, integrity and
financial condition of the broker-dealer; the size of and difficulty in
executing the order; and the value of the expected contribution of the
broker-dealer to the investment performance of the Portfolios on a continuing
basis. Accordingly, the price to the Portfolios in any transaction may be less
favorable than that available from another broker-dealer if the difference is
reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies as the Board of Directors may from time to
time determine, the Advisor shall not be deemed to have acted unlawfully or to
have breached any duty created by this Agreement or otherwise solely by reason
of its having caused the Portfolios to pay a broker or dealer that provides
brokerage and research services to the Advisor an amount of commission for
effecting a portfolio investment transaction in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction, if the Advisor determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer, viewed in terms of either
that particular transaction or the Advisor's overall responsibilities with
respect to the Portfolios, and to other clients of the Advisor as to which the
Advisor exercises investment discretion. The Advisor is further authorized to
allocate the orders placed by it on behalf of the Portfolios to brokers and
dealers who also provide research or statistical material, or other services to
the Portfolios, to the Advisor, or to any Sub-Advisor. Such allocation shall
be in such amounts and proportions as the Advisor shall determine, and the
Advisor will report on said allocations regularly to the Board of Directors of
the Company, indicating the brokers to whom such allocations have been made and
the basis therefor. In making decisions regarding broker-dealer relationships,
the Advisor may take into consideration the recommendations of any Sub-Advisor
appointed to provide investment research or advisory services in connection
with the Portfolios, and may take into consideration any research services
provided to such Sub-Advisor by broker-dealers.

7. Compensation. The Company shall pay the Advisor, as
compensation for services rendered hereunder, an annual fee, payable monthly,
as set forth in Appendix A to this Agreement. The Company acknowledges that
the Advisor may from time to time pay a fee to any sub-advisor engaged pursuant
to Section 3 of this Agreement, according to a fee schedule set forth in the
applicable sub-advisory agreement.

The average daily net assets of the Portfolios shall be determined in
the manner set forth in the corporate charter and registration statement of the
Portfolios, as amended from time to time.

8. Additional Services. Upon the request of the Company's Board
of Directors, the Advisor may perform (or arrange for the performance of)
certain accounting, shareholder servicing or other administrative services on
behalf of the Portfolios which are not required by this Agreement. Such
services will be performed on behalf of the Portfolios, and the Advisor may
receive from the Portfolios such reimbursement for costs or reasonable
compensation for such services as may be agreed upon by the Advisor and the
Company's Board of Directors, based on a finding by the Board of Directors that
the provision of such services by the Advisor is in the best interests of the
Portfolios and their shareholders. Payment or assumption by the Advisor of any
Portfolio expense that the Advisor is not otherwise required to pay or assume
under this Agreement shall not relieve the Advisor of any of its obligations to
the Portfolios nor obligate the

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<PAGE> 4
Advisor to pay or assume any similar Portfolio expense on any subsequent
occasion. Such additional services may include, but are not limited to:

(a) the services of a principal financial officer of the
Company (including applicable office space, facilities and equipment)
whose normal duties consist of maintaining the financial accounts and
books and records of the Company and the Portfolios, including the
review and calculation of daily net asset value and the preparation of
tax returns; the services (including related office space, facilities
and equipment) of any of the personnel operating under the direction
of such principal financial officer;

(b) the services of staff to respond to shareholder
inquiries concerning the status of their accounts; providing
assistance to shareholders in exchanges among the mutual funds managed
or advised by the Advisor; changing account designations or changing
addresses; assisting in the purchase or redemption of shares;
supervising the operations of the custodian, transfer agent(s) or
dividend disbursing agent(s) for the Portfolios; or otherwise
providing services to shareholders of the Portfolios; and

(c) such other administrative services as may be
furnished from time to time by the Advisor to the Company or a
Portfolio at the request of the Company's Board of Directors.

9. Expenses of the Portfolios. All of the ordinary business
expenses incurred in the operations of a Portfolio and the offering of its
shares shall be borne by the Portfolios unless otherwise specifically provided
in this Agreement. These expenses borne by the Portfolios include but are not
limited to brokerage commissions, taxes, legal, accounting, auditing or
governmental fees, the cost of preparing share certificates, custodian,
transfer agent 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 directors and shareholders meetings, the
cost of preparing and distributing reports and notices to shareholders, the
fees and other expenses incurred by the Company on behalf of the Portfolios in
connection with membership in investment company organizations and the cost of
printing copies of prospectuses and statements of additional information
distributed to the Portfolios' shareholders.

10. Expense Limitation. If, for any fiscal year of the Company,
the total of all ordinary business expenses of the Portfolios, including all
investment advisory fees, but excluding brokerage commissions and fees, taxes,
interest and extraordinary expenses, such as litigation, would exceed the
applicable expense limitations imposed by state securities regulations in any
state in which the Portfolios' shares are qualified for sale, as such
limitations may be raised or lowered from time to time, the aggregate of all
such investment advisory fees shall be reduced by the amount of such excess.
The amount of any such reduction to be borne by the Advisor shall be deducted
from the monthly investment advisory fee otherwise payable to the Advisor
during such fiscal year. If required pursuant to such state securities
regulations, the Advisor will, not later than the last day of the first month
of the next succeeding fiscal year, reimburse the Portfolios for any such
annual operating expenses (after reduction of all investment advisory fees in
excess of such limitation). For purposes of this paragraph, the term "fiscal
year" shall exclude the portion of the current fiscal year which shall have
elapsed prior to the date hereof, and shall include the portion of the then
current fiscal year which shall have elapsed at the date of termination of this
Agreement. The application of expense limitations shall be applied to each

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<PAGE> 5
Portfolio of the Company separately, unless the laws or regulations of any
state shall require that the expense limitations be imposed with respect to the
Company as a whole.

11. Non-Exclusivity. The services of the Advisor to the Company
and the Portfolios are not to be deemed exclusive, and the Advisor shall be
free to render investment advisory and administrative or other services to
others (including other investment companies) and to engage in other
activities. It is understood and agreed that officers and directors of the
Advisor may serve as officers and directors of the Company, and that officers
and directors of the Company may serve as officers and directors of the Advisor
to the extent permitted by law; and that officers and directors of the Advisor
are not prohibited from engaging in any other business activity or from
rendering services to any other person, or from serving as partners, officers,
directors or trustees of any other firm or trust, including other investment
advisory companies.

12. Term and Approval. This Agreement shall become effective if
approved by the shareholders of the Portfolios, and if so approved, this
Agreement shall thereafter continue in force and effect until June 30, 1994,
and may be continued from year to year thereafter, provided that the
continuation of the Agreement is specifically approved at least annually:

(a)(i) by the Company's Board of Directors or (ii) by the
vote of "a majority of the outstanding voting securities" of the
Portfolios (as defined under Section 2(a)(42) of the 1940 Act); and

(b) by the affirmative vote of a majority of the
directors who are not parties to this Agreement or "interested
persons" (as defined under the 1940 Act) of a party to this Agreement
(other than as Company directors), by votes cast in person at a
meeting specifically called for such purpose.

13. Termination. This Agreement may be terminated as to any
Portfolio at any time, without the payment of any penalty, by vote of the
Company's Board of Directors or by vote of a majority of such Portfolio's
outstanding voting securities, or by the Advisor, on sixty (60) days' written
notice to the other party. The notice provided for herein may be waived by
either party. This Agreement shall automatically terminate in the event of its
assignment, the term "assignment" for purposes of this paragragh having the
meaning defined in Section 2(a)(4) of the 1940 Act.

14. Liability of Advisor and Indemnification. In the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of
obligations or duties hereunder on the part of the Advisor or any of its
officers, directors or employees, the Advisor shall not be subject to liability
to the Company or to the Portfolios or to any shareholder of the Portfolios for
any act or omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase, holding or
sale of any security.

15. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed, postage prepaid, to the other party
at such address as such other party may designate for the receipt of such
notice. Until further notice to the other party, it is agreed that the address
of the Company and that of the Advisor shall be Eleven Greenway Plaza, Suite
1919, Houston, Texas 77046.

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<PAGE> 6
16. Questions of Interpretation. Any question of interpretation
of any term or provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the 1940 Act or the Advisers Act shall be
resolved by reference to such term or provision of the 1940 Act or the Advisers
Act and to interpretations thereof, if any, by the United States Courts or in
the absence of any controlling decision of any such court, by rules,
regulations or orders of the Securities and Exchange Commission issued pursuant
to the 1940 Act. In addition, where the effect of a requirement of the Acts
reflected in any provision of the Agreement is revised by rule, regulation or
order of the Securities and Exchange Commission, such provision shall be deemed
to incorporate the effect of such rule, regulation or order.

17. License Agreement. The Company shall be entitled to use the
name "AIM Tax-Exempt Funds, Inc." for only so long as A I M Advisors, Inc.
serves as investment manager or advisor to the Portfolios.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in duplicate by their respective duly authorized officers on the
day and year first written above.

AIM TAX-EXEMPT FUNDS, INC.
Attest:

/s/ NANCY L. MARTIN By:/s/ CHARLES T. BAUER
- -------------------------------- ----------------------------------
Assistant Secretary President

A I M ADVISORS, INC.
Attest:

/s/ NANCY L. MARTIN By:/s/ ROBERT H. GRAHAM
- --------------------------------- ----------------------------------
Assistant Secretary President

-6-
<PAGE> 7
AIM TAX-EXEMPT FUNDS, INC.
APPENDIX A TO MASTER INVESTMENT ADVISORY AGREEMENT
OCTOBER 18, 1993

The Company shall pay the Advisor as full compensation for all
services rendered and all facilities furnished hereunder, a management fee for
each Portfolio by applying the following annual rates to the average daily net
asset value of each Portfolio for the calendar year, computed in the manner
used for the determination of the offering price of Shares of the Portfolio.

INTERMEDIATE PORTFOLIO

<TABLE>
<CAPTION>
NET ASSET VALUE ANNUAL RATE
<S> <C>
First $500 million . . . . . . . . . . . . . . . . . . . . 0.30%
Over $500 million to
and including $1 billion . . . . . . . . . . . . . . . . 0.25%
Over $1 billion . . . . . . . . . . . . . . . . . . . . . 0.20%

AIM TAX-EXEMPT BOND FUND OF CONNECTICUT

NET ASSET VALUE ANNUAL RATE
All Assets . . . . . . . . . . . . . . . . . . . . . . . . . 0.50%

AIM TAX-EXEMPT CASH FUND

NET ASSET VALUE ANNUAL RATE
All Assets . . . . . . . . . . . . . . . . . . . . . . . . . 0.35%
</TABLE>

-7-

<PAGE> 1
EXHIBIT 6(a)(2)

MASTER DISTRIBUTION AGREEMENT
BETWEEN
AIM TAX-EXEMPT FUNDS, INC.
AND
A I M DISTRIBUTORS, INC.

THIS AGREEMENT is made this 18th day of October, 1993, by and
between AIM TAX-EXEMPT FUNDS, INC., a Maryland corporation (the "Company"), and
A I M DISTRIBUTORS, INC., a Delaware corporation (the "Distributor").

W I T N E S S E T H:

In consideration of the mutual covenants herein contained and other good
and valuable consideration, the receipt whereof is hereby acknowledged, the
parties hereto agree as follows:

FIRST: The Company hereby appoints the Distributor as its exclusive
agent for the sale of shares set forth in Appendix A attached hereto
(collectively, the "Funds" and each separately a "Fund"), and any applicable
classes thereof, to the public through investment dealers in the United States
and throughout the world in accordance with the terms of the Company's current
prospectus applicable to the Funds.

SECOND: The Company shall not sell any shares of a Fund except through
the Distributor and under the terms and conditions set forth in paragraph
FOURTH below. Notwithstanding the provisions of the foregoing sentence,
however:

(A) the Company may issue shares of a Fund to any other investment
company or personal holding company, or to the shareholders thereof, in
exchange for all or a majority of the shares or assets of any such company; and

(B) the Company may issue shares of a Fund at their net asset value in
connection with certain classes of transactions or to certain categories of
persons, in accordance with Rule 22d-1 under the Investment Company Act of
1940, as amended (the "1940 Act"), provided that any such category is specified
in the then current prospectus of the Funds.

THIRD: The Distributor hereby accepts appointment as exclusive agent
for the sale of the shares of the Funds and agrees that it will use its best
efforts to sell such shares; provided, however, that:

(A) the Distributor may, and when requested by the Company on behalf of
each Fund shall, suspend its efforts to effectuate such sales at any time when,
in the opinion of the Distributor or of the Company, no sales should be made
because of market or other economic considerations or abnormal circumstances of
any kind; and

(B) the Company may withdraw the offering of the shares of a Fund (i) at
any time with the consent of the Distributor, or (ii) without such consent when
so required by the provisions

-1-
<PAGE> 2
of any statute or of any order, rule or regulation of any governmental body
having jurisdiction. It is mutually understood and agreed that the Distributor
does not undertake to sell any specific amount of the shares of a Fund. The
Company shall have the right to specify minimum amounts for initial and
subsequent orders for the purchase of Fund shares.

FOURTH:

(A) The public offering price of shares of a Fund (the "offering
price") shall be the net asset value per share plus a sales charge, if any.
Net asset value per share shall be determined in accordance with the provisions
of the then current prospectus and statement of additional information of the
Funds. The sales charge shall be established by the Distributor, may reflect
scheduled variations in, or the elimination of, sales charges on sales of a
Fund's shares either generally to the public, or to any specified class of
investors or in connection with any specified class of transactions, in
accordance with Rule 22d-1 and as set forth in the then current prospectus and
statement of additional information of the Funds. The Distributor shall apply
any scheduled variation in, or elimination of, the selling commission uniformly
to all offerees in the class specified.

(B) The Funds shall allow directly to investment dealers through whom
shares of each Fund are sold such portion of the sales charge as may be payable
to them and specified by the Distributor up to but not exceeding the amount of
the total sales charge. The difference between any commissions so payable to
investment dealers and the total sales charges included in the offering price
shall be paid to the Distributor.

(C) No provision of this Agreement shall be deemed to prohibit any
payments by a Fund to the Distributor or by a Fund or the Distributor to
investment dealers through whom the shares of each Fund are sold where such
payments are made under a distribution plan adopted by the Company on behalf of
each Fund pursuant to Rule 12b-1 under the 1940 Act.

FIFTH: The Distributor shall act as agent of the Company on behalf of
each Fund in connection with the sale and repurchase of shares of a Fund.
Except with respect to such sales and repurchases, the Distributor shall act as
principal in all matters relating to the promotion of the sale of shares of the
Funds and shall enter into all of its own engagements, agreements and contracts
as principal on its own account. The Distributor shall enter into Selected
Dealer Agreements with investment dealers selected by the Distributor,
authorizing such investment dealers to offer and sell shares of each Fund to
the public upon the terms and conditions set forth therein, which shall not be
inconsistent with the provisions of this Agreement. Each Selected Dealer
Agreement shall provide that the investment dealer shall act as a principal,
and not as an agent, of the Company on behalf of the Funds.

SIXTH: The Funds shall bear:

(A) the expenses of qualification of shares of a Fund for sale in
connection with such public offerings in such states as shall be selected by
the Distributor, and of continuing the qualification therein until the
Distributor notifies the Company that it does not wish such qualification
continued; and

(B) all legal expenses in connection with the foregoing.

-2-
<PAGE> 3
SEVENTH:

(A) The Distributor shall bear the expenses of printing from the final
proof and distributing the Funds' prospectuses and statements of additional
information (including supplements thereto) relating to public offerings made
by the Distributor pursuant to this Agreement (which shall not include those
prospectuses and statements of additional information, and supplements thereto,
to be distributed to shareholders of each Fund), and any other promotional or
sales literature used by the Distributor or furnished by the Distributor to
dealers in connection with such public offerings, and expenses of advertising
in connection with such public offerings.

(B) The Distributor may be reimbursed for all or a portion of such
expenses, or may receive reasonable compensation for distribution related
services, to the extent permitted by a distribution plan adopted by the Company
on behalf of the Funds pursuant to Rule 12b-1 under the 1940 Act.

EIGHTH: The Distributor will accept orders for the purchase of shares
of each Fund only to the extent of purchase orders actually received and not in
excess of such orders, and it will not avail itself of any opportunity of
making a profit by expediting or withholding orders. It is mutually understood
and agreed that the Company may reject purchase orders where, in the judgment
of the Company, such rejection is in the best interest of the Company.

NINTH: The Company, on behalf of the Funds, and the Distributor shall
each comply with all applicable provisions of the 1940 Act, the Securities Act
of 1933 and of all other federal and state laws, rules and regulations
governing the issuance and sale of shares of each Fund.

TENTH:

(A) In the absence of willful misfeasance, bad faith, gross negligence
or reckless disregard of obligations or duties hereunder on the part of the
Distributor, the Company on behalf of the Funds agrees to indemnify the
Distributor against any and all claims, demands, liabilities and expenses which
the Distributor may incur under the Securities Act of 1933, or common law or
otherwise, arising out of or based upon any alleged untrue statement of a
material fact contained in any registration statement or prospectus of the
Funds, or any omission to state a material fact therein, the omission of which
makes any statement contained therein misleading, unless such statement or
omission was made in reliance upon, and in conformity with, information
furnished to the Company or Fund in connection therewith by or on behalf of the
Distributor. The Distributor agrees to indemnify the Company and the Funds
against any and all claims, demands, liabilities and expenses which the Company
or the Funds may incur arising out of or based upon any act or deed of the
Distributor or its sales representatives which has not been authorized by the
Company or the Funds in its prospectus or in this Agreement.

(B) The Distributor agrees to indemnify the Company and the Funds
against any and all claims, demands, liabilities and expenses which the Company
or the Funds may incur under the Securities Act of 1933, or common law or
otherwise, arising out of or based upon any alleged untrue statement of a
material fact contained in any registration statement or

-3-
<PAGE> 4
prospectus of the Funds, or any omission to state a material fact therein if
such statement or omission was made in reliance upon, and in conformity with,
information furnished to the Company or the Funds in connection therewith by or
on behalf of the Distributor.

(C) Notwithstanding any other provision of this Agreement, the
Distributor shall not be liable for any errors of the Funds' transfer agent(s),
or for any failure of any such transfer agent to perform its duties.

ELEVENTH: Nothing herein contained shall require the Company to take
any action contrary to any provision of its Articles of Incorporation, or to
any applicable statute or regulation.

TWELFTH: This Agreement shall become effective at the close of business
on the date hereof, shall continue in force and effect until June 30, 1994, and
shall continue in force and effect from year to year thereafter, provided, that
such continuance is specifically approved at least annually (a)(i) by the Board
of Directors of the Company or (ii) by the vote of a majority of the Funds'
outstanding voting securities (as defined in Section 2(a)(42) of the 1940 Act),
and (b) by vote of a majority of the Company's directors who are not parties to
this Agreement or "interested persons" (as defined in Section 2(a)(19) of the
1940 Act) of any party to this Agreement cast in person at a meeting called for
such purpose.

THIRTEENTH:

(A) This Agreement may be terminated at any time, without the payment
of any penalty, by vote of the Board of Directors of the Company or by vote of
a majority of the outstanding voting securities of each Fund, or by the
Distributor, on sixty (60) days' written notice to the other party.

(B) This Agreement shall automatically terminate in the event of its
assignment, the term "assignment" having the meaning set forth in Section
2(a)(4) of the 1940 Act.

FOURTEENTH: Any notice under this Agreement shall be in writing,
addressed and delivered, or mailed postage prepaid, to the other party at such
address as the other party may designate for the receipt of notices. Until
further notice to the other party, it is agreed that the addresses of both the
Company and the Distributor shall be Eleven Greenway Plaza, Suite 1919,
Houston, Texas 77046.

-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed in duplicate on the day and year first above written.

AIM TAX-EXEMPT FUNDS, INC.

By: /s/ CHARLES T. BAUER
-----------------------------------
President

Attest:

/s/ NANCY L. MARTIN
- ------------------------------------

A I M DISTRIBUTORS, INC.

By: /s/ MICHAEL J. CEMO
-----------------------------------
President
Attest:

/s/ NANCY L. MARTIN
- ------------------------------------

-5-
<PAGE> 6
APPENDIX A TO
MASTER DISTRIBUTION AGREEMENT OF
AIM TAX-EXEMPT FUNDS, INC.

Intermediate Portfolio
AIM Tax-Free Intermediate Shares
AIM Tax-Exempt Cash Fund
AIM Tax-Exempt Bond Fund of Connecticut

-6-

<PAGE> 1
EXHIBIT 7(b)

AIM FUNDS

RETIREMENT PLAN FOR ELIGIBLE

DIRECTORS/TRUSTEES

Effective as of March 8, 1994
As Restated September 18, 1995

<PAGE> 2
AIM FUNDS

RETIREMENT PLAN FOR ELIGIBLE

DIRECTORS/TRUSTEES

TABLE OF CONTENTS

Page
----

ARTICLE I DEFINITION OF TERMS AND CONSTRUCTION . . . . . . . . . 1
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . 1
(a) Accrued Benefit . . . . . . . . . . . . . . . . . . . 1
(b) Actuary . . . . . . . . . . . . . . . . . . . . . . . 1
(c) Administrator . . . . . . . . . . . . . . . . . . . . 1
(d) AIM Funds . . . . . . . . . . . . . . . . . . . . . . 1
(e) Board of Directors . . . . . . . . . . . . . . . . . 1
(f) Code . . . . . . . . . . . . . . . . . . . . . . . . 2
(g) Compensation . . . . . . . . . . . . . . . . . . . . 2
(h) Deferred Retirement Date . . . . . . . . . . . . . . 2
(i) Director . . . . . . . . . . . . . . . . . . . . . . 2
(j) Disability . . . . . . . . . . . . . . . . . . . . . 2
(k) Effective Date . . . . . . . . . . . . . . . . . . . 2
(l) Fund . . . . . . . . . . . . . . . . . . . . . . . . 2
(m) Normal Retirement Date . . . . . . . . . . . . . . . 2
(n) Participant . . . . . . . . . . . . . . . . . . . . . 2
(o) Plan . . . . . . . . . . . . . . . . . . . . . . . . 2
(p) Plan Year . . . . . . . . . . . . . . . . . . . . . . 2
(q) Retirement . . . . . . . . . . . . . . . . . . . . . 2
(r) Retirement Benefit . . . . . . . . . . . . . . . . . 3
(s) Service . . . . . . . . . . . . . . . . . . . . . . . 3
(t) Year of Service . . . . . . . . . . . . . . . . . . . 3
1.2 Plurals and Gender . . . . . . . . . . . . . . . . . . . . . . 3
1.3 Directors/Trustees . . . . . . . . . . . . . . . . . . . . . . 3
1.4 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.5 Severability . . . . . . . . . . . . . . . . . . . . . . . . . 3

ARTICLE II PARTICIPATION . . . . . . . . . . . . . . . . . . . . . 4
2.1 Commencement of Participation . . . . . . . . . . . . . . . . 4
2.2 Termination of Participation . . . . . . . . . . . . . . . . . 4
2.3 Resumption of Participation . . . . . . . . . . . . . . . . . 4
2.4 Determination of Eligibility . . . . . . . . . . . . . . . . . 4

-i-
<PAGE> 3
Page
----

ARTICLE III BENEFITS UPON RETIREMENT AND OTHER
TERMINATION OF SERVICE. . . . . . . . . . . . . . . . . 4
3.1 Retirement. . .. . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Termination of Service Before Retirement . . . . . . . . . . . 5
3.3 Termination of Service by Reason of Death. . . . . . . . . . . 5
3.4 Benefits Calculated in the Aggregate for all of the AIM Funds. 5

ARTICLE IV DEATH BENEFITS. . . . . . . . . . . . . . . . . . . . . 5
4.1 Death Prior to Commencement of Benefits . . . . . . . . . . . 5
4.2 Death Subsequent to Commencement of Benefits . . . . . . . . 5
4.3 Death of Spouse . . . . . . . . . . . . . . . . . . . . . . 6

ARTICLE V SUSPENSION OF BENEFITS, ETC. . . . . . . . . . . . . . 6
5.1 Suspension of Benefits Upon Resumption of Service . . . . . . 6
5.2 Payments Due Missing Persons . . . . . . . . . . . . . . . . . 6

ARTICLE VI ADMINISTRATOR . . . . . . . . . . . . . . . . . . . . 7
6.1 Appointment of Administrator . . . . . . . . . . . . . . . . . 7
6.2 Powers and Duties of Administrator . . . . . . . . . . . . . . 7
6.3 Action by Administrator . . . . . . . . . . . . . . . . . . . 8
6.4 Participation by Administrators . . . . . . . . . . . . . . . 8
6.5 Agents and Expenses. . . . . . . . . . . . . . . . . . . . . . 8
6.6 Allocation of Duties . . . . . . . . . . . . . . . . . . . . . 8
6.7 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . 9
6.8 Administrator's Action Conclusive . . . . . . . . . . . . . . 9
6.9 Records and Reports . . . . . . . . . . . . . . . . . . . . . 9
6.10 Information from the AIM Funds . . . . . . . . . . . . . . . . 9
6.11 Reservation of Rights by Boards of Directors . . . . . . . . . 9
6.12 Liability and Indemnification. . . . . . . . . . . . . . . . . 9

ARTICLE VII AMENDMENTS AND TERMINATION . . . . . . . . . . . . . . 10
7.1 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.2 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . 10

ARTICLE VIII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . 10
8.1 Rights of Creditors . . . . . . . . . . . . . . . . . . . . . 10
8.2 Liability Limited. . . . . . . . . . . . . . . . . . . . . . . 11
8.3 Incapacity . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.4 Cooperation of Parties . . . . . . . . . . . . . . . . . . . . 11
8.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 11
8.6 Nonguarantee of Directorship . . . . . . . . . . . . . . . . . 12
8.7 Counsel . . . . . . . . . . . . . . . .. . . . . . . . . . . . 12
8.8 Spendthrift Provision . . . . . . . . . . . . . . . . . . . . 12
8.9 Forfeiture for Cause . . . . . . . . . . . . . . . . . . . . . 12

-ii-
<PAGE> 4
Page
----
ARTICLE IX CLAIMS PROCEDURE . . . . . . . . . . . . . . . . . . . . . 12
9.1 Notice of Denial . . . . . . . . . . . . . . . . . . . . . . . 12
9.2 Right to Reconsideration . . . . . . . . . . . . . . . . . . . 13
9.3 Review of Documents. . . . . . . . . . . . . . . . . . . . . . 13
9.4 Decision by Administrator. . . . . . . . . . . . . . . . . . . 13
9.5 Notice by Administrator. . . . . . . . . . . . . . . . . . . . 13

-iii-
<PAGE> 5
AIM FUNDS

RETIREMENT PLAN FOR ELIGIBLE

DIRECTORS/TRUSTEES

PREAMBLE

Effective as of March 8, 1994, the regulated investment
companies managed, administered and/or distributed by AIM Advisors, Inc. or its
affiliates (the "AIM Funds") have adopted THE AIM FUNDS RETIREMENT PLAN FOR
ELIGIBLE DIRECTORS/TRUSTEES (the "Plan") for the benefit of each of the
directors and trustees of each of the AIM Funds who is not an employee of any
of the AIM Funds, A I M Management Group Inc. or any of their affiliates. As
the Plan does not benefit any employees of the AIM Funds, it is not intended to
be classified as an employee benefit plan within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA").

ARTICLE I

DEFINITION OF TERMS AND CONSTRUCTION
------------------------------------
1.1 Definitions.
------------
Unless a different meaning is plainly implied by the context,
the following terms as used in this Plan shall have the following meanings:

(a) "Accrued Benefit" shall mean, as of any date prior to
a Participant's Normal Retirement Date, his Retirement Benefit commencing on
his Normal Retirement Date, but based upon his Compensation and Years of
Service computed as of such date of determination.

(b) "Actuary" shall mean the independent actuary selected
by the Administrator.

(d) "AIM Funds" shall mean the regulated investment
companies managed, administered or distributed by A I M Advisors, Inc. or its
affiliates.

(e) "Board of Directors" shall mean the Board of
Directors of each of the AIM Funds.

<PAGE> 6
(f) "Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time, or any successor statute.

(g) "Compensation" shall mean, for any Director, the
amount of the retainer paid or accrued by the AIM Funds for such Director
during the twelve month period immediately preceding the Director's Retirement,
including amounts deferred under a separate agreement between the AIM Funds and
the Director. The amount of such retainer Compensation shall be as determined
by the Administrator.

(h) "Deferred Retirement Date" shall mean the first day
of the month coincident with or next following the date on which a Participant
terminated Service after his Normal Retirement Date.

(i) "Director" shall mean an individual who is a director
or trustee of one or more of the AIM Funds which have adopted the Plan but who
is not an employee of any of the AIM Funds, A I M Management Group Inc. or any
of their affiliates.

(j) "Disability" shall mean the inability of the
Participant to participate in meetings of the Board of Directors, either in
person or by telephone, for a period of at least nine (9) months.

(k) "Effective Date" shall mean March 8, 1994.

(l) "Fund" shall mean an AIM Fund which has adopted this
Plan.

(m) "Normal Retirement Date" shall mean, the date on
which a Participant has both attained age 65 (or at least age 55 in the event
of the Director's termination of Service by reason of death or Disability) and
has completed at least five continuous and non-forfeited Years of Service (and
thirty months of Service with one or more of the AIM Funds).

(n) "Participant" shall mean a Director who has met all
of the eligibility requirements of the Plan and who is currently included in
the Plan as provided in Article II hereof.

(o) "Plan" shall mean the "AIM Funds Retirement Plan for
Eligible Directors/Trustees" as described herein or as hereafter amended from
time to time.

(p) "Plan Year" shall mean the calendar year.

(q) "Retirement" shall mean a Director's termination of
his active Service with the AIM Funds on or after his Normal Retirement Date,
due to his death, Disability, or voluntary or involuntary termination of his
Service.

(r) "Retirement Benefit" shall mean the benefit described
under Section 3.1 hereof.

-2-
<PAGE> 7
(s) "Service" shall mean an individual's serving as a
Director of one or more of the AIM Funds. Furthermore, any unbroken service
provided by a Participant (i) to an AIM Fund immediately prior to its being
managed or administered by A I M Advisors, Inc. (or any of its affiliates) or
(ii) to a predecessor of an AIM Fund immediately prior to its being merged into
such AIM Fund, will be taken into account in determining such Participant's
Years of Service, subject to all restrictions and other forfeiture provisions
contained herein.

(t) "Year of Service" shall mean a twelve consecutive
month period of Service. For all purposes in this Plan, if a Participant's
Service terminates prior to his Retirement, he shall forfeit credit for all
Years of Service completed prior to such termination unless (a) he again
becomes a Director and (b) the number of Years of Service he accumulated prior
to such termination exceeded the number of years in which he did not serve as a
Director.

1.2 Plurals and Gender.

Where appearing in the Plan, the masculine gender shall
include the feminine and neuter genders, and the singular shall include the
plural, and vice versa, unless the context clearly indicates a different
meaning.

1.3 Directors/Trustees.

Where appropriate, the term "director" shall refer to
"trustee", "directorship" shall refer to "trusteeship" and "Board of Directors"
shall refer to "Board of Trustees."

1.4 Headings.

The headings and sub-headings in this Plan are inserted for
the convenience of reference only and are to be ignored in any construction of
the provisions hereof.

1.5 Severability.

In case any provision of this Plan shall be held illegal or
void, such illegality or invalidity shall not affect the remaining provisions
of this Plan, but shall be fully severable, and the Plan shall be construed and
enforced as if said illegal or invalid provisions had never been inserted
herein.

-3-
<PAGE> 8
ARTICLE II

PARTICIPATION
-------------
2.1 Commencement of Participation.
------------------------------
Each Director shall become a Participant hereunder on the date
his directorship of one or more of the AIM Funds commences.

2.2 Termination of Participation.
-----------------------------
After commencement or resumption of his participation, a
Director shall remain a Participant until the earliest of the following dates:

(a) His actual Retirement date;

(b) His date of death;

(d) The effective date of the termination of the Plan.

2.3 Resumption of Participation.
----------------------------
Any Participant whose Service terminates and who thereafter
again becomes a Director shall resume participation immediately upon again
becoming a Director except that, as provided in Section 1.1(t) hereof, if his
Service is terminated prior to his Normal Retirement Date, for all purposes of
this Plan he shall forfeit credit for all Years of Service completed prior to
such termination of his Service.

2.4 Determination of Eligibility.
-----------------------------
The Administrator shall determine the eligibility of Directors
in accordance with the provisions of this Article.

ARTICLE III

BENEFITS UPON
-------------
RETIREMENT AND OTHER TERMINATION OF SERVICE
-------------------------------------------
3.1 Retirement.
-----------
Upon Retirement a Participant shall be entitled to receive an
annual benefit from the AIM Funds commencing on the first day of the calendar
quarter coincident with or next following his date of Retirement, payable in
quarterly installments for a period of no more than

-4-
<PAGE> 9
ten (10) years (or, if less, the number of his Years of Service) equal
to seventy-five percent (75%) of his Compensation.

3.2 Termination of Service Before Retirement.
-----------------------------------------
In the event that a Participant's Service terminates by reason
of death, Disability or removal by the Board for cause (as defined in Section
8.9) prior to his Normal Retirement Date, he shall not be entitled to receive
any benefits hereunder. If a Participant's Service terminates for any other
reason and he has accumulated at least five (5) continuous and non-forfeited
Years of Service, he shall be entitled to receive his Accrued Benefit
determined as of such date of termination.

3.3 Termination of Service by Reason of Death.
------------------------------------------
No benefits will be paid under this Plan with respect to a
Participant after his death other than as provided in Article IV.

3.4 Benefits Calculated in the Aggregate for all of the AIM Funds.
--------------------------------------------------------------
With respect to each Participant, the benefits payable
hereunder shall be based on the aggregate Compensation paid by the AIM Funds
and on the Participant's non-forfeited Years of Service. Each Fund's share of
the obligation to provide such benefits shall be determined by use of
accounting methods adopted by the Administrator.

ARTICLE IV

DEATH BENEFITS
--------------
4.1 Death Prior to Commencement of Benefits.
----------------------------------------
In the event of a Participant's death subsequent to his Normal
Retirement Date, but prior to the commencement of his Retirement Benefits under
Article III hereof, the surviving spouse (if any) of such Participant shall be
entitled to receive a quarterly survivor's benefit for a period of no more than
ten (10) years (or, if less, the number of the Participant's Years of Service)
beginning on the first day of the calendar quarter next following the date of
the Participant's death equal to fifty percent (50%) of the amount of the
quarterly installments of Retirement Benefits that would have been paid to the
Participant under Sections 3.1 or 3.2 hereof had his Retirement occurred on his
date of death.

4.2 Death Subsequent to Commencement of Benefits.
---------------------------------------------
In the event a Participant dies after the commencement of his
Retirement Benefit under Article III, but prior to the cessation of the payment
of such Retirement Benefits, the surviving spouse (if any) of such Participant
shall be entitled to receive survivor's benefits equal to fifty percent (50%)
of the amount of the annual Retirement Benefit payable to the Participant

-5-
<PAGE> 10
under Article III hereunder, paid at such times, and for such period, as such
Retirement Benefit would have continued to have been paid to the Participant
had he not died.

4.3 Death of Spouse.
----------------
(a) In the event a Participant is not survived by a
spouse, no benefits will be paid hereunder upon the Participant's death.

(b) If a deceased Participant's surviving spouse dies
while receiving survivor's benefits hereunder, any installments not paid at the
time of the surviving spouse's death shall be forfeited.

ARTICLE V

SUSPENSION OF BENEFITS, ETC.
----------------------------
5.1 Suspension of Benefits Upon Resumption of Service.
--------------------------------------------------
In the case of a Participant who, at a time when he is
receiving Retirement Benefits under Article III of this Plan, resumes Service
with any AIM Fund, such Retirement Benefits shall be suspended until his
subsequent Retirement, termination of Service or death. Subject to the Years
of Service limitations of Section 3.1 hereof, in the event of his Retirement
or termination of Service following such a suspension, the quarterly amount of
his remaining Retirement Benefits shall thereafter be adjusted, if
appropriate, to reflect any additional Years of Service completed by, or a
higher rate of Compensation received by, such Participant.

5.2 Payments Due Missing Persons.
-----------------------------
The Administrator shall make a reasonable effort to locate all
persons entitled to benefits (including Retirement Benefits and survivor's
benefits for spouses) under the Plan; however, notwithstanding any provisions
of this Plan to the contrary, if, after a period of 5 years from the date any
of such benefits first become due, any such persons entitled to benefits have
not been located, their rights under the Plan shall stand suspended. Before
this provision becomes operative, the Administrator shall send a certified
letter to all such persons (if any) at their last known address advising them
that their benefits under the Plan shall be suspended. Any such suspended
amounts shall be held by the AIM Funds for a period of 3 additional years (or a
total of 8 years from the time the benefits first became payable) and
thereafter such amounts shall be forfeited.

-6-
<PAGE> 11
ARTICLE VI

ADMINISTRATOR
-------------
6.1 Appointment of Administrator.
-----------------------------
This Plan shall be administered by the Nominating and
Compensation Committees of the Boards of Directors of the AIM Funds. The
members of such committees are not "interested persons" (within the meaning of
Section 2(a)(19) of the Investment Company Act of 1940) of any of the AIM
Funds. The term "Administrator" as used in this Plan shall refer to the
members of such committees, either individually or collectively, as
appropriate.

6.2 Powers and Duties of Administrator.
-----------------------------------
Except as provided below, the Administrator shall have the
following duties and responsibilities in connection with the administration of
this Plan:

(a) To promulgate and enforce such rules, regulations and
procedures as shall be proper for the efficient administration of the Plan;

(b) To determine all questions arising in the
administration, interpretation and application of the Plan, including questions
of eligibility and of the status and rights of Participants and any other
persons hereunder;

(c) To decide any dispute arising hereunder; provided,
however, that no Administrator shall participate in any matter involving any
questions relating solely to his own participation or benefits under this Plan;

(d) To advise the Boards of Directors of the AIM Funds
regarding the known future need for funds to be available for distribution;

(e) To correct defects, supply omissions and reconcile
inconsistencies to the extent necessary to effectuate the Plan;

(f) To compute the amount of benefits and other payments
which shall be payable to any Participant or surviving spouse in accordance
with the provisions of the Plan and to determine the person or persons to whom
such benefits shall be paid;

(g) To make recommendations to the Boards of Directors of
the AIM Funds with respect to proposed amendments to the Plan;

(h) To file all reports with government agencies,
Participants and other parties as may be required by law, whether such reports
are initially the obligation of the AIM Funds, or the Plan;

-7-
<PAGE> 12
(i) To engage the Actuary of the Plan and to cause the
liabilities of the Plan to be evaluated by the Actuary; and

(j) To have all such other powers as may be necessary to
discharge its duties hereunder.

6.3 Action by Administrator.
------------------------
The Administrator may elect a Chairman and Secretary from
among its members and may adopt rules for the conduct of its business. A
majority of the members then serving shall constitute a quorum for the
transacting of business. All resolutions or other action taken by the
Administrator shall be by vote of a majority of those present at such meeting
and entitled to vote. Resolutions may be adopted or other action taken without
a meeting upon written consent signed by at least a majority of the members.
All documents, instruments, orders, requests, directions, instructions and
other papers shall be executed on behalf of the Administrator by either the
Chairman or the Secretary of the Administrator, if any, or by any member or
agent of the Administrator duly authorized to act on the Administrator's
behalf.

6.4 Participation by Administrators.
--------------------------------
No Administrator shall be precluded from becoming a
Participant in the Plan if he would be otherwise eligible, but he shall not be
entitled to vote or act upon matters or to sign any documents relating
specifically to his own participation under the Plan, except when such matters
or documents relate to benefits generally. If this disqualification results in
the lack of a quorum, then the Boards of Directors, by majority vote of the
members of a majority of such Boards of Directors (a "Majority Vote"), shall
appoint a sufficient number of temporary Administrators, who shall serve for
the sole purpose of determining such a question.

6.5 Agents and Expenses.
--------------------
The Administrator may employ agents and provide for such
clerical, legal, actuarial, accounting, medical, advisory or other services as
it deems necessary to perform its duties under this Plan. The cost of such
services and all other expenses incurred by the Administrator in connection
with the administration of the Plan shall be allocated to each Fund pursuant to
the method utilized under Section 3.4 hereof with respect to costs related to
benefit accruals. For purposes of the preceding sentence, if an individual
serves as a Director for more than one Fund, he shall be deemed to be a
separate Director for each such Fund in determining the aggregate number of
Directors of the AIM Funds.

6.6 Allocation of Duties.
---------------------
The duties, powers and responsibilities reserved to the
Administrator may be allocated among its members so long as such allocation is
pursuant to written procedures adopted by the Administrator, in which case no
Administrator shall have any liability, with respect to any duties, powers or
responsibilities not allocated to him, for the acts or omissions of any other
Administrator.

-8-
<PAGE> 13
6.7 Delegation of Duties.
---------------------
The Administrator may delegate any of its duties to employees
of A I M Advisors, Inc. or any of its affiliates or to any other person or
firm, provided that the Administrator shall prudently choose such agents and
rely in good faith on their actions.

6.8 Administrator's Action Conclusive.
----------------------------------
Any action on matters within the discretion of the
Administrator shall be final and conclusive.

6.9 Records and Reports.
--------------------
The Administrator shall maintain adequate records of its
actions and proceedings in administering this Plan and shall file all reports
and take all other actions as it deems appropriate in order to comply with any
federal or state law.

6.10 Information from the AIM Funds.
-------------------------------
The AIM Funds shall promptly furnish all necessary information
to the Administrator to permit it to perform its duties under this Plan. The
Administrator shall be entitled to rely upon the accuracy and completeness of
all information furnished to it by the AIM Funds, unless it knows or should
have known that such information is erroneous.

6.11 Reservation of Rights by Boards of Directors.
---------------------------------------------
When rights are reserved in this plan to the Boards of
Directors, such rights shall be exercised only by Majority Vote of the Boards
of Directors, except where the Boards of Directors, by unanimous written
resolution, delegate any such rights to one or more persons or to the
Administrator. Subject to the rights reserved to the Boards of Directors as
set forth in this Plan, no member of the Boards of Directors shall have any
duties or responsibilities under this Plan, except to the extent he shall be
acting in the capacity of an Administrator.

6.12 Liability and Indemnification.
------------------------------
(a) The Administrator shall perform all duties required
of it under this Plan in a prudent manner. The Administrator shall not be
responsible in any way for any action or omission of the AIM Funds or their
employees in the performance of their duties and obligations as set forth in
this Plan. The Administrator also shall not be responsible for any act or
omission of any of its agents provided that such agents were prudently chosen
by the Administrator and that the Administrator relied in good faith upon the
action of such agents.

(b) Except for its own gross negligence, willful
misconduct or willful breach of the terms of this Plan, the Administrator shall
be indemnified and held harmless by the AIM Funds against any and all
liability, loss, damages, cost and expense which may arise, occur by reason of,
or be based upon, any matter connected with or related to this Plan or its

-9-
<PAGE> 14
administration (including, but not limited to, any and all expenses whatsoever
reasonably incurred in investigating, preparing or defending any litigation,
commenced or threatened, or in settlement of any such claim).

ARTICLE VII

AMENDMENTS AND TERMINATION
--------------------------
7.1 Amendments.
-----------
The Boards of Directors reserve the right at any time and from
time to time, and retroactively if deemed necessary or appropriate by them, to
amend in whole or in part by Majority Vote any or all of the provisions of this
Plan, provided that:

(a) No amendment shall make it possible for any part of a
Participant's or former Participant's Retirement Benefit to be used for, or
diverted to, purposes other than for the exclusive benefit of such Participant
or surviving spouse, except to the extent otherwise provided in this Plan;

(b) No amendment may reduce any Participant's or former
Participant's Retirement Benefit as of the effective date of the amendment;

Amendments may be made in the form of Board of Directors'
resolutions or separate written document.

7.2 Termination.
------------
Except as provided below, the Boards of Directors reserve the
right to terminate this Plan at any time by Majority Vote by giving to the
Administrator notice in writing of such desire to terminate. The Plan shall
terminate upon the date of receipt of such notice and the rights of all
Participants to their Retirement Benefits (determined as of the date the Plan
is terminated) shall become payable upon the effective date of the termination
of the Plan in quarterly installments or in an actuarially equivalent lump sum
as determined by the Administrator.

ARTICLE VIII

MISCELLANEOUS
-------------
8.1 Rights of Creditors.
--------------------
(a) The Plan is unfunded. Neither the Participants nor
any other persons shall have any interest in any fund or in any specific asset
or assets of any of the AIM Funds by

-10-
<PAGE> 15
reason of any Accrued or Retirement Benefit hereunder, nor any rights to
receive distribution of any Retirement Benefit except and as to the extent
expressly provided hereunder.

(b) The Accrued and Retirement Benefits of each
Participant are unsecured and shall be subject to the claims of the general
creditors of the AIM Funds.

8.2 Liability Limited.
------------------
Neither the AIM Funds, the Administrator, nor any agents,
employees, officers, directors or shareholders of any of them, nor any other
person shall have any liability or responsibility with respect to this Plan,
except as expressly provided herein.

8.3 Incapacity.
-----------
If the Administrator shall receive evidence satisfactory to it
that a Participant or surviving spouse entitled to receive any benefit under
the Plan is, at the time when such benefit becomes payable, physically or
mentally incompetent to receive such benefit and to give a valid release
therefor, and that another person or an institution is then maintaining or has
custody of such Participant or surviving spouse and that no guardian, committee
or other representative of the estate of such Participant or surviving spouse
shall have been duly appointed, the Administrator may make payment of such
benefit otherwise payable to such Participant or surviving spouse to such other
person or institution, and the release of such other person or institution
shall be a valid and complete discharge for the payment of such benefit.

8.4 Cooperation of Parties.
-----------------------
All parties to this Plan and any person claiming any interest
hereunder agree to perform any and all acts and execute any and all documents
and papers which are necessary or desirable for carrying out this Plan or any
of its provisions.

8.5 Governing Law.
--------------
All rights under the Plan shall be governed by and construed
in accordance with rules of Federal law applicable to such plans and, to the
extent not preempted, by the laws of the State of Texas without regard to
principles of conflicts of law. No action shall be brought by or on behalf of
any Participant for or with respect to benefits due under this Plan unless the
person bringing such action has timely exhausted the Plan's claim review
procedure. Any such action must be commenced within three years. This
three-year period shall be computed from the earlier of (a) the date a final
determination denying such benefit, in whole or in part, is issued under the
Plan's claim review procedure or (b) the date such individual's cause of action
first accrued. Any dispute, controversy or claim arising out of or in
connection with this Plan (including the applicability of this arbitration
provision) and not resolved pursuant to the Plan's claim review procedure shall
be determined and settled by arbitration conducted by the American Arbitration
Association ("AAA") in the County and State of the Funds' principal place of
business and in accordance with the then existing rules, regulations, practices
and procedures of the AAA. Any award in such arbitration shall be final,
conclusive and binding upon the

-11-
<PAGE> 16
parties to the arbitration and may be enforced by either party in any court of
competent jurisdiction. Each party to the arbitration will bear its own costs
and fees (including attorney's fees).

8.6 Nonguarantee of Directorship.
-----------------------------
Nothing contained in this Plan shall be construed as a
guaranty or right of any Participant to be continued as a Director of one or
more of the AIM Funds (or of a right of a Director to any specific level of
Compensation) or as a limitation of the right of the AIM Funds to remove any of
its directors.

8.7 Counsel.
--------
The Administrator may consult with legal counsel, who may be
counsel for one or more of the Boards of Directors of the AIM Funds and for the
Administrator, with respect to the meaning or construction of this Plan, its
obligations or duties hereunder or with respect to any action or proceeding or
any question of law, and they shall be fully protected with respect to any
action taken or omitted by them in good faith pursuant to the advice of legal
counsel.

8.8 Spendthrift Provision.
----------------------
A Participant's interest in his Accrued Benefit or Retirement
Benefit may not be transferred, alienated, assigned nor become subject to
execution, garnishment or attachment, and any attempt to do so will render
benefits hereunder immediately forfeitable.

8.9 Forfeiture for Cause.
---------------------
Notwithstanding any other provision of this Plan to the
contrary, any benefits to which a Participant (or his surviving spouse) may
otherwise be entitled hereunder will be forfeited in the event the
Administrator, in its sole discretion, determines that a Participant's
termination of Service is due to such Participant's willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Director.

ARTICLE IX

CLAIMS PROCEDURE
----------------
9.1 Notice of Denial.
-----------------
If a Participant is denied any Retirement Benefit (or a
surviving spouse is denied a survivor's benefit) under this Plan, either in
total or in an amount less than the full Retirement Benefit to which he would
normally be entitled, the Administrator shall advise the Participant (or
surviving spouse) in writing of the amount of his Retirement Benefit (or
survivor's benefit), if any, and the specific reasons for the denial. The
Administrator shall also furnish the Participant (or surviving spouse) at that
time with a written notice containing:

-12-
<PAGE> 17
(a) A specific reference to pertinent Plan provisions.

(b) A description of any additional material or
information necessary for the Participant (or surviving spouse) to perfect his
claim, if possible, and an explanation of why such material or information is
needed.

9.2 Right to Reconsideration.
-------------------------
Within 60 days of receipt of the information stated in Section
9.1 above, the Participant (or surviving spouse) shall, if he desires further
review, file a written request for reconsideration with the Administrator.

9.3 Review of Documents.
--------------------
So long as the Participant's (or surviving spouse's) request
for review is pending (including the 60 day period in 9.2 above), the
Participant (or surviving spouse) or his duly authorized representative may
review pertinent Plan documents and may submit issues and comments in writing
to the Administrator.

9.4 Decision by Administrator.
--------------------------
A final and binding decision shall be made by the
Administrator within 60 days of the filing by the Participant (or surviving
spouse) of his request for reconsideration, provided, however, that if the
Administrator, in its discretion, feels that a hearing with the Participant (or
surviving spouse) or his representative present is necessary or desirable, this
period shall be extended an additional 60 days.

9.5 Notice by Administrator.
------------------------
The Administrator's decision shall be conveyed to the
Participant (or surviving spouse) in writing and shall include specific reasons
for the provisions on which the decision is based.

-13-

<PAGE> 1
EXHIBIT 7(d)

THE AIM GROUP OF FUNDS

DEFERRED COMPENSATION PLAN

FOR ELIGIBLE DIRECTORS/TRUSTEES
<PAGE> 2
DEFERRED COMPENSATION AGREEMENT

SUMMARY

Your Deferred Compensation Agreement (the "Agreement") allows
you to defer some or all of your annual trustee's fees otherwise payable by the
Funds. Deferred fees are deemed invested in certain mutual funds selected by
you. The deferral is pre-tax, and the deferred amount and the credited gains,
losses and income are not subject to tax until paid out to you.

Your deferrals (and investment experience) are posted to a
bookkeeping account maintained by the Funds in your name. In order for you to
enjoy the tax deferral, the payments due under the Agreement will be paid from
the Funds' general assets, and you are considered a general unsecured creditor
of the Funds; you may not transfer your right to receive payments under the
Agreement to any other person, nor may you pledge that right to secure any debt
or other obligation; finally, an election to defer must be made in writing
before the first day of the calendar year for which the fees are earned (the
"Election Date") and elections can be changed only prospectively, effective for
the next calendar year.

An important change has been made to your Agreement to give
you greater flexibility to select the time of payment of amounts that you
defer: for amounts previously deferred and for future elections you now
designate a specific Payment Date.

PAYMENT DATE ELECTION

Deferred fees (and the income, gains and losses credited
during the deferral period) will be paid out in a single sum in cash within 30
days of the Payment Date elected for that deferral. (For payments in
connection with your termination of service as a trustee, see below.)

Deferrals must be for a minimum three year period (unless the
your retirement date under the Retirement Plan is earlier). Thus, the Payment
Date may be the first day of any calendar quarter that follows the third
anniversary of the applicable Election Date or your retirement date. For your
first Payment Date election that applies to previously deferred fees, the
Election Date is considered to be January 1, 1996. Thus, fees previously
deferred and fees payable for the calendar year beginning January 1, 1996 may
be deferred to the first day of any calendar quarter in any year from 1999.

EXTENDING A PAYMENT DATE

One year prior to any Payment Date, you will have a one-time
opportunity to extend that Date, provided that the additional period of
deferral satisfies the requirements described above.
<PAGE> 3
TERMINATION OF SERVICE

Upon your death, your account under the Agreement will be paid
out in a single sum in cash as soon as practicable. Payment will be made to
your designated Beneficiary or Beneficiaries or to your estate if there is no
surviving Beneficiary.

Upon termination of your service as trustee for any reason
other than death or your retirement (as defined in the Retirement Plan), your
account will be paid to you as a single sum (or in installments if you had
elected that method) in cash within three months following the end of the
fiscal year in which you terminate, regardless of the Payment Dates you
elected.
<PAGE> 4
ARTICLE Page
------- ----

1. Definitions of Terms and Construction 1

2. Period During Which Compensation Deferrals are Permitted 2

3. Compensation Deferrals 2

4. Distributions from Deferral Account 4

5. Amendments and Termination 5

6. Miscellaneous
<PAGE> 5

DEFERRED COMPENSATION AGREEMENT
-------------------------------

AGREEMENT, made on this __ day of _______, 19__, by and
between the registered open-end investment companies listed on Appendix A
hereto (the "Funds"), and
________________________________________________________________ (the
"Director") residing at ___________________________________________________.

WHEREAS, the Funds and the Director have entered into
agreements pursuant to which the Director will serve as a director/trustee of
the Funds; and

WHEREAS, the Funds and the Director have previously entered
into an additional agreement whereby the Funds will provide to the Director a
vehicle under which the Director can defer receipt of directors' fees payable
by the Funds and now desire to amend and restate such agreement.

NOW, THEREFORE, in consideration of the mutual covenants and
obligations set forth in this Agreement, the Funds and the Director hereby
agree as follows:

1. DEFINITION OF TERMS AND CONSTRUCTION
------------------------------------
1.1 Definitions. Unless a different meaning is plainly implied by
the context, the following terms as used in this Agreement shall have the
following meanings:

(a) "Beneficiary" shall mean such person or persons
designated pursuant to Section 4.3 hereof to receive benefits after the death
of the Director.

(b) "Boards of Directors" shall mean the respective
Boards of Directors of the Funds.

(d) "Compensation" shall mean the amount of directors'
fees paid by each of the Funds to the Director during a Deferral Year prior to
reduction for Compensation Deferrals made under this Agreement.

(e) "Compensation Deferral" shall mean the amount or
amounts of the Director's Compensation deferred under the provisions of Section
3 of this Agreement.

-1-
<PAGE> 6
(f) "Deferral Accounts" shall mean the accounts
maintained to reflect the Director's Compensation Deferrals made pursuant to
Section 3 hereof and any other credits or debits thereto.

(g) "Deferral Year" shall mean each calendar year during
which the Director makes, or is entitled to make, Compensation Deferrals under
Section 3 hereof.

(h) "Retirement" shall have the same meaning as set forth
under the Retirement Plan.

(i) "Retirement Plan" shall mean the "AIM Funds
Retirement Plan for Eligible Directors/Trustees."

(j) "Valuation Date" shall mean the last business day of
each calendar year and any other day upon which the Funds makes valuations of
the Deferral Accounts.

1.2 Plurals and Gender. Where appearing in this Agreement the
singular shall include the plural and the masculine shall include the feminine,
and vice versa, unless the context clearly indicates a different meaning.

1.3 Directors and Trustees. Where appearing in this Agreement,
"Director" shall also refer to "Trustee" and "Board of Directors" shall also
refer to "Board of Trustees."

1.4 Headings. The headings and sub-headings in this Agreement are
inserted for the convenience of reference only and are to be ignored in any
construction of the provisions hereof.

1.5 Separate Agreement for Each Fund. This Agreement is drafted,
and shall be construed, as a separate agreement between the Director and each
of the Funds.

2. PERIOD DURING WHICH COMPENSATION DEFERRALS ARE PERMITTED
--------------------------------------------------------
2.1 Commencement of Compensation Deferrals. The Director may
elect, on a form provided by, and submitted to, the Presidents of the
respective Funds, to commence Compensation Deferrals under Section 3 hereof for
the period beginning on the later of (i) the date this Agreement is executed or
(ii) the date such form is submitted to the Presidents of the Funds.

2.2 Termination of Deferrals. The Director shall not be eligible
to make Compensation Deferrals after the earliest of the following dates:

(a) The date on which he ceases to serve as a Director of
all of the Funds; or

(b) The effective date of the termination of this
Agreement.

-2-
<PAGE> 7

3. COMPENSATION DEFERRALS
----------------------
3.1 Compensation Deferral Elections.

(a) On or prior to the first day of any Deferral Year,
the Director may elect, on the form described in Section 2.1 hereof, to defer
the receipt of all or a portion of his Compensation for such Deferral Year.
Such writing shall set forth the amount of such Compensation Deferral (in whole
percentage amounts). Such election shall continue in effect for all subsequent
Deferral Years unless it is canceled or modified as provided below.

(b) Compensation Deferrals shall be withheld from each
payment of Compensation by the Funds to the Director based upon the percentage
amount elected by the Director under Section 3.1(a) hereof.

(c) The Director may cancel or modify the amount of his
Compensation Deferrals on a prospective basis by submitting to the Presidents
of the Funds a revised Compensation Deferral election form. Such change will
be effective as of the first day of the Deferral Year following the date such
revision is submitted to the Presidents of the Funds.

3.2 Valuation of Deferral Account.

(a) Each Fund shall establish a bookkeeping Deferral
Account to which will be credited an amount equal to the Director's
Compensation Deferrals under this Agreement made with respect to Compensation
earned from each such Fund. Compensation Deferrals shall be allocated to the
Deferral Accounts on the first business day following the date such
Compensation Deferrals are withheld from the Director's Compensation. As of
the date of this Agreement, the Deferral Accounts also shall be credited with
the amounts credited to the Director under each other outstanding elective
deferred compensation agreement entered into by and between the Funds and the
Director which is superseded by this Agreement pursuant to Section 6.11 hereof.
The Deferral Accounts shall be debited to reflect any distributions from such
Accounts. Such debits shall be allocated to the Deferral Accounts as of the
date such distributions are made.

(b) As of each Valuation Date, income, gain and loss
equivalents (determined as if the Deferral Accounts are invested in the manner
set forth under Section 3.3, below) attributable to the period following the
next preceding Valuation Date shall be credited to and/or deducted from the
Director's Deferral Accounts.

3.3 Investment of Deferral Account Balances.

(a) (1) The Director may select, from various options
made available by the Funds, the investment media in which all or part of his
Deferral Accounts shall be deemed to be invested.

-3-
<PAGE> 8
(2) The Director shall make an investment
designation on a form provided by the Presidents of the Funds which shall
remain effective until another valid direction has been made by the Director as
herein provided. The Director may amend his investment designation as of the
end of each calendar quarter by giving written direction to the Presidents of
the Funds at least thirty (30) days prior to the end of such calendar quarter.
A timely change to a Director's investment designation shall become effective
on the first day of the calendar quarter following receipt by the Presidents of
the Funds.

(3) The investment media deemed to be made
available to the Director, and any limitation on the maximum or minimum
percentages of the Director's Deferral Accounts that may be invested any
particular medium, shall be the same as from time-to-time communicated to the
Director by the Presidents of the Funds.

(b) Except as provided below, the Director's Deferral
Accounts shall be deemed to be invested in accordance with his investment
designations, provided such designations conform to the provisions of this
Section. If -

(1) the Director does not furnish the Presidents
of the Funds with complete, written investment instructions, or

(2) the written investment instructions from the
Director are unclear,

then the Director's election to make Compensation Deferrals hereunder shall be
held in abeyance and have no force or effect until such time as the Director
shall provide the Presidents of the Funds with complete investment
instructions. Notwithstanding the above, the Boards of Directors, in their
sole discretion, may disregard the Director's election and determine that all
Compensation Deferrals shall be deemed to be invested in a fund determined by
the Boards of Directors. In the event that any fund under which any portion of
the Director's Deferral Accounts is deemed to be invested ceases to exist, such
portion of the Deferral Accounts thereafter shall be held in the successor to
such fund, subject to subsequent deemed investment elections.

The Fund shall provide an annual statement to the Director
showing such information as is appropriate, including the aggregate amount in
the Deferral Accounts, as of a reasonably current date.

-4-
<PAGE> 9
4. DISTRIBUTIONS FROM DEFERRAL ACCOUNTS
------------------------------------
4.1 Payment Date and Methods.

(a) Designation of Date. Each deferral direction given
pursuant to Section 3.1 shall include designation of the Payment Date for the
value of the amount deferred. Such Payment Date shall be the first day of any
calendar quarter, subject to the limitation set forth in paragraph 4.1(c).

(b) Extension Date. One year before the Payment Date
initially designated pursuant to paragraph 4.1(a) above, the Participant may
irrevocably elect to extend such Payment Date to the first day of any calendar
quarter, subject to the limitation set forth in paragraph 4.1(c).

(c) Limitation. The Director shall select a Payment Date
(or extended Payment Date) that is no sooner than the earlier of (i) the
January 1 that follows the third anniversary of the Participant's deferral
election made pursuant to paragraph 4.1(a) or (b) or (ii) the January 1 of the
year after the Participant's Retirement.

(d) Methods of Payment. Distributions from the
Director's Deferral Accounts shall be paid in cash. A Participant may elect,
at the time a Payment Date is selected, to receive the amount which will become
payable as of such Payment Date in generally equal quarterly installments over
a period not to exceed ten (10) years. Except as may be elected pursuant to
this paragraph, all amounts becoming payable under this Plan shall be paid in a
single sum.

(e) Irrevocability. Except as provided in paragraph
4.1(b), a designation of a Payment Date and an election of installment payments
shall be irrevocable; provided, however, that payment shall be made or begin on
a different date as follows:

(1) Upon the Director's death, payment shall be
made in accordance with Section 4.2,

(2) Upon the Director's ceasing to serve as a
director of all of the Funds for reasons other than death or Retirement,
payment shall be made or begin within three months after the end of the
calendar year in which such termination occurs in accordance with the method
elected by the Director pursuant to paragraph 4.1(d), except that the Boards of
Directors, in their sole discretion, may accelerate the distribution of such
Deferral Accounts,

(3) Upon termination of this Agreement, payment
shall be made in accordance with Section 5.2, and

(4) In the event of the liquidation, dissolution
or winding up of a Fund or the distribution of all or substantially all of a
Fund's assets and property relating to one or

-5-
<PAGE> 10
more series of its shares to the shareholders of such series (for this purpose
a sale, conveyance or transfer of a Fund's assets to a trust, partnership,
association or corporation in exchange for cash, shares or other securities
with the transfer being made subject to, or with the assumption by the
transferee of, the liabilities of the Fund shall not be deemed a termination of
the Fund or such a distribution), all unpaid balances of the Deferral Accounts
related to such Fund as of the effective date thereof shall be paid in a lump
sum on such effective date.

4.2 Death Prior to Complete Distribution of Deferral Accounts.
Upon the death of the Director prior to the commencement of the distribution of
the amounts credited to his Deferral Accounts, the balance of such Accounts
shall be distributed to his Beneficiary in a lump sum as soon as practicable
after the Director's death. In the event of the death of the Director after
the commencement of such distribution, but prior to the complete distribution
of his Deferral Accounts, the balance of the amounts credited to his Deferral
Accounts shall be distributed to his Beneficiary over the remaining period
during which such amounts were distributable to the Director under Section 4.1
hereof. Notwithstanding the above, the Boards of Directors, in their sole
discretion, may accelerate the distribution of the Deferral Accounts.

4.3 Designation of Beneficiary. For purposes of Section 4.2
hereof, the Director's Beneficiary shall be the person or persons so designated
by the Director in a written instrument submitted to the Presidents of the
Funds. In the event the Director fails to properly designate a Beneficiary,
his Beneficiary shall be the person or persons in the first of the following
classes of successive preference Beneficiaries surviving at the death of the
Director: the Director's (1) surviving spouse or (2) estate.

4.4 Payments Due Missing Persons. The Funds shall make a
reasonable effort to locate all persons entitled to benefits under this
Agreement. However, notwithstanding any provisions of this Agreement to the
contrary, if, after a period of five (5) years from the date such benefit shall
be due, any such persons entitled to benefits have not been located, their
rights under this Agreement shall stand suspended. Before this provision
becomes operative, the Funds shall send a certified letter to all such persons
to their last known address advising them that their benefits under this
Agreement shall be suspended. Any such suspended amounts shall be held by the
Funds for a period of three (3) additional years (or a total of eight (8) years
from the time the benefits first become payable) and thereafter, if unclaimed,
such amounts shall be forfeited.

5. AMENDMENTS AND TERMINATION
--------------------------
5.1 Amendments.

(a) The Funds and the Director may, by a written
instrument signed by, or on behalf of, such parties, amend this Agreement at
any time and in any manner.

-6-
<PAGE> 11
(b) The Funds reserve the right to amend, in whole or in
part, and in any manner, any or all of the provisions of this Agreement by
action of their Boards of Directors for the purposes of complying with any
provision of the Code or any other technical or legal requirements, provided
that:

(1) No such amendment shall make it possible for
any part of the Director's Deferral Accounts to be used for, or diverted to,
purposes other than for the exclusive benefit of the Director or his
Beneficiaries, except to the extent otherwise provided in this Agreement;
and

(2) No such amendment may reduce the amount of
the Director's Deferral Accounts as of the effective date of such amendment.

5.2 Termination. The Director and the Funds may, by written
instrument signed by, or on behalf of, such parties, terminate this Agreement
at any time. In the event of the termination of this Agreement, the Boards of
Directors, in their sole discretion, may choose to pay out the Director's
Deferral Accounts prior to the designated Payment Dates. Otherwise, following
a termination of the Plan, such Accounts shall continue to be maintained in
accordance with the provisions of this Plan until the time they are paid out.

6. MISCELLANEOUS.
--------------
6.1 Rights of Creditors.

(a) This Agreement is unfunded. Neither the Director nor
any other persons shall have any interest in any specific asset or assets of
the Funds by reason of any Deferral Accounts hereunder, nor any rights to
receive distribution of his Deferral Accounts except and as to the extent
expressly provided hereunder. The Funds shall not be required to purchase,
hold or dispose of any investments pursuant to this Agreement; however, if in
order to cover their obligations hereunder the Funds elect to purchase any
investments the same shall continue for all purposes to be a part of the
general assets and property of the Funds, subject to the claims of their
general creditors and no person other than the Funds shall by virtue of the
provisions of this Agreement have any interest in such assets other than an
interest as a general creditor.

(b) The rights of the Director and the Beneficiaries to
the amounts held in the Deferral Accounts are unsecured and shall be subject to
the creditors of the Funds. With respect to the payment of amounts held under
the Deferral Accounts, the Director and his Beneficiaries have the status of
unsecured creditors of the Funds. This Agreement is executed on behalf of the
Funds by an officer, or other representative, of the Funds as such and not
individually. Any obligation of the Funds hereunder shall be an unsecured
obligation of the Funds and not of any other person.

-7-
<PAGE> 12
6.2 Agents. The Funds may employ agents and provide for such
clerical, legal, actuarial, accounting, advisory or other services as it deems
necessary to perform their duties under this Agreement. The Funds shall bear
the cost of such services and all other expenses they incur in connection with
the administration of this Agreement.

6.3 Liability and Indemnification. Except for their own gross
negligence, willful misconduct or willful breach of the terms of this
Agreement, the Funds shall be indemnified and held harmless by the Director
against liability or losses occurring by reason of any act or omission of the
Funds or any other person.

6.4 Incapacity. If the Funds shall receive evidence satisfactory
to them that the Director or any Beneficiary entitled to receive any benefit
under the Agreement is, at the time when such benefit becomes payable, a minor,
or is physically or mentally incompetent to receive such benefit and to give a
valid release therefor, and that another person or an institution is then
maintaining or has custody of the Director or Beneficiary and that no guardian,
committee or other representative of the estate of the Director or Beneficiary
shall have been duly appointed, the Funds may make payment of such benefit
otherwise payable to the Director or Beneficiary to such other person or
institution, including a custodian under a Uniform Gifts to Minors Act, or
corresponding legislation (who shall be an adult, a guardian of the minor or a
trust company), and the release of such other person or institution shall be a
valid and complete discharge for the payment of such benefit.

6.5 Cooperation of Parties. All parties to this Agreement and any
person claiming any interest hereunder agree to perform any and all acts and
execute any and all documents and papers which are necessary or desirable for
carrying out this Agreement or any of its provisions.

6.6 Governing Law. This Agreement is made and entered into in the
State of Texas and all matters concerning its validity, construction and
administration shall be governed by the laws of the State of Texas.

6.7 Nonguarantee of Directorship. Nothing contained in this
Agreement shall be construed as a contract or guarantee of the right of the
Director to be, or remain as, a director of any of the Funds or to receive any,
or any particular rate of, Compensation from any of the Funds.

6.8 Counsel. The Funds may consult with legal counsel with
respect to the meaning or construction of this Agreement, their obligations or
duties hereunder or with respect to any action or proceeding or any question of
law, and they shall be fully protected with respect to any action taken or
omitted by them in good faith pursuant to the advice of legal counsel.

6.9 Spendthrift Provision. The Director's and Beneficiaries'
interests in the Deferral Accounts may not be anticipated, sold, encumbered,
pledged, mortgaged, charged, transferred,

-8-

<PAGE> 13
alienated, assigned nor become subject to execution, garnishment or
attachment and any attempt to do so by any person shall render the Deferral
Accounts immediately forfeitable.

6.10 Notices. For purposes of this Agreement, notices and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered personally or mailed by
United States registered or certified mail, return receipt requested, postage
prepaid, or by nationally recognized overnight delivery service providing for a
signed return receipt, addressed to the Director at the home address set forth
in the Funds' records and to the Funds at the address set forth on the first
page of this Agreement, provided that all notices to the Funds shall be
directed to the attention of the Presidents of the Funds or to such other
address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon receipt.

6.11 Entire Agreement. This Agreement contains the entire
understanding between the Funds and the Director with respect to the payment of
non-qualified elective deferred compensation by the Fund to the Director.
Effective as of the date hereof, this Agreement replaces, and supersedes, all
other non-qualified elective deferred compensation agreements by and between
the Director and the Funds.

6.12 Interpretation of Agreement. Interpretations of, and
determinations (including factual determinations) related to, this Agreement
made by the Funds in good faith, including any determinations of the amounts of
the Deferral Accounts, shall be conclusive and binding upon all parties; and
the Funds shall not incur any liability to the Director for any such
interpretation or determination so made or for any other action taken by it in
connection with this Agreement in good faith.

6.13 Successors and Assigns. This Agreement shall be binding upon,
and shall inure to the benefit of, the Funds and their successors and assigns
and to the Director and his heirs, executors, administrators and personal
representatives.

6.14 Severability. In the event any one or more provisions of this
Agreement are held to be invalid or unenforceable, such illegality or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof and such other provisions shall remain in full force and
effect unaffected by such invalidity or unenforceability.

6.15 Execution in Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed to be an original,
but all of which together shall constitute one and the same instrument.

-9-

<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.

The Funds

________________________ By:_________________________
Witness Name:
Title:

________________________ ____________________________
Witness Director

-10-

<PAGE> 15
APPENDIX A
----------

AIM EQUITY FUNDS, INC.

AIMS FUNDS GROUP

AIM INTERNATIONAL FUNDS, INC.

AIM INVESTMENT SECURITIES FUNDS

AIM STRATEGIC INCOME FUND, INC.

AIM SUMMIT FUND, INC.

AIM TAX-EXEMPT FUNDS, INC.

AIM VARIABLE INSURANCE FUNDS, INC.

SHORT-TERM INVESTMENTS CO.

SHORT-TERM INVESTMENTS TRUST

TAX-FREE INVESTMENTS CO.
<PAGE> 16
DEFERRED COMPENSATION AGREEMENT
DEFERRAL ELECTION FORM
-------------------------------

TO: Presidents of the AIM Funds

FROM:

DATE:

With respect to the Deferred Compensation agreement (the
"Agreement") dated as of ________________ by and between the undersigned and
the AIM Funds, I hereby make the following elections:

Deferral of Compensation
------------------------
Starting with Compensation to be paid to me with respect to
services provided by me to the AIM Funds after the date this election Form is
received by the AIM Funds, I hereby elect that ______ percent (_____%) of my
Compensation (as defined under the Agreement) be reduced and that the Fund
establish a bookkeeping account credited with amounts equal to the amount so
reduced (the "Deferral Account"). The Deferral Account shall be further
credited with income equivalents as provided under the Agreement. I understand
that this election will remain in effect with respect to Compensation I earn in
subsequent years unless I modify or revoke it. I further understand that such
modification or revocation will be effective only prospectively and will apply
commencing with the Compensation I earn in the calendar year that begins after
the change is received by you.

Payment Date
------------
I hereby designate ________ 1 (select the first month in any
calendar quarter) in the year ______ (select a year that is at least four years
after the year this election is made) as the Payment Date for the amounts
credited to my Deferral Account pursuant to the election made above. If my
Retirement (as defined in the Agreement) occurs sooner, I o do o do not (check
the appropriate box) want payment of such amounts to commence effective the
January 1 following my Retirement. I understand that amounts credited to my
Deferral Account may be paid to me prior to the Payment Date as provided in the
Agreement.

Payment Method
--------------
I hereby elect to receive the amounts credited to my Deferral
Account in (check one)

o a single payment in cash
o annual installments for a period of ____ (select no more than 10
years)

-12-
<PAGE> 17
beginning within 30 days following the payment date selected above.

I understand that the amounts credited to my Deferral Account
shall remain the general assets of the AIM Funds and that, with respect to the
payment of such amounts, I am merely a general creditor of the AIM Funds. I
may not sell, encumber, pledge, assign or otherwise alienate the amounts
credited to my Deferral Account.

I hereby agree that the terms of the Agreement are
incorporated herein and are made a part hereof. Dated as of the day and year
first above written.

WITNESS: DIRECTOR:

_________________________ ______________________________

WITNESS: RECEIVED:

_________________________ AIM Funds

By:___________________________
Date:_________________________

-13-
<PAGE> 18
DEFERRED COMPENSATION AGREEMENT
INVESTMENT DIRECTION FORM
-------------------------------

TO: Presidents of the AIM Funds

FROM:

DATE:

With respect to the Deferred Compensation Agreement (the
"Agreement") dated as of ________________ by and between the undersigned and
the AIM Funds, I hereby elect that my Deferral Account under the Agreement be
considered to be invested as follows (in multiples of 10%):

AIM WEINGARTEN FUND ____________%
AIM CONSTELLATION FUND ____________%
AIM HIGH YIELD FUND ____________%
AIM INTERNATIONAL EQUITY FUND ____________%
AIM AGGRESSIVE GROWTH EQUITY FUND __________%
AIM LIMITED MATURITY TREASURY SHARES FUND __________%
AIM VALUE FUND _____________%
AIM MONEY MARKET FUND ___________%
AIM BALANCED FUND ____________%
AIM CHARTER FUND _____________%

I acknowledge that I may amend this Investment Agreement in
the manner, and at such time, as permitted under the Agreement. Furthermore, I
acknowledge that, pursuant to Section 3.3(b) of the Agreement, the Fund has
reserved the right to disregard the elections made above to consider my
Deferral Account to be deemed to be invested in a fund of its choosing.

WITNESS: DIRECTOR:

_________________________ ______________________________

WITNESS: RECEIVED:

_________________________ AIM Funds

By:___________________________

Date:_________________________
<PAGE> 19
DEFERRED COMPENSATION AGREEMENT
BENEFICIARY DESIGNATION FORM
-------------------------------

TO: Presidents of the AIM Funds

FROM:

DATE:

With respect to the Deferred Compensation Agreement (the
"Agreement") dated as of _____________ by and between the undersigned and the
AIM Funds, I hereby make the following beneficiary designations:

I. Primary Beneficiary
-------------------
I hereby appoint the following as my Primary Beneficiary(ies)
to receive at my death the amounts credited to my Deferral Account under the
Agreement. In the event I am survived by more than one Primary Beneficiary,
such Primary Beneficiaries shall share equally in such amounts unless I
indicate otherwise on an attachment to this form:

_________________________________________________________________
Name Relationship

_________________________________________________________________
Address

_________________________________________________________________
City State Zip
<PAGE> 20
II. Secondary Beneficiary
---------------------
In the event I am not survived by any Primary Beneficiary, I
hereby appoint the following as Secondary Beneficiary(ies) to receive death
benefits under the Agreement. In the event I am survived by more than one
Secondary Beneficiary, such Secondary Beneficiaries shall share equally unless
I indicate otherwise on an attachment to this form:

_________________________________________________________________
Name Relationship

_________________________________________________________________
Address

_________________________________________________________________
City State Zip

I understand that I may revoke or amend the above designations
at any time. I further understand that if I am not survived by a Primary or
Secondary Beneficiary, my Beneficiary shall be as set forth under the
Agreement.

WITNESS: DIRECTOR:

_________________________ ______________________________

WITNESS: RECEIVED:

_________________________ AIM Funds

By:___________________________
Date:_________________________

-2-
<PAGE> 21
INITIAL PAYMENT DATE ELECTION FORM
FOR PREVIOUSLY DEFERRED COMPENSATION
------------------------------------

TO: Presidents of the AIM Funds

FROM:

DATE:

With respect to the Deferred Compensation agreement (the
"Agreement") dated as of ________________ by and between the undersigned and
the AIM Funds, pursuant to which I have previously elected to defer
Compensation, I hereby designate ________ 1 (select the first month in any
calendar quarter) in the year ______ (select a year that is at least four years
after the year this election is made) as the Payment Date for the amounts
previously credited to my Deferral Account and amounts subsequently credited
thereto. If my Retirement (as defined in the Agreement) occurs sooner, I o do
o do not (check the appropriate box) want payment of such amounts to commence
effective the January 1 following my Retirement. I understand that amounts
credited to my Deferral Account may be paid to me prior to the Payment Date as
provided in the Agreement.

I understand that I may amend this Investment Agreement in the
manner, and at such time, as permitted under the Agreement.

WITNESS: DIRECTOR:

_________________________ ______________________________

WITNESS: RECEIVED:

_________________________ AIM Funds

By:___________________________
Date:_________________________

-3-

<PAGE> 1

EXHIBIT 8(b)
CUSTODY AGREEMENT
-----------------

Agreement made as of this 19th day of October 1995, between AIM
TAX-EXEMPT FUNDS, INC., a Maryland corporation having its principal office and
place of business at 11 Greenway Plaza, Suite 1919, Houston, Texas 77046
(hereinafter called the "Fund"), and THE BANK OF NEW YORK, a New York
corporation authorized to do a banking business, having its principal office
and place of business at 48 Wall Street, New York, New York 10015 (hereinafter
called the "Custodian").

W I T N E S S E T H:

that for and in consideration of the mutual promises hereinafter set forth the
Fund and the Custodian agree as follows:

ARTICLE I

DEFINITIONS

Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:

1. "Authorized Person" shall be deemed to include any person,
whether or not such person is an Officer or employee of the Fund, duly
authorized by the Board of Directors of the Fund to give Oral Instructions and
Written Instructions on behalf of the Fund and listed in the Certificate
annexed hereto as Appendix A or such other Certificate as may be received by
the Custodian from time to time.

2. "Book-Entry System" shall mean the Federal Reserve/Treasury
book-entry system for United States and federal agency securities, its
successor or successors and its nominee or nominees.

3. "Call Option" shall mean an exchange traded option with
respect to Securities other than Stock Index Options, Futures Contracts, and
Futures Contract Options entitling the holder, upon timely exercise and payment
of the exercise price, as specified therein, to purchase from the writer
thereof the specified underlying Securities.

4. "Certificate" shall mean any notice, instruction, or other
instrument in writing, authorized or required by this Agreement to be given to
the Custodian which is actually received by the Custodian and signed on behalf
of the Fund by any two Officers, and the term Certificate shall also include
instructions by the Fund to the Custodian communicated by a Terminal Link.

5. "Certificate" shall mean any notice, instruction, or any other
instrument in writing, authorized or required by this Agreement to be given to
the Custodian which is actually received by the Custodian and signed on behalf
of the Fund by any two Officers, and the term Certificate shall also include
instructions by the Fund to the Custodian communicated by a Terminal Link.

1
<PAGE> 2
6. "Collateral Account" shall mean a segregated account so
denominated which is specifically allocated to a Series and pledged to the
Custodian as security for, and in consideration of, the Custodian's issuance of
(a) any Put Option guarantee letter or similar document described in paragraph
8 of Article V herein, or (b) any receipt described in Article V or VIII
herein.

7. "Covered Call Option" shall mean an exchange traded option
entitling the holder, upon timely exercise and payment of the exercise price,
as specified therein, to purchase from the writer thereof the specified
underlying Securities (excluding Futures Contracts) which are owned by the
writer thereof and subject to appropriate restrictions.

8. "Depository" shall mean The Depository Trust-Company ("DTC"),
a clearing agency registered with the Securities and Exchange Commission, its
successor or successors and its nominee or nominees. The term "Depository"
shall further mean and include any other person authorized to act as a
depository under the Investment Company Act of 1940, its successor or
successors and its nominee or nominees, specifically identified in a certified
copy of a resolution of the Fund's Board of Directors specifically approving
deposits therein by the Custodian.

9. "Financial Futures Contract" shall mean the firm commitment to
buy or sell fixed income securities including, without limitation, U.S.
Treasury Bills, U.S. Treasury Notes, U.S. Treasury Bonds, domestic bank
certificates of deposit, and Eurodollar certificates of deposit, during a
specified month at an agreed upon price.

10. "Futures Contract" shall mean a Financial Futures Contract
and/or Stock Index Futures Contracts.

11. "Futures Contract Option" shall mean an option with respect to
a Futures Contract.

12. "Margin Account" shall mean a segregated account in the name
of a broker, dealer, futures commission merchant, or a Clearing Member, or in
the name of the Fund for the benefit of a broker, dealer, futures commission
merchant, or Clearing Member, or otherwise, in accordance with an agreement
between the Fund, the Custodian and a broker, dealer, futures commission
merchant or a Clearing Member (a "Margin Account Agreement"), separate and
distinct from the custody account, in which certain Securities and/or money of
the Fund shall be deposited and withdrawn from time to time in connection with
such transactions as the Fund may from time to time determine. Securities held
in the Book-Entry System or the Depository shall be deemed to have been
deposited in, or withdrawn from, a Margin Account upon the Custodian's
effecting an appropriate entry in its books and records.

13. "Money Market Security" shall be deemed to include, without
limitation, certain Reverse Repurchase Agreements, debt obligations issued or
guaranteed as to interest and principal by the government of the United States
or agencies or instrumentalities thereof, any tax, bond or revenue anticipation
note issued by any state or municipal government or public authority,
commercial paper, certificates of deposit and bankers' acceptances, repurchase
agreements with respect to the same and bank time deposits, where the purchase
and sale of such securities normally requires settlement in federal funds on
the same day as such purchase or sale.

14. "O.C.C." shall mean the Options Clearing Corporation, a
clearing agency registered under Section 17A of the Securities Exchange Act of
1934, its successor or successors, and its nominee or nominees.

2
<PAGE> 3
15. "Officer" shall be deemed to include the President, any Vice
President, the Secretary, the Treasurer, the Controller, any Assistant
Secretary, any Assistant Treasurer, and any other person or persons, whether or
not any such other person is an officer of the Fund, duly authorized by the
Board of Directors of the Fund to execute any Certificate, instruction, notice
or other instrument on behalf of the Fund and listed in the Certificate annexed
hereto as Appendix B or such other Certificate annexed hereto as Appendix B or
such other Certificate as may be received by the Custodian from time to time.

16. "Option" shall mean a Call Option, Covered Call Option, Stock
Index Option and/or a Put Option.

17. "Oral Instructions" shall mean verbal instructions actually
received by the Custodian from an Authorized Person or from a person reasonably
believed by the Custodian to be an Authorized Person.

18. "Put Option" shall mean an exchange traded option with respect
to Securities other than Stock Index Options, Futures Contracts, and Futures
Contract Options entitling the holder, upon timely exercise and tender of the
specified underlying Securities, to sell such Securities to the writer thereof
for the exercise price.

19. "Reverse Repurchase Agreement" shall mean an agreement
pursuant to which the Fund sells Securities and agrees to repurchase such
Securities at a described or specified date and price.

20. "Security" shall be deemed to include, without limitation,
Money Market Securities, Call Options, Put Options, Stock Index Options, Stock
Index Futures Contracts, Stock Index Futures Contract Options, Financial
Futures Contracts, Financial Futures Contract Options, Reverse Repurchase
Agreements, common stocks and other securities having characteristics similar
to common stocks, preferred stocks, debt obligations issued by state or
municipal governments and by public authorities, (including, without
limitation, general obligation bonds, revenue bonds and industrial bonds and
industrial development bonds), bonds, debentures, notes, mortgages or other
obligations, and any certificates, receipts, warrants or other instruments
representing rights to receive, purchase, sell or subscribe for the same, or
evidencing or representing any other rights or interest therein, or any
property or assets.

21. "Senior Security Account" shall mean an account maintained and
specifically allocated to a Series under the terms of this Agreement as a
segregated account, by recordation or otherwise, within the custody account in
which certain Securities and/or other assets of the Fund specifically allocated
to such Series shall be deposited and withdrawn from time to time in accordance
with Certificates received by the Custodian in connection with such
transactions as the Fund may from time to time determine.

22. "Series" shall mean the various portfolios, if any, of the
Fund as described from time to time in the current and effective prospectus for
the Fund.

23. "Shares" shall mean the shares of stock of the Fund, each of
which is in the case of a Fund having Series allocated to a particular Series.

24. "Stock Index Futures Contract" shall mean a bilateral
agreement pursuant to which the parties agree to take or make delivery of an
amount of cash equal to a specified dollar amount

3
<PAGE> 4
times the difference between the value of a particular stock index at the close
of the last business day of the contract and the price at which the futures
contract is originally struck.

25. "Stock Index Option" shall mean an exchange traded option
entitling the holder, upon timely exercise, to receive an amount of cash
determined by reference to the difference between the exercise price and the
value of the index on the date of exercise.

26. "Terminal Link" shall mean an electronic data transmission
link between the Fund and the Custodian requiring in connection with each use
of the Terminal Link by or on behalf of the Fund use of an authorization code
provided by the Custodian and at least two access codes established by the
Fund.

27. "Written Instructions" shall mean written communications
actually received by the Custodian from an Authorized Person or from a person
reasonably believed by the Custodian to be an Authorized Person by telex or any
other such system whereby the receiver of such communications is able to verify
by codes or otherwise with a reasonable degree of certainty the identity of the
sender of such communication.

ARTICLE II

APPOINTMENT OF CUSTODIAN

1. The Fund hereby constitutes and appoints the Custodian as
custodian of the Securities and moneys at any time owned by the Fund during the
period of this Agreement.

2. The Custodian hereby accepts appointment as such custodian and
agrees to perform the duties thereof as hereinafter set forth.

ARTICLE III

CUSTODY OF CASH AND SECURITIES

1. Except as otherwise provided in paragraph 7 of this Article
and in Article VIII, the Fund will deliver or cause to be delivered to the
Custodian all Securities and all moneys owned by it, at any time during the
period of this Agreement, and shall specify with respect to such Securities and
money the Series to which the same are specifically allocated. The Custodian
shall segregate, keep and maintain the assets of the Series separate and apart.
The Custodian will not be responsible for any Securities and moneys not actually
received by it. The Custodian will be entitled to reverse any credits made on
the Fund's behalf where such credits have been previously made and moneys are
not finally collected. The Fund shall deliver to the Custodian a certified
resolution of the Board of Directors of the Fund, substantially in the form of
Exhibit A hereto, approving, authorizing and instructing the Custodian on a
continuous and on-going basis to deposit in the Book-Entry System all Securities
eligible for deposit therein, regardless of the Series to which the same are
specifically allocated and to utilize the Book-Entry System to the extent
possible in connection with its performance hereunder, including, without
limitation, in connection with settlements of purchases and sales of Securities,
loans of Securities, and deliveries and returns of Securities collateral. Prior
to a deposit of Securities specifically allocated to a Series in the Depository,
the Fund shall deliver to the Custodian a certified resolution of the Board of
Directors

4
<PAGE> 5
of the Fund, substantially in the form of Exhibit B hereto, approving
authorizing and instructing the Custodian on a continuous and ongoing basis
until instructed to the contrary by a Certificate actually received by the
Custodian to deposit in the Depository all Securities specifically allocated to
such Series eligible for deposit therein, and to utilize the Depository to the
extent possible with respect to such Securities in connection with its
performance hereunder, including, without limitation, in connection with
settlements of purchases and sales of Securities, loans of Securities, and
deliveries and returns of Securities collateral. Securities and moneys
deposited in either the Book-Entry System or the Depository will be represented
in accounts which include only assets held by the Custodian for customers,
including, but not limited to, accounts in which the Custodian acts in a
fiduciary or representative capacity and will be specifically allocated on the
Custodian's books to the separate account for the applicable Series. Prior to
the Custodian's accepting, utilizing and acting with respect to Clearing Member
confirmations for Options and transactions in Options for a Series as provided
in this Agreement, the Custodian shall have received a certified resolution of
the Fund's Board of Directors, substantially in the form of Exhibit C hereto,
approving, authorizing and instructing the Custodian on a continuous and
on-going basis, until instructed to the contrary by a Certificate actually
received by the Custodian, to accept, utilize and act in accordance with such
confirmations as provided in this Agreement with respect to such Series.

2. The Custodian shall establish and maintain separate accounts,
in the name of each Series, and shall credit to the separate account for each
Series all moneys received by it for the account of the Fund with respect to
such Series. Money credited to a separate account for a Series shall be
disbursed by the Custodian only:

(a) As hereinafter provided;

(b) Pursuant to Certificates setting forth the name and
address of the person to whom the payment is to be made, the Series account
from which payment is to be made, and the purpose for which payment is to be
made; or

(c) In payment of the fees and in reimbursement of the
expenses and liabilities of the Custodian attributable to such Series.

3. Promptly after the close of business on each day the Custodian
shall furnish the Fund with confirmations and a summary, on a per Series basis,
of all transfers to or from the account of the Fund for a Series, either
hereunder or with any co-custodian or sub-custodian appointed in accordance
with this Agreement during said day. Where Securities are transferred to the
account of the Fund for a Series, the Custodian shall also by book-entry or
otherwise identify as belonging to such Series a quantity of Securities in a
fungible bulk of Securities registered in the name of the Custodian (or its
nominee) or shown on the Custodian's account on the books of the Book-Entry
System or the Depository. At least monthly and from time to time, the
Custodian shall furnish the Fund with a detailed statement, on a per Series
basis, of the Securities and moneys held by the Custodian for the Fund.

4. Except as otherwise provided in paragraph 7 of this Article
and in Article VIII, all Securities held by the Custodian hereunder, which are
issued or issuable only in bearer form, except such Securities as are held in
the Book-Entry System, shall be held by the Custodian in that form; all other
Securities held hereunder may be registered in the name of the Fund, in the
name of any duly appointed registered nominee of the Custodian as the Custodian
may from time to time determine, or in the name of the Book-Entry System or the
Depository or their successor or successors, or their nominee or nominees. The
Fund agrees to furnish to the Custodian appropriate

5
<PAGE> 6
instruments to enable the Custodian to hold or deliver in proper form for
transfer, or to register in the name of its registered nominee or in the name
of the Book-Entry System or the Depository any Securities which it may hold
hereunder and which may from time to time be registered in the name of the
Fund. The Custodian shall hold all such Securities specifically allocated to a
Series which are not held in the Book-Entry System or in the Depository in a
separate account in the name of such Series physically segregated at all times
from those of any other person or persons.

5. Except as otherwise provided in this Agreement and unless
otherwise instructed to the contrary by a Certificate, the Custodian by itself,
or through the use of the Book-Entry System or the Depository with respect to
Securities held hereunder and therein deposited, shall with respect to all
Securities held for the Fund hereunder in accordance with preceding paragraph
4:

(a) Collect all income due or payable;

(b) Present for payment and collect the amount payable
upon such Securities which are called, but only if either (i) the Custodian
receives a written notice of such call, or (ii) notice of such call appears in
one or more of the publications listed in Appendix C annexed hereto, which may
be amended at any time by the Custodian without the prior notification or
consent of the Fund;

(d) Surrender Securities in temporary form for definitive
Securities;

(e) Execute, as custodian, any necessary declarations or
certificates of ownership under the Federal Income Tax Laws or the laws or
regulations of any other taxing authority now or hereafter in effect; and

(f) Hold directly, or through the Book-Entry System or
the Depository with respect to Securities therein deposited, for the account of
a Series, all rights and similar securities issued with respect to any
Securities held by the Custodian for such Series hereunder.

6 . Upon receipt of a Certificate and not otherwise, the
Custodian, directly or through the use of the Book-Entry System or the
Depository, shall:

(a) Execute and deliver to such persons as may be
designated in such Certificate proxies, consents, authorizations, and any other
instruments whereby the authority of the Fund as owner of any Securities held
by the Custodian hereunder for the Series specified in such Certificate may be
exercised;

(b) Deliver any Securities held by the Custodian
hereunder for the Series specified in such Certificate in exchange for other
Securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or recapitalization of any
corporation, or the exercise of any conversion privilege and receive and hold
hereunder specifically allocated to such Series any cash or other Securities
received in exchange;

(c) Deliver any Securities held by the Custodian
hereunder for the Series specified in such Certificate to any protective
committee, reorganization committee or other person in connection with the
reorganization, refinancing, merger, consolidation, recapitalization or sale

6
<PAGE> 7
of assets of any corporation and receive and hold hereunder specifically
allocated to such Series such certificates of deposit, interim receipts or
other instruments or documents as may be issued to it to evidence such
delivery;

(d) Make such transfers or exchanges of the assets of
the Series specified in such Certificate, and take such other steps as shall be
stated in such Certificate to be for the purpose of effectuating any duly
authorized plan of liquidation, reorganization, merger, consolidation or
recapitalization of the Fund; and

(e) Present for payment and collect the amount payable
upon Securities not described in preceding paragraph 5(b) of this Article which
may be called as specified in the Certificate.

7. Notwithstanding any provision elsewhere contained herein, the
Custodian shall not be required to obtain possession of any instrument or
certificate representing any Futures Contract, any option, or any Futures
Contract Option until after it shall have determined, or shall have received a
Certificate from the Fund stating, that any such instruments or certificates
are available. The Fund shall deliver to the Custodian such a Certificate no
later than the business day preceding the availability of any such instrument
or certificate. Prior to such availability, the Custodian shall comply with
Section 17(f) of the Investment Company Act of 1940, as amended, in connection
with the purchase, sale, settlement, closing out or writing of Futures
Contracts, Options, or Futures Contract Options by making payments or
deliveries specified in Certificates received by the Custodian in connection
with any such purchase, sale, writing, settlement or closing out upon its
receipt from a broker, dealer, or futures commission merchant of a statement or
confirmation reasonably believed by the Custodian to be in the form customarily
used by brokers, dealers, or future commission merchants with respect to such
Futures Contracts, Options, or Futures Contract Options, as the case may be,
confirming that such Security is held by such broker, dealer or futures
commission merchant, in book-entry form or otherwise, in the name of the
Custodian (or any nominee of the Custodian) as custodian for the Fund,
provided, however, that payments to or deliveries from the Margin Account shall
be made in accordance with the terms and conditions of the Margin Account
Agreement. Whenever any such instruments or certificates are available, the
Custodian shall, notwithstanding any provision in this Agreement to the
contrary, make payment for any Futures Contract, Option, or Futures Contract
Option for which such instruments or such certificates are available only
against the delivery to the Custodian of such instrument or such certificate,
and deliver any Futures Contract, Option or Futures Contract Option for which
such instruments or such instruments or such certificates are available only
against receipt by the Custodian of payment therefor. Any such instrument or
certificate delivered to the Custodian shall be held by the Custodian hereunder
in accordance with, and subject to, the provisions of this Agreement.

ARTICLE IV

PURCHASE AND SALE OF INVESTMENTS OF THE FUND
OTHER THAN OPTIONS, FUTURES CONTRACTS AND
FUTURES CONTRACT OPTIONS

1. Promptly after each purchase of Securities by the Fund, other
than a purchase of an Option, a Futures Contract, or a Futures Contract
Option, the Fund shall deliver to the Custodian (i) with respect to each
purchase of Securities which are not Money Market Securities, a Certificate,

7
<PAGE> 8
and (ii) with respect to each purchase of Money Market Securities, a
Certificate, Oral Instructions or Written Instructions, specifying with respect
to each such purchase: (a) the Series to which such Securities are to be
specifically allocated; (b) the name of the issuer and the title of the
Securities; (c) the number of shares or the principal amount purchased and
accrued interest, if any; (d) the date of purchase and settlement; (e) the
purchase price per unit; (f) the total amount payable upon such purchase; (g)
the name of the person from whom or the broker through whom the purchase was
made and the name of the clearing broker, if any; and (h) the name of the
broker to whom payment is to be made. The Custodian shall, upon receipt of
Securities purchased by or for the Fund, pay to the broker specified in the
Certificate out of the moneys held for the account of such Series the total
amount payable upon such purchase, provided that the same conforms to the total
amount payable as set forth in such Certificate, Oral Instructions or Written
Instructions.

2. Promptly after each sale of Securities by the Fund, other than
a sale of any Option, Futures Contract, Futures Contract Option, or any Reverse
Repurchase Agreement, the Fund shall deliver to the Custodian (i) with respect
to each sale of Securities which are not Money Market Securities, a
Certificate, and (ii) with respect to each sale of Money Market Securities, a
Certificate, Oral Instructions or Written Instructions, specifying with respect
to each such sale: (a) the Series to which such Securities were specifically
allocated; (b) the name of the issuer and the title of the Security; (c) the
number of shares or principal amount sold, and accrued interest, if any; (d)
the date of sale; (e) the sale price per unit; (f) the total amount payable to
the Fund upon such sale; (g) the name of the broker through whom or the person
to whom the sale was made, and the name of the clearing broker, if any; and (h)
the name of the broker to whom the Securities are to be delivered. The
Custodian shall deliver the Securities specifically allocated to such Series to
the broker specified in the Certificate upon the total amount payable to the
Fund upon such sale, provided that the same conforms to the total amount
payable as set forth in such Certificate, Oral Instructions or Written
Instructions.

ARTICLE V

OPTIONS

1. Promptly after the purchase of any Option by the Fund, the
Fund shall deliver to the Custodian a Certificate specifying with respect to
each Option purchased: (a) the Series to which such Option is specifically
allocated; (b) the type of Option (put or call); (c) the name of the issuer and
the title and number of shares subject to such Option or, in the case of a
Stock Index Option, the stock index to which such Option relates and the number
of Stock Index Options purchased; (d) the expiration date; (e) the exercise
price; (f) the dates of purchase and settlement; (g) the total amount payable
by the Fund in connection with such purchase; (h) the name of the Clearing
Member through whom such Option was purchased; and (i) the name of the broker
to whom payment is to be made. The Custodian shall pay, upon receipt of a
Clearing Member's statement confirming the purchase of such Option held by such
Clearing Member for the account of the Custodian (or any duly appointed and
registered nominee of the Custodian) as custodian for the Fund, out of moneys
held for the account of the Series to which such Option is to be specifically
allocated, the total amount payable upon such purchase to the Clearing Member
through whom the purchase was made, provided that the same conforms to the
total amount payable as set forth in such Certificate.

2. Promptly after the sale of any Option purchased by the Fund
pursuant to paragraph 1 hereof, the Fund shall deliver to the Custodian a
Certificate specifying with respect to each such

8
<PAGE> 9
sale: (a) the Series to which such Option was specifically allocated; (b) the
type of Option (put or call); (c) the name of the issuer and the title and
number of shares subject to such Option or, in the case of a Stock Index
Option, the stock index to which such Option relates and the number of Stock
Index Options sold; (d) the date of sale; (e) the sale price; (f) the date of
settlement; (g) the total amount payable to the Fund upon such sale; and (h)
the name of the Clearing Member through whom the sale was made. The Custodian
shall consent to the delivery of the Option sold by the Clearing Member which
previously supplied the confirmation described in preceding paragraph 1 of this
Article with respect to such Option against payment to the Custodian of the
total amount payable to the Fund, provided that the same conforms to the total
amount payable as set forth in such Certificate.

3. Promptly after the exercise by the Fund of any Call Option
purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to
the Custodian a Certificate specifying with respect to such Call Option: (a)
the Series to which such Call Option was specifically allocated; (b) the name
of the issuer and the title and number of shares subject to the Call Option;
(c) the expiration date; (d) the date of exercise and settlement; (e) the
exercise price per share; (f) the total amount to be paid by the Fund upon such
exercise; and (g) the name of the Clearing Member through whom such Call Option
was exercised. The Custodian shall, upon receipt of the Securities underlying
the Call Option which was exercised, pay out of the moneys held for the account
of the Series to which such Call Option was specifically allocated the total
amount payable to the Clearing Member through whom the Call Option was
exercised, provided that the same conforms to the total amount payable as set
forth in such Certificate.

4. Promptly after the exercise by the Fund of any Put Option
purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to
the Custodian a Certificate specifying with respect to such Put Option: (a) the
Series to which such Put Option was specifically allocated; (b) the name of the
issuer and the title and number of shares subject to the Put Option; (c) the
expiration date; (d) the date of exercise and settlement; (e) the exercise
price per share; (f) the total amount to be paid to the Fund upon such
exercise; and (g) the name of the Clearing Member through whom such Put Option
was exercised. The Custodian shall, upon receipt of the amount payable upon
the exercise of the Put Option deliver or direct the Depository to deliver the
Securities specifically allocated to such Series, provided the same conforms to
the amount payable to the Fund as set forth in such Certificate.

5. Promptly after the exercise by the Fund of any Stock Index
Option purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall
deliver to the Custodian a Certificate specifying with respect to such Stock
Index Option: (a) the Series to which such Stock Index Option was specifically
allocated; (b) the type of Stock Index Option (put or call); (c) the number of
options being exercised; (d) the stock index to which such Option relates; (e)
the expiration date; (f) the exercise price; (g) the total amount to be
received by the Fund in connection with such exercise; and (h) the Clearing
Member from whom such payment is to be received.

6. Whenever the Fund writes a Covered Call Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Covered Call Option: (a) the Series for which such Covered Call Option was
written; (b) the name of the issuer and the title and number of shares for
which the Covered Call Option was written and which underlie the same; (c) the
expiration date; (d) the exercise price; (e) the premium to be received by the
Fund; (f) the date such Covered Call Option was written; and (g) the name of
the Clearing Member through whom the premium is to be received. The Custodian
shall deliver or cause to be delivered, in exchange for receipt of the premium
specified in the Certificate with respect to such Covered Call Option, such

9
<PAGE> 10
receipts as are required in accordance with the customs prevailing among
Clearing Members dealing in Covered Call Options and shall impose, or direct
the Depository to impose, upon the underlying Securities specified in the
Certificate specifically allocated to such Series such restrictions as may be
required by such receipts. Notwithstanding the foregoing, the Custodian has
the right, upon prior written notification to the Fund, at any time to refuse
to issue any receipts for Securities in the possession of the Custodian and not
deposited with the Depository underlying a Covered Call Option.

7. Whenever a Covered Call Option written by the Fund and
described in the preceding paragraph of this Article is exercised, the Fund
shall promptly deliver to the Custodian a Certificate instructing the Custodian
to deliver, or to direct the Depository to deliver, the Securities subject to
such Covered Call Option and specifying: (a) the Series for which such Covered
Call Option was written; (b) the name of the issuer and the title and number of
shares subject to the Covered Call Option; (c) the Clearing Member to whom the
underlying Securities are to be delivered; and (d) the total amount payable to
the Fund upon such delivery. Upon the return and/or cancellation of any
receipts delivered pursuant to paragraph 6 of this Article, the Custodian shall
deliver, or direct the Depository to deliver, the underlying Securities as
specified in the Certificate for the amount to be received as set forth in such
Certificate.

8. Whenever the Fund writes a Put Option, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Put
Option: (a) the Series for which such Put Option was written; (b) the name of
the issuer and the title and number of shares for which the Put Option is
written and which underlie the same; (c) the expiration date; (d) the exercise
price; (e) the premium to be received by the Fund; (f) the date such Put Option
is written; (g) the name of the Clearing Member through whom the premium is to
be received and to whom a Put Option guarantee letter is to be delivered; (h)
the amount of cash, and/or the amount and kind of Securities, if any,
specifically allocated to such Series to be deposited in the Senior Security
Account for such Series; and (i) the amount of cash and/or the amount and kind
of Securities specifically allocated to such Series to be deposited into the
Collateral Account for such Series. The Custodian shall, after making the
deposits into the Collateral Account specified in the Certificate, issue a Put
Option guarantee letter substantially in the form utilized by the Custodian on
the date hereof, and deliver the same to the Clearing Member specified in the
Certificate against receipt of the premium specified in said Certificate.
Notwithstanding the foregoing, the Custodian shall be under no obligation to
issue any Put Option guarantee letter or similar document if it is unable to
make any of the representations contained therein.

9. Whenever a Put Option written by the Fund and described in the
preceding paragraph is exercised, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Put Option was
written; (b) the name of the issuer and title and number of shares subject to
the Put Option; (c) the Clearing Member from whom the underlying Securities are
to be received; (d) the total amount payable by the Fund upon such delivery;
(e) the amount of cash and/or the amount and kind of Securities specifically
allocated to such Series to be withdrawn from the Collateral Account for such
Series and (f) the amount of cash and/or the amount and kind of Securities,
specifically allocated to such Series, if any, to be withdrawn from the Senior
Security Account. Upon the return and/or cancellation of any Put Option
guarantee letter or similar document issued by the Custodian in connection with
such Put Option, the Custodian shall pay out of the moneys held for the account
of the Series to which such Put Option was specifically allocated the total
amount payable to the Clearing Member specified in the Certificate as set forth
in such Certificate, and shall make the withdrawals specified in such
Certificate.

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<PAGE> 11
10. Whenever the Fund writes a Stock Index Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Stock Index Option: (a) the Series for which such Stock Index Option was
written; (b) whether such Stock Index Option is a put or a call; (c) the number
of options written; (d) the stock index to which such Option relates; (e) the
expiration date; (f) the exercise price; (g) the Clearing Member through whom
such Option was written; (h) the premium to be received by the Fund; (i) the
amount of cash and/or the amount and kind of Securities, if any, specifically
allocated to such Series to be deposited in the Senior Security Account for
such Series; (j) the amount of cash and/or the amount and kind of Securities,
if any, specifically allocated to such Series to be deposited in the Collateral
Account for such Series; and (k) the amount of cash and/or the amount and kind
of Securities, if any, specifically allocated to such Series to be deposited in
a Margin Account, and the name in which such account is to be or has been
established. The Custodian shall, upon receipt of the premium specified in the
Certificate, make the deposits, if any, into the Senior Security Account
specified in the Certificate, and either (1) deliver such receipts, if any,
which the Custodian has specifically agreed to issue, which are in accordance
with the customs prevailing among Clearing Members in Stock Index Options and
make the deposits into the Collateral Account specified in the Certificate, or
(2) make the deposits into the Margin Account specified in the Certificate.

11. Whenever a Stock Index Option written by the Fund and
described in the preceding paragraph of this Article is exercised, the Fund
shall promptly deliver to the Custodian a Certificate specifying with respect
to such Stock Index Option: (a) the Series for which such Stock Index Option
was written; (b) such information as may be necessary to identify the Stock
Index option being exercised; (c) the Clearing Member through whom such Stock
Index Option is being exercised; (d) the total amount payable upon such
exercise, and whether such amount is to be paid by or to the Fund; (e) the
amount of cash and/or amount and kind of Securities, if any, to be withdrawn
from the Margin Account; and (f) the amount of cash and/or amount and kind of
Securities, if any, to be withdrawn from the Senior Security Account for such
Series; and the amount of cash and/or the amount and kind of Securities, if
any, to be withdrawn from the Collateral Account for such Series. Upon the
return and/or cancellation of the receipt, if any, delivered pursuant to the
preceding paragraph of this Article, the Custodian shall pay out of the moneys
held for the account of the Series to which such Stock Index Option was
specifically allocated to the Clearing Member specified in the Certificate the
total amount payable, if any, as specified therein.

12. Whenever the Fund purchases any Option identical to a
previously written Option described in paragraphs 6, 8 or 10 of this Article in
a transaction expressly designated as a "Closing Purchase Transaction" in order
to liquidate its position as a writer of an Option, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to the Option
being purchased: (a) that the transaction is a Closing Purchase Transaction;
(b) the Series for which the Option was written; (c) the name of the issuer and
the title and number of shares subject to the Option, or, in the case of a
Stock Index Option, the stock index to which such Option relates and the number
of Options held; (d) the exercise price; (e) the premium to be paid by the
Fund; (f) the expiration date; (g) the type of Option (put or call) (h) the
date of such purchase; (i) the name of the Clearing Member to whom the premium
is to be paid; and (j) the amount of cash and/or the amount and kind of
Securities, if any, to be withdrawn from the Collateral Account, a specified
Margin Account, or the Senior Security Account for such Series. Upon the
Custodian's payment of the premium and the return and/or cancellation of any
receipt issued pursuant to paragraphs 6, 8 or 10 of this Article with respect
to the Option being liquidated through the Closing Purchase Transaction, the
Custodian shall remove, or direct the Depository to remove, the previously
imposed restrictions on the Securities underlying the Call Option.

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<PAGE> 12
13. Upon the expiration, exercise or consummation of a Closing
Purchase Transaction with respect to, any Option purchased or written by the
Fund and described in this Article, the Custodian shall delete such Option from
the statements delivered to the Fund pursuant to paragraph 3 Article III
herein, and upon the return and/or cancellation of any receipts issued by the
Custodian, shall make such withdrawals from the Collateral Account, and the
Margin Account and/or the Senior Security Account as may be specified in a
Certificate received in connection with such expiration, exercise, or
consummation.

ARTICLE VI

FUTURES CONTRACTS

1. Whenever the Fund shall enter into a Futures Contract, the
Fund shall deliver to the Custodian a Certificate specifying with respect to
such Futures Contract, (or with respect to any number of identical Futures
Contract(s)): (a) the Series for which the Futures Contract is being entered;
(b) the category of Futures Contract (the name of the underlying stock index or
financial instrument); (c) the number of identical Futures Contracts entered
into; (d) the delivery or settlement date of the Futures Contract(s); (e) the
date the Futures Contract(s) was (were) entered into and the maturity date; (f)
whether the Fund is buying (going long) or selling (going short) on such
Futures Contract(s); (g) the amount of cash and/or the amount and kind of
Securities, if any, to be deposited in the Senior Security Account for such
Series; (h) the name of the broker, dealer, or futures commission merchant
through whom the Futures Contract was entered into; and (i) the amount of fee
or commission, if any, to be paid and the name of the broker, dealer, or
futures commission merchant to whom such amount is to be paid. The Custodian
shall make the deposits, if any, to the Margin Account in accordance with the
terms and conditions of the Margin Account Agreement. The Custodian shall make
payment out of the moneys specifically allocated to such Series of the fee or
commission, if any, specified in the Certificate and deposit in the Senior
Security Account for such Series the amount of cash and/or the amount and kind
of Securities specified in said Certificate.

2. (a) Any variation margin payment or similar payment
required to be made by the Fund to a broker, dealer, or futures commission
merchant with respect to an outstanding Futures Contract, shall be made by the
Custodian in accordance with the terms and conditions of the Margin Account
Agreement.

(b) Any variation margin payment or similar payment from
a broker, dealer, or futures commission merchant to the Fund with respect to an
outstanding Futures Contract, shall be received and dealt with by the Custodian
in accordance with the terms and conditions of the Margin Account Agreement.

3. Whenever a Futures Contract held by the Custodian hereunder is
retained by the Fund until delivery or settlement is made on such Futures
Contract, the Fund shall deliver to the Custodian a Certificate specifying: (a)
the Futures Contract and the Series to which the same relates; (b) with respect
to a Stock Index Futures Contract, the total cash settlement amount to be paid
or received, and with respect to a Financial Futures Contract, the Securities
and/or amount of cash to be delivered or received; (c) the broker, dealer, or
futures commission merchant to or

12
<PAGE> 13
from whom payment or delivery is to be made or received; and (d) the amount of
cash and/or Securities to be withdrawn from the Senior Security Account for
such Series. The Custodian shall make the payment or delivery specified in the
Certificate, and delete such Futures Contract from the statements delivered to
the Fund pursuant to paragraph 3 of Article III herein.

4. Whenever the Fund shall enter into a Futures Contract to
offset a Futures Contract held by the Custodian hereunder, the Fund shall
deliver to the Custodian a Certificate specifying: (a) the items of information
required in a Certificate described in paragraph 1 of this Article, and (b) the
Futures Contract being offset. The Custodian shall make payment out of the
money specifically allocated to such Series of the fee or commission, if any,
specified in the Certificate and delete the Futures Contract being offset from
the statements delivered to the Fund pursuant to paragraph 3 of Article III
herein, and make such withdrawals from the Senior Security Account for such
Series as may be specified in such Certificate. The withdrawals, if any, to be
made from the Margin Account shall be made by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.

ARTICLE VII

FUTURES CONTRACT OPTIONS

1. Promptly after the purchase of any Futures Contract Option by
the Fund, the Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to such Futures Contract Option: (a) the Series to
which such Option is specifically allocated; (b) the type of Futures Contract
Option (put or call); (c) the type of Futures Contract and such other
information as may be necessary to identify the Futures Contract underlying the
Futures Contract Option purchased; (d) the expiration date; (e) the exercise
price; (f) the dates of purchase and settlement; (g) the amount of premium to
be paid by the Fund upon such purchase; (h) the name of the broker or futures
commission merchant through whom such Option was purchased; and (i) the name of
the broker, or futures commission merchant, to whom payment is to be made. The
Custodian shall pay out of the moneys specifically allocated to such Series the
total amount to be paid upon such purchase to the broker or futures commissions
merchant through whom the purchase was made, provided that the same conforms to
the amount set forth in such Certificate.

2. Promptly after the sale of any Futures Contract Option
purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to each such
sale: (a) Series to which such Futures Contract Option was specifically
allocated; (b) the type of Future Contract Option (put or call); (c) the type
of Futures Contract and such other information as may be necessary to identify
the Futures Contract underlying the Futures Contract Option; (d) the date of
sale; (e) the sale price; (f) the date of settlement; (g) the total amount
payable to the Fund upon such sale; and (h) the name of the broker of futures
commission merchant through whom the sale was made. The Custodian shall
consent to the cancellation of the Futures Contract Option being closed against
payment to the Custodian of the total amount payable to the Fund, provided the
same conforms to the total amount payable as set forth in such Certificate.

3. Whenever a Futures Contract Option purchased by the Fund
pursuant to paragraph 1 is exercised by the Fund, the Fund shall promptly
deliver to the Custodian a Certificate specifying: (a) the Series to which such
Futures Contract Option was specifically allocated; (b) the particular Futures
Contract Option (put or call) being exercised; (c) the type of Futures Contract
underlying the Futures Contract Option; (d) the date of exercise; (e) the name
of the broker or futures

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<PAGE> 14
commission merchant through whom the Futures Contract Option is exercised; (f)
the net total amount, if any, payable by the Fund; (g) the amount, if any, to
be received by the Fund; and (h) the amount of cash and/or the amount and kind
of Securities to be deposited in the Senior Security Account for such Series.
The Custodian shall make, out of the moneys and Securities specifically
allocated to such Series, the payments if any, and the deposits, if any, into
the Senior Security Account as specified in the Certificate. The deposits, if
any, to be made to the Margin Account shall be made by the Custodian in
accordance with the terms and conditions of the Margin Account Agreement.

4. Whenever the Fund writes a Futures Contract Option, the Fund
shall promptly deliver to the Custodian a Certificate specifying with respect
to such Futures Contract Option: (a) the Series for which such Futures Contract
Option was written; (b) the type of Futures Contract Option (put or call); (c)
the type of Futures Contract and such other information as may be necessary to
identify the Futures Contract underlying the Futures Contract Option; (d) the
expiration date; (e) the exercise price; (f) the premium to be received by the
Fund; (g) the name of the broker or futures commission merchant through whom
the premium is to be received; and (h) the amount of cash and/or the amount and
kind of Securities, if any, to be deposited in the Senior Security Account for
such Series. The Custodian shall, upon receipt of the premium specified in
the Certificate, make out of the moneys and Securities specifically allocated
to such Series the deposits into the Senior Security Account, if any, as
specified in the Certificate. The deposits, if any, to be made to the Margin
Account shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.

5. Whenever a Futures Contract Option written by the Fund which
is a call is exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series to which such Futures Contract Option
was specifically allocated; (b) the particular Futures Contract Option
exercised; (c) the type of Futures Contract underlying the Futures Contract
Option; (d) the name of the broker or futures commission merchant through whom
such Futures Contract Option was exercised; (e) the net total amount, if any,
payable to the Fund upon such exercise; (f) the net total amount, if any,
payable by the Fund upon such exercise and (g) the amount of cash and/or the
amount and kind of Securities to be deposited in the Senior Security Account
for such Series. The Custodian shall, upon its receipt of the net total
amount payable to the Fund, if any, specified in such Certificate make the
payments, if any, and the deposits, if any, into the Senior Security Account as
specified in the Certificate. The deposits, if any, to be made to the Margin
Account shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.

6. Whenever a Futures Contract Option which is written by the
Fund and which is a put is exercised, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Option was
specifically allocated; (b) the particular Futures Contract Option exercised;
(c) the type of Futures Contract underlying such Futures Contract Option; (d)
the name of the broker or futures commission merchant through whom such Futures
Contract Option is exercised; (e) the net total amount, if any, payable to the
Fund upon such exercise; (f) the net total amount, if any, payable by the Fund
upon such exercise; and (g) the amount and kind of Securities and/or cash to be
withdrawn from or deposited in, the Senior Security Account for such Series, if
any. The Custodian shall, upon its receipt of the net total amount payable to
the Fund, if any, specified in the Certificate, make out of the moneys and
Securities specifically allocated to such Series, the payments, if any, and the
deposits, if any, into the Senior Security Account as specified in the
Certificate. The deposits to and/or withdrawals from the Margin Account, if
any, shall be

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<PAGE> 15
made by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.

7. Whenever the Fund purchases any Futures Contract Option
identical to a previously written Futures Contract Option described in this
Article in order to liquidate its position as a writer of such Futures Contract
Option, the Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to the Futures Contract option being purchased: (a) the
Series to which such Option is specifically allocated; (b) that the transaction
is a closing transaction; (c) the type of Future Contract and such other
information as may be necessary to identify the Futures Contract underlying the
Futures Option Contract; (d) the exercise price; (e) the premium to be paid by
the Fund; (f) the expiration date; (g) the name of the broker or futures
commission merchant to whom the premium is to be paid; and (h) the amount of
cash and/or the amount and kind of Securities, if any, to be withdrawn from the
Senior Security Account for such Series. The Custodian shall effect the
withdrawals from the Senior Security Account specified in the Certificate. The
withdrawals, if any, to be made from the Margin Account shall be made by the
Custodian in accordance with the terms and conditions of the Margin Account
Agreement.

8. Upon the expiration, exercise, or consummation of a closing
transaction with respect to, any Futures Contract Option written or purchased
by the Fund and described in this Article, the Custodian shall (a) delete such
Futures Contract Option from the statements delivered to the Fund pursuant to
paragraph 3 of Article III herein and, (b) make such withdrawals from and/or in
the case of an exercise such deposits into the Senior Security Account as may
be specified in a Certificate. The deposits to and/or withdrawals from the
Margin Account, if any, shall be made by the Custodian in accordance with the
terms and conditions of the Margin Account Agreement.

9. Futures Contracts acquired by the Fund through the exercise of
a Futures Contract Option described in this Article shall be subject to Article
VI hereof.

ARTICLE VIII

SHORT SALES

1. Promptly after any short sales by any Series of the Fund, the
Fund shall promptly deliver to the Custodian a Certificate specifying: (a) the
Series for which such short sale was made; (b) the name of the issuer and the
title of the Security; (c) the number of shares or principal amount sold, and
accrued interest or dividends, if any; (d) the dates of the sale and
settlement; (e) the sale price per unit; (f) the total amount credited to the
Fund upon such sale, if any, (g) the amount of cash and/or the amount and kind
of Securities, if any, which are to be deposited in a Margin Account and the
name in which such Margin Account has been or is to be established; (h) the
amount of cash and/or the amount and kind of Securities, if any, to be
deposited in a Senior Security Account, and (i) the name of the broker through
whom such short sale was made. The Custodian shall upon its receipt of a
statement from such broker confirming such sale and that the total amount
credited to the Fund upon such sale, if any, as specified in the Certificate is
held by such broker for the account of the Custodian (or any nominee of the
Custodian) as custodian of the Fund, issue a receipt or make the deposits into
the Margin Account and the Senior Security Account specified in the
Certificate.

2 . In connection with the closing-out of any short sale, the Fund
shall promptly deliver to the Custodian a Certificate specifying with respect
to each such closing out: (a) the Series for

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<PAGE> 16
which such transaction is being made; (b) the name of the issuer and the title
of the Security; (c) the number of shares or the principal amount, and accrued
interest or dividends, if any, required to effect such closing-out to be
delivered to the broker; (d) the dates of closing-out and settlement; (e) the
purchase price per unit; (f) the net total amount payable to the Fund upon such
closing-out; (g) the net total amount payable to the broker upon such
closing-out; (h) the amount of cash and the amount and kind of Securities to be
withdrawn, if any, from the Margin Account; (i) the amount of cash and/or the
amount and kind of Securities, if any, to be withdrawn from the Senior Security
Account; and (j) the name of the broker through whom the Fund is effecting such
closing-out. The Custodian shall, upon receipt of the net total amount payable
to the Fund upon such closing-out, and the return and/or cancellation of the
receipts, if any, issued by the Custodian with respect to the short sale being
closed-out, pay out of the moneys held for the account of the Fund to the
broker the net total amount payable to the broker, and make the withdrawals
from the Margin Account and the Senior Security Account, as the same are
specified in the Certificate.

ARTICLE IX

REVERSE REPURCHASE AGREEMENTS

1. Promptly after the Fund enters a Reverse Repurchase Agreement
with respect to Securities and money held by the Custodian hereunder, the Fund
shall deliver to the Custodian a Certificate or in the event such Reverse
Repurchase Agreement is a Money Market Security, a Certificate, Oral
Instructions, or Written Instructions specifying: (a) the Series for which the
Reverse Repurchase Agreement is entered; (b) the total amount payable to the
Fund in connection with such Reverse Repurchase Agreement and specifically
allocated to such Series; (c) the broker or dealer through or with whom the
Reverse Repurchase Agreement is entered; (d) the amount and kind of Securities
to be delivered by the Fund to such broker or dealer; (e) the date of such
Reverse Repurchase Agreement; and (f) the amount of cash and/or the amount and
kind of Securities, if any, specifically allocated to such Series to be
deposited in a Senior Security Account for such Series in connection with such
Reverse Repurchase Agreement. The Custodian shall, upon receipt of the total
amount payable to the Fund specified in the Certificate, Oral Instructions, or
Written Instructions make the delivery to the broker or dealer, and the
deposits, if any, to the Senior Security Account, specified in such
Certificate, Oral Instructions, or Written Instructions.

2. Upon the termination of a Reverse Repurchase Agreement
described in preceding paragraph 1 of this Article, the Fund shall promptly
deliver a Certificate or, in the event such Reverse Repurchase Agreement is a
Money Market Security, a Certificate, Oral Instructions, or Written
Instructions to the Custodian specifying: (a) the Reverse Repurchase Agreement
being terminated and the Series for which same was entered; (b) the total
amount payable by the Fund in connection with such termination; (c) the amount
and kind of Securities to be received by the Fund and specifically allocated to
such Series in connection with such termination; (d) the date of termination;
(e) the name of the broker or dealer with or through whom the Reverse
Repurchase Agreement is to be terminated; and (f) the amount of cash and/or the
amount and kind of Securities to be withdrawn from the Senior Securities
Account for such Series. The Custodian shall, upon receipt of the amount and
kind of Securities to be received by the Fund specified in the Certificate,
Oral Instructions, or Written Instructions, make the payment to the broker or
dealer, and the withdrawals, if any, from the Senior Security Account,
specified in such Certificate, Oral Instructions, or Written Instructions.

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<PAGE> 17
ARTICLE X

LOAN OF PORTFOLIO SECURITIES OF THE FUND

1. Promptly after each loan of portfolio Securities specifically
allocated to a Series held by the Custodian hereunder, the Fund shall deliver
or cause to be delivered to the Custodian a Certificate specifying with respect
to each such loan: (a) the Series to which the loaned Securities are
specifically allocated; (b) the name of the issuer and the title of the
Securities, (c) the number of shares or the principal amount loaned, (d) the
date of loan and delivery, (e) the total amount to be delivered to the
Custodian against the loan of the Securities, including the amount of cash
collateral and the premium if any, separately identified, and (f) the name of
the broker, dealer, or financial institution to which the loan was made. The
Custodian shall deliver the Securities thus designated to the broker, dealer or
financial institution to which the loan was made upon receipt of the total
amount designated as to be delivered against the loan of Securities. The
Custodian may accept payment in connection with a delivery otherwise than
through the Book-Entry System or Depository only in the form of a certified or
bank cashier's check payable to the order of the Fund or the Custodian drawn on
New York Clearing House funds and may deliver Securities in accordance with the
customs prevailing among dealers in securities.

2. Promptly after each termination of the loan of Securities by
the Fund, the Fund shall deliver or cause to be delivered to the Custodian a
Certificate specifying with respect to each such loan termination and return of
Securities: (a) the Series to which the loaned Securities are specifically
allocated; (b) the name of the issuer and the title of the Securities to be
returned, (c) the number of shares or the principal amount to be returned, (d)
the date of termination, (e) the total amount to be delivered by the Custodian
(including the cash collateral for such Securities minus any offsetting credits
as described in said Certificate), and (f) the name of the broker, dealer, or
financial institution from which the Securities will be returned. The
Custodian shall receive all Securities returned from the broker, dealer, or
financial institution to which such Securities were loaned and upon receipt
thereof shall pay, out of the moneys held for the account of the Fund, the
total amount payable upon such return of Securities as set forth in the
Certificate.

ARTICLE XI

CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY
ACCOUNTS, AND COLLATERAL ACCOUNTS

1. The Custodian shall, from time to time, make such deposits to,
or withdrawals from, a Senior Security Account as specified in a Certificate
received by the Custodian. Such Certificate shall specify the Series for which
such deposit or withdrawal is to be made, and the amount of cash and/or the
amount and kind of Securities specifically allocated to such Series to be
deposited in, or withdrawn from, such Senior Security Account for such Series.
In the event that the Fund fails to specify in a Certificate the Series, the
name of the issuer, the title and the number of shares or the principal amount
of any particular Securities to be deposited by the Custodian into, or
withdrawn from, a Senior Securities Account, the Custodian shall be under no
obligation to make any such deposit or withdrawal and shall so notify the Fund.

2. The Custodian shall make deliveries or payments from a Margin
Account to the broker, dealer, futures commission merchant or Clearing Member
in whose name, or for whose benefit, the account was established as specified
in the Margin Account Agreement.

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<PAGE> 18
3. Amounts received by the Custodian as payments or distributions
with respect to Securities deposited in any Margin Account shall be dealt with
in accordance with the terms and conditions of the Margin Account Agreement.

4. The Custodian shall have a continuing lien and security
interest in and to any property at any time held by the Custodian in any
Collateral Account described herein. In accordance with applicable law the
Custodian may enforce its lien and realize on any such property whenever the
Custodian has made payment or delivery pursuant to any Put Option guarantee
letter or similar document or any receipt issued hereunder by the Custodian.
In the event the Custodian should realize on any such property net proceeds
which are less than the Custodian's obligations under any Put Option guarantee
letter or similar document or any receipt, such deficiency shall be a debt owed
the Custodian by the Fund within the scope of Article XIV herein.

5. On each business day the Custodian shall furnish the Fund with
a statement with respect to each Margin Account in which money or Securities
are held specifying as of the close of business on the previous business day:
(a) the name of the Margin Account; (b) the amount and kind of Securities held
therein; and (c) the amount of money held therein. The Custodian shall make
available upon request to any broker, dealer, or futures commission merchant
specified in the name of a Margin Account a copy of the statement furnished the
Fund with respect to such Margin Account.

6. Promptly after the close of business on each business day in
which cash and/or Securities are maintained in a Collateral Account for any
Series, the Custodian shall furnish the Fund with a Statement with respect to
such Collateral Account specifying the amount of cash and/or the amount and
kind of Securities held therein. No later than the close of business next
succeeding the delivery to the Fund of such statement, the Fund shall furnish
to the Custodian a Certificate or Written Instructions specifying the then
market value of the Securities described in such statement. In the event such
then market value is indicated to be less than the Custodian's obligation with
respect to any outstanding Put Option guarantee letter or similar document, the
Fund shall promptly specify in a Certificate the additional cash and/or
Securities to be deposited in such Collateral Account to eliminate such
deficiency.

ARTICLE XII

PAYMENT OF DIVIDENDS OR DISTRIBUTIONS

1. The Fund shall furnish to the Custodian a copy of the
resolution of the Board of Directors of the Fund certified by the Secretary,
the Clerk, any Assistant Secretary or any Assistant Clerk, either (i) setting
forth with respect to the Series specified therein the date of the declaration
of a dividend or distribution, the date of payment thereof, the record date as
of which shareholders entitled to payment shall be determined, the amount
payable per Share of such Series to the shareholders of record as of that date
and the total amount payable to the Dividend Agent and any sub-dividend agent
or co-dividend agent of the Fund on the payment date, or (ii) authorizing with
respect to the Series specified therein the declaration of dividends and
distributions on a daily basis and authorizing the Custodian to rely on Oral
Instructions, Written Instructions or a Certificate setting forth the date of
the declaration of such dividend or distribution, the date of payment thereof,
the record date as of which shareholders entitled to payment shall be
determined, the amount payable per Share of such Series to the shareholders of
record as of that date and the total amount payable to the Dividend Agent on
the payment date.

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<PAGE> 19
2. Upon the payment date specified in such resolution, Oral
Instructions, Written Instructions or Certificate, as the case may be, the
Custodian shall pay out of the moneys held for the account of each Series the
total amount payable to the Dividend Agent, and any sub-dividend agent or
co-dividend agent of the Fund with respect to such Series.

ARTICLE XIII

SALE AND REDEMPTION OF SHARES

1. Whenever the Fund shall sell any Shares, it shall deliver to
the Custodian a Certificate duly specifying:

(a) The Series, the number of Shares sold, trade date,
and price; and

(b) The amount of money to be received by the Custodian
for the sale of such Shares and specifically allocated to the separate account
in the name of such Series.

2. Upon receipt of such money from the Transfer Agent, the
Custodian shall credit such money to the separate account in the name of the
Series for which such money was received.

3. Upon issuance of any Shares of any Series described in the
foregoing provisions of this Article, the Custodian shall pay, out of the
money held for the account of such Series, all original issue or other taxes
required to be paid by the Fund in connection with such issuance upon the
receipt of a Certificate specifying the amount to be paid.

4. Except as provided hereinafter, whenever the Fund desires the
Custodian to make payment out of the money held by the Custodian hereunder in
connection with a redemption of any Shares, it shall furnish to the Custodian a
Certificate specifying:

(a) The number and Series of Shares redeemed; and

(b) The amount to be paid for such Shares.

5. Upon receipt from the Transfer Agent of an advice setting
forth the Series and number of Shares received by the Transfer Agent for
redemption and that such Shares are in good form for redemption, the Custodian
shall make payment to the Transfer Agent out of the moneys held in the separate
account in the name of the Series the total amount specified in the Certificate
issued pursuant to the foregoing paragraph 4 of this Article.

6. Notwithstanding the above provisions regarding the redemption
of any Shares, whenever any Shares are redeemed pursuant to any check
redemption privilege which may from time to time be offered by the Fund, the
Custodian, unless otherwise instructed by a Certificate, shall, upon receipt of
an advice from the Fund or its agent setting forth that the redemption is in
good form for redemption in accordance with the check redemption procedure,
honor the check presented as part of such check redemption privilege out of the
moneys held in the separate account of the Series of the Shares being redeemed.

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ARTICLE XIV

OVERDRAFTS OR INDEBTEDNESS

1. If the Custodian should in its sole discretion advance funds
on behalf of any Series which results in an overdraft because the moneys held
by the Custodian in the separate account for such Series shall be insufficient
to pay the total amount payable upon a purchase of Securities specifically
allocated to such Series, as set forth in a Certificate, Oral Instructions, or
Written Instructions or which results in an overdraft in the separate account
of such Series for some other reason, or if the Fund is for any other reason
indebted to the Custodian with respect to a Series (except a borrowing for
investment or for temporary or emergency purposes using Securities as
collateral pursuant to a separate agreement and subject to the provisions of
paragraph 2 of this Article), such overdraft or indebtedness shall be deemed to
be a loan made by the Custodian to the Fund for such Series payable on demand
and shall bear interest from the date incurred at a rate per annum (based on a
360-day year for the actual number of days involved) equal to 1/2% over
Custodian's prime commercial lending rate in effect from time to time, such
rate to be adjusted on the effective date of any change in such prime
commercial lending rate but in no event to be less than 6% per annum. In
addition, the Fund hereby agrees that the Custodian shall have a continuing
lien and security interest in and to any property specifically allocated to
such Series at any time held by it for the benefit of such Series or in which
the Fund may have an interest which is then in the Custodian's possession or
control or in possession or control of any third party acting in the
Custodian's behalf. The Fund authorizes the Custodian, in its sole discretion,
at any time to charge any such overdraft or indebtedness together with interest
due thereon against any balance of account standing to such Series' credit on
the Custodian's books.

2. The Fund will cause to be delivered to the Custodian by any
bank (including, if the borrowing is pursuant to a separate agreement, the
Custodian) from which it borrows money for investment or for temporary or
emergency purposes using Securities held by the Custodian hereunder as
collateral for such borrowings, a notice or undertaking in the form currently
employed by any such bank setting forth the amount which such bank will loan to
the Fund against delivery of a stated amount of collateral. The Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to each
such borrowing: (a) the Series to which such borrowing relates; (b) the name of
the bank, (c) the amount and terms of the borrowing, which may be set forth by
incorporating by reference an attached promissory note, duly endorsed by the
Fund, or other loan agreement, (d) the time and date, if known, on which the
loan is to be entered into, (e) the date on which the loan becomes due and
payable, (f) the total amount payable to the Fund on the borrowing date, (g)
the market value of Securities to be delivered as collateral for such loan,
including the name of the issuer, the title and the number of shares or the
principal amount of any particular Securities, and (h) a statement specifying
whether such loan is for investment purposes or for temporary or emergency
purposes and that such loan is in conformance with the Investment Company Act
of 1940 and the Fund's prospectus. The Custodian shall deliver on the
borrowing date specified in a Certificate the specified collateral and the
executed promissory note, if any, against delivery by the lending bank of the
total amount of the loan payable, provided that the same conforms to the total
amount payable as set forth in the Certificate. The Custodian may, at the
option of the lending bank, keep such collateral in its possession, but such
collateral shall be subject to all rights therein given the lending bank by
virtue of any promissory note or loan agreement. The Custodian shall deliver
such Securities as additional collateral as may be specified in a Certificate
to collateralize further any transaction described in this paragraph. The Fund
shall cause all Securities released from collateral status to be returned
directly to the Custodian, and the Custodian shall receive from time to time
such return of collateral as may be tendered to it. In the

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<PAGE> 21
event that the Fund fails to specify in a Certificate the Series, the name of
the issuer, the title and number of shares or the principal amount of any
particular Securities to be delivered as collateral by the Custodian, the
Custodian shall not be under any obligation to deliver any Securities.

ARTICLE XV

CONCERNING THE CUSTODIAN

1. Except as hereinafter provided, neither the Custodian nor its
nominee shall be liable for any loss or damage including counsel fees,
resulting from its action or omission to act or otherwise, either hereunder or
under any Margin Account Agreement, except for any such loss or damage arising
out of its own negligence or willful misconduct. The Custodian may, with
respect to questions of law arising hereunder or under any Margin Account
Agreement, apply for and obtain the advice and opinion of counsel to the Fund
or of its own counsel, at the expense of the Fund, and shall be fully protected
with respect to anything done or omitted by it in good faith in conformity with
such advice or opinion. The Custodian shall be liable to the Fund for any loss
or damage resulting from the use of the Book-Entry System or any Depository
arising by reason of any negligence, misfeasance or willful misconduct on the
part of the Custodian or any of its employees or agents.

2. Without limiting the generality of the foregoing, the
Custodian shall be under no obligation to inquire into, and shall not be liable
for:

(a) The validity of the issue of any Securities
purchased, sold, or written by or for the Fund, the legality of the purchase,
sale or writing thereof, or the propriety of the amount paid or received
therefor;

(b) The legality of the sale or redemption of any Shares,
or the propriety of the amount to be received or paid therefor;

(d) The legality of any borrowing by the Fund using
Securities as collateral;

(e) The legality of any loan of portfolio Securities, nor
shall the Custodian be under any duty or obligation to see to it that any cash
collateral delivered to it by a broker, dealer, or financial institution or
held by it at any time as a result of such loan of portfolio Securities of the
Fund is adequate collateral for the Fund against any loss it might sustain as a
result of such loan. The Custodian specifically, but not by way of limitation,
shall not be under any duty or obligation periodically to check or notify the
Fund that the amount of such cash collateral held by it for the Fund is
sufficient collateral for the Fund, but such duty or obligation shall be the
sole responsibility of the Fund. In addition, the Custodian shall be under no
duty or obligation to see that any broker, dealer or financial institution to
which portfolio Securities of the Fund are Ient pursuant to Article XIV of this
Agreement makes payment to it of any dividends or interest which are payable to
or for the account of the Fund during the period of such loan or at the
termination of such loan, provided, however, that the Custodian shall promptly
notify the Fund in the event that such dividends or interest are not paid and
received when due; or

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(f) The sufficiency or value of any amounts of money
and/or Securities held in any Margin Account, Senior Security Account, Exempt
Account or Collateral Account in connection with transactions by the Fund. In
addition, the Custodian shall be under no duty or obligation to see that any
broker, dealer, futures commission merchant or Clearing Member makes payment to
the Fund of any variation margin payment or similar payment which the Fund may
be entitled to receive from such broker, dealer, futures commission merchant or
Clearing Member, to see that any payment received by the Custodian from any
broker, dealer, futures commission merchant or Clearing Member is the amount
the Fund is entitled to receive, or to notify the Fund of the Custodian's
receipt or non-receipt of any such payment.

3. The Custodian shall not be liable for, or considered to be the
Custodian of, any money, whether or not represented by any check, draft, or
other instrument for the payment of money, received by it on behalf of the Fund
until the Custodian actually receives and collects such money directly or by
the final crediting of the account representing the Fund's interest at the
Book-Entry System or the Depository.

4. The Custodian shall have no responsibility and shall not be
liable for ascertaining or acting upon any calls, conversions, exchange,
offers, tenders, interest rate changes or similar matters relating to
Securities held in the Depositary, unless the Custodian shall have actually
received timely notice from the Depositary. In no event shall the Custodian
have any responsibility or liability for the failure of the Depositary to
collect, or for the late collection or late crediting by the Depositary of any
amount payable upon Securities deposited in the Depositary which may mature or
be redeemed, retired, called or otherwise become payable. However, upon
receipt of a Certificate from the Fund of an overdue amount on Securities held
in the Depositary the Custodian shall make a claim against the Depositary on
behalf of the Fund, except that the Custodian shall not be under any obligation
to appear in, prosecute or defend any action suit or proceeding in respect to
any Securities held by the Depositary which in its opinion may involve it in
expense or liability, unless indemnity satisfactory to it against all expense
and liability be furnished as often as may be required.

5. The Custodian shall not be under any duty or obligation to
take action to effect collection of any amount due to the Fund from the
Transfer Agent of the Fund nor to take any action to effect payment or
distribution by the Transfer Agent of the Fund of any amount paid by the
Custodian to the Transfer Agent of the Fund in accordance with this Agreement.

6. The Custodian shall not be under any duty or obligation to
take action to effect collection, of any amount, if the Securities upon which
such amount is payable are in default, or if payment is refused after due
demand or presentation, unless and until (i) it shall be directed to take such
action by a Certificate and (ii) it shall be assured to its satisfaction of
reimbursement of its costs and expenses in connection with any such action.

7. The Custodian may appoint one or more banking institutions as
Depository or Depositories, as Sub- Custodian or Sub-Custodians, or as
Co-Custodian or Co-Custodians including, but not limited to, banking
institutions located in foreign countries, of Securities and moneys at any time
owned by the Fund, upon such terms and conditions as may be approved in a
Certificate or contained in an agreement executed by the Custodian, the Fund
and the appointed institution.

8. The Custodian shall not be under any duty or obligation (a) to
ascertain whether any Securities at any time delivered to, or held by it, for
the account of the Fund and specifically

22
<PAGE> 23
allocated to a Series are such as properly may be held by the Fund or such
Series under the provisions of its then current prospectus, or (b) to ascertain
whether any transactions by the Fund, whether or not involving the Custodian,
are such transactions as may properly be engaged in by the Fund.

9. The Custodian shall be entitled to receive and the Fund agrees
to pay to the Custodian all out-of-pocket expenses and such compensation as
may be agreed upon from time to time between the Custodian and the Fund. The
Custodian may charge such compensation and any expenses with respect to a
Series incurred by the Custodian in the performance of its duties pursuant to
such agreement against any money specifically allocated to such Series. Unless
and until the Fund instructs the Custodian by a Certificate to apportion any
loss, damage, liability or expense among the Series in a specified manner, the
Custodian shall also be entitled to charge against any money held by it for the
account of a Series such Series' pro rata share (based on such Series net asset
value at the time of the charge to the aggregate net asset value of all Series
at that time) of the amount of any loss, damage, liability or expense,
including counsel fees, for which it shall be entitled to reimbursement under
the provisions of this Agreement. The expenses for which the Custodian shall
be entitled to reimbursement hereunder shall include, but are not limited to
the expenses of sub-custodians and foreign branches of the Custodian incurred
in settling outside of New York City transactions involving the purchase and
sale of Securities of the Fund.

10. The Custodian shall be entitled to rely upon any Certificate,
notice or other instrument in writing received by the Custodian and reasonably
believed by the Custodian to be a Certificate. The Custodian shall be entitled
to rely upon any Oral Instructions and any Written Instructions actually
received by the Custodian hereinabove provided for. The Fund agrees to forward
to the Custodian a Certificate or facsimile thereof confirming such Oral
Instructions or Written Instructions in such manner so that such Certificate or
facsimile thereof is received by the Custodian, whether by hand delivery,
telecopier or other similar device, or otherwise, by the close of business of
the same day that such Oral Instructions or Written Instructions are given to
the Custodian. The Fund agrees that the fact that such confirming
instructions are not received by the Custodian shall in no way affect the
validity of the transactions or enforceability of the transactions hereby
authorized by the Fund. The Fund agrees that the Custodian shall incur no
liability to the Fund in acting upon Oral Instructions or Written Instructions
given to the Custodian hereunder concerning such transactions provided such
instructions reasonably appear to have been received from an Authorized Person.

11. The Custodian shall be entitled to rely upon any instrument,
instruction or notice received by the Custodian and reasonably believed by the
Custodian to be given in accordance with the terms and conditions of any
Margin Account Agreement. Without limiting the generality of the foregoing,
the Custodian shall be under no duty to inquire into, and shall not be liable
for, the accuracy of any statements or representations contained in any such
instrument or other notice including, without limitation, any specification of
any amount to be paid to a broker, dealer, futures commission merchant or
Clearing Member.

12. The books and records pertaining to the Fund which are in the
possession of the Custodian shall be the property of the Fund. Such books and
records shall be prepared and maintained as required by the Investment Company
Act of 1940, as amended, and other applicable securities laws and rules and
regulations. The Fund, or the Fund's authorized representatives shall have
access to such books and records during the Custodian's normal business hours.
Upon the reasonable request of the Fund, copies of any such books and records
shall be provided by the Custodian to the Fund or the Fund's authorized
representative, and the Fund shall reimburse the

23
<PAGE> 24
Custodian its expenses of providing such copies. Upon reasonable request of
the Fund, the Custodian shall provide in hard copy or on micro-film, whichever
the Custodian elects, any records included in any such delivery which are
maintained by the Custodian on a computer disc, or are similarly maintained,
and the Fund shall reimburse the Custodian for its expenses of providing such
hard copy or micro-film.

13. The Custodian shall provide the Fund with any report obtained
by the Custodian on the system of internal accounting control of the Book-Entry
System, the Depository, or O.C.C., and with such reports on its own systems of
internal accounting control as the Fund may reasonably request from time to
time.

14. The Fund agrees to indemnify the Custodian against and save
the Custodian harmless from all liability, claims, losses and demands
whatsoever, including attorney's fees, howsoever arising or incurred because of
or in connection with the Custodian's payment or non-payment of checks pursuant
to paragraph 6 of Article XIII as part of any check redemption privilege
program of the Fund, except for any such liability, claim, loss and demand
arising out of the Custodian's own negligence or willful misconduct.

15. Subject to the foregoing provisions of this Agreement, the
Custodian may deliver and receive Securities, and receipts with respect to such
Securities, and arrange for payments to be made and received by the Custodian
in accordance with the customs prevailing from time to time among brokers or
dealers in such Securities.

16. The Custodian shall have no duties or responsibilities
whatsoever except such duties and responsibilities as are specifically set
forth in this Agreement, and no covenant or obligation shall be implied in this
Agreement against the Custodian.

ARTICLE XVI

TERMINAL LINK

1. At not time and under no circumstances shall the Fund be
obligated to have or utilize the Terminal Link, and the provisions of this
Article shall apply if, but only if, the Fund in its sole and absolute
discretion elects to utilize the Terminal Link to transmit Certificates to the
Custodian.

2. The Terminal Link shall be utilized by the Fund only for the
purpose of the Fund providing Certificates to the Custodian with respect to
transactions involving Securities or for the transfer of money to be applied to
the payment of dividends, distributions or redemptions of Fund Shares, and
shall be utilized by the Custodian only for purpose of providing notices to the
Fund. Such use shall commence only after the Fund shall have delivered to the
Custodian a Certificate substantially in the form of Appendix 1 and shall have
established access codes and safekeeping procedures to safeguard and protect
the confidentiality and availability of such access codes. Each use of the
Terminal Link by the Fund shall constitute a representation and warranty that
the Terminal Link is being used only for the purposes permitted hereby, that at
least two Officers have each utilized in access code, that such safekeeping
procedures have been established by the Fund, and that such use does not
contravene the Investment Company Act of 1940, as amended, or the rules or
regulations thereunder.

24
<PAGE> 25
3. The Fund shall obtain and maintain at its own cost and expense
all equipment and services, including, but not limited to communications
services, necessary for it to utilize the Terminal Link, and the Custodian
shall not be responsible for the reliability or availability of any such
equipment or services.

4. The Fund acknowledges that any data bases made available as
part of, or through the Terminal Link and any proprietary data, software,
processes, information and documentation (other than which are or become part
of the public domain or are legally required to be made available to the
public) (collectively, the "Information"), are the exclusive and confidential
property of the Custodian. The Fund shall, and shall cause others to which it
discloses the Information, to keep the Information confidential by using the
same care and discretion it uses with respect to its own confidential property
and trade secrets, and shall neither make nor permit any disclosure without the
express prior written consent of the Custodian.

5. Upon termination of this Agreement for any reason, the Fund
shall return to the Custodian any and all copies of the Information which are
in the Fund's possession or under its control, or which the Fund distributed to
third parties. The provisions of this Article shall not affect the copyright
status of any of the Information which may be copyrighted and shall apply to
all Information whether or not copyrighted.

6. The Custodian reserves the right to modify the Terminal Link
from time to time without notice to the Fund, except that the Custodian shall
give the Fund notice not less than 75 days in advance of any modification which
would materially adversely affect the Fund's operation, and the Fund agrees not
to modify or attempt to modify the Terminal Link without the Custodian's prior
written consent. The Fund acknowledges that any software or procedures
provided the Fund as part of the Terminal Link are the property of the
Custodian and, accordingly, the Fund agrees that any modifications to the
Terminal Link, whether by the Fund or the Custodian and whether with or without
the Custodian's consent, shall become the property of the Custodian.

7. Neither the Custodian nor any manufacturers and suppliers it
utilizes or the Fund utilizes in connection with the Terminal Link makes any
warranties or representations, express or implied, in fact or in law, including
but not limited to warranties of merchantability and fitness for a particular
purpose.

8. The Fund will cause its Officers and employees to treat the
authorization codes and the access codes applicable to Terminal Link with
extreme care, and irrevocably authorizes the Custodian to act in accordance
with and rely on Certificates received by it through the Terminal Link. The
Fund acknowledges that it is its responsibility to assure that only its
Officers use the Terminal Link on its behalf, and that the Custodian shall not
be responsible nor liable for use of the Terminal Link on the Fund's behalf by
persons other than Officers or by only a single Officer.

9. (a) Except as otherwise specifically provided in Section
9(b) of this Article, the Custodian shall have no liability for any losses,
damages, injuries, claims, costs or expenses arising out of or in connection
with any failure, malfunction or other problem relating to the Terminal Link
except for money damages suffered as the direct result of the negligence of the
Custodian in an amount not exceeding for any incident $25,000, provided
however, that the Custodian shall have no liability under this Section 9 if the
Fund fails to comply with the provisions of Section 11.

(b) The Custodian's liability for its negligence in
executing or failing to act in accordance with a Certificate received through
Terminal Link shall be only with respect to a transfer

25
<PAGE> 26
of funds which is not made in accordance with such Certificate after such
Certificate shall have been duly acknowledged by the Custodian, and shall be
contingent upon the Fund complying with the provisions of Section 11 of this
Article, and shall be limited to (i) restoration of the principal amount
mistransferred, if and to the extent that the Custodian would be required to
make such restoration under applicable law, and (ii) the lesser of (A) the
Fund's actual pecuniary loss incurred by reason of its loss of use of the
mistransferred funds or the funds which were not transferred, as the case may
be, or (B) compensation for the loss of use of the mistransferred funds or the
funds which were not transferred, as the case may be, at a rate per annum equal
to the average federal funds rate as computed from the Federal Reserve Bank of
New York's daily determination of the effective rate for federal funds, for the
period during which the Fund has lost use of such funds. In no event shall the
Custodian have any liability for failing to transfer funds in accordance with a
Certificate received by the Custodian through Terminal Link other than through
the applicable transfer module for the particular instructions contained in
such Certificate.

10. Without limiting the generality of the foregoing, in no event
shall the Custodian or any manufacturer or supplier of its computer equipment,
software or services relating to the Terminal Link be responsible for any
special, indirect, incidental or consequential damages which the Fund may incur
or experience by reason of its use of the Terminal Link, even if the Custodian
or any manufacturer or supplier has been advised of the possibility of such
damages, nor with respect to the use of the Terminal Link shall the Custodian
or any such manufacturer or supplier be liable for acts of God, or with respect
to the following to the extent beyond such person's reasonable control: machine
or computer breakdown or malfunction, interruption or malfunction of
communication facilities, labor difficulties or any other similar or dissimilar
cause.

11. The Fund shall notify the Custodian of any errors, omissions
or interruptions in, or delay or unavailability of, the Terminal Link as
promptly as practicable, and in any event within 24 hours after the earliest of
(i) discovery thereof, (ii) the business day on which discovery should have
occurred through the exercise of reasonable care, and (iii) in the case of any
error, the date of actual receipt of the earliest notice which reflects such
error, it being agreed that discovery and receipt of notice may only occur on a
business day. The Custodian shall promptly advise the Fund whenever the
Custodian learns of any errors, omissions or interruption in, or delay or
unavailability of, the Terminal Link.

12. The Custodian shall verify to the Fund, by use of the Terminal
Link, receipt of each Certificate the Custodian receives through the Terminal
Link, and in the absence of such verification the Custodian shall not be liable
for any failure to act in accordance with such Certificate and the Fund may
not claim that such Certificate was received by the Custodian. Such
verification, which may occur after the Custodian has acted upon such
Certificate, shall be accomplished on the same day on which such Certificate
is received.

ARTICLE XVII

TERMINATION

1. Either of the parties hereto may terminate this Agreement by
giving to the other party a notice in writing specifying the date of such
termination, which shall be not less than ninety (90) days after the date of
giving of such notice. In the event such notice is given by the Fund, it
shall be accompanied by a copy of a resolution of the Board of Directors of the
Fund, certified by the Secretary, the Clerk, any Assistant Secretary or any
Assistant Clerk, electing to terminate this

26
<PAGE> 27
Agreement and designating a successor custodian or custodians, each of which
shall be a bank or trust company having not less than $2,000,000 aggregate
capital, surplus and undivided profits. In the event such notice is given by
the Custodian, the Fund shall, on or before the termination date, deliver to
the Custodian a copy of a resolution of the Board of Directors of the Fund,
certified by the Secretary, the Clerk, any Assistant Secretary or any Assistant
Clerk, designating a successor custodian or custodians. In the absence of such
designation by the Fund, the Custodian may designate a successor custodian
which shall be a bank or trust company having not less than $2,000,000
aggregate capital, surplus and undivided profits. Upon the date set forth in
such notice this Agreement shall terminate, and the Custodian shall upon
receipt of a notice of acceptance by the successor custodian on that date
deliver directly to the successor custodian all Securities and moneys then
owned by the Fund and held by it as Custodian, after deducting all fees,
expenses and other amounts for the payment or reimbursement of which it shall
then be entitled.

2. If a successor custodian is not designated by the Fund or the
Custodian in accordance with the preceding paragraph, the Fund shall upon the
date specified in the notice of termination of this Agreement and upon the
delivery by the Custodian of all Securities (other than Securities held in the
Book-Entry System which cannot be delivered to the Fund) and moneys then owned
by the Fund be deemed to be its own custodian and the Custodian shall thereby
be relieved of all duties and responsibilities pursuant to this Agreement,
other than the duty with respect to Securities held in the Book Entry System
which cannot be delivered to the Fund to hold such Securities hereunder in
accordance with this Agreement.

ARTICLE XVIII

MISCELLANEOUS

1. Annexed hereto as Appendix A is a Certificate signed by two of
the present Officers of the Fund under its seal, setting forth the names and
the signatures of the present Authorized Persons. The Fund agrees to furnish
to the Custodian a new Certificate in similar form in the event that any such
present Authorized Person ceases to be an Authorized Person or in the event
that other or additional Authorized Persons are elected or appointed. Until
such new Certificate shall be received, the Custodian shall be fully protected
in acting under the provisions of this Agreement upon Oral Instructions or
signatures of the present Authorized Persons as set forth in the last delivered
Certificate.

2. Annexed hereto as Appendix B is a Certificate signed by two of
the present Officers of the Fund under its seal, setting forth the names and
the signatures of the present Officers of the Fund. The Fund agrees to furnish
to the Custodian a new Certificate in similar form in the event any such
present Officer ceases to be an Officer of the Fund, or in the event that other
or additional Officers are elected or appointed. Until such new Certificate
shall be received, the Custodian shall be fully protected in acting under the
provisions of this Agreement upon the signatures of the Officers as set forth
in the last delivered Certificate.

3. Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Custodian, shall be sufficiently
given if addressed to the Custodian and mailed or delivered to it at its
offices at 90 Washington Street, New York, New York 10015, or at such other
place as the Custodian may from time to time designate in writing.

27
<PAGE> 28
4. Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Fund shall be sufficiently given
if addressed to the Fund and mailed or delivered to it at its office at the
address for the Fund first above written, or at such other place as the Fund
may from time to time designate in writing.

5. This Agreement may not be amended or modified in any manner
except by a written agreement executed by both parties with the same formality
as this Agreement and approved by a resolution of the Board of Directors of the
Fund.

6. This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable by the Fund without the written
consent of the Custodian, or by the Custodian without the written consent of
the Fund, authorized or approved by a resolution of the Fund's Board of
Directors.

7. This Agreement shall be construed in accordance with the laws
of the State of New York.

8. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.

9. The assets of a particular Series of the Fund shall under no
circumstances be charged with liabilities attributable to any other Series of
the Fund and that all persons extending credit to, or contracting with or
having any claim against a particular Series of the Fund shall look only to the
assets of that particular Series for payment of such credit, contract or claim.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective Officers, thereunto duly authorized and their
respective seals to be hereunto affixed, as of the day and year first above
written.

AIM TAX-EXEMPT FUNDS, INC.

By: /s/ JOHN J. ARTHUR
-------------------------
Attest:

/s/ P. MICHELLE GRACE
- -------------------------

THE BANK OF NEW YORK

By: /s/ ILLEGIBLE
-------------------------
Attest:

/s/ MARJORIE MC LAUGHLIN
- -------------------------

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<PAGE> 29
APPENDIX A

I, Robert H. Graham, President and I, Carol F. Relihan, Vice President
and Secretary of AIM Tax-Exempt Funds, Inc., a Maryland corporation (the
"Fund"), do hereby certify that:

The following individuals have been duly authorized by the Board of
Directors of the Fund in conformity with the Fund's Articles of Incorporation
and By-Laws to give Oral Instructions and Written Instructions on behalf of the
Fund, and the signatures set forth opposite their respective names are their
true and correct signatures:

<TABLE>
<CAPTION>
NAME SIGNATURE

<S> <C>

Charles T. Bauer /s/ CHARLES T. BAUER
Chairman ----------------------------------------------

Robert H. Graham /s/ ROBERT H. GRAHAM
President ----------------------------------------------

John J. Arthur /s/ JOHN J. ARTHUR
Senior Vice President and Treasurer ----------------------------------------------

Gary T. Crum /s/ GARY T. CRUM
Senior Vice President ----------------------------------------------

Carol F. Relihan /s/ CAROL F. RELIHAN
Vice President and Secretary ----------------------------------------------

Stuart W. Coco /s/ STUART W. COCO
Vice President ----------------------------------------------

Melville B. Cox /s/ MELVILLE B. COX
Vice President ----------------------------------------------

Karen Dunn Kelley /s/ KAREN DUNN KELLEY
Vice President ----------------------------------------------

Dana R. Sutton /s/ DANA R. SUTTON
Vice President and Assistant Treasurer ----------------------------------------------
</TABLE>

29
<PAGE> 30
(SEAL) Dated this 19th day of October, 1995

/s/ ROBERT H. GRAHAM
--------------------------------------
Robert H. Graham

/s/ CAROL F. RELIHAN
--------------------------------------
Carol F. Relihan

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<PAGE> 31
APPENDIX B

I, Robert H. Graham, President and I, Carol F. Relihan, Vice President
and Secretary of AIM Tax-Exempt Funds, Inc., a Maryland corporation (the
"Fund"), do hereby certify that:

The following individuals serve in the following positions with the
Fund and each has been duly elected or appointed by the Board of Directors of
the Fund to each such position and qualified therefor in conformity with the
Fund's Articles of Incorporation and By-Laws, and the signatures set forth
opposite their respective names are their true and correct signatures: