<PAGE> 1
[AIM LOGO APPEARS HERE]
[COLLAGE OF FINANCIAL IMAGES APPEARS HERE]
AIM TAX-FREE INTERMEDIATE SHARES
ANNUAL REPORT
MARCH 31, 1996
<PAGE> 2
AIM TAX-FREE INTERMEDIATE SHARES
For shareholders who seek a high level of income, exempt from federal taxes.
The Fund purchases high quality municipal bonds maturing in
10 1/2 years or less.
ABOUT FUND PERFORMANCE DATA THROUGHOUT THIS REPORT:
o The Fund's performance is historical and reflects reinvestment of all
distributions. Unless otherwise indicated, Fund results were computed
without a sales charge. When sales charges are included, the Fund's
performance reflects the 1.00% maximum sales charge.
o For the year ended March 31, 1996, the Fund paid distributions of $0.5175
per share.
o The distribution rate is equal to the actual distributions from investment
income declared for the prior 30-day period, expressed as an annual
percentage. Distribution rates may include daily dividends and short-term
capital gains. Distribution rates shown in this report are based on maximum
offering price.
o The 30-day yield is calculated on the basis of a formula defined by the
SEC. The formula is based on the portfolio's potential earnings from
dividends, interest, yield-to-maturity or yield-to-call of the bonds in the
portfolio, net of all expenses and expressed on an annualized basis.
o The taxable-equivalent yield is calculated in the same manner as the 30-day
yield with an adjustment for a stated, assumed tax rate.
o The Fund's investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
o The Fund's portfolio composition is subject to change and there is no
assurance the Fund will continue to hold any one particular security.
o Past performance cannot guarantee comparable future results.
ABOUT INDEXES AND OTHER PERFORMANCE BENCHMARKS CITED IN THIS REPORT:
o The Lehman Municipal Bond Index is an unmanaged composite generally
considered representative of municipal securities.
o The Bond Buyer 40 Index is a group of 40 unmanaged municipal securities
widely regarded by investors to be representative of the long-term
municipal securities market. The average price of the index represents the
simple average dollar price of the 40 bonds; the average maturity of the
index is approximately 29 years.
o An investment cannot be made in the indexes listed. Unless otherwise
indicated, index results include reinvested dividends and do not reflect
sales charges.
This report may be distributed only to current shareholders or to persons
who have received a current prospectus of the Fund.
<PAGE> 3
A Message from the Chairman
Dear Shareholder:
AIM Tax-Free Intermediate Shares extended its record of
[PHOTO OF providing shareholders with attractive tax-exempt current
Charles T. Bauer, income plus low volatility during the fiscal year ended
Chairman of March 31, 1996. The Fund's total return of 6.06% for the
the Board of one-year period was achieved without generating capital
the Fund, gains or income subject to the Alternative Minimum Tax.
APPEARS HERE] As of March 31, 1996, the Fund produced a 30-day
distribution rate of 4.95% and a 30-day yield of 3.71%.
Translated to taxable-equivalent yields, the Fund's 30-day
distribution rate was 8.20% and the 30-day yield was 6.14%, when adjusted for
the highest marginal federal tax rate of 39.6%.
The Fund's investment focus on selected less-volatile, intermediate-term
municipal securities contributed to its attractive 30-day yield even as
relative stability in share price was maintained. By March 31, 1996, net asset
value per share had increased to $10.79, and net assets for the Fund were $83.1
million. The Fund's monthly dividend increased twice during the year to $0.045
per share.
AIM was pleased to participate in efforts by the mutual fund industry and
the Securities and Exchange Commission during the year to improve the quality
of information provided to shareholders. We also share the industry's
commitment to create more "user-friendly" language in communications for
shareholders.
Such measures may help you understand your investments more clearly. Still,
no publication can replace the personal service provided by your professional
financial consultant. In times of increased volatility in financial markets,
such as we have seen in recent months, it is important to remain committed to
clearly defined long-term investment goals. Many investment professionals
recommend a broadly diversified portfolio to cushion the effects of uncertain
markets.
As the complexity of investing grows, you should rely on a professional
financial consultant to help you understand changing financial markets. Even
more important, your financial consultant can help you manage a financial plan
to meet your personal investment goals as your objectives evolve with changes
in your life.
We are pleased to send you this report on the performance of AIM Tax-Free
Intermediate Shares. As always, we are ready to respond to your questions or
comments about this report. You may reach us by calling Client Services at
800-959-4246 during normal business hours. For automated account information 24
hours a day, call the AIM Investor Line toll-free at 800-246-5463.
Respectfully submitted,
/s/ CHARLES T. BAUER
Charles T. Bauer
Chairman
================================================================================
CURRENT YIELD ADVANTAGE
YIELDS AS OF 3/31/96
2-Year U.S. Treasury Note* 5.75%
5-Year U.S. Treasury Note* 6.08%
AIM Tax-Free Intermediate Shares
30-day yield** 6.14%
30-day distribution rate** 8.20%
*Government securities, such as U.S. Treasury notes, offer a high degree of
safety and are guaranteed as to the timely payment of principal and interest.
Fund shares are not insured and their value and yield will vary with market
conditions. **Taxable-equivalent yields assume the highest marginal federal
income tax rate of 39.6%. Source: IRS, 1995.
===============================================================================
<PAGE> 4
Management's
Discussion & Analysis
- --------------------------
Market watchers
decided that the reaction
to tax-reform speculation
had been overdone
and the
municipal market
improved, particularly for
higher-quality,
intermediate-term issues.
- --------------------------
A YEAR OF TRANSITION FOR MUNICIPAL SECURITIES
The reporting year that ended on March 31, 1996 was marked by changing
perspectives. For much of 1995, fixed-income markets conditions were ideal--the
economy had slowed considerably and inflation posed no threat. By the summer,
the U.S. dollar had regained its footing against major world currencies and was
climbing from record lows.
Such conditions encouraged the Fed to reverse its strict monetary policy in
July and ease interest rates for the first time since 1992. When interest rates
decline, the value of fixed-income securities increases. By the end of 1995,
bond yields had declined during the year by as much as 200 basis points. (A
basis point is one one-hundredth of a percentage point.)
The tax-exempt market also appreciated; however the performance on
municipal securities lagged that of taxable securities for most of the year,
largely due to the continuing debate over tax reform. Still, there were a
number of positive developments. Orange County, Calif., which had flagged
market performance since November 1994 with its pending bankruptcy, settled
with its creditors and was no longer a focus for investors. By the third
quarter of 1995, market watchers decided that the reaction to tax-reform
speculation had been overdone and the municipal market improved, particularly
for higher-quality, intermediate-term issues.
The turbulent first quarter of 1996 tried the patience of fixed-income
investors. In a move widely anticipated by analysts for months, the Fed eased
interest rates in January. Within weeks, however, reports of unexpected
improvement in such economic indicators as employment, retail sales, and
industrial production sent bond markets reeling. While the pace of economic
growth was certainly moderate and sustainable, reports of
stronger-than-expected performance diminished the likelihood that the Fed would
cut interest rates again in the near future.
YOUR INVESTMENT PORTFOLIO
With 131 holdings as of March 31, 1996, the Fund was broadly diversified to
minimize volatility caused by the changing interest rate environment. Positions
in pre-refunded and insured bonds were strong performers. Overall, the
portfolio comprised 70% revenue bonds and 30% general obligation bonds. Premium
bonds, insured bonds, and pre-refunded bonds were emphasized to reduce price
volatility. Attractive issues in sectors such as housing, transportation, and
health care helped enhance yield. Of course, Fund holdings are subject to
change as market conditions warrant.
At the end of the reporting period, the Fund had a weighted average
maturity of 4.7 years and a duration of 3.5 years. In keeping with the Fund's
strategy of investing in quality issues, the portfolio weighting as of March
31, 1996, comprised approximately 61% in securities rated AAA. Credit-enhanced
securities--which
================================================================================
PORTFOLIO COMPOSITION (As of 3/31/96)
================================================================================
TOP 5 BOND HOLDINGS Number of Holdings 131
1. Lucas County Ohio Hospital Revenue
Bonds 6.75% (08/15/00)
2. Michigan State Building Auth. Refg. GENERAL OBLIGATIONS 30%
Revenue Bonds 6.40% (10/01/04) REVENUE 70%
3. Georgia State General Obligation Bonds
7.10% (06/01/99)
4. Franklin County Ohio General Obligation Credit Enhanced 52%
Bonds 6.30% (12/01/01) AMT 0
Average Maturity 4.7 Years
5. Ohio State Public Facility Rev. Bonds Duration 3.5 Years
7.00% (12/01/97)
================================================================================
This table represents a summary of the Fund's portfolio as of March 31, 1996.
2
<PAGE> 5
Management's
Discussion & Analysis
are backed by insurance or escrowed with U.S. Treasuries--comprised about 52%
of the portfolio.
The Fund maintained an average portfolio quality rating of AA+ as measured
by Standard & Poor's Corporation (S&P) and Moody's Investors Service (Moody's),
two widely known credit rating agencies. S&P and Moody ratings are historical
and are based on analysis of the credit quality of the individual municipal
securities in the Fund's portfolio.
AIM TAX-FREE INTERMEDIATE SHARES IS AN "EFFICIENCY" EXPERT
Specifically, it's 99.90% efficient. "Efficiency" for a tax-exempt fund refers
to its ability to create distributions that are free from federal income taxes,
capital gains tax, and the alternative minimum tax (AMT). Since its inception
on May 11, 1987, AIM Tax-Free Intermediate Shares distributions have been
99.90% efficient.
OUTLOOK FOR THE FUTURE
As this election year unfolds, municipal bond investors have a number of
simmering pots to watch. Interest rates appear to have bottomed, at least for
the near term. Some analysts who were concerned just weeks ago about the
possibility of recession lately have begun to speculate about the renewed
strength in the economy.
While the economy has rebounded nicely from its slowdown in the latter half
of 1995, there has been no indication that it is growing too rapidly. This
outlook was supported by Federal Reserve Bank Board Chairman Alan Greenspan in
his testimony before Congress last March when he said "the economy has
weathered recent sluggishness and is back on track for steady growth with low
inflation." A market watcher quoted recently in The Wall Street Journal
described it as a "Goldilocks economy--not too hot and not too cold."
To date, there is still no tax-reform legislation pending before Congress,
though it continues to prompt considerable debate. Many analysts maintain that
any drastic proposals by Congress that severely diminish the tax advantages of
municipal securities would be strongly challenged by the issuers and investors.
By all appearances, any meaningful action in that direction could be years
away.
Hopefully, less time will pass before real and constructive progress is
achieved by Congress in passing a serviceable budget. This political debate no
doubt will intensify as the November election looms.
Like you, we are interested in such current events as the volatile
political climate, the changing economy, and the direction of interest rates.
However, we prefer to take a longer-term view. We believe the key to investing
for the long term is an ongoing focus on the Fund's primary investment
philosophy, and that is to generate optimal current tax-free income with
reasonable risk.
TAX-REFORM DOUBTFUL
Dick Berry, co-manager of AIM Tax-Free Intermediate Shares, cites three reasons
why he believes major tax reform will not take place in the near future:
"First, there are no bills being considered by Congress. And if a bill is
presented, lobbying groups will muster an all-out assault on it."
"Second, the reform most mentioned -a flat tax- actually would result in
many lower- and middle-income workers paying higher taxes."
"Third, it appears unlikely the federal government will raise taxes at the
same time it is shifting more and more of the spending burden to the states."
================================================================================
MORNINGSTAR RATINGS (AS OF 3/31/96)
================================================================================
Funds in
Municipal
Period Rating Categories
Overall **** NA
5 Years **** 515
3 Years **** 848
Morningstar's rating system of one (lowest) to five (highest) stars is based on
risk and total return performance ratios for three-, five-, and 10-year periods
and considers all loads, expenses, and fees. Ratings compare funds with similar
investment objectives and represent past performance, which is no guarantee of
comparable future results.
================================================================================
---------------------
The one-year
total return on
AIM Tax-Free
Intermediate Shares
was tax-free
-the Fund did not
generate capital gains
nor income subject
to the Alternative
Minimum Tax.
----------------------
3
<PAGE> 6
Long-Term
Performance
================================================================================
AVERAGE ANNUAL TOTAL
RETURNS (AS OF MARCH 31, 1996)
WITH SALES CHARGE
Since Inception (5/11/87) 6.43%
5 Years 6.38
1 Year 5.00*
*6.06% excluding sales charges.
================================================================================
GROWTH OF A $10,000 INVESTMENT
The chart below compares your Fund to a benchmark index. It is intended to give
you a general idea of how your Fund performed compared to the municipal bond
market. It is important to understand the difference between your Fund and an
index. Your Fund's total return includes Fund expenses and management fees. An
index measures the performance of a hypothetical portfolio. Unlike your Fund,
the index is not an actual investment; therefore there are no sales charges,
expenses, or fees. However, if you could buy all the securities that make up a
particular index, you would incur expenses that would affect the return on your
investment.
AIM Tax-Free Intermediate Shares Lehman Municipal Bond Index
3/87 $9,901 $10,000
3/88 10,307 10,847
3/89 10,745 11,627
3/90 11,670 12,855
3/91 12,643 14,040
3/92 13,706 15,445
3/93 15,077 17,380
3/94 15,601 17,782
3/95 16,407 19,104
3/96 17,731 20,705
Past performance is no guarantee of future results.
Source: Towers Data Systems HYPO(R).
For Fund performance calculations and descriptions of indexes cited on this
page, please refer to the inside front cover.
A HISTORY OF RELATIVE STABILITY
In addition to tax efficiency, AIM Tax-Free Intermediate Shares historically
have achieved attractive yield with less share price volatility.*
AIM Tax-Free Intermediate Shares Bond Buyer 40 Index
5/87 $9,890 $8,811
3/88 9,890 8,728
3/89 9,690 9,000
3/90 9,890 9,200
3/91 10,070 9,120
3/92 10,270 9,417
3/93 10,740 10,007
3/94 10,620 9,118
3/95 10,670 9,106
3/96 10,790 9,304
Sources: Lipper Analytical Services, Inc. and Bloomberg.
All values are month-end.
*The Fund's distribution rate at net asset value versus the average
distribution rate at net asset value of all general municipal bond funds ranked
by Lipper Analytical Services, Inc. since the Fund's inception. As of 3/31/96,
the Lipper universe comprised 240 general municipal bond funds, with average
portfolio maturities of approximately 14.20 years.
4
<PAGE> 7
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>
5
<PAGE> 8
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>
6
<PAGE> 9
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>
7
<PAGE> 10
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>
8
<PAGE> 11
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>
9
<PAGE> 12
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>
10
<PAGE> 13
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>
11
<PAGE> 14
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>
12
<PAGE> 15
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>
13
<PAGE> 16
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.
14
<PAGE> 17
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.
15
<PAGE> 18
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.
16
<PAGE> 19
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.
17
<PAGE> 20
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.
18
<PAGE> 21
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.
19
<PAGE> 22
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.
KPMG Peat Marwick LLP
Houston, Texas
May 3, 1996
20
<PAGE> 23
Directors and
Officers
<TABLE>
<S> <C> <C>
BOARD OF DIRECTORS OFFICERS OFFICE OF THE FUND
11 Greenway Plaza
Charles T. Bauer Charles T. Bauer Suite 1919
Chairman and Chief Chairman Houston, TX 77046
Executive Officer
A I M Management Group Inc. Robert H. Graham INVESTMENT ADVISOR
President A I M Advisors, Inc.
Bruce L. Crockett 11 Greenway Plaza
Director, President, and John J. Arthur Suite 1919
Chief Executive Officer Senior Vice President Houston, TX 77046
COMSAT Corporation and Treasurer
TRANSFER AGENT
Owen Daly II Gary T. Crum A I M Fund Services, Inc.
Director Senior Vice President P.O. Box 4739
Cortland Trust Inc. Houston, TX 77210-4739
Carol F. Relihan
Carl Frischling Senior Vice President CUSTODIAN
Partner and Secretary The Bank of New York
Kramer, Levin, Naftalis, 110 Washington Street
Nessen, Kamin & Frankel Dana R. Sutton New York, NY 10286
Vice President and
Robert H. Graham Assistant Treasurer COUNSEL TO THE FUND
President and Chief Ballard Spahr
Operating Officer Stuart W. Coco Andrews & Ingersoll
A I M Management Group Inc. Vice President 1735 Market Street
Philadelphia, PA 19103
John F. Kroeger Melville B. Cox
Formerly, Consultant Vice President COUNSEL TO THE DIRECTORS
Wendell & Stockel Kramer, Levin, Naftalis,
Associates, Inc. Karen Dunn Kelley Nessen, Kamin & Frankel
Vice President 919 Third Avenue
Lewis F. Pennock New York, NY 10022
Attorney P. Michelle Grace
Assistant Secretary DISTRIBUTOR
Ian W. Robinson A I M Distributors, Inc.
Consultant; Former Executive David L. Kite 11 Greenway Plaza
Vice President and Assistant Secretary Suite 1919
Chief Financial Officer Houston, TX 77046
Bell Atlantic Management Nancy L. Martin
Services, Inc. Assistant Secretary AUDITORS
KPMG Peat Marwick LLP
Louis S. Sklar Ofelia M. Mayo 700 Louisiana
Executive Vice President Assistant Secretary NationsBank Bldg.
Hines Interests Houston, TX 77002
Limited Partnership Kathleen J. Pflueger
Assistant Secretary
Samuel D. Sirko
Assistant Secretary
Stephen I. Winer
Assistant Secretary
</TABLE>
REQUIRED FEDERAL INCOME TAX INFORMATION
AIM Tax-Free Intermediate Shares paid ordinary dividends in the amounts of
$0.5175 per share to shareholders during the Fund's tax year ended March 31,
1996. Of this amount, 100% qualified as tax-exempt interest dividends for
federal income tax purposes.
<PAGE> 24
<TABLE>
<S> <C>
[PHOTO OF THE AIM FAMILY OF FUNDS(R)
11 GREENWAY PLAZA
APPEARS HERE] AGGRESSIVE GROWTH
AIM Aggressive Growth Fund*
AIM Constellation Fund
AIM Global Aggressive Growth Fund
GROWTH
AIM Global Growth Fund
AIM Growth Fund
AIM International Equity Fund
AIM Value Fund
AIM Weingarten Fund
GROWTH AND INCOME
AIM Balanced Fund
AIM Charter Fund
INCOME AND GROWTH
AIM Global Utilities Fund**
HIGH CURRENT INCOME
AIM High Yield Fund
CURRENT INCOME
AIM Global Income Fund
AIM Income Fund
CURRENT TAX-FREE INCOME
AIM Municipal Bond Fund
AIM Tax-Exempt Bond Fund of CT
AIM Tax-Free Intermediate Shares
CURRENT INCOME AND HIGH DEGREE
OF SAFETY
AIM Intermediate Government Fund***
HIGH DEGREE OF SAFETY AND
CURRENT INCOME
AIM Limited Maturity Treasury Shares
STABILITY, LIQUIDITY, AND
CURRENT INCOME
AIM Money Market Fund
STABILITY, LIQUIDITY, AND
CURRENT TAX-FREE INCOME
AIM Tax-Exempt Cash Fund
*AIM Aggressive Growth Fund was closed
to new investors on July 18, 1995. **On
May 1, 1995, AIM Utilities Fund
AIM Management Group has provided broadened its investment strategy to
leadership in the mutual fund permit up to 80% of its total assets to
industry since 1976 and currently be invested in foreign securities, and
manages more than $51 billion in was renamed AIM Global Utilities Fund.
assets for more than 2.3 million ***On September 25, 1995, AIM
shareholders, including individual Government Securities Fund was renamed
investors, corporate clients, and AIM Intermediate Government Fund. For
financial institutions. The AIM more complete information about any AIM
Family of Funds(R) is distributed Fund(s), including sales charges and
nationwide, and AIM today ranks expenses, ask your financial consultant
among the nation's top 20 mutual or securities dealer for a free
fund companies in assets under prospectus(es). Please read the
management, according to Lipper prospectus(es) carefully before you
Analytical Services, Inc. invest or send money.
</TABLE>
[AIM LOGO APPEARS HERE] ---------------
BULK RATE
A I M Distributors, Inc. U.S. POSTAGE
11 Greenway Plaza, Suite 1919 PAID
Houston, TX 77046 HOUSTON, TX
Permit No. 1919
---------------
