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[AIM LOGO APPEARS HERE] THE AIM FAMILY OF FUNDS--Registered
Trademark--
AIM TAX-EXEMPT FUNDS, INC.
AIM HIGH INCOME MUNICIPAL FUND
PROSPECTUS
JANUARY 2, 1998
AIM HIGH INCOME MUNICIPAL FUND (the "Fund") is a diversified, series
investment portfolio of AIM Tax-Exempt Funds, Inc. (the "Company"), an
open-end, series, management investment company. The Fund seeks to
achieve a high level of current income which is exempt from federal
income taxes by investing in a diversified portfolio of municipal
securities. THE FUND MAY INVEST UP TO 100% OF ITS NET ASSETS 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 "INVESTMENT PROGRAM -- RISK
FACTORS REGARDING NON-INVESTMENT GRADE DEBT SECURITIES" AND "APPENDIX
A -- DESCRIPTIONS OF RATING CATEGORIES."
This Prospectus sets forth basic information that a prospective investor
should know about the Fund before investing. It should be read and
retained for future reference. A Statement of Additional Information,
dated January 2, 1998, 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 SEC maintains a Web
site at http://www.sec.gov that contains the Statement of Additional
Information, material incorporated by reference, and other information
regarding the Company. Additional information about the Fund may also be
obtained on the Web at http://www.aimfunds.com.
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE FUND'S 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 FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
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PAGE PAGE
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SUMMARY................................. 2 Terms and Conditions of Purchase of
THE FUND................................ 4 the AIM Funds...................... A-2
Table of Fees and Expenses............ 4 Special Plans......................... A-9
Performance........................... 5 Exchange Privilege.................... A-11
Investment Program.................... 5 How to Redeem Shares.................. A-13
Management............................ 9 Determination of Net Asset Value...... A-17
Organization of the Company........... 11 Dividends, Distributions and Tax
INVESTOR'S GUIDE TO THE AIM FAMILY Matters............................ A-18
OF FUNDS--Registered Trademark--....... A-1 General Information................... A-20
Introduction to The AIM Family of APPENDIX A.............................. A-21
Funds.............................. A-1 APPLICATION INSTRUCTIONS................ B-1
How to Purchase Shares................ A-1
</TABLE>
SUMMARY
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THE FUND. AIM Tax-Exempt Funds, Inc. (the "Company") is a Maryland
corporation organized as an open-end series management investment company.
Currently, the Company has four separate series portfolios. This Prospectus
relates to AIM HIGH INCOME MUNICIPAL FUND (the "Fund"). The Company also offers
other classes of shares in three other investment portfolios, AIM TAX-EXEMPT
CASH FUND, AIM TAX-FREE INTERMEDIATE FUND and AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT (collectively with AIM HIGH INCOME MUNICIPAL FUND, the "Funds"),
each of which pursues unique investment objectives. Shares of the other Funds of
the Company have different sales charges and expenses, which may affect
performance. To obtain information about the other Funds of the Company call
(800) 347-4246.
MANAGEMENT. A I M Advisors, Inc. ("AIM") serves as the Fund's investment
advisor pursuant to a Master Investment Advisory Agreement (the "Advisory
Agreement"). AIM, together with its subsidiaries, manages or advises over 50
investment company portfolios encompassing a broad range of investment
objectives. Under the terms of the Advisory Agreement, AIM supervises all
aspects of the Fund's operations and provides investment advisory services to
the Fund. As compensation for these services, AIM receives a fee based on the
Fund's average daily net assets. Under a Master Administrative Services
Agreement, AIM may be reimbursed by the Fund for its costs of performing, or
arranging for the performance of, certain accounting and other administrative
services for the Fund. 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 Fund.
MULTIPLE DISTRIBUTION SYSTEM. Investors may select Class A, Class B or
Class C shares of the Fund which are offered by this Prospectus at an offering
price that reflects differing sales charges and expense levels. See "Terms and
Conditions of Purchase of the AIM Funds -- Sales Charges and Dealer
Concessions."
Class A Shares -- Shares are offered at net asset value plus any
applicable initial sales charge.
Class B Shares -- Shares are offered at net asset value, without an
initial sales charge, and are subject to a maximum contingent deferred
sales charge of 5% on certain redemptions made within six years from the
date such shares were purchased. Class B shares automatically convert to
Class A shares of the Fund eight years following the end of the calendar
month in which a purchase was made. Class B shares are subject to higher
expenses than Class A shares.
Class C Shares -- Shares are offered at net asset value, without an
initial sales charge, and are subject to a contingent deferred sales charge
of 1% on certain redemptions made within one year from the date such shares
were purchased.
SUITABILITY FOR INVESTORS. The Multiple Distribution System permits an
investor to choose the method of purchasing shares that is most beneficial given
the amount of the purchase, the length of time the shares are expected to be
held, whether dividends will be paid in cash or reinvested in additional shares
of the Fund and other circumstances. Investors should consider whether, during
the anticipated life of their investment in the Fund, the accumulated
distribution fees and any applicable contingent deferred sales charges on Class
B shares prior to conversion or on Class C shares would be less than the initial
sales charge and accumulated distribution fees on Class A shares purchased at
the same time, and to what extent such differential would be offset by the
higher return on Class A shares. To assist investors in making this
determination, the table under the caption "Table of Fees and Expenses" sets
forth examples of the charges applicable to each class of shares. Class A shares
will normally be more beneficial than Class B or Class C shares to the investor
who qualifies for reduced initial sales charges, as described below. Therefore,
A I M Distributors, Inc. ("AIM Distributors") will reject any order for purchase
of more than $250,000 for Class B shares.
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PURCHASING SHARES. Initial investments in any class of shares must be at
least $500 and additional investments must be at least $50. The minimum initial
investment is modified for investments through tax-qualified retirement plans
and accounts initially established with an Automatic Investment Plan. The
distributor of the Fund's shares is A I M Distributors, Inc., P.O. Box 4739,
Houston, Texas 77210-4729. See "How to Purchase Shares" and "Special Plans."
EXCHANGE PRIVILEGE. The Fund is one of several mutual funds distributed by
AIM Distributors (collectively, "The AIM Family of Funds"). Class A, Class B and
Class C shares of the Fund 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. Holders of Class A shares may redeem all or a portion of
their shares at net asset value on any business day, generally without charge. A
contingent deferred sales charge of 1% may apply to certain redemptions of Class
A shares, where purchases of $1 million or more were made at net asset value.
See "How to Redeem Shares -- Contingent Deferred Sales Charge Program for Large
Purchases."
Holders of Class B shares may redeem all or a portion of their shares at
net asset value on any business day, less a contingent deferred sales charge for
redemptions made within six years from the date such shares were purchased.
Class B shares redeemed after six years from the date such shares were purchased
will not be subject to any contingent deferred sales charge. See "How to Redeem
Shares -- Multiple Distribution System."
Holders of Class C shares may redeem all or a portion of their shares at
net asset value on any business day, less a 1% contingent deferred sales charge
for redemptions made within one year from the date such shares were purchased.
See "How to Redeem Shares -- Multiple Distribution System."
DISTRIBUTIONS. The Fund will declare dividends from net investment income
on a daily basis and will pay such dividends on a monthly basis. The Fund will
also make distributions of realized capital gains, if any, on an annual basis.
Dividends and distributions of the Fund may be reinvested at net asset value
without payment of a sales charge in the Fund's shares or may be invested in
shares of the other funds in The AIM Family of Funds. See "Dividends,
Distributions and Tax Matters" and "Special Plans."
RISK FACTORS. The Fund seeks to meet its investment objective by investing
in non-investment grade debt securities, commonly known as "junk bonds."
Investments in such securities, while generally providing greater income and
opportunity for gain, may be subject to greater risks than higher rated
securities. Such risks may include: greater market price volatility, limited
liquidity under certain circumstances, greater sensitivity to adverse economic
changes and individual issuer developments, and certain other risks. See
"Investment Program -- Risk Factors Regarding Non-Investment Grade Debt
Securities." Investors should carefully consider the relative risks and rewards
of investing in the Fund prior to investing, and should not consider an
investment in the Fund to represent a complete investment program.
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, La Familia AIM de
Fondos and La Familia AIM de Fondos and Design are registered service marks and
aimfunds.com and Invest With Discipline are service marks of A I M Management
Group Inc.
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THE FUND
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TABLE OF FEES AND EXPENSES
The following table is designed to help an investor in the Fund 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 the estimated average net
assets of the respective classes of the Fund for the first period of operation.
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>
CLASS A CLASS B CLASS C
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<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales load imposed on purchase of shares (as a %
of offering price)..................................... 4.75% None None
Maximum sales load on reinvested dividends and
distributions.......................................... None None None
Deferred sales load (as a % of lower of original purchase
price or
redemption proceeds)................................... None* 5.0% 1.0%
Redemption fee............................................ None None None
Exchange fee.............................................. None None None
Annual Fund Operating Expenses (as a % of average net
assets)
Management fees (after fee waivers)....................... 0.10%(1) 0.10%(1) 0.10%(1)
Rule 12b-1 distribution plan payments..................... 0.25% 1.00% 1.00%
Other expenses............................................ 0.15% 0.15% 0.15%
---- ---- ----
Total fund operating expenses (after fee
waivers)........................................ 0.50%(1) 1.25%(1) 1.25%(1)
==== ==== ====
</TABLE>
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* 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 from the date such shares were purchased.
See the Investor's Guide, under the caption "How to Redeem
Shares -- Contingent Deferred Sales Charge Program for Large Purchases."
(1) After fee waivers. If management fees were not being waived, management
fees for all classes of the Fund would be 0.60%, and total fund operating
expenses would be 1.00% for Class A shares and 1.75% for Class B and Class
C shares.
EXAMPLES. You would pay the following expenses on a $1,000 investment in
Class A shares of the Fund, assuming (1) a 5% annual return and (2) redemption
at the end of each time period:
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1 Year...................................................... $52
3 Years..................................................... $63
</TABLE>
The above examples assume payment of a sales charge at the time of
purchase; 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 from the date such shares were purchased.
You would pay the following expenses on a $1,000 investment in Class B
shares of the Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period:
<TABLE>
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1 Year...................................................... $63
3 Years..................................................... $70
</TABLE>
You would pay the following expenses on the same $1,000 investment in Class
B shares, assuming no redemption at the end of each time period:
<TABLE>
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1 Year...................................................... $13
3 Years..................................................... $40
</TABLE>
You would pay the following expenses on a $1,000 investment in Class C
shares of the Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period:
<TABLE>
<S> <C>
1 Year...................................................... $23
3 Years..................................................... $40
</TABLE>
You would pay the following expenses on the same $1,000 investment in Class
C shares, assuming no redemption at the end of each time period:
<TABLE>
<S> <C>
1 Year...................................................... $13
3 Years..................................................... $40
</TABLE>
>As a result of 12b-1 distribution plan payments, a long-term shareholder of the
Fund 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 and contingent deferred sales charges and the
Rule 12b-1 distribution plan payments applicable to Class A shares,
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Class B shares and Class C shares of the Fund, it is estimated 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 representative of the Fund's
actual or future expenses, which may be greater or less than those shown. In
addition, while the examples assume a 5% annual return, the Fund's 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 fund operating expenses remain the same
for each year.
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PERFORMANCE
The Fund's performance 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 the Fund
will disclose the maximum sales charge (including deferred sales charges)
imposed on purchases of the 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 Fund. Further
information regarding the Fund's performance will be contained in the Fund's
annual report to shareholders, which will be available upon request and without
charge.
The Fund's total return is calculated in accordance with a standardized
formula for computation of annualized total return. Standardized total return
for Class A shares reflects the deduction of the maximum front-end sales charge
at the time of purchase. Standardized total return for Class B shares reflects
the deduction of the maximum applicable contingent deferred sales charge on a
redemption of shares held for the period. Standardized total return for Class C
shares reflects the deduction of a 1% contingent deferred sales charge, if
applicable, on a redemption of shares held for one year.
The 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 Fund's
performance over a stated period of time. An average annual total return
reflects the hypothetical compounded annual rate of 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 THE FUND'S RETURN, INVESTORS SHOULD RECOGNIZE THAT SUCH RETURNS
ARE NOT THE SAME AS ACTUAL YEAR-BY-YEAR RESULTS. To illustrate the components of
overall performance, the Fund may separate its cumulative and average annual
returns into income results and capital gains or losses.
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 Class A shares, and net asset value for Class B and Class C shares.
Yield is a function of the type and quality of the Fund's investments, the
maturity of the securities held in the Fund's portfolio and the operating
expense ratio of the Fund. A shareholder's investment in the Fund is not insured
or guaranteed. These factors should be carefully considered by the investor
before making an investment in the Fund. A tax-equivalent yield is calculated in
the same manner as the standard yield with an adjustment for a stated, assumed
tax rate. The Fund 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 the Fund. Such practices will have the effect of increasing the Fund's yield
and total return.
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INVESTMENT PROGRAM
The Fund's objective is to achieve a high level of current income which is
exempt from federal income taxes. There can be no assurance that the Fund will
achieve its objective, which is fundamental and may not be changed without
shareholder approval. The Fund will pursue its objective by investing, under
normal market conditions, at least 80% of its net assets in a diversified
portfolio of municipal securities which are rated BBB/Baa or lower by Standard &
Poor's Ratings Services ("S&P") or Moody's Investors Service, Inc. ("Moody's")
or another nationally recognized statistical rating organization ("NRSRO")(or
which are unrated but determined by AIM to be of comparable quality to such
securities), and which are exempt from federal income taxes (including the
alternative minimum tax). "Municipal securities" include debt obligations of
states, territories or possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities,
issued for a wide range of public facilities such as airports, highways,
bridges, schools, hospitals, housing, mass transportation, streets and water and
sewer works.
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Also included in "municipal securities" are municipal lease obligations,
which may take the form of a lease, an installment purchase or a conditional
sales contract. Municipal lease obligations are issued by state and local
governments and authorities to acquire land, equipment and facilities such as
state and municipal vehicles, telecommunications and computer equipment, and
other capital assets. The Fund may purchase these obligations directly, or it
may purchase participation interests in such obligations. Municipal leases are
generally subject to greater risks than general obligation or revenue bonds.
State laws set forth requirements that states or municipalities must meet in
order to issue municipal obligations, and such obligations may contain a
covenant by the issuer to budget for, appropriate, and make payments due under
the obligation. However, certain municipal lease obligations may contain
"non-appropriation" clauses which provide that the issuer is not obligated to
make payments on the obligation in future years unless funds have been
appropriated for this purpose each year. Accordingly, such obligations are
subject to "non-appropriation" risk. While municipal leases are secured by the
underlying capital asset, it may be difficult to dispose of such assets in the
event of non-appropriation or other default. The Company's Board of Directors is
responsible for developing and establishing guidelines and procedures for
determining the liquidity and valuation of municipal lease obligations, and the
Board of Directors will supervise AIM's determinations of the credit quality and
cancellation risk of unrated municipal lease obligations.
Debt securities which are rated BB/Ba or lower by S&P or Moody's or another
NRSRO (and unrated securities which AIM determines to be of comparable quality)
are considered to have speculative characteristics and may involve risks which
are not presented by investments in higher-rated debt securities. See "Risk
Factors Regarding Non-Investment Grade Debt Securities" below for further
information regarding such investments.
DIVERSIFICATION AND CONCENTRATION. As a fundamental policy which may not be
changed without shareholder approval, the Fund will not, with respect to 75% of
its total assets, invest more than 5% of its total assets in the securities of
any single issuer. The Fund considers investments in municipal securities not to
be subject to concentration policies and may invest a relatively high percentage
of its total assets in municipal securities issued by entities having similar
characteristics. The issuers may be located in the same geographic area or may
pay their interest obligations from revenue of similar projects such as
hospitals, utilities systems and housing finance agencies. This may make the
Fund's investments more susceptible to similar economic, political or regulatory
influences. The Fund may invest more than 25% of its total assets in municipal
securities with similar characteristics, such as industrial development revenue
bonds, including pollution control revenue bonds, housing finance agency bonds
or hospital bonds. The Fund may not, however, invest more than 25% of its total
assets in industrial development revenue bonds, including pollution control
revenue bonds, issued for companies in the same industry. Sizeable investments
in such securities could involve an increased risk to the Fund if any of such
issuers or any such related projects or facilities experience financial
difficulties.
The Fund may, but does not currently intend to, invest more than 25% of its
total assets in securities whose issuers are located in the same state. The Fund
may invest its assets without regard to the maturity of the various securities
it purchases, and will not seek to maintain any particular average portfolio
maturity.
TEMPORARY DEFENSIVE INVESTMENTS. As a temporary defensive measure, or for
cash management purposes, the Fund may invest all or a portion of its assets
from time to time in cash, bankers' acceptances, certificates of deposit,
repurchase agreements, master notes, time deposits, commercial paper and taxable
and tax-exempt municipal securities. The Fund may also invest for temporary
defensive purposes all or a portion of its assets in securities issued by the
United States government, its agencies or instrumentalities, and investment
grade taxable and tax-exempt municipal securities. Interest income from certain
of the foregoing types of investments may be taxable to shareholders as ordinary
income.
TAXABLE INVESTMENTS. Under normal market conditions, the Fund may invest up
to 20% of its total assets in taxable securities (including municipal securities
the interest from which constitutes a preference item for federal alternative
minimum tax purposes). Such taxable securities may include securities issued by
the United States government, its agencies or instrumentalities, bank and
corporate obligations and short-term fixed income securities.
DEFAULTED SECURITIES. The Fund may invest up to 10% of its total assets in
defaulted securities. In order to enforce its rights in defaulted securities the
Fund may be required to participate in various legal proceedings or take
possession of and manage assets securing the issuer's obligations on the
defaulted securities. This could increase the Fund's operating expenses and
adversely affect its net asset value. Any income derived from the ownership or
operation of such assets would not be tax-exempt. The ability of a holder of a
defaulted tax-exempt security to enforce the terms of that security in a
bankruptcy proceeding may be more limited than would be the case with respect to
securities of private issuers. Any investments by the Fund in defaulted
securities will also be considered illiquid securities subject to the
limitations described below, unless AIM determines that such defaulted
securities are liquid under guidelines adopted by the Board of Directors.
ILLIQUID SECURITIES, BORROWING AND OTHER INVESTMENT COMPANIES. The Fund
will not invest more than 15% of its net assets in securities which are
illiquid. Illiquid securities include those which have no readily available
market price quotations and which cannot be sold within seven days in the normal
course of business at approximately the amount at which the Fund has valued
them, as well as restricted securities and repurchase obligations maturing in
more than seven days. Certain municipal lease obligations, certain defaulted
securities and certain unregistered securities under the Securities Act of 1933
may be determined to be liquid under guidelines adopted by the Board of
Directors, and would therefore not be subject to this 15% limitation. The Fund
may borrow from banks, provided that such borrowing does not exceed 33-1/3% of
the value of its total assets. The Fund will not invest in additional securities
while borrowings in excess of 5% of its total assets are outstanding. The
foregoing 33-1/3% and 5% borrowing
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limitations are fundamental policies which may not be changed without
shareholder approval. The Fund may invest in other investment companies to the
extent permitted by the Investment Company Act of 1940, and the rules and
regulations thereunder, and (if applicable) exemptive orders granted by the SEC.
WHEN ISSUED OR DELAYED DELIVERY SECURITIES. The Fund may purchase
securities on a "when-issued" basis, which means that 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 45 days after the date of the
transaction). The Fund may also purchase and sell securities on a delayed
delivery basis. The payment obligation and the interest rate that will be
received on the delayed delivery securities are fixed at the time the buyer
enters into the delayed delivery commitment. The Fund will only enter into
commitments to purchase when-issued or delayed delivery securities with the
intention of actually acquiring such securities; however, the Fund may sell such
securities before the settlement date if AIM deems such action to be advisable.
If the Fund purchases a when-issued security, its custodian bank will
segregate liquid assets in an amount equal to the when-issued commitment. If the
market value of such securities declines below the value of the commitment,
additional liquid assets will be segregated on a daily basis so that the market
value of the segregated assets will equal the amount of the Fund's when-issued
commitments. To the extent cash and securities are segregated, they will not be
available for new investments or to meet redemptions of Fund shares. Securities
purchased on a delayed delivery basis may require a similar segregation of
liquid assets. For a more complete description of when-issued and delayed
delivery securities see the Statement of Additional Information.
STANDBY COMMITMENTS. The Fund may acquire standby commitments from banks or
other municipal securities dealers with respect to securities in its portfolio
or that are being purchased by the Fund. Standby commitments generally increase
the cost of the acquisition of the underlying security, thereby reducing the
yield. Standby commitments depend upon the issuer's ability to fulfill its
obligation upon demand. Although no definitive creditworthiness criteria are
used for this purpose, AIM reviews the creditworthiness of the banks and other
municipal securities dealers from which the Fund obtains standby commitments in
order to evaluate those risks.
INDEXED SECURITIES. The Fund may invest in indexed securities the value of
which is linked to interest rates, commodities, indices or other financial
indicators. Most indexed securities are short to intermediate term fixed income
securities whose values at maturity (principal value) or interest rates rise or
fall according to changes in the value of one or more specified underlying
instruments. Indexed securities may be positively or negatively indexed (i.e.,
their principal value or interest rates may increase or decrease if the
underlying instrument appreciates), and may have return characteristics similar
to direct investments in the underlying instrument or to one or more options on
the underlying instrument. Indexed securities may be more volatile than the
underlying instrument itself and could involve the loss of all or a portion of
the principal amount of the indexed security.
INVERSE FLOATING RATE OBLIGATIONS. The Fund may invest in inverse floating
rate obligations or residual interest bonds, or other obligations or
certificates related to such securities which have similar features. These types
of obligations generally have floating or variable interest rates that move in
the opposite direction of short-term interest rates, and generally increase or
decrease in value in response to changes in short-term interest rates at a rate
which is a multiple (typically two) of the rate at which long-term fixed rate
tax-exempt securities increase or decrease in response to such changes. As a
result, such obligations have the effect of providing investment leverage and
may be more volatile than long-term fixed rate tax-exempt securities.
ZERO-COUPON AND PAY-IN-KIND SECURITIES. The Fund may, but does not
currently intend to, invest in zero-coupon or pay-in-kind securities. These
securities are debt securities that do not make regular cash interest payments.
Zero-coupon securities are sold at a deep discount to their face value.
Pay-in-kind securities pay interest through the issuance of additional
securities. Because zero-coupon and pay-in-kind securities do not pay current
cash income, the price of these securities can be volatile when interest rates
fluctuate. While these securities do not pay current cash income, federal tax
law requires the holders of zero-coupon and pay-in-kind securities to include in
income each year the portion of the original issue discount (or deemed discount)
and other non-cash income on such securities accrued during that year. In order
to qualify as a "regulated investment company" under the Internal Revenue Code
of 1986 and to avoid certain excise taxes, the Fund may be required to
distribute a portion of such discount and income, and may be required to dispose
of other portfolio securities, which could occur during periods of adverse
market prices, in order to generate sufficient cash to meet these distribution
requirements.
OPTIONS ON SECURITIES AND WARRANTS. The Fund may write (sell) "covered" put
and call options on fixed income securities. Call options written by the Fund
give the holder the right to buy the underlying securities from the Fund at a
fixed exercise price up to a stated expiration date or, in the case of certain
options, on such date. Put options written by the Fund give the holder the right
to sell the underlying securities to the Fund at a fixed price up to a stated
expiration date or, in the case of certain options, on such date. Call options
are "covered" by the Fund when it owns the underlying securities, and put
options are "covered" by the Fund when it has segregated liquid assets which can
be sold promptly to satisfy any obligation of the Fund to purchase the
underlying securities. The Fund may also write straddles (combinations of puts
and calls on the same underlying security).
The Fund may purchase detachable call options on municipal securities,
which are options issued by an issuer of the underlying municipal securities
that give the holder the right to purchase the securities at a fixed price,
either up to a stated time in the future, or in some cases, on a particular
future date. The Fund may purchase warrants on fixed income securities. A
warrant on a fixed income
7
<PAGE> 8
security is a long-dated call option giving to the holder the right, but not the
obligation, to purchase a fixed income security of a specific description (from
the issuer) on a certain date or dates at a fixed exercise price.
INTEREST RATE FUTURES CONTRACTS AND RELATED OPTIONS. The Fund may purchase
and sell futures contracts on fixed income securities or indices of such
securities, or purchase and sell options thereon, in order to hedge the value of
its portfolio against changes in market conditions. A futures contract is an
agreement between two parties to buy and sell a security for a set price on a
future date. 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 original futures contract. There are risks associated
with investments in futures contracts and options on such contracts. During
certain market conditions, purchases and sales of futures contracts may not
completely offset a decline or rise in the value of the Fund's portfolio, and it
may not always be possible to execute a buy or sell order at the desired price,
or to close out an open position, due to market conditions, limits on open
positions and/or daily price fluctuations. Changes in the market value of the
Fund's portfolio may differ substantially from the changes anticipated by the
Fund when hedged positions were established, and unanticipated price movements
in a futures contract may result in a loss substantially greater than the Fund's
initial investment in the contract. Successful use of futures contracts and
related options depends upon AIM's ability to predict correctly movements in the
direction of the applicable markets. No assurance can be given that AIM's
judgment in this respect will be correct.
The Fund may not purchase or sell futures contracts, or purchase or sell
related options, 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.
See the Statement of Additional Information for a description of the Fund's
investments in futures contracts and options on futures contracts, including
certain additional risks.
RISK FACTORS REGARDING NON-INVESTMENT GRADE DEBT SECURITIES. The Fund
intends to invest a significant portion of its assets in non-investment grade
debt securities, commonly known as "junk bonds." Such securities have ratings
from S&P and/or Moody's or another NRSRO which are BB/Ba or lower (or are
unrated but determined by AIM to be of comparable quality based on the rating
categories in Appendix A). Although these securities generally offer higher
yields than investment grade securities with similar maturities, non-investment
grade securities involve greater risks, including the possibility of default or
bankruptcy. In general, they are considered to be predominantly speculative with
respect to the issuer's capacity to pay interest and principal. Other potential
risks associated with investing in non-investment grade securities include:
- greater market price volatility resulting from changes in or
uncertainty about economic conditions, and changes in the actual or
perceived ability of the issuer to meet its obligations;
- greater sensitivity of highly leveraged issuers to adverse economic
changes and individual issuer developments; and
- liquidity may be affected by adverse publicity and changing investor
perceptions about these securities in general and/or a particular
issuer's credit quality.
As with any other asset held by the Fund, any reduction in market value of
such securities as a result of the above factors would be reflected in the
Fund's net asset value. In addition, because the Fund invests in non-investment
grade securities it may incur additional expenses to the extent it is required
to seek recovery upon a default in the payment of principal and interest on its
holdings. Due to such risks, successful investments in non-investment grade
securities will be more dependent on AIM's credit analysis than generally would
be the case for investments in securities which are investment grade.
It is uncertain how the market for non-investment grade securities will
perform during a prolonged period of rising interest rates. A prolonged economic
downturn or a prolonged period of rising interest rates could adversely affect
the market for these securities, increase their volatility, and reduce their
value and liquidity. Moreover, lower quality securities tend to be less liquid
than higher rated securities because the market for them is not as broad or
active. If market quotations are not available, these securities will be valued
in accordance with procedures established by the Company's Board of Directors.
Judgment may therefore play a greater role in valuing non-investment grade
securities.
In the event the Fund experiences an unexpected level of net redemptions,
it could be forced to sell its non-investment grade securities 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.
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 POLICIES AND RESTRICTIONS. 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. The Fund's investment program
is also subject to a number of investment restrictions which reflect
self-imposed standards as well as federal regulatory limitations. These
restrictions are described in the Statement of Additional Information.
8
<PAGE> 9
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MANAGEMENT
The overall management of the business and affairs of the Fund is vested in
the Company's Board of Directors. The Board of Directors approves all
significant agreements between the Company, on behalf of the Fund, and persons
or companies furnishing services to the Fund, including the investment advisory
agreement and administrative services agreement with AIM, the agreement with AIM
Distributors regarding distribution of the Fund's shares, the agreement with The
Bank of New York as the custodian and the agreement with AFS as transfer agent.
The day-to-day operations of the Fund are delegated to the officers of the
Company and to AIM, subject always to the objective and policies of the 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 and is an indirect wholly
owned subsidiary of AMVESCAP PLC. AMVESCAP PLC and its subsidiaries are an
independent investment management group engaged in institutional investment
management and retail mutual fund businesses in the United States, Europe and
the Pacific Region. 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 100,
Houston, Texas 77046, serves as the investment advisor to the Fund pursuant to a
Master Investment Advisory Agreement, dated as of February 28, 1997 (the
"Advisory Agreement"). AIM was organized in 1976 and, together with its
subsidiaries, manages or advises over 50 investment company portfolios
encompassing a broad range of investment objectives.
Under the terms of the Advisory Agreement, AIM supervises all aspects of
the Fund's operations and provides investment advisory services to the Fund. AIM
obtains and evaluates economic, statistical and financial information to
formulate and implement the investment program for the Fund. 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 Fund 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 February 28, 1997 (the "Administrative Services Agreement"), pursuant to
which AIM is entitled to receive from the 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 Fund's principal financial
officer and his staff, and any expenses related to fund accounting services. In
addition, A I M Fund Services, Inc., P.O. Box 4739, Houston, Texas 77210-4739, 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 Fund.
In accordance with policies established by the Board of Directors, AIM may
take into account sales of shares of the Fund and other funds advised by AIM in
selecting broker-dealers to effect portfolio transactions on behalf of the Fund.
See the Statement of Additional Information under the caption "Portfolio
Transactions" for further information.
PORTFOLIO MANAGEMENT. AIM uses a team approach and disciplined investment
strategy in providing investment advisory services to all its accounts,
including the Fund. AIM's investment staff consists of approximately 126
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 the Fund are Franklin
Ruben, Richard A. Berry and Sharon A. Copper. Mr. Ruben is Vice President of
A I M Capital Management, Inc. ("AIM Capital"), and has been responsible for the
Fund since its inception in 1998. Mr. Ruben has been associated with AIM and/or
its subsidiaries since 1997, and has a total of 12 years of experience as an
investment professional. Prior to joining AIM, he was Associate Portfolio
Manager with Van Kampen American Capital Asset Management, Inc. Mr. Berry is
Vice President of AIM Capital, and has been responsible for the Fund since its
inception in 1998. Mr. Berry has been associated with AIM and/or its
subsidiaries since 1987, and has a total of 29 years of experience as an
investment professional. Ms. Copper is Vice President of AIM Capital and has
been responsible for the Fund since its inception in 1998. Ms. Copper has been
associated with AIM and/or its subsidiaries since 1992 and has a total of 12
years of experience as an investment professional.
FEES AND EXPENSES. Pursuant to the Advisory Agreement, AIM is entitled to
receive a fee from the Fund calculated at the annual rates of 0.60% of the first
$500 million of net assets, plus 0.55% of the next $500 million of net assets,
plus 0.50% of the next $500 million of net assets, plus 0.45% of net assets over
$1.5 billion. AIM is also entitled to be reimbursed for administrative costs
incurred on behalf of the Fund.
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 Company will be notified of the discontinuance of each fee waiver or
reduction. AIM is currently voluntarily waiving 0.50% of the 0.60% management
fee payable by the Fund. This voluntary fee waiver will continue in effect
through March 31, 1998, and AIM may in its discretion continue such fee waiver
for future periods.
DISTRIBUTOR. The Company has entered into master distribution agreements
relating to the Fund (the "Distribution Agreements") with A I M Distributors,
Inc. ("AIM Distributors"), a registered broker-dealer and a wholly owned
subsidiary of AIM, to act
9
<PAGE> 10
as the distributor of Class A, Class B and Class C shares of the Fund. 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 Agreements provide AIM Distributors with the exclusive
right to distribute shares of the Fund directly and through institutions with
whom AIM Distributors has entered into selected dealer agreements. Under the
Distribution Agreement for the Class B shares, AIM Distributors sells Class B
shares at net asset value subject to a contingent deferred sales charge
established by AIM Distributors. AIM Distributors is authorized to advance to
institutions through whom Class B shares are sold a sales commission under
schedules established by AIM Distributors. The Distribution Agreement for the
Class B shares provides that AIM Distributors (or its assignee or transferee)
will receive 0.75% (of the total 1.00% payable under the distribution plan
applicable to Class B shares) of the Fund's average daily net assets
attributable to Class B shares attributable to the sales efforts of AIM
Distributors. In the event the Class B shares Distribution Agreement is
terminated, AIM Distributors would continue to receive payments of asset based
sales charges in respect of the outstanding Class B shares attributable to the
distribution efforts of AIM Distributors; provided, however, that a complete
termination of the Class B shares master distribution plan (as defined in the
plan) would terminate all payments to AIM Distributors. Termination of the Class
B shares distribution plan or Distribution Agreement does not affect the
obligation of Class B shareholders to pay contingent deferred sales charges.
DISTRIBUTION PLANS. Class A and C Plan. The Company has adopted a Master
Distribution Plan applicable to Class A and Class C shares of the Fund (the
"Class A and C Plan") pursuant to Rule 12b-1 under the 1940 Act, to compensate
AIM Distributors for the purpose of financing any activity that is intended to
result in the sale of Class A and Class C shares of the Fund.
Under the Class A and C Plan, the Company may compensate AIM Distributors
an aggregate amount of 0.25% of the average daily net assets of Class A shares
of the Fund on an annualized basis and an aggregate amount of 1.00% of the
average daily net assets of Class C shares of the Fund on an annualized basis.
The Class A and C Plan is designed to compensate AIM Distributors, on a
quarterly basis, for certain promotional and other sales-related costs, and to
implement a dealer incentive program which provides for periodic payments to
selected dealers who furnish continuing personal shareholder services to their
customers who purchase and own Class A or Class C shares of the Fund. Payments
can also be directed by AIM Distributors to selected institutions who have
entered into service agreements with respect to Class A and Class C shares of
the Fund and who provide continuing personal shareholder services to their
customers who own Class A and Class C shares of the Fund. The service fees
payable to selected institutions are calculated at the annual rate of 0.25% of
the average daily net asset value of those Fund shares that are held in such
institution's customers' accounts which were purchased on or after a prescribed
date set forth in the Plan.
Of the aggregate amount payable under the Class A and C 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 are
characterized as a service fee, and 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 pursuant to the Class A and C Plan.
The Class A and C 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. The Class A and C Plan does not obligate the Fund to
reimburse AIM Distributors for the actual expenses AIM Distributors may incur in
fulfilling its obligations under the Class A and C Plan on behalf of the Fund.
Thus, under the Class A and C Plan, even if AIM Distributors' actual expenses
exceed the fee payable to AIM Distributors thereunder at any given time, the
Fund will not be obligated to pay more than that fee. If AIM Distributors'
expenses are less than the fee it receives, AIM Distributors will retain the
full amount of the fee.
Class B Plan. The Company has also adopted a Master Distribution Plan
applicable to Class B shares of the Fund (the "Class B Plan"). Under the Class B
Plan, the Fund pays distribution expenses at an annual rate of 1.00% of the
average daily net assets attributable to the Class B shares. Of such amount, the
Fund pays a service fee of 0.25% of the average daily net assets attributable to
the Class B shares to selected dealers and financial institutions who furnish
continuing personal shareholder services to their customers who purchase and own
Class B shares of the Fund. Any amounts not paid as a service fee would
constitute an asset based sales charge. Amounts paid in accordance with the
Class B Plan may be used to finance any activity primarily intended to result in
the sale of Class B shares.
Both Plans. Activities that may be financed under the Class A and C Plan
and the Class B Plan (collectively, the "Plans") include, but are not limited
to: printing of prospectuses and statements of additional information and
reports for other than existing shareholders, overhead, preparation and
distribution of advertising material and sales literature, 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 Plans. These amounts payable by the Fund under the Plans need
not be directly related to the expenses actually incurred by AIM Distributors on
behalf of the Fund. Thus, even if AIM Distributors' actual expenses exceed the
fee payable to AIM Distributors thereunder at any given time, the Company will
not be obligated to pay more than that fee, and if AIM Distributors' expenses
are less than the fee it receives, AIM Distributors will retain the full amount
of the fee. Payments pursuant to the Plans are subject to any applicable
limitations imposed by the rules of the National Association of Securities
Dealers, Inc.
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<PAGE> 11
Each of the Plans may be terminated at any time by a vote of the majority
of those directors who are not "interested persons" of the Company or by a vote
of the holders of the majority of the outstanding shares of the applicable
class.
Under the Plans, AIM Distributors may in its discretion from time to time
agree to waive voluntarily all or any portion of its fee that has not been
assigned or transferred, while retaining its ability to be reimbursed for such
fee prior to the end of each fiscal year.
Under the Plans, certain financial institutions which have entered into
service agreements and which sell shares of the Fund on an agency basis, may
receive payments from the Fund pursuant to the respective Plans. AIM
Distributors does not act as principal, but rather as agent for the Fund, in
making such payments. The Fund 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. Financial
intermediaries and any other person entitled to receive compensation for selling
Fund shares may receive different compensation for selling shares of one
particular class over another.
For additional information concerning the operation of the Plans, see the
Statement of Additional Information.
- --------------------------------------------------------------------------------
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 four portfolios, AIM TAX-EXEMPT
CASH FUND, AIM TAX-FREE INTERMEDIATE FUND, AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT (each of which currently offers only Class A shares) and AIM HIGH
INCOME MUNICIPAL FUND (which currently offers Class A, Class B and Class C
shares).
Class A shares, Class B shares and Class C shares of the Fund represent
interests in the Fund's assets and have identical voting, dividend, liquidation
and other rights on the same terms and conditions, except that each class of
shares bears differing class-specific expenses, is subject to differing sales
loads, conversion features and exchange privileges, and has exclusive voting
rights on matters pertaining to that class' distribution plan (although holders
of Class A and Class C shares and holders of Class B shares of the Fund must
approve any material increase in fees payable with respect to the Fund under the
Class A and C Plan).
Except as specifically noted above, shareholders of the Fund are entitled
to one vote per share (with proportionate voting for fractional shares),
irrespective of the relative net asset value of the Class A shares, Class B
shares and Class C shares of the Fund. However, on matters affecting one
portfolio of the Company or one class of shares, a separate vote of shareholders
of that portfolio or class is required. Shareholders of a portfolio or class are
not entitled to vote on any matter which does not affect that portfolio or class
but which requires a separate vote of another portfolio or class. An example of
a matter which would be voted on separately by shareholders of a portfolio is
the approval of an advisory agreement, and an example of a matter which would be
voted on separately by shareholders of each class of shares is approval of a
distribution plan. When issued, shares of the Fund are fully paid and
nonassessable, have no preemptive or subscription rights, and are fully
transferable. Other than the automatic conversion of Class B shares to Class A
shares, there are no conversion rights. Shares do not have cumulative voting
rights, which means that in situations in which shareholders elect directors,
holders of more than 50% of the shares voting for the election of directors can
elect all of the directors of the Company, and the holders of less than 50% of
the shares voting for the election of directors will not be able to elect any
directors.
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.
As of January 2, 1998, INVESCO Trust Company owned more than 25% of the
issued and outstanding shares of the Fund, and therefore could be deemed to
"control" the Fund as that term is defined in the 1940 Act. It is anticipated
that after commencement of the public offering of the Fund's shares, INVESCO
Trust Company will cease to control the Fund for purposes of the 1940 Act.
11
<PAGE> 12
THE TOLL-FREE NUMBER FOR ACCESS TO ROUTINE ACCOUNT INFORMATION AND SHAREHOLDER
ASSISTANCE IS
(800) 959-4246 (7:30 A.M. TO 6:00 P.M. CENTRAL TIME).
INVESTOR'S GUIDE
TO THE AIM FAMILY OF FUNDS--Registered Trademark--
- --------------------------------------------------------------------------------
INTRODUCTION TO THE AIM FAMILY OF FUNDS
THE AIM FAMILY OF FUNDS consists of the following mutual funds:
<TABLE>
<S> <C>
AIM ADVISOR CASH MANAGEMENT FUND(2) AIM GLOBAL INCOME FUND
AIM ADVISOR FLEX FUND AIM GLOBAL UTILITIES FUND
AIM ADVISOR INCOME FUND(2) AIM GROWTH FUND
AIM ADVISOR INTERNATIONAL VALUE FUND AIM HIGH INCOME MUNICIPAL FUND
AIM ADVISOR LARGE CAP VALUE FUND AIM HIGH YIELD FUND
AIM ADVISOR MULTIFLEX FUND AIM INCOME FUND
AIM ADVISOR REAL ESTATE FUND AIM INTERMEDIATE GOVERNMENT FUND
AIM AGGRESSIVE GROWTH FUND AIM INTERNATIONAL EQUITY FUND
AIM ASIAN GROWTH FUND AIM LIMITED MATURITY TREASURY FUND
AIM BALANCED FUND AIM MONEY MARKET FUND(1)
AIM BLUE CHIP FUND AIM MUNICIPAL BOND FUND
AIM CAPITAL DEVELOPMENT FUND AIM TAX-EXEMPT BOND FUND OF CONNECTICUT
AIM CHARTER FUND AIM TAX-EXEMPT CASH FUND(1)
AIM CONSTELLATION FUND AIM TAX-FREE INTERMEDIATE FUND
AIM EUROPEAN DEVELOPMENT FUND AIM VALUE FUND
AIM GLOBAL AGGRESSIVE GROWTH FUND AIM WEINGARTEN FUND
AIM GLOBAL GROWTH FUND
</TABLE>
(1) Class A shares of AIM TAX-EXEMPT CASH FUND and AIM Cash Reserve Shares of
AIM MONEY MARKET FUND are offered to investors at net asset value, without
payment of a sales charge, as described below. Other funds, including the
Class A, Class B and Class C shares of AIM MONEY MARKET FUND, are sold with
an initial sales charge or subject to a contingent deferred sales charge
upon redemption, as described below.
(2) Fund closed to investments on October 3, 1997. Please refer to
"Exchange Privilege" herein and the Fund's prospectus dated August 4, 1997.
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 Arrangement ("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. A Salary Reduction SEP ("SARSEP")
may not be established after December 31, 1996; however existing SARSEP accounts
can remain in effect.
AFS' mailing address is:
A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
MCF-01/98
A-1
<PAGE> 13
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.
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: A I M Fund Services, Inc.
RFB: Fund name, Reference Number (16 character limit)
OBI: Shareholder Name, Shareholder Account Number
(70 character limit)
</TABLE>
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TERMS AND CONDITIONS OF PURCHASE OF THE AIM FUNDS
Shares of the AIM Funds, including Class A shares (the "Class A shares") of
AIM ADVISOR FLEX FUND, AIM ADVISOR INTERNATIONAL VALUE FUND, AIM ADVISOR LARGE
CAP VALUE FUND, AIM ADVISOR MULTIFLEX FUND, AIM ADVISOR REAL ESTATE FUND, AIM
AGGRESSIVE GROWTH FUND, AIM ASIAN GROWTH FUND, AIM BALANCED FUND, AIM BLUE CHIP
FUND, AIM CAPITAL DEVELOPMENT FUND, AIM CHARTER FUND, AIM CONSTELLATION FUND,
AIM EUROPEAN DEVELOPMENT FUND, AIM GLOBAL AGGRESSIVE GROWTH FUND, AIM HIGH
INCOME MUNICIPAL FUND, AIM GLOBAL GROWTH FUND, AIM GLOBAL INCOME FUND, AIM
GLOBAL UTILITIES FUND, AIM GROWTH FUND, AIM HIGH YIELD FUND, AIM INCOME FUND,
AIM INTERMEDIATE GOVERNMENT FUND, AIM INTERNATIONAL EQUITY FUND, AIM LIMITED
MATURITY TREASURY FUND, AIM MONEY MARKET FUND, AIM MUNICIPAL BOND FUND, AIM
TAX-EXEMPT BOND FUND OF CONNECTICUT, AIM TAX-FREE INTERMEDIATE FUND, AIM VALUE
FUND and AIM WEINGARTEN FUND, collectively (other than AIM AGGRESSIVE GROWTH
FUND, AIM LIMITED MATURITY TREASURY FUND, AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT and AIM TAX-FREE INTERMEDIATE FUND,) the "Multiple Class Funds," may
be purchased at their respective net asset value plus a sales charge as
indicated below, except that Class A shares of AIM TAX-EXEMPT CASH FUND and AIM
Cash Reserve Shares of AIM MONEY MARKET FUND are sold without a sales charge and
Class B shares (the "Class B shares") and Class C shares ("Class C shares") of
the Multiple Class Funds are sold at net asset value subject to a contingent
deferred sales charge payable upon certain redemptions. These contingent
deferred sales charges are described under the caption "How to Redeem Shares --
Multiple Distribution System." Securities dealers and other persons entitled to
receive compensation for selling or servicing shares of a Multiple Class Fund
may receive different compensation for selling or servicing one particular class
of shares over another class in the same Multiple Class Fund. Factors an
investor should consider prior to purchasing Class A, Class B or Class C shares
(or, if applicable, AIM Cash Reserve Shares) of a Multiple Class Fund are
described below under "Special Information Relating to Multiple Class Funds."
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.
MCF-01/98
A-2
<PAGE> 14
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 ADVISOR FLEX FUND, AIM ADVISOR
INTERNATIONAL VALUE FUND, AIM ADVISOR LARGE CAP VALUE FUND, AIM ADVISOR
MULTIFLEX FUND, AIM AGGRESSIVE GROWTH FUND, AIM ASIAN GROWTH FUND, AIM BLUE CHIP
FUND, AIM CAPITAL DEVELOPMENT FUND, AIM CHARTER FUND, AIM CONSTELLATION FUND,
AIM EUROPEAN DEVELOPMENT 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."
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: the Class A shares of each of AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT, AIM ADVISOR REAL ESTATE FUND, AIM BALANCED FUND, AIM GLOBAL
AGGRESSIVE GROWTH FUND, AIM GLOBAL GROWTH FUND, AIM GLOBAL INCOME FUND, AIM HIGH
INCOME MUNICIPAL 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> <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."
MCF-01/98
A-3
<PAGE> 15
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 the Class A shares of each of AIM LIMITED MATURITY TREASURY
FUND and AIM TAX-FREE INTERMEDIATE 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 $ 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
initial sales charge to dealers for all sales with respect to which orders are
placed with AIM Distributors during a particular period. Dealers to whom
substantially the entire sales charge is re-allowed may be deemed to be
"underwriters" as that term is defined under the Securities Act of 1933.
In addition to 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 Class A shares of each of AIM LIMITED MATURITY TREASURY FUND and AIM
TAX-FREE INTERMEDIATE FUND as follows: 1% of the first $2 million of such
purchases, plus 0.80% of the next $1 million of such purchases, plus 0.50% of
the next $17 million of such purchases, plus 0.25% of amounts in excess of $20
million of such purchases. 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 Class A shares
(or shares which normally involve payment of initial sales charges), and which
are sold at net asset value and are not subject to a contingent deferred sales
charge, in an amount up to 0.10% of such purchases of Class A shares of AIM
LIMITED MATURITY TREASURY FUND, and in an amount up to 0.25% of such purchases
of Class A shares of AIM TAX-FREE INTERMEDIATE FUND.
AIM Distributors may pay sales commissions to dealers and institutions who
sell Class B shares of the AIM Funds at the time of such sales. Payments with
respect to Class B shares will equal 4.00% of the purchase price of the Class B
shares sold by the dealer or institution, and will consist of a sales commission
equal to 3.75% of the purchase price of the Class B shares sold plus an advance
of the first year service fee of 0.25% with respect to such shares. The portion
of the payments to AIM Distributors under the Class B Plan which constitutes an
asset-based sales charge (0.75%) is intended in part to permit AIM Distributors
to recoup a portion of such sales commissions plus financing costs.
AIM Distributors may pay sales commissions to dealers and institutions who
sell Class C shares of the AIM Funds at the time of such sales. Payments with
respect to Class C shares will equal 1.00% of the purchase price of the Class C
shares sold by the dealer or institution, and will consist of a sales commission
of 0.75% of the purchase price of the Class C shares sold plus an advance of the
first year service fee of 0.25% with respect to such shares. AIM Distributors
will retain all payments received by it relating to Class C shares for the first
year after they are purchased. The portion of the payments to AIM Distributors
under the Class A and C Plan attributable to Class C shares which constitutes an
asset-based sales charge (0.75%) (0.35% for AIM ADVISOR INCOME FUND) is intended
in part to permit AIM Distributors to recoup a portion of on-going sales
commissions to dealers plus financing costs, if any. After the first full year,
AIM Distributors will make such payments quarterly to dealers and institutions
based on the average net asset value of Class C shares which are attributable to
shareholders for whom the dealers and institutions are designated as dealers of
record.
MCF-01/98
A-4
<PAGE> 16
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 Stock 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, Martin Luther King, Jr. 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.
SPECIAL INFORMATION RELATING TO MULTIPLE CLASS FUNDS. The Multiple Class Funds
currently offer two or more classes of shares through separate distribution
systems (the "Multiple Distribution System"). Although each class of shares of a
particular Multiple Class Fund represents an interest in the same portfolio of
investments, each class is subject to a different distribution structure and, as
a result, differing expenses. This Multiple Distribution System allows investors
to select the class that is best suited to the investor's needs and objectives.
In considering the options afforded by the Multiple Distribution System,
investors should consider both the applicable initial sales charge or contingent
deferred sales charge, as well as the ongoing expenses borne by each class of
shares and other relevant factors, such as whether his or her investment goals
are long-term or short-term.
CLASS A SHARES are sold subject to the initial sales charges described
above and are subject to the other fees and expenses described herein.
Class A shares of AIM MONEY MARKET FUND are designed to meet the needs of
an investor who wishes to establish a dollar cost averaging program,
pursuant to which Class A shares an investor owns may be exchanged at net
asset value for Class A shares of another Multiple Class Fund or shares of
another AIM Fund which is not a Multiple Class Fund, subject to the terms
and conditions described under the caption "Exchange Privilege -- Terms and
Conditions of Exchanges."
CLASS B SHARES are sold without an initial sales charge. Thus, the entire
purchase price of Class B shares is immediately invested in Class B shares.
Class B shares are subject, however, to Rule 12b-1 Plan payments of 1.00%
per annum on the average daily net assets of a Multiple Class Fund
attributable to Class B shares. See the discussion under the caption
"Management -- Distribution Plans." In addition, Class B shares redeemed
within six years from the date such shares were purchased are subject to a
contingent deferred sales charge ranging from 5% for redemptions made
within the first year to 1% for redemptions made within the sixth year. No
contingent deferred sales charge will be imposed if Class B shares are
redeemed after six years from the date such shares were purchased.
Redemptions of Class B shares and associated charges are further described
under the caption "How to Redeem Shares -- Multiple Distribution System."
Class B shares will automatically convert into Class A shares of the same
Multiple Class Fund (together with a pro rata portion of all Class B shares
acquired through the reinvestment of dividends and distributions) eight
years from the end of the calendar month in which the purchase of Class B
shares was made. Following such conversion of their Class B shares,
investors will be relieved of the higher Rule 12b-1 Plan payments
associated with Class B shares. See "Management -- Distribution Plans."
CLASS C SHARES are sold without an initial sales charge. Thus the entire
purchase price of Class C shares is immediately invested in Class C shares.
Class C shares (except Class C shares of AIM ADVISOR CASH MANAGEMENT FUND)
are subject, however, to Rule 12b-1 Plan payments of 1.00% per annum on the
average daily net assets of a Multiple Class Fund attributable to Class C
shares. See the discussion under the caption "Management -- Distribution
Plans." In addition, Class C shares (except Class C shares of AIM ADVISOR
CASH MANAGEMENT FUND) redeemed within one year from the date such shares
were purchased are subject to a 1.00% contingent deferred sales charge. No
contingent deferred sales charge will be imposed if Class C shares are
redeemed after one year from the date such shares were purchased.
Redemptions of Class C shares and associated charges are further described
under the caption "How to Redeem Shares -- Multiple Distribution System."
AIM Cash Reserve Shares of AIM MONEY MARKET FUND are sold without an
initial sales charge and are not subject to a contingent deferred sales
charge. (A contingent deferred sales charge may be imposed upon redemptions
of Class A and Class C shares of AIM ADVISOR CASH MANAGEMENT FUND when such
shares were purchased in an exchange. See "How to Redeem Shares -- Multiple
Distribution System -- Class C Shares" and "How to Redeem Shares --
Contingent Deferred Sales Charge Program for Large Purchases"). AIM Cash
Reserve Shares of AIM MONEY MARKET FUND are, however, subject to the other
fees and expenses described in the prospectus for AIM MONEY MARKET FUND.
MCF-01/98
A-5
<PAGE> 17
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 Eastern Time 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 Eastern Time and NYSE Close on
each business day of AIM MONEY MARKET FUND.
SPECIAL INFORMATION RELATING TO AIM ADVISOR CASH MANAGEMENT FUND, 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 each 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. If a fund determines that a shareholder has provided incorrect information
in opening an account with a fund or in the course of conducting subsequent
transactions with the fund related to such account, the fund may, in its
discretion, redeem the account and distribute the proceeds of such redemption to
the shareholder.
REDUCTIONS IN INITIAL SALES CHARGES
Reductions in the initial sales charges shown in the sales charge tables
(quantity discounts) apply to purchases of shares of the AIM Funds that are
otherwise subject to an initial sales charge, provided that such purchases are
made by a "purchaser" as hereinafter defined. Purchases of Class A shares of AIM
TAX-EXEMPT CASH FUND, AIM Cash Reserve Shares of AIM MONEY MARKET FUND and Class
B and Class C shares of the Multiple Class Funds will not be taken into account
in determining whether a purchase qualifies for a reduction in initial sales
charges.
The term "purchaser" means:
- an individual and his or her spouse and children, including any trust
established exclusively for the benefit of any such person; or a pension,
profit-sharing, or other benefit plan established exclusively for the
benefit of any such person, such as an IRA, 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);
- 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;
- 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;
- a Simplified Employee Pension ("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;
MCF-01/98
A-6
<PAGE> 18
- 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
- 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) Class A shares of AIM TAX-EXEMPT CASH FUND, Class A and Class C shares of
AIM ADVISOR CASH MANAGEMENT FUND, and AIM Cash Reserve Shares of AIM MONEY
MARKET FUND and (ii) Class B and Class C shares of the Multiple Class Funds)
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 shares, to make up such difference within 60
days of the expiration date.
If at any time before completing the LOI Program, the purchaser wishes to
cancel the agreement, he must give written notice to AIM Distributors. If at any
time before completing the LOI Program the purchaser requests the Transfer Agent
to liquidate or transfer beneficial ownership of his total shares, a
cancellation of the LOI will automatically be effected. If the total amount
purchased is less than the amount specified in the LOI, the Transfer Agent will
redeem an appropriate number of escrowed shares equal to the difference between
the sales charge actually paid and the sales charge that would have been paid if
the total purchases had been made at a single time.
(2) RIGHTS OF ACCUMULATION. A "purchaser," as previously defined, may also
qualify for reduced initial sales charges based upon such purchaser's existing
investment in shares of any of the AIM Funds (except for (i) Class A shares of
AIM TAX-EXEMPT CASH FUND, Class A and Class C shares of AIM ADVISOR CASH
MANAGEMENT FUND, and AIM Cash Reserve Shares of AIM MONEY MARKET FUND and (ii)
Class B and Class C shares of the Multiple Class Funds) at the time of the
proposed purchase. Rights of Accumulation are also available to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992. To determine
whether or not a reduced initial sales charge applies to a proposed purchase,
AIM Distributors takes into account not only the money which is invested upon
such proposed purchase, but also the value of all shares of the AIM Funds
(except for (i) Class A shares of AIM TAX-EXEMPT CASH FUND, Class A and Class C
shares of AIM ADVISOR CASH MANAGEMENT FUND, and AIM Cash Reserve Shares of AIM
MONEY MARKET FUND and (ii) Class B and Class C shares of the Multiple Class
Funds) 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
MCF-01/98
A-7
<PAGE> 19
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, 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,
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, 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; and (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.
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 total amount invested in the
plan 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
financial institution or service organization who 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 for share purchases of the Load Funds (as defined on page A-10
herein) sold at net asset value to an employee benefit plan in accordance with
this paragraph as follows: 1% of the first $2 million of such purchases, plus
0.80% of the next $1 million of such purchases, plus 0.50% of the next $17
million of such purchases, plus 0.25% of amounts in excess of $20 million of
such purchases and up to 0.10% of the net asset value of any Class A shares of
AIM LIMITED MATURITY TREASURY FUND sold at net asset value to an employee
benefit plan in accordance with this paragraph.
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:
MCF-01/98
A-8
<PAGE> 20
(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
who owns shares which are not subject to a contingent deferred sales charge, 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.
Shareholders who own shares subject to a contingent deferred sales charge, can
only arrange for monthly or quarterly withdrawals under a Systematic Withdrawal
Plan. Payment of this amount can be made on any day of the month the shareholder
specifies, except the thirtieth or thirty-first 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. With respect to shares subject to a
contingent deferred sales charge (all classes) no contingent deferred sales
charge will be imposed on withdrawals made under a Systematic Withdrawal Plan,
provided that the amounts withdrawn under such a plan do not exceed on an annual
basis 12% of the account value at the time the shareholder elects to participate
in the Systematic Withdrawal Plan. Systematic Withdrawal Plans with respect to
shares subject to a contingent deferred sales charge that exceed on an annual
basis 12% of such account will be subject to a contingent deferred sales charge
on the amounts exceeding 12% of the account value at the time the shareholder
elects to participate in the Systematic Withdrawal Plan.
Under a Systematic Withdrawal Plan, all shares are to be held by the Transfer
Agent and all dividends and distributions are reinvested in shares of the
applicable AIM Fund by the Transfer Agent. To provide funds for payments made
under the Systematic Withdrawal Plan, the Transfer Agent redeems sufficient full
and fractional shares at their net asset value in effect at the time of each
such redemption.
Payments under a Systematic Withdrawal Plan constitute taxable events. Since
such payments are funded by the redemption of shares, they may result in a
return of capital and in capital gains or losses, rather than in ordinary
income. Because sales charges are imposed on additional purchases of shares
(other than Class B or Class C Shares of the Multiple Class Funds and AIM Cash
Reserve Shares of AIM MONEY MARKET FUND, it is disadvantageous to effect such
purchases while a Systematic Withdrawal Plan is in effect.
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 regular systematic
investments may establish an Automatic Investment Plan. Under this plan a draft
is drawn on the shareholder's bank account in the amount specified by the
shareholder (minimum $50 per investment, per account) and on a day or date(s)
specified by the shareholder. 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 invested in shares of another AIM Fund. For each of the
Multiple Class Funds, dividends and distributions attributable to Class A shares
may be reinvested in Class A shares of the same fund, in Class A shares of
another Multiple Class Fund or in shares of another AIM Fund
MCF-01/98
A-9
<PAGE> 21
which is not a Multiple Class Fund; dividends and distributions attributable to
Class B shares may be reinvested in Class B shares of the same fund or in Class
B shares of another Multiple Class Fund; dividends and distributions
attributable to Class C shares may be reinvested in Class C shares of the same
fund or in Class C shares of another Multiple Class Fund; and dividends and
distributions attributable to AIM Cash Reserve Shares of AIM MONEY MARKET FUND
may be reinvested in additional shares of such fund, in Class A shares of
another Multiple Class Fund or in shares of another AIM Fund which is not a
Multiple Class 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 FUND, AIM TAX-EXEMPT CASH FUND, AIM MUNICIPAL BOND FUND, AIM HIGH
INCOME MUNICIPAL 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; SARSEP 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).
MCF-01/98
A-10
<PAGE> 22
- --------------------------------------------------------------------------------
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, including the Class A shares of the Multiple Class Funds, listed below
and 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; Class A shares (or shares which normally involve the
payment of initial sales charges) of certain of the AIM Funds, listed below and
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 Class A shares or shares of certain other funds, listed
below and referred to herein as the "No Load Funds," are sold at net asset
value, without payment of a sales charge.
<TABLE>
<S> <C> <C>
LOAD FUNDS: LOWER LOAD FUNDS:
AIM ADVISOR FLEX FUND -- AIM GLOBAL GROWTH AIM LIMITED MATURITY TREASURY FUND -- CLASS A
CLASS A FUND -- CLASS A AIM TAX-FREE INTERMEDIATE
AIM ADVISOR INCOME FUND -- AIM GLOBAL INCOME FUND -- CLASS A
CLASS A FUND -- CLASS A
AIM ADVISOR INTERNATIONAL AIM GLOBAL UTILITIES NO LOAD FUNDS:
VALUE FUND -- CLASS A FUND -- CLASS A AIM ADVISOR CASH MANAGEMENT FUND
AIM ADVISOR LARGE CAP AIM GROWTH FUND -- CLASS A -- CLASS A
VALUE FUND -- CLASS A AIM HIGH INCOME AIM MONEY MARKET FUND
AIM ADVISOR MULTIFLEX MUNICIPAL FUND -- CLASS A -- AIM CASH RESERVE SHARES
FUND -- CLASS A AIM HIGH YIELD FUND -- CLASS A AIM TAX-EXEMPT CASH FUND -- CLASS A
AIM ADVISOR REAL ESTATE AIM INCOME FUND -- CLASS A
FUND -- CLASS A AIM INTERMEDIATE GOVERNMENT
AIM AGGRESSIVE GROWTH FUND -- CLASS A
FUND -- CLASS A AIM INTERNATIONAL EQUITY
AIM ASIAN GROWTH FUND -- CLASS A
FUND -- CLASS A AIM MONEY MARKET
AIM BALANCED FUND -- CLASS A FUND -- CLASS A
AIM BLUE CHIP FUND -- CLASS A AIM MUNICIPAL BOND
AIM CAPITAL DEVELOPMENT FUND -- CLASS A
FUND -- CLASS A AIM TAX-EXEMPT BOND FUND
AIM CHARTER FUND -- CLASS A OF CONNECTICUT -- CLASS A
AIM CONSTELLATION AIM VALUE FUND -- CLASS A
FUND -- CLASS A AIM WEINGARTEN FUND -- CLASS A
AIM EUROPEAN DEVELOPMENT
FUND -- CLASS A
AIM GLOBAL AGGRESSIVE GROWTH
FUND -- CLASS A
</TABLE>
Shares of any AIM Fund may be exchanged for shares of any other AIM Fund on
the terms described on the chart below, except that (i) no share of any Load
Fund, Class C of a Multiple Class Fund, Lower Load Fund or No Load Fund may be
exchanged for shares of AIM ADVISOR CASH MANAGEMENT FUND or AIM ADVISOR INCOME
FUND; (ii) Load Fund 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; (iii) LOWER LOAD FUND SHARE PURCHASES OF
$1,000,000 OR MORE AND AIM Cash Reserve Shares of AIM MONEY MARKET FUND and AIM
TAX-EXEMPT CASH 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; 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; (iv) Class A shares may be exchanged for Class A
shares , (v) Class B shares may be exchanged only for Class B shares; (vi) Class
C shares may only be exchanged for Class C shares; (vii) Class A shares of AIM
ADVISOR CASH MANAGEMENT FUND may be exchanged for Class A shares of any Load
Fund, Lower Load Fund or No-Load Fund at net asset value; (viii) Class C shares
of AIM ADVISOR CASH MANAGEMENT FUND may be exchanged for Class C shares of any
Multiple Class Fund at net asset value; and (ix) AIM Cash Reserve Shares of AIM
MONEY MARKET FUND may not be exchanged for Class A shares of AIM MONEY MARKET
FUND or for Class B or Class C shares.
MCF-01/98
A-11
<PAGE> 23
Broker-dealers and institutions of record for Class A or Class C shares
purchased pursuant to an exchange from Class A or Class C shares of AIM ADVISOR
CASH MANAGEMENT FUND will be compensated according to the sales commission or
concession that would apply if these Class A or Class C share purchases had been
purchased in a manner other than pursuant to an exchange.
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>
MULTIPLE CLASS FUNDS:
LOWER LOAD NO LOAD ------------------------------
FROM: TO: LOAD FUNDS FUNDS FUNDS CLASS B CLASS C
----- -------------- ----------------------- ----------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Load Funds....... Net Asset Value Net Asset Value Net Asset Value Not Applicable Not Applicable
Lower Load
Funds.......... Net Asset Value Net Asset Value Net Asset Value Not Applicable Not Applicable
No Load Funds.... Offering Price if No Load shares Net Asset Value if No Net Asset Value Not Applicable Not Applicable
were directly purchased. Net Load shares were
Asset Value if No Load shares acquired upon exchange
were acquired upon exchange of of shares of any Load
shares of any Load Fund or any Fund or any Lower Load
Lower Load Fund. Fund; otherwise,
Offering Price.
Multiple Class
Funds:
Class B........ Not Applicable Not Applicable Not Applicable Net Asset Value Not Applicable
FOR SHARES INITIALLY PURCHASED ON OR AFTER MAY 1, 1994, THE FOREGOING TABLE IS REVISED AS FOLLOWS:
Load Funds....... Net Asset Value Net Asset Value Net Asset Value Not Applicable Not Applicable
Lower Load
Funds.......... Net Asset Value if shares were Net Asset Value Net Asset Value Not Applicable Not Applicable
acquired upon exchange of any
Load Fund. Otherwise, difference
in sales charge will apply.
No Load Funds.... Offering Price if No Load shares Net Asset Value if No Net Asset Value Not Applicable Not Applicable
were directly purchased. Net Load shares were
Asset Value if No Load shares acquired upon exchange
were acquired upon exchange of of shares of any Load
shares of any Load Fund. Fund or any Lower Load
Difference in sales charge will Fund; otherwise, Of-
apply if No Load shares were fering Price.
acquired upon exchange of Lower
Load Fund shares.
Multiple Class
Funds:
Class B........ Not Applicable Not Applicable Not Applicable Net Asset Value Not Applicable
Class C........ Not Applicable Not Applicable Not Applicable Not Applicable Net Asset Value
</TABLE>
An exchange is permitted only in the following circumstances: (a) if the funds
offer more than one class of shares, the exchange must be between the same class
of shares (e.g., Class A, Class B and Class C shares of a Multiple Class Fund
cannot be exchanged for each other), except that AIM Cash Reserve Shares of AIM
MONEY MARKET FUND may be exchanged for Class A shares of another Multiple Class
Fund; (b) 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; (c) the shares of the fund acquired through exchange must be qualified
for sale in the state in which the shareholder resides; (d) the exchange must be
made between accounts having identical registrations and addresses; (e) the full
amount of the purchase price for the shares being exchanged must have already
been received by the fund; (f) 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; (g) 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; and (h) certificates representing shares must be returned before
shares can be exchanged. There is no fee for exchanges among the AIM Funds.
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.
MCF-01/98
A-12
<PAGE> 24
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.
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.
EXCHANGES OF CLASS B AND CLASS C SHARES. A contingent deferred sales charge
will not be imposed in connection with exchanges among Class B shares or among
Class C shares. For purposes of determining a shareholder's holding period of
Class B or Class C shares in the calculation of the applicable contingent
deferred sales charge, the period of time during which Class B or Class C shares
were held prior to an exchange will be added to the holding period of the
applicable Class B or Class C shares (except for Class C shares of AIM ADVISOR
CASH MANAGEMENT FUND) acquired in an exchange.
- --------------------------------------------------------------------------------
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.
MULTIPLE DISTRIBUTION SYSTEM. Class B shares. Class B shares purchased under
the Multiple Distribution System may be redeemed on any business day of a
Multiple Class Fund at the net asset value per share next determined following
receipt of the redemption order, as described under the caption "Timing and
Pricing of Redemption Orders," less the applicable contingent deferred sales
charge shown in the table below. No deferred sales charge will be imposed (i) on
redemptions of Class B shares following six years from the date such shares were
purchased, (ii) on Class B shares acquired through reinvestments of dividends
and distributions attrib-
MCF-01/98
A-13
<PAGE> 25
utable to Class B shares or (iii) on amounts that represent capital appreciation
in the shareholder's account above the purchase price of the Class B shares.
<TABLE>
<CAPTION>
YEAR CONTINGENT DEFERRED
SINCE SALES CHARGE AS
PURCHASE % OF DOLLAR AMOUNT
MADE SUBJECT TO CHARGE
-------- -------------------
<S> <C>
First...................................................... 5%
Second..................................................... 4%
Third...................................................... 3%
Fourth..................................................... 3%
Fifth...................................................... 2%
Sixth...................................................... 1%
Seventh and Following...................................... None
</TABLE>
In determining whether a contingent deferred sales charge is applicable, it
will be assumed that a redemption is made first, of any shares held in the
shareholder's account that are not subject to such charge; second, of shares
derived from reinvestment of dividends and distributions; third, of shares held
for more than six years from the date such shares were purchased; and fourth, of
shares held less than six years from the date such shares were purchased. The
applicable sales charge will be applied against the lesser of the current market
value of shares redeemed or their original cost.
Class C Shares. Class C shares purchased under the Multiple Distribution
System may be redeemed on any business day of a Multiple Class Fund at the net
asset value per share next determined following receipt of the redemption order,
as described under the caption "Timing and Pricing of Redemption Orders," less a
1% contingent deferred sales charge. No deferred sales charge will be imposed
(i) on redemptions of Class C shares following one year from the date such
shares were purchased; (ii) on Class C shares acquired through reinvestment of
dividends and distributions attributable to Class C shares; (iii) on amounts
that represent capital appreciation in the shareholder's account above the
purchase price of the Class C shares; (iv) on redemptions of additional
purchases of shares of AIM ADVISOR FLEX FUND, AIM ADVISOR INCOME FUND, AIM
ADVISOR INTERNATIONAL VALUE FUND, AIM ADVISOR LARGE CAP VALUE FUND, AIM ADVISOR
MULTIFLEX FUND, and AIM ADVISOR REAL ESTATE FUND, by shareholders of record on
April 30, 1995 of these funds (shareholders whose broker/dealers maintain a
single omnibus account with the Transfer Agent on behalf of those shareholders,
perform sub-accounting functions with respect to those shareholders, and are
unable to segregate shareholders of record prior to April 30, 1995 from
shareholders whose accounts were opened after that date will be subject to a
CDSC on all purchases made after March 1, 1996); or (v) on Class C shares of AIM
ADVISOR CASH MANAGEMENT FUND except in certain cases when the shares were
purchased in an exchange. Redemptions of shares of AIM ADVISOR CASH MANAGEMENT
FUND are generally not subject to a contingent deferred sales charge; however, a
contingent deferred sales charge may be applicable to redemptions of shares of
AIM ADVISOR CASH MANAGEMENT FUND if the redeemed shares were exchanged from
another Class C share fund and the one year holding period in such fund has not
been completed.
Contingent deferred sales charges on Class B and Class C shares will be waived
on redemptions (1) following the death or post-purchase disability, as defined
in Section 72(m)(7) of the Code, of a shareholder or a settlor of a living trust
(provided AIM Distributors is notified of such death or post-purchase disability
at the time of the redemption request and is provided with satisfactory evidence
of such death or post-purchase disability), (2) in connection with certain
distributions from individual retirement accounts, custodial accounts maintained
pursuant to Code Section 403(b), deferred compensation plans qualified under
Code Section 457 and plans qualified under Code Section 401 (collectively,
"Retirement Plans"), (3) pursuant to a Systematic Withdrawal Plan, provided that
amounts withdrawn under such plan do not exceed on an annual basis 12% of the
value of the shareholder's investment in Class B or Class C shares at the time
the shareholder elects to participate in the Systematic Withdrawal Plan, (4)
effected pursuant to the right of a Multiple Class Fund to liquidate a
shareholder's account if the aggregate net asset value of shares held in the
account is less than the designated minimum account size described in the
prospectus of such Multiple Class Fund, (5) effected by AIM of its investment in
Class B or Class C shares and (6) of Class C shares 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 payment
otherwise payable to the dealer described in the fifth paragraph under the
caption "Terms and Conditions of Purchase of the AIM Funds -- All Groups of AIM
Funds."
Waiver category (1) above applies only to redemptions of Class B or Class C
shares held at the time of death or initial determination of post-purchase
disability.
Waiver category (2) above applies only to redemptions resulting from:
(i) required minimum distributions to plan participants or
beneficiaries who are age 70-1/2 or older, and only with respect to that
portion of such distributions which does not exceed 12% annually of the
participant's or beneficiary's account value in a particular AIM Fund;
(ii) in kind transfers of assets where the participant or beneficiary
notifies AIM Distributors of such transfer no later than the time such
transfer occurs;
MCF-01/98
A-14
<PAGE> 26
(iii) tax-free rollovers or transfers of assets to another Retirement
Plan invested in Class B or Class C shares of one or more Multiple Class
Funds;
(iv) tax-free returns of excess contributions or returns of excess
deferral amounts; and
(v) distributions upon the death or disability (as defined in the
Code) of the participant or beneficiary.
CONTINGENT DEFERRED SALES CHARGE PROGRAM FOR LARGE PURCHASES. Except for
purchases of Class B and Class C shares of a Multiple Class Fund and purchases
of shares of the No Load Funds and Lower 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, Class A shares of AIM ADVISOR CASH MANAGEMENT FUND or AIM Cash Reserve
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 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 shares are being redeemed in connection
with employee terminations or withdrawals, and (a) the total amount invested in
a Plan 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 death or post-purchase disability, as
defined in Section 72(m)(7) of the Code, of a shareholder or a settlor of a
living trust; (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; (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"; and (5) pursuant to a
Systematic Withdrawal Plan, provided that amounts withdrawn under such plan do
not exceed on an annual basis 12% of the value of the shareholder's investment
in Class A shares at the time the shareholder elects to participate in the
Systematic Withdrawal Plan.
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
MCF-01/98
A-15
<PAGE> 27
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 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 generally be transmitted on the next business day.
REDEMPTIONS BY CHECK (AIM TAX-EXEMPT CASH FUND, AIM ADVISOR CASH MANAGEMENT
FUND and AIM Cash Reserve Shares of AIM MONEY MARKET FUND). After completing the
appropriate authorization form, shareholders may use checks to effect
redemptions from AIM TAX-EXEMPT CASH FUND, AIM ADVISOR CASH MANAGEMENT FUND and
the AIM Cash Reserve Shares of AIM MONEY MARKET FUND. This privilege does not
apply to retirement accounts or qualified plans. Checks may be drawn in any
amount of $250 or more. 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 that are subject to a contingent
deferred sales charge, may be subject to the imposition of deferred sales
charges that will be deducted from the redemption proceeds. See "Multiple
Distribution System" and "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 the 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.
MCF-01/98
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<PAGE> 28
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 Securities and
Exchange Commission ("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 (CLASS A SHARES ONLY). Within 90 days of a redemption,
a shareholder may invest all or part of the redemption proceeds in Class A
shares of any AIM Fund (except Class A shares of AIM ADVISOR CASH MANAGEMENT
FUND) at the net asset value next computed after receipt by the Transfer Agent
of the funds to be reinvested; provided, however, if the redemption was made
from Class A shares of either AIM LIMITED MATURITY TREASURY FUND or AIM TAX-FREE
INTERMEDIATE FUND, the reinvested proceeds will be subject to the difference in
sales charge between the shares redeemed and the shares the proceeds are
reinvested in. 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 may alter any capital gains payable. If there has been a loss on
the redemption and shares of the same fund are repurchased, 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 another AIM Fund at a reduced
sales charge 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; however, the shareholder's basis in the fund
shares purchased will include the sales charge. Each AIM Fund may amend, suspend
or 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 Class A shares and who subsequently reinvest a portion or
all of the value of the redeemed shares in Class A shares of any 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. This
reinvestment privilege does not apply to Class B or Class C shares.
- --------------------------------------------------------------------------------
DETERMINATION OF NET ASSET VALUE
The net asset value per share (or share price) of each AIM Fund is determined
as of 4:00 p.m. Eastern Time (12:00 noon Eastern Time and NYSE Close with
respect to AIM MONEY MARKET FUND), on each "business day" of a fund as
previously defined. 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 contracts generally
will be valued 15 minutes after the close of trading of the NYSE. 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
HIGH INCOME MUNICIPAL FUND, AIM MUNICIPAL BOND FUND, AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT and AIM TAX-FREE INTERMEDIATE FUND value variable rate securities
that have an unconditional demand or put feature exercisable within seven days
or less at par, which reflects the market value of such securities.
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.
MCF-01/98
A-17
<PAGE> 29
- --------------------------------------------------------------------------------
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 ADVISOR CASH MANAGEMENT FUND.......... declared daily; paid monthly annually annually
AIM ADVISOR FLEX FUND..................... declared and paid quarterly quarterly annually
AIM ADVISOR INCOME FUND................... declared and paid monthly monthly annually
AIM ADVISOR INTERNATIONAL VALUE FUND...... declared and paid annually annually annually
AIM ADVISOR LARGE CAP VALUE FUND.......... declared and paid quarterly quarterly annually
AIM ADVISOR MULTIFLEX FUND................ declared and paid quarterly quarterly annually
AIM ADVISOR REAL ESTATE FUND.............. declared and paid quarterly quarterly annually
AIM AGGRESSIVE GROWTH FUND................ declared and paid annually annually annually
AIM ASIAN 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 EUROPEAN DEVELOPMENT 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 INCOME MUNICIPAL FUND............ declared daily; paid monthly annually annually
AIM HIGH YIELD FUND....................... declared daily; paid monthly annually annually
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 TREASURY FUND........ declared daily; paid monthly annually 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 FUND............ 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.
Dividends and distributions attributable to a class are reinvested in additional
shares of such class, absent an election by a shareholder to receive cash or to
have such dividends and distributions reinvested in like shares of another
Multiple Class Fund, to the extent permitted. 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; provided that (i) dividends and
distributions attributable to Class B shares may only be reinvested in Class B
shares, (ii) dividends and distributions attributable to Class C shares may only
be reinvested in Class C shares (iii) dividends and distributions attributable
to Class A shares may not be reinvested in Class B or Class C shares, and (iv)
dividends and distributions attributable to the AIM Cash Reserve Shares of AIM
MONEY MARKET FUND may not be reinvested in the Class A shares of that Fund or in
any Class B or Class C shares. 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.
Dividends on Class B and Class C shares (except Class C shares of AIM ADVISOR
CASH MANAGEMENT FUND) are expected to be lower than those for Class A shares or
AIM Cash Reserve Shares because of higher distribution fees paid by Class B and
Class C shares (except Class C shares of AIM ADVISOR CASH MANAGEMENT FUND).
Dividends on all shares may also be affected by other class-specific expenses.
MCF-01/98
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<PAGE> 30
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 and 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 HIGH INCOME MUNICIPAL FUND, AIM
MUNICIPAL BOND FUND, AIM TAX-EXEMPT BOND FUND OF CONNECTICUT, AIM TAX-EXEMPT
CASH FUND, and AIM TAX-FREE INTERMEDIATE FUND (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 ADVISOR CASH MANAGEMENT FUND, AIM ADVISOR INCOME FUND, AIM
ADVISOR INTERNATIONAL VALUE FUND, AIM ADVISOR REAL ESTATE FUND, AIM ASIAN GROWTH
FUND, AIM EUROPEAN DEVELOPMENT FUND, AIM GLOBAL AGGRESSIVE GROWTH FUND, AIM
GLOBAL GROWTH FUND, AIM GLOBAL INCOME FUND, AIM HIGH INCOME MUNICIPAL FUND, AIM
HIGH YIELD FUND, AIM INCOME FUND, AIM INTERMEDIATE GOVERNMENT FUND, AIM
INTERNATIONAL EQUITY FUND, AIM LIMITED MATURITY TREASURY FUND, 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 FUND will qualify for this
dividends received deduction. Shortly after 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 dividends declared in
October, November or December of a calendar year are taxable to shareholders as
though received on December 31 of that year if paid to shareholders during
January of the following calendar year. No gain or loss will be recognized by
shareholders upon the automatic conversion of Class B shares of a Multiple Class
Fund into Class A shares of such Fund. With respect to tax-exempt shareholders,
distributions from the Funds will not be subject to federal income taxation to
the extent permitted under the applicable tax-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 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
MCF-01/98
A-19
<PAGE> 31
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 INTERMEDIATE GOVERNMENT FUND and AIM LIMITED MATURITY TREASURY
FUND -- SPECIAL TAX INFORMATION. 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.
AIM ADVISOR INTERNATIONAL VALUE FUND, AIM ASIAN GROWTH FUND, AIM EUROPEAN
DEVELOPMENT FUND, 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.
- --------------------------------------------------------------------------------
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 HIGH INCOME
MUNICIPAL FUND, AIM MUNICIPAL BOND FUND, AIM LIMITED MATURITY TREASURY FUND, AIM
TAX-EXEMPT BOND FUND OF CONNECTICUT, AIM TAX-EXEMPT CASH FUND and AIM TAX-FREE
INTERMEDIATE FUND, 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, P.O. Box 2558, Houston, Texas 77252-8084, 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 dividend
payment agent.
LEGAL COUNSEL. The law firm of Ballard Spahr Andrews & Ingersoll,
Philadelphia, Pennsylvania, serves as counsel to the AIM Funds and passes upon
legal matters.
SHAREHOLDER INQUIRIES. Shareholder inquiries concerning their accounts should
be directed to an A I M Fund Services, Inc. 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. If several members of a household own shares of the same fund, only one
annual or semi-annual report will be mailed to that address. To receive
additional copies, please call (800) 347-4246, or write to A I M Distributors,
Inc., P.O. Box 4739, Houston, Texas 77210-4739. A Statement of Additional
Information has been filed with the SEC and is available upon request and
without charge, by writing or calling AIM Distributors. The SEC maintains a Web
site at http://www.sec.gov that contains the Statement of Additional
Information, material incorporated by reference, and other information regarding
the Fund. 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.
MCF-01/98
A-20
<PAGE> 32
APPENDIX A
- --------------------------------------------------------------------------------
DESCRIPTIONS OF RATING CATEGORIES
The following are descriptions of ratings assigned by Moody's Investors
Service, Inc. ("Moody's") and Standard and Poor's Ratings Services ("S&P") to
certain debt securities in which AIM HIGH INCOME MUNICIPAL FUND may invest. See
the Statement of Additional Information for descriptions of other Moody's and
S&P rating categories and those of other rating agencies.
MOODY'S: Aaa -- Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high grade bonds. These are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term 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.
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.
S&P: AAA -- Debt rated AAA has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C -- Debt rated BB, B, CCC, CC and C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. BB indicates the lowest degree of speculation and
C the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or large exposures
to adverse conditions.
A-21
<PAGE> 33
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 Minor Corporation, Partnership, Corporation, Partnership,
Minors/Unif. Other Organization Other Organization
Transfers to Minors
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 the Requester of Form W-9 (which can be obtained
from the IRS) and includes, among others, the following:
- - a corporation
- - an organization exempt from tax under Section 501(a), an individual retirement
plan (IRA), or a custodial account under Section 403(b)(7)
- - the United States or any of its agencies or instrumentalities
- - a state, the District of Columbia, a possession of the United States, or any
of their political subdivisions or instrumentalities
- - a foreign government or any of its political subdivisions, agencies or
instrumentalities
- - an international organization or any of its agencies or instrumentalities
- - a foreign central bank of issue
- - a dealer in securities or commodities required to register in the U.S. or a
possession of the U.S.
- - a futures commission merchant registered with the Commodity Futures Trading
Commission
- - a real estate investment trust
- - an entity registered at all times during the tax year under the Investment
Company Act of 1940
- - a common trust fund operated by a bank under Section 584(a)
- - a financial institution
- - 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
- - 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.
MCF-01/98
B-1
<PAGE> 34
NONRESIDENT ALIENS -- Nonresident alien individuals and foreign entities are
not subject to the backup withholding previously discussed, but must certify
their foreign status by attaching IRS Form W-8 to their application. Form W-8
remains in effect for three calendar years beginning with the calendar year in
which it is received by the Fund. Such shareholders may, however, be subject to
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-in-fact to surrender for redemption any and all unissued
shares held by the Transfer Agent in the designated account(s), or in any other
account with any of the AIM Funds, present or future, which has the identical
registration as the designated account(s), with full power of substitution in
the premises. The Transfer Agent and AIM Distributors are thereby authorized and
directed to accept and act upon any telephone redemptions of shares held in any
of the account(s) listed, from any person who requests the redemption proceeds
to be applied to purchase shares in any one or more of the AIM Funds, provided
that such fund is available for sale and provided that the registration and
mailing address of the shares to be purchased are identical to the registration
of the shares being redeemed. An investor acknowledges by signing the form that
he understands and agrees that the Transfer Agent and AIM Distributors may not
be liable for any loss, expense or cost arising out of any telephone exchange
requests effected in accordance with the authorization set forth in these
instructions if they reasonably believe such request to be genuine, but may in
certain cases be liable for losses due to unauthorized or fraudulent
transactions. Procedures for verification of telephone transactions may include
recordings of telephone transactions (maintained for six months), requests for
confirmation of the shareholder's Social Security Number and current address,
and mailings of confirmations promptly after the transaction. The Transfer Agent
reserves the right to cease to act as attorney-in-fact 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-in-fact to surrender for redemption any and all
unissued shares held by the Transfer Agent in the designated account(s), present
or future, with full power of substitution in the premises. The Transfer Agent
and AIM Distributors are thereby authorized and directed to accept and act upon
any telephone redemptions of shares held in any of the account(s) listed, from
any person who requests the redemption. An investor acknowledges by signing the
form that he understands and agrees that the Transfer Agent and AIM Distributors
may not be liable for any loss, expense or cost arising out of any telephone
redemption requests effected in accordance with the authorization set forth in
these instructions if they reasonably believe such request to be genuine, but
may in certain cases be liable for losses due to unauthorized or fraudulent
transactions. Procedures for verification of telephone transactions may include
recordings of telephone transactions (maintained for six months), requests for
confirmation of the shareholder's Social Security Number and current address,
and mailings of confirmations promptly after the transactions. The Transfer
Agent reserves the right to cease to act as attorney-in-fact subject to this
appointment, and AIM Distributors reserves the right to modify or terminate the
telephone redemption privilege at any time without notice. An investor may elect
not to have this privilege by marking the appropriate box on the application.
Then any exchanges must be effected in writing by the investor (see the
applicable Fund's prospectus under the caption "Exchange Privilege -- Exchanges
by Mail").
MCF-01/98
B-2
<PAGE> 35
[AIM LOGO APPEARS HERE] THE AIM FAMILY OF FUNDS--Registered Trademark--
Investment Advisor
A I M Advisors, Inc.
11 Greenway Plaza, Suite 100
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
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,
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> 36
STATEMENT OF
ADDITIONAL INFORMATION
AIM TAX-EXEMPT FUNDS, INC.
AIM TAX-EXEMPT CASH FUND
AIM TAX-FREE INTERMEDIATE FUND
AIM TAX-EXEMPT BOND FUND OF CONNECTICUT
AIM HIGH INCOME MUNICIPAL FUND
11 Greenway Plaza
Suite 100
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: January 2, 1998
Relating to the Prospectuses Dated: August 1, 1997
for AIM Tax-Exempt Cash Fund, AIM Tax-Free Intermediate Fund and
AIM Tax-Exempt Bond Fund of Connecticut; and Dated: January 2, 1998
for AIM High Income Municipal Fund
<PAGE> 37
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Synthetic Municipal Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Variable or Floating Rate Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Investments in Securities Owned by Officers and Directors . . . . . . . . . . . . . . . . . . . . . . . . . 10
Eligible Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Concentration of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Investment in Non-Investment Grade Securities: AIM Tax-Exempt Bond Fund of Connecticut and AIM High Income
Municipal Fund Only . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Covered Call Options: AIM High Income Municipal Fund Only . . . . . . . . . . . . . . . . . . . . . . . . . 15
Put Options: AIM High Income Municipal Fund Only . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Combined Option Positions: AIM High Income Municipal Fund Only . . . . . . . . . . . . . . . . . . . . . . . 16
Futures Contracts: AIM Tax-Exempt Bond Fund of Connecticut and AIM High Income Municipal Fund Only . . . . . 16
Options on Futures Contracts: AIM Tax-Exempt Bond Fund of Connecticut and AIM High Income
Municipal Fund Only . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Risks as to Futures Contracts and Related Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
AIM High Income Municipal Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
INVESTMENT ADVISORY AND OTHER SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Distribution Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
The Distributor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
MISCELLANEOUS INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Shareholder Inquiries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Audit Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Custodian and Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Control Persons and Principal Holders of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
HOW TO PURCHASE AND REDEEM SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
i
<PAGE> 38
<TABLE>
<S> <C>
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
DESCRIPTION OF MONEY MARKET INSTRUMENTS (AIM Tax-Exempt Cash Fund Only) . . . . . . . . . . . . . . . . . . . . . . . 41
Money Market Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
RATINGS OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FS
</TABLE>
ii
<PAGE> 39
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 two Prospectuses (the "Prospectuses"), one of which is dated August
1, 1997 and relates to the Class A shares of the Company's AIM TAX-EXEMPT CASH
FUND, AIM TAX-FREE INTERMEDIATE FUND, and AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT, and one of which is dated January 2, 1998 and relates to the
Class A, Class B and Class C shares of the Company's AIM HIGH INCOME MUNICIPAL
FUND (collectively, the "Funds" and each separately a "Fund"). Copies of the
Prospectuses 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 Fund's
Prospectus before they invest in that 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 Prospectuses. Additionally, the Prospectuses 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 Prospectuses and this
Statement of Additional Information, may be obtained from the SEC by paying the
charges prescribed under its rules and regulations.
GENERAL INFORMATION ABOUT THE 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 AIM
TAX-FREE INTERMEDIATE FUND (named the Intermediate Portfolio prior to September
25, 1997) 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 such
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. Class A shares of AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT, AIM TAX-FREE INTERMEDIATE FUND and AIM HIGH INCOME MUNICIPAL FUND
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 Prospectuses under the captions "General Information" and "How to
Redeem Shares."
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<PAGE> 40
As used in the Prospectuses, 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. Fractional shares have proportionately the same rights, including
voting rights, as do full shares.
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
AIM TAX-FREE INTERMEDIATE FUND, AIM HIGH INCOME MUNICIPAL FUND and AIM
TAX-EXEMPT BOND FUND OF CONNECTICUT
Calculations of yield will take into account the total income earned
by the AIM TAX-FREE INTERMEDIATE FUND, AIM HIGH INCOME MUNICIPAL FUND and AIM
TAX-EXEMPT BOND FUND OF CONNECTICUT, respectively, including taxable income, if
any; however, all three Funds intend to invest their respective assets so that
substantially all 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, if any) 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 Class A
shares of AIM TAX-FREE INTERMEDIATE FUND and AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT for the thirty days ended March 31, 1997, were 4.70% and 4.88%,
respectively. AIM HIGH INCOME MUNICIPAL FUND had not commenced operations as of
March 31, 1997.
2
<PAGE> 41
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.
AIM TAX-EXEMPT CASH FUND
The standard formula for calculating annualized yield for AIM
TAX-EXEMPT CASH FUND is as follows:
Y = (V -- V ) x (V -- V ) 365
1 0 1 0
---------- --------------
V V 7
0 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:
EY = (Y + 1(365/7) - 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 (All Funds)
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
3
<PAGE> 42
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 or contingent deferred sales charge into
account. The total returns included for the Funds do not include applicable
maximum sales charges and contingent deferred sales charges. Excluding a sales
charge from a total return calculation produces a higher total return figure.
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 Class A shares
for the seven-day period ended March 31, 1997, were 2.85% and 2.89%,
respectively. Assuming a tax rate of 39.6%, these yields for the Class A shares
of the Fund on a tax-equivalent basis were 4.19% and 4.25%, respectively.
The annual average total returns of the Class A shares of the Fund for
the one, five and ten-year periods ended March 31, 1997, were 2.82%, 2.45% and
3.53%, respectively. The cumulative total returns of the Class A shares of the
Fund for the one, five and ten-year periods ended March 31, 1997, were 2.82%,
12.85% and 41.43%, respectively.
AIM TAX-FREE INTERMEDIATE FUND
The following chart shows the total returns of the Class A shares of
the Fund for the one and five-year periods ended March 31, 1997, and the period
from May 11, 1987 (date operations commenced) through March 31, 1997:
4
<PAGE> 43
<TABLE>
<CAPTION>
Average
Period Annual Return Cumulative Return
- ------ ------------- -----------------
<S> <C> <C>
One year ended 3/31/97 3.29% 3.29%
Five years ended 3/31/97 5.57% 31.14%
5/11/87 through 3/31/97 6.22% 81.53%
</TABLE>
The 30-day yield of the Fund's Class A shares as of March 31, 1997,
was 3.55%, with a corresponding tax-equivalent yield of 5.88%, assuming a tax
rate of 39.6%.
AIM TAX-EXEMPT BOND FUND OF CONNECTICUT
The following chart shows the total returns of the Class A shares of
the Fund for the one and five-year periods ended March 31, 1997, and the period
from October 3, 1989 (date operations commenced) through March 31, 1997:
<TABLE>
<CAPTION>
Average
Period Annual Return Cumulative Return
- ------ ------------- -----------------
<S> <C> <C>
One year ended 3/31/97 -0.14% -0.14%
Five years ended 3/31/97 5.54% 30.94%
10/03/89 through 3/31/97 6.46% 59.79%
</TABLE>
The 30-day yield of the Fund's Class A shares as of March 31, 1997,
was 4.33%, with a corresponding Connecticut individual's tax-equivalent yield
of 7.51%, assuming a federal tax rate of 39.6%, and a state tax rate of 4.5%.
AIM HIGH INCOME MUNICIPAL FUND
The Fund had not commenced operations as of March 31, 1997.
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
5
<PAGE> 44
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"),
certain 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 also prohibits the Funds from purchasing a security being publicly
underwritten by a syndicate of which certain persons affiliated with the
Company are members 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 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 certain 5% holders 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.
6
<PAGE> 45
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.
INVESTMENT PROGRAM AND RESTRICTIONS
INVESTMENT PROGRAM
Information concerning each Fund's investment objective and operating
policies is set forth in the applicable Prospectus. The principal features of
each Fund's investment program and the primary risks associated with that
investment program are also discussed in the applicable 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 Prospectuses.
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 and Poor's Ratings Services ("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.
7
<PAGE> 46
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."
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. Securities in
which the Funds invest may also be insured by financial insurance companies.
Since a limited number of entities provide such insurance, each of the Funds
may invest more than 25% of its total assets in securities insured by the same
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.
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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 liquid assets (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.
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 assets, 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
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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 applicable 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. 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
Company'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 AIM
TAX-FREE INTERMEDIATE FUND 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.
As a non-fundamental policy, AIM HIGH INCOME MUNICIPAL FUND may invest
more than 25% of the value of its total assets in Municipal Securities issued
by entities having similar characteristics, such as where issuers are located
in the same geographic area or where issuers' interest obligations are paid
from revenue of similar projects. The Fund may also invest more than 25% of the
value of its total assets in Municipal Securities with similar characteristics,
such as industrial development revenue bonds, including pollution
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<PAGE> 49
control revenue bonds, housing finance agency bonds or hospital bonds. The Fund
may not, however, invest more than 25% of the value of its total assets in
industrial development revenue bonds, including pollution control revenue
bonds, issued for companies in the same industry. The Fund may, but does not
currently intend to, invest more than 25% of the value of its total assets in
securities whose issuers are located in any of the following states: Arizona,
California, Colorado, Connecticut, Florida, Illinois, Michigan, Massachusetts,
New Hampshire, New Jersey, New York, Ohio, Pennsylvania and Texas.
INVESTMENT RESTRICTIONS
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. 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 except as permitted by Rule 2a-7, as amended from time
to time, and except that such Fund may purchase securities of other investment
companies to the extent permitted by applicable law or exemptive order).
2. Borrow money or issue senior securities except for temporary or
emergency purposes, except that it may enter into reverse repurchase agreements
and may purchase when-issued securities (consistent with its investment
policies and objectives).
3. Purchase securities while borrowings in excess of 5% of its total
assets are outstanding and, in addition, will not borrow money if such
borrowing will exceed the borrowing limits established by the SEC for money
market funds, as amended from time to time.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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.
9. Purchase or sell real estate, but it may invest in marketable
securities secured by real estate or interests therein.
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10. Purchase or sell commodities or commodities futures contracts.
11. 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.
AIM TAX-FREE INTERMEDIATE FUND may not:
1. 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 except that the Fund may purchase securities of other
investment companies to the extent permitted by applicable law or exemptive
order).
2. Borrow money or issue senior securities except for temporary or
emergency purposes, except that it may enter into reverse repurchase agreements
and may purchase when-issued securities (consistent with its investment
policies and objectives).
3. Purchase securities while borrowings in excess of 5% of its total
assets are outstanding.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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.
9. Purchase or sell real estate, but it may invest in marketable
securities secured by real estate or interests therein.
10. Purchase or sell commodities or commodities futures contracts.
11. 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.
AIM TAX-EXEMPT BOND FUND OF CONNECTICUT may not:
1. Borrow money or issue senior securities except for temporary or
emergency purposes, except that it may enter into reverse repurchase agreements
and may purchase when-issued securities (consistent with
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<PAGE> 51
its investment policies and objectives), and except that it 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.
2. Purchase securities while borrowings in excess of 5% of its total
assets are outstanding.
3. 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.
4. 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.
5. 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.
6. 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.
7. 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.
8. Purchase or sell real estate, but it may invest in marketable
securities secured by real estate or interests therein.
9. Purchase or sell commodities or commodities futures contracts.
10. 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.
AIM HIGH INCOME MUNICIPAL FUND may not:
1. 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,
authorities and instrumentalities and except that the Fund may purchase
securities of other investment companies to the extent permitted by applicable
law or exemptive order). For purposes of this restriction, the Fund will regard
each state and each political subdivision, agency or instrumentality of such
state, and each multi-state agency of which such state is a member, as a
separate issuer.
2. Borrow money or issue senior securities, except (a) that it may
borrow from banks for temporary or emergency purposes provided that borrowings
may not exceed 33-1/3% of the value of its total assets (including the amount
of such borrowings), and (b) that it may enter into reverse repurchase
agreements and financial futures contracts, and (c) that it may purchase
when-issued securities (consistent with its investment policies and
objectives). For purposes of this restriction, collateral arrangements with
respect to margin for financial futures contracts are not deemed to be a pledge
of assets.
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3. Purchase securities while borrowings in excess of 5% of the value
of its total assets are outstanding.
4. Lend any of its portfolio securities if the value of the securities
loaned by it would exceed an amount equal to one-third of its total assets.
5. Lend money, other than by investing in debt instruments consistent
with its investment objective and policies, and other than by entering into
repurchase agreements and loans of portfolio securities as provided above.
6. Concentrate 25% or more of the value of its total assets in
industrial development revenue bonds, including pollution control bonds, issued
for companies in the same industry. Investments in municipal securities and
obligations issued, guaranteed or sponsored by the U.S. Government, its
agencies, authorities or instrumentalities do not involve investment in any
industry for purposes of this restriction.
7. 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.
8. Purchase or sell real estate, but it may invest in marketable
securities secured by real estate or interests therein.
9. Purchase or sell physical commodities or physical commodities
futures contracts, except that it may purchase and sell financial futures
contracts and options thereon for hedging purposes.
10. Act as a securities underwriter except to the extent that it may
be deemed to be an underwriter under the Securities Act of 1933 when purchasing
or selling a portfolio security.
11. Make short sales of securities or purchase securities on margin,
except that it may obtain such short-term credits as are necessary for the
clearance of purchases and sales of securities and may make margin payments in
connection with transactions in financial futures contracts and options
thereon.
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.
3. AIM TAX-FREE INTERMEDIATE FUND, AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT and AIM HIGH INCOME MUNICIPAL FUND 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.
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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 NON-INVESTMENT GRADE SECURITIES: AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT AND AIM HIGH INCOME MUNICIPAL FUND ONLY
As noted in its 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. As noted in its Prospectus, in
pursuit of its investment objective AIM HIGH INCOME MUNICIPAL FUND will usually
maintain at least 80% of its net assets in Municipal Securities which are rated
Baa/BBB or lower (or which are unrated but are determined by AIM to be of
comparable quality). 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, AIM TAX-EXEMPT BOND FUND OF CONNECTICUT 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. AIM HIGH INCOME MUNICIPAL FUND expects to invest a significant
portion of its net assets in Municipal Securities which are non-investment grade
during its initial fiscal year. See "Ratings of Securities" in this Statement of
Additional Information.
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 Funds, thus potentially limiting a
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 a 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 a 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 issuer developments than more highly rated debt securities.
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COVERED CALL OPTIONS: AIM HIGH INCOME MUNICIPAL FUND ONLY
The Fund may write call options, but only on a covered basis; that is,
the Fund will own the underlying security. The exercise price of a call option
may be below, equal to, or above the current market value of the underlying
security at the time the option is written. When the Fund writes a covered call
option, an amount equal to the premium received by the Fund is recorded as an
asset and an equivalent liability. The amount of the liability is subsequently
"marked-to-market" to reflect the current market value of the option written.
The current market value of a written option is the last sale price, or in the
absence of a sale, the last offering price. If a written call option expires on
the stipulated expiration date, or if the Fund enters into a closing purchase
transaction, the Fund realizes a gain (or a loss if the closing purchase
transaction exceeds the premium received when the option was written) without
regard to any unrealized gain or loss on the underlying security, and the
liability related to such option is extinguished. If a written option is
exercised, the Fund realizes a gain or a loss from the sale of the underlying
security and the proceeds of the sale are increased by the premium originally
received.
A call option gives the purchaser of such option the right to buy, and
the writer (the Fund) the obligation to sell, the underlying security at the
stated exercise price during the option period. The purchaser of a call option
owns or has the right to acquire the security which is the subject of the call
option at any time during the option period. During the option period, in
return for the premium paid by the purchaser of the option, the Fund has given
up the opportunity for capital appreciation above the exercise price should the
market price of the underlying security increase, but has retained the risk of
loss should the price of the underlying security decline. During the option
period, the Fund may be required at any time to deliver the underlying security
against payment of the exercise price. This obligation is terminated upon the
expiration of the option period or at such earlier time at which the Fund
effects a closing purchase transaction by purchasing (at a price which may be
higher than was received when the call option was written) a call option
identical to the one originally written. The Fund as non-fundamental policies
(a) will not write covered call options which exceed 25% of the value of its
net assets and (b) will only write covered call options for hedging purposes
and will not use leverage in doing so.
PUT OPTIONS: AIM HIGH INCOME MUNICIPAL FUND ONLY
The Fund may write put options on securities, but only on a covered
basis; that is, the Fund will segregate liquid assets to satisfy any obligation
of the Fund to purchase the underlying securities. A put option may be sold at
a profit or loss depending upon changes in the price of the underlying
security. The Fund as non-fundamental policies (a) will not write covered put
options which exceed 25% of the value of its net assets and (b) will only write
covered put options for hedging purposes and will not use leverage in doing so.
COMBINED OPTION POSITIONS: AIM HIGH INCOME MUNICIPAL FUND ONLY
The Fund, for hedging purposes, may write combinations of put and call
options on the same underlying security to adjust the risk and return
characteristics of the Fund's overall position. A possible combined position
would involve writing a covered call option at one strike price and buying a
call option at a lower price, in order to reduce the risk of the written
covered call option in the event of a substantial price increase. Because
combined options positions involve multiple trades, they result in higher
transaction costs and may be more difficult to open and close out.
FUTURES CONTRACTS: AIM TAX-EXEMPT BOND FUND OF CONNECTICUT AND AIM HIGH INCOME
MUNICIPAL FUND ONLY
In cases of purchases of futures contracts, an amount of liquid
assets, equal to the cost of the futures contracts (less any related margin
deposits), will be segregated with a Fund's custodian to collateralize the
position and ensure that the use of such futures contracts is unleveraged.
Unlike when a Fund purchases
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or sells a security, no price is paid or received by a Fund upon the purchase or
sale of a futures contract. Initially, a Fund will be required to deposit liquid
assets with its custodian for the account of the broker in a stated amount, as
called for by the particular contract. This amount is known as "initial margin."
The nature of initial margin in futures transactions is different from that of
margin in securities transactions in that futures contract margin does not
involve the borrowing of funds by the customer to finance the transactions.
Rather, the initial margin is in the nature of a performance bond or
good faith deposit on the contract which is returned to the Fund upon
termination of the futures contract assuming all contractual obligations have
been satisfied. Subsequent payments, called "variation margin," to and from the
broker will be made on a daily basis as the price of the futures contract
fluctuates, making the long and short positions in the futures contract more or
less valuable. This process is known as "marking-to-market." For example, when
a Fund has purchased an indexed futures contract and the price of the
underlying index has risen, that position will have increased in value and the
Fund will receive from the broker a variation margin payment with respect to
that increase in value. Conversely, where a Fund has purchased an indexed
futures contract and the price of the underlying index has declined, that
position would be less valuable and the Fund would be required to make a
variation margin payment to the broker. Variation margin payments would be made
in a similar fashion when a Fund has purchased an interest rate futures
contract. At any time prior to expiration of the futures contract, a Fund may
elect to close the position by taking an opposite position which will operate
to terminate the Fund's position in the futures contract. A final determination
of variation margin is then made, additional cash is required to be paid by or
released to the Fund and the Fund realizes a loss or a gain.
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. Currently,
there are futures contracts based on long-term U.S. Treasury bonds, U.S.
Treasury notes, U.S. Treasury bills, Eurodollars and the Bond Buyer Municipal
Bond Index.
OPTIONS ON FUTURES CONTRACTS: AIM TAX-EXEMPT BOND FUND OF CONNECTICUT AND AIM
HIGH INCOME MUNICIPAL FUND ONLY
An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put)
at a specified exercise price at any time during the option exercise period.
The writer of the option is required upon exercise to assume an offsetting
futures position (a short position if the option is a call and a long position
if the option is a put) at a specified exercise price at any time during the
period of the option. Upon exercise of the option, the assumption of offsetting
futures positions by the writer and holder of the option will be accompanied by
delivery of the accumulated cash balance in the writer's futures margin account
which represents the amount by which the market price of the futures contract,
at exercise, exceeds, in the case of a call, or is less than, in the case of a
put, the exercise price of the option on the futures contract. If an option on
a futures contract is exercised on the last trading date prior to the
expiration date of the option, the settlement will be made entirely in cash
equal to the difference between the exercise price of the option and the
closing price of the futures contract on the expiration date.
A Fund may purchase and sell put and call options on futures contracts
in order to hedge the value of its portfolio against changes in market
conditions. Depending on the pricing of the option compared to either the price
of the futures contract upon which it is based or the price of the underlying
securities or currency, it may or may not be less risky than ownership of the
futures contract or underlying securities or currency.
RISKS AS TO FUTURES CONTRACTS AND RELATED OPTIONS
The use of futures contracts and related options as hedging devices
presents several risks. One risk arises because of the imperfect correlation
between movements in the price of hedging instruments 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
17
<PAGE> 56
are not based on a portfolio of bonds issued by the State of Connecticut and
its political subdivisions. If the price of a hedging instrument moves less
than the price of the Fund's investments which are the subject of the hedge,
the hedge will not be fully effective. If the price of a hedging instrument
moves more than the price of the Fund's investments, a Fund will experience
either a loss or a gain on the hedging instrument 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 futures contracts involves the additional 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 hedging instruments by a 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 hedging instruments 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 also possible that where a Fund has sold futures contracts to
hedge its portfolio against a decline in the market, the market may advance and
the value of debt securities held in a Fund's portfolio may decline. If this
occurred, a 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 Funds intend 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 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 Internal Revenue Code requirements for qualification as a regulated
investment company and the Funds' intent to continue to qualify as such. The
result of a hedging program cannot be foreseen and may cause a Fund to suffer
losses which it would not otherwise sustain.
AIM HIGH INCOME MUNICIPAL FUND
The Fund may purchase insurance for non-insured Municipal Securities
in which it invests. The purchase of such insurance is expected to enhance the
value of the security for which insurance is purchased. The cost of purchasing
such insurance would be an expense of the Fund.
The Fund may purchase municipal forward contracts. A municipal forward
contract is a Municipal Security which is purchased on a when-issued basis with
delivery taking place up to five years from the date of purchase. AIM will
monitor the liquidity, value, credit quality and delivery of the security under
the supervision of the Board of Directors. The Fund will not invest more than
5% of the value of its total assets in municipal forward contracts.
As discussed in the applicable Prospectus, the Fund may invest in
municipal lease obligations. The Company's Board of Directors will establish
guidelines for the determination of whether municipal lease obligations held by
the Fund will be deemed liquid or illiquid, based on factors including but not
limited to: the frequency of trades and quotes for the obligation, the number
of dealers willing to purchase or sell the obligation and the number of
potential buyers, the willingness of dealers to undertake to make a market in
the obligation, and the nature of the marketplace trades.
The Fund may from time to time invest more than 25% of the value of
its total assets in securities whose issuers are located in one or more of the
following states: Arizona, California, Colorado, Connecticut,
18
<PAGE> 57
Florida, Illinois, Michigan, Massachusetts, New Hampshire, New Jersey, New York,
Ohio, Pennsylvania and Texas.
MANAGEMENT
DIRECTORS AND OFFICERS
The directors and officers of the Company and their principal
occupations during at least the last five years are set forth below.
<TABLE>
<CAPTION>
============================================================================================================================
Positions Held Principal Occupation During At
Name, Address and Age with Registrant Least The Past 5 Years
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
*CHARLES T. BAUER (78) Director and Chairman of the Board of
11 Greenway Plaza, Suite 100 Chairman Directors, A I M Management Group
Houston, TX 77046 Inc., 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; and Vice
Chairman and Director, AMVESCAP
PLC.
- ----------------------------------------------------------------------------------------------------------------------------
BRUCE L. CROCKETT (53) Director Director, ACE Limited (insurance
906 Frome Lane company). Formerly, Director,
McLean, VA 22102 President and Chief Executive
Officer, COMSAT Corporation and
Chairman, Board of Governors
of INTELSAT (international
communications company).
- ----------------------------------------------------------------------------------------------------------------------------
OWEN DALY II (73) Director Director, Cortland Trust Inc.
Six Blythewood Road (investment company). Formerly,
Baltimore, MD 21210 Director, CF & I Steel Corp.,
Monumental Life Insurance Company
and Monumental General Insurance
Company; and Chairman of the
Board of Equitable
Bancorporation.
- ----------------------------------------------------------------------------------------------------------------------------
JACK FIELDS (45) Director Formerly, Member of the U.S.
2607 Old Humble Road House of Representatives.
Humble, TX 77338
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------
* A director who is an "interested person" of A I M Advisors, Inc. and the
Company as defined in the 1940 Act.
19
<PAGE> 58
<TABLE>
<CAPTION>
============================================================================================================================
Positions Held Principal Occupation During At
Name, Address and Age with Registrant Least The Past 5 Years
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
**CARL FRISCHLING (60) Director Partner, Kramer, Levin, Naftalis
919 Third Avenue & Frankel (law firm); and
New York, NY 10022 Director, ERD Waste, Inc. (waste
management company), Aegis Consumer
Finance (auto leasing company) and Lazard
Funds, Inc. (investment companies). Formerly,
Partner, Reid & Priest (law firm);
and, prior thereto, Partner, Spengler
Carlson Gubar Brodsky & Frischling (law firm).
- ----------------------------------------------------------------------------------------------------------------------------
*ROBERT H. GRAHAM (51) Director and Director, President and Chief
11 Greenway Plaza, President Executive Officer,
Suite 100 A I M Management Group Inc.;
Houston, TX 77046 Director and President,
A I M Advisors, Inc.; Director
and Senior Vice President,
A I M Capital Management, Inc.,
A I M Distributors, Inc.,
A I M Fund Services, Inc.,
A I M Institutional Fund
Services, Inc. and Fund
Management Company; Director,
AMVESCAP PLC.
- ----------------------------------------------------------------------------------------------------------------------------
JOHN F. KROEGER (73) Director Director, Flag Investors
37 Pippins Way International Fund, Inc., Flag
Morristown, NJ 07960 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).
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------
** 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.
20
<PAGE> 59
<TABLE>
<CAPTION>
============================================================================================================================
Positions Held Principal Occupation During At
Name, Address and Age with Registrant Least The Past 5 Years
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LEWIS F. PENNOCK (55) Director Attorney in private practice in
6363 Woodway, Suite 825 Houston, Texas.
Houston, TX 77057
- ----------------------------------------------------------------------------------------------------------------------------
IAN W. ROBINSON (74) Director Formerly, Executive Vice
183 River Drive President and Chief Financial
Tequesta, FL 33469 Officer, Bell Atlantic Management
Services, 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 (58) Director Executive Vice President,
Transco Tower, 50th Floor Development and Operations, Hines
2800 Post Oak Blvd. Interests Limited Partnership
Houston, TX 77056 (real estate development).
- ----------------------------------------------------------------------------------------------------------------------------
***JOHN J. ARTHUR (53) Senior Vice Senior Vice President and
11 Greenway Plaza, President and Treasurer, A I M Advisors, Inc.;
Suite 100 Treasurer and Vice President and Treasurer,
Houston, TX 77046 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 (50) Senior Vice Director and President,
11 Greenway Plaza, President A I M Capital Management, Inc.;
Suite 100 Director and Senior Vice
Houston, TX 77046 President, A I M Management Group
Inc. and A I M Advisors, Inc.;
and Director, A I M Distributors,
Inc. and AMVESCAP PLC.
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------
*** Mr. Arthur and Ms. Relihan are married to each other.
21
<PAGE> 60
<TABLE>
<CAPTION>
============================================================================================================================
Positions Held Principal Occupation During At
Name, Address and Age with Registrant Least The Past 5 Years
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
***CAROL F. RELIHAN (43) Senior Vice Senior Vice President, General
11 Greenway Plaza,Suite 100 President and Counsel and Secretary,
Houston, TX 77046 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 (38) Vice Vice President and Fund
11 Greenway Plaza, President and Controller, A I M Advisors, Inc.;
Suite 100 Assistant and Assistant Vice President and
Houston, TX 77046 Treasurer Assistant Treasurer, Fund
Management Company.
- ----------------------------------------------------------------------------------------------------------------------------
STUART W. COCO (42) Vice President Senior Vice President, A I M Capital
11 Greenway Plaza, Management, Inc. and Vice President,
Suite 100 A I M Advisors, Inc.
Houston, TX 77046
- ----------------------------------------------------------------------------------------------------------------------------
MELVILLE B. COX (54) Vice President Vice President and Chief Compliance Officer,
11 Greenway Plaza, Suite 100 A I M Advisors, Inc., A I M Capital
Houston, TX 77046 Management, Inc., A I M Distributors, Inc.,
A I M Fund Services, Inc., A I M Institutional
Fund Services, Inc. and Fund Management
Company.
- ----------------------------------------------------------------------------------------------------------------------------
KAREN DUNN KELLEY (37) Vice President Senior Vice President, A I M Capital
11 Greenway Plaza, Suite 100 Management, Inc. and Vice President,
Houston, TX 77046 A I M Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
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. Crockett, Daly, Fields,
Frischling, Kroeger (Chairman), Pennock, Robinson and Sklar. 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.
- --------
*** Mr. Arthur and Ms. Relihan are married to each other.
22
<PAGE> 61
The members of the Investments Committee are Messrs. Bauer, Crockett,
Daly (Chairman), Fields, Frischling, Kroeger, Pennock, Robinson and Sklar. 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, Fields, Kroeger, Pennock (Chairman), Robinson 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 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:
23
<PAGE> 62
<TABLE>
<CAPTION>
==================================================================================================
RETIREMENT
AGGREGATE BENEFITS TOTAL
COMPENSATION ACCRUED COMPENSATION
FROM THE BY ALL AIM FROM ALL AIM
DIRECTOR COMPANY(1) FUNDS(2) FUNDS(3)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Charles T. Bauer $ 0 $ 0 $ 0
- --------------------------------------------------------------------------------------------------
Bruce L. Crockett 2,744 38,621 68,000
- --------------------------------------------------------------------------------------------------
Owen Daly II 2,755 82,607 68,000
- --------------------------------------------------------------------------------------------------
Jack Fields(4) 184 0 0
- --------------------------------------------------------------------------------------------------
Carl Frischling 2,774 56,683 68,000 (5)
- --------------------------------------------------------------------------------------------------
Robert H. Graham 0 0 0
- --------------------------------------------------------------------------------------------------
John F. Kroeger 2,671 83,654 66,000
- --------------------------------------------------------------------------------------------------
Lewis F. Pennock 2,712 33,702 67,000
- --------------------------------------------------------------------------------------------------
Ian Robinson 2,774 64,973 68,000
- --------------------------------------------------------------------------------------------------
Louis S. Sklar 2,712 47,593 66,500
==================================================================================================
</TABLE>
(1) The total amount of compensation deferred by all Directors of the
Company during the fiscal year ended March 31, 1997, including interest earned
thereon, was $11,985.
(2) During the fiscal year ended March 31, 1997, the total amount of
expenses allocated to the Company in respect of such retirement benefits was
$1,187. Data reflects compensation for the calendar year ended December 31,
1996.
(3) Each Director serves as director or trustee of a total of 11
registered investment companies advised by AIM. Data reflect total compensation
for the calendar year ended December 31, 1996.
(4) Mr. Fields did not serve as a Director during the calendar year ended
December 31, 1996.
(5) See also page 26 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
24
<PAGE> 63
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 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 the retainer amount
reflected below and various years of service. The estimated credited years of
service as of March 31, 1997, for Messrs. Crockett, Daly, Fields, Frischling,
Kroeger, Pennock, Robinson and Sklar are 10, 10, 0, 19, 19, 15, 10 and 7 years,
respectively.
ESTIMATED BENEFITS UPON RETIREMENT
<TABLE>
<CAPTION>
==================================================================
Number of Annual Retainer Paid By All AIM Funds
Years of
Service With the $80,000
AIM Funds
==================================================================
<S> <C>
10 $60,000
------------------------------------------------------------------
9 $54,000
------------------------------------------------------------------
8 $48,000
------------------------------------------------------------------
7 $42,000
------------------------------------------------------------------
6 $36,000
------------------------------------------------------------------
5 $30,000
==================================================================
</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 five
(5) or ten (10) years (depending on the Agreement) 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.
25
<PAGE> 64
The firm of Kramer, Levin, Naftalis & Frankel ("Kramer Levin") is
counsel to the Board of Directors. During the year ended March 31, 1997, AIM
TAX-EXEMPT CASH FUND paid $3,973 in legal fees to Kramer Levin. During the year
ended March 31, 1997, AIM TAX-EXEMPT BOND FUND OF CONNECTICUT paid $3,997 in
legal fees to Kramer Levin. During the year ended March 31, 1997, AIM TAX-FREE
INTERMEDIATE FUND paid $4,122 in legal fees to Kramer Levin. Mr. Frischling, a
director of the Company, is a partner in Kramer Levin.
INVESTMENT ADVISORY AND OTHER SERVICES
AIM is a wholly owned subsidiary of A I M Management Group Inc. ("AIM
Management"), 11 Greenway Plaza, Suite 100, Houston, Texas 77046. AIM
Management, an indirect subsidiary of AMVESCAP PLC, has been engaged in the
financial services business since 1976. AMVESCAP PLC and its subsidiaries are
an independent investment management group engaged in institutional investment
management and retail fund business in the United States, Europe and the
Pacific Region. 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 subsidiaries, advises
or manages over 50 investment company portfolios encompassing a broad range of
investment objectives.
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,
each dated February 28, 1997.
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 initially approved by the Company's
Board of Directors (including the affirmative vote of all
26
<PAGE> 65
the Non-Interested Directors on December 11, 1996, and was approved by the
Funds' shareholders on February 7, 1997. The Advisory Agreement became
effective as of February 28, 1997. 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 provides that
AIM is entitled to receive a fee from AIM TAX-FREE INTERMEDIATE FUND at the
following annual rates based on the Fund's average daily net assets:
AIM TAX-FREE INTERMEDIATE FUND
<TABLE>
<CAPTION>
NET ASSETS ANNUAL RATE
---------- -----------
<S> <C>
First $500 million 0.30%
Next $500 million 0.25%
Amount over $1 billion 0.20%
</TABLE>
The Advisory Agreement provides that AIM is entitled to receive a fee
from AIM HIGH INCOME MUNICIPAL FUND at the following annual rates based on the
Fund's average daily net assets:
AIM HIGH INCOME MUNICIPAL FUND
<TABLE>
<CAPTION>
NET ASSETS ANNUAL RATE
---------- -----------
<S> <C>
First $500 million 0.60%
Next $500 million 0.55%
Next $500 million 0.50%
Amount over $1.5 billion 0.45%
</TABLE>
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, 1997, 1996 and 1995, AIM received
advisory fees from AIM TAX-EXEMPT CASH FUND of $125,537, $101,649 and $119,085,
respectively.
For the years ended March 31, 1997, 1996 and 1995, AIM received
advisory fees from AIM TAX-FREE INTERMEDIATE FUND of $276,828, $232,893 and
$283,990, respectively.
For the year ended March 31, 1997, AIM received advisory fees from AIM
TAX-EXEMPT BOND FUND OF CONNECTICUT of $194,372. For the years ended March 31,
1996 and 1995, AIM received no advisory fees from AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT, and for the years ended March 31, 1997, 1996 and 1995, AIM waived
fees from the Fund in the amount of $144,775, $198,182 and $195,413,
respectively.
27
<PAGE> 66
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, 1998, 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 initially approved by the Company's Board of Directors (including
the Non-Interested Directors) on December 11, 1996, and became effective as of
February 28, 1997.
For the years ended March 31, 1997, 1996 and 1995, AIM TAX-EXEMPT CASH
FUND reimbursed AIM in the amounts of $34,329, $34,220 and $43,481,
respectively, for administrative services.
For the years ended March 31, 1997, 1996 and 1995, the AIM TAX-FREE
INTERMEDIATE FUND reimbursed AIM in the amounts of $52,666, $44,054 and
$43,890, respectively, for administrative services.
For the years ended March 31, 1997, 1996 and 1995, AIM TAX-EXEMPT BOND
FUND OF CONNECTICUT reimbursed AIM in the amounts of $49,467, $45,950 and
$46,754, respectively, for administrative services.
In addition, the Amended and Restated 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 original transfer agency and service agreement
became effective on November 1, 1994 and the Transfer Agency and Service
Agreement became effective September 20, 1997.
DISTRIBUTION PLANS
THE CLASS A AND C PLAN. The Company has adopted a Third Amended and
Restated Master Distribution Plan pursuant to Rule 12b-1 under the 1940 Act
relating to the Class A shares of AIM TAX-EXEMPT CASH FUND, AIM TAX-EXEMPT BOND
FUND OF CONNECTICUT and AIM HIGH INCOME MUNICIPAL FUND, and the Class C shares
of AIM HIGH INCOME MUNICIPAL FUND (the "Class A and C Plan"). The Class A and C
Plan provides that Class A shares pay 0.25% per annum of their average daily
net assets as compensation to AIM Distributors for the purpose of financing any
activity which is primarily intended to result in the sale of Class A shares.
The Class A and C Plan also provides that Class C shares pay 1.00% per annum of
their average daily net assets as compensation to AIM Distributors. Of such
amount, the Class C shares pay a service fee of 0.25% of their average daily
net assets to selected dealers and other institutions which furnish continuing
personal shareholder services to their customers who purchase and own Class C
shares. Activities appropriate for financing under the Class A and C Plan
include, but are not limited to, the following: printing of prospectuses and
statements of additional information and reports for other than existing
shareholders; overhead; preparation and distribution of advertising material
and sales literature; expenses of organizing and conducting sales seminars;
supplemental payments to dealers and other institutions such as asset-based
sales charges or as payments of service fees under shareholder service
arrangements; and costs of administering the Class A and C Plan.
THE CLASS B PLAN. The Company has also adopted a Master Distribution
Plan pursuant to Rule 12b-1 under the 1940 Act relating to the Class B shares
of AIM HIGH INCOME MUNICIPAL FUND (the "Class B Plan", and collectively with
the Class A and C Plan, the "Plans"). Under the Class B Plan, the Class B
shares pay compensation to AIM Distributors at an annual rate of 1.00% of their
average daily net assets.
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<PAGE> 67
Of such amount, the Class B shares pay a service fee of 0.25% of their average
daily net assets to selected dealers and other institutions which furnish
continuing personal shareholder services to their customers who purchase and
own Class B shares. Amounts paid in accordance with the Class B Plan may be
used to finance any activity primarily intended to result in the sale of Class
B shares, including, but not limited to, printing of prospectuses and
statements of additional information and reports for other than existing
shareholders; overhead; preparation and distribution of advertising material
and sales literature; expenses of organizing and conducting sales seminars;
supplemental payments to dealers and other institutions such as asset-based
sales charges or as payments of service fees under shareholder service
arrangements; and costs of administering the Class B Plan. AIM Distributors may
transfer and sell its rights under the Class B Plan in order to finance
distribution expenditures in respect of Class B shares.
BOTH PLANS. Pursuant to an incentive program, AIM Distributors may
enter into agreements ("Shareholder Service Agreements") with investment
dealers selected from time to time by AIM Distributors for the provision of
distribution assistance in connection with the sale of the Funds' shares to
such dealers' customers, and for the provision of continuing personal
shareholder services to customers who may from time to time directly or
beneficially own shares of the Funds. The distribution assistance and
continuing personal shareholder services to be rendered by dealers under the
Shareholder Service Agreements may include, but shall not be limited to, the
following: distributing sales literature; answering routine customer inquiries
concerning the Funds; assisting customers in changing dividend options, account
designations and addresses, and in enrolling in any of several special
investment plans offered in connection with the purchase of the Funds' shares;
assisting in the establishment and maintenance of customer accounts and records
and in the processing of purchase and redemption transactions; investing
dividends and any capital gains distributions automatically in the Funds'
shares; and providing such other information and services as the Funds or the
customer may reasonably request.
Under the Plans, in addition to the Shareholder Service Agreements
authorizing payments to selected dealers, banks may enter into Shareholder
Service Agreements authorizing payments under the Plans to be made to banks
which provide services to their customers who have purchased shares. Services
provided pursuant to Shareholder Service Agreements with banks may include some
or all of the following: answering shareholder inquiries regarding the Funds
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 by the bank;
forwarding applicable prospectuses, proxy statements, reports and notices to
bank clients who hold shares of the Funds; and such other administrative
services as the Funds reasonably may request, to the extent permitted by
applicable statute, rule or regulation. Similar agreements may be permitted
under the Plans for institutions which provide recordkeeping for and
administrative services to 401(k) plans.
Financial intermediaries and any other person entitled to receive
compensation for selling shares of the Funds may receive different compensation
for selling shares of one particular class over another.
Under a Shareholder Service Agreement, the Funds agree 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 generally will be calculated at the end of each payment
period for each business day of the Funds during such period at the annual rate
of 0.25% of the average daily net asset value of the Funds' 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 the Funds' 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 Fund's shares purchased
or acquired through exchange.
29
<PAGE> 68
The Plans are 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 Funds, in making dealer incentive and shareholder servicing payments under
the Plans. These payments are an obligation of the Funds and not of AIM
Distributors.
For the years ended March 31, 1997, 1996 and 1995, the Class A shares
of AIM TAX-EXEMPT CASH FUND paid a total of $35,864, $29,043 and $34,024,
respectively, under the Class A and C Plan, which constituted 0.10%, 0.10% and
0.10%, respectively, of such Class A shares' average daily net assets. For the
years ended March 31, 1997, 1996 and 1995, the Class A shares of AIM TAX-EXEMPT
BOND FUND OF CONNECTICUT paid a total of $97,186, $99,095 and $97,706,
respectively, under the Class A and C Plan, which constituted 0.25%, 0.25% and
0.25%, respectively, of such Class A shares' average daily net assets.
An estimate by category of actual fees paid by the Class A shares under the
Class A and C Plan during the year ended March 31, 1997, were allocated as
follows:
<TABLE>
<CAPTION>
AIM TAX-EXEMPT
AIM TAX-EXEMPT BOND FUND OF
CASH FUND CONNECTICUT
-------------- -------------
<S> <C> <C>
CLASS A
Advertising $ 4,192 $ 1,897
Printing and mailing prospectuses, 1,048 -0-
semi-annual reports and annual
reports (other than to current
shareholders)
Seminars 1,048 -0-
Compensation to Underwriters to -0- -0-
partially offset other marketing
expenses
Compensation to Dealers 29,573 95,291
including finder's fees
Compensation to Sales Personnel -0- -0-
Annual Report Total 35,861 97,188
</TABLE>
The Plans require AIM Distributors to provide the Board of Directors
at least quarterly with a written report of the amounts expended pursuant to
the Plans and the purposes for which such expenditures were made. The Board of
Directors reviews these reports in connection with their decisions with respect
to the Plans.
As required by Rule 12b-1, the Plans and related forms of Shareholder
Service Agreements were approved by the Board of Directors, including a
majority of the directors who are not "interested persons" (as
30
<PAGE> 69
defined in the 1940 Act) of the Company and who have no direct or indirect
financial interest in the operation of the Plans or in any agreements related
to the Plans ("Qualified Directors"). In approving the Plans in accordance with
the requirements of Rule 12b-1, the directors considered various factors and
determined that there is a reasonable likelihood that the Plans would benefit
each class of each applicable Fund, and its respective shareholders.
The Plans do not obligate the Funds to reimburse AIM Distributors for
the actual expenses AIM Distributors may incur in fulfilling its obligations
under the Plans. Thus, even if AIM Distributors' actual expenses exceed the fee
payable to AIM Distributors thereunder at any given time, the Funds will not be
obligated to pay more than that fee. If AIM Distributors' expenses are less
than the fee it receives, AIM Distributors will retain the full amount of the
fee.
Unless the Plans are terminated earlier in accordance with their
terms, the Plans continue in effect until June 30, 1998, and thereafter, both
Plans continue as long as such continuance is specifically approved at least
annually by the Board of Directors, including a majority of the Qualified
Directors.
The Plans may be terminated by the vote of a majority of the Qualified
Directors, or, with respect to a particular class, by the vote of a majority of
the outstanding voting securities of that class.
Any change in the Plans that would increase materially the
distribution expenses paid by the applicable class requires shareholder
approval; otherwise, it may be amended by the directors, including a 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 Plans are in effect, the
selection or nomination of the Qualified Directors is committed to the
discretion of the Qualified Directors. In the event the Class A and C Plan is
amended in a manner which the Board of Directors determines would materially
increase the charges paid under the Class A and C Plan, the Class B shares of
the Company will no longer convert into Class A shares of the Company unless
the Class B shares, voting separately, approve such amendment. If the Class B
shareholders do not approve such amendment, the Board of Directors will (i)
create a new class of shares of the Company which is identical in all material
respects to the Class A shares as they existed prior to the implementation of
the amendment, and (ii) ensure that the existing Class B shares of the Company
will be exchanged or converted into such new class of shares no later than the
date the Class B shares were scheduled to convert into Class A shares.
The principal differences between the Class A and C Plan and the Class
B Plan are: (i) the Class A and C Plan allows payment to AIM Distributors or to
dealers or financial institutions of up to 0.25% of average daily net assets of
the Class A shares of AIM TAX-EXEMPT CASH FUND, AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT and AIM HIGH INCOME MUNICIPAL FUND, as compared to 1.00% of such
assets of the Class B shares of AIM HIGH INCOME MUNICIPAL FUND; (ii) the Class
B Plan obligates the Class B shares to continue to make payments to AIM
Distributors following termination of the Class B shares Distribution Agreement
with respect to Class B shares sold by or attributable to the distribution
efforts of AIM Distributors unless there has been a complete termination of the
Class B Plan (as defined in such Plan); and (iii) the Class B Plan expressly
authorizes AIM Distributors to assign, transfer or pledge its rights to
payments pursuant to the Class B Plan.
THE DISTRIBUTOR
Information concerning AIM Distributors and the continuous offering of
the Funds' shares is set forth in the Prospectuses under the headings "How to
Purchase Shares" and "Terms and Conditions of Purchase of the AIM Funds." An
Amended and Restated Master Distribution Agreement with AIM Distributors
relating to the Class A shares of the Funds and Class C shares of AIM HIGH
INCOME MUNICIPAL FUND was approved by the Board of Directors of the Company on
September 20, 1997. A Master Distribution Agreement with AIM Distributors
relating to the Class B shares of AIM HIGH INCOME MUNICIPAL FUND was also
approved by the Board of Directors of the Company on September 20, 1997. Both
such Master Distribution agreements are hereinafter collectively referred to as
the "Distribution Agreements".
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<PAGE> 70
The Distribution Agreements provide that AIM Distributors will bear
the expenses of printing from the final proof and distributing the Funds'
prospectuses and statements of additional information relating to public
offerings made by AIM Distributors pursuant to the Distribution Agreements
(other than those prospectuses and statements of additional information
distributed to existing shareholders of the Funds), and any promotional or
sales literature used by AIM Distributors or furnished by AIM Distributors to
dealers in connection with the public offering of the Funds' shares, including
expenses of advertising in connection with such public offerings. AIM
Distributors has not undertaken to sell any specified number of shares of any
classes of the Funds.
AIM Distributors expects to pay sales commissions from its own
resources to dealers and institutions who sell Class B shares and Class C
shares of AIM HIGH INCOME MUNICIPAL FUND at the time of such sales. Payments
with respect to Class B shares will equal 4.0% of the purchase price of the
Class B shares sold by the dealer or institution, and will consist of a sales
commission equal to 3.75% of the purchase price of the Class B shares sold plus
an advance of the first year service fee of 0.25% with respect to such shares.
The portion of the payments to AIM Distributors under the Class B Plan which
constitutes an asset-based sales charge (0.75%) is intended in part to permit
AIM Distributors to recoup a portion of such sales commissions plus financing
costs. AIM Distributors anticipates that it will require a number of years to
recoup from Class B Plan payments the sales commissions paid to dealers and
institutions in connection with sales of Class B shares.
In the future, if multiple distributors serve AIM HIGH INCOME
MUNICIPAL FUND, each such distributor (or its assignee or transferee) would
receive a share of the payments under the Class B Plan based on the portion of
such Fund's Class B shares sold by or attributable to the distribution efforts
of that distributor.
AIM Distributors may pay sales commissions to dealers and institutions
who sell Class C shares of AIM HIGH INCOME MUNICIPAL FUND at the time of such
sales. Payments with respect to Class C shares will equal 1.00% of the purchase
price of the Class C shares sold by the dealer or institution, and will consist
of a sales commission of 0.75% of the purchase price of the Class C shares sold
plus an advance of the first year service fee of 0.25% with respect to such
shares. AIM Distributors will retain all payments received by it relating to
Class C shares for the first year after they are purchased. The portion of the
payments to AIM Distributors under the Class A and C Plan attributable to Class
C shares which constitutes an asset-based sales charge (0.75%) is intended in
part to permit AIM Distributors to recoup a portion of on-going sales
commissions to dealers plus financing costs, if any. After the first full year,
AIM Distributors will make such payments quarterly to dealers and institutions
based on the average net asset value of Class C shares which are attributable
to shareholders for whom the dealers and institutions are designated as dealers
of record.
The Company (on behalf of any class of the Funds) or AIM Distributors
may terminate the Distribution Agreements on sixty (60) days' written notice
without penalty. The Distribution Agreements will terminate in the event of
their assignment. In the event the Class B shares Distribution Agreement is
terminated, AIM Distributors would continue to receive payments of asset-based
distribution fees in respect of the outstanding Class B shares attributable to
the distribution efforts of AIM Distributors; provided, however, that a
complete termination of the Class B Plan (as defined in such Plan) would
terminate all payments to AIM Distributors. Termination of the Class B Plan or
Distribution Agreement does not affect the obligations of Class B shareholders
to pay contingent deferred sales charges.
For the years ended March 31, 1997, 1996 and 1995, the total sales
charges paid in connection with the sale of Class A shares of AIM TAX-FREE
INTERMEDIATE FUND were $82,414, $69,848 and $71,141, respectively, of which AIM
Distributors retained $21,018, $18,234 and $18,075, respectively.
For the years ended March 31, 1997, 1996 and 1995, the total sales
charges paid in connection with the sale of Class A shares of AIM TAX-EXEMPT
BOND FUND OF CONNECTICUT were $152,493, $183,364 and $132,560, respectively, of
which AIM Distributors retained $27,428, $33,891 and $21,690, respectively.
32
<PAGE> 71
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 October 1, 1997, the directors and officers of the Company as a
group owned less than 1% of the outstanding Class A shares of AIM TAX-EXEMPT
BOND FUND OF CONNECTICUT and AIM HIGH INCOME MUNICIPAL FUND. Also as of October
1, 1997, the directors and officers of the Company as a group owned 3.89% of
the outstanding Class A shares of AIM TAX-EXEMPT CASH FUND. Also as of October
1, 1997, the directors and officers of the Company as a group owned 37.73% of
the outstanding Class A shares of AIM TAX-FREE INTERMEDIATE FUND.
To the best knowledge of the Company, the names and addresses of the
holders of 5% or more of the outstanding shares of each class of each Fund as
of October 1, 1997, and the amount of outstanding shares held of record or
beneficially by such holders are set forth below:
33
<PAGE> 72
<TABLE>
<CAPTION>
Percent Owned
Name and Address of Percent Owned of Record
Fund Record or Beneficial Owner of Record* and Beneficially
- ---- -------------------------- ------------- ----------------
<S> <C> <C> <C>
AIM Tax-Free Gary T. Crum 26.57%** -0-
Intermediate Fund - 11 Greenway Plaza Suite 100
Class A Shares Houston, TX 77046
CFP Holdings Ltd (Partnership) -0- 8.57%
ATTN: Gary Crum
11 Greenway Plaze Suite 100
Houston, TX 77046
Jonathan C. Schoolar 6.16% -0-
3722 Tartan Lane
Houston, TX 77025
J. Abbott Sprague and -0- 5.39%
Leslie M. Sprague JT-Ten
3451 Piping Rock
Houston, TX 77027-0000
AIM Tax-Exempt Gary T. Crum TTEE -0- 10.65%
Cash Fund - Charles Douglas Bauer
Class A Shares Management Trust
11 Greenway Plaza Suite 100
Houston, TX 77046
ATTN: Gary Crum
P. Andrews McLane 8.34% -0-
77 Dean Road
Weston, MA 02193-0000
Gary T. Crum 7.41% -0-
11 Greenway Plaza Suite 100
Houston, TX 77046
</TABLE>
INVESCO Trust Company, 7800 E. Union Avenue, Denver, CO 80237, provided
the initial capitalization of AIM High Income Municipal Fund and, accordingly,
as of the date of this Statement of Additional Information, owned more than 25%
of the issued and outstanding shares of that Fund and therefore could be deemed
to "control" that Fund as that term is defined in the 1940 Act. It is
anticipated that after commencement of the public offering of the Fund's shares,
INVESCO Trust Company will cease to control the Fund for purposes of the 1940
Act.
- ---------------
* The Company has no knowledge as to whether all or any of the shares owned
of record only are also owned beneficially.
** A shareholder who holds 25% or more of the outstanding shares of a class
may be presumed to be in "control" of such class of shares, as defined in
the 1940 Act.
34
<PAGE> 73
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 Prospectuses 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 Class A shares of
AIM TAX-FREE INTERMEDIATE FUND, AIM HIGH INCOME MUNICIPAL FUND 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 Class A shares of AIM TAX-FREE INTERMEDIATE FUND and AIM TAX-EXEMPT
BOND FUND OF CONNECTICUT through AIM Distributors without payment of a sales
charge. The persons who may purchase Class A shares of those Funds without a
sales charge are set forth in the Prospectuses.
Complete information concerning the method of exchanging shares of the
Funds for shares of the other AIM Funds is set forth in the Prospectuses under
the heading "Exchange Privilege."
Information concerning redemption of the Funds' shares is set forth in
the Prospectuses 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 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,
35
<PAGE> 74
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 AIM TAX-FREE INTERMEDIATE FUND, AIM HIGH INCOME MUNICIPAL FUND and
AIM TAX-EXEMPT BOND FUND OF CONNECTICUT: Securities held by AIM TAX-FREE
INTERMEDIATE FUND, AIM HIGH INCOME MUNICIPAL FUND 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 AIM TAX-FREE INTERMEDIATE FUND, AIM HIGH
INCOME MUNICIPAL FUND or AIM TAX-EXEMPT BOND FUND OF CONNECTICUT:
Net Asset Value / (1 - Sales Charge as % of Offering Price) = Offering Price.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Fund is normally determined
daily as of the close of trading of the NYSE (generally 4:00 p.m. Eastern time)
on each business day of the Fund. In the event the NYSE closes early (i.e.,
before 4:00 p.m. Eastern time) on a particular day, the net asset value of a
Fund share is determined as of the close of the NYSE on such day. For purposes
of determining net asset value per share, futures and options contract closing
prices which are available fifteen (15) minutes after the close of trading on
the NYSE will generally be used. The net asset values per share of the various
classes of a Fund will differ because different expenses are attributable to
each class. The income or loss and the expenses common to all classes of a Fund
are allocated to each class on the basis of the net assets of the Fund
allocable to each such class, calculated as of the close of business on the
previous business day, as adjusted for the current day's shareholder activity
of each class. In addition to certain common expenses which are allocated to
all classes of a Fund, certain expenses, such as those related to the
distribution of shares of a class, are allocated only to the class to which
such expenses relate. The net asset value per share of a class is determined by
subtracting the liabilities (e.g., the expenses) of the Fund allocated to the
class from the assets of the Fund allocated to the class and dividing the
result by the total number of shares outstanding of such class. Determination
of each Fund's net asset value per share is made in accordance with generally
accepted accounting principles.
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<PAGE> 75
Option contracts are valued at the mean between the closing bid and
asked prices on the exchange where the contracts are principally traded.
Securities for which market quotations are not readily available or are
questionable are valued at fair value as determined in good faith by or under
the supervision of the Company's officers in a manner specifically authorized
by the Board of Directors of the Company. Short-term obligations having sixty
(60) days or less to maturity are valued at amortized cost, which approximates
market value.
Generally, trading in foreign securities, corporate bonds, municipal
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 each Fund's shares
are determined at such times. Foreign currency exchange rates are also
generally determined prior the close of the NYSE. Occasionally, events
affecting the values of such securities and such exchange rates may occur
between the times at which such values are determined and the close of the NYSE
which will not be reflected in the computation of a Fund's net asset value. If
events materially affecting the value of such securities occur during such
period, then these securities will be valued at their fair value as determined
in good faith by or under the supervision of the Board of Directors.
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 more frequently. Dividends and distributions are
reinvested in additional full and fractional shares of the same class of each
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 Prospectuses.
Dividends with respect to the shares of AIM TAX-FREE INTERMEDIATE
FUND, AIM HIGH INCOME MUNICIPAL FUND 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' Prospectuses. 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' Prospectuses 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
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<PAGE> 76
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. The Funds will not be subject to the
Short-Short Gain Test after March 31, 1998.
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% 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
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<PAGE> 77
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.
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.
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. For taxable years
beginning after 1997, however, certain small corporations are wholly exempt
from AMT.
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
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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. Under the Taxpayer Relief Act of 1997, the
Internal Revenue Service ("IRS") is authorized to issue regulations that will
enable shareholders to determine the tax rates applicable to such capital gain
distributions. 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 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
to the extent that guidance has been provided by the IRS.
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 IRS 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
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<PAGE> 79
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. Under the Taxpayer Relief Act of 1997, the IRS is authorized to issue
regulations that will enable shareholders to determine the tax rates applicable
to such recognized long-term capital gain. 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 that in some cases may be at least 19.6% lower than the
maximum rate applicable to ordinary income. Capital losses in any year are
deductible only to the extent of capital gains plus, in the case of
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.
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 October 3, 1997. Future
legislative or administrative changes or court decisions may significantly
change the
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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.
DESCRIPTION OF MONEY MARKET INSTRUMENTS (AIM TAX-EXEMPT CASH FUND ONLY)
U.S. Government Obligations consist of marketable securities and
instruments issued or guaranteed by the United States Government or by certain
of its agencies or instrumentalities. Direct obligations are issued by the
United States Treasury and include bills, certificates of indebtedness, notes
and bonds. Obligations of United States Government agencies and
instrumentalities ("Agencies") are issued by government-sponsored agencies and
enterprises acting under authority of Congress. Certain Agencies are backed by
the full faith and credit of the United States Government, and others are not.
MONEY MARKET OBLIGATIONS
The Fund will limit its investments to those securities which at the
time of purchase are "First Tier" securities as defined in Rule 2a-7 under the
1940 Act, as such Rule may be amended from time to time. Rule 2a-7 defines a
"First Tier" security as any "Eligible Security" that:
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(i) has received a short-term rating (or that has been issued
by an issuer that has received a short-term rating with respect to a
class of debt obligations, or any debt obligation within that class,
that is comparable in priority and security with the security) by the
Requisite NRSROs* in the highest short-term rating category for debt
obligations (within which there may be sub-categories or gradations
indicating relative standing); or
(ii) is a security described in paragraph (a)(9)(ii) of Rule
2a-7 (i.e. a security that at the time of issuance was a long-term
security but has a remaining maturity of 397 days or less) whose
issuer has received from the Requisite NRSROs a short-term rating,
with respect to a class of debt obligations (or any debt obligation
within that class) that now is comparable in priority and security
with the security, in the highest short-term rating category for debt
obligations (within which there may be sub-categories or gradations
indicating relative standing); or
(iii) is an Unrated Security** that is of comparable quality
to a security meeting the requirements of clauses (i) and (ii) above,
as determined by the Board of Directors; or
(iv) is a security issued by a registered investment company
that is a money market fund; or
(v) is a Government Security (as defined in Section 2(a)(16)
of the 1940 Act).
Subsequent to its purchase by the Fund, a security may cease to be a
First Tier security. Subject to certain exceptions set forth in Rule 2a-7, such
an event will not require the disposition of the security by the Fund, but AIM
will consider such an event to be relevant in its determination of whether the
Fund should continue to hold the security. To the extent that the ratings
applied by an NRSRO to a security may change as a result of changes in these
rating systems, the Fund will attempt to use comparable ratings as standards
for its investments in accordance with the investment policies described
herein.
Rule 2a-7 defines an "Eligible Security" as follows:
(i) a security with a remaining maturity of 397 calendar days or
less that has received a short-term rating (or that has been
issued by an issuer that has received a short-term rating
with respect to a class of debt obligations, or any debt
obligation within that class, that is comparable in priority
and security with the security) by the Requisite NRSROs in
one of the
- --------
* "Requisite NRSROs" shall mean (a) any two nationally recognized
statistical rating organizations ("NRSROs") that have issued a rating
with respect to a security or class of debt obligations of an issuer,
or (b) if only one NRSRO has issued a rating with respect to such
security or class of debt obligations of an issuer at the time the
Fund purchases or rolls over the security, that NRSRO. At present the
NRSROs are: S&P, Moody's, Duff and Phelps, Inc. ("Duff & Phelps"),
Fitch Investors Services, Inc. ("Fitch") and, with respect to certain
types of securities, IBCA Limited and its affiliate, IBCA Inc.
Subcategories or gradations in ratings (such as a "+" or "-") do not
count as rating categories.
** An "Unrated Security" is generally a security (i) with a remaining
maturity of 397 calendar days or less issued by an issuer that did
not, at the time the security was acquired or rolled over by the
Fund, have a current short-term rating assigned by any NRSRO, either
as to the particular security or as to any other class of debt
obligations of comparable priority and security; (ii) that was a
long-term security at the time of issuance and whose issuer has not
received from any NRSRO a short-term rating with respect to a class
of debt obligations now comparable in priority and security; and
(iii) that is rated but which is the subject of an external credit
support agreement not in effect when the security (or the issuer) was
assigned its rating unless the security has a rating from an NRSRO
reflecting the existence of the credit support agreement.
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two highest short-term rating categories (within which
there may be sub-categories or gradations indicating
relative standing); or
(ii) a security:
(A) that at the time of issuance had a remaining
maturity of more than 397 calendar days but that has
a remaining maturity of 397 calendar days or less;
and
(B) whose issuer has received from the Requisite NRSROs
a rating with respect to a class of debt obligations
(or any debt obligation within that class) that is
now comparable in priority and security with the
security, in one of the two highest short-term
rating categories (within which there may be
sub-categories or gradations indicating relative
standing); or
(iii) an unrated security that is of comparable quality to a
security meeting the requirements of (i) or (ii) above, as
determined by the Company's Board of Directors; provided,
however, that:
(A) the Board of Directors may base its determination
that a standby commitment that is not a demand
feature is an Eligible Security upon a finding that
the issuer of the commitment presents a minimal risk
of default;
(B) a security that at the time of issuance had a
remaining maturity of more than 397 calendar days
but that has a remaining maturity of 397 calendar
days or less and that is an unrated security is not
an Eligible Security if the security has received a
long-term rating from any NRSRO that is not within
the NRSRO's three highest long-term ratings
categories (within which there may be sub-categories
or gradations indicating relative standing);
(C) an asset backed security shall not be an Eligible
Security unless it has a debt rating from an NRSRO;
and
(D) a security that is subject to a demand feature shall
not be an Eligible Security unless:
(1) the demand feature has received a
short-term rating from an NRSRO (or the
issuer of the demand feature has received
from an NRSRO a short-term rating with
respect to a class of debt obligations or
any debt obligation within that class that
is comparable in priority and security to
the demand feature); and
(2) the issuer of the demand feature, or
another institution, undertakes to notify
promptly the holder of the security in the
event that the demand feature is
substituted with a demand feature provided
by another issuer.
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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
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 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.
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 lower end of its generic rating category.
46
<PAGE> 85
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 variable rate demand obligation (VRDO). Such ratings will be designated
as VMIG or, if the demand feature is not rated, as NR. Short-term ratings on
issues with demand features are differentiated by the use of the VMIG symbol to
reflect such characteristics as payment upon periodic demand rather than fixed
maturity dates and payment relying on external liquidity. Additionally,
investors should be alert to the fact that the source of payment may be limited
to the external liquidity with no or limited legal recourse to the issuer in
the event the demand is not met.
A VMIG rating may also be assigned to commercial paper programs. Such
programs are characterized as having variable short-term maturities but having
neither a variable rate nor demand feature.
Moody's short-term ratings are designated Moody's Investment Grade as
MIG 1 or VMIG 1 through MIG 4 or VMIG 4.
Gradations of investment quality are indicated by rating symbols, with
each symbol representing a group in which the quality characteristics are
broadly the same.
MIG 1/VMIG 1: This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2: This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG 3/VMIG 3: This designation denotes favorable quality. All security elements
are accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
MIG 4/VMIG 4: This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.
MOODY'S COMMERCIAL PAPER RATINGS
Moody's commercial paper ratings are opinions of the ability of issues
to repay punctually promissory obligations not having an original maturity in
excess of nine months.
PRIME-1: Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
leading market positions in well-established industries; high rates of return
on funds employed; conservative capitalization structures with moderate
reliance on debt and ample asset protection; broad margins in 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.
47
<PAGE> 86
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.
S&P BOND RATINGS
S&P describes its ratings for corporate bonds as follows:
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB-B-CCC-CC-C: Debt rated BB, B, CCC, CC and C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. BB indicates the least degree of speculation and
C the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or large exposure
to adverse conditions.
S&P DUAL RATINGS
S&P assigns "dual" ratings to all debt issues that have a put option
or demand feature as part of their structure.
The first rating addresses the likelihood of repayment of principal
and interest as due, and the second rating addresses only the demand feature.
The long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols for the put option (for
example, AAA/A-1+). With short-term demand debt, the note rating symbols are
used with the commercial paper rating symbols (for example, SP-1+/A-1+).
48
<PAGE> 87
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 the issue depends on the market for its
refinancing, the more likely it is to be treated as a note).
Note rating symbols and definitions are as follows.
SP-1: Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3: Speculative capacity to pay principal and interest.
S&P COMMERCIAL PAPER RATINGS
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: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-3: Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes
in circumstances than obligations carrying the higher designations.
B: Issues with this rating are regarded as having only speculative capacity for
timely payment.
C: This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D: Debt with this rating is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless it is believed that such
payments will be made during such grace period.
FITCH INVESTMENT GRADE BOND RATINGS
Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
represent Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue in a timely manner.
49
<PAGE> 88
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 carrying the same rating are of similar but not necessarily
identical credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell or hold any
security. Ratings do not comment on the adequacy of market price, the
suitability of any security for a particular investor, or the tax-exempt nature
or taxability of payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA." Because bonds rated in the
"AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated
"F-1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds
and, therefore, impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
PLUS (+) MINUS (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA" category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of a
project or the occurrence of a specific event.
SUSPENDED: A rating is suspended when Fitch deems the amount of information
available from the issuer to be inadequate for rating purposes.
WITHDRAWN: A rating will be withdrawn when an issue matures or is called or
refinanced, and, at Fitch's discretion, when an issuer fails to furnish proper
and timely information.
50
<PAGE> 89
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.
RATINGS OUTLOOK
An outlook is used to describe the most likely direction of any rating
change over the intermediate term. It is described as "Positive" or "Negative."
The absence of a designation indicates a stable outlook.
FITCH SPECULATIVE GRADE BOND RATINGS
Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
("BB" to "C") represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating ("DDD" to "D") is an
assessment of the ultimate recovery value through reorganization or
liquidation.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer or possible recovery value in
bankruptcy, the current and prospective financial condition and operating
performance of the issuer and any guarantor, as well as the economic and
political environment that might affect the issuer's future financial strength.
Bonds that have the same rating are of similar but not necessarily
identical credit quality since rating categories cannot fully reflect the
differences in degrees of credit risk.
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified, which could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity throughout
the life of the issue.
CCC: Bonds have certain identifiable characteristics that, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D"
represents the lowest potential for recovery.
PLUS (+) MINUS (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "DDD", "DD", or "D" categories.
51
<PAGE> 90
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.
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.
52
<PAGE> 91
FINANCIAL STATEMENTS
FS
<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-Exempt Cash Fund (a portfolio of
AIM Tax-Exempt Funds, Inc.), including the schedule of
investments, as of March 31, 1997, and the related
statement of operations for the year then ended, the
statement of changes in net assets for each of the years
in the two-year period then ended and the financial
highlights for each of the years in the three-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, 1997, 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, 1997, 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 three-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.
KPMG Peat Marwick LLP
Houston, Texas
May 2, 1997
FS-1
<PAGE> 93
SCHEDULE OF INVESTMENTS
MARCH 31, 1997
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
MUNICIPAL SECURITIES-81.70%
ALABAMA-2.28%
Alabama Industrial
Development Board
(Industrial Partners
Project); Variable/Fixed
Rate Refunding Series 1989
RB
3.60%, 01/01/07(b)(c) -- VMIG-1 $1,295 $ 1,295,000
- --------------------------------------------------------------------
ALASKA-0.80%
Fairbanks North Star
(Borough of) Alaska; GO
8.00%, 11/01/97(d) AAA Aaa 445 455,065
- --------------------------------------------------------------------
ARIZONA-1.06%
Maricopa (County of) Union
High School District No.
210; Series 1989 B GO
6.55%, 07/01/97 AA Aa 600 604,114
- --------------------------------------------------------------------
COLORADO-7.12%
Colorado Housing Finance
Authority (Grant Plaza
Project); Multifamily
Mortgage Series 1991 A RB
3.525%, 11/01/09(b)(c) -- VMIG-1 800 800,000
- --------------------------------------------------------------------
Denver (City of) (Helen
Bonfils Theatre Complex
Project); Adjustable Rate
Series 1997 A RB
3.61%, 01/01/17(b)(c)(e) -- -- 1,000 1,000,000
- --------------------------------------------------------------------
Eagle (County of) Smith
Creek Metropolitan
District; Variable Rate
Series 1997 RB
3.15%, 10/01/35(b)(c) A-1+ -- 2,250 2,250,000
- --------------------------------------------------------------------
4,050,000
- --------------------------------------------------------------------
DISTRICT OF COLUMBIA-1.93%
District of Columbia;
Georgetown University
Issue Series 1988 B RB
3.40%, 04/01/17(b)(c) A-1+ VMIG-1 1,100 1,100,000
- --------------------------------------------------------------------
FLORIDA-2.49%
Dade (County of) Health
Facilities Authority
Hospital (Baptist Hospital
Miami Project); RB
7.375%, 05/01/97(f)(g) AAA -- 400 409,051
- --------------------------------------------------------------------
Okalusa (County of) School
Board; Sales Tax RB
5.00%, 09/01/97(d) AAA Aaa 1,000 1,005,754
- --------------------------------------------------------------------
1,414,805
- --------------------------------------------------------------------
GEORGIA-9.15%
Dekalb (County of) Private
Hospital Authority
(Egleston Children's
Hospital at Emory
University); Variable Rate
Demand Series 1994 A RAN
3.45%, 03/01/24(b)(c) A-1+ VMIG-1 2,200 2,200,000
- --------------------------------------------------------------------
Elbert & Bowman (Counties
of) (Seaboard Farms of
Elberton); Series 1985 IDR
3.55%, 07/01/05(b)(c) A-1 -- 1,000 1,000,000
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
GEORGIA-(CONTINUED)
Monroe (County of) Georgia
Development Authority
(Oglethorpe Power Corp.);
Pollution Control Series A
RB
5.35%, 01/01/98(d) AAA Aaa $ 500 $ 505,076
- --------------------------------------------------------------------
Roswell (City of) Georgia
Housing Development
Authority (Azalea
Project); Multifamily
Housing Series 1996 RB
3.45%, 06/15/25(b)(c) A-1+ -- 1,500 1,500,000
- --------------------------------------------------------------------
5,205,076
- --------------------------------------------------------------------
ILLINOIS-9.44%
Illinois Development Finance
Authority (Chicago
Symphony Orchestra
Project); Variable/Fixed
Rate Demand Series 1996 RB
3.50%, 06/01/31(b)(c) A-1+ VMIG-1 2,000 2,000,000
- --------------------------------------------------------------------
Illinois Health Facilities
Authority (Children's
Memorial Hospital
Project); RB
3.50%, 11/01/15(b)(c)(e) -- -- 1,950 1,950,000
- --------------------------------------------------------------------
Illinois Health Facilities
Authority (Franciscan
Eldercare Project);
Adjustable Rate Refunding
Series 1996 C RB
3.50%, 05/15/26(b)(c) A-1+ -- 1,420 1,420,000
- --------------------------------------------------------------------
5,370,000
- --------------------------------------------------------------------
INDIANA-3.69%
Indianapolis (City of)
(Children's Museum
Project); Economic
Development Floating Rate
Series 1995 RB
3.45%, 10/01/25(b)(c) A-1+ -- 1,400 1,400,000
- --------------------------------------------------------------------
Indianapolis (City of)
(Local Public Improvement
Bond Bank Notes); Series
1996 F RB
4.125%, 07/10/97(c) SP-1+ -- 700 701,117
- --------------------------------------------------------------------
2,101,117
- --------------------------------------------------------------------
MARYLAND-1.23%
Maryland Industrial
Development Financing
Authority (Liberty Medical
Center); Variable Rate
Demand/Fixed Rate 1989
Issue Refunding RB
3.55%, 07/01/18(b)(c) -- VMIG-1 700 700,000
- --------------------------------------------------------------------
MICHIGAN-2.73%
Michigan State Hospital
Finance Authority
(Hospital Equipment Loan
Program); Adjustable
Series 1995 A RB
3.55%, 12/01/23(b)(c) -- VMIG-1 800 800,000
- --------------------------------------------------------------------
Michigan (State of) Housing
Development Authority
Rental Housing; Series
1994 C RB
3.45%, 04/01/19(b)(c) A-1+ -- 550 550,000
- --------------------------------------------------------------------
</TABLE>
FS-2
<PAGE> 94
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
MICHIGAN-(CONTINUED)
Plymouth (Township of)
Economic Development Corp.
(Key International
Project); Variable Rate
Demand Series 1984 RB
3.60%, 07/01/04(b)(c)(e) -- -- $ 200 $ 200,000
- --------------------------------------------------------------------
1,550,000
- --------------------------------------------------------------------
MINNESOTA-0.88%
Mankato (City of) (Northern
States Power Co. Project);
Floating Collateralized
Series 1985 PCR
3.55%, 03/01/11(c) AA- A1 500 500,000
- --------------------------------------------------------------------
MISSOURI-2.46%
Missouri (State of) Health
and Education Facilities
Authority Washington
University; Series 1996 A
RB
3.80%, 09/01/30(c) A-1+ VMIG-1 1,400 1,400,000
- --------------------------------------------------------------------
MONTANA-1.76%
Missoula (County of)
(Washington Corp.
Project); Floating Rate
Monthly Demand Series 1984
IDR
3.50%, 11/01/04(b)(c)(e) -- -- 1,000 1,000,000
- --------------------------------------------------------------------
NEVADA-4.75%
Clark (County of) (Nevada
Power Co. Project);
Refunding Series 1995 C
IDR
3.45%, 10/01/30(b)(c) A-1+ -- 1,000 1,000,000
- --------------------------------------------------------------------
Clark (County of) Airport
System; Series 1993 A RB
3.45%, 07/01/12(c)(d) A-1+ VMIG-1 1,700 1,700,000
- --------------------------------------------------------------------
2,700,000
- --------------------------------------------------------------------
NEW HAMPSHIRE-2.46%
New Hampshire Higher
Education and Health
Facilities Authority;
Variable Rate Hospital
Series 1985 C RB
3.45%, 12/01/25(c)(d) A-1 -- 1,400 1,400,000
- --------------------------------------------------------------------
NEW YORK-1.76%
New York (City of); General
Obligation Fiscal Series
1997 B RAN
4.50%, 06/30/97(b) SP-1+ MIG-1 1,000 1,002,672
- --------------------------------------------------------------------
NORTH CAROLINA-6.07%
Alamance (County of)
Industrial Facilities and
Pollution Control
Financing Authority
(Science Manufacturing,
Inc. Project); Series 1985
IDR
3.90%, 04/01/15(b)(c) -- P-1 1,400 1,400,000
- --------------------------------------------------------------------
New Hanover (County of)
Industrial Facilities and
Pollution Control
Financing Authority
(Gang-Nail Systems, Inc.
Project); Series 1984 IDR
3.50%, 12/01/99(b)(c) -- P-1 1,300 1,300,000
- --------------------------------------------------------------------
Raleigh Durham Airport
Authority (American
Airlines Project); Series
1995 Refunding RB
3.80%, 11/01/15(b)(c) A-1 -- 750 750,000
- --------------------------------------------------------------------
3,450,000
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
OHIO-4.92%
Delaware (County of)
(Radiation Sterilizers,
Inc.); Series 1984 IDR
3.60%, 12/01/04(b)(c) A-1 -- $ 300 $ 300,000
- --------------------------------------------------------------------
Lucus (County of) (Lutheran
Homes Society Project);
Adjustable Rate Demand
Health Care Facilities
1996 RB
3.45%, 11/01/19(b)(c) A-1+ -- 2,500 2,500,000
- --------------------------------------------------------------------
2,800,000
- --------------------------------------------------------------------
PENNSYLVANIA-2.20%
Allentown (City of) School
District; Series 1991 GO
6.00%, 08/01/07(d) AAA Aaa 250 251,638
- --------------------------------------------------------------------
Delaware (County of)
Industrial Development
Authority (Scotfoam Corp.
Project); Variable Rate
Demand Series 1985 IDR
3.60%, 10/01/05(b)(c)(e) -- -- 1,000 1,000,000
- --------------------------------------------------------------------
1,251,638
- --------------------------------------------------------------------
RHODE ISLAND-1.76%
Rhode Island (State of)
Industrial Facilities
Authority (Blackstone
Valley Electric Company);
Variable Rate Series 1984
RB
3.50%, 12/01/14(b)(c) A-1 -- 1,000 1,000,000
- --------------------------------------------------------------------
TENNESSEE-2.23%
Industrial Development Board
of the Metropolitan
Government of Nashville &
Davidson County
(Amberwood, Ltd. Project);
Multifamily Housing Series
1993 A RB
3.76%, 07/01/13(b)(c) -- VMIG-1 1,270 1,270,000
- --------------------------------------------------------------------
TEXAS-4.66%
Harris (County of) Sub Lien
Toll Road Series D RB
3.30%, 08/01/15(b)(c) A-1+ VMIG-1 1,000 1,000,000
- --------------------------------------------------------------------
Richardson (City of)
Independent School
District; Series 1993
Refunding GO
4.10%, 08/15/97 AA Aa1 250 250,410
- --------------------------------------------------------------------
Trinity River Industrial
Development Authority
(Radiation Sterilizers,
Inc. Project); Variable
Rate Demand Series 1985 A
IDR
3.60%, 11/01/05(b)(c) A-1 -- 1,400 1,400,000
- --------------------------------------------------------------------
2,650,410
- --------------------------------------------------------------------
UTAH-2.29%
Salt Lake (County of);
Series 1992 GO
5.00%, 06/15/97 AA+ Aaa 500 501,474
- --------------------------------------------------------------------
Salt Lake (County of)
(Service Station Holdings
Inc. Project-The British
Petroleum Co. plc); Series
1994 Refunding RB
3.80%, 02/01/08(c) A-1+ P-1 800 800,000
- --------------------------------------------------------------------
1,301,474
- --------------------------------------------------------------------
</TABLE>
FS-3
<PAGE> 95
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
WASHINGTON-0.88%
Industrial Development Corp.
of Port Townsend (Port
Townsend Paper Corp.
Project); Series 1988 A
Refunding RB
3.55%, 03/01/09(b)(c) VMIG-1 $ 500 $ 500,000
- --------------------------------------------------------------------
WISCONSIN-0.70%
Wisconsin (State of); GO
4.50%, 06/16/97 SP-1+ MIG-1 400 400,519
- --------------------------------------------------------------------
Total Municipal
Securities 46,471,890
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) MARKET
S&P Moody's PAR VALUE
<S> <C> <C> <C> <C>
TAXABLE COMMERCIAL PAPER(H)(I)-9.17%
Cargill Financial Services
Corp.-(Food Processing),
5.35%, 08/26/97 A-1+ P-1 $2,000 $ 1,956,308
- --------------------------------------------------------------------
Merrill Lynch & Co.
Inc.-(Broker-Dealer),
5.32%, 08/12/97 A-1+ P-1 1,800 1,764,622
- --------------------------------------------------------------------
Receivables Capital
Corp.-(Receivable Pools),
5.37%, 05/28/97 A-1+ P-1 1,507 1,494,187
- --------------------------------------------------------------------
Total Taxable Commercial Paper 5,215,117
- --------------------------------------------------------------------
REPURCHASE AGREEMENT(i)(j)-6.33%
Goldman, Sachs & Co., Inc.
6.50% 04/01/97(k) 3,598,070
- --------------------------------------------------------------------
TOTAL INVESTMENTS- 97.20% 55,285,077(l)
- --------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-2.80% 1,595,115
- --------------------------------------------------------------------
NET ASSETS-100.00% $ 56,880,192
- --------------------------------------------------------------------
</TABLE>
ABBREVIATIONS:
<TABLE>
<S> <C>
GO -- General Obligation Bonds
IDR -- Industrial Development Revenue Bonds
PCR -- Pollution Control Revenue Bonds
RAN -- Revenue Anticipation Notes
RB -- Revenue Bonds
</TABLE>
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 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 thirteen months. Interest rate is redetermined periodically.
Rate shown is the rate in effect on 03/31/97.
(d) Secured by bond insurance.
(e) 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.
(f) Secured by an escrow fund of U.S. Treasury obligations.
(g) Subject to an irrevocable call or mandatory put by the issuer. Maturity date
and value reflect such call or put.
(h) Some commercial paper is traded on a discount basis. In such cases the
interest rate shown represents the rate of discount paid or received at the
time of purchase by the Fund.
(i) Interest does not qualify as exempt interest for federal tax purposes.
(j) 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, private
accounts, and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(k) Joint repurchase agreement entered into 03/31/97 with a maturing value of
$575,103,819. Collateralized by U.S. Treasury obligations, 0% to 9.25% due
07/24/97 to 02/15/16 with an aggregate market value at March 31, 1997 of
$587,066,889.
(l) Also represents costs for federal income tax purposes.
See Notes to Financial Statements
FS-4
<PAGE> 96
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at value (amortized cost) $ 55,285,077
- ------------------------------------------------------------
Receivables for:
Fund shares sold 1,573,139
- ------------------------------------------------------------
Interest 216,636
- ------------------------------------------------------------
Investment for deferred compensation plan 17,708
- ------------------------------------------------------------
Other assets 15,190
- ------------------------------------------------------------
Total assets 57,107,750
- ------------------------------------------------------------
LIABILITIES:
Payables for:
Dividends 2,450
- ------------------------------------------------------------
Deferred compensation 17,708
- ------------------------------------------------------------
Fund shares reacquired 133,479
- ------------------------------------------------------------
Accrued advisory fees 16,004
- ------------------------------------------------------------
Accrued distribution fees 11,162
- ------------------------------------------------------------
Accrued administrative service fees 5,768
- ------------------------------------------------------------
Accrued transfer agent fees 11,718
- ------------------------------------------------------------
Accrued operating expenses 29,269
- ------------------------------------------------------------
Total liabilities 227,558
- ------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $ 56,880,192
============================================================
Capital stock, $.001 par value per share:
Authorized 1,000,000,000
- ------------------------------------------------------------
Outstanding 56,877,041
============================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE $ 1.00
============================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended March 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $1,370,128
- -----------------------------------------------------------
EXPENSES:
Advisory fees 125,537
- -----------------------------------------------------------
Custodian fees 9,962
- -----------------------------------------------------------
Administrative service fees 34,329
- -----------------------------------------------------------
Directors' fees and expenses 6,846
- -----------------------------------------------------------
Transfer agent fees 71,297
- -----------------------------------------------------------
Distribution fees 89,659
- -----------------------------------------------------------
Registration and filing fees 29,153
- -----------------------------------------------------------
Other 58,376
- -----------------------------------------------------------
Total expenses 425,159
- -----------------------------------------------------------
Less: Fees waived by advisor (53,795)
- -----------------------------------------------------------
Net expenses 371,364
- -----------------------------------------------------------
Net investment income 998,764
- -----------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES:
Net realized gain on sales of investment
securities 7,711
- -----------------------------------------------------------
Net unrealized appreciation (depreciation) of
investment securities (741)
- -----------------------------------------------------------
Net gain on investment securities 6,970
- -----------------------------------------------------------
Net increase in net assets resulting from
operations $1,005,734
============================================================
</TABLE>
See Notes to Financial Statements.
FS-5
<PAGE> 97
STATEMENT OF CHANGES IN NET ASSETS
For the years ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
OPERATIONS:
Net investment income $ 998,764 $ 861,666
- ---------------------------------------------------------------------------------------
Net realized gain on sales of investment securities 7,711 12,256
- ---------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities (741) (1,694)
- ---------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,005,734 872,228
- ---------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (996,476) (838,861)
- ---------------------------------------------------------------------------------------
Net increase (decrease) from capital stock transactions 26,856,591 (383,580)
- ---------------------------------------------------------------------------------------
Net increase (decrease) in net assets 26,865,849 (350,213)
- ---------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 30,014,343 30,364,556
- ---------------------------------------------------------------------------------------
End of period $56,880,192 $30,014,343
=======================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $56,877,041 $30,020,450
=======================================================================================
Undistributed net investment income 34,005 31,717
=======================================================================================
Undistributed realized gain (loss) on sales of investment
securities (30,854) (38,565)
=======================================================================================
Unrealized appreciation of investment securities -- 741
=======================================================================================
$56,880,192 $30,014,343
=======================================================================================
</TABLE>
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
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. It is
the policy of the Fund to declare daily dividends from net investment income.
Such dividends 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 $33,594
(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.
FS-6
<PAGE> 98
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.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to reimburse AIM for certain administrative costs incurred in providing
accounting services to the Fund. During the year ended March 31, 1997, the Fund
reimbursed AIM $34,329 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, 1997, the Fund paid AFS
$39,534 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 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. During the year ended March 31, 1997, AIM
Distributors waived $53,795. 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, 1997, the Fund paid AIM Distributors $35,864 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 $3,973 for services
rendered by Kramer, Levin, Naftalis & 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.
NOTE 4-CAPITAL STOCK
Changes in capital stock outstanding during the years ended March 31, 1997 and
1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------------- --------------------------
SHARES VALUE SHARES VALUE
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Sold 96,643,811 $ 96,643,811 42,892,892 $ 42,892,892
- ------------------------------------------------------------------------------
Issued as
reinvestment of
dividends 948,679 948,679 808,372 808,372
- ------------------------------------------------------------------------------
Reacquired (70,735,899) (70,735,899) (44,084,844) (44,084,844)
- ------------------------------------------------------------------------------
26,856,591 $ 26,856,591 (383,580) $ (383,580)
==============================================================================
</TABLE>
NOTE 5-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of capital stock
outstanding during each of the years in the three-year period ended March 31,
1997, the three months ended March 31, 1994 and each of the years in the
six-year period ended December 31, 1993.
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
----------------------------------------------- --------------------------------
1997 1996 1995 1994 1993 1992(A) 1991
-------- -------- -------- -------- -------- -------- --------
<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 0.03 0.004 0.02 0.02 0.04
- ------------------------------------------ -------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.03) (0.03) (0.03) (0.004) (0.02) (0.02) (0.04)
- ------------------------------------------ -------- -------- -------- -------- -------- -------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------ -------- -------- -------- -------- -------- -------- --------
Total return 2.82% 2.92% 2.54% 1.73%(b) 1.78% 2.42% 3.91%
- ------------------------------------------ -------- -------- -------- -------- -------- -------- --------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $ 56,880 $ 30,014 $ 30,365 $ 33,658 $ 35,230 $ 41,291 $ 43,366
- ------------------------------------------ -------- -------- -------- -------- -------- -------- --------
Ratio of expenses to average net assets 1.04%(c)(d) 1.05%(d) 1.01%(d) 1.00%(b)(d) 1.00%(d) 0.98%(d) 0.98%
- ------------------------------------------ -------- -------- -------- -------- -------- -------- --------
Ratio of net investment income to average
net assets 2.78%(c)(e) 2.97%(e) 2.53%(e) 1.75%(b)(e) 1.76%(e) 2.42%(e) 3.87%
- ------------------------------------------ -------- -------- -------- -------- -------- -------- --------
<CAPTION>
DECEMBER 31,
------------------------------
1990 1989 1988
-------- -------- --------
<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 0.05
- ------------------------------------------ -------- -------- --------
Less distributions:
Dividends from net investment income (0.05) (0.05) (0.05)
- ------------------------------------------ -------- -------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------ -------- -------- --------
Total return 5.17% 5.62% 4.65%
- ------------------------------------------ -------- -------- --------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $ 43,302 $ 45,995 $ 51,597
- ------------------------------------------ -------- -------- --------
Ratio of expenses to average net assets 0.99% 0.93% 0.83%
- ------------------------------------------ -------- -------- --------
Ratio of net investment income to average
net assets 5.05% 5.48% 4.54%
- ------------------------------------------ -------- -------- --------
</TABLE>
(a) The Fund changed investment advisors on June 30, 1992.
(b) Annualized.
(c) Ratios are based on average daily net assets of $35,863,626.
(d) After waiver of fees and/or expense reimbursements. Ratios of expenses to
average net assets prior to waiver of fees and/or expense reimbursements
were 1.19%, 1.20%, 1.16%, 1.14% (annualized), 1.36% and 1.00% for the
periods 1997 - 1992, respectively.
(e) After waiver of fees and/or expense reimbursements. Ratios of income to
average net assets prior to waiver of fees and/or expense reimbursements
were 2.63%, 2.82%, 2.38, 1.61% (annualized), 1.40% and 2.40% for the periods
1997-1992, respectively.
FS-7
<PAGE> 99
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, 1997, and the
related statement of operations for the year then ended,
the statement of changes in net assets for each of the
years in the two-year period then ended and the financial
highlights for each of the years in the eight-year period
then ended, the eleven-month period ended March 31, 1989,
and 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, 1997, by correspondence
with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all
material respects, the financial position of AIM Tax-Free
Intermediate Shares as of March 31, 1997, 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 eight-year period then ended, the eleven-month
period ended March 31, 1989, and 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 2, 1997
FS-8
<PAGE> 100
SCHEDULE OF INVESTMENTS
March 31, 1997
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
ALABAMA-0.24%
Alabama State Municipal Electric
Authority; Power Supply
Series A RB
6.30%, 09/01/01(b) AAA Aaa $ 400 $ 422,600
- -------------------------------------------------------------------------
ALASKA-5.77%
Alaska Housing Finance Corp.;
General Mortgage Series A RB
3.45%, 06/01/26(c)(d) AAA VMIG1 8,000 8,000,000
- -------------------------------------------------------------------------
Anchorage (City of); School
Series 1994 GO
5.50%, 07/01/06(b) AAA Aaa 1,950 1,998,087
- -------------------------------------------------------------------------
9,998,087
- -------------------------------------------------------------------------
ARIZONA-2.63%
Arizona (State of); Educational
Loan Marketing Corp.
Series A Refunding RB
6.55%, 03/01/99 -- A 1,000 1,030,980
- -------------------------------------------------------------------------
Cochise (County of);
Series 1990 Certificates of
Participation
4.15%, 08/01/98(b) AAA Aaa 180 179,968
- -------------------------------------------------------------------------
Maricopa County Gilbert Unified
School District #41 (Project of
1988); School Improvement
Series 1992 E GO
6.20%, 07/01/02(e) AAA Aaa 1,250 1,339,137
- -------------------------------------------------------------------------
Mesa Industrial Development
Authority (Western Health
Network-Mesa Lutheran Project);
Health Care Facilities
Refunding
Series 1988 B1 RB
7.50%, 01/01/04(b) AAA Aaa 700 740,922
- -------------------------------------------------------------------------
Mohave County Unified School
District #1; Lake Havasu Series
A GO
5.40%, 07/01/06(b) AAA Aaa 200 202,596
- -------------------------------------------------------------------------
Phoenix (City of); Senior Lien
Street and Highway User
Refunding
Series 1992 RB
6.20%, 07/01/02 AA A1 1,000 1,067,000
- -------------------------------------------------------------------------
4,560,603
- -------------------------------------------------------------------------
ARKANSAS-1.17%
Little Rock (City of) (Baptist
Medical Center); Health
Facility Hospital RB
6.70%, 11/01/04(b) AAA Aaa 1,400 1,509,172
- -------------------------------------------------------------------------
North Little Rock (City of);
Electric System Refunding
Series 1992 A RB
6.00%, 07/01/01(b) AAA Aaa 500 527,260
- -------------------------------------------------------------------------
2,036,432
- -------------------------------------------------------------------------
CALIFORNIA-2.48%
Folsom (City of) (School
Facilities Project);
Series 1994 B GO
6.00%, 08/01/02(b) AAA Aaa 500 527,870
- -------------------------------------------------------------------------
Inglewood (City of) (Daniel
Freeman Hospital Inc.); Insured
Hospital
Series 1991 RB
6.50%, 05/01/01 A -- 400 418,716
- -------------------------------------------------------------------------
Oakland (City of); Housing
Finance
Issue D-1 RB
6.70%, 01/01/98 A+ -- 165 166,983
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
CALIFORNIA-(CONTINUED)
Orange (County of); Refunding
Recovery
Series A RB
5.50%, 06/01/06(b) AAA Aaa $1,000 $ 1,028,910
- -------------------------------------------------------------------------
Parking Authority of the City and
County of San Francisco;
Parking Meter
Series 1994 RB
6.75%, 06/01/05(b) AAA Aaa 500 556,230
- -------------------------------------------------------------------------
Rancho Mirage Joint Powers
Authority (Eisenhower Medical
Center);
Series A Certificate of
Participation
5.10%, 07/01/07(b) AAA Aaa 1,000 984,260
- -------------------------------------------------------------------------
Regents (The) of the University
of California (Multiple Purpose
Projects); Refunding
Series A RB
5.75%, 09/01/97 A A2 250 251,573
- -------------------------------------------------------------------------
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 100 107,230
- -------------------------------------------------------------------------
West End Water Development,
Treatment, and Conservation
Joint Powers Authority; 1990
Water Facilities
Certificate of Participation
7.00%, 10/01/00 BBB+ A 250 264,045
- -------------------------------------------------------------------------
4,305,817
- -------------------------------------------------------------------------
COLORADO-0.05%
Colorado Student Obligation Bond
Authority; Student Loan
Series 1985 B RB
6.125%, 12/01/98 -- A 80 81,169
- -------------------------------------------------------------------------
CONNECTICUT-0.07%
Connecticut (State of) Special
Tax Obligation; Second Lien
Transportation and
Infrastructure Purpose S-1 RB
3.40%, 12/01/10(c)(d) AA- VMIG1 130 130,000
- -------------------------------------------------------------------------
DELAWARE-0.45%
Delaware Transportation
Authority; Senior Lien
Transportation System
Series 1991 RB
6.00%, 07/01/01(e)(f) AAA Aaa 750 786,173
- -------------------------------------------------------------------------
DISTRICT OF COLUMBIA-3.35%
District of Columbia; Refunding
Series B GO
6.75%, 06/01/99(b) AAA Aaa 750 778,897
- -------------------------------------------------------------------------
District of Columbia;
Series B GO
6.125%, 06/01/03(b) AAA Aaa 3,020 3,186,523
- -------------------------------------------------------------------------
District of Columbia (Medlantic
Healthcare Group);
Series 1996 A RB
6.00%, 08/15/06(b) AAA Aaa 1,550 1,632,677
- -------------------------------------------------------------------------
District of Columbia (The Howard
University Issue); University
Series 1990 A RB
6.90%, 10/01/00 A+ A3 200 213,098
- -------------------------------------------------------------------------
5,811,195
- -------------------------------------------------------------------------
</TABLE>
FS-9
<PAGE> 101
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
FLORIDA-3.71%
Dade (County of) School District;
Refunding
Series 1996 GO
6.00%, 07/15/06(b) AAA Aaa $1,900 $ 2,035,185
- -------------------------------------------------------------------------
Dade (County of); Water and Sewer
RB
5.00%, 10/01/99(b) AAA Aaa 225 228,049
- -------------------------------------------------------------------------
Palm Beach County Solid Waste
Authority; RB
7.90%, 07/01/97 A A2 100 100,939
- -------------------------------------------------------------------------
Palm Beach County Solid Waste
Authority; Refunding Series
1997 A RB
5.50%, 10/01/06(b) AAA Aaa 4,000 4,068,000
- -------------------------------------------------------------------------
6,432,173
- -------------------------------------------------------------------------
GEORGIA-3.89%
Albany (City of); Sewer System
Series 1992 RB
6.30%, 07/01/02(e) AAA Aaa 500 533,645
- -------------------------------------------------------------------------
Chatham (County of) Hospital
Authority (Memorial Medical
Center); Refunding Series 1996
A RB
5.10%, 01/01/07(b) AAA Aaa 1,000 989,330
- -------------------------------------------------------------------------
Dekalb Private Hospital Authority
(Egleston Children's Hospital
at Emory University, Inc.
Project); Series 1994 A RB
3.45%, 03/01/24(c)(d) AA- VMIG1 800 800,000
- -------------------------------------------------------------------------
Fulton (County of); Water and
Sewer Refunding Series 1992 RB
5.75%, 01/01/02(b) AAA Aaa 715 744,680
- -------------------------------------------------------------------------
Georgia (State of);
Series 1988 D GO
7.10%, 06/01/99 AA- Aaa 2,000 2,105,120
- -------------------------------------------------------------------------
Georgia State Municipal Electric
Authority; Series V RB
6.00%, 01/01/01(b) AAA Aaa 1,000 1,040,240
- -------------------------------------------------------------------------
Metropolitan Atlanta Rapid
Transit Authority; Sales Tax
Refunding
Series M RB
6.15%, 07/01/02 AA- A1 500 532,115
- -------------------------------------------------------------------------
6,745,130
- -------------------------------------------------------------------------
HAWAII-3.05%
Hawaii (State of); Refunding
Series 1997 GO
6.00%, 03/01/07(b) AAA Aaa 5,000 5,281,250
- -------------------------------------------------------------------------
ILLINOIS-5.83%
Chicago (City of) (Central Public
Library Project); Adjustable
Rate
Series 1988 C GO
6.10%, 01/01/99(b) AAA Aaa 500 513,150
- -------------------------------------------------------------------------
Chicago (City of);
Series 1997 GO
6.00%, 01/01/06(b) AAA Aaa 500 525,620
- -------------------------------------------------------------------------
Chicago Park District; Capital
Improvement
Series 1991 GO
5.80%, 01/01/98(e) AA- A1 750 759,585
- -------------------------------------------------------------------------
Illinois Development Finance
Authority Chicago Symphony
Project; RB
3.50%, 06/01/31(c)(d) AA- VMIG1 756 756,000
- -------------------------------------------------------------------------
Illinois Educational Facilities
Authority (Augustana College);
Series 1997 RB
4.80%, 10/01/99(b) AAA -- 375 376,920
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
ILLINOIS-(CONTINUED)
Illinois Health Facilities
Authority (Mercy Hospital and
Medical Center); Refunding
Series 1992 RB
6.20%, 01/01/00 A- Baa1 $ 250 $ 255,013
- -------------------------------------------------------------------------
Illinois Health Facilities
Authority;
Series D RB
3.50%, 08/01/15(c)(d) AA- VMIG1 1,150 1,150,000
- -------------------------------------------------------------------------
Illinois Health Facilities
Authority (Children's Memorial
Hospital Project); Series 1985
B RB
3.50%, 11/01/15(c)(d) AA- VMIG1 2,050 2,050,000
- -------------------------------------------------------------------------
Illinois Regional Transit
Authority; Series B RB
6.30%, 6/01/04(e)(f) AAA Aaa 1,000 1,092,670
- -------------------------------------------------------------------------
Joliet (City of); Waterworks and
Sewer Series 1991 RB
6.95%, 01/01/01(b) AAA Aaa 250 266,785
- -------------------------------------------------------------------------
Kane (County of) Public Building
Commission; Unlimited Tax
Public Building Series B GO
6.20%, 12/01/01 -- Aa 700 725,746
- -------------------------------------------------------------------------
Kankakee County School District
#111; GO
5.40%, 01/01/07(b) -- Aaa 625 628,837
- -------------------------------------------------------------------------
Village of Hoffman Estates (Park
Place Apartment Project);
Series 1996 RB
5.75%, 06/01/06(f) AAA Aaa 1,000 1,000,550
- -------------------------------------------------------------------------
10,100,876
- -------------------------------------------------------------------------
INDIANA-5.65%
Frankfort Middle School Building
Corp.; Refunding Series 1996 RB
5.20%, 01/10/07(b) AAA Aaa 295 295,870
- -------------------------------------------------------------------------
Indiana Transportation Finance
Authority; Airport Facilities
Lease Series A RB
6.00%, 11/01/01 A A2 500 521,660
- -------------------------------------------------------------------------
Indiana Transportation Finance
Authority; Highway Series A RB
5.50%, 06/01/07(b) AAA Aaa 1,000 1,024,160
- -------------------------------------------------------------------------
South Bend Redevelopment
Authority (College Football
Hall of Fame Project); Series
1994 RB
3.45%, 02/01/19(c)(d) AAA VMIG1 7,950 7,950,000
- -------------------------------------------------------------------------
9,791,690
- -------------------------------------------------------------------------
IOWA-4.91%
Iowa Higher Education Loan
Authority; Private College
Facilities Series 1985 RB
3.45%, 12/01/15(c)(d) AAA VMIG1 8,000 8,000,000
- -------------------------------------------------------------------------
Iowa Student Loan Liquidity
Corp.; Student Loan Series 1992
A RB
6.25%, 03/01/00 -- Aa1 500 517,390
- -------------------------------------------------------------------------
8,517,390
- -------------------------------------------------------------------------
KENTUCKY-0.39%
Kentucky State Turnpike Authority
(Economic Development Road
Revitalization Project); RB
7.125%, 05/15/00(e)(f) AAA Aaa 260 281,593
- -------------------------------------------------------------------------
</TABLE>
FS-10
<PAGE> 102
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
KENTUCKY-(CONTINUED)
Western Kentucky University;
Consolidated Educational
Buildings Refunding Series M RB
4.70%, 05/01/99(b) AAA Aaa $ 390 $ 393,510
- -------------------------------------------------------------------------
675,103
- -------------------------------------------------------------------------
LOUISIANA-5.97%
Jefferson Parish School Board;
Sales and Use Tax RB
6.00%, 02/01/04(b) AAA Aaa 1,720 1,803,110
- -------------------------------------------------------------------------
Louisiana (State of); Series A GO
6.00%, 04/15/07(b) AAA Aaa 5,000 5,309,500
- -------------------------------------------------------------------------
Louisiana Offshore Terminal
Authority (Loop, Inc.);
Deepwater Port Refunding Series
1992 RB
6.00%, 09/01/01 A Baa1 1,000 1,042,300
- -------------------------------------------------------------------------
Louisiana Offshore Terminal
Authority (Loop, Inc.);
Deepwater Port Refunding RB
6.20%, 09/01/03 A Baa1 1,000 1,058,330
- -------------------------------------------------------------------------
Louisiana Public Facilities
Authority (Tulane University of
Louisiana); Series 1987 C RB
7.30%, 08/15/99 A A1 270 277,825
- -------------------------------------------------------------------------
Ouachita (Parish of) Hospital
Service District #1 (Glenwood
Regional Medical Center);
Hospital Refunding Series 1996
RB
5.00%, 05/15/99 A -- 850 853,162
- -------------------------------------------------------------------------
10,344,227
- -------------------------------------------------------------------------
MASSACHUSETTS-4.57%
Massachusetts Health &
Educational Facilities
Authority (Harvard University
Issue); Series I RB
3.30%, 08/01/17(c) AAA VMIG1 7,500 7,500,000
- -------------------------------------------------------------------------
New England Education Loan
Marketing Corp.; Student Loan
Refunding Senior Issue 1992 D
RB
6.20%, 09/01/00 -- Aaa 400 417,531
- -------------------------------------------------------------------------
7,917,531
- -------------------------------------------------------------------------
MICHIGAN-8.35%
Dearborn (City of) Economic
Development Corp. (Oakwood
Obligated Group); Hospital
Series 1991 A RB
6.95%, 08/15/01(e)(f) AAA Aaa 1,000 1,102,890
- -------------------------------------------------------------------------
Detroit (City of) School
District; GO
5.60%, 05/01/01 AA Aa2 765 784,821
- -------------------------------------------------------------------------
Grand Rapids Water Supply;
Refunding RB
3.30%, 01/01/20(c)(d) AAA VMIG1 5,400 5,400,000
- -------------------------------------------------------------------------
Michigan State Building
Authority; Refunding Series I
RB
6.40%, 10/01/04 AA- A1 2,000 2,141,820
- -------------------------------------------------------------------------
Michigan State Hospital Finance
Authority; Series A RB
3.55%, 12/01/23(c)(d) -- VMIG1 4,000 4,000,000
- -------------------------------------------------------------------------
Michigan State Strategic Fund;
Refunding Series 1988 PCR
3.65%, 04/15/18(c) -- Aaa 742 741,500
- -------------------------------------------------------------------------
North Muskegon School District;
GO
7.00%, 05/01/98(b) AAA Aaa 200 205,980
- -------------------------------------------------------------------------
Novi Community School District;
GO
5.875%, 05/01/97(b) AAA Aaa 100 100,159
- -------------------------------------------------------------------------
14,477,170
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
MINNESOTA-0.44%
Southern Minnesota Municipal
Power Agency; Power Supply
System Series A RB
5.60%, 01/01/04 A+ A2 $ 745 $ 757,889
- -------------------------------------------------------------------------
MISSOURI-0.51%
Cass County School District
#R-02; Missouri Direct Deposit
Program GO
4.30%, 03/01/98 AA -- 375 376,718
- -------------------------------------------------------------------------
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 500 503,120
- -------------------------------------------------------------------------
879,838
- -------------------------------------------------------------------------
MONTANA-0.26%
Montana Higher Education
Assistance Corp.; Student Loan
Series 1992 A RB
6.60%, 12/01/00 -- A 425 447,746
- -------------------------------------------------------------------------
NEVADA-0.28%
Clark County Improvement District
No. 65 (Lamb Boulevard III);
Series 1992 GO
6.20%, 12/01/02 AA- A1 120 123,812
- -------------------------------------------------------------------------
Nevada (State of) (Nevada
Municipal Bond Bank Project
Nos. 38-39); Limited Tax Series
1992 A GO
6.00%, 07/01/01(e) AA -- 350 365,512
- -------------------------------------------------------------------------
489,324
- -------------------------------------------------------------------------
NEW JERSEY-1.64%
Gloucester County Utilities
Authority; Sewer Refunding
Series 1991 RB
6.10%, 01/01/00 AA- A-1 225 235,420
- -------------------------------------------------------------------------
Jersey City (City of) (Qualified
School Bond); GO
6.40%, 02/15/00 AA A3 1,000 1,048,580
- -------------------------------------------------------------------------
New Jersey Transportation Trust
Fund Authority; Transportation
System Series 1992 A RB
5.90%, 06/15/99(e) NRR Aaa 1,000 1,030,410
- -------------------------------------------------------------------------
Trenton (City of); Fiscal Year
Adjustment GO
6.10%, 08/15/02(b) AAA Aaa 500 527,015
- -------------------------------------------------------------------------
2,841,425
- -------------------------------------------------------------------------
NEW MEXICO-1.05%
Albuquerque (City of);
Joint Water and Sewer
Series 1990 A RB
6.00%, 07/01/00(e)(f) AAA -- 1,000 1,039,220
- -------------------------------------------------------------------------
Las Cruces (City of) South
Central Solid Waste Authority;
Environmental RB
6.00%, 06/01/97 -- A 260 260,673
- -------------------------------------------------------------------------
Santa Fe (City of); Series 1994 A
RB
5.50%, 06/01/03(e) AAA Aaa 500 514,945
- -------------------------------------------------------------------------
1,814,838
- -------------------------------------------------------------------------
NEW YORK-12.26%
Nassau (County of); GO
5.15%, 03/01/07(b) AAA Aaa 5,000 4,992,050
- -------------------------------------------------------------------------
New York (City of); Refunding
Series D GO
5.60%, 11/01/05 BBB+ Baa1 5,000 4,982,900
- -------------------------------------------------------------------------
New York (City of); Series G GO
5.90%, 02/01/05 BBB+ Baa1 1,150 1,170,056
- -------------------------------------------------------------------------
</TABLE>
FS-11
<PAGE> 103
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
NEW YORK-(CONTINUED)
New York (City of) Municipal
Assistance Corp.; Series I RB
5.25%, 07/01/03 AA- Aa2 $5,500 $ 5,590,200
- -------------------------------------------------------------------------
New York (State of) Dormitory
Authority; Mental Health
Facilities Series A RB
6.00%, 02/15/05 BBB+ Baa1 1,000 1,023,170
- -------------------------------------------------------------------------
6.00%, 08/15/07 BBB+ Baa1 1,775 1,798,075
- -------------------------------------------------------------------------
New York (State of) Medical Care
Facilities Financing Agency;
Hospital & Nursing Home Series
1995 A RB
5.60%, 02/15/05(b) AAA -- 1,665 1,703,112
- -------------------------------------------------------------------------
21,259,563
- -------------------------------------------------------------------------
OHIO-4.42%
Franklin (County of); 1991 Issue
GO
6.30%, 12/01/01(e)(f) NRR -- 1,500 1,621,485
- -------------------------------------------------------------------------
Greene (County of); Water System
Series A RB
5.45%, 12/01/06(b) AAA Aaa 585 597,735
- -------------------------------------------------------------------------
Hilliard City School District;
School Improvement Refunding
Series 1992 GO
6.05%, 12/01/00(b) AAA Aaa 500 526,025
- -------------------------------------------------------------------------
6.15%, 12/01/01(b) AAA Aaa 250 265,103
- -------------------------------------------------------------------------
Lucas County (St. Vincent's
Medical Center); Hospital
Series A RB
6.75%, 08/15/00(b)(f) AAA Aaa 2,000 2,147,380
- -------------------------------------------------------------------------
Lucas County Health Facilities
(Lutheran Homes Society
Project); RB
3.45%, 11/01/19(c)(d) AA -- 390 390,000
- -------------------------------------------------------------------------
Miami County (Upper Valley
Medical Center); Refunding
Hospital Facility Series 1996 B
RB
5.00%, 05/15/98(b) AAA Aaa 585 588,691
- -------------------------------------------------------------------------
Ohio State Public Facilities
Commission; Mental Health
Series A RB
7.00%, 12/01/97 AA- Aa3 1,500 1,526,385
- -------------------------------------------------------------------------
7,662,804
- -------------------------------------------------------------------------
OKLAHOMA-5.17%
Grand River Dam Authority;
Refunding Series 1987 RB
6.45%, 06/01/97(e)(f) AAA Aaa 500 512,010
- -------------------------------------------------------------------------
Norman (City of) Hospital
Authority; Refunding Series A
RB
5.20%, 09/01/06(b) AAA Aaa 310 308,388
- -------------------------------------------------------------------------
5.30%, 09/01/07(b) AAA Aaa 1,090 1,088,212
- -------------------------------------------------------------------------
Norman (City of) Utilities
Authority; RB
5.10%, 11/01/06 AAA Aaa 500 493,645
- -------------------------------------------------------------------------
Oklahoma Housing Finance Agency;
Single Family Mortgage Series A
RB
6.55%, 03/01/00(b) AAA Aaa 130 134,961
- -------------------------------------------------------------------------
Oklahoma State Turnpike
Authority; RB
7.875%, 01/01/99(e)(f) AAA -- 4,780 5,145,766
- -------------------------------------------------------------------------
Southern Oklahoma Memorial
Hospital Authority; Hospital
Series 1993 A RB
5.60%, 02/01/00 A A 1,250 1,280,037
- -------------------------------------------------------------------------
8,963,019
- -------------------------------------------------------------------------
OREGON-1.51%
Oregon (State of) Department of
Transportation (Westside Light
Rail Project); Series 1994 RB
5.00%, 06/01/97(b) AAA Aaa 1,000 1,001,940
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
OREGON-(CONTINUED)
Portland (City of); Sewer System
Series 1994 A RB
5.45%, 06/01/03 A+ A1 $1,065 $ 1,100,315
- -------------------------------------------------------------------------
5.55%, 06/01/04 A+ A1 500 519,390
- -------------------------------------------------------------------------
2,621,645
- -------------------------------------------------------------------------
PENNSYLVANIA-3.09%
Pennsylvania Industrial
Development Authority; Economic
Development Series 1991 A RB
6.50%, 01/01/98(e) NRR NRR 100 101,623
- -------------------------------------------------------------------------
6.50%, 07/01/98(e) NRR NRR 150 153,852
- -------------------------------------------------------------------------
York (City of); Pooled Financing
RB
3.50%, 09/01/26(c)(d) A+ -- 5,100 5,100,000
- -------------------------------------------------------------------------
5,355,475
- -------------------------------------------------------------------------
RHODE ISLAND-0.62%
Rhode Island (State of);
Refunding Series 1992 A GO
6.10%, 06/15/03(b) AAA Aaa 1,000 1,063,950
- -------------------------------------------------------------------------
SOUTH DAKOTA-1.14%
Rapid City (City of); Sales Tax
Series 1995 A RB
5.60%, 06/01/05(b) AAA Aaa 255 264,093
- -------------------------------------------------------------------------
South Dakota Health and Education
Facility McKennan Hospital;
Refunding Series 1996 RB
5.40%, 07/01/06(b) AAA Aaa 1,680 1,703,033
- -------------------------------------------------------------------------
1,967,126
- -------------------------------------------------------------------------
TENNESSEE-1.42%
Knoxville (City of); Refunding
Series B GO
4.85%, 05/01/99 AA- A1 700 710,885
- -------------------------------------------------------------------------
Nashville and Davidson (County
of) Health and Education
Facilities Board (Meharry
Medical College); RB
7.875%, 12/01/04(e) NRR Aaa 1,100 1,205,963
- -------------------------------------------------------------------------
Tennessee School Board Authority
(College and University
Improvement); RB
5.75%, 05/01/06 AA A1 550 551,545
- -------------------------------------------------------------------------
2,468,393
- -------------------------------------------------------------------------
TEXAS-9.48%
Alamo Community College District;
Series 1990 GO
6.90%, 02/15/00(e)(f) AA Aaa 500 529,415
- -------------------------------------------------------------------------
Austin (City of); Combined
Utility System Refunding Series
1986 RB
7.20%, 05/15/98(e) NRR NRR 25 25,828
- -------------------------------------------------------------------------
Series 1986 RB
7.20%, 05/15/98 A A 175 177,361
- -------------------------------------------------------------------------
Clint Independent School
District; Unlimited Tax
Refunding Series 1991 GO
6.30%, 03/01/00(b) -- Aaa 185 191,434
- -------------------------------------------------------------------------
Comal County Industrial
Development Authority (The
Coleman Company, Inc. Project);
Series 1980 IDR
9.25%, 08/01/00(e) NRR NRR 665 719,038
- -------------------------------------------------------------------------
Conroe (City of) Independent
School District; Unlimited
School Tax GO
7.375%, 02/01/01(b) AAA Aaa 115 125,525
- -------------------------------------------------------------------------
</TABLE>
FS-12
<PAGE> 104
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
TEXAS-(CONTINUED)
Dallas (City of); Waterwork &
Sewer System Series A RB
5.50%, 10/01/05 AA Aa $1,000 $ 1,004,970
- -------------------------------------------------------------------------
Gatesville Independent School
District; Unlimited Tax School
Building and Refunding Series
1995 RB
5.80%, 02/01/03(b) -- Aaa 485 508,610
- -------------------------------------------------------------------------
Harris (County of); Port of
Houston Authority RB
5.75%, 05/01/02 A A 1,565 1,596,926
- -------------------------------------------------------------------------
Harris County Health Facilities
Development Corp. (Memorial
Hospital System Project);
Hospital Series 1992 RB
6.70%, 06/01/00(e) A- A2 1,000 1,057,130
- -------------------------------------------------------------------------
Harris County Health Facilities
Development Corp. (School
Health Care System Project);
Series B RB
4.00%, 07/01/98 AA Aa3 840 838,942
- -------------------------------------------------------------------------
5.10%, 07/01/06 AA Aa3 1,000 985,440
- -------------------------------------------------------------------------
Hays (County of); Series 1995 GO
7.75%, 08/15/97(b) AAA Aaa 175 177,396
- -------------------------------------------------------------------------
Keller (City of) Independent
School District; Series 1994
Certificates of Participation
5.75%, 08/15/01(b) AAA Aaa 915 953,201
- -------------------------------------------------------------------------
Kerrville (City of); Electric
System Refunding Series 1991 RB
6.375%, 11/01/01(b) AAA Aaa 185 196,137
- -------------------------------------------------------------------------
La Marque Independent School
District; Unlimited Schoolhouse
Tax Series 1992 GO
7.50%, 08/15/99(b) AAA Aaa 575 616,204
- -------------------------------------------------------------------------
7.50%, 08/15/02(b) AAA Aaa 750 845,497
- -------------------------------------------------------------------------
Plano Independent School
District; GO
5.80%, 02/15/05(b) AAA Aaa 2,025 2,109,665
- -------------------------------------------------------------------------
San Antonio (City of); Electric
and Gas System Refunding Series
1989 A RB
7.00%, 02/01/01 AA Aa1 400 421,696
- -------------------------------------------------------------------------
Temple (City of) (Bell County);
Refunding Series 1992 GO
5.80%, 02/01/01(b) AAA Aaa 250 259,690
- -------------------------------------------------------------------------
Texarkana (City of); Water and
Sewer Utility Improvement
Series 1996 GO
6.75%, 02/15/98(b) AAA Aaa 280 286,740
- -------------------------------------------------------------------------
Texas (State of); Refunding
Series A GO
6.00%, 10/01/06 AA Aa 1,000 1,070,170
- -------------------------------------------------------------------------
Texas Municipal Power Agency; RB
5.75%, 09/01/02(e)(f) AAA Aaa 1,000 1,040,880
- -------------------------------------------------------------------------
Texas Turnpike Authority (Addison
Airport Toll Tunnel Project);
Dallas North Tollway Series
1994 RB
6.30%, 01/01/05(b) AAA Aaa 500 538,605
- -------------------------------------------------------------------------
Texas Water Resources Finance
Authority; Series 1989 A RB
7.25%, 08/15/97 A A 140 141,372
- -------------------------------------------------------------------------
University of Texas System;
General Tuition Series 1986
Refunding RB
7.75%, 08/15/98(e) AA+ Aa1 10 10,482
- -------------------------------------------------------------------------
16,428,354
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
UTAH-1.22%
Salt Lake (City of) Municipal
Building Authority; Series A RB
6.50%, 10/15/00 A+ A1 $ 570 $ 593,142
- -------------------------------------------------------------------------
Utah (State of) (Board of Water
Resources Program); Revolving
Fund Recapitalization Series
1992 B RB
6.10%, 04/01/02 AA -- 500 529,470
- -------------------------------------------------------------------------
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 -- 475 496,090
- -------------------------------------------------------------------------
Utah Water Financing Agency;
Series A RB
4.40%, 10/01/99(b) AAA Aaa 500 497,665
- -------------------------------------------------------------------------
2,116,367
- -------------------------------------------------------------------------
VIRGINIA-1.44%
Henrico (County of) Industrial
Development Authority
(Hermitage Project); Health
Facilities RB
3.80%, 05/01/24(c)(d) -- VMIG1 30 29,500
- -------------------------------------------------------------------------
Medical College of Hampton Roads;
General Refunding Series 1991 A
RB
6.00%, 11/15/99 A- -- 605 623,065
- -------------------------------------------------------------------------
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 535 545,331
- -------------------------------------------------------------------------
5.40%, 11/01/05 AA Aa 500 513,085
- -------------------------------------------------------------------------
Portsmouth (City of); Port
Improvement Unlimited Tax
Refunding GO
6.40%, 11/01/03 AA- A 300 323,046
- -------------------------------------------------------------------------
Portsmouth (City of); Public
Utility Refunding Series 1992
GO
5.90%, 11/01/01 AA- A 450 470,669
- -------------------------------------------------------------------------
2,504,696
- -------------------------------------------------------------------------
WASHINGTON-3.90%
King (County of); Series A RB
5.80%, 01/01/05 AA+ Aa1 1,000 1,050,100
- -------------------------------------------------------------------------
Seattle (City of) (West Seattle
Bridge); Limited Tax Refunding
Series 1991 GO
6.40%, 10/01/01 AA+ Aa1 250 266,830
- -------------------------------------------------------------------------
Seattle (Port of); Series 1992 A
RB
6.00%, 11/01/01 AA- A-1 500 522,910
- -------------------------------------------------------------------------
Snohomish (County of) Public
Utilities District # 1; RB
5.70%, 01/01/06(b) AAA Aaa 4,000 4,148,240
- -------------------------------------------------------------------------
Washington Health Care Facility
Authority (Our Lady of Lourdes
Health Center); Refunding RB
7.35%, 12/01/97(d) A -- 500 508,575
- -------------------------------------------------------------------------
Washington Public Power Supply
System (Nuclear Project #3);
Refunding Series B RB
6.80%, 07/01/97 AA- Aa1 250 251,725
- -------------------------------------------------------------------------
6,748,380
- -------------------------------------------------------------------------
</TABLE>
FS-13
<PAGE> 105
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
WISCONSIN-3.62%
Middleton (City of); GO
4.00%, 03/01/99 -- Aa2 $1,000 $ 995,420
- -------------------------------------------------------------------------
Sturgeon Bay (City of); Series
1996 A Bond Anticipation Notes
4.30%, 10/01/97 -- MIG-1 1,000 1,000,390
- -------------------------------------------------------------------------
Wisconsin (State of); Series A GO
5.75%, 05/01/99 AA Aa 1,000 1,027,480
- -------------------------------------------------------------------------
Wisconsin Health and Educational
Facilities Authority
(Marshfield Clinic); RB
5.20%, 02/15/07(b) AAA Aaa 3,310 3,247,242
- -------------------------------------------------------------------------
6,270,532
- -------------------------------------------------------------------------
TOTAL INVESTMENTS-116.00% 201,075,980
- -------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(16.00%) (27,734,200)
- -------------------------------------------------------------------------
NET ASSETS-100.00% $173,341,780
=========================================================================
</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) 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, 1997.
(d) Secured by a letter of credit.
(e) Secured by an escrow fund of U.S. Treasury obligations.
(f) Security has an outstanding irrevocable call or mandatory put by the
issuer. Market value and maturity date reflect such call or put.
See Notes to Financial Statements.
FS-14
<PAGE> 106
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$199,440,470) $ 201,075,980
- ---------------------------------------------------------
Receivables for:
Capital stock sold 220,266
- ---------------------------------------------------------
Interest 2,171,711
- ---------------------------------------------------------
Investment for deferred compensation plan 12,379
- ---------------------------------------------------------
Other assets 44,562
- ---------------------------------------------------------
Total assets 203,524,898
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 29,476,663
- ---------------------------------------------------------
Capital stock reacquired 242,356
- ---------------------------------------------------------
Dividends 349,164
- ---------------------------------------------------------
Deferred compensation plan 12,379
- ---------------------------------------------------------
Accrued advisory fees 43,785
- ---------------------------------------------------------
Accrued administrative service fees 11,154
- ---------------------------------------------------------
Accrued directors' fees 2,400
- ---------------------------------------------------------
Accrued transfer agent fees 10,750
- ---------------------------------------------------------
Accrued operating expenses 34,467
- ---------------------------------------------------------
Total liabilities 30,183,118
- ---------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES
OUTSTANDING $ 173,341,780
=========================================================
Capital stock, $.001 par value per share:
Authorized 1,000,000,000
- ---------------------------------------------------------
Outstanding 16,154,571
=========================================================
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE $ 10.73
- ---------------------------------------------------------
OFFERING PRICE PER SHARE:
(Net asset value of $10.73 divided by
99.00%) $ 10.84
=========================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended March 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $ 4,790,956
- --------------------------------------------------------
EXPENSES:
Advisory fees 276,828
- --------------------------------------------------------
Custodian fees 7,156
- --------------------------------------------------------
Transfer agent fees 61,732
- --------------------------------------------------------
Registration and filing fees 35,266
- --------------------------------------------------------
Administrative service fees 52,666
- --------------------------------------------------------
Directors' fees 7,508
- --------------------------------------------------------
Other 77,082
- --------------------------------------------------------
Total expenses 518,238
- --------------------------------------------------------
Net investment income 4,272,718
- --------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES:
Net realized gain on sales of investment
securities 7,036
- --------------------------------------------------------
Net unrealized appreciation (depreciation)
of investment securities (1,085,090)
- --------------------------------------------------------
Net gain (loss) on investment
securities (1,078,054)
- --------------------------------------------------------
Net increase in net assets resulting from
operations $ 3,194,664
========================================================
</TABLE>
See Notes to Financial Statements.
FS-15
<PAGE> 107
STATEMENT OF CHANGES IN NET ASSETS
For the years ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
OPERATIONS:
Net investment income $ 4,272,718 $ 3,731,756
- -----------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investment securities 7,036 (5,848)
- -----------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities (1,085,090) 836,452
- -----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 3,194,664 4,562,360
- -----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (4,406,557) (3,712,690)
- -----------------------------------------------------------------------------------------
Distributions from capital (21,485) --
- -----------------------------------------------------------------------------------------
Net increase (decrease) from capital stock transactions 91,508,711 (137,887)
- -----------------------------------------------------------------------------------------
Net increase in net assets 90,275,333 711,783
- -----------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 83,066,447 82,354,664
- -----------------------------------------------------------------------------------------
End of period $173,341,780 $83,066,447
- -----------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $172,821,545 $81,353,865
- -----------------------------------------------------------------------------------------
Undistributed net investment income (10,946) 103,347
- -----------------------------------------------------------------------------------------
Undistributed realized gain (loss) on sales of investment
securities (1,104,329) (1,111,365)
- -----------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 1,635,510 2,720,600
- -----------------------------------------------------------------------------------------
$173,341,780 $83,066,447
=========================================================================================
</TABLE>
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
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 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.
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.
FS-16
<PAGE> 108
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. On March 31, 1997
$21,485, was reclassified from undistributed net investment income to
paid-in-capital due to distributions in excess of net investment income. In
addition, $19,546 was reclassified from net investment income to paid in
capital due to permanent book/tax differences. Net assets of the Fund were
unaffected by the reclassifications discussed above.
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 $1,118,055, 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.
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.
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, 1997, the Fund reimbursed
AIM $52,666 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, 1997, the Fund
paid AFS $38,819 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 $21,018 from
sales of capital stock during the year ended March 31, 1997. 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, 1997, the Fund paid legal fees of $4,122 for
services rendered by Kramer, Levin, Naftalis & 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-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $325,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. Interest on
borrowings under the line of credit is payable on maturity or prepayment date.
During the year ended March 31, 1997, the Fund did not borrow under the line of
credit agreement. The funds which are parties to the line of credit are charged
a commitment fee of 0.08% on the unused balance of the committed line. The
commitment fee is allocated among such funds based on their respective average
net assets for the period.
NOTE 5-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold during the year ended March 31, 1997 was $94,982,995 and
$22,629,475, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
as of March 31, 1997 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $2,095,498
- ---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (459,988)
- ---------------------------------------------------------
Net unrealized appreciation of investment
securities $1,635,510
=========================================================
Investments have the same cost for tax and financial
statement purposes.
</TABLE>
NOTE 6-CAPITAL STOCK
Changes in capital stock outstanding for the years ended March 31, 1997 and 1996
were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold 11,037,256 $119,260,028 2,173,832 $ 23,604,635
- --------------------- ---------- ------------ ---------- ------------
Issued as
reinvestment of
dividends 277,497 2,985,870 232,136 2,517,616
- --------------------- ---------- ------------ ---------- ------------
Reacquired (2,855,695) (30,737,187) (2,428,661) (26,260,138)
- --------------------- ---------- ------------ ---------- ------------
8,459,058 $ 91,508,711 (22,693) $ (137,887)
========== ============ ========== ============
</TABLE>
FS-17
<PAGE> 109
NOTE 7- FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of capital stock
outstanding during each of the years in the eight-year period ended March 31,
1997, the eleven months ended March 31, 1989 and the period May 11, 1987 (date
operations commenced) through April 30, 1988.
<TABLE>
<CAPTION>
MARCH 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $10.79 $10.67 $10.62 $10.74 $10.27
- ---------------------------- -------- ------- ------- ------- -------
Income from investment
operations:
Net investment income 0.50 0.52 0.49 0.48 0.53
- ---------------------------- -------- ------- ------- ------- -------
Net gains (losses) on
securities (both
realized and
unrealized) (0.04) 0.12 0.04 (0.10) 0.47
============================ ======== ======= ======= ======= =======
Total from
investment
operations 0.46 0.64 0.53 0.38 1.00
============================ ======== ======= ======= ======= =======
Less distributions:
Dividends from net
investment income (0.52) (0.52) (0.48) (0.48) (0.53)
- ---------------------------- -------- ------- ------- ------- -------
Distributions from net
realized capital gains -- -- -- (0.02) --
- ---------------------------- -------- ------- ------- ------- -------
Total distributions (0.52) (0.52) (0.48) (0.50) (0.53)
- ---------------------------- -------- ------- ------- ------- -------
Net asset value, end of
period $10.73 $10.79 $10.67 $10.62 $10.74
============================ ======== ======= ======= ======= =======
Total return(a) 4.33% 6.06% 5.17% 3.47% 10.01%
============================ ======== ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s omitted) $173,342 $83,066 $82,355 $99,757 $70,120
============================ ======== ======= ======= ======= =======
Ratio of expenses to average
net assets 0.56%(b) 0.65% 0.59% 0.61%(c) 0.38%(c)
============================ ======== ======= ======= ======= =======
Ratio of net investment
income to average net
assets 4.63%(b) 4.81% 4.65% 4.37%(c) 5.00%(c)
============================ ======== ======= ======= ======= =======
Portfolio turnover rate 26% 32% 75% 26% 29%
============================ ======== ======= ======= ======= =======
<CAPTION>
----------------------------------------- APRIL 30,
1992 1991 1990 1989 1988
------- ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $10.07 $9.89 $9.69 $9.88 $10.00
- ---------------------------- ------- ------ ------ ------ ---------
Income from investment
operations:
Net investment income 0.62 0.63 0.62 0.56 0.55
- ---------------------------- ------- ------ ------ ------ ---------
Net gains (losses) on
securities (both
realized and
unrealized) 0.20 0.18 0.20 (0.19) (0.12)
============================ ======= ====== ====== ====== =========
Total from
investment
operations 0.82 0.81 0.82 0.37 0.43
============================ ======= ====== ====== ====== =========
Less distributions:
Dividends from net
investment income (0.62) (0.63) (0.62) (0.56) (0.55)
- ---------------------------- ------- ------ ------ ------ ---------
Distributions from net
realized capital gains -- -- -- -- --
- ---------------------------- ------- ------ ------ ------ ---------
Total distributions (0.62) (0.63) (0.62) (0.56) (0.55)
- ---------------------------- ------- ------ ------ ------ ---------
Net asset value, end of
period $10.27 $10.07 $9.89 $9.69 $9.88
============================ ======= ====== ====== ====== =========
Total return(a) 8.39% 8.39% 8.66% 3.85% 4.46%
============================ ======= ====== ====== ====== =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s omitted) $38,773 $6,184 $5,231 $4,413 $5,594
============================ ======= ====== ====== ====== =========
Ratio of expenses to average
net assets 0.02%(c) 0.50%(c) 0.50%(c) 0.53%(c)(d) 0.50%(c)(d)
============================ ======= ====== ====== ====== =========
Ratio of net investment
income to average net
assets 5.78%(c) 6.29%(c) 6.27%(c) 6.74%(c)(d) 5.86%(c)(d)
============================ ======= ====== ====== ====== =========
Portfolio turnover rate 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 $92,275,955.
(c) After waiver of advisory fees and/or expense reimbursements. The ratios of
expenses and net investment income prior to waivers and/or expense
reimbursements were as follows:
<TABLE>
<CAPTION>
Net Investment
Period ended Expenses Income
------------ -------- --------------
<S> <C> <C>
1994 0.64% 4.35%
1993 0.66% 4.71%
1992 0.98% 4.81%
1991 1.79% 5.00%
1990 1.91% 4.86%
1989 2.09% 5.18%
1988 1.57% 4.79%
</TABLE>
(d) Annualized.
FS-18
<PAGE> 110
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, 1997, and the
related statement of operations for the year then ended,
the statement of changes in net assets for each of the
years in the two-year period then ended and the financial
highlights for each of the years in the three-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, 1997, 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, 1997,
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 three-year period then ended,
the three-month period ended March 31, 1994, and for the
year ended December 31, 1993, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
May 2, 1997
FS-19
<PAGE> 111
SCHEDULE OF INVESTMENTS
MARCH 31, 1997
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
MUNICIPAL OBLIGATIONS-97.91%
EDUCATION-11.44%
Connecticut Health and
Education Facilities
Authority (Fairfield
University); Series F RB
6.875%, 07/01/09 BBB+ Baa1 $1,475 $ 1,548,013
- -------------------------------------------------------------------
Connecticut Health and
Education Facilities
Authority
(Quinnipiac College); RB
4.90%, Series D, 07/01/98 BBB- - 150 149,292
- -------------------------------------------------------------------
7.25%, Series 1989 B,
07/01/99(b)(c) AAA NRR 450 484,942
- -------------------------------------------------------------------
Connecticut Regional School
District No. 5;
Series 1992 GO
6.00%, 03/01/12(d) AAA Aaa 335 346,893
- -------------------------------------------------------------------
Connecticut Regional School
District No. 5
(Towns of Bethany, Orange
and Woodbridge); 1993
Issue GO
5.50%, 02/15/07(d) AAA Aaa 500 513,760
- -------------------------------------------------------------------
Connecticut State Higher
Education Supplemental
Loan Authority (Family
Education Loan Program);
Series 1990 A RB
7.50%, 11/15/10(e) - A1 1,265 1,317,080
- -------------------------------------------------------------------
4,359,980
- -------------------------------------------------------------------
ELECTRIC-4.47%
Connecticut Development
Authority (New England
Power Co.); Series 1985
Fixed Rate PCR
7.25%, 10/15/15 A+ A2 1,600 1,702,608
- -------------------------------------------------------------------
GENERAL OBLIGATION-12.08%
Bridgeport (Town of),
Connecticut; Series A
Unlimited GO
6.00%, 09/01/06(d) AAA Aaa 875 929,871
- -------------------------------------------------------------------
Brooklyn (City of),
Connecticut; Unlimited
Tax GO
5.50%, 05/01/06(d) AAA Aaa 250 255,905
- -------------------------------------------------------------------
5.70%, 05/01/08(d) AAA Aaa 250 258,310
- -------------------------------------------------------------------
Chester (Town of),
Connecticut; Series 1989
GO
7.00%, 10/01/05 - A 190 201,292
- -------------------------------------------------------------------
Connecticut (State of);
Series 1991 A GO
6.75%, 03/01/01(b)(c) NRR NRR 480 521,323
- -------------------------------------------------------------------
Connecticut (State of)
(General Purpose Public
Improvement); GO
6.75%, Series 1991 A,
03/01/01(b)(c) NRR NRR 200 217,218
- -------------------------------------------------------------------
6.50%, Series 1992 A,
03/15/02(b)(c) NRR NRR 300 325,860
- -------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
GENERAL OBLIGATION-(CONTINUED)
Mansfield (City of),
Connecticut; Series 1990
GO
6.00%, 06/15/07 - A1 $ 100 $ 105,855
- ------------------------------------------------------------------
6.00%, 06/15/08 - A1 100 104,983
- ------------------------------------------------------------------
6.00%, 06/15/09 - A1 100 105,760
- ------------------------------------------------------------------
New Britain (City of),
Connecticut; Series 1992
Various Purpose GO
6.00%, 02/01/11(d) AAA Aaa 400 418,364
- ------------------------------------------------------------------
North Canaan (City of),
Connecticut;
Series 1991 GO
6.50%, 01/15/08 - A 125 137,080
- ------------------------------------------------------------------
6.50%, 01/15/09 - A 125 136,744
- ------------------------------------------------------------------
6.50%, 01/15/10 - A 125 136,234
- ------------------------------------------------------------------
6.50%, 01/15/11 - A 125 135,566
- ------------------------------------------------------------------
Somers (City of),
Connecticut; Series 1990
Various Purpose GO
6.00%, 12/01/10 - A1 190 200,146
- ------------------------------------------------------------------
Westbrook (City of),
Connecticut; Series 1992
GO
6.40%, 03/15/10(d) AAA Aaa 380 416,176
- ------------------------------------------------------------------
4,606,687
- ------------------------------------------------------------------
HEALTH CARE-13.22%
Connecticut Health and
Education Facilities
Authority
(Bridgeport Hospital);
1992 Series A RB
6.625%, 07/01/18(d) AAA Aaa 500 528,595
- ------------------------------------------------------------------
Connecticut Health and
Education Facilities
Authority
(Capital Asset); Series
1989 B RB
7.00%, 01/01/00(f) A A1 200 209,856
- ------------------------------------------------------------------
Connecticut Health and
Education Facilities
Authority
(Danbury Hospital); 1991
Series E RB
6.50%, 07/01/14(d) AAA Aaa 750 786,278
- ------------------------------------------------------------------
Connecticut Health and
Education Facilities
Authority
(Middlesex Hospital);
1992 Series G RB
6.25%, 07/01/12(d) AAA Aaa 1,100 1,142,647
- ------------------------------------------------------------------
Connecticut Health and
Education Facilities
Authority
(New Britain Memorial
Hospital); Series 1991 A
RB
7.75%, 07/01/22 BBB- - 500 533,325
- ------------------------------------------------------------------
Connecticut Health and
Education Facilities
Authority (Stamford
Hospital); Series F RB
5.40%, 07/01/09(d) AAA Aaa 1,000 993,720
- ------------------------------------------------------------------
</TABLE>
FS-20
<PAGE> 112
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
HEALTH CARE-(CONTINUED)
Connecticut Health and
Education Facilities
Authority (Yale-New Haven
Hospital); Series 1990 F
RB
7.10%, 07/01/00(b)(c) AAA Aaa $ 775 $ 845,339
- ------------------------------------------------------------------
5,039,760
- ------------------------------------------------------------------
HOUSING-13.45%
Connecticut Housing
Development Authority
(Housing Mortgage Finance
Program); RB
7.55%, Series 1990 B-1,
11/15/08 AA Aa 345 358,010
- ------------------------------------------------------------------
7.00%, Series 1991 A-1,
11/15/09 AA Aa 450 471,240
- ------------------------------------------------------------------
6.55%, Series 1991 C,
Sub-Series C-3,
11/15/13 AA Aa 310 322,576
- ------------------------------------------------------------------
7.00%, Series C,
11/15/99(e) AA Aa 320 331,363
- ------------------------------------------------------------------
Connecticut (State of)
(Housing Mortgage Finance
Program); RB
6.00%, Series 1993 E-1,
05/15/17 AA Aa 675 676,289
- ------------------------------------------------------------------
5.95%, Series E-1,
05/15/17 AA Aa 500 498,795
- ------------------------------------------------------------------
6.30%, Series C-1,
11/15/17 AA Aa 1,270 1,289,152
- ------------------------------------------------------------------
6.25%, Series C-2,
11/15/18 AA Aa 750 756,510
- ------------------------------------------------------------------
6.70%, Series C-2,
11/15/22(e) AA Aa 415 424,125
- ------------------------------------------------------------------
5,128,060
- ------------------------------------------------------------------
LEASE RENTAL-1.11%
Connecticut (State of)
(Middletown Courthouse
Facilities Project); 1991
Issue Lease-Rental
Revenue Certificates of
Participation
6.25%, 12/15/10(d) AAA Aaa 400 422,772
- ------------------------------------------------------------------
RESOURCE RECOVERY-5.93%
Connecticut State Resource
Recovery Authority
(American Ref-Fuel Co.-
Southeastern Connecticut
Project); Series 1988 A
RB
8.00%, 11/15/15(e) AA- Baa1 500 536,335
- ------------------------------------------------------------------
Connecticut State Resource
Recovery Authority
(Bridgeport Resco
Corp.-Ltd. Partners);
1985 Issue RB
8.625%, Project B,
01/01/04 A A 670 687,052
- ------------------------------------------------------------------
7.625%, Project A,
01/01/09 A A 1,000 1,035,610
- ------------------------------------------------------------------
2,258,997
- ------------------------------------------------------------------
TRANSPORTATION-19.05%
Connecticut State Special
Tax Obligation
(Transportation
Infrastructure); RB
5.10%, Series 1992 B,
09/01/99 AA- A1 1,000 1,010,330
- ------------------------------------------------------------------
6.25%, Series 1991 B,
10/01/01(b)(c) NRR Aaa 1,000 1,077,100
- ------------------------------------------------------------------
6.80%, Series A,
06/01/03(b)(c) NRR NRR 1,250 1,372,788
- ------------------------------------------------------------------
6.50%, Series 1991 B,
10/01/10 AA- A1 530 586,969
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
TRANSPORTATION-(CONTINUED)
Connecticut State Special
Tax Obligation
(Transportation
Infrastructure Sales and
Excise Tax); RB
5.90%, Series 1991 B,
10/01/99 AA- A1 $1,000 $ 1,030,060
- ------------------------------------------------------------------
6.80%, Series 1989 C,
12/01/99(b)(c) AAA NRR 500 537,640
- ------------------------------------------------------------------
6.50%, Series 1991 B,
10/01/12 AA- A1 1,500 1,645,155
- ------------------------------------------------------------------
7,260,042
- ------------------------------------------------------------------
WATER & SEWER-9.47%
Connecticut Development
Authority (Pfizer Inc.);
Series 1982 Refunding PCR
6.55%, 02/15/13 AAA Aaa 250 269,158
- ------------------------------------------------------------------
Connecticut Development
Authority Water Facility
(Bridgeport Hydraulic Co.
Project); Refunding RB
7.25%, Series 1990,
06/01/20 A+ - 800 858,336
- ------------------------------------------------------------------
6.15%, 04/01/35(e) A+ - 250 247,495
- ------------------------------------------------------------------
Connecticut State Clean
Water Fund; Series 1991
Clean Water RB
7.00%, 01/01/11 AA+ Aa2 1,100 1,203,125
- ------------------------------------------------------------------
Manchester (City of)
Connecticut Eighth
Utilities Fire District;
Series 1991 GO
6.75%, 08/15/06 - A1 180 199,760
- ------------------------------------------------------------------
South Central Connecticut
Regional Water Authority;
Eighth Series 1990 A
Water System RB
6.60%, 08/01/00(b)(c) NRR NRR 250 268,898
- ------------------------------------------------------------------
South Central Connecticut
Regional Water Authority;
Series 1988 Water System
RB
6.80%, 08/01/98(b)(c) NRR NRR 535 563,718
- ------------------------------------------------------------------
3,610,490
- ------------------------------------------------------------------
MISCELLANEOUS-7.69%
Connecticut Development
Authority (Economic
Development Projects);
1992 Series Refunding
Bonds
6.00%, 11/15/08 AA- Aa 500 520,500
- ------------------------------------------------------------------
Guam (Government of);
Series 1995 A GO
4.90%, 09/01/97 BBB - 500 500,930
- ------------------------------------------------------------------
5.25%, 09/01/99 BBB - 250 250,345
- ------------------------------------------------------------------
5.375%, 09/01/00 BBB - 250 250,458
- ------------------------------------------------------------------
</TABLE>
FS-21
<PAGE> 113
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
MISCELLANEOUS-(CONTINUED)
Guam (Government of);
Series 1994 A GO
5.50%, 08/15/97 BBB - $ 500 $ 501,885
- ------------------------------------------------------------------
Puerto Rico Commonwealth
(Highway and
Transportation
Authority); Series X RB
5.20%, 07/01/03 A Baa1 500 505,800
- ------------------------------------------------------------------
Puerto Rico Electric Power
Authority; Series W RB
5.00%, 07/01/98 BBB+ Baa1 400 402,944
- ------------------------------------------------------------------
2,932,862
- ------------------------------------------------------------------
TOTAL INVESTMENTS-97.91% 37,322,258
- ------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-2.09% 796,217
- ------------------------------------------------------------------
NET ASSETS-100.00% $38,118,475
==================================================================
</TABLE>
ABBREVIATIONS:
GO General Obligation Bonds
NRR Not re-rated
PCR Pollution Control Revenue Bonds
RB Revenue Bonds
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.
See Notes to Financial Statements.
FS-22
<PAGE> 114
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$35,730,336) $ 37,322,258
- ---------------------------------------------------------
Receivables for:
Investments sold 1,023,000
- ---------------------------------------------------------
Capital stock sold 41,043
- ---------------------------------------------------------
Interest 692,735
- ---------------------------------------------------------
Investment for deferred compensation plan 12,601
- ---------------------------------------------------------
Other assets 3,258
- ---------------------------------------------------------
Total assets 39,094,895
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Amount due to custodian bank 836,124
- ---------------------------------------------------------
Dividends 64,157
- ---------------------------------------------------------
Deferred compensation 12,601
- ---------------------------------------------------------
Accrued advisory fees 4,968
- ---------------------------------------------------------
Accrued administrative service fees 8,538
- ---------------------------------------------------------
Accrued distribution fees 24,260
- ---------------------------------------------------------
Accrued transfer agent fees 1,076
- ---------------------------------------------------------
Accrued operating expenses 24,696
- ---------------------------------------------------------
Total liabilities 976,420
- ---------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES
OUTSTANDING $ 38,118,475
=========================================================
Capital stock, $.001 par value per share:
Authorized 1,000,000,000
- ---------------------------------------------------------
Outstanding 3,539,857
=========================================================
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE $ 10.77
=========================================================
OFFERING PRICE PER SHARE:
(Net asset value of $10.77 divided
by 95.25%) $ 11.31
=========================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $2,295,751
- --------------------------------------------------------
EXPENSES:
Advisory fees 194,372
- --------------------------------------------------------
Custodian fees 3,545
- --------------------------------------------------------
Transfer agent fees 25,300
- --------------------------------------------------------
Directors' fees 6,401
- --------------------------------------------------------
Distribution fees 97,186
- --------------------------------------------------------
Administrative services fees 49,467
- --------------------------------------------------------
Other 48,860
- --------------------------------------------------------
Total expenses 425,131
- --------------------------------------------------------
Less fees waived by advisor (144,775)
- --------------------------------------------------------
Net expenses 280,356
- --------------------------------------------------------
Net investment income 2,015,395
- --------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES:
Net realized gain (loss) on sales of
investment securities (111,639)
- --------------------------------------------------------
Unrealized appreciation (depreciation) of
investment securities (75,618)
- --------------------------------------------------------
Net gain (loss) on investment securities (187,257)
- --------------------------------------------------------
Net increase in net assets resulting from
operations $1,828,138
=========================================================
</TABLE>
See Notes to Financial Statements.
FS-23
<PAGE> 115
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
OPERATIONS:
Net investment income $ 2,015,395 $ 2,046,631
- -----------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investment securities (111,639) (39,012)
- -----------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities (75,618) 362,769
- -----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,828,138 2,370,388
- -----------------------------------------------------------------------------------------
Distributions to shareholders from net investment income (1,983,768) (2,032,807)
- -----------------------------------------------------------------------------------------
Net increase (decrease) from capital stock transactions (1,081,336) 729,185
- -----------------------------------------------------------------------------------------
Net increase (decrease) in net assets (1,236,966) 1,066,766
- -----------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 39,355,441 38,288,675
- -----------------------------------------------------------------------------------------
End of period $38,118,475 $39,355,441
=========================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $36,742,486 $37,823,822
- -----------------------------------------------------------------------------------------
Undistributed net investment income 36,704 5,077
- -----------------------------------------------------------------------------------------
Undistributed net realized gain (loss) on sales of
investment securities (252,637) (140,998)
- -----------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 1,591,922 1,667,540
- -----------------------------------------------------------------------------------------
$38,118,475 $39,355,441
=========================================================================================
</TABLE>
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
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
FS-24
<PAGE> 116
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 $229,538, which
expires, if not previously utilized, through the year 2005. 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.
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. During the year ended March 31, 1997, AIM
voluntarily waived advisory fees of $144,775.
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, 1997, the Fund reimbursed
AIM $49,467 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, 1997, the Fund
paid AFS $16,224 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, 1997, the Fund paid AIM Distributors
$97,186 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 $27,428 from sales of shares of the
Fund's capital stock during the year ended March 31, 1997. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of capital stock.
During the year ended March 31, 1997, the Fund paid legal fees of $3,997 for
services rendered by Kramer, Levin, Naftalis & 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-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $325,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. Interest on
borrowings under the line of credit is payable on maturity or prepayment date.
During the year ended March 31, 1997, the Fund did not borrow under the line of
credit agreement. The funds which are parties to the line of credit are charged
a commitment fee of 0.08% on the unused balance of the committed line. The
commitment fee is allocated among such funds based on their respective average
net assets for the period.
NOTE 5-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold during the year ended March 31, 1997 were $6,435,125 and
$6,950,383, respectively. The amount of unrealized appreciation (depreciation)
of investment securities as of March 31, 1997 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $1,599,717
- --------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (7,795)
- --------------------------------------------------------
Net unrealized appreciation of investment
securities $1,591,922
========================================================
</TABLE>
Investments have the same cost for tax and financial statement purposes.
NOTE 6-CAPITAL STOCK
Changes in capital stock outstanding for the years ended March 31, 1997 and 1996
were as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
-------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Sold 522,830 $ 5,656,859 555,351 $ 6,036,362
- --------------------------------------------- ------------------------
Issued as
reinvestment of
dividends 115,643 1,250,693 116,353 1,264,613
- --------------------------------------------- ------------------------
Reacquired (739,882) (7,988,888) (603,962) (6,571,790)
- --------------------------------------------- ------------------------
(101,409) $(1,081,336) 67,742 $ 729,185
============================================= ========================
</TABLE>
FS-25
<PAGE> 117
NOTE 7-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of capital stock
outstanding during each of the years in the three-year period ended March 31,
1997, 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,
-------------------------------------------- --------------------
1997 1996 1995 1994 1993 1992(a)
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.81 $ 10.71 $ 10.69 $ 11.29 $ 10.65 $ 10.52
- ----------------------------------------------------- ------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.56 0.56 0.56 0.15 0.60 0.66
- ----------------------------------------------------- ------- -------- -------- -------- -------- --------
Net gains (losses) on securities (both realized
and unrealized) (0.05) 0.10 0.04 (0.61) 0.65 0.17
- ----------------------------------------------------- ------- -------- -------- -------- -------- --------
Total from investment operations 0.51 0.66 0.60 (0.46) 1.25 0.83
- ----------------------------------------------------- ------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.55) (0.56) (0.57) (0.14) (0.60) (0.66)
- ----------------------------------------------------- ------- -------- -------- -------- -------- --------
Distributions from net realized capital gains -- -- -- -- (0.01) (0.04)
- ----------------------------------------------------- ------- -------- -------- -------- -------- --------
Returns of capital -- -- (0.01) -- --
- ----------------------------------------------------- ------- -------- -------- -------- -------- --------
Total distributions (0.55) (0.56) (0.58) (0.14) (0.61) (0.70)
- ----------------------------------------------------- ------- -------- -------- -------- -------- --------
Net asset value, end of period $ 10.77 $ 10.81 $ 10.71 $ 10.69 $ 11.29 $ 10.65
- ----------------------------------------------------- ------- -------- -------- -------- -------- --------
Total return(b) 4.84% 6.24% 5.78% (4.06)% 11.99% 8.22%
===================================================== ======= ======== ======== ======== ======== ========
Ratio/supplemental data:
Net assets, end of period (000s omitted) $38,118 $ 39,355 $ 38,289 $ 42,361 $ 46,224 $ 33,110
===================================================== ======= ======== ======== ======== ======== ========
Ratio of expenses to average net assets(c) 0.72%(d) 0.66% 0.55% 0.50%(e) 0.34% 0.25%
===================================================== ======= ======== ======== ======== ======== ========
Ratio of net investment income to average net
assets(c) 5.18%(d) 5.16% 5.37% 5.32%(e) 5.42% 6.25%
===================================================== ======= ======== ======== ======== ======== ========
Portfolio turnover rate 17% 17% 7% 2% 5% 43%
===================================================== ======= ======== ======== ======== ======== ========
<CAPTION>
DECEMBER 31,
--------------------------------
1991 1990 1989
-------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.07 $ 10.19 $ 10.00
- ----------------------------------------------------- -------- -------- -------
Income from investment operations:
Net investment income 0.69 0.67 0.14
- ----------------------------------------------------- -------- -------- -------
Net gains (losses) on securities (both realized
and unrealized) 0.50 (0.10) 0.16
- ----------------------------------------------------- -------- -------- -------
Total from investment operations 1.19 0.57 0.30
- ----------------------------------------------------- -------- -------- -------
Less distributions:
Dividends from net investment income (0.69) (0.69) (0.11)
- ----------------------------------------------------- -------- -------- -------
Distributions from net realized capital gains (0.05) -- --
- ----------------------------------------------------- -------- -------- -------
Returns of capital -- -- --
- ----------------------------------------------------- -------- -------- -------
Total distributions (0.74) (0.69) (0.11)
- ----------------------------------------------------- -------- -------- -------
Net asset value, end of period $ 10.52 $ 10.07 $ 10.19
- ----------------------------------------------------- -------- -------- -------
Total return(b) 12.23% 5.88% 3.06%
===================================================== ======== ======== =======
Ratio/supplemental data:
Net assets, end of period (000s omitted) $ 27,298 $ 16,685 $ 6,556
===================================================== ======== ======== =======
Ratio of expenses to average net assets(c) 0.25% 0.25% 0.25%(e)
===================================================== ======== ======== =======
Ratio of net investment income to average net
assets(c) 6.73% 6.82% 6.21%(e)
===================================================== ======== ======== =======
Portfolio turnover rate 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 1.09%, 1.16%, 1.13%, 1.23% (annualized), 1.30%, 1.12%,
1.26%, 1.33%, and 1.99% (annualized) for the period 1997-89, respectively.
Ratios of net investment income to average net assets prior to waiver of
advisory fees and expense reimbursements are 4.81%, 4.66%, 4.79%, 4.59%
(annualized), 4.45%, 5.38%, 5.72%, 5.74%, and 4.48% (annualized) for the
period 1997-89, respectively.
(d) Ratios are based on average daily net assets of $38,874,455.
(e) Annualized.
FS-26
