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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
JULY 29, 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 July 29, 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
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SUMMARY.................................... 2
THE FUND................................... 4
Table of Fees and Expenses............... 4
Financial Highlights..................... 5
Performance.............................. 6
Investment Program....................... 6
Management............................... 10
Organization of the Company.............. 12
INVESTOR'S GUIDE TO THE AIM
FAMILY OF FUNDS--Registered Trademark--.. A-1
Introduction to The AIM Family of
Funds................................. A-1
</TABLE>
<TABLE>
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PAGE
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How to Purchase Shares................... A-1
Terms and Conditions of Purchase of
the AIM Funds......................... A-2
Special Plans............................ A-9
Exchange Privilege....................... A-11
How to Redeem Shares..................... A-13
Determination of Net Asset Value......... A-17
Dividends, Distributions and Tax
Matters............................... A-18
General Information...................... A-20
APPENDIX A................................. A-21
APPLICATION INSTRUCTIONS................... B-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 solely 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 portfolios 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
approximately 90 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 all of 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, aimfunds.com, La
Familia AIM de Fondos and La Familia AIM de Fondos and Design are registered
service marks and Invest With Discipline and AIM Bank Connection 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 average net assets of
the respective classes of the Fund for the most recent fiscal period. 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(1) 5.00% 1.00%
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)....................... 0.00%(2) 0.00%(2) 0.00%(2)
Rule 12b-1 distribution plan payments..................... 0.25% 1.00% 1.00%
Other expenses............................................ 0.00% 0.00% 0.00%
---- ---- ----
Total fund operating expenses (after fee
waivers)........................................ 0.25%(2) 1.00%(2) 1.00%(2)
==== ==== ====
</TABLE>
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(1) 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."
(2) After fee waivers. AIM has voluntarily agreed through September 30, 1998
to waive the total Fund operating expenses so that such expenses do not
exceed 0.25% annually for Class A shares, and 1.00% annually for Class B
and Class C shares. Such voluntary expense limitation may in AIM's
discretion be continued for future periods. If these limitations were not
in effect, the Fund's management fees and total operating expenses would
be 0.60% and 1.00% for Class A shares, and 0.60% 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:
<TABLE>
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1 Year...................................................... $50
3 Years..................................................... $55
</TABLE>
The above example assumes 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>
<S> <C>
1 Year...................................................... $60
3 Years..................................................... $62
</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>
<S> <C>
1 Year...................................................... $10
3 Years..................................................... $32
</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...................................................... $20
3 Years..................................................... $32
</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...................................................... $10
3 Years..................................................... $32
</TABLE>
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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,
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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FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A, Class B
and Class C capital stock outstanding during the period January 2, 1998 (date
operations commended) through March 31, 1998, which has been audited by KPMG
Peat Marwick LLP, independent auditors, whose report thereon was unqualified.
The report of KPMG Peat Marwick LLP, independent auditors, for the period from
January 2, 1998 through March 31, 1998 is included in the Statement of
Additional Information.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
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<S> <C> <C> <C>
Net asset value, beginning of period........................ $ 10.00 $ 10.00 $ 10.00
Income from investment operations:
Net investment income..................................... 0.11 0.09 0.09
------- ------- -------
Net gains (losses) on securities (both realized and
unrealized)............................................ (0.01) (0.01) (0.01)
------- ------- -------
Total from investment operations.................. 0.10 0.08 0.08
------- ------- -------
Less distributions:
Dividends from net investment income...................... (0.11) (0.09) (0.09)
======= ======= =======
Net asset value, end of period.............................. $ 9.99 $ 9.99 $ 9.99
======= ======= =======
Total return(a)............................................. 1.04% 0.81% 0.79%
======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted).................. $17,787 $ 2,699 $ 738
======= ======= =======
Ratio of expenses to average net assets(b)................ 0.25%(c) 1.00%(c) 1.00%(c)
======= ======= =======
Ratio of net investment income to average net assets(d)... 4.80%(c) 4.05%(c) 4.05%(c)
======= ======= =======
Portfolio turnover rate................................... 21% 21% 21%
======= ======= =======
</TABLE>
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(a) Does not deduct sales charges and for periods less than one year, total
returns are not annualized.
(b) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.65% (annualized), 2.44% (annualized) and 2.44% (annualized) for Classes A,
B and C, respectively.
(c) Ratios are annualized and based on average net assets of $12,677,152,
$1,139,458 and $370,817 for Classes A, B and C, respectively.
(d) After fee waivers and/or expense reimbursements. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 3.40% (annualized), 2.61% (annualized) and 2.61%
(annualized) for Classes A, B and C, respectively.
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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. The
annual report of the Fund contains management's discussion of fund performance
and may be obtained without charge upon written request to the Company at P.O.
Box 4739, Houston, Texas 77210-4739 or by calling (800) 347-4246.
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.
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-
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appropriation or other default. The Company's Board of Directors has established
guidelines and procedures for determining the liquidity and valuation of
municipal lease obligations, and supervises 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 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 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 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.
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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 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
8
<PAGE> 9
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.
9
<PAGE> 10
- --------------------------------------------------------------------------------
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.
For a discussion of AIM Management and its subsidiaries' Year 2000
Compliance Project, see "General Information -- Year 2000 Compliance Project."
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 (the "Advisory Agreement"). AIM was
organized in 1976 and, together with its subsidiaries, manages or advises
approximately 90 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. 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. AIM and the Company have entered into a Master
Administrative Services Agreement (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.
For a discussion of AIM's brokerage allocation policies, see the Statement of
Additional Information under the caption "Portfolio Transactions."
PORTFOLIO MANAGEMENT. AIM uses a team approach and disciplined investment
strategy in providing investment advisory services to all its accounts,
including the Fund. AIM's investment staff consists of approximately 135
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"), a wholly owned subsidiary of
AIM, 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
been an investment professional since 1986. 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. He has been associated with AIM and/or its
subsidiaries since 1987, and has been an investment professional since 1968. Ms.
Copper is Vice President of AIM Capital and has been responsible for the Fund
since its inception in 1998. She has been associated with AIM and/or its
subsidiaries since 1992 and has been an investment professional since 1985.
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. For the period January 2, 1998 (date operations
commenced) through March 31, 1998, the Fund paid 0% of its average daily net
assets to AIM for its advisory services, and its total expenses for the same
period, stated as a percentage of average daily net assets, were 0.25%, 1.00%
and 1.00% for Class A, Class B and Class C shares, respectively. For the period
January 2, 1998 (date operations commenced) through March 31, 1998, the Fund
paid 0% of its average daily net assets to AIM as reimbursement for
administrative services pursuant to the Administrative Services Agreement. Had
AIM not absorbed expenses, the Fund would have reimbursed 0.13% of its average
daily net assets to AIM for such services.
FEE WAIVERS. In order to increase the yield to investors, AIM or its
affiliates may from time to time voluntarily waive or reduce advisory or
distribution fees, while retaining the ability to be reimbursed for such fees
prior to the end of each fiscal year. Fee waivers
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<PAGE> 11
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 all of the 0.60% management fee payable by the Fund, and reimbursing all
operating expenses of the Fund, other than the 0.25% distribution plan payments
by the Class A shares and the 1.00% distribution plan payments by the Class B
and C shares of the Fund. AIM may in its discretion continue such fee waiver for
future periods. For the period January 2, 1998 (date operations commenced)
through March 31, 1998, AIM voluntarily waived 0.60% of its advisory fee for the
Fund. Had AIM not waived such fee, the advisory fee would have been 0.60% of the
Fund's average daily net assets for this period.
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 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 by the Fund of asset-based sales charges and
service fees 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.
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<PAGE> 12
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.
Each of the Plans may be terminated as to a class 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, 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 3, 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).
Each class of shares of the same Fund represent interests in that 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 AIM HIGH INCOME MUNICIPAL FUND
must approve any material increase in fees payable with respect to the Fund
under the Class A and C Plan).
Shareholders of each Fund are entitled to one vote per share (with
proportionate voting for fractional shares), irrespective of the relative net
asset value of the different classes of shares, where applicable, of a 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 each 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.
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<PAGE> 13
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 FLEX FUND AIM GLOBAL UTILITIES 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(*)
AIM BLUE CHIP FUND AIM MUNICIPAL BOND FUND
AIM CAPITAL DEVELOPMENT FUND AIM SELECT GROWTH FUND
AIM CHARTER FUND AIM SMALL CAP OPPORTUNITIES FUND
AIM CONSTELLATION FUND AIM TAX-EXEMPT BOND FUND OF CONNECTICUT
AIM EUROPEAN DEVELOPMENT FUND AIM TAX-EXEMPT CASH FUND(*)
AIM GLOBAL AGGRESSIVE GROWTH FUND AIM TAX-FREE INTERMEDIATE FUND
AIM GLOBAL GROWTH FUND AIM VALUE FUND
AIM GLOBAL INCOME FUND AIM WEINGARTEN FUND
</TABLE>
(*) 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.
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.
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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") or Roth IRA is $250.
There are no minimum initial investment requirements applicable to
money-purchase/profit-sharing plans, 401(k) plans, Simplified Employee Pension
("SEP") accounts, Salary Reduction ("SARSEP") accounts, Savings Incentive Match
Plans for Employee IRA ("SIMPLE IRA") accounts, 403(b) plans or 457 (state
deferred compensation) plans (except that the minimum initial investment for
salary deferrals for such plans is $25), or for investment of dividends and
distributions of any of the AIM Funds into any existing AIM Funds account.
AFS' mailing address is:
A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
For additional information or assistance, investors should call the Client
Services Department of AFS at:
(800) 959-4246
Shares of any AIM Funds not named on the cover of this Prospectus are offered
pursuant to separate prospectuses. Copies of other prospectuses may be obtained
by calling (800) 347-4246.
MCF-07/98
A-1
<PAGE> 14
INITIAL AND SUBSEQUENT 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>
HOW TO PURCHASE ADDITIONAL SHARES. Additional shares may be purchased directly
through AIM Distributors or through any dealer who has entered into an agreement
with AIM Distributors. 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.
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.
BY AIM BANK CONNECTION(SM): To purchase additional shares by electronic funds
transfer, please contact the Client Services Department of AFS for detail.
- --------------------------------------------------------------------------------
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 GLOBAL
GROWTH FUND, AIM GLOBAL INCOME FUND, AIM GLOBAL UTILITIES 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 SELECT GROWTH FUND,
AIM SMALL CAP OPPORTUNITIES 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-07/98
A-2
<PAGE> 15
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 INTERNATIONAL
EQUITY FUND, AIM MONEY MARKET FUND, AIM SELECT GROWTH FUND, AIM SMALL CAP
OPPORTUNITIES 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(1) 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>
- ---------------
(1) AIM Small Cap Opportunities Fund will not accept any single purchase in
excess of $250,000.
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 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, AIM MUNICIPAL BOND FUND and AIM
TAX-EXEMPT BOND FUND OF CONNECTICUT.
<TABLE>
<CAPTION>
DEALER
CONCESSION
INVESTOR'S SALES CHARGE ----------
-------------------------- AS A
AS A AS A PERCENTAGE
PERCENTAGE PERCENTAGE OF THE
OF THE PUBLIC OF THE NET PUBLIC
AMOUNT OF INVESTMENT IN OFFERING AMOUNT OFFERING
SINGLE TRANSACTION PRICE INVESTED PRICE
----------------------- ------------- ---------- ----------
<S> <C> <C> <C> <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-07/98
A-3
<PAGE> 16
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> <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%) is intended in part to permit AIM Distributors
to recoup a portion of on-going sales commissions to dealers plus financing
costs, if any. After the first full year, AIM Distributors will make such
payments quarterly to dealers and institutions based on the average net asset
value of Class C shares which are attributable to shareholders for whom the
dealers and institutions are designated as dealers of record. These commissions
are not paid on sales to investors exempt from the CDSC, including shareholders
of record on April 30, 1995 who purchase additional shares in any of the Funds
on or after May 1, 1995, and in circumstances where AIM Distributors grants an
exemption on particular transactions.
MCF-07/98
A-4
<PAGE> 17
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 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 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; however, they are subject to the other fees and expenses described
in the prospectus for AIM MONEY MARKET FUND.
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.
MCF-07/98
A-5
<PAGE> 18
SPECIAL INFORMATION RELATING TO AIM MONEY MARKET FUND AND AIM TAX-EXEMPT CASH
FUND (THE "MONEY MARKET FUNDS"). Because each Money Market Fund uses the
amortized cost method of valuing the securities it holds and rounds its per
share net asset value to the nearest whole cent, it is anticipated that the net
asset value of the shares of such funds will remain constant at $1.00 per share.
However, there is no assurance that 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, Roth IRA, a single-participant
money-purchase/profit-sharing plan or an individual participant in a 403(b)
Plan (unless such 403(b) plan qualifies as the purchaser as defined below);
- 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"), a Savings Incentive Match
Plans for Employees IRA ("SIMPLE IRA") where the employer has notified AIM
Distributors in writing that all of its related employee SEP, SARSEP or
SIMPLE IRA accounts should be linked;
- 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 vir-
MCF-07/98
A-6
<PAGE> 19
tue of the foregoing definition, to the reduced sales charge. No person or
entity may distribute shares of the AIM Funds without payment of the applicable
sales charge other than to persons or entities who qualify for a reduction in
the sales charge as provided herein.
(1) LETTERS OF INTENT. A purchaser, as previously defined, may pay reduced
initial sales charges by completing the appropriate section of the account
application and by fulfilling a Letter of Intent ("LOI"). The LOI privilege is
also available to holders of the Connecticut General Guaranteed Account,
established for tax qualified group annuities, for contracts purchased on or
before June 30, 1992. The LOI confirms such purchaser's intention as to the
total investment to be made in shares of the AIM Funds (except for
(i) Class A shares of AIM TAX-EXEMPT CASH FUND, and AIM Cash Reserve Shares of
AIM MONEY MARKET FUND 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 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 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 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,
MCF-07/98
A-7
<PAGE> 20
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 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; (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; (i) any employee, or any member of the immediate
family (including spouse, children, parents and parents of spouse) of any
employee, of Triformis Inc; and (j) former or current Class A shareholders of
the AIM/GT Funds (those funds which are advised by AIM and sub-advised by
INVESCO (NY), Inc.), but only to the extent that their purchase order is entered
with an instruction to have all or a portion of the proceeds from a redemption
of Class A shares of the AIM/GT Funds (on which a sales charge was paid)
invested in Class A shares of the AIM Funds.
In addition, shares of any AIM Fund (except AIM Small Cap Opportunities 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 (measured on an
annual basis) 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: (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
MCF-07/98
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<PAGE> 21
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 amounts (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
withdrawal is made 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 are invested in shares of the
designated AIM Fund at the applicable offering price determined on the date of
the withdrawal. 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 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 rein-
MCF-07/98
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<PAGE> 22
vested 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.
Shares of AIM Small Cap Opportunities Fund will not be available for automatic
dividend reinvestments until August 10, 1998. 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 HIGH INCOME
MUNICIPAL FUND, AIM MUNICIPAL BOND FUND, AIM TAX-FREE INTERMEDIATE FUND, AIM
TAX-EXEMPT CASH 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; Roth IRA plans;
SARSEP plans; SEP plans; and SIMPLE IRA 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-07/98
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<PAGE> 23
- --------------------------------------------------------------------------------
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 FUND -- CLASS A -- CLASS A
AIM ADVISOR INTERNATIONAL AIM GLOBAL INCOME AIM TAX-FREE INTERMEDIATE FUND
VALUE FUND -- CLASS A FUND -- CLASS A -- CLASS A
AIM ADVISOR LARGE CAP AIM GLOBAL UTILITIES NO LOAD FUNDS:
VALUE FUND -- CLASS A FUND -- CLASS A
AIM ADVISOR MULTIFLEX AIM HIGH INCOME MUNICIPAL AIM MONEY MARKET FUND
FUND -- CLASS A FUND -- CLASS A -- AIM CASH RESERVE SHARES
AIM ADVISOR REAL ESTATE AIM HIGH YIELD FUND -- CLASS A AIM TAX-EXEMPT CASH FUND -- CLASS A
FUND -- CLASS A AIM INCOME FUND -- CLASS A
AIM AGGRESSIVE GROWTH AIM INTERMEDIATE GOVERNMENT
FUND -- CLASS A FUND -- CLASS A
AIM ASIAN GROWTH FUND -- CLASS A AIM INTERNATIONAL EQUITY
AIM BALANCED FUND -- CLASS A FUND -- CLASS A
AIM BLUE CHIP FUND -- CLASS A AIM MONEY MARKET
AIM CAPITAL DEVELOPMENT FUND -- CLASS A
FUND -- CLASS A AIM MUNICIPAL BOND
AIM CHARTER FUND -- CLASS A FUND -- CLASS A
AIM CONSTELLATION AIM SELECT GROWTH FUND -- CLASS A
FUND -- CLASS A AIM SMALL CAP OPPORTUNITIES
AIM EUROPEAN DEVELOPMENT FUND -- CLASS A
FUND -- CLASS A AIM TAX-EXEMPT BOND FUND
AIM GLOBAL AGGRESSIVE GROWTH OF CONNECTICUT -- CLASS A
FUND -- CLASS A AIM VALUE FUND -- CLASS A
AIM WEINGARTEN 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) 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; (II) 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; (iii) Class A shares may be exchanged for Class A shares, (iv) Class B
shares may be exchanged only for Class B shares; (v) Class C shares may only be
exchanged for Class C shares; and (vi) AIM Cash Reserve Shares of AIM MONEY
MARKET FUND may not be exchanged for Class A, Class B or Class C shares of AIM
MONEY MARKET FUND. Class A shares and Class B shares of AIM Small Cap
Opportunities Fund will not be available for purchase through an exchange from
another AIM Fund until August 10, 1998. Class C shares of AIM SMALL CAP
OPPORTUNITIES FUND are currently not available.
MCF-07/98
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<PAGE> 24
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 Net Asset Value Net Asset Value Net Asset Value Not Applicable Not Applicable
Funds..........
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 Net Asset Value if shares were Net Asset Value Net Asset Value Not Applicable Not Applicable
Funds.......... 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,
apply if No Load shares were Offering 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.
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
MCF-07/98
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<PAGE> 25
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 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-07/98
A-13
<PAGE> 26
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 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).
Waivers. 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;
(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.
MCF-07/98
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<PAGE> 27
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 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 transferred electronically or wired
to the pre-authorized bank account; (b) there has been no change of address of
record on the account within the preceding 30 days; (c) the shares to be
redeemed are not in certificate form; (d) the person requesting the redemption
can provide proper identification information; and (e) the proceeds of the
redemption do not exceed $50,000. Accounts in AIM Distributors' prototype
retirement plans (such as IRA and IRA/SEP) or 403(b) plans are not eligible for
the telephone redemption option. AIM Distributors has made arrangements with
certain dealers and investment advisors to accept telephone instructions for the
redemption of shares. AIM Distributors reserves the right to impose conditions
on these dealers and investment advisors, including the condition that they
enter into agreements (which contain additional conditions with respect to the
redemption of shares) with AIM Distributors. The Transfer Agent and AIM
Distributors will not be liable for any loss, expense or cost arising out of any
telephone redemption request effected in accordance with the authorization set
forth in the appropriate form if they reasonably believe such request to be gen-
MCF-07/98
A-15
<PAGE> 28
uine, 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 Cash Reserve Shares of 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 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
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 made 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 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 or electronic funds transfer instructions; and (8)
written redemptions or exchanges of shares previously reported as lost, whether
or not the redemption amount is under $50,000 or the proceeds are to be sent to
the address of record. These requirements may be waived or modified upon notice
to shareholders.
Acceptable guarantors include banks, broker-dealers, credit unions, national
securities exchanges, savings associations and any other organization, provided
that such institution or organization qualifies as an "eligible guarantor
institution" as that term is defined in rules adopted by the 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
MCF-07/98
A-16
<PAGE> 29
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 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-07/98
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<PAGE> 30
- --------------------------------------------------------------------------------
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 FLEX FUND..................... declared and paid quarterly quarterly 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 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 SELECT GROWTH FUND.................... declared and paid annually annually annually
AIM SMALL CAP OPPORTUNITIES FUND.......... declared and paid annually 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 are expected to be lower than those
for Class A shares or AIM Cash Reserve Shares because of higher distribution
fees paid by Class B and Class C shares. Dividends on all shares may also be
affected by other class-specific expenses.
MCF-07/98
A-18
<PAGE> 31
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 on amounts that it has distributed. 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 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 and
return of capital distributions. Under applicable treaty law, residents of
treaty countries may qualify for a reduced rate of withholding or a withholding
exemption.
DISTRIBUTIONS MAY BE SUBJECT TO TREATMENT UNDER FOREIGN, STATE OR LOCAL TAX
LAWS THAT DIFFERS FROM THE FEDERAL INCOME TAX CONSEQUENCES DISCUSSED HEREIN.
ADDITIONAL INFORMATION ABOUT TAXES IS SET FORTH IN THE STATEMENT OF ADDITIONAL
INFORMATION.
TAX-EXEMPT FUNDS -- SPECIAL TAX INFORMATION. Shareholders will not be required
to include the "exempt-interest" portion of dividends paid by the Tax-Exempt
Funds in their gross income for federal income tax purposes. However,
shareholders will be required to report the receipt of exempt-interest dividends
and other tax-exempt interest on their federal income tax returns. Moreover,
exempt-interest dividends from the Tax-Exempt Funds may be subject to state
income taxes, may give rise to a federal alternative minimum tax liability, may
affect the amount of social security benefits subject to federal income tax, may
affect the deductibility of interest on certain indebtedness of the shareholder,
and may have other collateral federal income tax consequences. The Tax-Exempt
Funds may invest in Municipal Securities the interest on which will constitute
an item of tax preference and which therefore could give rise to a federal
alternative minimum tax liability for shareholders, and may invest up to 20% of
their net assets in such securities and
MCF-07/98
A-19
<PAGE> 32
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. Chase Bank of Texas, N.A.,
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, LLP,
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.
YEAR 2000 COMPLIANCE PROJECT. In providing services to the AIM Funds, AIM
Management and its subsidiaries rely on both internal software systems as well
as external software systems provided by third parties (the "Software"). Many
software systems in use today are unable to distinguish between the year 2000
from the year 1900. This defect if not cured will likely adversely affect the
services that AIM Management, its subsidiaries and other service providers
provide the AIM Funds and their shareholders.
To address this issue, AIM Management and its subsidiaries, together with
independent technology consultants, are undertaking a comprehensive Year 2000
Compliance Project (the "Project"). The Project consists of three phases, namely
(i) inventorying every software application in use at AIM Management and its
subsidiaries, as well as remote, third party software systems on which AIM
Management and its subsidiaries rely, (ii) identifying those applications that
may not function properly after December 31, 1999, and (iii) correcting and
subsequently testing those applications that may not function properly after
December 31, 1999. Phases (i) and (ii) are complete and Phase (iii) has
commenced. The Project is scheduled to be completed during the fourth quarter of
1998.
MCF-07/98
A-20
<PAGE> 33
Software applications acquired by AIM Management and its subsidiaries after
completion of the Project will be reviewed to confirm Year 2000 compliance upon
installation.
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-07/98
A-21
<PAGE> 34
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-22
<PAGE> 35
APPLICATION INSTRUCTIONS
SOCIAL SECURITY OR TAXPAYER ID NUMBER. Investors should make sure that the
social security number or taxpayer identification number (TIN) which appears in
Section 1 of the Application complies with the following guidelines:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
</TABLE>
<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-07/98
B-1
<PAGE> 36
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. 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").
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 redemptions must be effected in writing by the investor (see the
applicable Fund's prospectus under the caption "How to Redeem
Shares -- Redemptions by Mail").
MCF-07/98
B-2
<PAGE> 37
[AIM LOGO APPEARS HERE] THE AIM FAMILY OF FUNDS--Registered Trademark--
Investment Advisor
A I M Advisors, Inc.
11 Greenway Plaza, Suite 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
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> 38
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 FREE OF CHARGE 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: July 29, 1998
Relating to the AIM Tax-Exempt Cash Fund, AIM Tax-Free Intermediate Fund and
AIM Tax-Exempt Bond Fund of Connecticut Prospectus and the
AIM High Income Municipal Fund Prospectus, each dated July 29, 1998
<PAGE> 39
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INTRODUCTION........................................................................................... 1
GENERAL INFORMATION ABOUT THE COMPANY.................................................................. 1
The Company and its Shares.................................................................... 1
PERFORMANCE INFORMATION................................................................................ 2
Yield Calculations............................................................................ 2
Total Return Calculations..................................................................... 3
Historical Portfolio Results.................................................................. 4
PORTFOLIO TRANSACTIONS................................................................................. 5
General Brokerage Policy...................................................................... 5
Allocation of Portfolio Transactions.......................................................... 6
Section 28(e) Standards....................................................................... 7
INVESTMENT PROGRAM AND RESTRICTIONS.................................................................... 8
Investment Program............................................................................ 8
Municipal Securities.......................................................................... 8
Diversification Requirements - AIM Tax-Exempt Cash Fund....................................... 9
When-Issued or Delayed Delivery Securities.................................................... 10
Synthetic Municipal Instruments............................................................... 10
Variable or Floating Rate Instruments......................................................... 11
Investments in Securities Owned by Officers and Directors..................................... 11
Eligible Securities........................................................................... 11
Concentration of Investments.................................................................. 11
Investment Restrictions....................................................................... 12
Investment in Non-Investment Grade Securities: AIM Tax-Exempt Bond Fund of Connecticut
and AIM High Income Municipal Fund Only.............................................. 16
Covered Call Options: AIM High Income Municipal Fund Only.................................... 17
Put Options: AIM High Income Municipal Fund Only............................................. 17
Combined Option Positions: AIM High Income Municipal Fund Only................................ 17
Futures Contracts: AIM Tax-Exempt Bond Fund of Connecticut and AIM High Income
Municipal Fund Only.................................................................. 17
Options on Futures Contracts: AIM Tax-Exempt Bond Fund of Connecticut and AIM High
Income Municipal Fund Only.......................................................... 18
Risks as to Futures Contracts and Related Options............................................. 18
AIM High Income Municipal Fund................................................................ 19
MANAGEMENT............................................................................................. 20
Directors and Officers........................................................................ 20
INVESTMENT ADVISORY AND OTHER SERVICES................................................................. 26
Distribution Plans............................................................................ 28
The Distributor............................................................................... 34
MISCELLANEOUS INFORMATION.............................................................................. 35
Shareholder Inquiries......................................................................... 35
Audit Reports................................................................................. 36
Legal Matters................................................................................. 36
Custodian and Transfer Agent.................................................................. 36
Control Persons and Principal Holders of Securities........................................... 36
</TABLE>
ii
<PAGE> 40
<TABLE>
<S> <C>
HOW TO PURCHASE AND REDEEM SHARES...................................................................... 39
DETERMINATION OF NET ASSET VALUE....................................................................... 40
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS............................................................... 41
Dividends and Distributions................................................................... 41
Tax Matters................................................................................... 41
DESCRIPTION OF MONEY MARKET INSTRUMENTS (AIM Tax-Exempt Cash Fund Only)................................ 46
Money Market Obligations...................................................................... 47
RATINGS OF SECURITIES.................................................................................. 48
FINANCIAL STATEMENTS................................................................................... FS
</TABLE>
iii
<PAGE> 41
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 July 29, 1998 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 also dated July 29, 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 3, 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> 42
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, 1998, were 4.41% and 4.76%,
respectively. The distribution rates for the Class A shares, B shares and C
shares of AIM HIGH INCOME MUNICIPAL FUND for the thirty days ended March 31,
1998 were 5.00%, 4.48% and 4.48%, respectively.
2
<PAGE> 43
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 365
1 0 ---
---------- 7
V
0
Where Y = annualized yield.
V = the value of a hypothetical
0 pre-existing account 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
1 of the stated period.
The standard formula for calculating effective annualized yield for the
Fund is as follows:
365/7
EY = (Y + 1) - 1
Where EY = effective annualized yield.
Y = annualized yield, as determined above.
For purposes of the annualized yield and effective annualized yield,
the net change in the value of the hypothetical AIM TAX-EXEMPT CASH FUND account
reflects the value of additional shares purchased with dividends from the
original shares and any such additional shares, and all fees charged, other than
non-recurring account or sales charges, to all shareholder accounts in
proportion to the length of the base period and the Fund's average account size,
but does not include realized gains or losses or unrealized appreciation and
depreciation and income other than investment income.
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 price) in order
to illustrate the relationship of these factors and their contributions to total
return. Total returns,
3
<PAGE> 44
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 Fund's 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, 1998, were 3.12% and 3.17%,
respectively. Assuming a tax rate of 39.6%, these yields for the Class A shares
of the Fund on a tax-equivalent basis were 4.67% and 4.75%, 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, 1998, were 3.12%, 2.64% and
3.43%, respectively. The cumulative total returns of the Class A shares of the
Fund for the one, five and ten-year periods ended March 31, 1998, were 3.12%,
13.91% and 40.08%, 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, 1998, and the period
from May 11, 1987 (date operations commenced) through March 31, 1998:
4
<PAGE> 45
<TABLE>
<CAPTION>
Average
Period Annual Return Cumulative Return
------ ------------- -----------------
<S> <C> <C>
One year ended 3/31/98 7.79% 7.79%
Five years ended 3/31/98 5.35% 29.79%
5/11/87 through 3/31/98 6.46% 97.64%
</TABLE>
The 30-day yield of the Fund's Class A shares as of March 31, 1998, was
4.31%, with a corresponding tax-equivalent yield of 7.14%, 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, 1998, and the period
from October 3, 1989 (date operations commenced) through March 31, 1998:
<TABLE>
<CAPTION>
Average
Period Annual Return Cumulative Return
------ ------------- -----------------
<S> <C> <C>
One year ended 3/31/98 7.77% 7.77%
Five years ended 3/31/98 5.65% 31.62%
10/03/89 through 3/31/98 7.22% 80.80%
</TABLE>
The 30-day yield of the Fund's Class A shares as of March 31, 1998, was
4.66%, with a corresponding Connecticut individual's tax-equivalent yield of
8.08%, assuming a federal tax rate of 39.60%, and a state tax rate of 2.72%.
AIM HIGH INCOME MUNICIPAL FUND
The 30-day yields of the Fund's Class A, Class B and Class C shares as
of March 31, 1998, were 4.90%, 4.39% and 4.39%, respectively, with the
corresponding tax-equivalent yields of 8.11%, 7.27% and 7.27% respectively,
assuming a tax rate of 39.6%.
PORTFOLIO TRANSACTIONS
GENERAL BROKERAGE POLICY
A I M Advisors, Inc. ("AIM") makes decisions to buy and sell securities
for the Funds, selects broker-dealers, effects the Funds' investment
transactions, allocates brokerage fees in such transactions, and where
applicable, negotiates commissions and spreads on transactions. Since purchases
and sales of portfolio securities by the Funds are usually principal
transactions, the Funds incur little or no brokerage commission. AIM's primary
consideration in effecting a security transaction is to obtain the most
favorable execution of the order, which includes the best price on the security
and a low commission rate (as applicable). While AIM seeks reasonably
competitive commission rates, the Funds may not pay the lowest commission or
spread available. See "Section 28(e) Standards" below.
In the event a Fund purchases securities traded over-the-counter, the
Fund deals directly with dealers who make markets in the securities involved,
except when better prices are available elsewhere. Fund transactions placed
through dealers who are primary market makers are effected at net prices without
commissions, but which include compensation in the form of a mark up or mark
down.
AIM may determine target levels of commission business with various
brokers on behalf of its clients (including the Funds) over a certain time
period. The target levels will be based upon the following factors,
5
<PAGE> 46
among others: (1) the execution services provided by the broker; (2) the
research services provided by the broker; and (3) the broker's interest in
mutual funds in general and in the Funds and other mutual funds advised by AIM
or A I M Capital Management, Inc. (collectively, the "AIM Funds") in particular,
including sales of the Funds and of the other AIM Funds. In connection with (3)
above, the Funds' trades may be executed directly by dealers which sell shares
of the AIM Funds or by other broker-dealers with which such dealers have
clearing arrangements. AIM will not use a specific formula in connection with
any of these considerations to determine the target levels.
AIM will seek, whenever possible, to recapture for the benefit of the
Funds any commissions, fees, brokerage or similar payments paid by the Funds on
portfolio transactions. Normally, the only fees which AIM can recapture are the
soliciting dealer fees on the tender of the Funds' securities in a tender or
exchange offer.
The Funds may engage in certain principal and agency transactions with
banks and their affiliates that own 5% or more of the outstanding voting
securities of the Funds, provided the conditions of an exemptive order received
by the Funds from the SEC are met. In addition, the Funds may purchase or sell a
security from or to another AIM Fund provided the Funds follow procedures
adopted by the Board of Directors/Trustees of the various AIM Funds, including
the Company. These inter-fund transactions do not generate brokerage commissions
but may result in custodial fees or taxes or other related expenses.
Under the 1940 Act, certain persons affiliated with the Company are
prohibited from dealing with the Company 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 Company 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 the Funds to purchase municipal
securities being publicly underwritten by such syndicate, and the Funds 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. The Funds may
purchase such Municipal Securities directly from the issuer, provided that the
purchase is reviewed by the Company's 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. During the fiscal years ended
March 31, 1998, 1997 and 1996, no securities or instruments were purchased by
the Funds from issuers who paid placement fees or other compensation to a broker
affiliated with the Funds.
ALLOCATION OF PORTFOLIO TRANSACTIONS
AIM and its affiliates manage several other investment accounts. Some
of these accounts may have investment objectives similar to the Funds.
Occasionally, identical securities will be appropriate for investment by a Fund
and one or more of these investment accounts. However, the position of each
account in the same securities and the length of time that each account may hold
its investment in the same securities may vary. The timing and amount of
purchase by each account will also be determined by its cash position. If the
purchase or sale of securities is consistent with the investment policies of a
Fund and one or more of these accounts, and is considered at or about the same
time, AIM will fairly allocate transactions in such securities among such Fund
and these accounts. AIM may combine such transactions, in accordance with
applicable laws and regulations, to obtain the most favorable execution.
Simultaneous transactions could, however, adversely affect the Funds' ability to
obtain or dispose of the full amount of a security which it seeks to purchase or
sell.
Sometimes the procedure for allocating portfolio transactions among the
various investment accounts advised by AIM could have an adverse effect on the
price or amount of securities available to the Funds. In making such
allocations, AIM considers the investment objectives and policies of its
advisory clients, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment,
6
<PAGE> 47
the size of investment commitments generally held, and the judgments of the
persons responsible for recommending the investment.
SECTION 28(e) STANDARDS
Section 28(e) of the Securities Exchange Act of 1934 provides that AIM,
under certain circumstances, lawfully may cause an account to pay a higher
commission than the lowest available. Under Section 28(e), AIM must make a good
faith determination that the commissions paid are "reasonable in relation to the
value of the brokerage and research services provided ... viewed in terms of
either that particular transaction or [AIM's] overall responsibilities with
respect to the accounts as to which it exercises investment discretion." The
services provided by the broker also must lawfully and appropriately assist AIM
in the performance of its investment decision-making responsibilities.
Accordingly, in recognition of research services provided to them, Funds may pay
a broker higher commissions than those available from another broker.
Research services received from broker-dealers supplement AIM's own
research (and the research of its affiliates), and may include the following
types of information: statistical and background information on the U.S. and
foreign economies, industry groups and individual companies; forecasts and
interpretations with respect to the U.S. and foreign economies, securities,
markets, specific industry groups and individual companies; information on
federal, state, local and foreign political developments; portfolio management
strategies; performance information on securities, indexes and investment
accounts; information concerning prices of securities; and information supplied
by specialized services to AIM and to the Company's directors with respect to
the performance, investment activities, and fees and expenses of other mutual
funds. Broker-dealers may communicate such information electronically, orally or
in written form. Research services may also include the providing of custody
services, as well as the providing of equipment used to communicate research
information, the providing of specialized consultations with AIM personnel with
respect to computerized systems and data furnished to AIM as a component of
other research services, the arranging of meetings with management of companies,
and the providing of access to consultants who supply research information.
The outside research assistance is useful to AIM since the
broker-dealers used by AIM tend to follow a broader universe of securities and
other matters than AIM's staff can follow. In addition, the research provides
AIM with a diverse perspective on financial markets. Research services provided
to AIM by broker-dealers are available for the benefit of all accounts managed
or advised by AIM or by its affiliates. Some broker-dealers may indicate that
the provision of research services is dependent upon the generation of certain
specified levels of commissions and underwriting concessions by AIM's clients,
including the Funds. However, the Funds are not under any obligation to deal
with any broker-dealer in the execution of transactions in portfolio securities.
In some cases, the research services are available only from the
broker-dealer providing them. In other cases, the research services may be
obtainable from alternative sources in return for cash payments. AIM believes
that the research services are beneficial in supplementing AIM's research and
analysis and that they improve the quality of AIM's investment advice. The
advisory fees paid by the Funds are not reduced because AIM receives such
services. However, to the extent that AIM would have purchased research services
had they not been provided by broker-dealers, the expenses to AIM could be
considered to have been reduced accordingly.
The Funds paid no brokerage commissions to brokers affiliated with the
Funds during the past three fiscal years of each AIM Tax-Exempt Cash Fund, AIM
Tax-Free Intermediate Fund, AIM Tax-Exempt Bond Fund of Connecticut, and during
the first period of AIM High Income Municipal Fund.
7
<PAGE> 48
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.
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
8
<PAGE> 49
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.
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.
DIVERSIFICATION REQUIREMENTS - AIM TAX-EXEMPT CASH FUND
As a money market fund, AIM Tax-Exempt Cash Fund is subject to the
diversification requirements of Rule 2a-7 under the 1940 Act. This Rule sets
forth two different diversification requirements: one applicable to the issuer
of Municipal Securities (provided that such securities are not subject to a
demand feature or a guarantee), and one applicable to Municipal Securities with
demand features or guarantees.
The issuer diversification requirement provides that the Fund may not
invest in the securities of any issuer if, as a result, more than 5% of its
total assets would be invested in securities issued by such issuer. If the
securities are subject to a demand feature or guarantee, however, they are not
subject to this requirement. Moreover, for purposes of this requirement, the
issuer of a security is not always the nominal issuer. Instead, in certain
circumstances, the underlying obligor of a security is deemed to be the issuer
of the security. Such circumstances arise for example when another political
subdivision agrees to be ultimately responsible for payments of principal of an
interest on a security or when the assets and revenues of a non-governmental
user of the facility financed with the Municipal Securities secures repayment of
such securities.
The diversification requirement applicable to Municipal Securities
subject to a demand feature or guarantee provides that, with respect to 75% of
its total assets, the Fund may not invest more than 10% of its total assets in
securities issued by or subject to demand features or guarantees from the same
entity. A demand feature permits the Fund to sell a Municipal Security at
approximately its amortized cost value plus accrued interest at specified
intervals upon no more than 30 days' notice. A guarantee includes a letter of
credit, bond insurance and an unconditional demand feature (provided the demand
feature is not provided by the issuer of the security.)
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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 collateralize the when-issued or delayed
delivery commitment by segregating liquid assets of a dollar value sufficient at
all times to make payment for the when-issued or delayed-delivery securities.
Such segregated liquid assets will be marked-to-market, and the amount
segregated will be increased if necessary to maintain adequate coverage of the
Fund's when-issued or delayed delivery commitments. 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 liquid 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
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investors such as the Fund. The trustee or custodian receives the long-term
fixed rate interest payments on the Underlying Bonds, and pays certificate
holders short-term floating or variable interest rates which are reset
periodically. A "tender option bond" provides a certificate holder with the
conditional right to sell 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 demand feature). 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 demand feature
the right to tender its certificate at par value plus accrued interest.
Because synthetic municipal instruments involve a trust or custodial
account and a third party conditional demand 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 instrument, 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 on set dates (such as the last day
of the month or calendar quarter) in the case of variable rates or whenever a
specified interest rate change occurs in the case of a floating rate instrument.
Variable or floating interest rates generally reduce changes in the market price
of Municipal Securities from their original purchase price because, upon
readjustment, such rates approximate market rates. 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 of an issuer if, after
giving effect to such purchase 25% or more of the value of such Fund's total
assets would be invested in securities of one or more issuers conducting their
principal activities in the same state. Each of AIM TAX-EXEMPT CASH FUND, AIM
TAX-FREE INTERMEDIATE FUND and AIM TAX-EXEMPT BOND FUND OF CONNECTICUT may
invest 25% of its total assets in industrial development bonds.
As a non-fundamental policy, neither AIM TAX-EXEMPT CASH FUND nor AIM
TAX-FREE INTERMEDIATE FUND will purchase securities of an issuer if, after
giving effect to such purchase, 25% or more of the value
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of such Fund's total assets would be invested in securities the interest on
which is paid from revenues of projects with similar characteristics. This
policy applies to industrial development bonds as well as other tax-exempt
securities. This policy shall not apply, however, in the event such securities
are subject to a guarantee. As a non-fundamental policy, AIM Tax-Exempt Bond
Fund of Connecticut may invest more than 25% of the value of its total assets in
securities where the issuers' interest obligations are paid from revenue of
similar projects. As a non-fundamental policy, with respect to securities that
are subject to a guarantee, none of the Funds do not intend to purchase any such
security if, after giving effect to such purchase, 25% or more of the applicable
Fund's total assets would be invested in securities issued or guaranteed by
entities in a particular industry. Securities issued or guaranteed by a bank or
subject to financial guaranty insurance are not subject to this policy.
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 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.
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<PAGE> 53
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-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.
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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 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.
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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.
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:
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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.
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 fiscal year ended March 31, 1998, 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. During the fiscal year ended March 31,
1998, AIM HIGH INCOME MUNICIPAL FUND invested 70.33% of its net assets in
securities which were rated below investment grade, and the Fund expects to
invest a significant portion of its net assets in Municipal Securities which are
non-investment grade during the next 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 or sells a security, no price is paid or received by a Fund upon the
purchase or sale of a futures contract. Initially,
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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 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
18
<PAGE> 59
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 Fund's 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.
19
<PAGE> 60
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. Unless
otherwise indicated, the address of each director and officer is 11 Greenway
Plaza, Suite 100, Houston, Texas 77046-1173. All of the company's executive
officers hold similar offices with some or all of the other AIM Funds.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Positions Held PRINCIPAL OCCUPATION DURING AT LEAST THE
NAME, ADDRESS AND AGE with Registrant PAST 5 YEARS
--------------------- --------------- ------------
<S> <C> <C>
*CHARLES T. BAUER (79) Director and Chairman of the Board of Directors,
Chairman A I M Management Group Inc.,
A I M Advisors, Inc., A I M Capital
Management, Inc., A I M Distributors,
Inc., A I M Fund Services, Inc., and Fund
Management Company; and Vice Chairman
and Director, AMVESCAP PLC.
BRUCE L. CROCKETT (54) Director Director, ACE Limited (insurance company).
906 Frome Lane Formerly, Director, President and Chief
McLean, VA 22102 Executive Officer, COMSAT Corporation and
Chairman, Board of Governors of INTELSAT
(international communications company).
OWEN DALY II (73) Director Director, Cortland Trust Inc. (investment
Six Blythewood Road company). Formerly, Director, CF & I Steel
Baltimore, MD 21210 Corp., Monumental Life Insurance Company
and Monumental General Insurance
Company; and Chairman of the Board of
Equitable Bancorporation.
EDWARD K. DUNN, JR. (63) Director Chairman of the Board of Directors,
Mercantile Mortgage Corp. Mercantile Mortgage Corp.; Formerly, Vice
2 Hopkins Plaza, 20th Floor Chairman of the Board of Directors and
Baltimore, MD 21201 President, Mercantile - Safe Deposit & Trust
Co.; and President, Mercantile Bankshares.
JACK FIELDS (46) Director Chief Executive Officer; Texana Global Inc.
Texana Global Inc. (foreign trading company). Formerly,
Jetero Plaza, Suite E Member of the U.S. House of
8810 Will Clayton Parkway Representatives.
Humble, TX 77338
- --------------------------------------------------------------------------------------------------------------
</TABLE>
- --------
* A director who is an "interested person" of AIM and the Company as
defined in the 1940 Act.
20
<PAGE> 61
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Positions Held PRINCIPAL OCCUPATION DURING AT LEAST THE
NAME, ADDRESS AND AGE with Registrant PAST 5 YEARS
--------------------- --------------- ------------
<S> <C> <C>
**CARL FRISCHLING (61) Director Partner, Kramer, Levin, Naftalis & Frankel
919 Third Avenue (law firm); and Director, ERD Waste, Inc.
New York, NY 10022 (waste management company), Aegis
Consumer Finance (auto leasing company) and
Lazard Funds, Inc. (investment company).
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 Executive
President Officer, A I M Management Group Inc.;
Director and President, A I M Advisors, Inc.;
Director and Senior Vice President,
A I M Capital Management, Inc.,
A I M Distributors, Inc., A I M Fund Services,
Inc. and Fund Management Company;
Director, AMVESCAP PLC.
LEWIS F. PENNOCK (55) Director Attorney in private practice in Houston,
6363 Woodway, Suite 825 Texas.
Houston, TX 77057
IAN W. ROBINSON (75) Director Formerly, Executive Vice President and Chief
183 River Drive Financial Officer, Bell Atlantic Management
Tequesta, FL 33469 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, Development and
Transco Tower, 50th Floor Operations, Hines Interests Limited
2800 Post Oak Blvd. Partnership (real estate development).
Houston, TX 77056
- --------------------------------------------------------------------------------------------------------------
</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 AIM and the Company as
defined in the 1940 Act.
21
<PAGE> 62
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Positions Held PRINCIPAL OCCUPATION DURING AT LEAST THE
NAME, ADDRESS AND AGE with Registrant PAST 5 YEARS
--------------------- --------------- ------------
<S> <C> <C>
***JOHN J. ARTHUR (53) Senior Vice Director, Senior Vice President and
President and Treasurer, A I M Advisors, Inc.; and Vice
Treasurer President and Treasurer, A I M Management
Group Inc., A I M Capital Management, Inc.,
A I M Distributors, Inc., A I M Fund Services,
Inc. and Fund Management Company.
GARY T. CRUM (50) Senior Vice Director and President, A I M Capital
President Management, Inc.; Director and Senior Vice
President, A I M Management Group Inc. and
A I M Advisors, Inc.; and Director, A I M
Distributors, Inc. and AMVESCAP PLC.
***CAROL F. RELIHAN (43) Senior Vice Director, Senior Vice President, General
President and Counsel and Secretary, A I M Advisors, Inc.;
Secretary Vice President, General Counsel and
Secretary, A I M Management Group Inc.;
Director, Vice President and General
Counsel, Fund Management Company; Vice
President, and General Counsel, A I M Fund
Services, Inc. and Vice President,
A I M Capital Management, Inc. and
A I M Distributors, Inc., Inc.
DANA R. SUTTON (39) Vice President and Vice President and Fund Controller,
Assistant Treasurer A I M Advisors, Inc.; and Assistant Vice
President and Assistant Treasurer, Fund
Management Company.
STUART W. COCO (43) Vice President Senior Vice President, A I M Capital
Management, Inc. and Vice President,
A I M Advisors, Inc.
MELVILLE B. COX (54) Vice President Vice President and Chief Compliance Officer,
A I M Advisors, Inc., A I M Capital
Management, Inc., A I M Distributors, Inc.,
A I M Fund Services, Inc. and Fund
Management Company.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
- --------
***Mr. Arthur and Ms. Relihan are married to each other.
22
<PAGE> 63
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Positions Held PRINCIPAL OCCUPATION DURING AT LEAST THE
NAME, ADDRESS AND AGE with Registrant PAST 5 YEARS
--------------------- --------------- ------------
<S> <C> <C>
KAREN DUNN KELLEY (38) Vice President Senior Vice President, A I M Capital
Management, Inc. and Vice President,
A I M Advisors, Inc.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
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, Dunn,
Fields, Frischling, Pennock, Robinson, (Chairman) 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.
The members of the Investments Committee are Messrs. Bauer, Crockett,
Daly, Dunn, Fields, Frischling, Pennock, Robinson and Sklar (Chairman). 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 (Chairman), Daly, Dunn, Fields, Pennock, 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.
23
<PAGE> 64
Set forth below is information regarding compensation paid or accrued
for each director of the Company:
<TABLE>
<CAPTION>
=================================================================================================================
RETIREMENT
AGGREGATE BENEFITS
COMPENSATION ACCRUED TOTAL
FROM THE BY ALL AIM COMPENSATION
DIRECTOR COMPANY(1) FUNDS(2) FROM ALL AIM FUNDS(3)
-------- ---------- -------- ---------------------
<S> <C> <C> <C>
Charles T. Bauer $ 0 $ 0 $ 0
Bruce L. Crockett 3,486 67,774 84,000
Owen Daly II 3,486 103,542 84,000
Edward K. Dunn, Jr. (4) 289 0 0
Jack Fields (4) 3,465 0 71,000
Carl Frischling (5) 3,486 96,520 84,000
Robert H. Graham 0 0 0
John F. Kroeger (6) 3,366 94,132 82,500
Lewis F. Pennock 3,486 55,777 84,000
Ian Robinson 3,486 85,912 84,000
Louis S. Sklar 3,469 84,370 83,500
=================================================================================================================
</TABLE>
- -----------------
(1) The total amount of compensation deferred by all Directors of the
Company during the fiscal year ended March 31, 1998, including interest
earned thereon, was $17,407.
(2) During the fiscal year ended March 31, 1998, the total amount of
expenses allocated to the Company in respect of such retirement
benefits was $1,772. Data reflects compensation for the calendar year
ended December 31, 1997.
(3) Each Director serves as director or trustee of a total of 12 registered
investment companies advised by AIM as of December 31, 1997 (comprised
of approximately 90 portfolios). Data reflect total compensation for
the calendar year ended December 31, 1997.
(4) Mr. Dunn and Fields did not serve as Directors during the calendar
year ended December 31, 1997.
(5) The Funds paid the law firm of Kramer, Levin, Naftalis & Frankel $9,659
in legal fees for services provided to the Fund during the fiscal year
ended March 31, 1998. Mr. Frischling, a director of the Company, is a
partner in such firm.
(6) Mr. Kroeger resigned as a Director of the Company on June 11, 1998
and on that date became a consultant to the Company.
24
<PAGE> 65
AIM FUNDS RETIREMENT PLAN FOR ELIGIBLE DIRECTORS/TRUSTEES
Under the terms of the AIM Funds Retirement Plan for Eligible
Directors/Trustees (the "Plan"), each director (who is not an employee of any of
the AIM Funds, A I M Management Group Inc. or any of their affiliates) may be
entitled to certain benefits upon retirement from the Board of Directors.
Pursuant to the Plan, the normal retirement date is the date on which the
eligible director has attained age 65 and has completed at least five years of
continuous service with one or more of the regulated investment companies
managed, administered or distributed by AIM or its affiliates (the "Applicable
AIM Funds"). Each eligible director is entitled to receive an annual benefit
from the Applicable AIM Funds commencing on the first day of the calendar
quarter coincident with or following his date of retirement equal to 75% of the
retainer paid or accrued by the Applicable AIM Funds for such director during
the twelve-month period immediately preceding the director's retirement
(including amounts deferred under a separate agreement between the Applicable
AIM Funds and the director) for the number of such director's years of service
(not in excess of 10 years of service) completed with respect to any of the
applicable 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 a specified level of
compensation and years of service classifications. The estimated credited years
of service as of March 31, 1998, for Messrs. Crockett, Daly, Dunn, Fields,
Frischling, Kroeger, Pennock, Robinson and Sklar are 10, 11, 0, 1, 20, 20, 16,
10 and 8 years, respectively.
ESTIMATED BENEFITS UPON RETIREMENT
============================================================
Number of Annual Retainer Paid By All AIM Funds
Years of
Service With $80,000
the AIM Funds
10 $60,000
9 $54,000
8 $48,000
7 $42,000
6 $36,000
5 $30,000
============================================================
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
25
<PAGE> 66
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.
The firm of Kramer, Levin, Naftalis & Frankel ("Kramer Levin") is
counsel to the Board of Directors. During the year ended March 31, 1998, AIM
TAX-EXEMPT CASH FUND paid $3,069 in legal fees to Kramer Levin. During the year
ended March 31, 1998, AIM TAX-EXEMPT BOND FUND OF CONNECTICUT paid $3,296 in
legal fees to Kramer Levin. During the year ended March 31, 1998, AIM TAX-FREE
INTERMEDIATE FUND paid $3,294 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 was organized in 1976, and together with its subsidiaries, advises
or manages approximately 90 investment company portfolios encompassing a broad
range of investment objectives. AIM is a wholly owned subsidiary of A I M
Management Group Inc. ("AIM Management"), a holding company that has been
engaged in the financial services business since 1976. The address of AIM is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. AIM Management is an indirect
wholly owned subsidiary of AMVESCAP PLC, 11 Devonshire Square, London EC2M 4YR,
United Kingdom. AMVESCAP PLC and its subsidiaries are an independent investment
management group engaged in the business of investment management on an
international basis. 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 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 and each amended September 20, 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
26
<PAGE> 67
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 (i) (a) by the Company's
Board of Directors or (b) by the vote of a majority of the outstanding voting
securities of each Fund and (ii) 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. 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
NET ASSETS ANNUAL RATE
---------- -----------
First $500 million 0.30%
Next $500 million 0.25%
Amount over $1 billion 0.20%
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
NET ASSETS ANNUAL RATE
---------- -----------
First $500 million 0.60%
Next $500 million 0.55%
Next $500 million 0.50%
Amount over $1.5 billion 0.45%
Each Fund or AIM may terminate the Advisory Agreement with respect to
that Fund 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 period January 2, 1998 (date operations commenced) through
March 31, 1998, AIM received advisory fees from AIM High Income Municipal Fund
of $108 and AIM waived advisory fees from the Fund in the amount of $20,648. AIM
is currently voluntarily waiving all of the 0.60% management fee payable by AIM
HIGH INCOME MUNICIPAL FUND, and reimbursing all operating expenses of the Fund,
other than the 0.25% distribution plan payments by the Class A shares and the
1.00% distribution plan payments by the Class B
27
<PAGE> 68
and Class C shares of AIM HIGH INCOME MUNICIPAL FUND. This voluntary fee waiver
and expense reimbursement will continue in effect through September 30, 1998,
and AIM may in its discretion continue such fee waiver and/or expense
reimbursement for future periods.
For the years ended March 31, 1998, 1997 and 1996, AIM received
advisory fees from AIM TAX-EXEMPT CASH FUND of $182,302, $125,537 and $101,649,
respectively.
For the years ended March 31, 1998, 1997 and 1996, AIM received
advisory fees from AIM TAX-FREE INTERMEDIATE FUND of $566,927, $276,828 and
$232,893, respectively.
For the years ended March 31, 1998 and 1997, AIM received advisory fees
from AIM TAX-EXEMPT BOND FUND OF CONNECTICUT of $106,187 and $49,597,
respectively. For the year ended March 31, 1996, AIM received no advisory fees
from the Fund. For the year ended March 31, 1998, 1997 and 1996, AIM waived fees
from the Fund in the amounts of $86,950, $144,775, and $198,182, respectively.
The Administrative Agreement for the Funds provides that AIM may
perform, or arrange for the performance of, certain accounting and other
administrative services to the Funds which are not required to be performed by
AIM under the Advisory Agreement. For such services, AIM would be entitled to
receive from each Fund reimbursement of AIM's costs or such reasonable
compensation as may be approved by the Company's Board of Directors. The
Administrative Agreement provides that such agreement will continue in effect
until June 30, 1999, and shall continue in effect from year to year thereafter
only if such continuance is specifically approved at least annually (i) (a) by
the Company's Board of Directors or (b) by the vote of a majority of the
outstanding voting securities of each Fund and (ii) by the affirmative vote of
the Non-Interested Directors, by votes cast in person at a meeting called for
such purpose.
For the period January 2, 1998 (date operations commenced) through
March 31, 1998, AIM High Income Municipal Fund did not reimburse AIM for
administrative services. Had expenses not been absorbed by AIM, the Fund would
have reimbursed AIM $18,594 for administrative services.
For the years ended March 31, 1998, 1997 and 1996, AIM TAX-EXEMPT CASH
FUND reimbursed AIM in the amounts of $38,545, $34,329, and $34,220,
respectively, for administrative services.
For the years ended March 31, 1998, 1997 and 1996, the AIM TAX-FREE
INTERMEDIATE FUND reimbursed AIM in the amounts of $46,097, $52,666, and
$44,054, respectively, for administrative services.
For the years ended March 31, 1998, 1997 and 1996, AIM TAX-EXEMPT BOND
FUND OF CONNECTICUT reimbursed AIM in the amounts of $46,188, $49,467, and
$45,950, 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.
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
28
<PAGE> 69
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. 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.
29
<PAGE> 70
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.
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, 1998, 1997 and 1996, the Class A shares
of AIM TAX-EXEMPT CASH FUND paid a total of $52,086, $35,864, and $29,043,
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, 1998, 1997 and 1996, the Class A shares of AIM TAX-EXEMPT
BOND FUND OF CONNECTICUT paid a total of $96,569, $97,186, and $99,095,
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. For the
period January 2, 1998 (date operations commenced) through March 31, 1998, the
Class A, Class B and Class C shares of AIM High Income Municipal Fund paid a
total of $7,728, $2,778 and $904, respectively, under the Class A, B and C Plan,
which constituted 0.25%, 1.00% and 1.00%, of such Class A, Class B and Class C
shares' average net assets.
30
<PAGE> 71
An estimate by category of the allocation of actual fees paid by the
Class A shares of the Funds under the Class A and C Plan during the year ended
March 31, 1998 were allocated as follows:
<TABLE>
<CAPTION>
AIM TAX-EXEMPT
AIM HIGH INCOME AIM TAX-EXEMPT BOND FUND OF
MUNICIPAL FUND CASH FUND CONNECTICUT
-------------- --------- -----------
<S> <C> <C> <C>
CLASS A
Advertising $3,462 $18,003 $870
Printing and mailing prospectuses, 342 1,583 80
semi-annual reports and annual
reports (other than to current
shareholders)
Seminars 1,268 4,397 190
Compensation to Underwriters to -0- -0- -0-
partially offset other marketing
expenses
Compensation to Dealers 2,655 28,103 95,429
including finder's fees
Compensation to Sales Personnel -0- -0- -0-
Annual Report Total 7,727 52,086 96,569
</TABLE>
31
<PAGE> 72
An estimate by category of the allocation of the actual fees paid by
AIM HIGH INCOME MUNICIPAL FUND under the Class B Plan during the year ended
March 31, 1998, was as follows:
<TABLE>
<CAPTION>
AIM HIGH INCOME
MUNICIPAL FUND
--------------
<S> <C>
CLASS B
Advertising $ 406
Printing and mailing prospectuses, 40
semi-annual reports and annual
reports (other than to current
shareholders)
Seminars 223
Compensation to Underwriters to 2,109
partially offset other marketing
expenses
Compensation to Dealers -0-
including finder's fees
Compensation to Sales Personnel -0-
Annual Report Total 2,778
</TABLE>
32
<PAGE> 73
An estimate by category of the allocation of the actual fees
paid by the Class C shares of AIM HIGH INCOME MUNICIPAL FUND under the Class A
and C plan during the year ended March 31, 1998, was as follows:
<TABLE>
<CAPTION>
AIM HIGH INCOME
MUNICIPAL FUND
--------------
<S> <C>
CLASS C
Advertising $ 185
Printing and mailing prospectuses, 41
semi-annual reports and annual
reports (other than to current
shareholders)
Seminars -0-
Compensation to Underwriters to 678
partially offset other marketing
expenses
Compensation to Dealers -0-
including finder's fees
Compensation to Sales Personnel -0-
Annual Report Total 904
</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
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, 1999, 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.
33
<PAGE> 74
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 and Class C 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".
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
34
<PAGE> 75
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 by the Fund of asset-based sales charges and service fees
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 year ended March 31, 1998, the total sales charges
paid in connection with the sale of Class A shares of AIM HIGH INCOME MUNICIPAL
FUND were $43,626, of which AIM Distributors retained $8,743.
For the years ended March 31, 1998, 1997 and 1996, the total
sales charges paid in connection with the sale of Class A shares of AIM TAX-FREE
INTERMEDIATE FUND were $85,903, $82,414 and $69,848, respectively, of which AIM
Distributors retained $21,156, $21,018 and $18,234, respectively.
For the years ended March 31, 1998, 1997 and 1996, the total
sales charges paid in connection with the sale of Class A shares of AIM
TAX-EXEMPT BOND FUND OF CONNECTICUT were $167,903, $152,493 and $183,364,
respectively, of which AIM Distributors retained $29,650, $27,428 and $33,891,
respectively.
MISCELLANEOUS INFORMATION
SHAREHOLDER INQUIRIES
The Transfer Agent may impose certain copying charges for
requests for copies of shareholder account statements and other historical
account information older than the current year and the immediately preceding
year.
35
<PAGE> 76
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, 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, LLP, 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.
Chase Bank of Texas, N.A., 712 Main, Houston, Texas 77002,
serves as Sub-Custodian for retail purchases of the AIM Funds.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of July 1, 1998, 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. As of July 1, 1998, the directors and
officers of the Company as a group owned 16.99% of the outstanding Class A
Shares of AIM HIGH INCOME MUNICIPAL FUND. Also as of July 1, 1998, the directors
and officers of the Company as a group owned 4.13% of the outstanding Class A
shares of AIM TAX-EXEMPT CASH FUND. Also as of July 1, 1998, the directors and
officers of the Company as a group owned 19.14% 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 July 1, 1998, and the amount of outstanding shares held of record or
beneficially by such holders are set forth below:
<TABLE>
<CAPTION>
Percent Owned
Name and Address of Percent Owned of Record
Fund Record or Beneficial Owner of Record and Beneficially
- ---- -------------------------- ------------- ----------------
<S> <C> <C> <C>
AIM Tax-Free Gary T. Crum 17.30% 17.30%
Intermediate Fund - 11 Greenway Plaza, Suite 100
Class A Shares Houston, TX 77046
</TABLE>
36
<PAGE> 77
<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>
Jonathan C. Schoolar 13.04%(1) -0-
3722 Tartan Lane
Houston, TX 77025
CFP Holdings Ltd (Partnership) 6.00% 6.00%
ATTN: Gary Crum
11 Greenway Plaza, Suite 100
Houston, TX 77046
Charles T. Bauer 5.11% 5.11%
33 E. Broad Oaks
Houston, TX 77056-0000
AIM Tax-Exempt John Caldwell 13.06%(1) -0-
Cash Fund - 1703 Briarpark Dr.
Class A Shares Houston, TX 77042-0000
Clara Caldwell 11.95%(1) -0-
1703 Briarpark Dr.
Houston, TX 77042-0000
CFP Holdings Ltd. (Partnership) 7.28% 7.28%
Gary T. Crum
11 Greenway Plaza, Suite 100
Houston, TX 77046
J. Abbott Sprague and 6.16%(1) -0-
Leslie M. Sprague JTWROS
3451 Piping Rock
Houston, TX 77027-0000
Arboretum Limited (Partnership) 5.94%(1) -0-
c/o P. Andrews McLane
77 Dean Road
Weston, MA 02193-0000
AIM Tax-Exempt Merrill Lynch Pierce Fenner & Smith 6.50%(1) -0-
Bond Fund of FBO The Sole Benefit of Customers
Connecticut - Attn: Fund Administration
Class A Shares 4800 Deer Lake Dr. East 2nd Floor
Jacksonville, FL 32246
</TABLE>
- --------
1 The Company has no knowledge as to whether all or any of the shares
owned of record are also owned beneficially.
37
<PAGE> 78
<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 High Income Obie & Co. 26.47%(2) (3) -0-
Municipal Fund - FBO Charles T. Bauer
Class A Shares P. O. Box 200547
Mutual Fund Unti 16-HCB-09
Houston, TX 77216-0547
Gary T. Crum 16.19% 16.19%
11 Greenway Plaza, Suite 100
Houston, TX 77046
INVESCO Trust Company 9.94%(1) -0-
Attn: Shelia Wendland
7800 E. Union Ave.
Denver, CO 80237-0000
Gary T. Crum TTEE 6.52%(4) -0-
Charles Douglas Bauer
Management Trust
1 Greenway Plaza, Suite 100
Houston, TX 77046
Attn: Gary Crum
AIM High Income Merrill Lynch Pierce Fenner & Smith 19.75%(1) -0-
Municipal Fund - FBO The Sole Benefit of Customers
Class B Shares Attn: Fund Administration
4800 Deer Lake Dr. East 2nd Floor
Jacksonville, FL 32246
Nathaniel R. Coleman, Jr. 5.08%(1) -0-
P. O. Box 1060
Greenville, TN 37744-1060
AIM High Income Merrill Lynch Pierce Fenner & Smith 27.93%(2) (1) -0-
Municipal Fund - FBO The Sole Benefit of Customers
Class C Shares Attn: Fund Administration
4800 Deer Lake Dr. East 2nd Floor
Jacksonville, FL 32246
</TABLE>
- --------
2 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.
3 Shares are owned beneficially by Charles T. Bauer.
1 The Company has no knowledge as to whether all or any of the shares
owned of record are also owned beneficially.
4 Mr. Crum disclaims beneficial ownership of the shares held by the
Charles Douglas Bauer Management Trust.
38
<PAGE> 79
<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>
Donaldson Lufkin Jenrette 8.22%(1) -0-
Securities Corporation Inc.
P. O. Box 2052
Jersey City, NJ 07303-9998
V. R. Breidenbach 8.07%(1) -0-
832 Grand Marais Road
Grosse Pointe, MI 48230
</TABLE>
HOW TO PURCHASE AND REDEEM SHARES
A complete description of the manner in 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 the Funds or by
AIM Distributors (other than any applicable contingent deferred sales charge)
when shares are redeemed or repurchased, dealers may charge a fair service fee
for handling the transaction.
The right of redemption may be suspended or the date of payment
postponed when (a) trading on the New York Stock Exchange (the "NYSE") is
restricted, as determined by applicable rules and regulations of the SEC, (b)
the NYSE is closed for other than customary weekend and holiday closings, (c)
the SEC has by order
- --------
1 The Company has no knowledge as to whether all or any of the shares
owned of record are also owned beneficially.
39
<PAGE> 80
permitted such suspension, or (d) an emergency as determined by the SEC exists
making disposition of portfolio securities or the valuation of the net assets of
the Funds not reasonably practicable.
DETERMINATION OF NET ASSET VALUE
A Fund's net asset value is calculated by dividing the number of
outstanding shares into the net assets of the Fund. Net assets are the excess of
a Fund's assets over its liabilities.
For AIM TAX-EXEMPT CASH FUND: The Fund may use the amortized cost
method to determine its net asset value so long as the Fund does not (a)
purchase any instrument with a remaining maturity greater than 397 days (for
these purposes, repurchase agreements shall not be deemed to involve the
purchase by the Fund of the securities pledged as collateral in connection with
such agreements) or (b) maintain a dollar-weighted average portfolio maturity in
excess of 90 days, and otherwise complies with the terms of rules adopted by the
SEC.
Under the amortized cost method, each investment is valued at its cost
and thereafter any discount or premium is amortized on a constant basis to
maturity. While this method provides certainty of valuation, it may result in
periods in which the amortized cost value of the Fund's investments is higher or
lower than the price that would be received if the investments were sold. During
periods of declining interest rates, use by the Fund of the amortized cost
method of valuing its portfolio may result in a lower value than the market
value of the portfolio, which could be an advantage to new investors relative to
existing shareholders. The converse would apply in a period of rising interest
rates.
The Board of Directors has established procedures designed to stabilize
at $1.00, to the extent reasonably possible, the Fund's net asset value per
share. Such procedures include review of portfolio holdings by the directors at
such intervals as they may deem appropriate to determine whether net asset
value, calculated by using available market quotations, deviates from $1.00 per
share and, if so, whether such deviation may result in material dilution or is
otherwise unfair to investors or existing shareholders. In the event the
directors determine that a deviation having such a result exists, they intend to
take such corrective action as they deem necessary and appropriate, including
the sale of portfolio securities prior to maturity in order to realize capital
gains or losses or to shorten average portfolio maturity; withholding dividends;
redemption of shares in kind; or establishing a net asset value per share by
using available market quotations, in which case, the net asset value could
possibly be more or less than $1.00 per share.
For 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.
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
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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.
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.
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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 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 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").
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.
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Each Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income prior
to the end of each calendar year to avoid liability for the excise tax. However,
investors should note that a Fund may in certain circumstances be required to
liquidate portfolio investments if it intends to make sufficient distributions
to avoid excise tax liability.
Tax Treatment of Interest Rate Futures Contracts and Related Options.
Section 1092 of the Code affects the taxation of certain transactions involving
futures or options contracts. If a futures or options contract is part of a
"straddle" (which could include another futures contract or underlying stock or
securities), as defined in Section 1092 of the Code, then, generally, losses are
deferred first to the extent that the modified "wash sale" rules of the Section
1092 regulations apply, and second to the extent of unrecognized gains on
offsetting positions. Further, a Fund may be required to capitalize, rather than
deduct currently, any interest expense on indebtedness incurred or continued to
purchase or carry any positions that are part of a straddle. Sections 1092 of
the Code and the Treasury Regulations thereunder also suspend the holding
periods for straddle positions with possible adverse effects regarding long-term
capital gain treatment.
Section 1256 of the Code generally requires that futures contracts and
options on futures contracts be "marked-to-market" at the end of each year for
federal income tax purposes. Code Section 1256 further characterizes 60% of any
capital gain or loss with respect to such futures and options contracts as
long-term capital gain or loss and 40% as short-term capital gain or loss. If
such a future or option is held as an offsetting position and can be considered
a straddle under Section 1092 of the Code, such a straddle will constitute a
mixed straddle. A mixed straddle will be subject to both Section 1256 and
Section 1092 unless certain elections are made by a Fund.
Fund Distributions. Each Fund intends to qualify to pay exempt-interest
dividends by satisfying the requirement that at the close of each quarter of a
Fund's taxable year at least 50% of the Fund's total assets consist of
tax-exempt Municipal Securities. Distributions from a Fund will constitute
exempt-interest dividends to the extent of the Fund's tax-exempt interest income
(net of allocable expenses and amortized bond premium). Exempt-interest
dividends distributed to shareholders of a Fund are excluded from gross income
for federal income tax purposes. However, shareholders who file federal income
tax returns will be required to report the receipt of exempt-interest dividends
on such returns. Moreover, while exempt-interest dividends are excluded from
gross income for federal income tax purposes, they may be subject to alternative
minimum tax ("AMT") in certain circumstances and may have other collateral tax
consequences as discussed below. Distributions by a Fund of any investment
company taxable income or of any net capital gain will be taxable to
shareholders as discussed below.
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. Pursuant to the Taxpayer Relief Act of 1997, 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,
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including financial institutions, property and casualty insurance companies and
foreign corporations engaged in a trade or business in the United States.
Prospective investors should consult their own tax advisors as to such
consequences.
Each Fund anticipates distributing substantially all of its investment
company taxable income, if any, for each taxable year. Such distributions will
be taxable to shareholders as ordinary income and treated as dividends for
federal income tax purposes, but they will not qualify for the 70%
dividends-received deduction for corporations.
Each Fund may either retain or distribute to shareholders its net
capital gain, if any, for each taxable year. Each Fund currently intends to
distribute any such amounts. If net capital gain is distributed and designated
as a capital gain distribution, it will be taxable to shareholders as long-term
capital gain, regardless of the length of time the shareholder has held his
shares or whether such gain was recognized by a Fund prior to the date on which
the shareholder acquired his shares. If a Fund does not distribute its net
capital gain in any taxable year, such Fund will be subject to taxes on such net
capital gain at the highest corporate rate. If a Fund elects to retain its net
capital gain, it is expected that the Fund also will elect to have shareholders
treated as if each received a distribution of its pro rata share of such gain,
with the result that each shareholder will be required to report its pro rata
share of such gain on its tax return as long-term capital gain, will receive a
refundable tax credit for its share of tax paid by the Fund on the gain, and
will increase the tax basis for its shares by an amount equal to the deemed
distribution less the tax credit. Realized market discount on Municipal
Securities purchased after April 30, 1993, will be treated as ordinary income
and not as capital gain.
Distributions by a Fund that do not constitute ordinary income
dividends, exempt-interest dividends or capital gain distributions will be
treated as a return of capital to the extent of (and in reduction of) the
shareholder's tax basis in his shares; any excess will be treated as gain from
the sale of his shares, as discussed below.
Distributions by a Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another AIM Fund). Shareholders electing to
reinvest a distribution in additional shares will be treated as receiving a
distribution in an amount equal to the net asset value of the shares acquired,
determined as of the reinvestment date. In addition, if the net asset value at
the time a shareholder purchases shares of a Fund reflects undistributed net
investment income or recognized capital gain net income, or unrealized
appreciation in the value of the assets 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
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the shareholder's adjusted tax basis in the shares. All or a portion of any loss
so recognized may be disallowed if the shareholder purchases other shares of the
same Fund within 30 days before or after the sale or redemption. Investors
should note that this rule applies to shares purchased through the reinvestment
of dividends within 30 days before or after a sale or redemption of shares. In
general, any gain or loss arising from (or treated as arising from) the sale or
redemption of shares of a Fund will be considered capital gain or loss and will
be long-term capital gain or loss if the shares were held for longer than one
year. Except to the extend otherwise provided in future treasury regulations,
any long-term capital gain recognized by a noncorporate shareholder will be
subject to tax at a maximum rate of 20% if the shares sold or redeemed were held
for more than 18 months. Congress has approved the IRS Restructuring and Reform
Bill of 1998 that will reduce the required holding period to more than one year
in order to qualify for the 20% long-term capital gain rate if, as expected, the
Bill is signed by the President. 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
for regular and alternative minimum tax purposes 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. In addition,
foreign shareholders entitled to a refund tax credit for their pro rata share of
tax paid by a Fund electing to retain net capital gain may need to apply for an
Individual Taxpayer Identification Number ("ITIN") in order to file the
necessary refund claim. Such shareholders may apply for an ITIN for IRS Form
W-7, which may be obtained from the Advisor.
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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 July 15, 1998. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect with respect to the transactions discussed herein.
Connecticut Tax Considerations. The Connecticut income tax ("CIT") is
imposed on individuals resident in Connecticut and certain non-residents and
partial-year residents with income derived from or connected with sources
located within Connecticut. The CIT is imposed on the federal adjusted gross
income of taxpayers (including married couples who file a joint federal income
tax return) with certain adjustments. The applicable CIT law provides that
distributions by a regulated investment company that qualify as exempt-interest
dividends for federal income tax purposes are not added to federal adjusted
gross income and thus are not subject to CIT to the extent such distributions
are derived from obligations issued by or on behalf of the State of Connecticut,
any political subdivision thereof, or public instrumentality, state or local
authority, district or similar public entity created under the laws thereof, and
certain other U.S. Government obligations and obligations of certain U.S.
Territories. Distributions of the net income of AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT from other sources, including distributions from Municipal
Securities issued by other states or authorities and short-term capital gains
that are treated as ordinary income dividends for federal income tax purposes
are taxable as dividends for CIT purposes.
In addition, the Connecticut corporation business tax ("CCBT") is
imposed on any corporation or association carrying on, or having the right to
carry on, business in Connecticut. Distributions from any source that are
treated as exempt-interest dividends for federal income tax purposes are
includable in gross income for purposes of the CCBT. Moreover, while the CCBT
generally allows a 70% deduction for amounts includable in taxable income for
CCBT purposes that are treated as "dividends" for federal income tax purposes,
such as distributions of taxable net investment income and net short-term
capital gains, the Connecticut Department of Revenue Services has ruled that the
CCBT does not allow this deduction for exempt-interest dividends and capital
gain distributions whose character as "dividends" has been altered for federal
income tax purposes.
Rules of state and local taxation of ordinary income dividends,
exempt-interest dividends and capital gain distributions from regulated
investment companies often differ from the rules for U.S. federal income
taxation described above. Shareholders are urged to consult their tax advisors
as to the consequences of these and other federal, state and local tax rules
affecting investments in the Funds.
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.
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MONEY MARKET OBLIGATIONS
Money market instruments in which the Fund will invest will be
"Eligible Securities" as defined in Rule 2a-7 under the 1940 Act, as such Rule
may be amended from time to time.
Rule 2a-7 defines an "Eligible Security" as follows:
Money market instruments in which the Fund will invest will be
"Eligible Securities" as defined in Rule 2a-7 under the 1940 Act, as such Rule
may be amended from time to time. An Eligible Security is generally a rated
security with a remaining maturity of 397 calendar days or less that has been
rated by the Requisite NRSROs in the two highest short-term rating categories,
or a security issued by an issuer that has received a rating by the Requisite
NRSROs in the two highest short-term rating categories with respect to a class
of debt obligations (or any debt obligation within that class). Eligible
Securities include unrated securities deemed by the Fund's investment adviser to
be of comparable quality to such rated securities. A rated security includes a
guarantee that has received a short-term rating from a NRSRO, or a guarantee
issued by a guarantor that has received a short-term rating from a NRSRO with
respect to a class of debt obligations (or any debt obligation within that
class). To be an Eligible Security, if a security is subject to a guarantee, the
guarantee generally must have received a rating from a NRSRO or be issued by a
guarantor that has received a rating with respect to a class of debt obligations
(or any debt obligation within that class) that is comparable in priority or
security to the guarantee. Asset backed securities, other than those
substantially all of whose qualifying assets consist of obligations of one or
more municipal issuers, must have received a rating from a NRSRO to be Eligible
Securities. The term "Requisite NRSRO" means (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 issuer at the time
the Fund acquires the security, that NRSRO.
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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.
48
<PAGE> 89
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.
49
<PAGE> 90
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.
50
<PAGE> 91
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+).
51
<PAGE> 92
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.
52
<PAGE> 93
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.
53
<PAGE> 94
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.
54
<PAGE> 95
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.
55
<PAGE> 96
FINANCIAL STATEMENTS
FS
<PAGE> 97
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, 1998, 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 four 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 and the financial highlights. Our procedures included confirmation of
securities owned as of March 31, 1998, 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-Exempt Cash Fund as of March 31, 1998, 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
four-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 1, 1998
FS-1
<PAGE> 98
SCHEDULE OF INVESTMENTS
March 31, 1998
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
SHORT-TERM MUNICIPAL OBLIGATIONS-98.08%
ALABAMA-2.27%
Alabama Industrial
Development Board
(Industrial Partners
Project); Variable/Fixed
Rate Refunding Series
1989 RB
3.85%, 01/01/07(b)(c) - VMIG-1 $ 1,180 $ 1,180,000
- -----------------------------------------------------------------
ALASKA-4.81%
Alaska Housing Finance
Corp.; General Mortgage
Series 1991 A RB
3.70%, 06/01/26(c) A-1+ VMIG-1 2,500 2,500,000
- -----------------------------------------------------------------
COLORADO-5.87%
Colorado Housing Finance
Authority (Grant Plaza
Project); Multifamily
Mortgage Series 1991 A RB
3.775%, 11/01/09(b)(c) - VMIG-1 800 800,000
- -----------------------------------------------------------------
Eagle (County of) Smith
Creek Metropolitan
District; Variable Rate
Series 1997 RB
3.50%, 10/01/35(b)(c) A-1+ - 2,250 2,250,000
- -----------------------------------------------------------------
3,050,000
- -----------------------------------------------------------------
FLORIDA-9.44%
Gulf Breeze (City of)
(Florida Municipal Bond
Fund); Variable Rate
Demand Series 1995 A RB
3.80%, 03/31/21(b)(c) A-1 - 2,400 2,400,000
- -----------------------------------------------------------------
Pinellas (County of) Health
Facilities Authority
(Hospital Loan Program);
Refunding Pooled Series
1985 RB
3.70%, 12/01/15(b)(c) A-1 VMIG-1 2,500 2,500,000
- -----------------------------------------------------------------
4,900,000
- -----------------------------------------------------------------
GEORGIA-9.44%
Dekalb Private Hospital
Authority (Egleston
Children's Hospital at
Emory University);
Variable Rate Series 1994
A Revenue Anticipation
Certificates
3.70%, 03/01/24(b)(c) A-1+ VMIG-1 2,400 2,400,000
- -----------------------------------------------------------------
Elbert & Bowman (Counties
of) (Seaboard Farms of
Elberton); Series 1985
IDR
3.70%, 07/01/05(b)(c) A-1 - 1,000 1,000,000
- -----------------------------------------------------------------
Roswell (City of) Georgia
Housing Development
Authority (Azalea
Project); Multifamily
Housing Series 1996 RB
3.70%, 06/15/25(b)(c) A-1+ - 1,500 1,500,000
- -----------------------------------------------------------------
4,900,000
- -----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
HAWAII-3.86%
Honolulu (City and County
of); Refunding Series 1
GO
5.25%, 06/01/98 AA Aa2 $ 2,000 $ 2,005,403
- -----------------------------------------------------------------
ILLINOIS-6.58%
Cook (County of) (Village
of South Barrington);
Variable Rate Demand
Series 1997 GO
3.70%, 12/01/15(b)(c) A-1+ - 2,000 2,000,000
- -----------------------------------------------------------------
Illinois Health Facilities
Authority (Franciscan
Eldercare Project);
Adjustable Rate Refunding
Series 1996 C RB
3.75%, 05/15/26(b)(c) A-1+ - 1,420 1,420,000
- -----------------------------------------------------------------
3,420,000
- -----------------------------------------------------------------
INDIANA-4.62%
Indiana Development Finance
Authority (Southern
Indiana Gas and Electric
Project); Series 1998 A
PCR
3.65%, 03/01/99(c) - VMIG-1 1,000 1,000,000
- -----------------------------------------------------------------
Indianapolis (City of)
(Children's Museum
Project); Economic
Development Floating Rate
Series 1995 RB
3.65%, 10/01/25(b)(c) A-1+ - 1,400 1,400,000
- -----------------------------------------------------------------
2,400,000
- -----------------------------------------------------------------
IOWA-2.89%
Iowa (State of) School
Corporations
(Corporations of Iowa
School Cash Anticipation
Program) Warrant
Certificate Series 1997-
1998 A TRAN
4.50%, 06/26/98(b) SP-1+ MIG-1 1,500 1,502,382
- -----------------------------------------------------------------
MARYLAND-1.16%
Maryland Industrial
Development Financing
Authority (Liberty
Medical Center); Variable
Rate Demand/Fixed Rate
1989 Issue Refunding RB
3.70%, 07/01/18(b)(c) - VMIG-1 600 600,000
- -----------------------------------------------------------------
MICHIGAN-2.50%
Michigan State Hospital
Finance Authority
(Hospital Equipment Loan
Program); Adjustable
Series 1995 A RB
3.75%, 12/01/23(b)(c) - VMIG-1 600 600,000
- -----------------------------------------------------------------
Michigan Strategic Fund
(Consumer's Power Corp.);
Variable Rate Demand
Series 1988 A PCR
3.80%, 04/15/18(b)(c) - P-1 500 500,000
- -----------------------------------------------------------------
</TABLE>
FS-2
<PAGE> 99
<TABLE>
<CAPTION>
RATING(a) PAR
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
3.50%, 07/01/04(b)(c)(e) - - $ 200 $ 200,000
- -----------------------------------------------------------------
1,300,000
- -----------------------------------------------------------------
MINNESOTA-0.96%
Mankato (City of) (Northern
States Power Co.
Project); Floating
Collateralized Series
1985 PCR
3.80%, 03/01/11(c) AA- Aa3 500 500,000
- -----------------------------------------------------------------
MONTANA-1.73%
Missoula (County of)
(Washington Corp.
Project); Floating Rate
Monthly Demand Series
1984 IDR
3.46%, 11/01/04(b)(c)(e) - - 900 900,000
- -----------------------------------------------------------------
NEW HAMPSHIRE-2.70%
New Hampshire Higher
Education and Health
Facilities Authority;
Variable Rate Hospital
Series 1985 C RB
3.70%, 12/01/25(c)(d) A-1 - 1,400 1,400,000
- -----------------------------------------------------------------
NEW MEXICO-1.93%
Albuquerque (City of)
School District No. 12;
Series 1997 GO
4.50%, 08/01/98 AA Aa2 1,000 1,002,866
- -----------------------------------------------------------------
NEW YORK-2.89%
New York State
Environmental Quality
1986; Variable Interest
Rate Series 1997 A GO
3.30%, 04/20/98(b) A-1+ VMIG-1 1,500 1,499,766
- -----------------------------------------------------------------
NORTH CAROLINA-2.70%
Alamance (County of)
Industrial Facilities and
Pollution Control
Financing Authority
(Science Manufacturing,
Inc. Project); Series
1985 IDR
3.85%, 04/01/15(b)(c) - P-1 1,400 1,400,000
- -----------------------------------------------------------------
OHIO-0.58%
Delaware (County of)
(Radiation Sterilizers,
Inc.); Series 1984 IDR
3.60%, 12/01/04(b)(c) A-1 - 300 300,000
- -----------------------------------------------------------------
OKLAHOMA-2.86%
Oklahoma Water Resource
Board (State Loan
Program); Series 1994 A
RB
3.55%, 09/01/98(f) A-1+ - 1,485 1,485,000
- -----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
OREGON-3.85%
Klamath Falls (City of)
(Salt Caves
Hydroelectric);
Adjustable/Fixed Rate RB
4.50%, Series 1986 C
05/01/98(f)(g) SP-1+ - $ 1,000 $ 1,000,494
- -----------------------------------------------------------------
4.50%, Series E
05/01/98(f)(g) SP-1+ - 1,000 1,000,600
- -----------------------------------------------------------------
2,001,094
- -----------------------------------------------------------------
PENNSYLVANIA-1.93%
Delaware (County of)
Industrial Development
Authority (Scotfoam Corp.
Project); Variable Rate
Demand Series 1985 IDR
3.50%, 10/01/05(b)(c)(e) - - 1,000 1,000,000
- -----------------------------------------------------------------
RHODE ISLAND-1.93%
Rhode Island (State of)
Industrial Facilities
Authority (Blackstone
Valley Electric Co.);
Variable Rate Series 1984
RB
3.70%, 12/01/14(b)(c) A-1 - 1,000 1,000,000
- -----------------------------------------------------------------
SOUTH CAROLINA-3.85%
York (County of) (North
Carolina Electric
Membership Corp.); Pooled
Series 1984 N-4 PCR
3.50%, 09/15/98(b)(c) A-1+ VMIG-1 2,000 2,000,000
- -----------------------------------------------------------------
TENNESSEE-2.35%
Industrial Development
Board of the Metropolitan
Government of Nashville &
Davidson County
(Amberwood, Ltd.
Project); Multifamily
Housing Series 1993 A RB
3.97%, 07/01/13(b)(c) - VMIG-1 1,220 1,220,000
- -----------------------------------------------------------------
TEXAS-10.72%
Harris County Health
Facilities Development
Corp.(St. Lukes Episcopal
Hospital); Variable Rate
Demand Series 1997 B RB
3.75%, 02/15/27(c) A-1+ - 2,000 2,000,000
- -----------------------------------------------------------------
Houston (City of); Series
1997 TRAN
4.50%, 06/30/98 SP-1+ MIG-1 1,000 1,001,544
- -----------------------------------------------------------------
Montgomery (County of); GO
7.25%, 09/01/98(d) AAA Aaa 1,150 1,166,626
- -----------------------------------------------------------------
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
- -----------------------------------------------------------------
5,568,170
- -----------------------------------------------------------------
VIRGINIA-0.77%
Henrico (County of)
Industrial Development
Authority (Hermitage
Project); Variable Rate
Health Facilities Series
1994 RB
4.00%, 05/01/24(b)(c) - VMIG-1 400 400,000
- -----------------------------------------------------------------
</TABLE>
FS-3
<PAGE> 100
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
WASHINGTON-0.96%
Industrial Development
Corp. of Port Townsend
(Port Townsend Paper
Corp. Project); Variable
Rate Refunding Series
1988 A RB
3.65%, 03/01/09(b)(c) - VMIG-1 $ 500 $ 500,000
- -----------------------------------------------------------------
WISCONSIN-1.93%
Wisconsin (State of); Tax
Anticipation Notes
4.50%, 06/15/98 SP-1+ MIG-1 1,000 1,001,288
- -----------------------------------------------------------------
Total Short-Term Municipal Obligations 50,935,969
- -----------------------------------------------------------------
MASTER NOTE AGREEMENT(h)-3.85%
BROKER/DEALER-3.85%
Merrill Lynch Mortgage
Capital Inc.
6.425%, 08/17/98(i) - - 2,000 2,000,000
- -----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
COMMERCIAL PAPER(h)(j)-4.25%
ASSET-BACKED
SECURITIES-4.25%
Receivables Capital Corp.
5.60%, 04/22/98 A-1+ P-1 $ 2,219 $ 2,211,751
- -----------------------------------------------------------------
REPURCHASE AGREEMENT(h)(k)-4.59%
Goldman, Sachs & Co., Inc.
5.95%, 04/01/98(l) 2,381,681
- -----------------------------------------------------------------
TOTAL INVESTMENTS-110.77% 57,529,401(m)
- -----------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(10.77)% (5,595,495)
- -----------------------------------------------------------------
NET ASSETS-100.00% $51,933,906
- -----------------------------------------------------------------
</TABLE>
Abbreviations:
GO - General Obligation Bonds
IDR - Industrial Development Revenue Bonds
PCR - Pollution Control Revenue Bonds
RB - Revenue Bonds
TRAN - Tax and Revenue Anticipation Notes
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
Auditors' 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 rates are redetermined
periodically. Rate shown is the rate in effect on 03/31/98.
(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)Security has an irrevocable call or mandatory put by the issuer. Maturity
date reflects such call or put.
(g)Secured by an escrow fund of U.S. Treasury obligations.
(h)Interest does not qualify as exempt interest for federal tax purposes.
(i)The Fund may demand prepayment of notes purchased under the Master Note
Purchase Agreement upon two business days' notice. Interest rates on master
notes are redetermined periodically. Rate shown is the rate in effect on
03/31/98.
(j)Commercial paper traded on a discount basis. In such case the Interest rate
shown represents the rate of discount paid or received at the time of
purchase by the Fund.
(k)Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market as being 102% of the sales price of the repurchase
agreement. The investments in some repurchase agreements are through
participation in joint accounts with other mutual funds, private accounts,
and certain non-registered investment companies managed by the investment
advisor or its affiliates.
(l)Joint repurchase agreement entered into 03/31/98 with a maturing value of
$1,000,165,278. Collateralized by $955,257,000 U.S. Government obligations,
0% to 14.00% due 04/16/98 to 11/15/27 with an aggregate market value at
03/31/98 of $1,030,343,277.
(m)Also represents costs for federal income tax purposes.
See Notes to Financial Statements
FS-4
<PAGE> 101
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at value (amortized cost) $ 57,529,401
- ------------------------------------------------------------
Receivables for:
Capital stock sold 389,450
- ------------------------------------------------------------
Interest 356,850
- ------------------------------------------------------------
Investment for deferred compensation plan 22,252
- ------------------------------------------------------------
Other assets 23,187
- ------------------------------------------------------------
Total assets 58,321,140
- ------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 2,400,000
- ------------------------------------------------------------
Dividends 2,225
- ------------------------------------------------------------
Deferred compensation 22,252
- ------------------------------------------------------------
Capital stock reacquired 3,891,444
- ------------------------------------------------------------
Accrued administrative services fees 3,768
- ------------------------------------------------------------
Accrued advisory fees 15,330
- ------------------------------------------------------------
Accrued distribution fees 13,073
- ------------------------------------------------------------
Accrued transfer agent fees 6,593
- ------------------------------------------------------------
Accrued operating expenses 32,549
- ------------------------------------------------------------
Total liabilities 6,387,234
- ------------------------------------------------------------
Net assets applicable to shares outstanding $ 51,933,906
- ------------------------------------------------------------
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Authorized 1,000,000,000
- ------------------------------------------------------------
Outstanding 51,910,779
============================================================
Net asset value, offering and redemption
price per share $ 1.00
============================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended March 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $2,034,814
- -----------------------------------------------------------
EXPENSES:
Advisory fees 182,302
- -----------------------------------------------------------
Administrative services fees 38,545
- -----------------------------------------------------------
Custodian fees 7,164
- -----------------------------------------------------------
Directors' fees and expenses 9,259
- -----------------------------------------------------------
Transfer agent fees 54,715
- -----------------------------------------------------------
Distribution fees 130,216
- -----------------------------------------------------------
Registration and filing fees 44,927
- -----------------------------------------------------------
Other 45,032
- -----------------------------------------------------------
Total expenses 512,160
- -----------------------------------------------------------
Less: Fees waived (78,130)
- -----------------------------------------------------------
Net expenses 434,030
- -----------------------------------------------------------
Net investment income 1,600,784
- -----------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENT
SECURITIES:
Net realized gain on sales of investment
securities 17,389
- -----------------------------------------------------------
Net unrealized appreciation of investment
securities 160
- -----------------------------------------------------------
Net gain on investment securities 17,549
- -----------------------------------------------------------
Net increase in net assets resulting from
operations $1,618,333
===========================================================
</TABLE>
See Notes to Financial Statements.
FS-5
<PAGE> 102
STATEMENT OF CHANGES IN NET ASSETS
For the years ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income $ 1,600,784 $ 998,764
- ---------------------------------------------------------------------------------------
Net realized gain on sales of investment securities 17,389 7,711
- ---------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities 160 (741)
- ---------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,618,333 1,005,734
- ---------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (1,598,357) (996,476)
- ---------------------------------------------------------------------------------------
Net increase (decrease) from capital stock transactions (4,966,262) 26,856,591
- ---------------------------------------------------------------------------------------
Net increase (decrease) in net assets (4,946,286) 26,865,849
- ---------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 56,880,192 30,014,343
- ---------------------------------------------------------------------------------------
End of period $51,933,906 $56,880,192
=======================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $51,910,779 $56,877,041
- ---------------------------------------------------------------------------------------
Undistributed net investment income 36,432 34,005
- ---------------------------------------------------------------------------------------
Undistributed realized gain (loss) on sales of investment
securities (13,465) (30,854)
- ---------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 160 --
- ---------------------------------------------------------------------------------------
$51,933,906 $56,880,192
=======================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
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 four separate portfolios: AIM Tax-Exempt Cash Fund, AIM High
Income Municipal Fund, AIM Tax-Exempt Bond Fund of Connecticut and AIM Tax-Free
Intermediate Fund. 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 AIM Tax-Exempt Cash Fund (the "Fund"). The
investment objective of the Fund is to earn the highest level of current income
free from federal income taxes that is consistent with safety of principal and
liquidity.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the preparation of its financial statements.
A. Security Valuations--The Fund's securities are valued on the basis of
amortized cost which approximates market value. This method values a
security at its cost on the date of purchase and thereafter assumes a
constant amortization to maturity of 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 $16,205 (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
FS-6
<PAGE> 103
distribute capital gains to shareholders until the tax loss carryforwards
have been utilized.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.35% of the Fund's
average daily net assets.
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, 1998, the Fund
reimbursed AIM $38,545 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, 1998, the Fund paid AFS
$35,613 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, 1998, AIM
Distributors waived fees of $78,130. 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, 1998, the Fund paid AIM Distributors
$52,086 as compensation pursuant to the Plan. Certain officers and directors of
the Company are officers and directors of AIM, AFS and AIM Distributors.
During the year ended March 31, 1998, the Fund paid legal fees of $3,069 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, 1998 and
1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Sold 234,334,058 $ 234,334,058 96,643,811 $ 96,643,811
- ----------------- ------------ ------------- ------------ ------------
Issued as
reinvestment of
dividends 1,529,845 1,529,845 948,679 948,679
- ----------------- ------------ ------------- ------------ ------------
Reacquired (240,830,165) (240,830,165) (70,735,899) (70,735,899)
- ----------------- ------------ ------------- ------------ ------------
(4,966,262) $ (4,966,262) 26,856,591 $ 26,856,591
================= ============ ============= ============ ============
</TABLE>
FS-7
<PAGE> 104
NOTE 5-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of capital stock
outstanding during each of the years in the four-year period ended March 31,
1998, the three months ended March 31, 1994 and the year ended December 31,
1993.
<TABLE>
<CAPTION>
MARCH 31,
----------------------------------------------------- DECEMBER 31,
1998 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------- ------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income 0.03 0.03 0.03 0.03 0.004 0.02
- ---------------------------------------------------------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income (0.03) (0.03) (0.03) (0.03) (0.004) (0.02)
- ---------------------------------------------------------- ------- ------- ------- ------- ------- -------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========================================================== ======= ======= ======= ======= ======= =======
Total return 3.12% 2.82% 2.92% 2.54% 1.73%(a) 1.78%
========================================================== ======= ======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $51,934 $56,880 $30,014 $30,365 $33,658 $35,230
========================================================== ======= ======= ======= ======= ======= =======
Ratio of expenses to average net assets(b) 0.83%(c) 1.04% 1.05% 1.01% 1.00%(a) 1.00%
========================================================== ======= ======= ======= ======= ======= =======
Ratio of net investment income to average net assets(d) 3.07%(c) 2.78% 2.97% 2.53% 1.75%(a) 1.76%
========================================================== ======= ======= ======= ======= ======= =======
</TABLE>
(a) Annualized.
(b) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
0.98%, 1.19%, 1.20%, 1.16%, 1.14% (annualized) and 1.36% for the periods
1998 - 1993.
(c) Ratios are based on average daily net assets of $52,086,316.
(d) After fee waivers and/or expense reimbursements. Ratios of income to average
net assets prior to fee waivers and/or expense reimbursements were 2.92%,
2.63%, 2.82%, 2.38%, 1.61% (annualized) and 1.40% for the periods 1998-1993.
FS-8
<PAGE> 105
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 Fund (a portfolio of AIM Tax-Exempt Funds, Inc.),
including the schedule of investments, as of March 31, 1998, 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 five year-period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and 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 and the financial highlights. Our procedures included confirmation of
securities owned as of March 31, 1998, 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-Free Intermediate Fund as of March 31, 1998, 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 five-year period then ended, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
May 1, 1998
FS-9
<PAGE> 106
SCHEDULE OF INVESTMENTS
March 31, 1998
<TABLE>
<CAPTION>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C> <C>
MUNICIPAL OBLIGATIONS-98.54%
ALABAMA-0.71%
Alabama State Municipal
Electric Authority; Power
Supply
Series A RB
6.30%, 09/01/01(b) AAA Aaa $ 400 $ 428,387
- ------------------------------------------------------------------
Birmingham (City of) Special
Care Facilities Financing
Authority (Charity
Obligation Group);
Hospital Series 1997 D RB
4.95%, 11/01/07(c) AA+ Aa2 1,000 1,016,740
- ------------------------------------------------------------------
1,445,127
- ------------------------------------------------------------------
ALASKA-1.03%
Anchorage (City of); School
Series 1994 GO
5.50%, 07/01/06(b) AAA Aaa 1,950 2,088,470
- ------------------------------------------------------------------
ARIZONA-3.57%
Arizona (State of)
(Educational Loan
Marketing Corp.);
Refunding Series A RB
6.55%, 03/01/99 - Aa2 1,000 1,021,910
- ------------------------------------------------------------------
Maricopa County (Gilbert
Unified School District
#41 Project of 1988);
School Improvement Series
1992 E GO
6.20%, 07/01/02(d) AAA Aaa 1,250 1,358,313
- ------------------------------------------------------------------
Maricopa County School
District #90 (Ruth Fisher
Elementary); Series 1997
GO
4.70%, 07/01/99 - A2 1,300 1,307,878
- ------------------------------------------------------------------
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 620 647,602
- ------------------------------------------------------------------
Mohave County Unified School
District #1 (Lake Havasu);
Series A GO
5.40%, 07/01/06(b) AAA Aaa 200 211,704
- ------------------------------------------------------------------
Navajo County Unified School
District; Series 1997 A GO
5.00%, 07/01/07(b) AAA Aaa 450 467,176
- ------------------------------------------------------------------
Phoenix (City of); Senior
Lien Street and Highway
User Refunding Series 1992
RB
6.20%, 07/01/02 AA A1 1,000 1,085,020
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C> <C>
ARIZONA-(CONTINUED)
Yuma Industrial Development
Authority (Yuma Regional
Medical Center Project);
Health Care Facilities
Refunding Series 1997 RB
5.70%, 08/01/06(b) AAA Aaa $1,000 $ 1,086,120
- ------------------------------------------------------------------
7,185,723
- ------------------------------------------------------------------
ARKANSAS-4.36%
Arkansas State Development
Financial Authority;
Correction Facility Series
1996 RB
6.25%, 10/01/06(b) AAA Aaa 1,800 2,047,554
- ------------------------------------------------------------------
Conway (City of); Sales and
Use Tax Capital
Improvement Series 1997 A
RB
4.80%, 12/01/07(b) AAA Aaa 825 841,574
- ------------------------------------------------------------------
Little Rock (City of)
(Baptist Medical Center);
Health Facility Hospital
Series RB
6.70%, 11/01/04(b) AAA Aaa 1,400 1,569,385
- ------------------------------------------------------------------
North Little Rock (City of);
Electric System Refunding
Series 1992 A RB
6.00%, 07/01/01(b) AAA Aaa 500 531,670
- ------------------------------------------------------------------
Pine Bluff (City of)
Pollution Control
Facilities (International
Paper Company); Refunding
Series 1997 A RB 4.90%,
12/01/06 A- A3 2,185 2,204,818
- ------------------------------------------------------------------
Sebastian (County of)
(Arkansas Community Jr.
College District);
Refunding & Improvement
Series 1997 GO
5.10%, 04/01/06(b) - Aaa 500 523,370
- ------------------------------------------------------------------
5.20%, 04/01/07(b) - Aaa 1,000 1,055,850
- ------------------------------------------------------------------
8,774,221
- ------------------------------------------------------------------
CALIFORNIA-1.49%
California State Public
Works Board (Department of
Corrections) (State
Prison-Madera County);
Lease Series 1990 A RB
7.00%, 09/01/00 A A 100 107,110
- ------------------------------------------------------------------
Folsom (City of) (School
Facilities Project);
Series 1994 B GO 6.00%,
08/01/02(b) AAA Aaa 500 539,345
- ------------------------------------------------------------------
Inglewood (City of) (Daniel
Freeman Hospital Inc.);
Insured Hospital Series
1991 RB 6.50%, 05/01/01(d) NRR NRR 400 427,476
- ------------------------------------------------------------------
Orange (County of);
Refunding Recovery Series
A RB 5.50%, 06/01/06(b) AAA Aaa 1,000 1,078,230
- ------------------------------------------------------------------
</TABLE>
FS-10
<PAGE> 107
<TABLE>
<CAPTION>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C> <C>
CALIFORNIA-(CONTINUED)
Parking Authority of the
City and County of San
Francisco; Parking Meter
Series 1994 RB 6.75%,
06/01/05(b) AAA Aaa $ 500 $ 573,120
- ------------------------------------------------------------------
West End Water Development,
Treatment, and
Conservation Joint Powers
Authority; Water
Facilities Series 1990
Certificates of
Participation 7.00%,
10/01/00 BBB+ A 250 265,500
- ------------------------------------------------------------------
2,990,781
- ------------------------------------------------------------------
COLORADO-0.01%
Colorado Student Obligation
Bond Authority; Student
Loan Series 1985 B RB
6.125%, 12/01/98 - A 25 25,315
- ------------------------------------------------------------------
CONNECTICUT-1.53%
Berlin (City of); Unlimited
Tax Series 1997 GO 5.00%,
06/15/00(b) AAA Aaa 350 358,243
- ------------------------------------------------------------------
Connecticut (State of);
Series B GO 5.25%,
07/01/02 AA- Aa3 250 250,215
- ------------------------------------------------------------------
Connecticut (State of)
Development Authority
(Light and Power Company);
Refunding Series A PCR
3.65%, 09/01/28(e) A1+ VMIG1 200 200,000
- ------------------------------------------------------------------
New Haven (City of); Series
1997 GO 6.00%, 02/15/06(b) AAA Aaa 2,050 2,261,683
- ------------------------------------------------------------------
3,070,141
- ------------------------------------------------------------------
DELAWARE-0.39%
Delaware Transportation
Authority; Senior Lien
Transportation System
Series 1991 RB 6.00%,
07/01/01(c)(d) AAA Aaa 750 792,818
- ------------------------------------------------------------------
DISTRICT OF COLUMBIA-6.16%
District of Columbia;
Refunding Unlimited Tax
Series B GO 6.75%,
06/01/99(b) AAA Aaa 750 764,655
- ------------------------------------------------------------------
6.125%, 06/01/03(b) AAA Aaa 3,020 3,276,821
- ------------------------------------------------------------------
5.50%, 06/01/07(b) AAA Aaa 3,000 3,206,730
- ------------------------------------------------------------------
District of Columbia
(American Association
Advancement Science);
Series 1997 RB 5.00%,
01/01/05(b) AAA Aaa 800 825,336
- ------------------------------------------------------------------
5.50%, 01/01/06(b) AAA Aaa 1,235 1,314,905
- ------------------------------------------------------------------
District of Columbia
(Medlantic Healthcare
Group); Refunding Series
1993 A RB 5.50%,
08/15/06(b) AAA Aaa 500 530,930
- ------------------------------------------------------------------
District of Columbia
(Medlantic Healthcare
Group); Series 1996 A RB
6.00%, 08/15/06(b) AAA Aaa 1,550 1,699,187
- ------------------------------------------------------------------
6.00%, 08/15/07(b) AAA Aaa 500 550,750
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C> <C>
DISTRICT OF
COLUMBIA-(CONTINUED)
District of Columbia (The
Howard University Issue);
University Series 1990 A
RB 6.90%, 10/01/00 A+ A3 $ 200 $ 212,418
- ------------------------------------------------------------------
12,381,732
- ------------------------------------------------------------------
FLORIDA-1.61%
Palm Beach County Solid
Waste Authority; Refunding
Series 1997 A RB 5.50%,
10/01/06(b) AAA Aaa 3,000 3,229,560
- ------------------------------------------------------------------
GEORGIA-3.03%
Albany (City of); Sewer
System Series 1992 RB
6.30%, 07/01/02(d) AAA Aaa 500 541,400
- ------------------------------------------------------------------
Fulton (County of); Water
and Sewer Refunding Series
1992 RB 5.75%, 01/01/02(b) AAA Aaa 715 754,747
- ------------------------------------------------------------------
Georgia (State of); Series
1988 D GO 7.10%, 06/01/99 AAA Aaa 2,000 2,050,820
- ------------------------------------------------------------------
Georgia State Municipal
Electric Authority; Series
V RB 6.00%, 01/01/01(b) AAA Aaa 1,000 1,048,770
- ------------------------------------------------------------------
Marietta County School
District; Refunding Series
1993 GO 5.50%, 01/01/07 AA- A 1,110 1,162,114
- ------------------------------------------------------------------
Metropolitan Atlanta Rapid
Transit Authority; Sales
Tax Refunding Series M RB
6.15%, 07/01/02 AA- A1 500 540,364
- ------------------------------------------------------------------
6,098,215
- ------------------------------------------------------------------
HAWAII-2.77%
Hawaii (State of); Refunding
Series 1997 GO 6.00%,
03/01/07(b) AAA Aaa 5,000 5,564,750
- ------------------------------------------------------------------
ILLINOIS-5.63%
Chicago (City of); Series
1997 GO 6.00%, 01/01/06(b) AAA Aaa 500 548,885
- ------------------------------------------------------------------
Chicago (City of) (Central
Public Library Project);
Adjustable Rate Series
1988 C GO 6.10%,
01/01/99(b) AAA Aaa 500 508,915
- ------------------------------------------------------------------
Hoffman Estates Illinois
Multifamily Housing (Park
Place Apartments Project);
Refunding Series 1996 RB
5.75%, 06/01/06(c) AAA Aaa 1,250 1,324,250
- ------------------------------------------------------------------
</TABLE>
FS-11
<PAGE> 108
<TABLE>
<CAPTION>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C> <C>
ILLINOIS-(CONTINUED)
Illinois Development
Financial Authority;
Series 1997 IDR 4.80%,
08/01/07(c) AA+ NRR $1,000 $ 1,000,130
- ------------------------------------------------------------------
Illinois Development
Financial Authority
(American College
Surgeons); Series 1996 RB
3.70%, 08/01/26(e) A1+ - 2,300 2,300,000
- ------------------------------------------------------------------
Illinois Educational
Facilities Authority
(Augustana College);
Series 1997 RB
4.80%, 10/01/99(b) AAA NRR 375 380,505
- ------------------------------------------------------------------
Illinois Health Facilities
Authority; Revolving
Pooled Financing Series D
RB
3.70%, 08/01/15(e) A1+ VMIG1 800 800,000
- ------------------------------------------------------------------
Illinois Health Facilities
Authority (Edward
Obligated Group); Series
1997 A RB
4.90%, 02/15/08(b) AAA Aaa 835 851,316
- ------------------------------------------------------------------
Illinois Health Facilities
Authority (Highland Park
Hospital); Series 1991 A
RB
4.80%, 10/01/99(b) AAA Aaa 500 506,975
- ------------------------------------------------------------------
5.55%, 10/01/06(b) AAA Aaa 500 534,900
- ------------------------------------------------------------------
Illinois Health Facilities
Authority (Mercy Hospital
and Medical Center);
Refunding Series 1992 RB
6.20%, 01/01/00 A- Baa1 250 257,285
- ------------------------------------------------------------------
Illinois Regional Transit
Authority; Series B RB
6.30%, 06/01/04(c)(d) AAA Aaa 1,000 1,125,460
- ------------------------------------------------------------------
Joliet (City of); Waterworks
and Sewer Series 1991 RB
6.95%, 01/01/01(b) AAA Aaa 250 267,957
- ------------------------------------------------------------------
Kane (County of) Public
Building Commission;
Unlimited Tax Public
Building Series B GO
6.20%, 12/01/99(c)(d) NRR NRR 700 725,032
- ------------------------------------------------------------------
Kane County School District
#131 (Aurora East Side
Project); Series 1998 A GO
7.10%, 12/01/98(c)(d) AAA Aaa 175 178,896
- ------------------------------------------------------------------
11,310,506
- ------------------------------------------------------------------
INDIANA-2.78%
Frankfort Middle School
Building Corp.; Refunding
Series 1996 RB
5.20%, 01/10/07(b) AAA Aaa 295 308,718
- ------------------------------------------------------------------
Hamilton (County of)
Optional Income Tax
Revenue Series 1998 RB
5.00%, 07/10/08(b) AAA Aaa 1,095 1,111,622
- ------------------------------------------------------------------
Indiana Health Facilities
Financing Authority
(Charity Obligated Group);
Series 1997 D RB
5.00%, 11/01/07(c) AA+ Aa2 2,500 2,564,975
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C> <C>
INDIANA-(CONTINUED)
Indiana Transportation
Finance Authority; Airport
Facilities Lease Series A
RB
6.00%, 11/01/01 A A1 $ 500 $ 529,245
- ------------------------------------------------------------------
Indiana Transportation
Finance Authority; Highway
Series A RB
5.50%, 06/01/07(b) AAA Aaa 1,000 1,074,330
- ------------------------------------------------------------------
5,588,890
- ------------------------------------------------------------------
IOWA-0.26%
Iowa Student Loan Liquidity
Corp.; Student Loan Series
1992 A RB
6.25%, 03/01/00 - Aa1 500 517,495
- ------------------------------------------------------------------
KENTUCKY-0.34%
Kentucky State Turnpike
Authority (Economic
Development Road
Revitalization Project);
RB
7.125%, 05/15/00(c)(d) AAA Aaa 260 279,903
- ------------------------------------------------------------------
Western Kentucky University;
Consolidated Educational
Buildings Refunding Series
M RB
4.70%, 05/01/99(b) AAA Aaa 390 394,360
- ------------------------------------------------------------------
674,263
- ------------------------------------------------------------------
LOUISIANA-5.33%
Jefferson Parish School
Board; Sales and Use Tax
RB
6.00%, 02/01/04(b) AAA Aaa 1,720 1,864,583
- ------------------------------------------------------------------
Louisiana (State of); Series
A GO
6.00%, 04/15/07(b) AAA Aaa 5,000 5,579,100
- ------------------------------------------------------------------
Louisiana Offshore Terminal
Authority (Loop, Inc.);
Deepwater Port Refunding
Series 1992 RB
6.00%, 09/01/01 A Baa1 1,000 1,052,380
- ------------------------------------------------------------------
6.20%, 09/01/03 A Baa1 1,000 1,081,790
- ------------------------------------------------------------------
Louisiana Public Facilities
Authority (Tulane
University of Louisiana);
Series 1987 C RB
7.30%, 08/15/99 A+ A1 270 276,024
- ------------------------------------------------------------------
Ouachita (Parish of)
Hospital Service District
#1 (Glenwood Regional
Medical Center); Hospital
Refunding Series 1996 RB
5.00%, 05/15/99 A - 850 858,874
- ------------------------------------------------------------------
10,712,751
- ------------------------------------------------------------------
MASSACHUSETTS-0.21%
New England Education Loan
Marketing Corp.; Student
Loan Refunding Senior
Issue 1992 D RB
6.20%, 09/01/00 - Aaa 400 419,172
- ------------------------------------------------------------------
MICHIGAN-2.25%
Dearborn (City of) Economic
Development Corp. (Oakwood
Obligated Group); Hospital
Series 1991 A RB
6.95%, 08/15/01(c)(d) AAA Aaa 1,000 1,106,150
- ------------------------------------------------------------------
</TABLE>
FS-12
<PAGE> 109
<TABLE>
<CAPTION>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C> <C>
MICHIGAN-(CONTINUED)
Detroit (City of) School
District; GO
5.60%, 05/01/01 AA+ Aa2 $ 765 $ 798,285
- ------------------------------------------------------------------
Michigan State Building
Authority; Refunding
Series I RB
6.40%, 10/01/04 AA Aa1 2,000 2,175,520
- ------------------------------------------------------------------
Michigan State Strategic
Fund; Refunding Series
1988 PCR
3.80%, 04/15/18(e) - P1 440 440,000
- ------------------------------------------------------------------
4,519,955
- ------------------------------------------------------------------
MINNESOTA-0.39%
Southern Minnesota Municipal
Power Agency; Power Supply
System Series A RB
5.60%, 01/01/04 A+ A2 745 786,020
- ------------------------------------------------------------------
MISSOURI-0.46%
Fort Osage Reorganization
School District #1
(Missouri School District
Direct Deposit Program);
Series 1997 GO
4.95%, 03/01/06 AA Aa2 405 420,000
- ------------------------------------------------------------------
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 500 507,925
- ------------------------------------------------------------------
927,925
- ------------------------------------------------------------------
MONTANA-0.22%
Montana Higher Education
Assistance Corp.; Student
Loan Series
1992 A RB
6.60%, 12/01/00 - A 420 444,881
- ------------------------------------------------------------------
NEVADA-0.25%
Clark County Improvement
District No. 65 (Lamb
Boulevard III); Series
1992 GO
6.20%, 12/01/02 AA- A1 120 123,977
- ------------------------------------------------------------------
Nevada (State of) (Nevada
Municipal Bond Bank
Project Nos. 38-39);
Limited Tax Series 1992 A
GO 6.00%, 07/01/01(d) AA NRR 350 368,893
- ------------------------------------------------------------------
492,870
- ------------------------------------------------------------------
NEW JERSEY-1.41%
Gloucester County Utilities
Authority; Sewer Refunding
Series 1991 RB
6.10%, 01/01/00 AA- A1 225 233,561
- ------------------------------------------------------------------
Jersey City (City of)
(Qualified School Bond);
GO
6.40%, 02/15/00 AA A3 1,000 1,043,610
- ------------------------------------------------------------------
New Jersey Transportation
Trust Fund Authority;
Transportation System
Series 1992 A RB
5.90%, 06/15/99(d) NRR Aaa 1,000 1,024,930
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C> <C>
NEW JERSEY-(CONTINUED)
Trenton (City of); Fiscal
Year Adjustment GO
6.10%, 08/15/02(b) AAA Aaa $ 500 $ 538,750
- ------------------------------------------------------------------
2,840,851
- ------------------------------------------------------------------
NEW MEXICO-0.78%
Albuquerque (City of); Joint
Water and Sewer Series
1990 A RB
6.00%, 07/01/00(c)(d) AAA NRR 1,000 1,041,360
- ------------------------------------------------------------------
Santa Fe (City of); Series
1994 A RB
5.50%, 06/01/03(d) AAA Aaa 500 528,660
- ------------------------------------------------------------------
1,570,020
- ------------------------------------------------------------------
NEW YORK-12.20%
Nassau (County of); GO
5.15%, 03/01/07(b) AAA Aaa 5,000 5,195,250
- ------------------------------------------------------------------
New York (City of);
Refunding
Series D GO
5.60%, 11/01/05 BBB+ A3 5,000 5,310,050
- ------------------------------------------------------------------
New York (City of); Series G
GO
5.90%, 02/01/05 BBB+ A3 1,150 1,235,273
- ------------------------------------------------------------------
New York (City of) Municipal
Assistance Corp.; Series I
RB
5.25%, 07/01/03 AA Aa2 5,500 5,774,175
- ------------------------------------------------------------------
New York (State of)
Dormitory Authority;
Mental Health Facilities
Series A RB
6.00%, 02/15/05 A- Baa1 1,000 1,077,900
- ------------------------------------------------------------------
6.00%, 08/15/07 A- Baa1 1,775 1,942,453
- ------------------------------------------------------------------
New York (State of)
Dormitory Authority (Beth
Israel Medical Center);
Series 1997 B RB
5.50%, 11/01/06(b) AAA Aaa 1,000 1,074,890
- ------------------------------------------------------------------
New York (State of)
Dormitory Authority (Pace
University Issue); Series
1997 RB
6.00%, 07/01/07(b) AAA Aaa 1,275 1,421,294
- ------------------------------------------------------------------
New York (State of) Medical
Care Facilities Financing
Agency; Hospital & Nursing
Home Series 1995 A RB
5.60%, 02/15/05(b) AAA - 1,425 1,492,616
- ------------------------------------------------------------------
24,523,901
- ------------------------------------------------------------------
NORTH DAKOTA-0.84%
Fargo (City of); Refunding
Water Series 1997 RB
5.50%, 01/01/08(b) AAA Aaa 905 971,997
- ------------------------------------------------------------------
Grand Forks Health Care
System (Altru Health
System Obligated Group);
Series 1997 RB
4.55%, 08/15/00(b) AAA Aaa 705 712,847
- ------------------------------------------------------------------
1,684,844
- ------------------------------------------------------------------
</TABLE>
FS-13
<PAGE> 110
<TABLE>
<CAPTION>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C> <C>
OHIO-4.40%
Cleveland City School
District; Series 1997 RB
5.00%, 06/01/01(b) AAA Aaa $2,000 $ 2,055,120
- ------------------------------------------------------------------
Franklin (County of); 1991
Issue GO
6.30%, 12/01/01(c)(d) NRR - 1,500 1,634,205
- ------------------------------------------------------------------
Greene (County of); Water
System Series A RB
5.45%, 12/01/06(b) AAA Aaa 585 626,629
- ------------------------------------------------------------------
Hilliard City School
District; School
Improvement Refunding
Series 1992 GO
6.05%, 12/01/00(b) AAA Aaa 500 528,055
- ------------------------------------------------------------------
6.15%, 12/01/01(b) AAA Aaa 250 268,912
- ------------------------------------------------------------------
Lucas County (St. Vincent's
Medical Center); Hospital
Series A RB
6.75%, 08/15/20(b) AAA Aaa 2,000 2,146,580
- ------------------------------------------------------------------
Ohio (State of)(Elementary &
Secondary Education
Facilities); Series 1997
RB
5.10%, 12/01/05 AA- Aa3 1,500 1,573,530
- ------------------------------------------------------------------
8,833,031
- ------------------------------------------------------------------
OKLAHOMA-1.43%
Norman (City of) Hospital
Authority; Refunding
Series A RB
5.20%, 09/01/06(b) AAA Aaa 310 325,041
- ------------------------------------------------------------------
5.30%, 09/01/07(b) AAA Aaa 1,090 1,151,967
- ------------------------------------------------------------------
Oklahoma Housing Finance
Agency; Single Family
Mortgage
Series A RB
6.55%, 03/01/00(b) AAA Aaa 115 119,414
- ------------------------------------------------------------------
Southern Oklahoma Memorial
Hospital Authority;
Hospital Series 1993 A RB
5.60%, 02/01/00(d) NRR NRR 1,250 1,284,837
- ------------------------------------------------------------------
2,881,259
- ------------------------------------------------------------------
OREGON-2.46%
Grande Ronde (City of)
Community Confederated
Tribes (Governmental
Facilities and
Infrastructure); Unlimited
Tax Series 1997 GO
4.75%, 12/01/04(b) AAA Aaa 1,000 1,024,600
- ------------------------------------------------------------------
4.80%, 12/01/05(b) AAA Aaa 1,045 1,070,508
- ------------------------------------------------------------------
5.00%, 12/01/07(b) AAA Aaa 1,145 1,184,846
- ------------------------------------------------------------------
Portland (City of); Sewer
System Series 1994 A RB
5.45%, 06/01/03 A+ A1 1,065 1,129,677
- ------------------------------------------------------------------
5.55%, 06/01/04 A+ A1 500 535,436
- ------------------------------------------------------------------
4,945,067
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C> <C>
PENNSYLVANIA-2.14%
Chester Upland School
Authority; Refunding
Series 1997 B RB
4.60%, 09/01/06(b) AAA Aaa $ 505 $ 509,540
- ------------------------------------------------------------------
4.70%, 09/01/07(b) AAA Aaa 535 542,292
- ------------------------------------------------------------------
Pennsylvania Industrial
Development Authority;
Economic Development
Series 1991 A RB
6.50%, 07/01/98(d) NRR NRR 150 151,065
- ------------------------------------------------------------------
York (City of); Pooled
Financing RB 3.80%,
09/01/26(e)(f) A1 - 3,085 3,085,000
- ------------------------------------------------------------------
4,287,897
- ------------------------------------------------------------------
RHODE ISLAND-1.26%
Rhode Island (State of);
Refunding Series 1992 A GO
6.10%, 06/15/03(b) AAA Aaa 1,000 1,089,800
- ------------------------------------------------------------------
Rhode Island State Turnpike
and Bridge Authority;
Refunding Series 1997 A RB
5.00%, 12/01/99 A - 1,395 1,419,817
- ------------------------------------------------------------------
2,509,617
- ------------------------------------------------------------------
SOUTH CAROLINA-0.48%
Beaufort (County of)
Hospital Facilities
(Beaufort County Memorial
Hospital); Refunding
Series 1997 RB
4.20%, 12/01/99 AAA Aaa 930 936,185
- ------------------------------------------------------------------
SOUTH DAKOTA-1.03%
Rapid City (City of); Sales
Tax Series 1995 A RB
5.60%, 06/01/05(b) AAA Aaa 255 275,229
- ------------------------------------------------------------------
South Dakota Health and
Education Facility
(McKennan Hospital);
Refunding Series 1996 RB
5.40%, 07/01/06(b) AAA Aaa 1,680 1,783,051
- ------------------------------------------------------------------
2,058,280
- ------------------------------------------------------------------
TENNESSEE-2.94%
Nashville and Davidson
(County of) Health and
Education Facilities Board
(Meharry Medical
College); RB
7.875%, 12/01/04(d) NRR Aaa 995 1,116,947
- ------------------------------------------------------------------
Nashville and Davidson
(County of) Health and
Education Facilities Board
(Multifamily Housing
Project); Series 1996 RB
5.50%, 01/01/07(c) AAA - 2,700 2,831,490
- ------------------------------------------------------------------
Tennessee Housing
Development Agency;
Mortgage Financing Series
1993 A RB
5.65%, 01/01/07 A+ A1 1,360 1,416,399
- ------------------------------------------------------------------
</TABLE>
FS-14
<PAGE> 111
<TABLE>
<CAPTION>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C> <C>
TENNESSEE-(CONTINUED)
Tennessee School Board
Authority; College and
University Improvement
Series RB
5.75%, 05/01/06 AA A1 $ 550 $ 550,622
- ------------------------------------------------------------------
5,915,458
- ------------------------------------------------------------------
TEXAS-9.63%
Alamo Community College
District; Series 1990 GO
6.90%, 02/15/00(c)(d) NRR Aaa 500 525,795
- ------------------------------------------------------------------
Austin (City of); Combined
Utility System Refunding
Series 1986 RB
7.20%, 05/15/98(d) NRR NRR 25 25,100
- ------------------------------------------------------------------
7.20%, 05/15/98 A A2 175 175,780
- ------------------------------------------------------------------
Austin (City of); Utility
System Series 1998 A RB
7.50%, 11/15/98 A A2 750 767,723
- ------------------------------------------------------------------
Clint Independent School
District; Unlimited Tax
Refunding Series 1991 GO
6.30%, 03/01/00(b) - Aaa 185 189,144
- ------------------------------------------------------------------
Comal County Industrial
Development Authority (The
Coleman Company, Inc.
Project); Series 1980 IDR
9.25%, 08/01/00(d) NRR NRR 505 539,633
- ------------------------------------------------------------------
Conroe (City of) Independent
School District; Unlimited
School Tax GO
7.375%, 02/01/01(b) AAA Aaa 115 125,206
- ------------------------------------------------------------------
Dallas (City of); Waterwork
& Sewer System Series A RB
5.50%, 10/01/05 AA Aa2 1,000 1,008,920
- ------------------------------------------------------------------
Gatesville Independent
School District; Unlimited
Tax School Building and
Refunding Series 1995 RB
5.80%, 02/01/03(b) - Aaa 485 519,212
- ------------------------------------------------------------------
Harris (County of) (Port of
Houston Authority); RB
5.75%, 05/01/02 A A 1,320 1,341,093
- ------------------------------------------------------------------
5.75%, 05/01/02(b) AAA Aaa 1,295 1,316,354
- ------------------------------------------------------------------
Harris County Health
Facilities Development
Corp. (Memorial Hospital
System Project); Hospital
Series 1992 RB
6.70%, 06/01/00(d) NRR NRR 1,000 1,053,170
- ------------------------------------------------------------------
Harris County Health
Facilities Development
Corp. (School Health Care
System Project); Series B
RB
5.10%, 07/01/06 AA Aa3 1,000 1,039,480
- ------------------------------------------------------------------
Keller (City of) Independent
School District; Series
1994 Certificates of
Participation
5.75%, 08/15/01(b) AAA Aaa 915 964,327
- ------------------------------------------------------------------
Kerrville (City of);
Electric System Refunding
Series 1991 RB
6.375%, 11/01/01(b) AAA Aaa 185 198,866
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C> <C>
TEXAS-(CONTINUED)
La Marque Independent School
District; Unlimited
Schoolhouse Tax Series
1992 GO
7.50%, 08/15/99(b) AAA Aaa $ 575 $ 603,900
- ------------------------------------------------------------------
7.50%, 08/15/02(b) AAA Aaa 750 850,305
- ------------------------------------------------------------------
Lubbock Health Facility
Development Corp.;
Methodist Hospital
Refunding Series 1993 B
5.40%, 12/01/05(b) AAA Aaa 500 530,515
- ------------------------------------------------------------------
Plano Independent School
District; GO
5.80%, 02/15/05(b) AAA Aaa 2,025 2,171,145
- ------------------------------------------------------------------
San Antonio (City of);
Electric and Gas System
Prerefunding Series 1989 A
RB
7.00%, 02/01/99(c)(d) - Aaa 165 171,786
- ------------------------------------------------------------------
7.00%, 02/01/01 AA Aa1 235 244,174
- ------------------------------------------------------------------
Tarrant (County of) Health
Facilities Development
Corp. (Texas Health
Resources System); Series
1997 A RB
5.50%, 02/15/05(b) AAA Aaa 1,000 1,061,480
- ------------------------------------------------------------------
5.50%, 02/15/06(b) AAA Aaa 500 532,785
- ------------------------------------------------------------------
Tarrant (County of) Housing
Finance Corp. (Arbors on
Park II); Multifamily
Housing Series RB
5.05%, 12/01/07 AAA - 1,500 1,516,965
- ------------------------------------------------------------------
Temple (City of) (Bell
County); Refunding Series
1992 GO
5.80%, 02/01/01(b) AAA Aaa 250 261,765
- ------------------------------------------------------------------
Texas Municipal Power
Agency; RB
5.75%, 09/01/02(c)(d) AAA Aaa 1,000 1,061,770
- ------------------------------------------------------------------
Texas Turnpike Authority
(Addison Airport Toll
Tunnel Project); Dallas
North Tollway Series 1994
RB
6.30%, 01/01/05(b) AAA Aaa 500 554,875
- ------------------------------------------------------------------
University of Texas System;
General Tuition Refunding
Series 1986 RB
7.75%, 08/15/98(d) AAA Aaa 10 10,148
- ------------------------------------------------------------------
19,361,416
- ------------------------------------------------------------------
UTAH-1.61%
Intermountain Power Agency
(Utah Power Supply);
Refunding Series 1997 B RB
6.00%, 07/01/07(b) AAA Aaa 1,000 1,112,341
- ------------------------------------------------------------------
Salt Lake (City of)
Municipal Building
Authority; Series A RB
6.50%, 10/15/00 A+ Aa3 570 590,737
- ------------------------------------------------------------------
Utah (State of) (Board of
Water Resources Program);
Revolving Fund
Recapitalization Series
1992 B RB
6.10%, 04/01/02 AA - 500 539,361
- ------------------------------------------------------------------
</TABLE>
FS-15
<PAGE> 112
<TABLE>
<CAPTION>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C> <C>
UTAH-(CONTINUED)
Utah Municipal Finance
Cooperative (Pooled
Capital Improvement
Financing Program)
(University Hospital
Project); Local Government
Series
August 1, 1991 RB
6.50%, 05/15/99(d) NRR NRR $ 475 $ 488,599
- ------------------------------------------------------------------
Utah Water Financing Agency;
Series A RB
4.40%, 10/01/99(b) AAA Aaa 500 504,820
- ------------------------------------------------------------------
3,235,858
- ------------------------------------------------------------------
VIRGINIA-1.26%
Medical College of Hampton
Roads; General Refunding
Series 1991 A RB
6.00%, 11/15/99 A- - 605 624,493
- ------------------------------------------------------------------
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 535 570,711
- ------------------------------------------------------------------
5.40%, 11/01/05 AA Aa 500 538,916
- ------------------------------------------------------------------
Portsmouth (City of); Port
Improvement Unlimited Tax
Refunding GO
6.40%, 11/01/03 AA- A3 300 327,081
- ------------------------------------------------------------------
Portsmouth (City of); Public
Utility Refunding Series
1992 GO
5.90%, 11/01/01 AA- A3 450 477,914
- ------------------------------------------------------------------
2,539,115
- ------------------------------------------------------------------
WASHINGTON-5.49%
King (County of); Series A
RB
5.80%, 01/01/05 AA+ Aa1 1,000 1,085,100
- ------------------------------------------------------------------
Seattle (City of) (West
Seattle Bridge); Limited
Tax Refunding Series 1991
GO
6.40%, 10/01/01 AA+ Aa1 250 267,703
- ------------------------------------------------------------------
Seattle (Port of); Series
1992 A RB
6.00%, 11/01/01 AA- Aa3 500 530,950
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C> <C>
WASHINGTON-(CONTINUED)
Snohomish (County of) Public
Utilities District #1; RB
5.70%, 01/01/06(b) AAA Aaa $4,000 $ 4,276,320
- ------------------------------------------------------------------
Washington Public Power
Supply System (Nuclear
Electric Project #1);
Refunding Series 1989 B RB
7.00%, 07/01/99 AA- Aa1 600 621,953
- ------------------------------------------------------------------
Washington Public Power
Supply System (Nuclear
Electric Project #2);
Refunding Series 1997 B RB
5.50%, 07/01/05 AA- Aa1 2,000 2,115,980
- ------------------------------------------------------------------
5.50%, 07/01/06 AA- Aa1 2,000 2,122,180
- ------------------------------------------------------------------
11,020,186
- ------------------------------------------------------------------
WISCONSIN-4.40%
Wisconsin (State of); Series
A GO
5.75%, 05/01/99 AA Aa2 1,000 1,021,960
- ------------------------------------------------------------------
Wisconsin (State of) Health
& Educational Facilities
Authority (Aurora Health
Care Inc.); Series 1997 RB
6.00%, 08/15/06(b) AAA Aaa 2,000 2,199,780
- ------------------------------------------------------------------
Wisconsin (State of) Health
& Educational Facilities
Authority (Charity
Obligation Group);
Hospital Series 1997 D RB
4.90%, 11/01/05(c) AA+ VMIG1 2,250 2,289,803
- ------------------------------------------------------------------
Wisconsin (State of) Health
& Educational Facilities
Authority (Marshfield
Clinic); RB
5.20%, 02/15/07(b) AAA Aaa 3,210 3,348,735
- ------------------------------------------------------------------
8,860,278
- ------------------------------------------------------------------
TOTAL INVESTMENTS-98.54% 198,044,844(g)
- ------------------------------------------------------------------
OTHER LIABILITIES LESS ASSETS-1.46% 2,924,130
- ------------------------------------------------------------------
NET ASSETS-100.00% $200,968,974
==================================================================
</TABLE>
Abbreviations:
GO - General Obligation Bonds
IDR - Industrial Development Revenue 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 bond insurance.
(c) Security has an outstanding irrevocable call or mandatory put by the issuer.
Market value and maturity date reflect such call or put.
(d) Secured by an escrow fund of U.S. Treasury obligations.
(e) 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 03/31/98.
(f) Secured by a letter of credit.
(g) Also represents cost for federal income tax purposes.
See Notes to Financial Statements.
FS-16
<PAGE> 113
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$191,006,380) $ 198,044,844
- ---------------------------------------------------------
Cash 6,183
- ---------------------------------------------------------
Receivables for:
Capital stock sold 737,657
- ---------------------------------------------------------
Interest 2,837,086
- ---------------------------------------------------------
Investment for deferred compensation plan 18,008
- ---------------------------------------------------------
Other assets 32,484
- ---------------------------------------------------------
Total assets 201,676,262
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Capital stock reacquired 236,704
- ---------------------------------------------------------
Dividends 364,211
- ---------------------------------------------------------
Deferred compensation plan 18,008
- ---------------------------------------------------------
Accrued administrative services fees 3,937
- ---------------------------------------------------------
Accrued advisory fees 50,321
- ---------------------------------------------------------
Accrued directors' fees 2,900
- ---------------------------------------------------------
Accrued transfer agent fees 6,153
- ---------------------------------------------------------
Accrued operating expenses 25,054
- ---------------------------------------------------------
Total liabilities 707,288
- ---------------------------------------------------------
Net assets applicable to shares
outstanding $ 200,968,974
=========================================================
CAPITAL STOCK, $0.001 PAR VALUE PER
SHARE:
Authorized 1,000,000,000
- ---------------------------------------------------------
Outstanding 18,194,630
- ---------------------------------------------------------
Net asset value and redemption price per
share $ 11.05
- ---------------------------------------------------------
Offering price per share:
(Net asset value of $11.05 divided
by 99.00%) $ 11.16
- ---------------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $ 9,473,238
- --------------------------------------------------------
EXPENSES:
Advisory fees 566,927
- --------------------------------------------------------
Administrative services fees 46,097
- --------------------------------------------------------
Custodian fees 10,759
- --------------------------------------------------------
Transfer agent fees 53,072
- --------------------------------------------------------
Registration and filing fees 61,577
- --------------------------------------------------------
Directors' fees 9,279
- --------------------------------------------------------
Other 104,123
- --------------------------------------------------------
Total expenses 851,834
- --------------------------------------------------------
Net investment income 8,621,404
- --------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES:
Net realized gain (loss) on sales of
investment securities (31,582)
- --------------------------------------------------------
Net unrealized appreciation of investment
securities 5,402,954
- --------------------------------------------------------
Net gain on investment securities 5,371,372
- --------------------------------------------------------
Net increase in net assets resulting from
operations $13,992,776
========================================================
</TABLE>
See Notes to Financial Statements.
FS-17
<PAGE> 114
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
-------------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 8,621,404 $ 4,272,718
- --------------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investment securities (31,582) 7,036
- --------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities 5,402,954 (1,085,090)
- --------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 13,992,776 3,194,664
- --------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (8,634,206) (4,406,557)
- --------------------------------------------------------------------------------------------
Distributions from capital (3,932) (21,485)
- --------------------------------------------------------------------------------------------
Net increase from capital stock transactions 22,272,556 91,508,711
- --------------------------------------------------------------------------------------------
Net increase in net assets 27,627,194 90,275,333
- --------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 173,341,780 83,066,447
- --------------------------------------------------------------------------------------------
End of period $200,968,974 $173,341,780
============================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $195,083,906 $172,821,545
- --------------------------------------------------------------------------------------------
Undistributed net investment income (17,485) (10,946)
- --------------------------------------------------------------------------------------------
Undistributed realized gain (loss) on sales of investment
securities (1,135,911) (1,104,329)
- --------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 7,038,464 1,635,510
- --------------------------------------------------------------------------------------------
$200,968,974 $173,341,780
- --------------------------------------------------------------------------------------------
</TABLE>
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Tax-Exempt Funds, Inc. (the "Company") is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
The Company is organized as a Maryland corporation consisting of four separate
portfolios: AIM Tax-Free Intermediate Fund (formerly the Intermediate
Portfolio), AIM High Income Municipal Fund, 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 AIM Tax-Free
Intermediate Fund (the "Fund"). 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 preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
A. Security Valuations -- Portfolio securities are valued based on market
quotations or at fair value determined by a pricing service approved by the
Company's Board of Directors, provided that securities with a demand feature
exercisable within one to seven days are valued at par. Prices provided by
the pricing service represent valuations of the mean between current bid and
asked market prices which may be determined without exclusive reliance on
quoted prices and may reflect appropriate factors such as institution-size
trading in similar groups of securities, yield, quality, coupon rate,
maturity, type of issue, individual trading characteristics and other market
data. Portfolio securities for which prices are not provided by the pricing
service are valued at the mean between the last available bid and asked
prices, unless the Board of Directors or its designees determines that the
mean between the last available bid and asked prices does not accurately
reflect the current market value of the security. Securities for which market
quotations either are not readily available or are questionable are valued at
fair value as determined in good faith by or under the supervision of the
Company's officers in accordance with methods which are specifically
authorized by the Board of Directors. Notwithstanding the above, short-term
obligations with maturities of sixty days or less are valued at amortized
cost.
B. Securities Transactions and Investment Income -- Securities transactions are
recorded on a trade date basis. Realized gains and losses are computed on the
basis of specific identification of the securities sold. Interest income,
adjusted for amortization
FS-18
<PAGE> 115
of premiums and original issue discounts, is earned from settlement date and
is recorded on the accrual basis. On March 31, 1998, undistributed net
investment income was increased by $10,195 and paid-in capital reduced by
$10,195 in order to comply with the requirements of the American Institute of
Certified Public Accountants Statement of Position 93-2. Net assets of the
Fund were unaffected by the reclassifications discussed above.
C. 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 $1,129,032, which expires, if not previously utilized, in
the year 2006. 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, 1998, the Fund reimbursed
AIM $46,097 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, 1998, the Fund
paid AFS $34,481 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. AIM Distributors received commissions of
$21,156 from sales of capital stock during the year ended March 31, 1998. 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, 1998, the Fund paid legal fees of $3,294 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) $500,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. Interest on
borrowings under the line of credit is payable on maturity or prepayment date.
Prior to an amendment of the line of credit on July 15, 1997, the Fund was
limited to borrowings up to the lesser of i) $325,000,000 or ii) the limits set
by its prospectus for borrowings. During the year ended March 31, 1998 , the
Fund did not borrow under the line of credit agreement. The funds which are
parties to the line of credit are charged a commitment fee of 0.05% on the
unused balance of the committed line. The commitment fee is allocated among such
funds based on their respective average net assets for the period.
NOTE 5-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold during the year ended March 31, 1998 was $76,702,244 and
$39,281,760, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
as of March 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $7,048,177
- ---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (9,713)
- ---------------------------------------------------------
Net unrealized appreciation of investment
securities $7,038,464
=========================================================
</TABLE>
Investments have the same cost for tax and financial
statement purposes.
FS-19
<PAGE> 116
NOTE 6-CAPITAL STOCK
Changes in capital stock outstanding for the years ended March 31, 1998 and 1997
were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold 4,891,415 $ 53,561,920 11,037,256 $119,260,028
- -------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 411,422 4,509,891 277,497 2,985,870
- -------------------------------------------------------------------------------------------------------------------
Reacquired (3,262,778) (35,799,255) (2,855,695) (30,737,187)
- -------------------------------------------------------------------------------------------------------------------
2,040,059 $ 22,272,556 8,459,058 $ 91,508,711
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 7- FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of capital stock
outstanding during each of the years in the five-year period ended March 31,
1998.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.73 $10.79 $10.67 $10.62 $10.74
- ------------------------------------------------------------ -------- -------- ------- ------- -------
Income from investment operations:
Net investment income 0.50 0.50 0.52 0.49 0.48
- ------------------------------------------------------------ -------- -------- ------- ------- -------
Net gains (losses) on securities (both realized and
unrealized) 0.32 (0.04) 0.12 0.04 (0.10)
- ------------------------------------------------------------ -------- -------- ------- ------- -------
Total from investment operations 0.82 0.46 0.64 0.53 0.38
- ------------------------------------------------------------ -------- -------- ------- ------- -------
Less distributions:
Dividends from net investment income (0.50) (0.52) (0.52) (0.48) (0.48)
- ------------------------------------------------------------ -------- -------- ------- ------- -------
Distributions from net realized gains -- -- -- -- (0.02)
- ------------------------------------------------------------ -------- -------- ------- ------- -------
Total distributions (0.50) (0.52) (0.52) (0.48) (0.50)
- ------------------------------------------------------------ -------- -------- ------- ------- -------
Net asset value, end of period $ 11.05 $10.73 $10.79 $10.67 $10.62
============================================================ ======== ======== ======= ======= =======
Total return(a) 7.79% 4.33% 6.06% 5.17% 3.47%
============================================================ ======== ======== ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $200,969 $173,342 $83,066 $82,355 $99,757
============================================================ ======== ======== ======= ======= =======
Ratio of expenses to average net assets 0.45%(b) 0.56% 0.65% 0.59% 0.61%(c)
============================================================ ======== ======== ======= ======= =======
Ratio of net investment income to average net assets 4.56%(b) 4.63% 4.81% 4.65% 4.37%(c)
============================================================ ======== ======== ======= ======= =======
Portfolio turnover rate 22% 26% 32% 75% 26%
============================================================ ======== ======== ======= ======= =======
</TABLE>
(a) Does not deduct sales charges.
(b) Ratios are based on average net assets of $188,975,800.
(c) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
0.64%. Ratio of net investment income to average net assets prior to fee
waivers and/or expense reimbursements was 4.35%.
FS-20
<PAGE> 117
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, 1998, 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 four-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 and the financial highlights. Our procedures included confirmation of
securities owned as of March 31, 1998, 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 on Connecticut as of March 31, 1998, 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 four-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 1, 1998
FS-21
<PAGE> 118
SCHEDULE OF INVESTMENTS
MARCH 31, 1998
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
MUNICIPAL OBLIGATIONS-95.44%
EDUCATION-10.48%
Connecticut Health and
Education Facilities
Authority (Fairfield
University); Series F RB
6.875%, 07/01/09 BBB+ Baa1 $ 1,475 $ 1,543,779
- ------------------------------------------------------------------
Connecticut Health and
Education Facilities
Authority
(Quinnipiac College); RB
4.90%, Series D,
07/01/98 BBB- - 100 100,097
- ------------------------------------------------------------------
7.25%, Series 1989 B,
07/01/99(b)(c) AAA NRR 450 477,531
- ------------------------------------------------------------------
Connecticut Regional
School District No. 5;
Series 1992 GO
6.00%, 03/01/12(d) AAA Aaa 335 355,964
- ------------------------------------------------------------------
Connecticut Regional
School District No. 5
(Towns of Bethany,
Orange and Woodbridge);
1993 Issue GO
5.50%, 02/15/07(d) AAA Aaa 500 530,785
- ------------------------------------------------------------------
Connecticut State Higher
Education Supplemental
Loan Authority (Family
Education Loan Program);
Series 1990 A RB
7.50%, 11/15/10(e) - A1 1,205 1,244,476
- ------------------------------------------------------------------
4,252,632
- ------------------------------------------------------------------
ELECTRIC-4.24%
Connecticut Development
Authority (Connecticut
Power & Light Co.);
Series 1993 A PCR
3.65%, 09/01/28(g) A-1+ VMIG-1 15 15,000
- ------------------------------------------------------------------
Connecticut Development
Authority (New England
Power Co.); Series 1985
Fixed Rate PCR
7.25%, 10/15/15 A+ A1 1,600 1,703,200
- ------------------------------------------------------------------
1,718,200
- ------------------------------------------------------------------
GENERAL OBLIGATION-12.30%
Bridgeport (Town of),
Connecticut; Series A
Unlimited GO
6.00%, 09/01/06(d) AAA Aaa 875 971,198
- ------------------------------------------------------------------
Brooklyn (City of),
Connecticut; Unlimited
Tax GO
5.50%, 05/01/06(d) AAA Aaa 250 267,813
- ------------------------------------------------------------------
5.70%, 05/01/08(d) AAA Aaa 250 270,540
- ------------------------------------------------------------------
Chester (Town of),
Connecticut; Series 1989
GO
7.00%, 10/01/05 - A 190 200,657
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
GENERAL OBLIGATION-(CONTINUED)
Connecticut (State of);
Series 1991 A GO
6.75%, 03/01/01(b)(c) NRR NRR $ 480 $ 522,384
- ------------------------------------------------------------------
Connecticut (State of)
(General Purpose Public
Improvement); GO
6.75%, Series 1991 A,
03/01/01(b)(c) NRR NRR 200 217,660
- ------------------------------------------------------------------
6.50%, Series 1992 A,
03/15/02(b)(c) NRR NRR 300 329,955
- ------------------------------------------------------------------
5.25%, Series 1972 Fixed
Rate, 07/01/02 AA- Aa3 190 190,163
- ------------------------------------------------------------------
Mansfield (City of),
Connecticut; Series 1990
GO
6.00%, 06/15/07 - A1 100 110,634
- ------------------------------------------------------------------
6.00%, 06/15/08 - A1 100 111,029
- ------------------------------------------------------------------
6.00%, 06/15/09 - A1 100 112,325
- ------------------------------------------------------------------
New Britain (City of),
Connecticut; Series 1992
Various Purpose GO
6.00%, 02/01/11(d) AAA Aaa 400 450,876
- ------------------------------------------------------------------
North Canaan (City of),
Connecticut; Series 1991
GO
6.50%, 01/15/08 - A 125 144,170
- ------------------------------------------------------------------
6.50%, 01/15/09 - A 125 144,540
- ------------------------------------------------------------------
6.50%, 01/15/10 - A 125 144,676
- ------------------------------------------------------------------
6.50%, 01/15/11 - A 125 144,208
- ------------------------------------------------------------------
Somers (City of),
Connecticut; Series 1990
Various Purpose GO
6.00%, 12/01/10 - A1 190 213,934
- ------------------------------------------------------------------
Westbrook (City of),
Connecticut; Series 1992
GO
6.40%, 03/15/10(d) AAA Aaa 380 441,188
- ------------------------------------------------------------------
4,987,950
- ------------------------------------------------------------------
HEALTH CARE-16.62%
Connecticut Health and
Education Facilities
Authority
(Bridgeport Hospital);
1992 Series A RB
6.625%, 07/01/18(d) AAA Aaa 500 549,275
- ------------------------------------------------------------------
Connecticut Health and
Education Facilities
Authority
(Capital Asset);
Series 1989 B RB
7.00%, 01/01/00(f) A A1 200 209,204
- ------------------------------------------------------------------
</TABLE>
FS-22
<PAGE> 119
<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
(Danbury Hospital); 1991
Series E RB
6.50%, 07/01/14(d) AAA Aaa $ 750 $ 810,570
- ------------------------------------------------------------------
Connecticut Health and
Education Facilities
Authority
(Hospital For Special
Care); Series 1997 B RB
5.375%, 07/01/17 BBB Baa2 1,000 992,210
- ------------------------------------------------------------------
Connecticut Health and
Education Facilities
Authority
(Middlesex Hospital);
1992 Series G RB
6.25%, 07/01/02(b)(c) AAA Aaa 1,100 1,190,409
- ------------------------------------------------------------------
Connecticut Health and
Education Facilities
Authority
(New Britain Memorial
Hospital); Series 1991 A
RB
7.75%, 07/01/02(b)(c) NRR NRR 500 577,740
- ------------------------------------------------------------------
Connecticut Health and
Education Facilities
Authority (Stamford
Hospital); Series F RB
5.40%, 07/01/09(d) AAA Aaa 1,000 1,061,330
- ------------------------------------------------------------------
Connecticut Health and
Education Facilities
Authority (Veteran
Memorial Medical
Center); Series 1996 A
RB
5.50%, 07/01/26(d) AAA Aaa 500 511,750
- ------------------------------------------------------------------
Connecticut Health and
Education Facilities
Authority (Yale-New
Haven Hospital); Series
1990 F RB
7.10%, 07/01/00(b)(c) AAA Aaa 775 840,193
- ------------------------------------------------------------------
6,742,681
- ------------------------------------------------------------------
HOUSING-13.50%
Connecticut Housing
Development Authority
(Housing Mortgage
Finance Program); RB
7.00%, Series 1991 A-1,
11/15/09 AA Aa2 450 482,135
- ------------------------------------------------------------------
6.55%, Series 1991 C,
Sub-Series C-3,
11/15/13 AA Aa2 310 332,112
- ------------------------------------------------------------------
7.00%, Series C,
11/15/99(e) AA Aa 320 330,550
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
Connecticut (State of)
(Housing
Mortgage Finance Program); RB
6.00%, Series 1993 E-1,
05/15/17 AA Aa $ 675 $ 707,258
- ------------------------------------------------------------------
5.95%, Series E-1,
05/15/17 AA Aa2 500 532,785
- ------------------------------------------------------------------
6.30%, Series C-1,
11/15/17 AA Aa 1,270 1,373,530
- ------------------------------------------------------------------
6.25%, Series C-2,
11/15/18 AA Aa2 750 810,675
- ------------------------------------------------------------------
6.70%, Series C-2,
11/15/22(e) AA Aa2 365 393,415
- ------------------------------------------------------------------
5.85%, Series C-2,
11/15/28(e) AA Aa3 500 513,110
- ------------------------------------------------------------------
5,475,570
- ------------------------------------------------------------------
LEASE RENTAL-1.07%
Connecticut (State of)
(Middletown Courthouse
Facilities Project);
1991 Issue Lease-Rental
Revenue Certificates of
Participation
6.25%, 12/15/10(d) AAA Aaa 400 431,932
- ------------------------------------------------------------------
RESOURCE RECOVERY-5.53%
Connecticut State Resource
Recovery Authority
(American Ref-Fuel
Co.-Southeastern
Connecticut Project);
Series 1988 A RB
8.00%, 11/15/15(e) AA- Baa1 500 527,300
- ------------------------------------------------------------------
Connecticut State Resource
Recovery Authority
(Bridgeport Resco
Corp.-Ltd. Partners);
1985 Issue RB
8.625%, Project B,
01/01/04 A A 670 685,913
- ------------------------------------------------------------------
7.625%, Project A,
01/01/09 A A 1,000 1,030,000
- ------------------------------------------------------------------
2,243,213
- ------------------------------------------------------------------
TRANSPORTATION-18.93%
Connecticut State Special
Tax Obligation
(Transportation
Infrastructure); RB
5.10%, Series 1992 B,
09/01/99 AA- A1 1,000 1,017,800
- ------------------------------------------------------------------
6.25%, Series 1991 B,
10/01/01(b)(c) NRR Aaa 1,000 1,086,680
- ------------------------------------------------------------------
6.80%, Series A,
06/01/03(b)(c) NRR NRR 1,250 1,396,225
- ------------------------------------------------------------------
6.50%, Series 1991 B,
10/01/10 AA- A1 530 623,227
- ------------------------------------------------------------------
3.65%, Series 1990 I,
12/01/10(g) A-1+ VMIG-1 235 235,000
- ------------------------------------------------------------------
</TABLE>
FS-23
<PAGE> 120
<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(b) AA- Aaa $ 1,000 $ 1,029,490
- ------------------------------------------------------------------
6.80%, Series 1989 C,
12/01/99(b)(c) AAA NRR 500 532,865
- ------------------------------------------------------------------
6.50%, Series 1991 B,
10/01/12 AA- A1 1,500 1,758,945
- ------------------------------------------------------------------
7,680,232
- ------------------------------------------------------------------
WATER & SEWER-8.95%
Connecticut Development
Authority (Pfizer Inc.);
Series 1982 Refunding
PCR
6.55%, 02/15/13 AAA Aaa 250 275,335
- ------------------------------------------------------------------
Connecticut Development
Authority Water Facility
(Bridgeport Hydraulic
Co. Project); Refunding
RB
7.25%, Series 1990,
06/01/20 A+ - 800 861,008
- ------------------------------------------------------------------
6.15%, 04/01/35(e) A+ - 250 266,500
- ------------------------------------------------------------------
Connecticut State Clean
Water Fund; Series 1991
Clean Water RB
7.00%, 01/01/11 AAA Aaa 1,100 1,201,585
- ------------------------------------------------------------------
Manchester (City of)
Connecticut Eighth
Utilities Fire District;
Series 1991 GO
6.75%, 08/15/06 - Aa3 180 207,286
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
WATER & SEWER-(CONTINUED)
South Central Connecticut
Regional Water
Authority; Eighth Series
1990 A Water System RB
6.60%, 08/01/00(b)(c) NRR NRR $ 250 $ 268,560
- ------------------------------------------------------------------
South Central Connecticut
Regional Water
Authority; Series 1988
Water System RB
6.80%, 08/01/98(b)(c) NRR NRR 535 550,954
- ------------------------------------------------------------------
3,631,228
- ------------------------------------------------------------------
MISCELLANEOUS-3.82%
Connecticut Development
Authority (Economic
Development Projects);
1992 Series Refunding
Bonds
6.00%, 11/15/08 AA- Aa 500 523,085
- ------------------------------------------------------------------
Guam (Government of);
Series 1995 A GO
5.25%, 09/01/99 BBB - 250 252,490
- ------------------------------------------------------------------
5.375%, 09/01/00 BBB - 250 252,298
- ------------------------------------------------------------------
Puerto Rico Commonwealth
(Highway and
Transportation
Authority); Series X RB
5.20%, 07/01/03 A Baa1 500 523,520
- ------------------------------------------------------------------
1,551,393
- ------------------------------------------------------------------
TOTAL INVESTMENTS-95.44% 38,715,031(h)
- ------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-4.56% 1,851,523
- ------------------------------------------------------------------
NET ASSETS-100.00% $40,566,554
==================================================================
</TABLE>
ABBREVIATIONS:
<TABLE>
<S> <C>
GO - General Obligation Bonds
NRR - Not re-rated
PCR - Pollution Control Revenue Bonds
RB - Revenue Bonds
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Ratings assigned by Standard & Poor's Corporation ("S&P") and Moody's
Investors Service, Inc. ("Moody's") . 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 by the issuer. Market
value and maturity date reflect such call or put.
(d) Secured by bond insurance.
(e) Security subject to alternative minimum tax.
(f) Secured by a letter of credit.
(g) Demand security; payable upon demand by the Fund at specified time
intervals no greater than thirteen months. Interest rate is
redetermined periodically. Rate shown is the rate in effect on
03/31/98.
(h) Also represents cost for federal income tax purposes.
See Notes to Financial Statements.
FS-24
<PAGE> 121
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$36,201,660) $ 38,715,031
- ---------------------------------------------------------
Cash 18,763
- ---------------------------------------------------------
Receivables for:
Capital stock sold 1,304,788
- ---------------------------------------------------------
Interest 716,571
- ---------------------------------------------------------
Investment for deferred compensation plan 18,177
- ---------------------------------------------------------
Other assets 3,239
- ---------------------------------------------------------
Total assets 40,776,569
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Capital stock reacquired 67,320
- ---------------------------------------------------------
Dividends 66,493
- ---------------------------------------------------------
Deferred compensation 18,177
- ---------------------------------------------------------
Accrued advisory fees 11,167
- ---------------------------------------------------------
Accrued administrative services fees 3,749
- ---------------------------------------------------------
Accrued transfer agent fees 2,110
- ---------------------------------------------------------
Accrued distribution fees 24,283
- ---------------------------------------------------------
Accrued operating expenses 16,716
- ---------------------------------------------------------
Total liabilities 210,015
- ---------------------------------------------------------
Net assets applicable to shares
outstanding $ 40,566,554
- ---------------------------------------------------------
CAPITAL STOCK, $0.001 PAR VALUE PER
SHARE:
Authorized 1,000,000,000
- ---------------------------------------------------------
Outstanding 3,673,346
=========================================================
Net asset value and redemption price per
share $ 11.04
=========================================================
Offering price per share:
(Net asset value of $11.04
divided by 95.25%) $ 11.59
=========================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $2,277,828
========================================================
EXPENSES:
Advisory fees 193,137
- --------------------------------------------------------
Administrative services fees 46,188
- --------------------------------------------------------
Custodian fees 3,464
- --------------------------------------------------------
Transfer agent fees 25,913
- --------------------------------------------------------
Directors' fees 8,111
- --------------------------------------------------------
Distribution fees 96,569
- --------------------------------------------------------
Other 52,663
- --------------------------------------------------------
Total expenses 426,045
- --------------------------------------------------------
Less: Fees waived by advisor (86,950)
- --------------------------------------------------------
Net expenses 339,095
- --------------------------------------------------------
Net investment income 1,938,733
- --------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENT
SECURITIES:
Net realized gain on sales of investment
securities 42,016
- --------------------------------------------------------
Net unrealized appreciation of investment
securities 921,449
- --------------------------------------------------------
Net gain on investment securities 963,465
- --------------------------------------------------------
Net increase in net assets resulting from
operations $2,902,198
========================================================
</TABLE>
See Notes to Financial Statements.
FS-25
<PAGE> 122
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income $ 1,938,733 $ 2,015,395
- -----------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investment securities 42,016 (111,639)
- -----------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities 921,449 (75,618)
- -----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 2,902,198 1,828,138
- -----------------------------------------------------------------------------------------
Distributions to shareholders from net investment income (1,940,749) (1,983,768)
- -----------------------------------------------------------------------------------------
Net increase (decrease) from capital stock transactions 1,486,630 (1,081,336)
- -----------------------------------------------------------------------------------------
Net increase (decrease) in net assets 2,448,079 (1,236,966)
- -----------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 38,118,475 39,355,441
- -----------------------------------------------------------------------------------------
End of period $40,566,554 $38,118,475
=========================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $38,229,116 $36,742,486
- -----------------------------------------------------------------------------------------
Undistributed net investment income 34,688 36,704
- -----------------------------------------------------------------------------------------
Undistributed net realized gain (loss) on sales of
investment securities (210,621) (252,637)
- -----------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 2,513,371 1,591,922
- -----------------------------------------------------------------------------------------
$40,566,554 $38,118,475
=========================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
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 four separate portfolios: AIM Tax-Exempt Bond Fund of Connecticut,
AIM High Income Municipal Fund, AIM Tax-Exempt Cash Fund and AIM Tax-Free
Intermediate Fund. 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 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 preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the preparation of its financial statements.
A. Security Valuations--Portfolio securities are valued based on market
quotations or at fair value determined by a pricing service approved by the
Board of Directors, provided that securities with a demand feature
exercisable within one to seven days are valued at par. Prices provided by
the pricing service represent valuations of the mean between current bid and
asked market prices which may be determined without exclusive reliance on
quoted prices and may reflect appropriate factors such as institution-size
trading in similar groups of securities, yield, quality, coupon rate,
maturity, type of issue, individual trading characteristics and other market
data. Portfolio securities for which prices are not provided by the pricing
service are valued at the mean between the last available bid and asked
prices, unless the Board of Directors or its designees determines that the
mean between the last available bid and asked prices does not accurately
reflect the current market value of the security. Securities for which market
quotations either are not readily available or are questionable are valued at
fair value as determined in good faith by or under the supervision of the
Company's officers in accordance with methods which are specifically
authorized by the Board of Directors. Notwithstanding the above, short-term
obligations with maturities of sixty days or less are valued at amortized
cost.
B. Securities Transactions and Investment Income--Securities transactions are
recorded on a trade date basis. Realized gains and losses on sales are
computed on the basis of specific identification of the securities sold.
Interest income, adjusted for amortization of premiums and original issue
discounts, is recorded as earned from settlement date and is recorded on the
accrual basis.
C. Dividends and Distributions to Shareholders--It is the policy of the Fund to
declare daily dividends from net investment income. Such dividends are paid
monthly. Net realized capital gains (including net short-term capital gains
and market discounts), if any, are distributed annually.
FS-26
<PAGE> 123
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 $211,744, which
expires, if not previously utilized, through the year 2004. The Fund cannot
distribute capital gains to shareholders until the tax loss carryforwards
have been utilized. In addition, the Fund intends to invest in such municipal
securities to allow it to qualify to pay to shareholders "exempt interest
dividends," as defined in the Internal Revenue Code.
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, 1998, AIM
voluntarily waived advisory fees of $86,950.
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, 1998, the Fund reimbursed
AIM $46,188 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, 1998, the Fund
paid AFS $17,902 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 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, 1998, the Fund paid AIM
Distributors $96,569 as compensation under the Plan.
AIM Distributors received commissions of $29,650 from sales of shares of the
Fund's capital stock during the year ended March 31, 1998. 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. Certain officers and directors of the
Company are officers of AIM, AFS and AIM Distributors.
During the year ended March 31, 1998, the Fund paid legal fees of $3,296 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) $500,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. Interest on
borrowings under the line of credit is payable on maturity or prepayment date.
Prior to an amendment of the line of credit on July 15, 1997, the Fund was
limited to borrowing up to the lesser of i) $325,000,000 or ii) the limits set
by its prospectus for borrowings. During the year ended March 31, 1998, the Fund
did not borrow under the line of credit agreement. The funds which are parties
to the line of credit are charged a commitment fee of 0.05% on the unused
balance of the committed line. The commitment fee is allocated among such funds
based on their respective average net assets for the period.
NOTE 5-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold during the year ended March 31, 1998 were $2,164,955 and
$1,908,400, respectively. The amount of unrealized appreciation (depreciation)
of investment securities as of March 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $2,514,177
- --------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (806)
- --------------------------------------------------------
Net unrealized appreciation of investment
securities $2,513,371
========================================================
</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, 1998 and 1997
were as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
-------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Sold 542,798 $ 5,974,834 522,830 $ 5,656,859
- ------------------- -------- ----------- -------- -----------
Issued as
reinvestment of
dividends 111,509 1,225,791 115,643 1,250,693
- ------------------- -------- ----------- -------- -----------
Reacquired (520,818) (5,713,995) (739,882) (7,988,888)
- ------------------- -------- ----------- -------- -----------
133,489 $ 1,486,630 (101,409) $(1,081,336)
=================== ======== =========== ======== ===========
</TABLE>
FS-27
<PAGE> 124
NOTE 7-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of capital stock
outstanding during each of the years in the four-year period ended March 31,
1998, the three months ended March 31, 1994 and the year ended December 31,
1993.
<TABLE>
<CAPTION>
MARCH 31,
----------------------------------------------------------- DECEMBER 31,
1998 1997 1996 1995 1994 1993
------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.77 $ 10.81 $ 10.71 $ 10.69 $ 11.29 $ 10.65
- ------------------------------------------------ ------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.55 0.56 0.56 0.56 0.15 0.60
- ------------------------------------------------ ------- -------- -------- -------- -------- --------
Net gains (losses) on securities (both
realized and unrealized) 0.27 (0.05) 0.10 0.04 (0.61) 0.65
- ------------------------------------------------ ------- -------- -------- -------- -------- --------
Total from investment operations 0.82 0.51 0.66 0.60 (0.46) 1.25
- ------------------------------------------------ ------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.55) (0.55) (0.56) (0.57) (0.14) (0.60)
- ------------------------------------------------ ------- -------- -------- -------- -------- --------
Distributions from net realized gains -- -- -- -- -- (0.01)
- ------------------------------------------------ ------- -------- -------- -------- -------- --------
Returns of capital -- -- -- (0.01) -- --
- ------------------------------------------------ ------- -------- -------- -------- -------- --------
Total distributions (0.55) (0.55) (0.56) (0.58) (0.14) (0.61)
================================================ ======= ======== ======== ======== ======== ========
Net asset value, end of period $ 11.04 $ 10.77 $ 10.81 $ 10.71 $ 10.69 $ 11.29
================================================ ======= ======== ======== ======== ======== ========
Total return(a) 7.78% 4.84% 6.24% 5.78% (4.06)% 11.99%
================================================ ======= ======== ======== ======== ======== ========
Ratio/supplemental data:
Net assets, end of period (000s omitted) $40,567 $ 38,118 $ 39,355 $ 38,289 $ 42,361 $ 46,224
================================================ ======= ======== ======== ======== ======== ========
Ratio of expenses to average net assets(b) 0.88%(c) 0.72% 0.66% 0.55% 0.50%(d) 0.34%
================================================ ======= ======== ======== ======== ======== ========
Ratio of net investment income to average net
assets(b) 5.02%(c) 5.18% 5.16% 5.37% 5.32%(d) 5.42%
================================================ ======= ======== ======== ======== ======== ========
Portfolio turnover rate 5% 17% 17% 7% 2% 5%
================================================ ======= ======== ======== ======== ======== ========
</TABLE>
(a) Does not deduct sales charges and for periods less than one year, total
returns are not annualized.
(b) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements are
1.11%, 1.09%, 1.16%, 1.13%, 1.23% (annualized), and 1.30%, for the periods
1998-93, respectively. Ratios of net investment income to average net assets
prior to fee waivers and/or expense reimbursements are 4.79%, 4.81%, 4.66%,
4.79%, 4.59% (annualized), and 4.45%, for the periods 1998-93, respectively.
(c) Ratios are based on average daily net assets of $38,627,413.
(d) Annualized.
FS-28
<PAGE> 125
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 High
Income Municipal Fund (a portfolio of AIM Tax-Exempt Funds, Inc.), including the
schedule of investments, as of March 31, 1998, and the related statement of
operations for the period January 2, 1998 (date operations commenced) through
March 31, 1998, the statement of changes in net assets for the period January 2,
1998 (date operations commenced) through March 31, 1998 and the financial
highlights for the period January 2, 1998 (date operations commenced) through
March 31, 1998. 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
audit.
We conducted our audit 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 and the financial highlights. Our procedures included confirmation of
securities owned as of March 31, 1998, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
High Income Municipal Fund as of March 31, 1998, the results of its operations
for the period January 2, 1998 (date operations commenced) through March 31,
1998, changes in its net assets for the period January 2, 1998 (date operations
commenced) through March 31, 1998 and the financial highlights for the period
January 2, 1998 (date operations commenced) through March 31, 1998, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
May 1, 1998
FS-29
<PAGE> 126
SCHEDULE OF INVESTMENTS
March 31, 1998
<TABLE>
<CAPTION>
PAR MARKET
(000) VALUE
<S> <C> <C>
MUNICIPAL OBLIGATIONS-98.77%
COLORADO-1.13%
Colorado Health Facilities Authority
(National Benevolent Association);
Refunding Series B RB
5.25%, 02/01/28 $ 250 $ 240,160
- --------------------------------------------------------------
GEORGIA-3.67%
Fulton (County of) Housing Authority
(Azalea Manor Project); Multifamily
Housing RB
6.50%, 02/01/28 780 779,906
- --------------------------------------------------------------
HAWAII-2.33%
Hawaii (State of) Department of
Transportation (Continental Airlines,
Inc.); Special Facilities RB
5.625%, 11/15/27(a) 500 494,980
- --------------------------------------------------------------
ILLINOIS-2.54%
Crestwood (City of); Tax Increment
Revenue Refunding Non-Qualified Bonds
7.25%, 12/01/08 100 107,580
- --------------------------------------------------------------
Illinois Health Facilities Authority
(Bohemian-Tabor Hills); Refunding
Series RB
5.90%, 11/15/24 325 326,459
- --------------------------------------------------------------
Saint Charles (City of) (Tri-city Center
Associates Limited Project); IDR
7.50%, 11/01/13 100 106,046
- --------------------------------------------------------------
540,085
- --------------------------------------------------------------
INDIANA-2.28%
Indiana Health Facilities Financing
Authority (Jackson County Scheck
Memorial); Hospital Refunding RB
5.125%, 02/15/17 500 483,245
- --------------------------------------------------------------
IOWA-3.79%
Iowa Finance Authority Community
Rehabilitation Providers (Lutheran
Children's Home Society-Bremwood
Project); RB
5.80%, 12/01/24 700 702,086
- --------------------------------------------------------------
Iowa Finance Authority (Park West
Housing Project); Multi-Family
Refunding RB
8.00%, 10/01/23 100 103,353
- --------------------------------------------------------------
805,439
- --------------------------------------------------------------
KANSAS-0.21%
Lawrence (City of) (Holiday Inn
Project); Commercial Development
Senior Refunding Series A RB
8.00%, 07/01/16 40 43,864
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PAR MARKET
(000) VALUE
<S> <C> <C>
MARYLAND-0.96%
Fredrick (County of) Retirement
Community (Buckingham's Choice Inc.
Facility); Series A RB
5.90%, 01/01/17 $ 200 $ 202,920
- --------------------------------------------------------------
MASSACHUSETTS-3.92%
Massachusetts State Health and Education
Facilities Authority
(Milford-Whitinsville Regional
Hospital); Series C RB
5.375%, 07/15/28 845 832,739
- --------------------------------------------------------------
MICHIGAN-11.15%
Garden City Hospital Finance Authority
(Garden City Hospital Obligation);
Hospital Refunding Series A RB
5.75%, 09/01/17 1,500 1,481,790
- --------------------------------------------------------------
Michigan (State of) Strategic Fund
(Consumers Power Project); Variable
Rate Demand RB
3.80%, 04/15/18(b) 390 390,000
- --------------------------------------------------------------
Tawas (City of) Hospital Finance
Authority (St. Joseph Health System);
Refunding Series A RB
5.75%, 02/15/23 500 494,420
- --------------------------------------------------------------
2,366,210
- --------------------------------------------------------------
MINNESOTA-9.16%
Andover (City of) (Presbyterian Homes
Inc. Project); Elderly Housing RB
6.25%, 12/01/27 500 501,835
- --------------------------------------------------------------
Columbia Heights (City of) Multi-Family
and Health Care Facility (Crest View
Corp Project); RB
6.00%, 03/01/33 500 501,080
- --------------------------------------------------------------
Minneapolis Health Care Facility
(Ebenezer Society Project); Series A
RB
7.00%, 07/01/12 100 104,602
- --------------------------------------------------------------
Northfield (City of) Health Care
Facilities (Retirement Center);
Refunding and Improvement Series A RB
5.75%, 05/01/16 335 335,559
- --------------------------------------------------------------
6.00%, 05/01/28 500 501,110
- --------------------------------------------------------------
1,944,186
- --------------------------------------------------------------
MISSISSIPPI-1.29%
Ridgeland Urban Renewal (The Orchard
Limited Project); Refunding Series A
RB
7.75%, 12/01/15 250 273,113
- --------------------------------------------------------------
MISSOURI-7.00%
Bolivar (City of) Industrial Development
Authority (Citizens Memorial Health
Care Foundation); Refunding and
Improvement RB
5.75%, 07/01/17 500 493,365
- --------------------------------------------------------------
</TABLE>
FS-30
<PAGE> 127
<TABLE>
<CAPTION>
PAR MARKET
(000) VALUE
<S> <C> <C>
MISSOURI-(CONTINUED)
Good Shepherd Nursing Home District;
Nursing Home Facilities Refunding RB
5.90%, 08/15/23 $ 500 $ 501,485
- --------------------------------------------------------------
Missouri State Health and Educational
Facilities Authority (Freeman Health
Systems Project); Health Facilities RB
5.25%, 02/15/18 500 490,295
- --------------------------------------------------------------
1,485,145
- --------------------------------------------------------------
NEVADA-2.34%
Clark (County of) (Nevada Power Co.
Project); Refunding Series C IDR
5.50%, 10/01/30 500 496,250
- --------------------------------------------------------------
NEW HAMPSHIRE-3.76%
New Hampshire Higher Educational and
Health Facilities Authority (Daniel
Webster College); RB
7.625%, 07/01/16 100 110,230
- --------------------------------------------------------------
New Hampshire Higher Educational and
Health Facilities Authority (Franklin
Pierce College); RB
6.00%, 04/01/04(c) 55 60,612
- --------------------------------------------------------------
5.25%, 10/01/18 350 345,244
- --------------------------------------------------------------
6.00%, 10/01/18 30 30,242
- --------------------------------------------------------------
New Hampshire Higher Educational and
Health Facilities Authority (Monadnock
Community Hospital); Hospital RB
5.70%, 10/01/20 250 251,885
- --------------------------------------------------------------
798,213
- --------------------------------------------------------------
NEW JERSEY-8.07%
New Jersey Economic Development
Authority (Franciscan Oaks Project);
First Mortgage RB
5.75%, 10/01/23 500 506,710
- --------------------------------------------------------------
New Jersey Economic Development
Authority (Keswick Pines Inc.); First
Mortgage Refunding RB
5.75%, 01/01/24 1,000 1,002,100
- --------------------------------------------------------------
New Jersey Economic Development
Authority (Leisure Park Project);
Series A RB
5.875%, 12/01/27 200 203,276
- --------------------------------------------------------------
1,712,086
- --------------------------------------------------------------
NEW YORK-11.41%
Erie (County of) Industrial Development
Agency (Episcopal Church Home); Life
Care Community Series A RB
6.00%, 02/01/28 1,050 1,054,662
- --------------------------------------------------------------
New York Industrial Development Agency
(Marymount Manhattan College Project);
Civic Facility RB
7.00%, 07/01/23 150 161,310
- --------------------------------------------------------------
New York (City of); Unlimited Tax Series
C GO
5.375%, 10/01/22 355 355,756
- --------------------------------------------------------------
5.375%, 11/15/27 500 498,860
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PAR MARKET
(000) VALUE
<S> <C> <C>
NEW YORK-(CONTINUED)
Suffolk (County of) Industrial
Development Agency (Spellman High
Voltage Facility); Series A IDR
6.375%, 12/01/17(a) $ 350 $ 352,366
- --------------------------------------------------------------
2,422,954
- --------------------------------------------------------------
NORTH CAROLINA-8.00%
Charlotte (City of) (Charlotte/Douglas
International Airport); Refunding
Special Facilities RB
5.60%, 07/01/27(a) 400 394,804
- --------------------------------------------------------------
North Carolina Medical Care Community
Health Care Facilities (Deerfield
Episcopal Retirement); First Mortgage
Series RB
6.00%, 11/01/19 300 305,031
- --------------------------------------------------------------
North Carolina Medical Care Community
Health Care Facilities (Glenaire
Project); First Mortgage Series RB
5.75%, 07/01/19 500 498,550
- --------------------------------------------------------------
5.85%, 07/01/27 500 500,650
- --------------------------------------------------------------
1,699,035
- --------------------------------------------------------------
NORTH DAKOTA-2.43%
Grand Forks Senior Housing (4000 Valley
Square Project); Special Term Series
RB
6.375%, 12/01/34 500 515,770
- --------------------------------------------------------------
OHIO-0.98%
Fairfield (City of) Economic Development
(Beverly Enterprises Project);
Refunding Series RB
8.50%, 01/01/03 190 207,167
- --------------------------------------------------------------
PENNSYLVANIA-3.18%
Allegheny (County of) Industrial
Development Authority (USX Corp.);
Refunding Environmental Improvement RB
5.60%, 09/01/30 500 502,995
- --------------------------------------------------------------
Doylestown Hospital Authority (Pine Run
Retirement Hospital); Hospital Series
A RB
7.20%, 07/01/03(b) 150 172,290
- --------------------------------------------------------------
675,285
- --------------------------------------------------------------
TENNESSEE-1.87%
Nashville and Davidson (County of)
Health and Educational Facilities
Board of Metro Government (Blakeford
at Green Hills); Refunding RB
5.65%, 07/01/24 400 396,716
- --------------------------------------------------------------
TEXAS-3.08%
Harrison County Health Facilities
Development Corp. (Marshall Regional
Medical Center Project); Hospital RB
5.50%, 01/01/18 650 653,289
- --------------------------------------------------------------
</TABLE>
FS-31
<PAGE> 128
<TABLE>
<CAPTION>
PAR MARKET
(000) VALUE
<S> <C> <C>
WEST VIRGINIA-2.33%
Braxton (County of) (Weyerhaeuser Co.
Project); Refunding Solid Waste
Disposal RB
5.40%, 05/01/25(a) $ 500 $ 494,850
- --------------------------------------------------------------
WYOMING-1.89%
Teton (County of) Hospital District (St.
John's Hospital); Refunding and
Improvement Hospital RB
5.80%, 12/01/17 400 400,704
- --------------------------------------------------------------
TOTAL INVESTMENTS-98.77% 20,964,311(d)
- --------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-1.23% 260,152
- --------------------------------------------------------------
NET ASSETS-100.00% $21,224,463
==============================================================
</TABLE>
Abbreviations:
GO - General Obligation Bonds
IDR - Industrial Development Revenue Bonds
RB - Revenue Bonds
Notes to Schedule of Investments:
(a)Security subject to the alternative minimum tax.
(b)Demand Security; payable upon demand by the Fund with usually no more than
seven calendar days' notice. Interest rates are redetermined periodically.
Rates shown are in effect on 03/31/98.
(c)Subject to an irrevocable call or mandatory put by the issuer. Market value
and maturity date reflect such call or put.
(d)Also represents cost for federal income tax purposes.
See Notes to Financial Statements.
FS-32
<PAGE> 129
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$20,941,334) $ 20,964,311
- ---------------------------------------------------------
Cash 24,115
- ---------------------------------------------------------
Receivables for:
Capital stock sold 1,723,999
- ---------------------------------------------------------
Interest 253,721
- ---------------------------------------------------------
Advisor 27,650
- ---------------------------------------------------------
Other assets 16,776
- ---------------------------------------------------------
Total assets 23,010,572
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 1,724,773
- ---------------------------------------------------------
Dividends 39,453
- ---------------------------------------------------------
Accrued administrative services fees 6,198
- ---------------------------------------------------------
Accrued directors' fees 1,995
- ---------------------------------------------------------
Accrued distribution fees 10,149
- ---------------------------------------------------------
Accrued operating expenses 3,541
- ---------------------------------------------------------
Total liabilities 1,786,109
- ---------------------------------------------------------
Net assets applicable to shares
outstanding $ 21,224,463
=========================================================
NET ASSETS:
Class A $ 17,786,709
=========================================================
Class B $ 2,699,327
=========================================================
Class C $ 738,427
=========================================================
CAPITAL STOCK, $0.001 PAR VALUE PER
SHARE:
Class A:
Authorized 1,000,000,000
- ---------------------------------------------------------
Outstanding 1,779,956
=========================================================
Class B:
Authorized 1,000,000,000
- ---------------------------------------------------------
Outstanding 270,279
=========================================================
Class C:
Authorized 1,000,000,000
- ---------------------------------------------------------
Outstanding 73,932
=========================================================
Class A:
Net asset value and redemption price per
share $ 9.99
=========================================================
Offering price per share:
(Net asset value of $9.99 divided
by 95.25%) $ 10.49
=========================================================
Class B:
Net asset value and offering price per
share $ 9.99
=========================================================
Class C:
Net asset value and offering price per
share $ 9.99
=========================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE PERIOD JANUARY 2, 1998 (DATE OPERATIONS COMMENCED)
THROUGH MARCH 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $ 174,814
- --------------------------------------------------------
EXPENSES:
Advisory fees 20,756
- --------------------------------------------------------
Administrative services fees 18,594
- --------------------------------------------------------
Distribution fees -- Class A 7,728
- --------------------------------------------------------
Distribution fees -- Class B 2,778
- --------------------------------------------------------
Distribution fees -- Class C 904
- --------------------------------------------------------
Transfer agent fees 538
- --------------------------------------------------------
Registration and filing fees 3,234
- --------------------------------------------------------
Other 5,943
- --------------------------------------------------------
Total expenses 59,937
- --------------------------------------------------------
Less: Fee waivers and expense
reimbursements (48,298)
- --------------------------------------------------------
Net expenses 11,639
- --------------------------------------------------------
Net investment income 163,175
- --------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES:
Net realized gain (loss) on sales of
investment securities (12,029)
- --------------------------------------------------------
Net unrealized appreciation of investment
securities 22,977
- --------------------------------------------------------
Net gain on investment securities 10,948
- --------------------------------------------------------
Net increase in net assets resulting from
operations $ 174,123
========================================================
</TABLE>
See Notes to Financial Statements.
FS-33
<PAGE> 130
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD JANUARY 2, 1998 (DATE OPERATIONS COMMENCED) THROUGH MARCH 31,
1998
<TABLE>
<S> <C>
OPERATIONS:
Net investment income $ 163,175
- -------------------------------------------------------------------------
Net realized gain (loss) on sales of investment securities (12,029)
- -------------------------------------------------------------------------
Net unrealized appreciation of investment securities 22,977
- -------------------------------------------------------------------------
Net increase in net assets resulting from operations 174,123
- -------------------------------------------------------------------------
Dividends to shareholders from net investment income:
Class A (147,248)
- -------------------------------------------------------------------------
Class B (10,991)
- -------------------------------------------------------------------------
Class C (3,590)
- -------------------------------------------------------------------------
Net increase from capital stock transactions:
Class A 17,776,038
- -------------------------------------------------------------------------
Class B 2,698,087
- -------------------------------------------------------------------------
Class C 738,044
- -------------------------------------------------------------------------
Net increase in net assets 21,224,463
- -------------------------------------------------------------------------
NET ASSETS:
Beginning of period --
- -------------------------------------------------------------------------
End of period $21,224,463
=========================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $21,212,169
- -------------------------------------------------------------------------
Undistributed net investment income 1,346
- -------------------------------------------------------------------------
Undistributed realized gain (loss) on sales of investment
securities (12,029)
- -------------------------------------------------------------------------
Unrealized appreciation of investment securities 22,977
- -------------------------------------------------------------------------
$21,224,463
=========================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
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 four separate portfolios: AIM High Income Municipal Fund, AIM Tax-
Free Intermediate Fund, AIM Tax-Exempt Cash Fund and AIM Tax-Exempt Bond Fund of
Connecticut. Matters affecting each portfolio or class are voted on exclusively
by the shareholders of such portfolio or class. The assets, liabilities and
operations of each portfolio are accounted for separately. Information presented
in these financial statements pertains only to AIM High Income Municipal Fund
(the "Fund"). The Fund currently offers three different classes of shares: the
Class A shares, the Class B shares and the Class C shares, all of which
commenced operations on January 2, 1998. Class A shares are sold with a
front-end sales charge. Class B and Class C shares are sold with a contingent
deferred sales charge. The investment objective of the Fund is to achieve a high
level of current income which is exempt from federal income taxes.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
A. Security Valuations -- Portfolio securities are valued based on market
quotations or at fair value determined by a pricing service approved by the
Company's Board of Directors, provided that securities with a demand feature
exercisable within one to seven days will be valued at par. Prices provided
by the pricing service may be determined without exclusive reliance on quoted
prices and may reflect appropriate factors such as institution-size trading
in similar groups of securities, yield, quality, coupon rate, maturity, type
of issue, individual trading characteristics and other market data. Portfolio
securities for which prices are not provided by the pricing service are
valued at the mean between the last available bid and asked prices, unless
the Board of Directors, or persons designated by the Board of Directors,
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
FS-34
<PAGE> 131
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. Notwithstanding the above, short-term obligations
with maturities of 60 days or less are valued at amortized cost.
The Fund's investments include lower-rated and unrated debt securities
which may be more susceptible to adverse economic conditions than investment
grade holdings. These securities are often subordinated to the prior claims
of other senior lenders and uncertainties exist as to an issuer's ability to
meet principal and interest payments. Securities rated below investment grade
and comparable unrated securities represented approximately 68.40% of the
Fund's investment portfolio at the end of the period.
B. Securities Transactions and Investment Income -- Securities transactions are
recorded on a trade date basis. Realized gains and losses are computed on the
basis of specific identification of the securities sold. Interest income,
adjusted for amortization of premiums and original issue discounts, is earned
from settlement date and is recorded on the accrual basis.
C. Dividends and Distributions to Shareholders -- It is the policy of the Fund
to declare daily dividends from net investment income. Such dividends are
paid monthly. Net realized capital gains (including net short-term capital
gains and market discounts), if any, are distributed annually.
D. Federal Income Taxes -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements. 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.
E. Expenses -- Distribution expenses directly attributable to a class of shares
are charged to that class' operations. All other expenses which are
attributable to more than one class are allocated among the classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The 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 0.60% of
the first $500 million of the Fund's average daily net assets, plus 0.55% of the
Fund's average daily net assets of the next $500 million, plus 0.50% of the next
$500 million of the Fund's average daily net assets, plus 0.45% of the Fund's
average daily net assets in excess of $1.5 billion. AIM has agreed to waive
advisory fees on the Fund. During the period January 2, 1998 (date operations
commenced) through March 31, 1998, AIM waived advisory fees and reimbursed
expenses of $48,298.
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 period January 2, 1998 (date operations
commenced) through March 31, 1998, the Fund reimbursed AIM $18,594 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 period January 2, 1998 (date
operations commenced) through March 31, 1998, the Fund paid AFS $280 for such
services.
The Company has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Company has adopted
distribution plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A shares and Class C shares (the "Class A and C Plan"), and the
Fund's Class B shares ("Class B Plan") (collectively, the "Plans"). The Fund,
pursuant to the Class A and C Plan, pays AIM Distributors compensation at an
annual rate of 0.25% of the average daily net assets of the Class A shares and
1.00% of the average daily net assets of the Class C shares. The Fund, pursuant
to the Class B Plan, pays AIM Distributors an annual rate of 1.00% of the
average daily net assets attributable to the Class B shares. Of these amounts,
the Fund may pay a service fee of 0.25% of the average daily net assets of the
Class A, Class B or Class C shares to selected dealers and financial
institutions who furnish continuing personal shareholder services to their
customers who purchase and own the appropriate class of shares of the Fund. Any
amounts not paid as a service fee by the Class B or Class C shares under the
Plans would constitute an asset-based sales charge. The Plans also impose a cap
on the total sales charges, including asset-based sales charges, that may be
paid by the respective classes. AIM Distributors may, from time to time, assign,
transfer, or pledge to one or more designees, its rights to all or a designated
portion of (a) compensation received by AIM Distributors from the Fund pursuant
to the Class B Plan (but not AIM Distributors' duties and obligations pursuant
to the Class B Plan) and (b) any contingent deferred sales charges received by
AIM Distributors related to the Class B shares. During the period January 2,
1998 (date operations commenced) through March 31, 1998, the Class A shares,
Class B shares and Class C shares paid AIM Distributors $7,728, $2,778 and $904,
respectively, as compensation under the Plans.
Under the terms of a master distribution agreement between the Company and the
Fund, AIM Distributors acts as the exclusive distributor of the Fund's shares.
AIM Distributors received commissions of $8,743 from the sales of Class A shares
of the Fund during the period January 2, 1998 (date operations commenced)
through March 31, 1998. Such commissions are not an expense of the Fund. They
are deducted from, and are not included in, the proceeds from sales of Class A
shares. During the period January 2, 1998 (date operations commenced) through
March 31, 1998, AIM Distributors received $3,627 in contingent deferred sales
charges imposed on redemptions of Fund shares. Certain officers and directors of
the Company are officers of AIM, AFS and AIM Distributors.
FS-35
<PAGE> 132
NOTE 3-DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if so
elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 4-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold during the period January 2, 1998 (date operations commenced)
through March 31, 1998 was $22,958,019 and $2,392,175, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
as of March 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $ 74,075
- --------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (51,098)
- --------------------------------------------------------
Net unrealized appreciation of investment
securities $ 22,977
========================================================
</TABLE>
Investments have the same cost for tax and financial statement purposes.
NOTE 5-CAPITAL STOCK
Changes in capital stock outstanding during the period January 2, 1998 (date
operations commenced) through March 31, 1998 were as follows:
<TABLE>
<CAPTION>
MARCH 31,
1998
-----------------------
SHARES AMOUNT
--------- -----------
<S> <C> <C>
Sold:
Class A 1,830,454 $18,280,746
- ------------------------------------------------------------
Class B 270,282 2,698,095
- ------------------------------------------------------------
Class C 73,780 736,528
- ------------------------------------------------------------
Issued as reinvestment of
dividends:
Class A 7,600 75,970
- ------------------------------------------------------------
Class B 457 4,564
- ------------------------------------------------------------
Class C 152 1,516
- ------------------------------------------------------------
Reacquired:
Class A (58,098) (580,678)
- ------------------------------------------------------------
Class B (460) (4,572)
- ------------------------------------------------------------
Class C - -
- ------------------------------------------------------------
2,124,167 $21,212,169
============================================================
</TABLE>
NOTE 6- FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A, Class B and
Class C capital stock outstanding during the period January 2, 1998 (date
operations commenced) through March 31, 1998.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.00 $10.00 $10.00
- ------------------------------------------------------------ ------- ------ ------
Income from investment operations:
Net investment income 0.11 0.09 0.09
- ------------------------------------------------------------ ------- ------ ------
Net gains (losses) on securities (both realized and
unrealized) (0.01) (0.01) (0.01)
- ------------------------------------------------------------ ------- ------ ------
Total from investment operations 0.10 0.08 0.08
- ------------------------------------------------------------ ------- ------ ------
Less distributions:
Dividends from net investment income (0.11) (0.09) (0.09)
- ------------------------------------------------------------ ------- ------ ------
Net asset value, end of period $ 9.99 $ 9.99 $ 9.99
============================================================ ======= ====== ======
Total return(a) 1.04% 0.81% 0.79%
============================================================ ======= ====== ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $17,787 $2,699 $ 738
============================================================ ======= ====== ======
Ratio of expenses to average net assets(b) 0.25%(c) 1.00%(c) 1.00%(c)
============================================================ ======= ====== ======
Ratio of net investment income to average net assets(d) 4.80%(c) 4.05%(c) 4.05%(c)
============================================================ ======= ====== ======
Portfolio turnover rate 21% 21% 21%
============================================================ ======= ====== ======
</TABLE>
(a) Does not deduct sales charges and for periods less than one year, total
returns are not annualized.
(b) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.65% (annualized), 2.44% (annualized) and 2.44% (annualized) for Classes A,
B and C, respectively.
(c) Ratios are annualized and based on average net assets of $12,677,152,
$1,139,458 and $370,817 for Classes A, B and C, respectively.
(d) After fee waivers and/or expense reimbursements. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 3.40% (annualized), 2.61% (annualized) and 2.61%
(annualized) for Classes A, B and C, respectively.
FS-36
