<PAGE> 1
ANNUAL REPORT / MARCH 31, 1999
AIM
TAX-EXEMPT BOND FUND OF CONNECTICUT
[COVER IMAGE]
[AIM LOGO APPEARS HERE]
<PAGE> 2
[Cover Image]
--------------------------------
CONNECTICUT LANDSCAPE BY HORACE WOLCOTT ROBBINS
(1842-1904, AMERICAN)
ROBBINS CAPTURES THE PICTURESQUE BEAUTY OF THE
CONNECTICUT LANDSCAPE IN THIS ELEGANT PAINTING.
CONNECTICUT MUNICIPAL BONDS, IN WHICH THE FUND INVESTS,
PROVIDES CAPITAL FOR THE STATE'S CONTINUING IMPROVEMENT.
--------------------------------
AIM Tax-Exempt Bond Fund of Connecticut is for shareholders who seek to earn a
high level of income that is free of both federal and Connecticut taxes.
ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT:
o AIM Tax-Exempt Bond Fund of Connecticut performance figures are historical
and reflect reinvestment of all distributions and changes in net asset
value. Unless otherwise indicated, the Fund's performance is computed at
net asset value without a sales charge. When sales charges are included in
performance figures, those figures reflect the maximum 4.75% sales charge.
o During the fiscal year ended 3/31/99, the Fund paid distributions of $0.543
per share.
o The 30-day yield is calculated on the basis of a formula defined by the
SEC. The formula is based on the portfolio's potential earnings from
dividends, interest, yield-to-maturity or yield-to-call of the bonds in the
portfolio, net of all expenses and expressed on an annualized basis.
o The taxable-equivalent yield is calculated in the same manner as the 30-day
yield with an adjustment for a stated, assumed tax rate.
o The Fund's annualized distribution rate reflects the Fund's most recent
monthly dividend distribution multiplied by 12 and divided by the most
recent month-end net asset value.
o The Fund's investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
ABOUT INDEXES AND OTHER PERFORMANCE BENCHMARKS CITED IN THIS REPORT:
o The Lehman Municipal Bond Index is an unmanaged composite representing an
approximation of the performance of investment-grade municipal bonds.
o Government securities, such as U.S. Treasury bills, notes, and bonds, offer
a high degree of safety and are guaranteed as to the timely payment of
principal and interest if held to maturity. Fund shares are not insured and
their value and yield will vary with market conditions.
o An investment cannot be made in any index listed. Unless otherwise
indicated, index results include reinvested dividends and do not reflect
sales charges.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OF A BANK AND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENT AGENCY. THERE IS A RISK THAT
YOU COULD LOSE A PORTION OR ALL OF YOUR MONEY.
This report may be distributed only to current shareholders or to persons who
have received a current prospectus of the Fund.
AIM TAX-EXEMPT BOND FUND OF CONNECTICUT
<PAGE> 3
ANNUAL REPORT / CHAIRMAN'S LETTER
Dear Fellow Shareholder:
For much of the fiscal year, bond markets were both
[PHOTO OF turbulent and narrow. These conditions stemmed from a
Charles T. succession of economic crises overseas as well as ongoing
Bauer, political debate in the United States. In this environment,
Chairman of investors favored the safest asset classes, particularly
the Board of U.S. Treasury securities, and shunned lower-rated bonds.
THE FUND Toward the end of the year, however, the performance of
APPEARS HERE] bonds other than Treasury issues began to improve as it
became increasingly apparent that robust economic growth in
the United States had been largely unaffected by crises in
developing nations.
Despite volatility in other segments of the fixed- income
market, municipal bonds remained relatively stable in value
during the fiscal year. Supply tended to match demand, and
that kept municipal-bond prices from fluctuating
significantly.
We remain optimistic about the long-term prospects for municipal bonds. As
incomes rise and more Americans become subject to the higher tax brackets,
municipal bonds could become increasingly attractive as an investment option.
And despite considerable political rhetoric about replacing the current federal
tax system with a flat tax or a national sales tax,we believe the prospects that
this will actually occur are remote.
On the pages that follow, your Fund's managers offer more detailed
discussion of how markets behaved, how they managed the portfolio in light of
recent volatility, and what they foresee for markets and your Fund. We hope you
find their discussion informative.
HOW SHOULD INVESTORS RESPOND?
We understood how unnerving recent uncertainty could have been. Of course, our
repeated message to you is to keep a long-term outlook on investments rather
than responding to short-term fluctuations. And we are pleased to note that most
mutual fund shareholders remained cool headed and did not pull out of the
markets. In the end, most were rewarded for their long-term perspective.
In view of recent volatility and the divergent performance of market
sectors, this may be a very good time to meet with your financial consultant to
review your current asset allocation and the diversification of your portfolio.
Broad portfolio diversification remains one of the most fundamental principles
of investing, along with long-term thinking and realistic expectations.
YEAR 2000 CONCERN
Many of our shareholders have asked us about AIM's year 2000 readiness status.
We appreciate these concerns, and we take the year 2000 issue seriously. AIM has
devoted considerable effort to creating a comprehensive plan for assessing,
correcting and testing our in-house systems. We also participated in an
industrywide testing effort in March. But no matter how well we prepare and
test, no one can know for sure what the year 2000 will bring. Our industry's
systems are connected in complex ways to many third parties, and there may be
unforeseen problems when the year 2000 actually arrives. Though we cannot
predict what all these problems might be, we are working with our business
recovery team to develop contingency plans appropriate for a variety of year
2000 scenarios.
We are pleased to send you this report on your Fund's recent performance. If
you have any questions or comments, please contact our Client Services
department at 800-959-4246, or e-mail your inquiry to us at
[email protected]. You can access information about your account through our
AIM Investor Line at 800-246-5463 or at our Web site, www.aimfunds.com. We often
post market updates on our Web site.
We thank you for your continued participation in The AIM Family of
Funds--Registered Trademark--.
Sincerely,
/s/ CHARLES T. BAUER
Charles T. Bauer
Chairman
--------------------------------------
WE REMAIN
OPTIMISTIC ABOUT THE
LONG-TERM PROSPECTS
FOR MUNICIPAL BONDS.
--------------------------------------
AIM TAX-EXEMPT BOND FUND OF CONNECTICUT
<PAGE> 4
ANNUAL REPORT / MANAGERS' OVERVIEW
MUNICIPAL BONDS PROVIDE SOLID INCOME,
KEEPING PACE WITH TREASURIES
HOW DID AIM TAX-EXEMPT BOND FUND OF CONNECTICUT PERFORM DURING THE REPORTING
PERIOD?
Through the end of 1998, municipal bonds were yielding close to and, at times,
more than, the comparable Treasury bond. As a result, municipal bond investors
have enjoyed tax-free income at yields close to those of taxable securities.
Although municipal bond yields were still competitive with Treasury yields in
early 1999, the yield spread has widened. Near the end of 1998, municipal bonds
were yielding about 90% to 95% of Treasury yields. Due to a recent spike in
Treasury yields in early 1999, municipal bond yields have moved back to the more
traditional level of 80% to 85% of Treasury yields.
For the year ended March 31, 1999, AIM Tax-Exempt Bond Fund of Connecticut
returned 4.64% at net asset value, that is, without sales charges. During the
fiscal year, net asset value per share remained within a relatively narrow range
of $10.97 to $11.19, continuing the Fund's history of relative price stability.
Despite the market turbulence during the reporting period, your Fund continued
to provide solid current income (see chart below), exempt from federal and state
taxes. The Fund's net assets under management grew to $41.4 million at the close
of the fiscal year.
WHAT WERE THE MAJOR TRENDS IN THE MUNICIPAL BOND MARKET DURING THE FISCAL YEAR?
Historically low interest rates and healthy budgets led municipalities to issue
debt at a near record pace during 1998. Total municipal bond issuance surged to
$284 billion vs. $221 billion in 1997, up 28% for the year. This lofty issuance
was the second highest total, just $8 billion shy of the record established in
1993. The large increase in new-issue supply helped to curb price volatility of
municipal bonds.
Stabilization in world markets during the first quarter of 1999 eased the
flight-to-quality bid seen on Treasury securities during the third quarter, when
global market turbulence drove investors to seek the highest-quality and most
liquid investments. Credit spreads narrowed and Treasury yields slowly rose
during early 1999. Municipals outperformed Treasuries on a percentage basis
during this time due to more stable market conditions.
Investor interest in fixed-income securities continued through early 1999 as
renewed market volatility drove investors to seek the relative safety of bond
funds. January saw strong asset inflows to municipal bond mutual funds, with
portfolios
<TABLE>
<CAPTION>
================================================================================
FUND PROVIDES SOLID INCOME
As of 3/31/99
(Bar Chart)
<S> <C>
30-Day
Distribution Rate at NAV 4.69%
Taxable
Distribution Rate* 7.77%
30-Day
SEC Yield at Maximum Offering Price 3.18%
Taxable Equivalent
30-Day SEC Yield* 5.26%
================================================================================
</TABLE>
*Assumes highest marginal federal income tax rate of 39.6% and Connecticut state
tax rate of 4.5%.
================================================================================
<TABLE>
<CAPTION>
================================================================================
30-YEAR U.S. TREASURY
VS. MUNICIPAL BOND YIELDS
3/31/98 - 3/31/99
(Line Graph)
30-YR LEHMAN
U.S. MUNICIPAL
TREASURY BOND INDEX
BOND
<S> <C> <C>
3/98 5.93 5.19
4/98 5.95 5.3
5/98 5.8 5.14
6/98 5.63 5.12
7/98 5.71 5.16
8/98 5.26 5
9/98 4.97 4.88
10/98 5.15 4.97
11/98 5.07 4.96
12/98 5.09 5
1/99 5.09 4.93
2/99 5.58 5.03
3/99 5.62 5.05
================================================================================
</TABLE>
Sources: Bloomberg, Lehman Brothers.
================================================================================
<TABLE>
<CAPTION>
================================================================================
HISTORY OF NET ASSET VALUE STABILITY
10/3/89-3/31/99
(Line Graph)
<S> <C> <C> <C> <C> <C> <C>
10 10/3/89 10.65 12/92 10.81 3/96
10.05 10/89 10.88 3/93 10.76 6/96
9.99 3/90 11.08 6/93 10.8 9/96
10.02 6/90 11.33 9/93 10.88 12/96
9.77 9/90 11.29 12/93 10.77 3/97
10.07 12/90 10.51 3/94 10.9 6/97
10.11 3/91 10.63 6/94 11.01 9/97
10.19 6/91 10.58 9/94 11.09 12/97
10.4 9/91 10.34 12/94 11.04 3/98
10.52 12/91 10.71 3/95 11.04 6/98
10.31 3/92 10.77 6/95 11.13 9/98
10.55 6/92 10.86 9/95 11.07 12/98
10.66 9/92 11.01 12/95 11 3/99
================================================================================
</TABLE>
Source: Towers Data Systems HYPO--Registered Trademark--. There is no guarantee
the Fund will maintain a constant NAV. Investment return will vary so that you
may have a gain or a loss when you sell shares. Past performance cannot
guarantee comparable future results.
================================================================================
--------------------------------------
NEAR THE END OF 1998,
MUNICIPAL BONDS WERE
YIELDING ABOUT 90% TO 95%
OF TREASURY YIELDS.
--------------------------------------
See important Fund and index disclosures inside front cover.
AIM TAX-EXEMPT BOND FUND OF CONNECTICUT
2
<PAGE> 5
ANNUAL REPORT / MANAGERS' OVERVIEW
<TABLE>
<CAPTION>
================================================================================
PORTFOLIO COMPOSITION
As of 3/31/99, based on total net assets
TOP FIVE BOND HOLDINGS
COUPON MATURITY % OF
PORTFOLIO
<S> <C> <C> <C>
Connecticut 6.50% 10/01/12 4.31%
State Special Tax
Obligation-B
Connecticut 7.25% 10/15/15 4.02%
State
Development
Authority
Connecticut 6.87% 07/01/09 3.66%
State Health
and Education
Facilities
Authority
Connecticut 6.80% 06/01/03 3.35%
State Special Tax
Obligation-A
Connecticut 6.30% 11/15/17 3.33%
State Housing
Mortgage
Finance Program
================================================================================
</TABLE>
gaining more than $2.5 billion. The so-called January effect, when investor
demand is great but supply is scant, pushed tax-exempt prices higher, disturbing
the attractive ratio of municipals to Treasury issues.
HOW DID CONNECTICUT'S ECONOMY FARE DURING THE REPORTING PERIOD?
The Connecticut economy continued to sail full speed ahead through 1998, as
evidenced by the state's strong labor market, high consumer confidence and low
interest rates. Connecticut ended 1998 with a 2% employment gain, the strongest
job growth since the current recovery began in 1992. At the same time,
unemployment was at its lowest level in a decade. The state's continuously
improving economy,
<TABLE>
<CAPTION>
================================================================================
BOND-TYPE DIVERSIFICATION
<S> <C>
Revenue 61%
General
Obligation 14%
Escrow &
Prerefunding 25%
(Pie Chart)
NUMBER OF HOLDINGS 69
AVERAGE MATURITY 12.1 Years
DURATION 4.0 Years
================================================================================
</TABLE>
Please keep in mind the Fund's portfolio is subject to change and there is no
assurance the Fund will continue to hold any particular security.
================================================================================
coupled with low interest rates, helped to boost its housing market. A record
high number of new housing permits was issued in 1998, and led to an explosive
growth in the number of construction jobs throughout the state.
GIVEN CURRENT ECONOMIC CONDITIONS, HOW HAVE YOU MANAGED THE PORTFOLIO?
We continued to emphasize revenue bonds, as opposed to general obligations
bonds, in the Fund's portfolio because revenue bonds tend to be less sensitive
to political and economic changes. Revenues bonds issued by state agencies, such
as the Connecticut State Development Authority, fund projects for water and
sewer systems. Because these projects are public necessities, their demand
remains constant regardless of economic conditions. Shareholders may benefit
from their consistent income in the event of an economic slowdown. As of March
31, 1999, the Fund had 61% of its portfolio in revenue bonds.
WHAT WAS THE CREDIT QUALITY OF THE FUND'S PORTFOLIO?
At the reporting period's end, the average credit quality in the Fund's
portfolio was AA- as rated by Standard & Poor's, Moody's, and Fitch--all widely
known credit-rating agencies. The ratings are historical and are based on
analysis of the bond's investment qualities. The Fund continued to focus on
high-quality debt issues, with 47% of its portfolio in AAA-rated bonds.
Credit-enhanced securities--those backed by insurance or escrowed with U.S.
Treasury securities--composed about 25% of the portfolio.
WHAT IS YOUR OUTLOOK FOR THE FUTURE?
Through 1998, Connecticut regained nine out of every 10 jobs lost during the
1989-92 recession. The state appears poised to move into full-fledged expansion
in 1999. Since 1992, Connecticut personal income has been growing strongly,
consistently outpacing the inflation rate. Last year's rise in income exceeded
the rise in the cost of living by nearly three percentage points. However, the
state is not without challenges, including a potential labor shortage, high
living expenses and high corporate tax rates, as well as its dependence on the
shrinking defense industry.
Given these strengths and weaknesses, Connecticut, like the rest of the
nation, will probably continue to grow, albeit at a slower pace than in 1998.
Given the potential of an economic slowdown later in 1999, shareholders may
flock to the relative safety of AIM Tax-Exempt Bond Fund of Connecticut to enjoy
the benefits of tax-free income.
See important Fund and index disclosures inside front cover.
AIM TAX-EXEMPT BOND FUND OF CONNECTICUT
3
<PAGE> 6
ANNUAL REPORT / PERFORMANCE HISTORY
<TABLE>
<CAPTION>
================================================================================
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
AIM TAX-EXEMPT BOND FUND OF CONNECTICUT VS. BENCHMARK INDEX
10/3/89-3/31/99
(Line Chart)
TAX-EXEMPT LEHMAN
BOND FUND MUNICIPAL
OF BOND INDEX
CONNECTICUT
<S> <C> <C>
10/3/89 9,524 10,000
3/31/90 9,789 10,430
3/31/91 10,613 11,392
3/31/92 11,622 12,530
3/31/93 13,082 14,099
3/31/94 13,560 14,426
3/31/95 14,345 15,498
3/31/96 15,240 16,797
3/31/97 15,977 17,712
3/31/98 17,219 19,610
3/31/99 18,018 20,834
</TABLE>
Past performance cannot guarantee comparable future results.
================================================================================
MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE. RESULTS OF AN
INVESTMENT MADE TODAY MAY DIFFER SUBSTANTIALLY FROM THE HISTORICAL PERFORMANCE
SHOWN.
================================================================================
<TABLE>
<CAPTION>
================================================================================
AVERAGE ANNUAL TOTAL RETURNS
As of 3/31/99, including sales charges
<S> <C>
Inception (10/3/89) 6.40%
5 years 5.19
1 year -0.32*
*4.64%, excluding sales charges
================================================================================
</TABLE>
Source: Towers Data Systems HYPO--Registered Trademark--.
Your Fund's total return includes sales charges, expenses and management fees.
For Fund performance calculations and descriptions of indexes cited on this
page, please refer to the inside front cover.
================================================================================
ABOUT THIS CHART
The chart compares your Fund to a benchmark index. It is intended to give you a
general idea of how your Fund performed compared to the bond market over the
period 10/3/89-3/31/99. (Please note that the performance figures for the index
are from 9/30/89-3/31/99.) It is important to understand the difference between
your Fund and an index. Your Fund's total return is shown with a sales charge
and includes Fund expenses and management fees. An index measures the
performance of a hypothetical portfolio, in this case the Lehman Municipal Bond
Index. Unlike your Fund, the index is not managed; therefore, there are no sales
charges, expenses, or fees. You cannot invest in an index. But if you could buy
all the securities that make up a particular index, you would incur expenses
that would affect the return of your investment.
AIM TAX-EXEMPT BOND FUND OF CONNECTICUT
4
<PAGE> 7
SCHEDULE OF INVESTMENTS
March 31, 1999
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
MUNICIPAL OBLIGATIONS-98.57%
EDUCATION-9.70%
Connecticut Health and
Education Facilities
Authority (Fairfield
University);
Series F RB
6.875%, 07/01/99(b)(c) NRR NRR $1,475 $ 1,517,141
- -----------------------------------------------------------------
Connecticut Health and
Education Facilities
Authority (Quinnipiac
College);
Series 1989 B RB
7.25%, 07/01/99(b)(c) AAA NRR 450 463,307
- -----------------------------------------------------------------
Connecticut Regional School
District No. 5;
Series 1992 GO
6.00%, 03/01/02(b)(c)(e) AAA Aaa 335 362,517
- -----------------------------------------------------------------
Connecticut Regional School
District No. 5 (Towns of
Bethany, Orange, and
Woodbridge);
1993 Issue GO
5.50%, 02/15/07(d) AAA Aaa 500 531,050
- -----------------------------------------------------------------
Connecticut State Higher
Education Supplemental
Loan Authority (Family
Education Loan Program);
Series 1990 A RB
7.50%, 11/15/10(e) -- A1 1,120 1,146,678
- -----------------------------------------------------------------
4,020,693
- -----------------------------------------------------------------
ELECTRIC-4.02%
Connecticut Development
Authority (New England
Power Co.);
Series 1985 Fixed Rate
PCR
7.25%, 10/15/15 A+ A1 1,600 1,665,776
- -----------------------------------------------------------------
1,665,776
- -----------------------------------------------------------------
GENERAL OBLIGATION-11.62%
Bridgeport (Town of),
Connecticut;
Series A Unlimited GO
6.00%, 09/01/06(d) AAA Aaa 875 979,003
- -----------------------------------------------------------------
Brooklyn (City of),
Connecticut;
Unlimited Tax GO
5.50%, 05/01/06(d) AAA Aaa 250 270,965
- -----------------------------------------------------------------
5.70%, 05/01/08(d) AAA Aaa 250 273,080
- -----------------------------------------------------------------
Chester (Town of),
Connecticut;
Series 1989 GO
7.00%, 10/01/05 -- A 190 197,100
- -----------------------------------------------------------------
Connecticut (State of);
Series 1991 A GO
6.75%, 03/01/01(b)(c) NRR NRR 480 516,514
- -----------------------------------------------------------------
Connecticut (State of)
(General Purpose Public
Improvement);
Series 1991 A GO
6.75%, 03/01/01(b)(c) NRR NRR $ 200 $ 215,214
- -----------------------------------------------------------------
Series 1992 A GO
6.50%, 03/15/02(b)(c) NRR NRR 300 328,146
- -----------------------------------------------------------------
Mansfield (City of),
Connecticut;
Series 1990 GO
6.00%, 06/15/07 -- A1 100 111,919
- -----------------------------------------------------------------
6.00%, 06/15/08 -- A1 100 112,707
- -----------------------------------------------------------------
6.00%, 06/15/09 -- A1 100 112,932
- -----------------------------------------------------------------
New Britain (City of),
Connecticut;
Series 1992 Various
Purpose GO
6.00%, 02/01/11(d) AAA Aaa 400 453,328
- -----------------------------------------------------------------
North Canaan (City of),
Connecticut;
Series 1991 GO
6.50%, 01/15/08 -- A 125 144,519
- -----------------------------------------------------------------
6.50%, 01/15/09 -- A 125 145,338
- -----------------------------------------------------------------
6.50%, 01/15/10 -- A 125 146,034
- -----------------------------------------------------------------
6.50%, 01/15/11 -- A 125 146,271
- -----------------------------------------------------------------
Somers (City of),
Connecticut;
Series 1990 Various
Purpose GO
6.00%, 12/01/10 -- A1 190 216,539
- -----------------------------------------------------------------
Westbrook (City of),
Connecticut;
Series 1992 GO
6.40%, 03/15/10(d) AAA Aaa 380 445,428
- -----------------------------------------------------------------
4,815,037
- -----------------------------------------------------------------
HEALTH CARE-22.00%
Connecticut Development
Authority (Life Care
Facility-Seabury);
Refunding Series RB
5.00%, 09/01/15(d) AA -- 500 499,975
- -----------------------------------------------------------------
Connecticut Development
Authority (Elim Park
Baptist Home);
Refunding Series A RB
5.375%, 12/01/18 BBB+ -- 500 494,285
- -----------------------------------------------------------------
Connecticut Development
Healthcare Authority
(Independent Living
Project); RB
2.80%, 07/01/15(f) -- VMIG-1 921 921,000
- -----------------------------------------------------------------
Connecticut Health and
Education Facilities
Authority (Bridgeport
Hospital);
Series 1992 A RB
6.625%, 07/01/18(d) AAA Aaa 500 545,990
- -----------------------------------------------------------------
Connecticut Health and
Education Facilities
Authority (Capital
Asset);
Series 1989 B RB
7.00%, 01/01/00(g) A+ A1 200 204,410
- -----------------------------------------------------------------
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
HEALTH CARE-(CONTINUED)
Connecticut Health and
Education Facilities
Authority (Child Care
Facilities);
Series A RB
5.00%, 07/01/28(d) AAA Aaa $ 250 $ 246,953
- -----------------------------------------------------------------
Connecticut Health and
Education Facilities
Authority (Danbury
Hospital);
Series 1991 E RB
6.50%, 07/01/14(d) AAA Aaa 750 801,060
- -----------------------------------------------------------------
Connecticut Health and
Education Facilities
Authority (Hospital For
Special Care);
Series 1997 B RB
5.375%, 07/01/17 BBB Baa2 1,000 1,004,990
- -----------------------------------------------------------------
Connecticut Health and
Education Facilities
Authority (Middlesex
Hospital);
Series 1992 G RB
6.25%, 07/01/02(b)(c) AAA Aaa 1,100 1,204,269
- -----------------------------------------------------------------
Connecticut Health and
Education Facilities
Authority (New Britain
Memorial Hospital);
Series 1991 A RB
7.75%, 07/01/02(b)(c) AAA NRR 500 569,240
- -----------------------------------------------------------------
Connecticut Health and
Education Facilities
Authority (Stamford
Hospital);
Series F RB
5.40%, 07/01/09(d) AAA Aaa 1,000 1,083,070
- -----------------------------------------------------------------
Series G RB
5.00%, 07/01/24 AAA Aaa 200 196,884
- -----------------------------------------------------------------
Connecticut Health and
Education Facilities
Authority (Veteran
Memorial Medical Center);
Series 1996 A RB
5.50%, 07/01/26(d) AAA Aaa 500 519,770
- -----------------------------------------------------------------
Connecticut Health and
Education Facilities
Authority (Yale-New Haven
Hospital);
Series 1990 F RB
7.10%, 07/01/00(b)(c) AAA Aaa 775 824,724
- -----------------------------------------------------------------
9,116,620
- -----------------------------------------------------------------
HOUSING-16.68%
Connecticut Housing
Development Authority
(Housing Mortgage Finance
Program); RB
7.00%, Series C,
11/15/99(e) AA Aa 320 326,179
- -----------------------------------------------------------------
Series 1991 C, Sub-Series
C-3,
6.55%, 11/15/13 AA AA2 310 332,664
- -----------------------------------------------------------------
Series D-2,
5.45%, 11/15/24(e) AA AA2 1,250 1,266,562
- -----------------------------------------------------------------
Connecticut (State of)
(Housing Mortgage Finance
Program); RB
5.70%, Series A-1,
05/15/08 AA Aa $ 100 $ 105,500
- -----------------------------------------------------------------
5.95%, Series E-1,
05/15/17 AA Aa2 500 528,435
- -----------------------------------------------------------------
6.00%, Series 1993 E-1,
05/15/17 AA Aa 675 709,837
- -----------------------------------------------------------------
6.30%, Series C-1,
11/15/17 AA Aa 1,270 1,378,382
- -----------------------------------------------------------------
6.25%, Series C-2,
11/15/18 AA Aa2 750 812,730
- -----------------------------------------------------------------
6.70%, Series C-2,
11/15/22(e) AA Aa2 280 297,433
- -----------------------------------------------------------------
5.85%, Series C-2,
11/15/28(e) AA Aa3 755 787,072
- -----------------------------------------------------------------
Waterburg (City of)
Connecticut Housing
Authority;
Refunding Series A RB
5.45%, 07/01/23(d) AAA Aaa 365 367,391
- -----------------------------------------------------------------
6,912,185
- -----------------------------------------------------------------
LEASE RENTAL-1.05%
Connecticut (State of)
(Middletown Courthouse
Facilities Project); 1991
Issue Lease-Rental
Revenue Certificates of
Participation
6.25%, 12/15/01(b)(c) AAA Aaa 400 435,284
- -----------------------------------------------------------------
RESOURCE RECOVERY-4.12%
Connecticut State Resource
Recovery Authority
(Bridgeport Resco
Corp.-Ltd. Partners);
1985 Issue RB
Project B, 8.625%,
01/01/04 A A3 670 682,301
- -----------------------------------------------------------------
Project A, 7.625%,
01/01/09 A A 1,000 1,025,160
- -----------------------------------------------------------------
1,707,461
- -----------------------------------------------------------------
TRANSPORTATION-18.31%
Connecticut State Special
Tax Obligation
(Transportation
Infrastructure); RB
Series 1992 B,
5.10%, 09/01/99 AA- A1 1,000 1,007,690
- -----------------------------------------------------------------
Series 1991 B,
6.25%, 10/01/01(b)(c) NRR Aaa 1,000 1,083,280
- -----------------------------------------------------------------
Series A,
6.80%, 06/01/03(b)(c) NRR NRR 1,250 1,390,188
- -----------------------------------------------------------------
Series 1991 B,
6.50%, 10/01/10 AA- A1 530 622,178
- -----------------------------------------------------------------
Series 1990,
2.90%, 12/01/10(f) A1+ VMIG-1 167 167,000
- -----------------------------------------------------------------
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
RATING(a) PAR
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
Series 1991 B,
5.90%, 10/01/99(b) NRR Aaa $1,000 $ 1,013,640
- -----------------------------------------------------------------
Series 1989 C,
6.80%, 12/01/99(b)(c) AAA NRR 500 521,805
- -----------------------------------------------------------------
Series 1991 B,
6.50%, 10/01/12 AA- A1 1,500 1,784,025
- -----------------------------------------------------------------
7,589,806
- -----------------------------------------------------------------
WATER & SEWER-7.34%
Connecticut Development
Authority (Pfizer Inc.);
Series 1982, Refunding
PCR
6.55%, 02/15/13 AAA Aaa 250 273,740
- -----------------------------------------------------------------
Connecticut Development
Authority Water Facility
(Bridgeport Hydraulic Co.
Project);
Series 1990, Refunding RB
7.25%, 06/01/20 A+ -- 800 842,184
- -----------------------------------------------------------------
6.15%, 04/01/35(e) A+ -- 250 269,872
- -----------------------------------------------------------------
Connecticut State Clean
Water Fund;
Series 1991, Clean Water
RB
7.00%, 01/01/11 AAA Aaa 1,100 1,182,027
- -----------------------------------------------------------------
Manchester (City of)
Connecticut Eighth
Utilities Fire District;
Series 1991 GO
6.75%, 08/15/06 -- Aa3 180 208,784
- -----------------------------------------------------------------
South Central Connecticut
Regional Water Authority;
Eighth Series 1990 A,
Water System RB
6.60%, 08/01/00(b)(c) NRR NRR $ 250 $ 265,005
- -----------------------------------------------------------------
3,041,612
- -----------------------------------------------------------------
MISCELLANEOUS-3.73%
Connecticut Development
Authority (Economic
Development Projects);
Series 1992 Refunding RB
6.00%, 11/15/08 AA- Aa 500 515,965
- -----------------------------------------------------------------
Guam (Government of);
Series 1995 A GO
5.25%, 09/01/99 BBB -- 250 251,720
- -----------------------------------------------------------------
5.375%, 09/01/00 BBB -- 250 251,262
- -----------------------------------------------------------------
Puerto Rico Commonwealth
(Highway and
Transportation
Authority);
Series X RB
5.20%, 07/01/03 A Baa1 500 525,724
- -----------------------------------------------------------------
1,544,671
- -----------------------------------------------------------------
TOTAL INVESTMENTS (Cost
$38,448,985)-98.57% 40,849,145
- -----------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-1.43% 590,657
- -----------------------------------------------------------------
NET ASSETS-100.00% $41,439,802
- -----------------------------------------------------------------
</TABLE>
Abbreviations:
GO - General Obligation Bonds
NRR - Not re-rated
PCR - Pollution Control Revenue Bonds
RB - Revenue Bonds
Notes to Schedule of Investments:
(a) Ratings assigned by Standard & Poor's Corporation ("S&P") and Moody's
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) 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 3/31/99.
(g) Secured by a letter of credit.
See Notes to Financial Statements.
7
<PAGE> 10
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $38,448,985) $ 40,849,145
- ---------------------------------------------------------
Cash 418
- ---------------------------------------------------------
Receivables for:
Capital stock sold 609
- ---------------------------------------------------------
Interest 722,446
- ---------------------------------------------------------
Investment for deferred compensation plan 22,783
- ---------------------------------------------------------
Other assets 3,933
- ---------------------------------------------------------
Total assets 41,599,334
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Capital stock reacquired 4,631
- ---------------------------------------------------------
Dividends 58,817
- ---------------------------------------------------------
Deferred compensation 22,783
- ---------------------------------------------------------
Accrued advisory fees 14,220
- ---------------------------------------------------------
Accrued administrative services fees 4,420
- ---------------------------------------------------------
Accrued transfer agent fees 2,557
- ---------------------------------------------------------
Accrued distribution fees 26,008
- ---------------------------------------------------------
Accrued operating expenses 26,096
- ---------------------------------------------------------
Total liabilities 159,532
- ---------------------------------------------------------
Net assets applicable to shares
outstanding $ 41,439,802
- ---------------------------------------------------------
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Authorized 1,000,000,000
- ---------------------------------------------------------
Outstanding 3,766,132
- ---------------------------------------------------------
Net asset value and redemption price per
share $ 11.00
- ---------------------------------------------------------
Offering price per share:
(Net asset value of $11.00 divided
by 95.25%) $ 11.55
- ---------------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $2,376,578
- --------------------------------------------------------
EXPENSES:
Advisory fees 205,983
- --------------------------------------------------------
Administrative services fees 48,824
- --------------------------------------------------------
Custodian fees 3,159
- --------------------------------------------------------
Transfer agent fees 24,271
- --------------------------------------------------------
Directors' fees 12,754
- --------------------------------------------------------
Distribution fees 102,992
- --------------------------------------------------------
Other 57,334
- --------------------------------------------------------
Total expenses 455,317
- --------------------------------------------------------
Less: Fees waived by advisor (47,933)
- --------------------------------------------------------
Expenses paid indirectly (517)
- --------------------------------------------------------
Net expenses 406,867
- --------------------------------------------------------
Net investment income 1,969,711
- --------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES:
Net realized gain on sales of investment
securities 8,698
- --------------------------------------------------------
Net unrealized appreciation (depreciation)
of investment securities (113,211)
- --------------------------------------------------------
Net gain (loss) on investment securities (104,513)
- --------------------------------------------------------
Net increase in net assets resulting from
operations $1,865,198
- --------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
8
<PAGE> 11
STATEMENT OF CHANGES IN NET ASSETS
FOR YEARS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income $ 1,969,711 $ 1,938,733
- -----------------------------------------------------------------------------------------
Net realized gain on sales of investment securities 8,698 42,016
- -----------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities (113,211) 921,449
- -----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,865,198 2,902,198
- -----------------------------------------------------------------------------------------
Distributions to shareholders from net investment income (2,022,076) (1,940,749)
- -----------------------------------------------------------------------------------------
Net increase from capital stock transactions 1,030,126 1,486,630
- -----------------------------------------------------------------------------------------
Net increase in net assets 873,248 2,448,079
- -----------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 40,566,554 38,118,475
- -----------------------------------------------------------------------------------------
End of period $41,439,802 $40,566,554
=========================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $39,259,242 $38,229,116
- -----------------------------------------------------------------------------------------
Undistributed net investment income (17,677) 34,688
- -----------------------------------------------------------------------------------------
Undistributed net realized gain (loss) on sales of
investment securities (201,923) (210,621)
- -----------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 2,400,160 2,513,371
- -----------------------------------------------------------------------------------------
$41,439,802 $40,566,554
=========================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
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.
9
<PAGE> 12
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 $195,298, 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, 1999, AIM
voluntarily waived advisory fees of $47,933.
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, 1999, the Fund reimbursed
AIM $48,824 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, 1999, the Fund
paid AFS $16,390 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,
1999, the Fund paid AIM Distributors $102,992 as compensation under the Plan.
AIM Distributors received commissions of $25,026 from sales of shares of the
Fund's capital stock during the year ended March 31, 1999. 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, 1999, the Fund paid legal fees of $3,591 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-INDIRECT EXPENSES
During the year ended March 31, 1999, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $517 under an expense offset
arrangement. The effect of the above arrangement resulted in a reduction of the
Fund's total expenses of $517 during the year ended March 31, 1999.
NOTE 4-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 5-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) $1,000,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. 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 May 1, 1998, the Fund was limited
to borrowing up to the lesser of i) $500,000,000 or ii) the limits set by its
prospectus for borrowings. During the year ended March 31, 1999, 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 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold during the year ended March 31, 1999 were $4,418,965 and
$2,983,404, respectively. The amount of unrealized appreciation (depreciation)
of investment securities as of March 31, 1999 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $2,424,176
- --------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (24,016)
- --------------------------------------------------------
Net unrealized appreciation of investment
securities $2,400,160
========================================================
Investments have the same cost for tax and financial
statement purposes.
</TABLE>
NOTE 7-CAPITAL STOCK
Changes in capital stock outstanding during the years ended March 31, 1999 and
1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
-------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Sold 634,272 $ 7,019,083 542,798 $ 5,974,834
- -----------------------------------------------------------------------
Issued as
reinvestment of
dividends 118,804 1,314,072 111,509 1,225,791
- -----------------------------------------------------------------------
Reacquired (660,290) (7,303,029) (520,818) (5,713,995)
- -----------------------------------------------------------------------
92,786 $ 1,030,126 133,489 $ 1,486,630
=======================================================================
</TABLE>
10
<PAGE> 13
NOTE 8-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,
1999.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.04 $ 10.77 $ 10.81 $ 10.71 $ 10.69
- ------------------------------------------------------------ ------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.53 0.55 0.56 0.56 0.56
- ------------------------------------------------------------ ------- -------- -------- -------- --------
Net gains (losses) on securities (both realized and
unrealized) (0.03) 0.27 (0.05) 0.10 0.04
- ------------------------------------------------------------ ------- -------- -------- -------- --------
Total from investment operations 0.50 0.82 0.51 0.66 0.60
- ------------------------------------------------------------ ------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.54) (0.55) (0.55) (0.56) (0.57)
- ------------------------------------------------------------ ------- -------- -------- -------- --------
Returns of capital -- -- -- -- (0.01)
- ------------------------------------------------------------ ------- -------- -------- -------- --------
Total distributions (0.54) (0.55) (0.55) (0.56) (0.58)
- ------------------------------------------------------------ ------- -------- -------- -------- --------
Net asset value, end of period $ 11.00 $ 11.04 $ 10.77 $ 10.81 $ 10.71
============================================================ ======= ======== ======== ======== ========
Total return(a) 4.64% 7.78% 4.84% 6.24% 5.78%
============================================================ ======= ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $41,440 $ 40,567 $ 38,118 $ 39,355 $ 38,289
============================================================ ======= ======== ======== ======== ========
Ratio of expenses to average net assets(b) 0.99%(c) 0.88% 0.72% 0.66% 0.55%
============================================================ ======= ======== ======== ======== ========
Ratio of net investment income to average net assets(d) 4.78%(c) 5.02% 5.18% 5.16% 5.37%
============================================================ ======= ======== ======== ======== ========
Portfolio turnover rate 7% 5% 17% 17% 7%
============================================================ ======= ======== ======== ======== ========
</TABLE>
(a) Does not deduct sales charges.
(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%, 1.11%, 1.09%, 1.16%, and 1.13%, for the periods 1999-1995,
respectively.
(c) Ratios are based on average net assets of $41,196,631.
(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 are 4.66%, 4.79%, 4.81%, 4.66%, and 4.79%, for the periods
1999-1995, respectively.
11
<PAGE> 14
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, 1999, 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 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
financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of March 31, 1999, 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, 1999,
the results of its operations for the year then ended,
the changes in its net assets for each of the years in
the two-year period then ended and the financial
highlights for each of the years in the five-year period
then ended, in conformity with generally accepted
accounting principles.
KPMG LLP
Houston, Texas
May 7, 1999
12
<PAGE> 15
<TABLE>
<CAPTION>
BOARD OF DIRECTORS OFFICERS OFFICE OF THE FUND
<S> <C> <C>
Charles T. Bauer Charles T. Bauer 11 Greenway Plaza
Chairman Chairman Suite 100
A I M Management Group Inc. Houston, TX 77046
Robert H. Graham
Bruce L. Crockett President INVESTMENT ADVISOR
Director
ACE Limited; Carol F. Relihan A I M Advisors, Inc.
Formerly Director, President, and Senior Vice President and Secretary 11 Greenway Plaza
Chief Executive Officer Suite 100
COMSAT Corporation Gary T. Crum Houston, TX 77046
Senior Vice President
Owen Daly II TRANSFER AGENT
Director Dana R. Sutton
Cortland Trust Inc. Vice President and Treasurer A I M Fund Services, Inc.
P.O. Box 4739
Edward K. Dunn, Jr. Stuart W. Coco Houston, TX 77210-4739
Chairman, Mercantile Mortgage Corp.; Vice President
Formerly Vice Chairman and President, CUSTODIAN
Mercantile-Safe Deposit & Trust Co.; and Melville B. Cox
President, Mercantile Bankshares Vice President The Bank of New York
90 Washington Street
Jack Fields Karen Dunn Kelley 11th Floor
Chief Executive Officer Vice President New York, NY 10286
Texana Global, Inc.;
Formerly Member Mary J. Benson COUNSEL TO THE FUND
of the U.S. House of Representatives Assistant Vice President
and Assistant Treasurer Ballard Spahr
Carl Frischling Andrews & Ingersoll, LLP
Partner Sheri Morris 1735 Market Street
Kramer, Levin, Naftalis & Frankel LLP Assistant Vice President Philadelphia, PA 19103
and Assistant Treasurer
Robert H. Graham COUNSEL TO THE DIRECTORS
President and Chief Executive Officer Renee A. Friedli
A I M Management Group Inc. Assistant Secretary Kramer, Levin, Naftalis & Frankel LLP
919 Third Avenue
Prema Mathai-Davis P. Michelle Grace New York, NY 10022
Chief Executive Officer, YWCA of the U.S.A.; Assistant Secretary
Commissioner, New York City Dept. for the DISTRIBUTOR
Aging; and member of the Board of Directors, Jeffrey H. Kupor
Metropolitan Transportation Authority of Assistant Secretary A I M Distributors, Inc.
New York State 11 Greenway Plaza
Nancy L. Martin Suite 100
Lewis F. Pennock Assistant Secretary Houston, TX 77046
Attorney
Ofelia M. Mayo AUDITORS
Louis S. Sklar Assistant Secretary
Executive Vice President KPMG LLP
Hines Interests Lisa A. Moss 700 Louisiana
Limited Partnership Assistant Secretary Houston, TX 77002
Kathleen J. Pflueger
Assistant Secretary
Samuel D. Sirko
Assistant Secretary
Stephen I. Winer
Assistant Secretary
</TABLE>
REQUIRED FEDERAL INCOME TAX INFORMATION
We are required by Internal Revenue Code to advise you within 60 days of the
Fund's fiscal year end as to the federal tax status of dividends paid by the
Fund during its fiscal year ended March 31, 1999.
AIM Tax-Exempt Bond Fund of Connecticut paid ordinary dividends in the amount of
$0.543 per share to shareholders during the Fund's tax year ended March 31,
1999. Of this amount, 100% qualified as tax-exempt interest dividends for
federal income tax purposes.
For the purpose of preparing your annual federal income tax returns, however,
you should report the amounts as reflected on the appropriate Form 1099-DIV.
<PAGE> 16
THE AIM FAMILY OF FUNDS--Registered Trademark--
<TABLE>
<S> <C> <C>
GROWTH FUNDS MONEY MARKET FUNDS A I M Management Group Inc. has
AIM Aggressive Growth Fund(1) AIM Money Market Fund provided leadership in the mutual
AIM Blue Chip Fund AIM Tax-Exempt Cash Fund fund industry since 1976 and
AIM Capital Development Fund managed approximately $112 billion
AIM Constellation Fund INTERNATIONAL GROWTH FUNDS in assets for more than 6.3 million
AIM Large Cap Growth Fund AIM Advisor International Value Fund shareholders, including individual
AIM Mid Cap Equity Fund(2), (A) AIM Asian Growth Fund investors, corporate clients, and
AIM Mid Cap Opportunities Fund AIM Developing Markets Fund(2) financial institutions, as of March
AIM Select Growth Fund(3) AIM Europe Growth Fund(2) 31, 1999.
AIM Small Cap Growth Fund(2), (B) AIM European Development Fund The AIM Family of
AIM Small Cap Opportunities Fund AIM International Equity Fund Funds--Registered Trademark-- is
AIM Value Fund AIM Japan Growth Fund(2) distributed nationwide, and AIM
AIM Weingarten Fund AIM Latin American Growth Fund(2) today is the 10th-largest mutual
AIM New Pacific Growth Fund(2) fund complex in the U.S. in assets
GROWTH & INCOME FUNDS under management, according to
AIM Advisor Flex Fund GLOBAL GROWTH FUNDS Strategic Insight, an independent
AIM Advisor Large Cap Value Fund AIM Global Aggressive Growth Fund mutual fund monitor.
AIM Advisor MultiFlex Fund AIM Global Growth Fund
AIM Advisor Real Estate Fund
AIM Balanced Fund GLOBAL GROWTH & INCOME FUNDS
AIM Basic Value Fund(2), (C) AIM Global Growth & Income Fund(2)
AIM Charter Fund AIM Global Utilities Fund
INCOME FUNDS GLOBAL INCOME FUNDS
AIM Floating Rate Fund(2) AIM Emerging Markets Debt Fund(2), (D)
AIM High Yield Fund AIM Global Government Income Fund(2)
AIM High Yield Fund II AIM Global Income Fund
AIM Income Fund AIM Strategic Income Fund(2)
AIM Intermediate Government Fund
AIM Limited Maturity Treasury Fund THEME FUNDS
AIM Global Consumer Products and Services Fund(2)
TAX-FREE INCOME FUNDS AIM Global Financial Services Fund(2)
AIM High Income Municipal Fund AIM Global Health Care Fund(2)
AIM Municipal Bond Fund AIM Global Infrastructure Fund(2)
AIM Tax-Exempt Bond Fund of Connecticut AIM Global Resources Fund(2)
AIM Tax-Free Intermediate Fund AIM Global Telecommunications Fund(2)
AIM Global Trends Fund(2), (E)
</TABLE>
(1)AIM Aggressive Growth Fund reopened to new investors November 16, 1998.
(2)Effective May 29, 1998, A I M Advisors, Inc. became advisor to the former GT
Global Funds. (3)On May 1, 1998, AIM Growth Fund was renamed AIM Select Growth
Fund. (A)On September 8, 1998, AIM Mid Cap Growth Fund was renamed AIM Mid Cap
Equity Fund. (B)On September 8, 1998, AIM Small Cap Equity Fund was renamed AIM
Small Cap Growth Fund. (C)On September 8, 1998, AIM America Value Fund was
renamed AIM Basic Value Fund. (D)On September 8, 1998, AIM Global High Income
Fund was renamed AIM Emerging Markets Debt Fund. (E)On September 8, 1998, AIM
New Dimension Fund was renamed AIM Global Trends Fund. For more complete
information about any AIM Fund(s), including sales charges and expenses, ask
your financial consultant or securities dealer for a free prospectus(es). Please
read the prospectus(es) carefully before you invest or send money.
[AIM LOGO APPEARS HERE]
INVEST WITH DISCIPLINE--Registered
Trademark--
